X-Rite Reports Record Q1 Net Sales and Improved Profitability
Press release from the issuing company
GRANDVILLE, Mich.--April 20, 2006-- X-Rite, Incorporated today announced its financial results for the first quarter ended April 1, 2006.
The Company reported record first quarter 2006 net sales of $30.0 million, an 8.7 percent increase from the first quarter of last year. Due to the strengthening dollar, foreign currency translation had an unfavorable impact on sales in the first quarter of 2006. Net sales, excluding the impact of foreign currency translation, increased 10.9 percent in the first quarter versus the prior year quarter.
"Our revenue growth was driven by strong performances in virtually all of our categories and geographies. The Asia-Pacific region posted impressive growth of 49.4 percent while North America and Latin America achieved expected growth levels of 7.9 percent and 15.2 percent, respectively, in the first quarter versus last year," stated Michael C. Ferrara, Chief Executive Officer of X-Rite. "Further, each of our categories achieved positive growth levels for the first quarter. The Graphic Arts group revenue grew 13.8 percent, Retail increased by 10.0 percent and the Industrial business grew 0.4 percent over first quarter 2005 levels."
Ferrara continued, "We are pleased that our revenue growth has returned to targeted levels and each of our geographies and categories performed well in the first quarter. Our commitment to new product development remains steadfast. This is exemplified by the successful launch of Intellitrax in late 2005, which led to an increase in scanning system sales of over 105 percent in the first quarter versus the prior-year quarter. Further, our new imaging products are also taking hold in the market place with the DTP-70 and Pulse achieving growth in excess of 200 percent and 8 percent, respectively in comparison with the first quarter of 2005."
Gross margins were 64.8 percent compared to 63.4 percent in the first quarter of 2005. Operating income was $.2 million versus $.3 million in the first quarter of 2005. The reduction was due to the change in accounting for stock options and $.6 million of integration planning costs related to the Amazys acquisition as noted below. The Company reported net income in the first quarter of 2006 of $.2 million, or 1 cent per diluted share, versus a net loss of $.3 million, or 1 cent per diluted share, in the first quarter of 2005.
"During the first quarter gross margins increased through a combination of changes in our product mix, enhanced absorption of overhead due to volume increases and a refund claim of certain VAT taxes," stated Mary E. Chowning, Chief Financial Officer. "Our total operating expenses increased by $2.0 million over the first quarter of 2005 due to planned investments in engineering and R&D of $1.0 million, integration planning expenses related to the planned Amazys acquisition of $0.6 million, variable sales expenses related to volume increases of $0.3 million and the expensing of stock option and equity awards of $0.2 million."
Chowning continued, "We remain committed to technology development and innovation as evidenced by an increased investment in these areas. At the same time, we remain focused on controlling all other operating costs in our business. Our operating income, excluding the SFAS No. 123 and Amazys integration planning costs of $0.8 million, increased approximately 280 percent to $1.0 million versus $0.3 million in the first quarter of 2006. As part of the Amazys / X-Rite integration, we have the opportunity to recognize significant cost reduction synergies including $16 million of annual operating expense savings by the end of year three. Our total targeted synergies from the combined business are expected to be $25 million annually and will be fully implemented by the end of the third year following the close of the deal."
Amazys Acquisition Update
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 is cash of 77 CHF plus 2.11 shares of X-Rite common stock. X-Rite has filed a Form S-4 Registration Statement with the SEC for the shares to be issued in connection with this transaction and a preliminary proxy statement with the SEC for purposes of an X-Rite shareholder vote authorizing the issuance of the shares in connection with this transaction. The original expiration date of the offer period is April 24, 2006 and we plan to extend the offer period to May 23, 2006. We are extending the tender offer in order for the SEC to complete its review of the Registration Statement on Form S-4 relating to the tender offer. The SEC has expressed concerns that some Amazys shareholders have tendered shares under the tender offer before the Registration Statement on Form S-4 becomes effective with the U.S. Securities and Exchange Commission. We are in discussions regarding a satisfactory resolution of this issue with the SEC and the Swiss Takeover Board. While we are resolving this issue, we anticipate that Amazys shareholders will not tender their shares in the tender offer. The acquisition is expected to close in the summer of 2006.
"We have invested considerable global resources during the first quarter in preparation for our pending acquisition of Amazys. This will serve us well as we ready the company to move forward with one of the most unique business combinations that our market space has witnessed," stated Ferrara. "The combination of X-Rite and Amazys will provide or offer one of the deepest management teams and one of the strongest product sets, and bring our cultures of innovation together."
The Company will provide annual revenue growth and cost synergy target milestones for the combined enterprise following the closing of the proposed transaction with Amazys.
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