Sapient Reports Third Quarter 2013 Results

Third Quarter Service Revenues Up 12% and Non-GAAP Operating Income Up 17% Compared to Third Quarter 2012

Business Wire

BOSTON--(BUSINESS WIRE)--

Sapient (SAPE) today reported the following financial results for the third quarter ended September 30, 2013:

  • Service revenues were $323.8 million compared to $288.5 million in the third quarter of 2012, an increase of $35.3 million, or 12.2%. Sequentially, service revenues were up $9.5 million, or 3.0%, from $314.3 million in the second quarter of 2013. On a constant currency basis, revenues increased 13.0% over the third quarter of 2012 and 3.2% sequentially.
  • GAAP income from operations was $38.4 million, or 11.9% of service revenues, compared to $32.2 million, or 11.2% of service revenues, reported in the third quarter of 2012.
  • Non-GAAP income from operations was $48.9 million, or 15.1% of service revenues, compared to $41.8 million, or 14.5% of service revenues, reported in the third quarter of 2012.
  • GAAP diluted net income per share was $0.19, compared to $0.15 in the third quarter of 2012.
  • Non-GAAP diluted net income per share was $0.24, compared to $0.20 in the third quarter of 2012.

“We are really pleased with our performance in the quarter,” said Sapient Chief Executive Officer and Co-Chairman Alan J. Herrick. “All three business units grew nicely and we continued to expand non-GAAP operating profit. We remain excited about our competitive position and our opportunities for further growth despite the uncertain macroeconomic environment.”

The company generated cash from operations of $35.1 million in the third quarter of 2013, compared to $38.2 million in the third quarter of 2012. As of September 30, 2013, the company had cash, cash equivalents, restricted cash and marketable securities of $282.2 million. Days sales outstanding was 69 days for the third quarter of 2013, up from 62 days in the second quarter of 2013 and 67 days in the third quarter of 2012.

Outlook

Sapient management provided the following guidance:

  • For the fourth quarter ending December 31, 2013, service revenues are expected to be in the range of $320 million to $328 million.
  • Fourth quarter 2013 non-GAAP operating margin is expected to be 14.5% to 16.0%.

Webcast and Conference Call

Sapient will host a discussion of its third quarter results at 4:30 p.m. ET today, which will be broadcast live on the Internet. The dial-in information for the conference call is:

US: (877) 291-1296
International: (720) 259-9209

To access the live webcast of the event, please click on the link below:

http://sape.client.shareholder.com/events.cfm

In addition, a re-broadcast of the webcast will be available in the investors section of www.sapient.com.

Non-GAAP Financial Measures

Sapient provides non-GAAP financial measures to complement reported GAAP results. Management believes these measures help illustrate underlying trends in the company's business and uses the measures to establish budgets and operational goals, communicated internally and externally, for managing the company’s business and evaluating its performance. The company anticipates that it will continue to report both GAAP and certain non-GAAP financial measures in its financial results, including non-GAAP results that exclude stock-based compensation expense, restructuring and other related charges, amortization of purchased intangible assets, acquisition costs and other related charges, and income tax benefits or provisions resulting from changes in the valuation allowance. In addition, the company may present service revenues in constant currency terms, which excludes the effect of currency fluctuations between the U.S. dollar and the functional currency of the entity in which the revenue was transacted. The effect is excluded by translating the current period's local currency service revenues into U.S. dollars using the average local currency exchange rates that were in effect during the prior period of comparison. Because the company’s reported non-GAAP financial measures are not calculated according to GAAP, these measures are not comparable to GAAP and may not necessarily be comparable to similarly described non-GAAP measures reported by other companies within the company’s industry. Consequently, Sapient’s non-GAAP financial measures should not be evaluated in isolation or supplant comparable GAAP measures, but, rather, should be considered together with its consolidated financial statements, which are prepared according to GAAP.

