Exhibit 99.1
PRESS RELEASE
CMGI REPORTS FINANCIAL RESULTS FOR SECOND QUARTER OF FISCAL 2007
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 atwww.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, seewww.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.
Contacts: |
Investors-Financial |
David Riley |
Interim Chief Financial Officer |
781-663-5012 |
ir@cmgi.com |
or |
Media |
Bob Joyce |
Financial Dynamics |
617-747-3620 |
bob.joyce@fd.com |
CMGI, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
| January 31, 2007 | July 31, 2006 | January 31, 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, 2007 | October 31, 2006 | January 31, 2006 | January 31, 2007 | January 31, 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, 2007 | October 31, 2006 | January 31, 2006 | January 31, 2007 | January 31, 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 | ) | ||||||||