By Susan Kelly July 27, 2005 -- EFI (NASDAQ: EFII) announced second quarter results today. The company reported revenue of $99.0 million, down 9% from the same period last year. EFI posted a net loss of $33.3 million, or $0.61 per share, compared to net income of $10.1, or $0.17 per share, from the same period last year. The loss included charges for research and development and amortization of intangibles related to the VUTEk acquisition. Despite the loss, the company stated second quarter performance was better than anticipated. EFI CEO Guy Gecht stated that “The outlook for Q3 is strong.” Contents of this Summary Quarter Highlights Segment Performance Guidance Raine Radar Q & A Quarter Highlights VUTEk acquisitions completed Revenue by geographic area: 57% North America, 26% Europe, 12% Japan, 5% Rest of the world General and administrative costs were 8.26%, up from 6.21% last year, due mostly to the acquisition of VUTEk Headcount is 1,664, including over 300 added during the VUTEk acquisition Segment Performance Servers Second quarter revenues for the segment were $35.7 million, or 36% of sales, down from $45.7 million last year. A greater level of activity from OEM partners contributed to slightly better than expected sales. Embedded The segment posted Q2 revenue of $24.9 million, or 25% of sales, down from $37.2 million in the same period last year. The segment benefited from the early launch of office color releases which will begin shipping in volume during the Q3. Going forward, the server and embedded segments will be reported together, as they have begun being managed together. The company expects 7% sequential growth in the combined segments next quarter. Professional Printing Applications Sales for the quarter were $18.5 million, or 19% of sales, up 1% from last year. Sales next quarter are expected to be essentially flat. Wide Format Digital Inkjet This new segment was created from the acquisition of VUTEk. The segment posted sales of $11.6 million, or 12% of sales, for one month during the quarter. Next quarter will be the first full quarter for the wide format segment. EFI expects sequential quarter over quarter growth for the segment. Miscellaneous All other business was $8.3 million, or 8% of sales. Third quarter sales should be flat or slightly down from this quarter’s results Guidance EFI expects Q3 revenues to increase approximately 26% from the Q2 to between $126 million and $128 million. The growth will be due to the inclusion of VUTEk, somewhat offset by seasonally lower sales in the rest of the business. The company expects GAAP earnings per share of between $0.11 and $0.13 per share. Raine Radar How things change… and fast. EFI’s financial performance has taken a turn for the worse versus a year ago and now predicated on flat Q3 sales; it doesn’t look like it will get better anytime soon for 2005. Acquisitions are not dropping the expected benefits and we are now seeing the effects of the Print Cafe investment work its way through the numbers. With other acquisitions not performing, such as VUTEk, the transparency of historical deals are coming to fruition. EFI is counting heavily on their channel partners to help them get scale, such as Xerox. Hopefully grabbing a few OEM “tigers by the tail” will be the difference to pull EFI results positive once again. Q & A The wide format business should see operating margins in the “high teens” approaching 20% in the future. EFI has not released VUTEk’s prior year results yet, but sees the business and market on a healthy growth trend. There is little seasonal difference between EFI’s Q3 and Q4. EFI will be announcing new products around the Print ’05 conference. Within the “next few years” EFI will be looking to acquire more businesses to grow the wide format business. The company sees itself having better performance and share in the higher end of the controller business. EFI continues to see the price of color falling, allowing the company’s high end color solutions becoming more and more relevant. The company is seeing good validation that the synergies they were seeking with VUTEk can be attained. The Q3 estimate does not include any share repurchasing. Although authorized, a buyback will only happen if they cannot find any better use of cash.