Electronics for Imaging's CEO Hosts 2013 Investor Day Webcast (Transcript)

Nov. 9.13 | About: Electronics for (EFII)

Electronics for Imaging, Inc. (NASDAQ:EFII)

2013 Investor Day Webcast (Transcript)

November 8, 2013 09:00 AM ET

Executives

Guy Gecht - Chief Executive Officer

Ghilad Dziesietnik - Chief Technology Officer

Scott Schinlever - Senior Vice President & General Manager, EFI Inkjet

Toby Weiss - Senior Vice President & General Manager, EFI Fiery

Charlie Grace - VP Sales, EFI Americas

Dennis Riggs - Mound Printing

Tim Bennett - Image Options

Marc Olin - Interim CFO

Analysts

Jim Suva - Citigroup

Shannon Cross - Cross Research

Matt Kempler - Sidoti & Company

Guy Gecht

I see everybody here, thank you for coming. I think you are going to have a very good day with the information we’re going to provide you, a lot of people, into the opportunities ahead. So my part of day is relatively short.

Normally I am the messenger, but there are actually great people behind me that deliver the result in the globe and you are going to hear from some of them today. We want to remind you before we get going that the Safe Harbor we all should know it well by now, so not wasting time on that.

And start with what we are going to talk about, if you want to summarize this for three clear messages and you are going to hear more and more about it number one, we are in early innings of analog to digital conversions so we are benefiting from that, the growth if you are seeing from us is all related to this but we’ll show you how far it is and at early innings and by the way for me to use a baseball film took me a long away, okay.

So when you get convinced with that that the opportunity is organic we also will tell you why we think EFI is the best position to capture that, we are a unique company in the markets we competing in. And then the third thing since it is an Investor Day we are going to talk about how we are going to use our cash what we have today and what we will generate in the next few years to supplement both top-line and bottom line growth. So each one of this messages I will spend one slide but then the team is going to go a lot deeper on each one of them.

Early innings very simple digital printing is transforming printing or manufacture industries when people put some images on any material and you can see some examples there around that and many others of course. That’s printing and they use it around the world mostly with an analog posters which is many cases a plate that you go over and over digital is a disruption something to technology for manufacturing, you can manufacture on demand, it supply to a lot more industries that you can image. When we got into Talprint it was I am sure for many of you a surprise that digital printing can actually apply. Today it makes a lot more sense, there is lot more -- lot of us actually sit here is going to get into more opportunities that potentially we can get into the technologies than the expertise we today.

The concentration is anywhere between zero, we will start up to 35%, in fact the markets we are addressing is got to 35%, there is a lot more. So get to 100% in those growing markets, we can triple the size of the business. Inkjet technology is driving the inflection point. Inkjet technology is not like no other marketing technologies, and we are going to talk a little bit about that.

And then lastly, it’s not just a technology is enabling the transformations from analog digits. It's that customer, the end customer demand that want to reduce inventory, to manufacture on demands or the end customers that want to personalized. We leave in the word that personalization is becoming powerful flight. Marketers like to personalize messages, they don’t want to do both messages for everybody. So, personalization is becoming more and more part of our people like to sittings being done and that’s pushing the manufactures to think about digital printing. So, that’s two fold, the technology that make it available and more and more applicable to many more areas and it’s the demand to get personalized manufacturing demand that helps that push this transformation forward. So, that’s the first message.

The second one is a few believe and I think it will be clear to believe the opportunities are great with analog to digital conversion. Why EFI is the best position to capture that? Well, we are unique. We have a really unique offering. We have the digital fountain that’s manage digital printing. We have the color management. We have the knowhow in workflow. We have what we call the ecosystem. We can help people not just to get into digital printing, but to optimize it to get the maxim out of this and by the way to have the data that show that they getting the benefits out of that. We have a phenomenal analytic. All the time we collected from the best people in the industry, color sciences, imaging sciences, hardware, mechanical, we have a phenomenal instinct. Scott is going to talk more about that. So, we have a fantastic entity, my guess is the best in any industry, we're going to go after and the industry we're acting today.

And then we have a very strong salesforce, that we build over the years. Ten years ago we were just an OEM public company. Today, we have I believe the best direct salesforce in the printing industry, covering the world, we have fantastic partners and fantastic channels. We have multiple ways to get market, if anyone want us to do. So not only, we have the ability to generate great product, we have the ability to get to market.

And then the culture is unique. Normally, we don't speak a lot about culture in Investor Day, you would see some of it and if there is time at the end I will get back to this. So, that the unique.

So if you believe that, digital printing has great potential and if you believe like us that EFI uniquely positioned, the math is simple. We have opportunity, we have strong position, built a lot of confidence when we talked you today. And therefore, as you probably see in press release we are establishing a target for 2016 to hit a billion dollar mark. That's not the last growth number, but it's three years away and we see it at that. We are raising the long time operating margin in our model, Marc is going to drill into the long term model, the new one a little bit.

And we actually saying organic growth is going to take us most of the way there, but we're going to have some M&A in the way. And when Marc is going to talk about the use of capital, we're going to talk about how much M&A we need to get to a billion and what would be the extra that we can use as an [outlay].

So, let's take way to the third message of today that we're going to use our cash to supplement top and bottom-line both. M&A is part of the strategy. We did our last M&A. We did quite well not everything was perfect but we learn. Our playbook now is solidified. EFI is well planned M&A machine. We did a fairly complex acquisition with Cretaprint because of inkjet because the basis in Spain because we have to sale in areas never sold before or we never sold household before to mark customers we didn’t sale before and we're very pleased as we get close to the second year on this business, very pleased with both of them. We feel like our integration playbook is solidified.

Just to give you a little sneak pick to how put the pipeline, again we've got, obviously in this area you don’t provide the names of the target. We counted the last 12 months we looked at actually not the folks in the exactly 70,000, when we say we looked at that mean we got to a point sign NDA, we change information, there was a meeting at EFI. Some of them were actually $100 million plus, the largest was roughly $200 million. We never got to negotiate the $200 million, I can tell you for sure that that would be -- that’s what we thought it would take. We ended up now pursuing it at this moment.

So from small zero dollar plant to relatively big on all of them, accretive all of them to supplemental we also make the three segments of the business stronger, none of them was transformative, none of them was something that doesn’t feel what we would like.

Now when we feel very confident with Cretaprinters integrated in EFI especially a couple of quarters ago we start to shift our attention back to Inkjet acquisition. Maybe we're focusing on more thoughtful geographical expansion. And so my expectations I can’t tell, sure that we will -- in the mix of acquisitions you would say not more Inkjet in the coming couple of days. And then we continue to pursue small deals on the softer side to allow to the expansion, geographical expansions.

Couple of years ago, almost a 100% software business came from North America, to get to Europe, to get to Latin America, to get to Asia, market’s been expanding on that, we bought small companies and we use this talent in the present to build our software business, upon business software or elsewhere.

And if you look at last quarter, we did an amazing job in Europe leveraging all of that in a quarter that normally is very slow summer month in Europe, actually cost the growth in this area. Second priority for the cash is buyback. We announced a new plan today of $200 million that replaced a previous $100 million plan for three years.

We will buy progressively, we will start probably at the rate, stroke of the rate you are seeing us doing in 2013, we will accelerate at the right point obviously if we feel like the stock needs support, as I told many of you, we look at the buyback is an opportunity to support the stock, for whatever reason we will jump on this hopefully, we will not be that last 12 months. Thankfully, there was not a lot of base, we felt like we need to pull to the stock. And if M&A pipeline is not going to be as demanding from a cash perspective, obviously we will fill about we may accelerate the race, but the goal is to use this progressively over the next three years. And when it come to this year, we think we’re going to target it to finish on $25 million buyback, this is just to give you a impact calibration of what we’re going to finish this year.

So those are the three messages, early innings, analog to digital if I best position we use cash to supplement top and bottomline growth.

The agenda for now, Ghilad is going to start with, CTO, talking about why Inkjet is a software technology in the businesses we are running today and give you a little glimpse to what we can do in the future. The three GMs going to talk about their area what we do today organic, how we can grow the business and where is the growth opportunity in the next years. And then you are going to see something actually will be unique and very interesting. Charlie Grace who run our American sale and did a fabulous job in the last many years bringing the numbers every quarter will introduce to you two fantastic customers the surrounding two CEOs of beautiful two companies that are growing with digital printing and they will tell you their story, how digital printing is helping them to grow and also to create nice focus.

Mark is going to wrap it up with the trajectories. He is going to get deeper into the new long-term model, the cash use, and then I will come back and we’ll wrap up and do some Q&A. Along the way we do so some Q&A is on top of those topics so you can get questions specifically so to say and you will have an opportunity also to ask the customers if you have any questions to them.

And with let me turn it over to Ghilad and I will come for Q&A. Thanks.

Ghilad Dziesietnik

So in the next few minutes, I am trying to see many of you I know, I will talk a little bit about the Inkjet, the Inkjet has a unique characteristics that allow us to go with it to many, many application and many, many industries in a way that was not possible before. I would like to talk you about the Inkjet opportunities, technology and unique value, I would like to discuss to a little bit that if this opportunity you believe in the opportunity while we will be doing well to take advantage of the opportunity and then I will discuss a little bit how we can expand our market accessibility reacquisition and what area maybe interesting for us for acquisition.

We talked many times about the driver for the conversion from analog to digital in printing. We talked about the short and loud number of unique jobs personalization, show supply chain, online ordering, they need to manage the business effectively in order to squeeze for office from lower and lower margin. All of this was discussed many times in the context of printing. Amazingly enough it fits very well many other manufacturing processes.

If you think about the going through the basics, you will see that closing the inventories smaller, the number of SKUs is increasing very rapidly and the replacement of security, so don’t buy yourself today, so more there would be another shift. This is the way things are moving today.

Other industry did not reach that point, even though they may desire it. If you go to home depot and you want laminated furniture, I don’t know why you would want it, but if you want laminated furniture, you will see that the number of option you have is actually limited because the process of generating them is complex today and does not allow this variability. So everything that I say here that was said many times for printing apply very well to other manufacturing processes.

The other thing that we talked many time is a breakeven point between digital and analog. We always said that costs for digital is pretty much flat and is going down as machine out faster and the cost of operating then, you know the consumable in the machine is going down. And this trend is again to for all other manufacturing processes.

I would show you later on some market, I don't know maybe Colgate. Colgate is a [corpus] and even though there is no reason not to print on it with digital processes. The ROI is not yet so good. So this is in process of developing to a digital, but it's been penetrated yet because of those cares, those are critical cares to pick up the right industry to go after or manufacturing industry with digital decoration.

So, what is unique about the Inkjet technology? The Inkjet technology is of course a combination of the head, the Inkjet head that spill, eject the material and the material is set. One of the main things about Inkjet is that it's a non-contact printing, think about that what it given, you can print on waste material, you can print on hot material, you can print on rough material. Things that were either impossible or were very difficult and expensive without Inkjet. By the way Inkjet is not necessarily only the exclusively on contact, but this one of the main feature. Derivative of all of this is that you can print in cold process. Scott later on will tell you about our LED technologies that is supercold, but in general it allow you that. It allows you to eject, many, many types of material. People know to that how to liquidize metal and of course many, many other coloring or decoration materials can be rent there into liquid or semi-liquid mode and being ejected. We can eject a lot, we can eject little and we can also value the density of the printing. We can set speed efficiency and at the end of the day, your line is open remember the breakeven side we can create cost effective solutions.

Just to remember what is the thing we're trying to do with jetting. Jetting is a round up all the time, I should probably pay more focus to health rays and things of this nature, but they are all the spurring materials for the decoration, what we really want is a device us that allow us full control on the size, position and resolution of what can we eject. There are many type of inkjet head, many technologies, technologies that are based on thermal phenomena, heads that are based on electrical feed phenomena. We are focused on a technology, it’s available now for many year which is called drop on demand it’s basically an electronics mechanical device where hammer push on a small container of liquid and push it down. And the beauty of this technology is that it creates the most versatile accurate ability to deposit material. It’s a very, very strongly developed by many strong companies, companies that are specific to Inkjet and companies that are in the semiconductor industry. It is becoming a very, very sophisticated semiconductor type of manufacturing process and it give us actually a lot of choices to pick the right head for the right application.

You see that that is a slow device where every drop can be controlled, it has a long array sometime two [dimensional] array of nozzle, you can have between 10 to 1,200 nozzle pill hole per inch and it look like a device like this, it’s a very fascinating device. I know it’s crazy.

So you if you look what it allow us to do, there are many, many applications now that are suddenly open to us. Before I go over this lift, just look at around you. This could be printed, the carpet is printed, the wood it’s painted this side, it’s fully painted, but it could printed. We are already in a few applications. We are doing signage and label and ceramic, Scott will describe what we do there in more detail. We do soft signage which is some type of synthetic [substrate] which is used for display. But look at the list it’s pretty amazing what I showed you that’s here and more.

And of course fabric and we will pick a pair, some case [scenarios] I will give you later until when the disclosure will allow. We will pick the right technology to move forward. I will show you some sizes of how big are those markets. And I think you will be impressed. I’ll show you.

So okay, there are lot of opportunities and we are not the only one that sees those opportunities because as the technology mature or available it’s not mature for sure, but become available many companies are looking in those things. We believe that we are well positioned to be very successful in this transition to digital manufacturing processes.

We have unique collection of capabilities for the size of other company which get very efficient team that know how to do equipment or hardware, electronics, ink and image processing. And I will give you an example later why this combination creates a very powerful and unique solution in the industry. We are actually now able to attract the best of the talent in the industry. Some of it is because of paying that other company has, a lot of it is because we are actually offering now great opportunity to be at the peak of the technology in this industry.

We have a track record quite extensive now in over many years of entering a new market and becoming the strongest player in this market or a legal player in this market. We have as Guy described to you what we call the EFI ecosystem. The ability to connect all the processes that are related to the manufacturing I will describe it in a second to one efficient flow of control and information from the ordering of product to the delivery of the product. This is what allows the manufacturer to make profit out of all of this products that are being ordered.

We have intimate market knowledge, we are in this industry for long time we focus only on printing and decoration. We don’t have any other businesses. And because we are in all phases of manufacturing from the ordering to the management to the printing to consumer balance, so we have intimate knowledge or intimate relationship with the business from the owners to their employees, which allow us to understand very well what they need. All of this resulted in our current business performance, but it also resulted in a really great recognition in the industry. We are the most awarded company on technology achievement in the last few years much more than very large companies, like Xerox, HP or Kodak.

