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LIOX > SEC Filings for LIOX > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for LIONBRIDGE TECHNOLOGIES INC /DE/

Form 10-Q for LIONBRIDGE TECHNOLOGIES INC /DE/


9-Aug-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.


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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 six-month period ended June 30, 2013, Lionbridge's income from operations was $3.2 million, with net income of $0.5 million. For the six-month period ended June 30, 2012, Lionbridge's income from operations was $2.6 million, with net income of $4.0 million. As of June 30, 2013, the Company had an accumulated deficit of $223.1 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 June 30, 2013, the average value of the U.S. Dollar relative to the Euro weakened by 0.6% from the quarter ended June 30, 2012. This slight weakening did not have a material foreign currency translation impact on revenue, income from operations or net income for the quarter ended June 30, 2013 at the consolidated or individual segment levels.

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 six months ended June 30, 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.

During the first quarter of 2013, Lionbridge adopted the authoritative guidance in FASB ASU 2011-05 and has presented a separate Condensed Consolidated Statement of Comprehensive Income. Total comprehensive income consists of net income, the net change in foreign currency translation adjustment, and the impact of revaluations of unfunded projected benefit obligations.


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Results of Operations

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



                                                     Three Months Ended             Six Months Ended
                                                          June 30,                      June 30,
                                                    2013            2012           2013          2012
Revenue                                               100.0 %        100.0 %        100.0 %       100.0 %
Operating expenses:
Cost of revenue (exclusive of depreciation and
amortization included below)                           68.3           67.6           70.1          68.6
Sales and marketing                                     7.4            7.2            7.7           7.4
General and administrative                             15.5           16.4           16.3          16.8
Research and development                                1.5            1.2            1.5           1.2
Depreciation and amortization                           1.5            1.4            1.5           1.4
Amortization of acquisition-related intangible
assets                                                  0.7            0.5            0.7           0.4
Restructuring, impairment and other charges             1.0            5.6            0.8           3.1

Total operating expenses                               95.9           99.9           98.6          98.9

Income from operations                                  4.1            0.1            1.4           1.1
Interest expense:
Interest on outstanding debt                            0.2            0.2            0.2           0.2
Amortization of deferred financing costs                 -              -              -             -
Interest income                                          -              -              -             -
Other expense, net                                      0.5            0.5            0.4           0.2

Income (loss) before income taxes                       3.4           (0.6 )          0.8           0.7
Provision for (benefit from) income taxes               0.6           (2.5 )          0.6          (1.0 )

Net income                                              2.8 %          1.9 %          0.2 %         1.7 %

Revenue. The following table shows GLC, GDT, and Interpretation revenues in dollars and as a percentage of total revenue for the three and six months ended June 30, 2013 and 2012, respectively (in thousands except percentages):

                              Three Months Ended                                 Six Months Ended
                                   June 30,                                          June 30,
                        2013                     2012                     2013                     2012
GLC              $  80,275        65 %    $  83,022        70 %    $ 152,828        64 %    $ 160,622        70 %
GDT                 37,081        30 %       30,046        25 %       72,359        31 %       58,646        25 %
Interpretation       6,051         5 %        6,121         5 %       11,890         5 %       12,017         5 %

Total revenue    $ 123,407       100 %    $ 119,189       100 %    $ 237,077       100 %    $ 231,285       100 %

Three Months Ended June 30, 2013 versus Three Months Ended June 30, 2012

Revenue for the quarter ended June 30, 2013 was $123.4 million, an increase of $4.2 million, or 3.5%, from $119.2 million for the quarter ended June 30, 2012. This period-over-period increase in total revenue was due to $7.0 million growth in the GDT segment, partially offset by a $2.7 million decrease in the GLC segment and a $0.1 million decrease in the Interpretation segment. Foreign currency translation did not have a material impact on revenue period-over-period. Lionbridge conducts a large portion of its business in international markets. Approximately 31.4% of its revenue for the quarter ended June 30, 2013 was denominated in foreign currencies, primarily the Euro, as compared to approximately 35.5% for the quarter ended June 30, 2012. A fluctuation in foreign currency exchange rates primarily affects the GLC segment.

