HUDSON, N.H., Aug. 1 -- Presstek, Inc. today reported income from continuing operations in the second quarter of 2008 of $0.5 million, or $0.02 per share, versus a loss from continuing operations of ($4.9) million, or ($0.13) per share, in the second quarter of 2007. Despite a year-over-year reduction in revenue, the company reported a $5.4 million improvement in income from continuing operations due in large part to the continued execution of its Business Improvement Plan ("BIP") which has significantly improved the company's cost structure and strengthened its balance sheet. Operating expenses in the second quarter of 2008 declined 30% or $6.9 million versus 2007, and gross margin improved from 27.0% in 2007 to 32.5% in 2008. 2008 results include special charges of $0.6 million. 2007 results included $3.5 million of charges related to obsolete inventory, and $2.3 million of one-time expenses and special charges.
"Our improving cost structure and strengthened balance sheet continue to reflect the company's enhanced operating discipline and the success of our Business Improvement Plan," commented Presstek President and Chief Executive Officer, Jeff Jacobson.
"Despite the negative impact of reduced U.S. equipment sales in the quarter, the company's lean cost structure drove a net profit," added Jeff Cook, Executive Vice President and Chief Financial Officer. "Adjusted earnings before interest, taxes, depreciation and amortization were $4.2 million, a 20% increase versus last year, and debt net of cash at June 28, 2008 was $22.6 million, a 31% improvement over last year at the same time. Our third quarter 2008 results will include the benefits of the previously announced sale of the land and building of our Lasertel property in Tucson, Arizona for $8.75 million."
Revenue in the second quarter of 2008 was $54.3 million, a decline of $14.5 million or 21% versus the second quarter of 2007, driven primarily by reduced U.S. sales resulting from the economic slowdown and the expected continued erosion of sales of the company's traditional products. European revenue rebounded 42% in the second quarter of 2008 versus first quarter 2008 levels, which were negatively impacted by the company's 2007 business reviews.
Mr. Jacobson continued "While European revenue recovered in the second quarter, U.S. equipment sales were disappointing as economic headwinds challenged our ability to offset the expected erosion in our traditional portfolio with increased sales of our growth portfolio products. However, the improved operating discipline and cost structure that we have successfully created will leverage the profitability of future sales growth as the economy improves."
Consolidated gross margin in the second quarter of 2008 was 32.5% versus 27.0% a year ago. Equipment gross margin in the quarter declined to 9.5% versus 11.8% in 2007 due to a decrease in higher margin U.S. sales and $1.0 million of reduced margin in the company's Lasertel business. Consumables gross margin in the quarter was 49.1% versus 46.2% in 2007, and service margin was 23.3 % versus 11.1% in 2007. These margin improvements were driven by the company's BIP initiatives.
Operating expenses declined $6.9 million to $16.2 million in the quarter, a 30% reduction. Excluding special and one time charges in both years, the decline in operating expenses was 25%.
Lasertel's external sales were $2.7 million for the second quarter of 2008 versus year ago levels of $2.2 million. Lasertel recorded an operating loss in the second quarter of 2008 of $0.7 million.
Progress against Company Targets
In 2007, the company developed operating margin targets, excluding restructuring charges and stock based compensation expense, of 6%-8% for 2008 and 9%-11% for 2009. "We have demonstrated excellent progress in significantly improving profitability and gross margin as well as reducing net debt" commented Mr. Jacobson. "When we developed our operating margin targets, we did not anticipate the low level of European sales in the first quarter of 2008 which resulted from our 2007 business reviews, the severity of the weakened U.S. economic picture, and increased legal expenses related to the defense of our intellectual property and regulatory matters. At the end of the first half of 2008, our operating margin is 4%. While we are still driving our team to achieve these targets, we believe it is prudent at this time to modify our 2008 operating margin guidance to a range between our current margin of 4% and the lower end of our target range, as we are not optimistic about an economic recovery in the second half of this year. As we monitor the economic situation through the remainder of 2008, we will be in a better position to assess our 2009 financial goals."
Mr. Jacobson concluded "While the economy is beyond our control, we made excellent progress in areas within our control. I am extremely proud of the Presstek team for delivering a first half improvement in income from continuing operations of $6.4 million or $0.18 per share. Results like this are only achieved with focus, extreme dedication and relentless hard work. When the economy begins to improve, we will be well positioned to leverage revenue growth into higher levels of profitability."
Information Regarding Non-GAAP Measures
In the second quarter of 2008, 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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