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| CMGI Reports Financial Results For Second Quarter Of Fiscal 2007 |
Company Reports Strong Improvement in Operating Results and Net Income
Waltham, Mass. February 26, 2007 -- CMGI, Inc. (Nasdaq: CMGI) today reported financial results for its second quarter of fiscal year 2007, ended January 31, 2007. Financial Summary
Second Quarter Consolidated Financial Results CMGI reported net revenue of $324.8 million for the second quarter of fiscal 2007, compared to net revenue of $318.8 million for the same period one year ago, a $6.0 million or 1.9% increase. Operating income was $11.3 million for the second quarter of fiscal 2007 compared to an operating loss of $1.7 million in the prior period, an improvement of $13.0 million year over year. The operating income improvement was primarily driven by an increase in gross margins from 9.5% to 12.5% year over year and lower restructuring costs. Contributing factors to the gross margin improvement included strong volumes in Asia from certain higher margin programs, improved work mix in the Americas and new business wins and productivity gains in Europe. Compared to the Company's third and fourth fiscal quarters, gross margin percentage is typically strongest in the second quarter due to seasonality-based demand for certain of the Company's clients' products. In addition, the Company recorded $2.9 million of lower restructuring costs as compared to the prior year. During the quarter, CMGI also continued to invest in its strategic initiatives which are focused on penetrating new target vertical markets including Communications, Storage and Consumer Electronics, expanding service offerings, deploying a new Enterprise Resource Planning (ERP) technology platform and implementing a shared services model, which includes consolidating IT and finance infrastructures. These investments totaled approximately $3.1 million during the quarter, of which approximately $2.1 million was recorded as an operating expense in the period, with the remainder capitalized on the balance sheet. "We have been making meaningful progress across our business and are beginning to see improved results from our efforts," said Joseph C. Lawler, Chairman, President and Chief Executive Officer of CMGI. "Our increase in revenue was achieved despite a $20.9 million decline in revenue related to a previously announced program change for a single client." Excluding net charges related to depreciation, amortization of intangibles, stock-based compensation and restructuring, CMGI reported non-GAAP operating income of $19.5 million for the second quarter of fiscal 2007 versus non-GAAP operating income of $8.8 million for the same period in fiscal 2006, a $10.7 million or 122% improvement. The increase in non-GAAP operating income primarily reflects the operating income improvements noted above. For the second quarter, CMGI reported net income of $35.9 million or $0.07 diluted earnings per share, compared to a net loss of $6.3 million or $0.02 diluted loss per share for the same period in the prior fiscal year. Net income primarily reflects the improved operating income performance as well as a gain of $28.7 million from the acquisition by EMC Corporation of Avamar Technologies, a company in which @Ventures held an investment. "Our @Ventures business continues to provide significant liquidity and new investment opportunities," said Lawler. As of January 31, 2007, CMGI had working capital of approximately $319.4 million compared with $259.7 million at January 31, 2006. Included in working capital as of January 31, 2007 were cash, cash equivalents and marketable securities totaling $275.0 million compared to $163.0 million at January 31, 2006. "Looking forward, in our supply chain business we believe that executing on our strategy of pursuing higher margin services in our target vertical markets, introducing new solutions and investing in operational improvements will help us achieve long term growth," added Lawler. "I expect that we will see some changes in our client base and work mix, with work from our target markets supplementing or replacing work from our more established markets of computing and software." The Company was recently informed that a business unit of Hewlett Packard intends to migrate away from ModusLink Corporation a program which accounts for approximately $100.0 million of annual