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Gerber Scientific F2Q08 (Qtr End 10/31/07) Earnings Call Transcript

November 29, 2007 | about: GRB

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Gerber Scientific, Inc. (GRB)

F2Q08 (Qtr End 10/31/07) Earnings Call

November 29, 2007 10:00 am ET

Executives

Marc Giles - President and CEO

John Krawczynski - President and CAO

Analysts

Casey Flavin - CJS Securities

Chuck Murphy - Sidoti and Company

Jed Dorsheimer - Canaccord Adams

Jim Ricchiuti - Needham & Company

Tim O'Toole - Delta Management

Presentation

Operator

Good day, and welcome to Gerber Scientific, Inc's Second Quarter Fiscal 2008 Earnings Release Conference Call. Today's conference is being recorded and broadcast over the internet.

I would like to remind everyone that some of today's remarks and the answers during the Q&A will include certain forward-looking statements as defined in the Federal Securities Laws. These include statements regarding Gerber's expected financial condition, results of operations, cash flows and business operations and strategy as well as other planned events and expectations.

For a discussion of important risks and uncertainties that could cause Gerber's actual results to differ from the results expressed or implied in these forward-looking statements, you should read Gerber's annual report on Form 10-K for the fiscal year ended April 30, 2007, which was filed with the SEC on July 9, 2007.

These risks include, but are not limited to, delays in the Company's new product development and commercialization, intense competition in markets for each of the Company's operating segments, rapid technological advances, availability and cost of raw materials, volatility in foreign currency exchange rates and fluctuations in interest rates.

At this time, for opening remarks and introduction, I would like to turn the conference over to the Company's President and Chief Executive Officer, Mr. Marc Giles. Mr. Giles, go ahead please.

Marc Giles

Thank you, operator. Good morning, everyone. Welcome to Gerber Scientific's fiscal year 2008 second quarter conference call. Joining me on the call today is our Vice President and Chief Accounting Officer, John Krawczynski.

I'm pleased to report a solid second quarter in line with our expectations. Consolidated second quarter revenue of $161 million was up by 10.8% versus the second quarter a year ago, driven by strong growth again in Spandex, which was up 23%; the inclusion of our recent acquisition, Data Technology; and the favorable translation effect of currency.

Our backlog declined slightly by about $800,000 from the first quarter. Reported second quarter operating profit of $5.2 million equaled 3.2% of revenue, but unfortunately, included $1 million on outside expenses associated with the work necessary to complete our adoption of FIN 48 during the quarter. Net of this unusual expense, operating profit would have been $6.2 million or 3.8% of sales. As reported, earnings per share of $0.11 would have been $0.14 per share net of this expense.

Two new product milestones were achieved since our last conference call. We introduced the new Solara ion, wide-format UV inkjet printer at the SGIA show in Orlando, Florida, in late October; and again at Viscom Italy in early November.

The ion is the first in a family or printers that employs our new patent-pending Cold Fire Cure technology and advanced ink chemistry to deliver unprecedented productivity as well as printability on the widest possible array of substrates, both rigid and flexible.

The ion was received enthusiastically at both venues. In fact, since SGIA, we have been taking preorders that currently total over 100 systems and exceeding $6 million in value. We currently expect to begin commercial shipments during the fourth quarter of this fiscal year. We believe that the Solara ion offers a truly unique and winning proposition, and at this stage, it seems that our customers do as well.

We further think that this particular new product could significantly impact overall company performance. Once commercially available, we anticipate a sales potential of between 400 and 600 systems annualized or between $20 million and $30 million in systems revenue and significantly improved gross margins.

Also, just two weeks ago, Gerber Coburn introduced its new Advanced Lens Processing System technology at the OLA show in Indianapolis. The ALP System combines the new high-precision DTL200 lens generator, which by the way won the award of excellence at the OLA show, with the new MAAT soft-tool polishing system to enable free-form lens processing.