Safe Harbor Statement

This press release contains forward-looking statements – in particular, the financial guidance for the fourth quarter, including expected service revenues and expected non-GAAP operating margin, and the expected positioning of the company – that involve a number of risks and uncertainties. All forward looking statements are based upon current expectations and beliefs and various assumptions. Actual results could differ materially from management’s expectations and the forward-looking statements contained in this release. A number of factors could cause actual events to differ materially from those indicated, including, without limitation: the continued acceptance of the company’s services; a reduction in the demand for the company’s services in light of the current economic environment; the company’s ability to accurately set fees for and complete its current and future client projects on a timely basis, successfully manage risks associated with its international operations, manage its growth and projects effectively, successfully integrate and achieve anticipated benefits from acquisitions, and continue to attract and retain high-quality employees; and other risks and uncertainties as set forth in the company’s filings with the SEC, including without limitation the most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Any forward-looking statement speaks only as of the date on which it is made, and the company undertakes no obligation to update any forward-looking statements for any reason, including to reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of anticipated or unanticipated events or circumstances, except as required by law.

About Sapient

Sapient is a global services company that helps clients transform in the areas of business, marketing, and technology. The company operates three divisions that enable clients to gain a competitive advantage and succeed in an increasingly digital world. SapientNitro, Sapient Global Markets and Sapient Government Services fuse insight, creativity and technology to drive innovation and to help clients navigate complex business problems. Our approach is the subject of case studies used by MBA programs at Harvard and Yale. The company has operations in The Americas, Europe, and Asia-Pacific. For more information, visit www.sapient.com.

Sapient is a registered service mark of Sapient Corporation.

 
Sapient Corporation
Consolidated Unaudited Condensed Statements of Operations
 
  Three Months Ended September 30,   Nine Months Ended September 30,
  2013       2012     2013       2012  
(in thousands, except per share amounts)
Revenues:
Service revenues $ 323,793 $ 288,467 $ 930,765 $ 827,835
Reimbursable expenses   11,087     10,801     33,705     29,690  
Total gross revenues   334,880     299,268     964,470     857,525  
Operating expenses:
Project personnel expenses 218,977 194,543 637,258 570,895
Reimbursable expenses   11,087     10,801     33,705     29,690  
Total project personnel expenses and reimbursable expenses 230,064 205,344 670,963 600,585
Selling and marketing expenses 11,968 11,221 36,754 33,146
General and administrative expenses 52,136 46,652 159,657 141,608
Restructuring and other related (benefits) charges (28 ) (19 ) 1,955 (109 )
Amortization of purchased intangible assets 3,007 2,744 9,927 8,111
Acquisition costs and other related (benefits) charges (1,268 ) 1,121 (1,652 ) 2,714
Impairment of intangible asset   596     -     2,090     -  
Total operating expenses   296,475     267,063     879,694     786,055  
Income from operations 38,405 32,205 84,776 71,470
Interest and other income, net   1,340     812     3,412     3,713  
Income before income taxes 39,745 33,017 88,188 75,183
Provision for income taxes   12,986     12,041     31,612     31,200  
Net income 26,759 20,976 56,576 43,983
Less: Net income (loss) attributable to noncontrolling interest   (88 )   -     (175 )   -  
Net income attributable to stockholders of Sapient Corporation $ 26,847   $ 20,976   $ 56,751   $ 43,983  
 
Basic net income per share attributable to stockholders of Sapient Corporation $ 0.19   $ 0.15   $ 0.41   $ 0.32  
Diluted net income per share attributable to stockholders of Sapient Corporation $ 0.19   $ 0.15   $ 0.40   $ 0.31  
 
Weighted average common shares 139,959 136,883 139,202 138,544
Weighted average dilutive common share equivalents   2,302     3,275     3,731     3,979  
Weighted average common shares and dilutive common share equivalents   142,261     140,158     142,933     142,523  
 
 
 
 
 
 
Sapient Corporation
Consolidated Unaudited Condensed Balance Sheets
   

 

