Executives
Joseph C. Lawler - Chairman of the Board, President, Chief Executive Officer & Director
Steven G. Crane - Chief Financial Officer & Treasurer
Analysts
[Larry Patrone – WR Hambra]
[Kathleen Phenom – UBS]
Larry Smith – Private Investor
Carlos Rangel – Managed Assets Portfolios
Lenny Marks – Private Investor
George Mulligan – Private Investor
CMGI, Inc. (CMGI) F3Q08 Earnings Call June 9, 2008 4:30 PM ET
Operator
Hello and welcome to the CMGI third quarter fiscal year 2008 operating results conference call. At the company’s request this conference is being recorded. Please note that all lines ill be in a listen only mode until the question-and-answer portion of today’s conference. (Operator Instructions)
Now I’d like to turn the conference over to Mr. Joseph Lawler, Chairman, President and CEO and Mr. Steven Crane, Chief Financial Officer.
Steven G. Crane
Good afternoon everyone and thank you for joining us for CMGI’s fiscal 2008 third quarter conference call. I am Steve Crane, CFO of CMGI and I am joined today by Joe Lawler, Chairman, President and CEO. In just a few moments Joe will share his thoughts on our financial performance and achievements over the past quarter and provide an update on our strategic initiatives. After Joe’s comments I will review in more detail CMGI’s third quarter results.
Before we start I want to remind you that this call is being broadcast as a live webcast from our website at www.IR.CMGI.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 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.
Joseph C. Lawler
We made good progress in many areas of our business in the third quarter and feel good about our results overall and very positive about the momentum we’re building in securing new engagements and developing our sales pipeline to support future growth. Before we review the highlights of the quarter and the financial results there are three key points I’d like our investors to take away from our call today.
First, our sales pipeline continued to build in the third quarter and is currently the strongest I’ve seen at CMGI. In addition to the growing pipeline our new business wins in our targeted growth verticals over the past quarter have been very solid and signal increasing activity for fiscal 2009. While we remain very aware of the uncertain economic environment our new business activity positions us for improved financial performance. Second, we made significant progress operationally with the implementation of our ERP platform and the execution of our marketing programs that have yielded important new solutions. And third, we continue to make headway with the acquisition component of our strategy and recently announced our acquisition of PTS Electronics which follows the margin acquisition of Open Channel Solutions. These acquisitions strengthen our market position and will help improve the growth and profitability of our company.
Revenue for the quarter was $239 million compared with $282 million reported in the same quarter last year. We expected revenue to be lower year-over-year due to two previously announced discontinued programs. The revenue performance was somewhat lower than our expectations due to some delays in the startup of new programs as well as the impact of slowing business in the Americas. Despite the lower revenue performance for the third quarter and the economic slowdown that is impacting some of our base business we are optimistic about our revenue outlook once the on-boarding of new business ramps up which we expect in late summer and early fall.
Gross margins for the third quarter improved 230 basis points to 12.9% of revenues compared to 10.6% reported in the third quarter of the prior year. Margin was favorably affected by improved work mix in the ongoing focus on our lean sigma initiatives which are contributing to improved efficiency and productivity in our facilities globally. The continuous improvement we’ve been showing in gross margins is the result of executing our long term strategy and we are very pleased with the progress we’re making here.
I want to discuss in a bit more detail our sales and operational developments. We continue to make progress with our sales and marketing efforts. As I previously mentioned the size and quality of our sales pipeline continues to be strong and we have a high percentage of opportunities in the late stages of the sales process. We are also encouraged with the composition of the pipeline because a significant amount of the revenues are in the sectors of storage, communications and consumer electronics which are the growth markets we’ve been focused on for some time. We believe the strength of our pipeline will enable us to achieve year-over-year- revenue growth for the fiscal fourth quarter and provides us with a strong foundation for growth in fiscal 2009.
The progress we’ve been making building the pipeline is based on the effectiveness of our sales and operations leadership as well as the strength of our value proposition. In this environment it becomes increasingly important for technology companies to improve supply chain efficiencies to lower their cost of sales, improve time to market and reduce excess inventories. We believe the strength of our value proposition and our global business model will help mitigate the effects of the uncertain economy on our business. We will share our FY09 guidance during our fiscal year end call in September.
