Cmgi (MM) (NASDAQ:CMGI)
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CMGI®, Inc. (NASDAQ:
CMGI) today reported financial results for its third quarter of fiscal
year 2008, ended April 30, 2008.
Financial Summary
Net revenue of $239.2 million, a decrease of 15.2% compared to the
third quarter of fiscal 2007
Gross margins improved 230 basis points to 12.9% of revenue compared
with 10.6% in the prior year period
Operating income of $10 thousand compared to operating income of $877
thousand in the third quarter of 2007
Net loss of $2.6 million, or ($0.05) per share, compared with net
income of $9.4 million, or $0.19 per share, in the same period last
year
Non-GAAP operating income of $7.6 million, an increase of 1.5% from
non-GAAP operating income in the third quarter of the prior year
Consolidated Financial Results
“During the third quarter, we continued to
execute our strategy and position our business for growth,”
said Joseph C. Lawler, Chairman, President and Chief Executive Officer
of CMGI. “We made very good progress with our
sales and marketing initiatives, which are enabling us to introduce new
solutions, secure new engagements and build our sales pipeline. In
addition, we made progress with the implementation of our ERP platform
and continued to execute our acquisition strategy. The recently
announced acquisitions of Open Channel Solutions®
and PTS Electronics strengthen our market position and will also help
improve the growth and profitability of our company.”
“We expected revenue for the third quarter of
fiscal 2008 to be lower than the third quarter of fiscal 2007 due to two
previously announced discontinued programs,”
continued Lawler. “In addition, we experienced
volume declines in some client programs and delays in the startup of
some new engagements. As a percentage of revenue, gross margins improved
by 230 basis points, which resulted in an increase in non-GAAP operating
income despite the lower revenue in the quarter. The continuous
improvement we’ve been showing in gross
margins is the result of executing our long-term strategy,”
added Lawler.
CMGI reported net revenue of $239.2 million for the third quarter of
fiscal 2008, a 15.2% decrease compared to net revenue of $282.1 million
for the same period one year ago. As a percentage of revenue, gross
margins improved to 12.9% for the third quarter of fiscal 2008, from
10.6% in the third quarter of fiscal 2007. The improvement in gross
margin was attributed to work and geography mix as well as continuous
improvement initiatives.
Selling, General and Administrative expense (SG&A), including
restructuring and amortization of stock compensation for the third
quarter of 2008 was $30.9 million compared to $29.1 million in the third
quarter of fiscal 2007. The increase in SG&A was primarily due to higher
restructuring costs, planned IT investments and SG&A expenses related to
Open Channel Solutions, which was acquired during the quarter.
As a result of the factors noted above, operating income was $10
thousand for the third quarter of fiscal 2008, compared to $877 thousand
for the prior year period.
Net loss for the third quarter of 2008 was $2.6 million, or ($0.05) per
share, compared to net income of $9.4 million, or $0.19 earnings per
share, for the same period in the prior fiscal year. Net results include
a change in other income (loss) from $7.8 million in the third quarter
of fiscal 2007 to a loss of $70 thousand in the third quarter of fiscal
2008. This change was primarily due to a decline in interest income of
approximately $1.1 million and a decline of $4.6 million related to
@Ventures liquidity events. Net loss for the third quarter of 2008 also
includes a tax expense of $3.2 million, compared with a tax benefit of
$900 thousand in the prior year period due to a shift in the geographic
distribution of income, an increase in the tax rate in China and some
discrete tax-related items.
Excluding net charges related to depreciation, restructuring and
amortization of intangibles and stock-based compensation, non-GAAP
operating income was $7.6 million for the third quarter of fiscal 2008,
a 1.5% increase compared with non-GAAP operating income of $7.5 million
for the same period in fiscal 2007.
As of April 30, 2008, CMGI had working capital of approximately $300.7
million compared with $326.8 million at April 30, 2007. Included in
working capital as of April 30, 2008 were cash, cash equivalents and
available-for-sale securities totaling $248.6 million compared to $250.3
million at April 30, 2007. During the third quarter of 2008, the Company
repurchased approximately 114,000 shares of its common stock for
aggregate consideration of approximately $1.3 million, as part of the
Company’s stock repurchase program. The
Company repurchased fewer shares than in prior quarters as it managed
its cash needs leading up to the acquisition of PTS Electronics on May
2, 2008.
