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Sapient (NASDAQ:SAPE)

Q4 2013 Earnings Call

February 19, 2014 5:00 pm ET

Executives

Dean Ridlon - Director of Investor Relations

Alan J. Herrick - Co-Chairman, Chief Executive Officer and President

Joseph S. Tibbetts - Chief Financial Officer, Chief Accounting Officer, Senior Vice President and Treasurer

Analysts

Daniel Salmon - BMO Capital Markets U.S.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Todd Van Fleet - First Analysis Securities Corporation, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Sapient Quarter 4 2013 Preliminary Results Conference Call. [Operator Instructions]

I would now like to introduce your host for today's conference, Dean Ridlon. Please proceed.

Dean Ridlon

Thank you, Charlotte, and thank you all for joining us today. I'm Dean Ridlon, Sapient's Director of Investor Relations. By now, I'm sure you've seen the press release we issued last evening announcing preliminary Q4 and 2013 results. The release is currently available in the Investors Section of our website, www.sapient.com.

There have been a few questions about -- we waited a full day to hold this conference call. The short answer is we wanted to make sure we complied with Reg FD and make sure everyone had sufficient notice about the call.

But before I hand it over to Alan, I would like to remind everyone that some of the matters discussed during today's call are considered to be forward-looking statements, as defined by the U.S. Securities and Exchange Commission. These forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ from those expressed or implied by such statements. We've described some of these known risks and uncertainties in today's press release and in our annual and quarterly SEC filings, which we strongly urge you to read. The forward-looking statements included in this call represent the company's views on February 19, 2014.

Sapient disclaims any obligation to update these statements to reflect future events or circumstances.

During this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. The most directly comparable financial measures calculated in accordance with GAAP, and a reconciliation of those GAAP measures to these non-GAAP measures, are contained in the press release announcing this quarter's results.

I'd now like to turn the call over to Alan Herrick, CEO.

Alan J. Herrick

Great. Thanks, Dean. Thanks, everybody, for joining. So I'll walk through preliminary highlights for the quarter and the year. I'll give you an overview of -- a high level overview, at least, of our strategy and how we think about the company over the next 5 years. I'll move to outlook and guidance. And then, Joe will walk you through the detailed financial results, as well as walk you through the people mobility tax issue discussed and described in the press release.

So let me start with Q4. Service revenues were $328.7 million, which is up 12% year-over-year, 13% in constant currency. It's up 2% sequentially and 1% in constant currency. Non-GAAP income from operations was $49.4 million or 15% operating margin for Q4. GAAP income from operations was $37.2 million or 11.3%. Non-GAAP diluted income per share was $0.21. GAAP diluted income per share for the quarter was $0.15, and our Q4 results reflect a 0.8 -- or $800,000 impact from the tax issue that Joe will describe later on. And cash from operations was $79.9 million for the quarter.

On a segment basis, good strength across the board, but SapientNitro represented 67.8% of our service revenues or $222.7 million.

Service revenues were up 11% year-over-year and 12% in constant currency.

Global Markets represent 27.8% of service revenues or $91.5 million, and the service revenues were up 13% year-over-year and 14% in constant currency.

Government Services represented 4.4% of service revenues in Q4, and service revenues were up 19% year-over-year and the same in constant currency.

So Q4 overall, very strong for us. We found good strength late in the quarter on the revenue line, which was great news.

As we look at the full year 2013, revenues were up 12% or 13% -- year-over-year or 13% over the full year -- in constant currency over the full year 2012 or $1,259 million.

Non-GAAP operating profit dollars were $167.3 million or 13.3% operating margin, which includes a $3.1 million expense due to the tax issue. And we're very proud, overall, of 2013, a really great accomplishment across the board. I'll just give you a couple more figures from our segments for the year. But again, broad strength across all 3 of our operating units.

So SapientNitro, on a full year basis, was 67.6% of service revenues at $851.1 million. That's up 10% year-over-year, 11% in constant currency. And then, as you remember, that reflects a slower start in Q1 of '13, and then good momentum for SapientNitro through Q2, Q3 and the rest of the year.

