Electronics for Imaging Q4 2007 Earnings Call Transcript

Jan.23.08 | About: Electronics for (EFII)

Electronics for Imaging Inc (NASDAQ:EFII)

Q4 2007 Earnings Call

January 23, 2008 5:00 pm ET

Executives

JoAnn Horne - Investor Relations, Market Street Partners

Guy Gecht - Chief Executive Officer

John Ritchie - CFO

Analysts

Ben Reitzes - UBS

Matt Troy - Citigroup

Jay Vleeschhouwer - Merrill Lynch

Bill Shope -JP Morgan

Shannon Cross – Cross Research

Carol Sabbagha - Lehman Brothers

Ananda Baruah - Banc of America

Jim Mcilree - Collins Stewart

Operator

At this time, I would like to welcome everyone to the Electronics for Imaging fourth 2007 Earnings Call. (Operator Instructions)

Thank you. Ms. Horne, you may begin your conference.

JoAnn Horne

Thank you, operator. This is JoAnn Horne from Market Street Partners, Investor Relations for EFI. Good afternoon and thank you for joining us.

Before we begin the prepared remarks, let me review the Safe Harbor statement. Please note that during this call and during the question-and-answer session that follows, the company will be making forward-looking statements, each of which involve a number of risks and uncertainties. Actual results could differ materially as a result of many factors including: variation in customers' order patterns; the timing of new product introductions; market acceptance of new products; the company's ability to attract and retain key customers; intense competition in the marketplace; integration issues surrounding acquisitions; unforeseen risks in new investments and business strategies; litigation-related activities; particular adjustments or restatements deemed necessary by the company; and the company's ability to service its debt and other risks outlined in the company's SEC reports and the company's earnings press release filed with the SEC today.

The company recommends that you read these documents in conjunction with the review of the financial statement. For your convenience, the company has posted slides on the Investor Relations section of the website at www.efi.com, giving you an overview of much of the information the company will cover today.

Now, I'd like to turn the call over to our Chief Executive Officer, Guy Gecht. Guy?

Guy Gecht

Thank you, JoAnn. Good afternoon and welcome, everyone. Today, given the disappointing Q4 results and the Q1 outlook, I will discuss with you three important topics instead of my usual review of the quarter.

First, I will review with you the results in each of our businesses with a focus on the very disappointing results in our Fiery business. Second, I want to cover briefly the actions we are taking to provide better visibility into our Fiery business. And lastly, I would expand on what we are doing to regain EPS growth and restore shareholder value.

Starting with the Fiery results, we are seeing weakness across all of our product lines and across all of our OEM partners. We can identify three main reasons that contributed to the shortfall in the Q4 Fiery revenue.

The first one is large deals with being pushed out. In our initial Q4 plan, we included a few large deals that we believed were essentially done, including a very significant deal that accounted for roughly one-third of the revenue shortfall. We can't speculate at this point on when any of these deals will close if at all.

As you know, unlike the business model of our OEM partners, all of our Fiery revenue important contributions come from product sales, and there is virtually no recurring revenue from supply end-user charges to offset revenue shortfall due to softness in equipment orders. As such, weak equipment sales impact EFI far more than it does our OEM partners.

The second reason for this shortfall was [instancing] the billing management by our OEMs who pushed inventory levels to an historic low. We believe that beyond Q1, there is a little additional downside to inventory from this level, if any.

The third reason for the disappointing Fiery results is weakness across the globe in sales into our core professional print market, especially North America. In fact, the decline in our North American Fiery sales represented almost 80% of our total Fiery sequential decline perhaps due to a microeconomic slowdown.

In addition, the lack of new engines that sell in high volume added to softness in our business. In comparison, at the end of 2006, both Canon and KM refreshed mid-range line-up, which provided a significant momentum for the first half of '07. Unfortunately, the first half of '08 does not have the same new product benefit, which could offset some of the issues I just discussed.

You might question if this weakness also reflects market sales loss for EFI. We spend time with wholesale source and OEM partner, drilling down on this issue. Based upon our review, we do not believe that in Q4, we lost meaningful market share in our key segments, specifically in commercial print, print-for-pay and CRDs.

In the office, it is possible that we are seeing a similar situation to pass the economic slowdown where companies concerned about expenses decided to purchase a lower-cost device where EFI does not provide controllers.

Now, let me discuss the fact that we didn't see the shortfall coming at the time of our prior earning release call or during the quarter. First, please understand we are very disappointed in ourselves that we couldn't see this level of miss until very late in the quarter.

Since we are often not directly involved in every deal, we failed to see the push-out risk with the last deals. And we assumed we would get the normal Q4 late quarter orders from OEMs, which did not materialize this Q.

While we often discuss the difficulties in focusing in this concentrated OEM business model, there is much room for improvement in our visibility into our OEM sales rate and inventory levels. We are taking immediate steps to improve the process, building better visibility into our OEM sales through inventory management as well as increasing a fair amount of accountability for our quarterly revenue forecast.

Now, turning to our recovery plan, here, our goal is clearly to rebuild and restore shareholder value, starting with our cost structure. On that front, we are looking at three main activities: first, as I mentioned: cost cutting, primarily in the Fiery and ops business as well as in our global support organizations; two: continued investment in the high growth inkjet business; and third: evaluating other options to increase shareholder value.

Let me start with the strategy in cost cutting, and John will provide more details on that subject in a few minutes. We are looking at both near term and longer-term opportunities to cut our spending levels.

In the short term, we are implementing a reduction in force of roughly 120 positions, with the majority of the cuts coming from the Fiery and ops business as well as support groups. While we will cut opportunistically in other areas, we strongly believe that the results we have seen and the growth opportunities in inkjet justify increased investment in our VUTEk business. If anything, the weakness in the Fiery business reinforced the strategy that we implemented three years ago by diversifying EFI and entering the industrial printing using inkjet technology.

Overall, we are cutting our cost from the $72 million level in Q4 to roughly $68 million in Q1, and we are not going to provide guidance for the June quarter. We are targeting a 10% operating margin for that quarter despite the approximately $2 million we will spend in Q2 on the drupa trade show [which held] every four years.

This is of course still far from the targeted long-term operating margins of 18% to 20%, but an indication of our commitment to aligning our cost structure with the near-term revenue outlook. Beyond the second quarter we are committed to working still with consistently improving our operating margins quarter after quarter.

