MTS Medication Technologies, Inc. Announces Third Quarter and Nine-Month Financial Results

Business Wire, Feb 17, 2009

Gross margin for the nine months was 31.8% compared with 38.9% in the prior year. The decrease in gross profit margin percentage was due primarily to the difference in gross margins between OnDemand machines and those of consumables and pre-pack machines. Approximately $12.8 million of revenue was recorded during this year as a result of the installation and acceptance of 21 OnDemand machines related to the agreement with Omnicare.

SG&A expenses for the nine months were $13.9 million, or 23.5% of revenue, compared with $11.4 million, or 26.0% of revenue, in the prior year. The increase in SG&A expenses was primarily due to increased costs associated with service and support of OnDemand machines, costs associated with European operations, increased research and development expenses and increased employee benefit costs.

Operating profit for the nine months was $2.7 million, or 4.5% of net sales, compared with $3.7 million, or 8.4% of net sales, in the prior year. Lower operating margins result from higher SG&A costs and depreciation expense, as well as lower gross margins.

The effective income tax rate for nine months was 30.1% compared with 39.8% in the prior year nine months. The decrease results primarily from adjustments made to the estimated liability for uncertain tax positions in both periods.

Segment Reporting

Consumables

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Net sales for consumables in the nine months increased $2.6 million, or 7.0%, primarily due to growth in sales in both the U.S. long-term care market and the European markets. The growth in the U.S. is primarily attributable to new sales to pharmacies servicing nursing home and assisted living facilities. The European growth is primarily the result of increased penetration of both community and nursing home markets.

Operating margins declined during the nine months ended December 31, 2008 primarily due to: (a) increases in raw material costs and scrap rates; (b) additional costs allocated to this segment based on revenue; (c) higher depreciation expense associated with assets related to this segment; (d) higher employee benefit costs; and (e) foreign currency fluctuations.

Packaging Automation

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Net sales for packaging automation in the nine months increased $12.8 million, or 221.7%, as a result of acceptance of OnDemand machines under an agreement with Omnicare. During this period, MTS recorded $12.8 million of revenue associated with 21 machines that were accepted by Omnicare.

Operating margin during the nine months improved over the prior year as a result of the realization of additional gross profit on increased net sales, which offset a portion of the indirect costs attributed to this segment.

Medication Administration Systems

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Net sales for medication administration systems in the nine months increased because more MedLocker systems were sold and installed this year.

Operating loss increased over the prior year primarily because of increased R&D expenditures and new personnel added to support the MedTimes product and market development.