revenue. The operating income associated with this program is estimated at less than $3.0 million per year. The Company expects volumes associated with this program to decline late in the third quarter and does not expect the loss of this program to have a significant impact on results for this year. "While this program represents a sizable amount of revenue, its working capital requirements are high and its gross margins and operating margins are well below those of our financial goals," said Lawler. "We believe exiting this program will contribute to the achievement of our long-term financial goals." Outlook The Company currently expects revenues of approximately $1.10 billion in fiscal 2007. With respect to gross margin percentage, while the Company does not expect second half gross margin levels to approximate the levels achieved in the second quarter, the Company does expect full year gross margin percentage to show improvement over the prior year. Conference Call Information CMGI will hold a conference call to discuss its fiscal 2007 second quarter results at 5:00 PM Eastern Time on February 26, 2007. 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 and gross margins to be achieved in fiscal 2007, the further execution of ModusLink's strategic business plan and impact of that plan, the expected impact of strategic initiatives and restructuring actions, our assessment of the expected impact of the loss of the program referenced in this release, our assessment of the supply chain management industry and the opportunities afforded ModusLink in that industry and the prospects for the Company's @Ventures business. 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 and sustain profitability, depends on its ability to execute on its business strategy and the continued and increased demand for and market acceptance of its products and services; 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 are subject to demand variability; 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 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)
January 31, July 31, January 31,
2007 2006 2006
--------- --------- ---------
Assets:
Cash and cash equivalents $ 159,049 $ 131,728 $ 159,701
Available-for-sale securities 1,000 2,554 3,274
Short-term investments 115,000 94,450 -
Trade accounts receivable, net 196,406 175,391 215,925
Inventories, net 85,453 77,887 92,163
Prepaid and other current assets 11,238 11,638 9,094
Current assets of discontinued operations - 1,962 1,733
--------- --------- ---------
Total current assets 568,146 495,610 481,890
--------- --------- ---------
Property and equipment, net 50,915 46,020 42,942
Investments in affiliates 27,214 20,655 27,957
Goodwill 179,314 181,239 181,925
Intangible assets, net 14,128 16,540 18,952
Other assets 3,017 3,139 3,586
Non-current assets of
discontinued operations - - 2,362
--------- --------- ---------
$ 842,734 $ 763,203 $ 759,614
========= ========= =========
Liabilities:
Current portion of capital
lease obligations $ 444 $ 321 $ 305
Accounts payable 180,600 151,077 156,499
Current portion of accrued restructuring 6,047 5,368 8,767
Accrued income taxes 7,035 5,502 3,393
Accrued expenses 48,712 43,526 48,291
Other current liabilities 3,077 2,819 2,948
Current liabilities of
discontinued operations 2,878 4,775 1,999
--------- --------- ---------
Total current liabilities 248,793 213,388 222,202
--------- --------- ---------
Revolving line of credit 24,786 24,786 35,786
Long-term portion of accrued restructuring 5,511 6,831 7,754
Long-term portion of capital
leases obligations 527 548 675
Other long-term liabilities 13,775 15,629 17,423
Non-current liabilities of
discontinued operations 2,856 4,106 98
--------- --------- ---------
47,455 51,900 61,736
Stockholders' equity 546,486 497,915 475,676
--------- --------- ---------
$ 842,734 $ 763,203 $ 759,614
========= ========= =========
CMGI, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three months ended Six months ended
January 31, October 31, January 31, January 31, January 31,
2007 2006 2006 2007 2006
-------- -------- --------- --------- ---------
Net revenue $324,752 $283,636 $318,849 $608,388 $622,258
Operating expenses:
Cost of revenue 284,219 253,593 288,445 537,812 560,882
Selling 3,320 3,765 5,293 7,085 10,681
General and
administrative 22,356 20,206 20,276 42,562 41,393
Amortization of
intangibles 1,206 1,206 1,206 2,412 2,412
