So, not just an opportunity to talk more about the longer term, not a quarter-by-quarter market dynamics, competitor landscape, what EFI strategy is doing is going after, but also and more importantly is to see and hear the people that are actually driving the business, not just Vincent and I that you have the pleasure to talk to. From time to time, you’re going to see Jim, CTO, Head of President of Marketing and you will be able to ask some questions, and I think he will give you new insights into your thought.
So, today is November 4th. Last year, November 5 we were here for Investor Day, so it’s just a year, and so its exactly a year minus a day, and we feel like we went right on many areas and there is a lot of things to continue to capture from that, so we will spend time thinking about and talking to you about what is going on and why we feel like what was going for us in the last 364 days can continue for longer periods of time. I encourage everybody to read Safe Harbor guides. You guys are professional, you know the rules. Forward-looking statements, we are potentially going to make some today.
Briefly, let’s talk about the Agenda. So, I’m going to have brief opening remarks talking about what we are doing and how the last field shaped up. I will touch the industry, I think a lot of you know the industry in just in high level, the transformation in the industry must go through to be stronger and each player in the industry must go through to survive and continue to grow. And I’ll talk about the EFI transformation, which is completed and at the point that we are going to be benefiting with the industry moving in certain directions.
Then, for which segment of our business, Fiery, Inkjet, and APPS, you will here from the General Manager about there forth, about the market, the competition, the growth rate. Why the growth we have seen in the last year is sustainable and what's the upsight in the business, beyond the continuity.
But beyond having three both of those nice growth segment, a new look that you are going to see today is, how its all come together in front of customers and our claim is the value of EFI is more than the sum of the parts, because when a customer speak with an EFI, they see the entire portfolio more and more. So first, you are going to here from our CTO, Ghilad about how it’s all working together, or and a customer buy multiple products and we have more than that now. How does he get extra value from how – multiple products and how is that changing buying decisions going forward, and then ultimately Frank is going to talk about how his sales and marketing force are actually presenting EFI to customers, how they’re leveraging the unique unmatched portfolio when we go to market, and that’s normally something we don’t talk about on the conference call, we go segment by segment, but there is a lot of value in the combination of those segments that we put together as we touch on EFI.
Each segment, each one of (inaudible) will take few questions from you guys and then I will take it out and Frank will then take questions about this section, we want to bring lunch then and then Vince is just going to over plan and talk about the long term model, how is that changing and if you look at the filing this morning we are restating the guidance, we feel good about our progress so far, so I will say right upfront and take a little bit from Vincent excitement, but more exciting comments from Vincent to come.
Now, we’ll take questions at the end and at 1’o clock we are going to go across the street to this building to one of the leading independent dealers in our space LDI, they sell equipment from multiple suppliers as well as the EFI products, you will see how they pitch to the market, how EFI product – sitting in what they do, I think we will give you a good insight, we talk a lot about the engine partners, but how customers see and where they go to buy as our partners do more and more indirect sales and they relying on people like LDI to get to the end users.
So one slide on November 6, 2010 through today speak on; one, when we revealed last year we had few good quarters coming back from the recession, but the question on everybody’s mind including us was is this sustainable or is this just recovery from a really terrible ’09. Is this just the numbers compared it looks good, people will hold their buying decisions, I think we feel very comfortable to say this is sustainable. The strategy is working, but with the company we’ll put together as we confirm it in last few years. Is the right portfolio for that in the right segments of the printing industry to grow and with seven quarters of double-digits I think we answer at least that and we think there is more good news to come.
The company is a lot more balanced and anytime in the history of EFI the areas that we got growing from the core business of the Fiery has 43% of recurring revenue and our goal is to continue to add to this. So and the balance is even within the segment and within geographies we are seeing more opportunities in emerging markets; we’re growing in emerging markets. We’re getting rely less on less single area, single market and that’s a pretty significant change if you look at the EFI a few years ago.
We are actually enjoying a very strong product momentum, the innovation path and everybody is going to talk about and Ghilad is going to put in picture one big picture for us. Really accelerated in last few years and we open a gap of innovation from the competition in every part of our business.
The first, we say that because we’re passionate about what we do and with one investing but in the areas that we are investing we are the leader and we are the one that set the trend and we are opening a gap from the competition and we sell to professionals. That a very good and looking at what we sell compared to the competition and know how to evaluate very well. There is not a lot of stories you can tell when they can go to a Tradeshow and side by side bring the exact file EFI into equipment versus the competition.
So we’re excited about the (inaudible) from each channel by where we are but I think that if there is top macros of this we hope that that help mitigate because customers when they buy, they like to buy the latest equipment, not the old equipment, especially if they feel that there’s a challenging environment, they want to have something that will be competitive for many years. So since you guys all like numbers, I’d like to compare a few numbers where we were last time to where we are today in a year.
So we came in just after Q3 earnings announcement. The revenue was $129 million. Now we’re back a year later 14% more top line, we can argue to that even in the tougher environment than the year ago. So clearly, the momentum is going and what we’re doing is getting traction in the market.
Looking at the operating profit in dollars, a year ago, we reported about $11 million. This year, we reported $16.5 million, up 48%, the growth rate is very strong. We learn how to grow and continue to use leveraging our model. When I look at first call estimates, when we were here last year for 2011, keep in mind, we did not even issued Q1 guidance that time. It was $547 million for 2011. Now with three quarters actual and one outlook, one guidance 7% above what we expected a year ago, of course, when you look at EPS, the number is much bigger.
So let's go with $0.88 a year ago, today the three quarter actual and one quarter to go it’s with the average in our range is about 23% above. So it’s not only numbers, we get recognition, I think this field was by far the largest field of getting recognition from the industry for our innovation.
We talked to you in the conference call with GRAPH EXPO that independent group of judges give this innovation Must See ‘em, EFII received more award this year than any company in the history of this show. And as we were talking on the conference call we got product of the year award on our LED, VUTEk printers which Scott didn’t talk about. We continue to get a lot from our partner like Staples and we just got full very point certifications for (inaudible) matching for [envelope] first matching on the (inaudible).
Now let’s talk about the industry. Since the day that Apple launched the iPad, I used one visual. Issac Newton, apple fell on the head, gravity, so I’m going to talk about the last deal. The apple that fell on the industry had the same emphasis, not exactly the same apple, but apple. The industry discovered gravity. Some pages I think (inaudible) those boarding cards, some of those spread sheets. This is an event on Vincent. He like to put a lot of numbers in one page, so I don’t if that’s going to go to be light, hopefully you cannot read, because you’re not suppose to see. Those have been to iPad. They are moving to iPad. The good news is it doesn’t impact infact business went out there, and the need to move to place where has a lot more value, but we’ve already though and they should need to perform to a much more profitable efficient business process automation, Mark is going to talk a lot about that.
So the business industry need to evolve, but every single business in our industry need to evolve, because if you stay as this, you’re not going to be in business and so you see customer saying hey what’s going, where is the value, what printing we can do and also our of the searching revenue for the aps business is because customer is saying I go to get my business. I can’t have that many people. I can’t have many of mistakes. If I do a redo of (inaudible), because I didn’t capture it correctly then I’m going to eat this margin. not going to be book to bill it's not as easy as it used to be.
And it’s clear that the key thing the industry need is techonology, there’s no other, it's not about weather, it’s not about anything else other than technology. And we are a technology company as a center of that.
So what’s the implication? Well, clearly, people looking for areas where print had more volume, we’ll talk about it packaging, out-of-home advertisement and things that not in our lifetime that will go on the iPod or I’d say electronics and we can give you example after example after example. On-demand personalized documents, people don't want to stock, you don't want it on the 10,000 run brochures, but you want to print when you go to a tradeshow, color brochure tied to the person that you point.
When we see example of personalization everyday, EFI is bringing more and more, and focusing more and more personalized documents that connect with database. And the automation is a mandatory, the industry as a manufacturing industry is lagging so much behind other industries, but now it’s time to catch up, because we have no choice. All those implications are not and in this philosophy we predicted that, we escape to where it's going to be and the last seven quarters, I think we're seeing the benefits of that.
So you guys are familiar with slides, so I’d summarize within one slide, we believe that part of this personalization on-demand is digital printing. We want to lead the industry in the transformation, it’s happening in some segment of the industry it’s happening in a big way, three areas we’re focusing on as far as industry places for growth where printer is valued. It’s the short run business documents, Toby is going to talk a lot about that, signage, other form advertisement and growth area by sales, 70% is still bring the manual device tool, lot of room to grow, packaging is a gigantic market and packaging going to be printers in our lifetime and probably many years beyond that.
And of course, part of this project, we want to help customers, it’s not just add value to print, being a lot more efficient, a lot more profitable and we do it with our business process automation out of the business.
Why is this working? Well as I mentioned the only thing that can help the industry and every player in this industry, every site of the company is technology. They need technology to evolve to what their customers want. EFI is a fantastic technology play in this industry.
But we’re much more than a technology play. We bring the Silicon Valley to this industry. We have build over the years a very strong business cadence, [rigor]. We have now Philippine daily reports. I can open my computer and I can see what was the revenue of each one of our line of business exactly in October, November for class fields. I can see the growth, I can see the OpEx and each one of our business and right now we’re looking at that.
I’m not going to show you that, but we have a lot more visibility into print. We are doing monthly reviews, quarter reviews, we build a very strong (inaudible). And we do humbly believe we have the best team in the industry. We would see some of the people we normally don’t seen and he’ll know exactly what I meant to do.
So the team is a differentiator in our business, a team is a big factor, we continue to hire the best, in our industry a lot of people wants to work for EFI. That portfolio Ghilad and Frank will talk all about that becoming a rate differentiator. It’s helping customers and are now demanding it more and more we are seeing that the portfolio input buying decision, so Fiery for Inkjet specifically.
And we are adding more recurrent revenue everyday even in the Fiery, its sounds that recurring revenue. We want to get sustainable growth, it’s very nice to start the quarter we have two of the three segments at 42% of the revenue committed guaranteed. So with that I want as Toby comments talk about all the existing things we are doing in the Fiery business. And I will come back at the end for Q&A. So thank you.
Good morning everyone, it’s great to be back here in New York. My name is Toby Weiss, I am the General Manager of EFI’s Fiery Division. And I have the pleasure of talking to you for the next 20, 25 minutes about the Fiery business. I understand there will be some new ways in a little bit as downstairs we have somewhat of a newsworthy IPO today.
So I want to walk you through what is a Fiery. The Fiery addressable market, how we can grow the Fiery business, how we have been growing the Fiery business, why that is working? Why the growth is sustainable, and then some upside growth accelerators as well in the business and then something, at the end of the presentation I will take 10 minutes for questions and answers and then I will hand things over to our next General Manager Scott Schinlever to talk about our VUTEk, Inkjet business.
Well let’s start off with what is the Fiery and certainly everyone in print industry knows what a Fiery is, but for those people who aren’t in the print industry, Fiery controllers sometimes called DFEs digital front end is an appliance, is a software intensive, combination software and hardware appliance that derives high-end digital copiers, color printers, and digital presses, including of course EFI’s inkjet digital presses.
It provides a high-speed data processing job management and color management as well as the a whole bunch of specialty applications and workflow tools. Why is this important, why high-speed data processing is important our high-speed data processing is important, because more and more customers are moving to short run and personalized print, actually brought a sample with me today, I apologize the people on the webcast are not going to be able to see it. But this is a postcard that kept mailed out, some of the pictures are some basketballs on the front and that flows from the audience. So to the basketballs actually have not the normal names of the basketballs on them, but this particular basketball has tended out to be a model family, this particular basketball to the Coporo family. So it's a personalized printer and of course, we address this personalized, the image is personalized, there is customized Coporo’s personalized do our role. So when you receive that postcard, it's obviously a lot more impactful with postcard your name on. It’s got especially URL, a QR code that’s almost in a click on and then on the back-end of course, someone can measure, Toby actually clicked on that code, I can hide into web marketing campaign, so on and so forth.
Will this need to be a personalized short runs very data intensive computing intensive process. Printers, high-speed digital printers are in the 80, 90, 120 page per minute range. We have to be able to print two of those a second required some extraordinarily fast and efficient processing. Of course, you have to be able to do that with accurate color and if you’re printing out brochures, anything else for your customer, you want to make sure that when you hand them a 1000 brochures, they’re all identical colors. You also need to make sure its accurate color? Coca Cola is very particular about Coca Cola Red, Home Depot is very particular about Home Depot Orange.
So these are very, very important applications in fact, just yesterday, I was at a customer here in New York City with 800 designers all working on (inaudible) and all doing very sophisticated color matching between clothing that they sell in their retail stores of course, with the print. We want to make sure that color has been incredibly accurate, because if someone is going to go shopping for a purple shirt, you want to make sure that purple in your print is identical to the purple in the store.
Of course you have that job management as well as to move things around to make sure that the print is sufficient as possible, this is no different than any other computing infrastructure where the order of work, the managing of the job are being able to move them from machine to machine similar to the things like virtualization in IT world are incredibly important.
And then we have a whole series of applications and add-ons that we sell, on top of the Fiery, to help a print operator to do extra picture. So you can walk into a printer and say, hey I have the business card. I don't have the original file, but is it possible for you to recreate this card for me and I’d like the EFI Blue to be the same blue, and I’d like this or, could you do this, make a booklet for me, but I want page numbers in it, so on and so forth. Similar to what Photoshop would do for designers, we help print operators do for their files.
And we distribute the Fiery through our partners, the partners are the company’s that makes the printers, and it sells on to those companies, distributing the Fiery’s, they typically offer Fiery as a performance boost or add-on product. Sometimes we draw an analogy on to the both stereo, inside of a car, it’s an extra value. Of course, they like selling that, because it’s a very profitable up sell for them. A Fiery that we sell to our partners, by the time it’s sold in the, to the customer might be marked up three to four times. So it’s a very profitable business for the partners and they certainly enjoy that profit
And then it’s shown time in and time out again by the printer makers that when a Fiery sold. Fiery drives more color clicks and more sales of finishing. This is incredibly important, because it continues to add to the value proposition to the partners. More color clicks means they collect more money, then the printers that they sell and service, and more finishing means that their average selling price is higher so the Fiery will typically come with maybe (inaudible) or booklets makers, folders things like that is statically higher value so.
Fiery addressable market consists of all the way from the high-end of commercial print, down to the workgroup, section of the market, on the right hand side, I’ve listed the number of printers shift, many different organizations provide this data. We’ve tried to accumulate to the best of our ability to give you an approximate number for how much to shift into each industry.
Obviously, once you get below, this workgroup level that's where you get into really, really, really large number of printers that you might have in your home, you have intra cartage to do. But if you look at our addressable market it’s slightly one segment up from there.
The Fiery sweet spot consist of all the way down from CRD that is circled a little bit off for some reason on the slide, CRD quick print and medium print per page, and then moving up into more and more on the higher end commercial prints. Anyone who owns a company with a CRD Corporate re prographics department or printshop will certainly no Fiery they will relay upon Fiery, the print, the colors most accurately, sharp colors for examples, the corporate logos, they work for productivity gains inside of a company, they need fast performance, because there are sales people who need the turnaround right-of-way, but they’re also very price conscious and they want to know what they’re getting the most productivity.
In the Quick Print market of course, the need is a little bit different, people come into the place like a FedEx office, or Staples they need that turnaround, they need no mistakes, they certainly want consistency, back in their job as well.
And then as you move up into the Commercial Print it’s little bit different, those jobs tend to be more professional, variable data jobs tied into marketing services for example; longer run, typically faster prints, and of course as of today, the number of printers that are Fiery Addressable is a little bit smaller in that market certainly growing.
While the good news is that the market itself continues to grow; of course we are all reading the newspaper and hearing the backdrop of macro economic uncertainty, however the one thing that remains constant is that digital color continues to grow. And my partners continue to confirm this as well.
