Add
EFII to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| EFII > SEC Filings for EFII > Form 10-Q on 11-May-2009 | All Recent SEC Filings |
11-May-2009
Quarterly Report
Forward-looking Statements
This Quarterly Report on Form 10-Q ("Report"), including the "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements regarding future events and the future results of the Company that are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the management of the Company. Words such as "expects," "anticipates," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Report under the section entitled "Risk Factors" in Item 1A of Part II and elsewhere, and in other reports the Company files with the Securities and Exchange Commission ("SEC"). The following discussion should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as amended (the "2008 Form 10-K") and the condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q. The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason, except as required by law.
Business Overview
We are the world leader in color digital print controllers, super-wide format printers and inks and print management solutions. Our award-winning solutions, integrated from creation to print, deliver increased performance, cost savings and productivity. Our robust product portfolio includes Fiery digital color print servers, VUTEk super-wide digital inkjet printers, UV and solvent inks, Jetrion industrial inkjet printing systems, Rastek wide-format digital inkjet printers, print production workflow and management information software, and corporate printing solutions. Our integrated solutions and award-winning technologies are designed to automate print and business processes, streamline workflow, provide profitable value-added services and produce accurate digital output.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported. Please see the discussion of critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2008, as amended.
Recent Accounting Pronouncements
See Note 1 of our Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements including the respective expected dates of adoption.
Results of Operations
The following table sets forth items in our condensed consolidated statements of
operations as a percentage of total revenue for the three months ended March 31,
2009 and 2008. These operating results are not necessarily indicative of our
results for any future period.
Three months ended March 31,
2009 2008
Revenue 100 % 100 %
Gross Profit 55 % 57 %
Operating expenses:
Research and development 30 % 27 %
Sales and marketing 25 % 21 %
General and administrative 10 % 10 %
Restructuring and other 7 % 4 %
Amortization of identified intangibles 7 % 5 %
Total operating expenses 79 % 67 %
Loss from operations (24 )% (10 )%
Interest and other income, net - % 4 %
Gain on sale of building and land 82 % - %
Income before income taxes 58 % (6 )%
Benefit from (provision for) income taxes (30 )% 2 %
Net income (loss) 28 % (4 )%
|
Revenue
We currently classify our revenue into three categories. The first category, "Fiery," includes products and technology which connect digital copiers with computer networks, and is made up of stand-alone controllers and embedded desktop controllers, bundled solutions and design-licensed solutions primarily for the office market and commercial printing. This category includes our Fiery series (external print servers and embedded servers), Splash and MicroPress, color and black and white server products, software options for Fiery products and parts. It also includes server-related revenue comprised of scanning solutions. The second category, "Inkjet Products," consists of sales of the super-wide and wide format inkjet printers, industrial inkjet printers, inks, and parts and services revenue from the VUTEk, Jetrion, and Rastek businesses. The third category, "Advanced Professional Print Software," or APPS, consists of software technology focused on printing workflow, print management information systems (PMIS), proofing and e-commerce and job tracking tools.
On a sequential basis, the revenue performance in the first quarter of 2009 was $39.1 million or 28.9% lower than fourth quarter of 2008 results, with all product categories contributing to the decrease. Revenue in the Fiery category decreased by $21.1 million, or 30%, largely due to the decline in sales of external print servers and embedded servers. Inkjet Products decreased by $15.7 million or 33% was primarily driven by decreased sales of VUTEk super-wide format printers and inks and Jetrion industrial inkjet printers while Rastek revenues increased in their first full quarter within our Inkjet Products operating segment. Revenue in the APPS category decreased by $2.4 million, or 14%, mainly due to decreased license revenue partially offset by increased service revenue.
Revenues by Product Category
For the three months ended March 31, 2009 and 2008, revenues by product category
were as follows (in thousands):
Three months ended March 31,
Percent Percent Change
2009 of total 2008 of total $ %
Fiery $ 49,105 51 % $ 68,318 50 % $ (19,213 ) (28 )%
Inkjet Products 32,100 33 % 53,385 39 % (21,285 ) (40 )%
Advanced Professional Printing Software 14,940 16 % 14,901 11 % 39 0 %
Total revenue $ 96,145 100 % $ 136,604 100 % $ (40,459 ) (30 )%
|
Total revenues decreased by 30% to $96.1 million in the first quarter of 2009, compared to $136.6 million in the first quarter of 2008.
Fiery Revenues
The Fiery category decrease of 28% in the first quarter of 2009 when compared to the same period in 2008 was mostly due to a decline in sales of external print servers and embedded servers. The decline was caused by reduced demand from several large OEM customers throughout the world due to a slowing global economy. The tightening of the global credit markets also indirectly contributed to the decline as it has become relatively more difficult for some customers to obtain equipment financing. We believe that our OEM customers have higher inventory levels than they require, which could impact sales in future quarters.