We also made progress introducing new solutions to the market. We announced the availability of our optimized configuration solution which enables clients to improves supply chain productivity and profitability by holding final assembly until an order is in hand. This solution helps our clients lower their inventory, delay final package and costs and ensure outdated software is not loaded into hard storage all of which helps reduce product rework and excess and obsolete costs. On May 2nd we announced the acquisition of PTS Electronics which is also in line with our strategy to introduce new solutions to the market and strengthen our value proposition. PTS is one of the nation’s largest re-manufacturers of wireless and cellular phone products and the largest single source for re-manufactured high definition TV and digital main boards and tuners in the United States.
PTS is a highly PTS strategic acquisition for CMGI and is part of the company's long term growth strategy. We view the aftermarket services space as a source for revenue and earnings growth in the future and expect PTS to form the cornerstone of that service offering. The acquisition will also contribute to our profitability. PTS will be neutral to earnings in fiscal 2008 and we expect it to be accretive to earnings in 2009 through a combination of planned revenue growth and operational synergies. Current management of PTS has remained with PTS and we look forward to working with them. Given the strategic focus on this piece of the business process outsourcing market, Mark Kelly ModusLink’s President Americas business unit, has transitioned to the newly created position of President Global Aftermarket Services. In this capacity Mark has overall management responsibility for this business.
The acquisition of PTS Electronics follows the acquisition of Open Channel Solutions which closed in the fiscal third quarter and we continue to look for opportunities that are a good fit for our core supply chain services. The implementation of our ERP platform also continues to progress well. By fiscal year end we will be ready to operationalize around SAP. In other words we’ll have substantially completed our implementation of our ERP system and will conclude the project related efforts and costs and as a result we expect to realize $8 million to $10 million in savings in fiscal 2009 versus fiscal 2008 as planned. Over time the system will help drive purchasing efficiencies, further optimize solutions, improve capacity utilization and enable us to use standard processes globally.
As we move forward our supply chain strategy remains focused on three areas. First is increasing revenue in our targeted growth markets of storage, communications and consumer electronics while building on our existing business in the computing and software markets. Our growth markets represent an opportunity for higher growth and higher margins. As I mentioned earlier the new business activity this spring is reason for optimism about our business model and our outlook for the future. We’ve been making significant progress with our lead generation activities, the alignment of our solutions to the markets we serve and excellent execution in our solution centers which stimulates new business. More than half of our sales pipeline is now comprised of new programs in our target markets.
The second area is expanding our existing client relationships through the introduction of new supply chain capabilities and services that strengthen the value proposition of our core supply chain services business. We continue to move forward with our marketing initiatives to launch new solutions. As I mentioned during the third quarter we introduced ModusLink’s optimized configuration solution. We’re also strengthening our solutions through acquisition. The initiative PTS Electronics enables a more robust reverse logistics solution for our high tech clients as I noted earlier. The acquisition of Open Channel Solutions complements existing offerings from ModusLink and expands both companies’ abilities to span the integrated physical and digital supply chain. OCS provides solutions that manage entitlements for software licenses, maintenance and support subscriptions, hardware features and rights manage content.
Third we continue to work to improve chief operational efficiencies through pricing, volume, work mix and our lean sigma initiatives. In addition as I just mentioned we expect to gain efficiencies through our ERP implementation. Through the execution of our strategy we are positioning our business for improved future financial performance and ultimately achieving our target operating model. Our target model consists of high single digit to low double digit revenue growth consistent with the overall market, annual gross margins in the range of 12% to 14% as a percentage of revenue, lower selling, general and administrative expenses including restructuring, amortization and stock compensation expense at a level of 7% of revenue and therefore operating income in the 5% to 7% range. From where we are today we will need higher revenue levels than we’re achieving now to reach our 7% SG&A target.
