ModusLink Global Solutions Reports Financial Results for Third Quarter of Fiscal 2013 Business Wire WALTHAM, Mass. -- June 10, 2013 ModusLink Global Solutions^™, Inc. (NASDAQ: MLNK) today reported financial results for its third quarter of fiscal year 2013 ended April 30, 2013. A quarterly report on Form 10-Q for the period can be accessed through www.moduslink.com. Financial Summary *Net revenue of $173.0 million, comparable to $173.6 million in the third quarter of fiscal 2012 *Gross margin, as a percentage of revenue, of 8.9%, compared to 9.2% in the third quarter of fiscal 2012 *SG&A expenses of $19.3 million, a 13.9% decline compared to $22.4 million in the same quarter of the previous year *Operating loss of $6.8 million, compared to operating loss of $7.9 million in the third quarter of fiscal 2012 *Non-GAAP operating income of $0.4 million, compared to non-GAAP operating loss of $2.6 million in the third quarter of fiscal 2012 *Working capital of $120.2 million, compared to $113.5 million at July 31, 2012 Consolidated Financial Results For the third quarter of fiscal 2013, ModusLink reported net revenue of $173.0 million, comparable to net revenue of $173.6 million reported in the third quarter of fiscal 2012. Revenue results for the third quarter of fiscal 2013 reflect growth from a program for a consumer electronics client and a consumer products client, as well as the negative effects of lower unit volumes from certain client programs related to the personal computer market. Revenue from new programs in the third quarter of fiscal 2013 was $23.8 million, compared to $21.1 million in the same period last year, an increase of 12.8%. Driving the increase was the engagement with the consumer electronics client, which commenced several new programs in recent quarters and contributed to revenue in all regions. ^(1) Gross profit was $15.4 million, or 8.9% of revenue, in the third quarter of fiscal 2013, compared to $15.9 million, or 9.2% of revenue, in the third quarter of fiscal 2012. The decrease in gross margin was primarily due to unfavorable revenue mix, partially offset by favorable effects of the Company’s cost reduction actions. Selling, general and administrative expenses (SG&A) for the third quarter of fiscal 2013 declined 13.9% to $19.3 million, compared to $22.4 million in the same quarter of fiscal 2012. The reduction was primarily due to cost reduction actions taken by the Company. Restructuring expenses for the third quarter of fiscal 2013 were $2.6 million. The restructuring expenses primarily related to cost reduction actions and included employee severance costs, mainly from actions taken in Europe. Since the beginning of fiscal 2013, ModusLink has reduced its global workforce by approximately 13%, which includes the effects of the sale of the Tech for Less business. Operating loss for the third quarter of fiscal 2013 was $6.8 million, compared to operating loss of $7.9 million in the third quarter of fiscal 2012. Other expense for the third quarter of fiscal 2013 was $1.1 million, compared to other income of $3.8 million in the third quarter of fiscal 2012. Other expense for the third quarter of fiscal 2013 was comprised primarily of losses associated with the Company’s @Ventures portfolio and foreign exchange transaction losses. Other income for the third quarter of the previous year included a $2.8 million impairment charge associated with the Company’s @Ventures portfolio, which was offset by a gain of $7.5 million as a result of the extinguishment of accrued pricing liabilities. Net loss from continuing operations for the third quarter of fiscal 2013 was $8.2 million, or ($0.17) per share, compared to net loss from continuing operations of $2.9 million, or ($0.07) per share, for the third quarter of fiscal 2012. Including results from discontinued operations, net loss for the third quarter of fiscal 2013 was $8.3 million, or ($0.17) per share, compared to net loss of $6.1 million, or ($0.14) per share, for the same period in fiscal 2012. Excluding net charges related to depreciation, amortization of intangible assets, impairment of goodwill and long-lived assets, share-based compensation, and restructuring, the Company reported non-GAAP operating income of $0.4 million for the third quarter of fiscal 2013, compared to a non-GAAP operating loss of $2.6 million for the same period in fiscal 2012. The Company had working capital of $120.2 million as of April 30, 2013, compared to $113.5 million at July 31, 2012. Included in working capital as of April 30, 2013 were cash, cash equivalents and marketable securities totaling $71.2 million, compared to $52.5 million at July 31, 