10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission File Number: 000-18805

ELECTRONICS FOR IMAGING, INC.

(Exact name of registrant as specified in its charter)

Delaware	94-3086355
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6750 Dumbarton Circle, Fremont, CA 94555

(Address of principal executive offices) (Zip code)

(650) 357-3500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    Yes  ☐    No  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares of Common Stock outstanding as of August 31, 2017 was 46,378,143.

Electronics For Imaging, Inc.

INDEX

		Page No.
PART I – Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets at June 30, 2017 and December 31, 2016		3
	Condensed Consolidated Statements of Operations for the three and six months ended June  30, 2017 and 2016		4
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June  30, 2017 and 2016		5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		55
Item 4.	Controls and Procedures		56
PART II – Other Information
Item 1.	Legal Proceedings		59
Item 1A.	Risk Factors		59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		61
Item 3.	Defaults Upon Senior Securities		61
Item 4.	Mine Safety Disclosure		61
Item 5.	Other Information		61
Item 6.	Exhibits		62
Signatures			63
Exhibit 3.1
Exhibit 3.2
Exhibit 10.1
Exhibit 12.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 101

PART I – FINANCIAL INFORMATION

Item 1: Condensed Consolidated Financial Statements

Electronics For Imaging, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands)	June 30, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	158,577		$	164,313
Short-term investments, available for sale		272,666			295,428
Accounts receivable, net of allowances of $28.5 and $23.3 million, respectively		235,241			220,813
Inventories		124,065			99,075
Income taxes receivable		4,668			975
Assets held for sale		—			3,781
Other current assets		39,216			31,881
Total current assets		834,433			816,266
Property and equipment, net		105,853			103,304
Restricted investments and cash equivalents		20,443			6,252
Goodwill		383,251			359,841
Intangible assets, net		133,666			122,997
Deferred tax assets		56,876			58,477
Other assets		15,470			14,359
Total assets	$	1,549,992		$	1,481,496
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	131,739		$	114,287
Accrued and other liabilities		116,959			85,505
Deferred revenue		61,102			53,813
Income taxes payable		11,634			10,256
Total current liabilities		321,434			263,861
Convertible senior notes, net		311,603			304,484
Imputed financing obligation related to build-to-suit lease		14,111			14,152
Noncurrent contingent and other liabilities		39,264			42,786
Deferred tax liabilities		13,459			16,351
Noncurrent income taxes payable		12,016			12,030
Total liabilities		711,887			653,664
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued and outstanding		—			—
Common stock, $0.01 par value; 150,000 shares authorized; 53,710 and 53,038 shares issued, respectively		537			530
Additional paid-in capital		731,421			705,901
Treasury stock, at cost; 7,352 and 6,457 shares, respectively		(315,057	)		(273,730	)
Accumulated other comprehensive loss		(6,167	)		(24,694	)
Retained earnings		427,371			419,825
Total stockholders’ equity		838,105			827,832
Total liabilities and stockholders’ equity	$	1,549,992		$	1,481,496

See accompanying notes to condensed consolidated financial statements.

3

Electronics For Imaging, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

	Three months ended June 30,						Six months ended June 30,
(in thousands, except per share amounts)	2017			2016			2017			2016
Revenue	$	247,047		$	245,650		$	475,738		$	479,783
Cost of revenue (1)		119,795			120,603			224,956			236,339
Gross profit		127,252			125,047			250,782			243,444
Operating expenses:
Research and development (1)		38,989			37,676			78,616			74,798
Sales and marketing (1)		43,714			42,770			86,749			84,300
General and administrative (1)		21,135			21,446			42,164			42,278
Restructuring and other (Note 11)		3,671			1,710			4,589			4,425
Amortization of identified intangibles		11,752			9,736			22,530			18,965
Total operating expenses		119,261			113,338			234,648			224,766
Income from operations		7,991			11,709			16,134			18,678
Interest expense		(4,966	)		(4,375	)		(9,626	)		(8,733	)
Interest income and other income, net		755			420			1,042			199
Income before income taxes		3,780			7,754			7,550			10,144
Provision for income taxes		(1,021	)		(2,519	)		(4	)		(2,806	)
Net income	$	2,759		$	5,235		$	7,546		$	7,338
Net income per basic common share	$	0.06		$	0.11		$	0.16		$	0.16
Net income per diluted common share	$	0.06		$	0.11		$	0.16		$	0.15
Shares used in basic per-share calculation		46,429			46,943			46,490			47,079
Shares used in diluted per-share calculation		47,150			47,830			47,199			47,930

(1) Includes stock-based compensation expense as follows:

	2017		2016		2017		2016
Cost of revenue	$	665	$	534	$	1,499	$	1,231
Research and development		2,346		1,886		5,916		4,926
Sales and marketing		1,773		1,550		4,068		3,899
General and administrative		2,829		3,135		6,410		8,334

See accompanying notes to condensed consolidated financial statements.

4

Electronics For Imaging, Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

	Three months ended June 30,						Six months ended June 30,
(in thousands)	2017			2016			2017			2016
Net income	$	2,759		$	5,235		$	7,546		$	7,338
Net unrealized investment gains (losses):
Unrealized holding gains, net of tax provision of less than $0.1 million and $0.1 million for the three and six months ended June 30, 2017, and $0.2 and $0.7 million for the three and six months ended June 30, 2016		99			325			235			1,101
Reclassification gains (losses) included in net income, net of tax benefits of less than $0.1 million for the three and six months ended June 30, 2017, respectively, and tax provisions of less than $0.1 million for the three and six months ended June 30, 2016		(17	)		96			(22	)		114
Net unrealized investment gains		82			421			213			1,215
Currency translation adjustments, net of no tax benefit for the three and six months ended June 30, 2017, tax benefit of $0.4 million for the three months ended June 30, 2016, and tax provision of $0.3 million for the six months ended June 30, 2016		12,136			(4,662	)		18,310			1,784
Net unrealized gains (losses) on cash flow hedges		(51	)		(67	)		4			(16	)
Comprehensive income	$	14,926		$	927		$	26,073		$	10,321

See accompanying notes to condensed consolidated financial statements.

5

Electronics For Imaging, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Six months ended June 30,
(in thousands)	2017			2016
Cash flows from operating activities:
Net income	$	7,546		$	7,338
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		30,911			26,503
Deferred taxes		(1,571	)		(6,409	)
Provisions for bad debt and sales-related allowances		6,401			5,737
Provision for inventory obsolescence		1,465			3,240
Stock-based compensation, net of cash settlements		17,893			18,216
Non-cash accretion of interest expense on convertible notes and imputed financing obligation		7,459			6,574
Other non-cash charges and credits		2,890			(1,329	)
Changes in operating assets and liabilities, net of effect of acquired businesses		(33,984	)		(28,010	)
Net cash provided by operating activities		39,010			31,860
Cash flows from investing activities:
Purchases of short-term investments		(62,431	)		(137,323	)
Proceeds from sales and maturities of short-term investments		85,306			165,634
Purchases of restricted investments and cash equivalents		(14,191	)		—
Purchases, net of proceeds from sales, of property and equipment		(5,711	)		(13,694	)
Businesses purchased, net of cash acquired		(13,512	)		(19,614	)
Net cash used for investing activities		(10,539	)		(4,997	)
Cash flows from financing activities:
Proceeds from issuance of common stock		6,643			4,982
Purchases of treasury stock and net share settlements		(41,326	)		(43,923	)
Repayment of debt assumed through business acquisitions and debt issuance costs		(1,489	)		(8,312	)
Contingent consideration payments related to businesses acquired		(1,294	)		(1,868	)
Net cash used for financing activities		(37,466	)		(49,121	)
Effect of foreign exchange rate changes on cash and cash equivalents		3,259			1,815
Decrease in cash and cash equivalents		(5,736	)		(20,443	)
Cash and cash equivalents at beginning of period		164,313			164,091
Cash and cash equivalents at end of period	$	158,577		$	143,648

See accompanying notes to condensed consolidated financial statements.

6

Electronics For Imaging, Inc.

Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements (“condensed consolidated financial statements”) include the accounts of Electronics For Imaging, Inc. and its subsidiaries (“EFI” or “Company”). All intercompany accounts and transactions have been eliminated in consolidation.

These condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP” or “GAAP”) for interim financial information, rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements, and accounting policies consistent in all material respects with those applied in preparing our audited annual consolidated financial statements included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2016. These condensed consolidated financial statements and accompanying notes should be read in conjunction with our annual consolidated financial statements and the notes thereto for the year ended December 31, 2016, included in our Annual Report on Form 10-K, as amended. In the opinion of management, these condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments, management considers necessary for the fair presentation of our financial position, operating results, comprehensive income, and cash flows for the interim periods presented. Our results for the interim periods are not necessarily indicative of results for the entire year.

Significant Accounting Policies

There have been no material changes in our significant accounting policies, as compared to the significant accounting policies described in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2016, with the exception of the following:

Bill and Hold Transactions. We hold certain products manufactured by us on a “bill-and-hold” basis for our customers’ convenience. Revenue is recognized for these “bill-and-hold” arrangements in accordance with SEC Staff Accounting Bulletin (“SAB”) 104, which requires consideration of, among other things, whether the customer has made a fixed commitment to purchase the product; the existence of a substantial business purpose for the arrangement; the “bill-and-hold” arrangement is at the request of the customer; the scheduled delivery date must be reasonable and consistent with the buyer’s business purpose; title and risk of ownership must pass to the customer, including any decline in the market value of the product; the product is complete and ready for shipment; the product has been segregated from our inventory; payment terms for such arrangements have not been modified from our normal billing and credit terms; our custodial risks must be insurable and insured; and no further performance obligations by us exist. Extended procedures are not necessary to assure that there are no exceptions to the customer’s commitment to accept and pay for the product.

Out-of-Period Adjustments

In the three and six months ended June 30, 2017, we recorded out-of-period adjustments related to certain bill and hold transactions, which decreased revenue by $4.9 and $3.4 million, respectively, decreased gross profit by $0.9 and $0.5 million, and, respectively, decreased net income by $0.6 and $0.3 million, respectively (or $0.01 per diluted share in both periods). We evaluated these adjustments taking into account both qualitative and quantitative factors and considered the impact of these adjustments in relation to each period, as well as the periods in which they originated. The impact of recognizing these adjustments in prior years was not significant to any individual period. Management believes these adjustments are immaterial to the consolidated financial statements and all previously issued financial statements.

Recent Accounting Pronouncements

Inventory Valuation. In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, Simplifying the Measurement of Inventory, which became effective in the first quarter of 2017. ASU 2015-11 requires that inventory be valued at the lower of cost or net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We previously valued inventory at the lower of cost or net realizable value less a reasonable profit margin as allowed by previous inventory valuation guidance. The adoption of ASU 2015-11 increased our inventory valuation by $ 2.4 million as of June 30, 2017.

Revenue Recognition. ASU 2014-09, Revenue from Contracts with Customers, issued in May 2014, ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, and subsequent amendments, enhance the comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The principles-based guidance provides a framework for addressing revenue recognition issues comprehensively. The standards require that revenue be recognized that reflects the consideration the entity expects to be entitled in exchange for goods or services, which are referred to as performance obligations.

7

ASU 2014-09 will be effective in the first quarter of 2018. Two adoption methods are allowed under ASU 2014-09 – the full retrospective method and modified retrospective method. We have elected to use the modified retrospective method by applying the revised guidance to contracts that have not been completed as of January 1, 2018. Retained earnings will be adjusted for the cumulative effect of the change on January 1, 2018. The new standard requires comprehensive annual and interim disclosures regarding the nature, amount, timing, and uncertainty of recognized revenue, which will be provided in the year of adoption along with the impact on recognized revenue compared with the revenue that would have been recognized under prior guidance. Qualitative and quantitative disclosures will be required regarding:

• disaggregation of our current disclosures of revenue by segment and geographic area to include revenue by major product line, timing of recognition, contract duration, and sales channel, among others,

• billed and unbilled contracts with customers, including revenue and impairments recognized, disaggregation, and information about contract balances and performance obligations,

• significant judgments and changes in judgments required to determine the transaction price, amounts allocated to performance obligations, and the timing for recognizing revenue resulting from the satisfaction of performance obligations,

• assets recognized from the costs to obtain or fulfill a contract (e.g., commissions), and

• bad debt provisions related to billed and unbilled receivables.

Upon initial evaluation, we believe the key changes in the guidance that impact our revenue recognition relate to the timing of revenue recognition and allocation of contract revenue between services and software licenses. The requirement to defer incremental contract acquisition costs (e.g., commissions) and recognize them over the contract period or expected customer life will result in the recognition of a deferred charge on our balance sheet. We are currently assessing the impact on our consolidated financial statements upon adoption.

Principal vs Agent. ASU 2016-08, Principal vs. Agent Considerations (Reporting Revenue Gross vs Net), issued in March 2016, streamlines and clarifies the criteria for identifying whether an entity is satisfying a performance obligation as the principal or agent in the transaction. The entity that is responsible for fulfilling the contractual obligations related to the good or service is acting as the principal and recognizes the gross amount of consideration. The entity that is responsible only for arranging delivery to the customer is acting as the agent and recognizes revenue in the amount of the fee or commission related to arranging for the delivery of the good or service.

Several indicators of the nature of the relationship that are considered under current guidance have been streamlined and clarified in the new guidance by focusing more specifically on the performance obligations that must be fulfilled in the transaction, which entity carries the inventory risk in the transaction, and which entity controls the pricing of the good or service. Credit risk will no longer be a criterion. This guidance will be effective in the first quarter of 2018. We are evaluating its impact on our revenue and results of operations related to third party ink revenue and certain printer components.

Financial Instruments. ASU 2016-13, Measurement of Credit Losses on Financial Instruments, issued in June 2016, amends current guidance regarding other-than-temporary impairment of available-for-sale debt securities. The new guidance requires an estimate of expected credit loss when fair value is below the amortized cost of the asset without regard for the length of time that the fair value has been below the amortized cost or the historical or implied volatility of the asset. Credit losses on available-for-sale debt securities will be limited to the difference between the security’s amortized cost basis and its fair value. The use of an allowance to record estimated credit losses (and subsequent recoveries) will also be required under the new guidance.

ASU 2016-13 will be effective in the first quarter of 2020. We are evaluating its impact on the carrying value of our available-for-sale securities and results of operations.

Settlement of Convertible Debt. ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, issued in August 2016, requires that cash settlements of principal amounts of debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the debt must classify the portion of the principal payment attributable to the accreted interest related to the debt discount as cash outflows from operating activities. This is consistent with the classification of the coupon interest payments.

ASU 2016-15 will be effective in the first quarter of 2018. Accordingly, $63.6 million debt discount attributable to the difference between the 0.75% coupon interest rate on our 0.75% Convertible Senior Notes Due 2019 (“Notes”) and the 4.98% (5.46% inclusive of debt issuance costs) effective interest rate will be classified as an operating cash outflow in the Condensed Consolidated Statement of Cash Flows upon cash settlement in 2019.

8

Restricted Cash. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, requiring that the statement of cash flows explain the change incash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Under current guidance, changes in restricted cash and restricted cash equivalents are included in operating or investing activities in the Condensed Consolidated Statements of Cash Flows.

ASU 2016-18 will be effective in the first quarter of 2018. Changes in restricted cash related to the off-balance sheet financing arrangement described in Note 8 – Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements will no longer be presented as an investing cash outflow, but will instead be presented as a component of the beginning and ending balance of cash, cash equivalents, and restricted cash in the Condensed Consolidated Statements of Cash Flows.

Lease Arrangements. Under current guidance, the classification of a lease by a lessee as either an operating or capital lease determines whether an asset and liability is recognized on the balance sheet. ASU 2016-02, issued in February 2016 and effective in the first quarter of 2019, requires that a lessee recognize an asset and liability on its balance sheet related to all leases with terms in excess of one year. For all leases, a lessee will be required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position. The right-to-use asset represents the right to use the underlying asset during the lease term.

The recognition, measurement, and presentation of expenses and cash flows by a lessee have not significantly changed from previous guidance. There continues to be a differentiation between finance leases and operating leases. The criteria for determining whether a lease is a financing or operating lease are substantially the same as existing guidance except that the “bright line” percentages have been removed.

• For finance leases, interest is recognized on the lease liability separately from depreciation of the right-of-use asset in the statement of operations. Principal repayments are classified within financing activities and interest payments are classified as operating activities in the statement of cash flows.

• For operating leases, a lessee is required to recognize lease expense generally on a straight-line basis. All operating lease payments are classified as operating activities in the statement of cash flows.

The current build-to-suit lease accounting guidance will be rescinded by the new guidance, although simplified guidance will remain regarding lessee control during the construction period. Consequently, the accounting for build-to-suit leases will be the same as finance leases unless the lessee control provisions are applicable.

We have not quantified the impact, but the requirement to recognize a right-of-use asset and a lease liability related to operating leases will have a material impact on our consolidated financial position as reflected in our Consolidated Balance Sheets. As stated above, the recognition, measurement, and presentation of expenses and cash flows by a lessee have not significantly changed from previous guidance; accordingly, the impact on our results of operations as reflected in our Consolidated Statements of Operations is not expected to be material.

Definition of a Business. ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, was issued in January 2017, which significantly narrows how businesses are defined. Under current guidance, a business is defined as an integrated set of assets and activities that usually consists of business processes and their related inputs and outputs. However, business process outputs are not required to be present and only some business process inputs and business processes must be present if the acquiring entity can produce outputs by integrating the acquired set of assets and activities with its own inputs and processes. Essentially, existing guidance only requires that business processes and inputs be present in order to constitute a business.

Under ASU 2017-01, when substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar identifiable assets, then the assets acquired do not constitute a business. If substantially all of the fair value of the gross assets acquired is not concentrated in a single asset or group of similar assets, then the assets acquired may constitute a business if certain criteria are met. We must determine whether the acquired gross assets and activities include an input and a “substantive” process that together “significantly” contribute to the ability to create an output. A framework and specific criteria are provided to assist with the evaluation of whether a process is “substantive” and “significantly contributes” to the ability to create an output. “Output” is narrowly defined to be consistent with the description of a performance obligation in the new revenue guidance. Missing inputs and processes may not be replaced by integration with our own inputs and processes under the new guidance.

Our condensed consolidated financial statements may be impacted if an acquisition does not qualify as a business combination after ASU 2017-01 is effective in the first quarter of 2018. Such acquisitions would be accounted for as asset purchases.

9

Nonfinancial Asset Derecognition. In February 2017, the FASB issued ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition and Accounting for Partial Sales of Nonfinancial Assets, which clarifies the scope of recent guidance as it relates to nonfinancial asset derecognition and the accounting for partial sales of nonfinancial assets. The ASU conforms the derecognition guidance as it relates to nonfinancial assets with the derecognition guidance in the new revenue standard (ASU 2014-09) and is expected to have a material impact on the accounting for real estate dispositions.

ASU 2017-05 will be effective in the first quarter of 2018. We have elected to adopt the modified retrospective method of implementation.

Stock Compensation Modification. In May 2017, the FASB issued ASU 2017-09, Stock Compensation – Scope of Modification Accounting, which clarifies the scope of modification accounting for share-based payment arrangements. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification.

ASU 2017-09 will be effective in the first quarter of 2018. We will adopt this guidance prospectively to awards modified on or after the adoption date. We do not believe this guidance will materially impact our results of operations.

Supplemental Cash Flow Information

	Six months ended June 30,
(in thousands)	2017		2016
Net cash paid for income taxes	$	7,115	$	4,203
Cash paid for interest expense	$	2,011	$	1,812
Acquisition of businesses
Cash paid for businesses purchased, excluding contingent consideration	$	13,512	$	21,242
Cash acquired in business acquisitions		—		(1,628	)
Net cash paid for businesses purchased, net of cash acquired	$	13,512	$	19,614
Common stock issued in connection with Reggiani Macchine SpA (“Reggiani”) acquisition	$	—	$	73
Non-cash investing and financing activities:
Non-cash settlement of vacation liabilities by issuing restricted stock units (“RSUs”)	$	—	$	2,733
Property and equipment received, but not paid		843		880
	$	843	$	3,613

2. Earnings Per Share

Net income per basic common share is computed using the weighted average number of common shares outstanding during the period. Net income per diluted common share is computed using the weighted average number of common and dilutive potential common shares outstanding during the period. Potential common shares result from the assumed exercise of outstanding common stock options having a dilutive effect using the treasury stock method, non-vested shares of restricted stock having a dilutive effect, non-vested restricted stock for which the performance criteria have been met, shares to be purchased under our Employee Stock Purchase Plan (“ESPP”) having a dilutive effect, the assumed release of shares from escrow related to the acquisition of Corrugated Technologies, Inc. (“CTI”), the assumed conversion of our Notes having a dilutive effect using the treasury stock method when the stock price exceeds the conversion price of the Notes, and the assumed exercise of our warrants having a dilutive effect using the treasury stock method when the stock price exceeds the warrant strike price. Any potential shares that are anti-dilutive as defined in Accounting Standards Codification (“ASC”) 260, Earnings Per Share, are excluded from the effect of dilutive securities.

10

Performance-based and market-based restricted stock and stock options that would be issuable if the end of the reporting period were the end of the vesting period, if the result would be dilutive, are assumed to be outstanding for purposes of determining net income per diluted common share as of the later of the beginning of the period or the grant date in accordance with ASC 260-10-45-48. Accordingly, performance-based RSUs, which vested on various dates during the three and six months ended June 30, 2017 and 2016, based on achievement of specified performance criteria related to revenue, cash flows from operating activities, and non-GAAP operating income targets, and performance-based stock options, which vested during the six months ended June 30, 2016 based on achievement of specified targets related to non-GAAP return on equity are included in the determination of net income per diluted common share as of the beginning of each period.

Basic and diluted earnings per share during the three and six months ended June 30, 2017 and 2016 are reconciled as follows (in thousands, except per share amounts):

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Basic net income per share:
Net income available to common shareholders	$	2,759	$	5,235	$	7,546	$	7,338
Weighted average common shares outstanding		46,429		46,943		46,490		47,079
Basic net income per share	$	0.06	$	0.11	$	0.16	$	0.16
Dilutive net income per share:
Net income available to common shareholders	$	2,759	$	5,235	$	7,546	$	7,338
Weighted average common shares outstanding		46,429		46,943		46,490		47,079
Dilutive stock options and non-vested restricted stock		721		887		709		851
Weighted average common shares outstanding for purposes of computing diluted net income per share		47,150		47,830		47,199		47,930
Dilutive net income per share	$	0.06	$	0.11	$	0.16	$	0.15

Potential shares of common stock that are not included in the determination of diluted net income per share because they are anti-dilutive consist of ESPP purchase rights having an anti-dilutive effect of less than 0.1 million shares for the six months ended June 30, 2017 and 2016, respectively.

The weighted-average number of common shares outstanding does not include the effect of the potential common shares from conversion of our Notes and exercise of our Warrants. The effects of these potentially outstanding shares were not included in the calculation of diluted net income per share because the effect would have been anti-dilutive since the conversion price of the Notes and the strike price of the Warrants exceeded the average market price of our common stock. We have the option to pay cash, issue shares of common stock, or any combination thereof for the aggregate amount due upon conversion of the Notes. Our intent is to settle the principal amount of the Notes in cash upon conversion. As a result, only amounts payable in excess of the principal amount of the Notes are considered in diluted net income per share under the treasury stock method. The Note Hedges are not included in the calculation of diluted net income per share because the effect of any exercise of the Note Hedges would be anti-dilutive. Please refer to Note 6 – Convertible Senior Notes, Note Hedges, and Warrants of the Notes to Condensed Consolidated Financial Statements for additional information.

3. Balance Sheet Details

Inventories

Inventories, net of allowances, as of June 30, 2017, and December 31, 2016, are as follows (in thousands):

	June 30, 2017		December 31, 2016
Raw materials	$	51,180	$	45,798
Work in process		12,546		7,362
Finished goods		60,339		45,915
	$	124,065	$	99,075

11

Deferred Cost of Revenue

Deferred cost of revenue related to unrecognized revenue on shipments to customers was $3.0 and $3.4 million as of June 30, 2017, and December 31, 2016, respectively, and is included in other current assets in our Condensed Consolidated Balance Sheets.

Product Warranty Reserves

Product warranty reserves are included in accrued and other liabilities and our Condensed Consolidated Balance Sheets. The changes in product warranty reserves during the six months ended June 30, 2017 and 2016 are as follows (in thousands):

	2017			2016
Balance at January 1,	$	10,319		$	9,635
Liability assumed upon acquiring FreeFlow print server (“FFPS”)		9,368			—
Provisions, net of releases		4,790			6,205
Settlements		(6,254	)		(6,215	)
Balance at June 30,	$	18,223		$	9,625

Accumulated Other Comprehensive Loss (“OCI”)

OCI classified within stockholders’ equity in our Condensed Consolidated Balance Sheets as of June 30, 2017, and December 31, 2016 is as follows (in thousands):

	June 30, 2017			December 31, 2016
Net unrealized investment losses	$	(260	)	$	(473	)
Currency translation losses		(5,920	)		(24,230	)
Net unrealized gains on cash flow hedges		13			9
Accumulated other comprehensive loss	$	(6,167	)	$	(24,694	)

Amounts reclassified out of OCI were less than $0.1 million, net of tax, for the three and six months ended June 30, 2017, and $0.1 million, net of tax, for the three and six months ended June 30, 2016, and consisted of unrealized gains and losses from investments in debt securities that are reported within interest income and other income, net, in our Condensed Consolidated Statements of Operations.

4. Acquisition

We acquired privately held CRC Information Systems, Inc. (“CRC”) from Reynolds and Reynolds Company (“Reynolds”) and certain assets comprising the FFPS business from Xerox Corporation (“Xerox”) during 2017, which have been included in our Productivity Software and Fiery operating segments, respectively. Acquisition-related transaction costs were $0.5 and $1.2 million during the three and six months ended June 30, 2017, respectively, and $0.8 and $1.3 million during the three and six months ended June 30, 2016, respectively, related to all acquisitions.

These acquisitions were accounted for as purchase business combinations. We allocated the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair value on their acquisition dates. Excess purchase consideration was recorded as goodwill. Factors contributing to a purchase price that results in goodwill include, but are not limited to, the retention of research and development personnel with skills to develop future technology, support personnel to provide maintenance services related to the products, a trained sales force capable of selling current and future products, the opportunity to cross-sell products of the acquired businesses to existing customers, the opportunity to integrate acquired technology into our products, the positive reputation of CRC and FFPS in the market, the opportunity to sell Fiery digital front ends (“DFEs”) to FFPS customers, and the opportunity to expand our presence in the DFE market through the synergy of FFPS technology with existing Fiery products.

We engaged a third party valuation firm to aid management in its analyses of the fair value of these acquired businesses. All estimates, key assumptions, and forecasts were either provided by or reviewed by us. While we chose to utilize a third party valuation firm, the fair value analyses and related valuations represent the conclusions of management and not the conclusions or statements of any third party.

12

The purchase price allocations are preliminary and subject to change within the measurement period as the valuations are finalized. We expect to continue to obtain information to assist us in finalizing the fair value of the net assets acquired during the measurement period, which end at various dates in 2018. Measurement period adjustments will be recognized in the reporting period in which the adjustment amounts are determined, if any.

Productivity Software Operating Segment

We acquired privately held CRC, which is a Michigan corporation headquartered in Scottsdale, Arizona, from Reynolds, which is an Ohio corporation headquartered in Dayton, Ohio, on May 8, 2017, for cash consideration of $7.6 million. CRC provides business process automation software for label and packaging printers for commercial businesses and is included in the Midmarket Print Suite within our Productivity Software operating segment.

Fiery Operating Segment

We acquired certain assets comprising the FFPS business from Xerox, a New York corporation headquartered in Norwalk, Connecticut, on January 31, 2017. The FFPS business manufactures and markets the FFPS DFE, which is a DFE that previously competed with our Fiery DFEs and is included in our Fiery operating segment.

We purchased FFPS for cash consideration of $24.0 million consisting of $6.0 million paid at closing, $9.0 million paid in July 2017, and $9.0 million payable in July 2018, which have been discounted at our incremental borrowing rate of 4.98%, resulting in a purchase price of $23.1 million.

Valuation Methodologies

Intangible assets acquired consist of customer relationships, Purchasing Agreement with Xerox, “take-or-pay” contractual penalty, trade name, existing technology, and in-process research & development (“IPR&D”). Each intangible asset valuation methodology for each acquisition assumes a risk-free discount rate of 4.98% or probability-adjusted discount rates between 13% and 18%.

Customer Relationships and Backlog were valued using the excess earnings method, which is an income approach. The value of customer relationships lies in the generation of a consistent and predictable revenue source and the avoidance of costs associated with developing the relationships. Customer relationships were valued by estimating the revenue attributable to existing customer relationships and probability-weighting each forecast year to reflect the uncertainty of maintaining existing relationships based on historical attrition rates.

Trade Name was valued using the relief from royalty method, which is an income approach, with royalty rates based on various factors including an analysis of market data, comparable trade name agreements, and historical advertising dollars spent supporting the trade name.

Existing Technology was valued using the relief from royalty method based on royalty rates for similar technologies. The value of existing technology is derived from consistent and predictable revenue, including the opportunity to cross-sell to existing customers, and the avoidance of the costs associated with developing the technology. Revenue related to existing technology was adjusted in each forecast year to reflect the evolution of the technology and the cost of sustaining research and development required to maintain the technology.

Purchasing Agreement was valued using the excess earnings method, which is an income approach. The Master Purchasing Agreement (the “Purchasing Agreement”) entered into with Xerox states that we will be Xerox’s preferred supplier of DFEs provided that we meet quality, cost, delivery, and services requirements. The value of the Purchasing Agreement lies in the generation of a consistent and predictable revenue source without incurring the costs normally required to acquire the Purchasing Agreement. The Purchasing Agreement was valued by estimating the revenue attributable to the Purchasing Agreement and probability-weighting each forecast year to reflect the uncertainty of maintaining the existing relationship with Xerox beyond the initial five-year term of the agreement.

Take-or-pay Contract was valued using the Monte Carlo method, which is an income approach. If Xerox’s purchases of Fiery and FFPS DFEs during each of four consecutive 12-month periods is less than the minimum level defined for each purchase period, then Xerox shall make a one-time payment in an amount equal to a percentage of such shortfall compared to the minimum level, subject to the maximum payment amount agreed between the parties for each purchase period. Key assumptions include a risk-free discount rate of 4.98%, asset volatility of 27%, and probability-adjusted DFE revenue. If Xerox’s purchases of Fiery and FFPS DFEs exceed the minimum purchase levels defined for each purchase period, then we will pay a percentage of such excess to Xerox.

13

IPR&D was valued using the relief from royalty method by estimating the cost to develop purchased IPR&D into commercially viable products, estimating the net cash flows resulting from the sale of those products, and discounting the net cash flows back to their present value. FFPS project schedules were 63% complete as of the acquisition date and 95% as of June 30, 2017, based on management’s estimate of tasks completed to achieve technical and commercial feasibility. IPR&D is subject to amortization after product completion over the product life or otherwise assessed for impairment in accordance with acquisition accounting guidance. Additional costs incurred to complete IPR&D after the acquisition are expensed.

The preliminary allocation of the purchase price to the assets acquired and liabilities assumed (in thousands) with respect to these acquisitions at their respective acquisition dates is summarized as follows:

	CRC					FFPS
	Weighted average useful life		Purchase Price Allocation			Weighted average useful life		Purchase Price Allocation
Purchasing agreement		—	$	—			10 years	$	9,330
Take-or-pay contract		—		—			4 years	$	9,000
Customer relationships		9 years		3,580			—		—
Existing technology		4 years		540			2 years		2,570
Trade names		4 years		180			5 years		1,020
IPR&D		—		—			less than one year		70
Backlog		less than one year		4			—		—
Goodwill		—		4,595			—		6,236
			$	8,899					28,226
Net tangible assets (liabilities)				(1,299	)				(5,092	)
Total purchase price			$	7,600				$	23,134

Pro forma results of operations have not been presented because they are not material to our Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016. Goodwill, which represents the excess of the purchase price over the net tangible and intangible assets acquired, that was generated by our acquisition of CRC and FFPS is not deductible for tax purposes.

5. Investments and Fair Value Measurements

We invest our excess cash on deposit with major banks in money market, U.S. Treasury and government-sponsored entity, corporate, municipal government, asset-backed, and mortgage-backed residential debt securities. By policy, we invest primarily in high-grade marketable securities. We are exposed to credit risk in the event of default by the financial institutions or issuers of these investments to the extent of amounts recorded in our Condensed Consolidated Balance Sheets.

We consider all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Typically, the cost of these investments has approximated fair value. Marketable investments with a maturity greater than three months are classified as available-for-sale short-term investments. Available-for-sale securities are stated at fair value with unrealized gains and losses reported as a separate component of OCI, adjusted for deferred income taxes. The credit portion of any other-than-temporary impairment is included in net income. Realized gains and losses on sales of financial instruments are recognized upon sale of the investments using the specific identification method.

Our available-for-sale short-term investments as of June 30, 2017, and December 31, 2016, are as follows (in thousands):

	Amortized cost		Gross  unrealized gains		Gross  unrealized losses			Fair value
June 30, 2017
U.S. Government and sponsored entities	$	68,114	$	6	$	(348	)	$	67,772
Corporate debt securities		178,432		153		(269	)		178,316
Municipal government		1,044		—		—			1,044
Asset-backed securities		24,502		71		(18	)		24,555
Mortgage-backed securities – residential		980		1		(2	)		979
Total short-term investments	$	273,072	$	231	$	(637	)	$	272,666

14

	Amortized cost		Gross  unrealized gains		Gross  unrealized losses			Fair value
December 31, 2016
U.S. Government and sponsored entities	$	70,893	$	49	$	(348	)	$	70,594
Corporate debt securities		198,166		102		(621	)		197,647
Municipal government		1,278		—		(1	)		1,277
Asset-backed securities		24,233		79		(17	)		24,295
Mortgage-backed securities – residential		1,615		3		(3	)		1,615
Total short-term investments	$	296,185	$	233	$	(990	)	$	295,428

The fair value and duration that investments, including cash equivalents, have been in a gross unrealized loss position as of June 30, 2017, and December 31, 2016 are as follows (in thousands):

	Less than 12 Months					More than 12 Months					TOTAL
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2017
U.S. Government and sponsored entities	$	58,640	$	(342	)	$	—	$	—		$	58,640	$	(342	)
Corporate debt securities		98,931		(268	)		6,013		(6	)		104,944		(274	)
Asset-backed securities		11,234		(17	)		1,537		(1	)		12,771		(18	)
Mortgage-backed securities – residential		453		(3	)		17		—			470		(3	)
Total	$	169,258	$	(630	)	$	7,567	$	(7	)	$	176,825	$	(637	)
December 31, 2016
U.S. Government and sponsored entities	$	39,810	$	(348	)	$	—	$	—		$	39,810	$	(348	)
Corporate debt securities		133,382		(581	)		13,158		(40	)		146,540		(621	)
Municipal government		1,268		(1	)		—		—			1,268		(1	)
Asset-backed securities		4,540		(7	)		4,611		(10	)		9,151		(17	)
Mortgage-backed securities – residential		428		(1	)		153		(2	)		581		(3	)
Total	$	179,428	$	(938	)	$	17,922	$	(52	)	$	197,350	$	(990	)

For fixed income securities that have unrealized losses as of June 30, 2017, we have determined that we do not have the intent to sell any of these investments and it is not more likely than not that we will be required to sell any of these investments before recovery of the entire amortized cost basis. We have evaluated these fixed income securities and determined that no credit losses exist. Accordingly, management has determined that the unrealized losses on our fixed income securities as of June 30, 2017, were temporary in nature.

Amortized cost and estimated fair value of investments as of June 30, 2017, are summarized by maturity date as follows (in thousands):

	Amortized cost		Fair value
Mature in less than one year	$	75,373	$	75,361
Mature in one to three years		197,699		197,305
Total short-term investments	$	273,072	$	272,666

Net realized gains of less than $0.1 million from sales of investments were recognized in interest income and other income, net, during the three and six months ended June 30, 2017. Net realized gains of $0.2 million from sales of investments were recognized in interest income and other income, net, during the three and six months ended June 30, 2016. Net unrealized losses of $0.4 and $0.8 million were included in OCI in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2017, and December 31, 2016, respectively.

15

Fair Value Measurements

ASC 820, Fair Value Measurements, identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy as follows:

Level 1: Inputs that are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

Level 2: Inputs that are other than quoted prices included within Level 1, that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date for the duration of the instrument’s anticipated life or by comparison to similar instruments; and

Level 3: Inputs that are unobservable or reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. These include management’s own judgments about market participant assumptions developed based on the best information available in the circumstances.

We utilize the market approach to measure the fair value of our fixed income securities. The market approach is a valuation technique that uses the prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The fair value of our fixed income securities is obtained using readily-available market prices from a variety of industry standard data providers, large financial institutions, and other third-party sources for the identical underlying securities. The fair value of our investments in certain money market funds is expected to maintain a Net Asset Value of $1 per share and, as such, is priced at the expected market price.

We obtain the fair value of our Level 2 financial instruments from several third party asset managers, custodian banks, and the accounting service providers. Independently, these service providers use professional pricing services to gather pricing data, which may include quoted market prices for identical or comparable instruments or inputs other than quoted prices that are observable either directly or indirectly. As part of this process, we engaged a pricing service to assist management in its pricing analysis and assessment of other-than-temporary impairment. All estimates, key assumptions, and forecasts were either provided by or reviewed by us. While we chose to utilize a third party pricing service, the impairment analysis and related valuations represent conclusions of management and not conclusions or statements of any third party.

Our investments and liabilities measured at fair value have been presented in accordance with the fair value hierarchy specified in ASC 820 as of June 30, 2017, and December 31, 2016 in order of liquidity as follows (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
June 30, 2017
Assets:
Money market funds	$	9,497	$	9,497	$	—	$	—
U.S. Government and sponsored entities		67,772		41,813		25,959		—
Corporate debt securities		178,316		—		178,316		—
Municipal government		1,044		—		1,044		—
Asset-backed securities		24,555		—		24,497		58
Mortgage-backed securities – residential		979		—		979		—
	$	282,163	$	51,310	$	230,795	$	58
Liabilities:
Contingent consideration, current and noncurrent	$	61,414	$	—	$	—	$	61,414
Self-insurance		1,060		—		—		1,060
	$	62,474	$	—	$	—	$	62,474

16

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
December 31, 2016
Assets:
Money market funds	$	23,575	$	23,575	$	—	$	—
U.S. Government and sponsored entities		70,594		51,870		18,724		—
Corporate debt securities		197,647		—		197,647		—
Municipal government		1,277		—		1,277		—
Asset-backed securities		24,295		—		24,228		67
Mortgage-backed securities – residential		1,615		—		1,615		—
	$	319,003	$	75,445	$	243,491	$	67
Liabilities:
Contingent consideration, current and noncurrent	$	56,463	$	—	$	—	$	56,463
Self-insurance		1,542		—		—		1,542
	$	58,005	$	—	$	—	$	58,005

Money market funds consist of $9.5 and $23.6 million, which have been classified as cash equivalents as of June 30, 2017, and December 31, 2016, respectively.

Investments are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices or alternative pricing sources with reasonable levels of price transparency. Investments in U.S. Treasury obligations and overnight money market mutual funds have been classified as Level 1 because these securities are valued based on quoted prices in active markets or are actively traded at $1.00 Net Asset Value. There have been no transfers between Level 1 and 2 during the six months ended June 30, 2017 and 2016.

Government agency investments and corporate debt instruments, including investments in asset-backed and mortgage-backed securities, have generally been classified as Level 2 because markets for these securities are less active or valuations for such securities utilize significant inputs, which are directly or indirectly observable. We hold asset-backed securities with income payments derived from and collateralized by a specified pool of underlying assets. Asset-backed securities in the portfolio are predominantly collateralized by credit cards and auto loans. We also hold two asset-backed securities collateralized by mortgage loans, which have been fully reserved.

Liabilities for Contingent Consideration

Acquisition-related liabilities for contingent consideration (i.e., earnouts) are related to the purchase business combinations of Optitex Ltd. (“Optitex”) and Rialco Limited (“Rialco”) in 2016; Shuttleworth Business Systems Limited and CDM Solutions Limited (collectively, “Shuttleworth”), CTI, and Reggiani in 2015; DiMS! organizing print BV (“DIMS”), DirectSmile GmbH (“DirectSmile”), and SmartLinc, Inc. (“SmartLinc”) in 2014; Outback Software Pty. Ltd. doing business as Metrix Software (“Metrix”) and PrintLeader Software (“PrintLeader”) in 2013.

The fair value of these earnouts is estimated to be $61.4 and $56.5 million as of June 30, 2017, and December 31, 2016, respectively, by applying the income approach in accordance with ASC 805-30-25-5, Business Combinations. Key assumptions include risk-free discount rates between 0.6% and 4.98% (Monte Carlo valuation method) and discount rates between 4.7% and 6.0% (probability-adjusted method), as well as probability-adjusted revenue and earnings before interest and taxes (“EBIT”) levels. Probability-adjusted revenue, gross profit, operating profit, and EBIT are significant inputs that are not observable in the market, which ASC 820-10-35 refers to as Level 3 inputs. These contingent liabilities have been reflected in the Condensed Consolidated Balance Sheet as of June 30, 2017, as current and noncurrent liabilities of $38.0 and $23.4 million, respectively.

The fair value of contingent consideration increased by $1.8 million primarily due to an increase in the Optitex earnout and CTI performance probabilities, including $0.9 million of earnout interest accretion related to all acquisitions during the six months ended June 30, 2017. The fair value of contingent consideration increased by $6.8 million primarily due to increased Rialco, Optitex, Reggiani, DirectSmile, and CTI earnout performance probabilities, partially offset by decreased DIMS and Shuttleworth earnout performance probabilities, and including $2.7 million of earnout interest accretion related to all acquisitions during the year ended December 31, 2016. In accordance with ASC 805-30-35-1, changes in the fair value of contingent consideration subsequent to the acquisition date have been recognized in general and administrative expense.

17

Earnout payments during the six months ended June 30, 2017 of $1.3 million are primarily related to the previously accrued Shuttleworth contingent consideration liability. Earnout payments during the year ended December 31, 2016 of $23.8, $3.6, $0.4, and $0.2 million are primarily related to the previously accrued Reggiani, DirectSmile, SmartLinc, and Metrix contingent consideration liabilities, respectively.

Changes in the fair value of contingent consideration are summarized as follows (in thousands):

Fair value of contingent consideration at January 1, 2016	$	54,796
Fair value of Rialco contingent consideration at March 1, 2016		2,109
Fair value of Optitex contingent consideration at June 16, 2016		22,300
Changes in valuation		6,813
Payments		(28,111	)
Foreign currency adjustment		(1,444	)
Fair value of contingent consideration at December 31, 2016	$	56,463
Changes in valuation	$	1,776
Payments		(1,294	)
Foreign currency adjustment		4,469
Fair value of contingent consideration at June 30, 2017	$	61,414

Since the primary inputs to the fair value measurement of contingent consideration liability are the discount rate and probability-adjusted revenue, we reviewed the sensitivity of the fair value measurement to changes in these inputs. We assessed the probability of achieving the revenue performance targets for contingent consideration associated with each acquisition at percentage levels between 60% and 100% as of each respective acquisition date based on an assessment of the historical performance of each acquired entity, our current expectations of future performance, and other relevant factors. A change in probability-adjusted revenue of five percentage points from the level assumed in the current valuations would result in a change in the fair value of contingent consideration of $2.0 million resulting in a corresponding adjustment to general and administrative expense. A change in the discount rate of one percentage point results in a change in the fair value of contingent consideration of $0.5 million. The potential undiscounted amount of future contingent consideration cash payments that we could be required to make related to our business acquisitions, beyond amounts currently accrued, is $10.1 million as of June 30, 2017.

Fair Value of Derivative Instruments

We utilize the income approach to measure the fair value of our derivative assets and liabilities. The income approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates, and forward prices, and are therefore classified as Level 2 measurements. The notional amount of our derivative assets and liabilities was $148.7 and $161.8 million as of June 30, 2017 and December 31, 2016, respectively. The fair value of our derivative assets and liabilities that were designated for cash flow hedge accounting treatment having notional amounts of $3.6 and $3.2 million as of June 30, 2017 and December 31, 2016, respectively, was not material.

Fair Value of Convertible Senior Notes

In September 2014, we issued $345 million aggregate principal amount of our Notes. The Notes are carried at their original issuance value, net of unamortized debt discount, and are not marked to market each period. The approximate fair value of the Notes as of June 30, 2017 was approximately $373.0 million and was considered a Level 2 fair value measurement. Fair value was estimated based upon actual quotations obtained at the end of the reporting period or the most recent date available. A substantial portion of the market value of our Notes in excess of the outstanding principal amount relates to the conversion premium.

6. Convertible Senior Notes (“Notes”), Note Hedges, and Warrants

0.75% Convertible Senior Notes Due 2019

In September 2014, we completed a private placement of $345 million principal amount of 0.75% Convertible Senior Notes due 2019 (“Notes”). The Notes were sold to the initial purchasers for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds from this offering were approximately $336.3 million, after deducting the initial purchasers’ commissions and the offering expenses paid by us. We used approximately $29.4 million of the net proceeds to purchase the Note Hedges described below, net of the proceeds from the Warrant transactions also described below.

