T/R Systems was founded in 1991 and has long been the industry champion of cluster printing solutions; that is, the ability to manage multiple print devices with a single server for job splitting, load balancing and redundancy. Since 1995, the company has evolved the concept of cluster printing into a well-respected product suite with a growing customer base and capabilities well beyond the mere linking of printing devices. Today T/R Systems’ product line includes capability well beyond cluster printing solutions, providing post-RIP document management and editing of electronic files, and optimum print file management through software solutions.

After going public in early 2000, the company reported positive trends in operating income growth through its FY2001 (ending January 31), but was hurt by the economic downturn in FY2002, posting a $13.3 million operating loss, and a 45% decline in revenues. Prior to the downturn, the company had made significant investments in resources for research and development as well as sales support to accommodate additional printer/copier connectivity and channel relationships. As the economic deterioration began to unfold and revenues declined, the company moved quickly to take the necessary business actions to stem the losses. T/R Systems reported solid growth for the 3rd Quarter of FY2002, with 31% year-over-year growth in revenue. While the company still posted an operating loss for the quarter, it was 70% less than that reported for 3rd quarter FY 2001. Clearly, the indicators are moving in the right direction for T/R Systems and the company appears to be on the path to a return to profitability.

WhatTheyThink recently had the opportunity to speak with T/R Systems’ CEO, Mike Kohlsdorf to get an update on the company’s future plans.

WTT: Mike, thanks for taking the time to speak with us today, and congratulations on the positive trends demonstrated by your most recent earnings release. What kind of feedback are you receiving from the financial community relative to your progress?

MK: The feedback from the financial community has been very positive. We are working diligently toward being cash flow positive and profitable. However, a 31% year over year increase in revenues in what is a very soft market, especially for capital expenditures, is something we are very pleased about.


WTT: One of the key success factors for T/R Systems has been your aggressive acquisition of OEM partners, resulting in your ability to drive print to devices from a wide variety of manufacturers. Can you provide our readers with an update relative to your partner portfolio?

MK: Our primary partners are Canon, IKON, Lanier, Minolta and Ricoh. These alliances, although in their infancy today, will drive our growth for the future. As our partners look for ways to broaden their business, we are finding that our products have become strategically important. Even with partners with which we have had a long relationship there has been a surge of interest in the capabilities our products offer and the value they provide to the solution sale. We believe this will serve us well as we move forward.


WTT: Are you still actively sourcing new OEM partners?

MK: At this point, while we are still evaluating new partners, we are being selective. Our criteria are stringent in terms of what we – and a prospective partner – need to bring to a potential partnership.


WTT: Are you developing specific capabilities that are available exclusively to a given channel?

MK: Our exclusivity to date has revolved around device connectivity. Our objective is to make the MicroPress an industry standard, and the OEMs will compete on the strength of their output devices. As our OEM partners become more comfortable selling solutions into the Segments 4, 5 and 6 market, they are beginning to ask for exclusivity relative to functional content. We are starting to consider that strategy, and, over time, may be in a position to offer some uniqueness to partners.


WTT: All of the partners you named are manufacturers, with the exception of IKON, who obviously is a distributor. What are you specifically doing there?

MK: IKON’s uniqueness comes about in the context of their ability to present a universal server that allows customers to connect to any one of the three major devices they distribute: Canon, Ricoh and Océ. The MicroPress enables a connectivity strategy for them that puts them in a very unique market position.


WTT: In your recent quarterly earnings release, you reported a 108% increase in OEM revenue, mostly due to improvement in sales of MicroPress in those channels. Do you attribute the bulk of that growth to any particular channel partner?

MK: We have seen good partner performance across the board. I should note that we brought Canon on board during our third quarter. Having a full quarter of Canon’s participation was a notable component of our performance.

We also implemented a shift in our product strategy, broadening the portfolio and offering solutions with a lower entry price point. So the year-over-year comparison adds in a couple of new components – the addition of Canon, but also our shift to a new product strategy. We tripled our unit placements year-over-year, primarily as a result of that broadened go-to-market strategy.


WTT: How is the Canon relationship going?

