Lionbridge Technologies' (LIOX) CEO, Rory Cowan on Q4 2015 Results - Earnings Call Transcript

Lionbridge Technologies Inc. (NASDAQ:LIOX)

Q4 2015 Earnings Conference Call

February 11, 2016 9:00 am ET

Executives

Rory Cowan - Chairman, Chief Executive Officer

Marc Litz - Senior Vice President, Chief Financial Officer

Sara Buda - Vice President, Investor Relations

Analysts

George Sutton - Craig Hallum

Zach Cummins - B. Riley

Operator

Welcome and thank you for standing by. At this time, all participants are in a listen-only mode until the question and answer session for today’s conference. At that time, to ask a question, you may press star, one on your phone and record your name clearly at the prompt. This call is also being recorded. If you have any concerns, you may now disconnect.

Our host for today’s call is Sara Buda. Ma’am, you may begin.

Sara Buda

Great, thank you. Welcome everybody to the Lionbridge investor call to discuss financial results for the fourth quarter and fiscal year 2015. 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 have disclosed in greater detail in our Form 10-K filed in March 2015 and subsequent filings those statements.

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

Rory Cowan

Great, thank you Sara, and welcome everybody. So as is normal, today we’ll first start with our financial results for Q4 and 2015, and then some of the underlying trends that drove these positive results for the quarter and the year. Then I’ll talk about some of the milestones and successes of the year that really lay the foundation for 2016. Of course, these will touch on our new verticals, our new buyers from existing clients, as well as these new channels from customer acquisition that we’ve been talking about. Third and of course last, we’ll wrap up with our outlook for 2016.

So first, let’s start with the year. For the full year, we delivered record revenue of $560 million, growth of about $70 million or about 14% year-on-year. In constant currency, because of course we had that big reval of the euro during the year, we actually grew about $90 million or 18% year-on-year, which is in the range we provided a year ago despite an $18 million decrease from our largest plant, Microsoft. So the underlying business really had a very good year, both through acquisition and organic growth.

On an organic basis, we grew about 7% in constant currency ex-Microsoft, but there really is, as I mentioned, strong underlying growth in the business, it just hasn’t come through to the public statements yet. We hope to see that in 2016.

Another positive trend in 2015 was margins. Total company gross margins grew about 110 basis points year-on-year to 33.6%, and of course our core language business and content segment grew about 200 basis points to over 36%, so good growth, good margin growth. Revenue volume, cost reduction, language automation, currency all played a role in this margin expansion for last year, and it was a multitude of things that drove this good expansion. We expect these favorable factors to continue through ’16, although we think currency feels as if it’s sort of settled out.

GAAP net income was a record as well at about $14.2 million or about $0.23 a share. That’s really after booking $13 million in restructuring as we integrated the CLS organization. As I think we’ve mentioned before, this restructuring program is largely complete and will begin to peter off through Q1 and Q2 of ’16, so we’ll detail that shortly. I think lastly on the financials, for those of you that track adjusted EBITDA, because everybody has a different way they like to look at companies, we delivered about $49 million of adjusted EBITDA this year, and that was another record for the company.

So all in all, it was a very strong year. We ended the year with a solid fourth quarter, which Marc will talk about in detail, so it felt like a good workman-like year.

So let’s talk about 2015 and some of the underlying really accomplishments that drove these numbers. First, we secured about 36 new enterprise engagements with world-leading brands. As you know, we’re migrating to a more broad end market, away from this tech center of gravity. Having said that, we also grew our major accounts such as Google, Apple, and GSK. We’ve also secured new revenue with clients in new vertical markets, so new vertical markets, new revenue with new buyers.

Our global marketing offering came in at just about $85 million last year - that cuts across all end markets, but it’s a significant accomplishment for us. We’ll have more details for that later. Our on-demand platform grew about 60% year-on-year. We integrated CLS, this global translation business focused on financial services and industrials, and they have 600 employees in 10 countries, so there’s a lot of blocking and tackling to maintain their customer relationships and fold them into our global infrastructure. We acquired Geotext to give us our presence in the rapidly growing legal end market, which we’re very, very enthusiastic about.