September 30, 2013 December 31, 2012
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 272,756 $ 234,038
Marketable securities, current portion 7,310 6,321
Restricted cash, current portion 101 9,026
Accounts receivable 175,618 168,951
Unbilled revenues 104,865 71,842
Deferred tax assets, current portion 16,281 15,809
Prepaid expenses and other current assets   44,742   43,791
Total current assets 621,673 549,778
Marketable securities, noncurrent portion - 1,202
Restricted cash, noncurrent portion 2,042 2,914
Property and equipment, net 83,166 80,661
Purchased intangible assets, net 24,068 35,050
Goodwill 134,359 128,628
Other noncurrent assets   8,914   8,651
 
Total assets $ 874,222 $ 806,884
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 25,166 $ 26,937
Accrued expenses 48,892 52,584
Accrued compensation 105,422 98,106
Accrued restructuring costs, current portion 383 129
Income tax payable 17,427 8,273
Deferred revenues   23,326   27,682
Total current liabilities 220,616 213,711
Accrued restructuring costs, noncurrent portion 94 246
Deferred tax liabilities, noncurrent portion 20,798 19,892
Other long-term liabilities   66,440   66,561
Total liabilities 307,948 300,410
 
Noncontrolling interest   923   -
 
Stockholders' equity   565,351   506,474
 
Total liabilities and stockholders’ equity $ 874,222 $ 806,884
 
 
 
 
 
 
Sapient Corporation
Consolidated Unaudited Statements of Cash Flows
             

 

Three Months Ended Nine Months Ended
September 30, September 30,
  2013     2012     2013     2012  
(in thousands)
Cash flows from operating activities:
Net income $ 26,759 $ 20,976 $ 56,576 $ 43,983
Adjustments to reconcile net income to net cash used in operating activities:
Deferred income taxes (1,841 ) (1,700 ) (608 ) 9,430
Unrealized (gain) loss on financial instruments (683 ) (435 ) 88 (580 )
Loss recognized on disposition of fixed assets 33 168 1,043 334
Depreciation and amortization expense 9,684 8,771 30,160 25,270
Loss recognized on sale of available-for-sale marketable securities - - 28 -
Impairment of intangible asset 596 - 2,090 -
Stock-based compensation expense 8,152 5,773 23,142 17,386
Excess tax benefits from exercise and release of stock-based awards (555 ) (7,240 ) (2,024 ) (10,611 )
Non-cash restructuring charges - - 146 -
Changes in operating assets and liabilities, excluding impact of acquisitions:
Accounts receivable (17,880 ) (23,105 ) (6,659 ) (16,665 )
Unbilled revenues (11,961 ) 11,354 (32,984 ) (7,686 )
Prepaid expenses and other current assets 9,851 (764 ) 5,773 (10,837 )
Other noncurrent assets 35 672 (144 ) (371 )
Accounts payable (4,255 ) (836 ) 907 (4,399 )
Other accrued liabilities 1,820 10,229 6,550 11,816
Accrued compensation 19,067 13,399 (72 ) (6,726 )
Accrued restructuring costs (229 ) (78 ) (56 ) (340 )
Deferred revenues 935 1,038 (4,979 ) (4,069 )
Other long-term liabilities   (4,459 )   22     (3,525 )   (3,829 )
Net cash provided by operating activities   35,069     38,244     75,452     42,106  
 
Cash flows from investing activities:
Purchases of property and equipment and cost of internally developed software (9,442 ) (5,891 ) (27,201 ) (28,406 )
Proceeds from sale of property and equipment - 32 - 32
Cash paid for acquisitions, net of cash acquired - - (4,993 ) -
Sales and maturities of marketable securities classified as available-for-sale - - 1,372 1,900
Purchases of marketable securities classified as available-for-sale (1,665 ) (120 ) (1,916 ) (326 )
Acquisition of cost method investment

 

-

-

(200 ) -
Cash (paid) received on financial instruments, net (1,701 ) 102 (1,624 ) (78 )
Change in restricted cash balances   426     827     3,941     (891 )
Net cash used in investing activities   (12,382 )   (5,050 )   (30,621 )   (27,769 )
 