There were no significant proceeds received from four additional investments made by our @Ventures business in the third quarter. However we remain optimistic about the clean tech investment sector as well as our current portfolio investments in the @Ventures buy fund. Despite the increasing amount of capital that has been allocated to the clean tech investment category by a range of other investors we are convinced that our involvement in this segment since late 2004 is having a very positive impact on the number and quality of investment opportunities our @Ventures team is evaluating.
In closing let me comment on the outlook. As we enter the fourth quarter of fiscal 2008 we have a lot of work ahead of us. We remain very aware of the uncertain economic environment and its affects on our existing business such as lower order volumes fro some clients and delays in the startup of some new engagements. In the near term we are lowering our revenue guidance for fiscal 2008 from the previous range of $1.1 billion to $1.15 billion to the new range of $1.05 billion to $1.1 billion. As for operating income we had previously provided guidance of 2% to 2.5% of revenue for this fiscal year before restructuring costs. We expect to be at the low end of that range due in part to the costs of readying our facilities for planned startups of the new business secured over the past few months.
In summary we continue to make good progress in the third quarter despite a difficult economic climate. Although we feel the effects of the uncertain economy we are encouraged with the new business we closed this spring and the size and makeup of our sales pipeline. As I mentioned earlier our business model helps drive lower costs, improved time to market and reduced inventory levels which is why our new business activity has been strong. We continued to make good operational progress this quarter with the implementation of our ERP platform and the execution of our sales and marketing programs. We strengthened our leadership position with the recent acquisitions of Open Channel Solutions and PTS Electronics.
Thank you for your attention. I’ll now turn the call back over to Steve to comment further on our financial results.
Steven G. Crane
For the third quarter of fiscal 2008 CMGI reported net revenue of $239.2 million. This compared to net revenue of $282.1 million for the same period one year ago. The decrease of $42.9 million was primarily due to the previously announced discontinued client programs which amounted to $33.3 million in Q3 of fiscal year 2007. The remaining $9.6 million decrease was the result of lower revenues for some client programs partially offset by growth in other programs. As I mentioned the revenue attributable to the two discontinued client programs in the third quarter of 2007 was $33.3 million. So when excluding revenue from those discontinued client programs revenues were down by 3.9%.
In terms of the results on a geographic basis let’s start with Asia and work back across the globe. Our Asia revenues went from $76.4 million in Q3 of fiscal year 07 to $70.9 million in Q3 fiscal year 08 driven primarily by a net decrease in client order volumes. In Europe our revenues went from $118.4 million in Q3 fiscal year 07 to $92.2 million in Q3 fiscal year 08 primarily as a result of the discontinued programs which totaled $29.8 million last year and which were partially offset by an increase in order volumes and new business. In the Americas our revenues went from $87.3 million to $76 million primarily due to the discontinued programs which totaled $3.5 million and a net decrease in order volumes of approximately $7.1 million. Even with this revenue decrease of $42.9 million the company’s gross profit increased in dollar terms from $30 million in the third quarter of fiscal year 07 to $30.9 million in the third quarter of fiscal year 08 an increase of 3.1%.
As a percentage of revenues gross margin improved 12.9% in the third quarter of fiscal 2008 from 10.6% in the third quarter of fiscal 2007. This strong improvement in gross margin was primarily driven by improved work and geography mix and our keen focus on continuous improvement initiatives. This working [inaudible] unit on a year-to-date basis the company's gross margin stands at 13.7% versus 11.3% for the same period in fiscal year 07.
Selling, general and administrative costs for the third quarter of fiscal 2008 which includes restructuring and amortization of stock compensation related expense was $30.9 million or 12.9% of revenue which was higher than the $29.1 million or 10.3% of revenue reported in the year ago period. Selling, general and administrative costs were higher primarily due to higher restructuring costs which related to shut down of facilities in the US, the continued investment in our ERP as we have discussed previously as well as SG&A related to inclusion of the Open Channels Solution acquisition which we closed in mid-March. We expect SG&A to improve over time as we reduce duplicate costs and other expenses associated with our ERP implementation, drive further operating efficiencies as the result of further centralization and standardization and increase our revenues. Our target over time continues to be that SG&A will be at approximately 7% of revenues.