So you can see the value of US retail print on the chart black and white, slowly shrinking, but digital color replace the Fiery place little bit more continues to grow at a compounded annual growth rate of just under 3%, then obviously incredibly large market.
So how do we grow the Fiery business? Well if you look at those segments, I'd put up before, the one that’s really what I’d call the Fiery sweet spot is, is area called light production. That’s typically what the CRDs and the quick printers, are using, those are engines that range anywhere from 40 pages per minute to let’s say 75 to 80 pages per minute in some cases, and those customers have very interesting demand. They’re looking for productivity; we need to be able to get the most out of the print engine type that they buy. They’re looking for color consistency, they have a lot of customers who come in, who want to be able to get the colors that they need. And I’m sure you can all imagine that color depending upon, what type of medium you are printing on is very different.
When you read a newspaper the color is look completely different, and when you get a nice bleached sheet of paper than when you get a thick business card, a thin business card, when you have a Canon printer or Xerox printer, notebook printer, or [Veco] printer depending upon the humidity that you have in the room. Depending upon whether the printer was warm on the run, whether it was the first job or the 10,000 jobs, when the last time, the operator calibrated the engine so on and so forth.
There is an enormous amount of variables that go into this. In fact, we have people in our staff at EFI, who have PhDs in color. And probably didn’t even know that such PhD existed. But being able to do all of this and get the maximum most consistency regardless of the type of substrate me. It’s key fully to this light production folks.
Now for Fiery to grow in this market, what we have to do is to continue to innovate, continue provide the support that the customers need, continue to gain share again our competition and focus on those key customer benefits.
As well one of the key business initiatives that we’ve had is to the developing and do better job selling add-on options to the Fiery controller. So we’ve dramatically increased the add-on revenue.
In 2005, the controller, the core controller with an 85% of our business. Today, it is year-to-date approximately 78% of our business. And the reason it’s a smaller percentage of our business, as we’ve done a much better job of selling add-ons and options that is strategically very important for us. Because it means, we are able to increase our AFPs, customers are loading up the Fiery with options when they buy it. The more solutions and add-ons that they buy from us, the more they are using the Fiery to sell it abilities and that means less likely they would be ever to move to different workflow or incur the high cost of switching from Fiery to something else that is not integrated to their environment.
Now besides light production, we want to grow the Fiery into the high end of the business and this is commercial print. Commercial print of course needs the same benefits of productivity, usability and color, but they have some other needs as well.
One of the two needs that they have in commercial print is the ability to integrate with the rest of their business. Because they are doing so much more print volumes, they are typically going to have more accounting software.
And as you’ll here later from my team colleague Mr. Mark Owen. EFIs market share in that professional management information systems, software and commercial printers, in North America is about 70%. So being able to, have tight integration between the Fiery and that MIS systems incredibly important in a key value differentiated growth.
Now for Fiery to grow up into commercial print, what will happen is the print engines made by our partners continue to get faster. So you see new engines, 100 pages per minute, 120 pages per minute was very long duty cycles, great color quality. Those have been in place since the commercial printers and Fiery will absolutely grow into those.
Integrating with EFIs, MIS offerings, integrating with systems like (inaudible), integrating with [Idleburg] systems so on and so forth becomes incredibly important. I should mention that the light production customers also have the need to integrate for those, but certainly a stronger need in the commercial print.
And then, we have to grow Fiery as well expand it into the enterprise. Now, this is a bit of a different strategy than what you heard from EFI in the past. Because the enterprise customers have very different needs. A Fiery that is a higher value in terms of performance and color is not necessarily how to grow into the enterprise business. Enterprise customer needs to hit by our print. And then they want to walk over to the printer as long as the print job is there it’s good enough. You probably all print out excel report it is red, yellow, green and the yellow is closing up to yellow that is probably good enough for you.
And if the red is not Coca-Cola red that probably okay for you to. Enterprise of course has different needs, they focus on lower cost. They focus on governance, security, sustainability. And so we will enter this market with new solutions, software solutions different than the controllers that is hit the sweet spot of the enterprise.
On Wednesday, we announced a new product we call printing mobile, it’s a software based product that enterprises can buy, that allows them to very easily print from their iPhones, iPads, other mobile devices, BlackBerry can sell on directly to all of the printers that they have inside of our enterprise already.
While of course, we think it works great, if they run in Fiery, they want to run any printers, even HP printers, it works perfectly fine to. So that’s really existing and you will see more solution to focus from us to grow into the enterprise market. So why is the Fiery strategy working. Well it is working because the users love our technology and the users are selecting Fiery.
And well there is many, many reasons why, I want to focus on the foremost important. The first is performance and I can almost call this productivity depending upon the segment versus performance. But you have performance important for two reasons. One, printers are getting faster and so you need a digital front end appliance that can drive the printers at those speeds.
Second recent performance as important is because this move to personalization. When you get a catalog in amount today it’s not the same catalog that you got before, it’s really targeted. The same way you buy a product on Amazon.com and it pops up a message, is that say oh here is the other product that people who bought this product like, your catalog is personalized for you, its got a personalized QR code. It’s got personalized pages in it. If a catalogue gets sent to me in San Francisco it maybe has key codes and an picture of (inaudible) on it, and if it gets sent to someone in New Jersey. Perhaps, it has a snow blowers and electro power generators instead of Ski Gears. They might have a very different view of the snow at this particular moment.
The personalization is driving the need for performance, it’s the key thing for me to say because performance isn’t just important on the high-end engines, it’s important in that light production space. You want to be able to run your job as fast as possible. Fiery needs to be useable, needs to be useable by the operator in the print shop, when someone goes in and says I want this particular print, I wanted to be look like this. I wanted to be a booklets but I just want to say it over here, I want this to be black and white can you move this over here, someone needs to be able to do that. It also needs to be used by an expert, who wants to go in and play with all those settings, that are brilliant color scientists, put into the product as well.
Fiery is going to give the customers the most accurate and consistent color the most vibrant color but also been most consistent color page to page and Fiery is the most integrated system. When an organization implements Fiery and they can tie it into their accounting software, they can tie it into their workflow, they can tie it into their digital store front to get automation.
They know a couple of things, one Fiery is going to work with all of their systems and two regardless of the engine that they buy they are going to get that strong integration because it is heterogenous and works with everything. Fiery also besides the technology has the most resources to help the partner. So our strong field teams, that Frank is going to tell you about later. But also because it’s the most popular digital frontend it has the most users out there, it’s easier to hire Fiery’s staff. It’s easy to hire people who know Fiery. And if you hire people who know Fiery, it matters a little bit less, which engine you have you can train your people on one workflow across your entire environment.
Fiery also has user forms, with thousands of customers on exchanging information, best practices, cloud based e-learning capabilities and whole bunch of resources to help people to really know. It’s an entire community of very loyal customers with the preference for the Fiery tools and the Fiery workflow. And of course I listed some of these customers, here on the slide. Maybe if you are in the room, if you work for large institutions, I could almost guarantee that your organizations will use Fiery as well to do all of your printing. They love when you give them the request for the books by the way 30 minutes before the meeting.
Of course I am not the only one who thinks Fiery is great. I think the market as well has voted. I wanted to put up a couple of market share slides, these were provided by Caslon who is one of the few firms who covers the digital frontend market separately and focuses on it and the data for North America as well as Europe, if you look at other data (inaudible) you could see similar results.
Three different segments, 40 pages per minute, 40 to 59 pages per minute and 60 plus pages per minute, the 2009 data. And if we compare 2009 to 2010 you will see in the first segment Fiery gained 3% share in that year, that we gained 5% share in the 40 to 59 page per minute segment and gained 3% share in the 60 plus percent segment. And if you went back in time and look at these results since 2007 you would certainly see consistent share gains on that journey. In Europe the story is very similar, 40 pages per minute in the last year Fiery gained 3%, 40 to 59 Fiery gained 4%.
And in the 60 plus market, Fiery gained 5% share. I have to say that I don’t have slides for Asia, because Caslon doesn’t cover it. But surprised to say that our market share there is certainly commanding and it’s a big reason for growth and in fact its interesting, we look now back, even several years ago, and this relates to all of this if not just Fiery but the customers in Asia, were considered I think many years ago, once that had less of care about quality, all the color is good enough, they would say we just want lower cost.
And now we are fine-tuning in the areas of India and China, that they are now doing this exact same things to customers everywhere else in the world they are doing. They are customers in fact the retailers are inspecting their work with photo spectrophotometers and insisting that that the color be accurate and so quality has actually become even more important especially India and China. And so you see Fiery far and away the most popular digital frontend in those markets as well and very strong growth.
So the customers remain loyal to Fiery, they continue to buy Fiery again and again, our tax rate according to the data you saw by Caslon in the segments. But also engine to engine, has been increasing, through each of our partners, and major customers have standardized on Fiery workflows, whether those customers are retailers, you can certainly walk into a number of the FedEx office, locations Staples here in New York. Whether it is a major print franchises UPS/Mail Boxes et cetera. AlphaGraphics, Allegra so on and so forth, advertising agencies as well commercial printers and the CRD and in-house print shops as well all throughout the world standardizing on Fiery workflows. But customer that I went to earlier on Wednesday rather, had 800 users heading the Fiery old designers. So if you’re a company that makes what this company makes a credit secret, you're going to make sure that nothing gets in the way of your designers and that they have the best tools available to them to make that product.
We recently completed our Annual Customer Satisfaction Survey in Fiery and found some pretty good news there as well. Of course, we asked the customers many, many, many questions and we take those results very seriously and go through every single area where they tell us we can be better. And in this case, we ask we ultimate question, we’ve seen a lot of study has gone into, which is when it comes to would you recommend Fiery to your colleagues or contacts within the industry, 83% of them resounded likely or very likely Fiery promoters. 12% of them is where I have to do my work, those are on the sense, they’re neutral. They’re in, I believe given the large community, the great support, the gaining of market share that will be able turn those into Fiery promoters. And of course, my hardest work is 5%, which should be unlikely, very unlikely, which certainly I have to work on. These results are higher than industry average results, something that we’re proud of, but on other hand, I hope to be able to present this slide and my target is certainly with higher numbers as the years go on.
Customers have a choice when it comes to Fiery. They can buy Fiery, but oftentimes, they can buy, have a choice to buy something else. They can buy the controller that the printer maker provides and they can in many cases; have a choice to buy the Kodak or Creo controller. Kodak still has okay share in many of these segments. And we believe Fiery has very strong advantages and it stems from the Silicon Valley culture that we have. We are hiring the best engineers in the industry. We’d like to move extraordinarily fast. We have one goal to build the backward flow, and digital front end, but we can build if we get an hour of a customers time, if we are with the CEO one of our large customers we’re not talking them about jams in the printer or clicks or service we are really focused on how to make their business better. How to make the digital front end better, and that of course feeds into the product management and the solutions that we have. So it’s really a focus.
Fiery opened and are ahead of (inaudible) customers know that when they buy Fiery, they are not lockes into a particular workflow, but something is going to work across all of their systems. They can integrate with it once and only once. And it integrates with all of their systems, the most importantly if they’re picking that category of EFI management information systems or EFI web store front systems we are going to have the tightest integration there and go out, it’s going to walk you through some of the value that provides.
The printing industry has gone through the same transformation that information technology has it’s no longer an island inside of these printers. They are running a business. They are driven by tough economics and they are having to figure out how to drive their costs down how to automate and how to produce a better result. And that's why this integration is important. I talked about the best and most consistent color, and of course the productivity that Fiery provides and these are far in away, the most salient points when it comes from knocking out of the competition and the reasons for share gains. Giving the example of performance, this was a customer who was running a very high end printer was running a competitive solution to ours. And I was looking to upgrade to the next generation printer. So it is a job that was almost 1,800 pages personalized PDF similar to something that I showed you before, a little bit more personalized. And they have to do what co-processing the job or ripping the job. So, simple 1,800, I am sure you have made an 1,800 page report you had file print if you will, but imagine instead of getting file print and just creating your PDF because all the processing to personalize the document.
Well, the one solution from our competitors that they benchmark in this case it took six minutes to process this job. Not bad. They have been looked at second offerings that was available to them.
They have to cancel the job after 12 minutes, because they couldn't complete throughout all their testing. And of course they run multiple files results in many cases is similar. And then they ran Fiery. And in the case of Fiery, we ran in 13 seconds. It is a dramatic difference and I know it seems like may be I fix to one file that’s 128 times faster, now we think it result half the time if you are a professional printer who spend $500,000 on [IM] printer and another $500,000 on a service contract.
And you are able to charge your customers $0.10, $0.15, $0.20, $0.30 a page for a personalized document maybe even more. And you can run a job in six seconds sorry 13 seconds and move onto the next job that is money in your pocket.
And you have no problem making sure that you have the best digital front end for that printer because you're going to have a better business. And you're going to be a lot more productive, and you're going to effectively move your competition in about. Now Fiery growth is sustainable of course, we are focused everyday waking up on innovating and out innovating our competitors and that focus that I mentioned before in the controller is what lead to the share gains. Share gains are obviously the best way for us to sustain the growth. I don’t even want to say easy, because it’s hard, but one of the things that we sort of consider our day job.
Our core business is expanding into the commercial print business as our partners, printers get faster to more reliable and will grow with that into commercial print where EFI has a very strong advantage, because of the large base apps customers. And then of course as we can deliver more options, more add-ons, more cloud-based software that we are delivering to our customers, we are going to able to drive higher ASPs. And that’s why we can sustain a growth. But besides sustaining it, we want to be able to accelerate the growth and this is where there is some new opportunities for us.
We are taking advantage of the cloud and we are taking advantage of the cloud in two very important ways. The first way is that we are building cloud-based add-ons to the Fiery itself. Now if you are a Fiery customer, for example, you can log on and subscribe to the Fiery dashboard that collect information about your Fiery’s multiple sites, gives you a reporting dashboard, lets you see the utilization, lets you compare, printer to printer, gives you all the information at your finger tips, wherever you are. So, if you are an owner of a business, you can log on to a portal.
We have other cloud-based offerings, like our Fiery e-learning for a very low monthly subscription or yearly subscription a customer can log on, make sure their operators are very easily trained, learn all the latest and greatest tips and techniques in Fiery.
We introduced remote proofing. So, companies like PetroPack, the largest packaging company in the world is using our cloud to be able to approve in two locations, multiple locations actually 100s in this case, and compare them centrally to make sure that its meeting their customers needs and it’s a fantastic selling point, if you are an organization and you can sell a job to a customer, global customer and guarantee them that their color is going to be consistent all throughout the world.
We’re also taking advantage with the cloud in a second way which is the mobile, the cloud mobile workers. I see some of you on iPads, MacBook Airs, and you are no different than everyone else in the world roaming around and sometimes you want to be able to print something out.
And the thing right now that’s so difficult is you can't, if you’re on an iPad, its extraordinary difficult to print if you’re in a BlackBerry. And so we're providing the ability for that mobile user whether they are in a hotel, whether they are in a public hotspot or whether they’re in their enterprise to very easily print without meeting an application for example on their iPad, they can hit that forward button with the arrow, up pops the list of their enterprise printers and away they go.
We’re also enabling self-service prints. So, if you walk around to some of those organizations I mentioned like FedEx Office, here in Manhattan, you can use our MiniNet front-end terminal. You can walk in you can pull a document down from the cloud. You can select how many copies and prints you want, figures out how much your bill is going to be, swipe your credit card or use one of the store cards and print and away you go without even having to talk to anyone in the store, almost like the ATM machine if you will of an MSP. And then of course as the other accelerator is expanding more and more into the office, the solutions I mentioned like our corporate mobile print and it's our goal to be able to deliver new solutions in that market as well as leveraging all the know how on software that we have.
Three key takeaways and then I’m going to open it up for a short round of question and answer. First Fiery is a solid brand, a solid cash generating business with GDP like growth opportunities. I don't like to use the word cash cow because I’m sure you’ll all see the R&D line items. We continue to invest very heavily in Fiery. It’s a business that’s going to grow. Fiery has very strong brand loyalty, it’s differentiated by technical advantages, and the add-ons, and the new segments and the cloud prevent new opportunities for growth.
