X-Rite Reports Second Quarter Results
GRAND RAPIDS, Mich.--X-Rite, Incorporated today announced its financial results for the second quarter ended June 30, 2007.
Second Quarter Highlights:
- Net sales from continuing operations totaled $60.7 million, a 5.5 percent increase year-over-year after combining 2006 Amazys Holding results with X-Rite on a pro forma basis
- Operating income from continuing operations increased 109 percent to $6.9 million compared to the same period in the prior year after combining 2006 Amazys Holding results with X-Rite on a pro forma basis
- Amazys integration remains significantly ahead of timetable, with cost savings of $16.8 million achieved during twelve months of combined operations
- Sales backlog remained strong at the end of June 2007
- Successful launch of Personal Designer 1.0 visualization software for architectural paint color selection
The Company reported second quarter 2007 net sales from continuing operations of $60.7 million compared with $32.0 million in the year-earlier period on a stand-alone basis and $57.6 million on a combined pro forma basis. Gross margins were 60.9 percent, down slightly from 61.2 percent in the second quarter of 2006. Operating income totaled $6.9 million and included $4.0 million in acquisition and restructuring related charges related to the Amazys acquisition (“acquisition and restructuring expenses”). The Company reported net income of $2.1 million or $0.07 per diluted share, versus $1.6 million or $0.07 per diluted share for the same period in 2006. Prior year stand-alone results included $3.1 million of net sales and $0.5 million of net income from Labsphere, Inc., an X-Rite subsidiary sold in February 2007.
Adjusted operating income, which excludes acquisition and restructuring expenses, was $10.9 million, and reflects a gross margin of 60.9 percent for the second quarter of 2007 versus $3.3 million and a gross margin of 58.5 percent on a proforma basis in the same period of 2006. Adjusted net income from continuing operations, which excludes acquisition and restructuring expenses, was $4.7 million, or $0.16 per diluted share. A reconciliation of GAAP earnings from continuing operations to adjusted earnings is included in this release.
“Overall, our core markets are performing as expected, and the integration related sales disruptions we faced in 2006 are being addressed,” stated Thomas J. Vacchiano, Jr., Chief Executive Officer of X-Rite. “Our revenue performance in the second quarter was consistent with our expectations as we continue to successfully execute the integration strategy and expand our customer base. Further, backlog and order levels at the end of the second quarter represent a noteworthy gain compared to last year and we believe we are well positioned to capitalize on future growth opportunities.”
Year-to-Date Results
In the first half of 2007, net sales from continuing operations was $118.5 million, versus $62.0 million for the same period of 2006 on a stand-alone basis and $111.8 million on a combined pro forma basis. Gross margins were 61.5 percent versus 59.7 percent on a combined pro forma basis. Operating income totaled $11.9 million and included $8.4 million in acquisition and restructuring related charges. The Company reported net income of $9.9 million, or $0.34 per diluted share. Net income from continuing operations was $2.3 million, or $0.08 per diluted share. Prior year stand-alone results included $6.0 million of net sales and $0.9 million of net income from Labsphere, Inc.
Adjusted operating income, which excludes acquisition and restructuring expenses, was $20.4 million, and reflects a gross margin of 61.6 percent for the first six months of 2007 versus $6.4 million and a gross margin percent of 59.7 on a proforma basis for the first half of 2006. Adjusted net income from continuing operations, which excludes acquisition and restructuring expenses, was $7.8 million, or $0.27 per diluted share.
The second quarter and year to date results included the following charges related to the Amazys acquisition and restructuring expenses:
|
Description |
Statement of Operations |
2007 Q2 |
2007 YTD |
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| Product line integration related write-offs | Cost of goods sold | $0.0 million | $0.1 million | |||
| Amortization of Amazys related intangibles | Operating expenses | 2.7 million | 5.3 million | |||
| Integration and restructuring costs | Operating expenses | 1.3 million | 3.0 million | |||
| Total pre-tax charges related to Amazys acquisition | $4.0 million | $8.4 million |
Outlook
As previously announced, estimates for full year 2007 annual revenue growth are 4 to 6 percent on a combined pro forma basis.
“The progress achieved with our integration work has given us increased confidence in our ability to translate these efforts into generating greater revenue growth rates going forward,” stated Vacchiano.
During full year 2007, the Company expects to realize additional cost synergies related to the Amazys integration of $14 million to $16 million. This includes the $10.6 million of synergies achieved in the first six months of 2007. Total cumulative synergies anticipated by year-end 2007 range from $20 million to $22 million.