In the long-term we are working towards changing the ratio of the valuable spend to fixed cost, especially in the Fiery business, so we can better adjust the cost, the changing revenue levels. Having said all of that, we are certainly not considering continued revenue growth in our APPS business and revenue recovery in the Fiery business. In fact well we can't predict when, and to what level, the Fiery revenue will recover. We feel confident that we can improve from the Q1 levels.

If the announcement by Ricoh last week about the upcoming 90 ppm color engine is any indication, we believe we have the healthy product roadmap in the next few years with each of our main OEM partners.

Of course, I should note that microeconomics conditions could impact timing and level of the [recovery] in the Fiery business.

Shifting to our APPS business: John is going to discuss the new reclassification of the Fiery software option being now reported as part of the Fiery business. If you look at the results excluding the Fiery software options we are pleased with our 10% year-over-year Q4 growth rate in this category finishing at 7.5% top line growth for the full year.

Turning to our inkjet growth opportunity, we have seen the strong results in the inkjet segment which is really a reflection of the success of our VUTEk business as the Jetrion 4000 printers still in better stage and doesn't yet contribute to revenue.

If you recall when we announce the VUTEk acquisition, and our overall industrial inkjet strategy, our goal was to use EFI printing technology and printing industry experience to build the strong franchise and what we believe is one of the best long-term opportunities in the industry.

We are very pleased with the results in our VUTEk business, which reflect our investment in R&D direct sales and service. Before we bought VUTEk in '05, it was growing at above 10% annually, while currently is running ahead of our 15% to 20% targeted growth rate for this business, as we accomplished this growth in a challenging competitive environment.

Beyond the Q4 strong results, the record number of printers we placed during the quarter and in the full year '07 will generate ink revenue for years to come. Even that we believe it would be a mistake to not continue and invest in this business, while growing its profit contribution to the overall company.

Of course, VUTEk isn't completely immune to economic conditions, and we are prepared to slow our investment level, if the business doesn't goal to targeted level. Unlike this current [fluctuated] Fiery business, the inkjet spend is more valuable depending upon results.

One additional word on Jetrion: While the business clearly didn't leave up to our revenue expectations in '07, we are very enthusiastic about the opportunity for our unique technology in the $900 billion packaging market. Our first digital printer, the Jetrion 4000 is current in beta and represents an exciting opportunity to enable migration of many customers in the $30 billion label printing market from analog to digital printing.

We recognized that that shift in the industry behavior take a long time to appeal and therefore took some cost cutting steps in that segment of our inkjet business.

Having reviewed our plan to reinvigorate our goal, I would like to conclude by stating that management and the Board of Director are fully committed to evaluate every opportunity to restore shareholder value. This includes initiative such as monetizing our headquarters real estate among other options. (inaudible) an opportunity will be fully and fairly considered.

Now, let me turn the call over to John.

John Ritchie

Thanks, Guy. Before I begin I'd like to remind you all that slides relating to this quarter's results are available on our website. I'll now go over the detailed financial results for the fourth quarter of 2007. Fourth quarter revenues were $152 million on a year-over-year basis. Revenues were down approximately 1% and down 4% sequentially.

Non-GAAP net income for Q4 of '07 was $14.4 million or $0.23 per share, down approximately 38% from $23.1 million or $0.35 per share in Q4 of '06, and down 35.2% or $22.3 million or $0.34 in Q3 of '07.

Our GAAP net income was $7 million or $0.12 per share, up from a GAAP net income of $3.5 million or $0.06 per share in the fourth quarter of '06, and down from $8.1 million or $0.13 per share in the third quarter of '07.

In the calculation of both our GAAP and non-GAAP EPS numbers, we include the $9.1 million shares related to our contingently convertible debt when inclusion of these shares is dilutive to the EPS calculation.

As a reminder, our convertible debt has a put date of June 1, 2008, less than five months from now.

If the debt is put to us, the share count for EPS purposes will be reduced by 9.1 million shares or approximately 14%. Factoring the loss of interest income, the redemption of the bond will be accretive from an EPS perspective.

The difference between our GAAP and non-GAAP earnings for the quarter reflect the following items: a $7.5 million charge related to the amortization of acquisition-related intangibles, $2.1 million associated with the cost of our option review process, $4.6 million charge related to stock-based compensation, and then offsetting credit of $61 million related to the tax effect of these non-GAAP adjustments.

Before I go through the quarter in detail, I want to highlight some key points related to the quarter. We set yet another quarterly record for our ink revenues. We set a company record for the number of printers placed in the quarter. Our non-OEM sales were 63% of total revenues.

Our recurring revenues were over 15% of total. And as a reminder, recurring revenues primarily consist of inks related to our inkjet business and our software maintenance contracts. We added $17.2 million for the balance sheet, excluding the effect of our share repurchase program.

Turning to revenue by geography, the Americas represented 51% of total revenue, down from 53% in the prior quarter. The decrease in the Americas is driven by significant shortfall in our Fiery product revenues. On a sequential basis, the North American market was responsible for approximately 80% of the Fiery decline.

Our European revenue was 36% of total revenue, up from 34% in Q3. In Europe, we also saw a falloff in Fiery product revenues. However, the decrease was significantly less than the drop-off we saw in the Americas. We believe the primary driver for the sequential fall in European Fiery revenues was related to intense inventory management by our OEM partners.

Offsetting the softness for Fiery for both the Americas and European markets, we saw significant strength in our inkjet business, primarily our VUTEk business. Japan represented 10% of revenue, up from 9% in the prior quarter. And finally, rest of the world was approximately flat of 3% of revenues compared to the third quarter.

Moving to revenue by product line, as we mentioned at our Analyst Day, effective the first quarter of 2008, we'll be reclassifying our revenue. Going forward, we'll include our Fiery option sales in our Fiery revenue category. Previously, this revenue was included in our PPA product category. As Fiery software options are directly tied to the Fiery business, we feel this provides a better view of how the Fiery business is progressing.

We have updated the historical revenue data on the Investors Relation portion of our website for the past three years. Sequentially, fourth quarter Fiery revenues were down 21% from Q3. Year-over-year Fiery revenues were down 19% over the fourth quarter of '06. The Fiery business contributed $62.1 million or 40.9% of revenues, down from $78.9 million or 49.9% in the third quarter.

Our Fiery business was negatively impacted by, as Guy mentioned, an intense focus by our OEM partners on yearend inventory management, the delay of several deals and the lack of the usual spike in the end of your orders from our OEMs.

