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MTS Medication Technologies Inc. Reports Operating Results (10-Q)

February 18, 2009 | About:

MTS Medication Technologies Inc. (MTSI) filed Quarterly Report for the period ended 2008-12-31.

MTS Medication Technologies is an international provider of medication compliance packaging systems designed to improve medication dispensing and administration. MTS manufactures automated packaging machines and related consumables for prescription medications and nutritional supplements. The Company serves institutional pharmacies in the long-term care and correctional facility markets both domestically and internationally. MTS Medication Technologies Inc. has a market cap of $25.82 million; its shares were traded at around $3.75 with a P/E ratio of 15 and P/S ratio of 0.45.

Highlight of Business Operations:

Net sales in our Consumables segment have grown approximately 7% in the U.S. long-term care market this fiscal year. Net sales of consumables in Europe have grown approximately 22% when measured in the functional currency of the country in which the sales are made. However, as a result of the recent strengthening of the U.S. dollar, our revenue growth in Europe is approximately 11% this year when the revenue is translated into U.S. dollars.

RESULTS OF OPERATIONS Three Months Ended December 31, 2008 and 2007 Net sales for the three months ended December 31, 2008 increased 30.7% to $19.2 million compared with $14.7 million during the same period of the prior fiscal year. Revenue associated with the sale of OnDemand machines was $4.7 million during the three months ended December 31, 2008 compared with $700,000 during the same period of the prior fiscal year. This increase relates primarily to the acceptance of five OnDemand machines by our largest customer during the three months ended December 31, 2008. In addition, this increase is attributable to an increase in net sales for consumable punch cards and prepack machines both to new and existing customers. In addition, Net sales in Europe decreased 8.4% during the three months ended December 31, 2008. Although net sales in Europe increased by 15.9%, when expressed in the functional currency of the country in which the sales are made, net sales declined 8.4% in terms of U.S. dollars as a result of exchange rate fluctuations between the U.S. dollar and the British Pound and Euro.

Cost of sales for the three months ended December 31, 2008 was $13.0 million compared with $9.1 million during the same period of the prior fiscal year. Cost of sales as a percentage of sales increased to 67.8% from 61.7% during the same period of the prior fiscal year. Cost of sales as a percentage of sales increased primarily because of the proportion of revenue associated with OnDemand machines, which have a higher cost of sales percentage than consumables.

Income tax expense decreased 56.5% to $171,000 during the three months ended December 31, 2008 compared with $393,000 during the same period of the prior fiscal year. The decrease results from lower net income before income tax and the fact that our effective tax rate decreased to 19.9% from 39.1%. Our effective tax rate declined from the previous year because we determined that uncertain tax positions that we had previously provided for were no longer appropriate and therefore we reduced our liability for these items and recorded the amounts as a reduction in our current income tax provision. In addition, we believe that we are eligible for certain US income tax credits available to manufacturing companies. The reduction in uncertain tax positions caused our effective income tax rate to decline by 18.0% in the third quarter and 8.0% in the nine month period and the US income tax credit related to manufacturing expenditures caused our effective income tax rate to decline by 2.0% in the third quarter and 1.6% in the nine month period.

Cost of sales for the nine months ended December 31, 2008 was $40.4 million compared with $26.7 million during the same period of the prior fiscal year. Cost of sales as a percentage of sales increased to 68.2% from 61.1% during the same period of the prior fiscal year. Cost of sales as a percentage of sales increased primarily because the proportion of revenue associated with OnDemand machines, which have a higher cost of sales percentage than consumables.

Income tax expense decreased 45.0% to $697,000 during the nine months ended December 31, 2008 compared with $1,267,000 during the same period of the prior fiscal year. The decrease results from lower net income before income taxes and the fact that our effective tax rate decreased to 30.1% from 39.8%. Our effective tax rate declined from the previous year because we determined that uncertain tax positions that we had previously provided for were no longer appropriate and therefore we reduced our liability for these items and recorded the amounts as a reduction in our current income tax provision. In addition, we believe that we are eligible for certain US income tax credits available to manufacturing companies. The reduction in uncertain tax positions caused our effective income tax rate to decline by 18.0% in the third quarter and 8.0% in the nine month period and the US income tax credit related to manufacturing expenditures caused our effective income tax rate to decline by 2.0% in the third quarter and 1.6% in the nine month period.

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