“X-Rite has continued to achieve cost synergies at an accelerated pace, resulting in a doubling of our reported operating income in the second quarter versus the prior year pro forma results,” said Mary E. Chowning, Chief Financial Officer of X-Rite. “In the first twelve months of combined operations, we generated $16.8 million in cost savings, significantly exceeding the $7 million to $9 million target range set for this time period. As we achieve our remaining synergies, X-Rite will see ongoing improvements in operating leverage and cash flow, which we will use to fund capital expenditures, interest costs, working capital and debt reduction. We continue to project that the integration will be substantially completed by mid 2008.”
Amazys Transaction
X-Rite launched its formal tender offer for outstanding Amazys shares on March 24, 2006. The consideration offered for each Amazys share 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 $295 million. X-Rite acquired the final 0.3 percent through a statutory squeeze out process in early 2007.
Conference Call
The Company will conduct a live audio webcast discussing its second quarter 2007 results on Tuesday, August 7, 2007 at 11:00 a.m. EDT. The call will be co-hosted by Thomas J. Vacchiano, Jr., the Company’s Chief Executive Officer and Mary E. Chowning, the Company’s 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, which closed the Amazys acquisition in July 2006, is the global leader in color-measurement solutions, offering hardware, software and services for the verification and communication of color data. The Company serves a range of industries, including imaging and media, industrial color and appearance, retail color matching, and medical. X-Rite serves customers in more than 100 countries from its offices in Europe, Asia and the Americas.
EBITDA and Non-GAAP Measures
In addition to the results reported in accordance with generally accepted accounting standards (GAAP) within this release, X-Rite may reference certain information that is considered a non-GAAP financial measure. Management believes these measures are useful and relevant to management and investors in their analysis of the Company’s underlying business and operating performance. Management also uses this information for operational planning and decision-making purposes. Non-GAAP financial measures should not be considered a substitute for any GAAP measures. Additionally, non-GAAP measures as presented by X-Rite may not be comparable to similarly titled measures reported by other companies.
One specific non-GAAP measure used by X-Rite is “EBITDA”, which is defined as earnings before interest, taxes, depreciation and amortization. In addition to disclosing results that are determined under US GAAP, the Company also discloses non-GAAP results of operations that exclude certain expenses and charges that are directly related to the Amazys acquisition and related integration and restructuring. Specific non-GAAP captions on the operations statements include gross profit, operating expenses (selling and marketing expenses, R&D and engineering, general and administrative), operating income from continuing operations, net income from continuing operations and earnings per share information. The excluded expenses and charges primarily include costs and charges resulting from purchase accounting and integration and restructuring activities associated with the July 5, 2006 acquisition of Amazys Holding AG. Management utilizes the line item non-GAAP operations statement for operational planning and decision-making purposes. A reconciliation of GAAP to non-GAAP financial information discussed in this release is contained in the attached exhibits and on the Company’s website at xrite.com.
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 US 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) | |||||||||||||||||||||
| (a) | (a) | (a) | |||||||||||||||||||
| Q2 | Q1 | Q4 | Q3 | Q2 | |||||||||||||||||
| 2007 | 2007 | 2006 | 2006 | 2006 | |||||||||||||||||