MK: It’s going very well. Both T/R Systems and Canon executives are very satisfied with the performance to date, and I think we are going to have an excellent partnership going forward. We are continuing to add connectivity to the mix – for example we just announced connectivity for the CLC 3900.


WTT: Let’s talk a little about MicroPress. Clearly, this has been your preeminent product. Can you comment on the percent of revenues attributable to this product family?

MK: MicroPress represents 80% of our total sales revenue, and we expect sales to continue to be strong. MicroPress supports the focus each of our OEM partners is placing on the growth of high volume placements and professional services. We are also looking for growth from Digital StoreFront and MicroImager, but MicroPress will remain the core part of the business for quite some time.


WTT: You just announced Release 6.2 of MicroPress with Canon. Is there capability in that release that won’t be available to other brands?

MK: No, other than specific device connectivity, 6.2 is available to all of our partners. From a functional standpoint, we believe 6.2 positions MicroPress as the richest digital front end in the industry. We’ve gone head-to-head against Xerox DigiPath and others, and with TRueEdit, our ability to handle tabs, and other functional enhancements, this is an extremely competitive product. This new product release clearly illustrates how T/R Systems has moved beyond a simple clustering solution.


WTT: You recently restructured the product offering to provide a graduated set of capabilities, starting with the entry-level MicroPress SX. Tell us a little about the strategy behind that decision, and how it has played out for you in the market.

MK: The X Series strategy was a response to the rapid shift in the device landscape, reflecting the change from clustering together Segments 3, 4 and 5 machines to compete against DocuTech, to a solution that better supported the more robust Segments 4, 5 and 6 engines marketed by our partners. With the introduction of engines like the Ricoh Afício 1105 and the Canon imageRUNNER 105, the market need shifted from a solution that clustered a large number of slower devices to obtain virtual high-speed performance, to a digital front end that could cover a broader set of end user needs from small to large production.. MicroPress MX is really the traditional MicroPress offering; we added the DX for mid-range needs and the SX as a low-end product offering.

An entry-level production front end like SX provides a solution for a broader market, and it is easy for partners and dealers to assimilate. Its capabilities are basic enough to require less involvement from T/R sales, less dealer and end-user training, and fewer implementation issues or customization requirements. This basic product, essentially a server that does RIPping, allows us an easy way to get the channel sales force comfortable with the concept of document management. The SX is rich in functionality, but it is a much simpler concept and easier to manage through the dealer channels, while the entire product line is still available for them to propose. Since the MicroPress family is completely field upgradeable, it is easy for customers to start with the entry-level solution and migrate up-market as needs dictate.


WTT: For the MicroPress products, what’s your installed base mix between corporate and print-for-pay establishments? Do you see that shifting over the near term?

MK: We started out with MicroPress in the print-for-pay segment and experienced a fair amount of success. A few years ago, 100% of our sales were in print-for-pay. As our connectivity strategy expanded and the functional content of the product increased, we have seen a definite shift into the corporate market – in-plant print shops, and particularly in the college and university environment. In fact, over the past 18 months, approximately 70% of our placements have been in that environment. Print-for-pay is still a viable market segment, but it represents a much smaller component of our overall revenues. Aside from the university environment, we have recently had a fair amount of success in the government sectors. For example, we have a large installation in the U.S. Department of Transportation, as well as the U.S. Department of the Treasury and some Canadian government entities including the Province of New Brunswick.


WTT: What would you say is the most compelling reason customers buy MicroPress, and what are some of the reasons they do not purchase?

MK: Let me start with why they buy. MicroPress is really just starting to be recognized as a universal server that can drive in excess of 35 different print engines. It’s scalable, configurable and customized to meet the unique requirements of each user site. End users can scale capability through subsequent software releases or by adding additional device connectivity.

The most common reason they don’t buy is that the decision is deferred. Rarely do we lose deals head to head against a competitor. A lot of these environments already have printing equipment. They are interested in better, faster, cheaper, more attractive ROI. But given today’s economic conditions, they aren’t ready to make the change right away. So decisions are postponed pending a more favorable budget or economic scenario.


