MLNK

ModusLink Global Solutions, Inc (MLNK)

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ModusLink Global Solutions, Inc. (MLNK)

F4Q2010 Earnings Call Transcript

September 28, 2010 5:00 pm ET

Executives

Steven Crane – CFO

Joe Lawler – Chairman, President and CEO

Analysts

Jeff Graf – Springhouse Capital

Presentation

Operator

Good afternoon. My name is Dawn and I will be your conference operator today. At this time, I would like to welcome everyone to the ModusLink Global Solutions fourth quarter results conference call. (Operator instructions) Thank you. Mr. Steven Crane, Chief Financial Officer, you may begin your conference sir.

Steven Crane

Thank you, Dawn. Good afternoon, everyone. And thank you for joining us for ModusLink Global Solutions fiscal 2010 fourth quarter and fiscal year 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’ll review in more detail our fiscal 2010 fourth quarter and year-end results, which we released earlier today. Before we start, I want to remind you this call is being broadcast as a live web cast 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’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?

Joe Lawler

Thank you, Steve, and good afternoon. I will begin with a few brief comments regarding our fourth quarter and fiscal year before we provide a more detailed overview.

First, in the fourth quarter ModusLink continued to feel the effects of a difficult economic environment. We saw lower unit volumes in certain client programs, and clients were focused on reducing costs and closely managing their inventories during this period. However, revenue for the fourth quarter was in line with our expectations, and we saw some positive signs in our business. In particular, we have seen a modest up tick in base business revenue compared to the fourth quarter of last year even before revenue contributions from our most recent acquisition, and we also made good progress securing new client engagements.

The fourth quarter also concluded a fiscal year in which continuing aggressive management of both expenses and working capital resulted in our achieving record free cash flow from operations. Before handing the call over to Steve for a detailed financial review, I will make a few additional observations regarding our operating results, starting with revenues. I will comment first on our base business, which consists of programs we have been executing for 12 months or more, and then I will go on to our new business, which consists of new programs we have been executing for less than 12 months.

Revenues from base business in the fourth quarter of fiscal 2010 were 9% higher year-over-year overall and 3% higher year-over-year when excluding revenues from our most recent acquisition. This up tick was primarily driven by modestly higher volumes. While we continue to see areas of improvement, it is not yet broad-based across our business. As we spoke about in detail last quarter, we see clients working to reduce costs in the supply chain and reluctant to build inventories.

We see many clients preferring to be out of stock on products versus having excess inventory in the supply chain, and we expect that trend to continue in the near term and reverse as the economy improves. We are also seeing continuing pressure on pricing, especially surrounding the program renewal process, and clients working with us to reduce form factor, which includes the number of inserts, accessory parts and packaging materials used with consumer products as part of their cost reduction programs.

As we talked about last quarter, challenges surrounding inventories, pricing and form factor are normal in our business, but we are seeing them have more of an impact in the current environment as we move through the early stages of economic recovery. As we expected, revenues from new engagements were lower compared to the fourth quarter of 2009, which was a record year for revenues from new engagements.

You have heard us talk about our focus on building back to the record levels achieved in that fiscal 2009. We are seeing incremental improvement in the sales environment, although the sales cycle remains longer than before the economy rapidly declined. As expected, revenue from new engagements in the fourth quarter was significantly higher than we reported in the third quarter.

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