EFI Reports 79% Revenue Growth Driven by VUTEk Acquisition: Summary of Fourth Quarter 2005 Earnings Call By Trevor Shackelford February 10, 2006 -- EFI (NASDAQ: EFII) recently announced their fourth quarter and full 2005 results. Total revenue for EFI’s fourth quarter was $145.4 million, 79% higher than the $81.2 million reported for the fourth quarter of 2004 and 2.9% higher than the revenues reported last quarter. GAAP net income for the fourth quarter was $11.4 million or $0.18 per diluted share, down sequentially from $18.5 million or $0.30 per diluted share reported in the Q3 2005 and up from $0.8 million or $0.02 per diluted share reported in the fourth quarter of 2004. Non-GAAP income for the fourth quarter was $23.1 million, or $0.36 per diluted share. Total revenue for the fiscal 2005 was $468.5 million, 19% higher than the $394.6 million reported for the fiscal 2004. GAAP net loss for the fiscal 2005, reflecting a charge for in-process research and development and the amortization of intangibles, was $4.1 million or $0.07 per share. In 2004, net income was $38 million or $0.64 per diluted share. Non-GAAP net income for the year was $56.7 million. Contents of this Summary * Quarter Highlights * Segment Performance * Guidance * Raine Radar * Q & A Quarter Highlights • Gross margin for the fourth quarter was 60.1%, down from 65.3% reported in the Q4 2004. • As a percentage of revenue, R&D expenses are 19.7% of revenue, up from 19.3% of revenue reported in Q3 and down from 34.3% of revenue reported last year. • As a percentage of revenue, selling and marketing expenses represented 15.7% of revenue, compared to 16.8% in the Q3 of 2005 and 21.8% in the Q4 of 2004. • As a percentage of revenue, G&A expenses represented 6.2% of revenue in the fourth quarter, down from 6.5% in the Q3 and down from 8.2% reported in the Q4 of 2004. • Employee headcount at the end of fourth quarter was 1,723, an increase of 39 employees from 3 months ago. • Pro forma tax rate for the quarter was 22%, down from 23% reported in the Q3. • At the end of fourth quarter, cash and cash equivalents were $479 million, compared to $422 million reported at the end of the third quarter. • In the fourth quarter, DSO was down to 42 days from 48 days reported last quarter. Segment Performance Controllers Segment Fourth quarter revenue for this product segment was $79.5 million, which represents 54.7% of the total company revenue. Revenue of this segment was up 1% sequentially and up 45.1% year-over-year, fed by new product releases and the acquisition of VUTEk. The company continues to see strong momentum in the controller business particularly in the professional and midrange color and office color products. EFI also saw continued strength in its black and white products on a sequential and annual basis. The company expects revenues in this segment to slow somewhat during the first quarter of 2006 due to normal seasonality. Professional Printing Applications Segment Fourth quarter revenue for this product segment was $17.8 million, which represents 12.2% of total revenue. Sales for the segment declined 2% year-over-year. The company is streamlining the segment, removing some of it Web-based supply management services, which will reduce segment sales by approximately $1 million in the Q1 2006 and approximately $4 million for the full year of 2006 from 2005 levels. VUTEk Superwide Format Inkjet Products Segment Q4 revenue for this product segment was $39.3 million, or 27% of total revenue, compared to $36 million, or 25.4% of total revenue reported last quarter. The company expects that the revenue from this segment will be even or slightly up in the first quarter of 2006. Miscellaneous Segment Q4 revenue for this product segment was $8.8 million, representing 6.1% of total revenue, compared to $8.3 million, or 10.2% of total revenue reported in the Q4 2004. The miscellaneous segment was down 7.5% sequentially and up 6% year-over-year primarily due to results of swings in purchases of spare parts. Guidance For the first quarter of 2006, the company expects revenues in the range of $132 million to $134 million and non-GAAP earnings per share of $0.26 to $0.28. GAAP earnings are estimated to be $0.12 to $0.14 per share. GAAP net income guidance includes estimated charges related to the implementation of FAS 123R. Raine Radar The company posted a strong performance from its controller business during the quarter, driven by the VUTEk acquisition as well as new product releases. The company is expecting this business to slow somewhat during the next quarter, but the revenue from VUTEk, which doesn’t seem to suffer from the same seasonality issues as the controller business, should help to offset some of that sting. The company is still investigating what to do with its cash. The possibility of further acquisitions, perhaps to augment its new VUTEk business, is certainly one likely option. Q & A 1. The server business was up slightly over the third quarter. 2. During the fourth quarter the company experienced a large impact from Xerox’s normal seasonality. 3. EFI said they were pleased with VUTEk, and happy to see that it is not affected by the same seasonality issues that the OEM controller business is. 4. The company said that VUTEk had primarily sourced regionally in England. The company is expanding the number of potential suppliers outside of that region to help reduce costs going forward. 5. EFI is investigating acquisition options but is also considering a stock buyback plan. 6. The company said that in the longer term VUTEk has a new generation of products that will be better able to achieve the needs of the market. The company did not give an idea of when those products would hit. 7. EFI said that UV inks have not really had much third-party activity and that it is a difficult technology to master. 8. The company said that the sales and marketing expenses were up in the second and third quarters were primarily due to trade shows and new product launches. 9. EFI believes CAPEX will hold the same kind of pattern in sales and marketing. 10. The company expects that option expenses for the first quarter of fiscal 2006 will be approximately $3.6 million. 11. EFI said that its relationship with RR Donnelley is growing and improving. Trevor Shackelford is an Associate at Raine Media, Inc. and can be reached at [email protected] -- Click here to tell us what you think about this premium feature -- Click here to read recent comments from our readers