ModusLink Global Solutions, Inc (MLNK)

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ModusLink Global Solutions, Inc. (MLNK)

F2Q10 (01/31/10) Earnings Call

March 8, 2010 5:00 pm ET


Steve Crane – CFO

Joe Lawler – Chairman, President & CEO


Allan Young – Raging Capital

Jeff Osher – Harvest Capital



Hello and welcome to the ModusLink Global Solutions second quarter 2010 operating results 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.

Steve Crane

Thanks, Tracy. Good afternoon, everyone, and thank you for joining us for ModusLink Global Solutions fiscal 2010 second 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 will review in more detail our fiscal 2010 second 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 Web site 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 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’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 Web site.

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

Thank you, Steve, and good afternoon. We continued to operate in a difficult economic environment in the second quarter while demonstrating sound execution of our business plan and improved profitability, which benefited from a more efficient cost structure.

A few of the main points that you’ll hear Steve and I talk about today are as follows

First, we remain cautious about client volumes and the timing of the start-up of new engagements in the context of the economic environment. However, we continue to see bright spots in our business with improved volumes from certain clients and a generally improving tone for the future.

Second, we continue to be pleased with our revenue mix, which included new engagements utilizing our after market and e-business solutions. These solutions are typically higher margin services with strong prospects for growth.

Our focus on these solutions and the recently completed acquisition of Tech for Less is contributing to a more favorable work mix.

Third, the cost reduction initiatives implemented last fiscal year continue to have a positive impact on our business. Despite having 9.6% lower revenues compared with the second quarter last fiscal year our non-GAAP operating income increased by more than 6% and we generated significant free cash flow from operations.

Before handing the call back to Steve for a more detailed financial review, I’ll share a few observations regarding our operating results for the second quarter.

Overall, we continue to operate in a fairly weak economic environment, which has a direct impact on our clients’ product volumes and the start-up of new engagements. Clients especially those in the Americas and Europe are being very cautious about inventory levels and we see many clients waiting until there is a clear demand signal before adding volumes into the supply chain.

However, revenues from base business in the second quarter were relatively flat compared to the same quarter last fiscal year and we view that as a sign that volumes in our base business are stabilizing.

Revenues from new engagements were slightly better than we expected in the second quarter, which we view as another positive sign. The size of the opportunities recently closed as well as those in our pipeline look good. And we continue to expect new business to make a greater contribution to our revenue performance in the second half of this fiscal year compared to the first half.

Compared to the same period last year, gross margin for the second quarter increased 100 basis points to 13.4% driven by favorable work mix and cost reduction actions taken in fiscal 2009.

In addition, selling, general and administrative expense was down 10% for the second quarter compared to the same period last year supporting strong improvement in operating income on a GAAP and non-GAAP basis.

We’ll continue to keep a sharp focus on effectively controlling costs, essentially managing what we can control so as the market environment improves, ModusLink can grow more profitably.

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