Cmgi (MM) (NASDAQ:CMGI)
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ModusLink Global Solutions, Inc. (formerly known as CMGI, Inc.) (NASDAQ:
CMGI) today reported preliminary financial results for its 2008 fourth
quarter and fiscal year ended July 31, 2008.
Results for the fourth quarter and full fiscal year are preliminary
based on the inclusion of an estimated non-cash goodwill impairment
charge of $12 million related to its European segment. The amount of the
non-cash charge will be finalized in conjunction with the completion of
the Company’s Form 10-K filing.
As announced in a separate press release issued today, the Company has
changed its name from CMGI, Inc. to ModusLink Global Solutions, Inc. Its
common stock will trade under the Nasdaq Global Select Market symbol “MLNK”
effective at the opening of trading on September 30, 2008.
Preliminary Fourth Quarter Financial Summary
Net revenue of $276.3 million, an increase of 9.4% from the fourth
quarter of fiscal 2007
Gross margin, as a percentage of revenue, of 10.4% compared with 12.1%
in the same period during the prior year
Selling, General and Administrative expense of $44.1 million.
Excluding the estimated goodwill impairment charge, SG&A expense was
$32.1 million or 11.6% of revenue, compared to SG&A expense of $33.0
million or 13.1% of revenue in the fourth quarter of the prior year
Operating loss of $15.4 million, compared with an operating loss of
$2.4 million in the fourth quarter of fiscal 2007
Net loss from continuing operations of $18.6 million or $0.39 per
share, compared to a net loss from continuing operations of $6.2
million, or $0.13 per share, in the same period last year
Net loss of $22.7 million, or $0.48 per share, compared to a net loss
of $6.2 million, or $0.13 per share, in the same period last year
Non-GAAP operating income of $6.3 million compared with $7.2 million
in the fourth quarter of 2007
Preliminary Fourth Quarter Consolidated Financial Results
“During the fourth quarter, we grew our
business and concluded a challenging but successful year in the
transformation of our company,” said Joseph
C. Lawler, Chairman, President and Chief Executive Officer of CMGI, now
ModusLink Global Solutions. “In the fourth
quarter, we continued to build the Company’s
sales pipeline, driven by the introduction of new solutions,
implementation of targeted lead generation programs and improved
penetration of our targeted vertical markets. Despite the challenges of
the current economic environment that resulted in lower volumes in some
existing accounts, ModusLink Global Solutions is very well positioned
for long-term growth as we continue to execute our strategy and fulfill
the vision of the company.”
The Company reported net revenue of $276.3 million for the fourth
quarter of fiscal 2008, an increase of 9.4% compared with net revenue of
$252.6 million reported for the same period one year ago. The increase
in revenue was attributed to organic growth, primarily driven by new
client engagements, and contributions of $13.7 million from the recently
acquired companies Open Channel Solutions and PTS Electronics. Adjusted
for two previously announced discontinued programs, net revenue of
$276.3 million would have compared with net revenue of $240.2 million in
the prior year period.
Gross margin was $28.7 million, or 10.4% of revenue, in the fourth
quarter of fiscal 2008, compared with $30.5 million, or 12.1% of
revenue, in the fourth quarter of fiscal 2007. The decrease in gross
margin as a percentage of revenue was due to increased start-up costs
related to new business engagements and lower volumes from some existing
clients.
Selling, General and Administrative expense for the fourth quarter was
$44.1 million. Excluding the goodwill impairment charge, SG&A expense
was $32.1 million, or 11.6% of revenue, compared to $33.0 million, or
13.1% of revenue, in the fourth quarter of the prior year. The decrease
in SG&A expenses excluding the goodwill impairment charge was primarily
due to lower restructuring and lower compensation related costs,
partially offset by increases attributable to the inclusion of the
selling, general and administrative costs of the recently acquired
companies.
