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LIOX > SEC Filings for LIOX > Form 10-Q on 9-May-2014All Recent SEC Filings

Show all filings for LIONBRIDGE TECHNOLOGIES INC /DE/

Form 10-Q for LIONBRIDGE TECHNOLOGIES INC /DE/


9-May-2014

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, 2014 (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

Founded in 1996, Lionbridge is a leading provider of globalization solutions. We provide translation, online marketing, global content management and application testing solutions that ensure global brand consistency, local relevancy and technical usability across all touch points of the customer lifecycle. Using our innovative cloud technology platforms and our global crowd of more than 100,000 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.

Through its Global Language and Content ("GLC") solutions, Lionbridge translates, localizes and adapts 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 provides engineering, technical documentation and drafting services for clients who market to and support customers in global markets. Lionbridge GLC solutions utilize the Company's cloud-based technology platforms and applications, its global crowd of qualified professional linguists, translators and in-country specialists 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 Enterprise Solutions ("GES") solutions, Lionbridge tests software and online search results to help clients deliver high-quality, relevant applications in global markets. The Company's GES solutions ensure the quality, usability, relevance and performance of clients' software, search engines, technology products, web applications, and content globally. As part of its GES offering, Lionbridge also provides specialized business process crowdsourcing services including search relevance testing, in-country testing for mobile devices, and data management solutions.

Lionbridge provides interpretation services for government, business and healthcare organizations that require experienced linguists. Lionbridge provides interpretation communication services in more than 360 languages and dialects, including onsite interpretation, over-the-phone interpretation and interpreter testing, training, and assessment services.

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. Core to all Lionbridge solutions is the Company's Global Customer Lifecycle ("GCL") framework that addresses the complexities global organizations face in providing a more optimized experience for their global customers. Using the GCL approach, 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, 2014, Lionbridge's income from operations was $2.1 million, with a net income of $1.9 million. For the three month period ended March 31, 2013, Lionbridge generated a loss from operations of $1.9 million and a net loss of $3.0 million. As of March 31, 2014, the Company had an accumulated deficit of $210.1 million.

A significant portion of Lionbridge's cost of revenue and operating 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 other currencies, particularly the Euro. The average value of the U.S. Dollar relative to the Euro weakened approximately 4% from the quarter ended March 31, 2013 to the quarter ended March 31, 2014. The foreign currency translation impact on our results is described in further detail under the "Results of Operations" section below.


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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 three months ended March 31, 2014 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, 2013.

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
                                                                      March 31,
                                                                2014             2013
Revenue                                                           100.0 %         100.0 %
Operating expenses:
Cost of revenue (exclusive of depreciation and
amortization included below)                                       69.1            72.0
Sales and marketing                                                 8.3             8.0
General and administrative                                         16.9            17.1
Research and development                                            1.4             1.5
Depreciation and amortization                                       1.5             1.6
Amortization of acquisition-related intangible assets               0.7             0.7
Restructuring, impairment and other charges                         0.2             0.6

Total operating expenses                                           98.1           101.5

Income (loss) from operations                                       1.9            (1.5 )
Interest expense:
Interest on outstanding debt                                        0.1             0.2
Amortization of deferred financing charges                           -               -
Interest income                                                      -               -
Other (income) expense, net                                        (0.3 )           0.3

Income (loss) before income taxes                                   2.1            (2.0 )
Provision for income taxes                                          0.4             0.6

Net income (loss)                                                   1.7 %          (2.6 )%

Revenue. The following table shows GLC, GES, and Interpretation revenues in dollars and as a percentage of total revenue for the three month periods ended March 31, 2014 and March 31, 2013, respectively (in thousands, except percentages):

                                              Three Months Ended
                                                  March 31,
                                        2014                     2013
                GLC              $  81,417        68 %    $  72,553        64 %
                GES                 33,271        28 %       35,278        31 %
                Interpretation       5,517         4 %        5,839         5 %

                Total revenue    $ 120,205       100 %    $ 113,670       100 %


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Three Months Ended March 31, 2014 versus Three Months Ended March 31, 2013