Gerber Coburn's breakthrough in dry-cut modular approach to free-form lens processing presents favorable economics, particularly to the small and mid-sized wholesale laboratories. This size of lab is common in North and South America and the type we expect to develop rapidly in market such as China. We anticipate commercial shipments for this new system to begin late in this fiscal year or early next fiscal year.

Overall, new product sales were strong in the quarter, up by 33% versus the second quarter of last year and made up 17.2% of total equipment revenue. This growth is largely attributable to the strength of the new GT XLc7000 cutter which has more than made up for the declining Solara UV2 volume which is lowered by 55% or approximately a $1 million from the second quarter of last year.

Our business in China continued to do very well in the quarter with revenue up over 30% to $8.6 million versus the second quarter a year ago, largely due to the strong Gerber Technology backlog of China orders from the first quarter.

Gerber Technology order entry in China was up a more modest 5% in the second quarter compared to the second quarter of last year, and year-to-date, it is up 30% when compared to the same period last year.

Our China revenue includes a quite small but growing presence for Gerber Coburn. Year-to-date, Gerber Coburn sales in China at $640,000 are up over 75% versus a year ago, and we expect this trend to continue.

China is also growing as a manufacturing export center for us, and this quarter we exported $2.3 million in equipment from our China supply chain compared to $400,000 in the second quarter a year ago.

The Data Technology acquisition continues to perform ahead of our plan, posting sales of $3.2 million for the second quarter and contributing operating profit of $300,000. Backlog for this unit remained unchanged at a record $3.3 million at quarter end.

Consolidated second quarter gross margin was up from last year by about a point, driven entirely by the relatively faster revenue growth of Spandex, which is 23% compares to our manufacturing businesses growth rate of 4%.

Gross margin for the manufacturing businesses actually improved slightly versus last year despite the continued decline of the legacy business at Gerber Scientific Products and significantly lower Solara UV2 volume.

Net inventory grew by $3.4 million in the quarter driven chiefly by foreign exchange translation, but also as a result of inventory build to support new product launches, some Gerber Technology equipment deliveries pushed from the second quarter and early third quarter, and a slight slowdown of after-market sales at Gerber Coburn.

Let me talk just a moment about our market segments.

In the Apparel and Flexible Material segment, Gerber Technology's sales were up only modestly in the second quarter to $51.4 million, or 5% higher than a year ago in the second quarter.

An operating profit of $6.4 million was up by 8.2% when compared to second quarter of last year, largely driven by higher expenses, particularly in the sales and marketing area planned and budgeted for this year.

The global market overall for Gerber Technology appears to be firm with robust growth in Europe, particularly Eastern Europe and strength in China, offsetting weakness in Southwest Asia, particularly India, and to a lesser extent North America.

Looking ahead of the third quarter, we currently expect Gerber Technology will show year-over-year revenue and profit improvement based on its strong new product portfolio and strength in key growth markets, while recognizing the current uncertainty in the economic outlook for both the United States and Western Europe.

Reported sales in our Sign Making and Specialty Graphics segment were up in the second quarter by 28% versus a year ago to $91.2 million, driven by very strong growth in our Spandex business unit, including the effects of favorable currency translation, and by the acquisition of Data Technology.

Operating profit in this segment in the second quarter declined by $200,000 or 6% in comparison to a year ago in the second quarter, from $3.3 million to $3.1 million due to continued declining profitability at Gerber Scientific Products, where operating profit was lowered by 50% or $770,000. This was almost completely offset by significant improvement at Spandex, where operating profit was higher by $600,000 or up 34% compared to the second quarter last year.

We anticipate the trends for both these businesses to hold through the third quarter. Spandex's primary markets look to remain strong upside of the normal seasonal softening for Q3. And we expect profit improvement initiatives will continue to drive performance improvement in this business.

For Gerber Scientific Products, the negative drivers are the same with declining legacy business performance and slowing Solara UV2 sales combined with the higher expenses associated with the Solara ion launch until commercial launch in the fourth quarter.

In the Ophthalmic Lens segment, revenue was lower for Gerber Coburn in the second quarter by 9.3% when compared to a year ago to $18.5 million as we experienced after-market sales softness particularly in the U.S.

