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LIOX > SEC Filings for LIOX > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for LIONBRIDGE TECHNOLOGIES INC /DE/

Form 10-Q for LIONBRIDGE TECHNOLOGIES INC /DE/


8-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The matters discussed in this Form 10-Q include forward-looking statements that involve risks or uncertainties. These statements are neither promises nor guarantees, but are based on various assumptions by management regarding future circumstances many of which Lionbridge has little or no control over. A number of important risks and uncertainties, including those identified under the caption "Risk Factors" in Lionbridge's Annual Report on Form 10-K, filed March 14, 2012 (SEC File No. 000-26933) and subsequent filings as well as risks and uncertainties discussed elsewhere in this Form 10-Q could cause Lionbridge's actual results to differ materially from those in the forward-looking statements. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. The forward-looking statements in this Form 10-Q are made as of the date of this filing only, and Lionbridge does not undertake to update or supplement these statements due to changes in circumstances or otherwise, except as required by law.

Overview

Lionbridge is a leading provider of language, development and testing solutions that enable clients to develop, release, manage and maintain their technology applications and content globally. Lionbridge Global Language and Content ("GLC") solutions enable the translation, localization and worldwide multilingual release of clients' products, content and related technical support, training materials, and sales and marketing information. Lionbridge GLC solutions involve translating, localizing and adapting content and products to meet the language and cultural requirements of users throughout the world. As part of its GLC solutions, Lionbridge also provides outsourced technical engineering, documentation and drafting solutions. Lionbridge GLC solutions are based on the Company's Web-based language technology platforms and global service delivery model which make the translation and localization processes more efficient for Lionbridge clients and translators. Certain of these Web-based language technologies are also available on a subscription basis to translators, enterprises and other third parties. On June 1, 2012, Lionbridge acquired Productive Resources, LLC ("PRI"), a provider of outsourced technical engineering, documentation and drafting solutions. PRI is included in the Company's Global Language and Content ("GLC") segment. PRI provides Lionbridge with operations in the Midwestern region of the United States and long-standing relationships with clients in the manufacturing sector. The acquisition also expands the Company's delivery model for addressing all aspects of client's global content lifecycle, including drafting, illustration, documentation, translation and support.

Through its Global Development and Testing ("GDT") solutions, Lionbridge develops, optimizes and maintains IT applications and performs testing to ensure the quality, interoperability, usability, relevance and performance of clients' software, consumer technology products, web sites and content. Lionbridge has deep domain experience developing, testing and maintaining applications in a cost-efficient, blended on-site and offshore model. Lionbridge also provides professional global crowdsourcing including specialized search relevance testing, keyword optimization and related services for clients with global search engines and online marketing initiatives.

Lionbridge also provides interpretation services to government organizations and businesses that require human interpreters for non-English speaking individuals.

Lionbridge provides a full suite of language, testing and development solutions to businesses in diverse end markets including technology, mobile and telecommunications, internet and media, life sciences, government, automotive, retail and aerospace. Lionbridge's solutions include: translation and localization; interpretation; language technology; technical authoring and eLearning; product engineering; application development and maintenance and testing; and global professional crowdsourcing. Lionbridge's services enable global organizations to increase market penetration and speed adoption of global content and products, enhance return on enterprise application investments, increase workforce productivity and reduce costs.

For the nine-month period ended September 30, 2012, Lionbridge's income from operations was $7.7 million, with a net income of $8.3 million. For the nine month period ended September 30, 2011, the Company's income from operations was $901,000 with a net loss of $1.3 million. As of September 30, 2012, the Company had an accumulated deficit of $226.7 million.

Lionbridge's business, particularly its GLC segment, is sensitive to fluctuations in the value of the U.S. Dollar relative to the Euro and other currencies, as a large portion of its cost of revenue and other operating expenses are incurred in Euros and other currencies, while the majority of its revenues are recorded in U.S. Dollars. During the three and nine months ended September 30, 2012, the value of the U.S. Dollar relative to other currencies strengthened by approximately 12.5% and 8.9%, respectively, from the corresponding periods of 2011. This resulted in unfavorable foreign currency impact on revenue for the three and nine months ended September 30, 2012, particularly in the GLC segment. The Company's operating income and net income for the three and nine-month periods ended September 30, 2012 were favorably impacted by strengthening in the U.S. Dollar against other currencies as compared to the corresponding period of 2011, particularly in the GLC segment.

