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CMGI Reports Financial Results For Second Quarter Of Fiscal 2007

Financials

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

  • Net revenue increased 1.9% from prior year to $324.8 million
  • Gross margins improved to 12.5% compared with 9.5% in the prior year period
  • Operating income improved to $11.3 million or 3.5% of revenue from an operating loss of $1.7 million in the prior year
  • Non-GAAP operating income more than doubled, to $19.5 million from $8.8 million in the second quarter of the prior year
  • Net income increased to $35.9 million compared to a net loss of $6.3 million in the same period last year
  • Cash, cash equivalents and marketable securities at January 31, 2007 increased to $275.0 million from $163.0 million at January 31, 2006

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) 
                      ========    ========   =========   =========   =========