However, our operating profit improved to $1.1 million from $400,000 in the second quarter of last year. This improvement in profitability primarily results from significantly improved gross margins attributable to the introduction of new products and other operating improvements.

Looking to the third quarter, we anticipate continued softness in the market but expect Gerber Coburn to deliver continued profitability improvement year-over-year-year. Before I provide overall insight into the third quarter, I will turn the call over to John Krawczynski, for additional detail regarding the second quarter. John?

John Krawczynski

Thank you, Marc, and good morning, everyone. And now, I’d like to provide some additional insight into the financial results we just released. Sales for the second quarter were $160.7 million, an increase of 4.6% in the prior quarter and 10.8% higher than a year ago. Changes in foreign currency exchange rates have the effect of increasing our revenue by approximately $8.4 million in the quarter as compared with the same period to the prior year.

For the first six months of the fiscal year, sales were $314.4 million, an increase of 11.3% over the first six months of the fiscal year 2007. Favorable foreign currency translation increased our revenue by approximately $14.6 million compared with the first six months of the prior year. The primary driver with significant increase in revenue for both the quarter and first half of the year was a Spandex distribution business. Excluding the benefit from favorable foreign currency translation, Spandex recorded increased revenue of $6.3 million and $12.9 million for the second quarter and first six months of fiscal 2008, respectively, as a result of continued strong after-market sales across Europe and Australia.

Orders for the quarter were $159.9 million, a sequential improvement of 3.8% and 12.2% above last year's level. Through six months orders were $313.9 million, a year-over-year increase of 11.1%. Backlog at the end of the second quarter was $48.8 million which represented a $5.2 million increase from the same period of the prior year.

On a consolidated basis from a geographic perspective, North America contributed about 33% of our revenue in the second quarter, Europe 48% and the rest of the world primarily the Asia Pacific region contributed about 19%.

From the end of the prior fiscal year, there was a modest shift in our sales from North America to Europe, reflecting the strength of Spandex sales as well as the favorable impact of foreign currency translation. The equipment revenue for the quarter was $50.9 million an increase with 7% from both the first quarter and the same quarter of the prior year. After-market revenue was $91.2 million, an increase of 13% in the same period of last year, and service revenue was $18.6 million, an increase of 12% from the last year's level. These increases continue to be fueled by the many new products we have bought to the market in the last two years.

Our gross profit for the quarter was $46.4 million or 28.9% of sales. Gross margin was 1.2 percentage points lower than the same quarter of fiscal 2007 and 0.7 percentage points lower than the first quarter of this year. The primary cause of the reduction in gross margin percentage from both period was a continued increase sales volume from our Spandex distribution, which has significantly lower gross margin contribution that our manufacturing operation.

Research and development expenditures for the quarter were $6.6 million, about $100,000 higher than the first quarter of fiscal '08 and $400,000 higher than the second quarter of fiscal 2007. The increase was due to planned investments and R&D related to new products, most specifically the recently Solara ion.

Selling, general and administrative expenses for the quarter were $34.7 million which were on par with Q1 and about 12% higher than a year ago. Although these cost have remained consistent as a percentage of sales, the year-over-year increase is substantially due to higher exchange rates, the increase expenses for sales and marketing related to new product launches, geographic and business expansion, as well as one-time charges during the second quarter for professional fees associated with the company's adoption of FIN 48.

Our operating profit was $5.2 million this was an increase of $800,000 in the first quarter and a reduction of $1.3 million in the second quarter of the prior year. Our lower operating performance as compared with the same period into the prior year was primarily a result of the previously discussed one-time charges associated with the company's adoption of FIN 48 of $1 million.

Increased investments in R&D and sales and marketing related to launches of new products and increased commissions expenses associated with higher business volume. These impacts were partially offset by the increased gross profit contribution from our higher revenue.

Interest expense in the second quarter was $1.1 million up $100,000 from both the first quarter and same period in the prior year. Second quarter pre-tax revenues were $3.7 million our effective tax rate for the quarter was 32.7% compared with 36.1% in the second quarter of fiscal 2007.