Operating income was $10,000 for the third quarter of fiscal 2008 which is down from $877,000 in the third quarter of fiscal 2007 primarily due to the higher restructuring costs, planned investments and inclusion of SG&A from Open Channel Solutions I just outlined. Other income or expense was an expense of $70,000 in Q3 fiscal year 08 versus income of $7.8 million in the third quarter of fiscal year 07. This reduction in other income was primarily the result of lower interest income due to lower interest rates in this quarter when compared to a year ago as well as the fact that in third quarter of fiscal year 07 @Ventures reported total gains of $4.7 million which was not repeated in the third quarter of fiscal year 08 other than about $100,000. As a result of the above the company’s pre-tax income for the third quarter of fiscal year 2008 was a loss of $60,000 versus pre-tax income of $8.7 million in the third quarter of fiscal year 2007.
The company recorded a tax expense of $3.2 million for the quarter compared with a tax benefit of $900,000 in the prior year period due to a shift in the geographic distribution of income, increase of the tax rate in China and some discreet tax related items. The tax expense for the third quarter of 2008 means that the company’s effective tax rate year-to-date is approximately 18%. Based on where we anticipate our sources of income to be for the full year, in other words from what country will the income be derived, we now expect our full year effective tax rate to be in the range of 24% to 27%. We continue to evolve and drive our tax strategy to both support our business strategy and to maximize the use of our US net operating losses. For the third quarter of fiscal 2008 CMGI recorded a net loss of $2.6 million or $0.05 per share compared to net income of $9.4 million or $0.19 per share in the third quarter of fiscal 2007.
Non-GAAP operating income represents total operating income excluding net charges relating to depreciation, restructuring and amortization of intangibles and stock based compensation. CMGI’s non-GAAP operating income for the third quarter of fiscal 2008 was $7.6 million versus non-GAAP operating income of $7.5 million for the same period in fiscal 2007 an increase of 1.5%. The company believes that non-GAAP operating income or loss provides investors the useful supplemental measure of the company's operating performance by [sluting] the impact of non-cash charges and restructuring activities. Each of the excluded items were excluded because they may be considered to be of a non-operational or non-cash nature. Historically the company has reported significant impairment in the restructuring charges. Non-GAAP operating income or 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 and loss should not be evaluated in isolation of or as a substitute for the company’s financial results prepared in accordance with Generally Accepted Accounting Principals of the United States.
As of April 30th, 2008 our balance sheet remains extremely strong. CMGI reported working capital of approximately $300.7 million compared with $326.8 million at April 30th, 2007. Included in working capital as of April 30th, 2008 were cash, cash equivalents and available for sales securities totaling $248.6 million compared to $250.3 million at April 30th, 2007. We continue to have no outstanding bank debt. Our cash position asset for growing our business and building value for our shareholders. As part of our capital allocation strategy we are investing in our business and will continue to invest in acquisitions that are aligned with our core supply chain management services business such as PTS Electronics and Open Channel Solutions. In addition we continue to be active in venture capital investing which has historically provided good returns to our investors and we are executing the previously announced stock repurchase plan.
As part of our stock repurchase program the company purchased approximately 114,000 shares of CMGI stock at a total cost of $1.3 million during the third quarter. Our repurchase authorization is for up to $50 million over 18 months and through the third quarter we have spent a total $15.3 million. We believe these investments in the company's shares represent an excellent long term investment reflecting our optimism for CMGI’s future and demonstrate our commitment to enhancing shareholder value.
Regarding our financial guidance we do remain cognizant of the effects of the uncertain economic environment on our existing business and the expenses needed for the startup of the new business secured over the past few months. Based on these factors we are revising our financial guidance ranges for fiscal 2008. We now expect revenue in fiscal 2008 of approximately $1.05 billion to $1.1 billion. We also expect operating income to be at the low end our previously provided guidance of 2% to 2.5% of revenues for fiscal 2008. It is important to note that our expectations for operating income are before any restructuring we may undertake. At this time we continue to estimate restructuring costs for fiscal 2008 is in the range of $5 million to $8 million.
