Lionbridge Technologies CEO Discusses Q1 2013 Results - Earnings Call Transcript

Lionbridge Technologies, Inc. (NASDAQ:LIOX)

Q1 2013 Earnings Conference Call

May 8, 2013; 09:00 a.m. ET

Executives

Rory Cowan - Chairman, President & Chief Executive Officer

Don Muir - Chief Financial Officer, Senior Vice President

Sara Buda - Vice President of Investor Relations

Analysts

George Sutton - Craig-Hallum Capital

Harvey Poppel - Poptech

Vincent Colicchio - Noble Financial Capital

Kevin Liu - B. Riley & Company

Gunnar Hansen - Sidoti & Company

Ben Rose - Battle Road Research

Operator

Thank you for standing by and welcome to today’s conference. At this time all participants are in a listen-only mode. After the presentation we will conduct a question-and-answer session. (Operator Instructions). Today’s conference call is being recorded. If you have any objections, you may disconnect.

I will now introduce your conference host, Mrs. Sara Buda, Vice President of Investor Relations. Ma’am, you may begin.

Sara Buda

Thank you. Welcome to the Lionbridge Investor Call to discuss financial results for the first quarter of 2013.

During this call we may make certain statements that may be considered forward-looking statements under the 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, 2013 the factors that may cause such differences.

And now I’ll turn the call over to Lionbridge Chairman and CEO, Rory Cowan.

Rory Cowan

Great, thanks Sara. Today I’ll focus my comments on four areas. First, the factors that drove our disappointing Q1 results and sharp contrast toward the positive March and April trends that are driving our strong outlook for Q2. Our successes with bringing our new offerings to market and finally I’ll touch on my plans for bringing in some operational leadership.

Lets start with Q1. Revenue at the quarter was about $114 million about 2% or 3% below what we expected for the quarter. That was a problem, but it was really the work mix, but in that revenue mix, I think that really caused most of the earnings conversion issues. This was largely due to the lower spend with few enterprise technology clients in our products translation business.

Quite simply, early in the quarter we saw a kind of on again, off again hesitation from several accounts, particularly in relation to European demand and when I say European demand, I don’t mean customers in Europe. I mean worldwide customers focusing on international releases.

I guess reading the headlines, it seems that several public companies also in our space, in our general area, faced a lot of the same EMEA issues in Q1; however, we did see March return nicely and March as you know, Q1 is always one of our most challenging quarters and that its really a March quarter, because it takes a lot of companies really mid-way through their quarter to release their budgets and April is also trending positively. So while the business ramp feels about six to eight weeks later than we normally see and what we expected, our traditional Q2 sequential up-tick looks quite solid.

Looking at gross margins, this clearly is the biggest disappointment in the quarter; lets talk about this bad news first. The primary reason for the lower gross margin in Q1 was the decline in volume in our GLC, our translation business. This is a business as you know with high incremental contribution leverage. As we saw in Q2 of last year, incremental level converts quite aggressively, because we have a fixed expense component above the gross margin line of PM’s and other European expenses.

Like an airline, you can imagine that we always estimate we’ll have some no-shows in this project-based business in a given quarter. So produce releases get delayed, the client fees scope, etcetera, etcetera. So that’s the nature of the product translation business in this project orientation; we’ve always lived with that.

So we over book. Unfortunately in Q1 the number of no-shows was more than we anticipated and they were uneven throughout the first half of the quarter, really the middle of the quarter is where the real activity began.

This left us with too many underutilized resources and our internal cost of goods sold, which of course negatively impacts our margin during the quarter. And in addition, we were accelerating hiring on some of our new GMO offerings, which as you’ve seen in the release and you’ll hear later in the script are ramping really very nicely.

So fortunately amid all this concern in this doom and my disappointment, there is some good news. In Q1 we strong revenue and margin growth in our GDT testing business. Thanks largely to a large multiyear global testing program from our largest plant and this works on the global infrastructure and it requires the language knowledge of our GLT business. This enables us to partially offset the volume decline in the translation business and we expect this GDT growth to continue.

Second, we did hire a bit heavy in Q1 for GMO, but this offering continues to show strong momentum with about 40% growth year-on-year and I’ll detail that success for you shortly.

Finally and most importantly, we are seeing business pick up again in our GLC translation business and the increase is broad based. Large existing clients are spending again and many of the products translation accounts are starting to resume and our new business is scaling.

