August 7, 2012

Sapient Reports Second Quarter 2012 Results

Service Revenues Up 10% Over Q2 2011 and Up 7% Sequentially

Second Quarter Non-GAAP Operating Margin of 12.2%

BOSTON--(BUSINESS WIRE)-- Sapient (NASDAQ: SAPE) today reported the following financial results for the second quarter ended June 30, 2012:

  • Service revenues were $279.0 million compared to $254.6 million in the second quarter of 2011, an increase of $24.4 million, or 10%. Sequentially, service revenues were up $18.4 million, or 7%, from $260.6 million in the first quarter of 2012. On a constant currency basis, revenues increased 11% over the second quarter of 2011 and increased 7% sequentially.
  • GAAP income from operations was $24.3 million, or 8.7% of service revenues, compared to $23.1 million, or 9.1% of service revenues, reported in the second quarter of 2011.
  • Non-GAAP income from operations was $34.0 million, or 12.2% of service revenues, compared to $29.9 million, or 11.8% of service revenues, reported in the second quarter of 2011.
  • GAAP diluted net income per share was $0.10, compared to $0.11 in the second quarter of 2011.
  • Non-GAAP diluted net income per share was $0.15, compared to $0.14 in the second quarter of 2011.

"We are very pleased with our second quarter results, with all areas of the business showing strength despite the ongoing uncertainty of the global macroeconomic environment," said Sapient President and Chief Executive Officer Alan J. Herrick. "We remain confident in the strength of our position to address the market opportunities ahead."

The company generated cash from operations of $17.5 million in the second quarter of 2012, compared to $38.4 million in the second quarter of 2011. As of June 30, 2012, the company had cash, cash equivalents and marketable securities of $173.0 million. During the second quarter, the company used approximately $37 million of cash to repurchase common stock under its previously announced buyback authorization. Days sales outstanding was 66 days for the second quarter of 2012, down from 69 days in the first quarter of 2012 and 69 days for the second quarter of 2011.

Outlook

Sapient management provided the following guidance:

  • For the quarter ending September 30, 2012, service revenues are expected to be in the range of $277 million to $284 million.
  • Third quarter 2012 non-GAAP operating margin is expected to be 12.5% to 13.5%.
  • For the year ended December 31, 2012, service revenues are now expected to grow 8% to 10%.

Webcast and Conference Call

Sapient will host a discussion of its first 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.

Adjusted (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 third quarter and full-year 2012, including expected service revenues and expected non-GAAP operating margin — 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 North America, 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 June 30,   Six Months Ended June 30,
2012   2011 2012   2011
(in thousands, except per share amounts)
Revenues:
Service revenues $ 278,989 $ 254,616 $ 539,611 $ 495,956
Reimbursable expenses   10,106     10,842     18,889     19,396
Total gross revenues   289,095     265,458     558,500     515,352
Operating expenses:
Project personnel expenses 192,214 176,739 375,585 343,415
Reimbursable expenses   10,106     10,842     18,889     19,396
Total project personnel expenses and reimbursable expenses 202,320 187,581 394,474 362,811
Selling and marketing expenses 11,230 10,316 21,925 20,472
General and administrative expenses 48,041 42,976 94,813 82,081
Restructuring and other related (benefits) charges (14 ) (56 ) (90 ) 5,586
Amortization of purchased intangible assets 2,745 1,288 5,367 2,561
Acquisition costs and other related charges   468     223     1,593     223
Total operating expenses   264,790     242,328     518,082     473,734
Income from operations 24,305 23,130 40,418 41,618
Interest and other income, net   1,079     1,256     2,901     2,715
Income before income taxes 25,384 24,386 43,319 44,333
Provision for income taxes   10,704     9,182     19,157     16,971
Net income $ 14,680   $ 15,204   $ 24,162   $ 27,362
 
Basic net income per share $ 0.11   $ 0.11   $ 0.17   $ 0.20
Diluted net income per share $ 0.10   $ 0.11   $ 0.17   $ 0.19
 