Inkjet Products Revenues
Inkjet revenues decreased by 40% in the first quarter of 2009 when compared to the first quarter of 2008 due primarily to decreased sales of VUTEk super-wide format printers and inks and a temporary shift in mix toward refurbished and solvent printers year-over-year. It has become relatively more difficult for customers to obtain financing to purchase our products due to the tightening of global credit markets. In addition, the softening of the retail sector and the related demand for signs, billboards and point of purchase displays has impacted our customers' businesses and their demand for ink, which resulted in a lower demand for our ink products in the first quarter of 2009 compared to the same quarter of 2008. Industrial inkjet printer revenues increased as compared with the same quarter in the prior year due primarily to the Jetrion 4000 Series printer launch near the end of the second quarter of 2008. Rastek wide format printer sales also increased in their first full quarter within our Inkjet Products operating segment.
Advanced Professional Print Software Revenues ("APPS")
APPS revenues were comparable to the first quarter of 2008 aided by revenue from the Pace acquisition, which closed during the third quarter of 2008. The APPS operating segment includes our management systems software, including Monarch (formerly Hagen), Pace, PSI, Logic, PrintSmith and PrintFlow; our web-based order entry and order management software, including Digital StoreFront and our PrinterSite Suite; and our proofing software, including ColorProof XF and resale of products from third party suppliers. In
2008, we re-organized our PMIS product lines after the acquisition of Pace in order to better leverage our investment in this segment and concentrate our resources on fewer products. As a result, we are no longer selling PSI and Logic to new customers and have reduced our investment in the development of these products. We currently sell PrintSmith to small print-for-pay and small commercial print shops, Pace to medium and large commercial print shops, and Monarch to large commercial, publication, and digital print shops.
Revenues by Geographic Area
Revenues by geographic regions for the three months ended March 31, 2009 and
2008 were as follows (in thousands):
Three months ended March 31,
Percent Percent Change
2009 of total 2008 of total $ %
Americas $ 56,463 59 % $ 71,635 52 % $ (15,172 ) (21 )%
EMEA 27,967 29 % 48,411 35 % $ (20,444 ) (42 )%
Japan 9,692 10 % 11,823 9 % $ (2,131 ) (18 )%
Other international locations 2,023 2 % 4,735 4 % $ (2,712 ) (57 )%
Total revenue $ 96,145 100 % $ 136,604 100 % $ (40,459 ) (30 )%
|
Americas accounted for 21% of the overall decrease in revenues for the three months ended March 31, 2009 compared to the same period in 2008, primarily due to weakness in sales of our Fiery products that was caused by the reduction in demand from our OEMs' customers due to a slowing of the economy and weakness in sales of our Inkjet products due to the tightening of global credit markets. Likewise, the softening of the retail sector and the related demand for signs, billboards and point of purchase displays has impacted our customers' businesses and their demand for ink. Europe, Middle East, and Africa ("EMEA") decreased 42% in revenue primarily due to the slowing economy and tightening of credit markets in Europe while Japan decreased 18% in revenue as a result of lower demand in our Fiery products. Other international locations decreased by 57% in revenue mainly driven by lower sales due to the impact of macro economic conditions.
In the individual regions, Fiery product revenues in the first quarter of 2009 represented 42%, 54%, 94%, and 51% of revenue in the Americas, EMEA, Japan, and Other international locations, respectively, compared with 47%, 44%, 93%, and 52% in the same quarter of 2008.
Inkjet product revenues in the first quarter of 2009 represented 35%, 39%, 6%, and 35% of revenue in the Americas, EMEA, Japan, and Other international locations, respectively, compared with 37%, 50%, 6%, and 37% in the same quarter of 2008.
Shipments to some of our OEM customers are made to centralized purchasing and manufacturing locations which in turn ship to other locations, making it difficult to obtain accurate geographical shipment data. Accordingly, we believe that export sales of our products into each region may differ from what we are reporting. We expect that sales outside of the United States will continue to represent a significant portion of our total revenue.
A substantial portion of our revenue over the years has been attributable to sales of products through our OEM customers and independent distributor channels. For the three months ended March 31, 2009, three customers - Canon, Konica Minolta, and Xerox - each provided more than 10% of our revenue individually and approximately 35% of revenue in the aggregate. For the three months ended March 31, 2008, two customers - Canon and Xerox - each provided more than 10% of our revenue individually and approximately 33% of revenue in the aggregate.
The increasing reliance on revenues from our major OEM partners is attributable to the decrease in the Inkjet Products business where most of the revenue is generated from sales to distributors and direct customers. No assurance can be given that our relationships with these and other significant OEM customers will continue or that we will be successful in increasing the number of our OEM customers or the size of our existing OEM relationships. Several of our OEM customers have reduced their purchases from us at various times in the past and any customer could do so in the future as there are no contractual obligations with most of our OEMs to purchase our products at all, or in significant amounts. Such reductions have occurred in the past and could in the future have a significant negative impact on our consolidated financial position and results of operations. We expect that if we increase our revenues from Inkjet products and our professional printing applications, the percentage of our revenue that comes from individual OEMs will decrease.
