By Trevor Shackelford November 20, 2006 -- Cadmus Communications Corporation (NASDAQ/GM: CDMS) recently announced results for their first quarter of 2007. The company’s revenue was $107.3 million, essentially flat from the $107.2 million reported for the first quarter last year. Operating income was $4.7 million, income from continuing operations was essentially at a breakeven level, and net income was $0.1 million, or $0.01 per share assuming dilution, for the first quarter of 2007, compared to operating income of $6.9 million, income from continuing operations of $2.2 million, and net income of $2.2 million, or $0.23 per share assuming dilution, in the first quarter of 2006. Contents of this Summary • Quarter Highlights • Segment Performance • Guidance • Raine Radar • Q & A Quarter Highlights • Net sales for the Publisher Services segment increased 5% to $89.1 million from $84.7 million in the prior year first quarter. • On a consolidated basis, adjusted operating income increased nearly 200% from $1.6 million in the fourth quarter of 2006 to $4.5 million in the first quarter of 2007. • Total debt decreased by $8.2 million despite $5.9 million in capital expenditures primarily in connection with the equipment replacement and consolidation plan. • Specialty packaging net sales decreased 19% to $18.2 million and operating margins declined to 8.4% from 10.8% in last year’s first quarter. • Profitability at the Lancaster site was much improved, with gross profit more than doubling from the fourth quarter of fiscal year 2006. This improved profitability was driven by steady improvement in machine efficiencies and lower overtime expenses and spoilage. • SG&A as a percentage of consolidated net sales improved to 8.8%, down from 9.2% in the first quarter. • Adjusted income (loss) per share fell to a loss of $0.02 from $0.28 on a comparable basis last year. • Adjusted EBITDA increased from $6.7 million to $9.1 million in the first quarter. • DSOs remained at 46 days. Segment Performance Publishing Services Segment First quarter revenue for the segment was $89.1 million, up almost 5.2% from $84.6 million reported for the first quarter of fiscal 2006. The company experienced improved revenues from its content-related initiatives in all markets, continued growth in its emerging solutions offerings, and better revenue trends in its printing plants. Adjusted operating income for the first quarter declined to $4.2 million from $6.6 million last year. This was primarily due to higher costs from operational inefficiencies and capacity constraints relating to the equipment replacement and consolidation plan. Specialty Packaging Segment Revenue for the segment was $18.2 million, down 19.3% from $22.6 million reported for the same period last year as volume levels returned to more normal levels following an exceptionally strong first quarter in the prior year. Operating income for the first quarter was $1.5 million, down 37.4%, compared to $2.4 million in the first quarter a year ago. The decrease is primarily due to lower overall volume levels as well as increased investment in activities and initiatives in Asia. This segment, however, did benefit from higher overall international volume and efficiencies derived from new and more efficient technology and enhancements and expansions to its global capacity and workflows. Guidance The company posted no specific earnings guidance for its upcoming fiscal year. Expected adjusted EBITDA should be between $53 million and $55 million in 2007. Cadmus said they are pleased with their improvement throughout the year. Raine Radar Cadmus may feel pleased with their results, but after essentially breaking even for the quarter, and seeing a decrease in earnings year-over-year, it’s hard to understand why. There was a nice increase in the publishing services segment revenue, but that was wiped out by rising costs and tumbling revenue in specialty packaging. The company will need to aggressively cut costs if it wants to see any major improvements. Q & A 1. Cadmus stated that operational performance of the Lancaster site is continuing to improve. On time delivery for Q1 was 90%, machine efficiencies continued to improve, customer satisfaction is returning to usual high levels, and new work for the site is being won. 2. On the packaging side, as far as growth is concerned, Cadmus had a very difficult first quarter due to high growth. The company expects 5%-7% top line growth in the second quarter. 3. With regard to sequential improvement during the year; the company anticipates gross margin to be roughly 14% in the second quarter. 4. Cadmus stated that operating margins were up across the board: PSG operating margins doubled to 4.8% and specialty packaging operating margins increased 200 bps 8.4%. Corporate expenses were down. 5. In the publishing services segment content revenues were up 8.1% and print revenues were up 4.8%. Cadmus also discussed new market initiatives and new business development activities that both produced solid results in the first quarter. 6. Bruce Thomas, president and CEO, stated, “This first quarter is a big step, but only one step in that direction. If, however, we sustain solid top line growth, obtain the full benefit of the cost savings projected from our equipment replacement and consolidation plan by at least our third quarter, our aggressive recovery plans remains achievable.”