Weighted average common shares 139,310 137,608 139,384 136,954
Weighted average dilutive common share equivalents   4,202     4,464     4,330     4,368
Weighted average common shares and dilutive common share
equivalents   143,512     142,072     143,714     141,322
 
 
 
 
 

Sapient Corporation
Consolidated Unaudited Condensed Balance Sheets
   
 
June 30, 2012 December 31, 2011
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 159,959 $ 212,406
Marketable securities, current portion 5,913 7,748
Restricted cash, current portion 2,042 426
Accounts receivable, less allowance for doubtful accounts 149,907 156,109
Unbilled revenues 80,548 61,712
Deferred tax assets, current portion 14,705 19,966
Prepaid expenses and other current assets   33,159   22,734
Total current assets 446,233 481,101
Restricted cash, net of current portion 3,843 3,779
Marketable securities, net of current portion 1,290 1,290
Property and equipment, net 81,546 64,257
Purchased intangible assets, net 31,711 36,822
Goodwill 108,410 107,971
Deferred tax assets, net of current portion 2,104 9,227
Other assets   8,886   8,591
 
Total assets $ 684,023 $ 713,038
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,300 $ 25,389
Accrued restructuring costs, current portion 130 324
Accrued compensation 61,735 77,721
Deferred revenues 19,651 25,599
Other current liabilities   36,532  

49,038

Total current liabilities 145,348

178,071

Accrued restructuring costs, net of current portion 340 407
Other long-term liabilities   63,246  

55,156

Total liabilities 208,934 233,634
 
Stockholders' equity   475,089   479,404
 
Total liabilities and stockholders' equity $ 684,023 $ 713,038
 
 
 
 
 

Sapient Corporation
Consolidated Unaudited Statements of Cash Flows
               
 
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
 
(in thousands)
Cash flows from operating activities:
Net income $ 14,680 $ 15,204 $ 24,162 $ 27,362
Adjustments to reconcile net income to net cash used in operating activities:
Loss recognized on disposition of fixed assets 115 9 162 10
Unrealized (gain) loss on financial instruments (252 ) 58 (145 ) 178
Depreciation and amortization expense 8,413 5,669 16,499 11,149
Deferred income taxes 11,115 3,838 11,130 5,822
Non-cash restructuring charges - (48 ) - 4,564
Stock-based compensation expense 6,465 5,343 11,613 9,219
Changes in operating assets and liabilities, net of impact of acquisitions:
Accounts receivable (13,471 ) (1,342 ) 6,440 (2,854 )
Unbilled revenues 8,089 4,074 (19,063 ) (25,710 )
Prepaid expenses and other current assets (11,473 ) (3,500 ) (10,073 ) (6,433 )
Other assets (907 ) (4 ) (488 ) (608 )
Accounts payable 1,201 4,580 (3,004 ) 6,043
Accrued compensation 1,896 5,472 (21,281 ) (12,629 )
Accrued restructuring costs (54 ) (1,046 ) (262 ) (1,900 )
Deferred revenues (1,255 ) (3,293 ) (5,986 ) (5,344 )
Other current liabilities (10,626 ) 3,153 (11,535 ) 8,726
Other long-term liabilities   3,598     230     5,843     1,828  
Net cash provided by operating activities   17,534     38,397     4,012     19,423  
 
Cash flows from investing activities:
Purchases of property and equipment and cost of internally developed software (12,206 ) (11,545 ) (22,656 ) (19,610 )
Sales and maturities of marketable securities classified as available-for-sale - 15 1,900 2,212
Purchases of marketable securities classified as available-for-sale (120 ) (174 ) (206 ) (2,472 )
Cash paid on financial instruments, net (236 ) (155 ) (180 ) (192 )
Change in restricted cash   (1,830 )   (84 )   (1,718 )   842  
Net cash used in investing activities   (14,392 )   (11,943 )   (22,860 )   (19,220 )
 
