Electronics for Imaging CEO Discusses Q4 2010 Results - Earnings Call Transcript

| About: Electronics for (EFII)

Electronics for Imaging, Inc. (NASDAQ:EFII)

Q4 2010 Earnings Call

January 20, 2011 5:00 pm ET


JoAnn Horne - IR

Guy Gecht - CEO

Vincent Pilette - CFO


Shannon Cross - Cross Research

Ananda Baruah - Brean Murray

Keith Bachman - Bank of Montreal


Good afternoon. My name is [Melissa] and I will be your conference operator today. At this time, I would like to welcome everyone to the EFI 4th Quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise.

(Operator Instructions). Thank you. Ms. JoAnn Horne, Investor Relations for EFI, you may begin your conference.

JoAnn Horne

Great, thank you, Operator, and good afternoon, everyone. I have here with me today Guy Gecht, EFI's CEO, and Vincent Pilette, our new CFO.

Before we begin the prepared remarks, let me review the Safe Harbor statement. During the call, we will be making forward-looking statements that are statements other than statements of historical fact, including but not limited to statements about our strategic agenda for 2011, our financial prospects in Q1 2011, including but not limited to expected revenue growth, non-GAAP EPS, non-GAAP operating expenses, operating margin performance, tax rates, et cetera.

Forward-looking statements are subject to risks and uncertainties that could cause our future results to differ materially or cause material adverse effects in our results.

For more information, please refer to the risk factors discussed in our SEC filings in the press release that we issued today. We do not undertake to update any of these statements in light of the new information for future events.

In addition, reference will be made to non-GAAP financial measures. Information regarding the reconciliation of the non-GAAP and GAAP measures can be found in the press release that we issued this afternoon and at our website at the IR section at www.efi.com.

I will now turn the call over to Guy Gecht. Guy?

Guy Gecht

Thank you, JoAnn. Good afternoon, everyone, and thank you for joining us today. Our team delivered an exceptionally strong finish to a very solid year with strengths across our three business segments.

The results benefitted from our industry-leading product lineup, which is targeted to the highest growth area of printing, specifically, [show time] personal documents, signage and packaging.

Some financial highlights in the quarter of which we are particularly proud; Q4 overall revenues were the highest since Q4 '07, which means we are realizing our promise to return the company to the pre-recession revenue and profit levels.

We achieved the highest operating margin since Q3 '07 and are back to double-digit levels. We had the second-best revenue quarters ever in the inkjet business and the best Fiery revenue quarters in two years. We achieved an all-time record revenue quarters in our APPS business, the highest EPS in more than three years. Lastly, we had an incredibly cash generation quarter, the highest since 2007, netting $23 million to the balance sheet.

As I said, Q4 was a solid finish to what has been a very important year for EFI as we began to reap the benefits of the strategic changes implemented over the past few years.

In a few minutes, our new CFO, Vincent Pilette, will review our Q4 and full year financial results in greater detail. But, first, let's look briefly at each of our segments.

Starting with the Fiery, which again overachieved our own expectations with revenues of $65.7 million, going 19% year over year, the new products from our OEM partners that we discussed last quarter began shipping on schedule. This included the KM 60, 70 and 80 ppm engine, Ricoh 90 ppm, (inaudible) 70 ppm [will do] 50, 60 pages per minute from Xerox.

In general, we are very pleased with the momentum we are seeing on the fiery [fund], including the strong (inaudible) [attach rate] and the end-customer loyalty to the brand, the technology and the overall user experience. In fact, we believe that in 2010 we increased our [attach rate] in this key market.

Turning to inkjet, again, we saw a very solid performance in this segment with revenues of $61.4 million, up 31% year over year, and the second best in our history, exceeding our own 20% revenue [overall] expectations. We saw strengths across inkjet (inaudible) with the GS again a key revenue driver.

We made significant progress in addressing the GS warranty issues we have discussed for the past few quarters. But these were offset by the planned upgrade of the many of the GS field units, which will result in lower product warranty cost in the future.

