May 19, 2003 -- The over 700 Printcafe customers attending the company's fourth annual CONNECT conference in Las Vegas are gambling on big returns. With attendance at CONNECT 2003 up ten percent over last year, Printcafe's user group is bucking the trend of declining attendance at industry shows and events during an extended tough economic climate. The mood at the Aladdin Resort and Casino was upbeat as attendees moved from keynotes through a selection of 130 breakout sessions covering a range of topics from product-centric to profit-centric-how-to's and best practices that covered the gamut of managing and operating a printing business in a highly competitive world. The conference also featured 15 exhibitors, and was well-attended by representatives of both Printcafe and EFI. The overriding theme at this year's conference-the last CONNECT that will be hosted by Printcafe as an independent company-was running a printing business as a manufacturing operation through the application of computer integrated manufacturing (CIM) techniques that have been standard operating procedure in much of the rest of the manufacturing industry for years. Central to this theme is Udi Arieli's Total Global Optimization theory, stressing the importance of clearly understanding the impact of constraints and bottlenecks on productivity, throughput and pricing strategies in the printing industry. Arieli, Printcafe's Director of Product Management for Web and CIM Products, made an impassioned plea to the attendees at Wednesday night's kickoff session to apply this theory to grab control of their businesses rather than being at the whim of the market, stressing that a lost hour in any cost center due to constraints and inefficiencies translates to a lost hour in the workflow for the entire organization that can never be recaptured. With the Printcafe/EFI merger expected to be finalized in the July timeframe, executives and staff from both companies were highly visible at the event. In Thursday morning's keynote, Marc Olin, Printcafe's President and Chairman, shared the stage with Guy Gecht, EFI's CEO and Chairman, and both echoed the common priority of making print a more viable, competitive communications medium by applying the combined capabilities of the two companies to: * Reducing the cost of printing through a more efficient workflow; and * Removing the barriers to using print as a communications medium. As Olin pointed out, "45% of e-mail today is SPAM, and building SPAM blockers is a very profitable business. Adding to that TIVO and other digital technologies that allow you to block out TV and radio ads, and pop-up blockers on the Internet, print remains the only medium where advertising is not stripped out." Olin predicted a return in the popularity of using print as a primary communications medium for a wide range of customer communications in light of its ability to provide more control over messaging and advertising than today's electronic alternatives. Olin and other Printcafe speakers asserted that the biggest competition to print comes from outside the industry in the form of other industries and technologies that are competing for increasingly constrained marketing dollars. Merger Update On the merger front, the two companies revealed some of the planned post-merger activities, including: * A commitment by EFI to a 20% increase in Printcafe R&D staff in its core Enterprise Resource Planning (ERP) business. This increase will be funded primarily by operating efficiencies the companies expect to achieve through consolidation of core services. As an example, Printcafe currently spends in excess of $1 million per year to maintain business insurance, a sum that will be significantly reduced once Printcafe becomes part of EFI. Additionally, the companies will most likely consolidate their financial and legal organizations, reducing costs in those areas as well. This infusion of resources into Printcafe's development organization is sorely needed. While the current development team has unusually high tenure (an average of almost ten years of experience in Printcafe product across all three core products), additional resources are required to manage the operation effectively. Olin admitted to the crowd that Printcafe's post-IPO cash management challenges prevented the company from investing adequately in R&D efforts and that he, personally, was not happy with the quality of much of the Printcafe product currently in the market. The company is committed to leveraging EFI's financial strength to improve the quality of the core ERP products, while at the same time accelerating its focus on bringing new products and capabilities to the market. These efforts will also be augmented by utilization of EFI best practices and an increased visibility into product plans for user groups, allowing users to have more impact on product development plans. EFI is already investing $100 million annually in R&D. * Retention of existing Printcafe operations in Pittsburgh, Minneapolis, Lebanon NH and Chandler AZ, although it can be assumed that the companies will consolidate their operations in Minneapolis and the Phoenix area, where both currently have facilities. * Protection of brand equity in existing Printcafe brands, much as EFI has maintained brand equity in other acquisitions (e.g., Best from EFI). * Expansion of Printcafe consulting services operations. These services will continue to focus on implementation and education, but will also offer other services, including post-implementation audits to uncover additional opportunities for optimization of workflow, and development of custom reporting. Employees. Olin described the Printcafe team as being "325 of the most tenacious people ever assembled." They will join EFI's nearly 1,100 employees (over 700 of whom are engineers) post-merger, for a combined employee count of approximately 1,400. Sales Model. It is interesting