Revenue from the Company's GLC segment decreased $2.7 million, or 3.3%, to $80.3 million for the quarter ended June 30, 2013 from $83.0 million for the quarter ended June 30, 2012, as the result of lower volume of product translation projects from certain clients being partially offset by $2.0 million of incremental revenue from the acquisition of PRI, which was acquired on June 1, 2012. Foreign currency translation did not have a material impact on revenues, as the U.S. Dollar only weakened 0.6% versus the Euro from the quarter ended June 30, 2012 to the quarter ended June 30, 2013.


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Revenue from the Company's GDT segment increased $7.1 million, or 23.4%, to $37.1 million for the quarter ended June 30, 2013 from $30.0 million for the quarter ended June 30, 2012, primarily related to a new large multi-year program with an existing client. Foreign currency translation did not have a material impact on revenues, as the U.S. Dollar only weakened 0.6% versus the Euro from the quarter ended June 30, 2012 to the quarter ended June 30, 2013.

Revenue from the Company's Interpretation segment decreased $0.1 million, or 1.1%, to $6.0 million from $6.1 million due to slightly decreased volume from existing customers as a result of the negative impact of federal government sequestration. Revenue in the Interpretation segment is not materially impacted by fluctuations in foreign currency exchange rates.

Six Months Ended June 30, 2013 versus Six Months Ended June 30, 2012

Revenue for the six months ended June 30, 2013 was $237.1 million, an increase of $5.8 million, or 2.5%, from $231.3 million for the six months ended June 30, 2012. This period-over-period increase in total revenue was due to $13.8 million of growth in the GDT segment, partially offset by a $7.8 million decrease in the GLC segment and a $0.1 million decrease in the Interpretation segment. The U.S. Dollar weakened 0.2% against the Euro, as compared to the corresponding six months 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 31.2% of its revenue for the six months ended June 30, 2013 was denominated in foreign currencies, primarily the Euro, as compared to approximately 35.8% for the six months ended June 30, 2012. A fluctuation in foreign currency exchange rates primarily affects the GLC segment.

Revenue from the Company's GLC segment decreased $7.8 million, or 4.9%, to $152.8 million for the six months ended June 30, 2013 from $160.6 million for the six months ended June 30, 2012, as the result of lower volume of product translation projects from certain clients being partially offset by $4.7 million of incremental revenue from the acquisition of PRI, which was acquired on June 1, 2012. While the Company experienced lower than anticipated spend from several product translation clients in its GLC segment in the first quarter of 2013, the Company's GLC business improved in the second quarter of 2013 as demand for the Company's product translation services increased. Foreign currency translation did not have a material impact on revenues, as the U.S. Dollar only weakened 0.2% versus the Euro from the six months ended June 30, 2012 to the six months ended June 30, 2013.

Revenue from the Company's GDT segment increased $13.8 million, or 23.4%, to $72.4 million for the six months ended June 30, 2013 from $58.6 million for the six months ended June 30, 2012, primarily related to a new large multi-year program with an existing client. Foreign currency translation did not have a material impact on revenues, as the U.S. Dollar only weakened 0.2% versus the Euro from the six months ended June 30, 2012 to the six months ended June 30, 2013.

Revenue from the Company's Interpretation segment decreased $0.1 million, or 1.1%, to $11.9 million from $12.0 million due to slightly decreased volume from existing customers as a result of the negative impact of federal government sequestration. 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 and six-month period of the prior year and as a percentage of revenue for the three and six months ended June 30, 2013 and 2012, respectively (in thousands except for percentages):


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                                          Three
                                         Months                                                 Six Months                           Six Months
                                          Ended          % Change          Three Months           Ended            % Change            Ended
                                        June 30,        Q2 13 to Q2            Ended             June 30,         Q2 13 to Q2         June 30,
                                          2013              12             June 30, 2012           2013               12                2012
GLC:
Cost of revenue                         $  54,164               -0.9 %    $        54,663      $    106,485               -1.2 %    $    107,774
Percentage of revenue                        67.5 %                                  65.8 %            69.7 %                               67.1 %
GDT:
Cost of revenue                            25,247               21.4 %             20,800            49,924               21.8 %          40,998
Percentage of revenue                        68.1 %                                  69.2 %            69.0 %                               69.9 %
Interpretation:
Cost of revenue                             4,842               -5.2 %    $         5,110      $      9,726               -2.5 %           9,974
Percentage of revenue                        80.0 %                                  83.5 %            81.8 %                               83.0 %