So, with that I’m going to open it up for a couple of minutes of question-and-answer. Shanon, right here in the front, bring your microphone so the people in the webcast can hear you.
Shannon S. Cross – Cross Research LLC
Thanks Shannon Cross, Cross Research. And my first question is when you look at your partner’s product roadmap through the next year given your Grupo next summer, sort of how are you thinking about, how does it look for 2012, relative to prior years?
It’s a great question. Obviously Fiery is driven by many dynamics in the market, seasonality, it’s certainly one and our partners tend to push more in their end of year quarters and things like that. But the other big factor is certainly the engine roadmap.
I think we had some releases that point out in the second half of this year that were certainly significant products coming out from retail, there’s 70 products, in light production space in Xerox as well, put up some new products in this space. Next year is Drupa, which is a once every four year, mammoth trade show and the Olympics if you will for digital printing, in Germany. And typically it’s a very big show both for product releases as well as for marketing new product concepts and things that will be delivered through the second half of the year.
So, as I look out, I still see, I can’t comment on particular releases of course, but I will say I see a good pipeline of products that will be coming up from our partners that will continue to drive Fiery there. We had I think a really good year in the end of 2010 that helps at the beginning of 2011 and they could see some new good products at the end of 2011 that are going to carry into 2012 and then I’m confident next year we’ll see product that will help in 2012 and also carry into 2013.
Shannon S. Cross – Cross Research LLC
And then I guess my second question from a competitive standpoint, can you talk a little bit about Canon now with Oce, Kodak sort of importing relatively slowly but maybe it’s speeding up now, so how you start of think about that just in terms of the competitive landscape where you actually might have? I know you’ve been gaining share but sort of how you’re seeing some of the movement there?
Okay, great question. Canon acquired Oce. Oce has a product Christmas that competes directly with Fiery we think competing with Christmas for a long-time, certainly prior to the Canon acquisition for a while. It has a presence in data centers, but it’s really nothing new from a competitive landscape there. We’ve been leading share on almost all the competition but one of the big ones that we still have to remain, that still remains in the market that I think we can gain more share on is Kodak that you mentioned in the second part in the question.
They, certainly I don’t need to comment on, I don’t think they’re operating from a same strength that they were operating in before and I think that that gives us an advantage. I would expect customers. I would look at that and had concerns about where the support is going to come from and things like that in the future and partners as well. One of the big differentiators that Fiery has I mentioned is the fuel personal. And of course the customers love the technology and that’s why they ask the partners for it, but if you have the partners why they sell it, they will say, well the customer ask for. But they’ll also look in point directly to the prior pattern, I know this person here support me. And they don’t’ necessarily have that same support sometimes even further their own internal brands one story of a partners told me they had a issue with Fiery, they call if there if they’re local person if there in an hour, they have their issue with their own product, they felt still got a forum, someone has to fly in from headquarter that that’s going to slow and bureaucratic and the reason is they’re focused on a very different mission. If they move the needle in their product, it doesn’t impact their company at all and they go back to focus. So I think in both plants, we are remains confident that the customer are going to continue to choose Fiery.
Shannon S. Cross – Cross Research LLC
Just one more question, Gill. I don’t you do, but do you have any issues with the Thailand flooding and any access to components or anything?
Okay, great question. To that of our knowledge right now, we have no issues there in terms of our supplies and our partners are still certainly doing that, they are checking – we’ve been checking with them to see they have any issues. I haven’t had any reports yet that that one way or the other say they are having or not having issues about that.
Shannon S. Cross – Cross Research LLC
It is predormitally to hard drives that you are to?
Our concern internally efforts was the hard drives to make sure if that was okay. As with any other incident, I think you find out, you think at one thing, you need to stay on top of it and so on. Wasn’t I think until weeks, and weeks, and weeks after that Japanese incident that people realized this Renaissance chip is the key thing. So hopefully most important thing that people in Thailand are taking care of ERP. And then certainly looks at this point that it if there is anything, the news has all been around hard drive.
Ananda Baruah – Brean Murray, Carret & Co.
Thanks a lot. Ananda Baruah of Brean Murray. Just another one to share gain certainly the showed that you are gaining sort of against Kodak and I guess the field can you go into a little more depth about what ht drivers of the share gains have been presumably with Kodak because it probably choosing to invest in other areas. But how about everybody else? And it sounds like you are expecting the gain to continue? Is that sort of your base case expectation? And if why, if so, can you just give us some sense of what you see the drivers of the gains going forward?
So in terms of the reason for the share gain, the customers are choosing Fiery. More and more, we see this need to have an integrated print shop. So they’re driven by – I have to reduce money and they want something is going to work seamlessly. They buy a web StoreFront submission from EFI and the job convinced, what they wanted to do, they wanted to know how much of that job going to cost them. And they wanted to be able to automate the printing of the job. So they can pay an operator as little as possible. They just basically put paper in and out on the trays.
And so to do that, there is a lot of integration, they have to go back and forth. You submit the job. You want know what printer is capable of printing the job? Where is the paper and so on and so forth? So you can streamline it. The short answer is, the integration that we have with the rest of portfolio drives Fiery business into those accounts in a major way, whether it’s the web front-end or whether it’s the MIF accounting software.
We certainly believe that we’re going to continue to maintain or gain at slight market share gains. And in the case of why, I don’t think if that Kodak has invested in our area, actually they claim sort of the very important parts of their business. But they – certainly have cutbacks and field personnel and things like that would certainly impact them. We’ve had instances where we’ve been first to market. Fiery has an exceptional track record in terms of on time delivery and quality.
And so when an engine is launched, if you’re hearing great things about one product versus the other or the early adopters of those customers are saying, "Hey, well, Fiery is great." We tend to get a little bit more momentum in the customer base and social networking people are commenting, "I bought with this, I bought with that." We see a lot of positive stuff and the sales forces that tell of course want to make sure that they are getting their customer trouble fee environment.
Ananda Baruah – Brean Murray, Carret & Co.
That’s helpful, thanks. And I guess, can you just talk about a little bit about what add on opportunities do you guys sort of, add-on features you guys are looking at doing or what type of areas we might expect you guys to add-on into, is this sort of an ongoing this is a core part of the strategy now going forward. And then just the last one will be, keep talking about the Asian growth opportunity, how susceptible that could be and what's the right context to view that?
Okay. So the answer to the first part of the question is add-on is definitely an important part of our strategy. It’s been working in the last year, we’ve seen good growth and the ability to sell options, we’ve modeled some sales comps and things like that to help incentivize that and that’s certainly proving effective. We have options in add-ons in two ways. One is, we include them in the very high-end servers to have a mix shift up, so people are more likely to buy the more expensive Fieries, but it comes with everything. And then we also sell them sort of, if you will, to the customer we launched in e-store on the website to be able for, customers to be able to buy those. Frankly speaking, most of the customers see that and then they buy from their channel partner, which is great for us and we’re very happy, we’re doing a lot more marketing to those customer base, we launched our new product in the web, they register for them, and so we’re informing the customer and through cell phone that we’re thinking like that. So we’re going to continue to do that, we’re trying to leverage the cloud as much as possible through a great delivery mechanism and the customer seems to love it, and they will have to wait another four years to buy another printer, to get the latest and greatest. So that’s certainly a part of that.
The second part of the question is, the Asian growth opportunity and it is very big. I think we mentioned on the call, I’m looking to Vincent actually. Did we give our percentage of the growth that came from Asia? No, (inaudible)?
That’s okay, a good part of the growth certainly coming from there, particularly I think we’re very pleased with what's happening in China and India and there is a need there for people to move to more personalization, quality and color is becoming more important, and I think you see all of the partners talking about those markets certainly on their calls.
I think we're running – last question, okay. He's been waiting for long.
Ananda Baruah – Brean Murray, Carret & Co.
Hi, going back to earlier slide, where you showed you can process a job 28 times faster than one of your competitors, is that versus independent competitors, does that include OEM products?
That – a great question. So that was a slide where there was two other competitors. One of them was a third-party competitor, Kodak and the other one was an OEM controller. So it was – I didn't want to take on one particular OEM, so I intentionally left their name off, it's unfair, I think we're better than all of them. But in that particular case, it was both we're competing with the partners, printer maker, you can call it OEM controller as well as a third-party.
Ananda Baruah – Brean Murray, Carret & Co.
And just one last question for you or for Guy, just getting into for you had both ups and downs as volumes and in and environments, outside of doing sound checks, what can we do going forward to give some sort of confident factor to the investor, that the volatility and the peaks that we experience, and I think pretty well of, what is that, that you can do to manage this going forward?
Okay, so a great question. I think you hit the key point. I mean we do have a lot more vigor than we've ever had before and we continue every day to put more vigor around the process of doing inventory checks internally with our partners.
So, we're talking to them constantly, we're reviewing, and I think Vincent mentioned on the call, weekly in some instances, and we're checking with them on their inventory levels. And so, we feel that certainly entering and exiting this quarter, the partners will have inventory levels that are certainly appropriate and within operational metric that we have more vigor than we've ever had before. And as you see more of our portfolio move to solutions and products and services that typically means less hardware inventory than they would have because of the sensitive software. Cloud-based solutions don't have any inventory associated with them; it's one of the nice things there so.
I think as you see a bigger percentage of our portfolio certainly being solutions and add-ons in our strategy and the rigorous business processes we have on our inventory and the fact that we are gaining share I think and ultimately selling more should give us confidence in that less cyclicality.
So with that, I'm going to conclude the pioneer presentation. Thank you all very much for your insightful questions. I'm going to invite our next speaker up, General Manager for our Inkjet Solutions, Scott Schinlever. Scott.
Thank you, Toby. Well, good morning everybody. Thank you for joining us today. My name is Scott Schinlever and I manage EFI's inkjet business out of Meredith, New Hampshire.
So what I'm going to touch on today is basically the two segments that we serve, and these are both very, very high value print segments, as Guy alluded to before, in terms of our core focus.
So first in terms of what is EFI Inkjet Solutions, it's a range of printing systems to address the super-wide format space for VUTEk printers, the wide format space with Rastek. So this is all the out-of-home advertising you see, whether you're walking around the street right outside or through a store, or through an airport. And then also our Jetrion label press, digital label press, which really goes after the label segment. These are all supported by a range of digital inks that we develop and manufacture ourselves, services of course to maximize uptime for our customers, and then also all integrated with the suite of products from Fiery and from the EFI APPS business.
So really a complete solution for our production printer to drive their business and achieve profits.
So what I'd like to do is first talk about our wide-format and super-wide format segments. This really is display graphics and signage. And in terms of the market we serve, if we look at the end user applications, kind of go back from there, our core markets today really serve the out-of-home advertising space. So whether you’re talking about a very large billboard like you see around here, a banner, all the way on through to different kinds of backlit displays you might see in an airport or a shopping mall, all the way on through the point of purchase. And point of purchase of course is one of those segments of out-of-home advertising that has remained very, very strong because with all the ups and downs in the economy, yeah, one of the core things marketers always focus on is the fact, having signage right at the point of decision is very, very important in retail.
Now at the same time, our equipment and our technology is flexible enough to start letting our customers' go into a new segments, whether it’s fine art reproduction, whether it’s even printing on membrane switch or some type of text file applications as well. So a lot of different types of applications you can do with this technology.
In terms of the underlying growth value and really what drives our market, it’s all about print volume. Print volume means you need printing systems and of course you need all the – and the services to go along with it to drive that strong recurring revenue.
So first, when you look at overall value of print over the years, they'll roughly attract to GDP. So that’s overall print, however it’s done, whether it’s analog or digital. Kind of the emerging trends over time is first off, electronic signage which of course you see in kind of an outsized up here in Times Square. Electronic signage, it does have its place. When you really talk to all the marketing consultants and everything else, it's still going to be a fairly small part of the total impression, but its something they obviously keep their eye on.
Digital print on the other hand is represented by the green. It is growing at a 15% year-over-year rate and is predicted to continue so. The reason is, and we will talk more about it in a minute, the key driver is the Digital Transition.
As the technology and the printing systems and the software and the inks become faster and more productive, it becomes more economical to transition the printing process from analog to digital.
So just in terms of the Digital Transition, what really drives it is the fact that there is only the breakeven point of where you can do something less or more inexpensively with digital versus analog. The reason for that is, with analog print processes, whether it's screen printer offset, you spend a lot of time setting up the printing press, which means downtime for the press is not printing and making money and is also a lot of labor upfront in that process. So, especially in the western markets that becomes very significant.
What we're driving at over time, in terms of that breakeven point is the faster the digital print technology goes, you are able to do larger and larger runs. So we only push the envelope of speed at very, very high quality to go faster and faster and get more throughput out of our systems. What this all means is, a print provider is looking at higher ROI, first from cost savings, because it dramatically reduced their set-up times. I mean, it is not quite a simple as file, print like you do in your home office printer, but its actually fairly close.
And what that lets them do is really take the labor out of their front-end process. Also, they achieve a lower inventory a print. And what I mean by that is, they no longer have to print additional copies if they have foliage or wastage or if the customers wants more copies for particular campaign they are working on, they can just do it on demand.
At the same time, there is more revenue and profit opportunities from short run customization and faster turnaround. An of course the faster turnaround really enables the prime provider to have more premium pricing. So we look at where we’ve driven our product roadmap overtime in terms of that breakeven point, we take pretty dramatic leapfrogs every time we come out with a new generation of flatbed devices. So starting back, you know, in the early 2000, here we had a family that was under 40 sheets was kind of the breakeven point. So what that means is charts up to 40 points were less expensive in digital, but over that it was still cheaper to do it on analog.
We have cycled through our next product for QS. We went all the way up to 62 today with our GS products that breakeven point is all the way on up to 165 sheets per job. The reason that's significant is you are really capturing more and more of the total print volume of the market doing this and you are really relegating analog prints to much more of the low margin type of work and there is lot of capacity in the market sheets with the analog print devices. So it's not as attractive for print providers.
Now in terms of the growth drivers, I talked a little bit about this, obviously out-of-home advertising continues to drive and it is a very good prognosis even with the ups and downs in the economy, it is still where people are investing is whether it's Internet advertising, whether it's signage and kind of connecting it all together in terms of the campaign, very, very strong transition of digital.
The other thing we have inside of our own digital space is we also have a transition going on from solvent ink technology to UV-cured. Why that's significant is solvent ink, it produces very good prints, but environmentally it has issues because it outgases, it smells like real Magik Markers, and that's how the ink cures.
With UV-curing it basically instantly are flash cures using white, so there is no outcasting or no VOCs or Volatile Organic Compounds coming out. So it's much more attractive in terms of worker safety, and also in terms of when you rollout a banner and you start to put it up you don't get that smell.
The other thing that's happening and we are actually driving this on the high-end, as inside of UV-curing is driving to LED technology and what that enables is basically that flash or light curing add much cooler temperatures. So we'll talk more about that in a minute.
So in terms of segments where EFI is in the market in wide-format signage, we really cover the production space, so kind of as Toby talked about there, it's kind of the entry level production and then the high-end production with Fiery, it's kind of a similar story here, where the high-end production which is really going after screen for replacement, and VUTEk just hits us squarely. And these are big systems that run around the clock and people are really driving a lot of volume through this. We are also going right beneath that and expanding into what I call entry level production, and that's with our Rastek wide-format series of products.
So the two segments we've served have a very nice core print volume, and they also in terms of our product portfolio, we have the potential to go both up market and a little bit more down market to really capture the whole production space with a wide suite of offerings.
Now in terms of our wide-format inkjet opportunity, if you kind of slice it roughly and you look at, this is represents UV equipment and ink revenue. In the total segment we serve is about $1 billion a year, but if you divide it by kind of VUTEk versus Rastek, the above 200K price point, I mean it’s a crude segmentation, but it is representative of the capability of the machine. The above 200K segment it’s about a $500 million a year segment, and the below 200K is about equal, at about $500 million.
