Electronics For Imaging's CEO Discusses Q1 2013 Results - Earnings Call Transcript

Apr.18.13 | About: Electronics for (EFII)

Electronics For Imaging, Inc. (NASDAQ:EFII)

Q1 2013 Earnings Call

April 18, 2013 5:00 PM ET

Executives

JoAnn Horne – IR

Guy Gecht – CEO

Vincent Pilette – CFO

Analysts

Shannon Cross – Cross Research

Ananda Baruah – Brean Capital

Keith Bachman – BMO

Jim Suva – Citigroup

Morris Ajzenman – Griffin Securities

Operator

Good afternoon and good evening. My name is Sharlee, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Electronics for Imaging 2013 First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

(Operator Instructions)

Thank you. Ms. JoAnn Horne, Investor Relations, you may begin your conference, ma’am.

JoAnn Horne

Thank you, operator, and thank you everyone for joining us today. I have here with me, Guy Gecht, Chief Executive Officer and President, and Vincent Pilette, our Chief Financial Officer. Before we get started, let me review the Safe Harbor statements.

During the call, we will be making forward-looking statements that are statements other than statements of historical facts, including but not limited to statements regarding our strategy, growth expectations, product innovations, new market opportunities, acquisition strategy, expectations regarding our future relocation from the Foster City campus, expectations regarding our new headquarter facilities and related costs and expenses, as well as estimates and/or projections of revenue, operating profit growth, EPS, gross margin, operating expenses, tax rates, working capital and any statements or assumptions underlying any of the foregoing.

Looking forward statements are statements of risks and uncertainties that could cause our results to differ materially or cause a materially adverse effect on our results. Please refer to the risk factors discussed in our SEC filings and the press release. We do not undertake to update in light of any new information or future events.

In addition, reference will be made to non-GAAP financial measures. Information regarding the reconciliation of the non-GAAP and GAAP measures can be found in the press release that was issued this afternoon on our website at the IR section at www.efi.com. There are also slides available there that correspond to today’s comments.

I’ll now turn the call over to Guy Gecht. Guy?

Guy Gecht

Thank you, JoAnn, and welcome, everyone, to our call.

The EFI team delivered another great quarter and we could not be more pleased with the strong start to 2013. Our strategy continues to work as we target high growth segments where digital print technology brings significant value and we enable our customers to increase their focus, productivity and efficiency. The strategy combined with the sales execution and operating efficiency is why we are able to deliver our 13 consecutive quarter of revenue and EPS growth.

In Q1, we had growth in all three segments, total revenue grew 7% year-over-year and we had a 24% increase in operating profit. We delivered $0.33 earnings per share, up 10% despite the $0.04 non-operational FX impact in a seasonally weak cash quarter; our cash generation was very strong.

Turning to results by business segment. We delivered 7% revenue growth in investment interest, driven primarily by the new product and the continued strength of the VUTEk GS architecture. We introduced a two meter LED printer, which provides a more attractive entry price points for our LED queuing technology and expands our customer’s addressable market.

The Cretaprint [CP3] [ph] has been very well received. The new VUTEk HS104 now in beta side received great customer feedback, a few weeks ago at the ISA Tradeshow and we are on track to commercialize it this quarter. The HS104 is the first product based on this next generation architecture, which enables us to deliver new, unprecedented levels of speed and quality.

UV ink volume increased 18%, again proving the solid end demand from our customers. Beyond the success at the ISA show early in April, we have important tradeshows in this quarter in Europe, China, Middle East and Australia

We expect this high visibility for our new products to help us maintain momentum into Q2. We’ve expected growth in the mid-to high single-digits for the Industrial Inkjet segments.

We are very pleased with the outperformance of our Fiery segment in Q1, our first quarter since Q4 2011. As you may remember we said in Q3, 2012 the cycle bottomed and we have been anticipating this recovery due to the strong new products introduction from our Fiery partners.

In Q1 we benefited from a good demand for Fiery for the new Canon and Xerox product. There’s also been a significant amount of buzz surrounding the new Fiery FS100 platform. Looking at the current quarter, we expect Fiery to maintain the same growth rate in Q2 increasing approximately 4% year-over-year.

Software delivered solid growth of 15% year-over-year. In a seasonally weak quarter we saw good pipeline conversion with a few large deals and a relatively high mix of subscription based transactions.

The pipeline is very strong and there will continue to be a high level of interest in productivity tools. More and more digital imaging businesses around the globe are making it a priority to become more productive and driving efficiencies into our businesses. So we will be a little cautious with our outlook in the segment due to the less certainty around the exact timing of closing large deals and the higher subscription mix.