2012. The increase in cash, cash equivalents and marketable securities was primarily due to the previously announced Steel Partners Holdings L.P. investment of $30 million to acquire 7.5 million newly issued shares of common stock. The Company concluded the quarter with no outstanding bank debt. Inventory ended the third quarter of fiscal 2013 at $70.3 million, down 13 days from the same period last year to 37 days. Accounts receivable was $151.7 million, down 5 days from the same period last year to 73 days, and accounts payable ended the third quarter at $112.4 million, down 13 days from the same period last year to 59 days. The Company’s cash conversion cycle improved by 5 days from the same period in fiscal 2012 to 51 days. For the third quarter of fiscal 2013, net cash used in operating activities of continuing operations was $4.9 million, compared to $11.6 million in the same period in fiscal 2012. As previously reported, the Company sold its Tech for Less (“TFL”) operations on January 11, 2013. Therefore revenue and results from continuing operations exclude the results of TFL, which have been reclassified to discontinued operations in the Company’s statements of operations for all periods. About ModusLink Global Solutions ModusLink Global Solutions Inc. (NASDAQ: MLNK) executes comprehensive supply chain and logistics services that 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. The Company’s operating infrastructure annually supports more than $80 billion of its clients’ revenue and manages approximately 451 million product shipments through 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. (1) New programs defined as client programs that have been executed for fewer than 12 months. Base business defined as client programs that have been executed for 12 months or more. 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 it may be considered to be of a non-operational or non-cash nature. Historically, the Company has recorded significant impairment and restructuring charges. These charges, as well as charges related to depreciation, amortization of intangible assets and share-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 the Company’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. 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 its 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; uncertainties and volatility relating to global economic conditions, especially in the technology sector; unanticipated declines in, or failure to achieve the anticipated levels of, the demand for our clients’ products; potential strains on managerial and operational resources resulting from expanded operations; failure to realize expected benefits of restructuring and cost-cutting actions; inability to expand operations in accordance with the Company’s business strategy; insufficient cash balances that could prevent the Company from meeting business or investment goals; difficulties integrating technologies, operations and personnel in accordance with the Company’s business strategy; customer 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; risks inherent with conducting international operations; changes in tax rates in jurisdictions where profits are determined to be earned and taxed; changes in estimates of tax credits, benefits and deductions; unfavorable resolution of issues arising from tax audits with various tax authorities, including payment of interest and penalties and the ability to realize deferred tax assets; adverse conditions in the mergers and acquisitions or IPO markets, which could prevent liquidity for securities in the Company’s venture capital portfolio; 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 and Quarterly Reports 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. ModusLink Global Solutions, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands) (Unaudited) April 30, July 31, April 30, 2013 2012 2012 Assets: Cash and cash equivalents $ 71,176 $ 52,369 $ 78,450 Available-for-sale securities 51 131 132 Trade accounts receivable, net 151,660 148,931 163,824 Inventories, net 70,331 83,990 93,653 Prepaid and other current assets 10,796 10,466 9,250 Current assets of discontinued 200 - - operations Total current assets 304,214 295,887 345,309 Property and equipment, net 35,329 40,772 42,648 Investments in affiliates 9,326 10,803 10,796 Goodwill 3,058 3,058 3,058 Intangible assets, net 2,045 2,897 3,182 Other assets 6,991 5,465 10,081 $ 360,963 $ 358,882 $ 415,074 Liabilities: Current portion of capital lease $ 64 $ 73 79 obligations Accounts payable 112,417 110,520 135,775 Current portion of accrued 3,347 1,724 1,721 restructuring Accrued