| Net Sales | $ | 60,745 | $ | 57,717 | $ | 60,422 | $ | 51,198 | $ | 28,859 | |||||||||||
| Gross Profit | 36,967 | 35,836 | 35,149 | 20,736 | 17,649 | ||||||||||||||||
| Gross Profit Percent | 60.9 | % | 62.1 | % | 58.2 | % | 40.5 | % | 61.2 | % | |||||||||||
| Selling and Marketing | 13,882 | 14,092 | 13,030 | 13,170 | 8,740 | ||||||||||||||||
| R&D and Engineering | 9,692 | 8,633 | 6,942 | 9,691 | 4,063 | ||||||||||||||||
| General and Administrative | 5,181 | 6,378 | 6,864 | 7,601 | 4,528 | ||||||||||||||||
| Acquired In-Process R&D | - | - | - | 11,107 | - | ||||||||||||||||
| Restructuring | 868 | 863 | 1,803 | 8,183 | - | ||||||||||||||||
| Integration | 431 | 862 | 1,168 | 1,008 | 579 | ||||||||||||||||
| Operating Income (Loss) | 6,913 | 5,008 | 5,342 | (30,024 | ) | (261 | ) | ||||||||||||||
| Interest Expense | (4,358 | ) | (4,612 | ) | (4,371 | ) | (4,354 | ) | (28 | ) | |||||||||||
| Gain (Loss) on Sale of Investments | 837 | - | - | - | (2 | ) | |||||||||||||||
| Gain (Loss) on Derivative Instruments | - | - | - | (92 | ) | 2,175 | |||||||||||||||
| Other Income (Expense) | 52 | (12 | ) | (691 | ) | 181 | 90 | ||||||||||||||
| Pre-Tax Income (Loss) | 3,444 | 384 | 280 | (34,289 | ) | 1,974 | |||||||||||||||
| Net Income (Loss) From | |||||||||||||||||||||
|
Continuing Operations |
2,104 | 217 | 596 | (28,624 | ) | 1,100 | |||||||||||||||
| Discontinued Operations, Net | (36 | ) | 7,593 | 317 | 364 | 520 | |||||||||||||||
| Net Income (Loss) | $ | 2,068 | $ | 7,810 | $ | 913 | $ | (28,260 | ) | $ | 1,620 | ||||||||||
| Diluted Earnings (Loss) Per Share | |||||||||||||||||||||
| Continuing Operations | $ | 0.07 | $ | 0.01 | $ | 0.02 | $ | (1.00 | ) | $ | 0.05 | ||||||||||
| Discontinued Operations | - | 0.26 | 0.01 | 0.01 | 0.02 | ||||||||||||||||
| Net Income (Loss) | $ | 0.07 | $ | 0.27 | $ | 0.03 | $ | (0.99 | ) | $ | 0.07 | ||||||||||
| Average Shares Outstanding | |||||||||||||||||||||
| Basic | 28,839 | 28,664 | 28,541 | 28,507 | 21,343 | ||||||||||||||||
| Diluted | 29,265 | 28,973 | 28,810 | 28,507 | 21,642 | ||||||||||||||||
| Cash and Investments | $ | 15,639 | $ | 11,821 | $ | 12,876 | $ | 13,840 | $ | 20,341 | |||||||||||
| Accounts Receivable | 39,178 | 39,478 | 40,226 | 33,073 | 25,040 | ||||||||||||||||
| Inventory | 32,178 | 31,300 | 30,165 | 33,173 | 20,101 | ||||||||||||||||
| Other Current Assets | 22,841 | 23,149 | 22,208 | 14,227 | 6,633 | ||||||||||||||||
| Goodwill and Other Intangible Assets | 258,287 | 280,826 | 282,674 | 262,640 | 25,809 | ||||||||||||||||
| Other Non-Current Assets | 98,993 | 71,166 | 74,110 | 80,134 | 65,931 | ||||||||||||||||
| Total Assets | 467,116 | 457,740 | 462,259 | 437,087 | 163,855 | ||||||||||||||||
| Current Liabilities | 63,879 | 55,883 | 63,065 | 59,517 | 33,374 | ||||||||||||||||
| Non-Current Liabilities | 199,395 | 203,399 | 213,584 | 192,278 | 332 | ||||||||||||||||
| Total Liabilities | 263,274 | 259,282 | 276,649 | 251,795 | 33,706 | ||||||||||||||||
| Shareholders' Equity | $ | 203,842 | $ | 198,458 | $ | 185,610 | $ | 185,292 | $ | 130,149 | |||||||||||
| Capital Expenditures (b) | $ | 1,748 | $ | 2,738 | $ | 5,691 | $ | 5,108 | $ | 3,354 | |||||||||||
|
Depreciation and Amortization (b)(c) |
$ | 5,462 | $ | 5,461 | $ | 5,286 | $ | 6,969 | $ | 1,752 | |||||||||||
| International Sales (b) | 66.8 | % | 66.1 | % | 67.3 | % | 62.2 | % | 54.9 | % | |||||||||||
|
(a) Labsphere, Inc. 2006 income statements reclassified to Discontinued Operations. |
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(b) Excludes Labsphere, Inc. |
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(c) Excludes amortization of deferred financing costs. |
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| Consolidated Financial Highlights, continued | |||||||||||||||||
| (Unaudited - in thousands except EPS) | |||||||||||||||||
| Quarter Ended | Six Months Ended | ||||||||||||||||
| (a) | (a) | ||||||||||||||||
| June 30, | July 1, | June 30, | July 1, | ||||||||||||||
| 2007 | 2006 | 2007 | 2006 | ||||||||||||||