Now I think the other thing that’s very important for us is that we have diversified our client base now so that no one client accounts for more than 15% of our total revenue, so the impact of our largest client, not only have we changed it more from product activity to marketing activity, but we also have added growth elsewhere in the industry in the business so that our largest account is just about less than 15%. So this really is--a couple years ago, we focused on this strategy to drive profitable growth across these new verticals, new buyers, and new business customer acquisition models.

So before I move into ’16, I do want to put a finer point on our Microsoft headwind and positive feeling that we have now about that account. Both the math and the activity suggest that we’re in a good place as we enter 2016, and there’s really two factors that indicate this level of stability, plus or minus a couple million bucks each quarter. We’ve shifted our center at gravity at Microsoft away from product localization and testing to global marketing services, and the marketing streams through the area with the greatest revenue stability as they continue to spend to drive growth in their global markets and migrate more and more to the cloud, which allows for centralized global marketing activity.

Second regarding the math, we really have a six-quarter track record now of stable revenue from that account, and there could be some growth opportunity beyond the current range, particularly as we focus on other areas such as games and other marketing opportunities inside of Microsoft.

Just to remind you, for us, I really think of Microsoft as being a sales region. We produce about 300 individual projects across about 100 decision points throughout Microsoft, but for now we’re very pleased we have a proven multi-quarter firmness with that account, so as a result in ’16 we project Microsoft to be relatively flat, and if we get some growth out of that, we’ll all be delighted, I’m certain.

Secondly, as I close out on last year, the major currencies seem to have normalized. We’re hanging around in that euro world of that 1.10, 1.13, 1.12, 1.09, so this big reval we had last year seems to be behind us. This means, I think for the first time in two years, that revenue growth between Microsoft and currency, revenue growth should be additive and not simply a replacement for those two factors.

So that’s really about ’15. Now, let’s talk about ’16 and what we’re really looking at what the growth strategy is. Several years ago, we implemented a strategy to drive growth outside of our traditional tech sector. Essentially, we’re taking the skills developed from managing large global technology product releases to new verticals, new buyers, and new online delivery models. I think we should all be pleased with our progress in this area.

First, let’s start with new verticals. In the past two years, we’ve grown our non-tech verticals by over $106 million in constant currency with a two-year CAGR of almost 30%. Now, some of that is organic growth, some of that is acquisition. In fact, in 2015, our non-tech verticals now are about 47% of the business, up from only 37% last year. You can see the progress we’re making, particularly in these areas such as life sciences, industrials and auto, and each of those segments have been growing about 20%.

So further this organic success, early last year we acquired CLS, a Swiss-based company with a focus on financial services and manufacturing. We spent a lot of 2015 integrating their cost structure and management, and that integration is largely complete. There’s still things going on - we have a couple of customers and a couple of unique infrastructure and data centers and things to work on, but the majority of the cost rationalization is behind us, and we’re starting to see the revenue and cost synergies build as that management team is now focusing on the market again. They’re focusing outside rather than focusing inside.

We also recently added Geotext, a small but niche provider in legal translation services which is already showing signs of solid revenue synergies. Their domain knowledge coupled with our global office infrastructure is giving them a scalability and us a new end market much sooner than we had anticipated in putting these two companies together.

One of the aspects of the business I really appreciate is that our services really are relevant across multiple end markets and multiple economies, and this means that in times of uncertainty, and I’ve spoken to a lot of investors and we all read the headlines here - we don’t quite know whether this is a firming or a weakening economy, but in times of uncertainty, our business tends to hold up pretty well as our revenue streams are broad-based. I’m pleased with the positive end market diversification, particularly given this well-publicized uncertainty that we’re all reading about in the papers.

