Add
SAPE to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| SAPE > SEC Filings for SAPE > Form 10-Q on 5-Nov-2009 | All Recent SEC Filings |
5-Nov-2009
Quarterly Report
Overview
Sapient Corporation ("Sapient" or the "Company"), a global services firm, helps clients compete, evolve and grow in an increasingly complex marketplace. We market our services through two primary areas of focus - Sapient Interactive and Sapient Consulting - positioned at the intersection of marketing, business and technology. Sapient, one of the world's largest independent interactive marketing agencies, provides brand and marketing strategy, creative work, web design and development and emerging media expertise through its Sapient Interactive services. With the addition of SapientNitro ("Nitro"), a global advertising network we acquired on July, 1, 2009, Sapient Interactive can now offer an integrated advertising service, combining the traditional advertising capabilities of Nitro with Sapient Interactive's digital commerce and marketing technology services. Sapient Consulting services provide business and information technology ("IT") strategy, process and system design, program management, custom development and package implementation, systems integration and outsourced services, including testing, maintenance and support. Founded in 1990 and incorporated in Delaware in 1991, Sapient maintains a strong global presence with offices in North America, Europe, Australia and Asia.
Our service revenues for the three months ended September 30, 2009 were $165.5 million, a 7% decrease compared to service revenues for the same period in 2008. Our service revenues for the nine months ended September 30, 2009 were $455.4 million, an 8% decrease compared to service revenues for the same period in 2008. The decrease in service revenues for the three and nine months ended September 30, 2009 is primarily due to the appreciation of the U.S. dollar against foreign currencies that our international revenues are denominated in, pricing pressures and a decrease in demand for our services, primarily in our North America operating segment, offset by incremental acquisition revenue.
For the three months ended September 30, 2009 we reported income from operations of $7.8 million compared to $20.7 million for the same period in 2008. We reported net income of $5.9 million for the three months ended September 30, 2009 compared to net income of $18.1 million for the same period in 2008. For the nine months ended September 30, 2009 we reported income from operations of $21.3 million compared to $38.7 million for the same period in 2008. We reported net income of $18.0 million for the nine months ended September 30, 2009 compared to net income of $36.8 million for the same period in 2008. The decrease in operating income and net income for the three and nine months ended September 30, 2009, is primarily due to a decrease in service revenues and an increase in restructuring charges (see "Restructuring and Other Related Charges"), offset by decreases in general and administrative expenses.
For the nine months ended September 30, 2009 $201.6 million of our service revenues and $240.7 million of our operating expenses were denominated in foreign currencies. Due to the U.S. dollar's appreciation, beginning in the second half of 2008, our service revenues and operating expenses were significantly affected when compared to our results of operations for the three and nine months ended September 30, 2008. As a result, our discussion and analysis of our results of operations will include, when significant to management's analysis, a comparison in local currency terms which excludes the effect of the U.S. dollar's appreciation. For a discussion of our exposure to exchange rates see "Item 3. Quantitative and Qualitative Disclosures About Market Risk." In addition, during the second quarter of 2009 we completed integrating the operations of our August 6, 2008, acquisition of Derivatives Consulting Group, LLC ("DCG").
During 2009 we continued to use our India-based operations for our Global Distributed Delivery ("GDD") projects. Our billable days, or level of effort, incurred by our Indian people as a percentage of total Company billable days, excluding Nitro, decreased to 58% for the three months ended September 30, 2009, compared to 61% for the same period in 2008. Our proprietary GDD methodology enables us to provide high-quality, cost-effective solutions under accelerated project schedules. By engaging India's highly skilled technology specialists, we can provide services at lower total costs as well as offer a continuous delivery capability resulting from time differences between India and the countries we serve. We also employ our GDD methodology to provide application management services.
Finally, during the third quarter of 2008, we identified errors totaling $1.3 million in the recording of project personnel consulting expense of which approximately $1.0 million and $0.4 million understated income in the first and second quarter of 2008, respectively. We recorded a reduction to project personnel expenses of $1.3 million in the third quarter of 2008 to correct the error and correctly reflect the nine months ended September 30, 2008. Management concluded that the impact of these errors was not material to the prior periods or the three months ended September 30, 2008.
Summary of Critical Accounting Policies; Significant Judgments and Estimates
We have identified the accounting policies which are critical to understanding our business and our results of operations. Management believes that there have been no significant changes during the nine months ended September 30, 2009 to the items disclosed as our summary of critical accounting policies, significant judgments and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2008.
