BUFFALO, N.Y. - Nov. 5, 2007 - MOD-PAC CORP., an on demand commercial printer and manufacturer of custom paper board packaging, today reported revenue of $13.1 million for the third quarter of 2007, which ended September 29, 2007. This compares with revenue of $11.5 million for the third quarter of 2006. For this year's third quarter, a net loss of $1.1 million, or $0.31 per diluted share, compares with a net loss of $0.7 million, or $0.21 per diluted share, in the same period last year. Third quarter 2007 results included $300 thousand in charges related to cost reduction efforts that should result in annual savings of approximately $800 thousand beginning in the fourth quarter of this year.
Mr. Daniel G. Keane, President and CEO of MOD-PAC CORP., commented, "Custom folding cartons had a strong quarter driven by higher sales to several of our top customers. Year-to-date, this product line has recovered from its weak first half and is on par with last year." He continued, "During the quarter, commercial print sales increased to $0.9 million due to the addition of direct mail services which contributed slightly more than 50% of commercial print sales in the quarter. We have integrated the print services sales teams and also have integrated the direct mail services assets that we acquired into our operations."
For the first nine months of 2007, revenue was $35.2 million compared with $34.0 million in the first nine months of 2006. Folding carton sales for the year-to-date period in 2007 were $29.0 million, up from $28.8 million during the same period in 2006. Both higher sales in custom folding cartons and stock boxes contributed to the improvement.
Print services sales were $5.8 million during the year to date period in 2007, an increase of $1.1 million compared with the same period last year. Growth has been driven by direct mail solutions and increased sales through distributor channels. Web-based sales reached $1.5 million for the first nine months of 2007, a 14.8% increase from $1.3 million during the same period of 2006.
Gross margin for the first nine months of 2007 was 8.3% compared with 8.5% in the same period last year. Improvements in yield on higher volume were offset by higher paperboard costs and increases in repairs and energy costs.
SG&A expenses were $7.4 million in the first nine months of 2007 compared with $7.2 million in the same period in 2006. Included in the 2007 period was $300 thousand in charges associated with the realignment of personnel and associated severance related costs. Excluding the severance-related charges, SG&A was lower than last year due to a decline in advertising costs and bad debt reserves, and a reduction in stock based compensation expense, partially offset by increased wage and benefit related expenses.
Operating loss for the first nine months of 2007 was $4.5 million compared with $4.3 million in the same period last year. Excluding the severance-related charge, operating loss for the year-to-date period in 2007 would have been $4.2 million.
Net loss for the first nine months of 2007 was $3.1 million, or $0.90 per diluted share, compared with a net loss of $2.9 million, or $0.83 per diluted share, for the same period the prior year.
Liquidity
Cash, cash equivalents and temporary investments were $0.27 million at September 29, 2007, compared with $3.4 million at December 31, 2006 and $0.08 million at June 30, 2007.
Capital expenditures for the first nine months were $2.0 million compared with $0.5 million for the first nine months of 2006. Capital expenditures included $0.8 million related to the DDM asset purchase. MOD-PAC now expects total capital expenditures for 2007 to be in the range of $2.5 to $3.0 million including the DDM asset purchase. Projected capital expenditures have increased in order to support anticipated print services opportunities and the associated capital equipment purchases required. Depreciation and amortization for the first nine months of 2007 was $3.6 million compared with $3.8 million for the same period in 2006.
The Company has access to an $8.0 million committed line of credit with a commercial bank. At the end of the third quarter, $1.8 million was borrowed and an additional $0.25 million was in use through standby letters of credit. The Company believes that cash, cash equivalents and the line of credit are sufficient to meet requirements in 2007.
The lower cash, cash equivalents and temporary investments, along with the increase in debt under the line of credit, were primarily the result of higher working capital requirements, capital expenditures including the acquisition of DDM assets and negative Adjusted EBITDA.
There were no share repurchases by the Company during the first nine months of 2007. MOD-PAC has authorization to repurchase 100,885 shares.
Outlook
Mr. Keane noted, "Our priorities continue to be to develop sales across our product lines and manage our costs as we continue through our transition to fill our available capacity. We are working to identify additional folding carton and print services opportunities where we can leverage our scale, economies and short-run print capabilities while we identify areas where we can improve our cost discipline."
Webcast and Conference Call
The release of the financial results will be followed today by a company-hosted teleconference at 1:00 pm ET. During the teleconference, Daniel G. Keane, President and CEO, and David B. Lupp, Chief Financial Officer will review the financial and operating results for the period. A question-and-answer session will follow.
The archived webcast will be at http://www.modpac.com. A transcript will also be posted once available. A replay can also be heard by calling (201) 612-7415 and entering conference ID number 258593 and account number 3055. The telephonic replay will be available through Monday, November 12, 2007 at 11:59 p.m. ET.