Revenue for the quarter ended March 31, 2014 was $120.2 million, an increase of $6.5 million, or 6%, from $113.7 million for the quarter ended March 31, 2013. This period-over-period increase in total revenue was due to an $8.9 million increase in the GLC segment being partially offset by a $2.0 million decrease in the GES segment and a $0.3 million decrease in the Interpretation segment. The $8.9 million increase in the GLC segment includes a favorable currency translation impact of approximately $1.5 million, primarily attributable to the weakening of the U.S. Dollar versus the Euro. Lionbridge conducts a large portion of its business in international markets. Approximately 33% of its revenue for the quarter ended March 31, 2014 was denominated in foreign currencies, primarily the Euro, as compared to approximately 31% for the quarter ended March 31, 2013. A fluctuation in foreign currency exchange rates primarily affects the GLC segment.

Revenue from the Company's GLC segment increased $8.9 million, or 12%, to $81.4 million for the quarter ended March 31, 2014 from $72.6 million for the quarter ended March 31, 2013. This increase was the result of a $7.4 million increase in demand for the Company's solutions and a $1.5 million increase related to the weakening of the U.S. Dollar relative to other currencies, primarily the Euro.

Revenue from the Company's GES segment decreased $2.0 million, or 6%, to $33.3 million for the quarter ended March 31, 2014 from $35.3 million for the quarter ended March 31, 2013. The decrease was related to decreased volume on a select large multi-year program with existing clients. The GES segment has a number of large client programs that sometimes experience periods of high growth during initial ramp-up phases when a program begins and may experience slight variations in volume when the program subsequently enters a maintenance phase. Revenue in the GES segment is not materially affected by fluctuations in foreign currency exchange rates.

Revenue from the Company's Interpretation segment decreased $0.3 million, or 6%, to $5.5 million from $5.8 million, due to slightly decreased volume from a major existing client. 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 testing services provided by third parties as well as salaries and associated employer taxes and employee benefits for personnel related to client engagements. The following table shows GLC, GES 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, 2014 and March 31, 2013, respectively (in thousands, except for percentages):

                                       Three Months Ended
                                            March 31,
                                       2014           2013         % Change
             GLC:
             Cost of revenue         $  54,723      $ 52,321             4.6 %
             Percentage of revenue        67.2 %        72.1 %
             GES:
             Cost of revenue            23,657        24,677            -4.1 %
             Percentage of revenue        71.1 %        70.0 %
             Interpretation:
             Cost of revenue             4,699      $  4,884            -3.8 %
             Percentage of revenue        85.2 %        83.6 %

             Total cost of revenue   $  83,079      $ 81,882             1.5 %

             Percentage of revenue        69.1 %        72.0 %

Three Months Ended March 31, 2014 versus Three Months Ended March 31, 2013

For the quarter ended March 31, 2014, cost of revenue increased $1.2 million, or 1.5%, to $83.1 million as compared to $81.9 million for the corresponding period of the prior year. The increase is attributable to a $1.0 million unfavorable currency translation impact as the U.S. Dollar weakened relative to the Euro, and a $0.9 million or 2% increase in employee-related costs being partially offset by a $0.7 million decrease in variable outsourcing costs.


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For the quarter ended March 31, 2014, as a percentage of revenue, cost of revenue decreased to 69.1% as compared to 72.0% for the quarter ended March 31, 2013. This favorable decrease was primarily due to higher project volumes and improved work mix within the GLC segment.

For the quarter ended March 31, 2014, GLC cost of revenue increased by $2.4 million, or 4.6%, to $54.7 million as compared to $52.3 million for the corresponding period of the prior year. The increase was primarily the result of a $0.9 million or 4% increase in variable outsourcing costs attributable to higher project volumes, a $0.6 million or 2% increase in employee-related costs, and a $0.9 million unfavorable foreign currency translation impact as a result of the weakening of the U.S. Dollar against the Euro.

For the quarter ended March 31, 2014, cost of revenue as a percentage of revenue in the Company's GLC segment decreased to 67.2% as compared to 72.1% for the quarter ended March 31, 2013, primarily as a result of increased revenue volumes.