When I say large customers are spending again, we had had indications of these projects. Its just they are now being released and they are in production. As a result we expect Q2 margins to get back to our more traditional margin levels. We’ve had the volume returns in GLC and this is exactly what we saw in March and had indications of in April.

Looking at Q1 earnings, the margin decline early in the quarter led to a GAAP net loss of about $3 million or a nickel a share and non-GAAP net income was about breakeven. It’s a clear disappointment for all of us.

That said, you can see from our guidance, we expect about $7 million to $10 million revenue ramp into Q2, and significant improvement in gross margin, which should get us back on track in terms of profitability. Don of course will provide more detail at the segment level, but that about sums up the P&L for Q1.

On the balance sheet side we consumed about $3 million of cash in the quarter, which is pretty typical. We typically consume cash in Q1 and then generate strong cash flows throughout the rest of the year. So we ended the quarter with about $20 million in cash.

Now lets talk about the revenue trends that give us confidence in Q2 and the rest of ’13. First, our largest client is growing. Microsoft was up both sequentially and year-over-year and you’ll see that in the filings and we expect them to be strong in Q2 as well. More importantly Microsoft illustrates our significant transformation as of in the company in really two basic areas that I’m working on in the past 18 to 24 months.

First, we’re selling to the marketing buyer to get away from the fits and starts of product and project faced activities. Much of what we do from Microsoft now involves helping them execute their marketing programs around global markets. This is the strategy we outlined over a year ago and taking our core translation skills and applying them to the needs to the marketing environment, this also is far more recurring and predictable revenue. So the marketing buyer is the first thing that we’re seeing that’s going well.

The second success with Microsoft is providing large testing programs, where global scale in code and content give us a clear advantage. We won a large multiyear global testing program in 2012 and it is now scaling nicely, as reflected in the growth in our GDT testing segment, which Don will share with you in a minute.

So our successes at Microsoft are interjecting the indicative of the underlying transformation of Lionbridge with products to marketing and growing our crowded-abled code and content skills to get out of the episodic nature of the project based business.

So this brings me to our second positive revenue trend, which is GMO. We talked to you about GMO or Global Marketing Operations Offering for about a year now. I am heartened by our continued momentum in this area and as a reminder, this offering targets marketing buyers at large organizations and it involves everything from global SEO to global campaign management, just as we’re doing for Microsoft.

In Q1 GMO grew about 40% year-over-year. So we now have about 25 clients across a variety of end markets, from Starbucks to Intel and we continue to see strong momentum with GMO as we bring digital marketing global. As you know, there’s a sort of a replatforming going on at all web content management world, which is really forcing people to look at global systems rather than country by country by country.

So our third trend is another new GMO offering we’ve developed around video translation. As you know, most enterprises or many enterprises are shifting a large amount of their management communications to video. Plans and prospects are telling us that they are now producing 100’s of videos each year or marketing in term of communications, training support, all sorts of needs, essentially U2 goes enterprise.

This quarter we rolled out a new offering to provide the cost effective, highly audited means for translating videos. We took a lot of the workflow skills we had in our translation business and really applied it to our video business.

We’ve been doing higher end video for existing clients for several years, but now with this new technologically driven offering, there is clear growth in demand and some new automation capabilities we’ve implemented when packaging this into a formal offering and rolling it out to new prospects across end markets. The response is going to overwhelmingly positive as part of this whole GMO suite. There is clear demand for video translation and we had the sale of the operational model to scale it.

So finally, let me update you on our crowdsourcing offerings. From as you know for over 15 years we’ve managed private crowds of professionals around the world that feel very specific requirements for our clients in a recurring revenue stream; from translation to interpretation to search relevance.

Our strategy for ’13 is to take this global crowd management skill and apply this capability to other end markets and I’m quite pleased with this progress actually. In less than three months or maybe four months since we bought Virtual Solutions, that small acquisition late last year, we won two significant proof of concept programs for enterprise crowdsourcing, one of the software engineering company, another was a large financial debt management company, and in each case we provided data cleansing or data enrichment services using our global crowd.

This can easily become a $700,000 to $1 million a year programs, recurring DTL like programs when these proof of concept programs are successful, and its clear that enterprises across industries are looking at crowd sourcing as a new alternative for contingent staffing or the fixed expense of a BPO offshore solution, and Lionbridge is uniquely positioned to capitalize on this demand.

