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LIOX > SEC Filings for LIOX > Form 10-Q on 10-May-2013All Recent SEC Filings

Show all filings for LIONBRIDGE TECHNOLOGIES INC /DE/ | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for LIONBRIDGE TECHNOLOGIES INC /DE/


10-May-2013

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 15, 2013 (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 globalization solutions. Lionbridge provides translation, online marketing, global content management and application testing solutions that ensure local relevancy, global brand consistency and technical usability. Using our global program management expertise, innovative cloud technology platforms and our global crowd of more than 100,000 independent professionals, we enable hundreds of world-leading brands to increase international market share, speed adoption of products and effectively engage their customers in local markets worldwide.

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 clients' content and products to meet the language, cultural, technical and industry-specific requirements of users in local markets throughout the world. As part of its GLC solutions, Lionbridge also provides global marketing services and creates and translates technical documentation for clients who market to and support customers in global markets. Lionbridge GLC solutions utilize the Company's cloud-based technology platforms and applications, and its global service delivery model, which make the translation, localization and content management processes more efficient for Lionbridge and its clients.

Through its Global Development and Testing ("GDT") solutions, Lionbridge tests software and online search results to help clients deliver high-quality, relevant applications in global markets. The Company's GDT solutions ensure the quality, usability, relevance and performance of clients' software, search engines, technology products, web applications, and content globally. As part of its GDT offering, Lionbridge also provides specialized enterprise crowdsourcing services including search relevance testing, in-country testing for mobile devices, and data management solutions.

Lionbridge also offers telephonic, onsite and simultaneous interpretation services in over 360 languages to federal, state and local government agencies, businesses and healthcare organizations that require experienced linguists to facilitate communication. Through its network of qualified interpreters, Lionbridge identifies and deploys interpreters with the required combination of language skills, subject matter expertise and professional interpretation experience.

Lionbridge provides a full suite of globalization solutions to businesses in diverse end markets including technology, internet and media, manufacturing, mobile and telecommunications, life sciences, government, automotive, aerospace and retail. Lionbridge believes its services enable clients to gain market share, build loyalty and speed adoption of products and content in their international markets.

For the three-month period ended March 31, 2013, Lionbridge's loss from operations was $1.9 million, with net loss of $3.0 million. For the three-month ended March 31, 2012, the Company's income from operations was $2.5 million with a net income of $1.7 million. As of March 31, 2013, the Company had an accumulated deficit of $226.6 million.

A significant portion of Lionbridge's cost of revenue and general and administrative expenses are recorded in entities which utilize the Euro or other currencies as their functional currency, while the majority of its revenues are recorded in U.S. Dollars. As such, certain segments of Lionbridge's business, its GLC segment in particular, are sensitive to fluctuations in the value of the U.S. Dollar relative to the Euro and other currencies. During the quarter ended March 31, 2013, the value of the U.S. Dollar relative to the Euro strengthened by 0.2% from the quarter ended March 31, 2012. This slight strengthening did not have a material foreign currency translation impact on revenue, operating income or net income for the quarter ended March 31, 2013 at the consolidated or individual segment levels.


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Critical Accounting Policies and Estimates

Lionbridge has identified the policies which are critical to understanding the business and the results of operations. There have been no significant changes during the three months ended March 31, 2013 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, 2012.

Results of Operations

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



                                                                   Three Months Ended
                                                                       March 31,
                                                                  2013            2012
Revenue                                                             100.0 %        100.0 %
Operating expenses:
Cost of revenue (exclusive of depreciation and amortization
included below)                                                      72.0           69.7
Sales and marketing                                                   8.1            7.6
General and administrative                                           17.1           17.1
Research and development                                              1.5            1.2
Depreciation and amortization                                         1.6            1.5
Amortization of acquisition-related intangible assets                 0.7            0.4
Restructuring and other charges                                       0.6            0.3

Total operating expenses                                            101.6           97.8

(Loss) income from operations                                        (1.6 )          2.2
Interest expense:
Interest on outstanding debt                                          0.2            0.2
Amortization of deferred financing costs                                -              -
Interest income                                                         -              -
Other expense (income), net                                           0.3              -

(Loss) income before income taxes                                    (2.1 )          2.0
Provision for income taxes                                            0.5            0.5

Net (loss) income                                                    (2.6 )%         1.5 %

Revenue. The following table shows GLC, GDT and Interpretation revenues in dollars and as a percentage of total revenue for the three months ended March 31, 2013 and 2012, respectively (in thousands except percentages):

                                              Three Months Ended
                                                  March 31,
                                        2013                     2012
                GLC              $  72,553        64 %    $  77,600        69 %
                GDT                 35,278        31 %       28,600        26 %
                Interpretation       5,839         5 %        5,896         5 %