We project Q2 software growth of 10% year-over-year.

From a geographic perspective Asia continues to grow well plus U.S. growth was steady, and Europe growth for Fiery and Productivity Software but decline for Industrial Inkjets. This decline was driven by one, as we know Europe is a tough environment for capital equipment; and two, the migration of tile manufacturing to Asia, which we acquired Cretaprint.

Our focus on expanding our international footprint, particularly emerging markets has continued to work to our advantage. We are in the final stages of negotiation for the site of our new headquarters building and the economics of the transaction will be compelling. After a careful space planning exercise we expect to be able to reduce our footprint by about 20% from the 228,000 square-feet we occupy today. We are looking at the structure that optimizes our profitability while provides flexibility to meet our long term needs. We expect to purchase a building with around 120,000 square feet for approximately 40 million which – that include our cost to build out the site.

In addition, we will look to lease approximately 60,000 square feet incremental nearby. If we are able to close those transactions we expect the net benefit of the sale of our old headquarters and the move to the new headquarters will generate approximately $3 per share, cash per share. This mixed approach of buy and lease will not only provide the best flexibility in the long run but also reduce the estimated annual P&L impact to less than half of what we initially estimated.

As we put Q1 behind us we have additional positive news in regard to our outlook for Q2. We entered the quarter with a great momentum our sales pipeline is robust. We had new products and important trade shows around the world. With that in mind we expect the revenue of 174 to 176 million which at the midpoint would be an all-time record for EFI with EPS growth of 15% to 20% yielding about $0.34 per share to $0.36 per share.

Before I turn the call over to Vincent I do want to say a few words about our Founder, Efi Arazi who suddenly passed away last Sunday. While not involved with EFI or industry for over 10 years Efi Arazi was inarguably the person that shaped digital printing the most through the two companies he founded, Scitex and EFI. While Efi is no longer with us it is our privilege and duty to maintain as a company his spirit of entrepreneurship, brilliant creativity and genius innovation, as well as his great sense of humor.

Now, I’ll turn the call over to Vincent to provide additional details on the financial results of the quarter.

Vincent Pilette

Thank you, Guy. Good afternoon, everyone. As you’ve heard from Guy, we’re very pleased to start 2013 with a record quarter. EFI achieved revenue of $171 million, up 7% from the prior year and a both are in anticipated range. Continued focus on lean operation led to operating profit growth of 24% year-over-year and non-GAAP operating profit margin of 13.1%.

We delivered non-GAAP earnings per share of $0.33, which included a $0.04 unfavorable non-operational currency impact. We are also delivering on our commitment to improve our working capital. Q1 cash generated from operations, excluding tax expenses related to the sales of our headquarters building was very strong at $28 million compared to 10 million a year ago.

Now, let me go into more detail starting with revenue by business segment and region. Our Q1 results demonstrated that we continue to execute well against our strategy and market opportunities with revenue growth across all of our business segments.

The industrial inkjet segment generated $80 million of revenue, up 7% year-over-year and contributed 47% of total EFI revenue. Demand for industrial digital printers was robust across our portfolio and UV ink volume grew 18% year-over-year giving us confidence that our customers are seeing solid demand.

The productivity software segment delivered another strong quarter of $28 million, up 15% year-over-year and contributed 16% of total revenue. The industry demand for efficiency gains and automated business processes continues to be strong, especially outside of the U.S. where we are still building on a relatively small penetration rate. In the first quarter of the year Fiery revenue amounted to $63 million, up 4% year-over-year and up 8% sequentially exceeding our expectations.

Growth was driven by new products recently introduced by our OEM partners and we exited Q1 with our channel inventory within our normal operating range. Recurring revenue was up 12% year-over-year at the record $44 million showing increases across all categories and building continued stability into our operating model.

By geography, we saw strong demand for our products in the Americas. Revenue amounted to $94 million, up 14% year-over-year a strong rebound from a slower Q4. As Guy mentioned, Europe was particularly challenging for Inkjet business this quarter driven by the timing of tradeshows and micro level changes. Total revenue in EMEA was $50 million, down 9% year-over-year. In Asia we started 2013 on a very strong note with Q1 revenue at $27 million, up 21% year-over-year.

Looking forward to Q2 2013, we expect record revenue in the range of $174 million to $176 million, this outlook is based on mid to high single-digit year-over-year growth for Industrial Inkjet, approximately 10% year-over-year growth for Productivity Software and about 4% year-over-year growth for Fiery.