The estimated non-cash goodwill impairment charge of $12 million is
related to the Company’s European operations
for which the goodwill balance had been $30.7 million. The goodwill
subject to impairment was recorded upon the 2004 acquisition of Modus
Media, Inc. In accordance with FASB Statement No. 142 "Goodwill and
Other Intangible Assets” and the Company’s
practice, the carrying value of the goodwill is tested for
impairment annually in the fourth quarter. The finalization of
the estimated charge, and consequently the Company’s
fourth quarter and full year operating results, is subject to change
pending the completion of the Company’s
valuation procedures and analysis, which it expects to complete in
conjunction with the preparation and filing of its Annual Report on Form
10-K.
“The Company’s
European operations and related financial results did not show the level
of improvement in fiscal 2008 that management had expected,”
said Steven G. Crane, Chief Financial Officer. “Based
on this, the Company in connection with the preparation of its annual
financial statements determined that it was required to take a non-cash
goodwill impairment charge. While this goodwill impairment charge is
required by accounting rules, we retain our long term positive view of
our European operations, as Europe represents an important part of our
overall strategy and we remain committed to continuing to grow our
business in the region.”
Net loss from continuing operations for the fourth quarter was $18.6
million, or $0.39 per share, compared to net loss from continuing
operations of $6.2 million, or $0.13 per share, for the same period in
fiscal 2007. Net loss for the fourth quarter of 2008 was $22.7 million
or $0.48 per share, compared to net loss of $6.2 million or $0.13 per
share for the same period in the prior year.
Fiscal 2008 fourth quarter results included a loss from discontinued
operations of $4.2 million, or $0.09 per share, primarily due to updated
sublease assumptions for a facility no longer being utilized for
operations by the Company.
Excluding net charges related to depreciation, amortization of
intangibles, stock-based compensation, restructuring and the impact of
the estimated non-cash goodwill impairment charge, the Company reported
non-GAAP operating income of $6.3 million for the fourth quarter of
fiscal 2008 versus non-GAAP operating income of $7.2 million for the
same period in fiscal 2007.
Preliminary Fiscal Year 2008 Financial Summary
Net revenue of $1,068 million, compared to net revenue of $1,143
million in fiscal 2007
Gross margin, as a percentage of revenue, increased to 12.9% from
11.5% in the previous year
Selling, General and Administrative expense of $135.2 million.
Excluding the estimated goodwill impairment charge, SG&A expense was
$123.2 million, or 11.5% of revenue, compared to $116.3 million, or
10.2% of revenue, in fiscal 2007
Operating income of $2.4 million, compared to operating income of
$14.8 million in the prior fiscal year
Net income from continuing operations of $15.3 million, or $0.32 per
diluted share, compared to net income from continuing operations of
$49.1 million, or $1.00 per diluted share, in fiscal 2007
Net income was $11.1 million, or $0.23 per diluted share, compared to
$49.4 million, or $1.01 per diluted share, in fiscal 2007
Non-GAAP operating income was $46.2 million compared with non-GAAP
operating income of $44.4 million for the prior fiscal year
Preliminary Fiscal Year Consolidated Financial Results
The Company reported net revenue of $1,068 million for the fiscal year
ended July 31, 2008, compared to $1,143 million reported for the 2007
fiscal year. Adjusted for two previously announced discontinued
programs, net revenue of $1,068 million would have compared with net
revenue of $1,005 million in the prior year period on the same basis.
Gross margin was $137.6 million, or 12.9% of revenue for fiscal 2008,
compared with $131.1 million, or 11.5% of revenue for fiscal 2007. As a
percentage of revenue, gross margin improvement was attributed to
revenue from engagements in target vertical markets and higher margin
services, as well as the realization of operating efficiencies.
Selling, General and Administrative expense for fiscal 2008 was $135.2
million. Excluding the estimated goodwill impairment charge, SG&A
expense for the year was $123.2 million, or 11.5% of revenue, compared
to $116.3 million, or 10.2% of revenue, in fiscal 2007. The increase in
SG&A during the period primarily reflects continued investment in the
Company’s ERP system and the additional
Selling, General and Administrative expenses associated with Open
Channel Solutions, PTS Electronics (each of which was acquired during
fiscal 2008) and the Company’s Japan
operations (which were acquired at the end of the third quarter of
fiscal 2007).
