Electronics for Imaging, Inc. (EFII)

Q4 2010 Earnings Call

January 20, 2011 5:00 pm ET


JoAnn Horne - IR

Guy Gecht - CEO

Vincent Pilette - CFO


Shannon Cross - Cross Research

Ananda Baruah - Brean Murray

Keith Bachman - Bank of Montreal



Good afternoon. My name is [Melissa] and I will be your conference operator today. At this time, I would like to welcome everyone to the EFI 4th Quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise.

(Operator Instructions). Thank you. Ms. JoAnn Horne, Investor Relations for EFI, you may begin your conference.

JoAnn Horne

Great, thank you, Operator, and good afternoon, everyone. I have here with me today Guy Gecht, EFI's CEO, and Vincent Pilette, our new CFO.

Before we begin the prepared remarks, let me review the Safe Harbor statement. During the call, we will be making forward-looking statements that are statements other than statements of historical fact, including but not limited to statements about our strategic agenda for 2011, our financial prospects in Q1 2011, including but not limited to expected revenue growth, non-GAAP EPS, non-GAAP operating expenses, operating margin performance, tax rates, et cetera.

Forward-looking statements are subject to risks and uncertainties that could cause our future results to differ materially or cause material adverse effects in our results.

For more information, please refer to the risk factors discussed in our SEC filings in the press release that we issued today. We do not undertake to update any of these statements in light of the new information for future events.

In addition, reference will be made to non-GAAP financial measures. Information regarding the reconciliation of the non-GAAP and GAAP measures can be found in the press release that we issued this afternoon and at our website at the IR section at www.efi.com.

I will now turn the call over to Guy Gecht. Guy?

Guy Gecht

Thank you, JoAnn. Good afternoon, everyone, and thank you for joining us today. Our team delivered an exceptionally strong finish to a very solid year with strengths across our three business segments.

The results benefitted from our industry-leading product lineup, which is targeted to the highest growth area of printing, specifically, [show time] personal documents, signage and packaging.

Some financial highlights in the quarter of which we are particularly proud; Q4 overall revenues were the highest since Q4 '07, which means we are realizing our promise to return the company to the pre-recession revenue and profit levels.

We achieved the highest operating margin since Q3 '07 and are back to double-digit levels. We had the second-best revenue quarters ever in the inkjet business and the best Fiery revenue quarters in two years. We achieved an all-time record revenue quarters in our APPS business, the highest EPS in more than three years. Lastly, we had an incredibly cash generation quarter, the highest since 2007, netting $23 million to the balance sheet.

As I said, Q4 was a solid finish to what has been a very important year for EFI as we began to reap the benefits of the strategic changes implemented over the past few years.

In a few minutes, our new CFO, Vincent Pilette, will review our Q4 and full year financial results in greater detail. But, first, let's look briefly at each of our segments.

Starting with the Fiery, which again overachieved our own expectations with revenues of $65.7 million, going 19% year over year, the new products from our OEM partners that we discussed last quarter began shipping on schedule. This included the KM 60, 70 and 80 ppm engine, Ricoh 90 ppm, (inaudible) 70 ppm [will do] 50, 60 pages per minute from Xerox.

In general, we are very pleased with the momentum we are seeing on the fiery [fund], including the strong (inaudible) [attach rate] and the end-customer loyalty to the brand, the technology and the overall user experience. In fact, we believe that in 2010 we increased our [attach rate] in this key market.

Turning to inkjet, again, we saw a very solid performance in this segment with revenues of $61.4 million, up 31% year over year, and the second best in our history, exceeding our own 20% revenue [overall] expectations. We saw strengths across inkjet (inaudible) with the GS again a key revenue driver.

We made significant progress in addressing the GS warranty issues we have discussed for the past few quarters. But these were offset by the planned upgrade of the many of the GS field units, which will result in lower product warranty cost in the future.

In some cases, we decided it is more efficient to swap field machines rather than upgrade them with the older units to be refurbished in the [factory and then] result. While the number of units needing upgrades [submitting at the time], it will still take a few more quarters to reach our target to 40% inkjet gross margin.

In addition, gross margins were somewhat pressured by (inaudible) slightly lower ink revenues. (inaudible) volume increased [23]% year over year, still very healthy goal, but below the growth rate achieved earlier in the year due to a slower ink sales than we were doing the first part of the quarter.

The [quality offset] is that we saw a strong increase of printer sales in Q4. This growth in the install base highlights the long-term consistency of the business and the strength of our product portfolio and should result in higher future ink sales.

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