For the first quarter, we expect the Fiery business to follow a traditional seasonality and be slightly down. This effect will be exaggerated by the lower Q4 revenue levels as well as the lack of new product momentum.

For the fourth quarter, our inkjet products contributed 45.6% of revenue or $69.3 million compared to 36% of revenue or $57.1 million in the third quarter, a sequential increase of 21.4%. Year-over-year revenues were up 27.2% in total. Continued robust demands in Europe and the America top drive these outstanding results.

Our inkjet results continue to benefit from the success of our industry-leading QS family of products. We expect this momentum to continue to the first quarter and show strong year-over-year growth.

During the fourth quarter, the professional printing applications category contributed 13.6% of our total revenues or $20.6 million, down 7.4% sequentially from Q3 levels and in line with our expectations.

The results included a decline in Fiery software option revenues, significantly offset by sales of our core PMIS printing products. Revenues were down $1.3 million or 6.1% year-over-year. Looking to Q1, we expect PPA revenues to be lower per normal seasonality.

Moving off to gross margins, non-GAAP gross margins for the fourth quarter were 55.9%, down 290 basis points from the 58.8% in the third quarter of 2007 and down from 58.3% in Q4 of '06. Gross margins were impacted by a greater than expected mix shift in inkjet products compounded by lower overall Fiery sales. In Q1, we expect margins to recover as we see the product mix shift move back towards the Fiery product line.

Our non-GAAP expenses, excluding the amortization of acquisition-related costs, stock-based compensation charges and option review expenses, were up 2.6% to $72 million in the fourth quarter compared to $70.2 million in the third quarter of '07. R&D expenses were $32.3 million, up $300,000 or roughly 1% from the prior quarter. In the fourth quarter R&D expenses represented 21.2% of revenue, up 1% from Q3.

We continue to skew our R&D investment towards our inkjet product line, as this business provides us tremendous growth opportunity. We are committed to funding this business at a level we think will allow us to extend these opportunities.

In the fourth quarter of '07, sales and marketing expenses were $29.8 million, up $900,000 from $28.9million when compared to the third quarter of '07. The increase was related to the higher sales commissions' levels for our inkjet business.

Sales and marketing expenses represented 19.6% of revenue for the fourth quarter of '07 compared to 18.3% in the third quarter.

G&A costs, excluding costs associated with stock options review, were approximately $10 million, up 7.1% or $700,000 from the prior quarter. For the fourth quarter, G&A expenses represented 6.6% of revenues compared to 5.9% in the third quarter.

Looking forward to Q1 spending level, we expect to take a charge of approximately $6 million to $8 million related to a reduction in staff. Due to the nature of our business, employees are our greatest cost and we just start headcount by approximately 124 time positions.

Although, we took cost cuttings actions in all areas, the Fiery group, the PPA business and the corporate supports groups were the focus of the cost reduction activity. Within these groups, we focused on reductions in high cost geographies, resulting in few cuts from our low cost operations in India. Excluding India and our inkjet operations, we eliminated approximately 10% of our employee base working on these two product lines, as well as the related support groups.

Our approach to the cost cutting action was twofold. We began immediately resizing the business where appropriate to reflect the short-term outlook of the Fiery product line and longer-term moving towards a cost structure that they will more quickly adapt to the revenue outlook for the Fiery business. The benefits of these longer-term initiatives will be seen over future quarters.

Excluding the charge associated with the headcount reduction, we expect spending of approximately $68 million in Q1, down approximately $3.5 million to $4 million compared to Q4.

Moving on to operating margins. Non-GAAP operating margins for the quarter were 8.6%, down 14.4% in Q3 and down from 15.8% reported in the year ago period. In Q1, we expect operating margins to be down sequentially, as it usually marks the low point in our growth margins on an annual basis.

Moving towards Q2, we are targeting an operating margin goal of approximately 10%. This target includes the traditional uptick in expenses related to trade show activity, which this year will include the drupa trade show, the event held every four years in Germany, as well as increased spending levels in our fast growing inkjet business. Again incorporating these items, we are committed to the 10% operating margin target for Q2.

Other income was approximately $6 million, $0.5 million lower than the prior quarter. Based on lower cash balances, we expect other income to drop to approximately $5 million. The decline is driven by the following reasons. The maturation of longer-term higher yielding instruments that will be reinvested in shorter duration instruments in an effort to regain liquidate to prepare for the bond put and an expected reduction in cash balances due to our stock buyback program and in general lower interest rate environment.

Turning to our tax rate, we are currently estimating a pro forma tax rate of 24% to 25%. At the end of Q4, we had 2,018 employees.

And turning to the balance sheet, we ended the fourth quarter with approximately $500 million in cash and cash equivalents and short-term investments compared to $550 million at the end of the prior quarter, a decrease of approximately $50 million. The decrease was driven by $67 million spent as part of our buyback program, offset by about $17 million cash generated in the quarter.

Inventory levels were approximately $39.9 million, $2.5 million higher than levels in Q3. We expect inventory levels to move moderately down in the first quarter. Accounts receivable balances increased to $102 million from $97.2 in the third quarter. DSOs increased to 61.7 from 57 days in the third quarter. The extension of DSOs was driven by a more backend loaded quarter.

For the fourth quarter, we currently expect revenues in the range of $133 million to $137 million. We expect non-GAAP earnings in the $0.18 to $0.20 range.

And with that, we'll turn it over to questions.

JoAnn Horne

Operator, we'll take questions now please.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Ben Reitzes.

Ben Reitzes - UBS

Yeah, hi, it's Ben Reitzes, CBS. I wanted to just ask questions. First, regard to the inkjet, what kind of growth rate are you looking for the year 2008, on the inkjet segment? And am I right to think that the Street is probably going to come in to the 15% to 20% range?

Guy Gecht

We are not going to comment what the Street is going to comment, but the only thing we've said so far is about Q1 where we see the pipeline and we said we expecting it to be approximately 25% year over improvement from Q1 of 06.

Ben Reitzes - UBS

Okay.

Guy Gecht

And beyond that, we are not going to comment on the goal for the year.

Ben Reitzes - UBS

Why was that business with high ticket items not be effective by the economy to the degree, obviously controllers have always been affected. But why would at least the equipment portion, not be something that seeing any economic sensitivity because obviously 25% growth is pretty outstanding?