In some cases, we decided it is more efficient to swap field machines rather than upgrade them with the older units to be refurbished in the [factory and then] result. While the number of units needing upgrades [submitting at the time], it will still take a few more quarters to reach our target to 40% inkjet gross margin.

In addition, gross margins were somewhat pressured by (inaudible) slightly lower ink revenues. (inaudible) volume increased [23]% year over year, still very healthy goal, but below the growth rate achieved earlier in the year due to a slower ink sales than we were doing the first part of the quarter.

The [quality offset] is that we saw a strong increase of printer sales in Q4. This growth in the install base highlights the long-term consistency of the business and the strength of our product portfolio and should result in higher future ink sales.

Also on the inkjet front, earlier this week we announced a significant distribution agreement with the US arm of Heidelberg, one of the world's largest (inaudible) manufacturers. Heidelberg USA will distribute our GS printers and provide customer support.

This agreement further extends our distribution reach into a [provisional] offset customer base and, just as importantly, solidifies EFI's position as the category leader driving the industry position form [analog position] printing.

As I noted earlier, our APPS business posted record revenues for the quarter, capitalizing on [healthy demand] for business process information software in our industry. We also continue to expand our (inaudible) revenue, which points to the consistent steady future growth. Lastly, our geographic expansion strategy is beginning to show results with more than doubling of the APPS [looking] coming from outside North America.

As I noted, every segment of our business finished a [storm gale] with outstanding quarterly results. When we look at the full year of the entire company, we're particularly pleased with the following.

Revenues increased $103 million, growing by 26% [of] the prior year. We increased earnings from per share [loss] of $0.22 in 2009 to an EPS of $0.59 for 2010 and improved our operating margins [for the loss] to over 10% in Q4 2010 and generated about $50 million in cash from business operations.

Looking toward 2011, we remain committed to this [particular] agenda [to grow our strong] results in 2010, which is; one, to drive greater profitability out of [inkjet commit] to revenue [dollars], making a steady improvement in inkjet margin; two, maximizing the cash generation of the business; three, continue to take market share in each segment of our business; four, and of course, to maintain our technology leadership through the continued development of new innovative quarters.

We are confident in our strategy and our ability to execute. Compared to the head wins we saw as we entered 2010, we feel that the momentum has shifted, which leaves us optimistic about maintaining the trajectory of our top-line and bottom-line goals. Looking at the current quarter, we expect regular seasonality with approximately 15% year-over-year revenue growth and EPS of $0.14 to $0.16.

Now before I turn the call over to our new chief financial officer, I would like to welcome Vincent to his first earnings conference call with EFI. I can tell you that at EFI we take every hire seriously. Obviously, picking a CFO is one of the most important decisions we had to make in 2010.

After a comprehensive search in which [our quarter] looked at close to 200 candidates -- and I personally met with almost 20 -- Vincent was our clear choice. I look forward to working with Vincent, and I'm confident that not only will he do a great job reporting EFI results in the most (inaudible) manner possible, he will also be a strong force in helping the management team and myself drive the business to solid future results.

I also want to take the opportunity to recognize the outstanding job of the finance team under the leadership of (inaudible) bridging the gap to the new CFO.

With that, welcome, Vincent.

Vincent Pilette

Thank you, Guy. I'm really energized to be here today. At HP, I had the privilege to work for great executives in a performance-based culture. Today I look forward to bringing this experience into EFI.

I think this is an ideal time to join a company with great IT and a working strategy in the digital printing industry. I want to thank all EFI employees, in particular, Gordon, that have made me feel so welcome from day one. I'm also looking forward to working with many of you within the shareholder community over the coming months.

Now moving on to the quarter; revenues [scheming] at $145 million, up 27.2% on a year-over-year basis and up 12.4% sequentially as we saw strong revenue growth across all three business segments; non-GAAP net income for the quarter was $0.20 per share, a significant improvement compared to $0.05 per share reported in Q4 2009, and up from $0.23 per share reported in Q3 2010.

