ImageX Reports Q3 Loss: Reduces Staff by 10%, Print Sales Down 10%
Press release from the issuing company
KIRKLAND, Wash., Nov. 6 -- ImageX (R), Inc., today announced revenues of $7.9 million for the quarter ended September 30, 2002, compared with revenues of $8.8 million for the second quarter of 2002 and revenues of $9.7 million for the third quarter of last year. Net loss was $6.5 million for the quarter ended September 30, 2002, compared to a loss of $4.0 million for the second quarter of 2002 and a loss of $8.3 million for the third quarter of last year. The current quarter's loss includes a gain related to the sale of the Extensis subsidiary and an impairment charge to write down goodwill and other assets of $5.6 million. As a result of the sale of Extensis and in accordance with generally accepted accounting principles, operating results have been retroactively reclassified to reflect the sale of the subsidiary as discontinued operations. Consolidated revenues as presented exclude applicable revenue for Extensis of $2.4 million for the quarter ended September 30, 2002, revenues of $3.5 million for the second quarter of 2002 and revenues of $3.1 million for the third quarter of last year.
As of September 30, 2002, the company had cash and cash equivalents of $14.8 million or $0.48 per share with no debt. For the third quarter ended September 30, 2002, the Company reported a cash operating loss of $3.0 million or $0.10 per basic and diluted share, compared with a cash operating loss of $2.9 million or $0.09 per share for the second quarter of 2002 and $4.4 million or $0.15 per basic and diluted share for the third quarter of last year.
The company also announced, in an effort to reach cash break-even and preserve shareholder value, a staff reduction of ten percent of its workforce or 27 employees. Layoffs were made in the Channel Marketing System (CMS) product area and administrative overhead.
"We did not achieve some of the revenue objectives that we set for ourselves with our CMS product line. Current market conditions have resulted in corporations postponing purchasing decisions relating to new procurement management technologies. Although we continue to believe in the value that CMS delivers, in light of the delays in corporate purchasing, we reduced the CMS expense structure to be more in line with its projected revenue," said Rich Begert, president and CEO.
"Print related revenues were down ten percent from the immediately preceding quarter primarily due to seasonality. The third quarter historically has represented the lowest revenue quarter for the year. The print industry is experiencing year-over-year decreases averaging seven to nine percent. Nevertheless, we have signed new multi-year contracts with three of our biggest customers, signed an exclusive deal with a Global 500 company and were awarded the re-branding of another Fortune 100 customer," said Begert.
Additionally, the US Patent and Trademark Office granted the Company four additional patent Notices of Allowance on its automated print technology. This is in addition to the six patents and over 40 other patent applications pending on the Company's automated print technology. The four Notices granted cover technology that executes on the color separation and trapping processes required during prepress and technology that ensures the infinite scalability and efficiencies achieved with an order receiving application server, such as that utilized by ImageX's IPS and CMS solutions. Additionally, the Company entered into a third royalty bearing licensing agreement on its growing patent portfolio. This licensing agreement, covering three of ImageX's patents, is with Printcafe for use in an automated print product offering sold by them, and supported by Creo, Inc.
"We regret the need to reduce our staff, however we are committed to adjust expenses with current revenue levels and preserve shareholder value," said Jose David, ImageX CFO. "We must align ourselves with the market realities of a difficult economic environment and overall softness in spending. Gross margins improved slightly from the second quarter to 24.7 percent from 24.5 percent and improved significantly from the prior year third quarter of 19.8 percent due to continuing automation of our manufacturing technologies, despite downward pressure on our prices," David added.
As announced previously, the Company has completed the sale of Extensis, Inc. to Celartem Technology USA, Inc. for total consideration of $9 million in cash plus an additional $2 million due over the next two years if certain revenue targets are met. The quarter's results include a gain on the sale of approximately $3.5 million.
"The sale of Extensis enables us to concentrate efforts and resources on what we feel we do best in the industry. We have an established process for ordering and delivering branded print products over the web that is very efficient and scalable. We are focused on leveraging those strengths to add shareholder value," said Begert.
The Company recorded a $5.6 million impairment charge to write off goodwill and other assets on its balance sheet, citing a difficult economic environment and the accounting rules on valuation of long-lived assets and goodwill. The charge doesn't have an impact on the Company's cash balance. The write down of goodwill and other assets stems from the acquisition of Howard Press in June 2000. Goodwill is the amount by which the purchase price of an acquisition exceeds the fair value of the hard assets.
The company reiterated that its most recent revenue guidance remains unchanged. "We are sticking by our annual 2002 revenue forecast of approximately $34-35 million after reclassification of Extensis as discontinued operations. For 2003 we anticipate a revenue increase of 9-11%. Due to current market conditions however, we now expect cash flow break-even by the end of the third quarter of 2003. We expect expenses to decrease as a result of our staff reductions," Begert added.
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