MOD-PAC CORP. (NASDAQ: MPAC) a commercial on demand printer and
manufacturer of custom paper board packaging, today reported
revenue of $24.5 million for the fourth quarter of 2005 compared
with $15.1 million in the fourth quarter of 2004. In the 2005
fourth quarter, the Company recognized $14.1 million in revenue
relating to the remaining contract buy-out fee received in 2004
from a former customer of the Company. The fourth quarter of 2004
revenue included $1.8 million of this contract buy-out fee. Product
sales for the fourth quarter 2005 were $10.3 million compared with
$13.1 million in the same quarter of 2004. A 33.0%, or $1.5
million, increase in custom folding cartons partially offset the
$4.3 million decline in commercial printing sales. Commercial
printing sales declined primarily as a result of the loss of a
large commercial print customer that bought out their contract in
2004 so they could manufacture in house in 2005. This customer had
fully transitioned manufacturing in-house during the third quarter
of 2005 resulting in zero sales to this customer in the fourth
quarter of 2005. Gross margin for the fourth quarter, excluding the
contract buy-out fee related revenue, was 5.8% compared with 22.0%
in the same period last year. The reduction in gross margin was
primarily due to increased raw material costs and reduced operating
leverage caused by lower volumes. In an effort to minimize further
gross margin declines, the Company has reduced labor costs
primarily through attrition while at the same time maintaining its
highly skilled workforce. On an absolute basis, selling, general
and administrative (SG&A) expenses increased $0.3 million to
$2.4 million in the fourth quarter of 2005 compared with the same
period in the prior year. The SG&A increase in the quarter was
primarily the result of increased expenses associated with the
Company's PrintLizard.com web-to-print store. Net income for the
fourth quarter of 2005 was $8.0 million, or $2.30 per diluted
share. Net income in the fourth quarter of 2004 was $1.7 million,
or $0.45 per diluted share. Excluding the impact of revenue and
earnings associated with the contract buy-out fee, net loss in the
fourth quarter of 2005 was $1.2 million, or $0.36 per diluted
share, and net income in the fourth quarter of 2004 was $0.5
million, or $0.14 per diluted share. Daniel G. Keane, President and
Chief Executive Officer of MOD-PAC CORP. commented, "While we have
concluded selling to our largest commercial print customer during
the third quarter of 2005, we have had strong growth in our custom
paper board packaging market, and we are continuing to invest in
the growth of our commercial print market. We have recently
announced some major commercial print partnerships that should
begin to fill our capacity. These are customers who value our
unique capabilities to provide short run, quality on demand print
products. We anticipate seeing the sales through these partnerships
building through the year. Once we have significant volumes from
these relationships, we will begin to realize the efficiencies of
our operation." Full-year Review For the full year, revenue was
$71.2 million and $50.3 million in 2005 and 2004, respectively.
Excluding the contract buy-out fee related revenue, 2005 revenue
was $51.6 million compared with $47.8 million in 2004. Gross
margin, excluding the contract buy-out fee related revenue, was
16.8% in 2005 compared with 22.6% the prior year. The decline in
gross margin was primarily the result of increased raw material
cost, changing sales mix, and continued investment in resources to
support growth of the commercial print business. SG&A increased
$2.8 million in 2005 when compared with 2004 and was primarily the
result of increased expenses associated with the Company's
PrintLizard.com web-to-print store. Net income was $11.0 million,
or $2.97 per diluted share, in 2005 compared with $3.7 million, or
$0.97 per diluted share, in 2004. Excluding the impact of revenue
and earnings associated with the contract buy-out fee, net loss in
2005 was $1.9 million or $0.51 per diluted share compared with net
income of $2.1 million in 2004, or $0.55 per diluted share. Mr.
Keane added, "The next year or so will be a transition period for
us as we build our distributor relationships in the commercial
print market, continue to develop our direct web-to-print efforts
and maintain our market share growth in packaging. It is difficult
to predict the length of the transition period, but we are very
optimistic that given our unique capabilities, the size and needs
of the market, and the successes we have had to date that, over the
next few years, we believe we will more than replace the VistaPrint
business." Sales by Product Line Custom folding cartons: MOD-PAC's
custom folding carton sales continue to show strong growth as it
adds new customers and increases volume to existing customers.
Sales for the fourth quarter of 2005 were $6.0 million, a 33%
increase from $4.5 million in the same quarter the previous year.
