UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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ModusLink Global Solutions, Inc. | ||||
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 ©2008
ModusLink Global Solutions. All Rights Reserved Investor Presentation
December 2011 / January 2012
1 |
 2
SEC Safe Harbor Statement
Forward looking Statement
This presentation contains forward-looking statements, which address a variety of subjects
including, for example, the Company’s plan for sustained growth in revenue and profits, the
Company’s assessment of the long-term prospects for its market, the trend toward outsourcing
key processes, the opportunity for new programs and integrated solutions in our client base,
the prospects for improved profitability over the long-term, the anticipated impact of the investment and cost reduction plan, the expected annualized costs savings and benefits
in fiscal 2012 and 2013 as a result of the investment and cost reduction plan, the impact of the tax
benefit preservation plan and the estimated annualized revenue from a recent client win.
All statements other than statements of historical fact, including without limitation, those with respect to the Company’s goals, plans, expectations 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: the Company’s success, including its ability to meet its revenue, operating
income and cost savings targets, maintain and improve its cash position, expand its operations
and revenue, lower its costs, improve its gross margins, reach and sustain profitability, reach its long-term objectives and operate optimally, depends on its ability to execut
on its business strategy, including the investment and costs savings plan and the continued and
increased demand for and market acceptance of its services; global economic conditions,
especially in the technology sector are uncertain and subject to volatility; demand for our clients’ products may decline or may not achieve the levels anticipated by our
clients; the Company's management may face strain on managerial and operational resources as they try
to oversee the expanded operations; the Company may not realize the expected benefits of its
restructuring and cost cutting actions; the Company may not be able to expand its operations in accordance with its business strategy; the Company’s cash
balances may not be sufficient to allow the Company to meet all of its business and investment goals;
the Company may experience difficulties integrating technologies, operations and personnel in
accordance with its business strategy; the Company derives a significant portion of its revenue from a small number of customers and the loss of any of those
customers could significantly damage the Company’s financial condition and results of operations;
the Company frequently sells to its supply chain management clients on a purchase order basis
rather than pursuant to contracts with minimum purchase requirements, and therefore its sales and the amount of projected revenue that is actually realized are subject to
demand variability; risks inherent with conducting international operations; tax rate expectations are
based on current tax law and current expected income and may be affected by the jurisdictions
in which profits are determined to be earned and taxed, changes in estimates of credits, benefits and deductions, the resolution of issues arising from tax audits with
various tax authorities, including payment of interest and penalties and the ability to realize
deferred tax assets; the potential tax benefits represented by the net operating loss
carryforwards may not be realized and the tax benefit preservation plan may not be effective in
preserving those benefits; the mergers and acquisitions and IPO markets are inherently
unpredictable and liquidity events for companies in the Company’s venture capital portfolio may
not occur; and increased competition and technological changes in the markets in which the
Company competes. For a detailed discussion of cautionary statements that may affect the Company’s future results of operations and financial results, please refer to the
Company's filings with the Securities and Exchange Commission, including the Company's most recent
Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. 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.
Important Additional Information
On December 2, 2011, ModusLink filed with the Securities and Exchange Commission (the “SEC”)
a definitive proxy statement in connection with its 2011 annual meeting of stockholders (the
“2011 Annual Meeting”) and has mailed the definitive proxy statement to its stockholders. The definitive proxy statement contains important information concerning
the identity and interests of ModusLink’s directors, director nominees and certain of its
officers and employees that may be deemed, along with ModusLink, to be participants in the
solicitation of ModusLink’s stockholders in connection with the 2011 Annual
Meeting. Copies of ModusLink’s definitive proxy statement, any other relevant documents and other
materials filed with the SEC concerning ModusLink, when filed, may be obtained free of charge
at www.sec.gov and www.ir.moduslink.com. The definitive proxy statement and any other relevant documents filed with the SEC contain (or will contain) important information,
and stockholders should carefully read the definitive proxy statement, the accompanying WHITE proxy
card and other materials filed with the SEC when they become available before making any voting
decision.