Guy Gecht

Yeah, first of all, it could. As I mentioned in my opening remarks, it's not immune. The things that going in our advantages, first of all, it's a geographically balanced business. Secondly, a lot of the customers making good money out of the machines and they need a second machine, the third machine, the fourth machine. And that's again, the pipeline we see today, our progress today, where we are in January compared to January of '06 lead us to believe that we are on track for those kind of results.

And so that is the amended down in marketing spend, promotional spend. People may not need additional printer. So, it's certainly there. It's not without risks, and it's not that it's not completely immune to economic conditions.

Ben Reitzes - UBS

I guess the final thing on the inkjet, I mean it is 25 or so that we should extrapolate? Though, for the year, I know you are not giving it, but you come out with 25% growth. I mean and I want to do yourself a favor and tell us if we need to -- some people may model at 25 for the whole year. I mean shouldn't we decelerate just the conservative?

John Ritchie

Yes, Ben. This is John talking here. So, I think you've to look at that 25% growth number was off a very low number in Q1 of '07, but a $45 million number. So, in the past, we thought that business would grow 15% to 20%. In the previous year, guidance, in the range we've given. At this point, keeping in mind this coming up of the low Q1, we don't want to get into a full-year guidance in that product range, I think given those data points.

Ben Reitzes - UBS

All right. Just with regard to the overall stocks, so I mean you bought back some stock in the quarter, I mean what not, but have you guys ever like given any thought to breaking up the company? I mean how many years it's been with the controllers, doing what they are doing here. And we go through this again and then you diversified inkjets and then you don't even get paid for it. You're down to $13 here.

So, I mean why not just break up the company, be an inkjet company and try to get a good multiple on this company through share buybacks, et cetera, give yourself a pat on the back for VUTEk and why not do that? Why do we have to go through another controller cycle again like cut costs and do controllers again? I mean the OEMs -- this will happen again. I mean why not breakup the company and what is the board's patience level in this? I mean is there a deadline on this? It's just, Guy, you've been through this too many times?

Guy Gecht

Yes. And I hoping that the last one. First of all, let me just -- the direct answer is that this is among all the options that are on the table going to be thoroughly considered. As I said, I am not going to get into why not, why yes, why now.

I want to talk about the Fiery, because you're bringing a good point. We have been having cycles up and down before. We're very unhappy with the share price and the value of the company is going.

I looked at the last four years and if you look at the difference between the best year and worst year, it's actually less than 5% in the last four years. But if you look at inside, difference between low quarter to the high quarter, since the low quarter is the base, in three out of the four years, it was 37% more, and in one year, it was 17%.

So, it's clearly very volatile. In fact, it was pretty stable in the last four years. We are not going to speculate where it's going to end up for '08 for sure at this point. But you are right that we need to do something to overcome this instability.

Ben Reitzes - UBS

I mean is there a deadline in your thinking? I mean you said a 120 people, right?

Guy Gecht

Yes, approximately.

Ben Reitzes - UBS

Yes. So, I mean is there anything we can think of like is there a deadline on this plan? Sometimes, I mean CEOs say we are going to cut this by this and here is our goal where we want to be. I mean you're giving us 10% on margin by the 2Q. You want to get to 20%. But if this doesn't work and controllers like are mess for a quarter or two, I mean can we assume that I don't need to ask you this question come the second half and something will happen?

John Ritchie

You are welcome to ask the question. Again, we're not going to talk about timing and how is that going to be evaluated, what's the best time. If told you that. All I'd tell you management and board think as shareholders. I'm a shareholder. I like to see the share recover. I can see more value. And if we conclude that that's the best outcome, that's what we are going to do. But that's as much as I can tell you.

Ben Reitzes - UBS

All right, thanks a lot.

Guy Gecht

Thanks.

Operator

Your next question comes from the line of Matt Troy with Citigroup.

Matt Troy - Citigroup

Given where the share price is, if historically we're off the fine line between deploying cash more recently to buy back stocks and that you're not goaded by the options review and willing to keep some dry powder both for the convert as well as potential inkjet acquisitions, I was wondering stock at 12-13, do you structurally revalue what you do in terms of share repurchase?

You saw IKON out there. They've tendered for 13 to 15 and the market kind of shrugged it off. So, we don't seem to be in a market that's capitalizing share repurchase at least in the near term. John, I was wondering, first, if you could just help us think about your thoughts vis-à-vis the share repurchase and where the current stock price is? Do we accelerate company there?

John Ritchie

We have the $100 million share buyback that was authorized last quarter. That is (inaudible) untouched. So, we have that available for stock buyback. We are plenty well capitalized to be able to be aggressive with the stock buyback and to make acquisitions, and we have other assets that we can modify.

So, we've got our real estate holdings in Foster City, which have a considerable track value. So, again, I don't think even contemplating buybacks, acquisitions and the liquidity required for the debt. We are not capital constrained that we only have the option of picking one or two of those. We can pick all three.

Matt Troy - Citigroup

And I would imagine you will be a buyer in the market as soon as the restrictions are lifted?

John Ritchie

That would be a fair assumption.

Matt Troy - Citigroup

In terms of when I asked this at the Analyst Day which is for purposes of getting it on the record in the transcript, the real estate. Can you just give us a high level walk through puts and takes in an outright say I realize you've got the synthetic lease and that moves down the term of the balance sheet in terms of restricted asset. But just in terms of scenario analysis, what's it on the books form, what would be the implications for balance sheet accounts for either pushing that lease off your books through an outright sale of the property. What are the potential implications there?

John Ritchie

First of all, I'll let you know what is carried forward on the books today. The land is on the books for 35 bayfront acres, is on the books for about $27 million. I'd like to value for in excess of that. The buildings are on the books for about at a value of $90 million, and that was a valuation exercise we went through, that was closed to the trough in terms of Silicon Valley real estate. We think there is obviously significantly appreciation and significant value in excess of those numbers.

Matt Troy - Citigroup

What year was that to the revalue?

John Ritchie

Probably '03, '04 in that range.

Matt Troy - Citigroup

Okay. And then in terms of the synthetic lease, you can, because with the accounting guidelines they are wary of people just flipping transactions for purposes of raising cash, but it can be done. Am I correct that you could actually change the form of that lease not having to trigger any kind of major tax event? Or would there be flip side to freeing up that cash?

