X-Rite Reports 9% drop in sales
Wednesday, November 05, 2008
Press release from the issuing companyGRAND RAPIDS, Mich. (November 04, 2008) X-Rite, Incorporated today announced its financial results for the quarter ended September 27, 2008.
The Company reported third quarter 2008 net sales of $61.3 million, including $10.1 million from Pantone, compared to $67.3 million in the third quarter of 2007 on a pro forma combined basis with Pantone included in both periods. On a September year-to-date basis, company net sales were $200.7 million, including Pantone, and were down 3.1 percent versus 2007 on a pro forma comparable basis. Adjusted gross margin was 57.7 percent in the third quarter, which excludes certain Pantone acquisition-related purchase price adjustments and restructuring and other related charges totaling $3.9 million. This compares to the adjusted gross margin of 59.8 percent and 57.7 percent in the first and second quarters of 2008 respectively.
Third quarter operating expenses totaling $31.4 million, excluding restructuring and other related charges were down approximately $2.0 million compared to the second quarter of 2008 on a comparable basis, as April's restructuring plan yielded the substantial cost savings expected.
Adjusted EBITDA, a non-GAAP financial measure, was $14.0 million in the third quarter of 2008 or 22.8 percent of sales for the combined business. This compares to adjusted EBITDA of $13.2 million (20 percent of sales) and $17.2 million (23.4 percent of sales) for the first and second quarters of 2008 respectively.
"Given the overall market conditions we and our customers have been seeing and the specific challenges X-Rite has been facing in recent months, we are generally pleased with our financial performance through the third quarter," said Thomas J. Vacchiano Jr. X-Rite's Chief Executive Officer. "The restructuring plan that we announced and implemented in April was painful, but has clearly aided our financial health as the global economic slowdown has intensified."
Operating income in the third quarter was $0.3 million despite restructuring and other related charges of $3.7 million. After net interest expense of $12.3 million and booked income taxes of $4.2 million (of which $2.4 million are a non cash reserve), a net loss of $15.5 million was reported in the quarter. A reconciliation of the Company's GAAP reported net loss and adjusted EBITDA is included in Exhibit 3.
The Company's cash balance increased from $28.3 million at the end of its second quarter to $50.1 million at the end of its third quarter. Improvements in all aspects of working capital management, along with a $10 million draw against the Company's line of credit, and $7.5 million in proceeds from the partial sale of life insurance policies, contributed to this positive outcome.
David A. Rawden, X-Rite's Interim Chief Financial Officer, commented, "With the successful conclusion of the $155 million capital raise, anticipated $20.7 million in life insurance proceeds, renewed access to our credit line, and improvements in working capital management, we believe X-Rite is well positioned to handle the economic uncertainty that may lie ahead of companies in the foreseeable future."
In a continuing effort to drive greater efficiency and reduce costs, the Company also announced today that it will close its manufacturing and engineering center in Brixen, Italy. Manufacturing lines, along with selected engineering responsibilities, will be shifted to Kentwood, Michigan. The Brixen facility currently employs 22 people and the Company expects the closure to be completed in approximately 12 months. Associated restructuring charges for this closure are estimated to be $1.9 million.
2008 Performance Guidance
• 2007 pro forma combined annual sales for X-Rite and Pantone were $283 million. Given current market conditions and short term expectations, the Company is revising its sales guidance for total 2008 sales to range between $263 million and $270 million.
• On April 3, 2008 the Company announced and initiated a restructuring plan to achieve cost savings of $18 million versus its original 2008 budget over the remaining three quarters of 2008. The Company is on track to meet or exceed this cost savings target by year end.
• The Company has previously provided a 2008 total year outlook for adjusted EBITDA in the range of $60 million to $68 million. Based on its revised sales outlook for the year and cost management actions, the Company now expects to be closer to the bottom end of this range. Adjusted EBITDA is consistent with the definition in the Company's lender agreements and is reflected in Exhibit 3.
"We recognize that all X-Rite stakeholders have travelled a difficult road in 2008," said Vacchiano. "While there are obvious economic challenges in the foreseeable future, X-Rite employees have demonstrated exceptional resiliency and an unwavering commitment to create value for all of X-Rite's stakeholders. Our new product pipeline and recent large account design wins, combined with our ability to now focus 100 percent on operating the business, leave us excited about future growth opportunities."
The Company will conduct a live audio webcast discussing its second quarter 2008 results on Tuesday, November 4, 2008 at 11:00 a.m. EST. The call will be co-hosted by Thomas J. Vacchiano, Jr., the Company's Chief Executive Officer and David A. Rawden, the Company's Interim Chief Financial Officer. To access this webcast, as well as all future webcasts, refer to the X-Rite corporate Web site at www.xrite.com. Select the Corporate/Investor Relations page and click on the Presentations and Conference Call link for the webcast. In addition, an archived version of the webcast conference call will be available on X-Rite's Web site shortly after the live broadcast.
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