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ModusLink Reports Financial Results for Second Quarter of Fiscal 2016

WALTHAM, Mass.--(BUSINESS WIRE)--Mar. 11, 2016-- ModusLink Global Solutions, Inc. (the “Company”) (NASDAQ: MLNK), on March 11, 2016, reported financial results for its second quarter of fiscal year 2016 ended January 31, 2016. Results for the three and six month periods ended January 31, 2016 are summarized in the following paragraphs. For a full discussion of the results, please see the Company's report on Form 10-Q, which can be accessed through www.moduslink.com.

Second Quarter Financial Summary

  • Net revenue of $120.0 million for the three months ended January 31, 2016, as compared to $148.3 million in the same period in the prior year.
  • Gross margin of 3.0% for the three months ended January 31, 2016, as compared to 11.2% in the same period in the prior year.
  • SG&A expenses of $14.8 million for the three months ended January 31, 2016, compared to $14.6 million in the same period in the prior year.
  • Operating loss of $(11.7) million for the three months ended January 31, 2016, compared to operating income of $0.6 million in the same period in the prior year.
  • Negative Adjusted EBITDA of $(7.0) million for the three months ended January 31, 2016, compared to Adjusted EBITDA of $4.7 million in the same period in the prior year.
  • Net loss of $(13.9) million, or $(0.27) per basic and diluted share, for the three months ended January 31, 2016, compared with net loss of $(1.6) million, or $(0.03) per basic and diluted share, in the same period in the prior year.

Year-to-Date Financial Summary

  • Net revenue of $261.1 million for the six months ended January 31, 2016, as compared to $335.8 million in the same period in the prior year.
  • Gross margin of 6.2% for the six months ended January 31, 2016, as compared to 10.6% in the same period in the prior year.
  • SG&A expenses of $29.0 million for the six months ended January 31, 2016, compared to $30.2 million in the same period in the prior year.
  • Operating loss of $(14.5) million for the six months ended January 31, 2016, compared to operating income of $1.8 million in the same period in the prior year.
  • Negative Adjusted EBITDA of $(6.4) million for the six months ended January 31, 2016, compared to adjusted EBITDA of $12.2 million in the same period in the prior year.
  • Net loss of $(28.7) million, or $(0.55) per basic and diluted share, for the six months ended January 31, 2016, compared with net loss of $(1.3) million, or $(0.03) per basic and diluted share, in the same period in the prior year.

The decrease in net revenue, gross margin, operating income and adjusted EBITDA for the three months ended January 31, 2016, as compared to the same period in the prior year, was primarily driven by decreased revenue associated with a consumer electronics client and an aftermarket services program related to the repair and refurbishment of mobile devices, partially offset by increases in revenue from other consumer electronics and consumer products clients. The lower revenue from the consumer electronics client affected results in the Americas and Asia. The lower revenue from the aftermarket services program affected results in the Americas.

The decrease in net revenue, gross margin, operating income and adjusted EBITDA for the six months ended January 31, 2016, as compared to the same period in the prior year, was primarily driven by decreased revenue associated with a major computing market client, an aftermarket services program related to the repair and refurbishment of mobile devices and a major consumer electronics client, partially offset by an increase in revenue from other clients in the consumer electronics and consumer products industries. The lower revenue from the computing market clients affected results in the Americas, Asia and Europe. The lower revenue from the aftermarket services program affected results in the Americas. The lower revenues from the major consumer electronics client affected results in the Americas and Asia.

For the three months ended January 31, 2016, negative Adjusted EBITDA was $(7.0) million compared to Adjusted EBITDA of $4.7 million for the same period in the prior year. EBITDA represents earnings before interest, income tax expense, depreciation and amortization, and adjusted EBITDA represents EBITDA excluding certain items. Please refer to the non-GAAP information and table reconciling the Company’s adjusted EBITDA to its GAAP net income (loss) below.

For the six months ended January 31, 2016, negative Adjusted EBITDA was $(6.4) million compared to Adjusted EBITDA of $12.2 million for the same period in the prior year. EBITDA represents earnings before interest, income tax expense, depreciation and amortization, and adjusted EBITDA represents EBITDA excluding certain items. Please refer to the non-GAAP information and table reconciling the Company’s adjusted EBITDA to its GAAP net income (loss) below.

About ModusLink Global Solutions, Inc.
ModusLink Global Solutions, Inc. (NASDAQ: MLNK), through its wholly-owned subsidiaries, ModusLink Corporation and ModusLink PTS, Inc. (together “ModusLink"), executes comprehensive supply chain and logistics services that are designed to improve clients’ revenue, cost, sustainability and customer experience objectives. ModusLink is a trusted and integrated provider to the world’s leading companies in consumer electronics, communications, computing, medical devices, software and retail. ModusLink’s operations are supported by more than 25 sites across North America, Europe, and the Asia/Pacific region. For details on ModusLink’s flexible and scalable solutions visit www.moduslink.com and www.valueunchained.com, the blog for supply chain professionals.