So obviously on the high end of above 200K EFI share, it’s a touch under 40%. So this is equipment revenue plus ink. And there is still opportunity for us, first off, that segment is still growing so there is opportunity organically, and there is still opportunity for share gain as well in some of the new technology we're coming out with.
But in addition, we have a very, very big opportunity on the below 200K segment because today we’re about 3%, I mean a very, very small piece. We’re coming out with a very strong suite of products all at once. They are really going to address this space head on and really let us grow our share there.
So one thing we like to do is at the end of the day let our customer talk for us because they put it in better terms than we can and really talks about how EFI with injured products affects their business. So here is a customer, it's a GS customer, that’s our big hybrid system. They talk about how their customers are very conscious of brand image. So keep in mind this is a 90s have been at republics, limiteds, all the brands we all know. And what he talked about is with the VUTEk printing system, you no longer have to turn away the work in terms of meeting the quality requirements and turnaround time for their customers.
So why is the growth sustainable? First off, the digital transition that we talked about before is accelerating, and it’s accelerating. And actually what the economy in the last couple of years has actually fueled the acceleration. There's a lot consolidations of screen printers out there today. They are not able to make money anymore doing just really long runs of static images, because customers want more customization, more deployment sales.
Secondly, we are driving a fleet of products and we are early in the product cycle, so to speak of really driving on some key platforms that are really going to sustain growth. First is for our GS product is LED curing. So first in it’s class, in fact there are lot of pundits in the industry that predicted that LED curing because it’s very difficult to do at high speeds, wouldn’t be coming to our segment for another four to five years.
And we absolutely shocked the market in terms of coming out with it this quickly. It’s first in its class that enables new applications because of LED curing, you don’t have the by product of heat in the curing process. Why that’s important, is that then you can print on very, very exotic print media and you look at all the creativity of marketers today especially when you get down in the point of sale, advertising, they can get very creative in terms of the material they want to use. And then there is also cost savings. Using thinner materials means you’re paying less for the materials because often times common substrates is sold by the pound, so overall very green.
At the same time, we are expanding our UV roll-to-roll options, I’m sorry products and adding a three meter product in the portfolio. What makes it unique is it has best-in-class print quality to squarely address point of purchase and doing it at very, very high speeds.
And then finally having a wrapper of integrated EFI print solutions really to sell more of work flow solution and Marc and Ghilad will talk a lot more about that. So, just another quote because this is from our first data site for our GS LED or GS LX and a customer here is a PVS out from Portman, Oregon and he talked about really the fact that he is saving about 30% on his substrate costs and then his customer is saving almost 30% on the shipping cost, because at the end of the day, its all [blocked] by weight and then shipped by weight. At the same time, the product is – the LED is letting him to address new applications.
So why is the growth sustainable in terms of the business model, it’s all about the ink. Our UV ink business in terms of volume is up 24% year-over-year from last year Q3-to-Q3. We develop our own ink. We make our own ink. We’re the largest digital UV ink manufacturer in the world.
And it’s a very key competitive advantage, because when we develop products and systems, we develop the ink along with the printer. And LED is a great example of why having a tightly coupled development is so important in terms of driving differentiation and advantage.
So in terms of growth accelerators, kind of getting outside of our core markets and expanding our total addressable market. First, Soft-Signage is a very hot space right now, that actually started moreover in Europe and we’re starting to see it in the U.S. But if you think about walking through a high-end retailer today and instead of seeing printed vinyl banners or even printed boards, you’re seeing more and more the sheer Soft-Signage for a much higher quality look.
The other reason Soft-Signage is so popular is to ship to a retailer like for a campaign, you’re shipping a folded up piece of text file and then envelope versus a huge roll for a banner. So it saves a lot of shipping cost. [At the sales], so we have a product called the 3250R that we’re just in the middle of launching right now. So it’s coming out of beta.
At the same time, I touched on Rastek. We’re squarely hitting that entry-level production speeds. So this makes basically a print provider an EFI customer sooner in their business life, and they get integrated into the EFI workflow and are able to expand with either more Rastek Printers or move up to VUTEk Printer if their business growth.
But finally a product that we’ve announced and they will be going into Beta with late this year and shifting next year is on a [RAStx side] or roll-to-roll it will be the first in it’s class to offer UV Caring in terms of roll-to-roll device for under $200,000. So that will be a very key product for us.
So now let me switch gears talk about basically our label from packaging, so in terms of this is our Jetrion brand of our printers. When you think about labels there is a lot of different types there is kind of directional or safety labels this pharmaceutical and then all the all way through to more of the food and beverage and all the way through to something like wines in example here. So there is lot of marketing context. So one kind of thing across all these applications is the requirements for variable data is extreme and versioning is extremely high.
So you think about like in pharmaceutical that’s variable data envisioning down to the – down to the small bap size to create stability. You think about industrial have to keep with all the latest warnings and also requirements. But then of course on the bottom here is more variable inventory versus just informational to get you buy the product.
So – experts and these are folks in the industry, talking about in terms of the label and the digital packaging opportunity. Digital packaging is really just in the early days. So you go back to the light formate output, you remember that graph I should of analog versus digital about 30% of total output today of volume is printed digitally and packaging the labels is 1%.
So we’re just at the beginning of basically the adoption and we have in head the mass adoption yeah, we are still processing it up, so basically what are you talking about, the different folks in the industry; they are talking about very healthy growth in terms of digital printing of labels, many of the same drivers in terms of set-up time and all that that drove the Wide-Format Digital Transition. This is just earlier days for the segment.
So, why Inkjet for label? First off, it’s very key; the incumbent technology on the analog side is flexo and very, very high print quality, very good coverage in terms of opacity. So you need to have to path, otherwise in the colors on the label material that had the flexibility.
So UV is very durable technology, scratch resistant, the nice thing about UV is a kind of stems out of the out-of-home advertising space. So the ink is very, very durable in terms of scratching of rising resistant. At the same time, you have far lower running costs and other technologies. Really, the other technology is like HP Indigo. There is a lot of associated costs that go along with the tenure cost there.
And what's driving it? In terms of why are people going to digital with these types of systems, it’s all about doing short runs and customization, very similar to what we talked about in the Wide-Format side. Versioning is especially a key driver on labels. So and that is much more sophisticated, in terms of what people do there and the requirements are more sophisticated and the fact that being able to do shorter turnaround time.
I think what is interesting is this quarter to bottom talked about this is a [senior mark-end], and there are large flexo, the large flexo press manufacturer talks about the fact that downtime. That’s all the set of time I have talked about before is 40% of the total available time in a flexo press. So 40% of the time, our multimillion press is now printing.
So in terms of the digital installed base keep in mind the flexo print process is still much faster in terms of throughput Digital is making a lead product very similar to what we went through in wide format.
Today in 2010 actually the HP Indigo has the larger share. And so they’ve really proven out of the market and quite frankly we're coming in as a very strong second and accelerating quickly because inkjet is inherently advantaged from a customer's perspective because of the running cost and the simplicity. And also the workflow of inkjet is very, very similar to a Flexo Press.
So speaking of that, we just launched a very two watershed products of the Jetrion business 4,900 and the reason why is such a key product is a really is an integrated workflow from putting raw label stock on one end of the printer having a print, close to flexo’s speed and then basically being finished, and taken up on another role, and it's so integrated that even at the end the last stuff the printer does because it actually prints out the shipping labels for you.
So you can just literally take off the shipping labels put it on the containers that you put the output into, but basically we don't put on our 4000 series print technology. So it's very, very proven in terms of the print engine, get a lot of enhancements there. But we really made it much closer to flexo and that was a feedback we got on our previous products was block the print engine, but I need to be able to have an integrated end-to-end solutions like I do with my Flexo Press. So we really try to make sure we annulated the workflow and brought all the advantages of the digital at the same time. And there is also very heavy integration in terms of both the EFI APPS and the Fiery technology.
So this really brings all the pieces together which address some more and it's not just in terms of the applications and the rest, but also in terms of the finishing, because that’s what customers are demanding in this segment.
And we launched with Labelexpo over a year, not too long ago and IT Strategies is one of the core consultancies that covers Inkjet. And basically we stole the show, so they talked about that we took the price for innovation, everything else they sell off the show is much more innovative.
But just in terms of applications and opportunities they are endless. I mean it is top graphic actually is a customer of ours in Brazil that has VUTEk printing technology, I know it’s a busy slide, but they printed on anything from dresses to backdrops, to posters, to carpets, to tyle. And then there is so much you can do with these particular systems, this is a beauty of contract with printing, with Inkjet, you’ll never touch the substance and of course along the bottom showing the range of opportunities we serve of our label and packaging printers through Jetrion line.
So the key takeaway, we are targeting the high value print segments which is really industrial Inkjet and inside of that is really all about wide format and packaging on labels. And why they are so attractive is we are still very strong digital transition. First it’s accelerating on both segments, there is a long way to go, there is a lot of analog print volume out there to get.
EFI has a strong opportunity for share growth and expanding its available market with our innovative technology and also our tight and seamless integration with our work flow, with the EFI APPS and with Fiery.
And finally in terms of a business itself, we inferred it on the earnings call, we are improving our performance pretty dramatically in terms of our leverage and gross margins. And we’re driving very strong annuity growth. And that’s the model we are going after.
So with that I will take any questions.
Two things I guess if I could, the first is can you give us a sense or maybe around this of the segment. What’s the breakup between hardware revenue and supply revenue today? And then just give us a sense of how the supply’s revenue is growing or accelerating and to the regional inflexion point at some point you get sort of an installed base that’s sort of pumping it out and where are the implications of that happening for the margins at the segment when that’s happening?
Yeah, I would like to, let me just talk about it in general. We’re definitely seeing an acceleration of basically the annuity versus equipment but the difference in our segment is we make strong margins off equipment as well as the annuity. So it’s not like a consumer into a product where you’re giving away the printer to get all the annuity. It’s much more balanced and we also of course make a margin on our service as well. So this is kind of typical, we’re in a mass adoption phase of wide format. And so what we are seeing is the annuity coming on stronger and stronger and that’s what the consultant forecasts are doing as well. I’m not going to comment specifically on our breakout but definitely that annuity growth is, first off ensuring that there is more and more revenue that is kind of in the bag or done as we going through the quarter as Guy talked about and also it does bring a much strong annuity in terms of gross margin.
Will you guys, when you reach sort of whatever that, maybe but I’m just going to use some critical match, when you reach sort of that point will you change the pricing model for the call it the portfolio of products, the hardware services, ink and I guess the reason I’m asking the question is you kind of view it sort of (inaudible) and maybe that – so this is the best way to drive that over time, shift the pricing model or that – it’s really an opportunity at some point to just sort of (inaudible) and maybe at some point you can see some sort of inflection point benefit from it and have a sizable install base for managing.
Yeah, let me just comment kind of I think from the market behavior in general. I think what we’re seeing across the market is a pretty disciplined price approach today. And what I mean by that is we’re not giving away printing systems to get the (inaudible). Our business model just wouldn’t support it, because these things are pretty darn expensive to make and to maintain.
We need to get, with our size; we need to get gross margin and a good gross margin of everything that goes out the door. So, I don’t think there’s going to be that kind of dramatic inflection point. I mean I know what you’re referring to because on consumer, it’s certainly a thought right, where all of a sudden it became cheaper to buy the whole printers and printer cartridge. I don’t think you’ll see that in this space.
(Inaudible) how do you think about the label market and I know you talked about it a bit, but where I’m confused is sort of how you sell with that market. I mean I have talked to some people who are consultants in the local market, which is an exciting group. But I guess when you go to sell into the label market, sometimes you’re selling direct to the end packagers, some times you’re selling to – you guys making some label – the printing. How do you sort of attack that market? How do you see that market growing over time? I mean it’s seems like everybody wants to move to digital, but there are impediments?
Well, you kind of hit what the earlier – you kind of hit on some of the characteristics of the market, it’s a bit conservative. First off, labels are a little different because the print providers, the folks that those printing systems like the big Flexo Presses tend to be much larger than light format. And some of them, I mean are actually humongous and so, they are not entrepreneurs. So, they are looking much more at how do I drive down kind of incremental cost versus how do I go out and attack a whole new segment. And so, quite frankly that has made kind of the transition to digital a little slower.
How we sell to them though is basically we sell direct to the print provider. They are the ones who see the most advantage, because you are taking a lot of steps out of their workflow and you are letting them also, what is happening is they are getting more requirements from their customers to do more versioning and to also have tighter integration and control, because of all the informational content and quite frankly gets you sued if you don’t get it right.
So they are getting more of that pressure and they are kind of muddling through with Flexo, but they know that really digital is the way to go, but overall the segment is pretty healthy on the analog side today, because compared to like wide format, screen printers are under tremendous pressure. Most of them are not making a lot of money. They are being compelled to go to digital as a whole new model.
Labels right now is a bit more organic and also quite frankly the technologies are (inaudible). So they are probably are so excited about the 4900, because we really got feedback (inaudible) end-to-end finishing. We can’t have all prints and labels coming out the other side and that I need deal with the post printer. So we are going to keep chipping away at it, but actually it is correct because print providers, the print providers are big corporations and they move a bit slower.
And then can you talk about – more about the Asian opportunity? What is going on in China, I’m assuming there is not a ton on the label insight, but I could be incorrect, but then also with VUTEk how that business is running?
Yeah, great question. China has been quiet a story, because we went through the typical thing because a lot of products that I’m talking of 8 to 10 years ago since I’m going to VUTEk, APPS, Fiery. We’re – basically a lot of local manufacturers took over that market, because the print quality requirements went then high.
I mean back in 2003, 2004, you could walk through all the big cities in China, and the quality of the inventory is very, very washed out [and all]. That has radically changed and what we’ve seen as a resurgence especially in a roll-to-roll UV our five meter products, we’ve had significant uptick for this year, not just in China, but also other related areas around China, some of the other APAC countries.
And what’s happening is, they are leapfrogging. They are going from very washed out land looking output, so it’s something looks like time square very quickly. And what that means is all those local products can’t produce that and they need basically the high-end technology to do it, so it’s driving some very nice growth for us. We see a lot of good opportunity there and it’s a real growth engine. And in fact, we just opened up a Shanghai Demo facility as a whole food of products now. We just about a few months ago and that we really look to that as an acceleration opportunity.
Jumping on Labels, in China a little bit printers there, I mean there it is really related to, you get the shorter set of times and I think what they see is the ability with the Jetrion processor, that type of product to be in the higher value segments, we need burgeoning and haven’t been able to address that before. And quite frankly, I think it’s also going to create some export up front and back to other markets Southern China, because you can ship a lot of label from a fairly small space.
Okay, last question.
Okay. Can you just talk a little bit about your current competitive positioning and product positioning for both Rastek and VUTEk and then as you move down into Rastek more aggressively into that segment of the market. What is your big point of differentiation? How are you going to – and whether that’s going to allow you to gain a lot of market share there?
Okay. Let me start with kind of the high-end of VUTEk. We are the leader in terms of a Hybrid UV and UV products. And we have key competitors whether it’s Durst, HP, and Inca are our three key competitors there. How we differentiate against our competitors? In this first off, we have the broadest portfolio of products and we really go after the highest value and what we mean by that is, you are able to get the most productivity and high quality.
So, a lot of times with Inkjet, think about your own Inkjet, you can advertise up to speed, but it’s a draft mode that nobody can use. With VUTEk and we do it with Rastek too, but with VUTEk we always focus on making sure salable up at a speed and we’ve always differentiated along those two elements and of course that has to deal with the reliability for uptime, because these are often around the clock. So, that’s how we differentiate in terms of the portfolio. And then the other key differentiator, which Ghilad talked about and it really is growing for us is the integrated workflow. So what’s happening is print providers are moving from being printers to Short Run manufacturers, much more sensitive to taking steps out of the process and Ghilad will touch on that more, probably on Rastek real quickly.