Results of Operations
The following table sets forth the percentage of our service revenues of items
included in our consolidated and condensed statements of operations:
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Revenues:
Service revenues 100 % 100 % 100 % 100 %
Reimbursable expenses 4 % 4 % 3 % 3 %
Total gross revenues 104 % 104 % 103 % 103 %
Operating expenses:
Project personnel expenses 69 % 64 % 69 % 67 %
Reimbursable expenses 4 % 4 % 3 % 3 %
Total project personnel expenses and reimbursable expenses 73 % 68 % 73 % 70 %
Selling and marketing expenses 5 % 5 % 5 % 6 %
General and administrative expenses 18 % 19 % 19 % 19 %
Restructuring and other related charges 2 % 0 % 1 % 0 %
Amortization of purchased intangible assets 1 % 0 % 1 % 0 %
Acquisition costs and other related charges 1 % 0 % 1 % 0 %
Total operating expenses 100 % 92 % 99 % 96 %
Income from operations 4 % 12 % 5 % 8 %
Interest and other income, net 0 % 1 % 0 % 1 %
Income before income taxes 5 % 12 % 5 % 9 %
Provision for income taxes 1 % 2 % 1 % 2 %
Net Income 4 % 10 % 4 % 7 %
|
Three and Nine Months Ended September 30, 2009 Compared to Three and Nine Months
Ended September 30, 2008
Service Revenues
Our service revenues for the three and nine months ended September 30, 2009 and
2008 were as follows:
Three Months Ended
September 30, September 30, Percentage
2009 2008 Decrease Decrease
(In thousands, except percentages)
Service revenues $ 165,541 $ 177,671 $ (12,130 ) (7 )%
Nine Months Ended
September 30, September 30, Percentage
2009 2008 Decrease Decrease
(In thousands, except percentages)
Service revenues $ 455,434 $ 497,728 $ (42,294 ) (8 )%
|
Our service revenues decreased by 7% in U.S. dollars for the three months ended September 30, 2009 compared to the same period in 2008. Service revenues were $172.9 million in local currency terms, a decrease of 3% compared to the same period in 2008. The decrease in local currency terms was due to pricing pressures and a decrease in demand, primarily in our North America operating segment (see "Results by Operating Segment"), offset by incremental revenue from the Nitro acquisition. Nitro's service revenues for the three months ended September 30, 2009 were $11.6 million.
The following table compares, in local currency terms, our service revenues by industry sector for the three months ended September 30, 2009 and 2008 (in millions):
Three Months Ended Percentage
September 30, September 30, Increase / Increase /
Industry Sector 2009 2008 (Decrease) (Decrease)
Financial Services $ 55.6 $ 55.8 $ (0.2 ) 0 %
Retail and Consumer Products 39.4 35.1 4.3 12 %
Government, Health and Education 25.9 26.9 (1.0 ) (4 )%
Technology and Communications 25.6 30.7 (5.1 ) (17 )%
Energy Services 23.4 26.2 (2.8 ) (11 )%
Automotive and Industrial 2.4 3.0 (0.6 ) (20 )%
Other 0.6 - 0.6 NA
Total $ 172.9 $ 177.7 $ (4.8 ) (3 )%
|
Decreases in the Technology and Communications and Energy Services sectors were primarily due to pricing pressures and a decrease in demand. The increase in Retail and Consumer Products was due to incremental acquisition revenue from Nitro, offset by pricing pressures and a decrease in demand.
Utilization was 80% for the three months ended September 30, 2009 and 2008. All utilization percentages for the three and nine months ended September 30, 2009 exclude Nitro. Project personnel peoplecount increased 5% compared to the same period in 2008 due to additional Nitro project personnel and project needs. We increased our use of contractors and consultants by 20% for the three months ended September 30, 2009, as our need for contractors and consultants in certain specialized areas increased compared to the same period in 2008 in addition to the $1.3 million reduction in consultant expense recorded in the third quarter of 2008.
Our service revenues decreased by 8% in U.S. dollars for the nine months ended September 30, 2009 compared to the same period in 2008. Service revenues were $493.1 million in local currency terms, a decrease of 1% compared to the same period in 2008. The decrease in local currency terms was mainly due to pricing pressures and a decrease in demand in certain industry sectors, primarily in our North America operating segment, offset by incremental revenue from the Nitro and DCG acquisitions.