Moving onto gross margin, non-GAAP gross margin for the first quarter was 55% flat year-over-year and up sequentially 60 basis points. Non-GAAP Industrial Inkjet gross margin was 39.8% in Q1 2013, up 50 basis points year-over-year and approximately flat sequentially.

In the productivity software segment non-GAAP gross margin continued to increase on a year-over-year basis as we scale up the business resulting in 71.9% for the quarter up 60 basis points year-over-year.

Finally, non-GAAP Fiery gross margin was 67% down 80 basis points year-over-year and up sequentially 30 basis points driven by product mix within the Fiery portfolio. Going into Q2, we expect overall gross margin to be slightly down year-over-year driven by product mix.

Turning to operating expenses in line to our expectations Q1 non-GAAP operating expenses amounted to $71.9 million up 3% year-over-year and well below our revenue growth as we continue to tightly manage our spend, balancing efficiencies which targeted investment opportunities. Q1 non-GAAP OpEx represented 41.9% of revenue a decrease from 43.7% of revenue a year ago.

Non-GAAP R&D expenses were at $29.2 million representing 17% of revenue compared to 18.3% a year ago. Non-GAAP sales and marketing expenses were 31.8 million representing 18.6% of revenue down from 18.8% a year ago. And non-GAAP G&A expenses were $10.8 million 6.3% of revenue compared to 6.5% a year ago. For Q2 non-GAAP operating expenses will be up sequentially driven by the seasonally high tradeshow quarter which shows around the globe and higher variable compensation into our strong performance in the first part of 2013.

As a result of solid revenue growth and operating leverage we delivered Q1 2013 non-GAAP operating profit of $22.4 million up 24% year-over-year generating a profit margin of 13.1%, up 180 basis points year-over-year.

Non-GAAP other income and expense was a net loss of $2 million, including a unfavorable non-operational currency impact of $0.04 per share. The unfavorable currency impact was generated primarily by an 8% depreciation of the British pound relative to U.S. dollars and the high intra-quarter volatility of the euro, which generated unrealized currency loss on inter-company loans.

On the tax front, we booked a non-GAAP tax rate of 23.1% in Q1 2013 reflecting the benefit of integrating past acquisitions into our framework. Changes in either the geographic mix or product mix of worldwide sales may have an impact on the tax rate in future quarters.

Our strong operational performance enables us to deliver non-GAAP EPS of $0.33 this quarter, compared to $0.30 a year ago a 10% growth year-over-year, excluding the non-operational currency impact, non-GAAP EPS grew 23% year-over-year. For Q2 2013, we expect non-GAAP EPS of approximately $0.34 to $0.36 or about 15% to 20% year-over-year growth assuming today’s foreign exchange rates.

Turning to the balance sheet, total cash, cash equivalents and short-term investments amounted to $381 million, up 16 million from December 31, 2012. As we mentioned on our call last quarter, we continued to make progress in realigning our working capital framework to the new revenue mix and in improving our cash generation capabilities.

Cash from operating activities as reported on the cash flow statement amounted to $23 million in Q1 2013. Please note that for GAAP reporting the one-time tax on the sales of our headquarters facilities based on March 15 is including cash flows from operating activities. If we were to exclude the tax expenses related to our headquarter sales we would have reported $28 million cash from operations compared to 10 million a year ago.

Accounts receivable was $126 million in Q1 2013, down 9 million sequentially. DSO amounted to 66.4 days in Q1, down approximately 1.6 days compared to Q1 2012 and down five days from the prior quarter.

Our net inventory balance was $62 million, up $4 million sequentially with inventory turns of 5 approximately flat year-over-year and slightly down sequentially. Over 10% of our inventory is into new products not yet commercialized.

Total working capital days amounted to 54.6 days, down approximately 10 days year-over-year and 11 days sequentially. Over the quarter cash from operations is not even we are confident in our ability to achieve our long-term goal of cash generated from operations equal to one-time operating profit on an annual basis.

On the common stock buyback front we repurchased 5 million worth of share this quarter as part of the 100 million buyback program bringing the total purchase to 28 million since we announced the program. Our total diluted weighted-average share count for Q1 2013 was 48 million share with the sequential increase primarily driven due to the rapid share price appreciation earlier this year.

This concludes my comments and now we will be happy to answer any questions.

JoAnn Horne

Operator, we will take questions now please.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Shannon Cross from Cross Research. Your line is now open.

