CMGI Announces Second Quarter Fiscal 2006 Financial Results
Monday March 6, 4:14 pm ET
Delivers 9% Year over Year Increase in Revenue and Continues Investing in Strategic Initiatives
WALTHAM, Mass.--(BUSINESS WIRE)--March 6, 2006--CMGI, Inc. (Nasdaq: CMGI - News) today reported financial results for its fiscal 2006 second quarter ended January 31, 2006.
Business Highlights
ModusLink:
* Awarded 22 new engagements, with expected annualized revenue of $68.7 million
* Merged Europe and Asia Operations into single international business, reducing SG&A by $5 million on an annualized basis
* Reported 46% of new business from new target markets - Communications, Storage and Consumer Electronics
* Expanded footprint in China to seven solution centers, including ModusLink's third solution center in Shanghai
@Ventures:
* Completed second investment in Advent Solar, a solar cell technology company
* Made additional investment in ObjectVideo, a developer of intelligent video surveillance technology
* Subsequent to quarter, had a successful liquidity event of $21.2 million from merger of portfolio company, WebCT with Blackboard
Second Quarter Consolidated Financial Results
CMGI reported net revenue of $318.8 million for its second quarter ended January 31, 2006. This compares to net revenue of $292.0 million for the same period one year ago, a $26.8 million or 9% increase year over year.
CMGI reported an operating loss of $1.7 million for the second quarter, compared to operating income of $10.8 million for the second quarter of fiscal 2005. The $12.5 million decrease in operating income was primarily the result of an $8.3 million decline in gross margins and a $4.3 million increase in restructuring charges, as compared to the same period of the prior year. The decline in gross margins was primarily attributable to $5.1 million of cost needed to support a larger than anticipated surge in demand for a significant client's products during the holiday season. Overall gross margins were also negatively impacted by price concessions made last Spring and form factor changes, partially offset by cost of material savings and increased business volumes. The restructuring expense during the second quarter primarily reflects actions taken to drive operational efficiencies in Europe and lower our overall costs. Management believes these restructuring actions will lower CMGI's operating costs in Europe by more than $5.0 million on an annualized basis.
During the second quarter CMGI continued to invest in its strategic initiatives focused on penetrating new target verticals, expanding service offerings, deploying a new ERP technology platform, and advancing global hub and spoke initiatives, such as consolidating IT and finance infrastructures. These actions resulted in incremental operating expenses during the quarter of $2.7 million versus the same period in the prior year.
"During the quarter we continued to grow revenue and are on track to meet our target of double-digit growth for the fiscal year," said Joseph C. Lawler, President and Chief Executive Officer of CMGI. "Revenue growth during the quarter was primarily due to increased traction with our strategy of expanding our service offering and targeting new, high growth markets, which accounted for 46% of new business. This quarter we expected operating income to be lower than the prior year, due to planned investments in support of our strategic initiatives including entry into new target markets, expanding our service offering as well as planned restructuring expenses, and price concessions. Our operating loss, however, was also affected by increased costs needed to support a larger than anticipated surge in demand from one significant client. Our actions to support this client at a critical time in their sales season, has resulted in a continued strong relationship. Although we are disappointed that significant expense was necessary, we have made a thorough assessment and made needed changes. As a result, we don't expect these costs to be repeated in the future."
Excluding the effects of charges related to depreciation, amortization of intangibles, stock-based compensation and restructuring, CMGI reported non-GAAP operating income of $8.8 million for the second quarter of fiscal 2006 versus non-GAAP operating income of $17.3 million for the same period in the prior fiscal year. The year over year decline in non-GAAP operating income primarily reflects the impact of the $8.3 million decline in gross margin, as described above.
For the quarter, CMGI reported a net loss of $6.3 million compared to net income of $7.2 million for the same period in the prior fiscal year. The year over year change in net income reflects the operating income decline and a $1.5 million increase in loss from discontinued operations.
"Looking forward, we continue to be excited about new opportunities for growth in the supply chain marketplace," continued Lawler. "Increasingly, we are seeing more organizations looking to leverage the knowledge and experience of global outsource partners to reduce costs, increase speed to market, mitigate risk and enhance end-user satisfaction. ModusLink is well positioned to become the supply chain partner of choice given its breadth of integrated services efficiently delivered across the globe."
"In our venture capital operations, we are excited by the potential presented by clean energy technologies and believe they represent opportunity for a significant return on investment," added Lawler. "We recently completed an additional investment in Advent Solar, which plans to use the funds from its recent Series C financing round to build a full-scale production facility to manufacture photovoltaic solar cells. We have a talented team at @Ventures and we look forward to their continued contributions to CMGI's performance."
As of January 31, 2006, CMGI had working capital of approximately $259.7 million compared with $224.6 million at July 31, 2005 and $248.1 million at October 31, 2005. Due to our customers' seasonality during the first half of our fiscal year, the Company builds up its working capital as reflected by a $53.0 million increase in the accounts receivable balance since July 31, 2005. Management expects the Company's cash, cash equivalents and marketable securities balance to increase in the third quarter both from operations and the receipt of $21.2 million in proceeds from the merger of WebCT and Blackboard that closed on February 28, 2006.
Conference Call Information
CMGI will hold a conference call to discuss its fiscal 2006 second quarter results at 5:00 PM Eastern Time on March 6, 2006. 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 - News), through its subsidiary, ModusLink, provides technology and products solutions that help businesses market, sell and distribute their products and services. In addition, CMGI's venture capital affiliate, @Ventures, invests in a variety of technology ventures. For additional information, see www.cmgi.com. |