Sales of the custom folding carton line increased 32.7% to $23.6
million for the full year. MOD-PAC has increased its sales efforts
for this product line the last two years primarily through direct
sales to manufacturers that use the Company's packaging for their
products. Commercial print: Sales to commercial print declined to
$0.1 million in the fourth quarter of 2005 from $4.4 million in the
prior year's fourth quarter. Sales in the fourth quarter of 2004
were all attributed to VistaPrint, a former customer of the Company
that chose to in source its printing needs. During 2004, VistaPrint
bought out its long term printing contract with MOD-PAC for $22.0
million. The cash from the buy out was received by the Company in
August 2004. The buy-out fee was originally scheduled to be
amortized over three years, however, as a result of the full
conclusion of the business relationship with no further sales by
the Company to VistaPrint, the remaining unamortized buy-out fee
was recognized as revenue in the fourth quarter of 2005. There were
no product sales to VistaPrint in the fourth quarter of 2005. Sales
via the new web-to-print store for small businesses,
PrintLizard.com(R), accounted for approximately $81,000 of
commercial print sales in the fourth quarter, up from $59,000 in
the 2005 third quarter. The balance of commercial print revenue was
from direct sales. In addition to the Internet channel to market,
MOD-PAC has been pursuing partnerships with commercial print
distributors in an effort to grow the Company's commercial print
business. In January 2006, the Company announced a Preferred
Limited Partner agreement with Proforma, one of North America's
leading distributors of printed materials. Personalized print
consumer products and stock boxes: Personalized print had sales in
the fourth quarter of $0.8 million, up 10.4% from the same period
last year, while stock box sales were $3.3 million, down 2.8% from
the same period last year. For the year, personalized print
increased 4.6% over 2004 while stock box sales remained relatively
flat. Liquidity Capital expenditures for the quarter were $1.2
million and $4.7 million for the year. Depreciation and
amortization was $1.3 million in the fourth quarter 2005 and $5.7
million for the full year. During 2005, 292,787 shares of stock
were purchased by the Company for $3.5 million. The Company
currently has authorization to repurchase an additional 100,885
shares. No shares were repurchased in the fourth quarter of 2005.
Webcast and Conference Call The release of the financial results
will be followed today by a company-hosted teleconference at 1:30
p.m. 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 and discuss
MOD-PAC's corporate strategy and outlook. A question-and-answer
session will follow. The MOD-PAC conference call can be accessed
the following ways: -- The live webcast can be found at
http://www.modpac.com. Participants should go to the website 10 -
15 minutes prior to the scheduled conference in order to register
and download any necessary audio software. -- The teleconference
can be accessed by dialing (303) 262-2140 approximately 5 - 10
minutes prior to the call. 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 (303) 590-3000,
and entering passcode 11051730#. The telephonic replay will be
available through Friday, February 17, 2006 at 11:59 p.m. ET. ABOUT
MOD-PAC CORP. MOD-PAC CORP. is a high value-added, on demand print
services firm operating a unique low-cost business model. MOD-PAC's
strategy is to capture a share of the $25 billion market currently
served by over 28,000 printers with under $5 million in annual
print volume. It will aggregate this market by leveraging its
capabilities to innovate and aggressively integrate technology into
its marketing and operations, and to provide economically-priced,
short run, on demand print products and services within its
superprint facility. Consistently outpacing the printing industry
in growth and profits, MOD-PAC's key differentiator is its success
at being a just-in-time producer of short-run, quality on demand
print products. The Company applies lean manufacturing processes
coupled with state-of-the-art printing technologies to challenge
its competition and expand its market share. PrintLizard(R) is a
division of MOD-PAC which serves specific markets with demanding
print requirements through its website: www.printlizard.com.
Additional information on MOD-PAC can be found at its website:
http://www.modpac.com Safe Harbor Statement: This press release
contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. One can
identify these forward-looking statements by the use of the words
such as "expect," "anticipate," "plan," "may," "will," "estimate"
or other similar expressions. Because such statements apply to
future events, they are subject to risks and uncertainties that
could cause the actual results to differ materially. Important
factors, which could cause actual results to differ materially,
include market events, competitive pressures, changes in
technology, customers preferences and choices, success at entering
new markets, the execution of its strategy, marketing and sales
plans, the rate of growth of the PrintLizard(R) division, the
effectiveness of agreements with print distributors and other
factors which are described in MOD-PAC's annual report on Form 10K
on file with the Securities and Exchange Commission. The Company
assumes no obligation to update forward-looking information in this
press release whether to reflect changed assumptions, the
occurrence of unanticipated events or changes in future operating
results, financial conditions or prospects, or otherwise. -0- *T
MOD-PAC CORP. CONSOLIDATED INCOME STATEMENT DATA
---------------------------------- (unaudited) (in thousands except
per share data) Three months ended Year ended % % 12/31/05 12/31/04
change 12/31/05 12/31/04 change -------------------------
------------------------- Sales $24,458 $15,050 62.5% $71,193
$50,280 41.6% Cost of products sold 9,799 10,309 -4.9% 42,960
37,008 16.1% ------------------------- -------------------------
Gross profit 14,659 4,741 209.2% 28,233 13,272 112.7% Selling,
general and administrative expense 2,378 2,054 15.8% 10,476 7,658
36.8% ------------------------- ------------------------- Income
from operations 12,281 2,687 357.1% 17,757 5,614 216.3% Interest
(income) expense, net (38) 49 -177.6% (32) 316 -110.1% Income taxes
4,287 897 377.9% 6,761 1,576 329.0% -------------------------
------------------------- Net Income $ 8,032 $ 1,741 361.3% $11,028
$ 3,722 196.3% ========================= =========================
Basic earnings per share: $ 2.34 $ 0.47 $ 3.07 $ 1.00 Diluted
earnings per share: $ 2.30 $ 0.45 $ 2.97 $ 0.97 Weighted average
diluted shares outstanding 3,498 3,832 3,708 3,821 MOD-PAC CORP.
