Under the sun

This is the final part of a trilogy of stories based on an interview with Xaar’s CEO John Mills. In the first two parts we’ve looked mainly at printheads, thin film and bulk piezo, but those printheads should also be considered as part of a bigger solution.

Xaar produces a number of printheads, all with bulk piezo actuators.

Many people asked me at the start of this year if I thought that Xaar still had a future. The company seemed to have been on a downward spiral for some years and had ended last year with a large financial loss, that had forced it to make over 100 employees redundant, not to mention cancelling its thin film project. 

Mills says that the extraordinary growth around the ceramic market meant the company went up and then came down and that if that had not happened Xaar would have continued with steady growth. He says that Xaar has learnt lessons from this, noting: “So we want a broader range of markets and products.” In the last part we’ve looked at the new ImagineX technologies that will help Xaar achieve this and some of the applications that Xaar is trying to address.

Mills adds: “But customers are also asking for electronics and software and a print engine so Xaar will also look at how to vertically integrate. And we will do that through a range of partnerships and organic growth and acquisitions in the future so that we can offer a single stop shop. We want to be able to offer the printhead and a more vertically integrated solution to help customers get to market.”

This could include offering print engines, though Mills is clear that he does not want to compete against those of his own customers who are developing print engines. He explains: “We will vertically integrate, provided it helps our customers sell printheads. So we have customers, particularly industrial customers that you would not categorise as OEMs, people who want to put digital print into their manufacturing process. Typically they will have an ink in an analog process that they want to move into digital and they like our heads because of the wide operating window. And they will say ‘have you got any electronics or software that we can drive this with or a print engine’ because they don’t want to develop this stuff, they just want a solution but there isn’t a solution out there. So we are finding now that there is a lot of opportunity for us to sell and vertically integrate to help more industrial customers, so not OEMs but customers who are not necessarily experienced in inkjet.”

He continues: “It depends on the applications so the print engine for a deposition tool might be a cluster of ten heads that’s not necessarily CMYK. They might just be looking to deposit material for some other application so the applications that we are interested in are not just graphics. There are a lot of applications that are depositing functional fluids in industrial environments so the print engines are not necessarily what you would recognise from a standard printer. They might be a different shape, size, clustering of heads. That’s the sort of thing that we are helping people with.”

Engineered Printing Solutions

Xaar does already own a subsidiary that develops direct-to-object inkjet printers, Engineered Printing Solutions, which is based in Vermont, USA. The company was founded in 1985 and acquired by Xaar back in 2016. 

Mills accepts that there is some contradiction with owning EPS, saying: “EPS effectively sell bespoke systems to end users so they are selling systems. So yes they are competing with a different set of customers.” But he adds: “We are now seeing that with some of those print engines being developed by EPS, that we have applications where customers who were looking for a print engine were able to utilise EPS to do that. So they now form part of that vertically integrated structure to help those customers.”

There’s a further explanation in Xaar’s most recent financial report for the first half of the 2020 fiscal year. This says that the core business of EPS has been building bespoke industrial print systems but that the company is now looking at ways to use each bespoke system as the template for a standard system that can be re-used for other customers with similar requirements. To this end, the company now draws upon a portfolio of previously developed items in setting up pre and post-print systems. Essentially this means splitting each project into a series of sub-systems so that they can be re-used in other projects, which saves both time and money.

Sample objects printed on the EPS XD360 direct to object printer using Xaar 1003 printheads.

The results show that revenue for the first half of this year for EPS fell from £9.2m in H2 2019 to £6.9m in H1 2020 though the EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) profit rose from £0.2m to £0.6m, which Xaar says is down to improvements in the quotation process and better cost control. EPS also saw some revenues drop in its pad printing business as a result of the pandemic. 

The financial results also note that Xaar did not require any UK government subsidies though did take advantage of the US Paycheck protection program with a $1m loan taken out and expected to be forgiven later this year.

