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CMGI Announces First Quarter Fiscal 2006 Financial Results; ModusLink's Continued Execution of Business Strategy Results in 20% Year over Year Increase in RevenueWALTHAM, Mass. --(Business Wire)-- Dec. 5, 2005 -- CMGI, Inc. (Nasdaq: CMGI) today reported financial results for its fiscal 2006 first quarter ended October 31, 2005. Q1 2006 vs. Q1 2005 Operating Highlights -- Net Revenue, increased 20% to $307.4 million -- Net Income, increased to $2.1 million, from a Net Loss in 2005 "During the first quarter CMGI successfully executed against key initiatives outlined in our strategic plan," said Joseph C. Lawler, President and Chief Executive Officer of CMGI. "Our supply chain management business, ModusLink, continues to grow at a rapid pace. To address client needs and maintain market leadership, we made significant strides in the areas of service expansion and new market penetration. We expect execution on our strategy to enable us to deliver double digit top line growth in fiscal 2006," added Lawler. First Quarter Consolidated Financial Results CMGI reported net revenue of $307.4 million for the quarter ended October 31, 2005. This compares to net revenue of $257.1 million for the same period one year ago, a $50.3 million or 20% increase year over year. This revenue growth was seen in each of the Company's operating segments as the Americas, Asia and Europe each realized double-digit revenue growth in the first quarter of fiscal 2006, as compared to the prior year. Revenue increased largely due to the contributions from new supply chain management programs awarded during the second half of fiscal 2005 and seasonality-based demand. CMGI reported operating income of $2.2 million for the quarter ended October 31, 2005, compared to operating income of $2.4 million for the first quarter of fiscal 2005. Operating income for the first quarter of fiscal 2006 was negatively affected by approximately $7.6 million in price reductions and form factor changes. "Form factor" relates to the simplification or elimination of components from our clients' final products, which in turn reduces the margin potential for ModusLink. The impact of price and form factor reductions primarily related to one client in Asia. Despite the price reduction and form factor changes, the strategic initiatives of entering new verticals and service offerings are expected to enable the Company to achieve its higher gross margin targets of 13 to 14% over the next two years. Operating income for the first quarter of fiscal 2006 also included $1.5 million of incremental stock-based compensation expense related to the implementation of SFAS 123(R) and $2.2 million of costs related to our Global ERP implementation. CMGI reported a $2.7 million increase in net income to $2.1 million compared to a net loss of $0.6 million for the same period in fiscal 2005. Excluding the effects of charges related to depreciation, amortization of intangible assets, stock-based compensation, and restructuring, CMGI reported non-GAAP operating income of $ 9.1 million for the first quarter of fiscal 2006 versus non-GAAP operating income of $9.0 million for the same period of the prior year. The Company believes that its non-GAAP measure of operating income/(loss) ("non-GAAP operating income/(loss)") provides investors with a useful supplemental measure of the Company's operating performance by excluding the impact of non-cash charges and restructuring activities. Each of the excluded items was excluded because they may be considered to be of a non-operational or non-cash nature. Historically, CMGI has recorded significant impairment and restructuring charges. These charges, as well as charges related to depreciation, amortization of intangible assets and stock-based compensation, have been excluded for the purpose of enhancing the understanding by both management and investors of the underlying baseline operating results and trends of the business, which management uses to evaluate our financial performance for purposes of planning and forecasting future periods. Non-GAAP operating income/(loss) does not have any standardized definition and, therefore, is unlikely to be comparable to similar measures presented by other reporting companies. Non-GAAP operating income/(loss) should not be evaluated in isolation of, or as a substitute for the Company's financial results prepared in accordance with United States generally accepted accounting principles. The Company's usage of non-GAAP operating income/(loss), and the underlying methodology in excluding certain charges, is not necessarily an indication of the results of operations that may be expected in the future, or that the Company will not, in fact, incur such charges in future periods. A table reconciling CMGI's non-GAAP operating income/(loss) to its GAAP operating income/(loss) and its GAAP net income/(loss) is included in the statement of operations information in this release. As of October 31, 2005, CMGI had consolidated cash, cash equivalents and marketable securities of $154.3 million, versus consolidated cash, cash equivalents and marketable securities of $192.7 million at the end of the prior quarter. The cash usage during the quarter ended October 31, 2005 was primarily for working capital requirements in support of new customer programs and seasonality-based demand and is primarily reflected in the $61 million increase in Accounts Receivable. Business Highlights