Shannon Cross – Cross Research

Thank you very much. Good afternoon.

Guy Gecht

Hi Shannon.

Shannon Cross – Cross Research

I guess my first question is can you talk sort of geographically with a little more color on demand and what you’re seeing obviously revenue came in above expectations which is great a good start of the year. I’m curious linearity during the quarter were things are strong at the end as they were in the beginning, just any color you can give us especially given some of the more negative economic data points we’ve seen recently?

Guy Gecht

Sure. I’ll start and Vincent can add. I think in general we’re very pleased with the demand. Not just through the quarter what we’re seeing right now in the pipeline, what we saw in ISA in all these three segments demand is way better than it was a year ago. And there’s more interest in the pipeline. When I look at geographically I would say that the U.S. is very robust. There’s a lot of interest, there is confidence in the customer level. They see the growth in industrial printing especially [telephone] advertisement is very strong. And we saw in ISA much more interest than of course in the HS104 which is a hot new product but in general in our product.

Europe continues to be a struggle. Customers don’t have the same level of confidence and there’s less spending so we think that not just with the equipment we see it also with the ink volume the growth is not as good as in the U.S. So that’s going to - been the situation for quite some times. But we are pleased. In Europe because we grew both Fiery and Software quite nicely so we are seeing some recovery in two of these three segments.

Asia continues to be very good for us. We’re hearing – we read the headlines about China. We see China is very strong a lot of interest more and more people moving to high-quality machines which is the direction we like.

And so we feel very good about Asia and particularly in China. Brazil was good, relatively okay, emerging markets we are very pleased with. So, overall, I think the demand – honestly I could not be more pleased with where we are giving the headlines with the demand right now.

Vincent Pilette

In terms of our addition, we finish Q4 on a very strong momentum. That momentum carried through Q1. We’re back to a normal intra-quarter linearity obviously January’s always lower than March, but nothing special to report.

Shannon Cross – Cross Research

Okay, great. And then in terms of your cash balance, you’ve found something to spend $40 million on, which is your new headquarters but you’re still going to be left with almost 350 million of cash, and then you did talk a little bit about more incremental share repurchase. I’m just curious as to, I know (inaudible) hole in your pocket, but what are your thoughts in terms of the cash balance and it’s extremely strong cash generation for first quarter. I mean, is this a situation where we’re going to get into a much more stable cash flow situation on the annual basis where perhaps we should be looking more to dividend or how are you sort of thinking about stability of cash flow and then cash usage?

Guy Gecht

Well, I do what I do best, be fair to Vincent all the questions without (inaudible) but I would say in general, yes, the cash came – to be honest much stronger than we anticipated at the beginning of quarter, normally Q1 is stagnant cash flow. And that’s after a very strong cash flow quarter in Q4. We continue to be very busy at looking at M&A activity, the pipeline there is also very strong. I like the fact that we are very disciplined, not just in due diligence also in negotiations.

We are not afraid to back out of deals, the last – in the last phase if we don’t – if we find something we don’t like we are one of the few really active acquirer in the space, we are active out there and some of the other guys are much more focused on internal things and going and acquiring. So I definitely think that M&As, M&As that help us to strengthen the three segments we are in, not transformative is something that there will be no [performances with the deal to explore] [ph] and nobody feel here that the cash [is going to focus, we feel good] [ph]. This is something that we should use to make it a lot stronger, a lot more profitable building shareholder value.

Shannon Cross – Cross Research

Great. And then...

Vincent Pilette

Shannon, if I could just add to, Shannon, our goal is still to generate cash from operation that’s one-time operating profit. Last year for the reason we’ve explained many times on the call we spent below that matrix. Q1 is helping us course correct that trajectory. We’ll continue to improve on that line.

Shannon Cross – Cross Research

Okay. Great. Sorry to interrupt. And then my last question is just on Fiery. The business is stronger than anticipated. And it sounds like you noted both Xerox and Canon in terms of product launches. Can you talk a little bit about what you’re expecting for the remainder of the year in terms of launches and do you think this indicates maybe a little bit of a resurgence or perhaps shall we say less of the decline in equipment sales in the copier industry or is this sort of a one-time anomaly shall we say?

Vincent Pilette

So you know, we’re focusing on production and prototypes. So I can’t really talk specifically to the entire software industry. But I think new products always stimulating that. There’s a lot of existing customers that need a reason to upgrade that were not upgraded. All they can get is what they have today. And we saw it with the new Canon product at the end of Q4 and the new Xerox product middle of Q1 and certainly generating demand.

