Electronics For Imaging, Inc.
Q2 2010 Earnings Call Transcript
July 22, 2010 5:00 pm ET
JoAnn Horne – IR
Guy Gecht – CEO
Gordon Heneweer – Interim CFO
Shannon Cross – Cross Research
Ananda Baruah – Brean Murray
Corey Meehan – BMO Capital
Morris Ajzenman – Griffin Securities
Richard Gardner – Citigroup
Previous Statements by EFII
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Good evening. My name is Tracy, and I will be your conference operator today. At this time, I would like to welcome everyone to the EFI second quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Thank you. I would now like to turn the call over to JoAnn Horne, Investor Relations for EFI.
Thank you, operator, and good afternoon, everyone. I have here with me today Guy Gecht, EFI’s CEO; and, Gordon Heneweer, our interim CFO.
Before we begin the prepared remarks, let me review the Safe Harbor statement. During the call and during the question-and-answer session that follows, the company will be making many forward-looking statements, including, but not limited to, statements regarding expected continuation of certain positive trends, revenue recovery, gross margins, warranty costs, gross – collaboration with our OEM partners, APPS revenues and Radius integration, Q3 outlook, and statements and assumptions underlying any of the foregoing. Forward-looking statements are subject to risks and uncertainties that could cause our future results to differ materially or cause a material adverse effect on our results.
For more information, please refer to the risk factors discussed in EFI’s SEC filings, including, but not limited to, the annual form on 10-K, the quarterly reports on 10-Q, the Form 8-K filed with the SEC today, and the attached press release. The company recommends that you read these documents in conjunction with a review of our financial statements. We undertake no obligation for forward-looking statements or information discussed today.
In addition, reference will be made to non-GAAP financial measures. Non-GAAP financial measures have limitations in that they do not reflect certain items that may have material adverse impact on our financial results. Information regarding reconciliation of the non-GAAP and GAAP measures can be found in the press release that we issued this afternoon and on our Web site at the IR section at www.efi.com.
I’ll now turn the call over to Guy Gecht. Guy?
Thank you, JoAnn. Thank you all for joining us today. We are very pleased and encouraged by our Q2 results with both sequential and year-over-year growth in all three of our business segments, while in both Inkjet and Fiery, we saw greater than 30% year-over-year growth.
Despite the $0.03 hit on our bottom line caused by the sharp decline in the euro against the dollar during the quarter, we still exceeded our EPS expectations, delivering $0.09 per share, and generating from our business approximately $12.4 million in cash, adding $8.4 million net cash to the balance sheet. By maintaining our focus on our cost structure and maximizing resources, we reported our first successive quarter of positive operating margin. Mostly importantly, we look for the (inaudible) and the fast pace of revenue recovery from last year’s level to continue into the third quarter.
Our results were driven by increasing demand for our newest industry-leading products, customers globally are attracted to our latest products due to the substantial ROI and the features that have enabled them to win shares in their local markets.
Expanding on our Inkjet results, the Inkjet segment reported another strong quarter, with revenues increasing approximately 15% from Q1 2010. It is the second consecutive quarter of greater than 30% year-over-year growth for Inkjet, with revenues increasing 38% from Q2 last year. The results were driven by strong demand for both the GS and the newly released GS5000r product as companies are starting to select UV technologies to replace both analog and solvent ink-based printers.
This transition in our innovative UV product portfolio has positioned EFI for success. Globally, the growth in our UV ink volume is evident that many of our customers are winning business with our state-of-the-art products. And our main (inaudible) remains Europe as we continue to face challenges and demands, and available financing for our end users.
The GS product continues to see good demand despite the relatively high price point. And we are seeing a very high ink usage rate, approximately three times the level of our QS products. While this level of utilization help drive UV ink demand, it also drives a much higher warranty costs that are impacting on gross margins. I will expand on this point in a minute.
Also during the quarter, we started to commercially ship the GS5000r, our first 5-meter UV roll-to-roll product that helps complete our product portfolio. The unique features there – on this spot retail printer enables our customers to generate new offerings for applications that will positionally sell this a less productive equipment.
We continue to show a high growth in UV volume as we posted a 15% growth for the second quarter, bringing the growth rate to 34% over the same period last year. We believe that our customers, especially our GS customers, are using our printers instead of printing via analog technologies, and winning market share from other digital printing devices. The demand for UV ink is also a leading indicator for future demand for new equipment as customers will need more capacity at some point. Yet, obviously, we are disappointed with the gross margin in our inkjet segment.