Presstek reports $3.1 million profit for 08
Thursday, March 19, 2009
Press release from the issuing companyGREENWICH, Conn. -- Presstek, Inc. today reported income from continuing operations for the full year 2008 of $3.1 million, or $0.09 per share, versus a loss from continuing operations of ($10.4) million, or ($0.29) per share in 2007. Significant improvements in both gross margin and operating expense levels, driven in large part by the successful implementation of the company's Business Improvement Plan announced in October 2007, resulted in profitable 2008 results despite the impact of a 22% decrease in revenue caused largely by the global economic slowdown. In addition, the company reduced debt net of cash by $11.2 million or 49% from the end of 2007. Including discontinued operations, the company reported net income of $0.5 million for the full year 2008, an improvement of $12.7 million and $0.35 per share when compared to 2007.
Results from continuing operations exclude the company's Lasertel affiliate which is currently being marketed for sale. Lasertel will continue to operate as a separate business during this process, and will remain focused on growing its position in the laser diode market.
"The year 2008 was a transformational year for Presstek and we made excellent strategic, operational and financial progress," commented Presstek Chairman, President and Chief Executive Officer, Jeff Jacobson. "While the economic environment has certainly had a negative impact on our top line along with much of global industry, we significantly enhanced our product offerings, improved margins, reduced operating expenses, generated cash, and reduced our debt. The Business Improvement Plan we implemented in 2007 enabled us to report a significant profit improvement despite the most severe global economic pressures I have encountered during 22 years in the industry. Our original Business Improvement Plan target was to improve our cost structure by $20 million by the end of 2009, and I am pleased to report that we achieved $22 million in savings in 2008 which both exceeds our goal and is also one year ahead of schedule. While we are by no means insulated from global economic issues, we were ahead of the curve in attacking opportunities to reduce costs and improve our financial position as our full year 2008 results demonstrate."
The company identified an additional $4 million of cost reduction measures at year end 2008 in order to offset expected continued revenue pressure in 2009. "The worsening global economic conditions continue to negatively impact our customers' businesses, and we recognized that additional actions needed to be taken with our cost structure beyond our Business Improvement Plan achievements," commented Jeff Cook, Presstek's Executive Vice President and Chief Financial Officer. "We also recognize the need to continue making critical investments in selected areas to ensure the company emerges from this economic crisis poised to maximize top line growth opportunities. These investments will be self-funded through cost reductions above and beyond the $4 million in cost measures that we have taken for 2009."
Revenue from continuing operations for the full year was $193.3 million, a decrease of $53.3 million or 22% from 2007. The decline was largely attributable to the global economic slowdown as well as the expected erosion of sales of traditional products. Equipment sales were $52.7 million, a 40% decline from 2007, and sales of the company's consumable products declined 12% due to lower print volume resulting from the economic slowdown and the continued erosion of traditional products. Despite economic issues, sales of Presstek branded DI plates increased 5% in 2008. Service revenue declined 11%; however the attachment rate on DI presses, the percentage of equipment sold with service contracts on new equipment, improved to 60% in 2008 from 25% in 2007. This improvement will be reflected in sales when the warranty period expires.
Gross margin improved from 28.1% in 2007 to 35.6% in 2008, driven largely by benefits realized from the Business Improvement Plan actions which included: manufacturing productivity improvements, procurement savings, service business rationalization, improved recovery of raw material increases and improved operating discipline. Equipment margins improved from 8.6% to 13.1%, consumable margins improved from 45.3% to 49.8%, and service margins improved from 18.9% to 26.3%. The overall margin improvement was favorably impacted by the increased proportion of higher margin consumable sales as a percentage of total sales.
Operating expenses of $63.8 million in 2008 reflected a year over year improvement of $18.4 million, or 22% due primarily to Business Improvement Plan actions which included: the centralization of product warehousing and distribution activities for North America in Des Plaines, Illinois, improved productivity and rationalization of sales activities, lower general and administrative expenses including lower legal expenses and professional fees, and the consolidation of certain customer care activities into the company's Hudson, New Hampshire operation. In addition, the company has reduced its workforce (excluding Lasertel) 16% since the beginning of the program. Restructuring charges in 2008 of $2.1 million were $0.6 million favorable to 2007.
Income from operations improved $18.0 million, from a loss of ($13.0) million in 2007 to a profit of $5.0 million in 2008. Interest and other income was $0.9 million in 2008 versus an expense in 2007 of ($1.3) million. The year-over-year $2.2 million improvement was due primarily to a $1.2 million reduction in interest expense as a result of the company's reduced debt level and lower interest rates, and increased foreign currency transaction gains of $0.9 million.