Global Markets, 27.8% of service revenues or $350.8 million, was up 18% full year over full year, same in constant currency, and really reflects just a solid year top to bottom for Global Markets.

And then, finally, Government Services was up 4.6% over 2012 at $57.6 million. Service revenues were up 13% for the full year over the full year and the same in constant currency, which reflects also a very nice year for our government business.

Just turning to profit. If you look at 2013, you go back to what we said at the beginning of the year. We thought 2013 would be 12.8% or better. We said revenue would be 10% or better. So -- and we're very pleased, obviously, with the results at 12% on the top line and 13.3% on the bottom line.

The improvements on the bottom line were really due to a reduction in G&A expense as we continued to be more effective, as well as improvements in utilization.

We also said back in February that in 2014, we saw a path to improvement up to 100 basis points in 2014, or what was 13.8% non-GAAP operating margin.

So obviously, 2013 performed better than we expected, and we delivered half of that improvement or 50 basis points a year ahead of our plan, which was dynamite.

So now, as we look at 2014, we have a chance to get at some or all of the additional 50 basis points of improvement for 2014.

Give you a quick update on the acquisitions. We did 2 acquisitions in the last 6 weeks. So the first was La Comunidad, which brings just a great team to SapientNitro, and really expands our ability to help clients with multicultural marketing. Multicultural marketing is obviously a large and growing market. We think it's an important market that will become increasingly important in the coming years. La Comunidad has a stellar and well-earned reputation. In 2013, they were on ad agency's A list, top 10 agencies in the United States, on all merits.

We also acquired OnPoint Consulting. And also excited about obviously the addition of the OnPoint team. And as we discussed in prior calls, we're very positive on the long-term outlook and opportunities in government. And this acquisition allows us to both expand our clients or our roster of government clients, but also allows us to bring new capabilities to our existing government clients.

Now let me go to the very top and give you a brief outline of -- or refresher, if you will, of how we're thinking about our strategy and the company overall over the next 5 years.

So when you think about Sapient, at the very top, our strategy has really been to help clients identify opportunities to capitalize on changes or disruptions to their business, with the assumption that technology plays a critical role in the solution, regardless if we're speaking about SapientNitro or Global Markets or Government Services. So with that as the backdrop, there's really 5 key tenets of our strategy. The first is really a focus on the large opportunities we're seeing in the market. And when you look at the opportunities that we see in the market over the next several years, there's really 4 that are notable to discuss, many of which we discussed before.

The first is really what I loosely refer to as the changing consumer or the new age of consumerism. An always on, empowered, in control consumer that drives a lot of the changes our clients are seeing and asking us to partner with in the SapientNitro business unit.

The second opportunity we see is really as it relates to energy and financial services companies. And there's really 2 different opportunities there that can intersect at times. But as you know, we've been very focused on the changing regulatory climate, as well as the changing energy supply, both in the United States and globally, and how those 2 things create opportunities for our Global Markets business unit.

And then, finally, as we've talked about in our Government unit, we've been focused on areas where changes in health care, consumerism and regulatory change really come together. So there's 3 -- if you think about it from kind of a top-down, there's 4 secular opportunities that we're tuned into, and we're positioned well in all of those opportunities as we think about the next 5 years.

The second tenet to our strategy, which is also something you know, is we have highly differentiated capabilities. And you should expect us to continue to invest and expand in capabilities that put us in the forefront of really helping clients innovate and address the opportunities they see.

You're in a time where businesses are going under significant transformation, whether that's due to a regulatory changes -- changes in the regulatory climate, or it's changes in fundamentally how marketers can connect with consumers, there's a meaningful amount of transformation in just how businesses operate. So our ability to offer highly differentiated capabilities that help our clients both innovate and take advantage of that is critical.