Net income from continuing operations for fiscal 2008 was $15.3 million,
or $0.32 per diluted share, compared to net income from continuing
operations of $49.1 million, or $1.00 per diluted share, for fiscal
2007. Net income for fiscal 2008 was $11.1 million, or $0.23 per diluted
share, compared to net income of $49.4 million, or $1.01 per diluted
share, for the prior year.
Fiscal 2008 results included a loss from discontinued operations of $4.2
million, or $0.09 per share, compared with income from discontinued
operations of $0.3 million, or $0.01 per diluted share, in fiscal 2007.
Net income for fiscal 2008 included $19.1 million of investment gains
from liquidity events from @Ventures, compared with gains of $35.0
million in fiscal 2007.
Excluding the effects of charges related to depreciation, amortization
of intangibles, stock-based compensation, restructuring and the impact
of the estimated non-cash goodwill impairment charge, the Company
reported non-GAAP operating income of $46.2 million for the 2008 fiscal
year compared with non-GAAP operating income of $44.4 million for the
prior fiscal year.
As of July 31, 2008, the Company had working capital of approximately
$238.7 million compared with $320.2 million at July 31, 2007. Included
in working capital as of July 31, 2008 were cash, cash equivalents and
marketable securities totaling $162.1 million compared to $282.3 million
at July 31, 2007. The Company concluded the year with no outstanding
bank debt.
"Our balance sheet continues to be very strong and provides a solid
foundation for growth," said Crane. "During the year, we utilized cash
to make strategic acquisitions, reduce our debt and return $35 million
to the shareholders through a stock buyback program."
“We are positioned for growth in fiscal 2009,”
continued Lawler. “Our sales pipeline is the
strongest we have seen at the company. However, we remain cognizant of
the uncertain global economic condition and its impact on consumer
demand in the technology markets we serve. As we enter the new fiscal
year, we continue to be focused on revenue growth, expanding existing
client relationships through the introduction of new solutions and
improving operational efficiencies. We are optimistic that our strategy
will create significant long-term value for our shareholders.”
Outlook
Based on the strength of its sales pipeline and expectations for
increasing demand for the Company’s services,
and given the uncertain economic environment, the Company currently
expects revenue in fiscal 2009 to grow in the range of 10% to 12% over
fiscal year 2008 revenue. The Company expects this revenue growth to be
weighted toward the second, third and fourth quarters of fiscal 2009.
Conference Call Information
As previously announced, ModusLink Global Solutions, Inc. will hold a
conference call to discuss its 2008 fourth quarter and fiscal year
preliminary results at 5:00 p.m. ET on September 29, 2008. Investors can
listen to the conference call on the Internet at www.ir.cmgi.com.
To listen to the live call, go to the Website at least 15 minutes prior
to the start time to download and install the necessary audio software.
Non-GAAP Information
The Company believes that its non-GAAP measure of operating
income/(loss) ("non-GAAP operating income/(loss)") provides investors
with a useful supplemental measure of the Company’s
operating performance by excluding the impact of non-cash charges and
restructuring activities. Each of the excluded items was excluded
because it may be considered to be of a non-operational or non-cash
nature. Historically, ModusLink has recorded significant impairment and
restructuring charges. These charges, as well as charges related to
depreciation, amortization of intangible assets and stock-based
compensation, have been excluded for the purpose of enhancing the
understanding by both management and investors of the underlying
baseline operating results and trends of the business, which management
uses to evaluate our financial performance for purposes of planning and
forecasting future periods. Non-GAAP operating income/(loss) does not
have any standardized definition and, therefore, is unlikely to be
comparable to similar measures presented by other reporting companies.