Critical Accounting Policies and Estimates

Lionbridge has identified the policies which are critical to understanding its business and results of operations. There have been no significant changes during the nine months ended September 30, 2012 to the items disclosed as the critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

During the first quarter of 2012, Lionbridge adopted the authoritative guidance in FASB ASU 2011-05 and has presented a separate Condensed Consolidated Statement of Comprehensive Income (Loss). Total comprehensive income (loss) consists of net income (loss), the net change in foreign currency translation adjustment, and the impact to revalue unfunded projected benefit obligation.


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Results of Operations

The following table sets forth for the periods indicated certain unaudited
consolidated financial data as a percentage of total revenue.



                                                    Three Months Ended            Nine months Ended
                                                      September 30,                 September 30,
                                                   2012            2011           2012          2011
Revenue                                              100.0 %        100.0 %         100.0 %      100.0 %
Operating expenses:
Cost of revenue (exclusive of depreciation
and amortization included below)                      68.0           68.5            68.4         70.0
Sales and marketing                                    7.1            7.4             7.3          7.8
General and administrative                            16.9           18.1            16.8         17.7
Research and development                               1.2            1.3             1.2          1.3
Depreciation and amortization                          1.4            1.5             1.4          1.3
Amortization of acquisition-related
intangible assets                                      0.6            0.5             0.5          0.6
Restructuring, impairment and other charges            0.2            0.5             2.1          1.0

Total operating expenses                              95.4           97.8            97.7         99.7

Income from operations                                 4.6            2.2             2.3          0.3
Interest expense:
Interest on outstanding debt                           0.2            0.2             0.2          0.2
Amortization of deferred financing costs                -              -               -            -
Interest income                                         -              -               -            -
Other expense (income), net                            0.1           (0.2 )           0.2          0.2

Income (loss) before income taxes                      4.3            2.2             1.9         (0.1 )
Provision for (Benefit from) income taxes              0.7            0.0            (0.5 )        0.3

Net income (loss)                                      3.6 %          2.2 %           2.4 %       (0.4 )%

Revenue. The following table shows GLC, GDT, and Interpretation revenues in dollars and as a percentage of total revenue for the three and nine months ended September 30, 2012 and 2011, respectively:

                                  Three Months Ended                                        Nine months Ended
                                    September 30,                                             September 30,
                          2012                         2011                         2012                         2011
GLC              $  78,451,000        70 %    $  74,394,000        69 %    $ 239,073,000        70 %    $ 223,907,000        70 %
GDT                 28,054,000        25 %       27,643,000        26 %       86,700,000        25 %       79,059,000        25 %
Interpretation       5,565,000         5 %        5,537,000         5 %       17,582,000         5 %       17,505,000         5 %

Total revenue    $ 112,070,000       100 %    $ 107,574,000       100 %    $ 343,355,000       100 %    $ 320,471,000       100 %

Revenue for the three months ended September 30, 2012 was $112.1 million, an increase of $4.5 million, or 4.2%, from $107.6 million for the three months ended September 30, 2011 consisting of $4.1 million, $411,000, and $28,000 net growth in the GLC, GDT and Interpretation segments, respectively. As compared to the three months ended September 30, 2011, revenue increased approximately $6.0 million, or 5.6%, as the result of organic growth, and $2.7 million, or 2.5%, as a result of the acquisition of PRI. The Company believes that revenue growth from new and existing clients, including those in life sciences, manufacturing, and consumer technology sectors, may continue during the remainder of 2012. The increases in revenue in the three months ended September 30, 2012 were partially offset by approximately $4.2 million, or 3.9%, due to the unfavorable impact of the strengthening in the exchange rate of the U.S. Dollar against most foreign currencies, in particular the Euro, period-over-period. Approximately 34.0% of Lionbridge's revenue for the quarter ended September 30, 2012 is denominated in foreign currencies. The principal foreign currency applicable to Lionbridge's business is the Euro. Approximately 23.3% of revenue for the quarter ended September 30, 2012 was denominated in Euro, and a majority of this revenue is concentrated in the GLC business. Accordingly, volatility in foreign currency exchange rates primarily affects the GLC business. During the quarter ended September 30, 2012, the U.S. Dollar was significantly strengthened against most foreign currencies, in particular the Euro, as compared to the quarter ended September 30, 2011.