"Our balance sheet continues to be extremely strong and provides a solid
foundation for future growth," said Steven G. Crane, CMGI's Chief
Financial Officer. "We had cash and cash equivalents and
available-for-sale securities of $248.6 million at the end of the third
quarter and continued to have no outstanding bank debt. During the third
quarter we used cash for the purchase of Open Channel Solutions, made
planned investments in our operations, and continued our stock
repurchase program."
“As we enter the fourth quarter of fiscal
2008, we are encouraged with the amount of new engagements we have
secured and the size and make-up of our sales pipeline. We do remain
cognizant of the effects of the uncertain economic environment on our
existing business and the expenses needed for the startup of the new
business secured over the past few months. Based on these factors, we
are revising our financial guidance ranges for fiscal 2008,”
concluded Crane.
Outlook
The Company now expects revenue of approximately $1.05 billion to $1.10
billion, compared with its previous range of $1.10 billion to $1.15
billion and operating income, before any restructuring expenses, to be
at the low end of its previous guidance of 2.0% to 2.5% of revenue in
fiscal 2008. Restructuring expenses for fiscal 2008 are expected to be
$5 million to $8 million.
Conference Call Information
CMGI will hold a conference call to discuss its fiscal 2008 third
quarter results at 5:00 p.m. EDT on June 9, 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, 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 subsidiaries ModusLink®,
Open Channel Solutions and PTS Electronics, 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, visit www.cmgi.com.
CMGI is a registered trademark of CMGI, Inc., ModusLink is a
registered trademark of ModusLink Corporation, Open Channel Solutions is
a registered trademark of Open Channel Solutions, Inc. and PTS
Electronics is a trademark of PTS, Inc..
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 revenues, gross
margins to be achieved and restructuring charges to be incurred in
fiscal 2008, future sales growth, the further execution of CMGI’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 OCS 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 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 are uncertain and subject to volatility; demand
for our clients’ products may decline or may
not achieve the levels anticipated by our clients; 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; 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 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 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
(In thousands)
(Unaudited)
April 30,
April 30,
2008
2007
Assets:
Cash and cash equivalents
$
247,918
$
137,325
Available-for-sale securities
674
848
Short-term investments
-
112,100
Trade accounts receivable, net
184,888
211,953
Inventories, net
68,898
67,566
Prepaid and other current assets
10,698
13,243
Current assets of discontinued operations
17
-
Total current assets
513,093
543,035
Property and equipment, net
65,500
53,162
Investments in affiliates
35,442
26,736
Goodwill
184,159
181,376
Intangible assets, net
16,258
12,922
Other assets
12,188
3,020
$
826,640
$
820,251
Liabilities:
Current portion of capital lease obligations
$
461
$
456
Accounts payable
142,995
142,530
Current portion of accrued restructuring
5,584
4,461
Accrued income taxes
1,729
6,993
Accrued expenses
56,828
55,747
Other current liabilities
2,774
3,022
Current liabilities of discontinued operations
2,053
3,057
Total current liabilities
212,424
216,266
Revolving line of credit
-
24,786
Long-term portion of accrued restructuring
3,997
5,354
Long-term portion of capital leases obligations
78
446
Other long-term liabilities
22,783
13,211
Non-current liabilities of discontinued operations
1,136
2,256
27,994