18

The Notes are senior unsecured obligations of EFI with interest payable semiannually in arrears on March 1 and September 1 of each year, commencing March 1, 2015. The Notes are not callable and will mature on September 1, 2019, unless previously purchased or converted in accordance with their terms prior to such date. Holders of the Notes who convert in connection with a “fundamental change,” as defined in the indenture governing the Notes (“Indenture”), may require us to purchase for cash all or any portion of their Notes at a purchase price equal to 100 percent of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any.

The initial conversion rate is 18.9667 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $52.72 per share of common stock. Upon conversion of the Notes, holders will receive cash, shares of common stock or a combination thereof, at our election. Our intent is to settle the principal amount of the Notes in cash upon conversion. If the conversion value exceeds the principal amount, we would deliver shares of our common stock for our conversion obligation in excess of the aggregate principal amount. As of June 30, 2017, none of the conditions listed below allowing holders of the Notes to convert had been met.

Throughout the term of the Notes, the conversion rate may be adjusted upon the occurrence of certain events. Holders of the Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a Note. Holders may convert their Notes only under the following circumstances:

• if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

• during the five business day period after any five consecutive trading day period (“Notes Measurement Period”) in which the “trading price” (as the term is defined in the Indenture) per $1,000 principal amount of Notes for each trading day of such Notes Measurement Period was less than 98% of the product of the last reported stock price on such trading day and the conversion rate on each such trading day;

• upon the occurrence of specified corporate events; or

• at any time on or after March 1, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date.

We separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the estimated fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the face value of the Notes as a whole. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the Notes using the effective interest method with an effective interest rate of 4.98% per annum (5.46% inclusive of debt issuance costs). The equity component is not remeasured if it continues to meet the conditions for equity classification.

We allocated the total transaction costs incurred by the Notes issuance to the liability and equity components based on their relative values. Issuance costs of $7.0 million attributable to the $281.4 million liability component are being amortized to expense over the term of the Notes, and issuance costs of $1.6 million attributable to the $63.6 million equity component were offset against the equity component in stockholders’ equity. Additionally, we recorded a deferred tax liability of $23.7 million on the debt discount, which is not deductible for tax purposes.

The Notes consist of the following as of June 30, 2017, and December 31, 2016 (in thousands):

	June 30, 2017			December 31, 2016
Liability component	$	345,000		$	345,000
Debt discount, net of amortization		(29,695	)		(36,115	)
Debt issuance costs, net of amortization		(3,702	)		(4,401	)
Net carrying amount	$	311,603		$	304,484
Equity component	$	63,643		$	63,643
Less: debt issuance costs allocated to equity		(1,582	)		(1,582	)
Net carrying amount	$	62,061		$	62,061

19

Interest expense recognized related to the Notes during the three and six months ended June 30, 2017 and 2016 was as follows (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
0.75% coupon	$	647	$	647	$	1,287	$	1,287
Amortization of debt issuance costs		354		362		699		719
Amortization of debt discount		3,249		3,050		6,420		6,025
	$	4,250	$	4,059	$	8,406	$	8,031

Note Hedges

We paid an aggregate of $63.9 million in convertible note hedge transactions with respect to our common stock (“Note Hedges”) in September 2014. The Note Hedges will expire upon maturity of the Notes. The Note Hedges are intended to offset the potential dilution upon conversion and/or offset any cash payments we are required to make in excess of the principal amount upon conversion of the Notes in the event that the market value per share of our common stock, as measured under the terms of the Note Hedges, is greater than the strike price of the Note Hedges. The strike price of the Note Hedges initially corresponds to the conversion price of the Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion price of the Notes. The Note Hedges are separate transactions and are not part of the Notes. Holders of the Notes will not have any rights with respect to the Note Hedges.

Warrants

Concurrently with entering into the Note Hedges, we separately entered into warrant transactions (“Warrants”), whereby we sold Warrants to acquire shares of our common stock at a strike price of $68.86 per share. We received aggregate proceeds of $34.5 million from the sale of the Warrants. If the average market value per share of our common stock for the reporting period, as measured under the Warrants, exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on our earnings per share. The Warrants are separate transactions and are not part of the Notes or the Note Hedges and are accounted for as a component of additional paid-in capital. Holders of the Notes and Note Hedges will not have any rights with respect to the Warrants.

7. Income taxes

We recognized a tax provisions of $1.0 and $2.5 million on pretax net income of $3.8 and $7.8 million during the three months ended June 30, 2017 and 2016, respectively. We recognized no tax provision on pretax net income of $7.6 million and a tax provision of $2.8 million on pre-tax income of $10.1 million during the six months ended June 30, 2017 and 2016, respectively. The provisions for income taxes before discrete items reflected in the table below were $1.5 and $2.3 million during the three months ended June 30, 2017 and 2016, respectively, and $2.6 and $2.8 million during the six months ended June 30, 2017 and 2016, respectively. The decrease in the provisions for income taxes before discrete items for the three and six months ended June 30, 2017, compared with the same periods in the prior year, is primarily due to the decrease in profitability before income taxes.

Primary differences between our provision for income taxes before discrete items and the income tax provision at the U.S. statutory rate of 35% include lower taxes on permanently reinvested foreign earnings and the tax effects of stock-based compensation expense pursuant to ASC 718-740, Stock Compensation – Income Taxes, which are non-deductible for tax purposes.

Our tax provisions before discrete items is reconciled to our recorded provisions for income taxes during the three and six months ended June 30, 2017 and 2016 as follows (in millions):

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Provision for income taxes before discrete items	$	1.5		$	2.3		$	2.6		$	2.8
Interest related to unrecognized tax benefits		0.1			0.1			0.1			0.2
Reassessment of taxes upon filing tax returns		0.2			0.3			0.1			0.1
Excess tax benefit from stock compensation		(0.8	)		(0.2	)		(2.3	)		(0.3	)
Benefit from reassessment of taxes upon foreign statutory tax rate change		—			—			(0.5	)		—
Provision for income taxes	$	1.0		$	2.5		$	—		$	2.8

20

As of June 30, 2017 and December 31, 2016, gross unrecognized benefits that would affect the effective tax rate if recognized were $32.6 and $32.0 million, respectively. Over the next twelve months, our existing tax positions will continue to generate increased liabilities for unrecognized tax benefits. It is reasonably possible that our gross unrecognized tax benefits will decrease up to $3.5 million in the next twelve months primarily due to the lapse of the statute of limitations for federal and state tax purposes. These adjustments, if recognized, would positively impact our effective tax rate, and would be recognized as additional tax benefits in our Condensed Consolidated Statements of Operations.

In accordance with ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, Similar Tax Loss, or Tax Credit Carryforward Exists, $20.6 million of gross unrecognized tax benefits were offset against deferred tax assets as of June 30, 2017, and the remaining $12.0 million has been recorded as noncurrent income taxes payable.

We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of June 30, 2017 and December 31, 2016, we have accrued $0.6 and $0.5 million, respectively, for potential payments of interest and penalties.

We are subject to examination by the Internal Revenue Service (“IRS”) for the 2013-2015 tax years, state tax jurisdictions for the 2012-2015 tax years, the Netherlands tax authority for the 2012-2015 tax years, the Spanish tax authority for the 2012-2015 tax years, the Israel tax authority for the 2011-2015 tax years, and the Italian tax authority for the 2012-2015 tax years.

8. Commitments and Contingencies

Contingent Consideration

We are required to make payments to the former stockholders of acquired companies based on the achievement of specified performance targets as more fully explained in Note 5 – Investments and Fair Value Measurements.

Lease Commitments and Contractual Obligations

As of June 30, 2017, we have leased certain of our current facilities under noncancellable operating lease agreements. We are required to pay property taxes, insurance, and nominal maintenance costs for certain of these facilities and any increases over the base year of these expenses on the remainder of our facilities.

Assets Held for Sale

In 2016, management approved a plan to sell approximately 5.6 acres and the office building located at 1340 Corporate Center Curve, Eagan, Minnesota, consisting of 43,682 square feet, and the related fixed assets were classified as held for sale. On April 13, 2017, we entered into an agreement under which we agreed to sell the office building and related land, subject to completion of a 150 day due diligence period, which expired without the transaction closing on September 7, 2017. Accordingly, assets previously recorded as held for sale of $3.8 million, which consisted of $2.9 million net book value of the facility and $0.9 million of related land as of December 31, 2016, have been classified as assets held for use within property and equipment, net, in our Condensed Consolidated Balance Sheet as of June 30, 2017.

Off-Balance Sheet Financing – Lease Arrangements

On August 26, 2016, we entered into a lease agreement and have accounted for a lease term of 48.5 years, inclusive of two renewal options of 5.0 and 3.5 years, with the City of Manchester to lease 16.9 acres adjacent to the Manchester Regional Airport. The land is subleased to Bank of Tokyo – Mitsubishi UFJ Leasing & Finance LLC (“BTMU”) during the term of the lease related to the manufacturing facility that is being constructed on the site, which is described below. Minimum lease payments are $13.1 million during the 48.5 year term of the land lease, excluding four months of the land lease that is financed into the manufacturing facility lease.

On August 26, 2016, we entered into a six-year lease with BTMU whereby a 225,000 square foot manufacturing and warehouse facility is under construction related to our super-wide format industrial digital inkjet printer business in the Industrial Inkjet operating segment at a projected cost of $40 million and a construction period of 18 months. Minimum lease payments during the initial six-year term are $1.8 million. Upon completion of the initial six-year term, we have the option to renew the lease, purchase the facility, or return the facility to BTMU subject to an 89% residual value guarantee under which we would recognize additional rent expense in the form of a variable rent payment. We have assessed our exposure in relation to the residual value guarantee and believe that there is no deficiency to the guaranteed value with respect to funds expended by BTMU as of June 30, 2017. We are treated as the owner of the facility for federal income tax purposes.

21

The funds pledged under the lease represent 115% of the total expenditures made by BTMU through June 30, 2017. The funds are invested in $15.1 and $5.3 million of U.S. government securities and cash equivalents, respectively, with a third party trustee and will be restricted during the construction period. Upon completion of construction, the funds will be released as cash and cash equivalents. The portion of released funds that represents 100% of the total expenditures made by BTMU will be deposited with BTMU and restricted as collateral until the end of the underlying lease period.

The funds pledged as collateral are invested in U.S. government securities and cash equivalents as of June 30, 2017, and are classified as Level 1 in the fair value hierarchy as more fully defined in Note 5 – Investments and Fair Value Measurements. Net unrealized gains of less than $0.1 million were included in OCI in the accompanying Condensed Consolidated Balance Sheet as of June 30, 2017.

We have evaluated the BTMU lease agreement to determine if the arrangement qualifies as a variable interest entity (“VIE”) under ASC 810-10, Consolidation. We have determined that the lease agreement does not qualify as a VIE, and as such, we are not required to consolidate the VIE in our condensed consolidated financial statements.

Legal Proceedings

We may be involved, from time to time, in a variety of claims, lawsuits, investigations, or proceedings relating to contractual disputes, securities laws, intellectual property rights, employment, or other matters that may arise in the normal course of business. We assess our potential liability in each of these matters by using the information available to us. We develop our views on estimated losses in consultation with inside and outside counsel, which involves a subjective analysis of potential results and various combinations of appropriate litigation and settlement strategies. We accrue estimated losses from contingencies if a loss is deemed probable and can be reasonably estimated.

As of June 30, 2017, we are subject to the matter discussed below:

Matan Digital Printing (“MDG”) Matter

EFI acquired Matan Digital Printers (“Matan”) in 2015 from sellers (the “2015 Sellers”) that acquired Matan Digital Printing Ltd. from other sellers in 2001 (the “2001 Sellers”). The 2001 Sellers have asserted a claim against the 2015 Sellers and Matan asserting that they are entitled to a portion of the 2015 Sellers’ proceeds from EFI’s acquisition. The 2015 Sellers dispute this claim and have agreed to indemnify EFI against the 2001 Sellers’ claim.

Although we are fully indemnified and we do not believe that it is probable that we will incur a loss, it is reasonably possible that our financial statements could be materially affected by the unfavorable resolution of this matter. Accordingly, it is reasonably possible that we could incur a material loss in this matter. We estimate the range of loss to be between one dollar and $10.1 million. If we incur a loss in this matter, it will be offset by a receivable of an equal amount representing a claim for indemnification against the escrow account established in connection with the Matan acquisition.

Other Matters

As of June 30, 2017, we were subject to various other claims, lawsuits, investigations, and proceedings in addition to the matter discussed above. There is at least a reasonable possibility that additional losses may be incurred in excess of the amounts that we have accrued. However, we believe that these claims are not material to our financial statements or the range of reasonably possible losses is not reasonably estimable. Litigation is inherently unpredictable, and while we believe that we have valid defenses with respect to legal matters pending against us, our financial statements could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies or because of the diversion of management’s attention and the incurrence of significant expenses.

9. Segment Information and Geographic Data

Operating segment information is required to be presented based on the internal reporting used by the chief operating decision making group (“CODM”) to allocate resources and evaluate operating segment performance. Our CODM is comprised of our Chief Executive Officer and Chief Financial Officer. The CODM group is focused on assessment and resource allocation among the Industrial Inkjet, Productivity Software, and Fiery operating segments.

22

Our operating segments are integrated through their reporting and operating structures, shared technology and practices, shared sales and marketing, and combined production facilities. Our enterprise management processes use financial information that is closely aligned with our three operating segments at the gross profit level. Relevant discrete financial information is prepared at the gross profit level for each of our three operating segments, which is used by the CODM to allocate resources and assess the performance of each operating segment.

We classify our revenue, operating segment profit (i.e., gross profit), assets, and liabilities in accordance with our operating segments as follows:

Industrial Inkjet, which consists of our VUTEk and Matan super-wide and wide format display graphics, Reggiani textile, Jetrion label and packaging, and Cretaprint ceramic tile decoration and construction material industrial digital inkjet printers; digital ultra-violet (“UV”) curable, light-emitting diode (“LED”) curable, ceramic, water-based, and thermoforming ink, as well as a variety of textile ink including dye sublimation, pigmented, reactive dye, acid dye, pure disperse dye, and water-based dispersed printing ink; digital inkjet printer parts; and professional services. Printing surfaces include paper, vinyl, corrugated, textile, glass, plastic, aluminum composite, ceramic tile, wood, and many other flexible and rigid substrates.

Productivity Software, which consists of a complete software suite that enables efficient and automated end-to-end business and production workflows for the print and packaging industry. This Productivity Suite also provides tools to enable revenue growth, efficient scheduling, and optimization of processes, equipment, and personnel. Customers are provided the financial and technical flexibility to deploy locally within their business or to be hosted in the cloud. The Productivity Suite addresses all segments of the print industry and consists of the: (i) Packaging Suite, with Radius at its core, for tag & label, cartons, and flexible packaging businesses; (ii) Corrugated Packaging Suite, with CTI at its core, for corrugated packaging businesses; (iii) Enterprise Commercial Print Suite, with Monarch at its core, for enterprise print businesses; (iv) Publication Print Suite, with Monarch or Technique at its core, for publication print businesses; (v) Midmarket Print Suite, with Pace at its core, for medium size print businesses; (vi) Quick Print Suite, with PrintSmith at its core, for small printers and in-plant sites; and (vii) Value Added Products, available with the suite and standalone, such as web-to-print, e-commerce, cross media marketing, warehousing, fulfillment, shop floor data collection, and shipping to reduce costs, increase profits, and offer new products and services to their existing and future customers. We also market Optitex computer-aided fashion design (“fashion CAD”) software, which facilitates fast fashion and increased efficiency in the textile and fashion industries.

Fiery, which consists of DFEs, including the recently acquired FFPS DFE from Xerox, that transform digital copiers and printers into high performance networked printing devices for the office, industrial, and commercial printing markets. This operating segment is comprised of (i) stand-alone DFEs connected to digital printers, copiers, and other peripheral devices, (ii) embedded DFEs and design-licensed solutions used in digital copiers and multi-functional devices, (iii) optional software integrated into our DFE solutions such as Fiery Central and Graphics Arts Package, (iv) Fiery Self Serve, our self-service and payment solution, and (v) stand-alone software-based solutions such as our proofing solutions.

Our CODM evaluates the performance of our operating segments based on net sales and gross profit. Gross profit for each operating segment includes revenue from sales to third parties and related cost of revenue attributable to the operating segment. Cost of revenue for each operating segment excludes certain expenses managed outside the operating segments consisting primarily of stock-based compensation expense.

Operating income is not reported by operating segment because operating expenses include significant shared expenses and other costs that are managed outside of the operating segments. Such operating expenses include various corporate expenses such as stock-based compensation, corporate sales and marketing, research and development, amortization of identified intangibles, various non-recurring charges, and other separately managed general and administrative expenses.

23

Operating segment profit (i.e., gross profit), excluding stock-based compensation expense, during the three and six months ended June 30, 2017 and 2016 is summarized as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Industrial Inkjet
Revenue	$	141,693		$	140,124		$	264,956		$	265,922
Gross profit		52,511			49,044			101,580			91,494
Gross profit percentages		37.1	%		35.0	%		38.3	%		34.4	%
Productivity Software
Revenue	$	39,063		$	36,351		$	74,121		$	68,891
Gross profit		29,168			27,226			54,764			50,919
Gross profit percentages		74.7	%		74.9	%		73.9	%		73.9	%
Fiery
Revenue	$	66,291		$	69,175		$	136,661		$	144,970
Gross profit		46,238			49,311			95,937			102,577
Gross profit percentages		69.8	%		71.3	%		70.2	%		70.8	%

Operating segment profit (i.e., gross profit) is reconciled to our Condensed Consolidated Statements of Operations during the three and six months ended June 30, 2017 and 2016 as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Segment gross profit	$	127,917		$	125,581		$	252,281		$	244,990
Stock-based compensation expense		(665	)		(534	)		(1,499	)		(1,231	)
Other items excluded from segment profit		—			—			—			(315	)
Gross profit	$	127,252		$	125,047		$	250,782		$	243,444

The Fiery gross profit percentage is impacted by $0.2 and $1.2 million during the three and six months ended June 30, 2017, respectively, charged to cost of revenue, which reflects the FFPS cost of manufacturing plus a portion of the expected profit margin. Inventory acquired in the acquisition of FFPS is required to be recorded at fair value rather than historical cost in accordance with ASC 805. This amount is not included in the financial information regularly reviewed by the CODM as this acquisition-related charge is not indicative of the gross margin trends in the FFPS business. Excluding this charge, the Fiery gross profit percentage would be 70.0% and 71.1% for the three and six months ended June 30, 2017, respectively.

Tangible and intangible assets, net of liabilities, are summarized by operating segment as follows (in thousands):

June 30, 2017	Industrial Inkjet		Productivity Software			Fiery		Corporate and Unallocated Net Assets		Total
Goodwill	$	148,109	$	165,194		$	69,948	$	—	$	383,251
Identified intangible assets, net		77,808		36,407			19,451		—		133,666
Tangible assets, net of liabilities		197,953		(42,464	)		2,244		163,455		321,188
Net tangible and intangible assets	$	423,870	$	159,137		$	91,643	$	163,455	$	838,105
December 31, 2016
Goodwill	$	141,068	$	155,475		$	63,298	$	—	$	359,841
Identified intangible assets, net		84,465		38,440			92		—		122,997
Tangible assets, net of liabilities		156,202		(27,689	)		33,325		183,156		344,994
Net tangible and intangible assets	$	381,735	$	166,226		$	96,715	$	183,156	$	827,832

Corporate and unallocated assets consist of cash and cash equivalents, short-term investments, restricted investments and cash equivalents, corporate headquarters facility, convertible notes, imputed financing obligation, income taxes receivable, and income taxes payable.

24

Geographic Regions

Our revenue originates in the U.S., China, the Netherlands, Germany, Italy, France, the U.K., Spain, Israel, Brazil, Australia, and New Zealand. We report revenue by geographic region based on ship-to destination. Shipments to some of our significant printer manufacturer/distributor customers are made to centralized purchasing and manufacturing locations, which in turn sell through to other locations. As a result of these factors, we believe that sales to certain geographic locations might be higher or lower, as the ultimate destinations are difficult to ascertain.

Our revenue by ship-to destination during the three and six months ended June 30, 2017 and 2016 was as follows (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Americas	$	114,014	$	115,459	$	223,909	$	235,725
Europe, Middle East and Africa (“EMEA”)		101,513		95,877		189,546		179,460
Asia Pacific (“APAC”)		31,520		34,314		62,283		64,598
Total revenue	$	247,047	$	245,650	$	475,738	$	479,783

10. Derivatives and Hedging

We are exposed to market risk and foreign currency exchange risk from changes in foreign currency exchange rates, which could affect operating results, financial position, and cash flows. We manage our exposure to these risks through our regular operating and financing activities and, when appropriate, through use of derivative financial instruments. These derivative financial instruments are used to hedge monetary assets and liabilities, intercompany balances, trade receivables, anticipated cash flows, and to reduce earnings and cash flow volatility resulting from shifts in market rates. Our objective is to offset gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them, thereby reducing volatility of earnings or protecting fair values of assets and liabilities. We do not have any leveraged derivatives, nor do we use derivative contracts for speculative purposes. ASC 815, Derivatives and Hedging, requires the fair value of all derivative instruments, including those embedded in other contracts, to be recorded as assets or liabilities in our Condensed Consolidated Balance Sheet. The related cash flow impacts of our derivative contracts are reflected as cash flows from operating activities.

Our exposures are primarily related to non-U.S. dollar-denominated revenue in Europe, the U.K., Latin America, China, Israel, Australia, New Zealand, and Canada, and to non-U.S. dollar-denominated operating expenses in Europe, India, Japan, the U.K., China, Israel, Brazil, and Australia. We hedge our operating expense cash flow exposure in Indian rupees. We hedge balance sheet remeasurement exposure associated with British pound sterling, Israeli shekel, Australian dollar, New Zealand dollar, Japanese yen, Chinese renminbi, and Euro-denominated intercompany balances; Brazilian real, British pound sterling, Australian dollar, Canadian dollar, Israeli shekel, and Euro-denominated trade receivables; and British pound sterling, Indian rupee, and Euro-denominated net monetary assets.

By their nature, derivative instruments involve, to varying degrees, elements of market and credit risk. The market risk associated with these instruments resulting from currency exchange movement is expected to offset the market risk of the underlying transactions, assets, and liabilities being hedged (i.e., operating expense exposure in Indian rupees; the collection of trade receivables denominated in currencies other than their functional currency and the settlement of intercompany balances denominated in currencies other than their functional currency). We do not believe there is significant risk of loss from non-performance by the counterparty associated with these instruments because, by policy, we deal with counterparties having a minimum investment grade or better credit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties.

Cash Flow Hedges

Foreign currency derivative contracts with notional amounts of $3.6 million and $3.2 million have been designated as cash flow hedges of our Indian rupee operating expense exposure at June 30, 2017 and December 31, 2016, respectively. The fair value of the net assets (liabilities) related to these cash flow hedges are not material. The changes in fair value of these contracts are reported as a component of OCI and reclassified to operating expense in the periods of payment of the hedged operating expenses. The amount of ineffectiveness that was recorded in the Condensed Consolidated Statements of Operations for these designated cash flow hedges was immaterial. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

25

Balance Sheet Hedges

Forward contracts not designated for hedge accounting treatment with notional amounts of $145.1 and $158.7 million are used to hedge foreign currency balance sheet exposures at June 30, 2017 and December 31, 2016, respectively. They are not designated for hedge accounting treatment since there is a natural offset for the remeasurement of the underlying foreign currency denominated asset or liability. We recognize changes in the fair value of non-designated derivative instruments in earnings in the period of change. Gains and losses on foreign currency forward contracts used to hedge balance sheet exposures are recognized in interest income and other income, net, in the same period as the remeasurement gain or loss of the related foreign currency denominated assets and liabilities. Forward contracts not designated for hedge accounting treatment consist of hedges of British pound sterling, Brazilian real, Israeli shekel, Japanese yen,, and Euro-denominated intercompany balances with notional amounts of $59.1 and $90.7 million; hedges of Brazilian real, British pound sterling, Australian dollar, Canadian dollar, Israeli shekel, and Euro-denominated trade receivables with notional amounts of $50.5 and $39.8 million; and hedges of British pounds sterling, Indian rupee, Israeli shekel, and Euro-denominated other net monetary assets with notional amounts of $35.5 and $28.2 million at June 30, 2017 and December 31, 2016, respectively.

11. Restructuring and Other

During the three and six months ended June 30, 2017 and 2016, cost reduction actions were taken to lower our operating expense run rate as we analyze and re-align our cost structure following our business acquisitions. These charges primarily relate to cost reduction actions undertaken to integrate recently acquired businesses, consolidate facilities, and lower our operating expense run rate. Restructuring and other consists primarily of restructuring, severance, retention, facility downsizing and relocation, and acquisition integration expenses. Our restructuring and other plans are accounted for in accordance with ASC 420, Exit or Disposal Cost Obligations, ASC 712, Compensation – Non-Retirement Postemployment Benefits, and ASC 820.

Restructuring and other costs were $3.7 and $4.6 million during the three and six months ended June 30, 2017, respectively, and $1.7 and $4.4 million during the three and six months ended June 30, 2016, respectively. Restructuring and other costs include severance charges of $3.1 and $3.5 million related to reductions in head count of 95 and 113 during the three and six months ended June 30, 2017, respectively, and $1.0 and $3.1 million related to reduction in head count of 27 and 98 during the three and six months ended June 30, 2016, respectively. Severance costs include severance payments, related employee benefits, outplacement fees, and employee relocation costs.

Facilities relocation and downsizing expenses were $0.2 and $0.5 million during the six months ended June 30, 2017 and 2016, respectively, primarily related to the relocation of certain manufacturing and administrative locations due to reduced space requirements. Integration expenses of $0.4 and $0.8 million during the three and six months ended June 30, 2017, respectively, and $0.7 and $0.9 million during the three and six months ended June 30, 2016, respectively, were required to integrate our business acquisitions.

Restructuring and other reserve activities during the six months ended June 30, 2017 and 2016 are summarized as follows (in thousands):

	2017			2016
Reserve balance at January 1,	$	1,824		$	3,019
Restructuring charges		3,502			2,375
Other charges		1,087			2,050
Non-cash restructuring and other		(117	)		(403	)
Cash payments		(2,926	)		(4,704	)
Reserve balance at June 30,	$	3,370		$	2,337

12. Stock-based Compensation

We account for stock-based payment awards in accordance with ASC 718, Stock Compensation, which requires the measurement and recognition of compensation expense for all equity awards granted to our employees and directors, including RSUs, ESPP purchase rights, and employee stock options related to all stock-based compensation plans based on the fair value of such awards on the date of grant. We amortize stock-based compensation cost on a graded vesting basis over the vesting period reduced by actual forfeitures, after assessing the probability of achieving the requisite performance criteria with respect to performance-based awards. Stock-based compensation cost is recognized over the requisite service period for each separately vesting tranche of the award as though the award were, in substance, multiple awards.

26

Stock-based compensation expense related to stock options, ESPP purchase rights, and RSUs during the three and six months ended June 30, 2017 and 2016 is summarized as follows (in thousands):

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Stock-based compensation expense by type of award:
RSUs	$	6,093		$	6,389		$	15,330		$	17,077
ESPP		1,520			591			2,563			1,358
Employee stock options		—			125			—			(45	)
Total stock-based compensation		7,613			7,105			17,893			18,390
Income tax benefit		(2,531	)		(1,563	)		(5,404	)		(4,246	)
Stock-based compensation expense, net of tax	$	5,082		$	5,542		$	12,489		$	14,144

Valuation Assumptions for Stock Options and ESPP Purchase Rights

We use the Black-Scholes-Merton (“BSM”) option pricing model to value stock-based compensation for all equity awards, except market-based awards, which are valued using the Monte Carlo valuation model.

The BSM model determines the fair value of stock-based payment awards based on the stock price on the date of grant and is affected by assumptions regarding highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, expected term, interest rates, and actual and projected employee stock option exercise behavior. Expected volatility is based on the historical volatility of our stock over a preceding period commensurate with the expected term of the option. The expected term is based upon management’s consideration of the historical life, vesting period, and contractual period of the options granted. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield was not considered in the option pricing formula since we do not pay dividends and have no current plans to do so in the future.

Stock options were not granted during the three and six months ended June 30, 2017 and 2016. The estimated weighted average fair value per share of ESPP purchase rights issued and the underlying weighted average assumptions for the three and six months ended June 30, 2017 and 2016 are as follows:

	ESPP
	Six months ended June 30,
	2017		2016
Weighted average fair value per share	$	12.03	$	10.39
Expected volatility		24% - 28%		22% - 25%
Risk-free interest rate		0.7% - 1.2%		0.5% - 0.8%
Expected term (in years)		0.5 - 2.0		0.5 - 2.0

Stock options outstanding and exercisable, including performance-based and market-based options, as of June 30, 2017, and activity during the six months ended June 30, 2017 are summarized below (in thousands, except weighted average exercise price and remaining contractual term):

	Shares outstanding			Weighted average exercise price		Weighted average remaining contractual term (years)		Aggregate intrinsic value
Options outstanding at January 1, 2017		315		$	13.86
Options exercised		(127	)		12.31
Options outstanding at June 30, 2017		188		$	14.92		1.47	$	6,102
Options vested and expected to vest at June 30, 2017		188		$	14.92		1.47	$	6,102
Options exercisable at June 30, 2017		188		$	14.92		1.47	$	6,102

Aggregate intrinsic value for stock options represents the difference between the closing price per share of our common stock on the last trading day of the fiscal period and the option exercise price multiplied by the number of in-the-money stock options outstanding, vested and expected to vest, and exercisable at June 30, 2017.

27

Non-vested RSUs as of June 30, 2017, and activity during the six months ended June 30, 2017 are summarized below (shares in thousands):

	Time-based					Performance-based					Market-based				Total
	Shares			Weighted average grant date  fair value		Shares			Weighted average grant date fair value		Shares		Weighted average grant date fair value		Shares			Weighted average grant date fair value
Non-vested at January 1, 2017		795		$	43.79		1,265		$	42.64		23	$	33.16		2,083		$	43.34
Granted		120			45.98		371			46.93		—		—		491			46.70
Vested		(128	)		43.43		(263	)		40.67		—		—		(391	)		41.58
Forfeited		(35	)		43.50		(403	)		40.93		—		—		(438	)		41.14
Non-vested at June 30, 2017		752		$	44.22		970		$	45.52		23	$	33.16		1,745		$	45.23

Vested RSUs

Performance-based RSUs that vested based on financial results are included in the period that the performance and related service criteria were met. The grant date fair value of RSUs vested during the six months ended June 30, 2017 was $16.3 million. The aggregate intrinsic value at June 30, 2017 for RSUs expected to vest was $55.0 million and the remaining weighted average vesting period was 2.42 years. Aggregate intrinsic value for RSUs vested and expected to vest represents the closing price per share of our common stock on the last trading day of the fiscal period, multiplied by the number of RSUs vested and expected to vest as of June 30, 2017. RSUs expected to vest represent time-based RSUs unvested and outstanding at June 30, 2017, and performance-based RSUs for which the requisite service period has not been rendered, but are expected to vest based on the achievement of performance conditions.

Performance-based and Market-based RSUs and Stock Options

Performance-based stock options, market-based RSUs, and market-based stock options were not granted during the six months ended June 30, 2017 and 2016. We use the BSM option pricing model to value performance-based RSUs. The weighted average grant date fair value per share of performance-based RSUs granted and the assumptions used to estimate grant date fair value during the six months ended June 30, 2017 and 2016 are as follows:

	Performance-based
	RSUs
	Short-term		Long-term
Six months ended June 30, 2017 Grants
Grant date fair value per share	$	47.23	$	45.96
Service period (years)		1.0		2.0 - 3.0
Six months ended June 30, 2016 Grants
Grant date fair value per share	$	39.59	$	39.98
Service period (years)		1.0		2.0 - 3.0

Our performance-based RSUs generally vest when specified performance criteria are met based on bookings, revenue, cash provided by operating activities, non-GAAP operating income, non-GAAP earnings per share, revenue growth compared to market comparables, non-GAAP earnings per share growth compared to cash flow from operating activities growth, or other targets during the service period; otherwise, they are forfeited. Non-GAAP operating income is defined as operating income determined in accordance with GAAP, adjusted to remove the impact of certain expenses and gains. Non-GAAP earnings per share is defined as net income determined in accordance with GAAP, adjusted to remove the impact of certain expenses and gains, and the related tax effects, divided by the weighted average number of common shares and dilutive potential common shares outstanding during the period as more fully defined in Note 2 – Earnings Per Share of the Notes to Condensed Consolidated Financial Statements.

The grant date fair value per share determined in accordance with the BSM valuation model is being amortized over the service period of the performance-based awards. The probability of achieving the awards was determined based on review of the actual results achieved thus far by each business unit compared with the operating plan during the pertinent service period as well as the overall strength of the business unit. Stock-based compensation expense was adjusted based on this probability assessment. As actual results are achieved during the service period, the probability assessment is updated and stock-based compensation expense adjusted accordingly.

28

Market-based awards that were granted in prior periods vest when our average closing stock price exceeds defined multiples of the closing stock price for 90 consecutive trading days. If these multiples were not achieved by the expiration date, the awards are forfeited. The grant date fair value is being amortized over the average derived service period of the awards. The average derived service period and total fair value were determined using a Monte Carlo valuation model based on our assumptions, which include a risk-free interest rate and implied volatility.

2017 Equity Incentive Plan

Our stockholders approved the 2017 Equity Incentive Plan (“2017 Plan”) on June 7, 2017, which includes:

• 1.2 million shares of our common stock reserved for issuance pursuant to such plan;

• 1,593,660 common stock shares that were available for future grants under the 2009 Equity Incentive Award Plan (“Prior Plan”) immediately prior to termination of authority to grant new awards under the Prior Plan on June 7, 2017;

• shares subject to stock options granted under the Prior Plan and outstanding as of June 7, 2017, which expire, or for any reason are cancelled or terminated, after that date without being exercised; and

• shares subject to restricted stock unit awards granted under the Prior Plan that are outstanding and unvested as of June 7, 2017 which are forfeited, terminated, cancelled, or otherwise reacquired after that date without having become vested.

No additional grants will be made under the Prior Plan. The 2017 Plan replaces the Prior Plan and will be used to help attract, retain and motivate employees, consultants, and directors.

13. Common Stock Repurchase Programs

On November 9, 2015, the board of directors approved the repurchase of $150 million of outstanding common stock commencing January 1, 2016. This authorization expires December 31, 2018. Under this publicly announced plan, we repurchased 0.7 and 1.0 million shares for an aggregate purchase price of $34.5 and $39.7 million during the six months ended June 30, 2017 and 2016, respectively.

Our employees have the option to surrender shares of common stock to satisfy their tax withholding obligations that arise on the vesting of RSUs. In connection with stock option exercises, certain employees can surrender shares to satisfy the exercise price of certain stock options and any tax withholding obligations incurred in connection with such exercises. Employees surrendered less than 0.1 and 0.1 million shares for an aggregate purchase price of $1.9 and $6.8 million during the three and six months ended June 30, 2017, respectively, and less than 0.1 million and 0.1 million shares for an aggregate purchase price of $1.1 and $4.2 million during the three and six months ended June 30, 2016, respectively.

These repurchased shares reduce shares outstanding and are recorded as treasury stock under the cost method thereby reducing stockholders’ equity by the cost of the repurchased shares. Our repurchase program is limited by SEC regulations and is subject to compliance with our insider trading policy.

14. Accounts Receivable

Financing Receivables

ASC 310, Receivables, requires disclosure regarding the credit quality of our financing receivables and allowance for credit losses including disclosure of credit quality indicators, past due information, and modifications of our financing receivables. Our financing receivables of $31.5 and $31.0 million consisted of $19.0 and $17.8 million of sales-type lease receivables, included within other current assets and other assets at June 30, 2017 and December 31, 2016, respectively, and $12.5 and $13.2 million of trade receivables having an original contractual maturity in excess of one year, included within accounts receivable, net of allowance, at June 30, 2017 and December 31, 2016, respectively. The trade receivables of $12.5 and $13.2 million having an original total contractual maturity in excess of one year at June 30, 2017 and December 31, 2016, include $5.5 and $7.1 million, respectively, which are scheduled to be received in less than one year. The credit quality of financing receivables is evaluated on the same basis as trade receivables. We do not have material past due financing receivables.

Accounts Receivable Sales Arrangements

In accordance with ASC 860-20, Transfers and Servicing, trade receivables are derecognized from our Condensed Consolidated Balance Sheet when sold to third parties upon determining that such receivables are presumptively beyond the reach of creditors in a bankruptcy proceeding. The recourse obligation is measured using market data from similar transactions and the servicing liability is determined based on the fair value that a third party would charge to service these receivables. These liabilities were determined to not be material at June 30, 2017 and December 31, 2016.

29

We have facilities in the U.S. and Italy that enable us to sell to third parties, on an ongoing basis, certain trade receivables with recourse. Trade receivables sold with recourse are generally short-term receivables with payment due dates of less than 10 days from the date of sale, which are subject to a servicing obligation. Trade receivables sold under these facilities were $5.2 and $9.4 million during the three and six months ended June 30, 2017, respectively, and $19.8 million during the year ended December 31, 2016, which approximates the cash received.

We have facilities in Spain and Italy that enable us to sell to third parties, on an ongoing basis, certain trade receivables without recourse. Trade receivables sold without recourse are generally short-term receivables with payment due dates of less than one year, which are secured by international letters of credit. Trade receivables sold under these facilities were $1.0 million during the six months ended June 30, 2017, and $3.5 million during the year ended December 31, 2016, which approximates the cash received.

We report collections from the sale of trade receivables to third parties as operating cash flows in the Condensed Consolidated Statements of Cash Flows.

15. Subsequent Events

Purported Class Action Lawsuit

On August 10, 2017, a putative class action was filed against the Company and its two named executive officers in the United States District Court for the District of New Jersey, captioned Pipitone v. Electronics For Imaging, Inc., No. 2:17-cv-05992 (D.N.J.). The complaint alleges, among other things, that statements by the Company and its officers about the Company’s financial reporting, revenue recognition, internal controls, and disclosure controls and procedures were false or misleading. The complaint seeks an unspecified amount of damages, interest, attorneys’ fees, and other costs, on behalf of a putative class of individuals and entities that purchased or otherwise acquired EFI securities from February 22, 2017 through August 3, 2017.

At this time, we do not believe it is probable that we will incur a material loss in this matter. However, it is reasonably possible that our financial statements could be materially affected by an unfavorable resolution of this matter. Because this proceeding is in the preliminary stages, we are not yet in a position to estimate the amount or range of reasonably possible loss that may be incurred.

Purported Derivative Shareholder Lawsuits

On August 22, 2017, a purported derivative shareholder complaint was filed in the Superior Court of the State of California for the County of Alameda captioned Schiffmiller v. Gecht, No. RG17873197. The complaint makes claims derivatively and on behalf of the Company as nominal defendant against the Company’s named executive officers and directors for alleged breaches of fiduciary duties and unjust enrichment, and alleges, among other things, that statements by the Company and its officers about the Company’s financial reporting, revenue recognition, internal controls, and disclosure controls and procedures were false or misleading. The complaint alleges the Company has suffered damage as a result of the individual defendants’ alleged actions, and seeks an unspecified amount of damages, restitution, and declaratory and other relief.

At this time, we do not believe it is probable that we will incur a material loss in this matter. However, it is reasonably possible that our financial statements could be materially affected by an unfavorable resolution of this matter. Because this proceeding is in the preliminary stages, we are not yet in a position to estimate the amount or range of reasonably possible loss that may be incurred.

Acquisition of Generation Digital Solutions, Inc.

On August 14, 2017, we acquired privately held Generation Digital Solutions, Inc. (“GD”), a privately held company headquartered in New York City, for approximately $3.3 million in cash consideration, plus a potential future cash earnout of $4.6 million contingent on achieving certain performance targets. This acquisition will be accounted for as a purchase business combination and, accordingly, the total purchase price will be allocated to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values on August 14, 2017. GD will be integrated into the Fiery operating segment.

GD provides software to textile and fashion designers for the creation and design of prints and patterns, color matching, and color palette creation and management.

30

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This Quarterly Report on Form 10-Q (“Report”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and the future results of the Company that are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the management of the Company. Words such as “address,” “anticipate,” “believe,” “consider,” “continue,” “develop,” “estimate,” “expect,” “further,” “goal,” “intend,” “may,” “plan,” “potential,” “project,” “seek,” “should,” “target,” “will,” variations of such words, and similar expressions are intended to identify such forward-looking statements. Such statements reflect the current views of the Company and its management with respect to future events and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Company’s actual results, performance, or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Report under the section entitled “Risk Factors” in Item 1A of Part II of this report and Item 1A of Part I of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2016 and elsewhere and in other reports the Company files with the SEC. The following discussion should be read in conjunction with our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2016 and the condensed consolidated financial statements and notes thereto included elsewhere in this Report. The Company assumes no obligation to revise or update these forward-looking statements to reflect actual results, events, or changes in factors or assumptions affecting such forward-looking statements.

Business Overview

We are a world leader in customer-centric digital printing innovation focused on the transformation of the printing, packaging, ceramic tile decoration, and textile industries from the use of traditional analog based printing to digital on-demand printing.

Our products include industrial super-wide and wide format display graphics, label and packaging, textile, and ceramic tile decoration digital inkjet printers that utilize our digital ink, industrial digital inkjet printer parts, and professional services; print production workflow, web-to-print, cross-media marketing, fashion design, and business process automation solutions; and color printing DFEs creating an on-demand digital printing ecosystem. Our ink includes digital UV curable, LED curable, ceramic, water-based, and thermoforming ink, as well as a variety of textile ink including dye sublimation, pigmented, reactive dye, acid dye, pure disperse dye, and water-based dispersed printing ink. Our award-winning business process automation solutions are integrated from creation to print and are vertically integrated with our industrial digital inkjet printers and products produced by the leading production digital color page printer manufacturers that are driven by our Fiery DFEs.

Our product portfolio includes industrial super-wide and wide format digital inkjet products (“Industrial Inkjet”) including VUTEk and Matan display graphics super-wide and wide format, Reggiani textile, Jetrion label and packaging, and Cretaprint ceramic tile decoration and construction material industrial digital inkjet printers and ink; print production workflow, web-to-print, cross-media marketing, Optitex textile two-dimensional (“2D”) and three-dimensional (“3D”) fashion CAD applications, and business process automation software (“Productivity Software”), which provides corporate printing, label and packaging, publishing, and mailing and fulfillment solutions for the printing and packaging industry; and Fiery DFEs (“Fiery”). Our integrated solutions and award-winning technologies are designed to automate print and business processes, streamline workflow, provide profitable value-added services, and produce accurate digital output.

31

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts reported. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. Management believes there have been no significant changes during the six months ended June 30, 2017 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2016, with the exception of the following:

Bill and Hold Transactions

We recognize revenue related to certain industrial inkjet printer sales under bill and hold arrangements. For any bill and hold arrangement, judgment is required to evaluate whether the sale qualifies for revenue recognition in accordance with the following criteria and factors requiring consideration:

• The customer requests that the transaction be on a bill and hold basis and has a substantial business purpose for the arrangement. Such business purpose is related to customer site readiness.

• The scheduled delivery date must be reasonable and consistent with the customer’s business purpose (e.g., customary in the industry).

• The customer has made a fixed commitment to purchase the printer in written documentation.

• The printer is segregated from our inventory and is not available to fill any other customer orders.

• The risk of ownership has passed to the customer.

• The customer has the risk of loss in the event of loss, destruction, or a decline in the market value of goods.

• The printer is complete and ready for shipment.

• The date is determined by which we expect payment and we have not modified our normal billing and credit terms for the customer.

• Evaluation of our past experience with bill and hold transactions.

• We have not retained any specific performance obligations indicating the earnings process is not complete.

• Whether our custodial risks are insurable and insured.

• Extended procedures are not necessary to assure that there are no exceptions to the customer’s commitment to accept and pay for the printer.

Recent Accounting Pronouncements

See Note 1 of our Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements including the respective expected dates of adoption.

Overview

As discussed more fully in Note 1 – Basis of Presentation and Significant Accounting Policies of our Notes to Condensed Consolidated Financial Statements, during the three and six months ended June 30, 2017, we recorded out-of-period adjustments related to certain bill and hold transactions, which decreased revenue by $4.9 and $3.4 million, respectively, decreased gross profit by $0.9 and $0.5 million, respectively, and decreased net income by $0.6 and $0.3 million, respectively (or $0.01 per diluted share in both periods).

32

Key financial results during the three and six months ended June 30, 2017 were as follows:

• Our results of operations during the three and six months ended June 30, 2017 compared with the three and six months ended June 30, 2016 reflect increased revenue for the three months ended June 30, 2017, decreased revenue for the six months ended June 30, 2017, improved gross profit as a percentage of revenue, comparable operating expenses as a percentage of revenue, and increased investment income resulting primarily from increased interest rates. We completed our acquisitions of FFPS and CRC in 2017. We completed our acquisitions of Rialco and Optitex in 2016. Their results are included in our results of operations commencing on their respective acquisition dates. Acquisition-related transaction costs were $1.2 and $1.3 million during the six months ended June 30, 2017 and 2016, respectively, related to all acquisitions.