John Ritchie

So, unwinding the synthetic leases are also the simple exercises, fully collateralized by cash. So, there's really no difficulty in that at all. In terms of structuring an outright sale or sale lease pact, obviously there is accounting rules we have to live within, but it shouldn't impact the ability to monetize or [building] of the full value.

Matt Troy - Citigroup

Not on the break-up front, but the potential sale front, you have seen HP make three wide format acquisitions. They partnered with, say, CoABS and you've seen Fuji buy supply and print head companies. You got Kodak, arguably with some dry powder interested in servicing this base. There is a lot of interest. If I look at the model now and what your guidance implies for the year, the controllers are now only about half the revenue book and that was always the hurdle to someone buying EFI is that if it was one of the OEMs, ultimately they risk losing a significant portion of the book to competing people that would essentially leave the control relationship. Now that the EFI have to book his inkjet, arguably the much more attractive take out. Let's not talk about breakup, but just take out. Is your phone ringing which you probably won't answer, but if it is not, a question you can answer what's your producer responsibility to go out and seek a buyer?

John Ritchie

So you guessed correctly, we will not speculate what is ringing or not ringing.

Matt Troy - Citigroup

It is rocket science.

John Ritchie

Yes, good. So, we are going to look at that with the ball, we'll try to figure out what is the best way to return value to the shareholder, the best timing, what can we get for what, what is the outcome, what we are trying to get, what we are aiming at? We are very serious about that. As I said, we all shareholders, we all want to see the stock, the value going high, that's the way we are going to look at that. We are not going to speculate about the value of the inkjet, the value of the Fiery, the value of the other pieces.

Matt Troy - Citigroup

Last question and kind of pedestrian, but I want to make sure we are all resetting our models to what is a reasonable level. On the convert, obviously with the share price being where it is, high probability, it is put back. In terms of the interest expense and the share count obviously straightforward to figure out what there goes? Are there any tax implications, other puts and takes that you should think about either cash out the door for taxes, John that we should think about modeling in the back half one and if the convert gets put back to you?

John Ritchie

So from a P&L standpoint the only modeling you have to do is the interest component.

Matt Troy - Citigroup

Right.

John Ritchie

When the bond is put back as we booked some benefits to the balance sheet, those benefits would be unwound. Those benefits on the gross basis are up $30 million but we will use other tax attributes that we have to offset that. So that wouldn't be an incremental cash charge.

Matt Troy - Citigroup

Okay. So, cash neutral outside of actually refunding the debt?

John Ritchie

Yes, totally a little more in cash neutral but not significant.

Matt Troy - Citigroup

Okay. Thank you.

John Ritchie

Thanks, Matt

Operator

(Operator Instructions). Your next question comes from the line of Jay Vleeschhouwer with Merrill Lynch.

Jay Vleeschhouwer - Merrill Lynch

Thanks Guy. Until the glorious day when the phone starts ringing as per Matt's question, maybe go back to some basics on the controller business. What can you actually do within the business to mitigate the risk that you've seen repeatedly? For example, you've made some comments about trying to get into design-ins or parts of the market where you have not been exposed before, particularly with the embedded controllers side. Is that something that you can re-double your efforts on this year to increase the volume and spread out the risk? I was a little surprise frankly by your comment earlier that how few new products are coming to market versus at the end of '06. If only because you had spoken of a pretty full and ongoing pipeline '06, '07 and into '08, so it sounds like you're now talking about a somewhat less active period for the time being in controller? So that's the first question on trying to mitigate the risk in our business.

Guy Gecht

So, first clarifying the roadmap and [bullet] by controller, nothing changed from what we have been told prior to roadmap. My point is that we make the biggest retail on projects that's kind of selling with many, many units, kind of the mid-range entry production, the KM-65, the Xerox 250-260 or the Canon [40] PPM proofing engine.

We have engines that are high priced and generate a lot of pages, maybe generate very good return flow. Yet, we don't get as much return on those engines, because they don't sell in quantity. And my point was that we started those with a couple of very strong engines that sell in a very high quantity and they grow a lot of Fiery sales. And we are not planning to wait with the same level of high-quality engines.

Clearly, 7000 by Canon is a great engine, relatively recently, I think, selling to Canon expectations. Well, it could be successful. But this is one of those tough engines, high-priced, high volume of pages and not selling many, many units as the 30 PPM or 40 PPM engines of Canon launching in Africa. That was my comment.

To the first part of your question, we have few projects that would get us more lower-end, more offers for sure. Given where we are, we have to be very careful where we invest and what we put money on and see the return on that. And clearly, we are not in the position to invest more until, if at all, the level of recovery and the timing of recovery in the Fiery business.

So, we believe there is market in the enterprise. If the economy slowed down, that obviously will shrink the opportunity, therefore (inaudible) for the near term, but we are not giving up on this.

Jay Vleeschhouwer - Merrill Lynch

All right. With respect to the OEMs, we have inferred that the largest OEM at the very least was a significant component in the shortfall in the quarter. And it seems that in the last four controller misses you've had since '04, including this most recent one, Canon has been the largest, it's not the only contributor to the shortfall, though there are probably other factors as you pointed out in Q4.

Do you foresee a significant reordering of your OEM rankings this year perhaps or maybe this gives us a little bit better understanding of what's changed on their part on the other OEMs' part in terms of inventory management. They had done that before. It's not the first time. They've tried to tighten up an inventory management, and that had affected you before. So, how much more could they really have been doing lately in that respect.

Guy Gecht

So, this is why we were very careful in saying it was broad-based across the board. I will definitely not point to Canon as the main reason or the only reason for the shortfall. I think every OEM came below our expectations for Q4 and Q1. And every OEM is managing their inventory a lot title tighter than we have seen in prior years.

And so, I would not expect any reordering. I think we're going to have kind of neck-to-neck as always between Xerox and Canon and KM and distance felt. And of course, we think we have opportunities with more engines and they're getting to a high level space and they're going to use us. That's an opportunity for us.

Jay Vleeschhouwer - Merrill Lynch

John, on the VUTEk side, can you update us on the size of the installed base at this point? How many units are in the miss now? And similarly, post-Drupa, how do you see the new products in the direct packaging side playing out? That is to say, do you think you'll be able to ramp commercially in some measure on the packaging side or any other meaningful commercial ramp for new technology?

