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CMGI Reports Financial Results for Third Quarter of Fiscal 2008

WALTHAM, Mass.--(BUSINESS WIRE)--June 9, 2008--CMGI(R), 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(R) 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(R), 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
                                                April 30,

                                   -----------------------------------

                                       2008          2007     Change

                                   -----------------------------------

Net revenue                         $  239,203    $  282,078   (15.2%)
Cost of revenue                        208,318       252,111   (17.4%)

                                   -----------------------------------
    Gross margin                        30,885        29,967     3.1%
                                   -----------------------------------
                                          12.9%         10.6%
Operating expenses:
    Selling                              3,874         3,404    13.8%
    General and administrative          25,140        24,494     2.6%
    Amortization of intangibles            887         1,206   (26.5%)
    Restructuring, net                     974           (14)(7057.1%)
                                   -----------------------------------
       Total operating expenses         30,875        29,090     6.1%
                                   -----------------------------------

Operating income                            10           877   (98.9%)

Other income (expenses):
    Interest income                      1,464         2,551   (42.6%)
    Interest expense                      (190)         (660)  (71.2%)
    Other gains (losses), net           (1,815)        5,073  (135.8%)
    Equity in income of affiliates         471           868   (45.7%)
                                   -----------------------------------
       Total other income (loss)           (70)        7,832  (100.9%)
                                   -----------------------------------


Income (loss) from continuing
 operations before taxes                   (60)        8,709  (100.7%)
Income tax expense (benefit)             3,176          (909) (449.4%)
                                   -----------------------------------
       Income (loss) from
        continuing operations           (3,236)        9,618  (133.6%)

Discontinued operations, net of
 income taxes:
     Income (loss) from
      discontinued operations              677          (203) (433.5%)
                                   -----------------------------------


Net Income (loss)                   $   (2,559)   $    9,415  (127.2%)
                                   ===================================


Basic and diluted earnings (loss)
 per share:

   Earnings (loss) from continuing
    operations                      $    (0.06)   $     0.20  (130.0%)

   Income (loss) from discontinued
    operations                      $     0.01    $    (0.01) (200.0%)
                                   -----------------------------------

   Net earnings (loss)              $    (0.05)   $     0.19  (126.3%)
                                   ===================================


Shares used in computing basic
 earnings (loss) per share              48,493        48,476
                                   ==========================

Shares used in computing diluted
 earnings (loss) per share              48,493        49,055
                                   ==========================


                                            Nine months ended
                                                April 30,

                                   -----------------------------------

                                       2008          2007     Change

                                   -----------------------------------

Net revenue                         $  791,915    $  890,466   (11.1%)
Cost of revenue                        683,057       789,923   (13.5%)

                                   -----------------------------------
    Gross margin                       108,858       100,543     8.3%
                                   -----------------------------------
                                          13.7%         11.3%
Operating expenses:
    Selling                             12,169        10,489    16.0%
    General and administrative          73,202        67,056     9.2%
    Amortization of intangibles          2,395         3,618   (33.8%)
    Restructuring, net                   3,342         2,181    53.2%
                                   -----------------------------------
       Total operating expenses         91,108        83,344     9.3%
                                   -----------------------------------

Operating income                        17,750        17,199     3.2%

Other income (expenses):
    Interest income                      7,129         7,395    (3.6%)
    Interest expense                    (1,276)       (1,901)  (32.9%)
    Other gains (losses), net           16,348        34,025   (52.0%)
    Equity in income of affiliates       1,334         2,002   (33.4%)
                                   -----------------------------------
       Total other income (loss)        23,535        41,521   (43.3%)
                                   -----------------------------------


Income (loss) from continuing
 operations before taxes                41,285        58,720   (29.7%)
Income tax expense (benefit)             7,392         3,378   118.8%
                                   -----------------------------------
       Income (loss) from
        continuing operations           33,893        55,342   (38.8%)

Discontinued operations, net of
 income taxes:
     Income (loss) from
      discontinued operations              (39)          273  (114.3%)
                                   -----------------------------------


Net Income (loss)                   $   33,854    $   55,615   (39.1%)
                                   ===================================


Basic and diluted earnings (loss)
 per share:

   Earnings (loss) from continuing
    operations                      $     0.71    $     1.14   (37.7%)

   Income (loss) from discontinued
    operations                      $    (0.00)   $     0.01  (100.0%)
                                   -----------------------------------

   Net earnings (loss)              $     0.71    $     1.15   (38.3%)
                                   ===================================


Shares used in computing basic
 earnings (loss) per share              47,449        48,452
                                   ==========================

Shares used in computing diluted
 earnings (loss) per share              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%)

CONTACT: Investors-Financial
CMGI(R), Inc.
Steven G. Crane, 781-663-5012
Chief Financial Officer
ir@cmgi.com
or
Media
Bob Joyce, 617-747-3620
Financial Dynamics
bob.joyce@fd.com

SOURCE: CMGI(R), Inc.