That’s the first part - new end markets. Second part is new buyers. For those of you who are new to Lionbridge on the call, we launched our global marketing offering several years ago, and essentially we help marketers manage the rapid volume and pace of digital content globally. This is everything from social to ads to global email campaigns to building micro sites to web publishing, and because we’re technology agnostic, we deliver more content more quickly and with greater relevance across all these channels, platforms, markets and geographies. A typical large company might have two, three or even four web publishing platforms or marketing automation platforms, but we plug into a variety of technologies. We’re the sort of services partner for this digital media revolution.

To support this strategy over the past years, we’ve added new executive leadership with expertise in digital marketing. As you know, Rich Tobin, our TOO, came from Digitas. We’ve added new technology that connects to these clients, marketing and customer experience platforms, and of course we added new digital marketing capabilities a couple years ago in Costa Rica, which is growing very, very well. So people, technologies and delivery operations.

These investments are paying off, as I mentioned earlier. Marketing services is now about $85 million of our revenue. We expect that to continue to grow about 10 to 15% annually, and the growth is coming, very hearteningly, from new accounts and existing clients as marketing is really a horizontal offer spanning multiple end markets. The type of content we’re managing also is far more stable and more recurring than these sort of episodic product releases that are still common in the tech business. Now of course, half our business is still tech, and a big chunk of that is product, so we still have some episodic nature with these things, but far less exposure than we had three or four years ago.

Last, let’s talk about the new models for our growth. Our on-demand offering is an online platform we introduced a few years ago, and this is for productized offering. We’re finding that there’s a new generation of buyers in large companies, and globalization is now permeating the organization so it’s a web interface that allows any buyer anywhere in the organization to simply go to our portal, drop some content, goes through our systems automatically, human translation, we deliver it back to them in all sorts of file formats. It plugs into the corporation’s global spend management system.

We’re also using a new low-cost telemarketing sales team, and the early success is really very heartening. In only its second year of operation, on-demand delivered projects for about 665 clients in 2015, and grew revenue more than 60% year-on-year to $5 million. We expect on-demand to grow at this rate again in ’16, maybe even to double, particularly as newer cloud-oriented businesses adopt on-demand as their internal shared service. So we’re putting the intelligence into the infrastructure rather the intelligence into individuals, so this is an evolving model for us and we’re really quite enthusiastic about its application more broadly in our business, so that’s an exciting opportunity.

So in summary, 2015 was a positive year across all metrics: record revenue, margin and profit, executing our new strategy of new revenue streams across new verticals, new buyers and new online models. Both Microsoft and currencies seem to have settled at current levels, and the underlying growth in the business should finally start to come through in ’16 and ’17. Most importantly, given our unique crowd model, incremental revenue should convert at a higher rate to operating profit, so all of this positions us well for a strong ’16. While the tech sector seems to be facing some uncertainty - we’re all reading the headlines here, we’re fortunate that we began this migration to non-tech markets a few years ago. We introduced this approach, we’ve been executing, we’ve been sticking to it, and now it’s beginning to bear fruit, so 2016 feels really solid given the uncertain macro environment. From an internal viewpoint, it feels solid particularly as we focus on these new markets and new buyers.

So I’m going to turn the call over to Marc Litz, our CFO, for the numbers. Marc, welcome to your first full investor call. To remind everyone, Marc has been our VP of Finance here at Lionbridge for many years, joined us from Sapient, so he’s well skilled in the global services businesses, and he has a strong grasp of our numbers. So Marc, over to you.

Marc Litz

Thank you, Rory. Hi everyone. First, I’m going to walk you through the positive highlights for the quarter, second I’ll talk about the details of the very strong record results we delivered for the year, third I’ll share with you my high level priorities as CFO, and lastly I’ll provide an outlook for 2016.

