GREENWICH, Conn., Oct. 31 -- Presstek, Inc. today reported income from continuing operations in the third quarter of 2008 of $0.6 million, or $0.02 per share, versus a loss from continuing operations of ($2.7) million, or ($0.07) per share, in the third quarter of 2007. Results from continuing operations exclude the company's Lasertel affiliate, as the company has initiated a process to market this business 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. Net income in the third quarter of 2008 was $0.2 million, or $0.01 per share, versus a net loss of ($3.6) million, or ($0.10) per share in the third quarter of 2007. The provision for income taxes in the third quarter of 2008 includes a charge of $0.3 million related to an adjustment of deferred tax assets.
"While the economic environment continues to challenge our revenues, we are pleased that the aggressive business improvement actions and operating disciplines we initiated a year ago have resulted in our third consecutive quarter of profitability," commented Presstek President and Chief Executive Officer, Jeff Jacobson. "Our continually improving financial position during these turbulent times has allowed us to remain focused on the execution of our strategic initiatives which include the broadening of our product portfolio, international expansion, and our migration into larger print establishments."
As expected, the company completed the sale of its Lasertel land and building in Tucson, Arizona for $8.75 million. The net proceeds of this sale, as well as continued operational cash flow improvements, resulted in debt net of cash of $13.3 million at the end of the quarter, a $17.5 million or 57% reduction from the third quarter of 2007.
"We are extremely pleased with the continued strengthening of our balance sheet during these difficult economic times, and we will continue to focus on maximizing cash flow," commented Jeff Cook, Executive Vice President and Chief Financial Officer. "As a result of our progress in reducing debt, interest expense in the third quarter of 2008 was $273,000, or $484,000 (64%) lower than the equivalent prior year period. It is our goal to be able to use our favorable financial position to take advantage of market opportunities as they arise."
Revenue in the third quarter of 2008 was $48.5 million (excluding Lasertel sales of $2.5 million), a decline of $9.1 million or 16% versus the third quarter of 2007 driven primarily by weakness in U.S. equipment and consumables sales which were partially offset by increases in European equipment sales. Excluding the impact of foreign currency, revenue declined 14%. Europe's equipment sales during the quarter increased by 35% versus 2007, due in part to a successful Drupa show during the second quarter of 2008.
Despite global economic weakness, worldwide sales of DI(R) presses were comparable in the third quarter of 2008 to prior year levels, and Presstek branded DI(R) plate sales increased slightly. The anticipated decline in Presstek's traditional product portfolio accelerated in the quarter due to overall economic weakness.
Gross margin in the third quarter of 2008 was 34.7% versus 26.2% a year ago. Equipment gross margin in the quarter increased to 15.1% versus (0.3%) in 2007, and consumables gross margin in the quarter was 49.5% versus 45.7% in 2007. Service margins improved to 26.1% in 2008 versus 14.7% in 2007. Gross margin in 2007 included $3.4 million of charges, primarily related to inventory, which were not repeated during 2008 as a result of the company's improved operating discipline.
Operating expenses in the third quarter of 2008 declined 27%, or $5.5 million, versus 2007. Approximately $0.6 million of the year to year operating expense decline was related to higher litigation accruals and professional fees in 2007.
Operating income of $2.1 million increased $7.3 million during the third quarter of 2008 compared to the same prior year period. Operating margin from continuing operations, excluding restructuring and stock compensation expense, was 6.2% in the third quarter of 2008 and 5.8% for the year-to-date period.
"Our improved operating discipline has allowed us to more than offset the negative impact the current economic conditions have had on our revenues," said Mr. Cook.
"Macro-economic issues have impacted companies both within and outside of our industry," added Mr. Jacobson. "While we are not immune to the current economic climate, we believe our distinct product offerings provide a unique opportunity to position us for growth. I am extremely pleased with the significant progress achieved from our proactive cost and debt reduction initiatives, as well as other margin enhancements, which have positioned us to achieve substantial improvements in our profitability and financial strength in the midst of these economic issues. We have established an operational discipline that will continue to help us weather the economic storm while remaining focused on our key strategic initiatives for future profitable growth."
Settlement of Securities Class Action Suit
The company also announced it has reached an agreement to settle the federal securities class action lawsuit, Sloman v. Presstek, Inc., et al, which has been pending in the United States District Court for the District of New Hampshire since 2006. This settlement, which is subject to confirmatory discovery and court approval, will have no material impact on the company's 2008 operating results.
Information Regarding Non-GAAP Measures
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the company provides non-GAAP financial measures, including debt net of cash, which is defined as debt minus cash, and other GAAP measures adjusted for certain charges, which the company believes are useful to help investors better understand its past financial performance and prospects for the future. A full reconciliation of GAAP to non-GAAP measures is provided in the financial tables below. Supplemental financial information has been provided with this release to provide additional details on the company's performance.
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