So when we talk about the ecosystem, I’m not going to go over all of this, but if you think about it, we are [involved]. We offer our customers the ability to manage well the acquisition of the job, ordering online or other way. We manage the job, we manage the scheduling, we manage the manufacturing processes, we manage the inventory, we manage the profitability and then we also manage the content. We are managing the color, we are managing the job composition, we are managing the consumption efficiency and in some area we are also involve in the actual equipment for printing in the right for mark label and the ceramic printing. All of this creates an ecosystem that is unmatched and highly beneficial to the customers. And I think people our customers maybe talk a little bit about that.

So if I look at the growth that we are confident that we can get, some of it will come from innovation. I will give you a few examples of where we innovated just lately. I mean we have a long history. How hybrid, Scott will talk a little bit more about hybrid printing, the ability to print flat and also flexible material in one device. It's not accidental that we are the best in the industry, the leading company in selling those types of machine from a moderate performance to the highest performance available in very, very high quality and accuracy.

We also are the only company that created LED curing. Curing means the process of bonding the ink into the substrate. LEDs sound green, but it gives the customer the ability not just to save electricity and be environmental friendly, but to use substrate that were not available to digital printing before because LED doesn't heat the substrate, you can use very thin, very low cost substrate, more opportunity for customers.

In the ceramic printing once, we acquire Cretaprint, with our all cross group technology we created a most flexible, modular performing printer in this industry. In the label printing for example, if you see, we created a [factory] in one product. We printed the paper, we print, we cut we peel, all of this in one product. And we have a lot of new applications, Thermoform, in that you see samples, we have smart signage that allow static signage to collect information from the viewer and so on.

We can grow by expansion of our offering in the market we already penetrated. If you look at ceramic printing, we are creating the only way in the market now to create the right color for the printer and to control the amount of ink that is being used. We create a new paradigm of how to order custom made size. And there is the ink opportunity, the factor now we did not explore yet, but we are certainly going to do that.

So if you look at the ink it’s a huge business. Ink is almost matching the business of the equipment and will go to be bigger than equipment business in this market. And the consumption of ink is huge in this market between 600 kilograms to 1500 kilograms per month per machine. And the prices of ink, range, depend on the color and the location between $35 to $80.

If you look just at the EFI Cretaprint install-base you can see that in 2013 we were most consumed or our customer almost consumed $100 million or $75 million of the ink. And if you just look at the small calculation if we think about the install-bases roughly say 350 printers, we take a very conservative ink price of $20 which is really in the low-end of the range. You can see the calculation for 2013 and then for 2014 let’s say more than 500 printers and you can see how the ink is a huge contributor to potential revenue for EFI. We are going to go into the ink we are of course planning on moderate penetration at the beginning and increase all the time.

Acquisition for us is an expansion of our TAM. In the geographical expansion as Guy said with the [software] acquisition I use Metrics and Metrics also show you that they are very consistent in the name of companies.

Just going to back at the last chapter to the market, as I said it’s going to be addressed with our technology or we say technology of Inkjet can be addressed, maybe addressed in the future and we need to pick the right one, but those are huge market. If you look at the ceramic and compare it to the markets here, you can see that the size of opportunity assuming we will be successful as Inkjet and with the machine and ink in those markets, the size of available market for machine and ink is enormous. I am not going to read all the numbers, but you can see that it is pretty significant. And I will be very surprised if we will not go into some of that in the next month of time.

If you look at those markets a little bit just as a teaser almost, in textile it’s like ceramic, it’s almost not as material ceramic, but my latest example was very [lean] I mean people really need short run maybe manufacturing of some elements closer to the distributed close and so on, great ROI for digital solution. Lamination that we discussed is really paper printing. There are many processes after the printing will be closed, but it’s paper, it is very high resolution, very high quality, very, very suitable to a wide fast single pass printer. It sounds little bit close to paper print if you think about it.

Wood, wood is highly close to be used in digital, it’s UV curable ink, we are the expert in that. It’s still a market, it’s again a market that one should look at it. And glass, the glass for decoration, very similar to ceramic in this aspect or to inorganic ink that sounds very close to what we use today and also there are glass for industrial use. So it’s not that we’ll do those market I just show you how one can think why we may want to enter some of those markets.

So what I just talk, we talk about this topic power Inkjet the uniqueness of Inkjet what opportunities Inkjet opens for us. We talk that EFI with our combination of technology and people and knowledge are highly suitable to take advantage of this market and we talk about the M&A of this huge opportunity that allow us to frankly do non-linear growth in the future. Thank you very much.

Now I will move to Scott.

Scott Schinlever

Thank you, Ghilad. Good morning everybody. So Ghilad really was taking the picture of all the opportunity segments in industrial printing, lots of which are still not penetrated by digital today, others which are in various stages of digital adoption. And really the common theme across all those is first off how transformative Inkjet technology is in that space not just in the fact that you can print on a lot of different types of material, but also presents very strong leverage across the technology platform to get into new segments overtime. But I’d like to talk you about today is the three segments we are in. They are in various stages of digital transformation.

So display graphics is in the high growth phase very, very nice and steady just cracking through about a little over thirds of its digital today. Labels and packaging is very early days, but a big opportunity in the long run in terms of just overall output. And then ceramic tile were also in very rapid adoption in that particular market. This is all underpinned by a very unique and sustainable differentiation of ink technology, today it’s UV. We are the number one UV ink manufacturer in the world. Our growing volumes of UV ink 20% a quarter. And at this point our ink sales are about 30% of total Inkjet revenues that we reported.

So first of all let me start with display graphics, this is a core market of all the stuff you see around you when you shop, when you go through train station, you go through an airport. It’s really application that are wide format, very colorful, very bright, super high quality designed to attract your intention. Also with where the technology has been going with much higher print quality and revolutions that we have introduced, we are able to get into more emerging markets as well and emerging opportunities in terms of applications we couldn’t reach before. So really these devices and especially the hybrid products, and I’ll talk to you about really let us address a very wide range even beyond our core market in display graphics.

So, in terms of digital conversion of display graphic it’s the [free train). It’s growing very nicely. First half is driven by overall volume growth of print in this market for both analog and digital, overall growth is about 4% a year. This is driven by out-of-home advertising and out-of-home advertising is the second fastest from of growth, second fastest growing form of advertising behind the internet. And what this is, is really all that signage you see you think about the other forms of promotion today whether it’s junk mail in your email or junk mail in your post office products or unforced calls, there is a lot of ways for us to ignore marketing messages or just not even absorb them.

With display graphics is really right in front of you as you are going about your daily things or you are in a store making a purchase. So there is a lot of just net growth in the market that’s still driving and very, very large print volume. Digital of course is now pacing that to digital conversation keeps increasing, so digital growth is about 9% from a CAGR perspective.

The other thing that's happening inside of digital is I’d call is kind of the older digital converting to the new digital. So there are older technologies out there both Solvent and equally spaced where people are moving to a UV type of platform for the advantages it offers. So even inside of digital, we're starting to see a very strong conversion to the latest technology. And also I’ll talk to you a little bit more about the one that we're leading is the UV to LED curing transition.

In terms of the market we serve, when you look at UV printers and ink and display graphics, it's about a $1 billion segment. Analysts predict it depends to you read, it’s a pretty wide range of market growth, they predict anywhere from 5% to 12%, the combined number. We think it's definitely on a higher end of that range and the reason is that we see ink continuing to grow and continuing to accelerate as the devices get faster.

If you think back to the last slide, the one of the digital transition, the big thing that drives that is print’s speed and as you come out with faster and faster printers for about the same capital cost, you capture more print volume. And as they get you of course a lot more ink volume as a vendor.

In terms of the segments we serve, inside the production display graphic space for Inkjet. The high-end which is really equipment is priced to $700,000 both hybrid and roll-to-roll. That's really our sweet spot, that's where we participate very heavily. And we have been consistently gaining share over the last three years. What this has been driven by is first and foremost continued product innovation and product introduction. We got into the roll-to-roll space in a much bigger way with additional product offerings. LED curing, which I’ll talk to you more about in a minute, the very key differentiator that we're going to continue expanding on and to be the leader in the market on that and also just continued improvements to our GS hybrid platform continuing to come out with new capabilities on that device.

At the same time earlier this year we launched the HS100 which is our first entry into the ultra high-end space. So these are products that are about $1 million to $1.3 million in price. And that particular one that’s the new segment for us. We're having great success with our early install for this product and there is one more, we see a lot of potential and a lot of growth for us overtime because a lot of our very successful customers are really trying to move up market into those devices as they grow their volumes. So really let’s just go attack a new part of the market.

At the same time the opportunity is still in front of us in terms of low-end. So the low-end for us is devices that are $100,000 to $200,000. And therefore we've been doing a market probe with the co-developed line of products that we source out of Asia. And we're going to be doing more in that space overtime because it’s a big opportunity for us to go get.

In terms of our product portfolio we’re absolutely off to the widest portfolio across the technologies today in the market, really it kind of falls in two buckets so roll-to-roll products truly focus on billboards and signage, it’s a flexible material. And we have the range of products going from our entry level production type offerings which are $130,000, $140,000 on up to $500,000 to $600,000 plus with the five meter wide printer which confront a full size billboard.

At the same time in the hybrid space and this is really where UV started because the ability to print as Ghilad said in both roll-to-roll and [liquid] materials, start from entry level at about $100,000 and go on up to the $1 million plus range.

The underpinnings of all of our technology, first we’ll continue to expand LED, I will talk about that more in the next slide, offer great scale, why this a key differentiator for us and also call underpin by common leveraged operating system, we call Orion. So what is enabling us to do is to come out with new products in a much more rapid pace and leverage them into unique segments.

Even with our GS series, which we launched almost three years ago, are hybrid. We just came out with the new version of that, that offers a special ink that serve well for me and you see that in the footballs you picked up today. The unique part about that is that was printed on the flat piece of material, and it was put through the thermal forming process afterwards, am I ask why is that a big deal?

Usually, when you have done this in the past with the digital ink, when you put an ink to thermal forming process it cracks and it place off. So this is very unique, it’s a very big application not just in signage but also in a lot of different type of industrial segments, I mean think about it, the dashboard on your car, it’s a great example.

It’s printed flat and is used to put through some type of thermal forming process at the end, and yet it’s the DNS performing the part of that, so that’s the unique way we leverage the different ink technology onto a common platform.

Now in terms of LED, we talked about that a lot, and it’s a big deal in our marketplace. We are absolutely the leaders in this, and it really is a next evolution of where UV ink is going. For the simple reason that it’s a much lower energy usage, it’s much more of a cooler curing as Ghilad talked about, see don’t get the wrinkling of substrates.

So what that let you do is you can print on very think substrates number one, but also you can run even just normal substrates at much higher rate of speed to the machine because you are not worried about heat buckling and stopping a printing process. So what happens is we’ve had this out for about a year and half, these customers print more. We track it to their ink volumes. They are printing about 50% more volume, which for us is good news, because that’s about 50% more ink volume for every GS LED footprint we put out there. We were first to market in the segment, year and half later we are still the only ones in our segment. We got the nice recognition just at the STI trade show we just had earlier this month.

Now let me jump into the other segment and this is early days, so this is labels and packaging. So these are all the things, this is not promotionary and this is more permanent type of labels. You see it in anything from consumer products all the way on through the more functional labels that you see like attachments, warning labels and things like that.

So the key about the label market or key messages is the big opportunity out front of us, but it is early days for digital inkjet. For the markets growing at almost 5% a year in terms of the value of the output, so volume is driving that. But on the graph on the right, I apologize it’s little hard to read, the golden bar or the golden rod at the top represents digital. Digital is growing nicely at 15% a year in terms of machine placements, but it’s still early days as far as being large percentage of the market.

So inside the inkjet market, we are the inkjet market leader, but the market is small, but the opportunity is big and we’ve all been there before, we’ve seen it was a due space. We hit that rapid adoption over time. It becomes a very, very big opportunity for EFI.

We just launched continuing the LED theme, this is even more critical in labels because if you think about how thin label stock is very, very sensitive to heat. We just launched the 49-50 LX Labelexpo couple months ago and it is a first printer in this class to utilize full LED curing.

So the underpinning of all this is UV ink, one thing we do this very unique in this market is we co-develop our ink along with printer platforms and [Fiery RIP], low standards in this space, we’ll develop the hardware, go get an off-the-shelf third-party ink and work to integrated into its printer. The problem with doing that is over time you limit the functionality of what that ink can do, that’s kind of a late stage to be doing that in the development process, so you better off doing an all together.

At the same time, that co-development, what it brings you is the ability to have the best performance and get the best color and the best print quality in terms of your output, which is absolutely key to go after and transition more of that analog space as you have to absolutely nail the print quality.

Last but not least the ceramic, so [power] production and you saw the video outside lots talked about it a bit, it’s obviously a different space, the one that’s rapidly growing and digital is about a third of the total volume right now, but inside of that you have volumes growing at 6% to 8% a year. This is a one where it’s a little different because we actually put a digital ink share printing press in line in a manufacturing plant. So, there is no speed degradation to go into digital. It's full speed production with digital as part of the process, and you could see it out there in the video.

The other thing as unique is a lot of the market, it's been kind of we think if it is emerging market so to speak, but it’s China, it's Brazil, it's India, and so very, very different in terms of geographic coverage as well. And that's why we bring a pretty strong advantage with our worldwide presence.

In terms of print earnings, Ghilad talked about this, that we are focused on obviously getting our own ink into the Cretaprint printers and we are really nearing that inflection point where the largest growth is going to become the ink opportunity. And it's kind of typical for digital over time as you hit more and more penetration, you get the high speeds, ink becomes a bigger and bigger part as you get more footprint out there in devices.

So our new product in this phase is Cretaprint C3, very unique in terms of not only its inkjet capability, number of heads, it actually number of colors, but also heavily integrated with our Fiery front end. And bringing Fiery into the space with all the color management it offers and the work flow is a very, very unique differentiator and when the markets responding to very, very low.

So our long-term strategy in terms of ceramics is really be at the leading edge of driving that transformation from analog to inkjet, it's happening rapidly because of speed of the devices are full with [RAID] and it's inline printing. We need to focus on the emerging markets, be sensitive and this is very different geography distribution and make sure we have a presence to really drive that local so not just the technology but the infrastructure and support. If you think about this kind of environment, it's absolutely 24/7 in a very, very big production plants so critical that you bring all your offerings and all your support to the local plant.

Full leverage, more and more EFI ecosystem over time and this isn’t just Fiery, isn’t just banks, it’s also our productivity software that let you run the printing operation more efficiently. And then as Ghilad talked about, we will be -- we're very focused on getting our own ink into the printers themselves.

So key takeaways, as we have explained last night, rehearsal the Guy what innings were so we've got through all that. But we really are in the early innings so to speak the analog to digital transformation, technology of what drives it, but at the same time it’s a comprehensive product portfolio and a backing of the trusted partner that really makes it come alive and be a big opportunity for EFI.