| Net Sales | $ | 60,745 | $ | 28,859 | $ | 118,462 | $ | 56,021 | |||||||||
| Gross Profit | 36,967 | 17,649 | 72,803 | 35,574 | |||||||||||||
| Gross Profit Percent | 60.9 | % | 61.2 | % | 61.5 | % | 63.5 | % | |||||||||
| Selling and Marketing | 13,882 | 8,740 | 27,974 | 17,223 | |||||||||||||
| R&D and Engineering | 9,692 | 4,063 | 18,325 | 8,647 | |||||||||||||
| General and Administrative | 5,181 | 4,528 | 11,559 | 9,213 | |||||||||||||
| Restructuring | 868 | - | 1,731 | - | |||||||||||||
| Integration | 431 | 579 | 1,293 | 1,132 | |||||||||||||
| Operating Income (Loss) | 6,913 | (261 | ) | 11,921 | (641 | ) | |||||||||||
| Interest Expense | (4,358 | ) | (28 | ) | (8,970 | ) | (33 | ) | |||||||||
| Gain (Loss) on Sale of Investments | 837 | (2 | ) | 837 | (2 | ) | |||||||||||
| Gain on Derivative Instruments | - | 2,175 | - | 2,175 | |||||||||||||
| Other Income | 52 | 90 | 40 | 318 | |||||||||||||
| Pre-Tax Income | 3,444 | 1,974 | 3,828 | 1,817 | |||||||||||||
| Net Income From | |||||||||||||||||
| Continuing Operations | 2,104 | 1,100 | 2,321 | 966 | |||||||||||||
| Discontinued Operations, Net | (36 | ) | 520 | 7,557 | 890 | ||||||||||||
| Net Income | $ | 2,068 | $ | 1,620 | $ | 9,878 | $ | 1,856 | |||||||||
| Basic Earnings Per Share | |||||||||||||||||
| Continuing Operations | $ | 0.07 | $ | 0.05 | $ | 0.08 | $ | 0.05 | |||||||||
| Discontinued Operations | - | 0.03 | 0.26 | 0.04 | |||||||||||||
| Net Income | $ | 0.07 | $ | 0.08 | $ | 0.34 | $ | 0.09 | |||||||||
| Diluted Earnings Per Share | |||||||||||||||||
| Continuing Operations | $ | 0.07 | $ | 0.05 | $ | 0.08 | $ | 0.05 | |||||||||
| Discontinued Operations | - | 0.02 | 0.26 | 0.04 | |||||||||||||
| Net Income | $ | 0.07 | $ | 0.07 | $ | 0.34 | $ | 0.09 | |||||||||
| Average Shares Outstanding | |||||||||||||||||
| Basic | 28,839 | 21,343 | 28,751 | 21,251 | |||||||||||||
| Diluted | 29,265 | 21,642 | 29,119 | 21,532 | |||||||||||||
|
(a) Labsphere, Inc. 2006 results reclassified to Discontinued Operations. |
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| U.S. GAAP to Non-GAAP Measure Reconciliations and | |||||||||||||
| Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) | |||||||||||||
| For the Three Months Ended June 30, 2007 | |||||||||||||
| (Unaudited - in thousands except EPS) | |||||||||||||
| Amazys | |||||||||||||
| Acquisition | |||||||||||||
| Non-GAAP Measures | U.S. GAAP | Related | Non-GAAP | ||||||||||
| Used By Management | Measure | Adjustments | Measure | ||||||||||
|
1. Gross Profit |
$ | 36,967 | $ | 9 | (a) | $ | 36,976 | ||||||
| Gross Profit Percent | 60.9 | % | 60.9 | % | |||||||||
|
2. Operating Expenses: |
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| Selling and Marketing | $ | 13,882 | $ | (631 | ) | (b) | $ | 13,251 | |||||
| R&D and Engineering | 9,692 | (1,704 | ) | (b) | 7,988 | ||||||||
| General and Administrative | 5,181 | (323 | ) | (b) | 4,858 | ||||||||
| Restructuring | 868 | (868 | ) | (c) | - | ||||||||
| Integration | 431 | (431 | ) | (d) | - | ||||||||
| $ | 30,054 | $ | 26,097 | ||||||||||
|
3. Operating Income |
$ | 6,913 | $ | 3,966 | (e) | $ | 10,879 | ||||||
|
4. Net Income From Continuing Operations |
$ | 2,104 | $ | 2,578 | (f) | $ | 4,682 | ||||||
|
5. Earnings From Continuing |
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| Operations Per Share | |||||||||||||
| Basic | $ | 0.07 | $ | 0.16 | |||||||||
| Diluted | $ | 0.07 | $ | 0.16 | |||||||||
| Average Basic Shares Outstanding | 28,839 | 28,839 | |||||||||||
| Average Diluted Shares Outstanding | 29,265 | 29,265 | |||||||||||
| Amazys | |||||||||||||
| Earnings Before | Acquisition | ||||||||||||
| Interest, Taxes, Depreciation | Non-GAAP | Related | Non-GAAP | ||||||||||
| and Amortization (EBITDA) | Measure | Adjustments | Measure | ||||||||||
| EBITDA (Non-GAAP Measure): | |||||||||||||
| Net Income From Continuing | |||||||||||||
| Operations (GAAP Measure) | $ | 2,104 | $ | 2,578 | $ | 4,682 | |||||||
| Interest Expense | 4,358 | - | 4,358 | ||||||||||
| Income Taxes | 1,340 | 1,388 | 2,728 | ||||||||||
