Cmgi (MM) (NASDAQ:CMGI)
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CMGI, Inc. (NASDAQ: CMGI) today reported financial results for its
second quarter of fiscal year 2008, ended January 31, 2008.
Financial Summary
Net revenue of $278.0 million, a decrease of 14.4% compared to the
second quarter of fiscal 2007
Gross margins improved to 14.0% compared with 12.5% in the prior year
period
Operating income of $8.6 million, a decrease of 23.7% compared to
operating income in the period one year ago, primarily due to higher
SG&A costs associated with the Company’s
planned IT investments
Net income of $27.8 million, or $0.58 per share, 22.5% lower than net
income in the same period last year
Non-GAAP operating income of $15.3 million, a decrease of 21.5% from
non-GAAP operating income of $19.5 million in the second quarter of
the prior year
Second Quarter Consolidated Financial Results
“We are pleased with the ongoing progress we
are making transforming our company into a global supply chain services
business,” said Joseph C. Lawler, Chairman,
President and Chief Executive Officer of CMGI. “Of
particular note, we remain on track with our goal for completing our
Enterprise Resource Planning project, which together with our shared
services model will enable our company to run optimally and improve
financial performance.”
“Revenue for the second quarter, adjusted for
two discontinued programs, was approximately the same as one year ago,
due to timing of new business start ups and the effects of the US
economy,” added Lawler. “Looking
forward, we are cautiously optimistic about our revenue performance for
the remainder of the year, as our sales and marketing efforts have
resulted in the best pipeline of new business I’ve
seen at CMGI. The challenging economic environment requires lower cost
supply chains, faster time to market and swifter response to promotions
and liquidations to reduce excess inventory. These factors play to the
strengths of our business model and are contributing to our growing
sales pipeline. Based on the strength of that pipeline, we are
maintaining our full year financial guidance.”
CMGI reported net revenue of $278.0 million for the second quarter of
fiscal 2008, a 14.4% decrease compared to net revenue of $324.8 million
for the same period one year ago. Adjusted for two previously announced
discontinued programs, net revenue of $278.0 million would have compared
with net revenue of $279.0 million in the prior year period on the same
basis. As a percentage of revenue, gross margin improved to 14.0% for
the second quarter of 2008, from 12.5% in the second quarter of fiscal
2007. The improvement in gross margin was attributed to work mix and
continuous improvement initiatives.
Selling, General and Administrative expense (SG&A), including
restructuring and amortization of stock compensation for the second
quarter of 2008 was $30.3 million compared to $29.3 million in the
second quarter of the prior period. The increase in SG&A was primarily
due to planned investment in the Company’s
new ERP system.
Operating income was $8.6 million for the second quarter of fiscal 2008,
23.7% lower than $11.3 million for the prior year period. Compared with
the prior year period, the lower operating income for the second quarter
of 2008 was primarily due to higher selling, general and administrative
costs related to the implementation of the new ERP system.
Net income for the second quarter of 2008 was $27.8 million, or $0.58
diluted earnings per share, compared to net income of $35.9 million, or
$0.74 diluted earnings per share, for the same period in the prior
fiscal year. The Company’s per share data for
prior year periods has been adjusted to reflect the 1-for-10 reverse
stock split of the Company’s common stock,
effective October 31, 2007. Net income for the second quarter of fiscal
2008 includes an $18.5 million gain primarily from its venture capital
business, @Ventures. This gain includes a $12.9 million gain from the
acquisition of The Generations Network by a third party. Net income from
the second quarter of 2007 included a gain of $28.7 million from the
acquisition by a third party of Avamar Technologies, a company in which
@Ventures held an investment.
Excluding net charges related to depreciation, restructuring and
amortization of intangibles and stock-based compensation, non-GAAP
operating income was $15.3 million for the second quarter of fiscal
2008, compared with non-GAAP operating income of $19.5 million for the
same period in fiscal 2007.
As of January 31, 2008, CMGI had working capital of approximately $320.4
million compared with $319.4 million at January 31, 2007. Included in
working capital as of January 31, 2008 were cash, cash equivalents and
marketable securities totaling $265.2 million compared to $275.0 million
at January 31, 2007.
“Our balance sheet remains extremely strong,”
said Steven G. Crane, CMGI’s Chief Financial
Officer. “During the second quarter, cash
from operations was $20.3 million and @Ventures contributed $17.7
million from proceeds of liquidity events. Notably, we added to our cash
balance from the first quarter of fiscal 2008 while making our planned
investments in our operations, continuing our stock repurchase program
and paying down our working capital line.”
Subsequent to the quarter, CMGI announced that it had entered into an
agreement to acquire Open Channel Solutions, Inc. (“OCS”),
a leading global provider of entitlement and e-business management
solutions. OCS extends ModusLink’s e-commerce
capabilities for digital content distribution and enables the Company to
offer efficient post-sale electronic delivery of digital content such as
software downloads, electronic configuration and downloads of other
audio, video and data content for technology devices. The transaction is
subject to customary closing conditions and is expected to be completed
in March 2008.