I’ll now turn it back to Joe.
Joseph C. Lawler
I look forward to speaking with you again on our next earnings call but right now Steve and I are happy to respond to any questions that you may have. So, Holly, if you would open up for questions.
Question-And-Answer Session
Operator
(Operator Instructions) While we wait for your questions a reminder that you can listen to today’s conference in its entirety via instant replay by dialing toll free 1-866-340-70 or toll 1-203-369-0208 available through March 12th, 2008. You can also listen to a recording of today’s conference via the web at www.CMGI.com. One moment please for our first question. Larry Patrone – WR Hambra.
Larry Patrone – WR Hambra
Couple of questions, first in regard to the volume declines that you mentioned in your release and Joe that you talked about earlier, I’m just wondering if they’re specific or particular to certain verticals or you saw it across the verticals that you are serving today?
Joseph C. Lawler
The big chunk of the volume decline is the two previously disclosed clients that are no longer in our year-over-year numbers. The other one I think you’re going to be able to go in and take a look at our queue and you will see that there was one client who is a large individual client whose volumes did decline in the quarter, that client would be in our storage segment. I would not characterize the rest of the decline as being necessarily specific to any one particular category. We saw a little softness in consumer electronics, we saw a little bit of softness in software as well.
Larry Patrone – WR Hambra
Outside of the two clients, most of it was specific to storage?
Joseph C. Lawler
Precisely.
Larry Patrone – WR Hambra
What about the new engagements, or startup of new engagements, you mentioned that there are some potential delays going into the quarter that you didn’t expect. I’m wondering first of all are these new customers or new engagements with present customers? What are your expectations going into fiscal Q4? Do you expect them, I know you don’t have a crystal ball, but I’m just wondering if your expectations are for some of those to start up in the upcoming quarter or do you see this more as fiscal 09 startup?
Joseph C. Lawler
What we think, Larry, is as the cause of bringing down the full year guidance number really is these delays it’s taken a little bit longer to start up some of the new business that we had expected was going to be starting up early in the quarter. That’s why I said my comments were I think we’re going to be seeing later in the summer and early in the fall as we move forward. Our new business activity is robust and I’m not just talking about the pipeline there, I’m talking about the new business that we’ve actually sold. But some of these are relatively complex startups in multi-site locations and syncing up with the IT systems of our client as well as transitioning work from what might be another supplier over into our operations has taking a little bit longer. We are optimistic about the outlook, but yes I think it’s going to take a little bit longer.
Larry Patrone – WR Hambra
I’m assuming, putting aside the benefits of the ERP implementation as some of these new engagements start up obviously it’s going to have a positive impact on margins for the company particularly on the operating side?
Joseph C. Lawler
That’s exactly right. The way that we explain this consistently is that when you start ramping up new business there is an initial investment in, it could be in certain equipment, maybe in facilities or some equipment that we need to actually perform the work that we’re doing for that client and with a new piece of work it takes a little bit of time to actually get up to efficient run rates with that new client. But fairly quickly within a matter of months certainly we’re able to get that business and operating efficiently and it will be accretive to our operating margins.
Larry Patrone – WR Hambra
One last question and I’ll jump out of the queue if that’s okay? You mentioned the PTS Electronics acquisition and potential impact on earnings this year and then you said it would be accretive in fiscal 09, just wondering where that business or what your expectations are for that business with regard to gross margin? Do you think it’s going to be closer to sort of the guidance, Joe, you’ve given and Steve that you’ve given in the past so you do verticals or do you think it will be somewhere in between that and the legacy verticals?
Joseph C. Lawler
There are couple of guidelines that we use as we screen for acquisitions. One is certainly a strategic fit with our overall business model. The second one is an ability to improve on the financial targets that we’ve set to the outside world. You probably are recalling, Larry, some analysis we’ve shared in various presentations, show gross margins on different kind of solutions and this is one of those solutions that we think will have a very positive impact on our margins going forward. It’s a small piece of business today but that’s one of the reasons that we really carved it out and talked about it is the strategic investment we’d like to expand that footprint. More to come on that as we go forward, but that’s the way put a senior level executive on top of that space.