Income tax expense was $2.8 million in 2008 versus a benefit of $3.9 million in 2007. 2008 income tax expense includes a $0.5 million valuation allowance related to certain research and development credits earned in prior years, as well as $0.3 million of adjustments due to a favorable change in state tax rates.
The company also reported full remediation of three material weaknesses that were reported in the 2007 Annual Report on Form 10-K. These weaknesses were related to revenue recognition, account reconciliations and journal entries, and inventory.
Fourth Quarter 2008 Results
The company reported income from continuing operations of $0.6 million in the fourth quarter of 2008, or $0.02 per share, versus a net loss of ($2.2) million, or ($0.06) per share in the fourth quarter of 2007. Revenue in the fourth quarter was $42.3 million, a decline of $16.6 million or 28% versus the fourth quarter of 2007, driven in large part by reduced equipment sales in the U.S. and Europe, and weak consumable sales in the U.S. and Canada. Excluding the impact of changes in foreign currency exchange rates, revenue declined 25%. Equipment sales in all regions were negatively impacted by the significant deterioration in the economy in the fourth quarter of 2008 consistent with trends in global capital equipment markets. The company reported a net loss and loss per share including discontinued operations for the fourth quarter of 2008 of ($0.5) million and ($0.01) respectively. The net loss improved $2.3 million and the loss per share improved $0.07 versus 2007.
"The fourth quarter was a major challenge for any business, and Presstek was no exception," commented Jeff Jacobson. "The capital equipment markets suffered tremendously during the quarter, and we expect the economic weakness to continue in 2009. Our customers, along with the rest of industry, are experiencing the impact of the economic slowdown, and our fourth quarter results reflect this. Our view is that revenues will continue to be under pressure in the first half of 2009. We have implemented additional cost reduction measures to reflect these economic realities, and we will continue to monitor conditions and manage accordingly as the year progresses. Despite this short-term pressure, we continue to invest in and target the significant market opportunities we have identified to grow our business, and we are confident that Presstek will be in an excellent position to profitably leverage top line growth as the economy regains its strength."
Gross margin in the fourth quarter of 2008 improved to 37.9% from 31.9% a year ago. Consumable and service margins in the quarter improved to 51.2% and 29.7%, respectively, versus 47.7% and 27.2% in the fourth quarter of 2007 driven by mix and Business Improvement Plan benefits. Equipment gross margin increased slightly in the quarter to 11.7% versus 11.5% in 2007.
Operating expenses in the fourth quarter of 2008 declined 22%, or $4.7 million, versus 2007. The company reported restructuring charges of $0.5 million and $1.2 million in 2008 and 2007, respectively. Operating expenses increased in the fourth quarter sequentially, as expected, due to increased marketing expenses related to a major U.S. trade show, increased legal expenses, an increase in reserves for bad debt due to economic conditions and an additional week in the payroll cycle as the company's fiscal year ended on January 3, 2009.
The company reported a fourth quarter 2008 loss from operations of ($0.9) million versus a loss from operations of ($2.9) million in the fourth quarter of 2007, a $2.0 million improvement. Interest and other income was $1.6 million versus $0.4 million in 2007 due to reduced interest expense resulting from the company's lower debt level, lower interest rates, and the positive impact of foreign currency transaction gains.
"Macro-economic issues continue to pressure our ability to drive revenue growth," concluded Mr. Jacobson. "However, we were successful during 2008 across several critical fronts:
-- We began to implement a strategy of selling fully integrated solutions
with a focus on digital printing and computer-to-plate products
-- We improved net income from continuing operations by $13.5 million
-- We successfully reduced debt net of cash
-- We launched 8 new products and entered into 5 new partnerships with
-- We improved our footprint internationally with key new distributors
-- We added key talent, including experienced management to focus on
driving growth both in and outside the U.S.
-- We resolved several key legal issues
-- And finally, we have established a solid financial foundation, driving
expenses down 22% and improving margins by 750 basis points
The progress we made in 2008 will allow us to navigate the current economic challenges while our team focuses on opportunities to drive future profitable growth."
First Quarter 2009 Legal Settlement and Ongoing Impairment Assessments
The company also announced it has reached an insurance contract lawsuit settlement in the first quarter of 2009 and, as a result, received settlement proceeds of $1.2 million. This benefit will be recorded in the first quarter of 2009.
The company conducts ongoing assessments of the valuation of goodwill, other intangible assets, long-lived assets, and deferred tax assets. Depending on market and economic conditions, impairment could be identified in 2009, which would result in non-cash impairment charges.
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