Non-GAAP Information
In addition to the financial measures prepared in accordance with generally accepted accounting principles, the Company uses adjusted EBITDA, a non-GAAP financial measure, to assess its performance. EBITDA represents earnings before interest, income tax expense, depreciation and amortization. We define adjusted EBITDA as EBITDA excluding the effects of SEC inquiry and financial restatement costs, strategic consulting and other related professional fees, restructuring, share-based compensation, impairment of long-lived assets, unrealized foreign exchange gains and losses, net, other non-operating gains and losses, net, and gains and losses, and equity in gains and losses, of affiliates and impairments.

We believe that providing adjusted EBITDA to investors is useful, as this measure provides important supplemental information of our performance to investors and permits investors and management to evaluate the operating performance of our core supply chain business. We use adjusted EBITDA in internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to our Board of Directors, determining a component of incentive compensation for executive officers and other key employees based on operating performance and evaluating short-term and long-term operating trends in our core supply chain business. We believe that the adjusted EBITDA financial measure assists in providing an enhanced understanding of our underlying operational measures to manage the core supply chain business, to evaluate performance compared to prior periods and the marketplace, and to establish operational goals. We believe that these non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in our financial and operational decision making.

Adjusted EBITDA is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with U.S. GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies.

A table reconciling the Company’s EBITDA and adjusted EBITDA to its GAAP net income (loss) is included in this release.

ModusLink Global Solutions is a registered trademark of ModusLink Global Solutions, Inc. All other company names and products are trademarks or registered trademarks of their respective companies.

This release contains forward-looking statements, which address a variety of subjects. All statements other than statements of historical fact, including without limitation, those with respect to the Company’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: the Company’s ability to execute on its business strategy, including any cost reduction plans and the continued and increased demand for and market acceptance of its services, which could negatively affect the Company’s ability to meet its revenue, operating income and cost savings targets, maintain and improve its cash position, expand its operations and revenue, lower its costs, improve its gross margins, reach and sustain profitability, reach its long-term objectives and operate optimally; failure to realize expected benefits of restructuring and cost-cutting actions; the Company’s ability to preserve and monetize its net operating losses; difficulties integrating technologies, operations and personnel in accordance with the Company’s business strategy; client or program losses; demand variability in supply chain management clients to which the Company sells on a purchase order basis rather than pursuant to contracts with minimum purchase requirements; failure to settle disputes and litigation on terms favorable to the Company; risks inherent with conducting international operations; and increased competition and technological changes in the markets in which the Company competes. For a detailed discussion of cautionary statements that may affect the Company’s future results of operations and financial results, please refer to the Company’s filings with the Securities and Exchange Commission, including the Company’s most recent Annual Report on Form 10-K. Forward-looking statements represent management’s current expectations and are inherently uncertain. The Company does not undertake any obligations to update forward-looking statements made by it.

         
ModusLink Global Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
 
January 31, July 31,
2016 2015
Assets:
Cash and cash equivalents $ 141,434 $ 119,431
Trading securities 27,982 78,716
Accounts receivable, net 162,044 131,216
Inventories 48,235 48,740
Funds held for clients 31,920 21,807
Prepaid and other current assets   22,794   13,732
Total current assets   434,409   413,642
Property and equipment, net 21,494 22,736
Other assets   9,455   10,124
Total assets $ 465,358 $ 446,502
 
Liabilities:
Accounts payable $ 158,564 $ 120,118
Accrued restructuring 1,075 1,528
Accrued expenses 40,311 38,970
Other current liabilities   57,662   50,737
Total current liabilities   257,612   211,353
Notes payable 80,337 77,864
Other long-term liabilities   12,550   12,684
Total liabilities   350,499   301,901
 
Stockholders' equity:   114,859   144,601
Total liabilities and stockholders' equity $ 465,358 $ 446,502
 