Non-GAAP operating income/(loss) should not be evaluated in isolation
of, or as a substitute for, the Company’s
financial results prepared in accordance with United States generally
accepted accounting principles. The Company’s
usage of non-GAAP operating income/(loss), and the underlying
methodology in excluding certain charges, is not necessarily an
indication of the results of operations that may be expected in the
future, or that the Company will not, in fact, incur such charges in
future periods. A table reconciling ModusLink’s
non-GAAP operating income/(loss) to its GAAP operating income/(loss) and
its GAAP net income/(loss) is included in the statement of operations
information in this release.
About ModusLink Global Solutions, Inc. ModusLink Global
Solutions, Inc. (formerly known as CMGI, Inc.), is a leader in global
supply chain business process management. The Company executes critical
processes for clients in the high technology and communications
industries to provide competitive differentiation and enable new channel
and new market opportunities. ModusLink Global Solutions’
integrated portfolio of supply chain outsourcing and technology
solutions span four core competencies: supply chain, aftermarket,
e-Business and entitlement management. The Company has headquarters in
Waltham, Massachusetts and more than 30 facilities in 13 countries –
giving it the largest global footprint in the industry. In addition,
ModusLink Global Solutions’ venture capital
business, @Ventures, invests in a variety of technology ventures. For
additional information, visit www.moduslink.com.
ModusLink is a registered trademark of ModusLink Corporation and CMGI
and ModusLink Global Solutions are registered trademarks of ModusLink
Global Solutions, Inc. All other company names and products are
trademarks or registered trademarks of their respective companies.
All share and per share data for the prior year period which appears in
this press release and the accompanying tables has been adjusted to
reflect the 1-for-10 reverse stock split of the Company's common stock
effective October 31, 2007.
This release contains forward-looking statements, which address a
variety of subjects including, for example, expected revenue to be
achieved in fiscal 2009, expected increase in demand for the Company’s
services, future sales growth, the further execution of the Company’s
strategic business plan and impact of that plan, prospects for growth,
the strength of the Company’s sales
momentum and pipeline, the expected impact of strategic
initiatives and financial performance, the expected benefits and impact
of the Open Channel Solutions and PTS transactions and the expansion of
capabilities expected to occur as a result of the transactions. All
statements other than statements of historical fact, including without
limitation, those with respect to the Company’s
goals, plans, expectations and strategies set forth herein are
forward-looking statements. The following important factors and
uncertainties, among others, could cause actual results to differ
materially from those described in these forward-looking statements: the
Company’s success, including its ability to
improve its cash position, expand its operations and revenue, lower its
costs, improve its gross margins, sustain profitability, reach its
long-term objectives and operate optimally, depends on its ability to
execute on its business strategy and the continued and increased demand
for and market acceptance of its services; global economic conditions,
especially in the technology sector are uncertain and subject to
volatility; demand for our clients’ products
may decline or may not achieve the levels anticipated by our clients;
the Company's management may face strain on managerial and operational
resources as they try to oversee the expanded operations; the Company
may not be able to expand its operations in accordance with its business
strategy; the Company’s cash balances may not
be sufficient to allow the Company to meet all of its business and
investment goals; the Company may experience difficulties integrating
technologies, operations and personnel in accordance with its business
strategy; the Company derives a significant portion of its revenue from
a small number of customers and the loss of any of those customers could
significantly damage the Company’s financial
condition and results of operations; the Company frequently sells to its
supply chain management clients on a purchase order basis rather than
pursuant to contracts with minimum purchase requirements, and therefore
its sales and the amount of projected revenue that is actually realized
are subject to demand variability; risks inherent with conducting
international operations; tax rate expectations are based on current tax
law and current expected income and may be affected by the jurisdictions
in which profits are determined to be earned and taxed, changes in
estimates of credits, benefits and deductions, the resolution of issues
arising from tax audits with various tax authorities, including payment
of interest and penalties and the ability to realize deferred tax assets;
the mergers and acquisitions and IPO markets are inherently
unpredictable and liquidity events for companies in the venture capital
portfolio may not occur; and increased competition and technological
changes in the markets in which the Company competes. The
preliminary estimates included in this press release and accompanying
tables are based on the Company’s current
estimate of the fourth quarter and full fiscal year financial results
and the non-cash goodwill impairment charge associated with its European
operations, and are subject to change upon the finalization of such
impairment charge and the completion of the Company’s
financial audit for fiscal year 2008. For a detailed discussion
of cautionary statements that may affect the Company’s
future results of operations and financial results, please refer to the
Company's filings with the Securities and Exchange Commission, including
the Company's most recent Annual Report on Form 10-K and Quarterly
Report on Form 10-Q. Forward-looking statements represent management's
current expectations and are inherently uncertain. We do not undertake
any obligation to update forward-looking statements made by us.