So I think you get a sense of the underlying positive momentum in about half of our business. Unfortunately this Q1 momentum wasn’t able to offset the uncertainty we experienced in our product translation business.

As we entered the second quarter with clear evidence of the translation businesses returning or we expect solid revenue growth in Q2 and the rest of the year, at the same time we are taking some steps to reduce our global cost structure and improve our operational delivery.

Staring in Q2 and the second half, we’re initiating some significant cost reductions to really reduce our fixed expenses. We expect a fairly rapid payback on these actions, so in addition to the volume related margin improvements, our cost actions should further drive margin expansion in ’14.

We also recognize that its time to strengthen our senior management team with the addition of a high level operations executive. For those of you that have been in the stock for a while, have observed in the past two-year, two years ago I’ve been brining in new senior leaders into the team. We brought in a new Senior VP of Marketing, which has driven our GMO offering, our video offerings and a lot of the newer high growth offerings.

We brought in a General Manager of our GDT business, which has really brought focus and innovation and strengthened the leadership in that business and that’s where our global testing and crowd businesses reside. I think it’s now time to bring in an operations leader, which we are doing. This will be an important addition to the team as this person will lead the implementation of our growth strategy and really will tune this vision into reality.

So I guess in summary, nobody elects a bad quarter, least of all me. I know all of you are disappointed. You can imagine I’m disappointed and our board is disappointed as well, but I think what matters most is what management is doing about it and I want to emphasize that we are ramping new offerings, targeted new decision makers, which is our unique global infrastructure, working our existing assets harder.

We are reducing our fixed expenses to lower our breakeven point in our mature translation business and getting some of the cost out, to reduce the breakeven point to reflect the volatility of a project based business and last, I’m bringing in some new operational leadership.

As all of you know Q1’s are always our most challenging quarter and this one obviously was more so. There were four weeks of bookings hesitation in the middle of the quarter, but our existing clients are growing again. Our new offerings are offering up new opportunities and expect revenue and profits to improve sequentially in Q2 and throughout the year.

So Don, why don’t I turn it over to you and you provide the details for the quarter.

Don Muir

Thanks Rory and hello everyone. Today I’m going to walk through our Q1 financial results. I’ll also provide an update on our outlook for Q2 and our expectations for second half ’13.

Let me begin with an overview of Q1. In the first quarter we delivered revenue of $113.7 million. This reflects the year-on-year increase of $1.6 million and about flat sequentially from last quarter. Clearly we were disappointed that we didn’t achieve stronger growth in the quarter.

Several of our top 20 product translation accounts were down year-on-year. It seems many of these accounts were feeling the impact of a slower economy in Europe and when several clients hesitate in their export markets, we feel the impact. However March returned to healthier revenue levels and our first look at April shows solid revenue trends as well. As you can see from our guidance, this indicates solid, sequential revenue growth for Q2.

Despite the hesitation with some product translation accounts in the quarter, we continue to see strength among several of our top accounts. Microsoft was strong sequentially and year-on-year, particularly with our new global testing program we began last year. Rolls-Royce, which is now our fourth largest client was up year-on-year and we continue to expand our relationships with Samsung and other mobile device leaders. So in total, Q1 was about 2% to 3% lighter in the quarter than we expected, but business seems to be resuming as we enter Q2.

Total company gross margin was 28% for the quarter, a decrease from last quarter and last year, primarily related to lower volume in the GLC translation segment. We made up for some of the GLC revenue declines with increases in our GDT testing segment, so gross margins by segment for the first quarter were as follows: GLC, 28%; GDT, 30% and Interpretations 16%, and as Rory mentioned, March revenue and margins strengthened nicely.

Q1 is always a March quarter. Unfortunately in this Q1 our stronger March didn’t make up for the challenging first two months, particularly in our product translation business. As you look ahead to Q2 and the rest of the year, we do expect margins to increase sequentially in the second quarter and then improve steadily in the second half.

First quarter operating expenses increases year-on-year, driven primarily by higher sales and marketing and a bit more R&D expense. We also incurred about $700K of restructuring and other charges during the quarter.

