WhatTheyThink’s Senior Editor Cary Sherburne sat down with EFI’s CEO, Guy Gecht at the company’s recent Connect conference, and followed up with a post-earnings-release call to debunk rumors, learn more about one of our industry’s best success stories, and hear about what we might expect from EFI moving forward.

WTT:  Guy, thanks for taking the time out of a very busy Connect 2013 to talk with me. Is this really the biggest Connect ever? 

GG:  It certainly is. We have almost 1,200 people here, nearly 800 of whom are customers. It used to be that companies would send multiple people to Connect, but with changes in the economy and other factors, fewer people are coming from each company. But that means that we have more companies represented than ever before, as well as more people here overall.

WTT:  I know there has been discussion with your customers about when Connect should be held. It seems that January is not such a bad time to hold it.

GG:  There will never be a time that is perfect for everyone, but we will be holding Connect 2014 in January again, pushing it back a week later so that folks that are closing out their year-end financials have a little more time to get that done before joining us at the Wynn, from January 21-24, 2014.

WTT:  Since the economy has continued to be uncertain, and of course, there are continued pressures on the industry, what are you hearing from customers here at Connect about the state of their businesses?

GG:  I have been very pleasantly surprised that most are saying business is good, and specifically that the last quarter was better than a year ago. I am especially hearing this from people that have moved into digital printing. EFI’s mission is to help as many businesses transform themselves as possible, just as we have transformed ourselves. We do this by providing great technology and the right level of support.  And we spend as much time as we can with customers, something that is satisfying for the entire company. Everyone at EFI works hard, but when you see how you have helped customers, most of whom are family-owned businesses, and the kind of relationships we build with them, it is rewarding. I think our customers appreciate how seriously we take our commitment to them.

WTT:  Now to the rumor mill… rumors have been circulating for some time that you might be taking EFI private. Those rumors were fueled even more by the sale of your building and the stock price increase in the past few months. Can you comment?

GG:  We believe it is a healthy habit to not comment on rumors. Our focus is to continue to innovate and help our customers grow. But I can tell you that we are pleased to see our shareholders being rewarded, as our stock price increased 33% in 2012 to a five-year high. It is a reflection of our team’s hard work and the progress we’ve made. Even though generally investors view our space a little negatively, we are getting more investors that believe there is a lot of opportunity and value in our space. We have a duty to our shareholders to make EFI more successful in the marketplace, and we’re fully aware that in the eyes of Wall Street, we are only as good as our last results.

WTT:  So why the sale of the Foster City building?

GG:  To be honest, it was an above-market offer that we couldn’t refuse from a neighboring company, a leader in HIV research that is about to come to market with a game-changing medication to treat hepatitis C. They badly needed more space for that. And while the building has a great view, I am more than willing to trade that for the cash in the bank that the sale provided us, which will allow us to invest in acquisitions and other business growth opportunities. Also, as we seek a new facility, which we will move into in the 4th quarter, we will be looking for a more modern building that will foster more innovation and collaboration. It will be better for employees, customers and shareholders. We are in the final stages of selecting a new site and will be able to make an announcement in a few weeks.

WTT:  Any other comments about Connect 2013?

GG:  Overall we are getting great feedback. Connect is about content; it is not about marketing and sales, although that is an outcome, of course, especially with the cross-pollination across product lines. This year we had the first-ever Fiery end-user track, and we also brought EFI VUTEk, Wide Format and Jetrion printers. It’s nice to be able to show the whole EFI story. Attendees like the fact that they have three days of learning, interaction with a large EFI team, and the ability to network with their peers.  At the same time, our team loves talking to customers, and especially our engineers and product managers get excited about how much new information they can learn. If we only did one event per year, it would be Connect.

EDITOR’S NOTE: The balance of this interview was conducted following EFI’s earnings call on January 24, 2013.

WTT:  So the things we spoke about at Connect are certainly playing out: another record quarter, with overall revenue up 7%, and a third consecutive year of double-digit growth.

GG:  Yes, we are fortunate to maintain our growth story.