The overall reduction from the comparable period of last year was primarily attributable to a favorable shift in profits during the quarter to lower foreign tax jurisdiction. As income for the quarter was $2.5 million or $0.11 per diluted share. For the first half of the year, net income was $5.3 million or $0.23 per diluted share.

Now let me provide some additional detail on our cash flows and balance sheet. At the end of the quarter, our cash balance was $14.4 million compared with $17.9 million at the end of Q1. During the quarter, we used about $8.4 million in cash, net of capital expenditures to support our operation. We expect to see significantly improved cash generation for the second half of the year

Our total debt grew modestly in the quarter to $48.5 million. Our net debt balance, taking into account our cash on hand at the end of the quarter, was $34.2 million or about $8.8 million higher in the fiscal yearend. This increase is primarily a result of the additional term loan entered into under our credit facility related to the Data Technology acquisition. Our net debt position is expected to decline in the second half of the year.

We are currently in process of negotiating a new $100 million secured credit facility to replace our current asset-based facility that is expiring late in calendar year 2008. We expect this new facility to provide more flexibility to the company and to close before the end of the third quarter.

Customer receivables at the end of the second quarter were $106.9 million, relatively unchanged from our yearend of $106.4 million. Our DSO was 60 days, down 2 days from yearend, primarily due to a steady collections process and overall higher sales volume.

Inventories at the end of the quarter were $77.4 million, an increase of $12.1 million from yearend. Inventories have increased primarily related to higher foreign exchange rate, certain customer service and geographic expansion initiatives as well as the Data Technology acquisition.

We continue to focus on determining our optimum inventory levels to balance both working capital investment and meeting customer service expectations while we continue to grow our business. As a result of the increase in inventories, our turns declined from 6.7 times at the end of fiscal 2007 to 6 times in the second quarter of fiscal 2008.

Capital expenditures were $2.8 million in the quarter and $3.8 million for the first half of fiscal 2008. Current quarterly spending is primarily related to the implementation of a Customer Relationship Management software tool, which is expected to improve the company's ability to capture, store and analyze customer information.

We continue to expect full year CapEx to be in the $6 million to $9 million range. Depreciation and amortization was $2.4 million, up $300,000 from the same quarter of fiscal 2007.

Now, I will turn the call back to Marc to provide an update on our expectations for our third quarter. Marc?

Marc Giles

Thanks, John. And now looking ahead to the third quarter, we believe revenue should be in the $150 million to $155 million range, reflecting the seasonal third quarter slowdown in the sign making and specialty graphics business.

With the Solara ion not expected to generate revenue until the fourth quarter, the Gerber Scientific products business unit performance decline will continue to weigh on our consolidated gross margins, though we expect margins to improve overall slightly from the second quarter and roughly approximate third quarter gross margins of last year.

We except SG&A expense to continue to be higher than what otherwise is to be expected in the third quarter, driven by some severance and restructuring related charges and by the planned investment in sales, marketing and research and development in support of our new products and other growth initiatives. As a result of these factors, third quarter earnings should be in the range of $0.10 to $0.15 per share.

I'd like to make one final note. We were successful in hiring our new Senior Vice President of Operations during this past quarter. And I want to welcome Joe Mele to the team starting in January.

With his supply chain management experience at United Technologies and his years as a consultant, helping companies to implement lean manufacturing processes, Joe brings a wealth of knowledge to Gerber. He will lead our company's charge to drive lean thinking throughout our supply chain.

Now, operator, I'd like to open the meeting for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We'll take our first question from Casey Flavin with CJS Securities. Go ahead please.

Casey Flavin - CJS Securities

Good morning, Marc.

Marc Giles

Good morning, Casey.

Casey Flavin - CJS Securities

Can you just give us an update on the new product flow for the remainder of the year and particularly the next generation Solara printers, and then provide a little bit more color on what the market responses then to the products that you have launched so far?