The following table compares, in local currency terms, our service revenues by industry sector for the nine months ended September 30, 2009 and 2008 (in millions):
Nine Months Ended Percentage
September 30, September 30, Increase / Increase /
Industry Sector 2009 2008 (Decrease) (Decrease)
Financial Services $ 166.0 $ 145.8 $ 20.2 14 %
Retail and Consumer Products 101.0 100.2 0.8 1 %
Technology and Communications 80.7 96.2 (15.5 ) (16 )%
Government, Health and Education 74.8 77.6 (2.8 ) (4 )%
Energy Services 65.0 67.2 (2.2 ) (3 )%
Automotive and Industrial 4.8 9.7 (4.9 ) (51 )%
Other 0.8 1.0 (0.2 ) (20 )%
Total $ 493.1 $ 497.7 $ (4.6 ) (1 )%
|
The increases in Financial Services and Retail and Consumer Products were due to incremental acquisition revenues. The decreases in the other industry sectors were primarily due to pricing pressures and decreases in demand.
Our utilization of 78% for the nine months ended September 30, 2009 was higher than the 76% rate we had for the same period in 2008. Average project personnel peoplecount decreased 3% compared to the same period in 2008 due to the 2009 restructuring, offset by an increase in peoplecount during the three months ended September 30, 2009. We increased our use of contractors and consultants by 7% for the nine months ended September 30, 2009 as our need for contractors and consultants in certain specialized areas increased compared to the same period in 2008.
Our five largest customers, in the aggregate, accounted for approximately 21% and 22% of our service revenues for the three and nine months ended September 30, 2009, respectively, compared to 24% and 25% for the same periods in 2008. No customer accounted for more than 10% of our service revenues for the three and nine months ended September 30, 2009 and 2008. Our recurring revenues were 43% and 42% of our service revenues for the three and nine months ended September 30, 2009 compared to 40% and 43% for the same periods in 2008. Recurring revenues are revenue contracts with duration equal to or greater than twelve months in which the client has committed spending levels, which are cancelable, to us or has chosen us an exclusive provider of certain services.
Project Personnel Expenses
Project personnel expenses consist principally of salaries and employee benefits
for personnel dedicated to client projects, independent contractors and direct
expenses incurred to complete projects that were not reimbursed by the client.
These expenses represent the most significant expense we incur in providing our
services. Our project personnel expenses for the three and nine months ended
September 30, 2009 and 2008 were as follows:
Three Months Ended
September 30, September 30, Percentage
2009 2008 Increase Increase
(In thousands, except percentages)
Project personnel expenses $ 114,219 $ 114,031 $ 188 0 %
Project personnel expenses as a percentage
of service revenues 69 % 64 % 5 points
|
Nine Months Ended
September 30, September 30, (Decrease) Percentage
2009 2008 Increase Decrease
(In thousands, except percentages)
Project personnel expenses $ 316,336 $ 331,612 $ (15,276 ) (5 )%
Project personnel expenses as a percentage
of service revenues 69 % 67 % 2 points
|
Project personnel expenses were essentially the same for the three months ended September 30, 2009 as compared to the same period in 2008. Excluding $6.3 million of incremental expenses related to Nitro and a $5.7 million decrease for currency, project personnel expenses decreased, in local currency terms, $0.4 million. The decrease was due to a decrease in compensation expenses of $4.1 million, as incentive compensation has decreased compared to the same period in 2008. Equipment expenses also decreased $0.7 million due to a non-recurring, project specific expense incurred in 2008. These decreases were offset by: (i) an increase in consultant expenses of $2.7 million, due to an increased need for contractors and consultants in specialized areas and the aforementioned $1.3 million reduction in expense recorded in the third quarter of 2008, and (ii) other various project personnel expenses increased, in the aggregate, $1.8 million.
Project personnel expenses decreased by $15.3 million for the nine months ended September 30, 2009 as compared to the same period in 2008. Excluding incremental expenses related to Nitro and $27.2 million for currency, project personnel expenses increased, in local currency terms, $5.6 million. This increase was due to multiple factors. Compensation expense increased $6.9 million. Though average project personnel peoplecount decreased 3% compared to the same period in 2008, the majority of the decrease was in India project personnel whose compensation costs are lower than our non-India project personnel. Consultant expenses also increased $2.8 million as the need for contractors and consultants in certain specialized areas increased compared to the same period in 2008. In addition, other project personnel expenses increased $1.2 million. These increases in were offset by a decrease in travel expenses of $3.4 million due to a concerted effort to manage these costs, and a decrease in equipment expenses of $2.0 million, primarily due to non-recurring, project specific expenses for the same period in 2008. The increase in project personnel expense as a percentage of revenue for the nine months ended September 30, 2009 compared to the same period in 2008 is due to the decrease in service revenues compared to the same period in 2008.
