MTS Medication Technologies, Inc. Announces First Quarter Financial Results and Changes...

MTS Medication Technologies, Inc. Announces First Quarter Financial Results and Changes in Financial Reporting Structure

Revenue Up 31 Percent
ST. PETERSBURG, Fla.--(Business Wire)--
MTS Medication Technologies, Inc. (NasdaqCM:MTSI), an
international provider of medication adherence packaging systems,
today announced its financial results for its first quarter ended June
30, 2008.

Net sales for the first quarter increased 30.7% to $19.4 million
from $14.8 million in the prior year's first quarter. Net income was
$374,000, or $0.06 per diluted common share, compared with $533,000,
or $0.08 per diluted common share, in the prior year's first quarter.
Net sales associated with consumables and pre-pack machines in the
U.S. long-term care market increased approximately 7.5%. Net sales
through European operations increased 31.0%.

Gross margin for the first quarter was 31.2% compared with 36.9%
in the prior year's first quarter. The decrease in gross profit margin
percentage was due primarily to the difference in gross margins
between OnDemand(R) machines and that of consumables and pre-pack
machines. Approximately $4.1 million of revenue was recorded during
this quarter as a result of the installation and acceptance of seven
OnDemand machines related to the agreement with Omnicare. The gross
margin realized on these machines is significantly lower than that of
consumables and pre-pack machines.

SG&A expenses for the first quarter were $4.5 million, or 23.4% of
revenue, compared with $3.8 million, or 25.8% of revenue, in the prior
year's first quarter. The increase in SG&A expenses was primarily due
to increased costs associated with installation and support of
OnDemand machines, costs associated with European operations,
increased research and development expenses and increased legal,
auditing and consulting costs.

Operating income for the first quarter was $713,000, or 3.7% of
net sales, compared with $1,044,000, or 7.0% of net sales, in the
prior year's first quarter.

MTS has reorganized its operating structure effective April 1,
2008. The Company's financial reporting has been adapted to reflect
this new structure to further enhance transparency. MTS evaluates its
business performance on a geographic basis, as well as a basis that
distinguishes between consumable products -- primarily punch cards and
blisters -- and two different forms of automation. The first type of
automation relates to the packaging of medication into MTS' consumable
products using either a pre-packaged or a highly automated
just-in-time method. This means that pharmacy customers can elect to
package medications for inventory or wait until the long-term care
facility requires the medication and package it at that time. The
second type of automation relates to systems that manage the
administration of medication. Currently one product in this segment is
being sold, MedLocker(R). However, two other products have been
developed MedTimes(R) and MedTrak(TM). MedTimes is currently in its
beta stage and preparing for a controlled release. MedLocker and
MedTimes are designed to manage inventory and document the
administration of medications to residents of long-term care
facilities. MedTrak is a punch card that records the activity of the
medication being removed from the package.

Operating income (loss), as presented below, is net sales less
cost of sales and other operating expenses that are directly
identifiable to the respective segment or allocated on the basis of
sales or manpower. Operating income is reconciled to earnings before
income taxes in the Consolidated Financial Statements included in the
Company's Form 10-Q filed with the SEC.

Consumables

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Three Months Ended
---------------------------
June 30, 2008 June 30, 2007
------------- -------------
(In Thousands)

Net Sales $13,092 $11,789
Gross Margin 39.2% 42.5%
Operating Income $ 1,615 $ 2,112
Operating Margin 12.3% 17.9%
*T

Net sales for consumables in the first quarter increased $1.3
million, or 11.1%, primarily due to growth in the U.S. long-term care
market of approximately 7.5% and growth in the European markets of
approximately 31.0%. The growth in the U.S. is primarily attributable
to new sales to pharmacies servicing nursing home and assisted living
facilities and also an increase in the number of long-term care
customers served. The European growth is primarily the result of
increased penetration of both community and nursing home markets.

Operating margins declined in the first quarter primarily due to
(a) higher freight costs that resulted from increased fuel surcharges
and a higher percentage of products sold indirectly to end customers
through wholesalers, which are shipped at MTS expense; (b) increases
in raw material costs primarily related to plastic materials that have
a high petroleum content; (c) increased scrap rates experienced in the
manufacturing process; (d) higher audit, tax, consulting and legal
costs; and (e) higher depreciation expense related to new assets
acquired in this segment.

