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Business Services Industry

MOD-PAC CORP. Reports First Quarter 2008 Financial Results

Business Wire, May 6, 2008

BUFFALO, N.Y. -- MOD-PAC CORP. (NASDAQ: MPAC), an on demand commercial printer and manufacturer of custom paper board packaging, today reported revenue of $11.6 million for the first quarter of 2008, which ended March 29, 2008, compared with revenue of $11.3 million in the first quarter of 2007. Net loss for the first quarter of 2008 was $0.5 million, or $0.15 per diluted share, an improvement when compared with a net loss of $0.75 million, or $0.22 per diluted share, in the first quarter of 2007.

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Mr. Daniel G. Keane, President and CEO of MOD-PAC CORP., commented, "The efforts we have made to reduce costs has helped to reduce our loss on relatively flat sales. We will continue to stringently manage our operating costs by enhancing operational productivity, improving raw material usage and managing fixed costs, such as equipment and facility repairs. In addition, we will leverage additional savings opportunities throughout the year. To date, we have reduced annual operating costs by approximately $2.5 million to $3.5 million."

First Quarter Sales Review

* Sales of folding cartons, which includes custom folding cartons and stock boxes, were flat year-over-year at $9.5 million for the first quarters of 2008 and 2007. Higher custom folding carton sales offset lower sales of stock boxes. Custom folding carton sales in the first quarter of 2008 were $7.0 million, up 3.2% compared with sales of $6.7 million in the first quarter of 2007 primarily as a result of growth with one customer. This helped to offset the decline in sales of stock boxes which were $2.5 million, a 9.4% decrease from sales of $2.8 million in the first quarter of 2007. The primary niche market for stock boxes are small shops and boutiques in vacation destinations, which we believe were adversely affected by an early Easter season and a general decrease in discretionary spending.

* Print service sales, which include commercial and personalized print products and services, were $2.0 million in the first quarter of 2008, up 23.7% compared with sales of $1.6 million in the same period the prior year. Sales of commercial print products more than doubled to $0.99 million in the first quarter of 2008 compared with $0.46 million the prior year first quarter. Direct mailing service sales contributed $0.46 million to the year-over-year increase. Personalized print sales declined to $1.0 million in the first quarter of 2008 compared with $1.1 million in the first quarter of 2007.

First Quarter Operating Results

* Gross margin was 11.6% in the first quarter of 2007 compared with 12.9% in the first quarter of 2007. Of note, gross margin was relatively unchanged on $1.4 million less revenue compared with fourth quarter 2007 gross margin of 11.8% as the cost cutting initiatives implemented in the third and fourth quarters of 2007 began to gain traction. Year-over-year, higher paperboard, utilities and increased labor costs along with weaker sales mix, were offset by somewhat higher sales, lower repair costs and lower depreciation expense.

* Selling, general and administrative (SG&A) expenses in the first quarter of 2008 were $2.1 million, or 17.8% of sales, compared with $2.6 million, or 22.7% of sales, in the same period the prior year and down from $2.4 million, or 18.8% of sales, in the fourth quarter of 2007. The year-over-year improvement reflects the proactive approach to managing labor and benefits costs through the workforce reduction initiatives, lower depreciation expense, as well as other cost reduction measures.

* Adjusted earnings before interest, taxes, depreciation and amortization, and non-cash option expense (Adjusted EBITDA) improved to $0.38 million in the first quarter of 2008 compared with $0.18 million in the first quarter of 2007 reflecting tighter cost management and a leaner operating infrastructure. The Company believes that, when used in conjunction with GAAP measures, Adjusted EBITDA, which is a non-GAAP measure, helps in the understanding of operating performance. (See the reconciliation of Net Loss to Adjusted EBITDA in the attached table.)

Liquidity

Cash and cash equivalents were $0.12 million at March 29, 2008, up from $0.10 million at December 31, 2007. At March 29, 2008, borrowings on the $5 million line of credit were $1.1 million compared with $0.4 million at December 31, 2007. An additional $0.25 million of the line of credit was in use through standby letters of credit.

Capital expenditures in the first quarter of 2008 were $0.67 million compared with $0.06 million in the same period the prior year. The increase was primarily a result of productivity improvement investments. Capital expenditures are expected to be up to $1.5 million for the full year.

Depreciation and amortization was $1.0 million in the first quarter of 2007 compared with $1.2 million in the same period the prior year.

In the first quarter of 2008, 25,000 shares of common stock were repurchased at an average price of $6.00 per share. The Company currently has authorization to repurchase up to 75,885 additional common shares.

Business Services Industry

MOD-PAC CORP. Reports First Quarter 2008 Financial Results

Business Wire, May 6, 2008

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