Marc Giles

Yeah. I mean, of course, the two big launches that we did in the last quarter, actually both within the last three-and-a-half weeks, were: one, the Solara ion UV wide-format printer; and the second was the Advanced Lens Processing System for Gerber Coburn. That was just about may be just a week-and-a-half ago or so.

The other important new product for us this year that has been quite successful for us and in fact is our leading new product seller this year is Gerber Technology's XLc7000 cutter that we produced in China. So, we've been very, very pleased with the performance of that new product.

Before I get into the ion and the Advanced Lens Processing System, as I mentioned earlier in the call, our contribution of new products as a percent of our total equipment sales continues to improve, and we finished in the second quarter at just over 17% of equipment sales coming from new product. So, overall, we're very pleased with the progress of our new product performance.

Now, with regard to the Solara ion, as I mentioned, this is really, we believe, a significant new product launch, not only for Gerber Scientific Products but will have we expect a significant impact in improving the overall performance of the company, and we are very excited by the reception it received at the SGIA show down in Orlando and the Viscom show in Milan more recently.

And as I mentioned, we've been taking orders for the machine pre-orders, because it's not commercially launched yet with scheduled ship dates. That now totaled well over a 100 systems. Just to put that in the frame of reference, it took us 10 months to get orders for 100 systems for the Solara UV2, the ion predecessor. So the excitement has been palpable.

We expect that for the first full year after launch, we think it's very, very reasonable to expect system sales of between the 400 units to 600 units, which depending on system makeup and composition will deliver about $20 million to $30 million of incremental new revenue in that initial 12 months and at substantially higher gross margins than GSP's or even the corporations consolidated gross margin today.

So the impact we expect will be quite dramatic and that's why this Solara ion has been focused of a lot of our internal attention during this past year, and we certainly welcome the customer reception.

With regard to Gerber Coburn's launch of its Free-Form Capable Advanced Lens Processing System, we are deeply excited about this product. Now it does not have the market size or market pole of the ion, but it'll be an important highly profitable very high gross margin system addition for the Gerber Coburn business who's been benefiting from new product introductions over the past year and I think has increased its gross margin year-over-year by almost 500 basis points in that business unit as a result. So we expect that trend to continue with the launch of this new advanced system.

System by the way, it was at the Optical Laboratories Association Exhibition in Indianapolis, it did win the association's award of Excellence for Servicing Equipment, so obviously the team and we are pretty proud of that.

Casey Flavin - CJS Securities

Great, thanks Marc.

Marc Giles

Sure Casey.

Casey Flavin - CJS Securities

I guess just a follow-up on the Solara printers, you're mentioning a sort of family of products. I believe you talked about sort of a lower price point, higher volume product. Do you think that that has a same potential revenue contribution in fiscal '09, depending on when you actually launched the product?

Marc Giles

Well, this is the first of a family of products that we expect to introduce over time and I don't have a timetable, but I prepared to layout for you other than to say that over the next relatively near–term, additions will be making. It's been our goal to introduce a lower cost but still high performance system to the marketplace that we'll start to target even wider range of market opportunity and that opportunity definitely still does exist, and you should expect that that kind of product will be part of this family planning exercise, it will.

Casey Flavin - CJS Securities

Okay. You touched on that backlog actually declined in the quarter from Q1. Is that primarily a function of the decline in Solara UV2 orders, or are there other factors that are responsible for that?

Marc Giles

No. I would say it was more a blip. I mean it was about $800,000 spread between orders and shipments, so I think it was just the timing effect there. I wouldn't attribute there anything more than that.

Casey Flavin - CJS Securities

Okay. And can you comment on the process that you're making, or the progress that you are making to improve gross margins through various initiatives and what your expectations are going forward for the rest of the year?

Marc Giles

Yeah. I mean I think that we are seeing slightly improved gross margins in our equipment, in our manufacturing business units. This has not been at the pace that we have wanted. Some of the cost reduction initiatives while we have been making important progress aren't accelerating at the pace that we'd like to see or hope to see at this point. But I expect that pace to increase, to improve over the next two quarters, and going into next year. I think that frankly not having our new operations leader on board just held us back a little bit in that area this year.