| Depreciation and Amortization | 5,462 | (2,700 | ) | 2,762 | |||||||||
| EBITDA (Non-GAAP Measure) | $ | 13,264 | $ | 1,266 | $ | 14,530 | |||||||
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(a) Cost of sales adjustment for end-of-life product charges related to acquisition. |
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(b) Operating expense adjustments for acquisition-related amortization of intangible assets. |
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(c) Restructuring charges related to acquisition for severance and severance-related expenses. |
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(d) Integration expenses related to Amazys acquisition. |
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(e) Operating income effect of adjustments (a) through (d). |
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(f) Adjustment (e) after tax using a 35% tax rate. |
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| U.S. GAAP to Non-GAAP Measure Reconciliations and | |||||||||||||
| Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) | |||||||||||||
| For the Six Months Ended June 30, 2007 | |||||||||||||
| (Unaudited - in thousands except EPS) | |||||||||||||
| Amazys | |||||||||||||
| Acquisition | |||||||||||||
| Non-GAAP Measures | U.S. GAAP | Related | Non-GAAP | ||||||||||
| Used By Management | Measure | Adjustments | Measure | ||||||||||
|
1. Gross Profit |
$ | 72,803 | $ | 137 | (a) | $ | 72,940 | ||||||
| Gross Profit Percent | 61.5 | % | 61.6 | % | |||||||||
|
2. Operating Expenses: |
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| Selling and Marketing | $ | 27,974 | $ | (1,263 | ) | (b) | $ | 26,711 | |||||
| R&D and Engineering | 18,325 | (3,407 | ) | (b) | 14,918 | ||||||||
| General and Administrative | 11,559 | (646 | ) | (b) | 10,913 | ||||||||
| Restructuring | 1,731 | (1,731 | ) | (c) | - | ||||||||
| Integration | 1,293 | (1,293 | ) | (d) | - | ||||||||
| $ | 60,882 | $ | 52,542 | ||||||||||
|
3. Operating Income |
$ | 11,921 | $ | 8,477 | (e) | $ | 20,398 | ||||||
|
4. Net Income From Continuing Operations |
$ | 2,321 | $ | 5,510 | (f) | $ | 7,831 | ||||||
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5. Earnings From Continuing |
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| Operations Per Share | |||||||||||||
| Basic | $ | 0.08 | $ | 0.27 | |||||||||
| Diluted | $ | 0.08 | $ | 0.27 | |||||||||
| Average Basic Shares Outstanding | 28,751 | 28,751 | |||||||||||
| Average Diluted Shares Outstanding | 29,119 | 29,119 | |||||||||||
| Amazys | |||||||||||||
| Earnings Before | Acquisition | ||||||||||||
| Interest, Taxes, Depreciation | Non-GAAP | Related | Non-GAAP | ||||||||||
| and Amortization (EBITDA) | Measure | Adjustments | Measure | ||||||||||
| EBITDA (Non-GAAP Measure): | |||||||||||||
| Net Income From Continuing | |||||||||||||
| Operations (GAAP Measure) | $ | 2,321 | $ | 5,510 | $ | 7,831 | |||||||
| Interest Expense | 8,970 | - | 8,970 | ||||||||||
| Income Taxes | 1,507 | 2,967 | 4,474 | ||||||||||
| Depreciation and Amortization | 10,923 | (5,400 | ) | 5,523 | |||||||||
| EBITDA (Non-GAAP Measure) | $ | 23,721 | $ | 3,077 | $ | 26,798 | |||||||
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(a) Cost of sales adjustment for end-of-life product charges related to acquisition. |
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(b) Operating expense adjustments for acquisition-related amortization of intangible assets. |
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(c) Restructuring charges related to acquisition for severance and severance-related expenses. |
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(d) Integration expenses related to Amazys acquisition. |
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(e) Operating income effect of adjustments (a) through (d). |
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(f) Adjustment (e) after tax using a 35% tax rate. |
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