GRAND RAPIDS, Mich. May 06, 2008 -- X-Rite, Incorporatedtoday announced its financial results for the quarter ended March 29, 2008.
First Quarter Highlights:
• Net sales totaled $65.9 million, a 2.5 percent decrease from the first quarter of 2007, on a pro forma combined basis with the results of Pantone included in both years. The 2.5 percent decrease was comprised of a 3.2 percent decrease within the core color segment and a 0.9 percent increase within the color standards segment (Pantone). Adjusting for the positive impact of foreign currency fluctuations, the sales decrease was 6.8 percent on the same pro forma combined basis. We acquired Pantone on October 24, 2007.
• The adjusted gross margin, excluding certain Pantone acquisition related purchase price adjustments and integration costs totaling $4.1 million, was 59.8 percent (comprised of 57.7 percent for the color measurement segment and 69.5 percent for the color standards segment).
• Operating expenses excluding restructuring and integration expenses of $1.4 million, while negatively affected by foreign exchange rates, were $0.8 million lower than the fourth quarter of 2007.
• EBITDA, a non-GAAP metric, as defined per our credit agreements, was $18.9 million (25 percent of sales) in the fourth quarter of 2007, our seasonally highest performance quarter, and $13.2 million (20 percent of sales) in the first quarter of 2008. Trailing four quarters EBITDA is one of the four key financial covenants in our credit agreements. The Company satisfied this financial covenant in the first quarter with trailing four quarters EBITDA of $60.9 million. The Company failed to achieve the trailing twelve month first lien leverage ratio in the first quarter. The Company's first quarter calculations for the four key financial covenants is included in Exhibit 4.
• For the first quarter, the Company reported an operating loss of $2 million and a net loss of $16.8 million. Total interest expense including amortization of deferred financing costs and derivative expense related to the Company's interest rate swaps, was $12 million and explains most of the difference between the operating loss and the net loss for the quarter. A reconciliation of our net loss in the fourth quarter of 2007 and the first quarter of 2008 to EBITDA per the definition in our credit agreements is included with Exhibit 3.
• Cash decreased from $20.3 million at 2007 year-end to $18.4 million at the end of the first quarter. The borrowings with the first and second lien lenders increased $9.8 million during the quarter and were $399.5 million at the end of the first quarter. Pursuant to GAAP, all of the debt with our first and second lien lenders is being shown in our balance sheet at March 29, 2008 as a current liability at the end of the first quarter due to the covenant defaults under the credit agreement that occurred during the quarter.
"Our sales rates began to soften just as we entered 2008 and led to our April 3 press release stating that our sales would be down in the first quarter of 2008 on a pro forma combined basis versus the first quarter of 2007," stated Thomas J. Vacchiano, Jr., Chief Executive Officer of X-Rite. "Ultimately, our final first quarter 2008 sales results were down 2.5 percent at $65.9 million. We are optimistic about the sales potential for new products this year but remain cautious about our 2008 revenue outlook, given the various integration dynamics we are dealing with and a difficult economic climate. Our sales guidance is subject to the assumption that we will not experience material sales disruptions due to the negative publicity our credit agreement situation has created."
2008 Performance Guidance:
• Our 2007 pro forma combined sales for X-Rite and Pantone were $283 million (see Exhibit 1 attached). For 2008 we currently expect to see sales results ranging from $272 million (down 4 percent versus prior year on a pro forma basis) to $286 million (up 1 percent versus prior year on a pro forma basis).
• On April 3, 2008, the Company announced a restructuring plan expected to result in $23 million of savings over the second quarter of 2008 through the first quarter of 2009. The Company expects to realize $18 million of cost savings in the last three quarters of 2008. Restructuring and integration costs were $1.4 million in the first quarter and are expected to be $5-6 million in the balance of 2008. Of the restructuring savings, 70 percent are headcount-related and most of the actions to create the savings were executed in the first two weeks of April.
• At the present time, the Company expects X-Rite 2008 EBITDA (per the definition in our credit agreements) to be in the range of $60-68 million. For now, our guidance for restructuring costs and for EBITDA excludes costs related to our pending discussions with lenders or any change in the Company's capital structure, which have not been determined.
"We recognize that the financing structure of the Pantone acquisition, on top of the previous Amazys acquisition, along with a slow down of our business in a challenging global economic environment, has resulted in a challenging level of leverage on the balance sheet," stated Lynn J. Lyall, Chief Financial Officer. "The solution will be rooted in continuing to improve on our historically strong business performance which generates substantial profitability and cash flow, while at the same time making smart decisions about our debt leverage and associated capital structure."
Lynn Lyall stated, "In response to our lender covenant defaults and business needs looking forward, the Company has engaged RBC Capital Markets as its financial advisor. They are assisting us with exploring options to address the financial leverage on the Company's balance sheet. It is in the interest of all stakeholders that the Company is able to pursue its operating plan and strategy to achieve its business goals."
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