Rastek basically key competitors there are Océ and HP. We feel how we are going to drive into that market. First off, as we offer great scale print quality at very good speed. So and we have a great scale print quality, so important is that it gives you photographic output. So it really lets you go after even a broader range of applications and very, very high-end application. And in fact, those luggage tags that you all have that we made for you were done on the Rastek printer.
And so, you need the grayscale print quality to be able to do that kind of quality. And how we are going to really drive into that market is a combination of first the product portfolio we will be a very strong value play with grayscale photographic print quality at production fees. We will also differentiate and you will see more of this from Frank’s presentation in terms of we are really expanding our coverage in terms of direct and indirect to really go after the market. Okay.
With that, thank you very much. I would like to bring on our next presenter that is Marc Olin, who is our GM of EFI’s APPS business.
Thank you, Scott. So, let me apologize in advance, I have a little head cold here, so if I sound like Barry White, it is not my normal voice. But I’m here to talk about the EFI APPS business. I’m the Vice President, General Manager of the APPS Group and within the APPS Group, we have one primary goal which is to transform the printing industry the way that printers do their business.
And that may seem like a somewhat lofty goal for our software group, but we have seen those results happening over the last few years. And that is really what’s been driving our double-digit growth that we have had in revenues and the increasing margins that we have had within our group.
And we expect that this transformation that we are able to do for the printing company is going to not only continue to accelerate our revenue within the APPS Group, but also help drive accelerating revenue in the Intec Group and the Fiery Group, because of the connectivity we perform between APPS and those products and the value proposition that drives for our customers. So, first a little bit about what we do?
There is two primary products that we sell within the ads group and that is business management systems for printing companies and E-Commerce solutions for printing companies. The business management solutions are similar to what you think about in terms of SAP or Peoplesoft or Oracle, they help printers to won their business, do everything from financial accounting, cost accounting, pricing, estimating, basically, the things that help won the entire operation of the printing company.
The E-Commerce Software allows the printers to create their own website to do business over the Internet. It allows them to be come at Amazon.com and in fact, builds a store front for them to allow them to do business with their end customers.
So we might say, but natural question we get, we first talk about what we do? Is why do you guys exist? Why is there need for the EFI APPS group? Why doesn’t SAP or Oracle just saw that this industry or QuickBooks. And similarly on the E-Commerce side, there is a lot of companies doing E-Commerce website that are across all the industries, why is printing different. And it’s really because printing is a custom manufacturing business. Every time, our customer orders a job that job can vary from the prior time they ordered it.
And so when someone does business over our website with a printing company, they not only need to pick with what they want to order, but they actually have to upload the content of what it is, that they want to produce. And that’s not a standard workflow for, you are selling speakers on the Internet or you are selling cars or you are selling any other types of products. And so that’s really what’s driven the demand and we do this better than anybody else in the world, because of the experience of our staff and our experience with our customers over the last many, many years. And so that has given us the leading market share in North America. We have about a 70% share of new system sold to printing companies in North America about a 25% share of e-commerce solutions sold to printing companies in North America. By far the largest at what we do. And beyond being just a good business onto itself the apps group, we also have been able to drive demand for our Fiery and Inkjet products, because when our software is installed at printing companies, it’s very sticky. It’s tough to remove the ERP system that drives the entire business of the printing company.
And we provide integration between these business management solutions and Fiery and Inkjet that drives increased productivity and efficiency within those companies and that efficiency cannot be matched with any other product. HP, Xerox, Cannon none of those other companies with their products can match the integration that we have between apps and our internal Fiery and Inkjet products. So that advantage gives us a significant opportunity to sell these products and differentiate from others in the market.
We are also offering hosted services for our clients. We are the top provider of cloud based hosted solutions in the printing industry with our Web-to-Print product and even now we’ve got some demand for our print management software where we are actually hosting the business management solutions for our clients in our datacenter. So that also gives us a different level of intimacy with our clients that really can’t be matched with other products.
When we look at who we are selling to within the printing industry, it really expands the entire industry. This is a big industry as you probably know between packaging and commercial print, there are many, many different types of companies involved in the business of printing. That’s everybody from an RR Donnelley that which you think of the traditional commercial printer suit the Department of Defense that uses our software to do distributed print for different battle plans and military instructions across their network of a 180 output locations around the world. And so it is a very broad market that we’re selling into and we – with our market presence, we are really in the top providers in each of these different segments.
And that’s something that again is unique to EFI. Nobody has that level of customer intimacy with such a broad spectrum of companies within the printing industry as a whole. If you look at the growth rates within the industry for the different products we’re selling, you can see that on the E-Commerce side, it’s a healthy 10% on average between the U.S. and western world. On the ERP side, it’s a more mature industry, it’s around 5%. But that’s because there has been a significant amount of activity that’s taken place over the last 30 years really that the ERP markets have been around.
Looking at our growth opportunities as a whole, we see the ability to continue double-digit organic growth. Now, that’s up from the 6% to 10% we’ve talked about last year at this time during our session. And that’s really because of the experience we’ve had over the last 12 months, where we’ve seen the benefits of the integration come into play that we’ve deployed with our clients. And we’ve seen the increase demand on the transformation that we’ve been able to do to printing companies that are using our software.
So that’s given us much greater confidence for the future. Also our amount of recurring revenue that’s committed at the start of each year continues to increase right about 60% now of our annual revenue being committed going into our each calendar year. And that’s from a combination of maintenance agreement that we have with our clients for the ERP software. Our SaaS agreement for E-Commerce solutions, that include hosting services, and also long-term professional service engagements where they actually have outsourcing agreements with some of our clients to manage IT services for them.
So the combination of those gives us a very good degree of visibility for our business and knowing what we are in for at the start of each quarter and each calendar year. We also now are driving increased international presence through our acquisition of Prism, which had a significant presence in Australia, New Zealand and the UK.
So who is that that we compete with? In North America, it’s really three categories of companies that we compete with. First, there is still the class of companies that do their own development of these business management solutions and e-commerce solutions. Becoming less and less, but there is still a significant amount of investment in Homegrown solutions that we try to capture every year and bring to our domain.
The primary competitors that we run into every day are very small privately owned, independent software companies, $2 million to $10 million in annual revenue; these are small companies, about 50 of them in the U.S. and North America that we compete with. And again EFI provides a significant advantage over that type of company. Our resources are much more significant. We have a broader appeal to our client base and there’s far more that we can provide with our technology.
Next, there are the traditional vendors. So QuickBooks, SAP, Peoplesoft, Oracle, they have a very small presence within the industry, while a lot of small companies use QuickBooks to run their accounting system. They don’t push, QuickBooks doesn’t do a full ERP capability.
On the large side, we do occasionally compete with SAP, and Epicor, and Oracle in very, very large engagements. What we typically find is that when we get down to the true competition level, while some of those large companies may use those products to do just financial accounting. They don’t have the capability to really manage the manufacturing operations the way we do.
In Europe, it’s a very similar market to North America except that it’s broken up into different regional areas. So the UK is one market, it’s got about 20 to 40 of these small competitors that we go up against. The French speaking countries have about 20 to 40 competitors, the German speaking countries have about 20 to 40 competitors, but again, none of them are larger than $10 million in annual revenue. So, we are dealing with much, much smaller companies and we see a significant opportunity there to get a dominant market share in the future.
Asia-Pacific, there are about 5 or 10 companies in Australia and New Zealand and the rest of Asia-Pacific the market for print management software and e-commerce software is not really developed yet. So that also represents an opportunity in the future. So, we’ve had the success over the last few years and we are really driving significant growth. Why is that sustainable? Well, it’s a function of the different markets we are serving. In the international markets, we are just really scratching the surface today of the market opportunity there. I’ll talk about that in little more depth in another slide.
The packaging ERP market, we weren’t in until 2010 really. And so, that represents a huge new opportunity for us. We’ve seen tremendous growth in our activity in the packaging LP space. And internationally, there really hasn’t been a lot of the activity done outside of the UK or the U.S. with packaging specific ERP solutions. So we see that as an even more significant opportunity than the print management side in terms of international growth.
And one of the interesting things that we’ve also seen is that the economic uncertainty that’s been surrounding the industry, and of course the – our economy as a whole, has really driven interest in our business management software, because what’s happening is that, the printing industry is becoming so competitive, so price driven, and there are so much overcapacity that in order for printing company to survive prior going forward, they have to be automated. They have to be efficient in the way that they won their businesses and the old ways of doing things simply on sufficient anymore.
And so do our software with the automation we put in place, the integration, with Fiery and Inkjet, we are able to drive increased efficiency that can cut the amount that touches the people have, increase their efficiency, the utilization of their equipment, and really drives much more efficiency on the part of the printing companies.
And of course, the recurring revenue as we talked about gives much greater visibility around that our revenues going to be in each quarter. I think proof of this is really in a worst economy in 50 years, 2009, our business only declined 5%, okay, which for the printing industry, it’s – I can’t speak for all the companies, but that’s a significant indicator of the stickiness of our products.
So the growth accelerators geographically, I mentioned before, Europe remains a huge opportunity for us. We are not in the top providers yet in Europe in terms of our market presence probably in the top five or 10 over there. But we have an opportunity to replicate in Europe the type of market share, market presence we had in the U.S. and that can drive significant growth.
We’ve been using our network of distributors in some of the developing countries, but we have also been assembling our direct sales force in Europe over the last year and a half or so and now we continue to build that and that’s been driving the growth that we’ve seen in Europe for our Group.
In Asia-Pacific and Latin America, the print markets as I mentioned before are somewhat mature, but our acquisition of Prism, which gave us a leading position. That product is the leading product in Australia, New Zealand. So that’s given us the kind of market presence there that allows us to now sell our full suite of products and grow that market as well.
Packaging, I mentioned before, very good presence in international markets for packaging and all especially Asia-Pacific. So we think that can accelerate growth. In Latin America, while the industry is growing very rapidly there is really not been very much software sold there. And so, we see that also as an opportunity in the future.
The other big accelerator that we have been really driving over the last year is what we call our EF Oracle strategy, it is a roll up strategy to acquire a bunch of the smaller companies within the industry, put them in maintenance mode, minor clients to switch them to our current platforms and then, derive contribution from the maintenance revenue that we get, because even when we put the product in maintenance mode, the clients are very, very sticky, because they depend upon these systems.
So, we have seen very little of attrition from the clients of the products that we have acquired and put in this maintenance mode manner. And then, we become the easiest path for them to be able to migrate to a new platform when they are ready to upgrade. And so, we have been starting to see this conversion revenue now come in to our other products that we are actively developing and that has helped drive the growth as well.
When we do the international acquisition type Prism, it also gives us a team in place on the ground in each of the local markets there to facilitate again new sales of our current product and drive growth drive installations. And this strategy has definitely been validated with Prism and PrintStream today.
So the key takeaways here, it is no longer status growth within the printing industry is no longer an option. Printers cannot survive, there will be amount of consolidation that’s happening in the printing industry has been huge. When it’s going out of business in order for them to compete they must have the tools to make the more efficient and EFI is a leading provider of those tools.
Our goal within the ads group is to grow this software business to be a $150 million in the coming years. And we think that we can accomplish that with the kind of growth that we’ve seen in the consolidation strategy and so on. And the software is increasingly becoming a great differentiator for EFI on the Fiery and Inkjet side as well giving us a unique advantage over our competitors to be able to drive additional sales of Fiery and Vutek and Rastek and Jetrion.
So thank you and take any questions.
(Inaudible) 150,000. Is that a 150 level, what is your profitably look like, it will change materially from a business or…
I’ll hand that to Vincent to discuss.
So you’ve seen that as we scale the software business, we’ve been improving the margin rate sequentially for the last few quarter like last year with 68% gross margin over the last couple of quarters we had 70%. And as we continue to scale the software business having another $50 million, $60 million of revenue willing to continue to scale up in a moderate way. What we need to also understand that in the software business these are component that services. And so, there is really software type of margin, as well as services margin, which we have mean that it will be around 75% kind of a gross margin.
And just one more question. So if you get there, do you think about kind of some of those – you talked about the competition being in that $2 million to $50 million range, talking about the competition being in that $2 million to $50 million range, do you think about doing more $50 million if not that acquisitions?
Unidentified Company Representative
It’s a really $2 million to $10 million actually. The $10 million it’s about the largest that we say that. I mean it’s hard to believe with that amount of activity going on, but it’s really $10 million is the biggest that are out there.
What kind of integration is required from your customers, I mean, I know over the years you’ve been created more and more and more and more, so sort of how do we think about as you buy pieces of this, do they needed to be integrated or are they kind of just stacked on top, how does that work?
Unidentified Company Representative
So, when we talk about, we do have our modular type of approach to our software, so someone could buy our Print ERP first and then later on the E-Commerce. When they lay out the E-Commerce, the orders placed within the E-Commerce automatically get fed into the business management systems. The status we fed back, the job as they are submitted, again we’ve talked before that the content is submitted from the E-Commerce system into the printing company
So that content and the customers request about how the job should be printed, actually fed automatically down to the [file array]. So that eliminates the need for any manual entry at the file array level, because all other options are set up and all the contents already prepared. And so that type of integration is really taking those touches out of the equation. It can all be done incrementally, but when you have that seamless end-to-end workflow it really changes the economics that are running the printing company.
What about the Fiery workflows and that I mean any thoughts on that business, it’s a word out possibly come out auctions there?
Unidentified Company Representative
So, we have on the offset side, actually build very, very tight integration with Prinergy for offset workflows. And we actually have, we showed at our Connect Conference a very unique workflow using our E-Commerce software, and Prinergy, and Fiery. So we actually cut Fiery to Prinergy and Prinergy to our E-Commerce in our business management software. So we have a unique end-to-end solution that can leverage, because Prinergy does have especially in the offset printers the dominant market share has a workflow product. And so, we have a very unique value proposition there that can drive significant cost out of the equation.
Would it make sense to how it is part of your business model? I mean is that the kind of a layer on or is too legacy and not really worth (inaudible) to looking forward?
Unidentified Company Representative
The value in having a workflow tool at the printing company, but most of the offset printers, not a lot of offset printing companies coming into existence today, and most of the offset companies have a workflow tool already. But I will say around a cleanup, we had driven a number of offset printers to switch to Prinergy because of the deficit integration that we have.
Okay, thanks. I guess just a couple of things, in the $150 million goal, how much of that is software driven into the Inkjet install, I guess in Inkjet shop, I guess traditional shops versus Fiery shops, and any sense to get where the dollars are coming from today, the revenue comes in today also in the context of that goal? And then also in the context of the goal how much clicks in Asia, I know you can’t quantify, but anyway go into that and how much is left there outside opportunity?
Unidentified Company Representative
So, I’ll start with Asia, which is Australia, New Zealand is our really – our only primary place in Asia. It’s still aren’t much, much smaller markets in the U.S. or Europe. It remains to be seen whether in China and in India there is going to be significant demand for the business management software. We do have some installs in India, we have one of our largest printers in India today, Wipro India that as our state-of-the-art solutions, but to go to the 50,000 printing companies that are in India, the markets just hasn’t been validated yet.
It certainly could be large, but it remains to be seen how big it is going to get. In terms of the breakdown of our 10,000 installed, we don’t really track them individually to say how many of those are Fiery, how many are VUTEk and Jetrion. But I will say that we have seen a significant increase in Frank, in his Frank Mallozzi is talking later, will talk about some of the cross selling initiatives, we have seen a lot of activity over the last year where our software is being bundled with the VUTEk printer when it sold. And so, it represents today a very small part of the APPS business let’s say through the VUTEk market but it’s definitely helping to accelerate our growth.
Okay. Thank you very much. Next up will be Ghilad, our Chief Technology Officer who will talk about our integrated portfolio.