                Total revenue    $ 113,670       100 %    $ 112,096       100 %

Revenue for the quarter ended March 31, 2013 was $113.7 million, an increase of $1.6 million, or 1.4%, from $112.1 million for the quarter ended March 31, 2012. This period-over-period increase in total revenue was due to a $6.2 million organic increase in our GDT segment, primarily related to a new large multi-year program with an existing client, and a $3.2 million increase from the acquisitions of PRI and VSI which occurred in Q2 2012 and Q4 2012, respectively. These increases were partially offset by a decline in volume from select clients in the enterprise technology sector, particularly in our GLC segment. The U.S. Dollar strengthened 0.2% against the Euro, as compared to the corresponding quarter of the prior year, which did not have a material currency translation impact on revenue. Lionbridge conducts a large portion of its business in international markets. Approximately 31% of its revenue for the quarter ended March 31, 2013 was denominated in foreign currencies, primarily the Euro. A fluctuation in foreign currency exchange rates primarily affects the GLC segment.


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Revenue from the Company's GLC segment was $72.6 million for the quarter ended March 31, 2013, a decrease of $5.0 million, or 6.5%, from $77.6 million for the quarter ended March 31, 2012. This period-over-period decrease in GLC revenue was due to a decline of approximately $7.7 million in organic revenue, primarily attributable to lower than anticipated spend from select enterprise technology clients resulting in decreased volume, partially offset by $2.7 million of incremental revenue from the acquisition of PRI, which occurred in Q2 2012. Foreign currency translation did not have a material impact on revenues, as the U.S. Dollar only strengthened 0.2% versus the Euro from the quarter ended March 31, 2012 to the quarter ended March 31, 2013.

Revenue from the Company's GDT segment was $35.3 million for the quarter ended March 31, 2013, an increase of $6.7 million, or 23.3%, from $28.6 million for the quarter ended March 31, 2012. The period-over-period increase in GDT revenue was primarily due to a new large multi-year program with an existing client and to a lesser extent the addition of $0.5 million of incremental revenue from VSI, which was acquired in Q4 2012. Foreign currency translation did not have a material impact on revenues, as the U.S. Dollar only strengthened 0.2% versus the Euro from the quarter ended March 31, 2012 to the quarter ended March 31, 2013.

Revenue from the Company's Interpretation segment was $5.8 million for the quarter ended March 31, 2013, a decrease of $0.1 million, or 1.0%, from $5.9 million for the quarter ended March 31, 2012. The decrease in Interpretation revenue for the quarter ended March 31, 2013 was primarily due to decreased revenue from existing customers. 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 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-month period of the prior year and as a percentage of revenue for the three months ended March 31, 2013 and 2012, respectively (in thousands except percentages):

                             Three Months                               Three Months
                                Ended                                      Ended
                              March 31,             % Change             March 31,
                                 2013            Q1 12 to Q1 13             2012
    GLC:
    Cost of revenue         $       52,321                  (1.5 )%    $       53,111
    Percentage of revenue             72.1 %                                     68.4 %
    GDT:
    Cost of revenue                 24,677                  22.2 %             20,198
    Percentage of revenue             70.0 %                                     70.6 %
    Interpretation:
    Cost of revenue                  4,884                   0.4 %              4,864
    Percentage of revenue             83.6 %                                     82.5 %

    Total cost of revenue   $       81,882                   4.7 %     $       78,173

    Percentage of revenue             72.0 %                                     69.7 %

For the quarter ended March 31, 2013, as a percentage of revenue, cost of revenue increased to 72.0% as compared to 69.7% for the quarter ended March 31, 2012. This increase was primarily the result of a decrease in revenue volume coupled with an increase in internal cost of sales in the GLC segment. Cost of revenue was not materially impacted by foreign currency translation, as the U.S. Dollar only strengthened 0.2% versus the Euro from the quarter ended March 31, 2012 to the quarter ended March 31, 2013.

For the quarter ended March 31, 2013, cost of revenue increased $3.7 million, or 4.7%, to $81.9 million as compared to $78.2 million for the corresponding period of the prior year, primarily associated with the an increase in employee compensation and related benefit costs, particularly in the GLC segment. Cost of revenue was not materially impacted by foreign currency translation, as the U.S. Dollar only strengthened 0.2% versus the Euro from the quarter ended March 31, 2012 to the quarter ended March 31, 2013.

