MOD-PAC CORP. (NASDAQ: MPAC) a commercial on demand printer and
manufacturer of custom paper board packaging, today reported
revenue of $11.0 million for the second quarter of 2006, which
ended July 1, 2006. This compares with revenue of $16.3 million for
the second quarter of 2005. For the second quarter this year, a net
loss of $1.0 million, or $0.29 per diluted share, compares with net
income of $0.7 million, or $0.18 per diluted share, in the same
period last year. Revenue Impacting the quarter-to-quarter revenue
comparative was $1.8 million in amortization in the second quarter
of 2005 for a contract buy-out fee from a former customer that
elected to produce its own printed materials. In addition, the
second quarter last year included $5.6 million in commercial print
sales primarily to its former customer that elected to take its
printing in house. The former customer paid $22 million in
September 2004 for the contract buyout, and it had been amortized
over a 16-month period. In the fourth quarter of 2005, the final
$14.1 million of the contract buy-out fee was fully amortized.
Growth in the custom folding carton product line in the 2006 second
quarter of $1.2 million, or 19.8%, reached a quarter record of $7.5
million and helped to offset the decline in commercial print and
the effect of the contract buy-out fee. Growth was driven by
increased volume to new customers and slightly higher prices
resulting from higher material costs. The second quarter has tended
to be the strongest quarter for custom folding cartons. Excluding
the amortization and royalty fee impacts, commercial print revenue
in the second quarter of last year would have been $5.1 million
compared with $0.32 million in commercial print in the second
quarter of this year. On a sequential basis, commercial print sales
grew 50% compared with the first quarter of 2006. Total web-based
sales for this year's second quarter increased to $0.50 million, a
99% increase from $0.25 million in the second quarter last year and
a 33% increase from $0.37 million in the first quarter of 2006.
Web-based sales include commercial print sales for MOD-PAC's
website PrintLizard.com(R) and personalized print sales from its
webstore, PartyBasics.com(R), and through other internet stores
which rely on MOD-PAC to provide their customers with personalized
print products such as special event napkins. Other commercial
print sales include wholesale sales through various distributor
channels. Sales through this channel, which began in January of
this year, have been growing monthly. The Company expects that
sales through this channel should continue to expand at a healthy
rate over the next year and beyond as its web to print services are
adopted by its channel partners and as more partners are brought on
line. For the first six months of the year, revenue through
internet channels has grown 96% year-over-year. Personalized print
sales achieved its second consecutive record quarter with sales of
$1.4 million. Sales grew 46.1%, or $0.4 million, compared with the
second quarter of 2005 and grew 12%, or $0.2 million, from the
first quarter of this year. The increase was primarily the result
of the success of its internet wholesale strategy. Revenue in the
second quarter for the stock box product line was $1.7 million, a
7.9% increase from the same period last year. The second quarter is
historically the slowest period for sales of this product line.
Daniel G. Keane, President and Chief Executive Officer of MOD-PAC
CORP. commented, "We believe our strategy to expand the channels
through which we sell our products and to increase the number of
products available to each channel is working and beginning to gain
traction. We are excited by the inroads we are making in
distributor sales of our commercial print line. As we continue to
expand the functionality of our private label web to print stores,
we expect to accelerate market penetration with our distributors.
We also are aggressively pursuing additional channel partners."
Costs and Expenses Gross margin for the second quarter of 2006 was
6.7% compared with 19.4% last year, excluding the contract buy-out
fee amortization, or 28.5% including the amortization. The decline
in gross margin was a result of a number of factors, including the
loss in commercial print volume resulting in a current
underutilization of manufacturing capacity, as well as changes in
product mix and higher costs for paperboard purchases. Selling,
general and administrative (SG&A) expenses were $2.3 million in
the second quarter of 2006, or 20.8% of revenue, compared with
expenses of $2.8 million, or 17.4% of revenue, in the same period
last year. The decrease in absolute expenses was primarily the
result of reduced website advertising in the second quarter of this
year and a severance expense paid in the second quarter of 2005.