Cash flows from financing activities:
Principal payments under capital lease obligations - (7 ) - (47 )
Excess tax benefits from exercise and release of stock-based awards 555 7,240 2,024 10,611
Proceeds from stock option plans 743 206 2,703 1,073
Repurchases of common stock   -     (7,583 )   -     (44,603 )
Net cash provided by (used in) financing activities   1,298     (144 )   4,727     (32,966 )
 
Effect of exchange rate changes on cash and cash equivalents   (752 )   6,512     (10,840 )   5,744  
 
Net increase (decrease) in cash and cash equivalents 23,233 39,562 38,718 (12,885 )
Cash and cash equivalents at beginning of period   249,523     159,959     234,038     212,406  
Cash and cash equivalents at end of period $ 272,756   $ 199,521   $ 272,756   $ 199,521  
 
 
 
 
 
 
Sapient Corporation
Unaudited Reconciliation of Non-GAAP Financial Measures
         
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

  2013     2012     2013     2012  
(in thousands, except per share amounts)
 
Service revenues $ 323,793   $ 288,467   $ 930,765   $ 827,835  
 
GAAP income from operations $ 38,405 $ 32,205 $ 84,776 $ 71,470
Stock-based compensation expense 8,152 5,773 23,142 17,386
Restructuring and other related (benefits) charges (28 ) (19 ) 1,955 (109 )
Amortization of purchased intangible assets 3,007 2,744 9,927 8,111
Acquisition costs and other related (benefits) charges (1,268 ) 1,121 (1,652 ) 2,714
Impairment of intangible asset   596     -     2,090     -  
Non-GAAP income from operations $ 48,864   $ 41,824   $ 120,238   $ 99,572  
 
GAAP operating margin 11.9 % 11.2 % 9.1 % 8.6 %
Effect of adjustments detailed above   3.2 %   3.3 %   3.8 %   3.4 %
Non-GAAP operating margin   15.1 %   14.5 %   12.9 %   12.0 %
                   
 
GAAP net income attributable to stockholders of Sapient Corporation $ 26,847 $ 20,976 $ 56,751 $ 43,983
Stock-based compensation expense, net of tax 5,227 3,641 14,842 10,932
Restructuring and other related (benefits) charges, net of tax (17 ) (11 ) 1,334 (73 )
Amortization of purchased intangible assets, net of tax 2,253 2,183 7,450 6,458
Acquisition costs and other related (benefits) charges, net of tax (1,142 ) 737 (1,426 ) 1,877
Impairment of intangible asset, net of tax   452     -     1,585     -  
Non-GAAP net income attributable to stockholders of Sapient Corporation $ 33,620   $ 27,526   $ 80,536   $ 63,177  
                   
 
GAAP basic income per share attributable to stockholders of Sapient Corporation $ 0.19 $ 0.15 $ 0.41 $ 0.32
Effect of adjustments detailed above   0.05     0.05     0.17     0.14  
Non-GAAP basic income per share attributable to stockholders of Sapient Corporation $ 0.24   $ 0.20   $ 0.58   $ 0.46  
 
GAAP and Non-GAAP weighted average common shares   139,959     136,883     139,202     138,544  
 
 
GAAP diluted income per share attributable to stockholders of Sapient Corporation $ 0.19 $ 0.15 $ 0.40 $ 0.31
Effect of adjustments noted above and change in dilution noted below   0.05     0.05     0.16     0.13  
Non-GAAP diluted income per share attributable to stockholders of Sapient Corporation $ 0.24   $ 0.20   $ 0.56   $ 0.44  
 
GAAP and Non-GAAP weighted average common shares and dilutive common share equivalents   142,261     140,158     142,933     142,523  
                 

Contact:
Investor Relations Contact:
Sapient
Dean Ridlon, +1-617-963-1598
dridlon@sapient.com
or
Media Contact:
Sapient
MaryLiz Ghanem, +1-212-912-3063
mghanem@sapient.com

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