24/7 Wall St.

CMGI Inc. (NASDAQ:CMGI) earnings have been released.  Surprisingly enough, it seems as though that because it is not a $1 or $2 stock any longer that no one is trading the stock.

We recently noted CMGI in our "10 Stocks Under $10" weekly subscriber newsletter with ten stocks that trade under 10-bucks.   Here are today’s earnings (with percentage changes year over year where applicable):

• Net revenue of $274.7, (-3.1%);
• Operating income of $9.1 million, (+80.9%);
• Income from continuing operations of $9.2 million, (-5.1%);
• Net income of $8.6 million, (-16.6%);
• Non-GAAP operating income of $17.1 million, (+66.4%);
• Diluted EPS from continuing operations of $0.19, compared to diluted earnings per share from continuing operations of $0.20 for the same period in the prior fiscal year;
• Diluted earnings per share including discontinued operations of $0.18, compared to diluted earnings per share including discontinued operations of $0.21 for the same period in the prior fiscal year.
• CMGI also ended with $261.2 million in cash and equivalents.

Joseph C. Lawler, Chairman, President & CEO of CMGI: “Revenue was expectedly lower compared with last year due to two specific previously announced client programs that were discontinued, however we are very pleased with the growth we are seeing from other client engagements. Excluding those discontinued programs, revenue grew by approximately 15% compared to the year ago period. Gross margin performance was higher than expected, driven by work mix, continuous improvement initiatives and higher volumes for certain client programs.”

CMGI continues to expect revenue of $1.10 billion to $1.15 billion and operating income to be approximately 2.0% to 2.5% of revenue in fiscal 2008, before any restructuring.  During the first quarter ended October 31, 2007, CMGI repurchased 568,000 shares (after giving effect to the recent reverse stock split) for aggregate consideration of $8.0 million, and pursuant to which the Company has authorized the repurchase of up to $50 million of common stock over an 18-month period.

We are going to look for "new contract awards" for an area we’d like to see here.  The company needs more contracts for longer periods of time and it needs to demonstrate that customer losses are either in-sourcing or are from natural attrition that would be expected at larger companies.  Otherwise we think that traders will get tired of hearing about customer defections.

Shares were initially down by about 0.5%, but now shares are up $0.01 in after-hours.  The stock closed at $10.33 today and the implied 52-week trading range to account for the reverse split is $9.66 to $26.00.

Jon C. Ogg
December 3, 2007

We had previously noted for CMGI Inc. (NASDAQ:CMGI) that the core results were going to be closely looked at more than all the sideshow items, and that appears to be the case.  The company affected a 1-10 reverse split, a $50 million share buyback, and will have a ticker change for 20 days.  CMGI shares in after-hours were trading down 10%, but now shares are down roughly 6% at $1.50 after closing up $0.01 at $1.60 on the day.  Here is a more draw out explanation of each point of the earnings report:

• RESULTS:  CMGI’s revenue was $252.6 million, down 3.6% from Q4 2006; Gross margin increased to 12.1% from 10.7% last year; Operating loss of $2.4 million compared with operating income of $1.7 million in Q4 2006; Net loss of $6.2 million or $0.01 per diluted share compared to net loss of $2.5 million or $0.01 in Q4 2006; Non-GAAP operating income of $7.2 million compared with $7.6 million in Q4 2006; Cash, cash equivalents and marketable securities at July 31, 2007 increased to $282.3 million from $228.7 million at July 31, 2006.
• EXCEPTIONS: As anticipated, revenue for the fourth quarter was affected by specific client programs that were discontinued, but were partially offset by growth from other client engagements.
• DEVELOPMENTS: CMGI continued to invest in its strategic initiatives which are focused on penetrating new target vertical markets with investments of approximately $5.7 million during the quarter (approximately $2.9 million was recorded as an operating expense in the period and the remainder capitalized on the balance sheet).
• OUTLOOK: The company currently expects revenue of approximately $1.10 billion to $1.15 billion and operating income to be approximately 2.0% to 2.5% of revenue in fiscal 2008, before any restructuring. Restructuring for fiscal 2008 is expected to be $5 million to $8 million.
• SHARE COUNT REDUCTION; REVERSE SPLIT: CMGI Announces One-for-Ten Reverse Split is now authorized which had been approved by stockholders at the Annual Meeting of Stockholders on December 7, 2006. CMGI’s common stock will begin trading at the split-adjusted level on November 1, 2007; and for 20-trading days following the split the stock will trade under the trading symbol "CMGID". After the 20-trading day period, CMGI’s common stock will resume trading under the symbol "CMGI". The number of shares of CMGI common stock issued and outstanding will be reduced from approximately 490 million shares as of September 25, 2007, to approximately 49.0 million shares post-split. No fractional shares will be issued in connection with the reverse stock split. CMGI shareholders who would be entitled to fractional shares will receive cash payments in lieu of receiving fractional shares.
• STOCK BUYBACKS: The board of directors has authorized the repurchase of up to $50 million of the company’s common stock over the next 18 months.

For now, the results and guidance are more of the focus than the sideshows. 

Jon C. Ogg
September 25, 2007

Jon C. Ogg produces the 24/7 Wall St., LLC Special Situation Investing Newsletter; he does not own securities in the companies he covers.