Partially offsetting these decreases was stock-based compensation
expense of $138 thousand recorded in this quarter due to the
adoption of SFAS 123R in 2006. Six Month Review For the first six
months of the fiscal year, revenue was $22.5 million compared with
$32.5 million in the first half of 2005. In the first half of 2005,
MOD-PAC fulfilled $10.6 million in commercial print primarily for
VistaPrint, received $0.5 million in royalty fees and amortized
$3.7 million of the contract buy-out fee. The $10.0 million decline
was partially offset by increases in revenue of $3.0 million in
custom folding cartons, $0.9 million in personalized print and $0.3
million in stock box products. Excluding the commercial print line
and the amortization fee, combined sales of MOD-PAC's historic core
product lines grew $4.2 million, or 24.2%. Gross margin for the
first six months of 2006 was 7.1%, down from 20.4%, excluding the
contract buy-out fee amortization, or 29.4% including the
amortization. SG&A expenses were $4.9 million in the first half
of 2006, a $0.5 million decrease from $5.4 million during the first
half of 2005. Net loss for the first six months of the year was
$2.2 million, or $.63 per diluted share, compared with net income
of $2.2 million, or $.57 per diluted share, for the same period of
the previous year. Liquidity Cash, cash equivalents and temporary
investments decreased from $3.9 million at December 31, 2005, to
$2.3 million at the end of the second quarter. Sequentially, cash,
cash equivalents and temporary investments increased $1.2 million
from the end of the first quarter this year. Included in the
increase were income tax refunds of $1.2 million. Capital
expenditures for the quarter were $0.26 million and were $0.37
million for the first six months of 2006, down from $3.0 million in
the first six months of 2005. The Company expects capital
expenditures to be less than $1.0 million for the full fiscal year.
Depreciation and amortization for the quarter and first six months
of the year were $1.3 million and $2.6 million, respectively. The
Company believes that cash, cash equivalents and temporary
investments, cash flow from operations and the $6 million available
on its line of credit are sufficient to meet requirements for the
balance of the fiscal year. There were no share repurchases during
the first and second quarters by the Company. The Company has
authorization to repurchase 100,885 shares. 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. 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 (913) 981-5543 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 (719) 457-0820 and
entering passcode 7051496. The telephonic replay will be available
through Wednesday, August 16, 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 leverages
its capabilities to innovate and aggressively integrate technology
into its marketing, order in-take and production operations to
provide economically-priced, short run, on demand full-color
commercial and folding carton print products and services. MOD-PAC,
through its large, centralized "SuperPrint" facility, has captured
significant economies of scale by channeling large numbers of
small-to-medium-sized print orders through its operations.
MOD-PAC's key differentiator is its success at being a just-in-time
producer of short-run, quality on demand print products. Through
its lean manufacturing processes coupled with state-of-the-art
printing technologies, MOD-PAC is able to address short-run, highly
variable content needs of its customers with short turn around
times relative to industry standards. MOD-PAC's strategy is to
expand its market share by leveraging its capabilities and
flexibility to meet the growing customized needs of its customers.
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 internet related sales, 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 Six months ended 7/1/2006
7/2/2005 7/1/2006 7/2/2005 --------- --------- --------- ---------
Revenue Product sales $ 10,818 $ 14,335 $ 22,233 $ 28,615 Contract
buy-out fee - 1,833 - 3,667 Rent 139 118 272 220 ---------
---------- --------- --------- Total Revenue 10,957 16,286 22,505
32,501 Cost of products sold 10,222 11,651 20,905 22,953 ---------
--------- --------- --------- Gross profit $ 735 $ 4,635 $ 1,600 $
9,548 Gross profit margin 6.7% 28.5% 7.1% 29.4% Selling, general