For the quarter ended March 31, 2013, cost of revenue as a percentage of revenue in the Company's GLC segment increased to 72.1% as compared to 68.4% for the quarter ended March 31, 2012. This increase was primarily the result of increased employee compensation and related benefit costs and lower revenue volume, partially offset by a decrease in


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variable outsourcing costs commensurate with the decrease in the GLC segment's revenue. For the quarter ended March 31, 2013, GLC cost of revenue decreased by $0.8 million, primarily attributable to a $3.7 million decrease in variable outsourcing costs, which was partially offset by a $2.9 million increase in employee compensation and related benefit costs. Cost of revenue in the GLC segment was not materially impacted by foreign currency translation, as the U.S. Dollar only strengthened 0.2% versus the Euro from the quarter ended March 31, 2012 to the quarter ended March 31, 2013.

For the quarter ended March 31, 2013, cost of revenue as a percentage of revenue in the Company's GDT segment decreased to 70.0% as compared to 70.6% for the quarter ended March 31, 2012. For the quarter ended March 31, 2013, GDT cost of revenue increased $4.5 million, or 22.2%, to $24.7 million as compared to $20.2 million for the corresponding period of the prior year. This $4.5 million cost of revenue increase was primarily attributable to the $6.7 million increase in revenue. Cost of revenue in the GDT segment was not materially impacted by foreign currency translation, as the U.S. Dollar only strengthened 0.2% versus the Euro from the quarter ended March 31, 2012 to the quarter ended March 31, 2013.

For the quarter ended March 31, 2013, cost of revenue as a percentage of revenue in the Company's Interpretation segment increased to 83.6% as compared to 82.5% for the quarter ended March 31, 2012. For the quarter ended March 31, 2013, Interpretation cost of revenue remained flat at $4.9 million as compared to the corresponding period of the prior year. There was a $0.1 million decrease in revenue period-over-period, which represents the increase in cost of revenue as a percentage of revenue and resulted in a slight change in pricing and work mix 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, 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-month period of the prior year and as a percentage of revenue for the three months ended March 31, 2013 and 2012, respectively (in thousands except percentages):

                                              Three Months Ended March 31,
                                               2013                  2012
      Total sales and marketing expenses   $       9,149         $       8,509
      Increase from prior year                       640
      Percentage of revenue                          8.1 %                 7.6 %

Sales and marketing expenses increased $0.6 million, or 7.5%, for the three months ended March 31, 2013 as compared to the corresponding period of 2012. This increase is primarily attributable to increased compensation and associated benefit costs related to higher headcount in order to scale existing client programs and continue to grow its new offerings across end markets. Sales and marketing expenses for the three months ended March 31, 2013 were not materially impacted by the strengthening of the U.S. Dollar's exchange rate against most foreign currencies, in particular the Euro. As a percentage of revenue, sales and marketing expenses increased to 8.1% for the three months ended March 31, 2013 as compared to 7.6% for the three months ended March 31, 2012.

General and Administrative. General and administrative expenses consist of salaries of 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-month period of the prior year and as a percentage of revenue for the three months ended March 31, 2013 and 2012, respectively (in thousands except percentages):

                                                  Three Months Ended March 31,
                                                   2013                  2012
   Total general and administrative expenses   $      19,481         $      19,176
   Increase from prior year                              305
   Percentage of revenue                                17.1 %                17.1 %

General and administrative expenses increased $0.3 million, or 1.6%, for the three months ended March 31, 2013 as compared to the corresponding period of 2012. The majority of this increase is primarily due to increased employee compensation and benefits and stock-based compensation expense. General and administrative expenses for the three months ended March 31, 2013 were not materially impacted by the strengthening of the U.S. Dollar's exchange rate against most foreign currencies, in particular the Euro. Approximately 49% and 53% of general and administrative expenses are denominated in non-U.S. Dollars for the three months ended March 31, 2013 and March 31, 2012, respectively, primarily the


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Euro, and of that amount a majority of these expenses related to rent and compensation expense. As a percentage of revenue, general and administrative expenses remained unchanged at 17.1% for the quarter ended March 31, 2013 as compared to the same period in 2012.

Research and Development. Research and development expenses relate primarily to the Company's web-based hosted language management technology platform used in the globalization process and the research and development of a globalization management system, its Translation Workspace SaaS-based offering, and development of GeoFluent. The cost consists primarily of salaries and associated employee benefits and third-party contractor expenses. The following table shows research and development expense in dollars, the dollar change from the three-month period of the prior year and as a percentage of revenue for the three months ended March 31, 2013 and 2012, respectively (in thousands except percentages):

                                                Three Months Ended March 31,
                                                 2013                  2012
    Total research and development expense   $       1,656         $       1,362
    Increase from prior year                           294
    Percentage of revenue                              1.5 %                 1.2 %

Research and development expenses increased $0.3 million for the three months ended March 31, 2013 as compared to the corresponding period of 2012. Research and development expense was not materially impacted by fluctuations in foreign currency exchange rates period-over-period.