Going forward we expect to incur additional restructuring costs, likely totaling in the $5 million to $7 million range for the full year. These cost reduction actions will allow us to better align our operations and drive efficiency in our delivery model. Some of our cost actions will have an immediate benefit, others will have a six to 12 month payback. With the lower cost structure and our growing revenue volumes in our translation business, we expect continued sequential margin improvement throughout the rest of 2013.

Moving down the income statement, this quarter our other expense was inline with our estimate of the low $250K, and as most of you know, our other expense line is largely related to the currency effect of monthly balance sheet item re-revaluations. So we continued to manage our FX exposures quite well.

Our tax provision was about $600K, roughly in line with what we expected and finally on a GAAP basis, reported loss of $3 million or $0.05 per share. Adjusted earnings were above breakeven for the quarter.

Now on to the balance sheet. Operationally we consumed about $3 million of cash during the quarter. This is consistent with our typical cash flow seasonality and we continue to focus on working capital management as DSO’s remain in great shape at 50 days, which is about a day lower than the fourth quarter. Capital spending was $2.6 million in the quarter and we expect full year CapEx to run above $10 million, roughly consistent with prior years.

We ended the quarter with $20.6 million in cash and our bank debt remained at $26.7 million. And as we said, certain activities in the quarter prohibited us from buying back stock in Q1. We do plan to initiate the stock buyback program when appropriate.

Let me wrap up by talking about our outlook for the second quarter. For Q2 we are estimating revenue between $120 million and $123 million. This is driven by strong major account growth in our translation business and our new wide scale programs in the GDT testing business are continuing to generate growth as well. As a result we expect sequential margin and earnings improvement in Q2 and the rest of the year. So to summarize at a high level, Q1 revenue and margins were behind plan due to lower spend from clients in our translation segment.

Our Q2 revenue outlook shows about a $7 million to $10 million sequential increase in revenue. Current activity levels indicate this revenue up-tick is already underway. We expect margins to rebound in Q2, likely getting back to the 31% plus range. This should return to business to a more normal level of profitability.

We are taking additional steps to reduce that cost structure and enhance our operations globally. We expect the benefit of these actions to position us for further profit growth in the coming quarters.

Now, Rory back to you.

Rory Cowan

Great. Thanks Don. Just in a quick summary here before we open it up to a question or two. First, revenue growth is returning in Q2. We have several of our new offerings that are beginning to ramp successfully. Revenue and profit growth will return in Q2. We are committed to driving long term profitability and accelerate shareholder value and I do want to underscore that we do plan to reach our purchase stock, but when we are not subject to restrictions or subject to market conditions.

Sara Buda

Terrific. Now, we’ll open up the call for questions.

Question-and-Answer Session

Operator

We will now being our formal question-and-answer session. (Operator Instructions) The first question is coming from George Sutton, Craig-Hallum. Sir, you may begin.

George Sutton – Craig-Hallum Capital

Good morning and thank you. So relative to this strategic initiatives, obviously everybody is going to wonder the question of what those strategic initiatives might be. Is there any sort of additional color you can provide on and what sorts of things you’ve been looking at. And are you saying at this point that you are no longer engaged in those initiatives or is that not what you are saying.

Rory Cowan

I have a sheet (inaudible) here. It’s our policy not to comment on strategic initiatives. Sorry.

George Sutton – Craig-Hallum Capital

Okay, the attorneys got involved. All right, relative to the momentum that you are seeing in March and you started to see in April, obviously your guidance for Q2 is still not where I think you would have originally hoped it would be. What are we missing in the meantime? What has not yet returned that you would have liked to have seen from an April perspective.

Rory Cowan

I think that what we looked at is, we normally plan from a Q1 to a Q2 ramp and we’ve got some real percentages over history here and so we really insist we give the translation business Q1. We took that as a base early off of a lower Q1, just to keep the ramp inline with statistical traditions, I think that’s first.

Second, we did see a fair amount of softness around Europe and I got to say, it was big companies and small companies, except for one or two very large guys we’re just fine, but at that middle tier of customers I think there was hesitations, but our enterprise tech is really going to recovery almost a $2 million quarter-on-quarter royalty. You will see our consumer tech growth is coming up as well and we got a couple of other identified accounts that are really where we’re deeply involved in their product release cycles.

Also our largest two accounts have also committed some growth as well. So the flip side is the same hesitation we saw in the middle of Q1, we are seeing come back in Q2. I didn’t want to get expectations out there for Q2, so we just gave a statistical basis on our Q1 to Q2 ramp. Don, do you have anything to add to that, of course the numbers are on this one?

