ModusLink Global Solutions (MLNK)

Q3 2011 Earnings Call

June 07, 2011 5:00 pm ET


Joseph Lawler - Executive Chairman, Chief Executive Officer, President, Chairman of Business Development Committee and Member of Technology Committee

Steven Crane - Chief Financial Officer and Principal Accounting Officer


Unknown Speaker

Aram Fuchs - Fertilemind Capital

Unknown Analyst -



Ladies and gentlemen, thank you for standing by. Welcome to the ModusLink Global Solutions Third Quarter Fiscal 2011 Conference Call. [Operator Instructions] As a reminder this conference is being recorded, Tuesday, June 7, 2011. Your speakers for today are Joseph Lawler, Chairman, President and Chief Executive Officer; and Steven Crane, Chief Financial Officer. I'd now like to turn the conference over to Steven Crane. Please go ahead, sir.

Steven Crane

Thank you, Demetra. Good afternoon, everyone, and thank you for joining us for ModusLink Global Solutions' Fiscal 2011 Third Quarter Conference Call. I'm Steve Crane, CFO, and I'm joined today by Joe Lawler, Chairman, President and CEO.

In just a few moments, Joe will share his thoughts on the company's financial performance and the market environment over the past quarter and provide an update on our strategic initiatives. After Joe's comments, I'll review in more detail our fiscal 2011 third quarter results, which we released earlier today.

Before we start, I want to remind you that this call is being broadcast as a live webcast from our website at Please also note that the information we're about to discuss includes forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties. The company's actual results could differ materially from those discussed herein. Factors that could contribute to such differences include, but are not limited to, those items noted and included in the company's SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking information that is provided by the company in this call represent the company's outlook as of today, and we do not undertake any obligation to update forward-looking statements made by us. Subsequent events and developments may cause the company's outlook to change.

During this call, we'll be referring to non-GAAP measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measure can be found in our earnings release issued earlier today, a copy of which is posted in the Investor section of our website.

I'd now like to turn this call over to Joe Lawler. After our formal remarks, we'll be happy to take your questions. Joe?

Joseph Lawler

Thank you, Steve, and good afternoon. I'll begin with a few comments regarding our third quarter before Steve provides a more detailed financial overview. Our financial results reflect the headwinds that we have talked about in recent quarters as we continue to see uneven demand for the technology and consumer electronic products we handle on behalf of our clients. However, revenue for the third quarter was in line with the expectations we talked about during our last investor call. We made good progress, growing revenue from new programs and executing the plans we outlined last quarter to put ModusLink on a trajectory of sustained growth in revenue and profits. Today, I'll provide an update regarding the actions we are taking to achieve that objective. In addition, after paying a one-time special dividend of $40 million, our balance sheet remained strong with $120 million in cash, cash equivalents and marketable securities at the end of the third quarter, and no outstanding debt. This liquidity positions us with the means to invest in our business where needed.

For the quarter, I'll start by discussing the revenue from new programs, which consist of client programs we've been executing for less than 12 months and then I'll go on to revenue from our Base business, which consist of programs we've been executing for 12 months or more. Revenue from new programs increased 20%, primarily due to programs secured in prior quarters as a result of our sales and marketing initiatives. We are encouraged by our progress over the last few quarters to build back to the record revenue from new programs that we achieved in fiscal 2009 before the full effects of the recession were felt. We believe that level is needed to achieve sustainable growth in consolidated revenue. Through the first 9 months of fiscal 2011, we nearly reached the amount of revenue from new programs in all of fiscal 2010. However, as I outlined during our last investor call, we need to accelerate our progress to achieve sustainable growth of revenue and profit in fiscal 2012 and beyond. I'll come back to this specific actions we're taking to drive top line growth after Steve's detailed financial review.

Revenue from Base business in the third quarter was 5% lower compared with the same quarter last year. The pressure on pricing and the reduction in the amount of packaging materials used by clients continues to be reflected in our revenue results in the Americas, Europe and Asia regions. And speaking of Asia, I would like to make a special reference to our operations in Japan. Moduslink's operations in Japan are relatively small and total approximately 40 employees. We have 2 operations in Japan. One is a small co-location present in Fukushima that closed following the earthquake on March 11 and has been reopened. The second where most of our employees in Japan worked is our Solution Center located about an hour southwest of Tokyo. That facility withstood the earthquake and had minimal damage. Thankfully, none of our employees in Japan were injured and the facility is back in operation. Activity is lower than pre-earthquake levels but to a degree that is not material to our overall Asia business. Operationally, we've been able to fully support the clients we serve from our operations in Japan. However, the supply site situation for our technology and consumer electronics clients is clearly more difficult to assess for ModusLink, and the marketplace where parts shortages have affected volumes in some of our Asia operations. The lower revenue in Asia impacted our overall revenue mix and gross margin for the third quarter.

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