X-Rite Reports Second Quarter Results; Completes Amazys Tender Offer and Provides Outlook and Guidance for 2006 & 2007
GRANDVILLE, Mich.--Aug. 1, 2006--X-Rite, Incorporated today announced its financial results for the second quarter ended July 1, 2006.Second Quarter Highlights:
-- Second quarter net sales of $32.0 million, compared to $33.0 million in the second quarter of 2005
-- Cost control measures reduced comparable operating costs by $0.7 million in second quarter
-- Successful launch of three new products expected to ship in the second half of 2006, including the Vericolor Spectro, PlateScope and Matchstik 1.1
-- Company completes in-depth integration plan and day one planning for Amazys acquisition
-- Company completes tender offer for acquisition of Amazys on July 5, 2006
The Company reported second quarter 2006 net sales of $32.0 million, a 3.0 percent decrease versus the second quarter of last year. The impact of foreign currency translation on sales was minimal in the second quarter. Gross margins were 60.9 percent compared to 65.3 percent in the year ago quarter. Operating income was $0.6 million versus $4.1 million in the second quarter of 2005. Operating income, as a percentage of sales was 1.9% and 12.5% for the second quarters of 2006 and 2005, respectively.
For the first half of 2006 the Company reported net sales of $62.0 million, a 2.3 percent increase versus the first half of last year. The impact of foreign currency translation on sales was unfavorable in the first half of 2006 and decreased sales by approximately 1 percent. Gross margins were 62.8 percent compared to 64.4 percent in the year ago first half. Operating income was $0.8 million versus $4.4 million in the first half of 2005. Operating income, as a percentage of sales was 1.2% and 7.2% for the first halves of 2006 and 2005, respectively.
Total operating expenses increased by $1.5 million over the second quarter of 2005, including one-time expenses of $0.6 million related to integration planning for the Amazys acquisition and $0.4 million related to the adoption of FAS 123R. This compares to a one-time gain of $1.2 million in 2005 related to the sale of insurance policies. Excluding these items, operating expenses would have declined by $0.7 million.
"In the second quarter, our team did a great job managing the internal and external challenges as the Amazys close approached," stated Michael C. Ferrara, Chief Executive Officer of X-Rite. "Our goal was to lay the foundation for a successful integration by completing a detailed plan, while staying the course with our current business. Despite the significant business change on the horizon for our Company, revenues were impacted minimally as sales grew 2.3 percent in the first half of 2006. Further, we successfully focused on controlling our operating costs, while continuing to invest in new product development."
The Company reported net income in the second quarter of 2006 of $1.6 million, or 7 cents per diluted share, versus $2.9 million, or 14 cents per diluted share in the second quarter of 2005. For the first half of 2006 net income was $1.9 million, or 9 cents per diluted share, versus $2.6 million or 12 cents per diluted share for the first half of 2005. Net income in 2006 was impacted by a pre-tax gain of $2.2 million on currency hedging contracts related to the cash portion of the Amazys acquisition.
"During the second quarter, gross margins decreased as a result of inventory write downs for excess and obsolete inventory primarily related to new European regulatory standards and elimination of older products, changes in our product mix and lower absorption of overhead due to volume decreases," stated Mary E. Chowning, Chief Financial Officer. "This temporary decline in gross margins significantly impacted our profitability. Approximately 3 percentage points, or $1.0 million, of the decline are attributed to one-time events."
Amazys Transaction
X-Rite launched the formal tender offer for all Amazys shares on March 24, 2006. The consideration offered for each Amazys share in the tender offer was cash of 77 CHF plus 2.11 shares of X-Rite common stock. On July 5, 2006, the Company completed the tender offer for 3,422,492 shares of Amazys, or 99.7 percent of the outstanding shares, at a total value of approximately $280 million.
Outlook
The Company expects revenue growth to be flat for the remainder of 2006. Preliminary estimates for full year 2007 revenue growth is in the 4 percent to 6 percent range.
"In addition to the ongoing support of our existing business, we are very excited about our new products for the second half of 2006. PlateScope, Vericolor Spectro and Matchstik 1.1 are building strong backlogs and have been well received in the marketplace," said Ferrara. "At the same time, the first stages of our integration plan for Amazys have also been launched. We are pleased with the successful close, and look forward to the opportunity to enhance our business and build shareholder value as we begin to leverage the complementary strengths of these entities."
The Company expects to achieve the following portion of the cost synergies related to the Amazys acquisition over the next twelve months:
Manufacturing 10-15% of $9 million total synergies Selling & Marketing 45-55% of $5.5 million total synergies Engineering 30-40% of $5.0 million total synergies General & Administration 40-50% of $5.5 million total synergies
"As part of the Amazys integration, we have the opportunity to recognize significant annual cost synergies totaling $25 million by the end of there of the third year following the close," stated Chowning. "Our synergies from operating expense costs are expected to be $16 million annually with $9 million of additional reductions related to manufacturing."