So I'm very, very anxious to get him in here, and I know he is as well and we have pretty high expectations to help us accelerate our cost reduction programs and lean initiatives.

As far as the biggest impact on gross margins in the near-term, as I said before, the predominant factor in our planning in the near-term is new products, and certainly the new Gerber Coburn ALPS system will continue to expand that impact, and obviously the Solara ion at considerably higher gross margins and we'll have a extremely positive impact on that but that's not going to happen until the fourth quarter. So you won't to see any impact from that this coming quarter.

And further, as Solara 2 continues to ramp down in terms of it's contribution and margin contribution to the business and that's impacting Gerber Scientific products negatively in the gross margins area until we get the ion launch, so we're feeling the weight of that. Biggest factor of course on what's happens with our gross margins on a consolidated basis, is how fast does Spandex grow versus the rest of the business.

Spandex has been doing fantastic in the marketplace growing 20% year-over-year for the last several quarters now. But that's compared to considerably slower growth in our higher margin manufacturing businesses so that artificially if you will swings the consolidated gross margin downward.

Casey Flavin - CJS Securities

Okay, great. And then lastly, Marc, can you just touch on at what stage you are in the CFO search and any sort of additional details you can provide there, and then I'll hop back in the queue?

Marc Giles

I continue to be optimistic I said I'm optimistic for each of last couple of quarters. But we haven't just found the right pairing yet. But I continue to be optimistic that we will have some, we looked at some great people and were aggressively out there trying to find the right partner for this Company and for me. And I am optimistic that we will get it done shortly.

Casey Flavin - CJS Securities

Great. Thanks.

Marc Giles

Thank you.

Operator

We'll take our next question from Chuck Murphy with Sidoti and Company. Go ahead please.

Chuck Murphy - Sidoti and Company

Good morning guys.

Marc Giles

Good morning, Chuck.

Chuck Murphy - Sidoti and Company

Well it certainly sounds like the ion has gotten off to a big start.

Marc Giles

Yeah, yeah, that's correct.

Chuck Murphy - Sidoti and Company

I mean in two months it sounds like they have done what Solara 2 did in ten months, I mean is that correct there?

John Krawczynski

Well almost, I mean it’s done in three and a half weeks basically what we did in ten months of Solara 2 in terms of orders on the table.

Chuck Murphy - Sidoti and Company

And would you attribute that to the product just being that much more superior or has the market moved more towards UV or just general economic conditions favorable?

Marc Giles

No, I think the primary driver is this is just it’s really a breakthrough product and its performance characteristics are substantially better than the UV2, but also in comparison than any other product out there for less than $150,000 is a product that delivers performance. You can’t find on any [surface], so I mean that’s what really driven the excitement in the marketplace. And we just had some remarkable press as a result of the innovations presented by this, by this new technology as well.

Chuck Murphy - Sidoti and Company

Okay and we too assume that you are kind of still holding on to the full year EPS guidance of $0.60 to $0.80?

Marc Giles

Yeah I think we are still in that range, we are holding on to that. We gave a pretty broad range purposely upfront not knowing for sure when the ion would launch and other factors, but we are still looking in that range.

Chuck Murphy - Sidoti and Company

So, I can see the way though you’ll be expecting a pretty big fourth quarter once the ion comes?

Marc Giles

Absolutely.

Chuck Murphy - Sidoti and Company

Okay.

Marc Giles

Absolutely.

Chuck Murphy - Sidoti and Company

Okay and my other question, as far as the tax rate goes it's been kind of tracking in the low 30s here now for the last several quarters. I know before your guidance was more of the 35% to 38% range what are you seeing that would make it move to that higher range from where it is right now?

Marc Giles

Nothing really right now, I think our experience -- right now we are assuming like a 35% when I gave the guidance. So we've had some beneficial swings, I am not anticipating anything that would drive it back over 35%. So, but, I think it's reasonable to assume that 35 this year, but right now is the reason we're less.

