ModusLink Global Solutions, Inc (MLNK)

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ModusLink Global Solutions Inc. (MLNK)

F1Q09 Earnings Call

December 4, 2008; 05:00pm ET


Joe Lawler - Chairman of the Board, President and Chief Executive Officer

Steven Crane - Chief Financial Officer


Brian Gaines - Unidentified Company

William Martin - Charles Schwab Investment Management

Larry Smith - Unidentified Company

Mike London - JP Morgan

Bernard Metzger - Metzger Group Inc



Welcome to the ModusLink Global Solutions first quarter 2009 operating results conference call. At the company’s request, this conference is being recorded. Please note that all lines will be in listen-only mode until the question-and-answer portion of today’s conference. (Operator Instructions)

Now I would like to turn the call over to Mr. Joseph Lawler, Chairman, President and CEO; and to Mr. Steven Crane, Chief Financial Officer. Please go ahead, Mr. Crane.

Steven Crane

Good afternoon, everyone and thank you for joining us for ModusLink Global Solutions fiscal 2009 first quarter conference call. I am 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 financial performance and the market environment over the past quarter. After Joe’s comments, I’ll review in more detail our fiscal 2009 first quarter results which we released earlier today.

Before we start, I want to remind you this call is being broadcast as a live webcast from our website at Please also note that the information we are 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 files 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 represents 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 will 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.

Joe Lawler

Thanks, Steve. As we begin fiscal 2009, we are all navigating in uncharted waters due to this uncertain economic environment. However, we’ve made important progress in our business in the past few months, and I’d like our investors to take away a few main points from our call this afternoon.

First; like many other companies, the deteriorating economy has affected our business and in the first quarter we have seen lower volumes from existing engagements which I’ll refer to as our base business. There’s an extreme sense of uncertainty regarding the economy and consumer spending has been significantly affected.

Over the past two months we’ve been aggressively taking action to mitigate the affects of the weakening economy on our business. We are focused on effectively managing costs across the organization and restructuring areas where we can gain efficiencies while delivering excellent client service.

Second; our revenue increase compared to the first quarter of last year as we experienced revenue growth for new engagements, contributions from our recent acquisitions and a foreign exchange benefit. However, our overall profitability was negatively affected due to volume decreases in our base business and unfavorable mix of work in our Americas and Europe businesses and the charges related to restructuring actions which I’ll talk about in a moment.

Third; we continue to operate from a position of strength. Our value proposition for new engagements is strong because companies in the markets we serve continue to look for opportunities to reduce their supply chain costs. The strength of our value proposition has been the primary driver of the increase in new business and our pipeline, which continues to be significant.

Financially, our balance sheet and cash balance remains very strong and we have no debt. We believe these factors will enable us to weather the weak economic outlook and become a leaner and stronger company. I’ll talk more about these points in a moment but first I’ll provide a brief overview of our first quarter sales and gross margin performance.

Net revenue for the first quarter increased 6.1% compared with the same quarter last year. The growth was primarily due to an increase of 246% from new business, contributions from our recent acquisitions and the foreign exchange benefit.

Like many other companies, we continue to experience the impact of a significant slowdown in consumer spending, and as a result we saw lower overall volumes in our base business and the delayed start-up of new engagements in the first quarter. The effects were most apparent in the Americas and Europe due to our clients reducing their production volumes.

Base business was down 12.5% in the first quarter, while revenue from new business excluding acquisitions more than tripled, increasing from $13 million in the first quarter of fiscal 2008 to $44 million in the first quarter of fiscal 2009. We expect the new business trend to continue, although we also expect the economy to continue to affect our base business.

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