• Our consolidated revenue increased by 1%, or $1.4 million, and decreased by 1%, or $4.0 million, during the three and six months ended June 30, 2017, respectively, compared with the three and six months ended June 30, 2016. Industrial Inkjet revenue increased by $1.6 million and decreased by $1.0 million, respectively, and Productivity Software revenue increased by $2.7 and $5.2 million, respectively, while Fiery revenue decreased by $2.9 and $8.3 million, respectively, during the three and six months ended June 30, 2017, as compared with the same periods in the prior year. Recurring ink and maintenance revenue increased by 8% and 10% during the three and six months ended June 30, 2017, respectively, compared with the same periods in the prior year and represented 34% of consolidated revenue during the three and six months ended June 30, 2017.

• Our gross profit percentage increased to 52% and 53% during the three and six months ended June 30, 2017, respectively, from 51% during the three and six months ended June 30, 2016. The increase was primarily due to a 2.1 and 3.9 percentage point increase in the Industrial Inkjet operating segment gross profit percentage during the three and six months ended June 30, 2017, respectively. The improved Industrial Inkjet gross profit percentage was due to improvements in manufacturing efficiency, reduced warranty costs due to improved printer quality, and higher margin ink revenue representing an increased percentage of product mix.

• Operating expenses increased by $5.9 million to $119.2 million and by $9.8 million to $234.6 million during the three and six months ended June 30, 2017, respectively, from $113.3 and $224.8 million during the three and six months ended June 30, 2016, respectively. The increase in operating expenses was primarily due to head count increases related to our business acquisitions, FFPS sustaining engineering, prototype and non-recurring engineering expenses related to future product launches, amortization of intangible assets, restructuring and other expenses primarily due to head count reductions, and increased fair value of contingent consideration, partially offset by decreased trade show and marketing program expenses.

• Interest expense increased by $0.6 and $0.9 million during the three and six months ended June 30, 2017, respectively, compared with the three and six months ended June 30, 2016, respectively, primarily due to interest accretion related to the FFPS purchase liability, the Reggiani non-compete agreement liability, and our Notes.

• Interest income and other income, net, increased to $0.8 and $1.0 million during the three and six months ended June 30, 2017, respectively, from $0.4 and $0.2 million during the three and six months ended June 30, 2016, respectively, primarily due to increased investment income and decreased foreign currency exchange losses.

• We recognized a tax provision of $1.0 million on pre-tax net income of $3.8 million and no tax provision on pre-tax income of $7.6 million during the three and six months ended June 30, 2017, respectively, compared to tax provisions of $2.5 and $2.8 million on pre-tax net income of $7.8 and $10.1 million during the three and six months ended June 30, 2016, respectively. The changes in the income tax provision are primarily due to increased tax benefits related to stock-based compensation.

33

Results of Operations

Our Condensed Consolidated Statements of Operations as a percentage of total revenue during the three and six months ended June 30, 2017 and 2016 is as follows:

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Revenue		100	%		100	%		100	%		100	%
Gross profit		52			51			53			51
Operating expenses:
Research and development		16			15			17			15
Sales and marketing		18			17			18			18
General and administrative		8			9			8			9
Restructuring and other		1			1			1			1
Amortization of identified intangibles		5			4			5			4
Total operating expenses		48			46			49			47
Income from operations		4			5			4			4
Interest expense		(2	)		(2	)		(2	)		(2	)
Interest income and other income, net		—			—			—			—
Income before income taxes		2			3			2			2
Provision for income taxes		(1	)		(1	)		—			(1	)
Net income		1	%		2	%		2	%		1	%

Revenue

We classify our revenue, gross profit, assets, and liabilities in accordance with our three operating segments as follows:

“Industrial Inkjet,” which consists of our VUTEk and Matan super-wide and wide format display graphics, Reggiani textile, Jetrion label and packaging, and Cretaprint ceramic tile decoration and construction material industrial digital inkjet printers; digital UV curable, LED curable, ceramic, water-based, and thermoforming ink, as well as a variety of textile ink including dye sublimation, pigmented, reactive dye, acid dye, pure disperse dye, and water-based dispersed printing ink; digital inkjet printer parts; and professional services. Printing surfaces include paper, vinyl, corrugated, textile, glass, plastic, aluminum composite, ceramic tile, wood, and many other flexible and rigid substrates.

“Productivity Software,” which consists of a complete software suite that enables efficient and automated end-to-end business and production workflows for the print and packaging industry. This Productivity Suite also provides tools to enable revenue growth, efficient scheduling, and optimization of processes, equipment, and personnel. Customers are provided the financial and technical flexibility to deploy locally within their business or to be hosted in the cloud. The Productivity Suite addresses all segments of the print industry and consists of the: (i) Packaging Suite, with Radius at its core, for tag & label, cartons, and flexible packaging businesses; (ii) Corrugated Packaging Suite, with CTI at its core, for corrugated packaging businesses; (iii) Enterprise Commercial Print Suite, with Monarch at its core, for enterprise print businesses; (iv) Publication Print Suite, with Monarch or Technique at its core, for publication print businesses; (v) Midmarket Print Suite, with Pace at its core, for medium size print businesses; (vi) Quick Print Suite, with PrintSmith at its core, for small printers and in-plant sites; and (vii) Value Added Products, available with the suite and standalone, such as web-to-print, e-commerce, cross media marketing, warehousing, fulfillment, shop floor data collection, and shipping to reduce costs, increase profits, and offer new products and services to their existing and future customers. We also market Optitex fashion CAD software, which facilitates fast fashion and increased efficiency in the textile and fashion industries.

“Fiery,” which consists of DFEs, including the recently acquired FFPS DFE from Xerox, that transform digital copiers and printers into high performance networked printing devices for the office, industrial, and commercial printing markets. This operating segment is comprised of (i) stand-alone DFEs connected to digital printers, copiers, and other peripheral devices, (ii) embedded DFEs and design-licensed solutions used in digital copiers and multi-functional devices, (iii) optional software integrated into our DFE solutions such as Fiery Central and Graphics Arts Package, (iv) Fiery Self Serve, our self-service and payment solution, and (v) stand-alone software-based solutions such as our proofing solutions.

34

Ex-Currency. To better understand trends in our business, we believe it is helpful to adjust our Condensed Consolidated Statements of operations to exclude the impact of year-over-year changes in the translation of foreign currencies into U.S. dollars. This is a non-GAAP measure that is calculated by adjusting revenue, gross profit, and operating expenses by using historical exchange rates in effect during the comparable prior period and removing the balance sheet currency remeasurement impact from interest income and other income, net, including removal of any hedging gains and losses. We refer to these adjustments as “ex-currency.” The year-over-year currency impact can be determined as the difference between year-over-year actual growth rates and year-over-year ex-currency growth rates.

Management believes the ex-currency measures provide investors with an additional perspective on year-over-year financial trends and enables investors to analyze our operating results in the same way management does. A reconciliation of the ex-currency adjustments to GAAP results for the three and six months ended June 30, 2017 and 2016 and an explanation of how management uses non-GAAP financial information to evaluate its business, the substance behind management’s decision to use this non-GAAP financial information, the material limitations associated with the use of non-GAAP financial information, the manner in which management compensates for those limitations, and the substantive reasons management believes that this non-GAAP financial information provides useful information to investors is included under “Non-GAAP Financial Information” below.

Revenue by Operating Segment during the Three Months Ended June 30, 2017 and 2016

Our revenue by operating segment during the three months ended June 30, 2017 and 2016 was as follows (in thousands):

	Three months ended June 30,
			Percent					Percent			Change
	2017		of total			2016		of total			$			%
Industrial Inkjet	$	141,693		57	%	$	140,124		57	%	$	1,569			1	%
Productivity Software		39,063		16			36,351		15			2,712			7
Fiery		66,291		27			69,175		28			(2,884	)		(4	)
Total revenue	$	247,047		100	%	$	245,650		100	%	$	1,397			1	%

Overview

Our consolidated revenue increased by 1% (2% ex-currency), or $1.4 million, to $247.1 million during the three months ended June 30, 2017 from $245.7 million for the three months ended June 30, 2016, primarily due to increased Industrial Inkjet and Productivity Software revenue, offset by decreased Fiery revenue.

Industrial Inkjet

Industrial Inkjet revenue increased by 1% (3% ex-currency) during the three months ended June 30, 2017 compared with the three months ended June 30, 2016. Industrial Inkjet revenue increased primarily due to:

• increased ink revenue due to the increase in our installed printer base and the high utilization that our industrial digital inkjet printers are experiencing in the field, and

• increased revenue from parts and service, partially offset by

• printer revenue, which would have been higher by $4.9 million when considering out-of-period adjustments related to certain bill and hold transactions, which were recorded during the three months ended June 30, 2017.

Productivity Software

Productivity Software revenue increased by 7% (9% ex-currency) during the three months ended June 30, 2017 compared with the three months ended June 30, 2016 primarily due to post-acquisition Optitex revenue, which was acquired in June 2016, post-acquisition CRC revenue, which was acquired in May 2017, increased Enterprise Commercial Print Suite and Packaging Suite revenue, increased service revenue, and annual price increases related to our maintenance contracts, partially offset by decreased Midmarket Print Suite revenue.

35

Fiery

Fiery revenue decreased by 4% (also 4% ex-currency) during the three months ended June 30, 2017 compared with the three months ended June 30, 2016. Although end customer and reseller preference for Fiery products drives demand, most Fiery revenue relies on printer manufacturers to design, develop, and integrate Fiery technology into their print engines. The leading printer manufacturers continued to tightly manage their inventory levels, which decreased demand during the quarter. This decrease was partially offset by post-acquisition FFPS revenue, which was acquired in January 2017.

Revenue by Operating Segment during the Six Months Ended June 30, 2017 and 2016

Our revenue by operating segment during the six months ended June 30, 2017 and 2016 was as follows (in thousands):

	Six months ended June 30,
	2017		Percent of total			2016		Percent of total			Change
											$			%
Industrial Inkjet	$	264,956		56	%	$	265,922		56	%		$(966)			—	%
Productivity Software		74,121		15			68,891		14			5,230			8
Fiery		136,661		29			144,970		30			(8,309	)		(6	)
Total revenue	$	475,738		100	%	$	479,783		100	%	$	(4,045	)		(1	)%

Overview

Our consolidated revenue decreased by 1% (zero percent ex-currency), or $4.0 million, to $475.8 million during the six months ended June 30, 2017 from $479.8 million for the six months ended June 30, 2016, primarily due to decreased Industrial Inkjet and Fiery revenue, partially offset by increased Productivity Software revenue.

Industrial Inkjet

Industrial Inkjet revenue decreased by less than 1% (1% ex-currency) during the six months ended June 30, 2017 compared with the six months ended June 30, 2016. Industrial Inkjet revenue decreased primarily due to:

• decreased digital inkjet printer revenue due to reduced demand in anticipation of future product launches, and

• printer revenue, which would have been higher by $3.4 million when considering out-of-period adjustments related to certain bill and hold transactions, which were recorded during the six months ended June 30, 2017, partially offset by

• a full six months of post-acquisition Rialco ink products revenue, which closed in March 2016, and

• increased ink revenue due to the increase in our installed printer based and the high utilization that our industrial digital inkjet printers are experiencing in the field.

Productivity Software

Productivity Software revenue increased by 8% (9% ex-currency) during the six months ended June 30, 2017 compared with the six months ended June 30, 2016 primarily due to post-acquisition Optitex revenue, which was acquired in June 2016, post-acquisition CRC revenue, which was acquired in May 2017, increased Packaging Suite revenue, increased service revenue, and annual price increases related to our maintenance contracts, partially offset by decreased Midmarket Print Suite revenue.

Fiery

Fiery revenue decreased by 6% (also 6% ex-currency) during the six months ended June 30, 2017 compared with the six months ended June 30, 2016. Although end customer and reseller preference for Fiery products drives demand, most Fiery revenue relies on printer manufacturers to design, develop, and integrate Fiery technology into their print engines. The leading printer manufacturers continued to tightly manage their inventory levels, which decreased demand during the six months ended June 30, 2017. This decrease was partially offset by post-acquisition FFPS revenue, which was acquired in January 2017.

36

Revenue by Geographic Area during the Three Months Ended June 30, 2017 and 2016

Shipments to some of our significant printer manufacturer customers are made to centralized purchasing and manufacturing locations, which in turn ship to other locations, making it difficult to obtain accurate geographical shipment data. Accordingly, we believe that export sales of our products into each region may differ from what is reported.

Our revenue by geographic area during the three months ended June 30, 2017 and 2016 was as follows (in thousands):

	Three months ended June 30,
	2017		Percent of total			2016		Percent of total			Change
											$			%
Americas	$	114,014		46	%	$	115,459		47	%	$	(1,445	)		(1	)%
EMEA		101,513		41			95,877		39			5,636			6
APAC		31,520		13			34,314		14			(2,794	)		(8	)
Total revenue	$	247,047		100	%	$	245,650		100	%	$	1,397			1	%

Overview

Our consolidated revenue increased by 1% (2% ex-currency), or $1.4 million, to $247.1 million during the three months ended June 30, 2017 from $245.7 million during the three months ended June 30, 2016, primarily due to increased EMEA revenue in , partially offset by decreased Americas and APAC revenue.

Americas

Americas revenue decreased by $1.4 million, or 1% (also 1% ex-currency), during the three months ended June 30, 2017 compared with the three months ended June 30, 2016 due to industrial digital inkjet printer revenue, which would have been higher by $4.9 million when considering out-of-period adjustments related to certain bill and hold transactions, partially offset by increased ink revenue and Productivity Software revenue. Increased Productivity Software revenue resulted primarily from our acquisition of Optitex in June 2016, increased Enterprise Print Suite revenue, and increased Packaging Print Suite revenue.

EMEA

EMEA revenue increased by $5.6 million, or 6% (8% ex-currency), during the three months ended June 30, 2017 compared with the three months ended June 30, 2016 primarily due to increased industrial digital inkjet printer revenue, post-acquisition Rialco ink products revenue, and post-acquisition Optitex revenue, partially offset by decreased Enterprise Commercial Print Suite, Midmarket Print Suite, and Fiery revenue.

APAC

APAC revenue decreased by $2.8 million, or 8% (7% ex-currency), during the three months ended June 30, 2017 compared with the three months ended June 30, 2016 primarily due to decreased industrial digital inkjet printer and Fiery revenue, partially offset by increased Packaging Suite revenue and post-acquisition Optitex revenue.

Revenue by Geographic Area during the Six Months Ended June 30, 2017 and 2016

Our revenue by geographic area during the six months ended June 30, 2017 and 2016 was as follows (in thousands):

	Six months ended June 30,
	2017		Percent of total			2016		Percent of total			Change
											$			%
Americas	$	223,909		47	%	$	235,725		49	%	$	(11,816	)		(5	)%
EMEA		189,546		40			179,460		37			10,086			6
APAC		62,283		13			64,598		14			(2,315	)		(4	)
Total revenue	$	475,738		100	%	$	479,783		100	%	$	(4,045	)		(1	)%

37

Overview

Our consolidated revenue decreased by 1% (zero percent ex-currency), or $4.0 million, to $475.8 million during the six months ended June 30, 2017 from $479.8 million during the six months ended June 30, 2016, primarily due to increased revenue in EMEA, partially offset by decreased Americas and APAC revenue.

Americas

Americas revenue decreased by $11.8 million, or 5% (also 5% ex-currency), during the six months ended June 30, 2017 compared with the six months ended June 30, 2016 primarily due to decreased industrial digital inkjet printer revenue due to reduced demand in anticipation of future product launches, decreased Fiery revenue, and that industrial digital inkjet revenue would have been higher by $3.4 million when considering out-of-period adjustments related to certain bill and hold transactions, partially offset by increased ink revenue and Productivity Software revenue. Increased Productivity Software revenue resulted primarily from our acquisition of Optitex in June 2016 and increased Enterprise Commercial Print Suite revenue.

EMEA

EMEA revenue increased by $10.1 million, or 6% (8% ex-currency), during the six months ended June 30, 2017 compared with the six months ended June 30, 2016 primarily due to increased industrial digital inkjet printer revenue, and post-acquisition Optitex revenue, partially offset by decreased Enterprise Commercial Print Suite, Midmarket Print Suite, and Fiery revenue.

APAC

APAC revenue decreased by $2.3 million, or 4% (3% ex-currency), during the six months ended June 30, 2017 compared with the six months ended June 30, 2016 primarily due to decreased industrial digital inkjet printer and Fiery revenue, partially offset by post-acquisition Optitex revenue.

Revenue Concentration

A substantial portion of our revenue over the years has been attributable to sales of products through the leading printer manufacturers and independent distributor channels. We have a direct relationship with several leading printer manufacturers and work closely to design, develop, and integrate Fiery technology into their print engines. The printer manufacturers act as distributors and sell our DFE products to end customers through reseller channels. End customer and reseller channel preference for our DFE and software solutions drive demand for Fiery products through the printer manufacturers.

Although end customer and reseller channel preference for Fiery products drives demand, most Fiery revenue relies on printer manufacturers to design, develop, and integrate Fiery technology into their print engines. A significant portion of our revenue is, and has been, generated by sales of our Fiery DFE products to a relatively small number of leading printer manufacturers. During the three and six months ended June 30, 2017, Xerox provided 11% of our consolidated revenue. During the three and six months ended June 30, 2016, Xerox provided 10% and 11% of our consolidated revenue, respectively. We expect that if we increase our revenue in the Industrial Inkjet and Productivity Software operating segments in the future, the percentage of our revenue from the leading printer manufacturer customers will decrease.

38

Gross Profit

Gross profit by operating segment, excluding stock-based compensation, during the three and six months ended June 30, 2017 and 2016 was as follows (in thousands):                

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Industrial Inkjet
Revenue	$	141,693		$	140,124		$	264,956		$	265,922
Gross profit		52,511			49,044			101,580			91,494
Gross profit percentages		37.1	%		35.0	%		38.3	%		34.4	%
Productivity Software
Revenue	$	39,063		$	36,351		$	74,121		$	68,891
Gross profit		29,168			27,226			54,764			50,919
Gross profit percentages		74.7	%		74.9	%		73.9	%		73.9	%
Fiery
Revenue	$	66,291		$	69,175		$	136,661		$	144,970
Gross profit		46,238			49,311			95,937			102,577
Gross profit percentages		69.8	%		71.3	%		70.2	%		70.8	%

A reconciliation of our segment gross profit to our Condensed Consolidated Statements of Operations during the three and six months ended June 30, 2017 and 2016 was as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Segment gross profit	$	127,917		$	125,581		$	252,281		$	244,990
Stock-based compensation expense		(665	)		(534	)		(1,499	)		(1,231	)
Other items excluded from segment profit		—			—			—			(315	)
Gross profit	$	127,252		$	125,047		$	250,782		$	243,444

The Fiery gross profit percentage is impacted by $0.2 and $1.2 million during the three and six months ended June 30, 2017, respectively, charged to cost of revenue, which reflects the FFPS cost of manufacturing plus a portion of the expected profit margin. Inventory acquired in the acquisition of FFPS is required to be recorded at fair value rather than historical cost in accordance with ASC 805. This amount is not included in the financial information regularly reviewed by management as this acquisition-related charge is not indicative of the gross margin trends in the FFPS business. Excluding this charge, the Fiery gross profit percentage would be 70.0% and 71.1% during the three and six months ended June 30, 2017, respectively.

Overview

Our gross profit percentage increased to 52% and 53% during the three and six months ended June 30, 2017, respectively, from 51% during the three and six months ended June 30, 2016. The improved gross profit percentage was primarily due to a 2.1 and 3.9 percentage point increase in the Industrial Inkjet operating segment during the three and six months ended June 30, 2017, respectively. Excluding FFPS acquisition-related inventory fair value adjustments of $0.2 and $1.2 million for the three and six months ended June 30, 2017, respectively, our gross profit percentage remains at 52% and 53% during the three and six months ended June 30, 2017, respectively.

Industrial Inkjet Gross Profit

The Industrial Inkjet gross profit percentage increased to 37.1% and 38.3% (37.1% ex-currency and 38.6% ex-currency) during the three and six months ended June 30, 2017, respectively, from 35.0% and 34.4% during the three and six months ended June 30, 2016, respectively. Gross profit percentages improved by leveraging efficiencies in our worldwide digital inkjet printer manufacturing operations, centralizing super wide-format textile digital inkjet printer production in Italy, transferring production of super wide-format roll-to-roll digital inkjet printer production to Israel to leverage the lower cost platform that Matan provides, reducing warranty expense as a percentage of revenue due to engineering and quality improvements, and increasing ink revenue as a percentage of consolidated Industrial Inkjet revenue. Our ink business generates a higher gross profit percentage than other elements of our Industrial Inkjet operating segment.

39

Productivity Software Gross Profit

The Productivity Software gross profit percentages decreased to 74.7% and 73.9% (74.5% and 73.6% ex-currency) during the three and six months ended June 30, 2017, from 74.9% and 73.9% during the three and six months ended June 30, 2016, respectively. The decrease during the three months ended June 30, 2017 was primarily due to increased product maintenance costs, partially offset by price increases on annual maintenance renewal contracts.

Fiery Gross Profit

The Fiery gross profit percentage decreased to 69.8% and 70.2% (also 69.8% ex-currency and 70.2% ex-currency) during the three and six months ended June 30, 2017, respectively, from 71.3% and 70.8% during the three and six months ended June 30, 2016, respectively. The Fiery gross profit percentage, excluding the fair value adjustment related to acquired FFPS inventories of $0.2 and $1.2 million, respectively, decreased to 70.0% and 71.1% (also 70.0% and 71.1% ex-currency) during the three and six months ended June 30, 2017 from 71.3% and 70.8% during the three and six months ended June 30, 2016, respectively. The revenue mix between lower margin DFEs compared with higher margin professional services and software options accounts for this margin fluctuation between the periods.

Operating Expenses

Operating expenses during the three and six months ended June 30, 2017 and 2016 were as follows (in thousands):

	Three months ended June 30,										Six months ended June 30,
					Change										Change
	2017		2016		$			%			2017		2016		$			%
Research and development	$	38,989	$	37,676	$	1,313			3	%	$	78,616	$	74,798	$	3,818			5	%
Sales and marketing		43,714		42,770		944			2			86,749		84,300		2,449			3
General and administrative		21,135		21,446		(311	)		(1	)		42,164		42,278		(114	)		—
Restructuring and other		3,671		1,710		1,961			115			4,589		4,425		164			4
Amortization of identified intangibles		11,752		9,736		2,016			21			22,530		18,965		3,565			19
Total operating expenses	$	119,261	$	113,338	$	5,923			5	%	$	234,648	$	224,766	$	9,882			4	%

Operating expenses increased by $5.9 and $9.8 million, or 5% and 4% (6% and 5% ex-currency) to $119.2 and $234.6 million during the three and six months ended June 30, 2017, respectively, from $113.3 and $224.8 million during the three and six months ended June 30, 2016, respectively. The increase in operating expenses was primarily due to head count increases related to our business acquisitions, prototype and non-recurring engineering expenses related to future product launches and FFPS sustaining engineering, amortization of intangible assets, restructuring and other expenses primarily due to head count reductions, and increased fair value of contingent consideration, partially offset by decreased trade show and marketing program expenses.

Research and Development

Research and development expenses include personnel, consulting, travel, research and development facilities, prototype materials, and non-recurring engineering expenses.

Research and development expenses during the three months ended June 30, 2017 were $39.0 million, or 16% of revenue, compared to $37.7 million, or 15% of revenue, during the three months ended June 30, 2016, which is an increase of $1.3 million, or 3% (4% ex-currency). Personnel-related expenses decreased by $0.8 million primarily due to head count decreases. Prototypes and non-recurring engineering, consulting, contractor, supplies, freight, and related travel expenses increased by $1.5 million related to future product launches and FFPS sustaining engineering. Stock-based compensation expense increased by $0.5 million primarily due to increased ESPP participation by employees compared to the prior year.

Research and development expenses during the six months ended June 30, 2017 were $78.6 million, or 17% of revenue, compared to $74.8 million, or 15% of revenue, during the six months ended June 30, 2016, which is an increase of $3.9 million, or 5% (also 5% ex-currency). Personnel-related expenses decreased by $0.4 million primarily due to head count decreases. Prototypes and non-recurring engineering, consulting, contractor, supplies, freight, and related travel expenses increased by $3.2 million related to future product launches and FFPS sustaining engineering. Stock-based compensation expense increased by $1.0 million primarily due to increased ESPP participation by employees compared to the prior year.

40

We expect that if the U.S. dollar remains volatile against the Indian rupee, Euro, British pound sterling, Israeli shekel, Canadian dollar or Brazilian real, research and development expenses reported in U.S. dollars could fluctuate, although we hedge our operating expense exposure to the Indian rupee, which partially mitigates this risk.

Sales and Marketing

Sales and marketing expenses include personnel, trade shows, marketing programs and promotional materials, sales commissions, travel and entertainment, depreciation, and worldwide sales office expenses.

Sales and marketing expenses during the three months ended June 30, 2017 were $43.7 million, or 18% of revenue, compared to $42.8 million, or 17% of revenue, during the three months ended June 30, 2016, which is an increase of $0.9 million, or 2% (4% ex-currency). Personnel-related expenses increased by $1.3 million primarily due to head count increases related to our business acquisitions. Trade show and marketing program spending, including consulting, contractor, travel, and freight, decreased by $1.1 million as the prior year included Drupa trade show costs. Drupa is an international printing trade show that is held every four years. Stock-based compensation expense increased by $0.2 million primarily due to increased ESPP participation by employees compared to the prior year, partially offset by reduced probability of achieving performance awards. Facilities and information technology expenses related to our sales and marketing activities increased by $0.5 million.

Sales and marketing expenses during the six months ended June 30, 2017 were $86.7 million, or 18% of revenue, compared to $84.3 million, or 18% of revenue, during the six months ended June 30, 2016, which is an increase of $2.4 million, or 3% (4% ex-currency). Personnel-related expenses increased by $2.5 million primarily due to head count increases related to our business acquisitions. Trade show and marketing program spending, including consulting, contractor, travel, and freight, decreased by $1.1 million as the prior year included Drupa trade show costs. Drupa is an international printing trade show that is held every four years. Stock-based compensation expense increased by $0.2 million primarily due to increased ESPP participation by employees compared to the prior year, partially offset by reduced probability of achieving performance awards. Facilities and information technology expenses related to our sales and marketing activities increased by $0.8 million.

Over time, our sales and marketing expenses may increase in absolute terms if revenue increases in future periods, as we continue to actively promote our products and introduce new services and products. We expect that if the U.S. dollar remains volatile against the Euro, British pound sterling, Brazilian real, Israeli shekel, Australian dollar, and other currencies, sales and marketing expenses reported in U.S. dollars could fluctuate.

General and Administrative

General and administrative expenses consist primarily of human resources, legal, and finance expenses.

General and administrative expenses during the three months ended June 30, 2017 were $21.1 million, or 8% of revenue, compared to $21.4 million, or 9% of revenue, during the three months ended June 30, 2016, which is a decrease of $0.3 million, or 1% (also 1% ex-currency). Personnel-related expenses increased by $1.2 million primarily due to head count increases related to our business acquisitions. Acquisition costs decreased by $0.4 million primarily due to decreased expense in 2017 related to the CRC acquisition, which closed in Q2 2017, compared with acquisition costs related to the Optitex acquisition, which closed in Q2 2016. Professional services fees increased by $0.5 million. Stock-based compensation expense decreased by $0.3 million primarily due to reduced probability of achieving performance awards. Facilities and information technology expenses related to our general and administrative activities increased by $0.5 million.

The estimated probability of achieving the CTI earnout performance target increased offset by a decrease in the probability of achieving the Optitex earnout performance target during the three months ended June 30, 2017. Accretion of interest on all acquisitions was $0.5 million during the period. The estimated probability of achieving the Reggiani, DirectSmile, and CTI earnout performance targets increased during the three months ended June 30, 2016, which resulted in an increase in the associated liability and a charge to general and administrative expense of $2.3 million, including accretion of interest of $0.6 million related to all acquisitions.

General and administrative expenses during the six months ended June 30, 2017 were $42.2 million, or 8% of revenue, compared to $42.3 million, or 9% of revenue, during the six months ended June 30, 2016, which is comparable to the prior year (zero ex-currency). Personnel-related expenses increased by $1.0 million primarily due to head count increases related to our business acquisitions. Professional services fees increased by $0.7 million. Reserves for litigation and doubtful accounts decreased by $0.3 million. Stock-based compensation expense decreased by $1.9 million primarily due to reduced probability of achieving performance awards. Facilities and information technology expenses related to general and administrative activities increased by $0.8 million.

41

The estimated probability of achieving the CTI and Optitex earnout performance targets increased during the six months ended June 30, 2017, resulting in an increase in the associated liability and a charge to general and administrative expense of $1.8 million, including accretion of $0.9 million of interest related to all acquisitions. The estimated probability of achieving the Reggiani, DirectSmile, and CTI earnout performance targets increased during the six months ended June 30, 2016, partially offset by a reduced probability of achieving the DIMS earnout performance target, which resulted in an increase in the associated liability and a charge to general and administrative expense of $2.1 million, including accretion of interest of $1.2 million related to all acquisitions.

We expect that if the U.S. dollar remains volatile against the Euro, British pound sterling, Indian rupee, Israeli shekel, Brazilian real, or other currencies, general and administrative expenses reported in U.S. dollars could fluctuate.

Stock-based Compensation

We account for stock-based payment awards in accordance with ASC 718, which requires stock-based compensation expense to be recognized based on the fair value of such awards on the date of grant. We amortize compensation cost on a graded vesting basis over the vesting period, after assessing the probability of achieving requisite performance criteria with respect to performance-based and market-based awards. Stock-based compensation cost is recognized over the requisite service period for each separately vesting tranche of the award as though the award were, in substance, multiple awards. This results in greater stock-based compensation expense during the initial years of the vesting period.

Stock-based compensation expenses were $7.6 and $7.1 million during the three months ended June 30, 2017 and 2016, respectively, an increase of $0.5 million. Stock-based compensation expense increased primarily due to increased ESPP participation by employees compared to the prior year. Stock-based compensation expenses were $17.9 and $18.4 million during the six months ended June 30, 2017 and 2016, respectively, a decrease of $0.5 million. Stock-based compensation expense decreased primarily due to reduced probability of achieving performance awards and cancellation of unvested awards, partially offset by increased ESPP expense resulting from higher employee participation.

Restructuring and Other

Restructuring and other costs were $3.7 and $4.6 million during the three and six months ended June 30, 2017, respectively, and $1.7 and $4.4 million during the three and six months ended June 30, 2016, respectively. Restructuring and other costs include severance charges of $3.1 and $3.5 million related to reductions in head count of 95 and 113 during the three and six months ended June 30, 2017, respectively, and $1.0 and $3.1 million related to reduction in head count of 27 and 98 during the three and six months ended June 30, 2016, respectively. Severance costs include severance payments, related employee benefits, outplacement fees, and employee relocation costs.

Facilities relocation and downsizing expenses were $0.2 and $0.5 million during the six months ended June 30, 2017 and 2016, respectively, primarily related to the relocation of certain manufacturing and administrative locations due to reduced space requirements. Integration expenses of $0.4 and $0.8 million during the three and six months ended June 30, 2017, respectively, and $0.7 and $0.9 million during the three and six months ended June 30, 2016, respectively, were required to integrate our business acquisitions.

Amortization of Identified Intangibles

Amortization of identified intangibles during the three months ended June 30, 2017 was $11.8 million, or 5% of revenue, compared to $9.7 million, or 4% of revenue, during the three months ended June 30, 2016, an increase of $2.1 million, or 21%. Amortization of identified intangibles during the six months ended June 30, 2017 was $22.5 million, or 5% of revenue, compared to $19.0 million, or 4% of revenue, during the six months ended June 30, 2016, an increase of $3.5 million, or 19%. Intangible amortization increased primarily due to amortization of identified intangibles resulting from the FFPS and CRC acquisitions, partially offset by decreased amortization due to certain intangible assets from prior year acquisitions becoming fully amortized.

Interest Expense

Interest expense during the three and six months ended June 30, 2017 was $5.0 and $9.6 million, respectively, compared to $4.4 and $8.7 million during the three and six months ended June 30, 2016, respectively, an increase of $0.6 and $0.9 million primarily due to interest accretion related to the FFPS purchase liability, the Reggiani non-compete agreement liability, and our Notes.

42

Interest Income and Other Income, Net

Interest income and other income, net, includes interest income on our cash equivalents and short-term investments, gains and losses from sales of our cash equivalents and short-term investments, and net foreign currency transaction gains and losses.

Interest income and other income, net, increased to $0.8 and $1.1 million during the three and six months ended June 30, 2017, respectively, from $0.4 and $0.2 million during the three and six months ended June 30, 2016, respectively, primarily due to increased investment income resulting from increased market interest rates and decreased foreign currency exchange losses.

Income Before Income Taxes

The components of income before income taxes during the three and six months ended June 30, 2017 and 2016 are as follows (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017			2016
U.S.	$	1,256	$	6,301	$	(1,991	)	$	7,459
Foreign		2,524		1,453		9,541			2,685
Total	$	3,780	$	7,754	$	7,550		$	10,144

During the three months ended June 30, 2017, pretax net income of $3.8 million consisted of U.S. and foreign pretax net income of $1.3 and $2.5 million, respectively. Pretax net income attributable to U.S. operations included amortization of identified intangible assets of $3.8 million, stock-based compensation of $7.6 million, restructuring and other of $2.7 million, acquisition-related costs of $0.5 million, change in fair value of contingent consideration of $0.6 million, litigation settlement expense of $0.3 million, and interest expense related to our Notes of $4.3 million. Pretax net income attributable to foreign operations included amortization of identified intangible assets of $8.0 million, restructuring and other of $1.0 million, and earnout interest accretion of $0.4 million, partially offset by the change in fair value of contingent consideration of $0.6 million. The exclusion of these items from pretax net income would result in U.S. and foreign pretax net income of $21.1 and $11.3 million, respectively, during the three months ended June 30, 2017.

During the six months ended June 30, 2017, pretax net income of $7.6 million consisted of U.S. pretax net loss of $2.0 million and foreign pretax net income of $9.6 million, respectively. Pretax net loss attributable to U.S. operations included amortization of identified intangible assets of $6.7 million, stock-based compensation of $17.9 million, restructuring and other of $3.4 million, acquisition-related costs of $1.3 million, cost of revenue resulting from the fair value adjustment of FFPS inventory of $0.5 million, change in fair value of contingent consideration of $0.7 million, litigation settlement expense of $0.3 million, and interest expense related to our Notes of $8.4 million. Pretax net income attributable to foreign operations included amortization of identified intangible assets of $15.8 million, restructuring and other of $1.2 million, cost of revenue resulting from the fair value adjustment of FFPS inventory of $0.7 million, earnout interest accretion of $0.9 million, and change in fair value of contingent consideration of $0.2 million. The exclusion of these items from pretax net income would result in U.S. and foreign pretax net income of $37.2 and $28.4 million, respectively, during the six months ended June 30, 2017.

During the three months ended June 30, 2016, pretax net income of $7.8 million consisted of U.S. and foreign pretax net income of $6.3 and $1.5 million, respectively. Pretax net income attributable to U.S. operations included amortization of identified intangible assets of $2.0 million, stock-based compensation of $7.1 million, restructuring and other of $1.2 million, acquisition-related costs of $0.8 million, litigation settlement expense of $0.5 million, and interest expense related to our Notes of $4.1 million. The pretax net income attributable to foreign operations included amortization of identified intangible assets of $7.7 million, restructuring and other of $0.5 million, and change in fair value of contingent consideration of $2.3 million. The exclusion of these items from net income would result in U.S. and foreign pretax net income of $22.0 and $12.0 million, respectively, during the three months ended June 30, 2016.

During the six months ended June 30, 2016, pretax net income of $10.1 million consisted of U.S. and foreign pretax net income of $7.5 and $2.7 million, respectively. Pretax net income attributable to U.S. operations included amortization of identified intangible assets of $3.9 million, stock-based compensation of $18.4 million, restructuring and other of $2.2 million, acquisition-related costs of $1.0 million, litigation settlement expense of $0.8 million, and interest expense related to our Notes of $8.0 million. The pretax net income attributable to foreign operations included amortization of identified intangible assets of $15.0 million, restructuring and other of $2.2 million, acquisition-related costs of $0.3 million, and change in fair value of contingent consideration of $2.1 million. The exclusion of these items from net income would result in U.S. and foreign pretax net income of $41.8 and $22.3 million, respectively, during the six months ended June 30, 2016.

43

Provision for Income Taxes

We recognized tax provisions of $1.0 and $2.5 million on pretax net income of $3.8 and $7.8 million during the three months ended June 30, 2017 and 2016, respectively. We recognized no tax provision on pretax net income of $7.6 and a tax provision of $2.8 million on pretax income of $10.1 million during the six months ended June 30, 2017 and 2016, respectively. The provisions for income taxes before discrete items reflected in the table below were $1.5 and $2.3 million during the three months ended June 30, 2017 and 2016, respectively, and $2.6 and $2.8 million during the six months ended June 30, 2017 and 2016, respectively. The decrease in the provisions for income taxes before discrete items during the three and six months ended June 30, 2017, compared with the same periods in the prior year, is primarily due to the decrease in profitability before income taxes.

Primary differences between our provision for income taxes before discrete items and the income tax provision at the U.S. statutory rate of 35% include lower taxes on permanently reinvested foreign earnings and the tax effects of stock-based compensation expense pursuant to ASC 718-740, which are non-deductible for tax purposes.

Our tax provision before discrete items is reconciled to our recorded provision for income taxes during the three and six months ended June 30, 2017 and 2016 as follows (in millions):

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Provision for income taxes before discrete items	$	1.5		$	2.3		$	2.6		$	2.8
Interest related to unrecognized tax benefits		0.1			0.1			0.1			0.2
Benefit for reassessment of taxes upon filing tax returns		0.2			0.3			0.1			0.1
Excess tax benefit from stock compensation		(0.8	)		(0.2	)		(2.3	)		(0.3	)
Benefit from reassessment of taxes upon foreign statutory tax rate change		—			—			(0.5	)		—
Provision for income taxes	$	1.0		$	2.5		$	—		$	2.8

We earn a significant amount of our operating income outside the U.S., which is deemed to be permanently reinvested in foreign jurisdictions. Of the income generated in jurisdictions with tax rates materially lower than the statutory U.S. tax rate of 35%, most is earned in the Netherlands, Spain, United Kingdom, Italy, and the Cayman Islands. Our effective tax rate could fluctuate significantly and be adversely impacted if anticipated earnings in the Netherlands, Spain, and the Cayman Islands are proportionally lower than current projections and earnings in all other jurisdictions are proportionally higher than current projections.

While we currently do not foresee a need to repatriate the earnings of foreign operations, should we require more capital in the U.S. than is generated by our U.S. operations, we may elect to repatriate funds held in our foreign jurisdictions or raise capital in the U.S. through debt or equity issuances. These alternatives could result in higher effective tax rates, the cash payments of taxes and/or increased interest expense.

As of June 30, 2017, and December 31, 2016, gross unrecognized tax benefits that would affect the effective tax rate if recognized were $32.6 and $32.0 million, respectively, which would affect the effective tax rate, if recognized. Over the next twelve months, our existing tax positions will continue to generate increased liabilities for unrecognized tax benefits. It is reasonably possible that our gross unrecognized tax benefits will decrease up to $3.5 million in the next twelve months. These adjustments, if recognized, would positively impact our effective tax rate, and would be recognized as additional tax benefits in our Condensed Consolidated Statement of Operations. The reduction in unrecognized tax benefits relates primarily to a lapse of the statute of limitations for federal and state tax purposes.

In accordance with ASU 2013-11, we recorded $20.6 million of gross unrecognized tax benefits as an offset to deferred tax assets as of June 30, 2017, and the remaining $12.0 million has been recorded as noncurrent income taxes payable.

We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of June 30, 2017, and December 31, 2016, we have accrued $0.6 and $0.5 million, respectively, for potential payments of interest and penalties.

As of June 30, 2017, we were subject to examination by the Internal Revenue Service for the 2013-2015 tax years, state tax jurisdictions for the 2012-2015 tax years, the Netherlands tax authority for the 2012-2015 tax years, the Spanish tax authority for the 2012-2015 tax years, the Israel tax authority for the 2011-2015 tax years, and the Italian tax authority for the 2012-2015 tax years.

44

In Altera Corp. v. Commissioner, the U.S Tax Court issued an opinion on July 27, 2015, related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. To date, the U.S. Department of the Treasury has not withdrawn the requirement to include stock-based compensation in intercompany cost-sharing arrangements from its regulations. Due to the uncertainty related to the status of the current regulations and the basis of the appeal that has been filed by the Internal Revenue Service, we have not recorded any benefit as of June 30, 2017, in our Condensed Consolidated Statement of Operations. We will continue to monitor ongoing developments and potential impacts to our condensed consolidated financial statements.

We assess the likelihood that our deferred tax assets will be recovered from future taxable income by considering both positive and negative evidence relating to their recoverability. If we believe that recovery of these deferred tax assets is not more likely than not, we establish a valuation allowance.

Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we considered all available evidence, including recent operating results, projections of future taxable income, our ability to utilize loss and credit carryforwards, and the feasibility of tax planning strategies. Other than valuation allowances on deferred tax assets related to California, Luxembourg, Israel, Netherlands, and Turkey deferred tax assets that will not be realized based on the size of the net operating loss and research and development credits being generated, we have determined that is more likely than not that we will realize the benefit related to all other deferred tax assets. To the extent we increase a valuation allowance, we will include an expense in the Condensed Consolidated Statement of Operations in the period in which such determination is made.

45

Non-GAAP Financial Information

Use of Non-GAAP Financial Information

To supplement our condensed consolidated financial results prepared in accordance with GAAP, we use non-GAAP measures of net income and earnings per diluted share that are GAAP net income and earnings per diluted share adjusted to exclude certain costs, expenses, and gains.

We believe the presentation of non-GAAP net income and non-GAAP earnings per diluted share provides important supplemental information regarding certain costs, expenses, gains, and significant items that we believe are important to understanding financial and business trends relating to our financial condition and results of operations. Non-GAAP net income and non-GAAP earnings per diluted share are among the primary indicators used by management as a basis for planning and forecasting future periods and by management and our Board of Directors to determine whether our operating performance has met specified targets and thresholds. Management uses non-GAAP net income and non-GAAP earnings per diluted share when evaluating operating performance because it believes the exclusion of the items described below, for which the amounts and/or timing may vary significantly depending on our activities and other factors, facilitates comparability of our operating performance from period to period. We have chosen to provide this information to investors so they can analyze our operating results in the same way that management does and use this information in their assessment of our business and the valuation of our Company.

Use and Economic Substance of Non-GAAP Financial Measures

We compute non-GAAP net income and non-GAAP earnings per diluted share by adjusting GAAP net income and GAAP earnings per diluted share to remove the impact of the amortization of acquisition-related intangibles, stock-based compensation expense, non-cash settlement of vacation liabilities, restructuring and other expense, acquisition-related transaction expenses, costs to integrate such acquisitions into our business, incremental cost of revenue due to the fair value adjustment to inventories acquired in business acquisitions, changes in the fair value of contingent consideration including the related foreign exchange fluctuation impact, litigation settlement charges, and non-cash interest expense related to our Notes. We use a constant non-GAAP tax rate of 19%, which we believe reflects the long-term average tax rate based on our international structure and geographic distribution of revenue and profit.

Ex-Currency. To better understand trends in our business, we believe it is helpful to adjust our Condensed Consolidated Statements of Operations to exclude the impact of year-over-year changes in the translation of foreign currencies into U.S. dollars. This is a non-GAAP measure that is calculated by adjusting revenue, gross profit, and operating expenses by using historical exchange rates in effect during the comparable prior period and removing the balance sheet currency remeasurement impact from interest income and other income, net, including removal of any hedging gains and losses. We refer to these adjustments as “ex-currency.” Management believes the ex-currency measures provide investors with an additional perspective on year-over-year financial trends and enables investors to analyze our operating results in the same way management does. The year-over-year currency impact can be determined as the difference between year-over-year actual growth rates and year-over-year ex-currency growth rates.

These excluded items are described below:

• Inventory acquired in the acquisition of FFPS is required to be recorded at fair value rather than historical cost in accordance with ASC 805. The fair value of FFPS inventory reflects the manufacturing cost plus a portion of the expected gross profit. We have adjusted our cost of revenue to reflect the expected gross profit that was included in the inventory valuation under ASC 805. We believe this adjustment is useful to investors to understand the gross profit trends of our ongoing business.

• Intangible assets acquired to date are being amortized on a straight-line basis.

• Stock-based compensation expense recognized in accordance with ASC 718.

• Non-cash settlement of vacation liabilities through the issuance of RSUs, which are not included in the GAAP presentation of our stock-based compensation expense.

• Restructuring and other consists of:

• Restructuring charges incurred as we consolidate the number and size of our facilities and, as a result, reduce the size of our workforce.

• Expenses incurred to integrate businesses acquired of $0.4 and $0.8 million during the three and six months ended June 30, 2017, respectively, and $0.7 and $0.9 million during the three and six months ended June 30, 2016, respectively.

46

• Acquisition-related transaction costs associated with businesses acquired during the periods reported and anticipated transactions of $0.5 and $1.2 million during the three and six months ended June 30, 2017, respectively, and $0.8 and $1.3 million during the three and six months ended June 30, 2016, respectively.