Otherwise, the first half 2020 figures for Xaar as a whole show revenues of £23.7m, broadly in line with the preceding half from 2019 of £23.9m, and slightly down on the first half from 2019 of £25.5m. However, where Xaar experienced gross margins of 27 percent in the first half of 2019, that had fallen to 21 percent for H2 2019 but was back to 27 percent for the first half of this year.

The company recorded an EBITDA loss of £-1.3m with cashflow of £1.7m for the first half of this year, a welcome improvement on the second half of last year, which recorded a loss of £-5.5m and cashflow of £-3.5m. The figures also show increased revenues from sales of printheads in both Asia and Europe, which Xaar attributed to growth in the ceramics and glass market, as well as the coding and marking and direct to shape sectors. Thus total revenue was £16.8m with EBITDA profit of £0.4m, as against revenues of £14.8m and EBITDA loss of £-5.1m for H2 2019.

At the same time, the share price has risen steadily this year from April onwards, suggesting that the market approves of the changes that Mills has brought about. 

Further acquisitions

Mills says that Xaar will consider further acquisitions, mainly in areas such as system components, print engines and print bars. He explains: “If we get customers asking for the same thing a number of times we may conclude that actually we need a product in that sector to fill that requirement and if we have to go and do it ourselves from scratch and hire the people and develop it that could take some time, so if there is the opportunity to acquire the capability to do that, then that is something that we would certainly look at.”

He says that Xaar has a strong balance sheet, adding: “We are doing well at the moment, the share price is going up nicely and people are now starting to make money with Xaar so the ability to get cash to go and do things is there. It’s more about the right opportunity, and the right time and the right fit, those are the important things.”

Xaar also works closely with companies supplying electronics systems, such as GIS and Meteor, with Mills noting that they are very influential: “Because a customer will come along to these guys and say I’m interested in your electronics and which printhead should I use? So which comes first, the choice of printhead or the choice of electronics?”

He continues: “So for us going forward, partnerships, developing our own capability, some acquisitions, at the appropriate time, we just need to build a portfolio of capabilities that help our customers get to market. So if our customer needs certain functionality to get to market so he can start buying printheads quickly, either that’s a partner, it’s us or it’s somebody else. So we want to make sure they get that capability in their business as quickly as possible.”

Mills concludes by saying: “What we are looking to do now is to have a more formalised product range that is aligned with the requirements of our customers and what the heads need to do.”

There is nothing new under the sun.

It has all been done before.

Arthur Conan Doyle – Sherlock Holmes: A Study in Scarlet

I have to say that I enjoyed talking with Mills – he was quite candid, didn’t duck any of my questions and obviously knows how the inkjet industry works and which markets he wants to target. He has brought a single-minded focus to Xaar, which is exactly what the company needs at this point in time. It helps too that there are many good engineers at Xaar, and the company benefits greatly from the very many inkjet-related companies that are also located in and around Cambridge, UK, which guarantees a pool of inkjet professionals to draw upon. 

I’m even inclined to agree with Mills that going after the thin film market was the right thing to do at the time. But it’s absolutely shocking that Xaar failed to devote enough resources to continue the development of its core bulk piezo technology. As it is, Xaar won’t be the first company to find salvation from ideas sitting in someone’s bottom drawer, and one can argue that at least Xaar provided the resources for this work to continue. But still, Mills has been lucky that Xaar had enough bits and pieces for him to work with.

Ideally, I would like to draw a clever conclusion to this series of stories but sadly life does not always fit perfectly with the needs of journalism. Modern printheads are extremely complex devices, containing many different components. It takes years to develop the technologies within them, and to test against different fluids and operating conditions. And then the OEMs that buy these heads need time to test and develop their products. Only then will we see printers in the market and be able to properly evaluate how well those heads are functioning, how Xaar performs against its competitors and what the future might hold for the company. So there are no quick answers here. But I think that Xaar has done enough for now to earn a breathing space and to take the time to develop all the ImagineX technologies that it has talked about. And I certainly look forward to seeing all the new printing solutions that these heads will drive.

For anyone interested in the rest of this story, the first part is The shadow of a dream, and the second part is A light from the shadows. There’s more information on the printheads and ImagineX technologies at xaar.com.

…with a little help from my friends

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