First, the highlights for the quarter. Revenue was $140.8 million, marking 18% of $21 million year-on-year. Q4 gross margins were 33.4%, 110 basis point increase year-on-year. GAAP net income in the quarter was $2.9 million or $0.05 per share, even after spending about $4 million in restructuring and other charges during the quarter. We had adjusted earnings of about $9.8 million or $0.16 per share. Adjusted EBITDA was about $12 million for the quarter.

As Rory mentioned, some of you like to see our traditional non-GAAP adjusted earnings as we’ve historically presented it, and some have expressed an interest in seeing the adjusted EBITDA metrics, so we’re going to provide both going forward.

Moving on to cash and the balance sheet, we generated nearly $14 million in cash from operations during Q4 and ended the quarter with about $28 million in cash. Again, this is after spending about $6 million on share repurchases in the quarter, $9 million on the acquisition of Geotext net of cash acquired, about $4 million in restructuring, so you see the underlying cash generation of the business allows us to use our capital to support multiple strategic initiatives. All in all, Q4 came in largely as expected and reflects our ongoing progress of revenue growth across new verticals, high quality earnings, and maximizing our use of capital.

Now onto the full year. For 2015, we generated revenue of about $560 million, and I know Rory provided some metrics about Microsoft and currency, but let me put a finer point on our very positive underlying revenue trends as that’s very important, given all the moving pieces during the year with currency and Microsoft and acquisitions. In nominal currency, nominal actual currency, total company revenue growth was about $69 million or 14% year-on-year. In constant currency, that’s $89 million or 18% year-on-year. In constant currency excluding CLS and Geotext and Microsoft, revenue growth was 7%, which is very positive. Actually in the GLC segment, that same metric was about 10% growth rate. So as Rory said, both currency and Microsoft seem to have settled at current levels, so our range for next year seems appropriate given that.

Looking more closely at our 2015 account mix, we achieved a number of customer successes. We saw strong year-on-year revenue growth from many top 10 accounts, including Google, HP, Apple and GSK, and we ramped several recent wins, most notably PRA. The growth seems to be nicely balanced between new and existing accounts, and as our growth broadens across verticals and offerings, we don’t expect any one client, as Rory mentioned, to total more than 15% of revenue going forward, which makes us feel very good about the diversification that we’re seeing within the business.

From a segment standpoint, our GLC language and content business drove $72 million of the revenue growth from ’14 to ’15. Our GES testing segment was down about $2 million year-on-year, and our interp segment was down about $500,000, as we expected.

Moving on to gross margins, total company gross margins for the year were 33.6%, a 180 basis point improvement year-on-year. By segment, our GLC language segment margins were 36.1% for the year, marking over a 200 basis point improvement from 2014. Our teams have worked relentlessly to integrate CLS, reduce our costs and increase automation throughout the business, so those efforts are clearly starting to pay off for us, as we’ve seen with the margin expansion.

GES testing margins were 30%, which is roughly flat year-on-year. Interps was about 11.4%, 300 basis points below last year. As a reminder here in interps, at the end of the year we exited the unprofitable in-person government interpretation business and began to scale our over-the-phone, or OPI interpretation revenue, which is far more profitable than the in-person business. So on balance in 2015, we saw positive revenue and margin trends as we diversified our revenue across verticals and scaled our higher value offerings.

Let’s look at the major operating expense lines in 2015 in the P&L. Sales and marketing grew about $7.5 million year-on-year and is now running about 8 to 8.5% on average. Looking at our G&A line, total G&A grew about $11.5 million from 2014 to 2015, pretty much all related to acquisitions. G&A seems to be running at about $23 million to $24 million per quarter now, and we’re obviously working to bring that down as we increase automation and efficiencies.

Depreciation was about $2 million higher than 2014, largely as a result of office lease build-outs and incremental expense brought on from CLS. Amortization of acquisition-related intangibles increased about $800,000 in 2015, and restructuring and other related expenses were about $13 million during the year, largely related to our integration of CLS, which we’ve talked about a lot. With the majority of that integration behind us, we now expect modest restructuring going forward, as Rory had mentioned. You’ll probably see about $1.5 million to $2 million in Q1 as we just have some timing of Q4 rolling into Q1 and then tapering off significantly for the rest of the year in Q2 to Q4.