|
 Agenda
•
ModusLink Overview and Background
•
Taking Action to Best Position ModusLink for Long-Term Success
•
Board of Directors –
Experienced and Independent
•
Peerless Systems and the Proxy Contest
•
Conclusion: Vote for ModusLink Nominees on the WHITE Proxy Card
3 |
 •
Improving Operations
–
Executing investments in sales and marketing and cost reduction plan to respond to
adverse economic conditions
–
Plan is focused on putting company on path to sustained growth in revenue and
profits •
Enhancing Corporate Governance
–
Appointed stockholder nominee, Jeff Fenton, to Board in leadership role in
November 2010 –
Separated Chairman and CEO roles
•
Maximizing Stockholder Value
–
Returned
nearly
$97
million
in
cash
to
stockholders
since
fiscal
2008
–
Commenced review of strategic alternatives, chaired by Mr. Fenton
–
Adopted a tax benefit preservation plan
•
Delivering Results
–
Actions taken bearing fruit, and the Company’s performance is improving
–
For first quarter fiscal 2012, ModusLink reported its highest gross profit margin
in nearly two years, its first operating profit in six quarters and several
new client program wins 4
Robust Change is Underway at ModusLink |
 ModusLink Overview and Background
5 |
 Market
Leader in Supply Chain Business Process Outsourcing (BPO)
•
Provides clients with broad, integrated portfolio of forward and
reverse
supply chain solutions supported by a global footprint
–
25 solution centers in 15 countries
–
e-Business, factory supply, optimized configuration/postponement and
aftermarket services •
Focused on high-growth markets
–
Computing, software, communications, storage and consumer electronics
•
Approximately 4,000 full-time employees worldwide
•
Fiscal 2011 revenue of $876 million
6 |
 ModusLink
Provides Superior Value Chain Solutions
We
design
and
execute
critical
processes
within
our
clients’
global
value
chains;
focus on speed to market and best cost to enable new business channels
and to unlock global market opportunities
Logistics
Providers
Fulfill to
Multiple
Channels
Configure
Product for
End Market
Needs
Manage
Returns
Processes
E-Business / Entitlement
Business Process Infrastructure
Asset
Repair &
Recovery
Source
Goods for
Manufacture
7
EMS,
ODM &
OEM
Manufacture |
 8
High-Level Strategy in Place to Drive Value
Continue to Drive
Operational
Efficiencies
Focus on Target
Markets With Long-
Term Growth
Prospects
Computing
Software
Storage
Factory Supply
Optimized
Product
Configuration/Postponement
Aftermarket Services
e-Business
Global Standardization
Facility Optimization
Continuous Improvement
Expand Client
Relationships
Through Innovative
Solutions
Communications
Consumer Electronics
New Verticals |
 Improving
Outlook for BPO Market 9
Industry Environment:
Recession
created
adverse
conditions
for
our
clients, which in
turn impacted ModusLink in fiscal
2010/2011
Macroeconomic environment has
shown weakness, especially in
Europe
Despite challenges, we believe
long-term prospects for our market
are very good
Companies will continue to
outsource more key processes
within their supply chain to reduce
costs and manage the increasing
complexity that global companies
face in serving their customers
Source: Gartner -
Q2 2011. |
   ModusLink’s Addressable Market
Presents Compelling Opportunity
10
•
Supply Chain BPO Market is $25 billion across three sectors
–
Supply Chain Services represents 11%
0.2%
0.7%
0.8%
1.4%
1.7%
1.8%
4.2%
Globalware
Mentor
Media
Shin Shin
ATC
RR
Donnelley
Arvato
ModusLink
ODM / Contract
Manufacturers
10%
Source: Company Estimates
In-House
providers &
other
79%
Supply Chain Services
11%
Competitors:
ModusLink is in a favorable competitive position,
given our global capability and Fortune 1000 client
base with opportunity for new programs that
include high value services, such as Aftermarket
and e-Business solutions |
 •
Strong balance sheet: no debt, approximately $110 million of cash*
•
$25 billion addressable market
•
Maintained strong liquidity: current ratio of 1.8x*
•
Net operating loss carryforwards of $2 billion
•
Improving profit margins over time
11
* As of October 31, 2011
Financial Strength
Sets Solid Foundation for Execution |
 12
* Non
GAAP
operating
income
represents
total
operating
income,
excluding
net
charges
related
to
depreciation,
amortization,
stock-based
compensation
restructuring
and
impairment of goodwill.
** Excludes goodwill and other intangible asset impairment charges in FY08, FY09 ,
FY10 and FY11. Operating income (loss) was $0.4 million, ($167.7) million, ($6.9) million,
and ($35.0) million in FY08, FY09 , FY10 and FY11 respectively.