One of the thing we have the ability and it’s proven at this point. When we enter an industrial inkjet segment, we become the leader, so whether it’s in display graphics, playbooks, even though it’s small and emerging, we're the leader in inkjet there and of course ceramics. And so that’s something we really stay focused on is not just what is a new opportunity for EFI but do we have the chance to become the leader.

So with that, I will hand it over -- I think we open it up for Q&A next right. Okay. So we’ll open it up for questions at this point. So Ghilad is going to join me up here as well and we thought we kind of portion of a bit so we can answer inkjet type printing questions at this point before we get on to the other content.

Question-and-Answer Session

Scott Schinlever

Frank will have the, Jim’s up here.

Unidentified Analyst

Two questions, you had one I thought you said as a percentage of total revenues was something like 30%, did I hear that right?

Scott Schinlever

Yes, of inkjet revenues.

Unidentified Analyst

Yeah. It sounded low actually given your install basis and how long you guys have been involved, how do you see that transitioning over the next year, is that creep up as a percent of total (inaudible)? And then the second relates to that is Cretaprint, can you give us an update on where you are in that transition your own ink on those systems?

Scott Schinlever

Sure. I’ll handle the first part and will transition to Ghilad for the second. Basically one of the reasons that appears have been low is because one of the legs of our stool which is Cretaprint have no ink revenue to EFI at this point or any appreciable. So I think that's distorting it a bit. So I think overall there are definitely the opportunity as we do come out with our own ink and penetrate our own base. That starts within that percentage over time.

Unidentified Analyst

But is there any methods you can give like if you think about at the end of this ‘15 or ’16, is it 35% to 40% as our ink on a target for this?

Scott Schinlever

The problem with metrics and then this will be a good transition for Ghilad is it all assumes when you come out with the ink and ink technology were our core into development of it right now. We have some colors done, but over time it’s still a bit unpredictable.

So the first big assumption is when do you start and that's the part, that's actually a bit hard to gauge in terms of a particular year, I mean it’s coming up obviously in the near future, but that's kind of the starting point and then how you penetrate, how quickly you penetrate after that.

Ghilad Dziesietnik

Let me talk about the Cretaprint opportunity and we absolutely have to come to the market with the best ink which is available. If not, it will be a little bit [proximal]. We are using the team we have needs to launching, we are developing the ink for more than a year now. We built up the team, with expertise in inorganic segments. We have been testing one and almost two of the colors already at customers, the results are really good because you know we are using of course the EFI-Cretaprint expertise in Spain and we are mixing those expertise today. I think that as I said we will introduce the ink during this year, during 2014. As I said also I think that we are going into an established market with vendor that are there for 100 years, so it’s material for ceramic and we are building a very conservative plan for that.

Unidentified Analyst

Actually since I know I am never going to get the mic back once someone gets it, but when you talk about that footfall you guys don’t own the extrusion technology right, but you own the inkjet technology, but how hard would it be to make some transitions into what’s generally categorized as the 3D market if you acquire some of that extrusion technology because it seems like I think this is my fifth or sixth year your Analyst Day, we talk about labeling being near term, it never really takes off, so why not inch way into that market?

Ghilad Dziesietnik

So you know the valuation of those 3D companies at this moment, so please bring it in. Look we have decided that for now we are focusing on color ink and decoration and business management of print processes, the way we look today at least the 3D printing is there is opportunity for that in 3D. We are not planning to do now 3D equipment and material to create really a printer the build up object, but I think there is opportunity as we go forward for Fiery technologies and business management applications to be developing income then with this market.

Jim Suva - Citigroup

Thank you. It’s Jim Suva with Citigroup. Can you talk a little bit about the ink percentage you have a task with your equipment is going out versus what you don’t and maybe break it down into, it sounds like Cretaprint right now is zero and so maybe if you can walk us through non-Cretaprint, what the percent is to task that people if using EFI ink versus those don’t inch, importantly how they have been trending up, down or stable? And then as a follow-up for Cretaprint you mentioned you are testing one to two colors, it’s been a while since I said card class, and I don’t know if there is like three red green, blue or there is a lot more for this. And if so, are we looking at another 12 months till you have a fully authorized skew of colors or how should we think about that?

Ghilad Dziesietnik

Do you want to talk about the...?

Scott Schinlever

Yeah. First, in terms of attachment rates, so let me talk about first across the label and the VUTek space if you will. When we look at UV attachment rates, it’s still well above 90% and holding firm. We offer a very significant value to customers, not just in terms of ink performance in the printer, but also all the backing of the warranties and everything else, something does go wrong with the printer did not arguing about to think or not, it’s all the same vendor. So we see that as being very, very steady in those two segments and continuing that way.

Jim Suva - Citigroup

So UV is 90%.

Scott Schinlever

It is above 90%.

Jim Suva – Citigroup

Above 90, and non-UV?

Scott Schinlever

Non-UV, in terms of our all the install base, it’s not much of the left, so we don’t even track it anymore.

Ghilad Dziesietnik

For Cretaprint color, there is a set of color that is common in this industry, actually nothing to do with seem like LED, it’s more brown base, pink, some trends blue, and some trends almost red and so and so forth. We are developing all those colors in parallel. We just run the test with customer at phase that the customer allow us to basically. All the colors are developed, at the same time all of them are basically at the same stage, all of them are progressing well. The question of exact date, Guy also like to get for me exact date and I mean to know doing all about date. So as I told you 2014 is an important year for us in regard to ink.

Jim Suva – Citigroup

As somebody who is following the company, brand new, are you displacing porcelain nano finishes on ceramics tiles, or are you just putting down in organic segments to be fired under the porcelain and nano cured?

Ghilad Dziesietnik

So as you know very well, the tile is built of many, many layers, there is a body, there is some glares that put in the body, some other materials, then decoration, then overcoating. We are only the decoration part, which is putting color on device while they put below or above us is not part of what we offer.

Scott Schinlever

So we have time for two more questions right now and then we'll take the others at the end. Go Shannon.

Shannon Cross - Cross Research

Shannon Cross from Cross Research. My first question is with regard to, can you talk about how the whole company works together? So you had their Fiery VUTEk and that, can you sort of take a set back and say how do you work with the Fiery division? How do you work with software? How much interaction is there? And also what are you seeing in terms of cross sales at this point? I mean what percentage of your install base uses a Fiery and maybe what percent if low ever want this at Fiery, so what the potential on these markets?

Scott Schinlever

Well, to give you an idea, let me start with in terms of display graphics and (inaudible) our attach rate of is 90%, 95% plus of new machines going out there. Obviously our install base is more of a mix because there was other reps that people can use kind of pre-EFI. In terms of how we work together, this is really where we have a big advantage, I'll give you one example is our electronics.

So for an inkjet development and display graphics I have been in the VUTEk business since 2001. We really hit the wall in about 2004, 2005 where inkjet has such higher performance that the bottleneck in the process was the data path the video the electronics to see 1000 DPIs, [68] colors, great scale, all that good stuff. And so it’s a very good time to become part of EFI because of first thing we did was we basically merge the electronics development group together. And so actually a lot of what’s in the VUTEk printer today and base level electronics really was borne out of Fiery, so that’s just one example.

And other example is on the ink side, so we have color scientist in the Fiery side, we have them on the ink side, there is a lot of collaboration together especially in more raw technology over time in terms of how you extract more performance out of the platform, so a lot of working together there.

On the software side, we people [married us] regularly in terms of putting together the different integrated offerings but also making sure we have the hooks and the handles in our future technology, but some people don’t want to do it right now, but they want to know that over time we will be compatible with our other product. So there is a lot of cross-collaboration across the U.S. and across the world.

Ghilad Dziesietnik

I want to add one more point, we have a lot of quarters of collaboration, but it’s part of culture. We acquired the Cretaprint two years ago, a day after and I am highly involved with the Cretaprint business, it was immediately clear and made real that electronic will come from Fossil City, ink will be developed in each (inaudible) the rates will be developed by Toby team, I mean it was not a question and it didn’t require convincing, it is best part of our culture.

Shannon Cross - Cross Research

Great and then just last question and just on simply back to, can you just talk about with regard to Inkjet and label printing, because I think that's probably been the one that’s been the most disappointing in terms of growth and expansion and that just adoption by the industry. Can you talk when you do your R&D investing, your engineering investment, how are you sort of balancing between Cretaprint between VUTEk and then also with the label printing? I mean this is something that sort of deemphasize in the near term, obviously you put the LED into that technology, but how are you sort of balancing the investment?

Scott Schinlever

In our balancing it include 49 and 50 electors are a good example. We took a lot of common platform elements we had in our 49 under Desk 330 series and basically built off that. So instead of doing a ground up development, we really try to use a platform element that we had from the architecture et cetera. And then just move it into a higher resolution, LED offering. And that's going to be the approach for a while, because we’re at the point in the market or as you said the adoption rate has been more modest than we would like. And at the same time I balanced it off against in the display graphics base.

I mean we really have a lot of hot segments right now. So we do emphasize, we do try to follow also where the market is going to be the most accepting. So I am putting additional emphasis on the VUTEk side right now especially entering into the row high-end with the HS100.

And so that’s just juggling act. Overtime obviously the Cretaprint as we bring that more into the fold, same type of things that also might be the hot one to go work on. And that what's exciting about Inkjet technology from a business model perspective. As all these technology leverage point that are somewhat if you have the right culture as Ghilad talked about are somewhat portable between the businesses. And we have people, we fly people over from Spain to work on VUTEk, vice versa we send some VUTEk people over to Spain to help what’s mechanical and electrical on the latest Cretaprit. So we are trying to make it a natural part of the process.

I think one more question. Yes, sir.

Unidentified Analyst

Could you guys talk about penetration rate for display graphics and for ceramic tiles? I think you said there is 35% where do you expect them? What is the potential for them to ultimately go to each of the segments? What’s baked into your forecast? And can you distinguish it all between where they are in developing markets versus the emerging market opportunities that you guys talked about? And then I have a follow up.

Unidentified Company Representative

Well I think that Scott, as you said gave you the penetration in display graphic and also showed you the increase over long time of 5% over a few week.

Scott Schinlever

Yeah. 5 points.

Unidentified Company Representative

I think the rate is continuing at that pace in regard to display graphic. In ceramic, the rate is adoption is much faster and I expect hundreds adoption in the next few years, three to five years to get to 100% adoption and then there will be that’s why some of the discussion we had was focused on ink at this stage. On the emerging markets that I described the long list of stuff, I don’t know yet how to describe to what to say about adoption rate, this is still a lot of technology challenges to go into those markets as strongly and we are still exploring what we will model as an adoption rate.

Unidentified Analyst

For display graphics where do you guys think the market can ultimately get to digital penetration?

Scott Schinlever

I think in a very, very run it most of it can be penetrated, because once you break the barrier of print speed, so the difference between ceramics and display graphics. Ceramics, you can go forward the rate today, which means you are not shuttling in inkjet head back and four of their heads. You are in line with the productions, here just as fast as an analog printing process. You can do that at ceramics because a process as more forgiving in terms of print quality. Give depositing material down very quickly and you put it through a firing process anyways, which tend to blended it all together take out a lot of the art effects.

Display graphics is a much, much higher print quality, it’s obviously all the stuff discuss you see around here and for that you really need to have just perfect print quality, you can have jet dropout or art effects. So, the nirvana state way in a future is definitely for what rates on day that keeps up like a screen press or Flexo for labels. We are still a ways off from that.

Unidentified Analyst

Just the last one. For all the stuff that you can talk to your reference; I understand the M&A pipeline, do you have acquire your way into doing that I guess what it tends to between need to acquire your way and versus being able to develop it?

Unidentified Company Representative

That’s a daily discussion that we have, because there is (inaudible) few sides that were uniquely position without thing to do whatever we want and other part of it is maybe to do the M&A. M&A if we can acquire use our cash to acquire a company that is accretive and present and knowledge in the market and as relationship in the market not just the product is a big advantage.

It’s a guarantee that with good execution we will be very successful in the market instead of a slow ramp up into that opportunity it’s a really acceleration to large extend. Also it’s a bit of deployment of land plan.

Unidentified Analyst

(Inaudible).

Unidentified Company Representative

No, some of that, as we describe, we have our own experiments, while we are looking for looking for an M&A opportunity.

Scott Schinlever

Okay. We'll go ahead and take the rest of the questions at the end of the session. So now let's flip from printers and ink and turn it over to Toby Weiss to talk you about the Fiery business.

Toby Weiss

Thank you very much Scott. Good morning everybody. My name is Toby and we'll spend the next 20 minutes talking about the Fiery business and then I'll have ten minutes of Q&A after that.

I plan to go through what the Fiery is? Fiery is addressable market, I realize that's going to be familiar for some of you, but maybe there is some slight changes even for those of you who are familiar with it. Talk about how we can grow the Fiery business? How Fiery stands from a competitive standpoint? And then I'll let you know what I think the three key takeaways are for the Fiery business. And then we'll wrap things up and do a question-and-answer session.

So, first off what is a Fiery? Fiery is a digital front end, often times abbreviated DFE, sometimes you'll hear it called controller, sometimes you'll hear called the rip, other times really a rip. Digital front end is a very, very important piece of the digital printing environment. All digital print engines require a digital front end and it has some vital part of the entire work flow involved in digital print.

So, let's talk about what is DFE? What a Digital Front End is? DFE is responsible for a number of key parts of the process. The first one I would start with is high speed data processing. Why does a digital front end need to do high speed data processing? [Technical Difficulty] you have designers and designers are working in the latest Adobe cloud based tools that they’re working in design or working in Photoshop so on and so forth. And those clouds are getting ever more complicated. They’re getting richer, they’re getting more layers in them, they’re getting sometimes variable, the designers are constantly as you know pushing the edge there. On the other hand, you have the printer and the printer themselves is getting higher resolution, it’s getting faster 100 page per minute 150 page per minute in many areas of the Fiery. You’ll see printers certainly in the future that continue to push the envelope in terms of speed. And Fiery the digital printers end needs to be in between those two and it is a process everything that’s involved in those design files and keep the printer running as best as the printer can.

To give you an idea if you were do the math on this and you were to say 100 page per minute printer at 1,200 dot per inch resolution you would find that it’s actually faster or more pixels rate if you will then high-definition TV. So Fiery is incredibly important part of the high speed data processing. That’s why the shift, the Fiery shift that we have our proprietary technology inside of the Fiery is probably about eight times faster than the latest in video graphics chips used in high-end video games to give you an idea of the difficult to the problem, the reason for high speed performance.

