EFI results hit by tough economic conditions

By Richard Stuart-Turner, Wednesday 16 January 2019

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EFI has attributed its expected Q4 revenue shortfall to weakening economic conditions leading to its customers delaying their investment plans.

bill-muir

Muir: "I see so many opportunities, but I also see gaps in our execution."

In its preliminary financial results for the three months ended 31 December 2018, released yesterday evening (15 January), the manufacturer said it is expecting its revenues for the period to come in between $255m (£198m) and $257m.

This would represent a drop of around 5% on the equivalent period last year, when it posted record sales of $269.2m for the quarter ended 31 December 2017.

The company said its results were impacted by “weakening economic conditions experienced across its direct businesses”, with customers delaying their spend on capital equipment and software.

“Late in the quarter we began seeing a substantial shift in buying behaviour versus the prior year in many of the industries we serve,” said Bill Muir, who was appointed as EFI’s new chief executive in October, following long-serving chief executive Guy Gecht's departure from the role, announced in July.

“This was felt most significantly in the Americas. Customers became increasingly concerned about economic trends and many decided to defer capital expenditures until they had greater clarity on the economic environment.

“Though we entered the quarter with a robust pipeline and our inkjet sales progress through mid-December was tracking ahead of the prior year, the last few weeks of the quarter were exceptionally weak.”

The company said the majority of the revenue shortfall was in its Industrial Inkjet business, which declined by approximately 5%-6% year-on-year. Display graphics and building materials, which were expected to be weak in the quarter, were down “more significantly than anticipated”, the manufacturer added.

While the business saw the expected strong demand for its new mid-range display graphics products, which sold out, it said it saw weakness at the high end of its product portfolio. There was also “greater than anticipated softness around more mature hybrid products”.

Nozomi revenue was approximately $65m for the full year, with some customers delaying decisions until 2019. The business continues to expect that Nozomi will achieve revenues of $120m for full year 2019.

Productivity Software declined by around 6%-7% year-on-year, due to pushed deals and a significantly lower close rate in Q4, while Fiery revenues are expected to be largely in line with guidance, at around $60m.

EFI said it believed that the majority of the unclosed deals across all of the business units remain in the pipeline and were not lost to competition.

“While I am very disappointed in the quarter, I remain confident in our market positioning and new product portfolio. One example is our Bolt printer, which was very well received by the textile industry when it was introduced in October.

“I continue to be encouraged by the large number of packaging companies actively evaluating Nozomi, as they look to leverage the new opportunities that digital technology brings to their business, in what we expect will be a $9bn market for equipment and ink.”

During the quarter, EFI also completed steps to enhance its capital structure, including issuing a $150m convertible bond and, on 2 January, closed on a $150m revolving credit facility.

“As I learn more about our industry and spend time with customers, I see so many opportunities, but I also see gaps in our execution. The industry is consolidating, and our customer base increasingly comprises larger and more complex organisations,” said Muir.

“In my first few months with EFI, it has become clear that our go-to-market approach has not sufficiently evolved to meet the growing needs and expectations of many of our customers.

“Additionally, the results of the quarter reinforce the need for comprehensive strength across our product portfolio; gaps such as those we are currently experiencing in the high end of display graphics only exacerbate revenue headwinds.”

He added: “I am firmly committed to addressing the robustness of our portfolio, augmenting our go-to-market approach, and improving the customer experience.

“Initiatives to address these areas have already kicked off, and I look forward to providing detail around our plans at our Investor Day in May. I am confident we will see substantial progress from our efforts late in the year, allowing us to deliver the results our customers, shareholders and employees deserve.”

After closing at $27.18 in yesterday’s regular session, EFI’s shares dropped by nearly 18% to $22.33 in the extended session following the release of the preliminary results. The manufacturer will release its Q4 and full-year results for 2018 on 30 January.

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