X-rite earnings down, Integration related disruptions while prioritizing cost synergy goals
Press release from the issuing company
GRAND RAPIDS, Mich.-- X-Rite, Incorporated today announced its financial results for the fourth quarter ended December 30, 2006.
Fourth Quarter Highlights:
* Fourth quarter combined net sales of $63.7 million includes integrated Amazys operations
* Sales backlog increased by approximately $6 million versus comparable levels at the end of 2005
* Amazys integration ahead of pace, with cost savings of $6.2 million achieved through the fourth quarter
* Imaging & Media and Industrial category product line integration plans announced and implemented
* Sale of non-core Labsphere business for $15.4 million completed on February 7, 2007
* Successful launch of the Eye-One iSis automated color chart reader and PlateScope process control device
* Successful completion of US headquarters and manufacturing move
The Company reported fourth quarter 2006 net sales of $63.7 million, versus pre-acquisition sales of $41.9 million for the fourth quarter of last year. Gross margins were 58.1 percent and included $0.9 million of restructuring related charges. Operating income for the fourth quarter totaled $5.9 million and included $6.0 million of restructuring and acquisition related charges. The Company reported net income in the fourth quarter of 2006 of $0.9 million, or 3 cents per diluted share.
Adjusted operating income, which excludes acquisition and restructuring related charges ("acquisition and restructuring expenses"), was $11.9 million and reflects gross margins of 59.4 percent for the fourth quarter of 2006. Adjusted net income, which excludes acquisition and restructuring expenses, was $4.8 million, or 17 cents per diluted share. A reconciliation of GAAP earnings to adjusted earnings is included in this release.
"Our primary focus in the fourth quarter was moving quickly to achieve cost synergies in the sales and marketing area, consolidating product lines and facilities and managing our customer and revenue base," stated Thomas J. Vacchiano, Jr., Chief Executive Officer of X-Rite. "While this effort was successful, revenues in the second half of 2006 were approximately six percent below the estimated pro forma revenues for the combined Company in 2005. Specifically, we faced delays delivering products as we consolidated the US manufacturing and back office operations into our new facility and our sales force productivity was less than optimal as we reorganized territories, changed responsibilities and reduced headcount. We expect these operational difficulties to subside by midyear."
"Overall, our revenue performance in Q4 was impacted by integration related disruptions as we prioritized cost synergy goals to build a solid go forward organization. It does not reflect any downward trend in our markets or future growth opportunities," continued Vacchiano. "This is supported by the increase in our backlog and a strong flow of orders in the fourth quarter and beginning of 2007."
"The Company expected to achieve approximately $7 million to $9 million of the identified cost synergies during the initial 12 months following the closing of the acquisition. I'm pleased to report that we are ahead of schedule having generated $6.2 million in cost savings just six months into the integration," stated Mary E. Chowning, Chief Financial Officer of X-Rite. "Specifically, we were able to close 12 facilities worldwide including the Amazys US headquarters and manufacturing operations. We also announced and began implementing our product line integration plans, consolidated key financial and back office operations and reduced headcount by approximately 13 percent. While there is more work to complete in the coming quarters, we are off to a strong start."
"Operating margin, excluding acquisition and restructuring expenses, more than doubled from the third quarter, reaching 18.7 percent, which reflects the impact of those synergies," continued Chowning. "As we achieve our targeted synergies, we will continue to see the planned improvements in operating leverage and cash flow which we will use to fund capital expenditures, interest costs, working capital and debt reduction. EBITDA (earnings before interest, taxes, depreciation and amortization), excluding acquisition and restructuring expenses, was $14.0 million or 22.0 percent of sales for the fourth quarter."
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.
As previously announced, the Company expects revenue growth on a pro forma basis to be flat in the aggregate for the initial 12 months following the acquisition. Preliminary estimates for full year 2007 revenue growth is in the 4 percent to 6 percent range. Final revenue growth estimates and synergy targets for 2007 will be provided with the first quarter results.
"We believe that our very good progress in realizing cost synergies has strengthened our foundation as a combined company. This achievement created some internal hurdles in meeting our sales targets, but we are now well positioned with a consolidated sales force and consolidated product lines as we enter 2007," stated Vacchiano. "Overall, we are confident in our ability to manage the integration process to a successful completion over the next 12 to 18 months, while continuing to deliver the innovation X-Rite is known for."
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