The third point is our unique culture. We've -- have an extraordinary set of people across the world, and we have a culture that really enables our ability to do a lot of what we do. It enables us to collaborate and bring diverse skills across the world that help clients with very complicated problems and help them innovate, advance their business. As well, it helps us to attract and retain the great people that we have.

The fourth point is really global expansion. As you've seen over the last couple of years, this is becoming an increasing area of focus to us. And it's both an important opportunity but also an important driver for our clients. As they look to expand in markets where they can drive their revenue growth, our ability to partner with them in the most important emerging markets matters. So our core expansion strategy globally, it will continue to be a key strategic tenet over the next 5 years.

And then, the final point I'd mention at a high-level is just a highly effective G&A function. As we continue to add growth to the company and it grows in both scale and complexity, our ability for our G&A function to scale, create the efficiency, as well as the effectiveness to really support and enable that growth as well as creating ongoing operating leverage, is an important part of our strategy over the next 5 years.

So with that, let me move to guidance. So for 2014, we're centering our guidance on non-GAAP operating profit dollars, and this is a small change in -- or a small nuance in the change to our guidance metric. It's something that we've been planning for 2014 to create better alignment with the metric we guide, the metric investors care about and the metric we manage the company by.

So if you look at non-GAAP operating profit dollars for 2014, our guide is $186 million to $203 million non-GAAP operating profit dollars, which represents a 13.3% non-GAAP operating margin, up to a 14% non-GAAP operating margin.

We also would expect revenue growth to be 11% to 15% for the year, and we believe the opportunities for margin expansion are in the areas that we talked to you about previously: G&A, utilization and improvement in our investments in Asia and Brazil.

For the first quarter, our guidance is non-GAAP operating profit to be $30.2 million to $34.5 million, or 9.2% to 10.2% non-GAAP operating margin, and revenues to be in the range of $328 million to $338 million.

So with that, let me hand it over to Joe to walk you through the details.

Joseph S. Tibbetts

Great. Thanks, Alan. Hello, everyone. Yesterday, we announced preliminary unaudited financial results for the fourth quarter and the year ended December 31, 2013, which include an estimate of the impact of some employment-related tax liabilities associated with the global movement of employees. And as we mentioned in the press release, we discovered these liabilities as we continued to remediate our processes around global mobility of employees, and they are still being quantified.

We are proceeding with our work both diligently and with urgency in order to be able to report our final results and file our Form 10-K for the year as soon as possible.

Let me take a few minutes just to explain this issue and how we're proceeding with it. Our business obviously involves substantial cross-border mobility of employees, and a large portion of that activity involves employees who travel for longer periods to work locally on various client assignments and we have a specific program under which this activity takes place.

As you know, we previously discovered certain corporate tax liabilities related to mobility that weren't properly recorded in our financial statements, and we revised our results to correct for those errors.

At the time we did that, we believed that our program for longer-term travelers was operating collect -- correctly in order to provide proper individual tax treatment of the related travel and living expenses. Recently, it came to our attention that as our business has grown significantly and has become more complex, the tax treatment for certain expenses being incurred by those long-term travelers was incorrect, creating a different corporate tax liability as a result. The issues involve the intersection of operational controls, human resource policies and financial controls.

So we undertook a thorough review of all employee mobility processes in order to reassess the adequacy of our controls over this area and to ensure that the individual and corporate tax effects of all such activity have been properly considered in our accounts.

While we have not yet completely finalized that review, we have been able to estimate the impact on our 2013 financial statements and a range of impact on prior years' financial statements back to 2010. The numbers reported in yesterday's press release reflect those estimates.

We do expect that as we conclude this work, there will be an impact on the prior period financial statements. We're making every effort to be able to file a timely Form 10-K for the year. And however, because this work is ongoing, we cannot give assurances that we'll be able to timely file our Form 10-K for the year ended December 31, 2013. And once it is filed, the financial statements may differ materially from the prior -- preliminary results disclosed in yesterday's press release and discussed today.

One other thing that I think you should know is that we've recently hired experienced executives to sit atop both the roles of VP of Tax and Corporate Controller.