Thank you, Mark. Thank you. So, we are switching from bad voice to bad accent and actually I will continue from Mark’s presentation to some extent. We have discussed the value of each of our products and the prospects of each of our product to grow and possibly in the future. I want to focus a little bit of the value of some of the products, which is I think you need value for EFI to offer to our customers. I will refer to the presentation to integration, automation and smart factory as terms to describe the total of EFI offerings.
So I will talk a little bit about the economy. So while latitudes that we are offering and where we are and what we are going to do moving forward in this context of integrated workflow. So when we think about the economics of integrated workflow, what bother our customers? What is the thing that makes them think basically in this industry of consolidated printing? They need to maintain and increased the profit.
And that challenge in doing so, they need to sell more jobs. They need to add value to their jobs, and they need to maximize their profits from their job. We all know those things. We strongly believe that automation will have had impact on all those aspects of the things that matter today.
And when we talk about automation, what we want to do is to reduce the Touch Points to improve the throughput and to eliminate waste. Basically we are trying to take the manufacturing process of printing, what Marc described so well as customized manufacturing. It’s a very different from a general purpose manufacturing. We are trying to take this customized manufacturing and implement some type of lean manufacturing processes to that, which is not prevail because of the uniqueness of the printing business.
So we are taking some kind of global view here. We are taking a step away and what we are trying to do is to integrate as many business and production process to one workflow. Once we – one can achieve that goal we can leverage this integration and add automation to that. We basically need to add some type of smartness, a brain around all these workflows that work together, but we need a decision process. A brain that will say okay, I got the job what do I do with it, when do I do the manufacturing, by what equipment, by whom all of this allow this reduction in touch point automation and reduction in waste.
And that what we are trying to do in this system rules and computer will basically derive the manufacturing process. So this combination of equipment value and software value is now (inaudible) cognizable in the industry though many people that promote this idea obviously and this is a quarter, one of the quote, many of them that really state what we think now is the obvious, which is equipment result the software around it doesn’t solve the problem as the printer.
And we will say more examples later but we have many customers they do buy VUTEk, but as we look at the normal thing they look it is the best throughout, the best quality. It is what they need for their application. But immediately they ask question about the Fiery is driving, how all of these work with the Fiery to create, to enable all the functionality of the printer. Okay, now I’ve decided, but how do I manage my business, how do I know how much money I spent, how I make sure that my job cleanly into printer effectively and then they talk about the apps application and all of this become plenty or abundant that this also required by the customers.
So, why all of this is working now? I think that it was presented to you and others for a period frankly; we were pioneers in those type of concept and ideas. Things are coming together to create this demand from our customers. More jobs (inaudible) you know al of this. There is a very strong demand on faster turn around, so when I meet people that do marketing campaigns, there is a lot of respect to the creation process.
They give time to the creator agency, the create their company, but then they run the manufacturing like this. What they call the printing manufacturing, the supplier. They call them the supplier need to provide the print immediately because they had no complains, they are completely dedicated to population the geography whatever and the smaller companies are more frequently compared.
So, the supplier, we call them the pre-business, must provide the answer immediately and with other (inaudible) there is no way to do it. Marc talked to us about the e-commerce part. We are really proud of offering to the market. I assume, we are one of the biggest vendor. What it really created is 24x7-hour store, shops. The print shop the print business has to react to this. It will be accommodating deferred 24x7 processes.
And in general, they need to have much productive relationship with their customers. So, let’s begin industry trend that created basically a much easier to understand value proposition. The value proposition is more clear to our customers. And I think also over the time EFI, we are much better in communicating the message and in having the whole supply chain around providing this solution to the market. The product to sale the support, all of this is given to respond to the customer needs for that type of a work flow. And why do we develop, so why we are bothering there in all of this? This is we got validation if you on.
So this is the time where our customers are asking us for this type of solution. It’s not the time that we really need to push it or to explain it. So we saw many roads as I have been spending here. The customers are actually asking us to provide this solution. I think that once that and need in the market, we have a probably the best opportunity to offer (inaudible), it’s an unmatched opportunity for EFI, nobody can – Mark elaborate on this question. Nobody can also – this complete solution to the market, as well as EFI can do it.
And we get feedback from our customers. You know, we have 100 office installations in the market where people are using more than one EFI product together. The combination that you may know about that obviously, Fiery and VUTEk are, there is no VUTEk that we sell there without the Fiery, we see the status of the market, so this is what is demanded.
There are lot of MIS that are mainstream and based – and that are sold (inaudible) million and paid at a sold to Fiery, but it’s a standard combination in the Quick Print and so on and so forth, so many, many example. And the last thing that, drive our excitement is, this year 2011 and Frank Mallozzi will talk about it a little bit more, was our best year in selling – cross-selling in EFI. Meaning selling more than one EFI product to one customer.
So, we believe we see that that end-to-end integration, the full value proposition is what is the strong driving force in the market. We call it it’s the rage in the market.
Large businesses that are our customers like Staple‘s, FedEx, ServicePoint are buying EFI’s suite of products. We have launched some bundles with VUTEk and – well VUTEk and Fiery always go together and then would bundled with some APPS application and where we just launch it then we expect to sell 10 of them just this quarter. There is a commercial printshops, Workflow One, Workflow One is maybe 2,000 employees, 15 manufacturing site. They had both a combination of EFI application and Fiery.
Category 5 is as progressive Inkjet or wide format print business and I think Greg here that (inaudible) sake much better than I did up to now, a single point of entry for all job data, which was accessible by everyone who needed the information.
This is why we operate it as multiple VUTEk pieces of equipment, we have the Fiery and APPS application. An additional example as I put it here. The adoption of multiple EFI product created a clear ROI to our customers, two example here, in a value that huge print business that have sites in United States, in Canada, in China, many other places and we discussed here the value of the transition to digital for him. And Pepsi a brand I don’t need to introduce, they were talking about it. How the Digital StoreFront enable them to operate much more efficiently. Will not be dive into production.
Just a small illustration to what we said in many, many word up to now. We are looking at the full supply chain from submission to production and actually to delivery to the end customers of print product. We started the submission, where we have a professional e-commerce application and then all the kiosk application that connect a user with his mobile application and the cloud into the print process. Then the ups type of product that manage the business, plan the production, create the reports that make sure that frankly you are tracking, this is a closed loop of production.
And then the PrintFlow, which is this type of brain I discussed at the beginning that take all of this information, look around to see what are all the resources, the production, the capabilities and manage the timing and equipment and the people to produce the jobs on time till the requirement of the customers. And eventually of course we ship. We managed the inventory and the financial aspect of the business. We drive with the Fiery and the backend of this process many type of digital printers manufacture by our partners to the EFI inkjet based digital printers and label printers.
So what I showed you in the previous slide is a collection of products that once they work in concept they create this value. The product is just course one aspect of the success of such proposition into the market. The success is also because we have probably the most expert, the highest level of expertise in our professional service, which can go to a print business, analyze the needs and propose the best collection of products – suite of products to that business with the needed level of customization if any is needed or configuration for that business.
We are in the process of developing the one EFI support where a customer, so the way I think about this is all this technology is good and then the sell process is limited for time process, Now you finish the sale and then you are leaving the customer, we support forever. If our support is good, we have a really good chance to have this customer for the rest of our life period. So, one the EFI is focusing quite a lot of effort to make sure, that the customer will be supported all the time and anytime that they needed.
We have a lot of effort in that context and of course then Frank will talk you a little bit more in two minutes about our sell organization gearing up to be able to propose this suite to our customer and frankly responded to their request. So, what I wanted to tell you here mainly is that the unique situation today in this presentation is that the customer understand now the value of the proposition, and the concept of the smart effective factory. And they are asking us to provide the solution. I think EFI is the only company today that can provide such elaborate wall-to-wall solution into this market and thus provide us this customer intimacy that help our business in general. It’s a differentiation for EFI, it creates customer loyalty and stickiness for us at EFI.
Thank you very much. I will now introduce you to Frank Mallozzi.
Wonderful. Well, good morning. It’s always nice to be back home, no accent or this is native tongue. Interesting, I’m going to talk a little bit about and it’s nice to get in front of you to talk about the sales engine, the sales and marketing organization behind the products.
My colleagues this morning talked about the markets and the wonderful technologies and products they together for us and being so fortunate to sell out there. But it’s not just about the products, it’s certainly about the sales engines, how we go to market. And I’d like to at least give you sort of that footprint and what we do everyday in our business.
So why this strategy is working? So Ghilad talked about the integration and all the various components. So how do we get the channel, how do we get the sales people excited about this? So we move more towards a variable company, we’ve offered accelerators. So an eCommerce solution with a Fiery or moving an eCommerce solution with an Inkjet printer is attractive for a sales person and ultimately that translates into benefits for the customer.
We are very fortunate we have many routes to market. We have incredible coverage and footprint in the industry; we have strategic partners in our Fiery channel and they’re aligned as we are, they’re looking to move into production environment, they’re certainly looking to differentiate themselves and you do that through unique technology that we bring. We have an incredible direct organization that understands the applications in the clients. And all that tied to local dealers, we can pick and choose the best dealers out there in the marketplace to help us get on [voice] in the market.
We hire retain the best, it’s interesting to unify being a Silicon Valley-based company and having the portfolio of products that we have, as we are able to attract the best in the industry and that results into the fact that we know that we are in demand. So if I can attract the best sales people, I can treat their compensation plans accordingly to go out and earn and deliver. We don’t mind paying for the best results. We’re experienced in acquisitions, bring it on. We’d like the fact that the acquisitions come in. We drop it into our organization. We have a wider base to certainly penetrate in and leverage the products that we have.
Our relationships are incredible, we talked about this earlier Ghilad mentioned the services and so on. Often times sales sells the first product, but services and our service organization sells the second and third. So that reputation in the marketplace is huge, and we’ve certainly take advantage of it. And leveraging our portfolio, you sell the different offerings out there. We spend a significant amount of time training our sales people to understand this, and to articulate the message in the marketplace. And what does that mean to us? It means it is less discounting, I’m not going to, I’m not [me too] products and it certainly helps to retain our margins in the marketplace.
Performance is expected the results oriented organization, my management team has a very good discipline, so we pay for performance and we’re not certainly afraid to continue to drive that. At the same time, we don’t tolerate the lack of performance. We have a very rigorous performance management program. So, if we start to see a particular territory taper off. We're on it already. We identified. We have a recovery plan. And we see to it that we either see that that individual is going to perform or we find that next person, so we’re real – I really pleased with the actual program we have.
Compensation programs are aligned what we manage Type A personalities. It's all about what he can do for me, so we’ve got accelerators. We’ve got programs that drive the sales ego. We get engine really moving quickly. And we are very, very targeted. So again, I would like to say, not only we have incredible technology, but we've also got some real nice program to fine tune our execution in the market.
Our pipeline management at any given time, as Guy mentioned this morning. We can have a look at any sales cycle in the process. And it’s in an incredible tool. We can drill down at the field level. We can actually drill down at the activity level of our partners in the marketplace. So that’s an extremely powerful tool. And it allows us to respond very quickly. So, I just want to cover, our whole coverage, our global sale coverage we’ve got 254 (inaudible) salespeople. This past year I have a number of technical sales specialists. We put them on a variable compensation was also the folks that certainly influence customers or we continue to drive and grow our complement of direct sales force with our 70 dealers.
We've upgraded and added a new dealer in Brazil, a former HP dealer called Alphaprint has been absolutely wonderful for us. And that particular dealer is a full-service dealer where they offer break-fix post-sales and pre-sales support. We are targeting the emerging market, so the [breadth] in these markets are definitely on our radar. We are looking at best coverage in terms of dealers and adding more feed on the street to go after those opportunities.
And even if you look at our traditional markets, we’re continuing to add more coverage in the market because as you can see, our product portfolio is very wide, we’re moving into tech file, we’ve got a number of derivatives in terms of the front-ends and the software, and it’s important that we’re able to represent all of it. And we don't want to lose sight of the reach we have with our Fiery dealers and the sales folks that represents those dealers, over 10,000 salespeople worldwide. So when we have an approach of technology, a new product, we can get to market very, very quickly. So we leverage that footprint.
Don’t want to forget about our services reach, we have 300 of services folks, break-fix, professional services, these are implementation people that implement and train commercial products on our application software products. And they’re an important group because there is a lot of value based on the turnaround time, and a lot of value in terms of getting that second and third order. So we’ve got a number of new services implementation, eLearning as well as power management as part of it.
To drill about a little bit further, just to kind of how we go to market on the Inkjet side, I’ve got 75 direct sales people. These are individuals that sell direct and also support channels in the marketplace. I leverage the 70 plus dealers that we have to some extent to have that local presence, but even that vertical presence, so to give you an example, we brought on Heidelberg in the past year. Heidelberg is well respected as offset provider. They have an incredible customer base, and they put lot of loyalty and to bring our brand on is a testament to the technology and we look to leverage that. And of course, we drive a lot of demand creation into that channel.
Why we’ve been so successful and why commend our share on the Fiery side, is if you take a look at typical health Fiery are brought to market, you look at the printer maker at the headquarters level. So let’s take Ricoh as an example. They’re manufactured in Tokyo, we look to influence that Tokyo level. Products are sold to their sales company or the distribution arm. So in the U.S. case, it’s Ricoh USA, and they may look to distribute the products through their distribution channels typically through their direct branches or through their independent dealers, and then of course out to the end user customers.
So what we do is we wrap our people around every stage of the distribution process. So we influence at the product and headquarters, we influence the specifications. We make sure that that product does get driven through the sales company that it does have the right mindshare when it goes to market. And then we create a lot of the pull in the marketplace at the customer level for those products. And it’s been, it’s a wonderful model, we have incredible number specialists and as Toby mentioned earlier today, these specialization in this sort of mindshare even doesn’t exist at the partner level. So we see, we hear feedback that it’s an incredible value in what we bring.
On our software coverage, the way we go to market with our ERP, that’s a print product, as we’ve got 40 direct specialists, traditional territory specialists in sales people, where they call on commercial printers. But we also leverage our printer partners, our printer maker partners through their channels. So great example is Ricoh, Ricoh is driving a lot of production. They’re in the inplants, they’re in commercial printers. So how do we leverage that activity and give them differentiation with the software that we have, and it’s a great example of how we drive that. And then of course, our field organization creating the demand for that product.
On the marketing side, lots of activity. I wanted to note 73 tradeshows. Now these are the most costly line items in our budget. But it is actually our biggest return. We do a lot of business, we sell a lot of inkjet products off the floor, we sell lot of our ERP solutions off the floor. Customers want to feel, they want to see, they want to compare and almost at every trade show, we’ve got the cache, we’ve got people in our booth that really want, they want to understand it and certainly do business with us.
We delivered over 100 Webinars, we’ve got of hundreds of targeted campaigns that we can actually customize for a lot of our dealers. We’ve got a lead-scoring program that certainly refines the leads. So we’ve got a lot of automation behind it, a lot of call-up. So we are very strong on the direct side, but we also have a lot of programs that enable our dealers to deliver our message.
We’ve got sales portals that enable us to influence sales people’s models, whether they decide they want to pick up the HP [broad shore] to sell at the dealer level (inaudible) we’ve got programs to affect that. Newsletters, very informational, lot of knock out programs and we are very strong in the social media. I understand we’re within top three most twists in our industry. So certainly the industry is interested to hear what we have to say.
If you look at the intense coverage we get, we get this coverage because we, the industry wants to hear where EFI is going. Having the portfolio and the presence that we have, draws a lot of attention and this translates into great opportunities for us.
We’re up 77% since 2009 in terms of editorials and ad value, almost $10 million in ad value versus what we did just a few years ago. It was worth about $5.4 million. And of great note here is that our whole team in general, our company as an organization, though small is extremely proactive in what we give out to the media.
Couple of comments from our partners. This is by favorite, Ricoh has been a very strong partner. And this is really a testament to the attitude of my organization and this is what I love about doing what we do everyday. We actually, yeah, we do that math, we don’t like to lose. And if you just looked at the portfolio this morning, there’s no reason for us to lose. So it’s a very strong position in the marketplace. So great testament for Mike Dane. There is a company here locally called PEEQ Media. So when you talked about the portfolio and the stickiness, this is a company that’s been doing business with us since 1996 and they were a traditional ERP mono customer, managing their offset and cut sheet a digital process.