We intend to continue to develop new products and technologies for each of our product lines including new generations of server and controller products and other new product lines and to distribute those new products to or through current and new OEM customers, distribution partners, and end-users in 2009 and beyond. No assurance can be given that the introduction or market acceptance of current or future products will be successful.
To the extent sales of our products do not grow over time in absolute terms, or if we are not able to meet demand for higher unit volumes, it could have a material adverse effect on our operating results. There can be no assurance that any products that we introduce in the future will successfully compete, be accepted by the market, or otherwise effectively replace the volume of revenue and/or income from our older products. Market acceptance of our software products, products acquired through acquisitions, and other products cannot be assured. In addition, we may experience potential loss of sales, unexpected costs, or adverse impact on relationships with customers or suppliers as a result of acquisitions.
We also believe that in addition to the factors described above, price reductions for all of our products will affect revenues in the future. We have previously reduced and in the future will likely change prices for our products. Depending upon the price-elasticity of demand for our products, the pricing and quality of competitive products, and other economic and competitive conditions, price changes have had and may in the future have an adverse impact on our revenues and profits.
Gross Profit
Gross profits by operating segment for the three months ended March 31, 2009 and
2008 were as follows (in thousands):
Three Months Ended March 31, 2009
Stock-based
Compensation
Fiery Inkjet APPS Expense Total
Revenue $ 49,105 $ 32,100 $ 14,940 $ - $ 96,145
Cost of revenue 15,451 22,753 4,762 251 $ 43,217
Gross profit $ 33,654 $ 9,347 $ 10,178 $ (251 ) $ 52,928
Gross profit percentages 68.5 % 29.1 % 68.1 % 55.1 %
Three Months Ended March 31, 2008
Stock-based
Compensation
Fiery Inkjet APPS Expense Total
Revenue $ 68,318 $ 53,385 $ 14,901 $ - $ 136,604
Cost of revenue 22,478 30,604 5,344 946 $ 59,372
Gross profit $ 45,840 $ 22,781 $ 9,557 $ (946 ) $ 77,232
Gross profit percentages 67.1 % 42.7 % 64.1 % 56.5 %
|
For the three months ended March 31, 2009 our gross profit was 55.1% compared to 56.5% for the same period in 2008. The decrease in overall gross profits was primarily due to relatively fixed manufacturing costs for the Inkjet products spread over lower revenue.
For the three months ended March 31, 2009 Fiery products gross profit was 68.5% compared to 67.1% for the same period in 2008. Gross profits in the Fiery operating segment improved from the same quarter in 2008 despite lower revenue levels primarily due to product mix.
For the three months ended March 31, 2009 Inkjet products gross profit was 29.1% compared to 42.7% for the same period in 2008. The decrease was primarily driven by relatively fixed manufacturing costs spread over lower printer revenue and a shift in mix toward refurbished and solvent printers.
For the three months ended March 31, 2009 APPS gross profit was 68.1% compared to 64.1% for the same period in 2008. Gross profits in the APPS operating segment improved from the same quarter in 2008 primarily due to operating efficiencies gained through the Pace acquisition.
The decrease in stock-based compensation expense included within cost of revenue to $0.3 million in the first quarter of 2009 as compared with $0.9 million during the same quarter of 2008 is primarily due to the timing of equity awards issued during the last twelve months.
Operating Expenses
The following table shows operating expenses for the three months ended
March 31, 2009 and 2008 (in thousands):
Three months ended March 31,
Change
2009 2008 $ %
Research and development $ 29,309 $ 36,581 $ (7,272 ) (20 )%
Sales and marketing 24,187 28,734 $ (4,547 ) (16 )%
General and administrative 9,035 13,353 $ (4,318 ) (32 )%
Restructuring and other 6,428 5,677 $ 751 13 %
Amortization of identified intangibles 6,941 7,195 $ (254 ) (4 )%
Total operating expenses $ 75,900 $ 91,540 $ (15,640 ) (17 )%
|
Operating expenses decreased by 17% or $15.6 million to $75.9 million during the first quarter of 2009 as compared with $91.5 million during the same quarter in 2008. Operating expenses as a percentage of revenue totaled 78% and 67% for the three months ended March 31, 2009 and 2008, respectively.
The decrease in operating expenses was primarily due to significantly lower personnel-related expense due to company-wide reductions in force that occurred throughout 2008 and during the first quarter of 2009, as well as increased employee utilization of vacation balances, and lower variable compensation expense consisting primarily of reduced bonus and commission payments.
