EFII
#Sure, in terms of a run rate, I think you did the math on the Q3 run rate, <UNK>.
And we did try to communicate through our comments that we are not yet recognizing all the revenue at the full run rate or not anticipating in Q3 to be able to recognize all the revenue at the full run rate for the companies, because we have to convert their contracts to be able to be recognized under US GAAP.
We are not prepared to give full-year guidance or full-year run rate until we've really had a quarter under our belts and see how successful we can be at doing this conversion and being able to recognize the revenue as we sell it, like we do with our other deals.
Again, I think at the end of the quarter and for our investor day, we should be better prepared to be able to talk about those long-term trends.
Same thing, obviously, applies to operating margins, since the two are very closely tied together.
We think that after the quarter, we will have a much better sense as to what their revenues and what their expenses and gross margin looks like under US GAAP.
Since of course, being an Israeli and an Italian company, they've never reported an income statement under US GAAP before.
We, of course, always ---+ whenever we acquire a company, we are always expecting we can bring more synergy and bring improvement to the operation of the company after we acquire it.
I don't ---+ obviously, as we've said in the past, we are not going to buy companies that are going to be losing money or break even.
We always expect to be ---+ the companies to be accretive to our earnings.
And so beyond that, I think we really ---+ are best to wait until after the quarter till we have ---+ till we can give you a good picture of what the real long-term effects will be on the operating margin and gross margin.
Just to add to that, <UNK>, obviously, if you look at the Reggiani deal and you take aside the money we paid for the debt the company had, half of the rest of the money is based on earnout, and earnout for the next 30 months.
This earnout is tied to top-line performance and profitability performance.
I think both the seller and EFI believe that we can deliver on that and going to work very hard to deliver.
We clearly have a plan to go deliver or continue to improve the growth and profitability of the business.
It's an exciting business to begin with.
<UNK>, to your first part of the question, again, we will talk more about the model for use of capital going forward in the investor day.
But I can tell you the bottom line.
The strategy of adding to organic growth and growth by synergetic, accretive growth acquisitions will remain.
Obviously, in the inkjet segment right now, we have a lot of integration to do, but at some point, even in that segment, we would be open to do more.
And we have a couple of other segments we can do, so the pipeline was full to begin with.
The two best acquisitions we thought that we executed on them.
Very happy, very excited about that, and there is more to go.
Definitely, it's part of the strategy going forward.
Now, as far as you mentioned, maybe using some money to structure or invest in the inkjet.
That's definitely a possibility, with inkjet being over 50% [next year] of a $1 billion business, clearly, if there is a way to spend money so the business grows faster and/or generates more profits, that is definitely something we will take a serious look at.
I think, <UNK>, with your extensive accounting background, you know that the key thing there is really the revenue piece of the equation.
That there are significant differences in how revenue is recognized under Italian GAAP or ---+ and even some under Israeli GAAP, as well, versus US GAAP.
So that's really the piece of the equation that is variable here, that we don't know how many of the contracts we're going to be able to get converted right away, to a place where we can recognize the revenue in Q3, Q4.
Certainly, both businesses are not ---+ we are not breakeven when we bought them; they were better than breakeven.
We've said that all along that we were not going to buy companies that were losing money or breakeven; we were going to buy companies making a profit.
How ---+ when that profit gets reflected under EFI, is the thing we have to work through with making sure that we can get all the revenue recognized that can contribute to that margin.
Again, I think by the end of the quarter, we'll have a much better view of that as we determine which of the contracts we can recognize and which new contracts we can convert to our standard EFI terms that allow immediate revenue recognition.
We're thinking the 8% to 10% range, at the middle of that range, we are basically breakeven.
If we end up at the 10% part of the revenue range, it will be slightly accretive.
At the bottom of the revenue range, it will be slightly dilutive.
Even at the top end of the range, we still ---+ because it's a fairly small range, we are not anticipating to be able to recognize all of the contracts that are out there today.
Yes.
We are hard at work already.
Obviously, without disruption of the momentum and the business that they have today, we have integration teams, we have many teams that are looking at different part of the business.
And we have plans for the first 100 days and beyond that.
So, and actually, both CEOs or both head of the businesses are in EFI, the headquarters [Tucumcari] this week to talk about exactly that in focus.
We are working hard on that.
We will give some progress report when we meet.
Definitely in 12 months, we should be ---+ look very organic part of EFI and our goal is, of course, to show very nice organic growth (inaudible) when we get to July of next year.
Absolutely, those two acquisitions bridge the gap to what we need.
Assuming good execution on our team, which we like to assume, we will deliver the $1 billion next year with the profitability we talked about of earnings per share.
So, we don't need any more acquisitions to get there.
Of course, we will look for growth accretive good acquisition to continue to do as part of the business model.
But we're there in our perspective and with the outlook we see for next year, we definitely have what we need.
Thank you, <UNK>.
As you mentioned, a large portion of the gross margin decline was due to the currency effect.