See reconciliation to operating income in appendix
Financial Trend Analysis |
 ModusLink
has Returned Significant Capital to Stockholders
13
•
Since the beginning of FY
2008, ModusLink has
returned nearly $97 million of
cash to stockholders
–
$56.7 million of stock repurchases,
which represents a reduction of
12% of the Company’s outstanding
shares
–
$40 million ($0.9134 per share)
special cash dividend distributed to
stockholders in March 2011
*Includes stock repurchased as of January 31, 2011 and special dividend paid on
March 31, 2011 |
 Taking Action to Best Position ModusLink
for Long-Term Success
14 |
 •
Created durable competitive advantage through strategic acquisitions
–
Open
Channel
Solutions
(OCS)
–
an
entitlement
management
capability
that
strengthened
ModusLink’s e-Business solution
–
PTS
Electronics
(PTS)
and
Tech
For
Less
(TFL)
–
two
important
capabilities
that
now
comprise ModusLink’s Aftermarket Services
–
As
a
result,
ModusLink
can
now
offer
a
full
suite
of
value
chain
solutions,
that
enhance
ability
to cross-sell our solutions as well as improve margins
Over 50% of our top 30 clients utilize more than one of our solutions
•
Taken significant actions to improve the performance of our acquisitions
–
Leadership changes
Integrated these highly complementary services under common leadership; hired
President, Integrated Services in 2011
–
Restructured operations
Completed labor reductions of 14% at PTS and more than 25% at TFL in fiscal 2011
–
Implemented better methods to buy, process, repair and sell products
15
Becoming a Leader in
Global Supply Chain Management Services
Acquisitions are in line with our strategy to take advantage of our sizeable NOLs
and
provide
the
Company
with
the
right
mix
of
services
and
scale
necessary
to
position the Company for improved profitability over the long term
|
 16
Strategic Plan to Put Company on
Path to Sustained Growth in Revenue and Profits
•
As market headwinds persisted,
Company conducted comprehensive
review of business to determine
additional ways to enhance operations
•
Developed and have begun to
execute an investment and
cost reduction plan to:
–
Increase revenue from new programs
–
Significantly improve profitability
–
Put new leadership in place to drive
improved results
Sales Acceleration
& Increased
Market Penetration
Strengthening
Leadership
Cost Alignment &
Working Capital
Improvements |
 17
Investment and Cost Reduction Plan:
Sales Acceleration and Increased Market Penetration
•
Increase new business revenue to annual levels of
$150 million to $200 million
•
Overcome challenges related to volatility in volumes
and use of less materials in packaged products, while
fulfilling our cost value proposition to clients
Objectives
•
Increasing quota-bearing sales people by at least 30%
•
Price optimization strategies
•
Improving sales targeting including subcategories within target markets
•
Sales force effectiveness and account planning
•
Integrate sales and marketing under common leadership
–
Hired new head of sales and marketing
Example Investments and Changes |
 18
Investment and Cost Reduction Plan:
Cost Alignment & Working Capital Improvements
•
Improve profitability as sales and marketing initiatives
gain traction
•
Increase capacity utilization and reduce redundancy
Objectives
•
Reducing direct and indirect labor costs
–
6% reduction in headcount from actions in last two quarters
•
Reducing facility costs
•
Strategic sourcing; better leverage purchasing power of collective
facilities •
Expanding shared services initiative
•
Further streamline inventory levels and accelerate inventory turns
Example Investments and Changes |
 19
•
Put new leaders in targeted places to drive improved
results
•
Fulfill vision for development of integrated services –
Aftermarket Services and e-Business solutions
Objectives
•
Recently hired:
-
President,
Sales
and
Marketing
to
drive
go-to
market
strategy
-
President,
Integrated
Services
to
drive
aftermarket
solutions
and
e-Business
capabilities
-
SVP,
Human
Resources
to
strengthen
training
and
talent
development
Example Investments and Changes
Investment and Cost Reduction Plan:
Strengthening Leadership |
 20
Investment and Cost Reduction Plan:
Already Delivering Results
•
The Investment and Cost Reduction plan is already contributing to results
–
For ModusLink’s first quarter fiscal 2012 earnings results, the Company
reported its highest gross profit margin in nearly two years and its first
operating profit in six quarters •
Cost reduction plans, including restructuring actions, are expected to result
in approximately $30 million to $40 million in annualized cost savings
–
On track to achieve the expected $15 million to $20 million in benefits in fiscal
2012, with further benefit in fiscal 2013
•
Recently won several new client programs with global brands:
–
A major global consumer products company
Expected
to
contribute
annualized
revenue
of
approximately
$60
million
-
largest
program
win
since
before recession
–
GoPro -
one of the world's fastest growing camera companies
