ModusLink Global Solutions, Inc. (MLNK)
F1Q10 Earnings Call
December 7, 2009 5:00 pm ET
Joseph C. Lawler - Chairman of the Board, President, Chief Executive Officer, Director
Steven G. Crane - Chief Financial Officer
David Cameron - Tesacura
Matt Bryson - Avion Securities
Larry Smith - Private Investor
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Steven G. Crane
Thanks, Shayna. Good afternoon, everyone and thank you for joining us for ModusLink Global Solutions fiscal 2010 first quarter conference call. I am Steve Crane, CFO and I am 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. He will also talk about ModusLink's acquisition of Tech For Less, which we announced earlier today. After Joe’s comments, I will review in more detail our fiscal 2010 first 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 www.moduslink.com.
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 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 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 investors section of our website.
I would now like to turn this call over to Joe Lawler. After our formal remarks, we will be happy to take your questions. Joe.
Joseph C. Lawler
Thank you, Steve and good afternoon. We entered the new fiscal year reporting a good first quarter in the context of a very difficult global economic environment. Before we review the performance of the quarter and our financial results, I would like to highlight three important takeaways from our call today.
First, as expected, volumes moving through the supply chain are lower than at this time last year and therefore our revenues are lower than last year. However, sequentially we saw a good seasonal up-tick in revenues which were 10% higher than the fourth quarter of 2009 and therefore we continue to be guardedly optimistic that we are seeing an easing of downward pressure.
Second, we are pleased with the overall financial performance and revenue mix that included new engagements utilizing our after-market and e-business solutions, which are typically higher margin services with strong prospects for growth. Work mix and our cost reduction initiative are having a very positive impact on our business, contributing to gross margin increasing 500 basis points to 14.6% compared to last year. In addition, total operating expenses were down 37%, also supported by our cost reduction strategies resulting in a 4.7% operating income margin.
As we've talked about in the past, our cost reduction strategies and focus on higher quality revenue opportunities have positioned the company for significantly better profitability in fiscal 2010 and we are optimistic about the long-term prospects for ModusLink.
And third, we made progress with the acquisition component of our growth strategy with the acquisition of Tech For Less, which we announced earlier today. Before I talk about this most recent acquisition, I'll share a few observations regarding our financial results for the first quarter and Steve will follow with a more detailed review.
As expected, revenue from our base business is lower compared with the first quarter of last year because reductions in consumer spending have a direct impact on our clients' product volumes and the supply chain services we execute for them. However, our total revenues increased 10% sequential which is in line with our past few years sequential results.
Seasonality was a significant contributor to the sequential up-tick in base business revenue, which provides us some optimism that global economies are beginning to stabilize. Revenues from new engagements were lower than both the first and fourth quarters of fiscal 2009. I'll take a moment to explain what is driving that.
New engagements are typically secured several months in advance of actually generating revenues. For example, new engagements secured before the economy sharply declined in the fall of calendar 2008 and the beginning of 2009 contributed to our strong results for new business in the second half of fiscal 2009.
This past spring you heard us talk about delayed decisions from some clients which were therefore -- which therefore delayed the start-up of new business revenues. However, we feel very good about the size and quality of the opportunities recently closed as well as those in our pipeline and expect new business will make a far greater contribution to our revenue performance in the second half of the fiscal year.