With that, let me share the details of our preliminary results. And as usual, I will refer to the non-GAAP numbers that we consider a meaningful picture of the company's comparative performance.

Turning first to revenues and gross margin. Consolidated service revenues for Q4 were a strong $328.7 million. That's up 12.6% over last year on a constant currency basis. And overall, our gross margin was 35.3%.

Looking at the business segments involved. All 3 business segments had a strong Q4. SapientNitro had $222.8 million in service revenues, up 11.3% over last year, and the business generated $76.2 million in gross profit for a contribution margin of 34.2%.

Sapient Global Markets had $91.5 million in service revenues, up 13.2% over last year. It generated $31.4 million in gross profit, which is a contribution margin of 34.1%.

And lastly, Sapient Government Services had $14.4 million in service revenues in the quarter, up 18.7% over last year and generating $4.0 million in profit for a contribution margin of 27.4%.

Breaking down the revenues in the quarter by industry. Consumer, Travel and Automotive was 41% of company revenue, that's flat from the prior quarter. Financial Services increased to 32% in Q4, that's up 1% from 31% in Q3. And Government, Health & Education was 11% in Q4, up from 10% in Q3. Energy Services was 9% in both Q4 and Q3. And Technology & Communication decreased 7% in Q4 from 9% in Q3. Long-term and retainer revenues were 48% in the quarter, that was 50% in Q3.

The percentage of service revenues coming from our top 5 clients in the fourth quarter was 16%, that's the same percentage as Q3. And revenue from our top 10 clients totaled 28% compared to 29% in Q3.

With respect to operating expenses. Selling and marketing expenses were 4.2% of revenues. General and administrative expenses were 16.9% of revenues, and stock-based compensation in the quarter was $7.6 million.

In restructuring and other related charges and benefits, we incurred a small charge of less than $100,000 in Q4. Amortization of purchased intangibles in Q4 was $2.9 million. Acquisition costs and other related charges and benefits totaled a charge of $1.8 million in the quarter, and those charges relate to fair value true-ups on earn-outs from past acquisitions, as well as some amount of due diligence costs that we incurred in the quarter.

GAAP operating income was $37.2 million, which was 11.3% of service revenues, and non-GAAP operating income was $49.4 million, which was 15.0% of service revenues.

On the foreign currency front, we had a foreign currency translation loss of about $600,000 in the quarter, a net transaction loss of approximately $300,000 in the quarter. And as you know, we include that in our general and administrative expenses. And a net hedging gain of just under $100,000, which is also included in our G&A expenses.

Interest and other income net of interest expense totaled about $1.5 million in the quarter. The income tax provision for the quarter is expected to be about $16.6 million for an effective tax rate of approximately 43%.

Obviously, a high rate this quarter. Again, as you've heard in the past, this quarter was affected by jurisdictional mix of taxable income driving the rate up. The effective tax rate for the full year ends up at approximately 38%.

On a GAAP basis, net income was $22.1 million or $0.15 per diluted share. On a non-GAAP basis, net income was $30.0 million or $0.21 per diluted share, and the weighted average common shares used in those calculations for the fourth quarter were 143.1 million on a fully diluted basis.

Switching over to the balance sheet. Just first of all, with respect to the buyback, in 2012, the board authorized a stock repurchase program of up to $100 million of buyback over 2 years. In 2000 -- today, I should say, we have repurchased approximately 4.2 million shares of stock under the program at an average price of 10 point -- $10.54 for a total price of $44.6 million. That includes, during the fourth quarter of 2013, a buyback of 38,000 shares totaling approximately $600,000.

Cash flow from operations in the quarter was a strong $79.9 million. And our ending cash, restricted cash and marketable securities at quarter-end totaled $345.6 million.

