MLNK

ModusLink Global Solutions, Inc (MLNK)

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ModusLink Global Solutions, Inc. (MLNK)

F1Q2011 Earnings Call Transcript

December 6, 2010 5:00 pm ET

Executives

Steven Crane – CFO

Joseph Lawler – Chairman, President and CEO

Analysts

William Martin – Raging Capital

Matt Spiegel – Evermore Global

Sam Klatt – Private Investor

Presentation

Operator

Hello, and welcome to the ModusLink Global Solutions first quarter fiscal 2011 conference call. At the company’s request, this conference is being recorded. Please note that all lines will be in a listen-only mode until the question-and-answer portion of today’s conference call. (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

Thanks, Felicia. Good afternoon, everyone, and thank you for joining us for ModusLink Global Solutions fiscal 2011 first 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 and 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 will review in more detail our fiscal 2011 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’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 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’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 will begin with a few brief comments regarding our first quarter before Steve provides a more detailed financial overview.

First, as we entered the new fiscal year in August, we continued to see the effects of clients being very cautious and focused on reducing costs in their supply chain programs, which I’ll talk about more in a moment. However, overall results for the first quarter were in line with our expectations and we saw some encouraging signs. In particular, revenue from new client programs increased 49% compared with the first quarter of last year as a result of our sales and marketing initiatives.

In addition, we continue to aggressively manage expenses resulting in an improved cost structure and leverage to support future profitability. Overall, revenue for the first quarter was consistent with our expectations and reflective of lower revenue from base business, which consisted programs we’ve been executing for 12 months or more and significantly higher revenue from new programs compared with the first quarter of last year.

New program revenue consists of programs we’ve been executing for less than 12 months. Within revenue from base business, we’ve seen seasonal increases in some client programs although they have not been widespread as unit volumes varied significantly from program to program and region to region.

In addition for several quarters, we’ve talked about the effects on our business from price pressure and reduced form factor where our clients use less packaging and materials in their products. These factors are normal in our business, but have been accelerated in the current environment and were reflected in our first quarter financial results.

We see our clients operating very cautiously and very focused on reducing costs in the supply chain. We managed this challenge with innovative solutions that enable clients to meet their cost objectives while maintaining a price discipline that will enable us to achieve a good return on our investment over the long-term.

Regarding new business, we are encouraged with our progress in growing revenue from new programs as we work to build back to the record levels achieved in fiscal 2009. As I noted, revenue from new programs increased 49% compared with the same period last year. New business in the first quarter was from programs secured from existing and new logos in recent quarters, which are now generating revenue.

We are also encouraged with the size and quality of opportunities in our pipeline and the progress we’ve been making in its development. Gross margin in the first quarter was 9.5% and expectedly lower than what we reported during the first quarter fiscal 2010. Primary drivers were unfavorable revenue mix and pricing, including the one-time effects of a price concession made with a client that has a significant program with ModusLink, which we’ve talked about last quarter.

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