Our Q4 2010 EPS results reflect very strong operations performance and include one-time $0.04 per share [of tax] benefit for the renewal of the 2010 federal R&D tax credits retroactive to January 1, 2010, and a negative $0.01 per share relative to (inaudible).

Before I go through the quarter in detail, I want to highlight some key accomplishments. We achieved our best revenue quarter since Q4 2007 as we saw strong demand across each of our product lines.

Non-GAAP operating margin improved to 10.6% of revenues as we returned to double-digit margin for the first time since Q3 2007. Our [record] revenues were 22%, slightly down from the prior quarter as we saw significant growth in our inkjet hardware business. Net cash generated for the quarter was approximately $23 million.

On a full-year [basis], revenue grew 26% year over year, and operating profits improved approximately $53 million on $103 million incremental revenue.

Now moving on to our business segment results; for the fourth quarter, the fiery business continued its strong performance by contributing 45% of total revenues. Fiery continued the trend to exceed our quarterly expectations as revenue came in at $65.7 million, up 19% on the year-over-year basis and up 8% from Q3 2010.

Q4 fiery revenues were driven by continued strong demand for our most advanced, high-speed digital color controllers in the high-end production market. Recent, new and refreshed inkjet launches from our major OEM partners contributed to a very strong Q4 revenue performance.

Inkjet products contributed 42% of total revenues by $61.4 million, up 31% from Q4 2009 and up 18% sequentially. Q4 revenue was driven by very strong demand for the latest generation UV products by particular our GS series of printers. During the quarter, our UV ink volumes increased 23% on a year-over-year basis.

During the first quarter, our APPS business contributed 12% of our total revenues, or $17.9 million, up 50% on a year-over-year basis and up 13% sequentially, driven primarily by the strong performance of Radius, our most recent acquisition closed in July 2010.

Turning to revenue by geography, America's revenues up $85.7 million went up 38% year over year and up 13% on a sequential basis. We saw strong growth in the Americas for each of our business segments by [securing] our inkjet and APPS businesses.

[EMR] revenues grew to $43.9 million, representing 18% year-over-year growth and 17% sequentially.

While all three businesses experience double-digit, year-over-year revenue growth in Europe, the inkjet business has particularly well rebounded with strong [print replacements] in the quarter.

Japan and rest of the world revenues accounted for $15.3 million in Q4 2010, up 5% year over year and down 3% sequentially.

Looking forward to Q1 2011, we expect year-over-year revenue growth of approximately 15% for our total revenues, which include fiery year-over-year revenue growth of approximately 10%, year-over-year revenue growth in the mid-teens for our inkjet business and around 30% year-over-year revenue growth for our APPS business.

Now moving on to gross margin, non-GAAP gross margin for the first quarter was 53.9%, up 140 basis points on a year-over-year basis and down 60 basis points compared to the prior quarter, driven by a higher mix of inkjet revenue.

On a year-over-year basis, all three business segments improved non-GAAP gross margin. Fiery gross margin of 67.3% was up [180] basis points from Q4 2009 and down sequentially 100 basis points, driven, as anticipated, by a more normalized product mix compared to the prior quarter.

Inkjet gross margin improved to 34.8% in Q4 2010, up from 33.1% in Q4 2009 and up from 34.5% in Q3 2010. Going forward, we expect to continue to make progress in achieving our long-term inkjet gross margin objectives to lower warranty cost and improve manufacturing efficiencies.

The APPS gross margin was 70% for the quarter, up from 68.4% a year ago and up from 67.2% in the prior quarter, primarily driven by higher revenue.

Looking ahead to Q1 2011, we expect slightly higher overall company gross margins due to a greater mix of fiery revenue and continued improvement in inkjet gross margins.

Now turning to operating expenses; excluding the impact of the amortization of acquisition [with area tangibles, stumped base] compensation expenses, non-recurring charges and gains and the related tax effect of these adjustments, our non-GAAP operating expenses was $62.7 million, up $3.6 million, or 6.1%, compared to the prior quarter and up $5.7 million on a year-over-year basis.