Packaging Automation

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Three Months Ended
---------------------------
June 30, 2008 June 30, 2007
------------- -------------
(In Thousands)

Net Sales $ 6,191 $ 2,975
Gross Margin 14.3% 14.7%
Operating (Loss) $ (246) $ (703)
Operating Margin (4.0%) (23.6%)
*T

Net sales for packaging automation in the first quarter increased
$3.2 million, or 108.1%, as a result of an agreement entered into with
MTS' largest customer for the sale of 24 OnDemand machines. During the
first quarter, MTS recorded $4.1 million of revenue associated with
seven machines that were accepted by the customer.

Operating margin during the first quarter 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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Three Months Ended
----------------------------------
June 30, 2008 June 30, 2007
------------------- -------------
(In Thousands)

Net Sales $ 83 $ 56
Gross Margin 14.4% 2.0%
Operating (Loss) $ (480) $ (245)
Operating Margin (578.3%) (437.5%)
*T

Net sales for medication administration systems in the first
quarter increased because the company sold and installed more
MedLocker systems this year. No revenue was recorded for MedTimes in
the first quarter of this year or last year.

Operating loss this quarter increased over the prior year because
of increased R&D expenditures and the new personnel added to develop
MedTimes and work with beta site customers.

Todd Siegel, President and Chief Executive Officer, said, "Our
first quarter results included more than $4 million of revenue
associated with the seven OnDemand machines that were accepted by
Omnicare. We believe the acceptance of these machines further
validates our automation technology to the industry and greatly
enhances the relationship we have with our largest customer. Since
June 30, 2008, we have received acceptance on three additional
machines, and have now delivered 17 of the 24 ordered. This month we
expect acceptance of four additional systems, and as a result, all
machines placed into production will have been accepted. During the
first quarter, we also installed AccuFlex systems at two independent
pharmacies, bringing our total number of OnDemand systems installed up
to 58.

"We have begun to evaluate our business in three segments, and
therefore, examine the financial results of each segment separately.
This information clearly shows how much investment we are making in
our automation products, and while we believe that automation enhances
the continued growth of our consumable segment, we also understand the
need for these investments to yield adequate returns in the near
future.

"We are currently addressing several issues that have affected the
operating margins in our consumables segment and believe that we are
implementing plans that will mitigate the impact. This segment of our
business has always been very stable and predictable. However, it is
sensitive to the rising costs of materials and services that are
affected by the price of oil. Our plans to address these rising costs
include a thorough review of our customer pricing arrangements, as
well as the distribution channels through which our products reach the
end customers. We believe that we can restore the margins for our
consumable products during the balance of the fiscal year.

"While we are pleased with the improvement in our packaging
automation operating results, we continue to keep the sales
organization focused on building a backlog of machine sales with
appropriate margins. We are confident that the costs of this segment
can be adjusted to support the level of revenue we anticipate once the
Omnicare contract is complete.

"We expect improvement in our medication administration segment as
we approach the latter part of this fiscal year. We have made
significant investments in our MedTimes system and believe the results
we have seen and the responses from the market are very positive. We
will continue to monitor our investment carefully as we receive
continued feedback from our beta site. Currently, we expect a
controlled release of MedTimes some time in the second half of this
fiscal year, leading to a general release around April 2009.

Siegel concluded, "Fiscal 2009 will continue to be a challenging
year for MTS as we complete our commitments with the Omnicare
contract, expand our penetration of European markets and make further
progress with our initiatives in the retail market and development of
our MedTimes product."

Fiscal 2009 Outlook

As a result of the above opportunities and corresponding
challenges, the Company believes that Fiscal 2009 revenue will range
between $75 million and $78 million. Based upon these revenue
expectations, fully diluted earnings per share are anticipated to be
in the range of $0.35 to $0.40.

Notice of Conference Call

Management of the Company will host a conference call on
Wednesday, August 6, 2008 at 8:30 a.m. EDT. To access the conference
call, please telephone 888-459-5609 and enter 58798714 for the
conference ID number. A digital replay will be available and may be
accessed by visiting the Company's web site at www.mts-mt.com.

About the Company

Founded in 1984, MTS Medication Technologies (www.mts-mt.com) is
an international provider of medication adherence 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 approximately 8,000 pharmacies worldwide.

