Electronics For Imaging, Inc. ( EFII)

Q3 2011 Earnings Call

October 20, 2011 5:00 PM ET


JoAnn Horne – IR

Guy Gecht – CEO

Vincent Pilette – CFO


Ananda Baruah – Brean Murray Carret & Co

Shannon Cross – Cross Research

Morris Ajzenman – Griffin Securities, Inc

Gaurav Gupta – Bank of Montreal

Richard Gardner – Citigroup



Good evening. My name is Keisha and I will be your conference operator today. At this time I would like to welcome everyone to the Q3 2011 Electronics For Imaging 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. Ms. JoAnn Horne, Investor Relations for EFI. You may begin your conference.

JoAnn Horne

Thank you operator, and thank you for joining us everyone. I have here with me today Guy Gecht, Chief Executive Office; and Vincent Pilette, Chief Financial Officer.

Before we get started let me review the Safe Harbor statements. During the call, we’ll be making forward-looking statements that are statements other than statements of historical facts including but not limited to our strategy, estimates, projections and revenue and EPS. Forward-looking statements are statements of risks and uncertainties that could cause our results to differ materially or cause a materially adverse effect on our results.

Please refer to the risk factors discussed in our SEC filings in the press release. We do not undertake to update in light of new information or 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 was issued this afternoon in our website on the IR section at www.efi.com. There are also slides available there that corresponds to today’s comments.

I’ll now turn the call over to Guy Gecht. Guy?

Guy Gecht

Thank you, JoAnn. Good afternoon and thank you all for joining us today. We are very pleased with our Q3 results. Despite the economic uncertainty, we are all hearing about over the past few months, EFI delivered 14% of revenue growth, a seventh consecutive quarter of double-digit growth and a fourth consecutive quarter of double-digit operating margins.

Once again, we saw continued strength across all three business segments and across all geographies and in particular Europe was strong for us. We grew our operating profit by approximately 50% and if it wasn’t for the non-operational impact of the significant volatility in currency we would have posted a similar growth in EPS. Our results once again validates our strategy of addressing the growth areas of print, by enabling this segments to transfer from analog to digital printing.

Now turning briefly to our three business segments starting with the Fiery segment. We are pleased with the 9% revenue growth driven by strength across all partners as our targeted areas. While as anticipated, we saw weakness in Japan. We continued to see solid growth in China and India. We are excited about the introduction of Fiery System 10, during the quarter which opens yet another innovation gap with the competition and provide customers with advanced capabilities in the four key areas of color, usability, performance and integration.

Over the past few months, we have received some questions regarding the potential impacts to our Fiery business given the worsening environment. Obviously this segment of our business isn’t immune to the overall economy and we have seen a slower growth rate than earlier in the year. However, as we have proven over the past two years, delivering out innovates for that in conjunction with new engines introduced by our strategic partners has allowed us to grow our share and increase Fiery revenue faster than the growth of the market segment, we are targeting.

To that end, our R&D group remains very busy developing exciting new and innovative products for the robust pipeline of new engines from our partners, planned for the next couple of years. To add to this customer loyalty to Fiery and the benefit of Fiery integration with our fast growing customer base of EFI APPS and you can understand why we believe we are better positioned than in the past if we see the macroeconomic environment further worsening. Looking to the fourth quarter, we continue to closely monitor our partners’ inventory as well as our shipments to them. We also anticipate that this quarter we’ll see the final if minimal impact on business from the Japanese tsunami.

With that we look for Q4 operating revenue growth of low single-digit in the Fiery segment. We are very pleased with Inkjet business which ended the quarter just shy above 40% gross margin target and achieved 14% revenue growth with minimal revenue benefit from new products. As we discussed at conferences and trade shows during the quarter, we have announced a new product cycle consisting of four innovative printers which increase our addressable markets. One of this product is a GS3250LX which utilize LED based queuing. The first system designed for production printing with lower temperature queuing than UV based queuing. Our printer delivers significant energy, substrate and shipping cost savings for our customers.

Let me share what Nick Olson [ph] owner of PBS, one of our LED benefit is saying about the technology. The GS3250LX has enabled us to bring on thinner substrates. This saves us both cost of material and shipping. Now we call roll output for shipping instead of using flat boxes, saving the customer about 30% on the job, due to lower cost of material as well as 30% reduction in cost of shipping. In addition, we are very excited about the new applications this printer has enabled including the ability to print on aluminum, steel, wood and out in conference campus. It will certainly be growth engine for our business. We obviously couldn’t be more delighted to hear about the new printer enabling cost savings while providing growth opportunities at the same time.

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