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ModusLink Reports Financial Results for the First Quarter of Fiscal Year 2017ModusLink Global Solutions™, Inc. (the "Company" or "ModusLink") (NASDAQ: MLNK), announced today its financial results for its first quarter of fiscal year 2017 ended October 31, 2016. Results for the three months ended October 31, 2016 are summarized in the following paragraphs. For a full discussion of the results, please see the Company's Form 10-Q filed with the Securities and Exchange Commission, which can be accessed through www.moduslink.com. Commenting on the Company's performance and turnaround reforms, Jim Henderson, Chief Executive Officer of ModusLink stated, "Our fiscal first quarter results are beginning to demonstrate the improvements in our business, though we believe the bigger impact of cost reduction and realignment initiatives will be seen in this upcoming quarter. We have made significant progress since we last reported and operationally, we're performing more efficiently and with a lower cost structure. We have successfully de-centralized corporate functions, transitioned to a Business Unit model driven by investments at each of our global sites, and concurrently, launched several new initiatives focused on providing better client support and driving growth back into our business. The sequential improvements in revenue, gross margin and operating expenses have led to smaller losses, but our goal remains to get the Company back to profitability." ModusLink will soon be publishing its first quarter of fiscal year 2017 investor presentation, which will be posted in the Investor Relations section of the Company's website. The investor presentation will also be filed as an exhibit on Form 8-K with the Securities and Exchange Commission. Investors, customers and partners are encouraged to review this presentation as it corresponds to the Company's financial results for the first quarter of fiscal year 2017 and includes additional information on the Company's results of operations, balance sheet, turnaround plan, and corporate strategy. First Quarter of Fiscal Year 2017 Financial Summary The Company reported net revenue of $121.3 million for the first quarter of fiscal year 2017 as compared to $141.1 million for the same period in the prior year. The year-over-year decline in net revenue is primarily related to lower revenues from two clients in the consumer electronics industry. When comparing the first quarter of fiscal year 2017 with the fourth quarter of fiscal year 2016, net revenue increased by $19.8 million or 19.5%. Gross margin for the period ended October 31, 2016 was 7.7% as compared to 8.8% for the same period in the prior year, a decrease of 110 basis points. The overall decline in gross margin was primarily related to lower volumes from two clients in the consumer electronics market and revenue mix. On a sequential basis, when comparing the Company's first quarter of fiscal year 2017 and the fourth quarter of fiscal year 2016, gross margins increased by 130 basis points, reflecting higher volumes, as well as a lower overall cost structure. Total operating expenses for the first quarter of fiscal year 2017 were $15.0 million, as compared to $14.0 million in the same period in the prior year. Selling, general and administrative ("SG&A") expenses increased by approximately $0.6 million. Included in SG&A in the prior year period was a gain related to the sale of a building in Europe of $1.2 million, without which the SG&A expenses would have decreased by $0.6 million. This decrease was primarily due to ongoing restructuring efforts and lower costs associated with outsourced services, consulting and professional fees. Restructuring expenses for the first quarter of fiscal year 2017 were $1.4 million as compared to $1.0 million reported in the fiscal 2016 first quarter. When compared sequentially to the fourth quarter of fiscal 2016, total operating expenses declined by $6.3 million or 29.8%. The decline in total operating expenses compared to the fiscal 2016 fourth quarter is a direct result of lower restructuring-related expenses as well as the Company's process improvement and turnaround plan. This has resulted in lower employee-related expenses and significantly reduced SG&A expenses for the comparable periods. The Company reported an operating loss of $5.6 million for the first quarter of fiscal year 2017, as compared to an operating loss of $1.6 million for the same period in the prior year. The Company reported an operating loss improvement of $9.2 million when compared sequentially to the fourth quarter of fiscal year 2016. The Company reported a net loss of $8.5 million or a net loss per basic and diluted share of $0.16 for the first quarter of fiscal year 2017. This compares to a net loss of $14.8 million or a loss per basic and diluted share of $0.29 for the same period in the prior year. The Company reported a net loss improvement of $11.2 million when compared sequentially to the fourth quarter of fiscal year 2016. The sequential improvement in operating and net loss was primarily driven by higher revenues, improved gross margin and lower overall operating expenses. The Company reported negative Adjusted EBITDA of $(1.6) million for the first quarter of fiscal year 2017, as compared to Adjusted EBITDA of $1.9 million in the same period in the prior year. On a sequential basis, when comparing against the Company's fourth quarter of fiscal year 2016, Adjusted EBITDA improved by $4.3 million, reflecting initial results from the Company's turnaround initiatives. Mr. Henderson continued, "We remain on track to realize approximately $32 million in annualized EBITDA improvements and continue to identify additional savings as we realign our organization behind the needs of our global clients. While lowering costs has and continues to be a priority, we are also re-investing in our business - in operations, sales, and in our systems. These investments are expected to significantly improve our foundation, while also generating new opportunities to expand, both with existing clients around the world and with new clients across the markets we serve. Our balance sheet remains strong, we have cash on hand to drive further investments, and overall, we remain confident in our ability to deliver upon our promises and drive client satisfaction."
About ModusLink Global Solutions, Inc.
Non-GAAP Information We believe that providing Adjusted EBITDA to investors is useful, as this measure provides important supplemental information of our performance to investors and permits investors and management to evaluate the operating performance of our core supply chain business. We use Adjusted EBITDA in internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to our Board of Directors, determining a component of incentive compensation for executive officers and other key employees based on operating performance and evaluating short-term and long-term operating trends in our core supply chain business. We believe that the Adjusted EBITDA financial measure assists in providing an enhanced understanding of our underlying operational measures to manage the core supply chain business, to evaluate performance compared to prior periods and the marketplace, and to establish operational goals. We believe that these non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in our financial and operational decision-making. Adjusted EBITDA is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with U.S. GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. A table reconciling the Company's EBITDA and Adjusted EBITDA to its GAAP net income (loss) is included in this release. ModusLink Global Solutions is a registered trademark of ModusLink Global Solutions, Inc. All other company names and products are trademarks or registered trademarks of their respective companies.
Forward-Looking Statements & Use of Non-GAAP Measures All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. The information provided herein includes certain non-GAAP financial measures. These non-GAAP financial measures are intended to supplement the GAAP financial information by providing additional insight regarding results of operations of the Company. Certain items are excluded from these non-GAAP financial measures to provide additional comparability measures from period to period. These non-GAAP financial measures will not be defined in the same manner by all companies and may not be comparable to other companies. These non-GAAP financial measures are reconciled in the accompanying tables to the most directly comparable measures as reported in accordance with GAAP, and should be viewed in addition to, and not in lieu of, such comparable financial measures.
1 The Company defines Adjusted EBITDA as net income (loss) excluding net charges related to interest income, interest expense, income tax expense, depreciation, amortization of intangible assets, SEC inquiry and financial restatement costs, SEC penalties on resolution, strategic consulting and other related professional fees, executive severance and employee retention, restructuring, share-based compensation, impairment of goodwill and long-lived assets, unrealized foreign exchange gains and losses, net, other non-operating gains and losses, net, and gains and losses on investments in affiliates and impairments.
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