EFI reports delayed Q2 results

By Richard Stuart-Turner, Wednesday 13 September 2017

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EFI has reported its delayed results for the second quarter of 2017 and outlined the findings from the review of its internal financial controls.

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EFI's revenue rose by 1% to $247m in Q2

The manufacturer’s results for the period ending 30 June 2017 were postponed last month while the company carried out the internal review and examined the way some sales of the display graphics products in its Industrial Inkjet segment had been invoiced.

The business reported revenue of $247m (£186m) in the period, up 1% compared to second quarter 2016 revenue of $245.7m. EMEA revenues were a particular highlight, growing 5.9% to $101.5m.

Gross profit for the quarter was up 1.8% from $125m in Q2 2016 to $127.3m. The company reported Industrial Inkjet revenue in the period of $141.7m, up 1.1% year-on-year, Productivity Software revenue of $39.1m, up 7.5% year-on-year, and Fiery revenue of $66.3m. This figure was down 4.2% year-on-year, though EFI said it was still better than expected.

“Fiery is well positioned for starting to turn the corner and show growth in Q3 for the first time in five quarters,” said EFI chief executive Guy Gecht.

“While this is still a modest recovery, we are hoping to see some stronger production equipment sales by our partners in the coming quarters when they launch new products.

“Software also had a solid quarter and continues to be an EFI differentiator, bringing an ecosystem to customers that are transforming to on-demand manufacturing.”

EFI chief financial officer Marc Olin added: “The Industrial Inkjet segment's revenue was driven by an increase in sales of both ink and parts and services during the quarter, with total ink volume up 18%.

“Looking to the September [third] quarter, we expect inkjet to grow mid to high single digit, with the benefit of what we now expect to be one Nozomi unit recognised in the quarter, Fiery to grow low to mid single digit and Productivity Software to grow low single digit, resulting in total revenue guidance of $255m to $260m.”

For the six months ended 30 June 2017, EFI reported revenue of $475.7m, down 1% year-on-year compared to $479.8m for the same period in 2016.

The company said it spent almost $5m to complete the review of its internal financial controls. The impact of the assessment will be seen in its Q3 cash from operations, according to Olin.

“I want to express my sincere regret for the events that led to the postponement of the Q2 earning release and the impact it had on our shareholders and the EFI teams,” said Gecht.

“Now that we have filed our 10-Q [quarterly performance report] and we have confirmed that no restatement of previously issued financial statements was necessary, we are ready to share more facts, although given the pending litigation, there are some limits on what we can share.”

He added: “We ended up determining that we did not timely identify and evaluate the appropriate period of recognition for certain revenue transactions related to printers distributed from a single location, which should have been evaluated using the bill-and-hold revenue recognition guidance.

“These units were appropriately sold and invoiced. In the countless hours spent by external and internal professionals looking into these issues, the key question raised in regard to the revenue coming from these units were related to the timing of the revenue – whether we should have recognised the units when we transacted them as we did, or at some other point.”

Olin said EFI holds certain products that it manufactures on a bill-and-hold basis for its customers' convenience. Revenue is recognised for these arrangements in accordance with SEC Staff Accounting Bulletin 104, which requires consideration of a range of factors.

These include, but are not limited to: whether the customer has made a fixed commitment to purchase the product, the existence of a substantial business purpose for the arrangement, that the bill-and-hold arrangement is at the request of the customer, that the scheduled delivery date is reasonable and consistent with the buyer's business purpose, and that title and risk of ownership must pass to the customer.

Such procedures are necessary, Olin added, to ensure that there are no exceptions to the customer's commitment to accept and pay for the product.

Alongside its results, EFI also announced that its board of directors has approved a $125m increase in the firm's share buyback authorisation and supplemented the prior program, which, as of 8 September 2017, had $28.8m available for purchases.

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