For the quarter ended March 31, 2014, GES cost of revenue decreased $1.0 million, or 4.1%, to $23.7 million as compared to $24.7 million for the corresponding period of the prior year. This decrease was attributable to a $1.4 million or 12% decrease in variable outsourcing costs being partially offset by an increase in employee-related costs of $0.3 million and an increase in other costs of $0.1 million. Cost of revenue in the GES segment was not materially impacted by foreign currency translation.

For the quarter ended March 31, 2014, cost of revenue as a percentage of revenue in the Company's GES segment increased to 71.1% as compared to 70.0% for the quarter ended March 31, 2013.

For the quarter ended March 31, 2014, Interpretation cost of revenue decreased $0.2 million, or 3.8%, to $4.7 million as compared to $4.9 million in the corresponding period of the prior year, primarily due to decreased variable third party outsourcing costs resulting from the 6% decrease in revenue. The Company's Interpretation segment is not materially impacted by foreign currency exchange rate fluctuations.

For the quarter ended March 31, 2014, cost of revenue as a percentage of revenue in the Company's Interpretation segment increased slightly to 85.2% as compared to 83.6% for the quarter ended March 31, 2013.

Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions and associated employer taxes and 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 month period of the prior year and as a percentage of revenue for the three month periods ended March 31, 2014 and March 31, 2013, respectively (in thousands, except percentages):

                                                   Three Months Ended
                                                        March 31,
                                                   2014           2013
            Total sales and marketing expenses   $   9,920       $ 9,149
            Increase from prior year                   771
            Percentage of revenue                      8.3 %         8.0 %

Three Months Ended March 31, 2014 versus Three Months Ended March 31, 2013

Sales and marketing expenses increased $0.8 million, or 8%, for the three months ended March 31, 2014 as compared to the corresponding period of 2013, primarily attributable to a $0.3 million increase in employee-related costs, a $0.2 million increase in training expenses and a $0.3 million increase in other costs. As a percentage of revenue, sales and marketing expenses increased slightly to 8.3% for the three months ended March 31, 2014 as compared to 8.0% for the three months ended March 31, 2013.


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General and Administrative. General and administrative expenses consist of salaries of the management, purchasing, process and technology, finance and administrative groups, and associated employer taxes and 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 periods of the prior year and as a percentage of revenue for the three months ended March 31, 2014 and March 31, 2013, respectively (in thousands, except percentages):

                                                       Three Months Ended
                                                            March 31,
                                                       2014           2013
         Total general and administrative expenses   $  20,346      $ 19,481
         Increase from prior year                          865
         Percentage of revenue                            16.9 %        17.1 %

Three Months Ended March 31, 2014 versus Three Months Ended March 31, 2013

General and administrative expenses increased $0.9 million, or 4%, for the three months ended March 31, 2014 as compared to the corresponding period of 2013, primarily attributable to a $0.4 million increase in employee-related costs and a $0.5 million increase in all other costs. As a percentage of revenue, general and administrative expenses decreased slightly to 16.9% for the three months ended March 31, 2014, as compared to 17.1% for the same period of the prior year as a result of leveraging fixed costs over a $6.5 million or 6% increase in revenue.

Research and Development. Research and development expenses relate primarily to the Company's web-based hosted language management technology platform, its Translation Workspace™ SaaS-based offering and its customizable real-time automated machine translation technology known as GeoFluent™. The cost consists primarily of salaries and associated employer taxes and 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, 2014 and March 31, 2013, respectively (in thousands, except percentages):

                                                     Three Months Ended
                                                          March 31,
                                                     2014           2013
          Total research and development expense   $   1,739       $ 1,656
          Increase from prior year                        83
          Percentage of revenue                          1.4 %         1.5 %

Three Months Ended March 31, 2014 versus Three Months Ended March 31, 2013

Research and development expenses increased $0.1 million, or 5%, for the three months ended March 31, 2014 as compared to the corresponding period of 2013. This increase is primarily attributable to an increase in overall employee compensation and benefits. As a percentage of revenue, research and development expenses decreased slightly to 1.4% for the three months ended March 31, 2014, as compared to 1.5% for the three months ended March 31, 2013.