Accounts receivable at the end of the quarter, $184.6 million. Deferred revenues at the end of the quarter, $30.4 million. Unbilled revenues at the end of the quarter, $85.6 million. Our days sales outstanding and receivables and -- considering all those items was 63 days at year end. And lastly, just a data point around people count, at the end of Q4, at the end of the year, our people count was 11,868 people. And of those, 10,634 are in delivery.

Turning to the financial outlook. For the full year 2014, service revenue is expected to grow between 11% and 15%. And non-GAAP operating income is expected to be in the range of $186 million to $203 million, representing an 11% to 21% growth in that income.

Now this operating income range includes approximately $4 million of expenses as the company redesigns its global people mobility operations to be more cost effective. And as Alan pointed out, we've got an opportunity to expand profit margin in 2014. And at the high end of the guidance range of profitability, that potential is up to 70 basis points of profit improvement over 2013, which we expect to come from further improved utilization, G&A effectiveness and improved profitability of our international investments.

Turning to the first quarter. Service revenues are expected to be in the range of $328 million to $338 million, and non-GAAP operating income is expected to be in the range of $30.2 million to $34.5 million. That includes approximately $1.7 million of those trailing expenses relating to the redesign of global people mobility operations.

A few other items of guidance that I want to share for the year 2014. Our book basis effective tax rate for the full year 2014 is expected to be approximately 36% to 38%. And the rate for the first quarter, we also expect to be in that same range.

Capital expenditures for 2014 are expected to be between $45 million and $47 million, primarily, as you know, for computers and real estate space build-outs. So similar to past years in terms of the nature of those CapEx expenses or CapEx.

Stock-based compensation is expected to be approximately $8.0 million in Q1 and approximately $33.0 million for the full year.

Amortization of purchased intangibles is expected to be about $2.9 million for the first quarter and $10.2 million for the year. Acquisition cost and other related charges are expected to be $400,000 for the first quarter and just under $1.2 million for the year. And the weighted average diluted share count is expected to be in the neighborhood of $142.9 million for the first quarter and approximately 144.0 million shares for the year.

And with that, I'll pass the call back to Alan.

Alan J. Herrick

All right. Thanks, Joe. So I'm very pleased with 2013 on the top and the bottom line, despite the tax event.

Our people and teams across the world, just take a second to acknowledge that we're just doing some great work out there and making a big difference for our clients as we move their businesses forward.

As we look at 2014, we have a clear strategy over the next 5 years. We believe we're in a good position to execute on the opportunities, and we look forward to getting into 2014.

So with that, Charlotte, if you could open it up to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from the line of Dan Salmon from BMO Capital Markets.

Daniel Salmon - BMO Capital Markets U.S.

Quick question, just on the guidance for 2014, the -- you mentioned a couple acquisitions here in the last 6 weeks. Is there any calibration of how much those acquisitions are contributing and whether they have any particular margin mix shift impact relative to the current business?

Alan J. Herrick

It's -- in 2014, it's hard to say. The challenge with both of the acquisitions is they're smaller in size. So our experience on this has been that in the first year, there's not a lot of predictability. So what our thinking is, something to up to a few million dollars of profit contribution in 2014. I'd just caution that when you look at -- as you bring smaller companies in, the challenges have been around both revenue recognition and integration, can make those numbers move pretty substantially because you're dealing with a small base. As you get into year 2, usually those things settle out. So when you're thinking about kind of our guidance and range on profit, think of something to up to a few million dollars of profit contribution, but it really depends on revenue recognition and integration costs and how that goes for us in the first year.

Daniel Salmon - BMO Capital Markets U.S.

And maybe out -- just to maybe back into that, on the top line, maybe I'm thinking around a $10 million type of impact?

Alan J. Herrick

Again, it depends...

Daniel Salmon - BMO Capital Markets U.S.

In terms of what I think about the 11% to 15%.

Alan J. Herrick

Yes, I'm just thinking about percent. It depends a lot, again, on what we just talked about. But I think, the best I could help is if you look at the combined companies, they represent about 225 people in total. So give you some sense.