Revenue for the nine months ended September 30, 2012 was $343.4 million, an increase of $22.9 million, or 7.1%, from $320.5 million for the nine months ended September 30, 2011. The increase of $22.9 million consists of $15.2 million, $7.6 million and $77,000 of revenue growth in GLC, GDT, and Interpretation, respectively. As compared to the nine months ended September 30, 2011, revenue increased approximately $28.7 million, or 9.0%, as the result of organic growth, and $3.5 million, or 1.1%, as a result of the acquisition of PRI. These increases were partially offset by approximately $9.3 million, or 2.9%, due to the impact of unfavorable foreign exchange rate fluctuations. The U.S. Dollar was significantly stronger against certain foreign currencies, in particular the Euro, during the nine months ended September 30, 2012, as compared to the nine months ended September 30, 2011.


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Revenue from the Company's GLC business for the quarter ended September 30, 2012 increased $4.1 million, or 5.5%, to $78.5 million from $74.4 million for the quarter ended September 30, 2011 as the result of $5.3 million, or 7.1%, of organic growth, and $2.7 million, or 3.6% as a result of the acquisition of PRI. These increases were partially offset by approximately $3.9 million, or 5.3%, due to the unfavorable impact of the strengthening in the exchange rate of the U.S. Dollar against most foreign currencies, in particular the Euro, period-over-period. For the nine months ended September 30, 2012, revenue from the Company's GLC business was $239.1 million, an increase of $15.2 million, or 6.8%, from $223.9 million for the nine months ended September 30, 2011. As compared to the nine months ended September 30, 2011, revenue increased approximately $20.4 million, or 9.1% as the result of organic growth attributable to increased demand from existing and new clients and new or expanded customer. In addition, the acquisition of PRI increased revenue by $3.5 million, or 1.6%. These increases were partially offset by approximately $8.7 million, or 3.9%, due to the unfavorable impact of the strengthening in the exchange rate of the U.S. Dollar against most foreign currencies, in particular the Euro, period-over-period.

Revenue from the Company's GDT segment was $28.1 million for the quarter ended September 30, 2012, an increase of $411,000, or 1.5%, from $27.6 million for the quarter ended September 30, 2011. For the nine months ended September 30, 2011, revenue from the Company's GDT segment was $86.7 million, an increase of $7.6 million, or 9.7%, from $79.1 million for the nine months ended September 30, 2011. The period-over-period increases in GDT revenue were primarily due to expanded customer engagements with existing clients. Revenue in the GDT segment is not materially impacted by fluctuations in foreign currency exchange rates.

Revenue from the Company's Interpretation segment was $5.6 million for the quarter ended September 30, 2012, similar to the $5.5 million for the quarter ended September 30, 2011. For the nine months ended September 30, 2012 revenue from the Company's Interpretation business was $17.6 million, similar to the $17.5 million for the nine months ended September 30, 2011. Revenue in the Interpretation segment is not materially impacted by fluctuations in foreign currency exchange rates.

Cost of Revenue. Cost of revenue, excluding depreciation and amortization, consists primarily of expenses incurred for translation and interpretation services provided by third parties as well as salaries and associated employee benefits for personnel related to client engagements. The following table shows GLC, GDT and Interpretation cost of revenues, the percentage change from the three and nine-month period of the prior year and as a percentage of revenue for the three and nine months ended September 30, 2012 and 2011, respectively:

                                     Three Months                                    Three Months           Nine months            % Change             Nine months
                                         Ended                                           Ended                 Ended              Nine months              Ended
                                     September 30,             % Change              September 30,         September 30,          11 to nine           September 30,
                                         2012               Q3 11 to Q3 12               2011                   2012               Months 12                2011
GLC:
Cost of revenue                     $    52,188,000                     5.3 %       $    49,573,000        $  159,962,000                  4.2 %       $  153,472,000
Percentage of revenue                          66.5 %                                          66.6 %                66.9 %                                      68.5 %
GDT:
Cost of revenue                          19,283,000                    (0.9 %)           19,459,000            60,281,000                  8.4 %           55,603,000
Percentage of revenue                          68.7 %                                          70.4 %                69.5 %                                      70.3 %
Interpretation:
Cost of revenue                           4,705,000                     1.6 %             4,630,000            14,679,000                 (3.0 %)          15,131,000
Percentage of revenue                          84.5 %                                          83.6 %                83.5 %                                      86.4 %