CMGI, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Preliminary)
(In thousands)
(Unaudited)
July 31,
July 31,
2008
2007
Assets:
Cash and cash equivalents
$
160,585
$
169,481
Available-for-sale securities
1,517
959
Short-term investments
-
111,850
Trade accounts receivable, net
213,096
185,574
Inventories, net
85,897
60,945
Prepaid and other current assets
12,820
11,659
Current assets of discontinued operations
-
91
Total current assets
473,915
540,559
Property and equipment, net
74,889
55,107
Investments in affiliates
34,558
30,460
Goodwill
192,012
178,276
Intangible assets, net
29,292
11,719
Other assets
7,894
3,007
$
812,560
$
819,128
Liabilities:
Current portion of capital lease obligations
$
349
$
459
Accounts payable
168,190
151,233
Current portion of accrued restructuring
6,297
5,342
Accrued income taxes
1,027
7,288
Accrued expenses
52,817
50,710
Other current liabilities
3,653
2,539
Current liabilities of discontinued operations
2,840
2,782
Total current liabilities
235,173
220,353
Revolving line of credit
-
24,786
Long-term portion of accrued restructuring
3,871
5,136
Long-term portion of capital leases obligations
55
329
Other long-term liabilities
21,648
11,757
Non-current liabilities of discontinued operations
3,839
1,698
29,413
43,706
Stockholders' equity
547,974
555,069
$
812,560
$
819,128
CMGI, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Preliminary)
(In thousands, except per share data)
(Unaudited)
Three months ended
Twelve months ended
July 31,
July 31,
2008
2007
Change
2008
2007
Change
Net revenue
$
276,292
$
252,560
9.4
%
$
1,068,207
$
1,143,026
(6.5
%)
Cost of revenue
247,572
222,038
11.5
%
930,629
1,011,961
(8.0
%)
Gross margin
28,720
30,522
(5.9
%)
137,578
131,065
5.0
%
10.4
%
12.1
%
(1.7
%)
12.9
%
11.5
%
1.4
%
Operating expenses:
Selling, general and administrative
28,597
29,291
(2.4
%)
113,969
106,836
6.7
%
Impairment of goodwill
12,000
-
100.0
%
12,000
-
100.0
%
Amortization of intangibles
1,379
1,203
14.6
%
3,773
4,821
(21.7
%)
Restructuring, net
2,123
2,462
(13.8
%)
5,465
4,643
17.7
%
Total operating expenses
44,099
32,956
33.8
%
135,207
116,300
16.3
%
Operating income (loss)
(15,379
)
(2,434
)
531.8
%
2,371
14,765
(83.9
%)
Other income (loss)
(202
)
(16
)
1162.5
%
23,333
41,505
(43.8
%)
Income (loss) from continuing operations before taxes
(15,581
)
(2,450
)
536.0
%
25,704
56,270
(54.3
%)
Income tax expense
3,033
3,757
(19.3
%)
10,425
7,135
46.1
%
Income (loss) from continuing operations
(18,614
)
(6,207
)
199.9
%
15,279
49,135
(68.9
%)
Discontinued operations, net of income taxes:
Income (loss) from discontinued operations
(4,113
)
3
-
(4,151
)
276
(1604.0
%)
Net Income (loss)
$
(22,727
)
$
(6,204
)
266.3
%
$
11,128
$