Don Muir

No, I think we do have as you alluded to, a pretty good account level visibility that supports that 7 to 10 as well as the statistical extrapolation.

George Sutton – Craig-Hallum Capital

Got you. Lastly for me, relative to the senior ops leader that you are looking for, has that person been identified and would that – just to be clear is that a new position? Is that replacing any specific position at the company.

Rory Cowan

Right. No, of course now I’ve been looking at this for quite a while here. I’ve got a couple of names. I’m not down to a singular person yet, first. And second, it is really an additional piece and when the roll fell apart about four years ago, we wacked a lot of cost out of here and I think the retrospect, I probably took too much cost out of the executive leadership team here and so I really want to bring back a strong operations oriented individual that has global skills.

George Sutton – Craig-Hallum Capital

Got you. Thank you.

Operator

The next question is coming from Harvey Poppel, Poptech. Your line is open.

Harvey Poppel – Poptech

Yes, thank you. The restructuring that you referred to. You didn’t give any kind of color. Can you explain what kind of additional restructuring, because I don’t think that was in your plan going in for the year?

Rory Cowan

Yes, I think that wasn’t our plan. But as you know, our GLT business I mean certainly has high leverage added with incremental leverage. When you don’t have that revenue it works the other way. It has under absorbed fixed expense. Therefore my goal is to reduce our fixed expense in our high cost areas and that will include – now that we are in to more and more in the cloud, I’m really able to pull back from some of our country based operations and do more of that with our cloud base workforce. So it’s all about reducing our fixed expense in the high cost areas.

Harvey Poppel – Poptech

Okay, thank you. The other thing is, going back on my notes from your middle of February summary of the fourth quarter and outlook for this year, you indicated at that point and of course, we talked about the middle of February, that the early bookings were firm for this year and that you commented I think in answer to a question that you thought the guidance was very conservative and you already are half way through the quarter. So how you reconcile that with what happened and obviously you are saying this has started rebounding in March. So much of this must have really taken place.

Rory Cowan

I think that’s a great quarter, and we have to separate the bookings from actual projects and programs that show up to work on. We’ve had strong bookings and commitments, but there were delays for files to come in, there were delays for engineering services to act on it.

I think that we saw that there was a hesitation in the middle of Q1 that was really palpable across the board and then I think, I don’t know, all of our customers got back and released budgets or whatever happened, but it came back at March, and it reminds you March is always, Q1 is always is March quarter.

I talk about Q1 and you go back and look at a lot of our transcripts, I talk about Q1 as being a 10 week quarter, because the first two weeks Europe just is awakening again and budgets are not released. So again, separate bookings from actually projects I can work on and recognize revenue.

Harvey Poppel – Poptech

Okay, thank you.

Operator

The next question is coming from Vincent Colicchio, Noble Financial. Your line is open.

Vincent Colicchio – Noble Financial Capital

Yes, I really apologize if I missed it. But the slippage you saw in the 1Q, was that solely in the tech vertical.

Rory Cowan

It’s more or less. As the techs, first they have the fastest turnaround time for their product cycles. So they were able to stop things and start things much more easily than a mature industrial company; that’s the first point.

The second point is, our programmatic revenue, which I’ve been working for the past two or three years to bring more programmatic revenue in here that actually was quite stable. I just wasn’t enough to overcome to tech product release cycle.

Vincent Colicchio – Noble Financial Capital

And then your life sciences in manufacturing verticals, two of your relatively new offerings, do you expect those areas to grow in the 2Q and for the rest of the year?

Rory Cowan

Yes, we do begin to see – what we are seeing in our manufacturing vertical, broad based growth. In fact what’s very good about that is we’re finding, we’re learning that the DMU or the Decision Making Unit for our globalization piece, our operating piece and in may cases all of our newer monthly will support our principles well. It’s all the same department and an industrial vertical, whereas in tech companies those are three different decision markets. So that’s been a good thing.

So when we get in, this whole phrase and expand, we are getting to this department and moving forward horizontally. So we are seeing more opportunities in the industrial vertical and our life sciences vertical, that’s about four of five, really significant solid accounts.

That business, as well as feeling strong, the clinical trials piece, the medical device piece though has some attributes of a tech business. There are fits and starts with releases before these devices are approved in various counties. So that’s about half and half. Its more old tech and its more a new program.