WTT:  I noticed in the financials that the Fiery business saw a 15% year-over-year decline.

GG:  The Fiery business performed better in the last quarter than we had expected, but the level of decline for the year was still unexpected. However, over the last 3 years, the Fiery business has grown 24%; the business is very cyclical. And, as you know, it is largely dependent upon new production printing releases from our strategic partners. Those releases were down in 2012, but we already see our partners gearing up for a more active 2013. In fact, Xerox was showing a new product at Connect prior to their official announcement, and I heard that it was positively received by customers who were introduced to it.

WTT:  I also found it interesting that in 2010, Fiery comprised 47% of EFI revenues, and in 2012, that percentage had declined to about a third.

GG:  This has been a key part of our diversification strategy so that we are not as affected by the cyclical nature of that business. But even while it is now a third of our business, I am involved with this business daily, as it is a great technology and a key to digital printing. Fiery technology is something that millions of people enjoy using as they do more and more with their digital printers.

WTT:  Speaking of diversification, you acquired four companies last year; do you see a similar acquisition pipeline for 2013?

GG:  There seems to be an appetite for selling in recent quarters, so I believe we will continue to find interesting teams and products to add to EFI. And we are also watching other segments that we might want to enter in the future, like we did with ceramic tiles and Cretaprint.  We are fortunate to be in a space where there are very few buyers right now, so it’s a good place to be as a buyer.  In most cases we don’t need to fight over an acquisition, as we may have had to do in the past.

WTT:  What do you see as the key driver for a company wanting to be acquired by EFI?

GG:  Many companies are interested in merging into a larger company, and the benefits are numerous for the owners, employees and customers. We like to think that EFI is a good company to be part of. We are very proud of the fact that of the last 11 acquisitions we’ve made, 10 of the acquired Presidents have chosen to stay with us, and most of them are working even harder than they were with the independent businesses. As you said, we did four acquisitions in 2012, and in 2013, we might do about the same, plus or minus one or two.  Keep in mind that for every acquisition we do, we walk away from 20+ opportunities that are not a good fit for various reasons.

WTT:  So you are looking both at new segments and at continuing to be a consolidator, especially in the MIS area?

GG:  Yes. Actually, we believe that the consolidation in the MIS area is good for the industry.  When a company invests in an MIS solution, it is very often a minimum of a 10-year relationship. You are running the business on that MIS solution and you can’t afford to rely on a small company that may go away.

WTT:  Your strategy for a lot of these acquisitions has been to migrate users from the acquired solution to an EFI solution. How is that going?

GG:  We don’t push anyone to migration. Customers can stay on their existing system as long as they want. They pay maintenance and they get good support. Our acquired customer satisfaction survey results are quite good, and a lot of that is the flexibility we offer them. We could have pushed people harder and optimized our business results over the short term, but we didn’t want to ruin the relationships with those customers by getting too aggressive and pushing them to spend money on switching to the EFI MIS portfolio. This industry is a small world. If you don’t treat someone well, everyone hears about it. We chose a long-term strategy, and customers are appreciative of that.

WTT:  And how is this MIS consolidation strategy working so far?

GG:  So far, so good. As we just announced, our Productivity Software business grew 25% in 2012 and revenues for that business crossed the $100-million mark for first time. This business is really working well. And aside from our success in the MIS space, we are the largest Web-to-Print provider, and we’re seeing customers get excited about those offerings. EFI is the safest MIS investment for customers, regardless of whether they are a small company or a large player with multiple sites. We are dedicated to helping our customers improve productivity and get waste out of the system, and we have committed a lot of resources to do that. We closed quite a few large MIS deals in the fourth quarter in an industry that is not really growing; that shows the benefit we can bring to customers.

WTT:  Anything else you would like to add?

GG: I just hope that this doesn’t sound like a great success story. EFI is work in progress, and we have a lot to get better at, and certainly plenty of hard work ahead of us. This industry isn’t simple and our customers are facing real challenges every day. If we stay passionate about and focus on helping our customers and driving positive transformation in our industry, we will be able to continue to grow and expand.