to note that the two companies have very different sales infrastructures, with EFI marketing its products through indirect channels, while Printcafe primarily utilizes a direct sales force. According to Olin, one of the attractions Printcafe had for EFI was its direct sales force, as EFI begins to expand its business beyond controllers, adding advanced products and services such as PrintMe Networks and Unimobile. When asked how the company planned to address these disparate sales strategies, EFI's Gecht indicated that in his experience, it was quite common among Silicon Valley companies to have both direct and indirect sales operations, and that EFI and Printcafe would be working hard to leverage all available channels. Customers. With over a million Fiery servers in the market, it is no surprise that there is significant overlap in the two companies' existing user bases, but both companies believe there is untapped opportunity to increase customer share with a combined offering. Olin expressed the opinion that the biggest expansion opportunity for Printcafe among Fiery users was growing its PrintSmith install base. And there is increasing applicability of EFI's products in the commercial print community, particularly as the Velocity Suite of offerings continues to expand, making Printcafe's installed base of some 8,000 printing establishments producing $40 billion in printing attractive for EFI expansion. EFI's presence at Connect was a significant step in that direction, with substantial effort expended in reassuring users that the merger would be good for both companies, their respective customers, and the industry as a whole. While many Printcafe customers expressed concern about the move early in the process, the mood at Connect appeared more positive once users had an opportunity to hear from EFI executives, gain a better understanding of EFI's business and hear about preliminary post-merger plans. Additionally, as digital printing becomes more prevalent within the commercial print industry, and print runs continue to get shorter, as do turnaround times, printers are beginning to realize the importance of integrating the management operations. The blending of EFI's expertise in color digital printing and Printcafe's core ERP solutions stands to benefit printers as they tackle this challenge. Standards. Both companies have a strong culture of driving the adoption of standards, as well as implementing an open standards approach with their respective product sets. That approach is not expected to change, and there was much discussion throughout the conference relative to using JDF, XML and other emerging standards to speed the end-to-end integration of the print production workflow. EFI has also demonstrated its commitment to consistent and easy-to-use product interfaces, claiming that customers who started using Fiery products ten-plus years ago have been able to easily migrate to new Fiery products over the years with limited need for retraining. IT Infrastructure. Printcafe has made significant investments in the deployment of Siebel's CRM solution, while EFI has implemented SAP as its internal ERP solution. EFI has not yet implemented CRM. It remains to be seen how this will ultimately be resolved, but EFI has made it clear that it is important to their business to bring everyone onto a common IT platform. While both companies acknowledge that cross-media publishing will be a force to reckon with in the future, near-term efforts will be focused on making print more viable, and both Olin and Gecht expressed confidence that the combination of EFI and Printcafe, backed by EFI's strong financial position will ultimately offer full end-to-end integration to the printing industry enabling the ability to sell effectively, manufacture efficiently and offer a range of value added services to enhance margins and customer loyalty. Corporate Culture. Gecht asserts that EFI has a "partnership culture," and in fact, history would indicate that the company is extremely effective at both partnering and acquisitions. While there are always cultural differences that must be addressed in an acquisition, both Olin and Gecht stated that they-and their teams-felt there was already a high level of synergy between the two organizations. Already, quarterly small-group meetings are being held among EFI and Printcafe executives and employees, focusing on how to better serve customers as the organization integration moves forward. EFI identified its core values as: * Total customer satisfaction * Quality * Technology leadership * Market driven solutions Gecht also stated, "At EFI, we do not allow politics to get in the way of our goals. In one to two years, we expect that planned add-ons will flow to all of our products, and the entire portfolio will be much more coherent." Gecht also stated that EFI is continuing to look at additional acquisitions. With $550 million in the bank, EFI is clearly in a position to do just that. Gecht also cited EFI's work with Kinko's as an example of how EFI strives to make partners more profitable. Kinko's adopted EFI workflow as a standard in 1999; by 2002, two billion pages (31% of Kinko's total printed pages) were printed using EFI workflow; in 2003, the Kinko's has a run rate of 41% of its pages being printed via EFI workflow. Regarding additional partnership opportunities for the combined companies, Gecht said, "In the high tech industry, Oracle and Microsoft are bitter foes, yet the market expects their products to work together, and they do. I believe the printing industry is behind the curve in this area. EFI and Printcafe are dedicated to working with all key industry players to improve the level of collaboration in our industry." When asked how he sees advanced EFI applications like PrintMe Networks and Unimobile integrating with Printcafe offerings, Gecht said, "We look at technology as an opportunity, not a