• Changes in fair value of contingent consideration. Our management determined that we should analyze the total return provided by the investment when evaluating operating results of an acquired entity. The total return consists of operating profit generated from the acquired entity compared to the purchase price paid, including the final amounts paid for contingent consideration without considering any post-acquisition adjustments related to changes in the fair value of the contingent consideration. Because our management believes the final purchase price paid for the acquisition reflects the accounting value assigned to both contingent consideration and to the intangible assets, we exclude the GAAP impact of any adjustments to the fair value of acquisition-related contingent consideration from the operating results of an acquisition in subsequent periods, including the related foreign exchange fluctuation impact. We believe this approach is useful in understanding the long-term return provided by our acquisitions and that investors benefit from a supplemental non-GAAP financial measure that excludes the impact of this adjustment.

• Non-cash interest expense on our Notes. Our Notes may be settled in cash on conversion. We are required to separately account for the liability (debt) and equity (conversion option) components of the Notes in a manner that reflects our non-convertible debt borrowing rate. Accordingly, for GAAP purposes, we are required to amortize a debt discount equal to the fair value of the conversion option as interest expense on our $345 million of 0.75% convertible senior notes that were issued in a private placement in September 2014 over the term of the Notes.

• Litigation Settlements. We settled, or accrued reserves related to, litigation claims of $0.3 and $0.8 million during the six months ended June 30, 2017 and 2016, respectively.

• Tax effect of non-GAAP adjustments. We use a constant non-GAAP tax rate of 19%, which we believe reflects the long-term average tax rate based on our international structure and geographic distribution of revenue and profit. The long-term average tax rate is calculated in accordance with the principles of ASC 740, Income Taxes, after excluding the tax effect of the non-GAAP items described above.

Usefulness of Non-GAAP Financial Information to Investors

These non-GAAP measures, including ex-currency, are not in accordance with or an alternative to GAAP and may be materially different from other non-GAAP measures, including similarly titled non-GAAP measures, used by other companies. The presentation of this additional information should not be considered in isolation from, as a substitute for, or superior to, revenue, gross profit, operating expenses, net income, or earnings per diluted share prepared in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect certain items that may have a material impact upon our reported financial results. We expect to continue to incur expenses of a nature similar to the non-GAAP adjustments described above, and exclusion of these items from our non-GAAP net income and non-GAAP earnings per diluted share should not be construed as an inference that these costs are unusual, infrequent, or non-recurring.

47

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME

(unaudited)

	Three Months Ended June 30,									Six Months Ended June 30,
							Ex-Currency 2017									Ex-Currency 2017
(in millions, except per share data)	2017			2016						2017			2016
Net income	$	2.8		$	5.2		$	2.8		$	7.5			7.3			7.5
Cost of revenue adjustment - FFPS inventory valuation		0.2			—			0.2			1.2			—			1.2
Amortization of identified intangibles assets and in-process R&D		11.8			9.7			11.8			22.5			19.0			22.5
Ex-currency adjustments		—			—			0.3			—			—			1.4
Restructuring and other		3.7			1.7			3.7			4.6			4.4			4.6
Stock-based compensation expense		7.6			7.1			7.6			17.9			18.4			17.9
Non-cash settlement of vacation liabilities by issuing RSUs		—			—			—			—			2.7			—
General and administrative:
Acquisition-related transaction costs		0.5			0.8			0.5			1.2			1.3			1.2
Changes in fair value of contingent consideration		0.5			2.3			0.5			1.8			2.1			1.8
Litigation reserves		0.3			0.5			0.3			0.3			0.8			0.3
Interest income and other income (expense), net:
Non-cash interest expense related to our Notes		3.2			3.1			3.2			6.4			6.1			6.4
Foreign exchange fluctuation related to contingent consideration		—			(0.1	)		—			(0.1	)		0.5			(0.1	)
Balance sheet currency remeasurement impact		—			—			0.6			—			—			1.7
Tax effect on non-GAAP net income		(5.1	)		(3.6	)		(5.3	)		(12.0	)		(9.7	)		(12.6	)
Non-GAAP net income	$	25.5		$	26.7		$	26.1		$	51.3		$	52.9		$	53.8
Non-GAAP net income per diluted share	$	0.54		$	0.56		$	0.56		$	1.09		$	1.10		$	1.14
Shares for purposes of computing diluted Non-GAAP net income per share		47.2			47.8			47.2			47.2			47.9			47.2

RECONCILIATION OF GAAP REVENUE BY OPERATING SEGMENT TO

NON-GAAP EX-CURRENCY

(unaudited)

	Three months ended June 30,
(in millions)	GAAP					Ex-Currency							GAAP											Ex-Currency
	2017		Percent of total			Ex-Currency Adjustments		2017		Percent of total			GAAP 2016		Percent of total			Change from 2016 GAAP						Change from 2016 GAAP
																		$			%			$			%
Industrial Inkjet	$	141.7		57	%	$	2.1	$	143.8		57	%	$	140.1		57	%	$	1.6			1	%	$	3.7			3	%
Productivity Software		39.1		16			0.4		39.5		16			36.4		15			2.7			7			3.1			9
Fiery		66.3		27			—		66.3		27			69.2		28			(2.9	)		(4	)		(2.9	)		(4	)
Total revenue	$	247.1		100	%	$	2.5	$	249.6		100	%	$	245.7		100	%	$	1.4			1	%	$	3.9			2	%

	Six months ended June 30,
(in millions)	GAAP					Ex-Currency							GAAP											Ex-Currency
	2017		Percent of total			Ex-Currency Adjustments		2017		Percent of total			GAAP 2016		Percent of total			Change from 2016 GAAP						Change from 2016 GAAP
																		$			%			$			%
Industrial Inkjet	$	265.0		56	%	$	4.6	$	269.6		56	%	$	265.9		56	%	$	(1.0	)		—	%	$	3.7			1	%
Productivity Software		74.1		15			0.7		74.8		16			68.9		14			5.2			8			5.9			9
Fiery		136.7		29			—		136.7		28			145.0		30			(8.2	)		(6	)		(8.3	)		(6	)
Total revenue	$	475.8		100	%	$	5.3	$	481.1		100	%	$	479.8		100	%	$	(4.0	)		(1	)%	$	1.3			—	%

48

RECONCILIATION OF GAAP REVENUE BY GEOGRAPHIC AREA TO

NON-GAAP EX-CURRENCY

(unaudited)

	Three months ended June 30,
(in millions)	GAAP					Ex-Currency								GAAP											Ex-Currency
	2017		Percent of total			Ex-Currency Adjustments			2017		Percent of total			GAAP 2016		Percent of total			Change from 2016 GAAP						Change from 2016 GAAP
																			$			%			$			%
Americas	$	114.0		46	%	$	—		$	114.0		46	%	$	115.5		47	%	$	(1.5	)		(1	)%	$	(1.5	)		(1	)%
EMEA		101.5		41			2.3			103.8		41			95.9		39			5.6			6			7.9			8
APAC		31.6		13			0.2			31.8		13			34.3		14			(2.7	)		(8	)		(2.5	)		(7	)
Total revenue	$	247.1		100	%	$	2.5		$	249.6		100	%	$	245.7		100	%	$	1.4			1	%	$	3.9			2	%
	Six months ended June 30,
(in millions)	GAAP					Ex-Currency								GAAP											Ex-Currency
	2017		Percent of total			Ex-Currency Adjustments			2017		Percent of total			GAAP 2016		Percent of total			Change from 2016 GAAP						Change from 2016 GAAP
																			$			%			$			%
Americas	$	223.9		47	%	$	(0.2	)	$	223.7		46	%	$	235.7		49	%	$	(11.8	)		(5	)%	$	(12.0	)		(5	)%
EMEA		189.6		40			4.9			194.5		41			179.5		37			10.1			6			15.1			8
APAC		62.3		13			0.6			62.9		13			64.6		14			(2.3	)		(4	)		(1.7	)		(3	)
Total revenue	$	475.8		100	%	$	5.3		$	481.1		100	%	$	479.8		100	%	$	(4.0	)		(1	)%	$	1.3			—	%

RECONCILIATION OF GROSS PROFIT BY OPERATING SEGMENT TO

NON-GAAP EX-CURRENCY

(unaudited)

	Three months ended June 30,											Six months ended June 30,
	GAAP			Ex-Currency Adjustments		Ex-Currency			GAAP			GAAP			Ex-Currency Adjustments		Ex-Currency			GAAP
(in millions)	2017					2017			2016			2017					2017			2016
Industrial Inkjet
Revenue	$	141.7		$	2.1	$	143.8		$	140.1		$	265.0		$	4.6	$	269.6		$	265.9
Gross profit		52.5			0.9		53.4			49.0			101.6			2.4		104.0			91.5
Gross profit percentages		37.1	%				37.1	%		35.0	%		38.3	%				38.6	%		34.4	%
Productivity Software
Revenue	$	39.1		$	0.4	$	39.5		$	36.4		$	74.1		$	0.7	$	74.8		$	68.9
Gross profit		29.2			0.3		29.4			27.2			54.8			0.3	$	55.0			50.9
Gross profit percentages		74.7	%				74.5	%		74.9	%		73.9	%				73.6	%		73.9	%
Fiery
Revenue	$	66.3		$	—	$	66.3		$	69.2		$	136.7		$	—	$	136.7		$	145.0
Gross profit		46.2			—		46.2			49.3			95.9			—		95.9			102.6
Gross profit percentages		69.8	%				69.8	%		71.3	%		70.2	%				70.2	%		70.8	%

Operating segment profit (i.e., gross profit) is reconciled to our Condensed Consolidated Statements of Operations during the three and six months ended June 30, 2017 and 2016 as follows (in thousands):

	Three months ended June 30,											Six months ended June 30,
	GAAP			Ex-Currency Adjustments		Ex-Currency			GAAP			GAAP			Ex-Currency Adjustments		Ex-Currency			GAAP
(in millions)	2017					2017			2016			2017					2017			2016
Segment gross profit	$	127.9		$	1.2	$	129.1		$	125.4		$	252.3		$	2.7	$	255.0		$	245.0
Stock-based compensation expense		(0.7	)		—		(0.7	)		(0.4	)		(1.5	)		—		(1.5	)		(1.2	)
Other items excluded from segment profit		—			—		—			—			—			—		—			(0.4	)
Gross profit	$	127.2		$	1.2	$	128.4		$	125.0		$	250.8		$	2.7	$	253.5		$	243.4

49

RECONCILIATION OF GAAP OPERATING EXPENSES TO

NON-GAAP EX-CURRENCY

(unaudited)

	Three months ended June 30,
(in thousands)	GAAP		Ex-Currency					GAAP								Ex-Currency
	2017		Ex-Currency Adjustments			2017		2016		Change from 2016 GAAP						Change from 2016 GAAP
										$			%			$			%
Research and development	$	38,989	$	139		$	39,128	$	37,676	$	1,313			3	%	$	1,452			4	%
Sales and marketing		43,714		673			44,387		42,770		944			2			1,617			4
General and administrative		21,135		163			21,298		21,446		(311	)		(1	)		(148	)		(0.69	)
Restructuring and other		3,671		(21	)		3,650		1,710		1,961			115			1,940			113
Amortization of identified intangibles		11,752		64			11,816		9,736		2,016			21			2,080			21
Total operating expenses	$	119,261	$	1,018		$	120,279	$	113,338	$	5,923			5	%	$	6,941			6	%

	Six months ended June 30,
(in thousands)	GAAP		Ex-Currency					GAAP								Ex-Currency
	2017		Ex-Currency Adjustments			2017		2016		Change from 2016 GAAP						Change from 2016 GAAP
										$			%			$		%
Research and development	$	78,616	$	191		$	78,807	$	74,798	$	3,818			5	%	$	4,009		5	%
Sales and marketing		86,749		954			87,703		84,300		2,449			3			3,403		4
General and administrative		42,164		303			42,467		42,278		(114	)		—			189		—
Restructuring and other		4,589		(71	)		4,518		4,425		164			4			93		2
Amortization of identified intangibles		22,530		52			22,582		18,965		3,565			19			3,617		19
Total operating expenses	$	234,648	$	1,429		$	236,077	$	224,766	$	9,882			4	%	$	11,311		5	%

Liquidity and Capital Resources

Overview

Cash, cash equivalents, and short-term investments decreased by $28.5 million to $431.2 million as of June 30, 2017, from $459.7 million as of December 31, 2016. The decrease was primarily due to cash consideration paid for the acquisition of CRC and FFPS of $13.5 million, repurchases under our stock repurchase program of $34.5 million, net settlement of shares for employee common stock related tax liabilities and the stock option exercise price of certain stock options of $6.8 million, cash payments for property and equipment of $5.7 million, restricted investment and cash equivalent funding of $14.2 million related to the lease of the Manchester construction project, acquisition-related contingent consideration payments of $1.3 million, and debt repayments of $1.5 million, partially offset by cash flows provided by operating activities of $39.0 million, proceeds from ESPP purchases and stock option exercises of $6.6 million, and the impact of foreign exchange rate changes of $3.3 million.

(in thousands)	June 30, 2017			December 31, 2016			Change
Cash and cash equivalents	$	158,577		$	164,313		$	(5,736	)
Short term investments		272,666			295,428			(22,762	)
Total cash, cash equivalents, and short-term investments	$	431,243		$	459,741		$	(28,498	)
	Six months ended June 30,
(in thousands)	2017			2016			Change
Net cash provided by operating activities	$	39,010		$	31,860		$	7,150
Net cash used for investing activities		(10,539	)		(4,997	)		(5,542	)
Net cash used for financing activities		(37,466	)		(49,121	)		11,655
Effect of foreign exchange rate changes on cash and cash equivalents		3,259			1,815			1,444
Decrease in cash and cash equivalents	$	(5,736	)	$	(20,443	)	$	14,707

50

Cash, cash equivalents, and short-term investments held outside of the U.S. in various foreign subsidiaries were $112.6 and $94.2 million as of June 30, 2017, and December 31, 2016, respectively, and will be used to fund local operations and finance international acquisitions. If these funds are needed for our operations in the U.S., we would be required to accrue and pay U.S. federal and state income taxes on some or all of these funds. However, our intent is to indefinitely reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations.

Based on past performance and current expectations, we believe that our cash, cash equivalents, short-term investments, and cash generated from operating activities will satisfy our working capital, capital expenditure, investment, stock repurchase, commitments (see Note 8 – Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements), and other liquidity requirements associated with our existing operations through at least the next twelve months. We believe that the most strategic uses of our cash resources include business acquisitions, strategic investments to gain access to new technologies, repurchases of shares of our common stock, and working capital. At June 30, 2017, cash, cash equivalents, and short-term investments available were $431.2 million. We believe that our liquidity position and capital resources are sufficient to meet our operating and working capital needs.

Operating Activities

During the six months ended June 30, 2017, our cash provided by operating activities was approximately $39.0 million.

Net cash provided by operating activities consists primarily of net income of $7.5 million and non-cash charges and credits of $65.5 million, partially offset by the net change in operating assets and liabilities of $34.0 million. Non-cash charges and credits of $65.5 million consist primarily of $30.9 million in depreciation and amortization, $17.9 million of stock-based compensation expense, net of cash settlements, non-cash accretion of interest expense of $7.5 million, provision for bad debts and sales-related allowances of $6.4 million, provision for inventory obsolescence of $1.5 million, and other non-cash charges and credits of $2.9 million, partially offset by deferred tax credits of $1.6 million. The net change in operating assets and liabilities of $34.0 million consists primarily of increased gross accounts receivable of $16.1 million, increased gross inventories of $17.6 million, increased other current assets of $8.1 million, and decreased net income taxes payable of $5.6 million, partially offset by increased accounts payable and accrued liabilities of $13.4 million.

Accounts Receivable

Our primary source of operating cash flow is the collection of accounts receivable from our customers. One measure of the effectiveness of our collection efforts is average days sales outstanding for accounts receivable (“DSO”). DSOs were 87 and 76 days at June 30, 2017 and December 31, 2016, respectively. We calculate DSO by dividing net accounts receivable at the end of the quarter by revenue recognized during the quarter, multiplied by the total days in the quarter.

DSOs increased during the six months ended June 30, 2017, compared with December 31, 2016, primarily due to sales with extended payment terms and a non-linear sales cycle resulting in significant billings at the end of the quarter. We expect DSOs to vary from period to period because of changes in the mix of business between direct customers and end user demand driven through the leading printer manufacturers, the effectiveness of our collection efforts both domestically and overseas, and variations in the linearity of our sales. As the percentage of Industrial Inkjet and Productivity Software related revenue increases, we expect DSOs will trend higher. Our DSOs related to the Industrial Inkjet and Productivity Software operating segments are traditionally higher than those related to the significant printer manufacturer customers / distributors in our Fiery operating segment as, historically, these Fiery customers have been granted shorter payment terms and have paid on a more timely basis.

We have facilities in the U.S. and Italy that enable us to sell to third parties, on an ongoing basis, certain trade receivables with recourse. Trade receivables sold with recourse are generally short-term receivables with payment due dates of less than 10 days from date of sale, which are subject to a servicing obligation. We also have facilities in Spain and Italy that enable us to sell to third parties, on an ongoing basis, certain trade receivables without recourse. Trade receivables sold without recourse are generally short-term receivables with payment due dates of less than one year, which are secured by international letters of credit.

Trade receivables sold cumulatively under these facilities were $9.4 and $1.0 million during the six months ended June 30, 2017 on a recourse and nonrecourse basis, respectively, which approximates the cash received. The receivables that were sold to third parties were removed from the Condensed Consolidated Balance Sheet and were reflected as cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows.

51

Inventories

Our inventories are procured primarily in support of the Industrial Inkjet and Fiery operating segments. The majority of our Industrial Inkjet products are manufactured internally, while Fiery production is primarily outsourced. The result is lower inventory turnover for Industrial Inkjet inventories compared with Fiery inventories.

Our net inventories increased by $25.0 million to $124.1 million at June 30, 2017 from $99.1 million at December 31, 2016 primarily due to the increase in Industrial Inkjet inventories, including our Nozomi products in advance of the expected product launch in the third quarter of 2017, and acquisition of FFPS inventories. Inventory turnover was 3.8 during the quarter ended June 30, 2017 compared with 5.0 turns during the quarter ended December 31, 2016. We calculate inventory turnover by dividing annualized current quarter cost of revenue by ending inventories. In 2016, we introduced the Nozomi single-pass industrial digital inkjet platform, which is expected to be launched in the third quarter of 2017 for the corrugated, paper packaging, display printing, and other related markets. The Nozomi printer is a single pass, 1.8-meter, and high speed LED industrial digital inkjet corrugated packaging press for the corrugated, paper packaging, and display printing markets that prints up to 75 linear meters (246 linear feet) per minute.

Investing Activities

Acquisitions

On May 8, 2017, we acquired CRC from Reynolds for cash consideration of $7.6 million. CRC provides business process automation software for commercial label and packaging printers included in the Midmarket Print Suite within our Productivity Software operating segment.

On January 31, 2017, we purchased the FFPS business from Xerox for cash consideration of $5.9 million, plus $18.0 million of future cash payments, of which $9.0 million was paid in July 2017 and $9.0 million is due in July 2018. The FFPS business manufactures and markets the FFPS DFE, which is a DFE that previously competed with our Fiery DFE.

On June 16, 2016, we purchased Optitex for cash consideration of $11.6 million, net of cash acquired, plus an additional potential future cash earnout, which is contingent on achieving revenue and operating profit performance targets. Optitex has developed and markets integrated 2D and 3D design software that is shortening the design cycle, reducing our customers’ costs, and accelerating the adoption of fast fashion.

On March 1, 2016, we purchased Rialco for cash consideration of $8.4 million, net of cash acquired, plus an additional potential future cash earnout, which is contingent on achieving revenue and gross profit targets. Rialco is a leading European supplier of dye powders and color products for the textile, digital print, and other decorating industries.

The escrow of $1.5 million related to the Reggiani acquisition was remitted to us in return for the issuance of shares of common stock during the six months ended June 30, 2016.

A tax recovery liability of $1.0 million related to the Cretaprint acquisition was paid during the six months ended June 30, 2016.

Investments

Proceeds from sales and maturities of marketable securities, net of purchases, were $22.9 and $28.3 million during the six months ended June 30, 2017 and 2016, respectively. We have classified our investment portfolio as “available for sale.” Our investments are made with a policy of capital preservation and liquidity as primary objectives. We may hold investments in fixed income debt securities to maturity; however, we may sell an investment at any time if the quality rating of the investment declines, the yield on the investment is no longer attractive, or we have better uses for the cash. Since we invest primarily in investment securities that are highly liquid with a ready market, we believe the purchase, maturity, or sale of our investments has no material impact on our overall liquidity.

Property and Equipment, Net

Our property and equipment additions have historically been funded from operating activities. Net purchases of property and equipment were $5.7 and $13.7 million during the six months ended June 30, 2017 and 2016, respectively, including the 2016 purchase of single pass digital inkjet printer manufacturing and engineering equipment in the Americas and Spain.

52

Restricted Cash and Investments

We have restricted cash equivalents and investments that are required to be maintained by the lease related to our Manchester, New Hampshire, construction project, which is described more fully in Note 8 – Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements.

The funds pledged under the lease represent 115% of the total expenditures made by BTMU through June 30, 2017. The funds are invested in $15.1 and $5.3 million of U.S. government securities and cash equivalents, respectively, with a third party trustee and are restricted during the construction period. Upon completion of construction, the funds will be released as cash and cash equivalents. The portion of released funds that represents 100% of the total expenditures made by BTMU will be deposited with BTMU and restricted as collateral until the end of the underlying lease period.

The funds pledged as collateral are invested in U.S. government securities and cash equivalents as of June 30, 2017, and are classified as Level 1 in the fair value hierarchy as more fully defined in Note 5—Investments and Fair Value Measurements of the Notes to Condensed Consolidated Financial Statements.

Financing Activities

Stock Option and ESPP Proceeds

Historically, our recurring cash flows provided by financing activities have been from the receipt of cash from the issuance of common stock through the exercise of stock options and employee purchases of ESPP shares. We received proceeds from the exercise of stock options of $1.6 and $0.1 million and employee purchases of ESPP shares of $5.1 and $4.9 million during the six months ended June 30, 2017 and 2016, respectively. While we may continue to receive proceeds from these plans in future periods, the timing and amount of such proceeds are difficult to predict and are contingent on certain factors including the price of our common stock, the timing and number of stock options exercised by employees that had participated in these plans, net settlement options, employee participation in our ESPP, and general market conditions. We anticipate that cash provided from the exercise of stock options will decline as we have shifted to issuance of RSUs, rather than stock options.

Treasury Stock Purchases

The primary use of funds for financing activities during the six months ended June 30, 2017 and 2016 was $41.3 and $43.9 million, respectively, of cash used to repurchase outstanding shares of our common stock. Such repurchases included $6.8 and $4.2 million used for net settlement of shares for the exercise price of certain stock options and any tax withholding obligations incurred connected with such exercises and tax withholding obligations that arose on the vesting of RSUs during the six months ended June 30, 2017 and 2016, respectively.

On November 9, 2015, the board of directors approved the repurchase of $150 million of outstanding common stock commencing January 1, 2016. This authorization expires December 31, 2018. Under this publicly announced plan, we repurchased 0.7 and 1.0 million shares for an aggregate purchase price of $34.5 and $39.7 million during the six months ended June 30, 2017 and 2016, respectively.

Earnout Payments

Earnout payments during the six months ended June 30, 2017 of $1.3 million are primarily related to the previously accrued Shuttleworth contingent consideration liability. Earnout payments during the six months ended June 30, 2016 of $1.9 million are primarily related to the previously accrued DirectSmile, SmartLinc, and Metrix contingent consideration liabilities.

We paid approximately $1.5 and $8.3 million of indebtedness during the six months ended June 30, 2017 and 2016, respectively, which was primarily assumed in the Optitex, Matan, and Rialco acquisitions.

Other Commitments

Our Industrial Inkjet inventories consist of materials required for our internal manufacturing operations and finished goods and sub-assemblies purchased from third party contract manufacturers. Raw materials and finished goods, print heads, frames, digital UV curable ink, ceramic digital ink, various textile printing inks, and other components are required to support our internal manufacturing operations. Label and packaging digital inkjet printers, branded textile ink, and certain sub-assemblies are purchased from third party contract manufacturers and branded third party ink manufacturers.

53

Our Fiery inventory consists primarily of raw materials and finished goods, memory subsystems, processors, and ASICs, which are sold to third party contract manufacturers responsible for manufacturing our products. Should we decide to purchase components and manufacture Fiery DFEs internally, or should it become necessary for us to purchase and sell components other than memory subsystems, processors, and ASICs to our contract manufacturers, inventory balances and potentially property and equipment would increase significantly, thereby reducing our available cash resources. Further, the inventories we carry could become obsolete, thereby negatively impacting our financial condition and results of operations.

We are also reliant on several sole source suppliers for certain key components and could experience a significant negative impact on our financial condition and results of operations if such supplies were reduced or not available. We may be required to compensate our subcontract manufacturers for components purchased for orders subsequently cancelled by us. We periodically review the potential liability and the adequacy of the related allowance.

We may be required to compensate our subcontract manufacturers for components purchased for orders subsequently cancelled by us. We periodically review the potential liability and the adequacy of the related allowance.

Indemnifications

In the normal course of business and to facilitate the sales of our products, we sometimes indemnify other parties, including customers, lessors, and parties to other transactions with us. When we indemnify these parties, typically those provisions protect other parties against losses arising from our infringement of third party intellectual property rights or other claims made by third parties arising from the use or distribution of our products. Those provisions often contain various limitations including limits on the amount of protection provided.

As permitted under Delaware law, pursuant to our bylaws, charter, and indemnification agreements with our current and former executive officers, directors, and general counsel, we are required, subject to certain limited qualifications, to indemnify our executive officers, directors, and general counsel for certain events or occurrences while the executive officer, director, or general counsel is or was serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the executive officer’s, director’s, or general counsel’s lifetime. The maximum potential future payments we may be obligated to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that limits our exposure and may enable us to recover a portion of any future amounts paid.

Legal Proceedings

Please refer to “Part II – Other Information, Item 1: Legal Proceedings” in this Report for more information regarding our legal proceedings.

Off-Balance Sheet Financing

On August 26, 2016, we entered into a lease agreement and have accounted for a lease term of 48.5 years, inclusive of two renewal options of 5.0 and 3.5 years, with the City of Manchester to lease 16.9 acres of land adjacent to the Manchester Regional Airport. The land is subleased to BTMU during the term of the lease related to the manufacturing facility that is being constructed on the site, which is described below. Minimum lease payments are $13.1 million during the 48.5 year term of the land lease, excluding four months of the land lease that is financed into the manufacturing facility lease.

On August 26, 2016, we entered into a six-year lease with BTMU whereby a 225,000 square foot manufacturing and warehouse facility is under construction related to our super-wide format industrial digital inkjet printer business in the Industrial Inkjet operating segment at a projected cost of $40 million and a construction period of 18 months. Minimum lease payments during the initial six-year term are $1.8 million. Upon completion of the initial six-year term, we have the option to renew the lease, purchase the facility, or return the facility to BTMU subject to an 89% residual value guarantee under which we would recognize additional rent expense in the form of a variable rent payment. We have assessed our exposure in relation to the residual value guarantee and believe that there is no deficiency to the guaranteed value with respect to funds expended by BTMU as of June 30, 2017. We are treated as the owner of the facility for federal income tax purposes.

The funds pledged under the lease represent 115% of the total expenditures made by BTMU through June 30, 2017. The funds are invested in $15.1 and $5.3 of million U.S. government securities and cash equivalents, respectively, with a third party trustee and will be restricted during the construction period. Upon completion of construction, the funds will be released as cash and cash equivalents. The portion that represents 100% of the total expenditures made by BTMU will be deposited with BTMU and restricted as collateral until the end of the underlying lease period.

54

Contractual Obligations

Please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Contractual Obligations” presented in our Annual Report on Form 10-K, as amended, during the year ended December 31, 2016. There were no material changes during the six months ended June 30, 2017.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

Market Risk

We are exposed to various market risks. Market risk is the potential loss arising from adverse changes in market rates and prices, general credit, foreign currency exchange rate fluctuations, liquidity, and interest rate risks, which may be exacerbated by the tight global credit market and increase in economic uncertainty that have affected various sectors of the financial market and continue to cause credit and liquidity issues. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We may enter into financial instrument contracts to manage and reduce the impact of changes in foreign currency exchange rates on earnings and cash flows. The counterparties to such contracts are major financial institutions. We hedge our operating expense exposure in Indian rupees. The notional amount of our Indian rupee cash flow hedge was $3.6 million at June 30, 2017. We hedge balance sheet remeasurement exposures using forward contracts not designated for hedge accounting treatment with notional amounts of $145.1 million at June 30, 2017 consisting of hedges of British pound sterling, Brazilian real, Israeli shekel, Japanese yen, and Euro-denominated intercompany balances with notional amounts of $59.1 million, hedges of Brazilian real, British pound sterling, Australian dollar, Canadian dollar, Israeli shekel, and Euro-denominated trade receivables with notional amounts of $50.5 million, and hedges of British pounds sterling, Indian rupee, Israeli shekel, and Euro-denominated other net monetary assets with notional amounts of $35.5 million.

Since Europe represents a significant portion of our revenue and cash flow, SEC encourages disclosure of our European concentrations of credit risk regarding gross receivables, related reserves, and aging on a region or country basis, and the impact on liquidity with respect to estimated timing of receivable payments. Since Europe is composed of varied countries and regional economies, our European risk profile is somewhat more diversified due to the varying economic conditions among the countries. Approximately 30% of our receivables are with European customers as of June 30, 2017. Of this amount, 26% of our European receivables (8% of consolidated receivables) are in the higher risk southern European countries (mostly Italy, Spain, and Portugal), which are adequately reserved.

Marketable Securities

We maintain an investment portfolio of short-term fixed income debt securities of various holdings, types, and maturities. These short-term investments are generally classified as available-for-sale and, consequently, are recorded on our Condensed Consolidated Balance Sheets at fair value with unrealized gains and losses reported as a separate component of OCI. We attempt to limit our exposure to interest rate risk by investing in securities with maturities of less than three years; however, we may be unable to successfully limit our risk to interest rate fluctuations. At any time, a sharp rise in interest rates could have a material adverse impact on the fair value of our investment portfolio. Conversely, declines in interest rates could have a material favorable impact on the fair value of our investment portfolio. Increases or decreases in interest rates could have a material impact on interest earnings related to new investments during the period. We do not currently hedge these interest rate exposures.

Interest Rate Risk

Hypothetical changes in the fair values of financial instruments held by us at June 30, 2017 that are sensitive to changes in interest rates are presented below. The modeling technique measures the change in fair value arising from selected potential changes in interest rates. Market changes reflect immediate hypothetical parallel shifts in the yield curve of plus or minus 100 basis points over a twelve month time horizon (in thousands):

Valuation of securities given an interest rate decrease of  100 basis points		No change in interest rates		Valuation of securities given an interest rate increase of  100 basis points
$	285,635	$	282,163	$	278,688

55

European debt is required to be disclosed by counterparty (i.e., sovereign and non-sovereign) and by country. We have no European sovereign debt investments. Our European debt and investments consist of non-sovereign corporate debt securities of $19.7 million, which represents 11% of our corporate debt instruments (7% of our short-term investments) at June 30, 2017. European debt investments are with corporations domiciled in the northern and central European countries of Sweden, Netherlands, Switzerland, France, and the U.K. We do not have any short-term investments with corporations domiciled in the higher risk “southern European” countries (i.e., Italy, Spain, Greece, and Portugal) or in Ireland. We believe that we do not have significant exposure with respect to our money market and corporate debt investments in Europe.

As of June 30, 2017, we have $345 million principal amount of Notes outstanding. We carry these instruments at face value less unamortized discount on our Condensed Consolidated Balance Sheets. Since these instruments bear interest at fixed rates, we have no financial statement risk associated with changes in interest rates. Although the fair value of these instruments fluctuates when interest rates change, a substantial portion of the market value of our Notes that exceeds the outstanding principal amount relates to the conversion premium. Please refer to Note 5 – Investments and Fair Value Measurements and Note 6 – Convertible Senior Notes, Note Hedges, and Warrants of the Notes to Condensed Consolidated Financial Statements.

Foreign Currency Exchange Risk

A large portion of our business is conducted in countries other than the U.S. We are primarily exposed to changes in exchange rates for the Euro, British pound sterling, Indian rupee, Japanese yen, Brazilian real, Chinese renminbi, Israeli shekel, New Zealand dollar, and Australian dollar. Although the majority of our receivables are invoiced and collected in U.S. dollars, we have exposure from non-U.S. dollar-denominated sales (consisting of the Euro, British pound sterling, Brazilian real, Chinese renminbi, Israeli shekel, Australian dollar, and Canadian dollar) and operating expenses (primarily the Euro, British pound sterling, Brazilian real, Chinese renminbi, Israeli shekel, Japanese yen, Indian rupee, and Australian dollar) in foreign countries. We can benefit from or be adversely affected by either a weaker or stronger U.S. dollar relative to major currencies worldwide with respect to our condensed consolidated financial statements. Accordingly, we can benefit from a stronger U.S. dollar due to the corresponding reduction in our foreign operating expenses translated in U.S. dollars and at the same time we can be adversely affected by a stronger U.S. dollar due to the corresponding reduction in foreign revenue translated in U.S. dollars.

We hedge our operating expense exposure in Indian rupees. The notional amount of our Indian rupee cash flow hedge was $3.6 million at June 30, 2017. We hedge balance sheet remeasurement exposures using forward contracts not designated for hedge accounting treatment with notional amounts of $145.1 million at June 30, 2017 consisting of hedges of British pound sterling, Brazilian real, Israeli shekel, Japanese yen, and Euro-denominated intercompany balances with notional amounts of $59.1 million, hedges of Brazilian real, British pound sterling, Australian dollar, Canadian dollar, Israeli shekel, and Euro-denominated trade receivables with notional amounts of $50.5 million, and hedges of British pounds sterling, Indian rupee, Israeli shekel, and Euro-denominated other net monetary assets with notional amounts of $35.5 million.

The impact of hypothetical changes in foreign exchanges rates on revenue and income from operations are presented below. The modeling technique measures the change in revenue and income from operations resulting from changes in selected foreign exchange rates with respect to the Euro and British pound sterling of plus or minus one percent during the three months ended June 30, 2017 as follows (in thousands):

	Impact of a foreign exchange rate decrease of one percent		No change in foreign exchange rates		Impact of a foreign exchange rate increase of one percent
Revenue	$	477,038	$	475,738	$	474,438
Income from operations	$	16,495	$	16,134	$	15,773

Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, which are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

56

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2017, the end of the period covered by this interim report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of June 30, 2017, due to material weaknesses in our internal control over financial reporting. Our internal control over financial reporting is the process designed by and under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external reporting in accordance with accounting principles generally accepted in the United States of America.

As described in “Item 9A. Controls and Procedures” of our annual report on Form 10-K, as amended, for the year ended December 31, 2016, management performed its assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016, and concluded that our internal control over financial reporting as of that date was not effective because of the material weaknesses described below.

Our management determined that, as of December 31, 2016, material weaknesses existed in our internal control over financial reporting. Specifically, our internal controls were not designed effectively to ensure that operational changes which may impact revenue recognition were appropriately and timely evaluated to determine the accounting impact; and we did not sufficiently staff, with appropriate levels of experience and training, to allow for the adequate monitoring and timely communication of operational changes, including those which may impact revenue recognition on an ongoing basis. This resulted in management not timely identifying and evaluating the appropriate period of recognition for certain revenue transactions related to printers distributed from a single location, which should have been evaluated in accordance with the bill and hold revenue recognition guidance.

While there was no restatement of previously issued financial statements, management reevaluated the design and operating effectiveness of our internal control over financial reporting. Management concluded that its internal control over financial reporting as of December 31, 2016, was not effective due to the material weaknesses described above.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected in a timely basis. Because the deficiencies identified could result in a misstatement of revenue and disclosures that could be material to the annual or interim consolidated financial statements, such deficiencies represent material weaknesses in our internal control over financial reporting. Accordingly, management has revised its report on internal control over financial reporting, as stated in our Annual Report on Form 10-K for the year ended December 31, 2016, as amended.

Material Weakness Discussion and Remediation

Management analyzed the impact on revenue resulting from the identified material weaknesses and concluded that it did not have a material impact on our previously issued consolidated financial statements. Notwithstanding the material weaknesses in our internal control over financial reporting, we concluded that the consolidated financial statements and other financial information included in the previous filings fairly present in all material respects our financial condition, results of operations, and cash flows as of, and for, the periods presented. The foregoing has been approved by our management, including our Chief Executive Officer and Chief Financial Officer, who have been involved with the reassessment and analysis of our internal control over financial reporting.

The material weaknesses did not result in a material misstatement in the financial statements included in our annual report on Form 10-K for the year ended December 31, 2016, as amended, or our condensed consolidated interim financial information for the three and six months ended June 30, 2017; however, we concluded that, as of December 31, 2016, March 31, 2017, and June 30, 2017, there was a reasonable possibility that material misstatements could occur in the consolidated financial statements.

Our independent registered public accounting firm, Deloitte & Touche, LLP, issued an adverse report regarding the effectiveness of our internal control over financial reporting as of December 31, 2016, and that report is included in “Item 9A. Controls and Procedures” of our annual report on Form 10-K, for the year ended December 31, 2016 as amended.

Plan for Remediation of Material Weaknesses

Following the identification of the foregoing material weaknesses, management commenced implementation of a remediation plan, which is ongoing. Management believes that the implementation of this plan will remediate the material weaknesses described above. The following steps of the remediation plan are currently in process, and management may determine to enhance existing controls and/or implement additional controls as the implementation progresses:

• Design and implement controls to properly identify, evaluate and monitor operational changes which may impact revenue recognition;

• Evaluate the sufficiency, experience, and training of our internal personnel and hire additional personnel or use external resources;

57

• Design and implement controls related to the approval and accounting for any bill and hold transactions; and

• Direct our internal auditors to perform additional testing of revenue transactions to ensure the sufficiency of our remediation efforts.

We are in the process of further reviewing, documenting, and testing our internal controls over financial reporting, and we may from time to time make changes aimed at enhancing existing controls and/or implementing additional controls. Because the implementation of our remediation plan was ongoing as of June 30, 2017, and because there was insufficient time as of June 30, 2017, to demonstrate that the new controls implemented as part of the remediation plan were operating effectively as of that date, management concluded that the material weaknesses described in our annual report still existed as of June 30, 2017.

Important Considerations

The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

Evaluation of Changes in Internal Control over Financial Reporting

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated changes in our internal control over financial reporting that occurred during the second quarter of 2017. Based on that evaluation, except for the changes described above, our Chief Executive Officer and Chief Financial Officer did not identify any change in our internal control over financial reporting during the second quarter of 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

58

PART II – OTHER INFORMATION

Item 1: Legal Proceedings

We may be involved, from time to time, in a variety of claims, lawsuits, investigations, or proceedings relating to contractual disputes, securities laws, intellectual property rights, employment, or other matters that may arise in the normal course of business. We assess our potential liability in each of these matters by using the information available to us. We develop our views on estimated losses in consultation with inside and outside counsel, which involves a subjective analysis of potential results and various combinations of appropriate litigation and settlement strategies. We accrue estimated losses from contingencies if a loss is deemed probable and can be reasonably estimated.

We are subject to the matters discussed below as of the date of this filing:

Purported Class Action Lawsuit

On August 10, 2017, a putative class action was filed against the Company and its two named executive officers in the United States District Court for the District of New Jersey, captioned Pipitone v. Electronics For Imaging, Inc., No. 2:17-cv-05992 (D.N.J.). The complaint alleges, among other things, that statements by the Company and its officers about the Company’s financial reporting, revenue recognition, internal controls, and disclosure controls and procedures were false or misleading. The complaint seeks an unspecified amount of damages, interest, attorneys’ fees, and other costs, on behalf of a putative class of individuals and entities that purchased or otherwise acquired EFI securities from February 22, 2017 through August 3, 2017.

At this time, we do not believe it is probable that we will incur a material loss in this matter. However, it is reasonably possible that our financial statements could be materially affected by an unfavorable resolution of this matter. Because this proceeding is in the preliminary stages, we are not yet in a position to estimate the amount or range of reasonably possible loss that may be incurred.

Purported Derivative Shareholder Lawsuits

On August 22, 2017, a purported derivative shareholder complaint was filed in the Superior Court of the State of California for the County of Alameda captioned Schiffmiller v. Gecht, No. RG17873197. The complaint makes claims derivatively and on behalf of the Company as nominal defendant against the Company’s named executive officers and directors for alleged breaches of fiduciary duties and unjust enrichment, and alleges, among other things, that statements by the Company and its officers about the Company’s financial reporting, revenue recognition, internal controls, and disclosure controls and procedures were false or misleading. The complaint alleges the Company has suffered damage as a result of the individual defendants’ alleged actions, and seeks an unspecified amount of damages, restitution, and declaratory and other relief.

At this time, we do not believe it is probable that we will incur a material loss in this matter. However, it is reasonably possible that our financial statements could be materially affected by an unfavorable resolution of this matter. Because this proceeding is in the preliminary stages, we are not yet in a position to estimate the amount or range of reasonably possible loss that may be incurred.

MDG Matter

EFI acquired Matan in 2015 from sellers (the “2015 Sellers”) that acquired Matan Digital Printing Ltd. from other sellers in 2001 (the “2001 Sellers”). The 2001 Sellers have asserted a claim against the 2015 Sellers and Matan asserting that they are entitled to a portion of the 2015 Sellers’ proceeds from EFI’s acquisition. The 2015 Sellers dispute this claim and have agreed to indemnify EFI against the 2001 Sellers’ claim.

Although we are fully indemnified and we do not believe that it is probable that we will incur a loss, it is reasonably possible that our financial statements could be materially affected by the unfavorable resolution of this matter. Accordingly, it is reasonably possible that we could incur a material loss in this matter. We estimate the range of loss to be between one dollar and $10.1 million. If we incur a loss in this matter, it will be offset by a receivable of an equal amount representing a claim for indemnification against the escrow account established in connection with the Matan acquisition.

Other Matters

We are subject to various other claims, lawsuits, investigations, and proceedings in addition to the matters discussed above. There is at least a reasonable possibility that additional losses may be incurred in excess of the amounts that we have accrued. However, we believe that these claims are not material to our financial statements or the range of reasonably possible losses is not reasonably estimable. Litigation is inherently unpredictable, and while we believe that we have valid defenses with respect to legal matters pending against us, our financial statements could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies or because of the diversion of management’s attention and the incurrence of significant expenses.

Item 1A: Risk Factors

In addition to information regarding risk factors that appears in “Management’s Discussion and Analysis – Forward-looking Statements” in Part I, Item 2, of this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A, and Part II, Items 7 and 7A, of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2016 (the “2016 Form 10-K”), which could materially affect our business, financial condition, or future results. The risks described herein and in our 2016 Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.

In addition to the risk factors disclosed in our 2016 Form 10-K, we have identified the following material changes to our risk factors.

We are currently subject to securities lawsuits and we may be subject to similar or other litigation in the future, which may divert management’s attention and have a material adverse effect on our business, financial condition and results of operations.

The market price of our common stock declined significantly following our August 3, 2017 announcement concerning our assessment of the timing of recognition of revenue and the effectiveness of our current and historical disclosure controls and internal control over financial reporting. On August 10, 2017, a purported class action lawsuit was filed alleging, among other things, that we and certain of our officers violated federal securities laws by making allegedly false and misleading statements concerning our financial reporting, revenue recognition, internal controls, and disclosure controls and procedures, prior to our August 3, 2017 announcement. The plaintiffs seek unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including attorney’s fees. In addition, on August 22, 2017, a purported derivative shareholder complaint was filed alleging, among other things that certain of our officers and our directors had breached fiduciary duties and had been unjustly enriched and had made allegedly false and misleading statements concerning our financial reporting, revenue recognition, internal controls, and disclosure controls and procedures. The complaint alleges that the Company has suffered damage and seeks an unspecified amount of damages, restitution, and declaratory and other relief.

We cannot predict the outcome of these lawsuits and we may be subject to other similar litigation in the future. Monitoring and defending against legal actions, whether or not meritorious, is time-consuming for our management and detracts from our ability to fully focus our internal resources on our business activities. In addition, we may incur substantial legal fees and costs in connection with litigation. Although we have insurance, coverage could be denied or prove to be insufficient. We are not currently able to estimate the possible cost to us from the currently pending lawsuits, and we cannot be certain how long it may take to resolve these matters or the possible amount of any damages that we may be required to pay. We have not established any reserves for any potential liability relating to these or future lawsuits. It is possible that we could, in the future, incur judgments or enter into settlements of claims for monetary damages. A decision adverse to our interests on these actions could result in the payment of substantial damages and could have a material adverse effect on our business, results of operations and financial condition. In addition, the uncertainty of the currently pending lawsuits could lead to more volatility in our stock price.

59

We identified material weaknesses in our internal control over financial reporting as of December 31, 2016, and the occurrence of these or any other material weaknesses could have a material adverse effect on our ability to report accurate financial information in a timely manner.

As described in “Item 9A, Controls and Procedures” of our annual report on Form 10-K, as amended, for the year ended December 31, 2016, as amended (“annual report”), our management concluded that we had material weaknesses in our internal control over financial reporting as of December 31, 2016 and therefore did not maintain effective internal control over financial reporting or effective disclosure controls and procedures, both of which are requirements of the Securities Exchange Act of 1934, as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Following the identification of the material weaknesses, management implemented remediation plans, which are ongoing as of June 30, 2017. Because there was insufficient time as of June 30, 2017, to demonstrate that the new controls implemented as part of the remediation plan were operating effectively as of that date, management concluded that the material weaknesses described in our Annual Report on Form10-K, as amended, for the year ended December 31, 2016, as amended, still existed as of June 30, 2017.