Program utilizes ModusLink’s Supply Chain, e-Business and Aftermarket
solutions –
Two new programs from Sony
Since starting first Sony program a year ago, we've grown relationship to five
programs Example of ModusLink’s ability to sell new programs to current
clients and underscores opportunity present in existing client base
|
 21
ModusLink is Positioned
For Long-Term Success
•
Strong liquidity and balance sheet
•
An articulated plan for investment and cost reduction
•
Access to a global market
•
A client base of Fortune 1000 companies that provides additional
opportunities for ModusLink’s service offerings
–
Over 50% of our top 30 clients utilize more than one of ModusLink’s
solutions ModusLink has a robust financial foundation that provides a
competitive advantage and affords us the opportunity to act in the
long-term interests of our Company and stockholders
|
 22
Board of Directors
Experienced and Independent |
 23
ModusLink has a Highly-
Qualified and Independent Board
•
Seven of eight Board members are independent
–
Virginia G. Breen
–
Jeffrey J. Fenton –
Director nominee at 2011 Annual Meeting
–
Thomas H. Johnson
–
Director nominee at 2011 Annual Meeting
–
Frank J. Jules –
Chairman
–
Joseph C. Lawler –
President and Chief Executive Officer
–
Edward E. Lucente
–
Michael J. Mardy
–
Joseph M. O’Donnell
•
Half of the current Board members have joined in the past five years
–
By pursuing this proxy contest, Peerless is seeking to replace two of
ModusLink’s newest Board members
ModusLink’s Board is comprised of seasoned executives,
all of whom are actively engaged in creating value for all stockholders
|
 24
Board is Listening and Taking Action |
 25
ModusLink’s Highly-Qualified
Director Nominees
•
ModusLink’s nominees are experienced, qualified and committed to delivering
value for all stockholders
Tom Johnson:
–
Member of Board since April 2006
–
Mr. Johnson was identified by an outside search firm, Spencer Stuart, as part of a
nationwide search for director candidates –
Mr. Johnson brings more than 15 years of executive experience, including service as
the chief executive officer of two large multinational corporations, as well
as four public company boards –
Since January 2009, Mr. Johnson has served as the Chief Executive Officer of The
Taffrail Group, LLC, an international advisory firm
–
Mr. Johnson is also a director of Coca-Cola Enterprises, Inc., GenOn Energy,
Inc. and Universal Corporation Jeff Fenton:
–
Member of Board since November 2010
–
Mr. Fenton was appointed to the Board following the Governance and Nominating
Committee’s review and evaluation of director
candidates
put
forward
by
two
stockholders:
LCV
Capital
Management
and
Raging
Capital
Management
–
Mr. Fenton brings a proven record of leading large and diverse organizations,
developing and executing market leading strategies
–
Since March 2004, Mr. Fenton has served as Principal of Devonshire Advisors LLC, an
investment advisory services firm –
Mr. Fenton served as a director of Bluelinx Holdings Inc., Formica Corporation, IAP
Worldwide Services and Transamerica Trailer Leasing Co.
Losing these Directors would remove valuable experience and
important leadership from the ModusLink Board |
 26
Peerless Systems and the
Proxy Contest |
 27
ModusLink has been Reasonable
and Open to a Resolution with Peerless
•
ModusLink values the opinions of all stockholders and has a track record of
working with stockholders
–
Engaged in a dialogue with LCV Capital Management and Raging Capital Management
that enabled us to avoid the expense and disruption of a proxy contest in
2010 –
Resulted
in
ModusLink
appointing
stockholder
representation
to
the
Board
–
Mr.
Fenton,
who
has since been a valuable addition through his various leadership roles
•
ModusLink’s Board and management have tried to pursue a similar approach
with Peerless, actively engaging with the investor
•
Throughout the course of this interaction, and despite concerns about the
Peerless nominees, ModusLink made a concerted effort to resolve this matter
–
Offered Peerless a settlement agreement which included board representation and
customary confidentiality and standstill provisions
Despite opportunities to find common ground, Peerless has instead chosen
to engage the Company in a disruptive and costly proxy contest
|
 28
Peerless has Not Articulated Any
Strategy or Plan for the Company |
 29
Peerless Nominees –
Not Right for ModusLink
In our view, electing the Peerless nominees could:
•
Interrupt ongoing implementation of ModusLink’s strategic plan;
•
Disrupt the ongoing strategic alternatives review process;
•
Reduce the level of relevant experience on the Board; and
•
Negatively impact stockholder value |
 30
There Are Concerns Regarding
Peerless Nominee Timothy Brog
Mr. Brog’s pattern of violations is troubling
and has no place on ModusLink’s Board
•
Nominee Timothy Brog has a troubling track record of SEC violations and
failure to disclose material information to stockholders:
–
2006:
Gyrodyne
proxy
contest
–
Mr.
