By Susan Kelly January 29, 2004 -- Electronics for Imaging (NASDAQ:EFII) announced fourth quarter revenues of $107.9 million up from $90.7 million for the same period last year, up 19%. GAAP net income was $1.1 million for the fourth quarter compared to $7.9 million during the fourth quarter of 2002, due to the Printcafe acquisition. Earnings per diluted share were $0.02 in the fourth quarter compared to $0.14 for the same period last year. Pro forma net income was $14.9 million in the fourth quarter compared to $8.7 million for the fourth quarter of 2002, up 70%. For the full year 2003, EFI's revenues were $379.6 million as compared to $350.2 for the same period in 2002. GAAP net income increased to $26.5 million or $0.48 per diluted share, from net income of $16.0 million, or $0.29 per diluted share, for the same period in 2002. Editor's Note: EFI bit the bullet and took a write-down of almost $15 million for the Printcafe acquisition in the fourth quarter of 2003. Notwithstanding the “hit”, EFI continues to demonstrate strong financial performance. The company has quickly reorganized their business segments and is focused on a multi-tiered sales approach to exhaust sales globally of all their R&D products and services. Clearly the CEO, Guy Gecht is excited about the 2004 prospects and turned the earnings call into a “sales pitch” and continually wanted to dive into the newest server, software and workflow offerings, and their features and functionality. Topics of this summary : Regional Performance Segment Performance Financial Performance First Quarter 2004 Outlook Q & A Regional Performance For the fourth quarter, Japan showed strong results up 111% year over year due mainly to design licensing. Revenue in Japan was $16.6 million, or 15.4% of revenues. Europe was 27.3% of the revenue at $29.5 million. The U.S. showed sales of $58.6 million or 54.3% of sales. Results reflect strong sales of the newly introduced stand-alone color servers. Asia/Pacific region showed flat revenues with a 32% year over year decline due to shipping design license products to Japan for re-export as well as lower stand-alone server sales. Segment Performance Stand-Alone Servers in the fourth quarter accounted for 47% of the revenue; or $50.7 million. The increase in color server products was due to the launch of new products the Fiery S300 and the S500. In the Embedded Color segment business, unit volume was 58.8% and revenue accounted for 23% of the total or $25 million. In the Digital Black and White segment, revenue was 11.9% of the total. Although there is an expectation for color devices to gain market share in certain black and white segments, overall fourth quarter expectations were exceeded with an increase of almost 11% in revenues. Financial Performance Cash generated during the fourth quarter was $31.9 million and total cash and investments were $624.1 million, a decrease of $23 million from last year. Accounts receivables were $53.3 million and the DSO stands at 44.5 days. Inventory increased by $3.8 million up to $8 million primarily due to the acquisition. Total assets were $1 billion up from $727 million and total liabilities were $358.8 million up from $93 million last year. This is the first time in EFI's history that the assets have exceeded the $1 billion mark. This is the 12th quarter in a row of gross margin improvement. Growth in applications and design licensing continues to drive margins of 63.9% in the fourth quarter 2003 up from 55% last year. First Quarter 2004 Outlook • Revenue in the range of $102 to $104 million. • GAAP diluted earnings per share of $0.16 to $0.17 after the amortization of acquisition-related intangibles. • EFI estimates organic growth for 2004 is expected to be 12-15%. • EFI will break out Professional Printing Applications as a new segment in future guidance. For example, fourth quarter 2003 showed revenues of $11 million in sales which were 10% of revenues. Expected growth rates for revenues are expected to be 15-20%. (Editor's Note: This segment contains the Printcafe and TR Systems acquisitions) Q & A Operating margins are in the high teens in the fourth quarter and EFI plans to target up to 20% for 2004. However EFI cautions shareholders that they need to overcome their recent acquisition's performance (i.e. Printcafe) before the whole company will be operating at that level consistently. EFI had a “directionally good quarter” for the standalone server business due to the Fiery S300 and S500 introductions. As they move into first quarter some revenue decline is expected in this segment but Embedded Products and Professional Printing Application revenues should pick up the slack. The gross margins of 63.9% in the fourth quarter may not be sustainable at that level throughout 2004 but their goal is try and maintain it. The economy appears to be picking up, however they expect the seasonality should be similar to what they experienced in 2003 for seasonality. When asked about EFI's market share and their percentage of servers on the iGen3, EFI declined to give specifics. Analysts wanted to know if the Fedex-Kinko's business will impact EFI sales given that Kinko's wants to double the number of outlets. No specifics were given. The sales pipeline was questioned. EFI assured the group that the pipeline is good and they are confident about future revenues. Future acquisitions were also questioned and again no specifics were revealed. Distribution challenges were questioned however the CEO, Guy Gecht, believes their channels, and OEM partners are well positioned to generate leads and drive sales. EFI believes there is market readiness for Printcafe applications because of the high interest in automation and software in printing however, EFI cautioned that it is a slow market and shareholders need to be patient for growth in this segment.