On the tax line, we essentially had zero tax expense. This is largely the result of two favorable items during the year which offset our normal cash taxes. Number one, we won a case in India back in Q2, and secondly we had a favorable impact from tax purchase accounting. For modeling purposes going forward, we’d expect to run at about a million per quarter in cash tax expense, or 25% of pre-tax income, whichever is higher.

Looking at our earnings in 2015, we drove record results on all metrics. GAAP earnings were $14 million or $0.23 per share. Non-GAAP earnings were $39 million or $0.63 per share, and adjusted EBITDA was about $49 million.

Moving onto the balance sheet and cash flows, we generated about $21 million in cash flows from operations during 2015, and we ended the year with $28 million in cash. Again, this is after funding $13 million of restructuring which is largely cash related, as I just noted, $7.4 million in share repurchases for the year, $11 million related to our tuck-in acquisitions, and $10 million of capex, so I’m very pleased with the underlying cash generation of the business.

DSOs were about 55 days, an increase of about six days from the end of last year. As we move into new verticals, we do see larger clients imposing slightly longer credit terms, but of course we remain very vigilant about billing and collecting on time from all our clients. Because of these longer terms, we feel that 55 days on DSOs is about what to expect going forward.

Before I wrap up, let me talk about my priorities as CFO. As Rory mentioned, I’m new to the position, but I’ve been around with the company for a while. I’ll start by giving you my view of the business. In my formal role as VP of Finance and Controller, I spent the past three years closing the books, as Rory likes to say. That included everything from U.S. GAAP compliance and other regulatory requirements in nearly 30 countries, recognizing revenue on more than 50,000 client projects, and supporting the company’s M&A and growth strategy. So with this deep understanding of the business, here are my observations about Lionbridge.

We enjoy enduring relationships with global brand clients. I continue to be very impressed with the caliber and resilience of our client base. The quality of earnings is clearly improving as we broaden our client base and align our cost structure around vertical markets. We’re a very well controlled company with strong management teams both at the highest level and the mid-management level. That gives me tremendous confidence as we execute on growth opportunities in front of us today.

So let’s talk a little bit about my priorities. As CFO, I plan to build on this strong foundation, really focusing on three key areas. Firstly, finance efficiency and scale, so I think we’ve made great strides here in the last couple of years, most notably with the implementation of a company-wide real time costing system that essentially eliminated thousands of manual transactions and gave P&L managers greater visibility into their project profitability. Now I’m focused on further back office automation, process standardization, and site and headcount rationalization. My goal is to have a more favorable cost position that we can leverage as we continue to grow the business on the top line.

Cash management - number two. Our teams already do a really good job managing cash worldwide; however, my goal is to allow for even more nimble cash management and to free up more, giving us greater flexibility and allowing us to minimize our overall working capital requirements and maximize our strategic initiatives.

Thirdly, operational decision-making. As we shift to more vertical sales and operating model, I’m working with the teams to give them more finance support and visibility they need to make real time P&L decisions. This will help our GMs be more responsive to the changing needs of the organization and drive savings in our operating expense lines. I’m very fortunate to be moving into this role as the company is driving strong operational and financial performance and a higher quality of earnings overall, as we can see from our positive margin and profit trends.

Let me wrap up with an outlook for Q1 and the year. We expect Q1 revenue of $137 million to $141 million, reflecting traditional Q1 seasonality. Q1 is always a bit difficult to forecast as March is really a big month for us. We’ve seen some solid wins in our pipeline, CLS seems to be firming up, and early indications from our legal vertical are very positive, as Rory mentioned.