Our pipeline of product is very solid, very strong. We were not a significant launch in Q2 but still – we’re still focusing another focus on back-to-back growth on the Fiery side. So (inaudible) pretty busy; there are products that are going to ship later this year and next year and I can tell you an anecdotally that we’re finding it hard to even schedule the move of the Fiery launch which is the most complex to the new building once it’s completed because it’s just – there is a lot of activities in the (inaudible). So maybe not something big this quarter but we’re certainly seeing more new inkjets coming in.

Shannon Cross – Cross Research

Great. I’m sure Ghilad wouldn’t mind if you just left a few guys there for a while but...

Guy Gecht

Yeah, I know, they kind of have accepted that we will stay until the last day in the complex. Somewhere around 11:59 PM.

Shannon Cross – Cross Research

It sounds good. Thank you very much.

Guy Gecht

Thank you.

Operator

Our next question comes from the line of Ananda Baruah from Brean Capital. Your line is now open.

Ananda Baruah – Brean Capital

Hi. Thanks guys for taking the question. Congrats on the solid quarter.

Guy Gecht

Thank you.

Ananda Baruah – Brean Capital

Yeah, yeah, you’re welcome. I guess I just wanted to ask delve more into the controllers. I guess it’s really solid quarter this quarter. You’re guiding up a little bit I think probably relative to where folks were for the June quarter. And I know we’ve talked in the past about I guess the cadence of these engine cycles not being necessarily as strong as the cadence of 2010 going into ‘11 because there was some catch-up spending there.

But I think – Vincent and Guy correct me if I’m wrong. I think that you guys were doing 65 to 70 million a quarter back then and you said 60 through this quarter. I think your guidance is like around 61 or so but you sort of within the earshot of 65. I guess, can you help us sort of understand why we shouldn’t see the strength through this year or should we expect to see in the same level of strength as we move through the year given there is some good linearity to the engine refreshes?

Guy Gecht

So, we stick to the policy of one quarter at a time. But I can go back in history. Remember Q3, we had a pretty soft and bottom of Fiery, and we said this is the bottom, we’ve seen it recovering from here. There was a lot of question, can we go Fiery in 2013 and while it was not the focus of guidance, I said I would be very disappointed if it doesn’t grow. And I’m sticking to this.

I see that we have good pipeline. The architecture of the Fiery, the FS100 is very strong. It’s too early to declare a share gain, but I see a lot of buzz in the industry to win the customers in south around that and we remain really the company that focus on digital content as a – is something important to us. Its one-third of our business, expecting our partners will do well in production color and pages moving from analog to digital as expected, we should do well.

Why it is not back, because it’s none of our partners are back with where they were in ‘07 and there is still – Europe is still problematic from a capital equipment and we’re not there yet. You ask me in the long-term, is there more room to grow up? Of course, we know, we’ve been there; we’ll work hard to make it even bigger part of our business.

Ananda Baruah – Brean Capital

Got it. Thanks. That’s helpful. Thanks. And, I guess, just Vincent on the OpEx, you guys are down, I think you’ve been at 41.3% of revenue this quarter and then OpEx dollars, but the revenue beat and it seems like you’ve been for better part of six or eight quarters now sort of controlling the expenses really well.

I feel like you almost did a full year of OpEx as a percentage of your revenue efficiencies this quarter alone. So, what should we expect with regard to OpEx management as we go forward, and I know your long-term target is 40% of OpEx and revenue but it seems like you have a shot against there this year yet we were 41.3 for the first quarter?

Vincent Pilette

Yeah, so Ananda, yes we are rigorously managing OpEx and are very day that driven company really subscribing everything. This quarter was 41.9% of revenue down from 43.7 a year ago. And you’ll continue to see the strength of efficiency as it relates to percent of revenue.

When it goes into Q2 on the dollar basis you’re going to see an increase, sequential increase driven by the trade shows. We have a very heavy agenda in term of trade shows in Q2 across the three continents and I think we’re very bullish on that. Overall, as you mentioned our long-term target goal is 40% to 44% of OpEx as a percent of revenue. And we will trend nicely towards the 40% over time.

Ananda Baruah – Brean Capital

Okay. Thanks. I appreciate that. And then just last one for me more of a clarification. I believe there was a comment Guy when you were talking about softness in Europe with regards to Inkjet. And there was a reference to – there was a macro aspect that I think Guy you said something about sort of creating going into Asia, tile printing in Asia, manufacturing in Asia. Can you just clarify that. I want to make sure I got that?