Chuck Murphy - Sidoti and Company

Okay. And my final question here. I know you mentioned what the currency impact was in the top line, any idea what it was for the bottom line?

Marc Giles

No. I think, it's really very, very tiny.

Chuck Murphy - Sidoti and Company

Okay. That's all I had. Thanks.

Marc Giles

Sure.

Operator

We'll take our next question from Jed Dorsheimer with Canaccord Adams. Go ahead, please.

Jed Dorsheimer - Canaccord Adams

Hi Marc.

Marc Giles

Hi Jed.

Jed Dorsheimer - Canaccord Adams

Congratulations on the ion.

Marc Giles

Thank you.

Jed Dorsheimer - Canaccord Adams

Couple of questions on that or actually one question on that and then actually one on the financials. In terms of the throughput, could you just go over how that compares to, I guess other to [McDermott] product in the marketplace?

Marc Giles

Yeah, I mean, in the best comparison its roughly three to four times faster than the comparable [McDermott] product and some little over 10 times faster than the UV2.

Jed Dorsheimer - Canaccord Adams

And then, looking at the ASP [McDermott] is about 120 to 150 much they change pricing, you're just doing a math, it looks like about 60,000, so, am I looking at this correctly?

Marc Giles

Yes, our street price will be about roughly $80,000 is what we've announced. So that's the end-user prices about 80 that would be the comparison of the [McDermott] price.

Jed Dorsheimer - Canaccord Adams

80 for yours and theirs still being 120 to 150.

Marc Giles

Yeah, comparable unit would be up in that range.

Jed Dorsheimer - Canaccord Adams

And yours is three to four times faster.

Marc Giles

Yes. Our unit is three to four times faster. And I don't want to get too detailed, get all excited about this product line. Not only is it a faster performing unit, there are some other key factors here. One is it is a true flatbed printer. So the bed stays stable and the ink head does all the movement on a gantry, which gives you much more accurate printing.

In addition, it’s also a true roll-to-roll. So, it can print on flexible materials as well just as professionally as it can do the rigid material. And our new Cold Fire Cure system means that it can print on a huge variety of sensitive materials, whether rigid or flexible, because it's a low energy. I mean our system runs at about 90 degrees C versus all the other UV system at about 1,200 degrees C. So you can imagine what those temperatures can do to sensitive like paper and related products substrates. So, it prints on a much wider range of materials.

And then in addition to that, because it uses our new cationic ink technology is that it can print on flexible materials to the point where they can do car wraps and banners as effectively as solvent printers can. So you've opened up the door to a whole new range of applications with this printing technology.

Jed Dorsheimer - Canaccord Adams

Sounds interesting. Congratulations on that. The other question that I do have is just -- I may have missed it. Did you give by segments the operating profits?

Marc Giles

I did.

Jed Dorsheimer - Canaccord Adams

And would mind repeating those? I'm sorry.

Marc Giles

Yes. Let me shuffle back through here, so I make sure that I do this right. For our apparel and flexible materials segment, it was $6.4 million.

Jed Dorsheimer - Canaccord Adams

Yes.

Marc Giles

And for our sign making and specialty graphics segment, that was $3.1 million.

Jed Dorsheimer - Canaccord Adams

Yes.

Marc Giles

And for Gerber Coburn, our Ophthalmic Lens segment, operating profit was $1.1 million.

Jed Dorsheimer - Canaccord Adams

Got you. So, basically one-third of your revenue is still driving two-thirds of your profitability, being the business over in China, the cutting technology?

Marc Giles

Yes, the Gerber Technology business unit. That's right.

Jed Dorsheimer - Canaccord Adams

My question is then, as we look at the $20 million to $30 million from the new ion, the sign making, could you provide some color on what that will do in terms of the overall operating mix? Will this now be a 50-50 or how will that change next?

Marc Giles

I haven't thought about it or discussed the math in that format. But suffice it to say that we will not be just a Gerber Technology-based company. This is gong to dramatically swing that balance of profit contribution the other way.