Fiery or digital finance are also responsible for job management and job convince to the print shop, the operator might need to decide to when to print to job, when not to print the job. So if there issues to recover the job, all of these things, job management and filling with the job management queues. Color management is incredibly important of course, often times Fiery is being printed for marketers, marketeers and of course getting their brands corrected incredibly important. It doesn’t matter, what type of stock it is being printed on thin paper, thick paper, bleach paper off-color paper whether it’s on a Canon device or Ricoh devices, Xerox devices and it’s regardless the fact that humidity, temperature all these variables come into play, the folks at Coca Cola want to have Coca Cola Red every single time. The folks at Coach want to make sure that their materials are accurately representing the colors of the products that they have. And so it’s an incredibly important part of the Fiery to get color management done.

Specialty graphics applications also come inside of Fiery or digital printing. What does this mean? You could think of this as almost like a Photoshop type of application for the print operator. Someone comes into the print room and says, I want to print this for sure, but I got Gartner Magic Quadrant for example that shows my project, product did a great job. So could you insert this particular Gartner slide in between, I have the files and you design it, but I want you to put this other file in between. And by the way, could you put page numbers on this, but don’t put a page number on the first page or the last page. And I’d like a blank page at the end. And by the way could you make the middle that excel spread sheet and I’d like to be a tri-fold.

So that print operator needs to say, well okay, I want to be able to do all that. We give them tools to be able to assemble that print job various composition and imposition tools, as well as for them to do late-stage editing on the print, it might be adding tab on to the document or all of those things. Often times you guys know sometimes you’re going to be printing a booklet.

Lastly, Fiery is a whole bunch of workflow tools and integrations. Customers want to automate a lot of what they do. They might create various folders and automate certain tasks. Fiery have the unique user interface that customers love. And Fiery has integration into the rest of their print environment. Probably the most significant integration that Fiery customers care about the most, one of the -- is our integration to the EFI management information software. You’re going to be hear more about the MIS business automation software little bit later, but the fact that customers, commercial printers on the higher end are running their business and even my production are running their business using this type of software and Fiery can go in and seamlessly talk to it the real key component of how customers can better manage their environment.

Now Fiery is -- by our partners. We partner with all the leading print almost all the way, I could say print manufacturers to distribute Fiery. We work with them in partnership from an R&D perspective, sometimes 12 to 18 months before the printers are actually shipping in the market. We will be working with those makers to develop the Fiery. And then they will actually launch the Fiery. They are selling Fiery because the end users are asking for it and they sell Fiery as a performance, a high-end performance option on to the printer they sell. Often times for someone who is not familiar I would like the paint the analogy, it’s like if you are going to buy a car, you are going to buy a Lexus or maybe Lexus or something up, but you get an option to get the stereo that comes with the car or you could spend a little bit more and get the both stereo option, Fiery is sold often times the same way. It’s an optional performance upgrade to the base package. The buying decision is made by the customer. The customer is asking for Fiery. And that’s the key thing and they ask for all of the advantages that I mentioned earlier, I’ll go through some of those as well.

From a partner’s perspective, Fiery is a very profitable up-sell. Often times Fiery is priced in the market at 200% or 300% mark-up, so our customers love our partners rather love those revenue streams and profit that come along with having Fiery as part of their business. And Fiery often times drives more clicks or more prints from the devices than the competition. And that’s because Fiery is able to process more so they are able to actually get more throughput from the printers. And because Fiery users tend to be power users to both of those combined. Our partners love of course getting customers that are going to drive more clicks, that's good for them their business model is one that’s built on consumable.

Fiery users again, because the power users tend to have more finishing devices, so from our partner’s perspective getting a Fiery customer typically is a bigger sale for them. It’s going to mean more finishing equipment, it’s going to mean a nice profit on the Fiery and then it’s going to mean at the end of the day potentially more consumables.

While we talk about some of the major partners of Fiery, Ricoh, Canon and Konica Minolta, Xerox are one that we don’t classify as an external partner, but, and I heard the question-and-answer before were also build -- products as well. So Fiery for VUTEk line, Fiery for [Inkjet] on line and in the process of building a Fiery before our Cretaprint line of printers.

When I think about the Fiery addressable market, I thought this would be probably the best way to show it to you guys in terms of what the market opportunity is going to look like. Fiery has approximate -- market share in the production market. This varies slightly depending upon the duty cycle of the printer, but this is a pretty good number to use in terms of looking at the overall market.

And what I did here on this slide is actually model out North American revenue of the printers which is actually the blue lines and the revenue that the printer maker is growing, is growing by about 6% a year. And if you look at the green bar here, this is actually the Fiery North American revenue. Europe and North America are fairly similar in this regard. But I want to show this trending back to 2009 and the point of the slide is to show you that Fiery is going to more or less follow the trends of the color production printer revenues in the market. There will be some instances where Fiery is a little bit more, Fiery might be a little bit less, but overall it's going to follow that trend.

The reason why you have sometimes pluses and minuses is really depending upon product introduction. Fiery doesn't have a post-sale. So when Fiery is sold when the printer is sold and often times when the new printer is introduced, our partners need to order more Fiery to make sure they have inventory for customer demand to stock showrooms. And so sometimes you see a little bit of a variance. But for the most part, it's following that trend.

Now I think growing the Fiery business, I like to look at the market in a simple way, which is three segments. And I'll start up talking first about the middle segment, which I would call light production. That's where the lion share of the Fiery business is today. Light production, I would include things like in-house, (inaudible) department. I would include quick printers and any other true light production shop. Our goal there is to continue to gain share over the competition via innovation, better support. We also look to increase our ASPs in that market by introducing and continuing to introduce new software solutions that are options to the Fiery that we can sell to that base of customers. We've introduced a couple of new options over the last year. And also any other services we could offer them via the cloud, cloud-based dashboard so on and so forth.

Our key benefit in that area are better productivity over the competition, much better color and image quality, better output. Fiery tends to be regarded much more usable. And as I mentioned before, very strong MIS integration are the key benefits.

Now we can expand our market into the higher end into Fiery. The higher end would be things like certainly the higher end of commercial print where Fiery hasn’t had as big of presence as it had before. But as those commercial printers move to digital more and more, certainly Fiery will be able to gain share in that market. It also includes things like the ceramic tile making a Fiery for credit print. It includes production Inkjet. As that grows, Fiery should be able to grab share of that market. And the key in that area is certainly going to be the integration of the MIS as well some of the high-end performance features that we have in the product.

Now at the lower end of the market and this is where the market is really quite big in terms of pages, in terms of units, printers in the enterprise market. That’s where you know about the trillions of pages that are being printed, but that’s the market that we see has been a decline, it’s not a focus area for Fiery. Now that’s not to say that we don’t tell any Fiery in that market, I could say it’s a very high-end of the enterprise market where this kind of bleed together, certainly some Fiery are placed maybe inside a marking department or other areas of the print. But the general enterprise is not a focus for us.

Now why is the Fiery strategy works and it works really because it’s all about the end user. End users are the one who really frankly love Fiery technology. I know we have a couple of end users for you later today, you could ask them their opinion why do they select Fiery that’s thinking to be their stories there. But customers really love it. They love it because of performance. Often times performance for them means productivity. They’re able to get more work done they’re able to get more jobs into their shop. They love the usability.

Given Fiery’s market share people know how to use Fiery. Fiery is an easier to use system, it’s something that we focus on that all the time. Fiery has got certification so you can know if your print provider they’ll be able to hire someone who knows that is Fiery. Fiery does a great job with color whether it’s out of the box first color that are going to [pop] or whether it’s or doing a reprint or something that you printed before and you need to match your color or even matching all set press, Fiery is always regarded as having the best color in the industry and then I mentioned the integration, integration to EFI to MIS, integration to third party systems and a whole bunch of standards that we help to find.

We also have closed to a 100 resources in the field that are helping the customers and the partners and evangelizing Fiery everyday and so that's another really big asset that we have and of course partners love that, they get a lot more information customers love that. And there is a huge base of very loyal Fiery users as well that have a preference with Fiery tools, the Fiery UIs, what they used before is what they want to continue to use again. And on the bottom, if you are 15, in the back you might not be able to see, but there are some brand name as Fiery’s got, million, literally over million people using it. And there are some great brand names there Amazon.com, Coca Cola, Coach, a number of commercial printers as well, that you might see just yesterday I visited over 800 postcards here in New York City, and tremendous big brand customer, loyal customer there.

Now compare to the competition, Fiery has a number of advantages that customers tell me all the time is one of the reasons why they take and they are loyal to Fiery. So end customers always have a choice, they can choose Fiery or they can choose the digital front end that the printer maker provides, and that's a really big difference. For us, Fiery is a business, we wake up, we eat, we breathe, we sleep the digital front end. When we talk to a customer, we are asking them all even how we can make the digital front end better for them. For our partners, the digital front end is really more of an accessory right. Their main business is driving the post sale, their main business is driving the equipment and so they can sort of naturally gives us a little bit of better focus from a product management perspective.

Obviously being based in Silicon Valley we’re fast moving, I hear from even our partners when they compare their internal releases to the Fiery releases, Fiery releases have a tremendous amount of features and functions and innovations in them, what they see from their own companies tends to be at a little bit of a slower pace.

I mentioned a large field team event utilizing Fiery. Fiery is also very open and hydrogenous, it allows customers to standardize, meaning if I have print equipment from two different vendors Fiery is the best choice to allow me to have one way to manage those two, one way to get consistent color amongst those two, one way to move work around and give me the flexibility that I need to be able to run a print shop. Fiery has got the best performance and when I talk about that, it is hard numbers, do bench now have jobs that they run for their customers and prior to purchasing or making a decision about what digital front end to use, they run benchmark and it is not uncommon for us to see an enormous difference in how long it takes for us to process a job versus our competition. It’s not uncommon for me to hear the competition couldn’t even process the file in a lot of cases. So performance in products could be very, very important event and of course the color and the image quality.

Now let me give you an example of image quality because sometimes it’s hard to really understand is something good enough, I get asked that questions all the time, I mean how good the image quality have to be and there is an organization called VIGC and they put together a test on the latest PDF standards and they put a extremely technical test together, if I were to show you the file you would look at it and you would say what is the point of this knowing whatever print something that looks like this, extremely technical test and Fiery was the only digital front end to get a perfect score on the test. They got a 100% passing score. The next score besides perfect is pass which is an 80% score. So, quite a big difference between Fiery and the competition, even though a lot of them might use Adobe, a lot of them might use other third party tools just like we do, the real secret software that we have is processing these things perfectly and quickly.

And so here is an example of a file and now that I explained this to you by the way you are going to notice when you walk around to maintain, you are going to see these types of designs all over the place. If you notice on this file over here sort of these transparencies and you will notice on left had side with Fiery and the right hand side without Fiery transparency is something very, very difficult for a digital front end to process correctly and this type of transparency, again we put together real world file, this is the VIGC test, but to demonstrate it. You will see by the way look at the EFI PowerPoint you will notice the same type of thing used to transparency.

When you walk around the block, you will see it at Wachovia Bank, you will see it in front of Citibank, you will see in front of Bank of America, you will start to notice it’s kind of everywhere now that you know what to look for. And you will see if you run this type of file and this is what customers do all the time, we can -- given the file, they can do on their own. You notice the transparency don’t print correctly, this is not an acceptable file to a customer. You will notice all over the place, this color bar over here, this rainbow is another great example of a blend and you don’t see it print out well and these aren’t file that are very difficult, these are common things that people do and Adobe tool and Adobe provides this in their latest suites to customers, artists, they are doing blends and this type of things all the time in transparency. That’s just one example.

Another example will be one involving the colors and it’s not the best projector in the world but certainly if you had a printout in front of you, I could guarantee you not want to buy tool, it’s for your loved ones, if you got hand in the sample on the right, because they don't look green. And so that's a really big deal. And the same thing is well when you get into skin tones or other colors, they wind up being desaturated. Now if you're a print provider, this either means you're going to have an unhappy customer if you gave them this the file on the right hand side or you're going to have to do a rerun of the job which is incredibly costly. And more and more what we see is customers are doing their homework, because they know that this is really an unacceptable situation to them on the right. And they can get much better outlook in this case as Fiery.

So in summary, let me tell you the three key takeaways and then I'll open it up for ten minutes of Q&A. First off, Fiery is a solid cash generating business with GDP like growth opportunities that will grow as digital production grows. Number two, the DFE itself is becoming more important and Fiery is differentiated by integration to EFI productivity software and by a number of technical advantages. And then third, when customers do their homework, they are going to take Fiery.

So with that, I'll open it up for ten minutes of Q&A. Shannon microphone is coming.

Question-and-Answer Session

Shannon Cross - Cross Research

Thanks. I guess the obligatory question about the rollout schedule for your partners, how you are thinking about 2014, obviously ‘13 was a strong year. I think you still expect sort of ’12 you haven’t guidance, but I expect up sales for Fiery probably in 2014, that's when GDP doesn't decline. So how are you thinking about the pace of what you expect from your customers or your partners and what do you think about potential share gains, like what's behind some of the expectations that you have?

Toby Weiss

Sure. So Fiery is a typical business that to predict why we don't give guidance on it. But the answer would be if I can wait till next October probably to tell you how Fiery did in 2014. From where I stand number of factors obviously that influence Fiery, the roadmap as one that our partners are actually delivering on that roadmap and not having any flip to it. The introduction of the product is a big one as well.

So from where I stand right now the engineering team looks as busy as they did last year , it’s probably the best way to frame that and of course a lot of variables there. We obviously have a window let’s say of 18 months out into the roadmap, but a lot of variables that could influence that. Certainly we're very focused on trying to gain share against the competition. We've done a good job of that in the past. I think as I said before one of the trends we're seeing is customers paying a lot more attention and doing their homework and we're never shy about doing a wake off there. So, always typical to judge that that foreign events which is why we don’t do it.

Shannon Cross - Cross Research

Will you be at (inaudible)?

Toby Weiss

Yeah, as I said before, the engineering team is pretty busy, I mean they’re always telling me they need more people to do their job and keep up, the engines themselves they’re also getting faster and more complicated there. So you can always have a delay unfortunately from the partners, so sometimes where I think it looks good, things can move, but I wouldn’t add anymore color than what I added right there. Thank you. Next question?

Unidentified Analyst

I will push a little bit on Shannon question, as you think about just what happened in ‘13 it was a huge year, a lot of OEMs postponed introduction new products in ‘11 and ‘12 and went on ‘13. So if you just think about your OEMs and what you believe that are going to happen, is there any way to think about the number of product launches at your OEM in ‘14 versus ‘13, is it 50%, is it 70% is it 120%, because I think that one thing that could really derail you guys is if controllers are down next year?