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 periods of the prior year and as a percentage of revenue for the three months ended March 31, 2014 and March 31, 2013, respectively (in thousands, except percentages):

                                                        Three Months Ended
                                                             March 31,
                                                        2014           2013
        Total depreciation and amortization expense   $   1,849       $ 1,800
        Increase from prior year                             49
        Percentage of revenue                               1.5 %         1.6 %


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Three Months Ended March 31, 2014 versus Three Months Ended March 31, 2013

Depreciation and amortization expense remained unchanged at $1.8 million for the three months ended March 31, 2014 as compared to the corresponding period of 2013. As a percentage of revenue, depreciation and amortization decreased slightly to 1.5% for the three months ended March 31, 2014 as compared to 1.6% for the three months ended March 31, 2013. 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, 2014 of $0.8 million represented a slight decrease of $30,000 as compared to the three months ended March 31, 2013. This decrease is due to a decrease in amortization related to pre-2011 acquisitions that are being amortized on an economic consumption method as opposed to straight-line, partially offset by incremental expense from the E5 acquisition.

Restructuring, Impairment and Other Charges. Restructuring, impairment and other charges were $0.3 million for the three months ended March 31, 2014 and $0.7 million for the three months ended March 31, 2013.

The $0.3 million of restructuring, impairment and other charges recorded in the three months ended March 31, 2014 included $0.2 million for workforce reductions in Europe consisting of 4 technical staff, $53,000 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 and $47,000 of accretion of a contingent consideration liability from the acquisition of VSI. The workforce and facility charges relate to the Company's GLC segment and the VSI contingent consideration accretion relates to the Company's GES segment.

The $0.7 million of restructuring, impairment and other charges recorded in the three months ended March 31, 2013 included $0.2 million for workforce reductions in Europe consisting of 4 technical staff and 1 administrative staff, $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 and $0.4 million of costs related to the Company's engagement in strategic initiatives. The workforce and facility charges related to the Company's GLC segment and the cost associated with strategic initiatives was related to Corporate.

Interest Expense. Interest expense primarily represents interest paid or payable on debt and the amortization of deferred financing costs. Interest expense for the three months ended March 31, 2014 decreased to $0.1 million as compared to $0.2 million for the three months ended March 31, 2013. This is primarily due to a decrease in interest rate.

Other Expense, Net. Other expense, net primarily reflects the foreign currency transaction gains or losses arising from exchange rate fluctuations on transactions denominated in currencies other than the functional currencies of the countries in which the transactions are recorded. The Company recognized a $0.3 million gain in other expense, net, during the three months ended March 31, 2014 as compared to a loss of $0.3 million during the corresponding periods of the prior year. The variations are due to differences among the Euro and other currencies against the U.S. Dollar in the periods, as compared to the net position and variance during the corresponding periods of the prior year.

Income Before Income Taxes. The components of income before income taxes were as follows for the three months ended March 31, 2014 and March 31, 2013, respectively (in thousands):

                                                   Three Months Ended
                                                        March 31,
                                                   2014           2013
             United States                       $    (254 )    $ (3,079 )
             Foreign                                 2,584           701

             Income (loss) before income taxes   $   2,330      $ (2,378 )

During the quarter ended March 31, 2014, the Company's United States operations generated a loss of $0.3 million before income taxes as compared to a loss of $3.1 million for the quarter ended March 31, 2013. The Company's foreign operations generated income before income taxes of $2.6 million for the quarter ended March 31, 2014 as compared to


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income of $0.7 million during the quarter ended March 31, 2013. A significant portion of our operating costs are incurred outside the United States and a majority of our foreign affiliates are subject to cost-plus 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 positive trend experienced in the Company's U.S. and foreign operations' results from the quarter ended March 31, 2013 to the quarter ended March 31, 2014 is a result of increased project volumes particularly in our GLC segment.

Provision for Income Taxes The provision for (benefit from) income taxes consists primarily of taxes resulting from profits in foreign jurisdictions, and interest and penalties associated with uncertain tax positions. The tax provision decreased to $0.4 million for the quarter ended March 31, 2014 compared to $0.6 million in the same period of the prior year. The tax change year over year is primarily due to the foreign profits mixes, which are subject to tax by the foreign jurisdictions due to the treatment of the foreign subsidiaries as service providers that earn a profit based on a cost-plus model. . . .

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