In The Spotlight: X-Rite Inc

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Why it is profiled?
Continues to make progress in reducing cost structure and strengthen its balance sheet.

Two years ago - in 2008, X-Rite Inc. (XRIT), which makes color-matching equipment and software, had been on a precarious financial footing burdened by debt tied to acquisitions. Rumors about the company heading into bankruptcy court were also doing the rounds then. But X-Rite's financial woes can be a thing of the past as the company continues on an aggressive debt pay down schedule.

Read on to find out more about this company...

X-Rite, based in Grand Rapids, Michigan, was founded in 1958 and went public in April 1986 at $7.00 per share.

The company markets and supports innovative color solutions through measurement systems, software, color standards and services. X-Rite serves a range of industries, including printing, packaging, photography, graphic design, video, automotive, paints, plastics, textiles, dental and medical.

In 2006, X-Rite acquired Switzerland-based color-management firm Amazys Holding AG for about $280 million in cash and shares. The cash portion of the transaction was financed through a combination of cash on hand and new borrowings. Goldman Sachs provided a total debt package of $220 million to fund the transaction and post-closing working capital needs. The following year, in 2007, X-Rite acquired Pantone Inc. in a transaction valued at $180 million, which was funded exclusively with cash, financed through new borrowings.

X-Rite had no long-term debt as of December 31, 2005. It was only after the Amazys and Pantone deals that X-Rite's debt began to pile up.

By December 30, 2006, the company's long-term debt was $190.2 million and the following year - by December 30, 2007, it had nearly doubled to $378.3 million.

During 2006 and 2007, the company executed restructuring actions, which included closure of duplicate facilities, elimination of redundant jobs, and consolidation of product lines, relating to the integration of Amazys. By the end of 2007, the company reduced its workforce by 81 employees.

The year 2008 was a crucial one for X-Rite. In early April 2008, the company announced that it was not in compliance with certain covenants under its credit facilities, and actively engaged in discussions with the lenders to amend certain terms of its credit arrangements to allow for greater operating flexibility. The following month, the company's CFO Lynn Lyall who had served for less than three months, resigned for personal reasons and David Rawden was named interim CFO. It was during this time that the rumor mill was spinning with news of a possible bankruptcy filing by X-Rite.

In order to improve its capital structure and reduce debt, in August 2008, X-Rite signed a forbearance and new lender agreement and investor agreements with its equity investors. In November of that year, the company raised $155 million in capital through issuance of common stock.

The same month, (in Nov.2008), Moody's Investors Service and Standard & Poor's Ratings Services upgraded their respective corporate credit ratings on X-Rite.

Moody's upgraded X-Rite's corporate family rating to B3 from Caa1, the first lien senior secured credit facilities to B2 from B3 and the second lien term loan to Caa2 from Caa3.

Standard & Poor's upgraded X-Rite's corporate credit rating to B from CCC+, while the ratings on two of the senior secured credit facilities were raised to B+ from B- and to B- from CCC. In addition to these upgrades, all the respective credit ratings were taken off CreditWatch.

Towards the end of 2008, X-Rite appointed Bradley Freiburger as interim CFO, replacing David Rawden. By year end 2008, the company had $50 million in cash and reduced debt balance of $270.9 million.

The company continued to pay down debt and continued its belt-tightening in 2009. In October 2009, X-Rite finally appointed a permanent CFO. Rajesh Shah was appointed as Executive Vice President, Chief Financial Officer and Secretary. By year-end 2009, the company had cash balance of $29.1 million and had reduced its net debt to $154.5 million.

In 2009, the company's sales declined while net loss improved significantly on reduced cost structure. Net sales for 2009 were $191.7 million, down 26% from 2008. Net loss narrowed to $25.2 million from $117.8 million in 2008.

With improving market conditions, customer interest in new products and increasingly effective new sales and marketing initiatives, the company has started to witness an uptick in demand for its products.

In the first quarter of 2010, whose results were announced on May 12, the company generated net sales of $51.2 million, up 9.9% from $46.6 million in the same period in 2009. Net loss in the quarter narrowed to $2.1 million from $8.7 million in the year-ago quarter.

At the end of the first quarter of 2010, the company's cash balance increased to $29.4 million and net debt was reduced to $147.8 million.

X-Rite has also started to enter into new partnerships that could yield improved order rates for its products and services.

The company has extended its cooperation with Lenovo for color management enabled workstations to include the W510, its new 15 inch workstation launched in first quarter 2010. In 2008, X-Rite collaborated with Lenovo to provided a monitor calibration solution for Lenovo's photographer-oriented ThinkPad W700 mobile workstation.

Following its development partnership with Microsoft Corp. (MSFT), X-Rite says it has earned its first design win for next generation embedded color management technology with a major PC manufacturer, with shipments expected in 2011.

The company is also extending its presence in the North American signage and technical printing markets by initiating two new distribution arrangements with WYNIT, Inc and SYNNEX Corp.

Based on the current order rates, the company expects second quarter sales growth to be in the high single digits compared to the second quarter of last year unless the European financial markets situation has a demonstrable impact on short term business conditions.

XRIT has thus far hit a low of $1.36 and a high of $3.50. Wednesday's closing price of $3.50 is above the 50-day and 200-day moving averages.

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