We came back in. We sold them a couple of VUTEk products, recently bought few more in multiple locations and actually also now repurchased ERP solutions for the wide format. So here is a great example of a customer that went full circle and have seen the value. And we’re having that discussion on Fiery Furnace in terms of automation. So, great testimonial from a customer.
So again back to wrapping this all up. I have a lot of respect for the products and my colleagues. Very, very powerful position in the marketplace, but the products only tell half the story, its putting the programs in a whole wrapper and selling the benefit and we have all the elements that gets the message out there, we’ve got the right marketing and the right execution. So, really glad to, so at least able to go in and share little bit with you regarding the sales engine. I like to call [Ghilad] and before we would open up for Q&A and when we’re done we’ll open up it for some lunch and then we’ll come back with Vincent. Questions?
Unidentified Company Representative
Yes, I am sorry
I’m just curious what, since you have yours direct line to the sales people, what are they saying and hearing from their customers right now in terms of the biggest concerns or you know are you seeing a lot of macro economic pressure out of Europe, just maybe geographically, what are your sales people hearing from our customers?
Unidentified Company Representative
So, we’re hearing, we faced the same concerns in the marketplace. Southern Europe is little bit soft. We’re seeing some other markets make up for that. Scandinavia has been quite good for us. We are seeing some softness in Brazil, but we’re – what we’re hearing is that we are competitive. The portfolio stands on its own and but we are not immune to the economic climates out there. I don’t see that as an impact and it’s no different then what we’ve done in the past in terms of you know how we are driving our activity in the market place.
And then with regard to acquisitions on the outside which is clearly sort of a growth opportunity, how do you feel, so you sort of taking the sales force that you gain from those acquisitions and then have you been able to sort of cost train them to other EFI products and do you take it on sort of a regional basis or how do you think about that?
Unidentified Company Representative
We take it on our regional basis, first and foremost as we do cost train on the current products, that’s where the value is, and we have the right tools to do that, and we put them on our comp plan, and we try to convert them to EFI as quickly as we can, and we’ve been very successful in doing that, we tried a number of acquisitions that we turned around, but we do it quickly and we take advantage of that base.
Thanks. Just a quick follow-up on the delaying question, I think clearly they are willing a little bit better than you know, maybe we’re all happy to extend of things holding it better then they thought maybe they were just a couple of months ago. That being said, if you just go back to sort of the economic slowdown in the few years which is clearly the phenomenal, but even just with you know kind of prior to that in macro spending, the numbers for the inkjet products didn’t seem to hold up as well as they are holding up this time around and they are actually is not holding up they continue to grow and grow and the guidance is quite strong for the December quarter.
So I guess the question is other than you know digital print is a bit more attractive for the reasons, you’ve spoken about you know sort of earlier in the day, what else do is there anything else that you are hearing from customers, seeing in the marketplace, hearing from customers that maybe make your products a bit more resilient this time around then they have been in previous slow downs. So.
Unidentified Company Representative
I’ll say one sentence about this, as we elected to the past, I think that frankly not to want to be modest, we have now really the best products, we are the best-in-class, and last time that there this discussion if I introduce a few products that will not relieved in great situation, and this interactive product and the quality of product we have allow us to be extremely competitive in the market at this time. So the other part of it is when you look at the customer itself and its phase what we play in its become a lot more mission critical, as the past it was you know screen printers would compliment their traditional stream output to a digital press, where today they actually can’t keep up with that demand, it’s a competitive requirement to move into it full force.
I think the other part of it is when we talked about full integration that is the message, that is what’s attracting the customers, I can’t begin to tell you when we engage in conversations and we focus on an inkjet solution, how the conversation evolves to what can we do from on the e-commerce side, how do I track the cost associated with this job all of those elements really come into play and we are really hitting [on only] cylinders delivering that entire message.
This is for both of you, Frank I was hoping you could talk about how and when you change the comp plans for more cross-selling across the portfolio and what the early results of that has been and then from a technical perspective I think what are great things that have left to do in terms of achieving better integration across the portfolio?
So we change the plan to cross-sell two years ago and we re-find it early this year. When I speak about re-finding, we put in certain dates. So my organization whether they sit in the file reorganization or in the app side, it is mandatory for us to go in and prospect for that integrated solution. And what we do is, so that we don’t detract them from there their core purposes, we offer accelerators, we’ve put that sort of carried out there to earn upside and that’s what it’s all about the sales is to go out and earn more and give them the ability to succeed. So we re-find it more so in 2011. And I’m just going to continue, it’s working, I’m going to continue that’s going forward in ‘12.
So we have this believe ideal situation of out of the box everything working. Imagine that you go to a printer and you put the software and equipment and you stand in front of the operator and you tell him run it. So we are not there yet. And there is a lot of work to be done, which is specialized for EFI type of intimacy between the product common user interface, automatic configuration and top of this nature that we’ll make this will make us approaching this idea. And there is a lot of work yet to be done. So what we earned now in the market is a highly functional integration solution, but the ideal is an ideal and there is a lot of work to be done.
And Frank just as a follow-up. Can you give some metrics on cross sell on how you’ve seen cross sales (inaudible) changed, since you change the compound?
So the metric on cross sales, we are on track, we are having our best cross sell here. So what way we track it is, we put into our CRM system. So we log that as a lead and then we look at the cross over between different products. And this year we're up probably 50% on the activity and in the pipeline, so it gives us a better line of site as to what we need to do in the next step of the sales process. And that’s again been we – that’s been the way we’ve refined it is, we put a stack ranking report out. So, if people like to be in the spotlight, but they certainly want to be on the bottom of the list, so we make sure that we create that visibility.
And when I talk about the folks I have on board, they provide, they live for that. So I just been into it, so we stack rank it, we published it every month and we drive those initiatives. And I’ve also held my managers more accountable for cross-sell. So, we’ll have – we’ll break for lunch, and then we’ll comeback with Vincent. Thank you.
Yeah. For everyone on the webcast, we will be back in about 10, 15 minutes. Everyone in the room please feel free to grab some lunch. The working lunch and then reminder all the printouts from today the presentations when we are done here please join us going over to LDI, we have personalized printouts there. You see the latest and greatest print samples from our InkJet technologies and you also have a chance to use your wireless devices to print out on EFI mobile printing over there. Thank you very and see you in 10 to 15 minutes again. Thanks.
All right, let’s get started. Hopefully this has been useful for you up to now when we have been a good product and a very strong sales organization, that certainly makes the CFO job a very easy job. And when I joined EFI the end of last year, I did a lot of homework and recognized that they definitely had a very unique position, a technology position in the print industry working strategy and they also had, as Guy mentioned in his opening remark, a very disciplined approach to their business operations, very rigorous management of the entire environment. And when you couple working strategy with strong business execution, it did the – financial results that we’ve been posted now for seven, eight quarters.
So, I want you to remember one thing in this slide, we have great momentum in 2011. When I joined the business, as Guy mentioned 2010 what’s called a recovery year, we felt business there we had that we are gaining share already, but people where really questioned whether it was sustainable and 2011 is the confirmation that our strategy is working and we are growing in a very large industry. The industry becoming the fastest growing company, addressing the print vertical.
Today, we are reiterating our Q4 guidance and if we deliver the mid-point of that guidance that will bring 2011 revenue growth rate at 16% and then EPS growth of over 80%, definitely strong financial results. Those momentums is giving us a lot of strong position going into 2012. We have a lot of revenue growth drivers. We came out with a lot of new product introductions in the second part of ‘11, we have a strong interest from our customer base for those products, but they have only contributed minimally in 2011.
We’ve closed three acquisitions, which will give us run rate growth in 2012 that is also fueling the organic growth, as we’ve seen since we acquired from the beginning of the year. And then we’ve been growing recurring revenues, double-digit over the last few quarters, building resilience in our business model and being able to carry forward that momentum going into 2012. We have revenue growth drivers, we also have a lot of cost structure drivers to increase the profit.
Our Inkjet margin, as Scott mentioned is now back to high-quality level enabling us to lower our warranty cost and delivering strong gross margin, we’ve achieved that in Q3 and we are continuing that going into Q4 with Inkjet being run at 40%. That has not been the case for all of 2011, it will be moving forward. We have our APPS business growing double-digit organically, accelerating that growth through acquisition strategy. And as we grow the software business, we are going to improve the gross margin as we have seen also for the last few quarters, moving last years 68% gross margin, this year 70% and that momentum will be carried forward. And we have more OpEx efficiencies. We’ve been more efficient with our spend, but it is more to go. We still are in an expense to revenue ratio higher than our business target of 40% to 44% of revenue. As we’ve improved the P&L, we’ve also been more active in 2011 managing our capital.
Our number focus was to optimize our overall working capital days working on better collection processes, simpler payment terms, improved manufacturing operation and all of that led to a reduction in working capitals for of about 2 days on the year-over-year basis enabling us to grow our cash coming from operation.
We’ve had more dynamic and increased turnover for acquisitions and we’ve also introduced few stock buyback program in 2011. We executed opportunistically in the marketplace. All of that leads us to increase our long-term financial number and I’ll come back to that in a minute.
If I put together what you have heard from the different businesses for the October addressable market it’s actually pretty large for an EFI type of company. It’s over 3 billion and the projected CAGR over the next three years of about 8%.
Strong CAGR big market for EFI. We have unique positions in the main three segments. Number one leaderships in high end controller and in the process automation software that position will enable us to continue to consolidate those segment as you know in software development scale matters a lot and it would give us a great competitive advantage.
In the Inkjet space, we have great product, the competitive environment and which more opened, but the conversion of Analog to Digital is happening giving us a lot of room to growth. The biggest competitive for the most unique competitive advantage is as Ghilad mentioned, the strong integration of hardware and software into a common workflow, let know other provider can provide in this market space.
If you look at the historical revenue trends, three things I want to point to you. The first one, the strategy is working. We’ve been now growing double-digit for two years in a row, all of our businesses has been growing double digit year-to-date and Fiery will post in 2011, the second consecutive year of gross, which had not happened in the last decade and that’s confirming the strategy that will be shared with you. And we are on past to go back to a record year, 2007 was our record year, $621 million then we had a good momentum going there.
The second message I want to carry to you is that while all of our businesses have gross opportunities and have been growing for the last two years. We’ve also been diversifying the revenue sources and you can see that Fiery has moved from 55% of our total revenue, down to 46% on the full year for ’11, 45% in Q3 of ’11 and drop off about 10 points. And while we are lowering the portion of our revenue coming from Fiery, the biggest increase came from APPS, where we move from 8% of APPS revenue as part of the total, all the way to 15% in Q3 of ’11 and that momentum will continue. And as you know today after it become the highest gross margin revenue stream in our portfolio. So, as we diversified lower the risk.
The third point I want to make is that is being growing recurring revenue, but you also had double digit CAGR over the last five years building little resilience in the business model and you can see here the numbers during the recession of 2009, the recurring revenue did not go down say flat on the year-over-year basis and with recurring revenue coming into your business model and strong stickiness with the profit structure it carries. 43% of the non-Fiery revenue today is recurring revenue. 2011, we’ve also improved gross margin pretty significantly 2 points on a year-over-year basis. We will 2011 using mid-point of our Q4 guidance at around 56% gross margin. The two drivers are the revenue mix and the rate improvement in two of our three segments.
The revenue mix we’ve had more APPS revenue with APPS being the highest gross margin we’ve seen in EBITDA for mixed improvement there. On the rate structure, we significantly improved our inkjet gross margin moving from less than 35% in 2010 to now finishing ’11 on a run rate at 40%. On the APPS side, we sequentially improve every quarter our gross margin as we scale the business. Those two rate increase have contributed to overall gross margin increase.
On the Fiery side we are able to maintain Fiery on the high side of our range, target range of 66% to 68% supported by the Exxon and software option strategy that we shared. The second point I want to make on this slide is that the diversification of the gross profit sources is happening. Fiery as a percent of the total gross profit has been low from 63% to 66% in ’11 and at the same time the biggest increase has been APPS, almost doubling its contribution in term of gross profit for EFI moving from 9% of the gross profit to 17% in 2011. And we will continue to see those trends moving forward. When we come to the cost structure side, our focus is really to lowering our spend as a percent of revenue and becoming more efficient, trying to increase the productivity in R&D and sales, Frank mentioned a little bit about what we are doing in sales.
We are fully integrating the acquisition we acquired and put them in maintenance as Mark mentioned. And we are also responding to a mix shift with a bigger proportion of our revenue coming from Inject, which carries less OpEx in our software business. For thus we are focused, again using our Q4 guidance in 2011 will be at an expensive revenue ratio of about 4% to 5%. The lowest ratio in the last five years and we continue to project that trend to get into our target range of 42% to 44%.
We’ve also managed reasonably well our growth spend versus revenue growth. You can see here that revenue has been growing 26, 10, 10, 17, 16 for ’11, growth for those two will be growing at 2% and 12%. Many of you responded to the 12% and as a reminder in 2010, the company took a temporary salary cut to conveniently improve the productivity of the P&L. If you normalize for that 2010 would have grown 5% and 2011 9%. The 9% growth is really driven by acquisition currency and variable compensation. That brings me to my last point on the cost structure, we exit ’11 with the highest percentage of valuable spend than we have had over the last four to five years. And that will position well going into 2012. That variable spend, a big component of that is coming from higher valuable compensation linked to a strong performance versus our sales plan in ’11.
That brings me to the non-GAAP P&L. In Q3, we posted the first quarter of double digit operating profit margin. For full ’11 deliver around 11%, slightly over 11%. And we’ve had the drop rate of over 35%. Guy mentioned about the drop rate very strong as we are in the recovery mode going back to double digit profit margin.
We believe based on our different mix shift on the revenue side, and this one business model by segment, we can sustain a drop rate of 25% or over. And that will lead to EPS growth much larger than revenue growth in 2011 EPS growth of 80%. I mentioned that we’ve been more active with our capital. The first priority was to generate cash, growing our cash from operations. Looking on payment terms, collection, as the product quality improve tremendously in ’11 that also help us collecting our cash cost [was being] optimizing our manufacturing operation between our different ink-jet groups, and all of that led to cash from, that has been growing on the year to date basis, 127% versus last year, $43 million year to date versus $19 million at the same period last year.
We continue to see that working capital obviously had some seasonality, but I recall for the last four quarter have been decreasing working capital on the year-over-year basis by one to two days. And we continue to see improvements going into 2012. Our goal is to – our target is to deliver cash from at about one time operating income. So when it comes to usage of cash, our first priority is acquisition. We have now approved points with our software strategy, the front end of acquisition target has increased and we have the M&A playbook if you want, very well nailed down within our company, the opportunities we’re planning to increase.
We also are looking at other acquisition for the other two segments to strengthen the product portfolio or increase our term to recruiting July end-track, the first acquisition in the Fiery business for a long time, truly strengthen the mobile printing portfolio.
You’ve seen that in ’11 we’ve closed three acquisitions compared to three acquisitions in the last four years before that. (inaudible) usage of our cash is been on share buyback, the Board has authorized up to $16 million buyback this year, last quarter we’ve bought $23 million, on a year-to-date basis $40 million and we’ll continue to look at opportunistic buyback in the marketplace. And then when we have new acquisition for the quarter, the management team is comfortable with moderate cash accumulation as we continue to focus on M&A and opportunistic buyback.
What we are not focused on is a transformative acquisition outside of our three segments. The company has been transformed and our work as a management team is to provide the integration of the portfolio, the halo effect on our top line that would come from that overall integration and we’re not working on the dividend framework on auditing.
That brings me to o the long-term financial model, which we’re reading in three areas; the first one is in the APPS business. Removing the top line growth from 6% to 10%, to 10% to 20%, reflecting the goal that Mark shared with you to get you at a $150 million on the long term.