Selling and Marketing Expenses
Selling and marketing expenses consist principally of salaries, employee
benefits and travel expenses of selling and marketing personnel, and promotional
expenses. Our selling and marketing expenses for the three and nine months ended
September 30, 2009 and 2008 were as follows:
Three Months Ended
September 30, September 30, Percentage
2009 2008 Decrease Decrease
(In thousands, except percentages)
Selling and marketing expenses $ 8,055 $ 8,659 $ (604 ) (7 )%
Selling and marketing expenses as a
percentage of service revenues 5 % 5 % -
Nine Months Ended
September 30, September 30, Percentage
2009 2008 Decrease Decrease
(In thousands, except percentages)
Selling and marketing expenses $ 22,471 $ 30,010 $ (7,539 ) (25 )%
Selling and marketing expenses as a
percentage of service revenues 5 % 6 % (1 point )
|
Selling and marketing expenses decreased by $0.6 million for the three months
ended September 30, 2009 as compared to the same period in 2008. The decrease
was due to multiple factors. Decreases in selling and marketing expenses were:
(i) a decrease of 4% in average sales and marketing peoplecount resulted in a
decrease of $1.1 million in compensation expense, and (ii) the decrease in peoplecount, in addition to a change in forfeiture estimate, resulted in stock-based compensation expense decreasing $0.8 million, . These decreases were offset by an increase in consultant expense of $0.5 million and an increase in various other selling and marketing expenses of $0.8 million. The decrease in selling and marketing expenses as a percentage of service revenues compared to the same period in 2008 is due to the decrease in peoplecount which is the main cost driver of our selling and marketing expenses.
Selling and marketing expenses decreased by $7.5 million for the nine months
ended September 30, 2009 as compared to the same period in 2008. The decrease
was due to multiple factors. Decreases in selling and marketing expenses were:
(i) a decrease of 8% in average sales and marketing peoplecount resulted in a
decrease of $5.5 million in compensation expense, (ii) the decrease in
peoplecount, in addition to a change in forfeiture estimate, resulted in
stock-based compensation expense decreasing $2.0 million, (iii) other selling
and marketing expenses also decreased $0.9 million, and (iv) travel expenses
also decreased $0.4 million as we have made a concerted effort to manage these
costs. These decreases were offset by an increase in consultant expense of
$1.3 million. The decrease in selling and marketing expenses as a percentage of
service revenues compared to the same period in 2008 is due to the decrease in
peoplecount which is the main cost driver of our selling and marketing expenses.
General and Administrative Expenses
General and administrative expenses relate principally to salaries and employee
benefits associated with our management, legal, finance, information technology,
hiring, training and administrative groups, and depreciation and occupancy
expenses. Our general and administrative expenses for the three and nine months
ended September 30, 2009 and 2008 were as follows:
Three Months Ended
September 30, September 30, Percentage
2009 2008 Decrease Decrease
(In thousands, except percentages)
General and administrative expenses $ 30,207 $ 33,462 $ (3,255 ) (10 )%
General and administrative expenses as a
percentage of service revenues 18 % 19 % (1 point )
Nine Months Ended
September 30, September 30, Percentage
2009 2008 Decrease Decrease
(In thousands, except percentages)
General and administrative expenses $ 84,325 $ 95,658 $ (11,333 ) (12 )%
General and administrative expenses as a
percentage of service revenues 19 % 19 % -
|
General and administrative expenses decreased $3.3 million for the three months ended September 30, 2009 compared to the same period in 2008. Excluding $3.7 million of incremental expenses related to Nitro and a $1.1 million decrease for currency, general and administrative expenses decreased, in local currency terms, $5.9 million. The decrease was due to multiple factors. Decreases in general and administrative expenses were: (i) compensation expense decreased $2.4 million, (ii) travel expenses, employee placement agency fees and other professional fees decreased, in the aggregate, $1.4 million as we made a concerted effort to manage these costs, (iii) facility expenses decreased $1.4 million, and (iv) stock-based compensation expense decreased $0.7 million due to a large number of grants ending their vesting periods at the beginning of the third quarter 2009.
General and administrative expenses decreased $11.3 million for the nine months ended September 30, 2009 compared to the same period in 2008. Excluding incremental increases due to Nitro and a $5.9 million decrease for currency, general and administrative expenses decreased $9.2 million. The decrease was due to multiple factors. Decreases were: (i) compensation expenses decreased $4.0 million, (ii) a decrease in travel expenses, employee placement agency fees and other professional fees of $3.6 million as we made a concerted effort to manage these costs, and (iii) stock-based compensation expense decreased $1.1 million, primarily due
. . .
|
|