The sequential increase in operating expenses was driven by high employee cost, including the reversal of salary and benefit reductions implemented on November 1, viable compensation and higher marketing expenses related to trade shows in the quarter.

Q4 2010 operating expenses also includes a [foreign] $4 million charge related to the Radius earn out for 2010 overachievement that will be paid to the former shareholders of Radius.

Moving on to the individual P&L line items of the operating expenses, R&D expenses were $26.6 million, up $0.6 million, or 2.2%, from Q3 2010 and up 7.7% on a year-over-year basis. The higher R&D expense is due to higher compensation and non-recurring engineering expenses. For the quarter, R&D expenses represented 18.3% of revenue compared to 20.1% in the third quarter of 2010.

Sales and marketing expenses were $28.1 million, up $1.9 million, or 7.3%, from Q3 2010. The increase was primarily driven by increased viable compensation and higher marketing and trade show spending. On the year-over-year basis, sales and marketing expense was up 10.8%. For the first quarter, sales and marketing expenses represented 19.4% of revenue compared to 20.3% in the third quarter of 2010.

Finally, G&A expenses were $8.1 million, up $1.1 million compared to Q3 2010 and Q4 2009. The sequential increase in spending was driven by increased compensation related expenses and the one-time charge related to the Radius acquisition earn out achievement.

For the first quarter, G&A expenses represented 5.6% of revenue. For Q1 2011, we expect non-GAAP operating expenses to decrease approximately $2 million from Q4 2010, primarily driven by lower [valuable] compensation and lower trade show expenses.

Now moving on to operating margin, non-GAAP operating margin was 10.6% in Q4 2010, up from 2.5% in Q4 2009 and up from 8.6% reported in the prior quarter. Moving forward, we expect to see continued year-over-year improvement and leverage in our operating margin performance as revenues continue to scale upward.

Foreign exchange [licensing] the Euro currency negatively impacted EPS by approximately $0.01 per share and drove a $0.3 million loss in other income and expenses compared to $3.1 million gains in Q3 2010. On a year-to-date basis, foreign exchange productivity has generated [a lot] approximately $3.4 million, [up] $0.05 per share.

Rounding out the P&L, our Q4 2010 non-GAAP tax rate was approximately 12% and includes a one-time $2 million benefit for the renewal of the 2010 federal R&D tax credit retroactive to January 1, 2010. We expect the Q1 2011 tax rate to remain at 25%. Also, changes in either the geographic mix [or] current mix of worldwide sales may have an impact on the tax rate in future quarters.

Turning to the balance sheet, Q4 2010 total cash increased by $22.7 million, driven by an outstanding cash collection quarter. We ended the first quarter with $229.7 million in cash, cash equivalent and short-term investments compared to $207 million at the end of Q3 2010.

On a full-year-basis, excluding specialized (inaudible) acquisition and restructuring-related payments and the Q1 2010 tax payment related to the 2009 real estate sale, we have generated nearly $50 million in cash for 2010.

After a very strong cash generation quarter, we expect Q1 2011 cash generation to return to a more normalized level with Q1 impacted by lower sales volume and valuable compensation payouts related to 2010 performance. As stated in the past, the company's internal target is to generate cash flow in the range of pre-tax net income on a full-year basis.

Our net inventory balance was $46.2 million at the end of Q4 2010, an increase of $1 million compared to the ending Q3 2010 balance of $45.2 million. The high inventory level was primarily driven by an increase in raw materials and working process categories offset by a reduction in finished goods. [Overall] inventory tons improved to 5.9 tons in Q4 2010, up from 4.7 tons in Q4 2009 and up from 5.5 tons in the prior quarter.

Accounts receivable decreased to $85.3 million compared to $85.6 million at the end of Q3 2010. DSO decreased to 54.1 days, a significant improvement from 64.7 days in Q4 2009 and 61 days in the prior quarter.