Restructuring, net 2,382 (187) 5,326 2,195 6,303
-------- -------- --------- --------- ---------
Total operating
expenses 313,483 278,583 320,546 592,066 621,671
-------- -------- --------- --------- ---------
Operating income(loss) 11,269 5,053 (1,697) 16,322 587
Other income
(expenses):
Interest income 2,652 2,192 1,384 4,844 2,557
Interest expense (637) (604) (722) (1,241) (1,274)
Other gains (losses)
, net 28,030 922 (1,119) 28,952 2,117
Equity in
income(losses)
of affiliates 398 736 5 1,134 (398)
--------- --------- --------- --------- ---------
Total other
income (loss) 30,443 3,246 (452) 33,689 3,002
--------- --------- --------- --------- ---------
Income (loss) from
continuing operations
before taxes 41,712 8,299 (2,149) 50,011 3,589
Income tax expense
(benefit) 5,727 (1,440) 758 4,287 1,701
--------- --------- --------- --------- ---------
Income (loss) from
continuing operations 35,985 9,739 (2,907) 45,724 1,888
Discontinued
operations, net of
income taxes:
Income (loss) from
discontinued
operations (112) 588 (3,408) 476 (6,071)
-------- -------- --------- --------- ---------
Net income (loss) $ 35,873 $ 10,327 $ (6,315) $ 46,200 $ (4,183)
======== ======== ========= ========= =========
Basic and diluted
earnings (loss) per
share:
Earnings (loss)
from continuing
operations $ 0.07 $ 0.02 $ (0.01) $ 0.09 $ 0.00
Income (loss) from
discontinued
operations $ (0.00) $ 0.00 $ (0.01) $ 0.00 $ (0.01)
-------- -------- --------- --------- ---------
Earnings (loss) $ 0.07 $ 0.02 $ (0.02) $ 0.09 $ (0.01)
======== ======== ========= ========= =========
Shares used in
computing basic
earnings (loss)
per share 484,628 484,387 482,727 484,488 482,373
======== ======== ========= ========= =========
Shares used in
computing diluted
earnings (loss)
per share
486,683 485,729 482,727 485,958 487,351
======== ======== ========= ========= =========
CMGI, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations Information
(In thousands)
(Unaudited)
Three months ended Six months ended
January 31, October 31, January 31, January 31, January 31,
2007 2006 2006 2007 2006
-------- -------- --------- --------- ---------
Net revenue:
------------
Americas $121,292 $106,165 $144,076 $227,457 $273,440
Asia 77,116 66,447 62,951 143,563 123,668
Europe 126,344 111,024 111,822 237,368 225,150
-------- -------- --------- --------- ---------
$324,752 $ 283,636 $318,849 $ 608,388 $ 622,258
======== ======== ========= ========= =========
Operating income (loss):
------------------------
Americas $ 7,370 $ 5,446 $ 8,722 $ 12,816 $ 11,470
Asia 10,779 6,973 5,737 17,752 11,228
Europe (1,913) (3,427) (12,117) (5,340) (14,040)
-------- -------- --------- --------- ---------
16,236 8,992 2,342 25,228 8,658
Other (4,967) (3,939) (4,039) (8,906) (8,071)
-------- -------- --------- --------- ---------
$ 11,269 $ 5,053 $ (1,697) $ 16,322 $ 587
======== ======== ========= ========= =========
Non-GAAP operating income (loss):
---------------------------------
Americas $ 10,598 $ 6,770 $ 10,746 $ 17,368 $ 15,656
Asia 12,721 8,807 7,451 21,528 14,465
Europe 498 (2,081) (6,675) (1,583) (6,642)
-------- -------- --------- --------- ---------
23,817 13,496 11,522 37,313 23,479
Other (4,286) (3,251) (2,715) (7,537) (5,687)
-------- -------- --------- --------- ---------
$ 19,531 $ 10,245 $ 8,807 $ 29,776 $ 17,792
======== ======== ========= ========= =========
Note: Non-GAAP operating income represents
total operating income (loss), 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 (LOSS) AND NET INCOME (LOSS)
Non-GAAP Operating
income $ 19,531 $ 10,245 $ 8,807 $ 29,776 $ 17,792
Adjustments:
Depreciation (3,442) (2,903) (2,193) (6,345) (4,701)
Amortization of
intangible assets (1,206) (1,206) (1,206) (2,412) (2,412)
Stock-based
compensation (1,232) (1,270) (1,779) (2,502) (3,789)
Restructuring,net (2,382) 187 (5,326) (2,195) (6,303)
-------- -------- --------- --------- ---------
GAAP Operating
income (loss) $ 11,269 $ 5,053 $ (1,697) $ 16,322 $ 587
-------- -------- --------- --------- ---------
Other income
(loss), net 30,443 3,246 (452) 33,689 3,002
Income tax
expense (benefit) 5,727 (1,440) 758 4,287 1,701
Income (loss) from
discontinued
operations (112) 588 (3,408) 476 (6,071)
-------- -------- --------- --------- ---------
Net income (loss) $ 35,873 $ 10,327 $ (6,315) $ 46,200 $ (4,183)
======== ======== ========= ========= =========
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