ModusLink, CMGI's subsidiary, successfully executed against its strategic business plan to expand vertical markets and service offerings resulting in increased revenue growth. ModusLink's sales resources focused on three new key vertical markets, including consumer electronics, communications and storage, resulting in 4 new clients being added to ModusLink's client portfolio. Additionally, revenue increased with the expansion of 22 existing business relationships by either extending the existing supply chain solutions ModusLink was delivering to a client with new capabilities and services or handling additional new products for a client. Each of the regional operations contributed to this success. In the Americas, revenue grew 24% to $133 million; in Asia, revenue increased 18% to $61 million; and in Europe, revenue increased 15% to $113 million. CMGI's venture capital affiliate, @Ventures continued to target investments in the emerging and growing market for clean energy technologies, including alternative energy, energy efficiency, and water purification and management. As previously announced, @Ventures has made an additional $4.9 million investment in Advent Solar, Inc. as part of Advent Solar's $30 million Series C financing round, one of the most significant investment rounds to date in a privately-held solar cell company. Also, many of @Ventures current investments are well-positioned to benefit from the strength in the mergers and acquisitions and IPO markets. For example, in November, WebCT, a company in which @Ventures had invested, announced an agreement to be acquired by Blackboard, Inc. The closing of the transaction is subject to regulatory approval and other customary closing conditions. Conference Call Scheduled for December 5th CMGI will hold a conference call to discuss its fiscal 2006 first quarter results at 5:00 PM Eastern Time on December 5, 2005. Investors can listen to the conference call on the Internet at www.cmgi.com/investor. To listen to the live call, go to the Web site at least 15 minutes prior to the start time to download and install the necessary audio software. About CMGI CMGI, Inc. (Nasdaq: CMGI), through its subsidiary, ModusLink, provides technology and products solutions that help businesses market, sell and distribute their products and services. In addition, CMGI's venture capital affiliate, @Ventures, invests in a variety of technology ventures. For additional information, see www.cmgi.com. This release contains forward-looking statements, which address a variety of subjects including, for example, our expected revenue growth rate, our expected improvement in gross margins, the further execution of ModusLink's strategic business plan, the development and implementation of business strategies in our target markets and through our venture capital affiliate and our assessment of the companies within our venture capital portfolio. All statements other than statements of historical fact, including without limitation, those with respect to CMGI's goals, plans and strategies set forth herein are forward-looking statements. The following important factors and uncertainties, among others, could cause actual results to differ materially from those described in these forward-looking statements: CMGI's success, including its ability to improve its cash position, expand its operations and revenues, improve its gross margins and sustain profitability, depends on its ability to execute on its business strategy and the continued and increased demand for and market acceptance of its products and services; CMGI's management may face strain on managerial and operational resources as they try to oversee the expanded operations; CMGI may not be able to expand its operations in accordance with its business strategy; CMGI's cash balances may not be sufficient to allow CMGI to meet all of its business and investment goals; CMGI may experience difficulties integrating technologies, operations and personnel in accordance with its business strategy; CMGI derives a significant portion of its revenue from a small number of customers and the loss of any of those customers would significantly damage CMGI's financial condition and results of operations; the mergers and acquisitions and IPO markets are inherently unpredictable and liquidity events for companies in the venture capital portfolio may not occur; and increased competition and technological changes in the markets in which CMGI competes. In addition, from time to time management may present unaudited pro forma combined financial results of CMGI and Modus Media for historical perspective. Such pro forma information is not necessarily indicative of financial results that could have occurred, nor necessarily indicative of financial results that may be expected in the future. Such pro forma financial information should be read in conjunction with the Company's financial results prepared in accordance with US GAAP. For a detailed discussion of cautionary statements that may affect CMGI's future results of operations and financial results, please refer to CMGI's filings with the Securities and Exchange Commission, including CMGI's most recent Annual Report on Form 10-K. Forward-looking statements represent management's current expectations and are inherently uncertain. We do not undertake any obligation to update forward-looking statements made by us. -0- *T CMGI, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except per share