Brog
was
part
of
a
group
that
received
a
comment
letter
from the Staff of the Securities and Exchange Commission (SEC) noting that because
the group failed to file a preliminary proxy statement, the participants in
the solicitation had violated Rule 14a-6 of Regulation 14A.
The Staff directed the group to revise its proxy materials to affirmatively
indicate the participants had committed a federal securities law
violation –
2008:
TravelCenters
of
America
proxy
contest
–
lawsuit
filed
against
Mr.
Brog
related
to
his
failure to disclose the prior federal securities law violations in connection with
the Gyrodyne matter
Delaware Court of Chancery ruled in favor of TravelCenters, and deemed Mr.
Brog’s notice of intent to nominate directors deficient and
invalid –
2011:
ModusLink
proxy
contest
–
We
believe
that
Mr.
Brog
is
operating
Peerless
as
an
unregistered investment company in violation of federal securities laws
Based on public filings, we believe Peerless fails several quantitative and
qualitative tests under the Investment Company Act of 1940
We believe Mr. Brog has failed to disclose material information to
ModusLink’s stockholders in this regard |
 31
Conclusion: Vote for ModusLink Nominees
on the WHITE Proxy Card |
 32
Protect Your Investment: Vote
FOR ModusLink Nominees on the WHITE Proxy Card
Support
your
Board’s
initiatives
to
drive
value
for
ALL
stockholders
–
vote
FOR the ModusLink nominees on the WHITE proxy card today
|
 33
APPENDIX |
 34
Non-GAAP Reconciliation
FY04
Margin %
FY05
Margin %
FY06
Margin %
FY07
Margin %
Revenue
381,315
$
1,053,507
$
1,148,886
$
1,143,026
$
Operating income (loss)
(25,206)
-6.6%
7,769
0.7%
585
0.1%
14,765
1.3%
Less goodwill impairment charges
-
0.0%
-
0.0%
-
0.0%
-
0.0%
Oper. income (loss) excl. GW impairment
(25,206)
-6.6%
7,769
0.7%
585
0.1%
14,765
1.3%
Adjustments :
Depreciation
6,771
1.8%
9,723
0.9%
11,021
1.0%
15,028
1.3%
Amortization of intangible assets
-
0.0%
5,226
0.5%
4,824
0.4%
4,821
0.4%
Share-based payments
333
0.1%
5,700
0.5%
6,417
0.6%
5,184
0.5%
Restructuring
5,604
1.5%
5,258
0.5%
9,521
0.8%
4,643
0.4%
Non-GAAP operating income (loss)
(12,498)
$
-3.3%
33,676
$
3.2%
32,368
$
2.8%
44,441
$
3.9%
FY08
Margin %
FY09
Margin %
FY10
Margin %
FY11
Margin %
Q1 FY12
Margin %
Revenue
1,068,207
$
1,008,554
$
923,996
$
876,466
$
206,151
$
Operating income (loss)
371
0.0%
(167,693)
-16.6%
(6,927)
-0.7%
(34,972)
-4.0%
2,208
1.1%
Less goodwill & intangible asset impairment charges
14,000
1.3%
164,682
16.3%
25,800
2.8%
27,166
3.1%
-
0.0%
Oper. income (loss) excl. GW & intangible asset impairment charges
14,371
1.3%
(3,011)
-0.3%
18,873
2.0%
(7,806)
-0.9%
2,208
1.1%
Adjustments :
Depreciation
17,008
1.6%
20,013
2.0%
16,867
1.8%
16,782
1.9%
3,735
1.8%
Amortization of intangible assets
3,773
0.4%
5,485
0.5%
6,308
0.7%
5,457
0.6%
332
0.2%
Share-based payments
5,599
0.5%
5,103
0.5%
4,154
0.4%
3,481
0.4%
882
0.4%
Restructuring
5,465
0.5%
19,552
1.9%
(1,433)
-0.2%
795
0.1%
755
0.4%
Non-GAAP operating income (loss)
46,216
$
4.3%
47,142
$
4.7%
44,769
$
4.8%
18,709
$
2.1%
7,912
$
3.8% |