Operator
Your next question comes from [Kathleen Phenom – UBS].
Analyst for [Kathleen Phenom – UBS]
I manage a fund that has about I guess about a 1 million shares of CMGI in it. My question is you right now carry a great deal of cash relative to the size of the company which is a very good position to be in, in times that everybody else is missing the amount of cash necessary to operate and with so much cash that you have that earns maybe 1% or 2% interest why are we not more aggressively buying back the shares when you are trading? If you take the cash out one fourth of sales which is ridiculously low for a company that is basically in your field.
Joseph C. Lawler
When we carved out the stock repurchase program it was because we did then and we do now believe that the stock is way undervalued and that there is a terrific long term opportunities for this company and therefore for the value of the shares. What happened this past quarter is we really got very focused on positioning cash and managing cash for about $60 million worth of acquisitions that have been completed during the third quarter or slightly after the third quarter with PTS. We continue to evaluate our uses of cash, we review it with our Board on a very regular basis and we believe in and are executing the repurchase program. We completely agree with you, we’ve balanced things out a little bit this quarter so we were not in the market quite as much as we were in the previous two quarters but it is an ongoing program for us and we think it’s a great investment.
Analyst for [Kathleen Phenom – UBS]
I really appreciate that because no matter how you look at it, even if you’re buying one quarter one million share which will enhance the value of the stock tremendously that’s still only about 14, well right now based on right on their trading the stock is down $2, that is $14 million versus your liquidity of over $240 million.
Joseph C. Lawler
We appreciate your comment.
Operator
Your next question is from Larry Smith – Private Investor.
Larry Smith – Private Investor
Is that a new analyst that [Tadford] that’s following us? I didn’t catch the name?
Joseph C. Lawler
Yes.
Larry Smith – Private Investor
That’s what I thought.
Steven G. Crane
Bob has moved to another assignment and Larry [Perone].
Larry Smith – Private Investor
Joe, when you look at the solar stocks and you look at alternative energy and to me it seems like the quarter, I know you guys are working hard but it feels like a little set back and I’ve been on a lot of calls. Do you think that we should allocate more capital to the alternative energy area?
Joseph C. Lawler
This has been a very interesting quarter for us because there’s lots of dynamics that are going on our encouragement about the trajectory of our core supply chain business. So, we really are very long term bullish on this business model and how it’s coming together. And, I know how frustrating it is to look at the third quarter results in comparison to that statement. That said, I would also say that per my comments in the script, in the @Venture business, we think we’ve made some terrific investments over the past couple of years in that space and we think that will bear real fruit for shareholders in the years ahead. We did not make any new investment in @Ventures in this past quarter for the reasons I stated which is there is a lot of money that’s been on its way in to clean tech over the last year or so and therefore a lot of money chasing deals and we’re not going to make investments that aren’t going to yield good attractive returns. We’ve found that a little bit of patience serves better for the long term. All of that said, our board continues to evaluate the overall uses of cash strategy and one of our uses for cash has indeed been in to @Ventures. We’ll continue to evaluate the appropriate balancing of acquisitions and supply chains, repurchases, capital investments and @Ventures. So, I appreciate the question Larry.
Operator
Your next question comes from Carlos Rangel – Managed Assets Portfolios.
Carlos Rangel – Managed Assets Portfolios
I was wondering if you could give me some guidance in terms of when you add PTS and OCS for a full quarter, how is that going to change the expense line?
Joseph C. Lawler
What we have said Carlos, and I think we’ve said to stay with it, is that the revenues are going to grow obviously in line with what that is and then we expect it to be operating income neutral. And, the reason for that is that the company’s were making money on a cash flow basis, they are positive but we have intangible amortization. So, typically when we buy companies they are more service type companies so we go through an exercise the accountants put us through to allocate intangible assets to the balance sheet and then we have to amortize those. So, that flows through the P&L and that weighs us down a little bit. That’s why our guidance in 08 we’re expecting it to be earnings neutral and then earnings accretive thereafter.
