Lionbridge Technologies' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Lionbridge Technologies, Inc. (LIOX)

Q2 2012 Earnings Call

August 8, 2012 09:00 am ET

Executives

Rory Cowan – Chairman, President & Chief Executive Officer

Don Muir – Chief Financial Officer

Sara Buda – Vice President, Investor Relations and Corporate Development

Analysts

Amit Singh – Jefferies

Richard Baldry – Wunderlich Securities

George Sutton – Craig Hallum

Ben Rose – Battle Road Research

Vince Colicchio – Noble Financial

Kevin Liu – B Riley

Presentation

Operator

Welcome and thank you for standing by. (Operator instructions.) Today’s conference is being recorded. If you have any objections you may disconnect at this time. I would now like to turn today’s meeting over to Sara Buda. Thank you; you may begin.

Sara Buda

Thank you. Welcome everybody to the Lionbridge Investor Call to discuss financial results for Q2 2012. 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 15, 2012, the factors that may cause such differences. And now I’ll turn the call over to Lionbridge’s Chairman and CEO, Rory Cowan.

Rory Cowan

Well good morning, everybody, and welcome. So today we’ll talk about our Q2 performance and what’s really marked our fifth consecutive quarter of strong revenue growth and profit acceleration. I’ll also touch on our new offerings, our new vertical strategy and our new cost platform and then we’ll wrap up with our outlook for continued growth in the second half of 2012.

So first let’s talk about the quarter. As you saw, revenue grew about $6 million or about 5% year-on-year despite a currency headwind. Constant currency revenue growth was almost 9% year-on-year. This increase was largely driven from solid growth in many of our large accounts, and the benefit of a lot of new business which continues to ramp as well. I’ll talk a little more about our positive demand environment shortly, but clearly we had a very strong first half and we expect continued strength in the second half in spite of the global uncertainly we all are reading about.

Secondly, we grew gross margins by 200 basis points year-over-year to 32.4%. This reflects really solid growth across all of our segments. And operating profit for the quarter was almost $7 million excluding one-time items. The underlying profit potential of the business is really becoming evident now.

GAAP earnings were about $2.5 million or $0.04 per share and that includes $6.7 million of European restructuring expenses, impaired items related to real estate technology which I’ll talk to you about shortly, and some one-time acquisition costs. Non-GAAP earnings, which exclude these items, was about $11 million or $0.18 per share.

This is our strongest adjusted earnings quarter ever, and when you adjust for the $3.2 million tax benefit our non-GAAP earnings were still a record $8 million. So clearly we’re seeing strong profit momentum no matter how you look at it.

Finally, we continue to generate cash. This quarter we generated about $6.6 million in cash flow from operations and we paid down $4 million of the $10 million in debt related to our PRI acquisition we closed on June 1. All in all, Q2 marked a very strong quarter. We’ve seated our earnings and revenues forecast once again with solid growth across all in-markets and we delivered our highest adjusted profit in history.

Let’s talk a little about our demand environment and our strategy for continued long-term growth. First, we have a lot of new offerings, particularly our GMO or global marketing operations solution. Second, we’re reconfiguring our go-to-market strategy around new vertical market expansions; and third, we’re getting some strong growth from many of our large existing clients, and this is that recurring revenue model that we focus on here so much.

Let’s go into some detail on each of these. Our GMO, or global marketing operations – and as a reminder, with GMO we create, deploy, and manage digital marketing programs across all geographies and technical platforms. So it really is technical knowledge and content knowledge in a global deployment to maintain everything from advertising campaigns to general websites for people. We launched GMO last year as we saw a growing demand from marketing executives who struggled with the complexity of managing campaigns globally.

The other unique thing about GMO is that we’re moving from a product-oriented decision maker in large organizations to a market-oriented decision maker in large organizations. The value proposition for GMO is much broader than a traditional translation solution and involves a variety of global capabilities. GMO is now on track to generate more than $10 million of incremental revenue in 2012 over 2011, and clearly it’s one of our strongest growth areas. And with GMO we can command a value-based pricing as we accelerate our client time to market and reduce their total costs.

So it’s getting significant traction in 2012 and should drive further growth in 2013. I think GMO is another example about how Lionbridge really excels in all aspects of the global digital publishing lifecycle. We do this for websites, we do this for advertising campaigns, and as products and websites merge our product knowledge and our web knowledge and our globalization knowledge are coming together for the newly-architected global products as well.

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