WTT: MicroImager, your scanning solution, is bundled with MicroPress MX and is an option with SX and DX. How frequently is it sold as a standalone application?

MK: Actually, we see it sold most frequently as a bundled offering within the MicroPress family, but there are increasing signs of its adoption as a standalone product. Recently, one of our partners sold a single site that consisted of 28 different MicroImagers and accompanying scanners at a university. We think long-term this product will sell well as a standalone scanning solution.


WTT: What are some of the things you are doing to enhance MicroPress going forward?

MK: Our product development plans revolve around three different themes: Connectivity, functionality, and expanding the print-on-demand workflow framework.

With respect to connectivity, although we already offer connectivity to 35 different output devices, that number will be increasing dramatically based on the partner’s market strategies. We rely heavily on feedback from our channel partners and end users as we add functionality to our product portfolio. We have an incredible dialog with our partners and end users, and the list of requested features keeps growing as they rely more heavily on our products – for increased revenue and differentiation on the channel side, and for improved productivity and workflow enhancement on the end user side. Listening to our partners and end users has become an integral part of our R&D process. As new requirements emerge, we carefully evaluate and prioritize them for inclusion in the product. Our latest release demonstrates the effectiveness of this process – all of the enhancements were added as a result of listening to partners and end users.

In the early days, when we primarily sold through an independent dealer channel, we had a great deal of contact with end users, and that was the source of all of our improvements. Now, with the more sophisticated partners we have brought on board, there is a second source of enhancements, from the channel directly, and we are aggressively leveraging that valuable information.

As an example, MicroImager originally grew out of the need to add copier functionality to printer installations being managed by the MicroPress. Since its release, we have discovered that MicroImager can be a valuable standalone tool for book publishers, legal scanning service providers, and other scanning-centric vertical markets as well as print on demand. Digital StoreFront grew out of the eticketing capability in MicroPress. Users needed a way to reach more customers easily and manage the entire job process. In both cases, we determined that there was enough market need to justify unbundling those capabilities to sell them separately.

Finally, we continue to partner with leading third party providers to expand the range of print-on-demand workflow elements our products can touch, with MicroPress acting as the integrating framework. Our partnership with Objectif Lune is an example of that, with the integration of their Planet Press product with MicroPress for variable data applications. These expanded partnerships significantly broaden the scope of MicroPress, allowing us to touch more of the workflow in the print-on-demand environment. We believe we can move into more traditional, higher end commercial printing environments through these types of third party relationships.


WTT: MicroPress is targeted primarily at production environments, where buyers have a reasonable handle on production issues and the costs associated with them, and should be able to fairly quickly grasp the value proposition MicroPress offers. With M@estro, you are facing a little different situation – decentralized users, fragmented purchasing responsibilities and lack of a clear understanding of the real costs associated with document-oriented process inefficiencies. How is the product performing for you? Can you comment on percent of revenues it represents?

MK: M@estro represents a very small percent of our revenues today. M@estro is an integrated enterprise tool developed to manage workflow, print devices, job distribution and intelligent job routing. It’s an open platform that uses SNMP so that all compliant devices can participate. It really bridges IT and printing services, but is ahead of its time in light of the current economy. We believe the product will grow slowly in value over time as a standalone product family. In the interim it has provided us with terrific insight, highlighting components and functionality we can integrate into other products.


WTT: Who are your key competitors in this space, and why do customers generally buy – or not buy – your product versus the competition?

MK: For MicroPress, our biggest competitor is Xerox. We are basically competing against Xerox with our partners and their devices through their channels. We were very successful in pioneering a direct competitive offering against Xerox early on, primarily working through an independent dealer channel. With the addition of a more sophisticated set of partners, we now have even higher expectations relative to our ability to team up – and win – against Xerox. Interestingly, we rarely run into EFI. Every now and then, we face their Velocity product, but we seem to be playing in separate market segments.


WTT: Your products are relatively complex. Tell us how you work with the channel to ensure that your solutions get presented as frequently and as accurately as possible. How involved are your people in each sale?