The remedial measures we are undertaking may not be adequate to prevent future misstatements or avoid other control deficiencies or material weaknesses. The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

If we fail to continue to introduce new products that achieve market acceptance on a timely basis, we will not be able to compete effectively and we will be unable to increase or maintain net revenue and gross margins.

We operate in a highly competitive, quickly changing environment, and our future success depends on our ability to develop or acquire, and introduce new products that achieve broad market acceptance. Our future success will depend in large part upon our ability to identify demand trends and quickly develop or acquire, and manufacture and sell products that satisfy these demands in a cost effective manner. In order to differentiate our products from our competitors’ products, we must continue to increase our focus and capital investment in research and development. For example, we have committed substantial resources expressed in both man-hours and financial investment to the development of our Nozomi single-pass industrial digital inkjet platform, which was introduced in 2016 and is expected to be launched in the third quarter of 2017, for the corrugated, paper packaging, display printing, and other related markets. We have invested significantly in the research and development, sales and marketing, and manufacturing processes required to successfully launch this product. While we have indications of interest from potential customers, we are unable to predict the actual level of demand for this product because Nozomi is a new product and the indications of interest are cancellable and may not ultimately become orders. If this product is not successful in the market, then our condensed consolidated financial position and results of operations could be materially impacted.

Successfully predicting demand trends is difficult, and it is very difficult to predict the effect introducing a new product will have on existing product sales. We will also need to respond effectively to new product announcements by our competitors by quickly introducing competitive products. Any future delays in product development and introduction, or product introductions that do not meet broad market acceptance, or unsuccessful launches of new product lines could result in:

• loss of or delay in revenue and loss of market share;

• negative publicity and damage to our reputation and brand;

• a decline in the average selling price of our products;

• adverse reactions in our sales channels, such as reduced shelf space, reduced online product visibility, or loss of sales channel;

• increased levels of product returns; and

• failure to recover amounts invested

60

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Our stock repurchases during the quarter ended June 30, 2017 are as follows (in thousands, except for per share amounts):

Issuer Purchases of Equity Securities

Total	Total Number of Shares Purchased (2)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly  Announced Plans		Approximate Dollar Value of Shares that May Yet Be Purchased  Under the Plans (1)
April 2017		158	$	48.22		148	$	51,145
May 2017		204		45.94		182		42,800
June 2017		40		47.24		32		41,302
Totals		402	$	46.96		362

(1) In November 2015, our board of directors authorized $150 million for the repurchase of our outstanding common stock commencing January 1, 2016. This authorization expires December 31, 2018. Under this publicly announced plan, we repurchased 0.4 million shares for an aggregate purchase price of $17.0 million during the three months ended June 30, 2017.

(2) Includes less than 0.1 million shares purchased from employees to satisfy the exercise price of certain stock options and any tax withholding obligations incurred in connection with such exercises and minimum tax withholding obligations that arose on the vesting of RSUs.

Item 3: Defaults Upon Senior Securities

None.

Item 4: Mine Safety Disclosure

Not applicable.

Item 5: Other Information

Not applicable.

61

Item 6: Exhibits

No.	Description
3.1	Amended and Restated Certificate of Incorporation (1)
3.2	Amended and Restated Bylaws of Electronics For Imaging, Inc. (as amended August 12, 2009) (2)
10.1	Electronics For Imaging, Inc. Equity Incentive Plan (3)
12.1	Computation of Ratio of Earnings to Fixed Charges
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section  906 of the Sarbanes-Oxley Act of 2002 and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

(1) Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on February 22, 2017 (File No. 000-18805) and incorporated herein by reference.

(2) Filed as an exhibit to the Company’s Current Report on Form 8-K filed on August 17, 2009 (File No. 000-18805) and incorporated herein by reference.

(3) Filed as an exhibit to the Company’s Current Report on Form 8-K filed on June 13, 2017 (File No. 000-18805) and incorporated herein by reference.

62

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ELECTRONICS FOR IMAGING, INC.
Date: September 8, 2017	/s/ Guy Gecht
	Guy Gecht
	Chief Executive Officer (Principal Executive Officer)
Date: September 8, 2017	/s/ Marc Olin
	Marc Olin
	Chief Financial Officer (Principal Financial and Accounting Officer)

63

EXHIBIT INDEX

No.	Description
3.1	Amended and Restated Certificate of Incorporation (1)
3.2	Amended and Restated Bylaws of Electronics For Imaging, Inc. (as amended August 12, 2009) (2)
10.1	Electronics For Imaging, Inc. Equity Incentive Plan (3)
12.1	Computation of Ratio of Earnings to Fixed Charges
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section  906 of the Sarbanes-Oxley Act of 2002 and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

(1) Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on February 22, 2017 (File No. 000-18805) and incorporated herein by reference.

(2) Filed as an exhibit to the Company’s Current Report on Form 8-K filed on August 17, 2009 (File No. 000-18805) and incorporated herein by reference.

(3) Filed as an exhibit to the Company’s Current Report on Form 8-K filed on June 13, 2017 (File No. 000-18805) and incorporated herein by reference.

64

EX-12.1

Exhibit 12.1

Electronics For Imaging, Inc.

Computation of Ratio of Earnings to Fixed Charges

(in thousands, except for ratio of earnings to fixed charges)

	Years Ended December 31,										Six Months Ended June 30, 2017
	2012		2013		2014		2015		2016
Income (loss) from continuing operations before income taxes	$	35,023	$	173,138	$	42,087	$	37,522	$	39,382	$	7,550
Fixed charges:
Interest expense		709		3,406		5,859		17,364		17,716		9,626
Interest relating to rental expense (1)		1,912		2,024		2,039		2,530		2,924		1,276
Total fixed charges		2,621		5,430		7,898		19,894		20,640		10,902
Earnings available for fixed charges	$	37,644	$	178,568	$	49,985	$	57,416	$	60,022	$	18,452
Ratio of earnings to fixed charges		14.37		32.89		6.33		2.89		2.91		1.69

(1) The representative interest portion of rental expense was deemed to be one-third of all rental expense, except for the rental expense related to off-balance sheet financing leases, which was deemed to be all interest.

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Guy Gecht, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Electronics For Imaging, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 8, 2017

/s/ Guy Gecht

Guy Gecht

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Marc Olin, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Electronics For Imaging, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 8, 2017

/s/ Marc Olin

Marc Olin

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Electronics For Imaging, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: September 8, 2017

/s/ Guy Gecht

Guy Gecht

Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Electronics For Imaging, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: September 8, 2017

/s/ Marc Olin

Marc Olin

Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 31, 2017
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Trading Symbol	EFII
Entity Registrant Name	ELECTRONICS FOR IMAGING INC
Entity Central Index Key	0000867374
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		46,378,143

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 158,577	$ 164,313
Short-term investments, available for sale	272,666	295,428
Accounts receivable, net of allowances of $28.5 and $23.3 million, respectively	235,241	220,813
Inventories	124,065	99,075
Income taxes receivable	4,668	975
Assets held for sale		3,781
Other current assets	39,216	31,881
Total current assets	834,433	816,266
Property and equipment, net	105,853	103,304
Restricted investments and cash equivalents	20,443	6,252
Goodwill	383,251	359,841
Intangible assets, net	133,666	122,997
Deferred tax assets	56,876	58,477
Other assets	15,470	14,359
Total assets	1,549,992	1,481,496
Current liabilities:
Accounts payable	131,739	114,287
Accrued and other liabilities	116,959	85,505
Deferred revenue	61,102	53,813
Income taxes payable	11,634	10,256
Total current liabilities	321,434	263,861
Convertible senior notes, net	311,603	304,484
Imputed financing obligation related to build-to-suit lease	14,111	14,152
Noncurrent contingent and other liabilities	39,264	42,786
Deferred tax liabilities	13,459	16,351
Noncurrent income taxes payable	12,016	12,030
Total liabilities	711,887	653,664
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued and outstanding
Common stock, $0.01 par value; 150,000 shares authorized; 53,710 and 53,038 shares issued, respectively	537	530
Additional paid-in capital	731,421	705,901
Treasury stock, at cost; 7,352 and 6,457 shares, respectively	(315,057)	(273,730)
Accumulated other comprehensive loss	(6,167)	(24,694)
Retained earnings	427,371	419,825
Total stockholders' equity	838,105	827,832
Total liabilities and stockholders' equity	$ 1,549,992	$ 1,481,496

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions	Jun. 30, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Accounts receivable, allowances	$ 28.5	$ 23.3
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	53,710,000	53,038,000
Treasury stock, shares	7,352,000	6,457,000

XML

Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income Statement [Abstract]
Revenue		$ 247,047	$ 245,650	$ 475,738	$ 479,783
Cost of revenue	[1]	119,795	120,603	224,956	236,339
Gross profit		127,252	125,047	250,782	243,444
Operating expenses:
Research and development	[1]	38,989	37,676	78,616	74,798
Sales and marketing	[1]	43,714	42,770	86,749	84,300
General and administrative	[1]	21,135	21,446	42,164	42,278
Restructuring and other (Note 11)		3,671	1,710	4,589	4,425
Amortization of identified intangibles		11,752	9,736	22,530	18,965
Total operating expenses		119,261	113,338	234,648	224,766
Income from operations		7,991	11,709	16,134	18,678
Interest expense		(4,966)	(4,375)	(9,626)	(8,733)
Interest income and other income, net		755	420	1,042	199
Income before income taxes		3,780	7,754	7,550	10,144
Provision for income taxes		(1,021)	(2,519)	(4)	(2,806)
Net income		$ 2,759	$ 5,235	$ 7,546	$ 7,338
Net income per basic common share		$ 0.06	$ 0.11	$ 0.16	$ 0.16
Net income per diluted common share		$ 0.06	$ 0.11	$ 0.16	$ 0.15
Shares used in basic per-share calculation		46,429	46,943	46,490	47,079
Shares used in diluted per-share calculation		47,150	47,830	47,199	47,930

[1] Includes stock-based compensation expense as follows: 2017 2016 2017 2016 Cost of revenue $ 665 $ 534 $ 1,499 $ 1,231 Research and development 2,346 1,886 5,916 4,926 Sales and marketing 1,773 1,550 4,068 3,899 General and administrative 2,829 3,135 6,410 8,334

XML

Condensed Consolidated Statements of Operations (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Recognized stock-based compensation expense	$ 7,613	$ 7,105	$ 17,893	$ 18,390
Cost of Revenue [Member]
Recognized stock-based compensation expense	665	534	1,499	1,231
Research and Development [Member]
Recognized stock-based compensation expense	2,346	1,886	5,916	4,926
Sales and Marketing [Member]
Recognized stock-based compensation expense	1,773	1,550	4,068	3,899
General and Administrative [Member]
Recognized stock-based compensation expense	$ 2,829	$ 3,135	$ 6,410	$ 8,334

XML

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Statement of Comprehensive Income [Abstract]
Net income	$ 2,759	$ 5,235	$ 7,546	$ 7,338
Net unrealized investment gains (losses):
Unrealized holding gains, net of tax provision of less than $0.1 million and $0.1 million for the three and six months ended June 30, 2017, and $0.2 and $0.7 million for the three and six months ended June 30, 2016	99	325	235	1,101
Reclassification gains (losses) included in net income, net of tax benefits of less than $0.1 million for the three and six months ended June 30, 2017, respectively, and tax provisions of less than $0.1 million for the three and six months ended June 30, 2016	(17)	96	(22)	114
Net unrealized investment gains	82	421	213	1,215
Currency translation adjustments, net of no tax benefit for the three and six months ended June 30, 2017, tax benefit of $0.4 million for the three months ended June 30, 2016, and tax provision of $0.3 million for the six months ended June 30, 2016	12,136	(4,662)	18,310	1,784
Net unrealized gains (losses) on cash flow hedges	(51)	(67)	4	(16)
Comprehensive income	$ 14,926	$ 927	$ 26,073	$ 10,321

XML

Condensed Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Statement of Comprehensive Income [Abstract]
Unrealized holding gains, tax provisions (benefits)		$ 200,000	$ (100,000)	$ 700,000
Reclassification adjustments included in net income, net of tax provisions (benefits)
Currency translation adjustments, tax provisions (benefits)	$ 0	$ (400,000)	$ 0	$ 300,000

XML

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Cash flows from operating activities:
Net income	$ 7,546	$ 7,338
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	30,911	26,503
Deferred taxes	(1,571)	(6,409)
Provisions for bad debt and sales-related allowances	6,401	5,737
Provision for inventory obsolescence	1,465	3,240
Stock-based compensation, net of cash settlements	17,893	18,216
Non-cash accretion of interest expense on convertible notes and imputed financing obligation	7,459	6,574
Other non-cash charges and credits	2,890	(1,329)
Changes in operating assets and liabilities, net of effect of acquired businesses	(33,984)	(28,010)
Net cash provided by operating activities	39,010	31,860
Cash flows from investing activities:
Purchases of short-term investments	(62,431)	(137,323)
Proceeds from sales and maturities of short-term investments	85,306	165,634
Purchases of restricted investments and cash equivalents	(14,191)
Purchases, net of proceeds from sales, of property and equipment	(5,711)	(13,694)
Businesses purchased, net of cash acquired	(13,512)	(19,614)
Net cash used for investing activities	(10,539)	(4,997)
Cash flows from financing activities:
Proceeds from issuance of common stock	6,643	4,982
Purchases of treasury stock and net share settlements	(41,326)	(43,923)
Repayment of debt assumed through business acquisitions and debt issuance costs	(1,489)	(8,312)
Contingent consideration payments related to businesses acquired	(1,294)	(1,868)
Net cash used for financing activities	(37,466)	(49,121)
Effect of foreign exchange rate changes on cash and cash equivalents	3,259	1,815
Decrease in cash and cash equivalents	(5,736)	(20,443)
Cash and cash equivalents at beginning of period	164,313	164,091
Cash and cash equivalents at end of period	$ 158,577	$ 143,648

XML

Basis of Presentation and Significant Accounting Policies

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements (“condensed consolidated financial statements”) include the accounts of Electronics For Imaging, Inc. and its subsidiaries (“EFI” or “Company”). All intercompany accounts and transactions have been eliminated in consolidation.

These condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP” or “GAAP”) for interim financial information, rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements, and accounting policies consistent in all material respects with those applied in preparing our audited annual consolidated financial statements included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2016. These condensed consolidated financial statements and accompanying notes should be read in conjunction with our annual consolidated financial statements and the notes thereto for the year ended December 31, 2016, included in our Annual Report on Form 10-K, as amended. In the opinion of management, these condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments, management considers necessary for the fair presentation of our financial position, operating results, comprehensive income, and cash flows for the interim periods presented. Our results for the interim periods are not necessarily indicative of results for the entire year.

Significant Accounting Policies

There have been no material changes in our significant accounting policies, as compared to the significant accounting policies described in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2016, with the exception of the following:

Bill and Hold Transactions. We hold certain products manufactured by us on a “bill-and-hold” basis for our customers’ convenience. Revenue is recognized for these “bill-and-hold” arrangements in accordance with SEC Staff Accounting Bulletin (“SAB”) 104, which requires consideration of, among other things, whether the customer has made a fixed commitment to purchase the product; the existence of a substantial business purpose for the arrangement; the “bill-and-hold” arrangement is at the request of the customer; the scheduled delivery date must be reasonable and consistent with the buyer’s business purpose; title and risk of ownership must pass to the customer, including any decline in the market value of the product; the product is complete and ready for shipment; the product has been segregated from our inventory; payment terms for such arrangements have not been modified from our normal billing and credit terms; our custodial risks must be insurable and insured; and no further performance obligations by us exist. Extended procedures are not necessary to assure that there are no exceptions to the customer’s commitment to accept and pay for the product.

Out-of-Period Adjustments

In the three and six months ended June 30, 2017, we recorded out-of-period adjustments related to certain bill and hold transactions, which decreased revenue by $4.9 and $3.4 million, respectively, decreased gross profit by $0.9 and $0.5 million, and, respectively, decreased net income by $0.6 and $0.3 million, respectively (or $0.01 per diluted share in both periods). We evaluated these adjustments taking into account both qualitative and quantitative factors and considered the impact of these adjustments in relation to each period, as well as the periods in which they originated. The impact of recognizing these adjustments in prior years was not significant to any individual period. Management believes these adjustments are immaterial to the consolidated financial statements and all previously issued financial statements.

Recent Accounting Pronouncements

Inventory Valuation. In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, Simplifying the Measurement of Inventory, which became effective in the first quarter of 2017. ASU 2015-11 requires that inventory be valued at the lower of cost or net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We previously valued inventory at the lower of cost or net realizable value less a reasonable profit margin as allowed by previous inventory valuation guidance. The adoption of ASU 2015-11 increased our inventory valuation by $ 2.4 million as of June 30, 2017.

Revenue Recognition. ASU 2014-09, Revenue from Contracts with Customers, issued in May 2014, ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, and subsequent amendments, enhance the comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The principles-based guidance provides a framework for addressing revenue recognition issues comprehensively. The standards require that revenue be recognized that reflects the consideration the entity expects to be entitled in exchange for goods or services, which are referred to as performance obligations.

ASU 2014-09 will be effective in the first quarter of 2018. Two adoption methods are allowed under ASU 2014-09 – the full retrospective method and modified retrospective method. We have elected to use the modified retrospective method by applying the revised guidance to contracts that have not been completed as of January 1, 2018. Retained earnings will be adjusted for the cumulative effect of the change on January 1, 2018. The new standard requires comprehensive annual and interim disclosures regarding the nature, amount, timing, and uncertainty of recognized revenue, which will be provided in the year of adoption along with the impact on recognized revenue compared with the revenue that would have been recognized under prior guidance. Qualitative and quantitative disclosures will be required regarding:

• disaggregation of our current disclosures of revenue by segment and geographic area to include revenue by major product line, timing of recognition, contract duration, and sales channel, among others,

• billed and unbilled contracts with customers, including revenue and impairments recognized, disaggregation, and information about contract balances and performance obligations,

• significant judgments and changes in judgments required to determine the transaction price, amounts allocated to performance obligations, and the timing for recognizing revenue resulting from the satisfaction of performance obligations,

• assets recognized from the costs to obtain or fulfill a contract (e.g., commissions), and

• bad debt provisions related to billed and unbilled receivables.

Upon initial evaluation, we believe the key changes in the guidance that impact our revenue recognition relate to the timing of revenue recognition and allocation of contract revenue between services and software licenses. The requirement to defer incremental contract acquisition costs (e.g., commissions) and recognize them over the contract period or expected customer life will result in the recognition of a deferred charge on our balance sheet. We are currently assessing the impact on our consolidated financial statements upon adoption.

Principal vs Agent. ASU 2016-08, Principal vs. Agent Considerations (Reporting Revenue Gross vs Net), issued in March 2016, streamlines and clarifies the criteria for identifying whether an entity is satisfying a performance obligation as the principal or agent in the transaction. The entity that is responsible for fulfilling the contractual obligations related to the good or service is acting as the principal and recognizes the gross amount of consideration. The entity that is responsible only for arranging delivery to the customer is acting as the agent and recognizes revenue in the amount of the fee or commission related to arranging for the delivery of the good or service.

Several indicators of the nature of the relationship that are considered under current guidance have been streamlined and clarified in the new guidance by focusing more specifically on the performance obligations that must be fulfilled in the transaction, which entity carries the inventory risk in the transaction, and which entity controls the pricing of the good or service. Credit risk will no longer be a criterion. This guidance will be effective in the first quarter of 2018. We are evaluating its impact on our revenue and results of operations related to third party ink revenue and certain printer components.

Financial Instruments. ASU 2016-13, Measurement of Credit Losses on Financial Instruments, issued in June 2016, amends current guidance regarding other-than-temporary impairment of available-for-sale debt securities. The new guidance requires an estimate of expected credit loss when fair value is below the amortized cost of the asset without regard for the length of time that the fair value has been below the amortized cost or the historical or implied volatility of the asset. Credit losses on available-for-sale debt securities will be limited to the difference between the security’s amortized cost basis and its fair value. The use of an allowance to record estimated credit losses (and subsequent recoveries) will also be required under the new guidance.

ASU 2016-13 will be effective in the first quarter of 2020. We are evaluating its impact on the carrying value of our available-for-sale securities and results of operations.

Settlement of Convertible Debt. ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, issued in August 2016, requires that cash settlements of principal amounts of debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the debt must classify the portion of the principal payment attributable to the accreted interest related to the debt discount as cash outflows from operating activities. This is consistent with the classification of the coupon interest payments.

ASU 2016-15 will be effective in the first quarter of 2018. Accordingly, $63.6 million debt discount attributable to the difference between the 0.75% coupon interest rate on our 0.75% Convertible Senior Notes Due 2019 (“Notes”) and the 4.98% (5.46% inclusive of debt issuance costs) effective interest rate will be classified as an operating cash outflow in the Condensed Consolidated Statement of Cash Flows upon cash settlement in 2019.

Restricted Cash. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, requiring that the statement of cash flows explain the change incash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Under current guidance, changes in restricted cash and restricted cash equivalents are included in operating or investing activities in the Condensed Consolidated Statements of Cash Flows.

ASU 2016-18 will be effective in the first quarter of 2018. Changes in restricted cash related to the off-balance sheet financing arrangement described in Note 8 – Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements will no longer be presented as an investing cash outflow, but will instead be presented as a component of the beginning and ending balance of cash, cash equivalents, and restricted cash in the Condensed Consolidated Statements of Cash Flows.

Lease Arrangements. Under current guidance, the classification of a lease by a lessee as either an operating or capital lease determines whether an asset and liability is recognized on the balance sheet. ASU 2016-02, issued in February 2016 and effective in the first quarter of 2019, requires that a lessee recognize an asset and liability on its balance sheet related to all leases with terms in excess of one year. For all leases, a lessee will be required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position. The right-to-use asset represents the right to use the underlying asset during the lease term.

The recognition, measurement, and presentation of expenses and cash flows by a lessee have not significantly changed from previous guidance. There continues to be a differentiation between finance leases and operating leases. The criteria for determining whether a lease is a financing or operating lease are substantially the same as existing guidance except that the “bright line” percentages have been removed.

• For finance leases, interest is recognized on the lease liability separately from depreciation of the right-of-use asset in the statement of operations. Principal repayments are classified within financing activities and interest payments are classified as operating activities in the statement of cash flows.

• For operating leases, a lessee is required to recognize lease expense generally on a straight-line basis. All operating lease payments are classified as operating activities in the statement of cash flows.

The current build-to-suit lease accounting guidance will be rescinded by the new guidance, although simplified guidance will remain regarding lessee control during the construction period. Consequently, the accounting for build-to-suit leases will be the same as finance leases unless the lessee control provisions are applicable.

We have not quantified the impact, but the requirement to recognize a right-of-use asset and a lease liability related to operating leases will have a material impact on our consolidated financial position as reflected in our Consolidated Balance Sheets. As stated above, the recognition, measurement, and presentation of expenses and cash flows by a lessee have not significantly changed from previous guidance; accordingly, the impact on our results of operations as reflected in our Consolidated Statements of Operations is not expected to be material.

Definition of a Business. ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, was issued in January 2017, which significantly narrows how businesses are defined. Under current guidance, a business is defined as an integrated set of assets and activities that usually consists of business processes and their related inputs and outputs. However, business process outputs are not required to be present and only some business process inputs and business processes must be present if the acquiring entity can produce outputs by integrating the acquired set of assets and activities with its own inputs and processes. Essentially, existing guidance only requires that business processes and inputs be present in order to constitute a business.

Under ASU 2017-01, when substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar identifiable assets, then the assets acquired do not constitute a business. If substantially all of the fair value of the gross assets acquired is not concentrated in a single asset or group of similar assets, then the assets acquired may constitute a business if certain criteria are met. We must determine whether the acquired gross assets and activities include an input and a “substantive” process that together “significantly” contribute to the ability to create an output. A framework and specific criteria are provided to assist with the evaluation of whether a process is “substantive” and “significantly contributes” to the ability to create an output. “Output” is narrowly defined to be consistent with the description of a performance obligation in the new revenue guidance. Missing inputs and processes may not be replaced by integration with our own inputs and processes under the new guidance.

Our condensed consolidated financial statements may be impacted if an acquisition does not qualify as a business combination after ASU 2017-01 is effective in the first quarter of 2018. Such acquisitions would be accounted for as asset purchases.

Nonfinancial Asset Derecognition. In February 2017, the FASB issued ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition and Accounting for Partial Sales of Nonfinancial Assets, which clarifies the scope of recent guidance as it relates to nonfinancial asset derecognition and the accounting for partial sales of nonfinancial assets. The ASU conforms the derecognition guidance as it relates to nonfinancial assets with the derecognition guidance in the new revenue standard (ASU 2014-09) and is expected to have a material impact on the accounting for real estate dispositions.

ASU 2017-05 will be effective in the first quarter of 2018. We have elected to adopt the modified retrospective method of implementation.

Stock Compensation Modification. In May 2017, the FASB issued ASU 2017-09, Stock Compensation – Scope of Modification Accounting, which clarifies the scope of modification accounting for share-based payment arrangements. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification.

ASU 2017-09 will be effective in the first quarter of 2018. We will adopt this guidance prospectively to awards modified on or after the adoption date. We do not believe this guidance will materially impact our results of operations.

Supplemental Cash Flow Information

	Six months ended June 30,
(in thousands)	2017		2016
Net cash paid for income taxes	$	7,115	$	4,203
Cash paid for interest expense	$	2,011	$	1,812
Acquisition of businesses
Cash paid for businesses purchased, excluding contingent consideration	$	13,512	$	21,242
Cash acquired in business acquisitions		—		(1,628	)
Net cash paid for businesses purchased, net of cash acquired	$	13,512	$	19,614
Common stock issued in connection with Reggiani Macchine SpA (“Reggiani”) acquisition	$	—	$	73
Non-cash investing and financing activities:
Non-cash settlement of vacation liabilities by issuing restricted stock units (“RSUs”)	$	—	$	2,733
Property and equipment received, but not paid		843		880
	$	843	$	3,613

XML

Earnings Per Share

6 Months Ended

Jun. 30, 2017

Earnings Per Share [Abstract]

Earnings Per Share

2. Earnings Per Share

Net income per basic common share is computed using the weighted average number of common shares outstanding during the period. Net income per diluted common share is computed using the weighted average number of common and dilutive potential common shares outstanding during the period. Potential common shares result from the assumed exercise of outstanding common stock options having a dilutive effect using the treasury stock method, non-vested shares of restricted stock having a dilutive effect, non-vested restricted stock for which the performance criteria have been met, shares to be purchased under our Employee Stock Purchase Plan (“ESPP”) having a dilutive effect, the assumed release of shares from escrow related to the acquisition of Corrugated Technologies, Inc. (“CTI”), the assumed conversion of our Notes having a dilutive effect using the treasury stock method when the stock price exceeds the conversion price of the Notes, and the assumed exercise of our warrants having a dilutive effect using the treasury stock method when the stock price exceeds the warrant strike price. Any potential shares that are anti-dilutive as defined in Accounting Standards Codification (“ASC”) 260, Earnings Per Share, are excluded from the effect of dilutive securities.

Performance-based and market-based restricted stock and stock options that would be issuable if the end of the reporting period were the end of the vesting period, if the result would be dilutive, are assumed to be outstanding for purposes of determining net income per diluted common share as of the later of the beginning of the period or the grant date in accordance with ASC 260-10-45-48. Accordingly, performance-based RSUs, which vested on various dates during the three and six months ended June 30, 2017 and 2016, based on achievement of specified performance criteria related to revenue, cash flows from operating activities, and non-GAAP operating income targets, and performance-based stock options, which vested during the six months ended June 30, 2016 based on achievement of specified targets related to non-GAAP return on equity are included in the determination of net income per diluted common share as of the beginning of each period.

Basic and diluted earnings per share during the three and six months ended June 30, 2017 and 2016 are reconciled as follows (in thousands, except per share amounts):

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Basic net income per share:
Net income available to common shareholders	$	2,759	$	5,235	$	7,546	$	7,338
Weighted average common shares outstanding		46,429		46,943		46,490		47,079
Basic net income per share	$	0.06	$	0.11	$	0.16	$	0.16
Dilutive net income per share:
Net income available to common shareholders	$	2,759	$	5,235	$	7,546	$	7,338
Weighted average common shares outstanding		46,429		46,943		46,490		47,079
Dilutive stock options and non-vested restricted stock		721		887		709		851
Weighted average common shares outstanding for purposes of computing diluted net income per share		47,150		47,830		47,199		47,930
Dilutive net income per share	$	0.06	$	0.11	$	0.16	$	0.15

Potential shares of common stock that are not included in the determination of diluted net income per share because they are anti-dilutive consist of ESPP purchase rights having an anti-dilutive effect of less than 0.1 million shares for the six months ended June 30, 2017 and 2016, respectively.

The weighted-average number of common shares outstanding does not include the effect of the potential common shares from conversion of our Notes and exercise of our Warrants. The effects of these potentially outstanding shares were not included in the calculation of diluted net income per share because the effect would have been anti-dilutive since the conversion price of the Notes and the strike price of the Warrants exceeded the average market price of our common stock. We have the option to pay cash, issue shares of common stock, or any combination thereof for the aggregate amount due upon conversion of the Notes. Our intent is to settle the principal amount of the Notes in cash upon conversion. As a result, only amounts payable in excess of the principal amount of the Notes are considered in diluted net income per share under the treasury stock method. The Note Hedges are not included in the calculation of diluted net income per share because the effect of any exercise of the Note Hedges would be anti-dilutive. Please refer to Note 6 – Convertible Senior Notes, Note Hedges, and Warrants of the Notes to Condensed Consolidated Financial Statements for additional information.

XML

Balance Sheet Details

6 Months Ended

Jun. 30, 2017

Text Block [Abstract]

Balance Sheet Details

3. Balance Sheet Details

Inventories

Inventories, net of allowances, as of June 30, 2017, and December 31, 2016, are as follows (in thousands):

	June 30, 2017		December 31, 2016
Raw materials	$	51,180	$	45,798
Work in process		12,546		7,362
Finished goods		60,339		45,915
	$	124,065	$	99,075

Deferred Cost of Revenue

Deferred cost of revenue related to unrecognized revenue on shipments to customers was $3.0 and $3.4 million as of June 30, 2017, and December 31, 2016, respectively, and is included in other current assets in our Condensed Consolidated Balance Sheets.

Product Warranty Reserves

Product warranty reserves are included in accrued and other liabilities and our Condensed Consolidated Balance Sheets. The changes in product warranty reserves during the six months ended June 30, 2017 and 2016 are as follows (in thousands):

	2017			2016
Balance at January 1,	$	10,319		$	9,635
Liability assumed upon acquiring FreeFlow print server (“FFPS”)		9,368			—
Provisions, net of releases		4,790			6,205
Settlements		(6,254	)		(6,215	)
Balance at June 30,	$	18,223		$	9,625

Accumulated Other Comprehensive Loss (“OCI”)

OCI classified within stockholders’ equity in our Condensed Consolidated Balance Sheets as of June 30, 2017, and December 31, 2016 is as follows (in thousands):

	June 30, 2017			December 31, 2016
Net unrealized investment losses	$	(260	)	$	(473	)
Currency translation losses		(5,920	)		(24,230	)
Net unrealized gains on cash flow hedges		13			9
Accumulated other comprehensive loss	$	(6,167	)	$	(24,694	)

Amounts reclassified out of OCI were less than $0.1 million, net of tax, for the three and six months ended June 30, 2017, and $0.1 million, net of tax, for the three and six months ended June 30, 2016, and consisted of unrealized gains and losses from investments in debt securities that are reported within interest income and other income, net, in our Condensed Consolidated Statements of Operations.

XML

Acquisition

6 Months Ended

Jun. 30, 2017

Business Combinations [Abstract]

Acquisition

4. Acquisition

We acquired privately held CRC Information Systems, Inc. (“CRC”) from Reynolds and Reynolds Company (“Reynolds”) and certain assets comprising the FFPS business from Xerox Corporation (“Xerox”) during 2017, which have been included in our Productivity Software and Fiery operating segments, respectively. Acquisition-related transaction costs were $0.5 and $1.2 million during the three and six months ended June 30, 2017, respectively, and $0.8 and $1.3 million during the three and six months ended June 30, 2016, respectively, related to all acquisitions.

These acquisitions were accounted for as purchase business combinations. We allocated the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair value on their acquisition dates. Excess purchase consideration was recorded as goodwill. Factors contributing to a purchase price that results in goodwill include, but are not limited to, the retention of research and development personnel with skills to develop future technology, support personnel to provide maintenance services related to the products, a trained sales force capable of selling current and future products, the opportunity to cross-sell products of the acquired businesses to existing customers, the opportunity to integrate acquired technology into our products, the positive reputation of CRC and FFPS in the market, the opportunity to sell Fiery digital front ends (“DFEs”) to FFPS customers, and the opportunity to expand our presence in the DFE market through the synergy of FFPS technology with existing Fiery products.

We engaged a third party valuation firm to aid management in its analyses of the fair value of these acquired businesses. All estimates, key assumptions, and forecasts were either provided by or reviewed by us. While we chose to utilize a third party valuation firm, the fair value analyses and related valuations represent the conclusions of management and not the conclusions or statements of any third party.

The purchase price allocations are preliminary and subject to change within the measurement period as the valuations are finalized. We expect to continue to obtain information to assist us in finalizing the fair value of the net assets acquired during the measurement period, which end at various dates in 2018. Measurement period adjustments will be recognized in the reporting period in which the adjustment amounts are determined, if any.

Productivity Software Operating Segment

We acquired privately held CRC, which is a Michigan corporation headquartered in Scottsdale, Arizona, from Reynolds, which is an Ohio corporation headquartered in Dayton, Ohio, on May 8, 2017, for cash consideration of $7.6 million. CRC provides business process automation software for label and packaging printers for commercial businesses and is included in the Midmarket Print Suite within our Productivity Software operating segment.

Fiery Operating Segment

We acquired certain assets comprising the FFPS business from Xerox, a New York corporation headquartered in Norwalk, Connecticut, on January 31, 2017. The FFPS business manufactures and markets the FFPS DFE, which is a DFE that previously competed with our Fiery DFEs and is included in our Fiery operating segment.

We purchased FFPS for cash consideration of $24.0 million consisting of $6.0 million paid at closing, $9.0 million paid in July 2017, and $9.0 million payable in July 2018, which have been discounted at our incremental borrowing rate of 4.98%, resulting in a purchase price of $23.1 million.

Valuation Methodologies

Intangible assets acquired consist of customer relationships, Purchasing Agreement with Xerox, “take-or-pay” contractual penalty, trade name, existing technology, and in-process research & development (“IPR&D”). Each intangible asset valuation methodology for each acquisition assumes a risk-free discount rate of 4.98% or probability-adjusted discount rates between 13% and 18%.

Customer Relationships and Backlog were valued using the excess earnings method, which is an income approach. The value of customer relationships lies in the generation of a consistent and predictable revenue source and the avoidance of costs associated with developing the relationships. Customer relationships were valued by estimating the revenue attributable to existing customer relationships and probability-weighting each forecast year to reflect the uncertainty of maintaining existing relationships based on historical attrition rates.

Trade Name was valued using the relief from royalty method, which is an income approach, with royalty rates based on various factors including an analysis of market data, comparable trade name agreements, and historical advertising dollars spent supporting the trade name.

Existing Technology was valued using the relief from royalty method based on royalty rates for similar technologies. The value of existing technology is derived from consistent and predictable revenue, including the opportunity to cross-sell to existing customers, and the avoidance of the costs associated with developing the technology. Revenue related to existing technology was adjusted in each forecast year to reflect the evolution of the technology and the cost of sustaining research and development required to maintain the technology.

Purchasing Agreement was valued using the excess earnings method, which is an income approach. The Master Purchasing Agreement (the “Purchasing Agreement”) entered into with Xerox states that we will be Xerox’s preferred supplier of DFEs provided that we meet quality, cost, delivery, and services requirements. The value of the Purchasing Agreement lies in the generation of a consistent and predictable revenue source without incurring the costs normally required to acquire the Purchasing Agreement. The Purchasing Agreement was valued by estimating the revenue attributable to the Purchasing Agreement and probability-weighting each forecast year to reflect the uncertainty of maintaining the existing relationship with Xerox beyond the initial five-year term of the agreement.

Take-or-pay Contract was valued using the Monte Carlo method, which is an income approach. If Xerox’s purchases of Fiery and FFPS DFEs during each of four consecutive 12-month periods is less than the minimum level defined for each purchase period, then Xerox shall make a one-time payment in an amount equal to a percentage of such shortfall compared to the minimum level, subject to the maximum payment amount agreed between the parties for each purchase period. Key assumptions include a risk-free discount rate of 4.98%, asset volatility of 27%, and probability-adjusted DFE revenue. If Xerox’s purchases of Fiery and FFPS DFEs exceed the minimum purchase levels defined for each purchase period, then we will pay a percentage of such excess to Xerox.

IPR&D was valued using the relief from royalty method by estimating the cost to develop purchased IPR&D into commercially viable products, estimating the net cash flows resulting from the sale of those products, and discounting the net cash flows back to their present value. FFPS project schedules were 63% complete as of the acquisition date and 95% as of June 30, 2017, based on management’s estimate of tasks completed to achieve technical and commercial feasibility. IPR&D is subject to amortization after product completion over the product life or otherwise assessed for impairment in accordance with acquisition accounting guidance. Additional costs incurred to complete IPR&D after the acquisition are expensed.

The preliminary allocation of the purchase price to the assets acquired and liabilities assumed (in thousands) with respect to these acquisitions at their respective acquisition dates is summarized as follows:

	CRC					FFPS
	Weighted average useful life		Purchase Price Allocation			Weighted average useful life		Purchase Price Allocation
Purchasing agreement		—	$	—			10 years	$	9,330
Take-or-pay contract		—		—			4 years	$	9,000
Customer relationships		9 years		3,580			—		—
Existing technology		4 years		540			2 years		2,570
Trade names		4 years		180			5 years		1,020
IPR&D		—		—			less than one year		70
Backlog		less than one year		4			—		—
Goodwill		—		4,595			—		6,236
			$	8,899					28,226
Net tangible assets (liabilities)				(1,299	)				(5,092	)
Total purchase price			$	7,600				$	23,134

Pro forma results of operations have not been presented because they are not material to our Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016. Goodwill, which represents the excess of the purchase price over the net tangible and intangible assets acquired, that was generated by our acquisition of CRC and FFPS is not deductible for tax purposes.

XML

Investments and Fair Value Measurements

6 Months Ended

Jun. 30, 2017

Text Block [Abstract]

Investments and Fair Value Measurements

5. Investments and Fair Value Measurements

We invest our excess cash on deposit with major banks in money market, U.S. Treasury and government-sponsored entity, corporate, municipal government, asset-backed, and mortgage-backed residential debt securities. By policy, we invest primarily in high-grade marketable securities. We are exposed to credit risk in the event of default by the financial institutions or issuers of these investments to the extent of amounts recorded in our Condensed Consolidated Balance Sheets.

We consider all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Typically, the cost of these investments has approximated fair value. Marketable investments with a maturity greater than three months are classified as available-for-sale short-term investments. Available-for-sale securities are stated at fair value with unrealized gains and losses reported as a separate component of OCI, adjusted for deferred income taxes. The credit portion of any other-than-temporary impairment is included in net income. Realized gains and losses on sales of financial instruments are recognized upon sale of the investments using the specific identification method.

Our available-for-sale short-term investments as of June 30, 2017, and December 31, 2016, are as follows (in thousands):

	Amortized cost		Gross  unrealized gains		Gross  unrealized losses			Fair value
June 30, 2017
U.S. Government and sponsored entities	$	68,114	$	6	$	(348	)	$	67,772
Corporate debt securities		178,432		153		(269	)		178,316
Municipal government		1,044		—		—			1,044
Asset-backed securities		24,502		71		(18	)		24,555
Mortgage-backed securities – residential		980		1		(2	)		979
Total short-term investments	$	273,072	$	231	$	(637	)	$	272,666
December 31, 2016
U.S. Government and sponsored entities	$	70,893	$	49	$	(348	)	$	70,594
Corporate debt securities		198,166		102		(621	)		197,647
Municipal government		1,278		—		(1	)		1,277
Asset-backed securities		24,233		79		(17	)		24,295
Mortgage-backed securities – residential		1,615		3		(3	)		1,615
Total short-term investments	$	296,185	$	233	$	(990	)	$	295,428

The fair value and duration that investments, including cash equivalents, have been in a gross unrealized loss position as of June 30, 2017, and December 31, 2016 are as follows (in thousands):

	Less than 12 Months					More than 12 Months					TOTAL
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2017
U.S. Government and sponsored entities	$	58,640	$	(342	)	$	—	$	—		$	58,640	$	(342	)
Corporate debt securities		98,931		(268	)		6,013		(6	)		104,944		(274	)
Asset-backed securities		11,234		(17	)		1,537		(1	)		12,771		(18	)
Mortgage-backed securities – residential		453		(3	)		17		—			470		(3	)
Total	$	169,258	$	(630	)	$	7,567	$	(7	)	$	176,825	$	(637	)
December 31, 2016
U.S. Government and sponsored entities	$	39,810	$	(348	)	$	—	$	—		$	39,810	$	(348	)
Corporate debt securities		133,382		(581	)		13,158		(40	)		146,540		(621	)
Municipal government		1,268		(1	)		—		—			1,268		(1	)
Asset-backed securities		4,540		(7	)		4,611		(10	)		9,151		(17	)
Mortgage-backed securities – residential		428		(1	)		153		(2	)		581		(3	)
Total	$	179,428	$	(938	)	$	17,922	$	(52	)	$	197,350	$	(990	)

For fixed income securities that have unrealized losses as of June 30, 2017, we have determined that we do not have the intent to sell any of these investments and it is not more likely than not that we will be required to sell any of these investments before recovery of the entire amortized cost basis. We have evaluated these fixed income securities and determined that no credit losses exist. Accordingly, management has determined that the unrealized losses on our fixed income securities as of June 30, 2017, were temporary in nature.

Amortized cost and estimated fair value of investments as of June 30, 2017, are summarized by maturity date as follows (in thousands):

	Amortized cost		Fair value
Mature in less than one year	$	75,373	$	75,361
Mature in one to three years		197,699		197,305
Total short-term investments	$	273,072	$	272,666

Net realized gains of less than $0.1 million from sales of investments were recognized in interest income and other income, net, during the three and six months ended June 30, 2017. Net realized gains of $0.2 million from sales of investments were recognized in interest income and other income, net, during the three and six months ended June 30, 2016. Net unrealized losses of $0.4 and $0.8 million were included in OCI in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2017, and December 31, 2016, respectively.

Fair Value Measurements

ASC 820, Fair Value Measurements, identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy as follows:

Level 1: Inputs that are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

Level 2: Inputs that are other than quoted prices included within Level 1, that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date for the duration of the instrument’s anticipated life or by comparison to similar instruments; and

Level 3: Inputs that are unobservable or reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. These include management’s own judgments about market participant assumptions developed based on the best information available in the circumstances.

We utilize the market approach to measure the fair value of our fixed income securities. The market approach is a valuation technique that uses the prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The fair value of our fixed income securities is obtained using readily-available market prices from a variety of industry standard data providers, large financial institutions, and other third-party sources for the identical underlying securities. The fair value of our investments in certain money market funds is expected to maintain a Net Asset Value of $1 per share and, as such, is priced at the expected market price.

We obtain the fair value of our Level 2 financial instruments from several third party asset managers, custodian banks, and the accounting service providers. Independently, these service providers use professional pricing services to gather pricing data, which may include quoted market prices for identical or comparable instruments or inputs other than quoted prices that are observable either directly or indirectly. As part of this process, we engaged a pricing service to assist management in its pricing analysis and assessment of other-than-temporary impairment. All estimates, key assumptions, and forecasts were either provided by or reviewed by us. While we chose to utilize a third party pricing service, the impairment analysis and related valuations represent conclusions of management and not conclusions or statements of any third party.

Our investments and liabilities measured at fair value have been presented in accordance with the fair value hierarchy specified in ASC 820 as of June 30, 2017, and December 31, 2016 in order of liquidity as follows (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
June 30, 2017
Assets:
Money market funds	$	9,497	$	9,497	$	—	$	—
U.S. Government and sponsored entities		67,772		41,813		25,959		—
Corporate debt securities		178,316		—		178,316		—
Municipal government		1,044		—		1,044		—
Asset-backed securities		24,555		—		24,497		58
Mortgage-backed securities – residential		979		—		979		—
	$	282,163	$	51,310	$	230,795	$	58
Liabilities:
Contingent consideration, current and noncurrent	$	61,414	$	—	$	—	$	61,414
Self-insurance		1,060		—		—		1,060
	$	62,474	$	—	$	—	$	62,474
December 31, 2016
Assets:
Money market funds	$	23,575	$	23,575	$	—	$	—
U.S. Government and sponsored entities		70,594		51,870		18,724		—
Corporate debt securities		197,647		—		197,647		—
Municipal government		1,277		—		1,277		—
Asset-backed securities		24,295		—		24,228		67
Mortgage-backed securities – residential		1,615		—		1,615		—
	$	319,003	$	75,445	$	243,491	$	67
Liabilities:
Contingent consideration, current and noncurrent	$	56,463	$	—	$	—	$	56,463
Self-insurance		1,542		—		—		1,542
	$	58,005	$	—	$	—	$	58,005

Money market funds consist of $9.5 and $23.6 million, which have been classified as cash equivalents as of June 30, 2017, and December 31, 2016, respectively.