Conference Call
The Company will conduct a live audio webcast discussing its second quarter 2006 results on Tuesday, August 1, 2006 at 11:00 a.m. ET. The call will be co-hosted by Michael C. Ferrara, the Company's Chief Executive Officer and Mary E. Chowning, its Chief Financial Officer. To access this webcast, as well as all future webcasts, use the X-Rite corporate website at www.x-rite.com. Select the Investor Relations page and click on the conference call link for the webcast. In addition, an archived version of the webcast conference call will be available on X-Rite's website shortly after the live broadcast.
About X-Rite
X-Rite, the leading provider of color measurement solutions, is comprised of hardware, software and services for the verification and communication of color data. The Company serves a broad range of industries, including graphic arts, digital imaging, industrial and retail color matching, and medical. X-Rite is global, with 20 offices throughout Europe, Asia, and the Americas, serving customers in over 100 countries.
Forward-Looking Statements and Disclaimer
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in the forward-looking statements, due to a variety of factors, some of which may be beyond the control of the Company. Factors that could cause such differences include the Company's ability to sustain increased sales, improve operations and realize cost savings, competitive and general economic conditions, ability to access into new markets, acceptance of the Company's products and other risks described in the Company's filings with the U.S. Securities & Exchange Commission ("SEC"). The Company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or for any other reason.
Consolidated Financial Highlights
(Unaudited - in thousands except EPS)
Q2 Q1 Q4 Q3 Q2
2006 2006 2005 2005 2005
--------- --------- --------- --------- ---------
Net Sales $31,972 $30,020 $41,927 $28,432 $32,955
Gross Profit 19,471 19,438 28,748 18,204 21,513
Gross Profit Percent 60.9% 64.8% 68.6% 64.0% 65.3%
Selling and Marketing 9,183 8,926 10,181 8,940 9,033
R&D and Engineering 4,361 4,900 4,112 4,237 4,092
General and
Administrative 4,744 4,899 4,174 3,987 5,410
Integration Planning
Costs 579 553 - - -
Founders' Insurance - - - - (1,154)
Operating Income 604 160 10,281 1,040 4,132
Other Income (Expense) 66 223 (403) 54 91
Gain on Derivative
Instrument 2,175 - - - -
Write-Down of Other
Investments - - - - (17)
Pre-tax Income (Loss) 2,845 383 9,878 1,094 4,206
Net Income $1,620 $236 $7,481 $922 $2,944
Earnings Per Share
Basic $0.08 $0.01 $0.35 $0.04 $0.14
Diluted $0.07 $0.01 $0.35 $0.04 $0.14
Average Shares
Outstanding
Basic 21,343 21,241 21,218 21,186 21,160
Diluted 21,642 21,504 21,390 21,430 21,373
Cash and Investments $20,341 $16,930 $21,359 $21,095 $16,950
Accounts Receivable 25,040 29,164 33,536 23,139 25,789
Inventory 20,101 19,760 17,631 16,849 14,539
Other Current Assets 6,633 5,122 4,107 3,628 7,930
Noncurrent Assets 91,740 85,726 71,002 69,419 69,166
--------- --------- --------- --------- ---------
Total Assets 163,855 156,702 147,635 134,130 134,374
Current Liabilities 33,374 28,343 19,640 13,580 14,662
Noncurrent
Liabilities 332 413 413 413 413
--------- --------- --------- --------- ---------
Total Liabilities 33,706 28,756 20,053 13,993 15,075
Shareholders'
Equity $130,149 $127,946 $127,582 $120,137 $119,299
Capital Expenditures $3,394 $14,613 $1,541 $482 $1,194
Depreciation and
Amortization $1,862 $1,791 $1,558 $1,586 $1,596
International Sales 53.3% 48.8% 42.0% 50.4% 49.5%
Consolidated Financial Highlights, continued
(Unaudited - in thousands except EPS)
Quarter Ended Six Months Ended
----------------- -----------------
July 1, July 2, July 1, July 2,
2006 2005 2006 2005
-------- -------- -------- --------
Net Sales $31,972 $32,955 $61,992 $60,580
Gross Profit 19,471 21,513 38,909 39,037
Gross Profit Percent 60.9% 65.3% 62.8% 64.4%
Selling and Marketing 9,183 9,033 18,109 17,525
R&D and Engineering 4,361 4,092 9,261 7,967
General and Administrative 4,744 5,410 9,643 10,317
Integration Planning Costs 579 - 1,132 -
Founders' Insurance - (1,154) - (1,154)
Operating Income 604 4,132 764 4,382
Other Income (Expense) 66 91 289 13
Gain on Derivative Instrument 2,175 - 2,175 -
Write-Down of Other Investments - (17) - (332)
Pre-Tax Income 2,845 4,206 3,228 4,063
Net Income $1,620 $2,944 $1,856 $2,649
Earnings Per Share
Basic $0.08 $0.14 $0.09 $0.13
Diluted $0.07 $0.14 $0.09 $0.12
Average Shares Outstanding
Basic 21,343 21,160 21,251 21,098
Diluted 21,642 21,373 21,532 21,369