Toby Weiss

Okay. Good question. When you look at the partners kind of hard to put a number on it, because as you said they postponed or there were delays and entering, certainly I think if you would ask me a while ago, I would have said (inaudible) probably would have been introduction but certainly saw some 2013 was a good year for delivery. With that said, there is a number of partners who have shown printers at trade shows that haven’t been launched in the market, so I think it would be logical to say those will be coming out and the timeframe that you mentioned there is also products that launched not just at the beginning of the year, while 2013 as you pointed was a good year for product introductions you had I think a good start with Xerox coming out with a hot product in the beginning of the year.

You also saw things released throughout the year. We had a Ricoh put out a good new product quite recently and so I think you get those to carry out as well into next year as part of thing when you look at the model of the introduction. So I can’t really put a number on it right now to answer the question probably the way you really like me to, best I could say is that certainly feel like there is a lot of work to be done, our partners are very focused on the production market right now.

If you look at their resources, it’s seems to be focused on production, they all see growth in that market, they all see it’s growing, it’s a rate that I described. I should add as well by the way that there is a big analog to digital conversion, I may even didn’t bring it up in the presentation, but that revenue of growing at 7%, but the pages are actually probably growing faster than that and you guys all see those in the reports that our partners push out. So while one of the trends of the engines themselves are getting faster and faster which means they can actually take more work and move it to digital and the engine places won’t be as fast as necessarily the page movement is actually going, but I would say it looks similar from a work perspective and then we’ll see one actually get launched.

Unidentified Analyst

Characterize some of the competitive dynamics in this space like are you seeing, I know you guys have a pretty decent market share on the front end, but what about some of your other competitors as well as the OEMs, like what are they doing on this end? Clearly everybody’s margin pressured on the printer OEM side.

Toby Weiss

Sure. So one trend I can say over the last few years is Kodak is certainly become less and less relevant, they still are in the market, they are still there, but I think customers are doing their home work, it’s obviously very difficult for them to catch up. I kind of walk through some of the technical challenges and building a bit, then it’s an incredibly R&D intensive process to be able to get the throughput and get to usability there. And I think with the print investments it would be hard for them to recover from that situation as part of the digital front end goes. But there is still some share there. They are not launched on some of our partners new products. So if you look out into the market and the new engines that have launched last year, most of them do not have Kodak offerings, works some before did and so we certainly can do everything we can to get that share and move it from Kodak. If I were in that position to do that, any Kodak customers had bought for printer re-integration or we thought they had high end color imaging needs. So we think we're really that position, we're kind of the only digital front end that we can capture that work load. That's one competitive dynamic.

From our partners perspective, of course revolve printing is pressured for margins, and so that's we think favors us because as customers want, expect more out of the digital front end and there is other studies that show if you look out in two years and three years that customers expect more work to be done in the digital front end, they expect to do more color management and additional front end may expect more work flow in the digital front end. So, if you take that trend of customers their homework more, they expect more out of the DFE and potentially our partners having so being concerned about their margins, we think that gives us even a more competitive reasons as we use innovation as a big weapon to go after that.

So the partners as I said, I think there is a big difference there. When they are talking to a customer, they are talking about the total package, they are talking about the fuser, they are talking about the roller, they are talking about the consumables, they are talking about the pricing. When we're talking to them, it's really all about the digital front end and making that better. And so I think there is a clear choice for Fiery to be meant there. Thank you very much.

Unidentified Company Representative

The Software Group, and the first thing we wanted to explain really is what is productivity software. So you've heard about our Inkjet Group our Fiery Group productivity software is got to be upon it’s geared around answering these types of questions that every printer has to ask if they run their business. It’s really the business management software that helps a printer control there the operations of their business. That means everything from estimating the cost of the job scheduling a job, cost accounting, financial accounting scheduling software data collection invoicing a complete business management system really from end to end. And we also provide e-commerce solutions that allow printing companies to set up their own website to be able to collect orders from their customers over the internet. So, it's really a combination of those factors. And we're providing these solutions for both printing companies as well as packaging companies. So if you're in this business and you want to manage your operations, we're going to have a piece of software for you in all segments of the printing or packaging industry.

We are the leading provider of these software solutions today in North America by far and really worldwide. But our market share in the United States today is about 70%. For the e-commerce solutions, since that market is not nearly as matured the MIS market is and that they have only been around for about 10 years or so as a solution. We will have about 25% market share in the United States, but again still the largest provider by far in the U.S.

In recent years, we've also become the largest provider in Latin America, in Europe, in Australia, in New Zealand, in South Africa. Today we have no sales at all in China and that really is one of the larger untapped opportunities for the software business that's completely unaddressed by us today. There are a number of very, very small providers in China, however the Chinese print market today is a little bit smaller than the U.S. in terms of the value, the output of printing that’s done in China. But there is some really about three times the quantity of printing companies in China today than there are in the United States. And China will probably be a larger industry in terms of value, the output than the U.S. in about three years.

So that's definitely something we're going to look at in the coming years as an area of focus for us.

And beyond just the aspects of the software business itself, around growing a software business providing nice recurring revenues and nice gross margin for the company. The software is also a key part of the EFI ecosystem. It’s really the thing that differentiates EFI most from any of the other competitors in the industry because when we have the software installed at a printing company and you plug-in the VUTEk printers and you plug-in the Fiery driven printers on the toner side, you really it can provide completely integrated workflow environment that no other competitor in the industry can do.

And so think about it in these terms is that if a customer wants to get a job produced, they can submit that job through an e-commerce solution to one of our printer customers. That printer customer is going to price the job for that customer using our software, they’re going to plan how that job is going to be produced in our software and is going to schedule it on to a piece of equipment, it’s going to say this job has to run at this time. Well then that job is automatically going to be passed when it’s time to produce it out to a Fiery driving print engine so print engine is going to produce it the way that the customer originally configured it because we have passed that information all the way through to the print engine. And then when the print engine actually prints it that information is going to be captured about how long it took to print, how much it cost to print, how much paper was used, how much ink or toner was used, all of that’s going to be captured and pass back to the software systems to the business management system. And so you’re going to have cost information detailed about how the job was produced, how long it took and so on, captured back automatically into the software system.

So that end-to-end integrated solution is something that no one else can do and it makes a very compelling value proposition for our customers when they’re going to make a discussion about what inkjet printers they’re going to purchase or what toner driven printers are going to purchase as to whether to get a Fiery or not going to Fiery. So we don’t connect to any non-EFI products that compete with Fiery or that compete with VUTEk. So if you want to have that integration to our very large installed base, you have to buy the products from the EFI.

Looking at the size of the market here, you would think the print MIS market is continuing to grow worldwide, you could see it’s about 5% compound annual growth rate there, this again is a printing and packaging production that we’re talking about here addressing with the software solutions.

And the primary growth drivers here are that the margin pressure within the industry continues to grow as the industry goes through this digital transformation from analog printer. And so printers really need to have a much greater level of control over their business understand where their costs are generated. And also as a general trend print jobs are becoming shorter and shorter. So the transaction volumes are becoming much higher for less value per job. And so in order to deal with this higher volume of jobs that are coming into their shops printers need more automation, if they touch the job, they are going to lose money. So they need the software to be able to manage the jobs from end-to-end for them through their production cycle.

We’re also seeing some increase adoption of SaaS solution especially in the e-commerce part of our products suite, where customers are asking us to host their website solutions for them. In terms of the growth expectations, as I mentioned, Asia is pretty much untapped right now, by us today and Australia, New Zealand in the Asia Pacific region is really the only area that we have any install base.

A combination of Latin America, the Middle East, Africa and Europe will all be growth opportunities for us and certainly the printing industries in those developing areas as are growing much faster than let’s say Western Europe and North America. And so as those industries grow in those regions there increases demand for the MIS software as well.

Going back to print market; again this is growing a little bit faster than the traditional print MIS as this really drives revenue for the printing companies and they need this in order to build their business. And so you can see a faster growth rate here about 13.5%, you can see about the same division between North America and Western Europe as the primary consumers of these types of products, but again both of those still being significant opportunities with the market share that we have today and only being 25% in North America smaller than that in Europe. And I would say between these two combined certainly our European market share today is dramatically smaller than our U.S. market share because we’ve just been really entering into Europe over the last few years. And so we believe that Europe can be a significant growth driver for us in the future.

So one of the unique things about the software business is that we have a tremendous amount of recurring revenue as part of our revenue profile. And to illustrate that we put some statistics up here, when we enter a year, about 60% of our annual revenue is really big entering a calendar year based upon the long term contracts that we have in place or evergreen contracts we have in place. So combination of the maintenance agreements, the SaaS agreements, long term services contract that we have all help to give us that committed revenue entering a new revenue planning cycle.

In addition we have a large backlog that we presale, a professional services that are used to implement our software into the clients base and that typically runs about six months where we know we have training to deliver via our professional services staff. And so, if you look at the break down of the revenue overall you can see about 45% of our revenue comes from maintenance in the software group, about 10% of the revenue from SaaS agreements, 30% from licenses and 15% from professional services which is primarily training. There is a little bit of custom development in there, but it’s really mostly training and implementation services.

And so looking at why we believe the growth is sustainable in the software business, we have been growing double-digit growth levels for quite a few years now and the primary drivers for this again are the fact that the industry is changing so much that customers have to continue to invest to become more productive through investment in software. I mentioned we had 70% of the market share in the United State, you might they well how much higher can you really get by than that than 70%, I mean I said a pretty dominant market share.

What we have been doing in the Unites States is actually increasing the share of the wallet from the existing customers. Each years through our R&D efforts, the innovation and also acquisitions that we do, we develop or come out with additional products that we can sell to that existing client base. Since, we have them captive on our core platforms already when we come out with a new product, we can show a very compelling value proposition to them to go make a supplemental purchase add to the portfolio, add to the portion of IT spend that these companies are doing every year and that's really helped consistently grow our U.S. revenues every year even with that significant market share.

Certainly, driving international sales, we mentioned on the last earnings call that the Europe has been very strong for us I believe and we think we still have significant growth opportunity in Europe, it is as I mentioned a much smaller in terms of our revenues today than the U.S. when the market size is about the same. So we hope to be able to duplicate the type of market share we have in the U.S. inside of Europe in the coming years.

On the packaging side, our penetration in the packaging market; again, even though we are the largest provider of software to the packaging space, our packaging penetration is much, much lower today. It's only about 15% of our total revenue.

So you combine all of those opportunities to grow organically within each of those markets with the fact that we've been able to do some very successful M&A transactions over the last few years. If you followed those, before you've seen these are small companies that we buy. But we bought quite a few of them about ten of them I think over the last few years. And the benefit of that is that it allows us to really accelerate our penetration to new geographic markets. Because when we go in and we buy a company in a market, we're getting their support team, we're getting their implementation and we're getting their sales team. So we have people that already know are familiar with the customers, familiar with the market. We typically do not continue to sell their product in that market. But rather try to sell our existing products into that client base so we create an action for an upgrade cycle for that client base, while still maintaining the maintenance revenue that we get from those clients. And so this scaling of the business has really helped drive this improved productivity that we've seen in G&A, sales and R&D in the software group over the last ten years, that we've been part of EFI.

One of the nice anecdotes I like to related about this productivity increase that we've seen in 2003 when we were acquired by EFI, we're about $35 million of revenue that year and our average quota in the U.S. was about $1 million per [ramp]. This year that quota was up to $1.9 million per ramp. And so that dramatic increase in productivity is really what we've seen from having more products in the bag to be able to sale to the client base and establishing that significant market share that we've done in the United States.

So the key takeaways here, the software industries selling the packaging and printing companies for the print MIS software and e-commerce software is about $900 million a year opportunity. And our goal for the Software Group is to grow from where we are today, it’s about $170 million to be able to get to $200 million level through organic growth, international expansion additional roll-outs in different geographic areas and so on. And we’ll continue to make software even more of a differentiator for EFI as a whole making it very sticky in that client base and making it very, very difficult for our clients, on the software side to make a purchasing decision to buy anything that’s not driven by a Fiery or it’s not a VUTEk, Jetrion or other EFI inkjet product.

So thank you and now I'll introduce Charlie Grace. Sorry, we're going to take questions now.

Okay, I guess we're going to take some questions now. If anyone have any questions they’d like to ask on software and other.

Question-and-Answer Session

Unidentified Analyst

Can you just talk a little bit about penetration in emerging markets with software, what will the strategy be? Will it change at all from what you have been doing in Europe and just talk about timing?

Unidentified Company Representative

Yeah. So I think we've found the strategy in Europe to be successful, so we are going to look to replicate that in emerging market that we've already done that in Brazil and it’s worked out very, very well for us in Latin America it really made us the leading provider of Latin America and we've seen that help drive a lot of adoption. For China, I think the Chinese market has some unique challenges with it, like we have to go with a hosted solution there, rather than a license solution.

But in all likelihood that we have to do some, to really penetrate that we've to have some type of acquisition to be able to get in there over the coming years.

Unidentified Analyst

Is it just seamless to execute that strategy in China and I guess kind of Latin America would be able to do it, as it was in Europe, Europe is sort of like you have to dominate that pretty well?

Unidentified Company Representative

Yeah. So I think the again the dynamics of the Chinese print market are bit different from the dynamics of the European print market. Five years ago it would have been much tougher for us to be able to penetrate into China, but the advantage we have now is that we actually have some infrastructure in China as part of our Inkjet business. And so having gotten some of our financial systems setup and gotten some management infrastructure in place there, again we’d likely still have to do an acquisition to do anything significant in China.

But I feel that we have learned a lot over the last five years to be able to, to be more successful then.

Unidentified Analyst

Can you talk to, you guys have acquired a lot of small companies like you mentioned in the software channel or so that you mentioned, how is all that integrated now from a customer perspective?

Unidentified Company Representative

So one of things as I think Ghilad mentioned during his M&A presentation we really have a good cadence now for when we do acquisitions. We have common CRM solutions that we deploy across our platform, common deep act tracking that perform, common support systems that we perform. So we can bring people in pretty quickly as part of our common infrastructure. Now again most of these companies that we acquire in the new geographies were not selling the products itself, we are continuing to support it so the help desk is still there customers can still call in with questions and so on, but we’re really using that client base now as a fertile ground to sell the products that we developed that we sell worldwide to bring into that new geographic market, we use the local R&D people for example to help us with any localization that’s needed to adapt our products for that new market that we are going into.

Unidentified Analyst

Can you talk a bit about the trends in the industry in terms of movement of SaaS and if we went out a few years, what our customers are asking for, they wanting to move more of the ratable plans or are they happy with sort of the license maintenance?