“The acquisition of OCS represents our second
recent acquisition and is consistent with our strategy to add
capabilities and services that strengthen the value proposition of our
supply chain offering,” said Lawler. “Looking
forward, we continue to consider acquisitions that build upon our core
business and contribute to our future financial performance.”
Outlook
The Company continues to expect revenue of $1.10 billion to $1.15
billion and operating income, before any restructuring expenses, to be
approximately 2.0% to 2.5% of revenue in fiscal 2008. Restructuring
expenses for fiscal 2008 are expected to be $5 million to $8 million.
Stock Repurchase Program Update
During the second quarter of 2008, the Company repurchased approximately
507,000 shares for aggregate consideration of $6.0 million. These
purchases were made in open market transactions under the Company’s
stock repurchase program which was announced on September 25, 2007 and
pursuant to which the Company has authorized the repurchase of up to $50
million of common stock over an 18-month period. Through the end of the
second quarter, the Company had repurchased approximately 1,075, 000
shares for aggregate consideration of $14.0 million.
Conference Call Information
CMGI will hold a conference call to discuss its fiscal 2008 second
quarter results at 5:00 PM EDT on March 10, 2008. Investors can listen
to the conference call on the Internet at www.cmgi.com/investor.
To listen to the live call, go to the Web site 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 they may be considered to be of a non-operational or non-cash
nature. Historically, CMGI 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 CMGI’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 CMGI
CMGI, Inc. (Nasdaq: CMGI), through its subsidiary ModusLink, provides
industry-leading global supply chain management services and solutions
that help businesses market, sell and distribute their products around
the world. In addition, CMGI’s venture
capital business, @Ventures, invests in a variety of technology
ventures. For additional information, see www.cmgi.com.
This release contains forward-looking statements, which address a
variety of subjects including, for example, expected revenues, gross
margins to be achieved and restructuring charges to be incurred in
fiscal 2008, the further execution of CMGI’s
strategic business plan and impact of that plan, prospects for growth,
projected revenue from new business engagements, the strength of the
Company’s sales momentum and pipeline,
the expected impact of strategic initiatives and financial performance,
the expected benefits of the OCS transaction and the expansion of
capabilities expected to occur as a result of the transaction. All
statements other than statements of historical fact, including without
limitation, those with respect to CMGI'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: CMGI's success, including its ability to
improve its cash position, expand its operations and revenues, 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; demand for our clients’
products; CMGI's management may face strain on managerial and
operational resources as they try to oversee the expanded operations;
CMGI may not be able to expand its operations in accordance with its
business strategy; CMGI's cash balances may not be sufficient to allow
CMGI to meet all of its business and investment goals; CMGI may
experience difficulties integrating technologies, operations and
personnel in accordance with its business strategy; CMGI derives a
significant portion of its revenue from a small number of customers and
the loss of any of those customers could significantly damage CMGI's
financial condition and results of operations; ModusLink 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; the completion of
the OCS transaction is subject to the satisfaction of closing conditions
and events may occur which cause the transaction not to be completed;
risks inherent with conducting international operations; 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
CMGI competes. For a detailed discussion of cautionary statements
that may affect CMGI's future results of operations and financial
results, please refer to CMGI's filings with the Securities and Exchange
Commission, including CMGI's most recent Annual Report on Form 10-K.
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
(In thousands)
(Unaudited)
January 31,
January 31,
2008
2007
Assets:
Cash and cash equivalents
$
264,484
$
159,049
Available-for-sale securities
731
1,000
Short-term investments
-
115,000
Trade accounts receivable, net
191,392
196,406
Inventories, net
64,691
85,453
Prepaid and other current assets
11,852
11,238
Current assets of discontinued operations
43
-
Total current assets
533,193
568,146
Property and equipment, net