For the full year 2016, we expect revenue growth in the range of 5 to 8%. With Microsoft and currency headwinds subsiding, this seems appropriate given the 7% I mentioned earlier which we’ve driven in organic constant currency ex-Microsoft. At these revenue levels, we can expect about a 20 to 30% adjusted EBITDA expansion, given the flexibility of our crowd model. From a GAAP earnings and cash flow standpoint, we should see marked improvement as restructuring expenses wind down, as both Rory and I had mentioned.

I look forward to the continued success of Lionbridge in 2016, and Rory, I’ll turn it back to you.

Rory Cowan

Great, thanks Marc. I’ve not really much more to add to that, but I just do want to emphasize that our revenue is growing, we’re broadening our revenue streams across a number of verticals so that if this economy does get soft, we have a lot of places to go to find that revenue. Thirdly, we’ve got strong operating leverage as we’re controlling our fixed expenses worldwide and automating more and more of the business. Lastly, we are using our capital to support aggressive share repurchases, strategic tuck-in acquisitions, and debt reduction.

So with that, I’ll open the call up for questions.

Question-and-Answer Session

Operator

[Operator instructions]

Our first question comes from George Sutton. Your line is open.

George Sutton

Thank you, and Marc, welcome to the call.

Marc Litz

Thank you.

George Sutton

So Rory, as we sit here looking at red screens every day, your guidance is encouraging from my perspective. I just wanted to make sure we fully understand what you’re baking in terms of a potential economic impact as you build out 2016. Five to 8%, what does that represent in your opinion?

Rory Cowan

I think a couple of things. First issue is it really suggests that Microsoft sort of stays stable throughout the year. As I’ve said, we’ve seen that, so we don’t see any more deterioration there. I think that’s the first piece. Second piece is we’re really looking at our growth in these verticals here. Our tech growth, we’re taking down to about 4% here of our growth business, and our non-tech verticals really are low double digits - you know, 10 to 12%, that kind of model there, because we started this process a few years ago and we’re beginning to see nice firmness as more industrial companies begin to digitize their offerings and globalize their offerings, so the skills we got in tech we’re applying to those end markets. So that feels pretty positive, and also as you know, in the cycles here often the large cap guys continue to spend as they go into the cycle, because they’ve already committed to a lot of these product cycles where tech guys can cut more nimbly, more quickly. So I think that that’s tech and non-tech, Microsoft being stable.

Continued cost reduction, as Marc mentioned, we’re now getting down to the point of its lots of cost actions - a little bit here, a little bit there. The big structural things are behind us, and it’s going to be office by office, activity by activity.

George Sutton

Got you, okay. Perfect, thank you. Now as we talk about verticals, you had discussed that outside of the tech vertical, the business feels more stable and more recurring versus that episodic nature. Can you give us a sense of what you mean by that?

Rory Cowan

Yeah, we’re finding with this new model that we’ve been talking about for a few years, we’re getting really solid indications that as you connect now to people’s content management systems, as you create portals for people to make it easy to purchase smaller projects, we’re seeing a lot more stability and more consistent revenue growth, more consistent revenue activity. It’s feeling more BPO-like and less IT services-like. Now, it’s early days yet, George, but that’s the clear trend I’ve been talking about. We’re now seeing that, and I think that it’s about architectures, I think it’s globalization permeating large organizations right now. HR has training needs for their overseas employees, and now they can access us directly and not go through a shared service. The communications department doing the CEO’s video for all the overseas employees, they access us directly now. We’re plugged into websites through real time connectors. Any time there’s a change, they just click on which languages they’d like it translated in. That flows through to us directly.

So you’re beginning to see a very nice change here. Again, all the things we learned in the tech business, we’re applying to marketing buyers across all end markets and we’re applying these skills to end domains, to new domains as well.

George Sutton

Perfect. One other thing, if I could. Marc, in the guidance for Q1 specifically, you discussed CLS showing some improvement. I know there’s been some challenges with that acquisition. