High Expectations for Localization Market in Lionbridge's Conference call

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Global Watchtower

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Posted by Donald A. DePalma on August 3, 2005 in the following blogs: Translation and Localization
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The usually upbeat Rory Cowan, CEO of Lionbridge, sounded ecstatic today as he announced the second quarter revenue numbers for Lionbridge and talked about the company's prospects for the future with the integration of Bowne Global Solutions.
The company generated revenues of US$41.3 million with gross margins of 36% and a net income of $1.4 million. In doing so, Lionbridge generated $5 million in positive cash flow from operations. In short, record revenue and the highest single quarter cash flow in the company's history.

Beyond the numbers in the press release, a few interesting facts came out of the call:

Despite a 38% decrease in revenues from Hewlett-Packard, Lionbridge's second largest client, the company was able to increase total revenues by 10%.

The direct sales force was able to increase revenues from new clients by 18% (Lionbridge calls them "non-majors").

GE Fanuc, Motorola, and Google have brought significant projects, and Capital One is using Lionbridge for localization for non-English speaking markets in the United States.

Revenues from testing are decreasing, but because of outsourcing to India, margins are going up.

Migration of business to India is on plan. Q2 was the highest revenue quarter for Lionbridge-India. India has added $30 million to revenues, 3 times the run rate of 2 years ago.

Cowan also announced that the regulatory antitrust waiting period was over and that efforts are under way for the integration of BGS. An integration team was put in place with the goal of shaving off between $15 and $20 million in redundant back-office expenses, leases, and technology. Even though optimization efforts are already under way in Ireland, Germany, and the U.S., Lionbridge does not expect to eliminate any client-facing positions (project managers and salespeople must be sighing in relief).

As we indicated in our previous analyses of the deal, Lionbridge and BGS had only a few large overlapping clients. The combined company will leverage the fact that BGS was more European-centric while Lionbridge focused on the States. The new client mix will be 55% non-technology-driven and 45% technology-driven. Before the deal, Lionbridge was smaller and had more customer concentration than BGS. Now the company becomes larger and more diversified.
What about the future? Cowan claims to be conservative in announcing to the financial community that in 2006 Lionbridge will be generating between $400 and $430 million in revenues, and somewhere between $34 and $40 million in profits. This assumes absolutely no net revenue growth. If he does just that, Lionbridge will pull off something that Bowne failed to do in each of its acquisitions.

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