John Ritchie

So, Jay, I'll answer the installed base question from the things you want to hear, and I'll read that packaging question again. I think our last public comments on the installed base were roughly 2,500 units. That number is obviously moving up, much more skewed towards inkjet, but we stay away from given unit prices on the quarterly basis. It's a very competitive data and we prefer not to go there.

But I think ultimately, you do see the results from the success of those unit placements by the steady increase you see in our recurring revenue streams coming out from, actually flowing out of that of those unit placements. That's as much as I can tell you on units for inkjet. I want to hand-off the packaging question to Guy.

Guy Gecht

So, clearly, we expect to see from other players some technology around packaging. We're not the only one who know that packaging is $900 billion. And out of this, labels is probably one of the most prime $30 billion sub-segment to go to digital. Lastly, we're going show things that are not going to shift in the near-term. We know that.

Our product is the 4000, as we mentioned in the Analyst Day, it's not going to contribute much revenue in the first half of the year, but clearly, we're hoping that Drupa will help the interest and awareness. And it remains to be seen. We think in the long term, it's a great opportunity.

4000 is a fantastic product. We think it's a most appealing in this category. Going after this huge business, let's just stop to predict how quickly. There obviously will be. We're just in the beginning of it.

Jay Vleeschhouwer - Merrill Lynch

All right. And one last one back on the controller business in terms of how your thinking might look two to three years from now, both on the service side and the embedded side. So, rough order of magnitude you are shipping at least before Q4, something like 20,000 unit a year on the service side, something like, let say 80,000 to 90,000 on the embedded or high five figure number.

So when you look at 2 to 3 years, what do you think the opportunity is in terms of meaningfully scaling either number? Or would likely to be back where we started on the Fiery side? Or could you foresee 1000 of units more potential than we see, and similarly, on the embedded side, that we just sort of end up where we are some ebbs and flows? Or do you think that we could see potentially tens of thousands of units more on the embedded or design licenses side than we see today because of more share gain, more design in over the next number of years?

Guy Gecht

Jay, you asked me this question three months ago, maybe attempting to try to answer that. We feel we need to own the right to give a full year guidance. I am not going to try to speculate 2, 3 years down the road, but I know we have project working on, but how is the look? Give us few more quarters and we'll try to attempt to 2, 3 years outlook.

Jay Vleeschhouwer - Merrill Lynch

Right. I mean it's obviously relevant because you don't have much more than the majority of addressed market. There is lot of untapped slots out there that you are not in. So I think it's interesting to see how you can potentially gain more [ancillary] into more of those devices.

Guy Gecht

Yeah. I mean, you are right, we view it as an opportunity, we view it as a much bigger market. It's not without few challenges because you are competing with the OEM-based in controllers (inaudible) in the low level and the top of the market. So yeah, we'll continue to slow it, but at this point all we can talk about is Q1 and are focusing on core markets in the controller.

Jay Vleeschhouwer - Merrill Lynch

Okay. Thank you.

Guy Gecht

Thanks Jay.

Operator

Your next question comes from the line of Bill Shope with JP Morgan.

Bill Shope -JP Morgan

Okay, great, thanks. First question, could you give us a little more clarity on what the inventory situation looks like overall on the OEM side, particularly versus what you've seen in the past, and what you've seen in past slowdowns? And also can you help us understand whether or not you've got any sense as for why the inventory reductions have been so dramatic and the across the board?

Guy Gecht

I'll let the OEMs speak for what they do for inventory management. I can tell you that by all means and across the board we're seeing an historic low and very focused effort to reduce inventory. And we don't think it's related to Fiery specifically but with its being in accessory to an engine, I think we get impacted by that in a big way. I was traveling last week, I talked to some of our OEMs, I know that some of OEMs gave people that managing their inventory a much higher bonus than prior years because of their success in managing inventories. I heard about a dealer that couldn't get the Fiery in December because the OEM he was buying from was out of inventory, but they want to order anything in December until January resale. I have stories that I think I had before, so I think the focus on inventory was very extreme more than I saw in years now.

Bill Shope -JP Morgan

Okay. And then second question. Last quarter you talked about some of the weakness being driven by Xerox's integration of Global Imaging. I mean, where does that stand now, have you seen any improvements here or at least any signs of stabilization?

Guy Gecht

Bill, when we talked last quarter we gave three reasons and the Global Imaging piece was probably the least of the three. At this point I'm not sure it's impact overall in terms of our fourth quarter result.

Bill Shope -JP Morgan

Okay. Thank you.

Guy Gecht

Thank you.

Operator

Your next question comes from the line of Shannon Cross with Cross Research.

Shannon Cross - Cross Research

Hi.

Guy Gecht

Hi Shannon.

Shannon Cross - Cross Research

Just a question, Guy, you talked about the fact that you would improve visibility, make some people accountable I guess in terms of quarterly revenue. Can you give anymore specifics into how you are going to improve things on the controller side, because I know it's been a focus for years?

Guy Gecht

Yeah, I mean we clearly want to be -- I mean let's put this way, of course the disappointing part is the result, but the most embarrassing part is the fact that you didn't see that coming. And we don't want to be embarrassed again. We are implementing between how we build to earnings release and outlook internally in the company who committed to what, making sure that the business units and the sales people put the name behind what they think is the minimum commitment that there will be a very high level of confidence that can deliver what's the upside.

And also between us, with the OEMs, we talked about couple of things we can do to understand their inventory goals, inventory management and we looked at, we did the new GM and the Fiery that you met, did the postmortem and went over what went wrong and we think we can identify signs that we were in trouble and I think we can implement system that will allow us to take in to account those signs. So across the board we've made a significant overall to our focusing process. Again we not want to be embarrassed again.

Having said all of that, we got to understand that despite the fact that we are only dealing with four OEMs, this is the very complex inventory in ordering system because each OEM has multilayers of distribution. Now give me one example of that, and there you work with indirect and direct. At the end of the day, we have very small number for each one of the OEMs within the companies that are over $40 billion or $20 billion in total revenue.

I'll give you an example of Canon, but I can give you example of other OEMs. Canon, they're with us from Japan from their headquarter on what their forecast is. They are revising that as they (inaudible). But then, the orders is going to the sales companies, the Canon USA, Canon Europe, Canon Japan, some other entities, which is different than the Canon headquarter in Japan.

In those entities, they are also working with, for example, Canon USA is spending substantial amount of their sales via IKON. And then they have other dealers. So for us to know inventory level, we need to know IKON inventory level and the deals inventory level and Canon USA level and what Canon Inc is saying.