Unidentified Company Representative

Yeah. So it’s interesting, because we sell these two types of products, the ecommerce software and the ERP software. And we offer both in perpetual license where it’s installed with the customer as well as the SaaS model where it’s hosted by us. On the ecommerce side, over the last 12 months we’ve definitely seen a transition towards customers no longer wanting to host it on their own and pushing to us on a SaaS model to have us both hosted and to subscribe to it. But on the ERP side we really haven’t seen that demand we’ve operated, we probably do more than anyone else in the industry but it’s still a very small piece of our overall business. We just haven’t seen the customers want to push it out of their environment. They seem to want to have that financial accounting data captive in their business. Again for China, if we were to launch there, we’d probably go exclusively with [house bid] only in both platforms.

Unidentified Analyst

So business acquisitions have been per year is that going to change going forward become more aggressive or is it easy set and done?

Marc Olin

Yeah. I think that we have been happy with the pace that acquisitions have been taking place now on the software side. I think so we certainly want to be very measured in the companies we buy. The reason I think we have been successful with that is because we look at the companies very carefully, choose the ones that we feel are right. There are certainly plenty of companies still out there to go and acquire, but we don’t want to buy the wrong one. So we want to continue I’d say repeating the model what we’ve seen to-date and finding the right mix for our organization.

Okay. Then I will introduce Charlie for real this time. And let him bring up our clients. You need the quicker? Okay, no quicker needed. I appreciate that.

Charlie Grace

Good morning, everybody. As Marc mentioned, I’m Charlie Grace, I’m the Vice President of Sales of EFI Americas. And I’ve got -- there to invite two of our customers that will share with you some stories of our customers to get --.

First is Dennis Riggs, CEO of Mound Printing in Ohio, Dennis come on up. And Tim Bennett, who is the CEO of Image Options in Southern California, come on up, Tim.

So what we are going to do today is I have got a few questions for each of the customers and then at the end I'd like to open it up to all of you for questions for our customers. Okay?

So first Dennis, tell us a little bit about Mound Printing?

Dennis Riggs

So this is a sort of a difficult question. I think that Tim and I talked about last night or this morning I should say, how do we describe ourselves? And I guess traditionally, you would say we are commercial printer. But we're sort of the new breed of commercial printer in the sense that there is a lot other services that we offer other than ink on paper. So we do a lot of direct mail fulfillment, print-on-demand, wide-format, some VUTEk technology that we'll talk about in a bit. And we serve about 80% of our work is national client base and retail and higher education of the two big segments that we serve.

Charlie Grace

Great. So how do you manage all those jobs?

Dennis Riggs

Well, it is bit of a challenge. I do [miss], if I did not have mention, we have great people, I mean that's where it starts, we can't do anything without our people. But a lot of that has come with one of the software package that EFI offers and that’s ePace. As we begin to evolve over the last 10 or so years, we started finding ourselves and other businesses if you will other than just traditional ink on paper commercial printing. So when we got into mail, wide-format, fulfillment, e-Commerce we do a lot of [weather] print as well.

Our current MIS system at the time, we quickly outgrew that. And with ePace we found that I wanted something that would sort of get us all under one roof if you will from an operating system. So ePace is a big part of that and also PrintFlow another EFI product that helps us with our scheduling.

Charlie Grace

Great. Thank you. So tell us about your digital business and what the impact that’s been for Mound Printing?

Dennis Riggs

Well, digital is probably to, as I mentioned earlier, it's all over the place. And it is really it helped drive our growth. The world is changing, people need things faster, they need things in smaller lots and without digital you’re dead because you cannot afford some of the traditional set-up cost as you have to go with analog printing is somebody wants one, you just can’t do that.

So digital has really revolutionized how we deliver. And basically it helped us to answer more of our client needs. All those things I mentioned all those different businesses if you will that we're in, it’s all based on client demand. And that’s what the market is asking for.

Charlie Grace

Great. And I wish I was this good to plan in this way, but there is something big going on at Mound Printing today, right?

Dennis Riggs

That’s right. We actually are putting in a new toner-based device for, those of you not familiar with printing basically a color copier on steroids. And it will be our fourth Fiery box in the last eight years I believe.

Charlie Grace

Great. Well thank you very much. Tell us why did you select the Fiery?

Dennis Riggs

Well when we first gone into digital printing, a lot of stuff has to happen before job has ever produced. So a lot of traditional pre-press activities that would take place for analog believe or not still do have to happen on the digital print side and with Fiery we were able to consolidate a lot of those tasks that normally had to be done with our pre-press department to where it could be done right there at the print engine by the same digital operator. So things like imposition when we put multiple pieces on a larger sheet of paper, our color management, the management of variable data where we print highly personalized pieces all that could be done with the Fiery.

Charlie Grace

Great. Well thank you again. So recently you also entered into the wide-format business?

Dennis Riggs

Yeah. We've been in the wide-format for several years actually, but sort of the transition that they mentioned earlier, we had Aqueous and then Solvent solutions in place. And then we’ve identified over the last several years wide-format especially UV wide-format, now LED as a huge growth opportunity. And a lot of that has got to do with the amount of substrate that you can print on.

So we’ve put in our first VUTEk I think it went on before May and went fully operational early July. And we’re about four months into it now and we are actually talking with these guys about buying another one, because we’re basically tapped out of capacity. So it’s been a great acquisition for us. And to add to that, the gross margin for us on wide-format is currently about 20% to 25% higher than any other segment including small-format digital printing.

Charlie Grace

And then another great success story, again I couldn’t plan this, but when you came to hotel yesterday, what did you find?

Dennis Riggs

One of our clients, nationally is [carb] shoes and I knew they had a Marathon Avenue store, and I don’t want to speak, as we spend a lot of material on there and happen to be literally in the hotel lobby. And so while the time that you see in that room are printed especially the larger pieces are printed by us on our VUTEk, so that was kind of strange.

Charlie Grace

They are everywhere. So what's next in Mound Printing?

Dennis Riggs

I think that’s a couple of different things. If you kind of look back the slide they showed today with our ecosystem, we do, we value planning and we value integration a great deal because all the things that we offer are highly complex solutions. So it’s not rocket science, but there is a lot of planning that we have to go into because the printing quite frankly is sort of, that's easy part. But it’s got to do with the integration as number one. So when we selected, when we went into wide-format recently for instance, we selected EFI VUTEk solution for a particular reason, it wasn’t necessarily because of the print quality, but it had to do more with the integration.

So integration is a big deal for us because I think as Marc mentioned, every time you touch the job and especially if are doing a $25 worth of print order something like that you are going to lose money. So integration is a big part of that and we feel like EFI is the right partner when it comes to that.

And then I think secondly is Inkjet technology. I think it was mentioned early on today a big game changing technology I mean it sounds a little to say, but Inkjet is huge in terms of I think the future growth of our industry because for one simple reason it is non-impact printing. So if you think about traditional printing presses which we still have and still utilize and still grows from a lot of our other services that we offer that substrate has to go under pressure of some kind and that really limits what you are able to do.

Now with Inkjet I mean for us for example once we got into wide-format the number of products the number of substrates that we’ve been able to produce is growing exponentially. So we see Inkjet eventually replacing the printing I think toner eventually, most toner technology and then I think eventually offset technology. So the cost per page has to come down, but we see, that’s where I see my business in 5 to 10 years, I think it will probably be all Inkjet all digital technology. So that’s the two things I think that we’re looking as integration in Inkjet.

Charlie Grace

Well, thank you very much. That’s a great story you have and thank you for being a great partner. Tim, thank you for being here as well, tell us a little bit about Image Options?

Tim Bennett

We came at it from a different angle because I came out of the technology side, I originally started in the UK in the business if you like and then I got hired away into the industry which is how I got the space. But it was strange because when I was still in the technology side, customers kept thinking we were trying to convince them just to buy the equipment and really what we were trying to show them is where the industry was going and then they all started getting worried about why we were going out of business and that’s one of the things I picked up here, it’s a bit like talking to my bank listening to the audience because there is a difference between we’re in the emergence business and the conversions business.

Marc, if you like is in the conversion side, he is traditionally analog going digital. We came from we’re kind of a market marker (inaudible) We started in digital and we’ve basically taken that market share away from all traditional people. So exponentially the market is massive unless why you see some of the bigger players jumping into it now through M&A like Donnelly and a lot of big players. So they are all getting into what was seen as these weird guys that just do large format digital printing. And now they realize it’s all part of that same workflow. If you got an image of a car that’s had always work done on it to make it product [correction] et cetera and it’s being signed up by the agency, how many formats do you want to put that in?

So there is no reason why you can’t get back into a publication, why you can’t get it on post [TOT] on the shop floor if you like in the stores and then the dealerships and then that goes a little way up to the stuff we do in Times Square.

Charlie Grace

So let’s talk a little bit about that. What types of product and services you offer and to what type of brands or customers are you searching?

Tim Bennett

Yeah. That’s we think I’m kind of a one stop shop and thanks for those this year we have messing around we are trying to have create them new [elevator] speech because people say what you do, we say we’re logical image printing company, well we don’t look like a printing company. We don’t smell like when we’re done with some other things.

When EFI has been talking about they don’t track the Solvent’s ink pieces. We just got rid of our last Solvent printer about a month ago. And we had a number of multi-designs. We have six of them now. We have just taken delivery of the first of two HS100. And they are all using curing. So this is a much cleaner environment and it also expands your multi-place that you can put your deliverables on.

So as far as our company goes, as we evolve through this simple piece of the technology, we started to bring in typography and a bit like when you look at some of your M&A people who is interested in what Ghilad said, because I know the pullback is right, but we do the same thing. We want to acquire people with straight credibility and design and typography, because we don't want to build that platform. So we will try that into that marketplace.

And so our deliverables today are everything from creative or Isaac Shoes for instance, we do all the design now that's the thing that they just suddenly started to realize we did even though we told them 20 times. They suddenly saw it and then we added typography a couple of years ago with a couple of studios and then we have all the production and the manufacturing of fabrication side, we do a lot of a specialty work for the life of -- this is very simplistic part of the life because it’s more, but they are clear into if you look at some of their own brand stores that they do a lot of fabrication on 3 dimensional signage. And this is big advantage that you've got with digital is that you don't have to print 500 or 5,000 or something, we're doing a lot of geo-demographic marketing where we can use only 1 and build you 100 or any number in between.

Charlie Grace

So you are actually doing things like this on your VUTEk printers, as well as some of the signage in Times Square. So range is that big?

Tim Bennett

Yeah. And that's an interesting thing as well. That's why I say conversions and emersions because the conversions if you look back at the industry a few years ago, we had photo labs, screen printers, lithographers and packaging and flex-only, packaging [crossover], but as soon as digital came out everybody thought that they would still set an industry, but really what you’re interested in is just getting an image out on something. So once the quality and speed sort of get to that level of its predecessor, its digital advancing (inaudible) So billboard printers typically and they always produce pretty horrific images if you got close to them, they horrible. Well now they made 16 foot wide printers that you can be this close to it, it might look as good as that because there is same print hedge on the same technology which is one of reasons that we started with EFI VUTEk through the years because we've got compatible platforms of different sizes.

Charlie Grace

So I’ll come back to that in a second, but Image Options has experienced a phenomenal growth rate over the last 12 years since you had started the company. Can you share with us a little bit about that?

Tim Bennett

Yeah. I mean it’s one of the interesting stories. We started when we were very focused on the industry such as my business partner with one of my customers. And we came to the conclusion that if you put those two together you could do unique product because now you could not only print this, but build it into something. So we were doing a lot of exhibit, high-end exhibit work. And then that started to grow and then as EFI developed the speed and it became more commercially viable, we started to see us moving retail. Now today our market is I would say primarily 80% retail and we do all the work right here in North America including Canada last year. So we do everything in those stores. And then we have customers such as Calvin Klein in Times Square where we do the big 185 foot wide [Wolf Gate] which is 80 feet tall. And those are panel together in 16 foot wide panels of other equipment. So and hopefully of course Crop Shoes, Yamaha Music not the motorcycles, but the music division and Kawasaki with it’s very broad spectrum.

Charlie Grace

Great. And why they chose to partner with EFI?

Tim Bennett

Well maybe the first people that really track the quality side of large format, when I say large format, lot of people say they’re in large format and you ask them what they got they got a 60 inch wide printer. Every architect has got one of those that is not large format.

So when you get up to 10 feet that's where you have differentiation. And so when they brought the first eight color machine and somebody asked about the number of colors earlier which wasn’t touched on. But originally when they brought out the eight color machine that reset the platform completely because she could walk into to provide any environment and give them promotionally viable big print.

All you could do a lot of smoke in that same impact. So what it did for us and the reason we started with EFI is they constantly develop those technologies, they try to expand the material that we can put it on. The [total cure] or the LED curing on the principals really put us in a totally different spot now.

So we started with them basically because of that continuity, we've been stable to build up that platform. And two things you can approach, you either need, when you are trying to get into some of these big accounts, you either have to have a very, very fast process or more smaller processes that can give you equal output. So that’s why we got all those and redundancy and the [simplicity] because what’s happened is we used to do 1 to 50 pieces, now we’re doing 1 to 800 stores shipping to Dick’s Sporting Goods whole campaigns or that kind of things, but you need to be able to add another piece of equipment and have then all confirm with each other in terms of print quality. And also a lot of the other things to do the service, training, having everybody on the same platform. And to be quite frank we have a good track record with you and they know we put them to everything that’s my responsibility. And so we run the same test with everybody and I am not saying this because doesn’t like me, but I know we just did this exercise earlier in the year and we travel to all parts of the globe once in a month to all the manufacturers and we run our same files every time. So we always got that benchmark. And fortunately you came out on top. Nothing would make me want to go the other way, but we have to always have the best that’s how we got that.

Charlie Grace

He used to work for a competitor of ours.

Tim Bennett

I did and that really got me in some hot [wood] I did I work for one of the global leaders at the time and then they just started to drop back. And when you brought out the first eight color machines that resolution it just blew everything else away.

Charlie Grace

Speaking about colors or what not, are you using EFI inks?

Tim Bennett

Yes we are.

Charlie Grace

Okay. What’s next for Image Options?

Tim Bennett

That’s an interesting question. We are looking into a lot of marketing products we are very intrigued actually with the new analytics software because obviously that sizes into the account mode, it allows us to support the customers real need. I hate the start of the use word value add, without being some real value add that so it seems like job process controls, job tracking analytics being able to go back and somehow successful campaign was in store comparing to (inaudible) versus 500 or something and that’s the matter looks (inaudible). So we will be moving in that direction and other fulfillment types of things.

Unidentified Company Representative

Thank you very much for your comments. I appreciate it. So let me open it up to all of you if you have the questions for our customers. Shannon?