Depreciation and Amortization. Depreciation and amortization consist of the expense related to property and equipment that is being depreciated over the estimated useful lives of the assets using the straight-line method. The following table shows depreciation and amortization expense in dollars, the dollar change from the three-month period of the prior year and as a percentage of revenue for the three months ended March 31, 2013 and 2012, respectively (in thousands except percentages):

                                                   Three Months Ended March 31,
                                                    2013                  2012
  Total depreciation and amortization expense   $       1,800         $       1,645
  Increase from prior year                                155
  Percentage of revenue                                   1.6 %                 1.5 %

Depreciation and amortization expense increased by $0.2 million for the three months ended March 31, 2013 as compared to the corresponding period of 2012. This increase is primarily the result of the depreciation of increased investment in internal and external capitalized costs for the Company's web-based hosted management technology platform, its Translation Workspace SaaS-based offering and its customizable real-time automated machine translation technology known as GeoFluent. Depreciation and amortization expense was not materially impacted by fluctuations in foreign currency exchange rates period-over-period.

Amortization of Acquisition-related Intangible Assets. Amortization of acquisition-related intangible assets consists of the amortization of identifiable intangible assets resulting from acquired businesses. Amortization expense for the three months ended March 31, 2013 of $0.8 million relates to the amortization of identifiable intangible assets acquired from Bowne Global Solutions ("BGS"), Productive Resources, LLC ("PRI") and Virtual Solutions Inc. ("VSI"). Amortization expense for the three months ended March 31, 2012 of $0.5 million relates solely to the amortization of identifiable intangible assets acquired from BGS in 2005.

Restructuring and Other Charges. Restructuring and other charges were $0.7 million and $0.3 million for the three months ended March 31, 2013 and 2012, respectively. The $0.3 million of restructuring charges recorded in the three-month period ended March 31, 2013 included $0.2 million for workforce reductions in Europe consisting of 4 technical staff and 1 administrative staff and $0.1 million of additional costs recorded for a previously vacated facility in order to reflect changes in initial estimates of a sublease arrangement due to current economic conditions. All of these charges related to the Company's Global Language and Content ("GLC") segment. The remaining $0.4 million of other charges recorded in the three-month period ended March 31, 2013 relate to the Company's engagement in strategic initiatives. The $0.3 million of restructuring charges recorded in the three-month period ended March 31, 2012 included $0.2 million for workforce reductions in Europe consisting of 4 technical staff and 1 administrative staff and $0.1 million of additional costs recorded for a previously vacated facility in order to reflect changes in initial estimates of a sublease arrangement due to current economic conditions. All of these charges related to the GLC segment.


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Interest Expense. Interest expense primarily represents interest paid or payable on debt and the amortization of deferred financing costs. Interest expense for the quarter ended March 31, 2013 of $0.3 million increased $0.1 million from $0.2 million for the quarter ended March 31, 2012. The increase reflects the impact of higher outstanding balance in the quarter ended March 31, 2013 as compared to the corresponding period of the prior year.

Other Expense (Income), Net. Other expense (income), net primarily reflects the foreign currency transaction gains or losses arising from exchange rate fluctuations on third party and intercompany transactions denominated in currencies other than the functional currencies of the countries in which the transactions are recorded. The Company recognized $0.3 million in other expense, net, in the three months ended March 31, 2013 as compared to $31,000 in other income, net in the corresponding period of 2012.

Income Before Income Taxes. The components of income before income taxes were as follows for the quarters ended March 31, 2013 and 2012, respectively (in thousands):

                                           Three Months Ended March 31,
                                             2013                  2012
           United States                $       (3,079 )       $        511
           Foreign                                 701                1,792

           Income before income taxes   $       (2,378 )       $      2,303

During the quarter ended March 31, 2013, the Company's United States operations generated a loss of $3.1 million before income taxes as compared to $0.5 million of income for the quarter ended March 31, 2012 as a result of increased internal costs of sale coupled with a less than expected revenue growth. The Company's foreign operations generated income before income taxes of $0.7 million for the quarter ended March 31, 2013 as compared to income of $1.8 million during the quarter ended March 31, 2012. A significant portion of our operating costs are incurred outside the United States and a majority of our foreign affiliates are subject to cost-based transfer pricing agreements which generally results in a certain level of foreign operating profits based on the performance of routine functions for customer contracts. The negative trend experienced in the . . .

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