And on the top of it, Canon is also manufacturing the embedded booth for them. So, they have a factory that may have inventory, and knowing inventory is not sufficient, because you need to know the run rate of the engine to see the inventory is actually above the run rate.

So, I am just trying to explain to you how, why some things that may be on the surface sounds very easy, we only have four people to call, is actually fairly complex question. Having said all that, I want to reiterate that we are implementing a better system and a better accountability to make sure we have much better visibility when [we go on call] and we'll give you (inaudible).

Shannon Cross - Cross Research

How willing have the OEMs been to work with you on this, given they have to see sort of what it's done obviously to your share price into the company in terms of the layoffs? Again, it's complex. They have to open up a lot of their books to you. I mean are they willing to be a little bit more precise, I guess, in their forecasting or maybe talk to you a bit more so you don't get blindsighted by inventory corrections?

John Ritchie

Everybody I've talked to is very willing to help. I mean there no intention here -- it's not so confidential for them to share with us how much Fieries they have, maybe the run rate of the engines, but the run rate of the Fiery is something that they can share with us. It's really about collecting all the information from all the people.

The example I gave you, you have multiple people and multiple entities in joint companies, and their focus is not on the Fiery, which is the accessory of the engine. They focus on their tens of billions of dollars of business of engines. For them, having less or more in the Fiery means very little from their inventory management goal.

And then when you have a lot of -- all of our customers are moving to more and more indirect sales via dealers. They are talking about relatively small companies with not only good ERP system. I am not sure what they're having with us like from the order of what they're going to sell.

So, I think to summarize that, it's not really a matter of willingness, because I find them very willing to help. They share the pain, understand how important that's for us. It's really about will they have the system that we can sit and correlate. So, as I said, I think we can improve on what we are.

Is it going to be as good as when we sell direct? Absolutely not, because when we sell direct (inaudible) ops, we look at salesforce.com. We understand the risk. We know the competitive situation. We know what focus is. If there is a large deal, we call the salesperson and give him the point of view of that. And we are selling to many peoples. So, as one deal gets pushed out, in many cases, we can get another deal.

We have control over the price. We have control over the terms. We can try to tweak in. We can try to do promotions. That is, it's a day and night difference between when you sell direct and it goes through many layers of the provision.

Shannon Cross - Cross Research

Okay. And then a question with regard to the layoffs, which I think are -- and I don't remember the percentage, but obviously much weighted toward the controller business. As we think about that, how will this impact your ability to design products for various OEMs. I think you had talked at the Analyst Day about actually sort of leading down possibly and not being everything to everyone. But how are you thinking about that on a going-forward basis with your resources once you are through this?

Guy Gecht

All right. So, just to correct, it's coming mostly from the Fiery as well as the ops. I mentioned that, we got some cost-cutting -- just that we were ready before that mainly in the sales side and the support organizations. But on the Fiery side, we are not conceding the opportunity that we can recover the Fiery revenue.

And therefore, we certainly capped projects that we are seeing are going to accretive going forward. So, we continue to go after opportunities there, and we try to be careful not to be too short term. Having said that, we understand there is new revenue levels in Q4 and Q1 in the near term that we need to adjust spending to. So, we work to find balance and we try to focus, but not give up on projects that will yield revenue during the year.

John Ritchie

Shannon, this is John. One of the things that we commented on in terms of sizing what we did in the controller business is we want to make sure that we can maintain a core investment that allows us to take advantage of future opportunities. But we want to scale the business so there is more variables spend, so we can handle this level of volatility and still maintain a respectable amount of profitability.

So, in terms of our long-term plan is to do exactly that, and that would leave us the ability to go after these opportunities when they arise.

Guy Gecht

Maybe to reiterate the obvious, it's a very profitable business. The leverage is good when we add revenue, a lot was left at the bottomline, and we have some of the best employees in the world in imaging there. So, yes, we are very disappointed, but we want to make sure we are not essentially conceding and just making at the decline business versus trying to recover with projects, which we have in the pipeline.

Shannon Cross - Cross Research

Okay. I guess I'll take one follow-up. So, John, on the variable sense, in what areas can you be variable as you've got pretty specialized engineers that work on products, and I am just trying to understand.

John Ritchie

Sure. The variability can come around specific areas in sales and marketing expense, maybe even in areas in the QA part of the process. Again, the focus is simply getting a model that scales up and down more rationally with the revenue expectations, but still keeping as you pointed out those core technologies that will allow us to grow the business.

Shannon Cross - Cross Research

Okay. And then just one final question, John, as we think about cash flow going forward with the pressures obviously on the business, how should we think about, I mean VUTEk doesn't generate much I believe. And so as you look at cash, I know you don't have an issue with cash, you have plenty of cash. But just on a cash flow basis, any percentage you can think of as VUTEk becomes the bigger the portion in terms of increasing AR, inventory, anything like that that we should keep in mind?

John Ritchie

Yeah. So historically, our cash flow generation is somewhere between our pre-tax and our after-tax income number. Now, we'll skew closer towards the after-tax number as VUTEk or inkjet becomes a larger, larger percentage of overall sales. But I would say going into '08, you are probably closer to the pre-tax number.

Shannon Cross - Cross Research

Okay, great. Thank you

Operator

Your next question comes from the line of Carol Sabbagha with Lehman Brothers.

Carol Sabbagha - Lehman Brothers

Thanks very much. Just a follow-up question on the restructuring actions, well most of the savings be realized in Q1 or Q2, the follow-on quarters have incremental savings to be realized. And what sort of variables versus fixed target are you targeting for the controller business?

Guy Gecht

The headcount costs will have the benefit of those headcount costs in most of the quarter, and with the reduced headcount we'll get that benefit going forward. But again keep in mind, we're really focused on as we hinted out with our Q2 operating margin target, that's what we're focused on, is driving profitability from each of the businesses and getting to an operating margin goal. So I don't want to kind of talk about spend levels. We think that's the wrong place to focus on. We got to scale the businesses up and down and at the end of the day get to that target and that target should be sequentially better as we move throughout the year.

Carol Sabbagha - Lehman Brothers

Okay. And then after the cost cuts what percentage of the cost structure on the Fiery business will be variable?

Guy Gecht

So we haven't disclosed that yet. We're still working through that.

John Ritchie

The change we're talking is really a more longer-term change, it's not something in the next couple of years.