MK: Most of our work is up front, on the training side. By training the channel, including both sales and technical training, as products are launched, we get the exposure that is critical for our business. Our sales people do stay closely involved with the channel due to the application complexity, and that also contributes to our ability to capture mind share. Our business model is very clear – the trajectory we are on is based on our partners becoming more proficient over time, and ultimately, our involvement in individual sales cycles must and will decrease. This is one of the reasons we restructured our product portfolio with the X Series.


WTT: Digital StoreFront, your job entry and management solution, seemed to be a pretty logical addition to your product portfolio, although T/R went a bit against the market trend in offering a software-licensed, versus ASP, solution in this space. What, in your opinion, is the primary driver for a company deciding to go with a solution like DSF instead of an ASP?

MK: As we were bringing Digital StoreFront to market, we made several observations. First, ASPs were not doing well, as evidenced by the stunning consolidation of these service providers. Secondly, most print providers, especially in-plants, did not want a third party inserting itself in the user/provider relationship, and did not want to pay a tax or service charge on low margin transactions. Finally, in-plants were losing business to outside providers and wanted to brand a service equally as accessible to customers as their external competition.

We believe Digital StoreFront addresses all of these issues quite well. Unlike an ASP solution, we are able to provide a tight coupling to both front end and back office capabilities within the print operation and the enterprise. Digital StoreFront, being a standalone customized web-based offering met with a positive reception from colleges and universities that primarily run operations with a high number of users. The majority of our success has been in that segment; this product resonates extremely well with the workflow in that environment.

Again, we have spent a lot of time listening to our users and channel partners as we define our product strategies. Digital StoreFront originally came out of a request from the U.S. Department of Transportation that we make some fairly significant changes to our electronic job ticketing capability within MicroPress. The application now has hundreds of users on the system within that agency.


WTT: Are you selling this, or any of your other products, through a direct sales force, or is it all through the channel?

MK: It is now entirely through the channel. We have approximately 14 sales people in North America that support the channel. They are complemented by channel managers and pre- and post-sales resources.


WTT: Where do you see DSF being primarily installed? What type of establishments?

MK: Digital Storefront has primarily been installed in in-plant environments as opposed to print-for-pay. Over time, we began to see an opportunity in the print-for-pay market, but the most immediate opportunity with the most developed need is the in-plant. The print-for-pay market might have more pervasive and specialized needs for customization, which could take some time to get the product to the point where it is really viable in that market.


WTT: It would seem that one of T/R Systems’ most powerful attributes is your ability to manage multivendor environments with all of your products. In actual practice, what percent of your installations would you say actually manage multivendor, versus single vendor, environments?

MK: I don’t have an answer to that question. We don’t have the capability to track that activity. However, my sense of it is that it is not significant. Customers like to know they have a lot of flexibility and that they can move seamlessly from one vendor environment to another. However, in actual practice, they have a tendency to lean towards one specific vendor.


WTT: What is the biggest overall challenge you and your team face today, and what are you doing to overcome that challenge?

MK: Right now, our biggest challenge is growing revenue. Growing predictable revenue in today’s business environment is a challenging task, to say the least. And it’s not just restricted to this industry, or to technology. I speak with CEOs of companies in many different industries, and the difficulty of growing revenue – especially predictable revenue – is a common theme across all of those conversations. At T/R Systems, we know our success is predicated on our partners’ success. So we work very hard to make our partners successful, to create a platform and framework for their success.


WTT: What are some of the new developments we can expect to see from T/R Systems in the future? What are your key strategies going forward?

MK: We have touched on most of the themes that are driving our solutions – a continued focus on being the vendor of choice for front-end solutions in the print-on-demand space, as well as a focus on broadening our charter to include not only MicroPress, but Digital StoreFront and other products, services and support, as well as tools, that will help our partners grow incremental revenues. We want our partners to know they have a partner in T/R Systems that will maintain a dialog with them and with their end users, who are always going to ask for more in terms of functionality and connectivity. We plan to be there with them to address those market needs.


WTT: Mike, thanks for taking the time to speak with us today. Is there anything else you would like to say to our readers before we close?

MK: I’d like to take the opportunity to thank our partners, customers and employees for their ongoing commitment to our success. All three constituencies are critical to our overall success going forward.