Total cost of revenue               $    76,176,000                                 $    73,662,000        $  234,922,000                              $  224,206,000

Percentage of revenue                          68.0 %                                          68.5 %                68.4 %                                      70.0 %

For the quarter ended September 30, 2012, as a percentage of revenue, cost of revenue decreased to 68.0% as compared to 68.5% for the quarter ended September 30, 2011 primarily due to the positive impact of the strengthening of the exchange rate of the U.S. Dollar against most foreign currencies, in particular the Euro, and to a lesser extent by the benefit of cost saving initiatives implemented in 2011 and 2012, in the Company's GLC segment, as well as the continued benefits realized from the deployment and use of Lionbridge's language management technology platforms.

For the quarter ended September 30, 2012, cost of revenue increased $2.5 million, or 3.4%, to $76.2 million as compared to $73.7 million for the corresponding period of the prior year. The increase was primarily in support of the $4.5 million increase of incremental revenue and $1.9 million incremental costs as a result of the acquisition of PRI, as compared to the corresponding period of the prior year. Cost of revenue reflects a benefit of approximately $5.6 million attributable to the favorable impact of the strengthening of the U.S. Dollar against foreign currencies as noted above, and from favorable


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changes in revenue and service mix period-over-period. For the nine months ended September 30, 2012, cost of revenue was $234.9 million, an increase of $10.7 million, or 4.8%, as compared to $224.2 million for the same period of 2011. This increase was primarily in support of the $22.9 million increase of incremental revenue and $2.5 million incremental costs as a result of the acquisition of PRI, as compared to the nine months ended September 30, 2011. Cost of revenue reflects a benefit of approximately $12.3 million attributable to the favorable impact of the strengthening of the U.S. Dollar against certain currencies as noted above.

For the quarter ended September 30, 2012, cost of revenue as a percentage of revenue in the Company's GLC business decreased to 66.5% as compared to 66.6% for the quarter ended September 30, 2011. For the quarter ended September 30, 2012, GLC cost of revenue increased $2.6 million, or 5.3%, to $52.2 million as compared to $49.6 million for the same quarter of the prior year. This increase in support of the $4.1 million increase of incremental revenue and $1.9 million incremental costs as a result of the acquisition of PRI, and is net of a benefit of approximately $4.5 million due to the favorable impact of the appreciation in the exchange rate of the U.S. Dollar against most foreign currencies, in particular the Euro. For the nine months ended September 30, 2012, GLC cost of revenue increased $6.5 million, or 4.2%, to $160.0 million as compared to $153.5 million for the corresponding period of the prior year. This increase is in support of $15.2 million increased revenue and $2.5 million incremental costs as a result of the acquisition of PRI, and net of a favorable benefit of approximately $10.0 million attributable to the appreciation of the U.S. Dollar against foreign currencies, as compared to the nine months ended September 30, 2011, and to a lesser extent cost saving initiatives implemented in 2011 and 2012 in the Company's GLC segment, and continued benefits realized from the deployment and use of Lionbridge's language management technology platform.

For the quarter ended September 30, 2012, cost of revenue as a percentage of revenue in the Company's GDT segment decreased to 68.7% as compared to 70.4% for the quarter ended September 30, 2011. For the quarter ended September 30, 2012, GDT cost of revenue decreased $176,000, or 0.9%, to $19.3 million as compared to $19.5 million for the corresponding period of the prior year. For the nine months ended September 30, 2012, cost of revenue was $60.3 million, an increase of $4.7 million, or 8.4%, as compared to $55.6 million for the same period of 2011. These increases were primarily in support of increased revenue, period over period. The increases are net of a favorable benefit attributable to the appreciation of the U.S. Dollar against foreign currencies of approximately $972,000 and $2.2 million in the three and nine months ended September 30, 2012, respectively, as compared to the three and nine months ended September 30, 2011, in particular the Euro and the Rupee.

