Lionbridge Technologies CEO Discusses Q3 2010 Results – Earnings Call Transcript
Lionbridge Technologies, Inc. (
)
Q3 2010 Earnings Conference Call
November 4, 2010 9:00 AM ET
Executives
Sara Buda – VP, IR
Rory Cowan – Chairman, President and CEO
Don Muir – SVP and CFO
Analysts
Joseph Vafi – Jefferies & Co
Rich Baldry – Signal Hill Capital
Richard Davis – Canaccord
Kevin Liu – B. Riley & Company
Vincent Colicchio – Noble Financials
Presentation
Operator
Welcome and thank you for standing by. At this time, all participants are in a listen-only mode. (Operator Instructions).
This call is being recorded. If you have any objections you may disconnect at this time.
Now I’ll turn the meeting over to Sara Buda, Vice President, Investor Relations. You may begin.
Sara Buda
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Lionbridge Technologies, Inc. Q3 2009 Earnings Call Transcript
Hi. Thank you everybody. Welcome to the Lionbridge investor call to discuss financial results for the third quarter of 2010. During this call, we may make certain statements that may be considered forward-looking statements under Federal Securities laws and which involve risks and uncertainties.
Our actual future results may differ significantly from the matters discussed in any forward-looking statements. We’ve disclosed in greater detail in our Form 10-K filed with the Securities and Exchange Commission on March 13
th
, 2010 the factors that may cause such differences.
And now, I’ll turn the call over to Lionbridge Chairman and CEO, Rory Cowan.
Rory Cowan
Great. Thank you, Sara, and good morning, everyone. As is normal, today I’ll begin with the summary of our third quarter, I assume many of you have seen the release. Then I’ll provide some perspective on our current demand environment and our plans for accelerating revenue in 2011.
But first let’s talk a little about the quarter. Revenue was just over $99 million, $99.2 million, within the range we provided you in the last call, and this is reflective of our traditional Q3 seasonality. But there’s also some additional lower Microsoft revenue this quarter which we’ll talk about throughout the call today.
Gross profit was about 32% at 31.9% which significantly is about 80 basis points higher than last year at Q3, and it’s clear that we’re just have much more efficient cost model today all the work that we did in the past 18 months is beginning to come through, so we are lowering, our breakeven points are lowering our expense thresholds.
We’re just running a better business than we were 12 months ago, so this really provides a better platform as to accelerate profits as our revenue continues to grow.
(Inaudible) continuing to reduce our costs, you saw that we had about $4 million of restructuring expenses this quarter, and this is a bit higher than our past quarters. We’re in the process of closing one of our European offices and shrinking a number of other locales.
With a 12-month or so payback there is still more costs to come out of this business and very simply as we moved to the Cloud and offshore, we’re just doing more with less real estate, less fixed expense, and this is renewing the end of our previously announced $18 million restructuring that we announced last year.
Excluding these restructuring expenses, we are slightly positive on a GAAP basis. We had another quarter of positive cash flow from operations even after continuing, and actually in some cases accelerating investment in our software products and strategy. In fact this has been our sixth quarter of positive cash flow, sixth consecutive quarter. We continue to be net cash positive of almost $30 million in cash, and less than $25 million in debt.
And speaking of our debt, Don and his team have refinanced our revolving credit facility well in advance of its maturity this quarter, and the new terms are much more flexible and very favorable, which really reflects the underlying strength of our business and how well we managed in the bank size during the downturn last year. So sum Q3 was a pretty solid quarter.
Don will give you more details on the financial results by segment
,
but let me touch on our customer environment first. During the past few quarters we’ve ramped a number of large new accounts such as Genzyme, Caterpillar, Dell and Rolls-Royce, each of these is now a multimillion dollar recurring revenue customer, and they’ve been emphasizing as you can see the non tech space to get out of maybe some of this product cycle volatility that seems to be so common in the tech world.
We know how to manage complex little programs and the market leading organizations continue to rely on Lionbridge for their most critical products and content.
We expect a similar wrap for our new wins this quarter, which should roll into multimillion dollar clients during the coming year. With this new momentum and expected growth in existing accounts are building a very solid platform for 2011.
In the short term, however, as we look forward to, look ahead to Q4 and Q1, it’s clear that our recent client wins and strong pipeline of new business are really just offsetting a down release cycle from some of our major customers specifically Microsoft. Last week our largest customer Microsoft, as you saw, reported a very strong quarter of sales growth from new product releases.
We tend to get the product related activity three to six months ahead of the public release, which really correlates for a strong first half. In fact, for the second half of this year it looks our Microsoft revenue could be down, I don’t know 15%, 18% or something from the first half. We’re clearly offsetting this release cycle, their release cycle with new business. In fact, we have over a 150 individual requisitioners with inside of Microsoft, over about 27 of individual business units throughout the organization. So it’s a very deep and pervasive relationship.
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