Q4 2010 DSO represent the lowest DSO level achieved since Q3 2007. A significant improvement in overall DSO was driven by a very strong cash collection quarter, especially in our inkjet business. We remain committed to our focus on cash collection efforts and credit management to drive improved DSO performance in future quarters.

In closing, I want to reiterate our Q1 2011 guidance [of approximately] 15% year-over-year revenue growth. [Assuming] (inaudible) foreign exchange rates, non-GAAP EPS is targeting the range of $0.14 to $0.16 per share.

I will be happy to answer any questions.

Question-and-Answer Session

JoAnn Horne

Operator, we'll take questions now please.


(Operator Instructions) Your first question comes from the line of Shannon Cross.

Shannon Cross - Cross Research

Thank you very much, and good afternoon. Vincent, could you start off talking just a little bit about your initial impressions of EFI and what sort of drove you to choose this job and come from HP? I'm just curious as to what you see as opportunity within the company.

Vincent Pilette

Yes, thanks, [there]. Absolutely. Hopefully the Q4 results is actually the best proof that I picked the right opportunity here.

I think, as we discussed, as we see the digitalization of the print industry, I look at the EFI portfolio probably the only company that really covers all of the digitalization print process from content acquisition all the way to production [as being] the opportunity to continue to integrate [that] portfolio and differentiate in the marketplace is what I think attracted me.

Shannon Cross - Cross Research

Then, Guy, if you could answer a couple of questions. The first is on Heidelberg relationship. Can you give any more color on how we should think about that as an opportunity, how you believe Heidelberg will be positioned with its sales force? Is this something that could draw us some substantial upside? I'm just trying to figure out how to size that.

Then my second questions is if you could talk a little bit about what the OEMs are saying with regard to -- on the copier side -- with regard to in demand, their comfort with inventory level and how they're positioned for 2011.

Guy Gecht

The first question was the -- remind me what was the first topic.

Shannon Cross - Cross Research

With Heidelberg.

Guy Gecht

So Heidelberg obviously may be the most well-known name in the [opposite world], excellent reputation [inaudible], very high quality. Obviously, like everybody else, they say that the gulf in their industry is in digital short-run printing and they were publically saying they're looking for strategic partnership getting into digital and bringing digital to their loyal customers.

They did a very comprehensive study of the signage market and spent a lot of time with us looking at our technology and decided, at least in the US for now, [big PSI] and our [butech GS] lineup to be what they're offering to their end users.

So I think, first of all, it's a great testimony to the fact that we are the copy-go leader and the fact that Heidelberg picked us. We have -- it's going be a process to get them up to speed to sell digital, to sell this type of equipment to their customer base. We will work with them, train them. The sell cycle is going to be long, of course.

But the opportunity is great because a lot of people do a lot of business with them and I think that they would love to continue to do business with them if their markets will actually will be opportunity to move more output from analog to digital is significant.

So certainly nothing on the immediate side but we're very excited about the partnership in the long term.

Shannon Cross - Cross Research

On the OEMs?

Guy Gecht

On the OEMs, look the Fiery results I think speak for themselves. We're very pleased with the Fiery results and the trajectory. The traction with the OEM is very good. From what we can tell, as I said, I think we picked up market share [inaudible] during 2010 due to great innovation, great dedication on our team, being on time, deliver very high quality and very strong loyalty from customer bases was noted on one very publically known deal, the FedEx office deal, but we're seeing it in many, many, many other deals that aren't as public.

As far as inventory, maybe I'll turn it over to Vincent to give his impression of this.

Vincent Pilette

Yes, Shannon, this was obviously one of my priorities. I got in and I had multiple operation reviews with the foreign division. I was very pleased by the level of visibility that they have both from internal business intelligence and also from [invasions] coming from the key OEMs that they closely work with on this topic.

As you've seen, Fiery has been delivering over expectations for now a few quarters and I would say that at the end of Q4 2010 the current inventory level is in line with the operational range, I think has been for a few quarters now. So we're very comfortable from that perspective.