The balance of it, though, the primary cause of that was the continued ramp that we have at Creta of the launch of the C4 and the ceramic inks there.
As they're both new products, they're not at their ---+ let's say at their steady run rate gross margins.
And so we ---+ you did see an improvement from a sequential improvement from Q1 to Q2.
And I expect, as well, a strong sequential improvement in that core part of our inkjet business from Q2 to Q3.
No.
I think, again, we think that the inkjet, the core inkjet group, we didn't give specific, separate guidance for that, obviously.
You do the math and take all the different pieces and parts together there with what the new companies can contribute versus the base company.
But we think that in Q3, we'll continue to see the strong growth that we experienced in Q2 in the core business, and we were very happy to see that 9% ex-currency growth in the ---+ our industrial inkjet business in Q2.
Actually, I know there's a lot of moving parts.
But, I think if you do the last calculation of the segment we (inaudible) said about the acquisition, this is double digit plus ---+ 10% plus ex-currency for the quarter.
We are actually introducing new products in the VUTEk category during the second half.
Actually, we're pretty pleased with the opportunity to deliver even better growth in the second half.
And the other thing to keep in mind is that now, when we have an extended portfolio, we're going to position it a little differently.
We don't necessarily need to fight on price war against Matan in the market.
We are comfortable with customer buying in Matan.
When they have a limited budget, they're willing to take the Matan capabilities.
And also, in VUTEk customer is viewing an opportunity with soft signage ahead of opportunity (inaudible) will help them to buy it.
The economics are pretty compelling.
I think it's going to be a lot of moving parts.
But I think overall in inkjet both [cold] and organic, we're expecting a pretty good second half.
I think <UNK> and I both, as we ---+ as we're out visiting clients or at trade shows talking to our VUTEk client base in advance of the Reggiani acquisition, they were ---+ we were constantly getting questions about, what do you have for soft signage.
What is your offering going to be for soft signage.
Obviously, we couldn't tell them at that point in advance of the acquisition, but we think there is a very strong demand for soft signage in our existing VUTEk client base.
I think Fiery looks very strong now in our market.
The partners are doing really well in production inkjet.
We've been growing faster than the market in the last 18 months because we jumped in our attachment rate quite dramatically in the last 18 months and that is a result of the investment innovation.
Our partners realizing they take better care of their customers when the customers buy Fiery and they introduce it to the full capacity.
And customers making better decision on buying Fiery.
I would not expect this kind of jump in attach rate.
In some of the segments it's mathematically impossible, because we are at north of 90% attachment rate in some segments or in some categories ---+ some products with our partners.
So I don't think that it's reasonable to assume that kind of a growth rate, but I would assume that will ---+ the good, positive outcome of Fiery will continue based on what I know today.
No problem, <UNK>.
Good talking to you.
Very good.
Hi, <UNK>.
Welcome to the call.
Yes.
<UNK>, definitely we are going to see more products on the inkjet side.
I think on the Cretaprint with the C4, we will have some incremental improvements in ink; it's going to be driving the momentum.
But with VUTEk, we have a couple of significant announcements later in the year still on track, very exciting about that.
Obviously, now with a much stronger lineup in inkjet, we will make a lot more noise in the industry and we'll reach a lot more new customers.
Actually, I think that the ---+ we are still experiencing the lengthy deployment process.
It's just we now are experiencing the thing we talked about in Q4, which is that as the revenue deferrals start, eventually you pull that revenue out of deferred revenue.
And so, we are getting the benefit now that there's been a couple of quarters that we've been selling these deals.
And so, as we continue to sell them, we are pulling out as much as we are putting in.
So, you are getting the benefit of that now.
Even if we continue to have those complex projects, because the projects are still ongoing, it's basically at a fairly steady run rate now.
We won't ---+ we should be okay going forward, in terms of the effect of those large projects on our revenue.
HP is always a very formidable competitor in display graphics.
We've always been competing with them, and we have a lot of respect for them and I don't think anything changed on that front.
They are not in really industrial textile or ceramic tiles, and I'm not aware of their interest in getting that.
There's going to be actually an interesting shaping up battle between EFI and HP and other people in packaging.
Since packaging is gigantic for us with multiple segments in the future and we will expand more about that when we meet in November.
But that is certainly one of the key competitors in packaging is HP.
We don't take them lightly, and hopefully they don't take us lightly.
I think the end result is customers are benefiting from this competition.
I don't think we've seen any worsening, but I don't think we've seen any improvement either.
It's been at the same state over the last year or so, which is not a great one certainly.
But I don't think we've seen a material decline in the state of the industry, from our perspective.
Thank you, <UNK>.
Thank you.
As always, I would like to think the EFI team for their passion and dedication and our customers for their loyalty.
Of course, I would like to thank our shareholders for their confidence and support.
I'm looking forward to speaking to you in a few months and seeing many of you at our investor day in early November.