Shannon Cross - Cross Research

I’m pleased as to how you -- both of you have been doing different businesses just to make sense, but how are you able to price jobs, do you find an ability to price more, price higher respectively because of some of the digital and the customization and that maybe relative to historical where it was more and I know you didn’t have analog, but obviously new background, do you understand the business? So what has digital done in terms of your ability to price and how is it sort of differentiated you, I guess relative to the competition?

Dennis Riggs

Look, I think it’s a very interesting question and one of the dangerous obviously is commoditization of inkjet, doesn’t matter if its printer anymore, but it’s a specialization that keeps it up, right. So if you try to print on that foil, for instance you got really (inaudible) you can print on just about anything, now screen printers for typical print form in the old days, but we can print one and we can it on any color and any version and any size, we could make it variable data for that matter if we wanted to do in large format (inaudible) as well and that’s actually one of the benefits (inaudible) variable data on this direct mail stuff.

So the pricing to be honest there is also another thing out that some of the people that get into it that haven't been in our industry so they don't look at the overall cost and the market trend. So you can actually get more for it than where some of them prices. And I can look at them alone sometimes they got me you kidding? You're selling, filling and you own for those prices (inaudible) and so, but they quickly run that in general, but it just really depends on the market.

I would like to say you can go to sizzler and you can get safe or you can go to (inaudible) technically it's so big. There is a big difference in the quality and things that you can do in large format digital printings to do with enhancing product, it doesn't fit everybody. But people would get to marketing, that they want to have more deliverable stuff. I think the market sort of switching a little bit to the point where it's in some cases across their equipment is now getting so fast, it’s replacing the commodity end of the market. So teaching more and more and more into this screen print aside of things. And then there is still specialty end. So you kind of got that fluctuate in our market, that it is the pricing if you look at as over the map, but it's based on the quality of a food.

Unidentified Company Representative

So I guess Dennis point about the commoditization I think with we're still in the business of, we still do a fair amount of offset printing and that is highly commoditized. But as I mentioned more of the question that I answered for Charlie, for us wide format happens to be, we can get the most margin. For us I'm sure it's the same way to attend, that it's all based on what is the cost produce okay. And then what can we saw for what's the market are going there. But I mean price has never been much of an issue because I think sort of like [Tims] company we do a lot of innovative things and we package a lot of things together.

So for us it’s really -- for us we rarely just sale a print project if you will, can you print it, can you get it in home these three days, can you help us develop what the mail piece looks like, can you help us come up with the structural display? So it’s some of the things that he mentioned in terms of 3D signage. When you can come to the client with ideas, then you’re viewed much less as a commodity, much more as a partner and you don’t get the phone call to say, hey, can you price my job, it would say we want to roll out the campaign for holiday, can you help us put together those elements.

So in that case we tried to be good stewards of the relationships that we have, we don’t [gather] our customers by any means, but we're able to get good margin for us especially in the digital one and digital end of things, it’s a way less commoditized.

Shannon Cross - Cross Research

Can you give us just sort of the range of digital margin versus analog margin bigger than?

Unidentified Company Representative

Well, for wide format we operated around the 50% operating margin and then digital operating margin not before overhead. And then wide formats around 50% and then digital is around 40% and offsets around 30%, so I mean you definitely have that sliding scale because of that.

Matt Kempler - Sidoti & Company

Matt Kempler from Sidoti & Company. And Dennis you mentioned that cost per page was one of the obstacles to further digital inkjet adoption, I am wondering how big is that device and are there any other meaningful barriers you see becoming up a full digital shop and (inaudible) chime in with your thoughts?

Dennis Riggs

I guess it’s hard to answer, to give a generic answer in terms of what is that divide, but I can tell you it’s getting smaller and smaller. We do on the small format side for example that’s getting less and less than the large format side so, but it’s got to do with quantities. When you are dealing with smaller sheets and brochures and insert collateral direct mail things like that you are dealing with tens of thousands if not hundreds of thousands of pieces.

So digital has a hard time catching up, but in certain cases when we do variable data, when we are switching out images and offers based upon demographic in the mail file for example, the cost per pages is a relevant because analog printing can accomplish that.

So it’s kind of hard to say that I think it’s at things get more and more versioned, more and more variable, because to mention to Charlie’s example the company I referenced earlier they have several hundred stores, but each store may get a unique sign package.

So in that case, you are dealing with multiple hundreds of pieces but within that you’ve got five or six different products and that's where digital is still the only answer. So, probably not the best answer, but it’s getting smaller and smaller that divide.

Matt Kempler - Sidoti & Company

You don’t hear any objections around quality on digital anymore?

Dennis Riggs

No, I mean with us, I mean we do offset it’s still sort of premium quality which were up some clients even though say we don’t care what it cost, do it offset and you are stuck with a static piece, a piece that cannot change, but for the most part especially in wide format, wide format digital is superior to screen, I mean you have both like bot screen and I hate to buy it because I get upset with quality big compared to our digital quality that we are able to achieve and especially in wide format.

Matt Kempler - Sidoti & Company

Great. Well, thank you very much guys. I appreciate it.

Dennis Riggs

Yeah. Thank you.

Marc Olin

Putting on the CFO hat now that at the software has. So talk about some of the financial details around the business. So first, we certainly believe we have great momentum going into Q4 of this year using our guidance range that we provided for Q4 that would make our full year 2013 revenue growth 10% to 11%, our EPS growth 17% to 19% and that would make four years of double digital growth for us as a company.

The growth drivers you’ve heard about today in all the different presentations many new product introductions across all the different product groups that we have, the three tuck-in acquisition we did in the software group this year in 2013 and our strong foundation of recurring revenue ink and software maintenance all helped to continue that growth pattern going.

On the capital management side, Guy alluded earlier in the presentation to the updated strategy relating to our use of capital not only are we generating nice cash certainly from our increasing revenue growth, we’re also managing the balance sheet very closely as well to ensure that we have good capital generation capital maintenance through that. The funnel of acquisitions has certainly been increased over the last 12 months, we are looking at that and I will talk little bit more about that as well as the stock buyback strategy.

So looking a little bit more detail at the revenue story here who you see that three of those four years of double-digit revenue growth we alluded to before and our expected record year for 2013 based upon our guidance numbers for Q4, you see the breakdown of the revenue pool here with Fiery shifting from 47% in 2010, down to 35% this year. That difference of course being made up pretty consistently by inkjet and software as the pieces of the revenue that are growing faster. The recurring revenue base sit down here on the bottom, $188 million is where we would expected to be at the end of the year based upon the growth rates that we have seen in that, and that represents about 40% of our non-Fiery revenues. So if you look at the inkjet and software combined about 40% of that is from recurring revenue it’s about 26% of our total revenue.

So this again a one-time snapshot, it is not something we intend to give on our regular basis but we are getting lot of questions that we thought it would be good to provide some detail about what makes up the recurring revenue that we talked about for this year. You will see about half of the recurring revenue now is made up of ink and the other categories is here the software maintenance and subscription revenue that I mentioned during the software portion of the presentation is part of this.

We had some Fiery support fees that are small piece of the recurring revenue but nevertheless that there is a little bit of recurring in Fiery and the equipment maintenance of the inkjet products as well make up the piece of that. And so certainly the more printers we have installed in the field, the attach rate we have in the ink to the printers that is helping to drive a higher amount of recurring revenue, higher amount of ink revenue as part of this number on a continual basis.

So I mentioned on the software side, some of the OpEx leverage that we’ve had in the software business, well that’s really translated across EFI as a whole. You see here the percentage of our total revenues that corresponds to OpEx has declined from 47% down to 41% over this four year period. That's really from the expansion of the revenue and the scale and each of the businesses there. And you can also see pretty consistently the decline in sales and marketing as a percentage of revenue from 21% down to 18%, R&D from 20% down to 17%. And when you consider that, our R&D spend is really concentrated on reinvesting any savings we get back into the new product innovation and driving new products to the market. I think the fact that we've been able to bring that down 3%, while introducing all those products into the market is definitely a testament and the innovation that we have within the EFI organization.

So, as we mentioned these revenue numbers appear to top, of four years of double digit growth. The mix shift between Fiery to Inkjet is driving the gross margin decline that we have talked about on prior calls from a high 56 in 2011 down to 54.7% here. But because of the leverage we're getting in the OpEx side, we've been able to continue to drive operating profit improvement both at an absolute dollar basis and a percentage basis every year. And you can specifically in from ‘12 to ‘13 where we are anticipating to grow revenues to $721 million for the full year, we dropped about 25% of that incremental revenue down into operating profit here on the bottom line. So, I think to again that’s testimony to the leverage that we got this year with the scaling of the business. And again the EPS growth of 19% this year and you can see the consistency there as well in the EPS growth. And this growth is driven as we mentioned throughout the presentation by those organic and acquisition related growth and certainly that’s something we're going to continue going forward.

So the long-term financial model and Guy shared some of this before that we want to step through. So first on the revenue side, the long-term growth model the last time we shared the long-term growth model, we talked about approximately 10% total growth for the business, we're saying that 10% plus going forward no real change to Fiery, still GDP plus business as we mentioned. On the software side again still 10% to 20% and where it falls in that spectrum will really be a function of how much M&A activity takes place.

On the industrial Inkjet side we've changed that range to be 10% to 20% again a function largely of how much M&A activity will take place in the industrial Inkjet area for where it falls in that spectrum. On the gross margin side, as we mentioned before the overall gross margin will continue to trend downwards a little bit based upon the mix shift from Fiery to Inkjet and software. We do expect as our long-term model that will be greater than 72% on software so raising that from 70% and Fiery we're narrowing the range a little bit there to 67% to 68% as we've gotten better control of our Fiery manufacturing process.

On the OpEx side we're reducing the long-term OpEx percentage down to 37% to 41% from 40% to 44% and operating margin therefore we’re raising 14% to 16% as our operating margin range from 12% to 15%. And finally for a long-term revenue mix, we're updating that slightly to reduce and many of you may have a difficulty seeing here at the bottom of the screen but reducing the mix long term that we expect to come from Fiery from less than 40% to less than 35% as the Inkjet and software businesses continue to grow at a faster pace and that then will have of corresponding reduction of the gross margin contribution coming from Fiery going to approximately 40% from 45%.

From a balance sheet perspective, we continue to look to generate cash from operations, you can see we had a little bit of decline in 2012 of the cash generated from operations, we've restored that back, our long term goal again is to generate about one-time operating profit in cash from our operations. And that’s resulted in our current cash levels at the end of Q3 of about $363 million.

And now to that, to what we’re planning to do with that $363 million, this is our three year capital allocation strategy. So we believe we need between $50 million and $100 million for ongoing operations to the company, the reason for that range being that mix will vary based upon what type of M&A we do, different types of companies, we may acquire, may require more or less cash, pending upon how capital intensive it is. We expect to said between a $100 million and $150 million during that three year period in M&A to be able to reach our $1 billion target that Guy said, we have the $200 million buyback that we've announced.

And so the three of those together will consume a little bit more than the $365 million that we have on the balance sheet today and of course we’re expecting to continue to generate future cash flows to help supplement that. And then beyond that we look at the upside opportunity if we find good M&A targets that exit out there on an opportunistic basis that could be upside beyond the billion dollar target that we have, we certainly look to devote more of the future cash flow around those supplemental M&A targets beyond $100 million to $150 million that we mentioned here.

And so that concludes the financial part of the presentation you guys don’t need to read the Safe Harbor in detail there and I am going to pass it on to Guy for his wrap up before we get to the Q&A.

Guy Gecht

Thank you Marc. So are you guys ready for another 50 slides to go little deeper. So we are at the last inning of the Investor Day. I hope you found it very useful the team really definitely want to give you a lot more color about the business, the dynamics the growth opportunity. And I think you can also get a feel of the passion, the confidence and the excitement being what we are with the EFI.

I just want to go back to base book. Three things we talked about today, clear messages, early evening, whatever that means and analog to digital. We honestly believe obviously what our objective -- we honestly believe that we build a company that’s best suites to serve this opportunity. And as we generate cash and we have cash we are going to utilize that to supplement whatever we can do organically both on the top-line and bottom-line.

So with that happy to take any questions from (inaudible)

Question-and-Answer Session

Unidentified Analyst

Thanks guys. So I guess the first one is with regards to revenue growth. It seems likes I mean the $1 billion target is very clear, and I think it’s just sort of run growth rate from year-to-date and it actually come down anything like 12% and 13% annual just on the top end. So we get the growth drivers, could you tell us which of those drivers are the ones that are actually accelerating your growth rate from 10% which has been your framework for handful use then?

Guy Gecht

Yeah. I think clearly we feel pretty good about all the businesses right now, we see that the Inkjet and software completes a goal really strong that is high growth faster than Fiery. We feel pretty good about the M&A. And especially when we look at the M&A in Inkjet, those tend to bring bigger top line numbers. And so we see the opportunity to go there in the areas, we are focusing on, there is not lot of buyers. I cannot recall an opportunity in the last couple of year to another buyer, when we look to sometime the owner decide to stay dependent and that’s can happen, hopefully at some point in the future they come back to us. So I think as we do, we get more serious to spend more energy, we will do acquisition in the and I think you are going to see the acceleration.

The other thing is obviously we are having the missing part on the ecosystem for the Cretaprint area right, we start with equipment we bring the Fiery, we talk now with more confidence about 2014 anywhere between January 1st and 31st somewhere in this range (inaudible) ink, hopefully got the message, we are starting from zero, it’s a challenge we are going to go slowly and surely up customer into that, that will help with growth in the areas we need to have it before.

So all the together I think helps us to build the model that we as of today feel confident to share with you that lead to the $1 billion company in the future years.

Unidentified Analyst

Got. Yeah accelerating revenue growth is a good thing. Absolutely. And then I guess just on the Creta ink. Can you comment on what the margin profile the Creta ink the gross margin profile relative to what your classic ink portfolio is?

Guy Gecht

Yeah. Creta ink is lower costs makes than the UV ink, but it's much low applies, we talked about $20. It’s a further one focal device of the other ink part of EFI. The gross margin is still going to be capable or in line with other segments, gross margin for Inkjet, but it's not going to be as lucrative as that we have on the UV. But the volume, once we capture significant amount of that it's going to be a lot bigger.

Unidentified Analyst

Got it. And then just last one for Marc. On the OpEx percentage of revenue target, I guess the range coming down. You actually sort of in your presentation touched on what the drivers have then to drive the leverage. Is there any shift in what those drivers and actually could you just kind of walk you to rank them?

Marc Olin

Yeah. I don't think there has really been any shift of weight in those drivers. It's the leverage on the sales side, I gave an example of that on the software business as to how we've been able to drive those sales to wrap up significantly over the ten year period. On the R&D side, again we get great leverage there on both the Inkjet and the software side, as those businesses scale. So, I don't really see many changes in the drivers that what brought as.