expenses 39,328 41,753 40,037 Other current liabilities 27,885 26,778 31,735 Current liabilities of discontinued 987 1,528 1,485 operations Total current liabilities 184,028 182,376 210,832 Long-term portion of accrued - - 98 restructuring Long-term portion of capital leases 44 69 87 obligations Other long-term liabilities 9,761 11,012 11,107 Non-current liabilities of - 293 673 discontinued operations 9,805 11,374 11,965 Stockholders' equity 167,130 165,132 192,277 $ 360,963 $ 358,882 $ 415,074 ModusLink Global Solutions, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (In thousands, except per share data) (Unaudited) Three months ended Nine months ended April 30, April 30, 2013 2012 Fav (Unfav) 2013 2012 Fav (Unfav) Net revenue $ 173,016 $ 173,553 (0.3 %) $ 573,503 $ 540,818 6.0 % Cost of 157,641 157,625 (0.0 %) 519,226 483,709 (7.3 %) revenue Gross margin 15,375 15,928 (3.5 %) 54,277 57,109 (5.0 %) 8.9 % 9.2 % (0.3 %) 9.5 % 10.6 % (1.1 %) Operating expenses: Selling, general and 19,287 22,407 13.9 % 67,149 66,737 (0.6 %) administrative Amortization of intangible 283 285 0.7 % 852 855 0.4 % assets Impairment of long-lived - 1,128 100.0 % - 1,128 100.0 % assets Restructuring, 2,565 (22 ) (11759.1 %) 8,833 5,197 (70.0 %) net Total operating 22,135 23,798 7.0 % 76,834 73,917 (3.9 %) expenses Operating loss (6,760 ) (7,870 ) 14.1 % (22,557 ) (16,808 ) (34.2 %) Other income (1,095 ) 3,753 (129.2 %) (5,963 ) 5,143 (215.9 %) (expense) Loss from continuing (7,855 ) (4,117 ) (90.8 %) (28,520 ) (11,665 ) (144.5 %) operations before taxes Income tax expense 392 (1,202 ) 132.6 % 1,975 1,050 (88.1 %) (benefit) Loss from continuing (8,247 ) (2,915 ) (182.9 %) (30,495 ) (12,715 ) (139.8 %) operations Discontinued operations, net of income taxes: Loss from discontinued (59 ) (3,221 ) 98.2 % (1,019 ) (5,154 ) 80.2 % operations Net loss $ (8,306 ) $ (6,136 ) (35.4 %) $ (31,514 ) $ (17,869 ) (76.4 %) Basic and diluted loss per share: Loss from continuing $ (0.17 ) $ (0.07 ) (158.6 %) $ (0.68 ) $ (0.29 ) (131.8 %) operations Loss from discontinued (0.00 ) (0.07 ) 98.2 % (0.02 ) (0.12 ) 80.9 % operations Net loss $ (0.17 ) $ (0.14 ) (26.9 %) $ (0.70 ) $ (0.41 ) (70.5 %) Shares used in computing basic earnings 47,968 43,844 45,046 43,546 (loss) per share Shares used in computing diluted 47,968 43,844 45,046 43,546 earnings (loss) per share ModusLink Global Solutions, Inc. and Subsidiaries Condensed Consolidated Statements of Operations Information (In thousands) (Unaudited) Three months ended Nine months ended April 30, April 30, April 30, April 30, 2013 2012 2013 2012 Net revenue: Americas $ 64,496 $ 58,825 $ 196,137 $ 187,835 Asia 48,133 56,642 164,864 168,506 Europe 51,952 50,706 188,700 159,020 All other 8,435 7,380 23,802 25,457 $ 173,016 $ 173,553 $ 573,503 $ 540,818 Operating income (loss): Americas $ 679 $ (3,112 ) $ (1,820 ) $ (6,260 ) Asia 3,614 4,671 16,379 18,216 Europe (5,868 ) (4,222 ) (13,579 ) (12,983 ) All other 301 (498 ) (256 ) 378 (1,274 ) (3,161 ) 724 (649 ) Other reconciling (5,486 ) (4,709 ) (23,281 ) (16,159 ) items $ (6,760 ) $ (7,870 ) $ (22,557 ) $ (16,808 ) Non-GAAP operating income (loss): Americas $ 1,856 $ (2,004 ) $ 2,916 $ (1,907 ) Asia 4,745 5,785 21,756 22,355 Europe (2,309 ) (1,966 ) (5,494 ) (4,412 ) All other 758 27 1,889 1,850 5,050 1,842 21,067 17,886 Other reconciling (4,675 ) (4,452 ) (21,887 ) (14,543 ) items $ 375 $ (2,610 ) $ (820 ) $ 3,343 Note: The Company defines non-GAAP operating income (loss) as total operating income (loss), excluding net charges related to depreciation, amortization of intangible assets, impairment of goodwill and long-lived assets, share-based compensation, and restructuring. TABLE RECONCILING NON-GAAP OPERATING INCOME (LOSS) TO GAAP OPERATING LOSS AND NET LOSS NON-GAAP Operating income $ 375 $ (2,610 ) $ (820 ) $ 3,343 (loss) Adjustments: Depreciation (3,362 ) (3,341 ) (10,211 ) (10,564 ) Amortization of intangible (283 ) (285 ) (852 ) (855 ) assets Impairment of long-lived - (1,128 ) - (1,128 ) assets Share-based (925 ) (528 ) (1,841 ) (2,407 ) compensation Restructuring, (2,565 ) 22 (8,833 ) (5,197 ) net GAAP Operating $ (6,760 ) $ (7,870 ) $ (22,557 ) $ (16,808 ) loss Other income (1,095 ) 3,753 (5,963 ) 5,143 (expense), net Income tax (expense) (392 ) 1,202 (1,975 ) (1,050 ) benefit Loss from discontinued (59 ) (3,221 ) (1,019 ) (5,154 ) operations Net loss $ (8,306 ) $ (6,136 ) $ (31,514 ) $ (17,869 ) Contact: ModusLink Global Solutions, Inc. Robert Joyce, 781-663-5120 firstname.lastname@example.org
ModusLink Global Solutions Reports Financial Results for Third Quarter of Fiscal 2013
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