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EFI Acquires Cretaprint, Commentary by Cary Sherburne

Wednesday, January 11, 2012

Press release from the issuing company

(See comments from Cary Sherburne in the Discussion area below)

Electronics For Imaging, Inc., a world leader in customer-focused digital printing innovation, today announced that it has acquired privately-held Cretaprint S.L., for approximately $31 million and an earn-out of up to $21 million based on growth targets for 2012 and 2013. Cretaprint, with headquarters in Castellón, Spain, is a leading developer and supplier of inkjet printers for ceramic tiles.

The company expects the transaction to be accretive to 2012 earnings and immaterial to first quarter 2012 earnings. Cretaprint is expected to contribute approximately 5% to 7% to EFI's 2012 revenue.

"As evidenced by our record revenues, we are benefitting from strong traction in our industrial inkjet segment and are excited about expanding into the ceramic tile market, which represents a tremendous growth opportunity for EFI," said Guy Gecht, CEO of EFI. "We have been tracking the swift transformation from analog to digital technology in tile imaging for quite some time, and have been deeply impressed with the fast growth and global leadership position of Cretaprint."

"We are extremely excited to join EFI and look forward to leveraging EFI's Silicon Valley high-tech DNA, inkjet expertise, workflow, and color management," said Victor Blasco, CEO of Cretaprint. "EFI's global presence will accelerate the adoption of our digital technology across the globe and especially in emerging markets."

Industry analysts continue to project rapid growth in ceramic tile inkjet printing, as noted by Dr. Ray Work, Work Associates. "The tile industry is moving towards inkjet," said Dr. Work. "The financial incentives are so great that the entire industry is converting rapidly to inkjet. The ceramic tile manufacturer can pay back their investment in an inkjet digital press for ceramic tiles in as little as six months."*

Fourth Quarter 2011 Preliminary Results

Separately, the company announced preliminary results for the fourth quarter of 2011, ended December 31. For the fourth quarter the company expects record revenues of approximately $163 million, compared to $145 million in the fourth quarter of 2010, marking EFI's eighth consecutive quarter of double digit growth. Non-GAAP earnings per share for the three months ended December 31, 2011 are expected to be $0.34 to $0.35 per share, which includes a non-operational unfavorable currency impact of approximately $0.03, compared to earnings per share for the three months ended December 31, 2010 of $0.28 per share. The company noted that the results were driven by record revenue in both the inkjet and APPS segments, which contributed to continued strong growth in the company's recurring revenues.

Conference Call Information

The Company will host a conference call today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) to discuss the acquisition. The conference call will be webcast and investors will be able to access the conference call at the Investor Relations/Events & Presentations portion of EFI's website at http://ir.efi.com/.

A replay of the webcast will also be available at the aforementioned website following the completion of the call.

The Company will provide its preliminary fourth quarter and fiscal year 2011 results on its regularly scheduled fourth quarter earnings conference call. The call is scheduled for Tuesday, January 24, 2012, at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time).

About our Non-GAAP Net Income and Adjustments

To supplement our consolidated financial results prepared in accordance with GAAP, we use non-GAAP measures of net income (loss) and earnings per diluted share that are GAAP net income (loss) and GAAP earnings per diluted share adjusted to exclude certain recurring and non-recurring costs, expenses, and gains.

We believe that the presentation of non-GAAP net income and non-GAAP earnings per diluted share provides important supplemental information regarding non-cash expenses, significant recurring and non-recurring items that we believe are important to understanding our financial and business trends relating to our financial condition and results of operations. Non-GAAP net income and non-GAAP earnings per diluted share are among the primary indicators used by management as a basis for planning and forecasting future periods and by management and our board of directors to determine whether our operating performance has met specified targets and thresholds. Management uses non-GAAP net income and non-GAAP earnings per diluted share when evaluating operating performance because it believes that the exclusion of the items described below, for which the amounts and/or timing may vary significantly depending upon the Company's activities and other factors, facilitates comparability of the Company's operating performance from period to period. We have chosen to provide this information to investors so they can analyze our operating results in the same way that management does and use this information in their assessment of our business and the valuation of our Company.

We compute non-GAAP net income and non-GAAP earnings per diluted share by adjusting GAAP net income (loss) and GAAP earnings per diluted share to remove the impact of recurring amortization of acquisition-related intangibles and stock-based compensation expense, as well as restructuring related and non-recurring charges and gains and the tax effect of these adjustments. Such non-recurring charges and gains include end-of-life inventory purchase and related obsolescence, asset impairment, sale of a non-strategic minority investment in a private company, acquisition-related transaction costs, and costs to integrate such acquisitions into our business.

These non-GAAP measures are not in accordance with or an alternative to GAAP and may be materially different from other non-GAAP measures, including similarly titled non-GAAP measures, used by other companies. The presentation of this additional information should not be considered in isolation from, as a substitute for, or superior to, net income (loss) or earnings per diluted share prepared in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect certain items that may have a material impact upon our reported financial results. We expect to continue to incur expenses of a nature similar to the non-GAAP adjustments described above, and exclusion of these items from our non-GAAP net income and non-GAAP earnings per diluted share should not be construed as an inference that these costs are unusual, infrequent, or non-recurring.

 

Discussion

By Cary Sherburne on Jan 11, 2012

This is quite an interesting announcement from EFI. Cretaprint currently has about 25% market share in the digital ceramic tile printing market, and EFI plans to try to hold on to that share in what it describes as an explosive market, which consists of some 12K-15K manufacturing lines. EFI claims that most, if not all, of these can be converted to digital over time.

This printer is an integral part of a complete manufacturing line, including a 1200-degree-C oven. EFI is investigating the ceramic glaze ecosystem to determine whether it makes sense for them to manufacture ink/glazes as they have done with VUTEk/Rastek.

Cretaprint uses Xaar printheads. Print widths currently are 70-115 cm (about 27-45 inches.

Current competitors in the digital space include Durst and a Chinese company, Hope.
EFI plans to look at increasing cretaprint visibility in China, competing head-on with Chinese companies.

Does this technology make sense for display/graphics companies and commercial printers to implement as they look for new revenue sources? That remains to be seen.

 

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