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)
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