Jed Dorsheimer - Canaccord Adams

All right. Great. Thank you.

Marc Giles

Thank you.

Operator

(Operator Instructions)

We'll take our next question from Jim Ricchiuti with Needham & Company. Go ahead please.

Jim Ricchiuti - Needham & Company

Hi. Good morning.

Marc Giles

Good morning.

Jim Ricchiuti - Needham & Company

Marc, I wonder if you'd comment on just how big a manufacturing challenge you see to ramping the ion in Q4?

Marc Giles

Yeah, Jim, I mean obviously we're on it now as a big project and we've been on it. So I mean there is challenge to be able to ramp up, to expect a demand levels in Q4. So there is that risk out there in terms of how fast we can get everything going.

But that being said because of the importance of the project, we have contributed a substantial amount of our internal resources, not just the ones that Gerber Scientific Products but from across the company, really to focus on this launch process and getting our manufacturing processes up to speed to give us the best possible opportunity to meet or beat that launch schedule and to equal our production expectations.

Jim Ricchiuti - Needham & Company

I mean it sounds like it's fairly radical design change from existing products. Is that true or basically building on some of the technology you've had and what I'm trying to gauge…?

Marc Giles

Yeah, sure. Jim, it's not in terms of VAT it's not radical departure frankly from what we do. I mean, it's a true flatbed printer, as I said, which means that it has a stable bed unit or a table with a vacuum hold-down system to hold down the sub-tray and then a gantry that crosses the system with a head on it that supports ink.

And if you look at a Gerber Technology cutter, it is a stable table with the vacuum hold-down system for apparel or other flexible materials with a gantry that goes across the cutting system that holds ahead that instead of printing spinning ink moves the knife to cut the fabric.

Jim Ricchiuti - Needham & Company

Fair enough. I'm curious if you guys have done much work looking at the three orders that you've got on products. Are these new customers, I am curious about where the activity is coming from?

Marc Giles

Yeah, well, in terms of a lot of the business that's both, existing and brand new customers, and brand new customers also in the sense of distribution outlets. So we've had a group of distributors that are generally known in the industry as wide-format resellers, that just focus on selling printing technologies generally into digital print shops that weren't interested in our products before because they just want relevance to their space of application, who have been knocking on our door and signing up to take on this new product because of the potential it offers in the market space. So we've had both in terms of end users and in terms of expanding our distribution channels, both contributing to the ramp up of the new product.

Jim Ricchiuti - Needham & Company

Has Spandex got any of the pre-orders?

Marc Giles

Yeah, I mean, we just did that one show in Italy and I think at that show took 20 some odd orders for 20 some odd units, just of that one show.

Jim Ricchiuti - Needham & Company

And just shifting gears a little bit to gross margins, I don't know if you gave, did you guys give the Spandex revenues by itself?

Marc Giles

Yes.

Jim Ricchiuti - Needham & Company

I'm sorry, I missed it. What was it?

Marc Giles

I am sorry. Hold on a second. Let me…

Jim Ricchiuti - Needham & Company

And the question I have relating to that is on the topic of gross margin, excluding Spandex, can you say your overall margins were up at Spandex?

Marc Giles

Yeah, up slightly, but up.

Jim Ricchiuti - Needham & Company

Okay.

Marc Giles

Hold on just a second. The volume of Spandex alone was -- hold on a second. Did you find it? $64.1 million. Thank you, John.

Jim Ricchiuti - Needham & Company

Thank you. And then final question, wondering how you guys are thinking about business in China as it relates to just generally the balance of the year and the revenue expectations. You are showing good growth there and I am just wondering how sustainable you see that?

Marc Giles

Yeah. I mean where we sit right now it seems sustainable and consistent with past performance on all our phases in that 25% upwards of 30% year-over-year growth. So, right now, where we sit it looks that that case seems pretty sustainable.

Jim Ricchiuti - Needham & Company

Great. Thanks very much.

Marc Giles

Sure.

Operator

We'll take our next question from Tim Ostiole with Delta Management. Go ahead please.