Total cost of revenue                   $  84,253                4.6 %    $        80,573      $    166,135                4.7 %    $    158,746

Percentage of revenue                        68.3 %                                  67.6 %            70.1 %                               68.6 %

Three Months Ended June 30, 2013 versus Three Months Ended June 30, 2012

For the quarter ended June 30, 2013, as a percentage of revenue, cost of revenue increased to 68.3% as compared to 67.6% for the quarter ended June 30, 2012. This increase was primarily the result of a decrease in revenue volume and increased personnel costs in the GLC segment, partially offset by improved mix in the GDT segment. Cost of revenue was not materially impacted by foreign currency translation, as the U.S. Dollar only weakened 0.6% versus the Euro from the quarter ended June 30, 2012 to the quarter ended June 30, 2013.

For the quarter ended June 30, 2013, cost of revenue increased $3.7 million, or 4.6%, to $84.3 million as compared to $80.6 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 weakened 0.6% versus the Euro from the quarter ended June 30, 2012 to the quarter ended June 30, 2013.

For the quarter ended June 30, 2013, cost of revenue as a percentage of revenue in the Company's GLC segment increased to 67.5% as compared to 65.8% for the quarter ended June 30, 2012. This increase was primarily the result of lower revenue volume and increased employee compensation and related benefit costs, partially offset by a decrease in variable outsourcing costs commensurate with the decrease in the GLC segment's revenue.

For the quarter ended June 30, 2013, GLC cost of revenue decreased by $0.5 million, or 0.9%, to $54.2 million as compared to $54.7 million for the corresponding period of the prior year. This was primarily attributable to a $2.7 million decrease in variable outsourcing costs attributable to lower volume, which was partially offset by a $2.3 million increase in employee compensation and related benefit costs primarily associated with the Company's acquisition of PRI. Cost of revenue in the GLC segment was not materially impacted by foreign currency translation, as the U.S. Dollar was marginally weaker versus the Euro (0.6%) from the quarter ended June 30, 2012 to the quarter ended June 30, 2013.

For the quarter ended June 30, 2013, cost of revenue as a percentage of revenue in the Company's GDT segment decreased to 68.1% as compared to 69.2% for the quarter ended June 30, 2012, primarily as the result of a ramp-up of a large multi-year program with an existing client that is more dependent on variable labor.

For the quarter ended June 30, 2013, GDT cost of revenue increased $4.4 million, or 21.4%, to $25.2 million as compared to $20.8 million for the corresponding period of the prior year. This $4.4 million cost of revenue increase was primarily attributable to the $7.0 million increase in revenue from the aforementioned large multi-year program. Cost of revenue in the GDT segment was not materially impacted by foreign currency translation, as the U.S. Dollar only weakened 0.6% versus the Euro from the quarter ended June 30, 2012 to the quarter ended June 30, 2013.

For the quarter ended June 30, 2013, cost of revenue as a percentage of revenue in the Company's Interpretation segment decreased to 80.0% as compared to 83.5% for the quarter ended June 30, 2012 and due to the more favorable mix of telephonic interpretation versus on-site interpretation.

For the quarter ended June 30, 2013, Interpretation cost of revenue decreased $0.3 million, or 5.2%, to $4.8 million as compared to $5.1 million in the corresponding period of the prior year, primarily due to $0.2 million decreased variable third party outsourcing costs. This decrease in outsourcing costs was a result of the $0.1 million decrease in revenue and due to the more favorable mix of telephonic interpretation versus on-site interpretation. The Company's Interpretation segment is not materially impacted by foreign currency exchange rate fluctuations.


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Six Months Ended June 30, 2013 versus Six Months Ended June 30, 2012

For the six months ended June 30, 2013, as a percentage of revenue, cost of revenue increased to 70.1% as compared to 68.6% for the six months ended June 30, 2012. This increase was primarily the result of a decrease in revenue volume in the GLC segment 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 weakened 0.2% versus the Euro from the six months ended June 30, 2012 to the six months ended June 30, 2013.

For the six months ended June 30, 2013, cost of revenue increased $7.4 million, or 4.7%, to $166.1 million as compared to $158.7 million for the corresponding period of the prior year, primarily associated with the an increase in employee compensation and related benefit costs of $6.7 million, particularly in the GLC segment. Cost of revenue was not materially impacted by foreign currency translation, as the U.S. Dollar only weakened 0.2% versus the Euro from the six months ended June 30, 2012 to the six months ended June 30, 2013.

