Lionbridge Technologies, Inc. ( LIOX)

Q3 2011 Earnings Call

November 03, 2011, 09:00 a.m. ET


Sara Buda - VP, IR and Corporate Development

Rory Cowan - Chairman and CEO

Don Muir - CFO


[Ahmed Singh] - Jefferies

Ben Rose - Battle Road Research

George Sutton - Craig Hallum

Kevin Liu - B. Riley

Rich Davis - Canaccord Adams

Vince Colicchio - Noble Financial

Rich Baldry - Wunderlich Securities



Welcome and thank you for standing by. At this time all participants are in a listen-only mode. After today’s presentation we will conduct a question-and-answer session. (Operator Instructions) Today’s call is being recorded. If you have any objections you may disconnect at this time.

I’d now like to turn the meeting over to Sara Buda. Ma’am, you may begin.

Sara Buda

Great. Thank you. Welcome everybody to the Lionbridge investor call to discuss financial results for the quarter of 2011. During this call we may make certain statements that may be considered forward-looking statements under the Federal Securities Laws and which involves risks and uncertainties. Our actual future results may differ significantly from the matters discussed in any forward-looking statements. We have disclosed in greater detail in our Form 10-K filed with the Securities and Exchange Commission on March 15, 2011, 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 welcome everyone. Today as is traditional we will walk through a third quarter results and focus on three topics. A first gross revenue growth across all of our market to service offerings, what’s going on there? Our strong earnings and momentum as you saw for the conversion from this quarters announcement and also a first half of 2002 which really indicates continued revenue and profit growth as the of multi-year restructuring plan comes to an end and earning begin to accelerate. I’ll focus on around the first topic about revenue growth and Don will focus on points two and three, to talk about earnings and outlook for 2012.

So, first let’s start with the financial highlights for the quarter, we saw we delivered revenue about 107.8 million this quarter reflecting a reasonably solid growth of $8.4 million or about 8% year-on-year. This is slightly below our expected range to the shift in the product strategy within our largest technology plans some things are coming forth, some things are going back. Excluding revenue for this plan, we grew about 12% year-on-year. So, we are beginning to see that the diversification effort of our revenue base into new vertical markets and offerings is really beginning to take hold.

We’re successfully delivering on that goal and now that our investments in sales and marketing are paying off, we expect this to continue. Overall, technology is still a strong market for us and more diverse revenue across verticals and offerings to build on as well.

Total gross margin was about 31.5% reflecting on-going improvement from last quarter, and growth from last year in constant currency. As a reminder, from a profit standpoint, we prefer a stronger U.S. dollar. In fact, but it is an evidence on the statement our analysis shows that a 60% conversion of incremental revenue to operating profit year-on-year in constant currency, we operate about 27 currencies around the world. So, we have an internal analysis that shows at constant currency conversion rate.

To our cost management actions are starting to have a positive impact on profitability as we began to generate top line growth. Q3 GAAP earnings were about $0.04 reflecting a profit increase of $6.2 million or $0.10 a share year-on-year despite the currency headwind. This reflects the benefits of increased revenue volume, improving margins, lower restructuring expense and better other expense FX management below the line year-on-year. So, on a sequential basis we kept earnings relatively flat despite of course the seasonally lower revenue that happens in Europe during Q3.

We are here to manage our cost for investing appropriately in the business and as a result as we grow revenue we expect continued margin improvement and earnings growth. Finally, we generated about 4.5 million in cash flow from operations during the quarter and we ended the quarter with almost 21 million in cash. So, the balance sheet remain strong despite our on-going investments in our software business.

So, q3 was a solid quarter, we grew about 8% year-on-year, 12% excluding the volatility of the timing of things one large technology plan. Our cost management is showing benefits, we are expanding margins and profitability.

So, let’s talk about the revenue opportunities across end markets and various offerings. As you know during the past few quarters we have been investing in a number of growth initiatives to put them in place to accelerate our revenue. We are seeing the results of that revenue growth across various segments. So, we will take them segment-by-segment.

Our GLC language business is generating solid growth. In Q1 GLC grew 6% year-on-year despite its concentration with our largest technology plans. So, let me provide some context.

As you heard from the recent Analyst Day, they shifted spend from a mature product businesses for their newer cloud consumer and mobile initiatives. This is having a short-term headwind on us given our foothold and some of their more mature product groups. But it should give us a longer term positive impact as we won a number of multi-year programs within these new cloud, consumer and mobile businesses. So, we expect those to ramp during ’12. And overtime, it should mean more consistent, less lumpy revenue as these are more business process outsourcing relationships rather than episodic IT services engagements, because they deliver new releases and updates to the market far more frequently.

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