Carlos Rangel – Managed Assets Portfolios
And how much did the Open Channel Solutions add in revenues this quarter even if it was just for a month?
Joseph C. Lawler
It was very small, it was you know around $2 million or so.
Operator
Your next question comes from Lenny Marks – Private Investor.
Lenny Marks – Private Investor
I’ve been a shareholder since right you took off back in 04 and since then quite honestly you haven’t really created any shareholder value whatsoever. In fact, you’ve lost some today. I just want to know what your feelings are on that because there have been CEOs of much larger companies that have lost their jobs in less time for not creating shareholder value. We did give it a lot of time but we have never seen it. What do you have to say about that?
Joseph C. Lawler
I’ve got a question Lenny, I and my management team live with the business plans that we’ve built and the results of those business plans. I would tell you we have never been more optimistic about the outlook for this company. When we came in here three and a half years ago and put a plan together it was a major transformation that had to take place. We’ve put in place a global footprint, we’ve changed systems around, we’ve changed the entire organization around, we’ve churned significant unattractive pieces of business, we’ve focused on three new verticals which offer and are yielding terrific trajectories for the future in terms of the revenue line. We have a business model that we’ve been very transparent about what it is we’re working to achieve and we are optimistic on the progress that we’re making. So we have never said that it was a quarterly set of goals that we felt that we could achieve on behalf of shareholders. We really try to be very transparent with you about what our plans have been and about the progress that we’re making against those plans and are optimistic about the future for the company. So, I get your question, don’t like where we stand today but I think shareholders will be very well rewarded as we implement this business plan going forward. And, I guess final comment is, as I said, there are a number of things that we have been reporting for a long time that we needed to complete in fiscal 08 and those things are being completed as we speak. The revenue churn is taking place, the investment in ERP will be behind us here very shortly and we’re optimist about the business model going forward. So, I understand your frustration.
Operator
Your last question comes from George Mulligan – Private Investor.
George Mulligan – Private Investor
You guys are getting a little bit of heat because of the results and I see the stock is down about 16% in the afterhours which doesn’t necessarily mean anything. However, I do know from past calls that the business lawsuit from Europe was labor intensive and very costly so that’s better for the profits. I do see the ERP being a great fit with OCS and I see the PTS being a good opportunity especially with the February changes on the OPVs. Can you talk a little bit about the synergy with ERP and OCS and PTS to not only [inaudible] but add ventures because as I consistently ask each conference call, I talk about cost selling, upselling and the value added situations where you are able to get more returns on your adventures in @Ventures portfolio because of the different things that you can bring to bear with the OSC and ERP and now the PTS?
Joseph C. Lawler
There’s a lot there George. Let me summarize a couple of points that you made. A couple of things there, first of all as we’ve said on many different calls, the ERP system that we have implemented over the past couple of years was designed to replace nine different instances of ERP systems and multiple data centers that were in place globally and therefore very high cost. And, that is a system to support the core supply chain business of ModusLink. That’s the reason we did it, that’s the reason we’ve been focused on trying to be able to standardized, centralize the management of the ModusLink business. @Ventures, we are a minority investor in all of the @Ventures investment so the idea of cross selling, or looking for leverage whether it’s on ERP or in other areas and because it’s a clean tech investment, there really is no material leverage other than some management know how that takes place between the two.
As far as OCS and PTS are concerned, one of the very first things we look at when we do any acquisition are the opportunities for synergies between the businesses and we look for the low hanging fruit first, those things that are relatively straight forward and yield attractive financial opportunities for the shareholders are the ones we go after immediately and then the ones that are more complex and that’s usually is in the area of IT, those tend to be much more complex synergies, those comes later on. And, the net result in both the case of OCS and PTS, we see a lot of synergies, some of those cross selling revenue synergy opportunities and we started to see some of that momentum starting to build internally but it’s going to be a while before we get focused on significant IT synergies because of the complexities associated with them. I appreciate that question George.
I think that wraps our call today so thank you very much all of you for listening in and I’ll look forward to talking to you on the next quarterly call.
Operator
Thank you. This does conclude today’s conference call. You may disconnect at this time.
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