amounts) (Unaudited) October 31, July 31, 2005 2005 ----------- ---------- Assets: Cash and cash equivalents $ 154,091 $ 192,450 Available-for -sale securities 246 278 Accounts receivable 226,988 165,492 Inventories 98,333 78,689 Prepaid expenses and other current assets 12,753 12,083 Current assets of discontinued operations 83 83 ----------- ---------- Total current assets 492,494 449,075 ----------- ---------- Property and equipment, net 42,797 42,863 Investments in affiliates 26,775 22,528 Goodwill and other intangible assets 204,524 201,314 Other assets 3,650 5,890 Non-current assets of discontinued operations 14 14 ----------- ---------- $ 770,254 $ 721,684 =========== ========== Liabilities: Current installments of long-term debt $ 87 $ 1,670 Current portion of capital lease obligations 291 304 Revolving line of credit - 24,785 Accounts payable 177,761 135,677 Current portion of accrued restructuring 11,427 11,251 Accrued income taxes 2,936 2,778 Accrued expenses 48,260 44,175 Other current liabilities 3,653 3,797 ----------- ---------- Total current liabilities 244,415 224,437 ----------- ---------- Revolving line of credit 24,785 - Long-term debt, net of current portion 98 98 Long-term portion of accrued restructuring 7,584 7,912 Long-term portion of capital lease obligations 744 823 Other long-term liabilities 17,615 17,101 Non-current liabilities of discontinued operations 98 98 ----------- ---------- 50,924 26,032 Stockholders' equity 474,915 471,215 ----------- ---------- $ 770,254 $ 721,684 =========== ========== CMGI, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three months ended October 31, July 31, October 31, 2005 2005 2004 ----------- -------- ------------ Net revenue $ 307,375 $251,243 $ 257,126 Operating expenses: Cost of revenue 275,739 226,714 225,746 Selling 5,503 6,072 5,912 General and administrative 21,705 19,332 20,391 Amortization of intangible assets 1,206 1,306 1,307 Restructuring, net 977 1,473 1,336 ----------- -------- ------------ Total operating expenses 305,130 254,897 254,692 ----------- -------- ------------ Operating income (loss) 2,245 (3,654) 2,434 Other income (expenses): Other gains (losses), net 3,236 5,227 (1,442) Equity in losses of affiliates, net (403) (1,135) (226) Interest income 1,173 1,053 630 Interest expense (552) (597) (423) ----------- -------- ------------ Total 3,454 4,548 (1,461) ----------- -------- ------------ Income from continuing operations before income taxes 5,699 894 973 Income tax expense 943 620 1,526 ----------- -------- ------------ Income (loss) from continuing operations 4,756 274 (553) Discontinued operations, net of income taxes: Loss from discontinued operations (2,624) - - ----------- -------- ------------ Net income (loss) $ 2,132 $ 274 $ (553) =========== ======== ============ Basic and diluted earnings (loss) per share: Earnings (loss) from continuing operations $ 0.01 $ 0.00 $ (0.00) Loss from discontinued operations $ (0.01) $ - $ - ----------- -------- ------------ Earnings (loss) $ 0.00 $ 0.00 $ (0.00) =========== ======== ============ Shares used in computing basic earnings (loss) per share 482,063 479,283 469,720 =========== ======== ============ Shares used in computing diluted earnings (loss) per share 487,435 486,605 469,720 =========== ======== ============ CMGI, Inc. and Subsidiaries Condensed Consolidated Statements of Operations Information (In thousands) (Unaudited) Three months ended October 31, July 31, October 31, 2005 2005 2004 ----------- --------- ------------ Net revenue: -------------------------------- eBusiness and Fulfillment Americas $ 133,330 $ 105,543 $ 107,266 Asia 60,717 49,960 51,329 Europe 113,328 95,740 98,453 ----------- --------- ------------ Total eBusiness and Fulfillment 307,375 251,243 257,048 Other - - 78 ----------- --------- ------------ $ 307,375 $ 251,243 $ 257,126 =========== ========= ============ Operating income (loss): -------------------------------- eBusiness and Fulfillment Americas $ 2,709 $ (4,138) $ 231 Asia 5,491 3,457 6,907 Europe (1,923) 1,207 (1,205) ----------- --------- ------------ Total eBusiness and Fulfillment 6,277 526 5,933 Other (4,032) (4,180) (3,499) ----------- --------- ------------ $ 2,245 $ (3,654) $ 2,434 =========== ========= ============ Non-GAAP operating income (loss): -------------------------------- eBusiness and Fulfillment Americas $ 4,980 $ (1,500) $ 2,596 Asia 7,014 5,610 9,179 Europe 33 3,236 447 ----------- --------- ------------ Total eBusiness and Fulfillment 12,027 7,346 12,222 Other (2,972) (4,206) (3,222) ----------- --------- ------------ $ 9,055 $ 3,140 $ 9,000 =========== ========= ============ Note: Non-GAAP operating income represents total operating income (loss), excluding net charges related to depreciation, amortization of intangible assets, stock-based compensation and restructuring. TABLE RECONCILING NON-GAAP OPERATING INCOME TO GAAP OPERATING INCOME (LOSS) AND NET INCOME (LOSS) Non-GAAP Operating income $ 9,055 $ 3,140 $ 9,000 Adjustments: Depreciation (2,617) (2,715) (2,378) Amortization of intangible assets (1,206) (1,306) (1,307) Stock-based compensation (2,010) (1,300) (1,545) Restructuring, net (977) (1,473) (1,336) ------- ------- ------- GAAP Operating income (loss) $ 2,245 $(3,654) $ 2,434 ------- ------- ------- Other income (expense) 3,454 4,548 (1,461) Income tax expense 943 620 1,526 Loss from discontinued operations (2,624) - - ------- ------- ------- Net income (loss) $ 2,132 $ 274 $ (553) ======= ======= ======= *T |