For the six months ended June 30, 2013, cost of revenue as a percentage of revenue in the Company's GLC segment increased to 69.7% as compared to 67.1% for the six months ended June 30, 2012. This increase was primarily the result of lower revenue volume and increased employee compensation and related benefit costs, partially offset by a decrease in variable outsourcing costs commensurate with the decrease in the GLC segment's revenue.

For the six months ended June 30, 2013, GLC cost of revenue decreased by $1.3 million, or 1.2%, to $106.5 million as compared to $107.8 million for the corresponding period of the prior year, primarily attributable to a $6.4 million decrease in variable outsourcing costs, which was partially offset by a $5.3 million increase in employee compensation and related benefit costs primarily associated with the Company's acquisition of PRI. Cost of revenue in the GLC segment was not materially impacted by foreign currency translation, as the U.S. Dollar only weakened 0.2% versus the Euro from the six months ended June 30, 2012 to the six months ended June 30, 2013.

For the six months ended June 30, 2013, cost of revenue as a percentage of revenue in the Company's GDT segment decreased to 69.0% as compared to 69.9% for the six months ended June 30, 2012, primarily as the result of a ramp-up of a large multi-year program with an existing client that is more dependent on variable labor.

For the six months ended June 30, 2013, GDT cost of revenue increased $8.9 million, or 21.8%, to $49.9 million as compared to $41.0 million for the corresponding period of the prior year. This $8.9 million cost of revenue increase was primarily attributable to the $13.7 million increase in revenue from the aforementioned large multi-year program. Cost of revenue in the GDT segment was not materially impacted by foreign currency translation, as the U.S. Dollar only weakened 0.2% versus the Euro from the six months ended June 30, 2012 to the six months ended June 30, 2013.

For the six months ended June 30, 2013, cost of revenue as a percentage of revenue in the Company's Interpretation segment decreased to 81.8% as compared to 83.0% for the six months ended June 30, 2012 and due to the more favorable mix of telephonic interpretation versus on-site interpretation.

For the six months ended June 30, 2013, Interpretation cost of revenue decreased $0.3 million, or 2.5%, to $9.7 million from $10.0 million in the corresponding period of the prior year, primarily due to $0.2 million decreased variable third party outsourcing costs. This decrease in outsourcing costs was a result of the $0.1 million decrease in revenue and due to the more favorable mix of telephonic interpretation versus on-site interpretation. The Company's Interpretation segment is not materially impacted by foreign currency exchange rate fluctuations.


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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 six-month period of the prior year and as a percentage of revenue for the three and six months ended June 30, 2013 and 2012, respectively (in thousands except percentages):

                                         Three Months Ended            Six Months Ended
                                              June 30,                     June 30,
                                         2013           2012          2013          2012
  Total sales and marketing expenses   $   9,123       $ 8,630      $ 18,272      $ 17,139
  Increase from prior year                   493                       1,133
  Percentage of revenue                      7.4 %         7.2 %         7.7 %         7.4 %

Three Months Ended June 30, 2013 versus Three Months Ended June 30, 2012

Sales and marketing expenses increased $0.5 million, or 5.7%, for the three months ended June 30, 2013 as compared to the corresponding period of 2012. As a percentage of revenue, sales and marketing expenses increased to 7.4% for the three months ended June 30, 2013 as compared to 7.2% for the three months ended June 30, 2012. As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, we identified certain out-of-period adjustments in Q4 2012 related to sales commission expense, resulting in an understatement of sales and marketing expense for the three months ended June 30, 2012 of $0.3 million, which was considered immaterial. Sales and marking expense would have been $8.9 million or 7.5% of revenue for the three months ended June 30, 2012 had the $0.3 million been recorded in the second quarter of 2012.

Six Months Ended June 30, 2013 versus Six Months Ended June 30, 2012

Sales and marketing expenses increased $1.1 million, or 6.6%, for the six months ended June 30, 2013 as compared to the corresponding period of 2012. As a percentage of revenue, sales and marketing expenses increased to 7.7% for the six months ended June 30, 2013 as compared to 7.4% for the six months ended June 30, 2012. As disclosed in our Annual Report on Form 10-K for the year ended . . .

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