Guy Gecht

Keep in mind that as back in ‘09 we change a lot of the company if I could be based on the book. So as we set a target for the year, if we over achieve, which I think we have set to over achieve this year, we will end up paying a lot more in offers and then obviously next few targets will be lot higher. And also that topic can change for good reason. You’ll not be disappointed the topic for viable compensation.

Unidentified Analyst

Marc, a follow-up and a question. I think the incremental operating margin was 20%, I am not sure you went through a lot of number, was that 20%?

Marc Olin

It is actually 25% from 2012 to ‘13.

Unidentified Analyst

So the question is going forward and the three year target, as things ramp up you get more leverage what will ultimately be the incremental operating margin at the end of three year period?

Marc Olin

So I don’t think we can, we set that range of 14% to 16% and how much that drop rate is, really the function of how the revenue comes in. If we get into a completely new line of business like the ceramics business you’re not going to see that level of drop rate because that’s got a whole new infrastructure associated with it whereas if I sell another software application that’s got a very nice drop rate associated with it. So I think it will really be a function of the nature of which M&A opportunities we're able to pursue and what drives the growth going forward.

Unidentified Analyst

Let me phrase the question differently, there is no acquisitions which clearly you want it would be what would it be?

Guy Gecht

I think [Morris] one the things that a lot of us to get to a long-term model, to get to long-term model bigger than other, but keep in mind lot of them all that is to invest in the business we're growing. So if somebody says next is the area to optimize we are going to do a lot better than the model, but we're looking at multiyear growth. So for example we've been spending money on the Cretaprint ink development this year and it was an appeal then and we didn’t see anything better that went by a little, there will be other things like that. There is a lot of the notion of self funding is strong and if I could -- small companies that want to develop a new software - if they could find something other but they are not going to do, but in some case we are going to add as we have revenue, we are going to add investment. So this is more than assume. I am sure you guys can do more than that, higher than a few numbers, still continue to investment as company gets in to go.

Unidentified Analyst

The reason margin decline going forward.

Guy Gecht

The reason to what?

Unidentified Analyst

Well, the increment operating margin 25% decline going forward.

Guy Gecht

So the drop rate has depend on the business, Fiery has the best drop rate because we also manufacturing, we also supported also partner, the sales is also partner, the collection is also partner so incremental dollar of revenue go a lot to the bottom right. This year was the good jump in Fiery we’re looking at double-digit growth in Fiery. I would not more than double-digit go in Fiery every day and therefore the growth might be not as probably the 25%.

Jim Suva - Citi

Thank you. It’s Jim Suva here from Citi. When you talk about your financial goals of the $100 million to $150 million of M&A needed. Am I correct at the cash you plan on deploying and not the revenues you plan on capturing?

Unidentified Company Representative

Yeah. Correct.

Jim Suva - Citi

Okay. And then do you in vision that M&A have been accretive to our earnings, neutral to earnings or more strategic in nature?

Unidentified Company Representative

But whenever people ask me whether we’re going to do accretive acquisition or non-accretive acquisitions I always say have you met or CEO yet, because does that’s definitely not in our nature to do not....

Guy Gecht

I don’t believe in that, as long as I do the job, I am going to wake up so they take your next two, three yields down because we are doing something for reason. I like the strategic to get to the point where it’s accretive and then we buy them. So neutral to earnings is a stretch where I can find out something that we will take it full year number down maybe on the first quarter, but look if it’s not profitable yet then let them be a different company until they join me.

Jim Suva - Citi

Perfect. And two last questions one housekeeping, for the EPS target of $2.30 to $2.60 should we employ the full stock buyback to get there in a linear manner or how should we think about the need to deploy that could reach your EPS goal?

Unidentified Company Representative

Modeling is something you guys are doing a lot better than us, but if you take just a $1 billion and apply 14% to 16% apply the same tax rate and the same share count as today you get to those numbers the $2.30 to $2.60, but obviously some get better then it is up.

Jim Suva - Citi

So more protective into offset management dilution is the way we should think about it?

Unidentified Company Representative

Well I’d just say into the near future, but we announced $200 million with a reason not just because….

Jim Suva - Citi

Last question probably the most interesting one. The CFO position, can you update us on that right now? I mean it’s kind of unique to see an Interim CFO in place yet a company give multi-year long range updated target as opposed to if someone were new to come in they want to set their own long-term targets. So should we kind of think of Marc in the Board and you are looking at him as a long-term CFO or Marc simply do you, no to be honest you have skilled sets where you want to be back in operations?

Marc Olin

Maybe it’s better that I take the question. I plan to be in either away I guess this is the point.

Guy Gecht

So when we announced departure of the prior CFO and Marc taking his job I said and I still mean it I am going to do I am going to stick [Mike] to the right side he is going to support Marc try to convince him that that’s a great a job making very successful and I am working on this and hopefully that we will deal with. On the left side I am going to do a search for the best amazing CFO out there that can EFI and that’s what I am doing. And then hopefully the board and I will have a soft dilemma assuming Marc will be still interested in the roll between the two. And that probably a few months of quarter, the last time it really took six to eight months that’s not going to be the case. I can tell you obviously what EFI is today compared to 2010, there is a lot more interest in the job and the candidates like interview so far are very, very strong and Marc is doing a very good job so far. So it’s a quality problem to have.

Now look we don’t come up with long-term model just because we have in industry, we just share with you. So we have with the board we have on outside, we always put a tree of model, we always update, we always look why we update, we go drill a lot deeper than what you see today. We work on that months when this concludes there and after that market it’s not that CFO commented this is long-term model.

So lot of people involved in that. And actually helps that targets for next year and as you know there is always the dynamic way of sales like to say [IGM] tried to set the target low. So there is a lot of work coming into this, so what you see is the end results as one people and most people will not change the long-term order.

Unidentified Analyst

Great. I have a couple of questions. The first one I think it was Dennis if I got that right?

Guy Gecht

Yeah Dennis

Unidentified Analyst

He mentioned and I think maybe a little, for his business probably there, but probably a lot of commercial printers are not quite so aggressive. For 5 to 10 years he doesn’t expect to using anything analog and a lot of, and pretty much everything Inkjet. So I am curious as to when you think about the controller business and obviously there are so many Fieries with Inkjet, but how are working with some of your partners as they shift, Canon has maintained initiatives call Niagara and Xerox and Pica and there are number of things going on. How transferable is the Fiery technology, how much investment would be required and how do we sort of think about that?

Unidentified Company Representative

So we're always supporting our own very high speed, very demanding music devices set-up which is about he is working for that would definitely would be something we like to see the same 90% plus of machines out that with the Fiery like we see in the VUTEk side. So Inkjet is something we know how to support this. And in fact that's the differentiation we're applying the Inkjet in the industrial Inkjet [file] that we have the Fiery.

We're talking to our partners who we're working with them. There were some requests in the back and we could decide to turn down and that's not forever. But the reason is the Fiery business is dynamic there is no aftermarket unlike the other two segments. And because of that, the number of units is really important. So if somebody sell $2 million machine and they are only going to sell 10 to put all the work just to get a Fiery in front of it, when we don't get the aftermarket makes that lesser source. So we try to stay and I can and people actually in production which is a lot of unit, we can benefit and grow and at some point maybe Inkjet become more mainstream in put action and then we'll make more sense.

Unidentified Analyst

And then just second question for Marc, with your CFO at the moment. You didn't talk much about tax rate potential over the next few years. And based upon what we've looked at where your revenues given the growth rate that kind of find another. So where it's going to be coming from and obviously if you are moving to China with the software business that it looks like revenues are becoming from lower tax jurisdiction. So how do we think about, I realize you are also headquartered in California, which I can take money from [companies]. So there is a put and take, so how do you think about that?

Marc Olin

So I don't, we have not updated the long-term guidance on the tax rate on purpose, because again we don't know where the, which acquisitions we're going to get involved in and those can obviously change things pretty quickly when you buy a chunk of revenue that's got revenue in a certain jurisdiction. So we're at 22.5 right now and I don't think it would be prudent to model significant modifications from that going forward?

Unidentified Company Representative

And you are right, as we get international there is an opportunity, too early to say. There is also a lot of talk about changing a tax loan to try to avoid the same story. So it’s really difficult to predict. We take that seriously the same way we take other things on the P&L and we wanted to grow EPS really to work on ultimately there.

Unidentified Analyst

And just one final question for Guy, when you are looking at these acquisition candidates, can you remind us sort of what your multiples are that you think about in terms of what you want to pay? And also what are people telling you, I mean I know you are kind of one of the only buyers out there. But has given the market and what is done for the public equity standpoint and theoretically in economic recovery, are you seeing prices go up in the last year?

Guy Gecht

I wouldn’t say we think most of the, I mean I don’t remember company we talked to that was considering an IPO, we as an industry it’s a little more boring you don’t see a lot of big season [BEs] sometime it’s a small B competing with us. It’s really mainly like 9 out of 10 cases between EFI and the others, doesn’t make sense when we do if we get decline to get decline I would like to keep it my family I’m still going. So we have some cases like that. As far as the multiples market, it’s actually pretty good.

Marc Olin

Yeah. It varies of course between the different segments. We look at kind of mid single-digits as our EBITDA type of multiples typically that translate anywhere from less than one-time revenues to maybe two to three times revenues. We almost always have earn-out structure as part of the purchase. So that’s really our protection as part of that as we won’t end up paying towards the highest spectrum of those multiples unless we end up paying the earn-out. And probably 80% to 90% of the deals we do have earn-outs in them.

Guy Gecht

Since we buy these companies you warn the shareholders which is normally the management to stay be engaged and focused it’s really helping. When we buy a company and nobody calls the seller and says look, it will be a great pleasure for me to sign the check of the owner, let’s work together, will I? And what’s really great was Cretaprint almost three years of five indicate the licensing the only earn out which is like, what we like to see. And most of the CEOs the companies invite, they are with the company way longer than we are. So there is couple of views they kind of slope and live with us and…

Unidentified Company Representative

And I think that’s really the most kind of interesting thing when you think about, we say EFI is great place to work so on and so forth and every company says that, but here we have a number of X business owners that sold their companies for definitely a level of funds that they can retire on and yet they choose to continue to work for EFI on a daily basis and full time roles. And I think that’s really because of the position we are on and we are in the industry and people see us is really facilitating this dramatic change that’s taking place and at the forefront on that transformation.

And seeing what Guy -- so we think we do with science project there today and illustrate one of our new technologies, which is a smart science I think was alluded to during the customer testimony. So I’ll be known to all of you, we have a little sensor up here that’s been monitoring all of your views, they are in the session today and accounting how many times you looked up here at the sign, areas of display. And this is all reported in a little browser application that we provide that tracks the number of views that have taken place. And so this is showing how many people look by hour in this case up towards, we took the sensor out normally it’s now behind the sign we took it out and put it here. So you can actually see what’s doing that capture and we can capture things like the audience for hour there and the audience by gender, so how many people, how many women looks out to the fronts and how many men looks up to the front and so on. And that’s one of those, one of the tools again that we are using to help drive value in the printing industry because when you pull one of these signs out in a mall or put it out on a street to be able to capture the effectiveness of the sign or even be able to put two signs next to one another and be able to capture the relative effect of the signs and see which ones are women looking out at more, which one are men looking at more. We even track it by age brackets.

And so this will show you how many people falling to each of the different age ranges within the data that’s captured here the people that look at the sign. And so this thing was invented by one of the people that came over to the company as part of one of our acquisitions after he became part of EFI to set other example of the type of innovation that we try to foster inside of our organization among our staffing investment in the R&D.

Unidentified Company Representative

Again I guess this is one of those things with customers, somebody that came that does signs hopefully he can sell up and look I could sell you which gender at what time which age group is looking at the sign and they can finally tell how successful it is. The same way we do with the MSI software, we help you out to optimize the business and we help our music people to optimize their openings and make them more competitive. So you got to pay for see a sign because I think other companies will measure how the stock moved through the speaker, we measure how you look at the signs through the speaker I mean if you look at the sign too much and one that was [stalking] that’s the sign that you’re listening to what we say. So this a geek company we don’t look at the stuff all the time, we look what you…

Unidentified Analyst

Okay, I guess which division I am going to ask about? So guys over the last five years, Fiery has grown at [0%] over the last 10 years Fiery is down 1%. So what you are suggesting is that Fiery is going to grow GDP over this period. So that’s not consistent with historical trends so what’s going to change? And parcel to that is what I actually do like about your business model is there are many levers you can pull. So my reaction is I think Fiery numbers are bit aggressive, but you also have other side of your business that you can pull from to compensate for it. But what am I missing here is the numbers that you are talking about are inconsistent with Fiery to store?

Unidentified Company Representative

So lot of measuring growth in the period of time is very important where you start, 10 years ago we were certainly the OEM business is the only component also in the office, we look so that was the different side, if I get today customer make a choice, we are opening it to people that thing is follow what they do, Fiery is some tricky because you are looking before the financial guidance and all of our partners, I don’t think got with the same level of sales they had five or two or not, so they still didn’t sell many machines now, if the only company I think now is safe, it actually has revenue higher than it was. So if you look at the last two years, I think I did the, I look at the other dates about 6% goals which is 2% a year, which is little somewhat of GDP which is closer to what you say.

We also continue to go at some pace like that and maybe little faster, we can attach to intervene which is going fast. I think in the market we have better and better opportunity that’s still be a little good customer doing more of their home work. They look on investing a lot of money in the Xerox equipment in the Canon equipment the Ricoh, Kodak and all that.

I want to know which front end to take because that’s -- how competitive I am going to be, I am getting more because I’m going to lose some thought, I am going to run this far, I am going to check when they do the homework, we get ahead, there is no question about it. And we get, so as more as we can educate customers to do their homework we’ll be ahead. So there is an opportunity to do better than 2%.

Now while it was early remember it was going up and down and I just want to know to last deal, last deal was inside down for five is down 15% of lever. EFI as the same time was up 10% we terminate and EPS was up 15% and the stock as well. So I am not expecting or hoping or same that we are going to see other mind of effective pretend, we definitely learn how to work this side as oversize.

Marc Olin

I think the other big difference from even five years ago, we didn’t have the integration five years ago for Fiery into the software base, so we didn’t have that value proposition for our clients and make our user from that as before, and we didn’t have the Inkjet. So we didn’t have that captive machine for that we are selling with every time we’re going Inkjet printer. So those I think change the dynamic of Fiery little bit from five years.

Unidentified Company Representative

Any other question? Okay, good. Thank you very much for having a great patience audience, and I hope you enjoyed the break. See you everybody and look forward to complete the --.

Unidentified Company Representative

Thank you.

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