60,967
50,915
Investments in affiliates
35,029
27,214
Goodwill
178,124
179,314
Other intangible assets, net
10,237
14,128
Other assets
7,212
3,017
$
824,762
$
842,734
Liabilities:
Current portion of capital lease obligations
$
517
$
444
Accounts payable
155,154
180,600
Current portion of accrued restructuring
5,304
6,047
Accrued income taxes
3,088
7,035
Accrued expenses
43,337
48,712
Other current liabilities
2,771
3,077
Current liabilities of discontinued operations
2,644
2,878
Total current liabilities
212,815
248,793
Revolving line of credit
-
24,786
Long-term portion of accrued restructuring
4,401
5,511
Long-term portion of capital leases obligations
62
527
Other long-term liabilities
21,173
13,775
Non-current liabilities of discontinued operations
1,300
2,856
26,936
47,455
Stockholders' equity
585,011
546,486
$
824,762
$
842,734
CMGI, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three months ended
Six months ended
January 31,
January 31,
2008
2007
Change
2008
2007
Change
Net revenue
$
277,972
$
324,752
(14.4
%)
$
552,712
$
608,388
(9.2
%)
Cost of revenue
239,063
284,219
(15.9
%)
474,739
537,812
(11.7
%)
Gross profit
38,909
40,533
(4.0
%)
77,973
70,576
10.5
%
14.0
%
12.5
%
14.1
%
11.6
%
Operating expenses:
Selling
4,410
3,320
32.8
%
8,295
7,085
17.1
%
General and administrative
24,407
22,356
9.2
%
48,062
42,562
12.9
%
Amortization of intangibles assets
746
1,206
(38.1
%)
1,508
2,412
(37.5
%)
Restructuring, net
745
2,382
(68.7
%)
2,368
2,195
7.9
%
Total operating expenses
30,308
29,264
3.6
%
60,233
54,254
11.0
%
Operating income
8,601
11,269
(23.7
%)
17,740
16,322
8.7
%
Other income (expenses):
Interest income
2,677
2,652
0.9
%
5,665
4,844
16.9
%
Interest expense
(472
)
(637
)
(25.9
%)
(1,086
)
(1,241
)
(12.5
%)
Other gains, net
18,528
28,030
(33.9
%)
18,163
28,952
(37.3
%)
Equity in income of affiliates, net
632
398
58.8
%
863
1,134
(23.9
%)
Total other income
21,365
30,443
(29.8
%)
23,605
33,689
(29.9
%)
Income from continuing operations before income taxes
29,966
41,712
(28.2
%)
41,345
50,011
(17.3
%)
Income tax expense
2,077
5,727
(63.7
%)
4,216
4,287
(1.7
%)
Income from continuing operations
27,889
35,985
(22.5
%)
37,129
45,724
(18.8
%)
Discontinued operations, net of income taxes:
(Loss) income from discontinued operations
(86
)
(112
)
(23.2
%)
(716
)
476
(250.4
%)
Net Income
$
27,803
$
35,873
(22.5
%)
$
36,413
$
46,200
(21.2
%)
Basic and diluted earnings (loss) per share:
Earnings from continuing operations
$
0.58
$
0.74
(21.6
%)
$
0.78
$
0.95
(17.9
%)
(Loss) income from discontinued operations
(0.00
)
(0.00
)
0.0
%
(0.02
)
0.00
(100.0
%)
Net earnings
$
0.58
$
0.74
(21.6
%)
$
0.76
$
0.95
(20.0
%)
Shares used in computing basic earnings (loss) per share
48,005
48,462
47,556
48,448
Shares used in computing diluted earnings (loss) per share
48,107
48,668
47,724
48,595
CMGI, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations Information
(In thousands)
(Unaudited)
Three months ended
Six months ended
January 31,
January 31,
January 31,
January 31,
2008
2007
2008
2007
Net revenue:
Americas
$
92,592
$
121,292
$
176,775
$
227,457
Asia
84,383
77,116
171,095
143,563
Europe
100,997
126,344
204,842
237,368
$
277,972
$
324,752
$
552,712
$
608,388
Operating income (loss):
Americas
$
4,992
$
7,370
$
8,208
$
12,816
Asia
10,161
10,779
23,177
17,752
Europe
(1,746
)
(1,913
)
(3,927
)
(5,340
)
13,407
16,236
27,458
25,228
Other
(4,806
)
(4,967
)
(9,718
)
(8,906
)
$
8,601
$
11,269
$
17,740
$
16,322
Non-GAAP operating income (loss):
Americas
$
7,385
$
10,598
$
13,741
$
17,368
Asia
11,958
12,721
27,300
21,528
Europe
(43
)
498
(608
)
(1,583
)
19,300
23,817
40,433
37,313
Other
(3,973
)
(4,286
)
(8,054
)
(7,537
)
$
15,327
$
19,531
$
32,379
$
29,776
Note: Non-GAAP operating
income represents total operating income, excluding net charges
related to depreciation, amortization of intangible assets,
stock-based compensation and restructuring.
TABLE RECONCILING NON-GAAP OPERATING INCOME TO GAAP OPERATING INCOME
AND NET INCOME
NON-GAAP Operating income
$
15,327
$
19,531
$
32,379
$
29,776
Adjustments:
Depreciation
(3,746
)
(3,442
)
(7,897
)
(6,345
)
Amortization of intangible assets
(746
)
(1,206
)
(1,508
)
(2,412
)
Stock-based compensation
(1,489
)
(1,232
)
(2,866
)
(2,502
)
Restructuring, net
(745
)
(2,382
)
(2,368
)
(2,195
)
GAAP Operating income
$
8,601
$
11,269
$
17,740
$
16,322
Other income, net
21,365
30,443
23,605
33,689
Income tax expense
2,077
5,727
4,216
4,287
(Loss) income from discontinued operations
(86
)
(112
)
(716
)
476
Net income
$
27,803
$
35,873
$
36,413
$
46,200
TABLE RECONCILING ADJUSTED REVENUE GROWTH
Revenue (GAAP)
$
277,972
$
324,752
Less revenue from two previously announced discontinued programs
-
(45,709
)
Adjusted Revenue
$
277,972
$
279,043
Q2 Fiscal 2008 vs. Q2 Fiscal 2007
GAAP change in revenue
(14.4
%)
Adjusted change in revenue
(0.4
%)