With that the second change will be the overall gross margin rate driven by APPS improvement and overall revenue mix moving from 53% to 55% that we had up to now to a range of 55% to 57% gross margin. And as a result we’re raising of OP, operating profit margin from 10% to 14% to 12% to 15% to reflect this business model and business momentum we have to be in the marketplace.
As we do that, we will lower the dependency on Fiery continue to basically see the transformation at in-play having a more diversified revenue stream and profit stream. We can see revenue mix for Fiery being less on the long-term than 40% and gross margin dollar coming from Fiery dropping from 56% of another 10 point to 45%, those trends will continue over the next few years.
Okay. So with that, I’ll pass it to Guy, who will go for closing remarks and then we’ll do Q&A.
Thank you, Vincent. Okay. So, I hope that you guys found this day helpful and understanding before why we are excited about the opportunities with the strategy with the market dynamics. And you got to listen to some of the people that actually delivering those results and continue to deliver flat in next many quarters.
Few things, I just want to the recap back to my first few comments. First of all the industry guided platform with gravity this apple thing that (inaudible) now had got a close changes, that is nothing to do whether EFI exists from that, the industry need to move to areas where print has more volume.
For example, we've done it for you this luggage thing on our inkjet printers, but we can’t say, you bring directly here, no need for label, although, if we give the label we can bring that to you too, that probably not (inaudible) somebody is going to put on you. So this is the kind of the thing that brings us value, good value people need to do it on demand personalization. It would point and is ready to be more efficient and you're going to see more and more of that.
What is the industry doing? To get to move to areas where there is goal. We are seeing large players, small players getting interested in what we do in inkjet because there is no digital opportunity, there is no growth opportunities, but now it’s there. And we are going to be ready with the best products in the category to supply that.
The second thing, digital is the preserving thing. On-demand, nobody wants to have inventory, nobody wants to (inaudible), nobody wants to do something without customization. When you get, you will copy of the slides we use today, you come with us to (inaudible) in a few minutes and when we personalize, bring it on the file.
Just getting more attention, the basketball (inaudible), just to be a little bit more politically correct, we didn’t explain to you the sample of the transition, we saw in (inaudible) yesterday, but you can talk pretty more (inaudible) then you will be happy to talk about what 800 people using beside it.
And automation profitability, this is industry is behind. They need to do it, people coming to us all the time. I talked to one of our sales managers that work for Frank, in early hours when all the headlines about all the best things that happened to the economy, let’s say how do you feeling the market, they are asking the same question or is the customer telling you. It seems you're kidding me, we are leaving with the story of the economy. We are telling people we got to get to your house before it’s going to get worse. We are getting a lot more traction with this. Don’t depress the customer too much, but that’s the attitude we are hearing now about the software business. Hopefully very easy for you guys to remember, there is nothing here that required a work to change, this is a change that’s happening in every segment of the printing industry maybe in a different pace, but it’s happening. We want to leave that. Areas of growth in printing I think is pretty self-explanatory and you see the evidence showing that, our numbers reflecting that and of course the automation is part of it.
And today you heard something that maybe don’t hear from us on a quarterly basis, they actually the sum of (inaudible), the portfolio when we go to customers, when we present this up to customers as a much higher value than ever before because the customers get it, they need it. They don’t have the money to spend on having people in the middle, they don’t have the money to spend on the efficiency, they get it. EFI is the only company with submission to production and the way we built the company is now paying off, not just – category that’s coming together.
I told every presenter that only three takeaways, it was tough. They all have a lot more, so we cut it (inaudible). I want to lead by example on my three takeaways. Number one, the industry need innovations. Technology is the only way for the industry to survive. There is no other thing to do. You can ask people to work harder and expect better results. It’s just that technology has a big play. EFI is in the center of what this industry need and the growth segment of the industry with an unmatched portfolio, integrated portfolio.
And the last thing, the channels that we have very diversified go to market, the brand we have, the customer you’re going to see, you see the result on a Friday, for example (inaudible) one of our products, will you recommend EFI products to your peers? More than four out of five will say yes, that’s our goal. And the team, hopefully you got a little insight into this today. We have a very strong team, which I am getting excited every morning to go to work with those guys and I think that in business sometimes that’s the only difference you need.
So with that Vincent, I will take some questions on the last few segments and then we’re going to work out the numbers. The first one (inaudible).
Thanks, guys. I appreciate. I guess just a couple of things. First on the updated forecast. For Fiery, you still have this GDP price, conceptual I can see how that makes sense. I guess why couldn’t that be like it’s high-single digit, low-double digit growth, are we for the next year or so given that you still have the market share momentum, the next year is the new engine product cycle year, so that filing is going to get weaker and things like that and I have a couple of follow-ups.
Unidentified Company Representative
Hi. So first of all, when we say GDP class, we did not specify the country. China is GDP 9%, so class can be a double-digit, that’s number one. But seriously speaking, we’re not managing it to this, that’s not our target, Toby has a higher target, he’s been driving to a higher target. So we’re saying that’s going be an addressable market, when you look at the color, the need to buy, the units growth is about that in a kind of normalized environment. So if we keep our shale, our partner is going to sell that many units, we’re going to be attached to those many units and that’s what happens. If we take shale, that is an upside, this year we’ll be going 5% to 18% today. This is an upside, there is still a competitor out there that have got double-digit market shares that we all feel that our time has come to go seriously after them. With innovations, we can open the gap, the customers saying that the value of (inaudible). And then we’re starting to add components that really don’t build into our forecast, the mobile opportunity, et cetera.
So we will try our best to do every number we show you, internally we are going to try to beat that. But I think knowing that we have touch to a product where component team and offering and the offering is projected to be a single-digit, that we think is the most reasonable way to look at that.
Unidentified Company Representative
And if I can just compare, the things I can show you is that if for example the plus would be the (inaudible) would grow out GDP, the model is a very attractive model, growing the top line 10% while expanding the operating profit margin. Everything else coming in that plus would be surplus and top of that model.
Thank you. That’s helpful. And then, I guess just on the overall business model, when we look at – we had peak margins back in – peak operating margins back in 2006. Sales and marketing specifically was a couple of few hundred basis points lower than it’s today, realizing that the mix is different and the gross margins are a little bit different as well now, but we’re also doing more variable comp through direct sales. So can you give us – is there some room for the F&M to come down as we go forward or are we sort of where we’re going to be – are you managing the model more to an op income dollar growth target of the first revenue?
Unidentified Company Representative
So, we have two segments that we sell direct and first we make a difference and hopefully with what you saw from – we have I think the best sales force in the industry, very high caliber, a lot of people wants to work for us. I think that’s helping us to drive sales. So as the mix is going to move to more direct sales, we’re going to see more expenses.
And actually thinking on (inaudible) we are – we didn’t finalize the budget, but there’s a very good chance we’re going to grow actually feet on the street because we’re going to see the return. So that’s certainly is part of the business model, but we’re managing to operating margin and operating profit. So we found that you would see a better increase as Vincent just showed the long-term model.
The second thing is the accelerator in the value of the comp. The same way that the first call model or your model and other people following us was a lot lower a year ago. Our plan was maybe a higher than what you’ve been, but we’re not as much as we did. So a lot of people triggered the accelerators and as long as we continue to over-perform our own expectations, which we’re probably not going to be too powerful – I mean not going to be a lot what you expect, we will continue to pay those accelerators. The only time we’ll stop to pay the value where we go down is if we’re over-performing or we’re not – or below performance, which hopefully we’ll never be and then of course we have leveraged with OpEx, because now we’re not paying those level of accelerators.
Unidentified Company Representative
A couple of more comments. We mentioned the thought. So, R&D was 23% of revenue, and today, as Guy mentioned, the company is a lot more balanced. We have about the same investment in technology than we have in our sales. We see that as positively. As we get to the target range of 40% to 44%, all of our line R&D, S&M and G&A will come down a couple of points.
Thanks, that’s helpful. And just a last for me, as we think about what the biggest potential swing factor to the business model might be over the next four to six quarters, which ones might be the most influential? I mean revenue obviously, but as you think about within revenue, which of the line items can move the model the most? And then even on OpEx, what are some of things that might not be readily obvious that can move the OpEx one way or another? And the last one – I would think Inkjet gross margin, it could also add some influence on the model as well.
Unidentified Company Representative
Sure. So, I think that the – when you look at the segments, we have good hopes and ambitions for each one of them, and each one of them I think can perform well. And if you look at year-to-date, each one of our segments I think are the fastest growing as itself in the industry. We like to continue this way. APPS has unique advantage because Mark when he started the call, more than 60% is in the bag and we’re expanding internationally. So, even if the Mark (inaudible) are really tough, going from a very low market share in Europe to some market share in Europe will give us growth in any environment in Europe, right. And we have a lot more acquisitions, small one out there that can help us to grow this internationalization faster. So, I think in a line item probably APPS is the best shape as far as the speed of growth and obviously complete everything to the bottom line.
Into growth margin little quicker, our target was 40%, as we got to 39.6% we said that this quarter we are expecting the first digit to be 14%. We always said that with that we will try to see if we can go more aggressive in the major market China, Brazil, Indonesia Mexico try to get to those places and if we can make the bottom line in (inaudible) units we see the contribution down road with it, So we are keeping the options of investing more in pricing once we get to 40%.
Next question from the line of (inaudible).
Thanks I guess my first question Guy is just on the home mobile printing question. Is this something that you are getting demand from your partners or is there is something that they are actually getting demand from your partners or is this something that they are actually seeing people starting printing or is this more sort of just they build it, Eric we build it they will come?
Unidentified Company Representative
It’s a combination of all. Our partner is saying, look we think people do more and more work on their mobile device. It started with the email and outlook and now you are looking at presentations and so on. So, that’s the direction, what does that mean for office stages, how can we participate in that and not completely eliminate that? I think that the devices themselves are looking to enable printing Apple added the print button other than that there is very few printers that actually support that. And the other mobile investment we talked and I am really interested in adding that because they want their mobile units to participate. And the newer post we just announced is going to IT selling and by software without you needing to explore anything on your device, they will enable you to print to any printer from your mobile device. So, now – of course it is a new category. There is no consumption, there is no like a market leader, it has got a billion dollar worth of software. With that to say, how much enterprise was there, okay, I want a label with me. We are running better type of the new software, double-digit number of better type in the big area, technology companies and so on.
So some customers went there and said, on one end, to give printing is important to me, but I need to figure security and other things in mobile device before on a label printing, but come back talk to me later. That’s something to say we need it, we want it, we actually have all those, I can’t control it. I got to have it. And the reason we announced this, we feel like a lot of those benefited, they were actually to buy it and move forward. So feel that we are extinguishing, our partners are very interested in that and it’s tough to quantify and that's why it’s not in our numbers.
And then a question, in your revenue growth chart, you had growth it increases for both APPS as well as inkjets. But not overall revenue growth increased and yet I would assume your mix shift into those higher growth areas as well?
Unidentified Company Representative
So actually it’s on the APPS, we are going for inkjet with data 10% to 15% and APPS 10% to 25% as we move from 6% to…
It’s not a matter.
Unidentified Company Representative
That’s right. And also we do with the range, so we want to give a range within our overall revenue. We think that double-digit growth on the long-term, it’s something we can sustain 10 percentage with target based on that opportunity.
Okay. This is correct, just checking, you have 6% to 10% for inkjet, have you already taken it up.
Unidentified Company Representative
10% to 15% of inkjet. I think something happened to slide in doing the (inaudible) processing. So hopefully, just again repeating, we don’t manage the company to this long-term. We manage the company to be flat. So nobody doing as target to do (inaudible) need to go with 10%. We think this is going to (inaudible). We want to keep pushing in to do that.
And then one last question, just on the headquarter building, I know there has been talk occasionally of monetizing that, just curious as to not why you need the cash, but what’s your thoughts right now on that?
Unidentified Company Representative
It’s a good asset, we know we have neighbors that would love to own it. And if ever we will get a proposal that we think will be very attractive to our shareholders, then we can mitigate moving the labs, moving the engineers, and people maybe now saying that computer is too low and all of it’s too long. But in spite, we paid of course the (inaudible) for new location that is not enough in it. If all of that will come together, of course it’s just a matter of financial benefit. There is no emotional attachment there. So it’s possible, it is an asset that normally we don’t get credit, although we have about $55 million tied to this, there about enough cash balance. But yes, it’s something we will continue obviously to look and see if we can do something.
Just as a follow-up to that question, hypothetically to sell a property, and in all likelihood, you will be well above that book value, it would be well above the value that’s in the balance sheet, yeah, that’s my opinion. But would you contemplate, again it’s a little hypothetical, you have a lot of cash and you’re generating cash, would you become much more aggressive in share repurchase in that hypothetical situation?
Unidentified Company Representative
So that would be a bold decision. But I don’t think anyone will go into this because if we sell and now the event, now we have additional OpEx, but certainly not going to do with the (inaudible). So to reduce, to make sure we pertain it, we have to take big portion of the money and apply it over there. By the way, when we sold the previous property the rest of the building there, we took the money and we applied for share buyback. So we did that before.
Separate question. The growth rate, you said something early on the APPS business I think you said, we get the $150 of revenues, I think these are 75% gross margin, is that right or not?
Unidentified Company Representative
Well, increase gross margin over 70%, and as it continues to go – you are going to continue to see margin expansion.
At what rate ultimately hypothetically would gross margins pick out at in this business as growth?
Unidentified Company Representative
So, we didn’t have a plan, it all depends also on the mix of revenue services license of huge maintenance and as we continue to grow fast, we will have a big portion of our revenue being tied to services as we deploy those into the customer environment. You look at last year, right, we were at around $60 million of revenues, 68% of gross margin, this year on the run rate will be at $80 million and 70% gross margin and you can conclude yourself at the rate that we are improving the gross margin there.
And just one last follow-up on the APPS business, I’ve been in the investment business for many, many years, many industries and are grown by role up, a lot of them have come back from these companies, because they use debt, we are not using debt. However, what is that that concerns you are making a lot of small acquisitions, not the more than $10 million that can come back and want you and surprise us, what are the concerns as you are making a lot of these small acquisitions that you are looking?
Unidentified Company Representative
I would say, first of all, we want to make sure that you are treating the customer well that’s of course not a pleasant news for people say, hey the software you bought, EFI just bought this company and we no longer continue, we put it in maintenance mode, now we are keeping some softness pertaining to the small improvements, but they know there is not a lot of future beyond that and at some point, we are going to move to the EFI portfolio. So we’ve got to managed it well.
And we have the playbook as Vincent said we know what to say, we know how to work with them, give them the incentive, I am going to be long show them the example of the other acquisition say and look at you want somebody strong with EFI behind that and set it up, but that’s obviously in the first 90 days of that we are doing a lot of work with the customers and of course the team, part of the team we are keeping to develop to have the sales people, and internal people in those geographies. We just brought a company, that they have a lot of installation in Australia (inaudible), we want to keep that. They don’t want – a lot of people don’t want to work on maintenance product, they want to develop, so we moved them overtime, we give them opportunities to participate in the EFI portfolio.
So those are the kind of things we want to make sure, we do it one in time, we do it well, we’re learning from our work, we’re not going to be increasing our portfolio product, we are keeping the same portfolio, but we are building it to get to those geographies that do install base. And as Mark mentioned stickiness is very high. So we know that if we do the right things, so that they’re going to stay and they’re going to migrate and we’re already seeing people that migrate on acquisition we did in February in the small print screen, that migrate because if you look, if I’m going to invest money, I’ll invest in the future and EFI with so many people behind with an R&D that allows us to proprietor those type of applications in the software.
Unidentified Company Representative
No questions, Rich, anything?
Yeah, I'm good, very good. So thank you very much for joining us. Hopefully again it was a good day for you guys and we will walk to LDI and give you your personalized version of the slide and show you some other EFI outputs. Thanks again.
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