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Sapient Corp. Reports Operating Results (10-Q)

May 07, 2009 | About:
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Sapient Corp. (SAPE) filed Quarterly Report for the period ended 2009-03-31.

Sapient Corporation Sapient helps clients innovate their businesses in the areas of marketing business operations and technology. Leveraging a unique approach breakthrough thinking and disciplined execution Sapient leads its industry in delivering the right business results on time and on budget. Sapient works with clients that are driven to make a difference including BP Essent Energie Harrah's Entertainment Hilton International Janus National Institutes of Health Sony Electronics the U.S. Marine Corps and Verizon. Sapient Corp. has a market cap of $654.6 million; its shares were traded at around $5.14 with a P/E ratio of 10.3 and P/S ratio of 1.

Highlight of Business Operations:

For the three months ended March 31, 2009, we reported income from operations of $5.0 million compared to $5.8 million for the same period in 2008. We reported net income of $4.5 million for the three months ended March 31, 2009, compared to net income of $7.1 million for the same period in 2008. Excluding DCG, income from operations and net income for the three months ended March 31, 2009, was $4.4 million and $4.2 million, respectively. The decrease in operating income and net income for the three months ended March 31, 2009, is the result of $2.0 million in restructuring charges relating to our February 2009 reduction in peoplecount (see “Restructuring and Other Related Charges”) and a decrease in service revenues, partially offset by our DCG acquisition.

Excluding service revenues from DCG, which operates solely in the Financial Services sector, and the effect of the appreciation of the U.S. dollar, service revenues decreased $3.7 million. The following sectors experienced a decrease in service revenues as a result of decreased demand. The Technology and Communications sector decreased 12% or $3.8 million. The Automotive and Industrial sector decreased 67% or $2.5 million. The Retail and Consumer Products sector decreased 5% or $1.6 million. Finally, we experienced a 95% decrease, or $1.0 million, in service revenues from clients in various other sectors. Offsetting these decreases there were two sectors that experienced an increase in demand. The Financial Services sector increased 6%, or $2.9 million, and the Energy

Project personnel expenses decreased by $6.7 million for the three months ended March 31, 2009, as compared to the same period in 2008. Excluding DCG, project personnel expenses decreased by $12.1 million. Of the $12.1 million decrease, $10.8 million was due to the appreciation of the U.S. dollar. The remaining decrease of $1.3 million in expense was due to multiple factors. Consultant and contractor expense decreased by $3.8 million, or 22%. The reasons for the decrease in consultant expense is due to a client customer information system implementation which, during the three months ended March 31, 2008, required the use of a large number of contractors due to the specialized nature of the work, combined with an overall decrease in use of consultants and contractors. Travel expenses decreased $1.2 million as we have made a concerted effort to reduce travel expenses. Incentive compensation expense decreased $1.0 million compared to the same period in 2008. In addition, facilities expenses decreased $0.9 million. These decreases were offset by an increase in compensation expenses of $5.2 million. Though average project personnel peoplecount decreased 9% compared to the same period in 2008, the majority of the decrease was in India project personnel whose compensation costs are lower than our non-India project personnel. Non-India project personnel peoplecount increased compared to the same period in 2008, which resulted in an increase in compensation expenses. In addition, other project personnel expenses increased, in the aggregate $0.4 million. The increase in project personnel expense as a percentage of revenue for the three months ended March 31, 2009, compared to the same period in 2008 is due to the decrease in service revenues compared to the same period in 2008.

Selling and marketing expenses decreased by $3.7 million for the three months ended March 31, 2009, as compared to the same period in 2008. Of the $3.7 million decrease, $0.7 million was due to the appreciation of the U.S. dollar. The remaining $3.0 million decrease was due to multiple factors. A decrease of 13% in average sales and marketing peoplecount resulted in a decrease of $1.9 million in commission and compensation expenses. The decrease in peoplecount, in addition to a change in forfeiture estimate, resulted in stock-based compensation expense decreasing $0.6 million. Other selling and marketing expenses also decreased $0.7 million and travel expenses also decreased $0.2 million as we have made a concerted effort to manage these costs. These decreases were offset by an increase in consultant expense of $0.4 million. The decrease in selling and marketing expenses as a percentage of service revenues compared to the same period in 2008 is due to these expenses decreasing disproportionately compared to the decrease in service revenues.

General and administrative expenses decreased $3.7 million for the three months ended March 31, 2009, compared to the same period in 2008. Excluding DCG, general and administrative expenses decreased $4.8 million. Of the $4.8 million decrease, $2.5 million is due to the appreciation of the U.S. dollar. The remaining decrease of $2.3 million was due to multiple factors. Use of consultants, travel expenses and employee placement agency fees decreased, in the aggregate, $2.5 million as we made a concerted effort to manage these expenses. Other general and administrative expenses decreased $0.9 million due to insurance proceeds for reimbursement of expenses related to our stock-based compensation review and restatement in 2007. Compensation expenses decreased $0.8 million due a reduction in payroll related taxes compared to the same period in 2008. Finally, stock-based compensation expense decreased $0.2 million due to a change in forfeiture estimate and depreciation expense decreased $0.3 million. Offsetting these decreases was an increase of $0.8 million in health insurance expenses due to a 7% increase in average general and administrative peoplecount and an increase in insurance rates. Bad debt expense increased $0.8 million as we had a recovery of expense in the same period in 2008. Finally, we had $0.3 million in currency transaction losses for the current period compared to a currency transaction gain of $0.5 million for the same period in 2008. These foreign currency transaction losses were primarily related to intercompany foreign currency translations that were of a short-term nature.

Interest and other income decreased $1.8 million for the three months ended March 31, 2009, compared to the same period in 2008. The decrease was due to a decrease in other income of $0.9 million, and a $0.9 million decrease in interest income. Other income decreased due to $0.9 million in non-recurring items for the three months ended March 31, 2008, of which $0.5 million was for recovery of expenses related to an employee matter, $0.3 million was for a termination arrangement eliminating a call option with Sapient S.p.A., and $0.1 million was for recovery of expenses related to a lease. The decrease in interest income was due to lower interest rates and a more conservative investment strategy compared to the same period in 2008.

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