Guy Gecht

Sure. So when we enter into Industrial Inkjet in ceramic with the acquisition we did more than a year ago now, especially our first really full quarter we said that our expectations we see the trend of manufacturing of size moving from the position market to spend easily to more closer to the customers like China, India, Brazil and Indonesia. And we’ve said it over time and it continues to happen. Of course this is the technology actually enabled that, you can do great design closer to customers. So part of the weakness in inkjet in Europe is because there is less manufacturers of the invest less than in new technology in Spain and Italy compared to how much they are now investing in Asia.

Ananda Baruah – Brean Capital

Got it very clear. Thanks a lot guys.

Guy Gecht

Thanks Ananda.

Operator

Our next question comes from the line of Keith Bachman from BMO. Your line is now open.

Keith Bachman – BMO

Hi, thanks guys. I jumped on a little late so if Ananda’s what if the Ananda’s 16 questions was just let me know. But you know in the – I want to try to understand the cadence of your OEMs and how investors should think about that being spread out over the next couple quarters. I think Xerox was launching this February. Did that – is there more to go from Xerox and that if you could just talk about how investors and obviously this controller business, should be thinking about that over the next couple quarters supporting that business, does it end at any point in time or can this be a support through December?

Guy Gecht

So Keith that would be the question number 17 for Ananda.

Keith Bachman – BMO

He probably asked it a lot better than I did though.

Guy Gecht

I would say you know, look our partners know where the real opportunity in this segment which is production color. They talk about it we talk about it. They definitely – that’s an area they’re investing more in another area and they’re working very hard with us and we are working very hard. So we have a roadmap that will keep us busy through 2014, okay.

The timing is a little different and sometimes when we have timing does not – they need to finish on time, and so that’s – the term is now finish. So there’s probably this quarter, as I said this quarter, we don’t have it in Q2, we’re not going to have a significant launch, but later in the quarter, we will – including Xerox there are some exciting products in the coming quarters, and so things have really from a work perspective, which is of course it depends on macro and how successful the asset, which has start through project.

You have to make sure that we really get to the point of much more stabilized Fiery revenue to the point where we can control it. We’re staying focused like a hawk on inventory with our partners, with the channel, to make sure that there is no managing inventory thing start slow down – sales in and sales through kind of match.

Keith Bachman – BMO

Okay. So just in terms of punctuation, maybe not as much help from product launches in the June quarter, but as you look at the second half of the year, you think the OEMs launching product can support the controller growth in the second half of the calendar year?

Guy Gecht

So, one quarter at a time keep, but I told you back in when you asked the question in Q3 last year that I will be very disappointed, if we don’t see growth in a Fiery this year, of course, with one quarter of 4% growth and another quarter we’re guiding to 4 – not a 4% growth that’s definitely the trend. But that’s to predict what our partners going to do in second half, but we have a great customer market, there are 70 some launches, if they sell well, those new products we will do really well.

Keith Bachman – BMO

Okay. And again I apologize if this has been asked before, but IBM effectively just missed numbers, Oracle missed numbers, Accenture effectively missed numbers. There’s been a whole host of companies that have missed numbers. You guys obviously did quite well. Are your OEMs talking about concerns surrounding demand? And you are just running through it because of your – in this case the controller with product launches or did the OEMs have they given you feedback on the breadth of their demand cycles that they are seeing?

Guy Gecht

So you know the Fiery business we’re following them is still about 35% of business. Again, the area we work with them is a great opportunity for their customers too. Like to move pages – so while maybe there is other impact for all those business which I can’t speak to I think those areas there is good growth.

Now, more importantly in the Inkjet – Industrial Inkjet part of the EFI that’s about half of our business, we’re helping customers to get into growth area of imaging. In areas where there is no electronic equation. Right. Tiles, big signage things like that. So the point-of-purchase signage and also the subsequent.

Keith Bachman – BMO

Thank you.

Guy Gecht

And in Software, we are helping people to become more productive. So those things actually have demand in many environments because if you always want to move forward with growth opportunities. You always want to be more efficient. Sometimes of course people are in panic mode and don’t buy just because they don’t want to spend money and then – but we don’t see this right now. We see a lot of interest in what we do.

Keith Bachman – BMO

Fair enough, all right. Thanks guys for your patience on my questions.

Guy Gecht

No problem.

Operator

Our next question comes from the line of Jim Suva from Citigroup. Your line is now open.