threat. The strongest technology trend today is mobile, and the printing industry cannot ignore this trend. We see multiple opportunities to bring wireless to the Printcafe offerings, starting with PrinterSite Internal." Product Update In discussing the merger, Gecht stated, "MIS and ERP solutions are the most mission critical part of any company, including printing companies. We believe by adding the Printcafe product portfolio to EFI's existing and planned offerings, we will bring even stronger tools to market to influence this critical part of the industry." Olin and other Printcafe executives repeatedly assured attendees that Printcafe's primary focus was the stabilization of its existing product portfolio, while at the same time planning for future product enhancements. Central to future plans is the development of a next-generation Web front end, and enhanced back-end fulfillment capabilities to round out the product portfolio. This resonated with the overriding theme of the conference-the importance of optimizing and synchronizing workflow throughout the entire print operation, and bringing modern manufacturing principles into the print domain. Hagen OA. The company has been focused on the internationalization of Hagen OA, reporting its first-ever install in Eastern Europe (Poland). Internationalization includes the ability to deal with not only languages, but currencies and taxation as well. Internationalization expands the market for Printcafe, as well as for its customers. Additionally, Hagen users have found multilingual capability useful with employees in U.S. print plants for whom English is a second language. Version 7.1 of Hagen OA is set for release this quarter and will include PrinterSite Internal integration and improved reporting capability. Version 7.5 will include fulfillment enhancements and is expected to begin Beta in Q42003. Logic. Logic SQL, three years in the making, is crucial to the application's future success, bringing with it a Windows front-end and a broader compliance with industry standards. Logic 20.0 is expected to start Beta Q2003 and will feature PrinterSite Internal and PrintFlow integration as well as XML import capability. Logic V. 21 is expected to start Beta Q42004 and will incorporate a fulfillment module. PSI. PSI is now being headed up by Doug Belkofer, and strong focus is being placed on stabilizing the product quality of the current version, 11.0.44. Version 11.1 is scheduled for Beta in Q32003 and will include PrinterSite Internal integration. PrintSmith. The next release of PrintSmith, 7.0, will support both Mac OSX and Windows XP. It is the first Mac OSX release for this product. Olin indicated PrintSmith customers have expressed a strong interest in participating in EFI's PrintMe Network and there is future opportunity for integration there. PrintSmith Site. Post-merger, this Web storefront and catalog product for PrintSmith customers will be rolled into a new, modular Web-based application that combines all of these capabilities. ProGraph. The company is working on stabilizing the Oracle platform for this product and designing Hagen integration. PrinterSite Internal. This application is designed as a sales automation tool that allows sales people to enter orders and requests for estimates from anywhere with an Internet connection. Printcafe intended to release a wireless version of this product to run on a Samsung PDA that offers a larger screen than other PDAs on the market, as announced last year at Connect. Since then, however, Samsung has decided not to market the product in the U.S. In light of that development, Printcafe is working on a Tablet PC wireless version of PrinterSite Internal and was demonstrating it at the conference. Forms Designer is also available now for PrinterSite Internal, allowing printers to easily create custom forms for orders and RFQs with a simple drag-and-drop interface. Coming soon to PrinterSite Internal is multi-company support for organizations that need to communicate with multiple print plants. Printchannel. Printcafe reports that there are 1,500 corporations set up by over 100 printers using the Printchannel Classic product processing over 25,000 transactions per month, and the numbers are continuing to grow. Printcafe has repeatedly indicated an intent to maintain the Printchannel Classic application. At the time Printcafe acquired Printchannel, the company intended to complete the productization of print i/o, Printchannel's next generation product, integrating it with the PrinterSite offering. However, with the EFI merger on the horizon, development plans were shelved in lieu of plan to provide the same functionality through the joint EFI/Printcafe development of a full end-to-end, next generation Web offering. The companies declined to provide additional detail on these plans pre-merger. Connectors. With a number of JDF-based prepress and press connectors in place to enable two-way communication between equipment and ERP systems, Printcafe will begin to focus on connectors for finishing products as well as expanding the range of prepress and press connectors, intending to add Heidelberg support to the mix as well as support for EFI's Velocity OneFlow. Post-merger, connectors will be added for digital color presses leveraging Velocity Balance. PrintFlow. Version 4.0, due out in 2004, will feature multi-site/multi-user enhancements, and support tandem press applications for job splitting and load balancing. Enterprise Site. There was no formal discussion at the conference relative to Printcafe's buy-side print e-procurement application. However, in offline discussions, Printcafe indicated that the company currently has thirteen Enterprise Site customers in addition to some buying groups that are using the application. The company remains supplier neutral and does no active linking of buyers to suppliers. The application also does not support auctions.