Carol Sabbagha - Lehman Brothers

Okay. And then a follow-up on sort of the three issues you highlighted that impacted the controller business. The first one was large deals being pushed out, never really heard you in other years covering at about such a large deals. Can you give a little bit more color about whether those were directly to the OEMs or to some other partners, and if they were pushed out, are you assuming may come in Q1?

Guy Gecht

Yeah. We always have large deals that the OEM negotiates. Sometimes we're not even a world down if they don't need anything from us. Sometimes they need little bit of customization from us and we work with them on that and we will that. And our OEMs also have largest, sometimes the entire deals is Fiery, sometimes the part of deal is Fiery.

Normally we have enough in the pipeline if something doesn't happen, we have something else that's happened. What happen here that nothing happen from what we fought, where we were three months ago. And specifically one large deal that was significant part of our mix. We thought that it's in the bag and it's not happening and we don't want to speculate. It's clearly not going to belong twice on that whether it's going to close in anytime soon.

Carol Sabbagha - Lehman Brothers

Should I assuming in your Q1 that you are guessing it doesn't close?

Guy Gecht

Yes.

Carol Sabbagha - Lehman Brothers

Okay. And can you, the large deal are the one big one, was it professional printing or was it more enterprise asset focused?

Guy Gecht

It is target market which is CRDs, print-for-pay, commercial markets, professional printing.

Carol Sabbagha - Lehman Brothers

Okay. And then I am sure you saw that the day after you announced, you pre-announced, so did IKON and they didn't in there pre-announcement as you probably saw mentioned on the economy being said that it was on some sales productivity issues that they were having internal factors, that they were hoping to be able to fix in the following quarter, Did you talk to them and see -- I don't know how much that plays into what happened in North America for you and what your view is around that?

Guy Gecht

Okay. So, of course, I am not going to comment on the IKON, we are talking to them, we have no relationship with the management. They are clearly big portion of our North America revenue, big portion of Canon and Ricoh and even KM. So you've seen a reflection of what we have talked about and let see what they are going to say tomorrow on the call.

Carol Sabbagha - Lehman Brothers

Yeah. Okay. Thank you very much.

Guy Gecht

Thanks.

Operator

Your next question comes from the line of Ananda Baruah with Banc of America.

Ananda Baruah - Banc of America

Hey, thanks guys. I guess just one more on the cost savings restructuring, should we expect all of that follow to the bottom line, you are going to look to reinvest some of that back in the inkjet business? And then secondarily, if I heard correctly, you sort of cutting maybe 10% of heads (inaudible) and inkjet and just by you have kind a quick cap looks like you are sort combined controller and PPA laser will be down somewhere in the low to mid 20s. So it looks like laser is still going to be down a little bit more in the cost cut. So I guess, does that suggest, I mean, I guess, can anything the -- so read into that meaning that could be more costs cuts, the common things don't shape up or do you sort of maybe expect things to ramp up in the controller side of the business second half of the year relative to the first half, such that you think that level has ultimately, that cut levels ultimately deep enough to get you back where you want to be?

John Ritchie

Ananda, this is John speaking here. So we're really not going to comment on the back half of the year, but getting back to the sizing of the business, we are again focused on and I think embedded, the short answer to your question is all embedded in our operating margin target that we talked about in Q2. So we're going to do what it takes to get to that operating margin target. Whether they get you, where that occurs on the P&L will let you obviously get close to Q2. But the goal is to get to that target.

Ananda Baruah - Banc of America

Okay. And then if you could just kind of quickly, I know you made some comments at the beginning of the call about which end-markets were the biggest contributors to the shortfall, (inaudible) also realized that you just made comments. I believe it was one of the sort of previous questions that sot of your sweet spot market was obviously one of the markets that was contributed. But can you just give us a little more maybe drill down around which of those sweet spot markets best if you can tell where the ones that sort of contributed most clearly to the shortfall?

John Ritchie

On the geographical piece, it was I think as mentioned was clearly the US. If you look at the sequential decline in the controller business, 80% of that or approximately 80% of that was concentrated in North America. Now across our product line, we saw the decline fairly broadly across the entire product line and the across the customer base. So I'm not sure any particular end-market was any worse than any other.

Ananda Baruah - Banc of America

Okay. I mean any sense as to how much of this is maybe sort of end market economic demand-driven versus some of the other factors that you guys have mentioned?

John Ritchie

We are a little kind of [resistant] to blame it on the economy, but I think given what's occurred since then and given what we've heard from our the other pre-announces occurred, there could be some broad economic backdrop to it. Right now, we are just focused on -- we didn't see the flurry of last-minute orders that we usually see, and some of these larger deals got pushed out. That's what we believe drove the shortfall.

Ananda Baruah - Banc of America

Okay, great. And then just quickly, where was your cash flow number again for the quarter?

John Ritchie

Yes, excluding the impact of the buyback, we generated $17.2 million, and almost all of that came, many (inaudible) plus came from operations.

Ananda Baruah - Banc of America

Okay, great. Thanks, guys.

John Ritchie

Thank you.

Operator

Your next question comes from the line of Jim Mcilree with Collins Stewart.

Jim Mcilree - Collins Stewart

Thanks. Good evening. What was the headcount for the company and for the Fiery business before you started the headcount reductions?

John Ritchie

So, I can tell you the overall headcount for the entire company was approximately 2,000 heads. Then if you could do the math, we reduced the positions by about 120, and that was approximately 10% of our non-inkjet activities. It gets you to about 1,200 person range.

Jim Mcilree - Collins Stewart

Thanks. And then secondly, in terms of cash usage for the next couple of quarters, you need the $240 million for the convert and you still have the buyback. There is no other cash needs that I need to be aware of, are there?

John Ritchie

No.

Guy Gecht

No.

John Ritchie

Going over the next several quarters, we should be generating cash.

Jim Mcilree - Collins Stewart

Right, right. No, I am thinking about more of kind of lumpy outflows that I need to think about.

John Ritchie

No, nothing.

Jim Mcilree - Collins Stewart

Great, thank you.

John Ritchie

Thank you.

Operator

We have reached the end of allotted time for questions. Mr. Gecht, are there any closing remarks.

Guy Gecht

Sure, thank you. I want to thank our shareholders, customers and employee for their support during this quarter and in '07. I also want to thank everybody for joining us. We appreciate your interest, and we looking forward to sharing our progress with you. Thanks.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!