Jim Suva – Citigroup

Thank you and congratulations to you and your team. Can you just help us understand a little bit about the cadence for seasonality of kind of gross margins in the segment as we kind of progress through the year because it’s kind of been a little while since we kind of had a normal situation about kind of the cadence and what should we think about for seasonality?

Guy Gecht

In terms of gross margin Jim right?

Jim Suva – Citigroup

Yes, sales and gross margin please.

Guy Gecht

So Q1 is traditionally the lowest quarter across all of our three segments and Q4 is generally the strongest quarter. Now along with that you have obviously the product cycle and the product innovation that may somewhat disrupt. But I think overall the Q1 low and the Q4 high is buried across our three segments. In terms of gross margin I think we have target range out there that we’ve met now for many quarters we see a lot more stable I would say and that is in inkjet managing the business at around 40% which – we’ve been delivering on.

Software over 70% and increasing as we increase the revenue. And then Fiery gross margin of 66 to 68% and we’ve been somewhat at the midpoint around that midpoint for now many, many quarters. I don’t see major change around those gross margins and then depending on your model and what each segment does, you’re going to have impact on our overall gross margin. We did deliver 55% this quarter. Next quarter because of the segment mix will be down slightly compared to that 55. And the mix is always going to be what it is.

Jim Suva – Citigroup

And then a quick follow-up, on use of cash can you just kind of help us understand priorities, use of cash and how you’re thinking about allocation of such?

Vincent Pilette

Yeah. So the number one priority with cash is to improve the generation of cash from operations, we’re very pleased with this quarter. $28 million cash from operations. When you look at last 12 months with about 85% of cash generated from operations compared to operating profit, so while we are of course correcting the negative impact of 2012 we’re not there yet.

When we look at how to use that cash, our number one priority is to continue to expand on our M&A framework and that is a rollout M&A strategy in software, the expansion of the addressable markets in inkjet. And we’re very active looking at opportunities. Obviously, we don’t have any commitment in terms of M&A, but that’s our primary focus.

Secondly, we return cash to shareholders through buybacks. You know, that the board approved the $100 million program; we put a 10b5 in place at the time. And we’ve consumed $28 million of that $100 million. And then we constantly on the quarterly basis review our capital allocation framework with our board and all options are part of that discussion.

Jim Suva – Citigroup

Thank you, and congratulations to you and your team.

Vincent Pilette

Thank you.

Guy Gecht

Thank you.

Operator

(Operator Instructions) Our next question comes from the line of Morris Ajzenman from Griffin Securities. Your line is now open.

Morris Ajzenman – Griffin Securities

Good afternoon, guys.

Guy Gecht

Hi, Morris.

Vincent Pilette

Hey, Morris.

Morris Ajzenman – Griffin Securities

First question is about inkjet, and let me preface that by just kind of an overview. Well, we all understand that the macroeconomic environment, it’s been very lethargic growth for awhile, for a number of quarters running. Inkjet in the fourth quarter I think organically this probably up about 5%, 6% just kind of rough guess at that and you were up 7% in this most recent quarter. And I think your guidance to mid-to high single-digits.

Just again in light of the environment actually it’s pretty decent but is it targetable to get to a double-digit 10% plus growth rate in this environment or do you need market share gains or you need year to improve. Is that a goal that’s attainable or is double-digit growth not realistic at this point in time at Inkjet?

Guy Gecht

Let’s stop maybe you are stating the obvious retailing. This is our focus of this time and we’re driving our salesforce as hard as possible. We’re not going to stop at our guidance. We would do whatever it takes so we can do in a power to sell more and win more deals.

When we look at what driving the business obviously like we follow Fiery business that’s definitely create some tractions of customers. So were bringing in new architecture to the market with the HS flow. The initial customers on the beta site a very happy with the product. In ISA, we got a lot of people that are interested. This is a high price ticket. But normally those conversion will take time. A lot of people will not want to be the first customer, new technology one other people to help us to tweak it and then they will get into this.

If we can do really well with the technology, convince people that it’s robust we have an outside opportunity. If we can drive some derivative product, reduce the cost because at the current price point which is starting in about $800,000. It is going to be so many people that would be willing to spend that kind of money.

If we can drive the cost of the time down then we can see more demand. So we’re very good within the market. Customers of course are shy and then certainly in certain geographies and spending money we show them the ROI, we show them the opportunity to earn share from other competitors. If you look at our UV Ink volume growing at 80% I think it’s telling you that that customers are gaining share compared to people that don’t have the same reliability, speed and quality that we bring to them. So there’s always an opportunity to do better, there’s a macro environment and at this point our focus is mid to high single-digit I think it’s a good focus.