CONSOLIDATED BALANCE SHEET DATA -------------------------------
(Unaudited) (in thousands) 12/31/05 12/31/04 --------- ---------
ASSETS: ------- Cash and cash equivalents $ 1,178 $ 2,584 Temporary
investments 2,700 12,183 Trade accounts receivable: VistaPrint Ltd.
- 1,870 All other customers 4,425 3,169 Allowance for doubtful
accounts (42) (44) --------- --------- Net trade accounts
receivable 4,383 4,995 Inventories: Finished goods 1,583 1,779 Work
in progress 104 90 Raw materials 1,201 1,168 --------- ---------
2,888 3,037 Prepaid income taxes 1,199 - Prepaid expenses 423 281
--------- --------- Total current assets 12,771 23,080 Property,
plant and equipment, at cost 64,363 60,339 Less accumulated
depreciation and amortization (34,678) (29,765) --------- ---------
Net property, plant and equipment 29,685 30,574 Deferred income
taxes - 3,323 Other assets 1,268 983 --------- --------- Total
Assets $ 43,724 $ 57,960 ========= ========= LIABILITIES AND
SHAREHOLDERS' EQUITY: ------------------------------------- Current
maturities of long-term debt $ 87 $ 85 Accounts payable 3,489 2,533
Due to Astronics - 38 Accrued expenses 1,696 2,075 Income taxes
payable within one year - 6,961 --------- --------- Total current
liabilities 5,272 11,692 Long-term debt 1,969 2,057 Other
liabilities 428 384 Deferred income (advanced payment from
VistaPrint) - 19,555 Deferred income taxes 3,457 - Shareholders'
equity 32,598 24,272 --------- --------- Total liabilities and
shareholders' equity $ 43,724 $ 57,960 ========= ========= MOD-PAC
CORP. CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------ (unaudited) (in thousands)
Year ended 12/31/2005 12/31/2004 ----------- ----------- Cash Flows
from Operating Activities: Net Income $ 11,028 $ 3,722 Adjustments
to reconcile net income to net cash provided by operating
activities: Depreciation and amortization 5,668 4,951 Provision for
doubtful accounts 44 22 Other liabilities 44 (510) Deferred taxes
6,780 (6,198) Deferred income - advanced payment from VistaPrint
(19,556) 19,555 Reclass from other comprehensive income - 95 Cash
flows from changes in operating assets and liabilities: Accounts
receivables 568 116 Due from Astronics (38) 514 Inventories 149
(159) Prepaid expenses (142) 57 Accounts payable 956 426 Accrued
expenses (379) 436 Refundable (payable) income taxes (8,160) 7,602
--------- --------- Net cash (used in) provided by operating
activities $ (3,038) $ 30,629 --------- --------- Cash Flows from
Investing Activities Increase (sale) of temporary assets $ 9,483
$(12,183) Change in other assets (332) 302 Capital expenditures
(4,732) (6,316) --------- --------- Net cash provided by (used in)
investing activities $ 4,419 $(18,197) --------- --------- Cash
Flows from Financing Activities New long term debt $ - $ 200
Principal payments on long-term debt and capital lease (86) (9,354)
Proceeds from issuance of stock 821 216 Purchase of treasury stock
(3,522) (1,541) --------- --------- Net cash used by financing
activities $ (2,787) $(10,479) --------- --------- Net (decrease)
increase in cash and cash equivalents (1,406) 1,953 Cash and cash
equivalents, January 1 2,584 631 --------- --------- Cash and cash
equivalents, December 31 $ 1,178 $ 2,584 ========= =========
MOD-PAC CORP. PRODUCT LINE REVENUE DATA ($, in thousands) Three
Months Ended 12/31/2005 12/31/2004 % change
--------------------------------- Custom Folding Cartons $ 6,048 $
4,547 33.0% Commercial Printing 102 4,413 -97.7% Stock Box 3,322
3,416 -2.8% Personalized printing 808 732 10.4%
-------------------------------- Total product sales $10,280 $
13,108 -21.6% ================================ Year Ended 2005
12/31/2005 12/31/2004 %change %of Total
------------------------------------------ Custom Folding Cartons $
23,633 $ 17,812 32.7% 46.2% Commercial Printing 14,366 16,467
-12.8% 28.1% Stock Box 9,766 9,841 -0.8% 19.1% Personalized
printing 3,409 3,260 4.6% 6.7%
------------------------------------------ Total product sales $
51,174 $ 47,380 8.0% 100.0%
========================================== *T
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