Vincent Colicchio – Noble Financial Capital

On the GMO side, has the growth been, can you talk about the drivers of growth. Are you adding a large number of clients and as well as increasing revenue with the ones you have?

Rory Cowan

Yes, I think its both, and that’s what’s heartening about it, because we’ve got new accounts coming on board and to remind you, these accounts will start $50,000 or $100,000 a pop and then they will grow once people have replatformed. But this is nice and this is drafting behind the replatfroming of web content management systems.

Many of you have looked at Adobe and others and I think great marketing metrics, as well as other content publishing into one platform. That allows us to do things like translation for Search Engine Optimization, not just translation for perfection of a product. That allows us to manage their global marketing campaigns, aligned with their metrics and their tracking. So we’re the services component of this new platforming that’s going on.

Vincent Colicchio – Noble Financial Capital

Okay. Thank you.

Operator

The next question is coming from Kevin Liu, B. Riley & Company. Your line is open.

Kevin Liu - B. Riley & Company

Hi, thank you and good morning guys. First question here, just in terms of the gross margin pressure within the quarter, I mean can you kind of flush it out between what you’re seeing that’s kind of lower volumes versus any sort of pricing pressure in existing programs or client losses.

Rory Cowan

Yes, good idea. Of course, just to remind you, you can look at how our income statement works. We outsource translation and of course have a fixed expense above the gross margin line. So as you’ve seen in other quarters, incremental volume converts to the bottom line at about a 50% range, because we have a fixed expense. So when you loose an additional $4 million or $5 million from the top line, you loose $2.5 million of contribution margin that hit the gross margin line and goes directly to the bottom line. So that’s that piece.

Price pressure is your second part of your question, nothing more than normal. Listen, in a slow growth economy there is everybody looking at price right now. In some of the larger accounts, apparently we do better with larger accounts, because we’re integrated into their worldwide deployment systems. If you see price pressure, its in the smaller of the mid tier accounts and nothing more than usual on that one.

Third one is account losses. Haven’t seen anything significant. I mean there are losses small, maybe $50,000 or $100,000 accounts around the world. I got sales people in what 25 or 30 countries. So I don’t know every loss at that level, but nothing significant that we’ve seen. In fact if anything, we are winning some new activities in as I mentioned the high-end retail world and in the industrial world.

Kevin Liu - B. Riley & Company

Got it, and with respect to the bookings that you said that you were in the first quarter and I think its in the ramp as quickly as you’d hoped. Just curious as to whether those are the deals that such continue more so here in the second quarter that you’ve seen pick up in terms of March revenues and then also confidence level that your large clients continue to spend at higher rates year-over-year.

Rory Cowan

Right. So I guess your question is, what do we have when you go into a quarter, what do we identity and sort of what book and bill within the quarter, so you are sort of trying to sort of test our confidence in Q2 in our visibility.

So I think as Don mentioned earlier and I think I mentioned as well, that we do, we are counting on that $7 million to $10 million sequential quarter revenue growth. And bookings in this business as I mentioned earlier are really different from actual actionable programs that we worked on.

The actionable programs have really shown up, so that’s why we have some confidence there and book and bill in the quarter for Q2 seems to be less than other quarters, given the strength of the quarter-on-quarter ramp.

Don Muir

And also as we do have pretty good visibility at April, April is a solid month as we alluded to you.

Kevin Liu - B. Riley & Company

Okay, and then just lastly one question from me. I guess one is that your comments on your GeoFluent operations and how you are going to stay there and then secondly just effective resources wondering what sort of contribution we saw in Q1.

Rory Cowan

I’m sorry, you were breaking up there. I got GeoFluent as the first part of the quarter, second part was?

Kevin Liu - B. Riley & Company

The acquisition of PRI, just curious as to what contribution we saw in the first quarter.

Rory Cowan

By the end of the period, okay. Right, so first of GeoFluent, we did have – I can’t name the client, but we did have a significant win of a well know leader for GeoFluent with both forum and chat and we have another couple in the pipeline. So if I think about grouping, all of these sort of real time translation technologies together, and again the increased confidence that we have in the offering and now we are moving into sales execution. This stuff works and of course remind you, it is a SaaS model.