I think you had a question on in demand and with regard to the in demand, obviously, it depends on the OEMs, the region, the country, et cetera. You also need to keep in mind that it's a very seasonal business, so it shows strong seasonality between quarters for a full year and we reflect that in our guidance for Q1. But we do not see, at this point in time, any slowdown in the demand.


Your next question comes from the line of Ananda Baruah.

Ananda Baruah - Brean Murray

Guy, could you just comment quickly on what we should expect in the near term -- over the intermediate term, actually, maybe the run rate of the APPS business, the nice bump up this quarter? Although we sort of expected, it looks like there will be a continuance of that. So could you just refresh on what we should expect for the APPS business going forward?

Guy Gecht

We are really strong on the APPS right now. The addition of Radius turned out to be very successful as we know there is [$400,000] of [inaudible] we pay to the shareholders of overachievement on estimates there.

The pipeline looks very good. One thing I'm very pleased with, it's been -- for a while one of the goals was to expand internationally. As I mentioned, as far as new booking in the year 2010, we more than doubled, which would be nine outside of North America and we believe you can see very high growth outside of North America going forward.

We also, as we increase revenue, the gross margins, of course, will reflect, in the segment, reflect the [depth]. As you can see it's high the entire quarter. Having said all of that, clearly there's [noting that] anything else in our industry [if you want] is going to be slower than that in Q4. But momentum entering the quarter is very good. Radius is very strong. We feel very good about the contribution of this business.

Ananda Baruah - Brean Murray

Going back to Vincent's last comment about seeing no slowdown in demand, do you guys, on the press side, on the Fiery side of things -- do you guys feel marginally better about the demand environment generally both in the US and in Europe than maybe you did this time last quarter? Or do you feel relatively the same about the demand environment?

Guy Gecht

Clearly we feel better. The OEMs are doing well for us. Again, it depends which are and which region. Overall, OEMs are doing pretty well for us. The new engines continue to do well. Some of the engines, even I'll give an example, the AD100 of [Xerox] that was down in the first part of 2010 is still going strong for us. At least that one it is very good from our perspective. So we feel pretty good.

We worked with them, as Vincent talked about, working very closely to make sure we don't have too much inventory at the end of the year and they reach their targets as far as inventory. So the overall energy level with the OEM what's happening in the market is very healthy right now.

Ananda Baruah - Brean Murray

I think you guys commented last that the expectation is that collectively the new products from the OEMs collectively would have a tail into the June quarter. Is that still the case? Does the tail feel like maybe it's a little firmer given your feelings about demand?

Guy Gecht

Yes, we're only commenting on Q1 but in general we're pleased with the road map with the OEMs and we're working very closely with them on quite a few new engines. Again, the demand for digital personal documents is strong and I think we're going to see -- hopefully we're going to continue to benefit with those going forward.

Ananda Baruah - Brean Murray

Can you just comment on the supplies growth? I think you mentioned that you saw a little bit of softness in Europe.

Guy Gecht

Yes, so the growth and volume of [UV] was 23%, the [operating volume]. I have to say it's a healthy number. There's nothing wrong with the number [and we are] in the area of higher than 30%, when we look to see what the businesses are. October, November came slower in Europe and then December bounced back to more normalized growth rate. There could be a couple of reasons. One reason could be that, to be honest, in the first nine months of the year we didn't place as many new engines, new inkjet printers in Europe as we placed outside of Europe. It was [a faster] region, as we know [that many times].

Q4 was actually pretty strong for us in Europe. We placed [inaudible] units, so I hope we see a benefit there. But, as I said, December came back to more normalized and 23% overall over there we don't want to look at that as anything but pretty healthy growth in volume.


(Operator Instructions). Your next question comes from the line of Keith Bachman.

Keith Bachman - Bank of Montreal

First question is on the gross margins for the inkjet side, could you talk about what the gross margins -- I'm just trying to normalize for mix a little bit and if you could speak to the progress that you made. Then, also, Vincent, and/or Guy, if you could talk a little bit about how you see the progression on gross margins accompanied by what are the near-term victories you're trying to realize in terms of improving those gross margins.

Gary Gecht

So we are tracking to our plan on the gross margin, targeting the 40% in the two quarters. We had to work on, as we talked about before, cost of warranty was pretty high, the GS, although it is a very successful quarter. We implemented a change in design that decreased [pragmatically] the cost of warranty. It cost us quite a bit this quarter in the gross margin level, with there being a substantial amount of units, as I noted.

In some cases we reached a conclusion it's actually better to replace the unit, take the unit, refurbish it and sell it as a new one and then so we still have some of them to sell. As we sell, we're obviously getting a lower gross margin of that that we'll have to go through this before we can get back to the level that we feel we can get to in [each] gross margin.

But overall we're tracking. I can tell you the new GSs are doing really well on all fronts, on the customer perspective. [Inaudible] cost of warranty went down and so it's acting. Maybe, Vincent, do you want to add to this?

Vincent Pilette

So, Keith, for next quarter we mentioned inkjet gross margin would slightly improve on the lower volume, which is the testimony of the progress that the team is making there. The new products have lower warranty rates as they've improved quality. But a warranty, of course, [social] is based on a 12-month training, so it would take a couple of quarters to flush that through as we progress in 2011.

Keith Bachman - Bank of Montreal

Guy, is there still more -- it's not -- fair enough it's not surprising you're sloughing out some units here because I think you even alluded that you were going to do that. But is that -- you think you're at a rate where you're going to continue to swap units out or is it probably the install base stays where it is and you'll make progress again soon?

Guy Gecht

I think we're almost there. I mean, there might be a couple more but our plan is we're almost there as far as the objects. Now, we need to sell, of course, the refurbished and we do it over time. We don't want to specify if there is any new sales, so we're trying to keep a reasonable price [inaudible] time.

But, no, we feel like the majority of these topics are being addressed and we feel good about the customer getting addressed. We're getting a lot of nice emails from customers that not only was it a great system to begin with, now it's even much better system and they don't need to see our technician that often.

Keith Bachman - Bank of Montreal

I'm going to sneak 1.5 more then. Is there a timeframe? Can you get to 40 by the end of the year?

Guy Gecht

So we don't want to give any timeframes. But, as I said, a few quarters, Keith. There's nothing that we focus more on than getting the inkjet margins to where they need to be. [I can tell] for Vincent it's the highest topic on his agenda to work closely with the team there and help us to get there as soon as we can.

Keith Bachman - Bank of Montreal

My last one then because I’m trying to ask more questions than Ananda. Vincent, just your views on -- you said you had pretty good visibility in the controllers [or] Fiery. Is there a way or things that you can do you think to add to that visibility because I think there is some concern that after the stream of product rolls come off the OEMs in the summer timeframe -- there is some concern that you get caught a little bit on some kind of inventory transition.

I'm just trying to get a little bit of a sense of confidence of where you are and plus what you can do to improve it.

Vincent Pilette

Yes, [inaudible] obviously that's a big focus of mine. I wouldn't say control -- I would say visibility and business intelligence. I was pretty impressed by that. Obviously the OEMs, based on day sales and they said the demand will decide on their own inventory strategy and for us what is really key is working closely with them to understand where they stand so we can better manage our business.

From that perspective, I feel pretty comfortable. I think it's a work in progress and you can always improve. As the OEM will continue to improve the visibility on their own sales demand I think our visibility will continue to trend up.


(Operator Instructions).

JoAnn Horne

Operator, if we don't have any additional questions we'll wrap up the call.

Guy Gecht

I want to thank everybody for joining us today. We're certainly very pleased to share with you this fantastic end of 2010. We're looking forward to continue giving you good news in the future quarters and I want to take the opportunity to thank our shareholders, customers and employees for their support in the past year, 2010. I'm looking forward to working with all of you guys in coming months. Thanks a lot.


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

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