This press release contains forward-looking statements within the
meaning of that term in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Additional written
or oral forward-looking statements may be made by the Company from
time to time, in filings with the Securities and Exchange Commission
or otherwise. Statements contained herein that are not historical
facts are forward-looking statements made pursuant to the safe harbor
provisions described above. Forward-looking statements may include,
but are not limited to, projections of revenue, income or losses, the
value of contracts, capital expenditures, plans for future operations,
the elimination of losses under certain programs, financing needs or
plans, compliance with financial covenants in loan agreements, plans
for sale of assets or businesses, plans relating to products or
services of the Company, assessments of materiality, predictions of
future events and the effects of pending and possible litigation, as
well as assumptions relating to the foregoing. In addition, when used
in this discussion, the words "anticipates", "estimates", "expects",
"intends", "believes", "plans" and variations thereof and similar
expressions are intended to identify forward-looking statements. In
particular, all statements regarding the continuing of any trend or
expected sales are forward-looking statements, as is any statement
regarding the potential growth of our core business and incremental
revenue from our OnDemand and MedLocker products. Forward-looking
statements are inherently subject to risks and uncertainties, some of
which cannot be predicted or quantified based on current expectations.
Consequently, future events and actual results could differ materially
from those set forth in, contemplated by, or underlying the
forward-looking statements contained herein. Statements in the Press
Release describe factors, among others, that could contribute to or
cause such differences. Other factors that could contribute to or
cause such differences include, but are not limited to, unanticipated
increases in operating costs, changes in the United Kingdom healthcare
regulatory system, labor disputes, customer rejection of any installed
OnDemand machine, capital requirements, increases in borrowing costs,
product demand, pricing, market acceptance, hurricanes, intellectual
property rights and litigation, risks in product and technology
development and other risk factors detailed in the Company's
Securities and Exchange Commission filings. Readers are cautioned not
to place undue reliance on any forward-looking statements contained
herein, which speak only as of the date hereof. The Company undertakes
no obligation to publicly release the result of any revisions of these
forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unexpected events.

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MTS MEDICATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)

ASSETS

June 30, 2008 March 31, 2008
------------- --------------
(Unaudited)
Current Assets:
Cash $ 531 $ 662
Restricted Cash 420 158
Accounts Receivable, Net 8,305 8,213
Inventories, Net 13,003 14,504
Prepaids and Other 2,936 2,528
Deferred Tax Asset 495 495
------------- --------------
Total Current Assets 25,690 26,560

Property and Equipment, Net 8,332 7,746
Goodwill 1,161 1,161
Other Intangible Assets, Net 760 783
Other Assets, Net 2,121 2,198
------------- --------------

Total Assets $38,064 $38,448
============= ==============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts Payable and Accrued Liabilities $ 7,695 $ 8,653
Current Maturities of Long-Term Debt 65 74
Current Maturities of Related Party Note
Payable 21 106
Customer Deposits 4,134 4,123
------------- --------------
Total Current Liabilities 11,915 12,956

Long-Term Debt, Less Current Maturities 11,749 11,691
Other Liabilities 846 834
Deferred Tax Liability 376 376
------------- --------------
Total Liabilities 24,886 25,857
------------- --------------

Commitments and Contingencies

Stockholders' Equity:
Common Stock 64 64
Capital In Excess of Par Value 10,256 10,137
Accumulated Other Comprehensive Income 468 374
Retained Earnings 2,718 2,344
Treasury Stock (328) (328)
------------- --------------
Total Stockholders' Equity 13,178 12,591
------------- --------------
Total Liabilities and Stockholders'
Equity $38,064 $38,448
============= ==============
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MTS MEDICATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands; Except Earnings Per Share Amounts)
(Unaudited)

Three Months Ended June 30,
---------------------------
2008 2007
-------------- ------------

Net Sales $ 19,366 $ 14,820

Costs and Expenses:
Cost of Sales 13,333 9,358
Selling, General and Administrative 4,525 3,822
Depreciation and Amortization 795 596
-------------- ------------

Total Costs and Expenses 18,653 13,776
-------------- ------------

Operating Income 713 1,044

Interest Expense 126 151
-------------- ------------

Income Before Taxes 587 893

Income Tax Expense 213 360
-------------- ------------

Net Income 374 533
-------------- ------------

Net Income Per Common Share - Basic $ 0.06 $ 0.09
============== ============

Net Income Per Common Share - Diluted $ 0.06 $ 0.08
============== ============

Weighted Average Shares Outstanding -
Basic 6,449 6,266
============== ============

Weighted Average Shares Outstanding -
Diluted 6,778 6,757
============== ============
*T

MTS Medication Technologies, Inc., St. Petersburg
Corporate Contact:
Michael P. Conroy, CFO, 727-576-6311, Ext. 464
Fax: 727-579-8067
ir@mts-mt.com
or
Investor Relations:
Porter, LeVay & Rose, Inc.
Michael Porter, Investor Relations, 212-564-4700
Fax: 212-244-3075
plrmail@plrinvest.com

Copyright Business Wire 2008