Investments are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices or alternative pricing sources with reasonable levels of price transparency. Investments in U.S. Treasury obligations and overnight money market mutual funds have been classified as Level 1 because these securities are valued based on quoted prices in active markets or are actively traded at $1.00 Net Asset Value. There have been no transfers between Level 1 and 2 during the six months ended June 30, 2017 and 2016.

Government agency investments and corporate debt instruments, including investments in asset-backed and mortgage-backed securities, have generally been classified as Level 2 because markets for these securities are less active or valuations for such securities utilize significant inputs, which are directly or indirectly observable. We hold asset-backed securities with income payments derived from and collateralized by a specified pool of underlying assets. Asset-backed securities in the portfolio are predominantly collateralized by credit cards and auto loans. We also hold two asset-backed securities collateralized by mortgage loans, which have been fully reserved.

Liabilities for Contingent Consideration

Acquisition-related liabilities for contingent consideration (i.e., earnouts) are related to the purchase business combinations of Optitex Ltd. (“Optitex”) and Rialco Limited (“Rialco”) in 2016; Shuttleworth Business Systems Limited and CDM Solutions Limited (collectively, “Shuttleworth”), CTI, and Reggiani in 2015; DiMS! organizing print BV (“DIMS”), DirectSmile GmbH (“DirectSmile”), and SmartLinc, Inc. (“SmartLinc”) in 2014; Outback Software Pty. Ltd. doing business as Metrix Software (“Metrix”) and PrintLeader Software (“PrintLeader”) in 2013.

The fair value of these earnouts is estimated to be $61.4 and $56.5 million as of June 30, 2017, and December 31, 2016, respectively, by applying the income approach in accordance with ASC 805-30-25-5, Business Combinations. Key assumptions include risk-free discount rates between 0.6% and 4.98% (Monte Carlo valuation method) and discount rates between 4.7% and 6.0% (probability-adjusted method), as well as probability-adjusted revenue and earnings before interest and taxes (“EBIT”) levels. Probability-adjusted revenue, gross profit, operating profit, and EBIT are significant inputs that are not observable in the market, which ASC 820-10-35 refers to as Level 3 inputs. These contingent liabilities have been reflected in the Condensed Consolidated Balance Sheet as of June 30, 2017, as current and noncurrent liabilities of $38.0 and $23.4 million, respectively.

The fair value of contingent consideration increased by $1.8 million primarily due to an increase in the Optitex earnout and CTI performance probabilities, including $0.9 million of earnout interest accretion related to all acquisitions during the six months ended June 30, 2017. The fair value of contingent consideration increased by $6.8 million primarily due to increased Rialco, Optitex, Reggiani, DirectSmile, and CTI earnout performance probabilities, partially offset by decreased DIMS and Shuttleworth earnout performance probabilities, and including $2.7 million of earnout interest accretion related to all acquisitions during the year ended December 31, 2016. In accordance with ASC 805-30-35-1, changes in the fair value of contingent consideration subsequent to the acquisition date have been recognized in general and administrative expense.

Earnout payments during the six months ended June 30, 2017 of $1.3 million are primarily related to the previously accrued Shuttleworth contingent consideration liability. Earnout payments during the year ended December 31, 2016 of $23.8, $3.6, $0.4, and $0.2 million are primarily related to the previously accrued Reggiani, DirectSmile, SmartLinc, and Metrix contingent consideration liabilities, respectively.

Changes in the fair value of contingent consideration are summarized as follows (in thousands):

Fair value of contingent consideration at January 1, 2016	$	54,796
Fair value of Rialco contingent consideration at March 1, 2016		2,109
Fair value of Optitex contingent consideration at June 16, 2016		22,300
Changes in valuation		6,813
Payments		(28,111	)
Foreign currency adjustment		(1,444	)
Fair value of contingent consideration at December 31, 2016	$	56,463
Changes in valuation	$	1,776
Payments		(1,294	)
Foreign currency adjustment		4,469
Fair value of contingent consideration at June 30, 2017	$	61,414

Since the primary inputs to the fair value measurement of contingent consideration liability are the discount rate and probability-adjusted revenue, we reviewed the sensitivity of the fair value measurement to changes in these inputs. We assessed the probability of achieving the revenue performance targets for contingent consideration associated with each acquisition at percentage levels between 60% and 100% as of each respective acquisition date based on an assessment of the historical performance of each acquired entity, our current expectations of future performance, and other relevant factors. A change in probability-adjusted revenue of five percentage points from the level assumed in the current valuations would result in a change in the fair value of contingent consideration of $2.0 million resulting in a corresponding adjustment to general and administrative expense. A change in the discount rate of one percentage point results in a change in the fair value of contingent consideration of $0.5 million. The potential undiscounted amount of future contingent consideration cash payments that we could be required to make related to our business acquisitions, beyond amounts currently accrued, is $10.1 million as of June 30, 2017.

Fair Value of Derivative Instruments

We utilize the income approach to measure the fair value of our derivative assets and liabilities. The income approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates, and forward prices, and are therefore classified as Level 2 measurements. The notional amount of our derivative assets and liabilities was $148.7 and $161.8 million as of June 30, 2017 and December 31, 2016, respectively. The fair value of our derivative assets and liabilities that were designated for cash flow hedge accounting treatment having notional amounts of $3.6 and $3.2 million as of June 30, 2017 and December 31, 2016, respectively, was not material.

Fair Value of Convertible Senior Notes

In September 2014, we issued $345 million aggregate principal amount of our Notes. The Notes are carried at their original issuance value, net of unamortized debt discount, and are not marked to market each period. The approximate fair value of the Notes as of June 30, 2017 was approximately $373.0 million and was considered a Level 2 fair value measurement. Fair value was estimated based upon actual quotations obtained at the end of the reporting period or the most recent date available. A substantial portion of the market value of our Notes in excess of the outstanding principal amount relates to the conversion premium.

XML

Convertible Senior Notes ("Notes"), Note Hedges, and Warrants

6 Months Ended

Jun. 30, 2017

Debt Disclosure [Abstract]

Convertible Senior Notes ("Notes"), Note Hedges, and Warrants

6. Convertible Senior Notes (“Notes”), Note Hedges, and Warrants

0.75% Convertible Senior Notes Due 2019

In September 2014, we completed a private placement of $345 million principal amount of 0.75% Convertible Senior Notes due 2019 (“Notes”). The Notes were sold to the initial purchasers for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds from this offering were approximately $336.3 million, after deducting the initial purchasers’ commissions and the offering expenses paid by us. We used approximately $29.4 million of the net proceeds to purchase the Note Hedges described below, net of the proceeds from the Warrant transactions also described below.

The Notes are senior unsecured obligations of EFI with interest payable semiannually in arrears on March 1 and September 1 of each year, commencing March 1, 2015. The Notes are not callable and will mature on September 1, 2019, unless previously purchased or converted in accordance with their terms prior to such date. Holders of the Notes who convert in connection with a “fundamental change,” as defined in the indenture governing the Notes (“Indenture”), may require us to purchase for cash all or any portion of their Notes at a purchase price equal to 100 percent of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any.

The initial conversion rate is 18.9667 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $52.72 per share of common stock. Upon conversion of the Notes, holders will receive cash, shares of common stock or a combination thereof, at our election. Our intent is to settle the principal amount of the Notes in cash upon conversion. If the conversion value exceeds the principal amount, we would deliver shares of our common stock for our conversion obligation in excess of the aggregate principal amount. As of June 30, 2017, none of the conditions listed below allowing holders of the Notes to convert had been met.

Throughout the term of the Notes, the conversion rate may be adjusted upon the occurrence of certain events. Holders of the Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a Note. Holders may convert their Notes only under the following circumstances:

• if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

• during the five business day period after any five consecutive trading day period (“Notes Measurement Period”) in which the “trading price” (as the term is defined in the Indenture) per $1,000 principal amount of Notes for each trading day of such Notes Measurement Period was less than 98% of the product of the last reported stock price on such trading day and the conversion rate on each such trading day;

• upon the occurrence of specified corporate events; or

• at any time on or after March 1, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date.

We separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the estimated fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the face value of the Notes as a whole. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the Notes using the effective interest method with an effective interest rate of 4.98% per annum (5.46% inclusive of debt issuance costs). The equity component is not remeasured if it continues to meet the conditions for equity classification.

We allocated the total transaction costs incurred by the Notes issuance to the liability and equity components based on their relative values. Issuance costs of $7.0 million attributable to the $281.4 million liability component are being amortized to expense over the term of the Notes, and issuance costs of $1.6 million attributable to the $63.6 million equity component were offset against the equity component in stockholders’ equity. Additionally, we recorded a deferred tax liability of $23.7 million on the debt discount, which is not deductible for tax purposes.

The Notes consist of the following as of June 30, 2017, and December 31, 2016 (in thousands):

	June 30, 2017			December 31, 2016
Liability component	$	345,000		$	345,000
Debt discount, net of amortization		(29,695	)		(36,115	)
Debt issuance costs, net of amortization		(3,702	)		(4,401	)
Net carrying amount	$	311,603		$	304,484
Equity component	$	63,643		$	63,643
Less: debt issuance costs allocated to equity		(1,582	)		(1,582	)
Net carrying amount	$	62,061		$	62,061

Interest expense recognized related to the Notes during the three and six months ended June 30, 2017 and 2016 was as follows (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
0.75% coupon	$	647	$	647	$	1,287	$	1,287
Amortization of debt issuance costs		354		362		699		719
Amortization of debt discount		3,249		3,050		6,420		6,025
	$	4,250	$	4,059	$	8,406	$	8,031

Note Hedges

We paid an aggregate of $63.9 million in convertible note hedge transactions with respect to our common stock (“Note Hedges”) in September 2014. The Note Hedges will expire upon maturity of the Notes. The Note Hedges are intended to offset the potential dilution upon conversion and/or offset any cash payments we are required to make in excess of the principal amount upon conversion of the Notes in the event that the market value per share of our common stock, as measured under the terms of the Note Hedges, is greater than the strike price of the Note Hedges. The strike price of the Note Hedges initially corresponds to the conversion price of the Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion price of the Notes. The Note Hedges are separate transactions and are not part of the Notes. Holders of the Notes will not have any rights with respect to the Note Hedges.

Warrants

Concurrently with entering into the Note Hedges, we separately entered into warrant transactions (“Warrants”), whereby we sold Warrants to acquire shares of our common stock at a strike price of $68.86 per share. We received aggregate proceeds of $34.5 million from the sale of the Warrants. If the average market value per share of our common stock for the reporting period, as measured under the Warrants, exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on our earnings per share. The Warrants are separate transactions and are not part of the Notes or the Note Hedges and are accounted for as a component of additional paid-in capital. Holders of the Notes and Note Hedges will not have any rights with respect to the Warrants.

XML

Income taxes

6 Months Ended

Jun. 30, 2017

Income Tax Disclosure [Abstract]

Income taxes

7. Income taxes

We recognized a tax provisions of $1.0 and $2.5 million on pretax net income of $3.8 and $7.8 million during the three months ended June 30, 2017 and 2016, respectively. We recognized no tax provision on pretax net income of $7.6 million and a tax provision of $2.8 million on pre-tax income of $10.1 million during the six months ended June 30, 2017 and 2016, respectively. The provisions for income taxes before discrete items reflected in the table below were $1.5 and $2.3 million during the three months ended June 30, 2017 and 2016, respectively, and $2.6 and $2.8 million during the six months ended June 30, 2017 and 2016, respectively. The decrease in the provisions for income taxes before discrete items for the three and six months ended June 30, 2017, compared with the same periods in the prior year, is primarily due to the decrease in profitability before income taxes.

Primary differences between our provision for income taxes before discrete items and the income tax provision at the U.S. statutory rate of 35% include lower taxes on permanently reinvested foreign earnings and the tax effects of stock-based compensation expense pursuant to ASC 718-740, Stock Compensation – Income Taxes, which are non-deductible for tax purposes.

Our tax provisions before discrete items is reconciled to our recorded provisions for income taxes during the three and six months ended June 30, 2017 and 2016 as follows (in millions):

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Provision for income taxes before discrete items	$	1.5		$	2.3		$	2.6		$	2.8
Interest related to unrecognized tax benefits		0.1			0.1			0.1			0.2
Reassessment of taxes upon filing tax returns		0.2			0.3			0.1			0.1
Excess tax benefit from stock compensation		(0.8	)		(0.2	)		(2.3	)		(0.3	)
Benefit from reassessment of taxes upon foreign statutory tax rate change		—			—			(0.5	)		—
Provision for income taxes	$	1.0		$	2.5		$	—		$	2.8

As of June 30, 2017 and December 31, 2016, gross unrecognized benefits that would affect the effective tax rate if recognized were $32.6 and $32.0 million, respectively. Over the next twelve months, our existing tax positions will continue to generate increased liabilities for unrecognized tax benefits. It is reasonably possible that our gross unrecognized tax benefits will decrease up to $3.5 million in the next twelve months primarily due to the lapse of the statute of limitations for federal and state tax purposes. These adjustments, if recognized, would positively impact our effective tax rate, and would be recognized as additional tax benefits in our Condensed Consolidated Statements of Operations.

In accordance with ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, Similar Tax Loss, or Tax Credit Carryforward Exists, $20.6 million of gross unrecognized tax benefits were offset against deferred tax assets as of June 30, 2017, and the remaining $12.0 million has been recorded as noncurrent income taxes payable.

We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of June 30, 2017 and December 31, 2016, we have accrued $0.6 and $0.5 million, respectively, for potential payments of interest and penalties.

We are subject to examination by the Internal Revenue Service (“IRS”) for the 2013-2015 tax years, state tax jurisdictions for the 2012-2015 tax years, the Netherlands tax authority for the 2012-2015 tax years, the Spanish tax authority for the 2012-2015 tax years, the Israel tax authority for the 2011-2015 tax years, and the Italian tax authority for the 2012-2015 tax years.

XML

Commitments and Contingencies

6 Months Ended

Jun. 30, 2017

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

8. Commitments and Contingencies

Contingent Consideration

We are required to make payments to the former stockholders of acquired companies based on the achievement of specified performance targets as more fully explained in Note 5 – Investments and Fair Value Measurements.

Lease Commitments and Contractual Obligations

As of June 30, 2017, we have leased certain of our current facilities under noncancellable operating lease agreements. We are required to pay property taxes, insurance, and nominal maintenance costs for certain of these facilities and any increases over the base year of these expenses on the remainder of our facilities.

Assets Held for Sale

In 2016, management approved a plan to sell approximately 5.6 acres and the office building located at 1340 Corporate Center Curve, Eagan, Minnesota, consisting of 43,682 square feet, and the related fixed assets were classified as held for sale. On April 13, 2017, we entered into an agreement under which we agreed to sell the office building and related land, subject to completion of a 150 day due diligence period, which expired without the transaction closing on September 7, 2017. Accordingly, assets previously recorded as held for sale of $3.8 million, which consisted of $2.9 million net book value of the facility and $0.9 million of related land as of December 31, 2016, have been classified as assets held for use within property and equipment, net, in our Condensed Consolidated Balance Sheet as of June 30, 2017.

Off-Balance Sheet Financing – Lease Arrangements

On August 26, 2016, we entered into a lease agreement and have accounted for a lease term of 48.5 years, inclusive of two renewal options of 5.0 and 3.5 years, with the City of Manchester to lease 16.9 acres adjacent to the Manchester Regional Airport. The land is subleased to Bank of Tokyo – Mitsubishi UFJ Leasing & Finance LLC (“BTMU”) during the term of the lease related to the manufacturing facility that is being constructed on the site, which is described below. Minimum lease payments are $13.1 million during the 48.5 year term of the land lease, excluding four months of the land lease that is financed into the manufacturing facility lease.

On August 26, 2016, we entered into a six-year lease with BTMU whereby a 225,000 square foot manufacturing and warehouse facility is under construction related to our super-wide format industrial digital inkjet printer business in the Industrial Inkjet operating segment at a projected cost of $40 million and a construction period of 18 months. Minimum lease payments during the initial six-year term are $1.8 million. Upon completion of the initial six-year term, we have the option to renew the lease, purchase the facility, or return the facility to BTMU subject to an 89% residual value guarantee under which we would recognize additional rent expense in the form of a variable rent payment. We have assessed our exposure in relation to the residual value guarantee and believe that there is no deficiency to the guaranteed value with respect to funds expended by BTMU as of June 30, 2017. We are treated as the owner of the facility for federal income tax purposes.

The funds pledged under the lease represent 115% of the total expenditures made by BTMU through June 30, 2017. The funds are invested in $15.1 and $5.3 million of U.S. government securities and cash equivalents, respectively, with a third party trustee and will be restricted during the construction period. Upon completion of construction, the funds will be released as cash and cash equivalents. The portion of released funds that represents 100% of the total expenditures made by BTMU will be deposited with BTMU and restricted as collateral until the end of the underlying lease period.

The funds pledged as collateral are invested in U.S. government securities and cash equivalents as of June 30, 2017, and are classified as Level 1 in the fair value hierarchy as more fully defined in Note 5 – Investments and Fair Value Measurements. Net unrealized gains of less than $0.1 million were included in OCI in the accompanying Condensed Consolidated Balance Sheet as of June 30, 2017.

We have evaluated the BTMU lease agreement to determine if the arrangement qualifies as a variable interest entity (“VIE”) under ASC 810-10, Consolidation. We have determined that the lease agreement does not qualify as a VIE, and as such, we are not required to consolidate the VIE in our condensed consolidated financial statements.

Legal Proceedings

We may be involved, from time to time, in a variety of claims, lawsuits, investigations, or proceedings relating to contractual disputes, securities laws, intellectual property rights, employment, or other matters that may arise in the normal course of business. We assess our potential liability in each of these matters by using the information available to us. We develop our views on estimated losses in consultation with inside and outside counsel, which involves a subjective analysis of potential results and various combinations of appropriate litigation and settlement strategies. We accrue estimated losses from contingencies if a loss is deemed probable and can be reasonably estimated.

As of June 30, 2017, we are subject to the matter discussed below:

Matan Digital Printing (“MDG”) Matter

EFI acquired Matan Digital Printers (“Matan”) in 2015 from sellers (the “2015 Sellers”) that acquired Matan Digital Printing Ltd. from other sellers in 2001 (the “2001 Sellers”). The 2001 Sellers have asserted a claim against the 2015 Sellers and Matan asserting that they are entitled to a portion of the 2015 Sellers’ proceeds from EFI’s acquisition. The 2015 Sellers dispute this claim and have agreed to indemnify EFI against the 2001 Sellers’ claim.

Although we are fully indemnified and we do not believe that it is probable that we will incur a loss, it is reasonably possible that our financial statements could be materially affected by the unfavorable resolution of this matter. Accordingly, it is reasonably possible that we could incur a material loss in this matter. We estimate the range of loss to be between one dollar and $10.1 million. If we incur a loss in this matter, it will be offset by a receivable of an equal amount representing a claim for indemnification against the escrow account established in connection with the Matan acquisition.

Other Matters

As of June 30, 2017, we were subject to various other claims, lawsuits, investigations, and proceedings in addition to the matter discussed above. There is at least a reasonable possibility that additional losses may be incurred in excess of the amounts that we have accrued. However, we believe that these claims are not material to our financial statements or the range of reasonably possible losses is not reasonably estimable. Litigation is inherently unpredictable, and while we believe that we have valid defenses with respect to legal matters pending against us, our financial statements could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies or because of the diversion of management’s attention and the incurrence of significant expenses.

XML

Segment Information and Geographic Data

6 Months Ended

Jun. 30, 2017

Segment Reporting [Abstract]

Segment Information and Geographic Data

9. Segment Information and Geographic Data

Operating segment information is required to be presented based on the internal reporting used by the chief operating decision making group (“CODM”) to allocate resources and evaluate operating segment performance. Our CODM is comprised of our Chief Executive Officer and Chief Financial Officer. The CODM group is focused on assessment and resource allocation among the Industrial Inkjet, Productivity Software, and Fiery operating segments.

Our operating segments are integrated through their reporting and operating structures, shared technology and practices, shared sales and marketing, and combined production facilities. Our enterprise management processes use financial information that is closely aligned with our three operating segments at the gross profit level. Relevant discrete financial information is prepared at the gross profit level for each of our three operating segments, which is used by the CODM to allocate resources and assess the performance of each operating segment.

We classify our revenue, operating segment profit (i.e., gross profit), assets, and liabilities in accordance with our operating segments as follows:

Industrial Inkjet, which consists of our VUTEk and Matan super-wide and wide format display graphics, Reggiani textile, Jetrion label and packaging, and Cretaprint ceramic tile decoration and construction material industrial digital inkjet printers; digital ultra-violet (“UV”) curable, light-emitting diode (“LED”) curable, ceramic, water-based, and thermoforming ink, as well as a variety of textile ink including dye sublimation, pigmented, reactive dye, acid dye, pure disperse dye, and water-based dispersed printing ink; digital inkjet printer parts; and professional services. Printing surfaces include paper, vinyl, corrugated, textile, glass, plastic, aluminum composite, ceramic tile, wood, and many other flexible and rigid substrates.

Productivity Software, which consists of a complete software suite that enables efficient and automated end-to-end business and production workflows for the print and packaging industry. This Productivity Suite also provides tools to enable revenue growth, efficient scheduling, and optimization of processes, equipment, and personnel. Customers are provided the financial and technical flexibility to deploy locally within their business or to be hosted in the cloud. The Productivity Suite addresses all segments of the print industry and consists of the: (i) Packaging Suite, with Radius at its core, for tag & label, cartons, and flexible packaging businesses; (ii) Corrugated Packaging Suite, with CTI at its core, for corrugated packaging businesses; (iii) Enterprise Commercial Print Suite, with Monarch at its core, for enterprise print businesses; (iv) Publication Print Suite, with Monarch or Technique at its core, for publication print businesses; (v) Midmarket Print Suite, with Pace at its core, for medium size print businesses; (vi) Quick Print Suite, with PrintSmith at its core, for small printers and in-plant sites; and (vii) Value Added Products, available with the suite and standalone, such as web-to-print, e-commerce, cross media marketing, warehousing, fulfillment, shop floor data collection, and shipping to reduce costs, increase profits, and offer new products and services to their existing and future customers. We also market Optitex computer-aided fashion design (“fashion CAD”) software, which facilitates fast fashion and increased efficiency in the textile and fashion industries.

Fiery, which consists of DFEs, including the recently acquired FFPS DFE from Xerox, that transform digital copiers and printers into high performance networked printing devices for the office, industrial, and commercial printing markets. This operating segment is comprised of (i) stand-alone DFEs connected to digital printers, copiers, and other peripheral devices, (ii) embedded DFEs and design-licensed solutions used in digital copiers and multi-functional devices, (iii) optional software integrated into our DFE solutions such as Fiery Central and Graphics Arts Package, (iv) Fiery Self Serve, our self-service and payment solution, and (v) stand-alone software-based solutions such as our proofing solutions.

Our CODM evaluates the performance of our operating segments based on net sales and gross profit. Gross profit for each operating segment includes revenue from sales to third parties and related cost of revenue attributable to the operating segment. Cost of revenue for each operating segment excludes certain expenses managed outside the operating segments consisting primarily of stock-based compensation expense.

Operating income is not reported by operating segment because operating expenses include significant shared expenses and other costs that are managed outside of the operating segments. Such operating expenses include various corporate expenses such as stock-based compensation, corporate sales and marketing, research and development, amortization of identified intangibles, various non-recurring charges, and other separately managed general and administrative expenses.

Operating segment profit (i.e., gross profit), excluding stock-based compensation expense, during the three and six months ended June 30, 2017 and 2016 is summarized as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Industrial Inkjet
Revenue	$	141,693		$	140,124		$	264,956		$	265,922
Gross profit		52,511			49,044			101,580			91,494
Gross profit percentages		37.1	%		35.0	%		38.3	%		34.4	%
Productivity Software
Revenue	$	39,063		$	36,351		$	74,121		$	68,891
Gross profit		29,168			27,226			54,764			50,919
Gross profit percentages		74.7	%		74.9	%		73.9	%		73.9	%
Fiery
Revenue	$	66,291		$	69,175		$	136,661		$	144,970
Gross profit		46,238			49,311			95,937			102,577
Gross profit percentages		69.8	%		71.3	%		70.2	%		70.8	%

Operating segment profit (i.e., gross profit) is reconciled to our Condensed Consolidated Statements of Operations during the three and six months ended June 30, 2017 and 2016 as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Segment gross profit	$	127,917		$	125,581		$	252,281		$	244,990
Stock-based compensation expense		(665	)		(534	)		(1,499	)		(1,231	)
Other items excluded from segment profit		—			—			—			(315	)
Gross profit	$	127,252		$	125,047		$	250,782		$	243,444

The Fiery gross profit percentage is impacted by $0.2 and $1.2 million during the three and six months ended June 30, 2017, respectively, charged to cost of revenue, which reflects the FFPS cost of manufacturing plus a portion of the expected profit margin. Inventory acquired in the acquisition of FFPS is required to be recorded at fair value rather than historical cost in accordance with ASC 805. This amount is not included in the financial information regularly reviewed by the CODM as this acquisition-related charge is not indicative of the gross margin trends in the FFPS business. Excluding this charge, the Fiery gross profit percentage would be 70.0% and 71.1% for the three and six months ended June 30, 2017, respectively.

Tangible and intangible assets, net of liabilities, are summarized by operating segment as follows (in thousands):

June 30, 2017	Industrial Inkjet		Productivity Software			Fiery		Corporate and Unallocated Net Assets		Total
Goodwill	$	148,109	$	165,194		$	69,948	$	—	$	383,251
Identified intangible assets, net		77,808		36,407			19,451		—		133,666
Tangible assets, net of liabilities		197,953		(42,464	)		2,244		163,455		321,188
Net tangible and intangible assets	$	423,870	$	159,137		$	91,643	$	163,455	$	838,105
December 31, 2016
Goodwill	$	141,068	$	155,475		$	63,298	$	—	$	359,841
Identified intangible assets, net		84,465		38,440			92		—		122,997
Tangible assets, net of liabilities		156,202		(27,689	)		33,325		183,156		344,994
Net tangible and intangible assets	$	381,735	$	166,226		$	96,715	$	183,156	$	827,832

Corporate and unallocated assets consist of cash and cash equivalents, short-term investments, restricted investments and cash equivalents, corporate headquarters facility, convertible notes, imputed financing obligation, income taxes receivable, and income taxes payable.

Geographic Regions

Our revenue originates in the U.S., China, the Netherlands, Germany, Italy, France, the U.K., Spain, Israel, Brazil, Australia, and New Zealand. We report revenue by geographic region based on ship-to destination. Shipments to some of our significant printer manufacturer/distributor customers are made to centralized purchasing and manufacturing locations, which in turn sell through to other locations. As a result of these factors, we believe that sales to certain geographic locations might be higher or lower, as the ultimate destinations are difficult to ascertain.

Our revenue by ship-to destination during the three and six months ended June 30, 2017 and 2016 was as follows (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Americas	$	114,014	$	115,459	$	223,909	$	235,725
Europe, Middle East and Africa (“EMEA”)		101,513		95,877		189,546		179,460
Asia Pacific (“APAC”)		31,520		34,314		62,283		64,598
Total revenue	$	247,047	$	245,650	$	475,738	$	479,783

XML

Derivatives and Hedging

6 Months Ended

Jun. 30, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging

10. Derivatives and Hedging

We are exposed to market risk and foreign currency exchange risk from changes in foreign currency exchange rates, which could affect operating results, financial position, and cash flows. We manage our exposure to these risks through our regular operating and financing activities and, when appropriate, through use of derivative financial instruments. These derivative financial instruments are used to hedge monetary assets and liabilities, intercompany balances, trade receivables, anticipated cash flows, and to reduce earnings and cash flow volatility resulting from shifts in market rates. Our objective is to offset gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them, thereby reducing volatility of earnings or protecting fair values of assets and liabilities. We do not have any leveraged derivatives, nor do we use derivative contracts for speculative purposes. ASC 815, Derivatives and Hedging, requires the fair value of all derivative instruments, including those embedded in other contracts, to be recorded as assets or liabilities in our Condensed Consolidated Balance Sheet. The related cash flow impacts of our derivative contracts are reflected as cash flows from operating activities.

Our exposures are primarily related to non-U.S. dollar-denominated revenue in Europe, the U.K., Latin America, China, Israel, Australia, New Zealand, and Canada, and to non-U.S. dollar-denominated operating expenses in Europe, India, Japan, the U.K., China, Israel, Brazil, and Australia. We hedge our operating expense cash flow exposure in Indian rupees. We hedge balance sheet remeasurement exposure associated with British pound sterling, Israeli shekel, Australian dollar, New Zealand dollar, Japanese yen, Chinese renminbi, and Euro-denominated intercompany balances; Brazilian real, British pound sterling, Australian dollar, Canadian dollar, Israeli shekel, and Euro-denominated trade receivables; and British pound sterling, Indian rupee, and Euro-denominated net monetary assets.

By their nature, derivative instruments involve, to varying degrees, elements of market and credit risk. The market risk associated with these instruments resulting from currency exchange movement is expected to offset the market risk of the underlying transactions, assets, and liabilities being hedged (i.e., operating expense exposure in Indian rupees; the collection of trade receivables denominated in currencies other than their functional currency and the settlement of intercompany balances denominated in currencies other than their functional currency). We do not believe there is significant risk of loss from non-performance by the counterparty associated with these instruments because, by policy, we deal with counterparties having a minimum investment grade or better credit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties.

Cash Flow Hedges

Foreign currency derivative contracts with notional amounts of $3.6 million and $3.2 million have been designated as cash flow hedges of our Indian rupee operating expense exposure at June 30, 2017 and December 31, 2016, respectively. The fair value of the net assets (liabilities) related to these cash flow hedges are not material. The changes in fair value of these contracts are reported as a component of OCI and reclassified to operating expense in the periods of payment of the hedged operating expenses. The amount of ineffectiveness that was recorded in the Condensed Consolidated Statements of Operations for these designated cash flow hedges was immaterial. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

Balance Sheet Hedges

Forward contracts not designated for hedge accounting treatment with notional amounts of $145.1 and $158.7 million are used to hedge foreign currency balance sheet exposures at June 30, 2017 and December 31, 2016, respectively. They are not designated for hedge accounting treatment since there is a natural offset for the remeasurement of the underlying foreign currency denominated asset or liability. We recognize changes in the fair value of non-designated derivative instruments in earnings in the period of change. Gains and losses on foreign currency forward contracts used to hedge balance sheet exposures are recognized in interest income and other income, net, in the same period as the remeasurement gain or loss of the related foreign currency denominated assets and liabilities. Forward contracts not designated for hedge accounting treatment consist of hedges of British pound sterling, Brazilian real, Israeli shekel, Japanese yen,, and Euro-denominated intercompany balances with notional amounts of $59.1 and $90.7 million; hedges of Brazilian real, British pound sterling, Australian dollar, Canadian dollar, Israeli shekel, and Euro-denominated trade receivables with notional amounts of $50.5 and $39.8 million; and hedges of British pounds sterling, Indian rupee, Israeli shekel, and Euro-denominated other net monetary assets with notional amounts of $35.5 and $28.2 million at June 30, 2017 and December 31, 2016, respectively.

XML

Restructuring and Other

6 Months Ended

Jun. 30, 2017

Restructuring and Related Activities [Abstract]

Restructuring and Other

11. Restructuring and Other

During the three and six months ended June 30, 2017 and 2016, cost reduction actions were taken to lower our operating expense run rate as we analyze and re-align our cost structure following our business acquisitions. These charges primarily relate to cost reduction actions undertaken to integrate recently acquired businesses, consolidate facilities, and lower our operating expense run rate. Restructuring and other consists primarily of restructuring, severance, retention, facility downsizing and relocation, and acquisition integration expenses. Our restructuring and other plans are accounted for in accordance with ASC 420, Exit or Disposal Cost Obligations, ASC 712, Compensation – Non-Retirement Postemployment Benefits, and ASC 820.

Restructuring and other costs were $3.7 and $4.6 million during the three and six months ended June 30, 2017, respectively, and $1.7 and $4.4 million during the three and six months ended June 30, 2016, respectively. Restructuring and other costs include severance charges of $3.1 and $3.5 million related to reductions in head count of 95 and 113 during the three and six months ended June 30, 2017, respectively, and $1.0 and $3.1 million related to reduction in head count of 27 and 98 during the three and six months ended June 30, 2016, respectively. Severance costs include severance payments, related employee benefits, outplacement fees, and employee relocation costs.

Facilities relocation and downsizing expenses were $0.2 and $0.5 million during the six months ended June 30, 2017 and 2016, respectively, primarily related to the relocation of certain manufacturing and administrative locations due to reduced space requirements. Integration expenses of $0.4 and $0.8 million during the three and six months ended June 30, 2017, respectively, and $0.7 and $0.9 million during the three and six months ended June 30, 2016, respectively, were required to integrate our business acquisitions.

Restructuring and other reserve activities during the six months ended June 30, 2017 and 2016 are summarized as follows (in thousands):

	2017			2016
Reserve balance at January 1,	$	1,824		$	3,019
Restructuring charges		3,502			2,375
Other charges		1,087			2,050
Non-cash restructuring and other		(117	)		(403	)
Cash payments		(2,926	)		(4,704	)
Reserve balance at June 30,	$	3,370		$	2,337

XML

Stock-based Compensation

6 Months Ended

Jun. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-based Compensation

12. Stock-based Compensation

We account for stock-based payment awards in accordance with ASC 718, Stock Compensation, which requires the measurement and recognition of compensation expense for all equity awards granted to our employees and directors, including RSUs, ESPP purchase rights, and employee stock options related to all stock-based compensation plans based on the fair value of such awards on the date of grant. We amortize stock-based compensation cost on a graded vesting basis over the vesting period reduced by actual forfeitures, after assessing the probability of achieving the requisite performance criteria with respect to performance-based awards. Stock-based compensation cost is recognized over the requisite service period for each separately vesting tranche of the award as though the award were, in substance, multiple awards.

Stock-based compensation expense related to stock options, ESPP purchase rights, and RSUs during the three and six months ended June 30, 2017 and 2016 is summarized as follows (in thousands):

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Stock-based compensation expense by type of award:
RSUs	$	6,093		$	6,389		$	15,330		$	17,077
ESPP		1,520			591			2,563			1,358
Employee stock options		—			125			—			(45	)
Total stock-based compensation		7,613			7,105			17,893			18,390
Income tax benefit		(2,531	)		(1,563	)		(5,404	)		(4,246	)
Stock-based compensation expense, net of tax	$	5,082		$	5,542		$	12,489		$	14,144

Valuation Assumptions for Stock Options and ESPP Purchase Rights

We use the Black-Scholes-Merton (“BSM”) option pricing model to value stock-based compensation for all equity awards, except market-based awards, which are valued using the Monte Carlo valuation model.

The BSM model determines the fair value of stock-based payment awards based on the stock price on the date of grant and is affected by assumptions regarding highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, expected term, interest rates, and actual and projected employee stock option exercise behavior. Expected volatility is based on the historical volatility of our stock over a preceding period commensurate with the expected term of the option. The expected term is based upon management’s consideration of the historical life, vesting period, and contractual period of the options granted. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield was not considered in the option pricing formula since we do not pay dividends and have no current plans to do so in the future.

Stock options were not granted during the three and six months ended June 30, 2017 and 2016. The estimated weighted average fair value per share of ESPP purchase rights issued and the underlying weighted average assumptions for the three and six months ended June 30, 2017 and 2016 are as follows:

	ESPP
	Six months ended June 30,
	2017		2016
Weighted average fair value per share	$	12.03	$	10.39
Expected volatility		24% - 28%		22% - 25%
Risk-free interest rate		0.7% - 1.2%		0.5% - 0.8%
Expected term (in years)		0.5 - 2.0		0.5 - 2.0

Stock options outstanding and exercisable, including performance-based and market-based options, as of June 30, 2017, and activity during the six months ended June 30, 2017 are summarized below (in thousands, except weighted average exercise price and remaining contractual term):

	Shares outstanding			Weighted average exercise price		Weighted average remaining contractual term (years)		Aggregate intrinsic value
Options outstanding at January 1, 2017		315		$	13.86
Options exercised		(127	)		12.31
Options outstanding at June 30, 2017		188		$	14.92		1.47	$	6,102
Options vested and expected to vest at June 30, 2017		188		$	14.92		1.47	$	6,102
Options exercisable at June 30, 2017		188		$	14.92		1.47	$	6,102

Aggregate intrinsic value for stock options represents the difference between the closing price per share of our common stock on the last trading day of the fiscal period and the option exercise price multiplied by the number of in-the-money stock options outstanding, vested and expected to vest, and exercisable at June 30, 2017.

Non-vested RSUs as of June 30, 2017, and activity during the six months ended June 30, 2017 are summarized below (shares in thousands):

	Time-based					Performance-based					Market-based				Total
	Shares			Weighted average grant date  fair value		Shares			Weighted average grant date fair value		Shares		Weighted average grant date fair value		Shares			Weighted average grant date fair value
Non-vested at January 1, 2017		795		$	43.79		1,265		$	42.64		23	$	33.16		2,083		$	43.34
Granted		120			45.98		371			46.93		—		—		491			46.70
Vested		(128	)		43.43		(263	)		40.67		—		—		(391	)		41.58
Forfeited		(35	)		43.50		(403	)		40.93		—		—		(438	)		41.14
Non-vested at June 30, 2017		752		$	44.22		970		$	45.52		23	$	33.16		1,745		$	45.23

Vested RSUs

Performance-based RSUs that vested based on financial results are included in the period that the performance and related service criteria were met. The grant date fair value of RSUs vested during the six months ended June 30, 2017 was $16.3 million. The aggregate intrinsic value at June 30, 2017 for RSUs expected to vest was $55.0 million and the remaining weighted average vesting period was 2.42 years. Aggregate intrinsic value for RSUs vested and expected to vest represents the closing price per share of our common stock on the last trading day of the fiscal period, multiplied by the number of RSUs vested and expected to vest as of June 30, 2017. RSUs expected to vest represent time-based RSUs unvested and outstanding at June 30, 2017, and performance-based RSUs for which the requisite service period has not been rendered, but are expected to vest based on the achievement of performance conditions.

Performance-based and Market-based RSUs and Stock Options

Performance-based stock options, market-based RSUs, and market-based stock options were not granted during the six months ended June 30, 2017 and 2016. We use the BSM option pricing model to value performance-based RSUs. The weighted average grant date fair value per share of performance-based RSUs granted and the assumptions used to estimate grant date fair value during the six months ended June 30, 2017 and 2016 are as follows:

	Performance-based
	RSUs
	Short-term		Long-term
Six months ended June 30, 2017 Grants
Grant date fair value per share	$	47.23	$	45.96
Service period (years)		1.0		2.0 - 3.0
Six months ended June 30, 2016 Grants
Grant date fair value per share	$	39.59	$	39.98
Service period (years)		1.0		2.0 - 3.0

Our performance-based RSUs generally vest when specified performance criteria are met based on bookings, revenue, cash provided by operating activities, non-GAAP operating income, non-GAAP earnings per share, revenue growth compared to market comparables, non-GAAP earnings per share growth compared to cash flow from operating activities growth, or other targets during the service period; otherwise, they are forfeited. Non-GAAP operating income is defined as operating income determined in accordance with GAAP, adjusted to remove the impact of certain expenses and gains. Non-GAAP earnings per share is defined as net income determined in accordance with GAAP, adjusted to remove the impact of certain expenses and gains, and the related tax effects, divided by the weighted average number of common shares and dilutive potential common shares outstanding during the period as more fully defined in Note 2 – Earnings Per Share of the Notes to Condensed Consolidated Financial Statements.

The grant date fair value per share determined in accordance with the BSM valuation model is being amortized over the service period of the performance-based awards. The probability of achieving the awards was determined based on review of the actual results achieved thus far by each business unit compared with the operating plan during the pertinent service period as well as the overall strength of the business unit. Stock-based compensation expense was adjusted based on this probability assessment. As actual results are achieved during the service period, the probability assessment is updated and stock-based compensation expense adjusted accordingly.

Market-based awards that were granted in prior periods vest when our average closing stock price exceeds defined multiples of the closing stock price for 90 consecutive trading days. If these multiples were not achieved by the expiration date, the awards are forfeited. The grant date fair value is being amortized over the average derived service period of the awards. The average derived service period and total fair value were determined using a Monte Carlo valuation model based on our assumptions, which include a risk-free interest rate and implied volatility.

2017 Equity Incentive Plan

Our stockholders approved the 2017 Equity Incentive Plan (“2017 Plan”) on June 7, 2017, which includes:

• 1.2 million shares of our common stock reserved for issuance pursuant to such plan;

• 1,593,660 common stock shares that were available for future grants under the 2009 Equity Incentive Award Plan (“Prior Plan”) immediately prior to termination of authority to grant new awards under the Prior Plan on June 7, 2017;

• shares subject to stock options granted under the Prior Plan and outstanding as of June 7, 2017, which expire, or for any reason are cancelled or terminated, after that date without being exercised; and

• shares subject to restricted stock unit awards granted under the Prior Plan that are outstanding and unvested as of June 7, 2017 which are forfeited, terminated, cancelled, or otherwise reacquired after that date without having become vested.

No additional grants will be made under the Prior Plan. The 2017 Plan replaces the Prior Plan and will be used to help attract, retain and motivate employees, consultants, and directors.

XML

Common Stock Repurchase Programs

6 Months Ended

Jun. 30, 2017

Equity [Abstract]

Common Stock Repurchase Programs

13. Common Stock Repurchase Programs

On November 9, 2015, the board of directors approved the repurchase of $150 million of outstanding common stock commencing January 1, 2016. This authorization expires December 31, 2018. Under this publicly announced plan, we repurchased 0.7 and 1.0 million shares for an aggregate purchase price of $34.5 and $39.7 million during the six months ended June 30, 2017 and 2016, respectively.

Our employees have the option to surrender shares of common stock to satisfy their tax withholding obligations that arise on the vesting of RSUs. In connection with stock option exercises, certain employees can surrender shares to satisfy the exercise price of certain stock options and any tax withholding obligations incurred in connection with such exercises. Employees surrendered less than 0.1 and 0.1 million shares for an aggregate purchase price of $1.9 and $6.8 million during the three and six months ended June 30, 2017, respectively, and less than 0.1 million and 0.1 million shares for an aggregate purchase price of $1.1 and $4.2 million during the three and six months ended June 30, 2016, respectively.

These repurchased shares reduce shares outstanding and are recorded as treasury stock under the cost method thereby reducing stockholders’ equity by the cost of the repurchased shares. Our repurchase program is limited by SEC regulations and is subject to compliance with our insider trading policy.

XML

Accounts Receivable

6 Months Ended

Jun. 30, 2017

Receivables [Abstract]

Accounts Receivable

14. Accounts Receivable

Financing Receivables

ASC 310, Receivables, requires disclosure regarding the credit quality of our financing receivables and allowance for credit losses including disclosure of credit quality indicators, past due information, and modifications of our financing receivables. Our financing receivables of $31.5 and $31.0 million consisted of $19.0 and $17.8 million of sales-type lease receivables, included within other current assets and other assets at June 30, 2017 and December 31, 2016, respectively, and $12.5 and $13.2 million of trade receivables having an original contractual maturity in excess of one year, included within accounts receivable, net of allowance, at June 30, 2017 and December 31, 2016, respectively. The trade receivables of $12.5 and $13.2 million having an original total contractual maturity in excess of one year at June 30, 2017 and December 31, 2016, include $5.5 and $7.1 million, respectively, which are scheduled to be received in less than one year. The credit quality of financing receivables is evaluated on the same basis as trade receivables. We do not have material past due financing receivables.

Accounts Receivable Sales Arrangements

In accordance with ASC 860-20, Transfers and Servicing, trade receivables are derecognized from our Condensed Consolidated Balance Sheet when sold to third parties upon determining that such receivables are presumptively beyond the reach of creditors in a bankruptcy proceeding. The recourse obligation is measured using market data from similar transactions and the servicing liability is determined based on the fair value that a third party would charge to service these receivables. These liabilities were determined to not be material at June 30, 2017 and December 31, 2016.

We have facilities in the U.S. and Italy that enable us to sell to third parties, on an ongoing basis, certain trade receivables with recourse. Trade receivables sold with recourse are generally short-term receivables with payment due dates of less than 10 days from the date of sale, which are subject to a servicing obligation. Trade receivables sold under these facilities were $5.2 and $9.4 million during the three and six months ended June 30, 2017, respectively, and $19.8 million during the year ended December 31, 2016, which approximates the cash received.

We have facilities in Spain and Italy that enable us to sell to third parties, on an ongoing basis, certain trade receivables without recourse. Trade receivables sold without recourse are generally short-term receivables with payment due dates of less than one year, which are secured by international letters of credit. Trade receivables sold under these facilities were $1.0 million during the six months ended June 30, 2017, and $3.5 million during the year ended December 31, 2016, which approximates the cash received.

We report collections from the sale of trade receivables to third parties as operating cash flows in the Condensed Consolidated Statements of Cash Flows.