46,053
Stockholders' equity
586,222
557,932
$
826,640
$
820,251
CMGI, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three months ended
Nine months ended
April 30,
April 30,
2008
2007
Change
2008
2007
Change
Net revenue
$
239,203
$
282,078
(15.2
%)
$
791,915
$
890,466
(11.1
%)
Cost of revenue
208,318
252,111
(17.4
%)
683,057
789,923
(13.5
%)
Gross margin
30,885
29,967
3.1
%
108,858
100,543
8.3
%
12.9
%
10.6
%
13.7
%
11.3
%
Operating expenses:
Selling
3,874
3,404
13.8
%
12,169
10,489
16.0
%
General and administrative
25,140
24,494
2.6
%
73,202
67,056
9.2
%
Amortization of intangibles
887
1,206
(26.5
%)
2,395
3,618
(33.8
%)
Restructuring, net
974
(14
)
(7057.1
%)
3,342
2,181
53.2
%
Total operating expenses
30,875
29,090
6.1
%
91,108
83,344
9.3
%
Operating income
10
877
(98.9
%)
17,750
17,199
3.2
%
Other income (expenses):
Interest income
1,464
2,551
(42.6
%)
7,129
7,395
(3.6
%)
Interest expense
(190
)
(660
)
(71.2
%)
(1,276
)
(1,901
)
(32.9
%)
Other gains (losses), net
(1,815
)
5,073
(135.8
%)
16,348
34,025
(52.0
%)
Equity in income of affiliates
471
868
(45.7
%)
1,334
2,002
(33.4
%)
Total other income (loss)
(70
)
7,832
(100.9
%)
23,535
41,521
(43.3
%)
Income (loss) from continuing operations before taxes
(60
)
8,709
(100.7
%)
41,285
58,720
(29.7
%)
Income tax expense (benefit)
3,176
(909
)
(449.4
%)
7,392
3,378
118.8
%
Income (loss) from continuing operations
(3,236
)
9,618
(133.6
%)
33,893
55,342
(38.8
%)
Discontinued operations, net of income taxes:
Income (loss) from discontinued operations
677
(203
)
(433.5
%)
(39
)
273
(114.3
%)
Net Income (loss)
$
(2,559
)
$
9,415
(127.2
%)
$
33,854
$
55,615
(39.1
%)
Basic and diluted earnings (loss) per share:
Earnings (loss) from continuing operations
$
(0.06
)
$
0.20
(130.0
%)
$
0.71
$
1.14
(37.7
%)
Income (loss) from discontinued operations
$
0.01
$
(0.01
)
(200.0
%)
$
(0.00
)
$
0.01
(100.0
%)
Net earnings (loss)
$
(0.05
)
$
0.19
(126.3
%)
$
0.71
$
1.15
(38.3
%)
Shares used in computing basic earnings (loss) per share
48,493
48,476
47,449
48,452
Shares used in computing diluted earnings (loss) per share
48,493
49,055
47,628
48,717
CMGI, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations Information
(In thousands)
(Unaudited)
Three months ended
Nine months ended
April 30,
April 30,
April 30,
April 30,
2008
2007
2008
2007
Net revenue:
Americas
$
76,037
$
87,331
$
252,812
$
314,788
Asia
70,929
76,352
242,024
219,915
Europe
92,237
118,395
297,079
355,763
$
239,203
$
282,078
$
791,915
$
890,466
Operating income (loss):
Americas
$
(2,908
)
$
608
$
5,300
$
13,424
Asia
9,057
7,660
32,234
25,412
Europe
(1,964
)
(2,734
)
(5,891
)
(8,074
)
4,185
5,534
31,643
30,762
Other
(4,175
)
(4,657
)
(13,893
)
(13,563
)
$
10
$
877
$
17,750
$
17,199
Non-GAAP operating income (loss):
Americas
$
10
$
2,243
$
13,751
$
19,611
Asia
10,926
9,800
38,226
31,328
Europe
(49
)
(645
)
(657
)
(2,228
)
10,887
11,398
51,320
48,711
Other
(3,311
)
(3,935
)
(11,365
)
(11,472
)
$
7,576
$
7,463
$
39,955
$
37,239
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 (LOSS)
NON-GAAP Operating income
$
7,576
$
7,463
$
39,955
$
37,239
Adjustments:
Depreciation
(4,204
)
(4,107
)
(12,101
)
(10,452
)
Amortization of intangible assets
(887
)
(1,206
)
(2,395
)
(3,618
)
Stock-based compensation
(1,501
)
(1,287
)
(4,367
)
(3,789
)
Restructuring, net
(974
)
14
(3,342
)
(2,181
)
GAAP Operating income
$
10
$
877
$
17,750
$
17,199
Other income, net
(70
)
7,832
23,535
41,521
Income tax expense (benefit)
3,176
(909
)
7,392
3,378
Income (loss) from discontinued operations
677
(203
)
(39
)
273
Net income (loss)
$
(2,559
)
$
9,415
$
33,854
$
55,615
TABLE RECONCILING ADJUSTED REVENUE GROWTH
Revenue (GAAP)
$
239,203
$
282,078
Less revenue from two previously announced discontinued programs
-
(33,288
)
Adjusted Revenue
$
239,203
$
248,790
Q3 Fiscal 2008 vs. Q3 Fiscal 2007
GAAP change in revenue
(15.2
%)
Adjusted change in revenue
(3.9
%)