For the quarter ended September 30, 2012, cost of revenue as a percentage of revenue in the Company's Interpretation segment increased to 84.5% as compared to 83.6% for the quarter ended September 30, 2011. This increase is primarily in support of the incremental revenue and work mix variations in services, period-over-period. For the quarter ended September 30, 2012, Interpretation cost of revenue increased $75,000, or 1.6%, to $4.7 million as compared to $4.6 million for the corresponding period of the prior year. The increase is primarily in support of the incremental revenue and work mix variations in services, period-over-period. For the nine months ended September 30, 2012, cost of revenue as a percentage of revenue in the Company's Interpretation segment decreased to 83.5% as compared to 86.4% for the corresponding period of the prior year. For the nine months ended September 30, 2012, Interpretation cost of revenue decreased $452,000, or 3.0%, to $14.7 million as compared to $15.1 million for the corresponding period of the prior year. These decreases are primarily due to operational and cost efficiencies and work mix variations in services, period-over-period. The Company's Interpretation segment is not materially impacted by foreign currency exchange rate fluctuations.

Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions and associated employee benefits, travel expenses of sales and marketing personnel, promotional expenses, sales force automation expense, training, and the costs of programs aimed at increasing revenue, such as advertising, trade shows, public relations and other market development programs. The following table shows sales and marketing expenses in dollars, the dollar change from the three and nine-month period of the prior year and as a percentage of revenue for the three and nine months ended September 30, 2012 and 2011, respectively:

                                      Three Months Ended September 30,               Nine months Ended September 30,
                                        2012                     2011                    2012                  2011
Total sales and marketing
expenses                          $      7,913,000         $      7,976,000        $     25,052,000        $ 24,955,000
(Decrease) Increase from
prior period                               (63,000 )                                         97,000
Percentage of revenue                          7.1 %                    7.4 %                  7. 3 %               7.8 %

Sales and marketing expenses decreased $63,000, or 0.8%, for the three months ended September 30, 2012 as compared to the corresponding period of 2011. As a percentage of revenue, sales and marketing expenses decreased to 7.1% for the three months ended September 30, 2012 as compared to 7.4% for the three months ended September 30, 2011. This decrease is inclusive of a favorable benefit attributable to the appreciation of the U.S. Dollar against foreign currencies of


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approximately $296,000 in the three months ended September 30, 2012, as compared to the three months ended September 30, 2011. The improvement in the expense as a percentage of revenue also benefited from the increased revenue, period over period. Sales and marketing expenses increased $97,000, or 0.4%, for the nine months ended September 30, 2012 as compared to the corresponding period of 2011. As a percentage of revenue, sales and marketing expenses decreased to 7.3% for the nine months ended September 30, 2012 as compared to 7.8% for the nine months ended September 30, 2011. This decrease is inclusive of a favorable benefit attributable to the appreciation of the U.S. Dollar against foreign currencies of approximately $672,000 in the nine months ended September 30, 2012, as compared to the nine months ended September 30, 2011. In addition, the improvement in the expense as a percentage of revenue, benefited from the increased revenue, period over period.

General and Administrative. General and administrative expenses consist of salaries of the management, purchasing, process and technology, finance and administrative groups, and associated employee benefits and travel; facilities costs; information systems costs; professional fees; business reconfiguration costs and all other site and corporate costs. The following table shows general and administrative expenses in dollars, the dollar change from the three and nine-month periods of the prior year and as a percentage of revenue for the three and nine months ended September 30, 2012 and 2011, respectively:

                                      Three Months Ended September 30,             Nine months Ended September 30,
                                         2012                   2011                   2012                  2011
Total general and
administrative expenses            $     18,990,000         $  19,438,000        $     57,670,000        $ 56,720,000
Increase from prior period                 (448,000 )                                     950,000
Percentage of revenue                          16.9 %                18.1 %                  16.8 %              17.7 %

General and administrative expenses decreased $448,000, or 2.3%, for the three months ended September 30, 2012 as compared to the corresponding period of 2011. This decrease is primarily driven a favorable benefit attributable to the appreciation of the U.S. Dollar against foreign currencies of approximately $1.1 million in the three months ended September 30, 2012, as compared to the three months ended September 30, 2011. As a percentage of revenue, general and administrative expenses decreased to 16.9% for the three months ended September 30, 2012 as compared to 18.1% for the three months ended September 30, 2011.

General and administrative expenses increased $950,000, or 1.7%, for the nine months ended September 30, 2012 as compared to the corresponding period of 2011. . . .

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