                       
ModusLink Global Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
 
Three Months Ended January 31, Six Months Ended January 31,
  2016     2015   Fav (Unfav)   2016     2015   Fav (Unfav)
Net revenue $ 119,966 $ 148,310 (19.1 %) $ 261,055 $ 335,754 (22.2 %)
Cost of revenue   116,311     131,716   11.7 %   244,948     300,322   18.4 %
Gross profit   3,655     16,594   (78.0 %)   16,107     35,432   (54.5 %)
3.0 % 11.2 % (8.1 %) 6.2 % 10.6 % (4.4 %)
Operating expenses:
Selling, general and administrative 14,773 14,639 (0.9 %) 29,025 30,161 3.8 %
Amortization of intangible assets - 268 - - 536 -
Impairment of long-lived assets 305 - - 305 - -
Restructuring, net   240     1,041   76.9 %   1,247     2,942   57.6 %
Total operating expenses   15,318     15,948   4.0 %   30,577     33,639   9.1 %
Operating income (loss) (11,663 ) 646 (1905.4 %) (14,470 ) 1,793 (907.0 %)
Other income (expense), net   (2,338 )   (1,853 ) (26.2 %)   (13,454 )   (1,629 ) (725.9 %)
Income (loss) before taxes (14,001 ) (1,207 ) (1060.0 %) (27,924 ) 164 (17126.8 %)
Income tax expense 206 549 62.5 % 1,056 1,706 38.1 %
(Gains) losses, and equity in losses, of affiliates, net of tax   (259 )   (200 ) 29.5 %   (259 )   (208 ) 24.5 %
Net loss $ (13,948 ) $ (1,556 ) (796.4 %) $ (28,721 ) $ (1,334 ) (2053.0 %)
 
Basic net loss per share $ (0.27 ) $ (0.03 ) $ (0.55 ) $ (0.03 )
Diluted net loss per share $ (0.27 ) $ (0.03 ) $ (0.55 ) $ (0.03 )
 
Weighted average common shares used in:
Basic earnings per share 51,879 51,646 52,039 51,888
Diluted earnings per share 51,879 51,646 52,039 51,888
 
                 
ModusLink Global Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations Information by Operating Segment
(in thousands)
(unaudited)
 
Three Months Ended January 31, Six Months Ended January 31,
2016   2015   2016   2015  
 

Net revenue:

 

Americas

$ 28,208 $ 53,242 $ 61,419 $ 135,040
Asia 44,476 45,493 98,407 88,448
Europe 38,656 40,626 83,399 95,041
e-Business   8,626     8,949     17,830     17,225  
Total net revenue $ 119,966   $ 148,310   $ 261,055   $ 335,754  
 

Operating income (loss):

 

Americas

$ (4,911 ) $ (139 ) $ (7,997 ) $ 1,479
Asia (325 ) 4,677 3,046 8,030
Europe (4,239 ) (952 ) (5,270 ) (2,330 )
e-Business   (397 )   361     (901 )   522  
Total segment operating income (loss) (9,872 ) 3,947 (11,122 ) 7,701
Corporate-level activity   (1,791 )   (3,301 )   (3,348 )   (5,908 )
Total operating income (loss) $ (11,663 ) $ 646   $ (14,470 ) $ 1,793  
 
 
ModusLink Global Solutions, Inc. and Subsidiaries
Reconciliation of Selected Non-GAAP Measures to GAAP Measures
(in thousands)
(unaudited)
Net loss to Adjusted EBITDA1                  
  Three Months Ended January 31, Six Months Ended January 31,
2016 2015 2016 2015
 
Net income (loss) $ (13,948 ) $ (1,556 ) $ (28,721 ) $ (1,334 )
 
Interest income (114 ) (355 ) (202 ) (419 )
Interest expense 2,777 2,619 5,506 5,286
Income tax expense 206 549 1,056 1,706
Depreciation 1,919 1,919 3,874 4,729
Amortization of intangible assets - 268 - 536
       
EBITDA (9,160 ) 3,444 (18,487 ) 10,504
 
SEC inquiry and financial restatement costs 345 30 167 7
Strategic consulting and other related professional fees 277 232 284 609
Restructuring 240 1,041 1,247 2,942
Share-based compensation 502 446 958 855
Impairment of long-lived assets 305 - 305 -
Unrealized foreign exchange (gains) losses, net 1,087 (1,537 ) 1,816 (1,591 )
Other non-operating (gains) losses, net (384 ) 1,224 7,540 (899 )
(Gains) losses, and equity in losses, of affiliates and impairments (259 ) (200 ) (217 ) (208 )
       
Adjusted EBITDA $ (7,047 ) $ 4,680   $ (6,387 ) $ 12,219  
 

1 The Company defines Adjusted EBITDA as net income (loss) excluding net charges related to interest income, interest expense, income tax expense, depreciation, amortization of intangible assets, SEC inquiry and financial restatement costs, strategic consulting and other related professional fees, restructuring, share-based compensation, impairment of long-lived assets, unrealized foreign exchange gains and losses, net, other non-operating gains and losses, net, and gains and losses, and equity in losses, of affiliates and impairments.

Source: ModusLink Global Solutions, Inc.

ModusLink Global Solutions, Inc.
Mary Conway, 781-663-5012
ir@moduslink.com