49,411
(77.5
%)
Basic and Diluted earnings (loss) per share:
Earnings (loss) from continuing operations
$
(0.39
)
$
(0.13
)
200.0
%
$
0.32
$
1.00
(68.0
%)
Income (loss) from discontinued operations
$
(0.09
)
$
0.00
(100.0
%)
$
(0.09
)
$
0.01
(1000.0
%)
Net earnings (loss)
$
(0.48
)
$
(0.13
)
269.2
%
$
0.23
$
1.01
(77.2
%)
Shares used in computing basic earnings (loss) per share
46,994
48,544
(3.2
%)
47,747
48,455
(1.5
%)
Shares used in computing diluted earnings (loss) per share
46,994
48,544
(3.2
%)
47,901
48,833
(1.9
%)
CMGI, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations Information
(Preliminary)
(In thousands)
(Unaudited)
Three months ended
Twelve months ended
July 31,
July 31,
July 31,
July 31,
2008
2007
2008
2007
Net revenue:
Americas
$
96,005
$
80,296
$
348,817
$
395,084
Asia
74,715
69,021
316,739
288,936
Europe
105,572
103,243
402,651
459,006
$
276,292
$
252,560
$
1,068,207
$
1,143,026
Operating income (loss):
Americas
$
(5,619
)
$
(1,969
)
$
(1,078
)
$
11,455
Asia
8,742
4,396
41,334
29,808
Europe
(14,794
)
(2,052
)
(20,284
)
(10,126
)
(11,671
)
375
19,972
31,137
Other
(3,708
)
(2,809
)
(17,601
)
(16,372
)
$
(15,379
)
$
(2,434
)
$
2,371
$
14,765
Non-GAAP operating income (loss):
Americas
$
(852
)
$
2,638
$
12,314
$
22,249
Asia
11,086
6,906
49,580
38,234
Europe
(1,036
)
(344
)
(1,376
)
(2,572
)
9,198
9,200
60,518
57,911
Other
(2,937
)
(1,998
)
(14,302
)
(13,470
)
$
6,261
$
7,202
$
46,216
$
44,441
Note: Non-GAAP operating
income represents total operating income (loss), excluding net
charges related to depreciation, goodwill impairment, amortization
of intangible assets, stock-based compensation and restructuring.
TABLE RECONCILING NON-GAAP OPERATING INCOME TO GAAP OPERATING INCOME
(LOSS) AND NET INCOME (LOSS)
NON-GAAP Operating income
$
6,261
$
7,202
$
46,216
$
44,441
Adjustments:
Depreciation
(4,906
)
(4,576
)
(17,008
)
(15,028
)
Impairment of goodwill
(12,000
)
-
(12,000
)
-
Amortization of intangible assets
(1,379
)
(1,203
)
(3,773
)
(4,821
)
Stock-based compensation
(1,232
)
(1,395
)
(5,599
)
(5,184
)
Restructuring, net
(2,123
)
(2,462
)
(5,465
)
(4,643
)
GAAP Operating income (loss)
$
(15,379
)
$
(2,434
)
$
2,371
$
14,765
Other income (loss), net
(202
)
(16
)
23,333
41,505
Income tax expense
3,033
3,757
10,425
7,135
Income (loss) from discontinued operations
(4,113
)
3
(4,151
)
276
Net income (loss)
$
(22,727
)
$
(6,204
)
$
11,128
$
49,411
Revenue (GAAP)
$
276,292
$
252,560
$
1,068,207
$
1,143,026
Less revenue from two previously announced discontinued programs
-
(12,322
)
-
(137,888
)
Adjusted Revenue
$
276,292
$
240,238
$
1,068,207
$
1,005,138
Fiscal 2008 vs. Fiscal 2007
GAAP change in revenue
9
%
(7
%)
Adjusted change in revenue
15
%
6
%