and administrative expense $ 2,282 $ 2,842 $ 4,902 $ 5,404
--------- --------- --------- --------- Income from operations $
(1,547)$ 1,793 $ (3,302)$ 4,144 Operating profit margin -14.1%
11.0% -14.7% 12.8% Interest (expense) income, net $ (23)$ 9 $ (36)$
27 Other income 11 7 47 7 Provision for taxes (553) 1,122 (1,137)
1,999 --------- --------- --------- --------- Net Income (Loss) $
(1,006)$ 687 $ (2,154)$ 2,179 ========= ========= =========
========= Basic earnings (loss) per share: $ (0.29)$ 0.19 $ (0.63)$
0.60 Diluted earnings (loss) per share: $ (0.29)$ 0.18 $ (0.63)$
0.57 Weighted average diluted shares outstanding 3,443 3,806 3,441
3,794 MOD-PAC CORP. PRODUCT LINE REVENUE DATA (unaudited) ($, in
thousands) Three Months Ended Six Months Ended 2006 YTD % of
7/1/2006 7/2/2005 % change 7/1/2006 7/2/2005 % change Total
---------------------------- --------------------------- ------
Custom Folding Cartons $7,474 $6,238 19.8% $14,616 $11,588 26.1%
65.7% Commercial Printing 322 5,625 -94.3% 537 11,149 -95.2% 2.4%
Stock Box 1,662 1,541 7.9% 4,505 4,164 8.2% 20.3% Personalized
printing 1,360 931 46.1% 2,574 1,715 50.1% 11.6%
--------------------------- -------------------------------- Total
$10,818 $14,335 -24.5% $22,232 $28,616 -22.3% 100.0%
=========================== ================================
MOD-PAC CORP. CONSOLIDATED BALANCE SHEET DATA
----------------------------------------------- (in thousands)
7/1/2006 12/31/2005 (unaudited) ----------------------- ASSETS:
------- Cash and cash equivalents $1,348 $1,178 Temporary
investments 1,000 2,700 Trade accounts receivable: Customers 4,556
4,425 Allowance for doubtful accounts (56) (42)
----------------------- Net trade accounts receivable 4,500 4,383
Inventories: Finished goods 1,791 1,583 Work in progress 185 104
Raw materials 1,028 1,201 ----------------------- 3,004 2,888
Refundable income taxes 725 1,199 Prepaid expenses 462 423
----------------------- Total current assets 11,039 12,771
Property, plant and equipment, at cost 64,729 64,363 Less
accumulated depreciation and amortization (37,239) (34,678)
----------------------- Net property, plant and equipment 27,490
29,685 Other assets 1,288 1,268 ----------------------- Total
assets $39,817 $43,724 ======================= LIABILITIES AND
SHAREHOLDERS' EQUITY: ------------------------------------- Current
maturities of long-term debt $72 $87 Accounts payable 2,833 3,489
Accrued expenses 716 1,696 ----------------------- Total current
liabilities 3,621 5,272 Long-term debt 1,940 1,969 Other
liabilities 404 428 Deferred income taxes 3,078 3,457 Shareholders'
equity 30,774 32,598 ----------------------- Total liabilities and
shareholders' equity $39,817 $43,724 =======================
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------ (unaudited) (in thousands) Six
months ended 7/1/2006 7/2/2005 ------------------- Cash Flows from
Operating Activities: Net (loss) income $(2,154) $2,179 Adjustments
to reconcile net income to net cash provided by operating
activities: Depreciation and amortization 2,582 2,976 Provision for
doubtful accounts 14 43 Stock option compensation expense 284 -
Deferred income - VistaPrint contract buy-out fee - (3,667)
Deferred income taxes (379) 1,266 Other liabilities (24) 26 Cash
flow from change in operating assets and liabilities: Accounts
receivables (131) (1,688) Inventories (116) 224 Prepaid expenses
(39) (335) Accounts payable (656) 1,617 Refundable or payable
income taxes 474 (7,126) Accrued expenses (980) (627)
------------------ Net cash used in operating activities $(1,125)
$(5,112) ------------------ Cash Flows from Investing Activities
Sale of temporary assets $1,700 $6,683 Change in other assets (41)
(12) Capital expenditures (net) (366) (2,964) ------------------
Net cash provided by investing activities $1,293 $3,707
------------------ Cash Flows from Financing Activities Principal
payments on long-term debt and capital lease $(44) $(42) Proceeds
from issuance of stock 46 376 Purchase of treasury stock - (32)
------------------ Net cash provided by financing activities $2
$302 ------------------ Net increase (decrease) in cash and cash
equivalents 170 (1,103) Cash and cash equivalents at the beginning
of year 1,178 2,584 ------------------ Cash and cash equivalents at
end of period $1,348 $1,481 ================== *T
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