We are finding that large companies are having a hard time deploying it, because the premise of GeoFluent is to take worldwide support into one location, and many large companies have individual support sites around the world. So their call routing or case routing has to be changed, so the deployment is a little more difficult.

We are getting success with new divisions and new customers for GeoFleuent. So I think that’s been a learning for us that everybody likes the cost savings. In fact they are really quite impressive, but they are reengineering internally is a bigger process than we thought.

Secondly PRI is showing – I think Don what, that’s about $1 million a month or so in revenue.

Don Muir

Its $2.7 million in the first quarter and about a wash in the bottom line, don’t forget we do have to amortize intangibles. So in the bottom line that was about a wash in the net income level, but it did make a positive contribution to EBITDA calculations.

Rory Cowan

Right, and in addition, it’s again, that land and expand idea, we have a major account that really wants us to be beside them in their locations around the world and just that they don’t have fiscal supply chain, they are not rationalizing their services supply chain. So we have to be near site around the world and PRI’s geographic location in the mid-west really allows that to happen.

Kevin Liu - B. Riley & Company

Great. Thank you.

Rory Cowan

Okay.

Operator

The next question is coming from Gunnar Hansen, Sidoti. Your line is open.

Gunnar Hansen - Sidoti & Company

Hey guys. In terms of the higher end restructuring cost going forward, will that kind of be second half weighted. How do you guys kind of see that deploying going forward?

Rory Cowan

I think you should probably take it under a couple of millions a quarter, probably for Q3 and Q4 and maybe a little bit less than in Q2 and maybe a $1.5 million in Q2 or so. And so add that to the $700K we took in Q1 to get into that $6 million to $7 million range.

Rory Cowan

Just to remind you, it takes a while to launch these things when their works counsel’s in it too and it’s a pretty complicated process to get the stuff started.

Gunnar Hansen - Sidoti & Company

Great, and I think Rory you mentioned, some of the mid-tier customers, I think if I heard you currently had some of the most difficult time with EMEA. Are some of those customer base kind of coming back now or through April how are we kind of seeing that client base shifting.

Rory Cowan

I think it’s half and half actually. The big dogs are getting their conference back in EMEA. We see it in languages, we see it – well we started looking where people are spending.

Three or four years ago Russian was our number one language and so we get to see what parts of geography people are committing to and people were sort of holding back. The big guys are coming back, the small guys that are managing their costs and they are still a little tentative. So it’s too early to tell, but we’re seeing people are opening up POs again to actually move bookings to operations.

Gunnar Hansen - Sidoti & Company

Great, and just kind of last question, any kind of break down of growth from new and existing customers.

Rory Cowan

Well, we should have had that. Sara do we have that on the screen. We don’t, do we?

Sara Buda

No. Let me get back to you on that if you don’t mind.

Rory Cowan

That’s a good one for us to have. We can dig it out and we should have it on the screen here, but…

Sara Buda

Well, I mean I know in Q2 large existing accounts were certainly growing. Some of that is existing programs and some of that is new business we won with large accounts.

Gunnar Hansen - Sidoti & Company

Great. All right, thanks guys.

Operator

Your next question is coming from Ben Rose, Battle Road Research. Your line is open.

Ben Rose – Battle Road Research

Yes, hi good morning. With regard to the new accounts, I guess maybe a slightly different way of asking the question to the extent that a lot of the large customers for GLC have come back. Are there any that you haven’t seen come back yet and within that group do you have confidence that it’s still just a temporary timing issue.

Don Muir

Yes, that’s the reason – you can imagine on the boards here we’ve been looking at that one a lot; that’s the right question. I can’t comment on individual customers. I will tell you that there are people in the imaging segment worldwide that have been the real strength of ours. They are having some real headwinds.

As we all know, what has really affected the imaging business and imaging leaders might be people like a tenant for example. So I think they are reexamining their product portfolios, so that might be one area that you’d look at.

One of our large customers has imaging division. We have a multi year agreement with them. So we weren’t expecting to be hit for the downside, because they had outsourced so much to us, but if there were a segment that you’re beginning to see some concern worldwide and these are high-end imagining and low-end imaging. I think there’s some headwinds there as one segment.

I think the other areas that we are seeing are just the mid-tier software companies. It is expensive to open up Europe.

Rory Cowan

I think if they are under any pressure in Europe right now, people are sort of thinking about the European demand, and I want to separate again, this is not just European customers buying, its our world wide DMU’s for European applications.