XML

Subsequent Events

6 Months Ended

Jun. 30, 2017

Subsequent Events [Abstract]

Subsequent Events

15. Subsequent Events

Purported Class Action Lawsuit

On August 10, 2017, a putative class action was filed against the Company and its two named executive officers in the United States District Court for the District of New Jersey, captioned Pipitone v. Electronics For Imaging, Inc., No. 2:17-cv-05992 (D.N.J.). The complaint alleges, among other things, that statements by the Company and its officers about the Company’s financial reporting, revenue recognition, internal controls, and disclosure controls and procedures were false or misleading. The complaint seeks an unspecified amount of damages, interest, attorneys’ fees, and other costs, on behalf of a putative class of individuals and entities that purchased or otherwise acquired EFI securities from February 22, 2017 through August 3, 2017.

At this time, we do not believe it is probable that we will incur a material loss in this matter. However, it is reasonably possible that our financial statements could be materially affected by an unfavorable resolution of this matter. Because this proceeding is in the preliminary stages, we are not yet in a position to estimate the amount or range of reasonably possible loss that may be incurred.

Purported Derivative Shareholder Lawsuits

On August 22, 2017, a purported derivative shareholder complaint was filed in the Superior Court of the State of California for the County of Alameda captioned Schiffmiller v. Gecht, No. RG17873197. The complaint makes claims derivatively and on behalf of the Company as nominal defendant against the Company’s named executive officers and directors for alleged breaches of fiduciary duties and unjust enrichment, and alleges, among other things, that statements by the Company and its officers about the Company’s financial reporting, revenue recognition, internal controls, and disclosure controls and procedures were false or misleading. The complaint alleges the Company has suffered damage as a result of the individual defendants’ alleged actions, and seeks an unspecified amount of damages, restitution, and declaratory and other relief.

At this time, we do not believe it is probable that we will incur a material loss in this matter. However, it is reasonably possible that our financial statements could be materially affected by an unfavorable resolution of this matter. Because this proceeding is in the preliminary stages, we are not yet in a position to estimate the amount or range of reasonably possible loss that may be incurred.

Acquisition of Generation Digital Solutions, Inc.

On August 14, 2017, we acquired privately held Generation Digital Solutions, Inc. (“GD”), a privately held company headquartered in New York City, for approximately $3.3 million in cash consideration, plus a potential future cash earnout of $4.6 million contingent on achieving certain performance targets. This acquisition will be accounted for as a purchase business combination and, accordingly, the total purchase price will be allocated to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values on August 14, 2017. GD will be integrated into the Fiery operating segment.

GD provides software to textile and fashion designers for the creation and design of prints and patterns, color matching, and color palette creation and management.

XML

Basis of Presentation and Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2017

Basis of Presentation

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements (“condensed consolidated financial statements”) include the accounts of Electronics For Imaging, Inc. and its subsidiaries (“EFI” or “Company”). All intercompany accounts and transactions have been eliminated in consolidation.

These condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP” or “GAAP”) for interim financial information, rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements, and accounting policies consistent in all material respects with those applied in preparing our audited annual consolidated financial statements included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2016. These condensed consolidated financial statements and accompanying notes should be read in conjunction with our annual consolidated financial statements and the notes thereto for the year ended December 31, 2016, included in our Annual Report on Form 10-K, as amended. In the opinion of management, these condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments, management considers necessary for the fair presentation of our financial position, operating results, comprehensive income, and cash flows for the interim periods presented. Our results for the interim periods are not necessarily indicative of results for the entire year.

Bill and Hold Transactions

Bill and Hold Transactions. We hold certain products manufactured by us on a “bill-and-hold” basis for our customers’ convenience. Revenue is recognized for these “bill-and-hold” arrangements in accordance with SEC Staff Accounting Bulletin (“SAB”) 104, which requires consideration of, among other things, whether the customer has made a fixed commitment to purchase the product; the existence of a substantial business purpose for the arrangement; the “bill-and-hold” arrangement is at the request of the customer; the scheduled delivery date must be reasonable and consistent with the buyer’s business purpose; title and risk of ownership must pass to the customer, including any decline in the market value of the product; the product is complete and ready for shipment; the product has been segregated from our inventory; payment terms for such arrangements have not been modified from our normal billing and credit terms; our custodial risks must be insurable and insured; and no further performance obligations by us exist. Extended procedures are not necessary to assure that there are no exceptions to the customer’s commitment to accept and pay for the product.

Out-of-Period Adjustments

Out-of-Period Adjustments

In the three and six months ended June 30, 2017, we recorded out-of-period adjustments related to certain bill and hold transactions, which decreased revenue by $4.9 and $3.4 million, respectively, decreased gross profit by $0.9 and $0.5 million, and, respectively, decreased net income by $0.6 and $0.3 million, respectively (or $0.01 per diluted share in both periods). We evaluated these adjustments taking into account both qualitative and quantitative factors and considered the impact of these adjustments in relation to each period, as well as the periods in which they originated. The impact of recognizing these adjustments in prior years was not significant to any individual period. Management believes these adjustments are immaterial to the consolidated financial statements and all previously issued financial statements.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Inventory Valuation. In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, Simplifying the Measurement of Inventory, which became effective in the first quarter of 2017. ASU 2015-11 requires that inventory be valued at the lower of cost or net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We previously valued inventory at the lower of cost or net realizable value less a reasonable profit margin as allowed by previous inventory valuation guidance. The adoption of ASU 2015-11 increased our inventory valuation by $ 2.4 million as of June 30, 2017.

Revenue Recognition. ASU 2014-09, Revenue from Contracts with Customers, issued in May 2014, ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, and subsequent amendments, enhance the comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The principles-based guidance provides a framework for addressing revenue recognition issues comprehensively. The standards require that revenue be recognized that reflects the consideration the entity expects to be entitled in exchange for goods or services, which are referred to as performance obligations.

ASU 2014-09 will be effective in the first quarter of 2018. Two adoption methods are allowed under ASU 2014-09 – the full retrospective method and modified retrospective method. We have elected to use the modified retrospective method by applying the revised guidance to contracts that have not been completed as of January 1, 2018. Retained earnings will be adjusted for the cumulative effect of the change on January 1, 2018. The new standard requires comprehensive annual and interim disclosures regarding the nature, amount, timing, and uncertainty of recognized revenue, which will be provided in the year of adoption along with the impact on recognized revenue compared with the revenue that would have been recognized under prior guidance. Qualitative and quantitative disclosures will be required regarding:

• disaggregation of our current disclosures of revenue by segment and geographic area to include revenue by major product line, timing of recognition, contract duration, and sales channel, among others,

• billed and unbilled contracts with customers, including revenue and impairments recognized, disaggregation, and information about contract balances and performance obligations,

• significant judgments and changes in judgments required to determine the transaction price, amounts allocated to performance obligations, and the timing for recognizing revenue resulting from the satisfaction of performance obligations,

• assets recognized from the costs to obtain or fulfill a contract (e.g., commissions), and

• bad debt provisions related to billed and unbilled receivables.

Upon initial evaluation, we believe the key changes in the guidance that impact our revenue recognition relate to the timing of revenue recognition and allocation of contract revenue between services and software licenses. The requirement to defer incremental contract acquisition costs (e.g., commissions) and recognize them over the contract period or expected customer life will result in the recognition of a deferred charge on our balance sheet. We are currently assessing the impact on our consolidated financial statements upon adoption.

Principal vs Agent. ASU 2016-08, Principal vs. Agent Considerations (Reporting Revenue Gross vs Net), issued in March 2016, streamlines and clarifies the criteria for identifying whether an entity is satisfying a performance obligation as the principal or agent in the transaction. The entity that is responsible for fulfilling the contractual obligations related to the good or service is acting as the principal and recognizes the gross amount of consideration. The entity that is responsible only for arranging delivery to the customer is acting as the agent and recognizes revenue in the amount of the fee or commission related to arranging for the delivery of the good or service.

Several indicators of the nature of the relationship that are considered under current guidance have been streamlined and clarified in the new guidance by focusing more specifically on the performance obligations that must be fulfilled in the transaction, which entity carries the inventory risk in the transaction, and which entity controls the pricing of the good or service. Credit risk will no longer be a criterion. This guidance will be effective in the first quarter of 2018. We are evaluating its impact on our revenue and results of operations related to third party ink revenue and certain printer components.

Financial Instruments. ASU 2016-13, Measurement of Credit Losses on Financial Instruments, issued in June 2016, amends current guidance regarding other-than-temporary impairment of available-for-sale debt securities. The new guidance requires an estimate of expected credit loss when fair value is below the amortized cost of the asset without regard for the length of time that the fair value has been below the amortized cost or the historical or implied volatility of the asset. Credit losses on available-for-sale debt securities will be limited to the difference between the security’s amortized cost basis and its fair value. The use of an allowance to record estimated credit losses (and subsequent recoveries) will also be required under the new guidance.

ASU 2016-13 will be effective in the first quarter of 2020. We are evaluating its impact on the carrying value of our available-for-sale securities and results of operations.

Settlement of Convertible Debt. ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, issued in August 2016, requires that cash settlements of principal amounts of debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the debt must classify the portion of the principal payment attributable to the accreted interest related to the debt discount as cash outflows from operating activities. This is consistent with the classification of the coupon interest payments.

ASU 2016-15 will be effective in the first quarter of 2018. Accordingly, $63.6 million debt discount attributable to the difference between the 0.75% coupon interest rate on our 0.75% Convertible Senior Notes Due 2019 (“Notes”) and the 4.98% (5.46% inclusive of debt issuance costs) effective interest rate will be classified as an operating cash outflow in the Condensed Consolidated Statement of Cash Flows upon cash settlement in 2019.

Restricted Cash. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, requiring that the statement of cash flows explain the change incash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Under current guidance, changes in restricted cash and restricted cash equivalents are included in operating or investing activities in the Condensed Consolidated Statements of Cash Flows.

ASU 2016-18 will be effective in the first quarter of 2018. Changes in restricted cash related to the off-balance sheet financing arrangement described in Note 8 – Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements will no longer be presented as an investing cash outflow, but will instead be presented as a component of the beginning and ending balance of cash, cash equivalents, and restricted cash in the Condensed Consolidated Statements of Cash Flows.

Lease Arrangements. Under current guidance, the classification of a lease by a lessee as either an operating or capital lease determines whether an asset and liability is recognized on the balance sheet. ASU 2016-02, issued in February 2016 and effective in the first quarter of 2019, requires that a lessee recognize an asset and liability on its balance sheet related to all leases with terms in excess of one year. For all leases, a lessee will be required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position. The right-to-use asset represents the right to use the underlying asset during the lease term.

The recognition, measurement, and presentation of expenses and cash flows by a lessee have not significantly changed from previous guidance. There continues to be a differentiation between finance leases and operating leases. The criteria for determining whether a lease is a financing or operating lease are substantially the same as existing guidance except that the “bright line” percentages have been removed.

• For finance leases, interest is recognized on the lease liability separately from depreciation of the right-of-use asset in the statement of operations. Principal repayments are classified within financing activities and interest payments are classified as operating activities in the statement of cash flows.

• For operating leases, a lessee is required to recognize lease expense generally on a straight-line basis. All operating lease payments are classified as operating activities in the statement of cash flows.

The current build-to-suit lease accounting guidance will be rescinded by the new guidance, although simplified guidance will remain regarding lessee control during the construction period. Consequently, the accounting for build-to-suit leases will be the same as finance leases unless the lessee control provisions are applicable.

We have not quantified the impact, but the requirement to recognize a right-of-use asset and a lease liability related to operating leases will have a material impact on our consolidated financial position as reflected in our Consolidated Balance Sheets. As stated above, the recognition, measurement, and presentation of expenses and cash flows by a lessee have not significantly changed from previous guidance; accordingly, the impact on our results of operations as reflected in our Consolidated Statements of Operations is not expected to be material.

Definition of a Business. ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, was issued in January 2017, which significantly narrows how businesses are defined. Under current guidance, a business is defined as an integrated set of assets and activities that usually consists of business processes and their related inputs and outputs. However, business process outputs are not required to be present and only some business process inputs and business processes must be present if the acquiring entity can produce outputs by integrating the acquired set of assets and activities with its own inputs and processes. Essentially, existing guidance only requires that business processes and inputs be present in order to constitute a business.

Under ASU 2017-01, when substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar identifiable assets, then the assets acquired do not constitute a business. If substantially all of the fair value of the gross assets acquired is not concentrated in a single asset or group of similar assets, then the assets acquired may constitute a business if certain criteria are met. We must determine whether the acquired gross assets and activities include an input and a “substantive” process that together “significantly” contribute to the ability to create an output. A framework and specific criteria are provided to assist with the evaluation of whether a process is “substantive” and “significantly contributes” to the ability to create an output. “Output” is narrowly defined to be consistent with the description of a performance obligation in the new revenue guidance. Missing inputs and processes may not be replaced by integration with our own inputs and processes under the new guidance.

Our condensed consolidated financial statements may be impacted if an acquisition does not qualify as a business combination after ASU 2017-01 is effective in the first quarter of 2018. Such acquisitions would be accounted for as asset purchases.

Nonfinancial Asset Derecognition. In February 2017, the FASB issued ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition and Accounting for Partial Sales of Nonfinancial Assets, which clarifies the scope of recent guidance as it relates to nonfinancial asset derecognition and the accounting for partial sales of nonfinancial assets. The ASU conforms the derecognition guidance as it relates to nonfinancial assets with the derecognition guidance in the new revenue standard (ASU 2014-09) and is expected to have a material impact on the accounting for real estate dispositions.

ASU 2017-05 will be effective in the first quarter of 2018. We have elected to adopt the modified retrospective method of implementation.

Segment Reporting

Operating segment information is required to be presented based on the internal reporting used by the chief operating decision making group (“CODM”) to allocate resources and evaluate operating segment performance. Our CODM is comprised of our Chief Executive Officer and Chief Financial Officer. The CODM group is focused on assessment and resource allocation among the Industrial Inkjet, Productivity Software, and Fiery operating segments.

Our operating segments are integrated through their reporting and operating structures, shared technology and practices, shared sales and marketing, and combined production facilities. Our enterprise management processes use financial information that is closely aligned with our three operating segments at the gross profit level. Relevant discrete financial information is prepared at the gross profit level for each of our three operating segments, which is used by the CODM to allocate resources and assess the performance of each operating segment.

Derivatives and Hedging

We are exposed to market risk and foreign currency exchange risk from changes in foreign currency exchange rates, which could affect operating results, financial position, and cash flows. We manage our exposure to these risks through our regular operating and financing activities and, when appropriate, through use of derivative financial instruments. These derivative financial instruments are used to hedge monetary assets and liabilities, intercompany balances, trade receivables, anticipated cash flows, and to reduce earnings and cash flow volatility resulting from shifts in market rates. Our objective is to offset gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them, thereby reducing volatility of earnings or protecting fair values of assets and liabilities. We do not have any leveraged derivatives, nor do we use derivative contracts for speculative purposes. ASC 815, Derivatives and Hedging, requires the fair value of all derivative instruments, including those embedded in other contracts, to be recorded as assets or liabilities in our Condensed Consolidated Balance Sheet. The related cash flow impacts of our derivative contracts are reflected as cash flows from operating activities.

Our exposures are primarily related to non-U.S. dollar-denominated revenue in Europe, the U.K., Latin America, China, Israel, Australia, New Zealand, and Canada, and to non-U.S. dollar-denominated operating expenses in Europe, India, Japan, the U.K., China, Israel, Brazil, and Australia. We hedge our operating expense cash flow exposure in Indian rupees. We hedge balance sheet remeasurement exposure associated with British pound sterling, Israeli shekel, Australian dollar, New Zealand dollar, Japanese yen, Chinese renminbi, and Euro-denominated intercompany balances; Brazilian real, British pound sterling, Australian dollar, Canadian dollar, Israeli shekel, and Euro-denominated trade receivables; and British pound sterling, Indian rupee, and Euro-denominated net monetary assets.

By their nature, derivative instruments involve, to varying degrees, elements of market and credit risk. The market risk associated with these instruments resulting from currency exchange movement is expected to offset the market risk of the underlying transactions, assets, and liabilities being hedged (i.e., operating expense exposure in Indian rupees; the collection of trade receivables denominated in currencies other than their functional currency and the settlement of intercompany balances denominated in currencies other than their functional currency). We do not believe there is significant risk of loss from non-performance by the counterparty associated with these instruments because, by policy, we deal with counterparties having a minimum investment grade or better credit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties.

Cash Flow Hedges

Foreign currency derivative contracts with notional amounts of $3.6 million and $3.2 million have been designated as cash flow hedges of our Indian rupee operating expense exposure at June 30, 2017 and December 31, 2016, respectively. The fair value of the net assets (liabilities) related to these cash flow hedges are not material. The changes in fair value of these contracts are reported as a component of OCI and reclassified to operating expense in the periods of payment of the hedged operating expenses. The amount of ineffectiveness that was recorded in the Condensed Consolidated Statements of Operations for these designated cash flow hedges was immaterial. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

Balance Sheet Hedges

Forward contracts not designated for hedge accounting treatment with notional amounts of $145.1 and $158.7 million are used to hedge foreign currency balance sheet exposures at June 30, 2017 and December 31, 2016, respectively. They are not designated for hedge accounting treatment since there is a natural offset for the remeasurement of the underlying foreign currency denominated asset or liability. We recognize changes in the fair value of non-designated derivative instruments in earnings in the period of change. Gains and losses on foreign currency forward contracts used to hedge balance sheet exposures are recognized in interest income and other income, net, in the same period as the remeasurement gain or loss of the related foreign currency denominated assets and liabilities. Forward contracts not designated for hedge accounting treatment consist of hedges of British pound sterling, Brazilian real, Israeli shekel, Japanese yen,, and Euro-denominated intercompany balances with notional amounts of $59.1 and $90.7 million; hedges of Brazilian real, British pound sterling, Australian dollar, Canadian dollar, Israeli shekel, and Euro-denominated trade receivables with notional amounts of $50.5 and $39.8 million; and hedges of British pounds sterling, Indian rupee, Israeli shekel, and Euro-denominated other net monetary assets with notional amounts of $35.5 and $28.2 million at June 30, 2017 and December 31, 2016, respectively.

Performance-based and market-based restricted stock [Member]

Computation of Net Income Per Common Share

ASC 260-10-45-48. Accordingly, performance-based RSUs, which vested on various dates during the three and six months ended June 30, 2017 and 2016, based on achievement of specified performance criteria related to revenue, cash flows from operating activities, and non-GAAP operating income targets, and performance-based stock options, which vested during the six months ended June 30, 2016 based on achievement of specified targets related to non-GAAP return on equity are included in the determination of net income per diluted common share as of the beginning of each period.

ASU 2015-11 Inventory Valuation [Member]

Recent Accounting Pronouncements

Inventory Valuation. In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, Simplifying the Measurement of Inventory, which became effective in the first quarter of 2017. ASU 2015-11 requires that inventory be valued at the lower of cost or net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We previously valued inventory at the lower of cost or net realizable value less a reasonable profit margin as allowed by previous inventory valuation guidance. The adoption of ASU 2015-11 increased our inventory valuation by $ 2.4 million as of June 30, 2017.

ASU 2014-09 and ASU 2016-10 Revenue Recognition [Member]

Recent Accounting Pronouncements

Revenue Recognition. ASU 2014-09, Revenue from Contracts with Customers, issued in May 2014, ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, and subsequent amendments, enhance the comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The principles-based guidance provides a framework for addressing revenue recognition issues comprehensively. The standards require that revenue be recognized that reflects the consideration the entity expects to be entitled in exchange for goods or services, which are referred to as performance obligations.

ASU 2014-09 will be effective in the first quarter of 2018. Two adoption methods are allowed under ASU 2014-09 – the full retrospective method and modified retrospective method. We have elected to use the modified retrospective method by applying the revised guidance to contracts that have not been completed as of January 1, 2018. Retained earnings will be adjusted for the cumulative effect of the change on January 1, 2018. The new standard requires comprehensive annual and interim disclosures regarding the nature, amount, timing, and uncertainty of recognized revenue, which will be provided in the year of adoption along with the impact on recognized revenue compared with the revenue that would have been recognized under prior guidance. Qualitative and quantitative disclosures will be required regarding:

• disaggregation of our current disclosures of revenue by segment and geographic area to include revenue by major product line, timing of recognition, contract duration, and sales channel, among others,

• billed and unbilled contracts with customers, including revenue and impairments recognized, disaggregation, and information about contract balances and performance obligations,

• significant judgments and changes in judgments required to determine the transaction price, amounts allocated to performance obligations, and the timing for recognizing revenue resulting from the satisfaction of performance obligations,

• assets recognized from the costs to obtain or fulfill a contract (e.g., commissions), and

• bad debt provisions related to billed and unbilled receivables.

Upon initial evaluation, we believe the key changes in the guidance that impact our revenue recognition relate to the timing of revenue recognition and allocation of contract revenue between services and software licenses. The requirement to defer incremental contract acquisition costs (e.g., commissions) and recognize them over the contract period or expected customer life will result in the recognition of a deferred charge on our balance sheet. We are currently assessing the impact on our consolidated financial statements upon adoption.

ASU 2016-08 Principal Vs Agent [Member]

Recent Accounting Pronouncements

Principal vs Agent. ASU 2016-08, Principal vs. Agent Considerations (Reporting Revenue Gross vs Net), issued in March 2016, streamlines and clarifies the criteria for identifying whether an entity is satisfying a performance obligation as the principal or agent in the transaction. The entity that is responsible for fulfilling the contractual obligations related to the good or service is acting as the principal and recognizes the gross amount of consideration. The entity that is responsible only for arranging delivery to the customer is acting as the agent and recognizes revenue in the amount of the fee or commission related to arranging for the delivery of the good or service.

Several indicators of the nature of the relationship that are considered under current guidance have been streamlined and clarified in the new guidance by focusing more specifically on the performance obligations that must be fulfilled in the transaction, which entity carries the inventory risk in the transaction, and which entity controls the pricing of the good or service. Credit risk will no longer be a criterion. This guidance will be effective in the first quarter of 2018. We are evaluating its impact on our revenue and results of operations related to third party ink revenue and certain printer components.

ASU 2016-13 Financial Instruments [Member]

Recent Accounting Pronouncements

Financial Instruments. ASU 2016-13, Measurement of Credit Losses on Financial Instruments, issued in June 2016, amends current guidance regarding other-than-temporary impairment of available-for-sale debt securities. The new guidance requires an estimate of expected credit loss when fair value is below the amortized cost of the asset without regard for the length of time that the fair value has been below the amortized cost or the historical or implied volatility of the asset. Credit losses on available-for-sale debt securities will be limited to the difference between the security’s amortized cost basis and its fair value. The use of an allowance to record estimated credit losses (and subsequent recoveries) will also be required under the new guidance.

ASU 2016-13 will be effective in the first quarter of 2020. We are evaluating its impact on the carrying value of our available-for-sale securities and results of operations.

ASU 2016-15 Statement of Cash Flows [Member]

Recent Accounting Pronouncements

Settlement of Convertible Debt. ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, issued in August 2016, requires that cash settlements of principal amounts of debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the debt must classify the portion of the principal payment attributable to the accreted interest related to the debt discount as cash outflows from operating activities. This is consistent with the classification of the coupon interest payments.

ASU 2016-15 will be effective in the first quarter of 2018. Accordingly, $63.6 million debt discount attributable to the difference between the 0.75% coupon interest rate on our 0.75% Convertible Senior Notes Due 2019 (“Notes”) and the 4.98% (5.46% inclusive of debt issuance costs) effective interest rate will be classified as an operating cash outflow in the Condensed Consolidated Statement of Cash Flows upon cash settlement in 2019.

ASU 2016-18 Restricted Cash [Member]

Recent Accounting Pronouncements

Restricted Cash. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, requiring that the statement of cash flows explain the change incash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Under current guidance, changes in restricted cash and restricted cash equivalents are included in operating or investing activities in the Condensed Consolidated Statements of Cash Flows.

ASU 2016-18 will be effective in the first quarter of 2018. Changes in restricted cash related to the off-balance sheet financing arrangement described in Note 8 – Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements will no longer be presented as an investing cash outflow, but will instead be presented as a component of the beginning and ending balance of cash, cash equivalents, and restricted cash in the Condensed Consolidated Statements of Cash Flows.

ASU 2016-02 Lease Arrangements [Member]

Recent Accounting Pronouncements

Lease Arrangements. Under current guidance, the classification of a lease by a lessee as either an operating or capital lease determines whether an asset and liability is recognized on the balance sheet. ASU 2016-02, issued in February 2016 and effective in the first quarter of 2019, requires that a lessee recognize an asset and liability on its balance sheet related to all leases with terms in excess of one year. For all leases, a lessee will be required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position. The right-to-use asset represents the right to use the underlying asset during the lease term.

The recognition, measurement, and presentation of expenses and cash flows by a lessee have not significantly changed from previous guidance. There continues to be a differentiation between finance leases and operating leases. The criteria for determining whether a lease is a financing or operating lease are substantially the same as existing guidance except that the “bright line” percentages have been removed.

• For finance leases, interest is recognized on the lease liability separately from depreciation of the right-of-use asset in the statement of operations. Principal repayments are classified within financing activities and interest payments are classified as operating activities in the statement of cash flows.

• For operating leases, a lessee is required to recognize lease expense generally on a straight-line basis. All operating lease payments are classified as operating activities in the statement of cash flows.

The current build-to-suit lease accounting guidance will be rescinded by the new guidance, although simplified guidance will remain regarding lessee control during the construction period. Consequently, the accounting for build-to-suit leases will be the same as finance leases unless the lessee control provisions are applicable.

ASU 2017-01 Business Combinations [Member]

Recent Accounting Pronouncements

Definition of a Business. ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, was issued in January 2017, which significantly narrows how businesses are defined. Under current guidance, a business is defined as an integrated set of assets and activities that usually consists of business processes and their related inputs and outputs. However, business process outputs are not required to be present and only some business process inputs and business processes must be present if the acquiring entity can produce outputs by integrating the acquired set of assets and activities with its own inputs and processes. Essentially, existing guidance only requires that business processes and inputs be present in order to constitute a business.

Under ASU 2017-01, when substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar identifiable assets, then the assets acquired do not constitute a business. If substantially all of the fair value of the gross assets acquired is not concentrated in a single asset or group of similar assets, then the assets acquired may constitute a business if certain criteria are met. We must determine whether the acquired gross assets and activities include an input and a “substantive” process that together “significantly” contribute to the ability to create an output. A framework and specific criteria are provided to assist with the evaluation of whether a process is “substantive” and “significantly contributes” to the ability to create an output. “Output” is narrowly defined to be consistent with the description of a performance obligation in the new revenue guidance. Missing inputs and processes may not be replaced by integration with our own inputs and processes under the new guidance.

Our condensed consolidated financial statements may be impacted if an acquisition does not qualify as a business combination after ASU 2017-01 is effective in the first quarter of 2018. Such acquisitions would be accounted for as asset purchases.

ASU 2017-05 Other Income [Member]

Recent Accounting Pronouncements

Nonfinancial Asset Derecognition. In February 2017, the FASB issued ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition and Accounting for Partial Sales of Nonfinancial Assets, which clarifies the scope of recent guidance as it relates to nonfinancial asset derecognition and the accounting for partial sales of nonfinancial assets. The ASU conforms the derecognition guidance as it relates to nonfinancial assets with the derecognition guidance in the new revenue standard (ASU 2014-09) and is expected to have a material impact on the accounting for real estate dispositions.

ASU 2017-05 will be effective in the first quarter of 2018. We have elected to adopt the modified retrospective method of implementation.

Stock Compensation: Modification Accounting [Member]

Recent Accounting Pronouncements

Stock Compensation Modification. In May 2017, the FASB issued ASU 2017-09, Stock Compensation – Scope of Modification Accounting, which clarifies the scope of modification accounting for share-based payment arrangements. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification.

ASU 2017-09 will be effective in the first quarter of 2018. We will adopt this guidance prospectively to awards modified on or after the adoption date. We do not believe this guidance will materially impact our results of operations.

XML

Basis of Presentation and Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Summary of Supplemental Cash Flow Information

Supplemental Cash Flow Information

	Six months ended June 30,
(in thousands)	2017		2016
Net cash paid for income taxes	$	7,115	$	4,203
Cash paid for interest expense	$	2,011	$	1,812
Acquisition of businesses
Cash paid for businesses purchased, excluding contingent consideration	$	13,512	$	21,242
Cash acquired in business acquisitions		—		(1,628	)
Net cash paid for businesses purchased, net of cash acquired	$	13,512	$	19,614
Common stock issued in connection with Reggiani Macchine SpA (“Reggiani”) acquisition	$	—	$	73
Non-cash investing and financing activities:
Non-cash settlement of vacation liabilities by issuing restricted stock units (“RSUs”)	$	—	$	2,733
Property and equipment received, but not paid		843		880
	$	843	$	3,613

XML

Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2017

Earnings Per Share [Abstract]

Basic and Diluted Earnings Per Share

Basic and diluted earnings per share during the three and six months ended June 30, 2017 and 2016 are reconciled as follows (in thousands, except per share amounts):

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Basic net income per share:
Net income available to common shareholders	$	2,759	$	5,235	$	7,546	$	7,338
Weighted average common shares outstanding		46,429		46,943		46,490		47,079
Basic net income per share	$	0.06	$	0.11	$	0.16	$	0.16
Dilutive net income per share:
Net income available to common shareholders	$	2,759	$	5,235	$	7,546	$	7,338
Weighted average common shares outstanding		46,429		46,943		46,490		47,079
Dilutive stock options and non-vested restricted stock		721		887		709		851
Weighted average common shares outstanding for purposes of computing diluted net income per share		47,150		47,830		47,199		47,930
Dilutive net income per share	$	0.06	$	0.11	$	0.16	$	0.15

XML

Balance Sheet Details (Tables)

6 Months Ended

Jun. 30, 2017

Text Block [Abstract]

Schedule of Inventories

Inventories, net of allowances, as of June 30, 2017, and December 31, 2016, are as follows (in thousands):

	June 30, 2017		December 31, 2016
Raw materials	$	51,180	$	45,798
Work in process		12,546		7,362
Finished goods		60,339		45,915
	$	124,065	$	99,075

Schedule of Changes in Product Warranty Reserves

The changes in product warranty reserves during the six months ended June 30, 2017 and 2016 are as follows (in thousands):

	2017			2016
Balance at January 1,	$	10,319		$	9,635
Liability assumed upon acquiring FreeFlow print server (“FFPS”)		9,368			—
Provisions, net of releases		4,790			6,205
Settlements		(6,254	)		(6,215	)
Balance at June 30,	$	18,223		$	9,625

Schedule of Accumulated Other Comprehensive Income (Loss)

OCI classified within stockholders’ equity in our Condensed Consolidated Balance Sheets as of June 30, 2017, and December 31, 2016 is as follows (in thousands):

	June 30, 2017			December 31, 2016
Net unrealized investment losses	$	(260	)	$	(473	)
Currency translation losses		(5,920	)		(24,230	)
Net unrealized gains on cash flow hedges		13			9
Accumulated other comprehensive loss	$	(6,167	)	$	(24,694	)

XML

Acquisition (Tables)

6 Months Ended

Jun. 30, 2017

Business Combinations [Abstract]

Allocation of Purchase Price to Assets Acquired and Liabilities Assumed

The preliminary allocation of the purchase price to the assets acquired and liabilities assumed (in thousands) with respect to these acquisitions at their respective acquisition dates is summarized as follows:

	CRC					FFPS
	Weighted average useful life		Purchase Price Allocation			Weighted average useful life		Purchase Price Allocation
Purchasing agreement		—	$	—			10 years	$	9,330
Take-or-pay contract		—		—			4 years	$	9,000
Customer relationships		9 years		3,580			—		—
Existing technology		4 years		540			2 years		2,570
Trade names		4 years		180			5 years		1,020
IPR&D		—		—			less than one year		70
Backlog		less than one year		4			—		—
Goodwill		—		4,595			—		6,236
			$	8,899					28,226
Net tangible assets (liabilities)				(1,299	)				(5,092	)
Total purchase price			$	7,600				$	23,134

XML

Investments and Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2017

Text Block [Abstract]

Available-for-Sale Short-Term Investments

Our available-for-sale short-term investments as of June 30, 2017, and December 31, 2016, are as follows (in thousands):

	Amortized cost		Gross  unrealized gains		Gross  unrealized losses			Fair value
June 30, 2017
U.S. Government and sponsored entities	$	68,114	$	6	$	(348	)	$	67,772
Corporate debt securities		178,432		153		(269	)		178,316
Municipal government		1,044		—		—			1,044
Asset-backed securities		24,502		71		(18	)		24,555
Mortgage-backed securities – residential		980		1		(2	)		979
Total short-term investments	$	273,072	$	231	$	(637	)	$	272,666
December 31, 2016
U.S. Government and sponsored entities	$	70,893	$	49	$	(348	)	$	70,594
Corporate debt securities		198,166		102		(621	)		197,647
Municipal government		1,278		—		(1	)		1,277
Asset-backed securities		24,233		79		(17	)		24,295
Mortgage-backed securities – residential		1,615		3		(3	)		1,615
Total short-term investments	$	296,185	$	233	$	(990	)	$	295,428

Summary of Fair Value and Duration of Investments, Including Cash Equivalents, that have been Classified in Gross Unrealized Loss Position

The fair value and duration that investments, including cash equivalents, have been in a gross unrealized loss position as of June 30, 2017, and December 31, 2016 are as follows (in thousands):

	Less than 12 Months					More than 12 Months					TOTAL
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2017
U.S. Government and sponsored entities	$	58,640	$	(342	)	$	—	$	—		$	58,640	$	(342	)
Corporate debt securities		98,931		(268	)		6,013		(6	)		104,944		(274	)
Asset-backed securities		11,234		(17	)		1,537		(1	)		12,771		(18	)
Mortgage-backed securities – residential		453		(3	)		17		—			470		(3	)
Total	$	169,258	$	(630	)	$	7,567	$	(7	)	$	176,825	$	(637	)
December 31, 2016
U.S. Government and sponsored entities	$	39,810	$	(348	)	$	—	$	—		$	39,810	$	(348	)
Corporate debt securities		133,382		(581	)		13,158		(40	)		146,540		(621	)
Municipal government		1,268		(1	)		—		—			1,268		(1	)
Asset-backed securities		4,540		(7	)		4,611		(10	)		9,151		(17	)
Mortgage-backed securities – residential		428		(1	)		153		(2	)		581		(3	)
Total	$	179,428	$	(938	)	$	17,922	$	(52	)	$	197,350	$	(990	)

Amortized Cost and Estimated Fair Value of Investments

Amortized cost and estimated fair value of investments as of June 30, 2017, are summarized by maturity date as follows (in thousands):

	Amortized cost		Fair value
Mature in less than one year	$	75,373	$	75,361
Mature in one to three years		197,699		197,305
Total short-term investments	$	273,072	$	272,666

Investments in Accordance with Fair Value Hierarchy

Our investments and liabilities measured at fair value have been presented in accordance with the fair value hierarchy specified in ASC 820 as of June 30, 2017, and December 31, 2016 in order of liquidity as follows (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
June 30, 2017
Assets:
Money market funds	$	9,497	$	9,497	$	—	$	—
U.S. Government and sponsored entities		67,772		41,813		25,959		—
Corporate debt securities		178,316		—		178,316		—
Municipal government		1,044		—		1,044		—
Asset-backed securities		24,555		—		24,497		58
Mortgage-backed securities – residential		979		—		979		—
	$	282,163	$	51,310	$	230,795	$	58
Liabilities:
Contingent consideration, current and noncurrent	$	61,414	$	—	$	—	$	61,414
Self-insurance		1,060		—		—		1,060
	$	62,474	$	—	$	—	$	62,474
December 31, 2016
Assets:
Money market funds	$	23,575	$	23,575	$	—	$	—
U.S. Government and sponsored entities		70,594		51,870		18,724		—
Corporate debt securities		197,647		—		197,647		—
Municipal government		1,277		—		1,277		—
Asset-backed securities		24,295		—		24,228		67
Mortgage-backed securities – residential		1,615		—		1,615		—
	$	319,003	$	75,445	$	243,491	$	67
Liabilities:
Contingent consideration, current and noncurrent	$	56,463	$	—	$	—	$	56,463
Self-insurance		1,542		—		—		1,542
	$	58,005	$	—	$	—	$	58,005

Summary of Changes in Fair Value Contingent Consideration

Changes in the fair value of contingent consideration are summarized as follows (in thousands):

Fair value of contingent consideration at January 1, 2016	$	54,796
Fair value of Rialco contingent consideration at March 1, 2016		2,109
Fair value of Optitex contingent consideration at June 16, 2016		22,300
Changes in valuation		6,813
Payments		(28,111	)
Foreign currency adjustment		(1,444	)
Fair value of contingent consideration at December 31, 2016	$	56,463
Changes in valuation	$	1,776
Payments		(1,294	)
Foreign currency adjustment		4,469
Fair value of contingent consideration at June 30, 2017	$	61,414

XML

Convertible Senior Notes ("Notes"), Note Hedges, and Warrants (Tables)

6 Months Ended

Jun. 30, 2017

Debt Disclosure [Abstract]

Schedule of Convertible Notes

The Notes consist of the following as of June 30, 2017, and December 31, 2016 (in thousands):

	June 30, 2017			December 31, 2016
Liability component	$	345,000		$	345,000
Debt discount, net of amortization		(29,695	)		(36,115	)
Debt issuance costs, net of amortization		(3,702	)		(4,401	)
Net carrying amount	$	311,603		$	304,484
Equity component	$	63,643		$	63,643
Less: debt issuance costs allocated to equity		(1,582	)		(1,582	)
Net carrying amount	$	62,061		$	62,061

Summary of Interest Expense Recognized Related to Notes

Interest expense recognized related to the Notes during the three and six months ended June 30, 2017 and 2016 was as follows (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
0.75% coupon	$	647	$	647	$	1,287	$	1,287
Amortization of debt issuance costs		354		362		699		719
Amortization of debt discount		3,249		3,050		6,420		6,025
	$	4,250	$	4,059	$	8,406	$	8,031

XML

Income taxes (Tables)

6 Months Ended

Jun. 30, 2017

Income Tax Disclosure [Abstract]

Tax Provisions before Discrete Items Reconciled to Recorded Provisions for Income Taxes

Our tax provisions before discrete items is reconciled to our recorded provisions for income taxes during the three and six months ended June 30, 2017 and 2016 as follows (in millions):

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Provision for income taxes before discrete items	$	1.5		$	2.3		$	2.6		$	2.8
Interest related to unrecognized tax benefits		0.1			0.1			0.1			0.2
Reassessment of taxes upon filing tax returns		0.2			0.3			0.1			0.1
Excess tax benefit from stock compensation		(0.8	)		(0.2	)		(2.3	)		(0.3	)
Benefit from reassessment of taxes upon foreign statutory tax rate change		—			—			(0.5	)		—
Provision for income taxes	$	1.0		$	2.5		$	—		$	2.8

XML

Segment Information and Geographic Data (Tables)

6 Months Ended

Jun. 30, 2017

Segment Reporting [Abstract]

Summary of Operating Segment Profit (Gross Profit), Excluding Stock-Based Compensation Expense by Segment

Operating segment profit (i.e., gross profit), excluding stock-based compensation expense, during the three and six months ended June 30, 2017 and 2016 is summarized as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Industrial Inkjet
Revenue	$	141,693		$	140,124		$	264,956		$	265,922
Gross profit		52,511			49,044			101,580			91,494
Gross profit percentages		37.1	%		35.0	%		38.3	%		34.4	%
Productivity Software
Revenue	$	39,063		$	36,351		$	74,121		$	68,891
Gross profit		29,168			27,226			54,764			50,919
Gross profit percentages		74.7	%		74.9	%		73.9	%		73.9	%
Fiery
Revenue	$	66,291		$	69,175		$	136,661		$	144,970
Gross profit		46,238			49,311			95,937			102,577
Gross profit percentages		69.8	%		71.3	%		70.2	%		70.8	%

Reconciliation of Operating Segment Gross Profit to Condensed Consolidated Statements of Operations

Operating segment profit (i.e., gross profit) is reconciled to our Condensed Consolidated Statements of Operations during the three and six months ended June 30, 2017 and 2016 as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Segment gross profit	$	127,917		$	125,581		$	252,281		$	244,990
Stock-based compensation expense		(665	)		(534	)		(1,499	)		(1,231	)
Other items excluded from segment profit		—			—			—			(315	)
Gross profit	$	127,252		$	125,047		$	250,782		$	243,444

Tangible and Intangible Assets, Net of Liabilities, Summarized by Operating Segment

Tangible and intangible assets, net of liabilities, are summarized by operating segment as follows (in thousands):

June 30, 2017	Industrial Inkjet		Productivity Software			Fiery		Corporate and Unallocated Net Assets		Total
Goodwill	$	148,109	$	165,194		$	69,948	$	—	$	383,251
Identified intangible assets, net		77,808		36,407			19,451		—		133,666
Tangible assets, net of liabilities		197,953		(42,464	)		2,244		163,455		321,188
Net tangible and intangible assets	$	423,870	$	159,137		$	91,643	$	163,455	$	838,105
December 31, 2016
Goodwill	$	141,068	$	155,475		$	63,298	$	—	$	359,841
Identified intangible assets, net		84,465		38,440			92		—		122,997
Tangible assets, net of liabilities		156,202		(27,689	)		33,325		183,156		344,994
Net tangible and intangible assets	$	381,735	$	166,226		$	96,715	$	183,156	$	827,832

Revenue by Ship-to Destination

Our revenue by ship-to destination during the three and six months ended June 30, 2017 and 2016 was as follows (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Americas	$	114,014	$	115,459	$	223,909	$	235,725
Europe, Middle East and Africa (“EMEA”)		101,513		95,877		189,546		179,460
Asia Pacific (“APAC”)		31,520		34,314		62,283		64,598
Total revenue	$	247,047	$	245,650	$	475,738	$	479,783

XML

Restructuring and Other (Tables)

6 Months Ended

Jun. 30, 2017

Restructuring and Related Activities [Abstract]

Restructuring and Other Reserve Activities

Restructuring and other reserve activities during the six months ended June 30, 2017 and 2016 are summarized as follows (in thousands):

	2017			2016
Reserve balance at January 1,	$	1,824		$	3,019
Restructuring charges		3,502			2,375
Other charges		1,087			2,050
Non-cash restructuring and other		(117	)		(403	)
Cash payments		(2,926	)		(4,704	)
Reserve balance at June 30,	$	3,370		$	2,337

XML

Stock-based Compensation (Tables)

6 Months Ended

Jun. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Stock-Based Compensation Expense

Stock-based compensation expense related to stock options, ESPP purchase rights, and RSUs during the three and six months ended June 30, 2017 and 2016 is summarized as follows (in thousands):

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Stock-based compensation expense by type of award:
RSUs	$	6,093		$	6,389		$	15,330		$	17,077
ESPP		1,520			591			2,563			1,358
Employee stock options		—			125			—			(45	)
Total stock-based compensation		7,613			7,105			17,893			18,390
Income tax benefit		(2,531	)		(1,563	)		(5,404	)		(4,246	)
Stock-based compensation expense, net of tax	$	5,082		$	5,542		$	12,489		$	14,144

Schedule of ESPP Purchase Rights and Underlying Weighted Average Assumptions

Stock options were not granted during the three and six months ended June 30, 2017 and 2016. The estimated weighted average fair value per share of ESPP purchase rights issued and the underlying weighted average assumptions for the three and six months ended June 30, 2017 and 2016 are as follows:

	ESPP
	Six months ended June 30,
	2017		2016
Weighted average fair value per share	$	12.03	$	10.39
Expected volatility		24% - 28%		22% - 25%
Risk-free interest rate		0.7% - 1.2%		0.5% - 0.8%
Expected term (in years)		0.5 - 2.0		0.5 - 2.0

Schedule of Stock Options Outstanding and Exercisable

Stock options outstanding and exercisable, including performance-based and market-based options, as of June 30, 2017, and activity during the six months ended June 30, 2017 are summarized below (in thousands, except weighted average exercise price and remaining contractual term):

	Shares outstanding			Weighted average exercise price		Weighted average remaining contractual term (years)		Aggregate intrinsic value
Options outstanding at January 1, 2017		315		$	13.86
Options exercised		(127	)		12.31
Options outstanding at June 30, 2017		188		$	14.92		1.47	$	6,102
Options vested and expected to vest at June 30, 2017		188		$	14.92		1.47	$	6,102
Options exercisable at June 30, 2017		188		$	14.92		1.47	$	6,102

Schedule of Non-Vested RSUs

Non-vested RSUs as of June 30, 2017, and activity during the six months ended June 30, 2017 are summarized below (shares in thousands):

	Time-based					Performance-based					Market-based				Total
	Shares			Weighted average grant date  fair value		Shares			Weighted average grant date fair value		Shares		Weighted average grant date fair value		Shares			Weighted average grant date fair value
Non-vested at January 1, 2017		795		$	43.79		1,265		$	42.64		23	$	33.16		2,083		$	43.34
Granted		120			45.98		371			46.93		—		—		491			46.70
Vested		(128	)		43.43		(263	)		40.67		—		—		(391	)		41.58
Forfeited		(35	)		43.50		(403	)		40.93		—		—		(438	)		41.14
Non-vested at June 30, 2017		752		$	44.22		970		$	45.52		23	$	33.16		1,745		$	45.23

