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Presstek is a customer-oriented, market-focused company engaged in the design, manufacture, sales and service of digital printing solutions that enable print service providers to leverage business opportunities in the fast growing short-run color print market. Our Direct Imaging (DI) press, computer-to-plate (CTP), and plate products are leading the industry’s transformation from analog to digital print production methods. Presstek solutions are engineered to provide a streamlined workflow in a chemistry-free environment, resulting in shorter printing cycles and lower overall production costs with no compromise in quality.

Our goal is to make it easier for commercial, quick, and in-plant printers to cost effectively meet the increasing customer demand for fast turnaround, high-quality color printing in shorter run lengths, while providing them with improved profit margins.

Presstek subsidiary Precision Lithograining Corporation is a manufacturer of high-quality digital and conventional printing plate products, including Presstek's award-winning, chemistry-free Anthem plate. Presstek subsidiary Lasertel, Inc., manufactures semiconductor laser diodes for Presstek and external customer applications.

"We have already made considerable progress," said Marino. "We have gotten our arms around the CtP quality issues and expect production to be back on track by the end of 2006. Our slowdown in North America appears to have been largely a result of customers waiting for Graph Expo, which took place last week, where we generated over 500 qualified sales leads and got customer commitments for 14 DI units. On the analog front we are implementing new business practices to increase profitability and improve service levels."

Financial Results

The company reported the following financial results in the third quarter of 2006:

   -- Consolidated revenue of $64.8 million, compared to $64.7 in Q3 of 2005;

   -- Consolidated equipment revenue of $20.8 million, compared to $18.2
      million in Q3 of 2005;

   -- Consolidated consumable revenue of $33.1 million, compared to $35.0
      million in Q3 of 2005;

   -- Consolidated service revenue of $10.8 million, compared to $11.5
      million in Q3 of 2005;

   -- Digital products made up 72% of product revenue compared with 65% in Q3
      of last year;

   -- External revenue from the company's Lasertel subsidiary of $1.8
      million, up 73% from $1.0 million in Q3 of 2005.

Executive Vice President and Chief Financial Officer Moosa E. Moosa said, "Geographically, Presstek North American revenue was down 10% from a year ago, and down 14% from the previous quarter. Presstek Europe revenue was up 11% from a year ago, and down 18% from the previous quarter."

Moosa continued, "Operationally, gross margin for Q3 was 27.4%, down from 30.3% a year ago and down from 28.4% in the previous quarter. Gross margins were unfavorably impacted by CtP quality related issues and an unfavorable product mix. We estimate that the overall impact of the quality issues on our Q3 results was approximately $1 million. We expect to have these quality issues resolved by the end of 2006."

Operating expenses for the third quarter were $17.9 million, down slightly from $18.1 million a year ago, and up from $17.3 million in the previous quarter. The increase was due primarily to increased general and administrative expenses.

The company reported cash and equivalents of $6.3 million in the third quarter of 2006, compared to $8.6 million in the previous quarter. Inventories were up by $4 million due primarily to an increase in purchases to support higher planned sales. Receivables were down $2.4 million in the third quarter.

"We paid down $1.8 million of long-term debt during the quarter," said Moosa. "Total debt at the end of the quarter was $33.3 million, down from $33.5 million at the end of Q2. Debt-net-of-cash at the end of the quarter was $26.9 million, up from $24.9 million at the end of the second quarter."

Moosa concluded, "We began a new operating model in our business in the middle of 2005 when the major elements of the ABDick integration took effect. These included a shift to more of a direct sales model, and expanded product and service offerings. To provide better transparency into our business and the trends that drive it, we have included supplemental financial information, which will be updated on a quarterly basis."

Conclusion

Marino said, "The shortfall in sales and the quality issues we faced in the third quarter had a significant impact on our results. This performance has caused us to implement new actions and increase focus on areas that will strengthen our business longer term. To begin with, we have already taken steps to reduce costs by removing approximately $4.2 million in annualized costs from our service business. Our goal is to remove another $4 million in annual costs from other parts of our business over the next few months. We are addressing the quality issues related to our CtP products and believe this should be behind us by the end of 2006. The resolution of these issues is expected to result in improvements in revenue, margin and operating expenses in 2007. We are also taking steps to put our analog business on a firm footing which, while not a strategic business is still an important part of our total solution offerings. We expect that this will result in better cost recovery and price realization, as well as provide a more stable revenue base in 2007. The strategic digital business will continue to be a priority and our digital lines of business are very well positioned. Customer responses from the IPEX and Graph Expo trade shows this year demonstrated that we are headed in the right direction to lead the market's digital transformation.

"In short," said Marino, "we are taking the swift and decisive actions necessary to fully leverage the strengths of our company. This means renewing the company's revenue growth, solid profitability and strong cash flows as quickly as possible. We view the customer interest, the number of leads and the level of customer commitments received for our DI presses and chemistry- free computer to plate systems at Graph Expo as a confirmation that our best- in-class technology and business solutions fit squarely in the mainstream of the commercial print market."

Marino continued, "Looking ahead, we expect to see increased placements of DI presses, including the new 52DI, and increased placements of CtP systems beginning in the fourth quarter and into 2007. We are anticipating a decline in analog-related consumable and service revenues in the fourth quarter as a result of the actions outlined above. We are projecting revenue in the range of $68 to $71 million for Q4 2006, along with margin improvement, and a return to profitability, excluding any restructuring related costs."

"Finally," said Marino, "we conducted an in-depth review of our business which confirmed to us that our long term strategies continue to be the right ones for our business. We remain optimistic about the future of Presstek."

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