ModusLink Global Solutions Reports Financial Results for Second Quarter of Fiscal 2010

ModusLink Global Solutions, Inc. (NASDAQ: MLNK) reported financial results for its second quarter of fiscal year 2010 ended January 31, 2010.

Financial Summary

* Net revenue of $235.5 million, a decrease of 9.6% compared to the second quarter of fiscal 2009
* Gross margin as a percentage of revenue of 13.4% compared to 12.4% in the second quarter of fiscal 2009
* Operating income of $6.0 million compared to operating loss of $160.5 million in the second quarter of fiscal 2009, which included a non-cash goodwill impairment charge of $164.7 million
* Net income of $2.6 million, or $0.06 per share, compared to net loss of $168.8 million, or $3.73 per share, in the second quarter of fiscal 2009
* Non-GAAP operating income of $13.2 million compared to $12.4 million in the second quarter of fiscal 2009, an increase of 6.6%
* Free cash flow from operations of $29.5 million, an increase of 33.2% compared to the second quarter of fiscal 2009

Consolidated Financial Results

ModusLink reported net revenue of $235.5 million for the second quarter of fiscal 2010, a decrease of 9.6% compared to net revenue of $260.5 million reported in the second quarter of fiscal 2009, and a decline of 4.5% compared to the first quarter of fiscal 2010. Revenue for the second quarter of 2010 included $4.8 million from Tech for Less, which was acquired on December 4, 2009.

Gross profit for the second quarter of fiscal 2010 was $31.5 million, or 13.4% of revenue, compared to $32.2 million, or 12.4% of revenue, in the second quarter of fiscal 2009. The increase in gross margin as a percentage of revenue was primarily due to favorable work mix and cost reduction initiatives undertaken during fiscal 2009.

Operating income for the second quarter of fiscal 2010 improved to $6.0 million compared to an operating loss of $160.5 million in the second quarter of fiscal 2009. The improvement was principally due to better gross margin and a 10.2% reduction in Selling General & Administrative expenses. In addition, for the second quarter of fiscal 2009, the Company reported a non-cash goodwill impairment charge of $164.7 million, which was not present in the second quarter of fiscal 2010.

Other income (loss) was a loss of $1.2 million in the second quarter of 2010 compared to a loss of $4.9 million in the second quarter of 2009. Other income (loss) for the second quarter of 2010 was primarily comprised of an $0.8 million loss from equity in affiliates. Other income (loss) for the second quarter of 2009 included the impairment of several investments in the Ventures portfolio, which was not repeated in the second quarter of fiscal 2010.

Net income for the second quarter of 2010 was $2.6 million, or $0.06 per share, compared to net loss of $168.8 million, or ($3.73) per share, for the same period in fiscal 2009.

Excluding net charges related to depreciation, amortization of intangibles, stock-based compensation, restructuring and other non-recurring charges, the Company reported non-GAAP operating income of $13.2 million for the second quarter of fiscal 2010, a 6.6% increase from $12.4 million for the same period in fiscal 2009.

As of January 31, 2010, the Company had working capital of approximately $222.8 million compared to $237.0 million at July 31, 2009 and $217.4 million at January 31, 2009. Included in working capital as of January 31, 2010 were cash, cash equivalents, short-term investments and marketable securities totaling $164.3 million compared to $179.2 million at July 31, 2009 and $135.7 million at January 31, 2009. Cash, cash equivalents and marketable securities at January 31, 2010 reflects a payment of $29.0 million, net of acquired cash, for the acquisition of Tech for Less. The Company concluded the quarter with no outstanding bank debt.

For the second quarter of fiscal 2010, net cash provided by operating activities of continuing operations was $31.4 million and additions to property and equipment were $2.0 million, and therefore free cash flow from operations was $29.5 million, a 33.2% increase compared to $22.1 million in the same period in 2009.

Based on current forecasts from its clients, ModusLink updated its outlook and expects revenue for the third quarter of fiscal 2010 to be flat to lower compared to the second quarter of fiscal 2010. The Company expects sequential improvement in revenue for the fourth quarter of fiscal 2010, compared to the third quarter of fiscal 2010, as a result of increased contributions from new engagements. In addition, ModusLink expects to generate positive free cash flow from operations for the full fiscal year 2010.

Stock Repurchase Program Update

During the second quarter of fiscal 2010, the Company repurchased 708,098 shares of its common stock for aggregate consideration of $6.5 million. These purchases were made in open market transactions under the Company’s stock repurchase program, which was announced on June 9, 2009 and pursuant to which the Company has authorized the repurchase of up to $15 million of common stock over a 12-month period. Under the program, the Company repurchased $12.8 million of common stock through January 31, 2010.