Morris Ajzenman – Griffin Securities

Okay. And what about Cretaprint, it’s been in your portfolio and on the ownership over a year now. I know there’s a lot that you’re planning on doing with that. You also are talking about sometime down the road to produce the ink for the Cretaprint printers. Is that something that could step up the growth rate again not the similar with the growth revenue is looking incremental, is that something opportunistic looking forward next 12 to 24 months, is that going to be incremental to growth vis-à-vis your current growth rates?

Guy Gecht

Yes absolutely. I think it’s a good time for them to think about it. Because there are already established markets for ink we’re only going to bring it to the market where we feel we have unique offerings and that’s what we’re working on. And it’s definitely at the time from 12 to 24 months for the outside opportunity.

Probably the next big thing on the ecosystem for me and Cretaprint this quarter we’re starting shipping the Fiery front inflow Cretaprint which is a new concept in this industry to have a digital front end and the excitement is outstanding helping us to differentiate Cretaprint. Definitely we’re going to see opportunity with – for Fiery with one of them. And so we will bring more and more EFI IP and capabilities to the systematic market.

Morris Ajzenman – Griffin Securities

Okay. And one question for Vincent, I don’t want him to feel leaving him out. On the cash flow the quarter 28 million extra tax related to headquarter sale. It looks like a big – a good chunk of that as working capital. Is also not more we can do, I know you’ve talked about overseas working capital collections, whereas, lot you can do with Cretaprint, and so lot more over next handful of quarters for cash flow generation coming out of working capital improvements?

Vincent Pilette

Yeah. So, a couple of handful comments. So, the first thing I would look at is the goal for our business model is target based on the business that we’ve share, which is really cash from ops at one-time operating profit. Currently we are of course correcting based on different dimensions we discussed last year, right. That was the acquisition of Cretaprint that the story, the working capital, the growth in international sales. And some selected external payment terms.

We’re working on all of that. We’re also working on realigning the payment terms with our vendors to our new revenue mix, which is inkjet driven revenue mix. And I think again our goal is to go back to that one-time operating profit. Today the last 12 months training was about 85% of that ratio, and as fast as we can will get back to our normal ratio. With that said on the quarterly basis, obviously, cash flow from operations could be very uneven.

Morris Ajzenman – Griffin Securities

Okay. Thank you.

Guy Gecht

Thank you, Morris.

Operator

And we do have another question from the line of Ananda Baruah from Brean Murray Capital. Your line is now open.

Ananda Baruah – Brean Capital

Hi, guys. Thanks for the follow-up. Just wanted to ask quickly, how we should – the right context to think about the opportunity for Fiery of front end and to create a – and could that end – could Fiery actually be appointed to any of the other inkjets businesses going forward?

Guy Gecht

I see and underneath my comment about Fiery kind of enticed you to ask your question number 17 have discounted. But this is – so it’s beta side this quarter, so we’re not counting on revenue from this quarter. In Cretaprint the number of units is relatively small compared to production systems with our partners out. But definitely that can be an incremental and EFI Inkjet is becoming a more and more the kind of another OEM for our Fiery business because we’re selling it with Fiery Inkjet.

So over time yes I think it will be something will be announced to all and will continue as we sell more systems. We can certainly see the benefit there. Keep in mind that a Cretaprint this is a market that does not used to BFE. So a lot of customers going to be excited about it but we need to educate them why is it needed and we will do it. We will take some time.

Ananda Baruah – Brean Capital

Thanks Guy. And would you recognize that revenue in the Fiery line which you reported would that be in the Inkjet line?

Guy Gecht

Into division pricing it’s not decided yet, Ananda. We definitely first focused on selling to our customers and recognizing for EFI. It may be a mix of both.

Ananda Baruah – Brean Capital

Got it. Thanks a lot.

Guy Gecht

Thanks, Ananda.

Operator

There are no further questions in queue at this time. I’ll turn the call back over to Guy Gecht.

Guy Gecht

Thank you everyone for joining us today. We are delighted with the results we shared with you and we are committed to continue to look and to work hard and execute in the coming quarters. We would like to extend thank you to all employees, customers and loyal shareholders for all the support and we’re looking forward to sharing some good news in the future. Thanks a lot.

Operator

This concludes today’s conference call. You may now disconnect.

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