Research and Development
Expenses for research and development consist primarily of costs associated with personnel, consulting and prototype materials. Research and development expenses for the three months ended March 31, 2009 totaled $29.3 million, or 30% of revenue, compared to $36.6 million, or 27% of revenue, for the three months ended March 31, 2008, a decrease of $7.3 million, or 20%. The reduction of $7.3 million was primarily due to decreased personnel-related expenses of $2.9 million mainly as a result of head count reductions during the first quarter of 2009 and throughout 2008, decreased consulting expenses of $0.6 million, decreased stock-based compensation expense of $2.7 million due to the timing of equity awards issued during the last twelve months, and reduced allocation of overhead expenses of $1.4 million due to personnel-related and facilities-related reductions in overhead expenses company-wide.
We expect that our research and development expenses may increase in absolute terms as a percentage of revenue, if revenues increase in future periods.
Sales and Marketing
Sales and marketing expenses include personnel expenses, costs of trade shows, marketing programs and promotional materials, sales commissions, travel and entertainment expenses, depreciation, and costs associated with sales offices in the United States, Europe, and other locations around the world.
Sales and marketing expenses for the three months ended March 31, 2009 totaled $24.2 million, or 25% of revenue, compared to $28.7 million, or 21% of revenue, for the three months ended March 31, 2008, a decrease of $4.5 million, or 16%. The reduction of $4.5 million was primarily due to decreased personnel-related expenses of $1.3 million mainly as a result of head count reductions during the first quarter of 2009 and throughout 2008 and the impact of the over-all decrease in revenues on variable compensation expense, decreased travel and entertainment expenses of $0.7 million, decreased stock-based compensation expense of $1.2 million due to the timing of equity awards issued during the last twelve months, and reduced marketing and trade show expenses of $1.3 million.
Over time, our sales and marketing expenses may increase in absolute terms, if revenues increase in future periods, as we continue to actively promote our products and introduce new products and services. We expect that if the U.S. dollar remains volatile against the Euro or other currencies, sales and marketing expenses reported in U.S. dollars could fluctuate.
General and Administrative
General and administrative expenses consist primarily of expenses associated with administrative personnel, legal, and finance.
General and administrative expenses for the three months ended March 31, 2009 totaled $9.0 million, or 10% of revenue, compared to $13.4 million, or 10% of revenue, for the three months ended March 31, 2008, a decrease of $4.3 million, or 32%. The reduction of $4.3 million was primarily due to decreased personnel-related expenses of $0.6 million, decreased expenses related to the stock option investigation completed during the first quarter of 2008 of $0.9 million, decreased stock-based compensation expense of $1.9 million due to the timing of equity awards issued during the last twelve months, and reduced legal fees.
Restructuring and Other
Restructuring and other for the three months ended March 31, 2009 totaled $6.4 million, or 7% of revenue, compared to $5.7 million, or 4% of revenue, for the three months ended March 31, 2008, an increase of $0.7 million. Restructuring and other charges include severance costs of $3.6 million and $5.5 million related to head count reductions of 97 and 100 for the three months ended March 31, 2009 and 2008, respectively, and asset impairment related to project abandonment costs primarily consisting of equipment and noncancellable purchase orders in the Inkjet Products operating segment. Severance costs include severance payments, related employee benefits, retention bonuses, and outplacement or relocation costs.
Amortization of Identified Intangibles
Amortization of identified intangibles for the three months ended March 31, 2009 totaled $6.9 million, or 7% of revenue, compared to $7.2 million, or 5% of revenue, for the three months ended March 31, 2008, a decrease of $0.3 million, or 4%. The decrease was primarily due to several intangible assets being fully amortized partially offset by amortization of intangible assets identified as a component of the Pace acquisition, which occurred during the third quarter of 2008, and by the first full quarter of amortization of intangible assets identified as a component of the Raster acquisition, which occurred during the fourth quarter of 2008.
Interest and Other Income (Expense), Net
Interest and Other Income
Interest and other income (expense) includes interest income and net gains from sales of investments from our cash and short-term investments and net foreign currency transaction gains and losses on our operating activities. For the three months ended March 31, 2009, interest and other expense totaled $0.5 million compared to $7.7 million of interest and other income in the three months ended March 31, 2008, a decrease of $8.2 million. The decrease from the prior year is primarily driven by lower interest income on our investments as a result of lower investment balances and interest rates as we sold a substantial portion of our investment portfolio during the first six months of 2008 in order to generate cash for the redemption of our 1.50% Convertible Senior Debentures, which occurred on June 2, 2008.
Interest Expense
Interest expense primarily consists of interest and debt amortization costs related to our 1.50% Convertible Senior Debentures. No costs were incurred during the three months ended March 31, 2009 due to the redemption on June 2, 2008 of the outstanding balance of our 1.5% Convertible Senior Debentures, which . . .
|
|