Third Quarter Financial Results:
biz.yahoo.com
>>SNIP> "...The Company's third quarter financial results included:
* Net revenues of $5.3 million, a decrease of 2% over the same quarter
last year.
* Gross margin at 55% of net revenues, a 400 basis point improvement over
the same quarter last year.
* Net income of $0.03 million, a decrease of 95% over the same quarter
last year.
* EPS of $0.00 basic and fully diluted.
* EBITDA of $0.26 million, a decrease of 75% over the same quarter last
year.
Net Revenues
Net revenues for the three months ended March 31, 2007 compared to the same period in 2006, decreased by $0.1 million, or 2% to $5.3 million, from $5.4 million. Compared to the prior quarter ended December 31, 2006, net revenues decreased by $0.8 million, or 13% to $5.3 million from the record $6.1 million set during the quarter ended December 31, 2006.
Three factors contributed to these noted declines. First, Media Sciences placed a limited number of new INKlusive printers in the field in the quarter ended March 31, 2007. A new series of Xerox solid ink printers was introduced in the United States in mid-February. Consequently, the 8500 and C2424 series of printers on which the INKlusive program was primarily based, were discontinued and supply of the printers themselves was very limited. The Company started shipping solid inks for use in the new series (8560) printers at the end of March, and just recently launched a new INKlusive program based on the 8560. The result of this gap in INKlusive placements resulted in a $0.34 million year over year third quarter reduction in INKlusive printer revenues and a nominal decrease in sequential revenues versus the prior quarter ended December 31, 2006.
The second contributing factor was the structure of the Company's channel growth rebate program, which was put into place at the beginning of its fiscal year. This program provides financial incentives for sequential quarterly growth of Media Sciences' product purchases. At the end of December 2006, two customers placed orders aggregating $0.34 million to achieve their maximum rebate. Had the growth rebate program not been in place, or had it been structured differently, it is likely that revenues for the quarter ended December 31, 2006 would have been decreased by approximately $0.27 million and revenues for the quarter ended March 31, 2007 would have been increased by approximately $0.31 million. The unintended result of this program was to decrease third quarter year over year revenues by $0.31 million and sequential revenues by $0.58 million. While this program remains in place until June 30, 2007, Media Sciences plans to structure future growth rebate programs on point-of-sale "sell through" data.
The third contributing factor was the impact of a Channel Realignment Initiative implemented during the quarter by Media Sciences' new Vice President of Sales for the Americas to address certain structural deficiencies in its distribution pricing structure. During the three months ended March 31, 2007, the Company incurred $0.22 million of charges associated with the realignment and simplification of pricing to distribution channel customers. The charges recognized during the quarter resulted from price protection granted in the form of credits for existing inventories and other one-time adjustments. During the three months ended March 31, 2007, the Realignment reduced reported net revenues by $0.22 million, reduced costs of goods sold by $0.02 million due to returns, reduced gross profits by $0.20 million, and reduced gross profit margin for the quarter by 1.4%. As a result, the Realignment reduced reported pretax operating income by $0.20 million and net income and earnings per share by about $0.14 million or about $0.01 per share. Media Sciences expects to realize a greater level of sales through the affected distribution channel as a result of the Realignment's improved pricing and its delivery of more targeted incentives based on point-of-sale results.
Gross Profit
The consolidated gross profit for the three months ended March 31, 2007 compared to the same period in 2006, increased by $0.2 million or 7% to $2.9 million from $2.7 million. For the three months ended March 31, 2007 our gross margin was 55% of net revenues as compared with 51% of net revenues for the three months ended March 31, 2006. This 400 basis point increase in margin is primarily attributed to a transition from low margin versions of cartridges to higher margin color toner cartridges and a more favorable mix of product sales. These favorable improvements to our margins were partially offset by certain increases in our raw material costs and higher costs of inbound shipping and freight.
Our 55% gross margin for the quarter ended March 31, 2007 was approximately 300 basis points lower than the 58% gross margin we realized in the prior fiscal quarter ended December 31, 2006. This slight sequential margin decline resulted from the Channel Realignment Initiative, product mix, and higher warranty costs incurred during our third quarter.
The Company does not expect any further product transitions that would materially reduce costs. Therefore, any further increases in raw material or inbound shipping costs may decrease margins unless offset by other manufacturing efficiencies. In development are several new color toner cartridge products which if launched are expected to carry lower than current margins. The impact these new products may have on future margins will be a function of each product's ultimate sales volumes. If these new products are particularly successful, it is likely that future gross margins may reflect some erosion..." >>/SNIP> |