Cash flows from financing activities:
Principal payments under capital lease obligations (20 ) (15 ) (40 ) (36 )
Proceeds from credit facilities - 2,652 - 4,420
Repayment of amounts borrowed under credit facilities - (1,326 ) - (6,188 )
Proceeds from stock option and purchase plans 410 3,621 867 7,857
Tax benefits from stock plans 3,371 - 3,371 -
Repurchases of common stock   (37,020 )   -     (37,020 )   -  
Net cash (used in) provided by financing activities   (33,259 )   4,932     (32,822 )   6,053  
 
Effect of exchange rate changes on cash and cash equivalents   (6,885 )   586     (777 )   2,654  
 
(Decrease) increase in cash and cash equivalents (37,002 ) 31,972 (52,447 ) 8,910
Cash and cash equivalents, at beginning of period   196,961     196,386     212,406     219,448  
Cash and cash equivalents, at end of period $ 159,959   $ 228,358   $ 159,959   $ 228,358  
 
 
 
 
 

Sapient Corporation
Unaudited Reconciliation of Non-GAAP Financial Measures
               
 
Three Months Ended June 30, Six Months Ended June 30,
2012 2011 2012 2011
 
(in thousands, except per share amounts)
 
Service revenues $ 278,989   $ 254,616   $ 539,611   $ 495,956  
 
GAAP income from operations $ 24,305 $ 23,130 $ 40,418 $ 41,618
Stock-based compensation expense 6,465 5,343 11,613 9,219
Restructuring and other related (benefits) charges (14 ) (56 ) (90 ) 5,586
Amortization of purchased intangible assets 2,745 1,288 5,367 2,561
Acquisition costs and other related charges 468 223 1,593 223
Stock-based compensation review and restatement benefit   -     -     -     (3,500 )
Non-GAAP income from operations $ 33,969   $ 29,928   $ 58,901   $ 55,707  
 
GAAP operating margin 8.7 % 9.1 % 7.5 % 8.4 %
Effect of adjustments detailed above   3.5 %   2.7 %   3.4 %   2.8 %
Non-GAAP operating margin   12.2 %   11.8 %   10.9 %   11.2 %
                         
 
GAAP net income $ 14,680 $ 15,204 $ 24,162 $ 27,362
Stock-based compensation expense, net of tax 4,048 3,340 7,291 5,791
Restructuring and other related (benefits) charges, net of tax (8 ) (33 ) (62 ) 3,463
Amortization of purchased intangible assets, net of tax 2,184 1,036 4,275 2,061
Acquisition costs and other related charges, net of tax 344 151 1,140 151
Stock-based compensation review and restatement benefit, net of tax   -     -     -     (2,085 )
Non-GAAP net income $ 21,248   $ 19,698   $ 36,806   $ 36,743  
                         
 
GAAP basic income per share $ 0.11 $ 0.11 $ 0.17 $ 0.20
Effect of adjustments detailed above   0.04     0.03     0.09     0.07  
Non-GAAP basic income per share $ 0.15   $ 0.14   $ 0.26   $ 0.27  
 
GAAP and Non-GAAP weighted average common shares   139,310     137,608     139,384     136,954  
 
 
GAAP diluted income per share $ 0.10 $ 0.11 $ 0.17 $ 0.19
Effect of adjustments noted above and change in dilution noted below   0.05     0.03     0.09     0.07  
Non-GAAP diluted income per share $ 0.15   $ 0.14   $ 0.26   $ 0.26  
 
GAAP and Non-GAAP weighted average common shares and dilutive common share equivalents   143,512     142,072     143,714     141,322  
                 

Investor Relations Contact:
Sapient
Dean Ridlon, +1-617-963-1598
dridlon@sapient.com
or
Media Contact:
Sapient
David LaBar, +1-646-478-9846
dlabar@sapient.com

Source: Sapient

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