Schedule of Weighted Average Grant Date Fair Value Per Share of Performance-Based RSUs and Market-based RSUs Assumptions Used to Estimate Fair Value

The weighted average grant date fair value per share of performance-based RSUs granted and the assumptions used to estimate grant date fair value during the six months ended June 30, 2017 and 2016 are as follows:

	Performance-based
	RSUs
	Short-term		Long-term
Six months ended June 30, 2017 Grants
Grant date fair value per share	$	47.23	$	45.96
Service period (years)		1.0		2.0 - 3.0
Six months ended June 30, 2016 Grants
Grant date fair value per share	$	39.59	$	39.98
Service period (years)		1.0		2.0 - 3.0

XML

Basis of Presentation and Significant Accounting Policies - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	3 Months Ended		6 Months Ended
	Sep. 30, 2014	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Organization Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Revenue		$ 247,047	$ 245,650	$ 475,738	$ 479,783
Gross profit		127,252	125,047	250,782	243,444
Net income		$ 2,759	$ 5,235	$ 7,546	$ 7,338
Net income per diluted common share		$ 0.06	$ 0.11	$ 0.16	$ 0.15
Interest rate of debt, stated percentage		0.75%	0.75%	0.75%	0.75%
Out-of-Period Adjustment Related to Bill and Hold Transactions [Member]
Organization Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Revenue		$ (4,900)		$ (3,400)
Gross profit		(900)		(500)
Net income		$ (600)		$ (300)
Net income per diluted common share		$ (0.01)		$ (0.01)
ASU 2015-11 Inventory Valuation [Member]
Organization Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Increase in inventory valuation		$ 2,400		$ 2,400
0.75% Convertible Senior Notes Due 2019 [Member]
Organization Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Debt discount		$ 63,600		$ 63,600
Interest rate of debt, stated percentage	0.75%	0.75%		0.75%
Effective interest rate percentage		4.98%		4.98%
Debt instrument, maturity year	2019			2019
Debt Issuance Costs [Member] | 0.75% Convertible Senior Notes Due 2019 [Member]
Organization Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Effective interest rate percentage		5.46%		5.46%

XML

Basis of Presentation and Significant Accounting Policies - Summary of Supplemental Cash Flow Information (Detail) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Supplemental Cash Flow Elements [Abstract]
Net cash paid for income taxes	$ 7,115	$ 4,203
Cash paid for interest expense	2,011	1,812
Acquisition of businesses
Cash paid for businesses purchased, excluding contingent consideration	13,512	21,242
Cash acquired in business acquisitions	0	(1,628)
Net cash paid for businesses purchased, net of cash acquired	13,512	19,614
Common stock issued in connection with Reggiani Macchine SpA ("Reggiani") acquisition	0	73
Non-cash investing and financing activities:
Non-cash settlement of vacation liabilities by issuing restricted stock units ("RSUs")	0	2,733
Property and equipment received, but not paid	843	880
Total Non-cash investing and financing activities	$ 843	$ 3,613

XML

Earnings Per Share - Basic and Diluted Earnings Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Basic net income per share:
Net income available to common shareholders	$ 2,759	$ 5,235	$ 7,546	$ 7,338
Weighted average common shares outstanding	46,429	46,943	46,490	47,079
Basic net income per share	$ 0.06	$ 0.11	$ 0.16	$ 0.16
Dilutive net income per share:
Net income available to common shareholders	$ 2,759	$ 5,235	$ 7,546	$ 7,338
Weighted average common shares outstanding	46,429	46,943	46,490	47,079
Dilutive stock options and non-vested restricted stock	721	887	709	851
Weighted average common shares outstanding for purposes of computing diluted net income per share	47,150	47,830	47,199	47,930
Dilutive net income per share	$ 0.06	$ 0.11	$ 0.16	$ 0.15

XML

Earnings Per Share - Additional Information (Detail) - shares	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
ESPP [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, amount

XML

Balance Sheet Details - Schedule of Inventories (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Inventory Disclosure [Abstract]
Raw materials	$ 51,180	$ 45,798
Work in process	12,546	7,362
Finished goods	60,339	45,915
Inventory, net	$ 124,065	$ 99,075

XML

Balance Sheet Details - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Balance Sheet Related Disclosures [Abstract]
Deferred cost of revenue	$ 3,000		$ 3,000		$ 3,400
Reclassified amounts out of OCI, net of tax	$ (17)	$ 96	$ (22)	$ 114

XML

Balance Sheet Details - Schedule of Changes in Product Warranty Reserves (Detail) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Commitments and Contingencies Disclosure [Abstract]
Beginning Balance	$ 10,319	$ 9,635
Liability assumed upon acquiring FreeFlow print server ("FFPS")	9,368
Provisions, net of releases	4,790	6,205
Settlements	(6,254)	(6,215)
Ending Balance	$ 18,223	$ 9,625

XML

Balance Sheet Details - Schedule of Accumulated Other Comprehensive Income (Loss) (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Accumulated Other Comprehensive Income [Abstract]
Net unrealized investment losses	$ (260)	$ (473)
Currency translation losses	(5,920)	(24,230)
Net unrealized gains on cash flow hedges	13	9
Accumulated other comprehensive loss	$ (6,167)	$ (24,694)

XML

Acquisition - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Acquired Finite-Lived Intangible Assets [Line Items]
Business acquisition related costs	$ 500	$ 800	$ 1,200	$ 1,300
Businesses purchased, net of cash acquired			$ 13,512	$ 19,614
Fair value discount rate			4.98%
Minimum [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Probability-adjusted discount rate			13.00%
Maximum [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Probability-adjusted discount rate			18.00%
FreeFlow Print Server [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Total purchase price	$ 23,134		$ 23,134
Fair value discount rate			4.98%
Asset volatility rate			27.00%
FreeFlow Print Server [Member] | Fiery Operating Segment [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Acquisition date			Jan. 31, 2017
Businesses purchased, net of cash acquired			$ 24,000
Incremental borrowing rate	4.98%		4.98%
Total purchase price	$ 23,100		$ 23,100
FreeFlow Print Server [Member] | Fiery Operating Segment [Member] | Paid at Closing [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Businesses purchased, net of cash acquired			6,000
FreeFlow Print Server [Member] | Fiery Operating Segment [Member] | Paid in July 2017 [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Businesses purchased, net of cash acquired			9,000
FreeFlow Print Server [Member] | Fiery Operating Segment [Member] | Payable in July 2018 [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Businesses purchased, net of cash acquired			$ 9,000
FreeFlow Print Server [Member] | IPR&D [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Percent compete at acquisition date	63.00%		63.00%
Percent compete at quarter end	95.00%		95.00%
CRC [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Total purchase price	$ 7,600		$ 7,600
CRC [Member] | Productivity Software [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Acquisition date			May 08, 2017
Businesses purchased, net of cash acquired			$ 7,600

XML

Acquisition - Allocation of Purchase Price to Assets Acquired and Liabilities Assumed (Detail) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Acquired Finite-Lived Intangible Assets [Line Items]
Purchase Price Allocation, Goodwill	$ 383,251	$ 359,841
CRC [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Purchase Price Allocation, Goodwill	4,595
Purchase Price Allocation	8,899
Net tangible assets (liabilities)	(1,299)
Total purchase price	7,600
FreeFlow Print Server [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Purchase Price Allocation, Goodwill	6,236
Purchase Price Allocation	28,226
Net tangible assets (liabilities)	(5,092)
Total purchase price	$ 23,134
Purchasing Agreement [Member] | FreeFlow Print Server [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average useful life	10 years
Purchase Price Allocation, intangible assets	$ 9,330
Take-or-Pay Contract [Member] | FreeFlow Print Server [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average useful life	4 years
Purchase Price Allocation, intangible assets	$ 9,000
Customer Relationships [Member] | CRC [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average useful life	9 years
Purchase Price Allocation, intangible assets	$ 3,580
Existing Technology [Member] | CRC [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average useful life	4 years
Purchase Price Allocation, intangible assets	$ 540
Existing Technology [Member] | FreeFlow Print Server [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average useful life	2 years
Purchase Price Allocation, intangible assets	$ 2,570
Trade Names [Member] | CRC [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average useful life	4 years
Purchase Price Allocation, intangible assets	$ 180
Trade Names [Member] | FreeFlow Print Server [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average useful life	5 years
Purchase Price Allocation, intangible assets	$ 1,020
IPR&D [Member] | FreeFlow Print Server [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average useful life	less than one year
Purchase Price Allocation, intangible assets	$ 70
Backlog [Member] | CRC [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average useful life	less than one year
Purchase Price Allocation, intangible assets	$ 4

XML

Investments and Fair Value Measurements - Additional Information (Detail)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2017 USD ($) $ / shares	Jun. 30, 2016 USD ($) $ / shares	Jun. 30, 2017 USD ($) Transactions $ / shares	Jun. 30, 2016 USD ($) Transactions $ / shares	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Investments And Fair Value Measurements [Line Items]
Maturity of highly liquid investments			Three months or less
Maturity of marketable investments			Greater than three months
Net unrealized gains (losses) on sale of securities included in other comprehensive income	$ (400,000)		$ (400,000)		$ (800,000)
Available-for-sale securities, net realized gains		$ 200,000		$ 200,000
Net Asset Value per share | $ / shares	$ 1		$ 1
Cash equivalents and short term investments	$ 282,163,000		$ 282,163,000		319,003,000
Transfers between Level 1 and 2 | Transactions			0	0
Fair value of liability	61,414,000		$ 61,414,000		56,463,000	$ 54,796,000
Fair value discount rate			4.98%
Contingent liabilities, current	38,000,000		$ 38,000,000
Contingent liabilities, noncurrent	23,400,000		23,400,000
Payments			1,294,000	$ 1,868,000	28,111,000
Change in fair value of contingent consideration			2,000,000
Change in fair value of contingent consideration resulting from a change in discount rate			$ 500,000
Probability-adjusted revenue			5.00%
Percentage of increase or decrease in the fair value of contingent consideration			1.00%
Notional amount of derivative assets and liabilities	148,700,000		$ 148,700,000		161,800,000
Designated as Cash Flow Hedges [Member]
Investments And Fair Value Measurements [Line Items]
Notional amount of derivative assets and liabilities	$ 3,600,000		3,600,000		3,200,000
Metrix [Member]
Investments And Fair Value Measurements [Line Items]
Payments					200,000
SmartLinc, Inc. [Member]
Investments And Fair Value Measurements [Line Items]
Payments					400,000
Direct Smile [Member]
Investments And Fair Value Measurements [Line Items]
Payments					3,600,000
Reggiani And Matan [Member]
Investments And Fair Value Measurements [Line Items]
Payments					23,800,000
Shuttleworth [Member]
Investments And Fair Value Measurements [Line Items]
Payments			1,300,000
Optitex Ltd and CTI [Member]
Investments And Fair Value Measurements [Line Items]
Fair value of contingent consideration increase (decrease)			1,800,000
Rialco, Optitex, Reggiani, DirectSmile, and CTI [Member]
Investments And Fair Value Measurements [Line Items]
Fair value of contingent consideration increase (decrease)					6,800,000
All Acquisitions [Member]
Investments And Fair Value Measurements [Line Items]
Earnout interest accretion			$ 900,000		$ 2,700,000
Earnout Achievement Probability Minimum [Member]
Investments And Fair Value Measurements [Line Items]
Probability of achieving revenue	60.00%		60.00%		60.00%
Earnout Achievement Probability Maximum [Member]
Investments And Fair Value Measurements [Line Items]
Probability of achieving revenue	100.00%		100.00%		100.00%
Minimum [Member] | Monte Carlo Valuation Method [Member]
Investments And Fair Value Measurements [Line Items]
Fair value discount rate			0.60%		0.60%
Minimum [Member] | Earnout [Member] | Probability-Adjusted Method [Member]
Investments And Fair Value Measurements [Line Items]
Fair value discount rate			4.70%		4.70%
Maximum [Member] | Monte Carlo Valuation Method [Member]
Investments And Fair Value Measurements [Line Items]
Fair value discount rate			4.98%		4.98%
Maximum [Member] | Earnout [Member] | Probability-Adjusted Method [Member]
Investments And Fair Value Measurements [Line Items]
Fair value discount rate			6.00%		6.00%
Maximum Potential Payment [Member]
Investments And Fair Value Measurements [Line Items]
Payments			$ 10,100,000
Money Market Funds [Member]
Investments And Fair Value Measurements [Line Items]
Net Asset Value per share | $ / shares	$ 1.00	$ 1.00	$ 1.00	$ 1.00
Cash equivalents and short term investments	$ 9,497,000		$ 9,497,000		$ 23,575,000

XML

Investments and Fair Value Measurements - Available-for-Sale Short-Term Investments (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	$ 273,072	$ 296,185
Gross unrealized gains	231	233
Gross unrealized losses	(637)	(990)
Fair value	272,666	295,428
U.S. Government and Sponsored Entities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	68,114	70,893
Gross unrealized gains	6	49
Gross unrealized losses	(348)	(348)
Fair value	67,772	70,594
Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	178,432	198,166
Gross unrealized gains	153	102
Gross unrealized losses	(269)	(621)
Fair value	178,316	197,647
Municipal Government [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	1,044	1,278
Gross unrealized losses		(1)
Fair value	1,044	1,277
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	24,502	24,233
Gross unrealized gains	71	79
Gross unrealized losses	(18)	(17)
Fair value	24,555	24,295
Mortgage-Backed Securities - Residential [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	980	1,615
Gross unrealized gains	1	3
Gross unrealized losses	(2)	(3)
Fair value	$ 979	$ 1,615

XML

Investments and Fair Value Measurements - Summary of Fair Value and Duration of Investments, Including Cash Equivalents, that have been Classified in Gross Unrealized Loss Position (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	$ 169,258	$ 179,428
Less than 12 Months, Unrealized Losses	(630)	(938)
More than 12 Months, Fair Value	7,567	17,922
More than 12 Months, Unrealized Losses	(7)	(52)
Total, Fair Value	176,825	197,350
Total, Unrealized Losses	(637)	(990)
U.S. Government and Sponsored Entities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	58,640	39,810
Less than 12 Months, Unrealized Losses	(342)	(348)
Total, Fair Value	58,640	39,810
Total, Unrealized Losses	(342)	(348)
Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	98,931	133,382
Less than 12 Months, Unrealized Losses	(268)	(581)
More than 12 Months, Fair Value	6,013	13,158
More than 12 Months, Unrealized Losses	(6)	(40)
Total, Fair Value	104,944	146,540
Total, Unrealized Losses	(274)	(621)
Municipal Government [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value		1,268
Less than 12 Months, Unrealized Losses		(1)
Total, Fair Value		1,268
Total, Unrealized Losses		(1)
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	11,234	4,540
Less than 12 Months, Unrealized Losses	(17)	(7)
More than 12 Months, Fair Value	1,537	4,611
More than 12 Months, Unrealized Losses	(1)	(10)
Total, Fair Value	12,771	9,151
Total, Unrealized Losses	(18)	(17)
Mortgage-Backed Securities - Residential [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	453	428
Less than 12 Months, Unrealized Losses	(3)	(1)
More than 12 Months, Fair Value	17	153
More than 12 Months, Unrealized Losses		(2)
Total, Fair Value	470	581
Total, Unrealized Losses	$ (3)	$ (3)

XML

Investments and Fair Value Measurements - Amortized Cost and Estimated Fair Value of Investments (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Amortized Cost and Fair Value Debt Securities [Abstract]
Mature in less than one year, Amortized cost	$ 75,373
Mature in one to three years, Amortized cost	197,699
Amortized cost	273,072	$ 296,185
Mature in less than one year, Fair value	75,361
Mature in one to three years, Fair value	197,305
Total short-term investments, Fair value	$ 272,666	$ 295,428

XML

Investments and Fair Value Measurements - Investments in Accordance with Fair Value Hierarchy (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016	Dec. 31, 2015
Investments And Fair Value Measurements [Line Items]
Total Investments	$ 282,163	$ 319,003
Contingent consideration, current and noncurrent	61,414	56,463	$ 54,796
Self-insurance	1,060	1,542
Liabilities	62,474	58,005
Money Market Funds [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	9,497	23,575
U.S. Government and Sponsored Entities [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	67,772	70,594
Corporate Debt Securities [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	178,316	197,647
Municipal Government [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	1,044	1,277
Asset-Backed Securities [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	24,555	24,295
Mortgage-Backed Securities - Residential [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	979	1,615
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	51,310	75,445
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Money Market Funds [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	9,497	23,575
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | U.S. Government and Sponsored Entities [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	41,813	51,870
Significant Other Observable Inputs (Level 2) [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	230,795	243,491
Significant Other Observable Inputs (Level 2) [Member] | U.S. Government and Sponsored Entities [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	25,959	18,724
Significant Other Observable Inputs (Level 2) [Member] | Corporate Debt Securities [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	178,316	197,647
Significant Other Observable Inputs (Level 2) [Member] | Municipal Government [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	1,044	1,277
Significant Other Observable Inputs (Level 2) [Member] | Asset-Backed Securities [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	24,497	24,228
Significant Other Observable Inputs (Level 2) [Member] | Mortgage-Backed Securities - Residential [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	979	1,615
Unobservable Inputs (Level 3) [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	58	67
Contingent consideration, current and noncurrent	61,414	56,463
Self-insurance	1,060	1,542
Liabilities	62,474	58,005
Unobservable Inputs (Level 3) [Member] | Asset-Backed Securities [Member]
Investments And Fair Value Measurements [Line Items]
Total Investments	$ 58	$ 67

XML

Investments and Fair Value Measurements - Summary of Changes in Fair Value Contingent Consideration (Detail) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016	Dec. 31, 2015
Business Acquisition, Contingent Consideration [Line Items]
Changes in valuation	$ 1,776		$ 6,813
Payments	(1,294)	$ (1,868)	(28,111)
Foreign currency adjustment	4,469		(1,444)
Fair value of contingent consideration	$ 61,414		56,463	$ 54,796
Rialco Limited [Member]
Business Acquisition, Contingent Consideration [Line Items]
Fair value of contingent consideration			$ 2,109
Date of acquisition agreement			Mar. 01, 2016
Optitex Ltd [Member]
Business Acquisition, Contingent Consideration [Line Items]
Fair value of contingent consideration			$ 22,300
Date of acquisition agreement			Jun. 16, 2016

XML

Investments and Fair Value Measurements - Additional Information1 (Detail) - USD ($) $ in Millions	Jun. 30, 2017	Sep. 30, 2014
Amortized Cost and Fair Value Debt Securities [Abstract]
Aggregate principal amount of debt issued		$ 345.0
Fair value of notes issued	$ 373.0

XML

Convertible Senior Notes, Note Hedges, and Warrants - Additional Information (Detail) - USD ($)	1 Months Ended	6 Months Ended
	Sep. 30, 2014	Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2016
Debt Instrument [Line Items]
Interest rate of debt, stated percentage		0.75%		0.75%
Net carrying amount		$ 311,603,000	$ 304,484,000
Aggregate amount paid for Note Hedges	$ 63,900,000
Proceeds from sale of warrants	34,500,000
Liability Component [Member]
Debt Instrument [Line Items]
Net carrying amount		311,603,000	304,484,000
Equity Component [Member]
Debt Instrument [Line Items]
Net carrying amount		62,061,000	62,061,000
Equity Component Gross Value [Member]
Debt Instrument [Line Items]
Net carrying amount		$ 63,643,000	$ 63,643,000
0.75% Convertible Senior Notes Due 2019 [Member]
Debt Instrument [Line Items]
Debt instrument, principal amount	$ 345,000,000
Interest rate of debt, stated percentage	0.75%	0.75%
Debt instrument, maturity year	2019	2019
Net proceeds from issuance of debt	$ 336,300,000
Net proceeds used to purchase Note Hedges		$ 29,400,000
Debt instrument, description		The Notes are senior unsecured obligations of EFI with interest payable semiannually in arrears on March 1 and September 1 of each year, commencing March 1, 2015. The Notes are not callable and will mature on September 1, 2019, unless previously purchased or converted in accordance with their terms prior to such date.
Conversion rate, number of share per $1,000 principal amount		18.9667
Conversion rate, principal amount of Notes		$ 1,000
Initial conversion price		$ 52.72
Debt instrument, Conversion rate description		• if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; • during the five business day period after any five consecutive trading day period (“Notes Measurement Period”) in which the “trading price” (as the term is defined in the Indenture) per $1,000 principal amount of Notes for each trading day of such Notes Measurement Period was less than 98% of the product of the last reported stock price on such trading day and the conversion rate on each such trading day; • upon the occurrence of specified corporate events; or • at any time on or after March 1, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date.
Conversion threshold minimum stock price as a percentage of conversion price		130.00%
Effective interest rate percentage		4.98%
Deferred tax liability		$ 23,700,000
Common stock strike price per share		$ 68.86
0.75% Convertible Senior Notes Due 2019 [Member] | Debt Issuance Costs [Member]
Debt Instrument [Line Items]
Effective interest rate percentage		5.46%
0.75% Convertible Senior Notes Due 2019 [Member] | Liability Component [Member]
Debt Instrument [Line Items]
Debt issuance costs		$ 7,000,000
0.75% Convertible Senior Notes Due 2019 [Member] | Equity Component [Member]
Debt Instrument [Line Items]
Debt issuance costs		$ 1,600,000

XML

Convertible Senior Notes, Note Hedges, and Warrants - Schedule of Convertible Notes (Detail) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Debt Instrument [Line Items]
Net carrying amount	$ 311,603	$ 304,484
Liability Component Gross Value [Member]
Debt Instrument [Line Items]
Liability component	345,000	345,000
Liability Component [Member]
Debt Instrument [Line Items]
Debt discount, net of amortization	(29,695)	(36,115)
Debt issuance costs, net of amortization	(3,702)	(4,401)
Net carrying amount	311,603	304,484
Equity Component Gross Value [Member]
Debt Instrument [Line Items]
Net carrying amount	63,643	63,643
Equity Component [Member]
Debt Instrument [Line Items]
Debt issuance costs, net of amortization	(1,582)	(1,582)
Net carrying amount	$ 62,061	$ 62,061

XML

Convertible Senior Notes, Note Hedges, and Warrants - Summary of Interest Expense Recognized Related to Notes (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Debt Disclosure [Abstract]
0.75% coupon	$ 647	$ 647	$ 1,287	$ 1,287
Amortization of debt issuance costs	354	362	699	719
Amortization of debt discount	3,249	3,050	6,420	6,025
Interest expense recognized related to notes	$ 4,250	$ 4,059	$ 8,406	$ 8,031

XML

Convertible Senior Notes, Note Hedges, and Warrants - Summary of Interest Expense Recognized Related to Notes (Parenthetical) (Detail)	Jun. 30, 2017	Jun. 30, 2016
Debt Disclosure [Abstract]
Interest rate of debt, stated percentage	0.75%	0.75%

XML

Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Income Tax Disclosure [Abstract]
Provisions for income taxes	$ 1,021	$ 2,519	$ 4	$ 2,806
Pretax net income on tax provisions	3,780	7,754	7,550	10,144
Provisions for income taxes before discrete items	1,500	$ 2,300	$ 2,600	$ 2,800
U.S. statutory income tax rate			35.00%
Unrecognized tax benefits that would affect the effective tax rate if recognized	32,600		$ 32,600		$ 32,000
Gross unrecognized tax benefits decrease in next 12 months	3,500		3,500
Offset to deferred tax assets for unrecognized tax benefits			20,600
Estimated unrecognized tax benefits	12,016		12,016		12,030
Accrued interest and penalties related to unrecognized tax benefits	$ 600		$ 600		$ 500

XML

Income Taxes - Tax Provisions before Discrete Items Reconciled to Recorded Provisions for Income Taxes (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income Tax Disclosure [Abstract]
Provision for income taxes before discrete items	$ 1,500	$ 2,300	$ 2,600	$ 2,800
Interest related to unrecognized tax benefits	100	100	100	200
Reassessment of taxes upon filing tax returns	200	300	100	100
Excess tax benefit from stock compensation	(800)	(200)	(2,300)	(300)
Benefit from reassessment of taxes upon foreign statutory tax rate change			(500)
Provision for income taxes	$ 1,021	$ 2,519	$ 4	$ 2,806

XML

Income Taxes - Open Tax Years - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2017
Earliest Tax Year [Member] | State Tax Jurisdictions [Member]
Income Tax Examination [Line Items]
Open tax year	2012
Earliest Tax Year [Member] | Internal Revenue Service [Member]
Income Tax Examination [Line Items]
Open tax year	2013
Earliest Tax Year [Member] | Netherlands Tax Authority [Member]
Income Tax Examination [Line Items]
Open tax year	2012
Earliest Tax Year [Member] | Spanish Tax Authority [Member]
Income Tax Examination [Line Items]
Open tax year	2012
Earliest Tax Year [Member] | Italian Tax Authority [Member]
Income Tax Examination [Line Items]
Open tax year	2012
Earliest Tax Year [Member] | Israel Tax Authority [Member]
Income Tax Examination [Line Items]
Open tax year	2011
Latest Tax Year [Member] | State Tax Jurisdictions [Member]
Income Tax Examination [Line Items]
Open tax year	2015
Latest Tax Year [Member] | Internal Revenue Service [Member]
Income Tax Examination [Line Items]
Open tax year	2015
Latest Tax Year [Member] | Netherlands Tax Authority [Member]
Income Tax Examination [Line Items]
Open tax year	2015
Latest Tax Year [Member] | Spanish Tax Authority [Member]
Income Tax Examination [Line Items]
Open tax year	2015
Latest Tax Year [Member] | Italian Tax Authority [Member]
Income Tax Examination [Line Items]
Open tax year	2015
Latest Tax Year [Member] | Israel Tax Authority [Member]
Income Tax Examination [Line Items]
Open tax year	2015

XML

Commitments and Contingencies - Real Estate (Detail)			6 Months Ended
	Jun. 30, 2017 USD ($)	Aug. 26, 2016 USD ($) ft² a Renewal_Options	Jun. 30, 2017 USD ($)	Dec. 31, 2016 USD ($) ft² a
Commitments And Contingencies [Line Items]
Assets held for sale				$ 3,781,000
Cost of manufacturing and warehouse facility under construction	$ 105,853,000		$ 105,853,000	103,304,000
Net unrealized gains (losses) on sale of securities included in other comprehensive income	(400,000)		(400,000)	(800,000)
Minimum [Member] | Matan Digital Printers [Member]
Commitments And Contingencies [Line Items]
Estimated material loss from outstanding claim in business acquisition	1		1
Maximum [Member] | Matan Digital Printers [Member]
Commitments And Contingencies [Line Items]
Estimated material loss from outstanding claim in business acquisition	10,100,000		10,100,000
Sales Leaseback [Member]
Commitments And Contingencies [Line Items]
Assets held for sale				$ 3,800,000
Assets Held-for-Sale [Member]
Commitments And Contingencies [Line Items]
Acres of land | a				5.6
Area of real estate property | ft²				43,682
Net book value of facility				$ 2,900,000
Land				$ 900,000
Off Balance Sheet Financing - Synthetic Lease Arrangements [Member]
Commitments And Contingencies [Line Items]
Net unrealized gains (losses) on sale of securities included in other comprehensive income
Off Balance Sheet Financing - Synthetic Lease Arrangements [Member] | City of Manchester [Member] | Land Lease [Member]
Commitments And Contingencies [Line Items]
Acres of land | a		16.9
Lease term		48 years 6 months
Number of renewal options for lease agreement | Renewal_Options		2
Minimum lease payments		$ 13,100,000
Renewal term of lease		5 years
Renewal term of lease		3 years 6 months
Off Balance Sheet Financing - Synthetic Lease Arrangements [Member] | Bank of Tokyo - Mitsubishi UFJ Leasing & Finance LLC [Member]
Commitments And Contingencies [Line Items]
Percentage of funds pledged under operating lease	115.00%		115.00%
Percentage of funds deposited	100.00%
Off Balance Sheet Financing - Synthetic Lease Arrangements [Member] | Bank of Tokyo - Mitsubishi UFJ Leasing & Finance LLC [Member] | Building Lease [Member]
Commitments And Contingencies [Line Items]
Area of real estate property | ft²		225,000
Lease term		6 years
Minimum lease payments		$ 1,800,000
Residual value guarantee percentage		89.00%
Lease arrangement description			Upon completion of the initial six-year term, we have the option to renew the lease, purchase the facility, or return the facility to BTMU subject to an 89% residual value guarantee under which we would recognize additional rent expense in the form of a variable rent payment.
Construction period			18 months
Off Balance Sheet Financing - Synthetic Lease Arrangements [Member] | Bank of Tokyo - Mitsubishi UFJ Leasing & Finance LLC [Member] | Cash Equivalents [Member]
Commitments And Contingencies [Line Items]
Funds pledged under lease	$ 5,300,000		$ 5,300,000
Off Balance Sheet Financing - Synthetic Lease Arrangements [Member] | Bank of Tokyo - Mitsubishi UFJ Leasing & Finance LLC [Member] | U.S. Government and Sponsored Entities [Member]
Commitments And Contingencies [Line Items]
Funds pledged under lease	$ 15,100,000		$ 15,100,000
Off Balance Sheet Financing - Synthetic Lease Arrangements [Member] | Bank of Tokyo - Mitsubishi UFJ Leasing & Finance LLC [Member] | Industrial Inkjet [Member] | Building Lease [Member]
Commitments And Contingencies [Line Items]
Cost of manufacturing and warehouse facility under construction		$ 40,000,000

XML

Segment Information, Geographic Regions, and Major Customers - Additional Information (Detail) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2017 USD ($) Segment	Jun. 30, 2016 USD ($)
Segment Reporting Information [Line Items]
Number of operating segments | Segment				3
Gross profit charged to cost of revenue	[1]	$ 119,795	$ 120,603	$ 224,956	$ 236,339
Fiery [Member]
Segment Reporting Information [Line Items]
Gross profit charged to cost of revenue		$ 200		$ 1,200
Gross profit percentages		69.80%	71.30%	70.20%	70.80%

[1] Includes stock-based compensation expense as follows: 2017 2016 2017 2016 Cost of revenue $ 665 $ 534 $ 1,499 $ 1,231 Research and development 2,346 1,886 5,916 4,926 Sales and marketing 1,773 1,550 4,068 3,899 General and administrative 2,829 3,135 6,410 8,334

XML

Segment Information, Geographic Regions, and Major Customers - Summary of Operating Segment Profit (Gross Profit), Excluding Stock-Based Compensation Expense by Segment (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Segment Reporting Information [Line Items]
Revenue	$ 247,047	$ 245,650	$ 475,738	$ 479,783
Industrial Inkjet [Member]
Segment Reporting Information [Line Items]
Revenue	141,693	140,124	264,956	265,922
Gross profit	$ 52,511	$ 49,044	$ 101,580	$ 91,494
Gross profit percentages	37.10%	35.00%	38.30%	34.40%
Productivity Software [Member]
Segment Reporting Information [Line Items]
Revenue	$ 39,063	$ 36,351	$ 74,121	$ 68,891
Gross profit	$ 29,168	$ 27,226	$ 54,764	$ 50,919
Gross profit percentages	74.70%	74.90%	73.90%	73.90%
Fiery [Member]
Segment Reporting Information [Line Items]
Revenue	$ 66,291	$ 69,175	$ 136,661	$ 144,970
Gross profit	$ 46,238	$ 49,311	$ 95,937	$ 102,577
Gross profit percentages	69.80%	71.30%	70.20%	70.80%

XML

Segment Information, Geographic Regions, and Major Customers - Reconciliation of Operating Segment Gross Profit to Condensed Consolidated Statements of Operations (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Segment Reporting Information [Line Items]
Stock-based compensation expense	$ (7,613)	$ (7,105)	$ (17,893)	$ (18,390)
Gross profit	127,252	125,047	250,782	243,444
Cost of Revenue [Member]
Segment Reporting Information [Line Items]
Stock-based compensation expense	(665)	(534)	(1,499)	(1,231)
Material Reconciling Items [Member]
Segment Reporting Information [Line Items]
Other items excluded from segment profit				(315)
Gross profit	127,252	125,047	250,782	243,444
Material Reconciling Items [Member] | Segment Profit [Member]
Segment Reporting Information [Line Items]
Segment gross profit	127,917	125,581	252,281	244,990
Material Reconciling Items [Member] | Cost of Revenue [Member]
Segment Reporting Information [Line Items]
Stock-based compensation expense	$ (665)	$ (534)	$ (1,499)	$ (1,231)

XML

Segment Information, Geographic Regions, and Major Customers - Tangible and Intangible Assets, Net of Liabilities, Summarized by Operating Segment (Detail) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Segment Reporting Information [Line Items]
Goodwill	$ 383,251	$ 359,841
Identified intangible assets, net	133,666	122,997
Tangible assets, net of liabilities	321,188	344,994
Total stockholders' equity	838,105	827,832
Operating Segment [Member] | Industrial Inkjet [Member]
Segment Reporting Information [Line Items]
Goodwill	148,109	141,068
Identified intangible assets, net	77,808	84,465
Tangible assets, net of liabilities	197,953	156,202
Total stockholders' equity	423,870	381,735
Operating Segment [Member] | Productivity Software [Member]
Segment Reporting Information [Line Items]
Goodwill	165,194	155,475
Identified intangible assets, net	36,407	38,440
Tangible assets, net of liabilities	(42,464)	(27,689)
Total stockholders' equity	159,137	166,226
Operating Segment [Member] | Fiery [Member]
Segment Reporting Information [Line Items]
Goodwill	69,948	63,298
Identified intangible assets, net	19,451	92
Tangible assets, net of liabilities	2,244	33,325
Total stockholders' equity	91,643	96,715
Corporate and Unallocated Net Assets [Member]
Segment Reporting Information [Line Items]
Tangible assets, net of liabilities	163,455	183,156
Total stockholders' equity	$ 163,455	$ 183,156

XML

Segment Information, Geographic Regions, and Major Customers - Revenue by Ship-to Destination (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Segment Reporting Information [Line Items]
Total revenue	$ 247,047	$ 245,650	$ 475,738	$ 479,783
Americas [Member]
Segment Reporting Information [Line Items]
Total revenue	114,014	115,459	223,909	235,725
Europe, Middle East, and Africa ("EMEA") [Member]
Segment Reporting Information [Line Items]
Total revenue	101,513	95,877	189,546	179,460
Asia Pacific ("APAC") [Member]
Segment Reporting Information [Line Items]
Total revenue	$ 31,520	$ 34,314	$ 62,283	$ 64,598

XML

Derivatives and Hedging - Additional Information (Detail) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional amount of derivative assets and liabilities	$ 148,700,000	$ 161,800,000
Designated as Cash Flow Hedges [Member]
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional amount of derivative assets and liabilities	3,600,000	3,200,000
Brazilian Real, Israeli Shekel, Japanese Yen and Eurodenominated Member] | Not Designated for Hedge Accounting Treatment [Member]
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional amount of derivative assets and liabilities	59,100,000	90,700,000
Brazilian Real, British Pound Sterling, Australian Dollar, Canadian Dollar, Israeli Shekel and Eurodenominated Trade Receivables [Member] | Not Designated for Hedge Accounting Treatment [Member]
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional amount of derivative assets and liabilities	50,500,000	39,800,000
British Pounds Sterling, Indian Rupee, Israeli Shekel, and Euro-Denominated Other Net Monetary Assets [Member] | Not Designated for Hedge Accounting Treatment [Member]
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional amount of derivative assets and liabilities	35,500,000	28,200,000
Foreign Exchange Contracts [Member] | Designated as Cash Flow Hedges [Member]
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional amount of derivative assets and liabilities	3,600,000	3,200,000
Forward Contracts [Member] | Not Designated for Hedge Accounting Treatment [Member]
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional amount of derivative assets and liabilities	$ 145,100,000	$ 158,700,000

XML

Restructuring and Other - Additional Information (Detail) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017 USD ($) Employees	Jun. 30, 2016 USD ($) Employees	Jun. 30, 2017 USD ($) Employees	Jun. 30, 2016 USD ($) Employees
Reorganizations [Abstract]
Restructuring and other costs	$ 3,671	$ 1,710	$ 4,589	$ 4,425
Severance charges	$ 3,100	$ 1,000	$ 3,500	$ 3,100
Number of head count reductions | Employees	95	27	113	98
Facilities relocation and downsizing expenses			$ 200	$ 500
Integration expenses	$ 400	$ 700	$ 800	$ 900

XML

Restructuring and Other - Restructuring and Other Reserve Activities (Detail) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Restructuring and Related Activities [Abstract]
Reserve balance at January 1	$ 1,824	$ 3,019
Restructuring charges	3,502	2,375
Other charges	1,087	2,050
Non-cash restructuring and other	(117)	(403)
Cash payments	(2,926)	(4,704)
Reserve balance at June 30	$ 3,370	$ 2,337

XML

Stock-based Compensation - Schedule of Stock-Based Compensation Expense (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	$ 7,613	$ 7,105	$ 17,893	$ 18,390
Income tax benefit	(2,531)	(1,563)	(5,404)	(4,246)
Stock-based compensation expense, net of tax	5,082	5,542	12,489	14,144
RSUs [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	6,093	6,389	15,330	17,077
ESPP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	$ 1,520	591	$ 2,563	1,358
Employee Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense (benefit)		$ 125		$ (45)

XML

Stock-based Compensation - Valuation Assumptions for Stock Options and ESPP Purchase - Additional Information (Detail) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Options granted	0	0	0	0

XML

Stock-based Compensation - Schedule of ESPP Purchase Rights and Underlying Weighted Average Assumptions (Detail) - ESPP [Member] - $ / shares	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average fair value per share	$ 12.03	$ 10.39
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility	24.00%	22.00%
Risk-free interest rate	0.70%	0.50%
Expected term (in years)	6 months	6 months
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility	28.00%	25.00%
Risk-free interest rate	1.20%	0.80%
Expected term (in years)	2 years	2 years

XML

Stock-based Compensation - Schedule of Stock Options Outstanding and Exercisable (Detail) $ / shares in Units, shares in Thousands, $ in Thousands	6 Months Ended
	Jun. 30, 2017 USD ($) $ / shares shares
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Shares, Options outstanding, beginning balance | shares	315
Shares outstanding, Options exercised | shares	(127)
Shares, Options outstanding, ending balance | shares	188
Shares outstanding, Options vested and expected to vest, ending balance | shares	188
Shares outstanding, Options exercisable, ending balance | shares	188
Weighted average exercise price, Options outstanding, beginning balance | $ / shares	$ 13.86
Weighted average exercise price, Options exercised | $ / shares	12.31
Weighted average exercise price, Options outstanding, ending balance | $ / shares	14.92
Weighted average exercise price, Options vested and expected to vest, ending balance | $ / shares	14.92
Weighted average exercise price, Options exercisable, ending balance | $ / shares	$ 14.92
Weighted average remaining contractual term (years), Options outstanding	1 year 5 months 20 days
Weighted average remaining contractual term (years), Options vested and expected to vest	1 year 5 months 20 days
Weighted average remaining contractual term (years), Options exercisable	1 year 5 months 20 days
Aggregate intrinsic value, Options outstanding | $	$ 6,102
Aggregate intrinsic value, Options vested and expected to vest | $	6,102
Aggregate intrinsic value, Options exercisable | $	$ 6,102

XML

Stock-based Compensation - Schedule of Non-Vested RSUs (Detail) shares in Thousands	6 Months Ended
	Jun. 30, 2017 $ / shares shares
Nonvested Restricted Stock Units Activity [Line Items]
Non-vested, beginning balance | shares	2,083
Shares, Granted | shares	491
Shares, Vested | shares	(391)
Shares, Forfeited | shares	(438)
Non-vested, ending balance | shares	1,745
Weighted average grant date fair value, Non-vested, beginning balance | $ / shares	$ 43.34
Weighted average grant date fair value, Granted | $ / shares	46.70
Weighted average grant date fair value, Vested | $ / shares	41.58
Weighted average grant date fair value, Forfeited | $ / shares	41.14
Weighted average grant date fair value, Non-vested, ending balance | $ / shares	$ 45.23
Time-based RSUs [Member]
Nonvested Restricted Stock Units Activity [Line Items]
Non-vested, beginning balance | shares	795
Shares, Granted | shares	120
Shares, Vested | shares	(128)
Shares, Forfeited | shares	(35)
Non-vested, ending balance | shares	752
Weighted average grant date fair value, Non-vested, beginning balance | $ / shares	$ 43.79
Weighted average grant date fair value, Granted | $ / shares	45.98
Weighted average grant date fair value, Vested | $ / shares	43.43
Weighted average grant date fair value, Forfeited | $ / shares	43.50
Weighted average grant date fair value, Non-vested, ending balance | $ / shares	$ 44.22
Performance-based RSUs [Member]
Nonvested Restricted Stock Units Activity [Line Items]
Non-vested, beginning balance | shares	1,265
Shares, Granted | shares	371
Shares, Vested | shares	(263)
Shares, Forfeited | shares	(403)
Non-vested, ending balance | shares	970
Weighted average grant date fair value, Non-vested, beginning balance | $ / shares	$ 42.64
Weighted average grant date fair value, Granted | $ / shares	46.93
Weighted average grant date fair value, Vested | $ / shares	40.67
Weighted average grant date fair value, Forfeited | $ / shares	40.93
Weighted average grant date fair value, Non-vested, ending balance | $ / shares	$ 45.52
Market-based RSUs [Member]
Nonvested Restricted Stock Units Activity [Line Items]
Non-vested, beginning balance | shares	23
Non-vested, ending balance | shares	23
Weighted average grant date fair value, Non-vested, beginning balance | $ / shares	$ 33.16
Weighted average grant date fair value, Non-vested, ending balance | $ / shares	$ 33.16

XML

Stock-based Compensation - Vested RSUs - Additional Information (Detail) - RSUs [Member] $ in Millions	6 Months Ended
	Jun. 30, 2017 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Fair value of RSUs vested during the year	$ 16.3
Aggregate intrinsic value of RSUs vested and expected to vest	$ 55.0
Weighted average period of recognition of unrecognized compensation cost	2 years 5 months 1 day

XML

Stock-based Compensation - Performance-based and Market-based RSUs and Stock Options - Additional Information (Detail) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted	0	0	0	0
Performance-based Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted			0	0
Market-based RSUs [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted			0	0
Market-based Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted			0	0

XML

Stock-based Compensation - Schedule of Weighted Average Grant Date Fair Value Per Share of Performance-Based and Market-Based RSUs and Assumptions Used to Estimate Fair Value (Detail) - $ / shares	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant date fair value per share	$ 46.70
Performance-based RSUs [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant date fair value per share	46.93
Performance-based RSUs [Member] | Short Term [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant date fair value per share	$ 47.23	$ 39.59
Service period (years)	1 year	1 year
Performance-based RSUs [Member] | Long Term [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant date fair value per share	$ 45.96	$ 39.98
Service period, lower range (years)	2 years	2 years
Service period, upper range (years)	3 years	3 years

XML

Stock-based Compensation - 2017 Equity Incentive Plan - Additional Information (Detail)	3 Months Ended	6 Months Ended
	Jun. 30, 2017 shares	Jun. 30, 2017 shares
2017 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares approved for issuance	1,200,000	1,200,000
2009 Equity Incentive Award Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock shares available for future grants	1,593,660	1,593,660
Additional grants made	0	0

XML

Common Stock Repurchase Programs - Additional Information (Detail) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Nov. 09, 2015
Share Repurchase Program 2013 [Member]
Stock Repurchase Program [Line Items]
Repurchase of common stock, authorized amount					$ 150,000,000
Aggregate shares repurchased			700,000	1,000,000
Aggregate purchase price			$ 34,500,000	$ 39,700,000
Common stock repurchase authorization expiration date			Dec. 31, 2018
Net Share Settlement [Member]
Stock Repurchase Program [Line Items]
Value of shares surrendered to satisfy tax withholding obligations	$ 1,900,000	$ 1,100,000	$ 6,800,000	$ 4,200,000
Net Share Settlement [Member] | Maximum [Member]
Stock Repurchase Program [Line Items]
Aggregate shares repurchased	100,000	100,000	100,000	100,000

XML

Accounts Receivable - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Jun. 30, 2017	Dec. 31, 2016
Financing Receivables And Receivables Sold [Line Items]
Financing receivables	$ 31.5	$ 31.5	$ 31.0
United States and Italy [Member]
Financing Receivables And Receivables Sold [Line Items]
Trade receivables sold with recourse	5.2	9.4	19.8
Spain and Italy [Member]
Financing Receivables And Receivables Sold [Line Items]
Trade receivables sold without recourse		1.0	3.5
Sales-Type Lease [Member]
Financing Receivables And Receivables Sold [Line Items]
Financing receivables	19.0	19.0	17.8
Trade Receivables with Original Maturities in Excess of One Year [Member]
Financing Receivables And Receivables Sold [Line Items]
Financing receivables	12.5	12.5	13.2
Trade Receivables with Original Maturities in Excess of One Year [Member] | Scheduled to be Received in Less Than One Year [Member]
Financing Receivables And Receivables Sold [Line Items]
Financing receivables	$ 5.5	$ 5.5	$ 7.1

XML

Subsequent Events - Additional Information (Detail) - Subsequent Event [Member] - Generation Digital Solutions, Inc. [Member] $ in Millions	Aug. 14, 2017 USD ($)
Subsequent Event [Line Items]
Cash consideration	$ 3.3
Potential future cash earnout	$ 4.6