Operator

[Operator Instructions] Our next question will come from the line of Ed Caso from Wells Fargo Securities.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

It's Rick Eskelsen on for Ed. Just a question, first, on demand. Alan, I was wondering if you could maybe dig in a little bit more on what you're seeing in the different segments. In the release last night, you talked about seeing a similar demand environment to what you've seen over the last several years. But I would say the count is -- sounded to me a bit more positive. So just wondering if you could kind of drill in there?

Alan J. Herrick

,

Yes. I think, that, generally speaking, it's similar, right? If you look at just the kind of the characterization of what's happening and how clients are releasing funds. I think, as I -- I think, I mentioned on the last couple of calls, we probably feel better about Global Markets year-over-year. If you just think about what -- that business was starting to come back at that time, and obviously, it's had a tremendous year. So I think, incrementally, on the margin, we feel better about Global Markets. SapientNitro, I think, we feel similar. And I talked about on the last call, we feel good about Government's long-term prospects. There's a potential we could get a little bit of headwind in Government in 2014, I think, I also mentioned on the prior call. So I think you net all that out and say we're in a substantially similar place.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Okay, that's helpful. And just on the margin side, I know going back to last quarter, you had raised some concern about maybe that prior 13.8 number hitting that. And now, you have that number comfortably within your range. So just wondering if you could talk a little bit more about what changed in your thinking on the margin? Maybe why you ended up being a bit more positive than you may have cautioned the last quarter?

Joseph S. Tibbetts

Sure. Rick, it's Joe. First of all, we ended the year with 50 basis points of that 100 that we were originally chasing under our belt. And that came from nice improvements in utilization and G&A, and then, obviously, offset a bit by the mobility issue thing. But the net was there. As we go to 2014, and we look at not only the next 50 of the 100, but thinking about it as a potential of 70 at the high end of our guidance, we think there's an opportunity for that international investment contribution that we have been telling you has been a little delayed in 2013, we feel more confident about that as we enter 2014. And then, we continue to get some utilization and G&A improvement in the other piece of that. So that's kind of how we're thinking about the profitability opportunity there.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Okay. Great. Last one for me. Just on the OnPoint acquisition, just wondering if you could talk a little bit more about that acquisition. Why you've chosen to buy something in the government space? It doesn't seem like it's been much of a focus for you recently. So just a little more around the thought process on the OnPoint acquisition in particular.

Alan J. Herrick

Yes, I think, if you look at government over the last couple of years and especially in 2013, the business performs -- has performed very well, right? Even in the midst of a pretty murky government environment. And I think, as I talked a little bit about -- when you look at the last 10 years, what's changing around government, what's changing around health care, we think, when you take a 10-year view of government, I think, it's actually quite a good business to be in. And regardless of what the short-term may or may not be, as I've mentioned previously, we think it's a good kind of long-term trend in government where there's a lot of changes happening, and going to be happening. You have to be patient, but there's going to be a lot of changes that are going to be happening that drive opportunities for us. And that, combined with good, strong performance from our business, we saw an opportunity to actually expand our footprint in government. As we said, we've got that business where it's doing more and more work that looks like SapientNitro but also expanding beyond that in what we can do for government clients. And I guess, just more simply said, we think there's a nice opportunity there that we can take advantage of with our position.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Is the OnPoint capabilities that they bring, are they more similar to -- I know you guys have always talked about your Government business being similar to the Nitro capabilities. So does OnPoint fit into that vein, or does it fit more into the broadening out your capabilities in Government side?

Alan J. Herrick

Yes, probably more the second. It really broadens our capabilities around some issues like cyber security and infrastructure that are going to be important ideas to how government does business.

Operator

[Operator Instructions] Our next question comes from the line of Todd Van Fleet from First Analysis.

Todd Van Fleet - First Analysis Securities Corporation, Research Division

Thanks for the commentary regarding the changes in G&A and scalability here and how 2014 might be a little different than 2013, but just looking a little bit further ahead, how would you think about the activities that you expect to see in international and some of the other initiatives going on internally playing out this year, kind of setting the stage for 2015? And I guess, I'm trying to draw whether there are initiatives occurring this year that would presumably set the stage for more efficient kind of organization moving ahead that will allow you to get some better leverage on the bottom line. And then, a follow-up.