Ben Rose – Battle Road Research

Okay, that’s helpful. And on the GMO side, I guess the question for Don, how did the gross margins look on the GMO business, kind of relative to that, to the three basic margins that you laid out for GLC, GDT and Interpretations.

Don Muir

Certainly the gross margins for GMO, when you back out the fact that we did build a little bench here in Q1, well north of the standard GLC business.

Ben Rose – Battle Road Research

Okay, that’s helpful. And then sorry, finally, if you’re just taking a look at the 25 or so GMO accounts that you have, is it pretty much split between existing clients versus new clients that you’ve never done business with relative to the other three segments.

Rory Cowan

I think that what we are finding in GMO is the big guys curiously grow a little bit faster that the small guys. It takes you about a year to ramp, because the marketing folks have to reconfigure themselves to be able to a worldwide campaign from one location, rather than country by country by country.

And so just like GeoFluent right, you’re moving from a multi national organization, which each country manages its own local operations to a global organization, meaning headquarters can now manage the world.

Now once people get on to this, they experiment. It sort of staggers along for three, six months or so and then you seem to get another burst of growth and so that seems to the deploying model. Its early days yet, but that seems to be the model.

Ben Rose – Battle Road Research

Okay. Thanks a lot.

Operator

The next question is coming from Harvey Poppel of Poptech. Your line is open.

Harvey Poppel – Poptech

Yes, just a couple of follow up questions; one short term, one longer term. On the short term side your new guidance calls for 4% to 7% revenue growth for the year, if I read the press release correctly.

Rory Cowan

Yes, that’s right.

Harvey Poppel – Poptech

And that’s down from I think 6% to 10% was what you were saying a quarter ago.

Rory Cowan

Yes, and I think that if you look at the delta on Q1, its hard to recover that and so then we are looking at a little bit more for the year. It feels more for this 4% to 6%. I think we may have been a little cautious there, but the center of gravity seems at the higher end, but its always cautions of us after a bad quarter. Until I get another quarter under my belt I think it’s prudent to really just to do the 4% to 6%.

Harvey Poppel – Poptech

Okay, and just to be clear without doing the math and you are saying that the shortfall in the first quarter, which was looking at the mid-point of what you had forecasted was close to $3 million, that alone accounts for the difference. So you are really expecting last three quarter about where you would have expected them at the start to the year.

Rory Cowan

No, no, think you about it, Q1 was down and then of course we took our Q2 ramp down as well. Because as we said earlier in the call, one of the earlier questions was, gee Q2 its as firm as you thought it was. We did our statistical growth off of a Q1 base. So that shrinks the delta as well for the other quarters and then of course that compounds.

To remind you, often we have a softness we Q3, given Europe. So given what’s going on in Europe, we thought it would be prudent just to be a little certain or comfortable there. So 4% to 6% feels like a good center of gravity for us and I think calling at any more than 1%. So if you think we were 475, 500 whatever it comes out to, I can’t call $4 million or $5 million three quarters out in the business.

Harvey Poppel – Poptech

Okay. Now on the longer term basis as you look at your revenue mix and I’m just going to kind of put it for this question, put it in three buckets, one is kind of your traditional translation businesses, the second is your GMO and the third is the new crowdsourcing initiative. As we go out, say three years out, is there a way of thinking about the mixture you are going to try to achieve between the revenue sources from each of those three.

Rory Cowan

That’s my question. That’s sort of how I’m thinking about the business. You’ve got the right insight there. First there can be better execution in our traditional translation business. Yes, we had some demand issues, but I got some execution problems there and I’m going to address that with some senior leadership here. That’s one thing I do want numbers for.

Second issue is, our new GMO stuff was small and growing and that the full suite of GMO products in there and I might put our GeoFluent in there as well, because that’s all the real time support activities. That will grow faster and our crowd business will be growing faster. So I mean it feels as if, and I’d like to see the translation business grow in sort of mid single digits and the other businesses grow in low double digits. That’s sort of how we are investing and budgeting here.

Harvey Poppel – Poptech

Okay. Thank you very much.

Operator

Now further questions at this time.

Sara Buda

Great. If anybody has any further questions, please feel free to contact me Sara Buda and we will respond. Thank you.

Operator

This will conclude today’s conference. All parties may disconnect at this time.

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