ModusLink Global Solutions Posts 2009 4Q and Fiscal Year Financial Results

Thu. October 01, 2009; Posted: 11:36 PM

"We continued to execute our plans in the context of a very difficult economic environment where we see lower unit volumes moving through the global supply chain," said Joseph C. Lawler, chairman, president and chief executive officer. "While these dynamics have an impact on our revenue, we are encouraged by how our value proposition is being received in the marketplace as clients continue to see the benefits of outsourcing to ModusLink. Although lower than the record level in the year ago period, revenue from new engagements continued to be strong in the fourth quarter, concluding a year where revenue from new engagements was significantly higher than in any prior year."

"We have been responding to market conditions over the past several quarters by implementing cost reduction initiatives while maintaining the highest level of client service, and our progress is reflected in our performance for the fourth quarter," continued Lawler. "Compared to the fourth quarter of last year, our financial results include improvement in gross margin, SG&A expense and operating income, while generating positive free cash flow from operations, despite lower unit volume."

"Looking forward, visibility in the face of challenging market conditions remains limited. We continue to see lower unit volume move through the supply chain and caution among our clients regarding implementing new programs. However, we believe that our value proposition, which centers on our ability to help clients reduce supply chain costs and improve time to market, as well as our lower cost structure and strong balance sheet will position us for improved financial performance as unit volumes improve. In the meantime, our focus remains on managing expenses and providing quality service to our clients," concluded Lawler.

In a release on September 29, the Company reported net revenue of $225.2 million for the fourth quarter of fiscal 2009, a decrease of 18.5 percent, compared to net revenue of $276.3 million reported in the fourth quarter of fiscal 2008. Compared to the same period last year, fourth quarter fiscal 2009 revenue from new engagements decreased by approximately $10.9 million, or 21.8 percent, and revenue from the Company's base business declined by approximately $40.2 million or 17.8 percent. Included in the financial results for the fourth quarter of 2009 was $12.8 million of revenue from ModusLink Open Channel Solutions (ModusLink OCS) and ModusLink PTS, a decline of 6.6 percent compared to the fourth quarter of fiscal 2008. ModusLink OCS and ModusLink PTS were acquired in the third quarter of fiscal 2008 and the fourth quarter of fiscal 2008, respectively.

Gross profit for the fourth quarter of fiscal 2009 was $29.7 million, or 13.2 percent of revenue, compared to $28.7 million, or 10.4 percent of revenue, in the fourth quarter of fiscal 2008. The increase in gross margin as a percentage of revenue was primarily due to favorable product mix and previously announced cost reduction initiatives.

Operating income for the fourth quarter of fiscal 2009 improved to $0.9 million compared to an operating loss of $17.4 million in the fourth quarter of fiscal 2008. The improvement was due in part to a $7.2 million, or 25.3 percent, reduction in Selling General & Administrative expenses, partially offset by a $4.0 million increase in restructuring costs. In addition, operating income in the fourth quarter of fiscal 2008 included a $14.0 million impairment of goodwill charge, which was not present in the fourth quarter of 2009.

Other income (expense) was an expense of $4.9 million in the fourth quarter of fiscal 2009 compared to an expense of $0.2 million in the fourth quarter of fiscal 2008. This change was primarily due to foreign exchange transaction losses and the impact of the impairment of investments in the @Ventures portfolio in 2009.

Net loss for the fourth quarter of 2009 was $4.1 million, or ($0.09) per share, compared to net loss of $24.7 million, or ($0.53) per share, for the same period in fiscal 2008. Fourth quarter fiscal 2009 results included income from discontinued operations of $36 thousand, or $0.00 per share, compared to a loss of $4.1 million, or $(0.09) per share, in fiscal 2008.

Excluding net charges related to depreciation, amortization of intangibles, stock-based compensation, restructuring and non-cash charges, the Company reported non-GAAP operating income of $15.3 million for the fourth quarter of fiscal 2009, a 145.1 percent increase from $6.3 million for the same period in fiscal 2008.

As of July 31, the Company had working capital of approximately $237.0 million compared to $236.7 million at April 30, and $238.7 million at July 31, 2008. Included in working capital as of July 31, were cash, cash equivalents, short-term investments and marketable securities totaling $179.2 million compared to $167.8 million at April 30, and $162.1 million at July 31, 2008. The Company concluded the quarter with no outstanding bank debt.

"During the fourth quarter, ModusLink continued reducing expenses and increasing operational efficiencies, which contributed to more than $20 million in combined cost savings between cost of sales and SG&A for the full fiscal year," said Steven G. Crane, chief financial officer. "In addition, the Company increased its cash position by $11.4 million compared to the third quarter of 2009, primarily driven by $12.8 million of free cash flow from operations. We continue to be supported by a strong balance sheet, which is important in a market where financial strength and liquidity are key competitive differentiators."

"As we enter the seasonally strong first quarter of fiscal 2010, we expect revenues to be higher than the fourth quarter of fiscal 2009, although lower than the comparable year ago period," continued Crane. "In addition, we expect to generate free cash flow from operations in the first quarter of fiscal 2010, although lower than in the fourth quarter of fiscal 2009 as a result of seasonal working capital increases."

In a release, the Company noted that net revenue of $1,009 million for the fiscal year ended July 31, compared to $1,068 million reported for the 2008 fiscal year. Gross margin was $122.4 million, or 12.1 percent of revenue, for fiscal 2009, compared to $137.6 million, or 12.9 percent of revenue, for fiscal 2008.

Operating loss for fiscal 2009 was $167.7 million, which included a non-cash goodwill impairment charge of $164.7 million, reported in the second quarter of fiscal 2009, as well as restructuring charges of $19.6 million, related to the company's cost reduction initiatives. Operating income for fiscal 2008 was $0.4 million, which included a non-cash goodwill impairment charge of $14 million and restructuring charges of $5.5 million. Operating results for fiscal 2009 benefited from a $13.6 million, or 11.9 percent decrease, in SG&A expenses compared to fiscal 2008.

Net loss for fiscal 2009 was $193.5 million, or ($4.26) per share, compared to net income of $9.1 million, or $0.19 per share, for the prior year.

Excluding the effects of charges related to depreciation, amortization of intangibles, stock-based compensation, restructuring and non-cash goodwill charges, the Company reported non-GAAP operating income of $47.1 million for the 2009 fiscal year compared to non-GAAP operating income of $46.2 million for the prior fiscal year.

Stock Repurchase Program Update

During the fourth quarter of 2009, the Company repurchased 565,000 shares for aggregate consideration of $3.8 million. These purchases were made in open market transactions under the Company's stock repurchase program, which was announced on June 9, and pursuant to which the Company has authorized the repurchase of up to $15 million of common stock over a 12-month period.

ModusLink Global Solutions, Inc. is a company engaged in global supply chain business process management.

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