Joseph S. Tibbetts

Sure. Great question, Todd. So I think, a couple of things there. I think, with respect to international, we've been making a significant investment in Asia the last couple of years, even before that, actually, but certainly in the last couple of years. That, we believe, in 2014, will start to really to contribute. And obviously, as we get into 2015, we think the opportunity to contribute even more is there. So I think that's, as you suggested in your question, an opportunity for us to continue to explore -- sorry, expand margins. With respect to the G&A scale, I think -- or G&A efficiency, I think, that comes from hard work and effort, and we're putting a strong effort into that. Alan mentioned that as one of the 5 pillars of what we're after strategically as a company and company-wide. We're putting particular personnel into that effort and looking at it on a cross-functional basis to really look at opportunities to make it all run better, and at the same time, obviously, if it runs better, it probably runs cheaper. So we think we have an opportunity there as well. And then, we continue to chip away at utilization and ways to get better about delivering the kinds of services that we deliver to our clients in a more efficient way. And we've moved that model quite a bit over many -- over several years here now, and that's starting to settle in, we're getting better at doing that and getting -- continued margin improvement on the edges. So those are really the opportunities we have going forward. And then, some of these issues that we specifically had in '13 and in prior years around mobility that we're going to get better and we're going to have a trailing effect in 2014. As we get into 2015, those will come off the table and we'll be efficient about that as well. So several opportunities without quantifying any of that to continue to expand margins.

Todd Van Fleet - First Analysis Securities Corporation, Research Division

Okay. And just one follow-up, if I could, on the top line. So I think, it was about a year ago as we were entering 2013 where you guys were, I think, a little bit cautious about the outlook, saying kind of the macro environment you are a little bit uncertain about. Now you're saying that you think you can kind of uphold or kind of turn out the same types of growth that we saw in 2013 for the next few years. I'm just wondering kind of characteristically, would you say that kind of a macro environment from your perspective has improved or is it now that maybe it just took a little bit more time to cultivate the Asian market than maybe you expected? I'm just trying to maybe nuance a little bit your view that maybe 2014 could look a lot like 2013, and beyond?

Alan J. Herrick

Yes. I think -- I don't know, I'm trying to think what I could add that would be helpful. But I think that when you look at 2013 and how it started versus how the center of the year finished and progressed, right, there was a lot of strength. And after coming through 2013, I think we're now thinking that the pattern is going to be similar. So I think that that's what kind of leads to our guidance to say that if you net a lot of things out, looking at the segments that I've already talked about, looking at forecast, funnel strength and other things and comparing them to both what we saw in 2013, as well as what we saw in 2012, we've got the funnel and the forecast to support the range that we've given you. And then, that comes down to a couple of things. It comes down to clients actually executing on their decisions and making timely choices to move ahead with the work and it comes down to us, obviously, continuing to do very well, having had very strong win rates across those opportunities as part of that assumption. But if you just look at it year-over-year, the best word I can come up with is you net that all out, and it feels similar.

Todd Van Fleet - First Analysis Securities Corporation, Research Division

So Al, would you say there are market share gains kind of built into your forecast then for Sapient?

Alan J. Herrick

I think, there -- always a tricky question to answer but from what I understand about both competitors, as well as just digital growth rates, I think there has to be market share gains at these growth rates. So I think, there's no other way to put it.

Operator

[Operator Instructions]

Alan J. Herrick

That probably should be it, I would think, Charlotte.

Joseph S. Tibbetts

If there isn't another one teed up, yes.

Alan J. Herrick

I appreciate that. So I appreciate everybody joining the call. We look forward to getting into 2014 and executing on our plan, and we'll talk to you on the next call. Thank you. Thanks, Charlotte.

Operator

You're welcome. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.

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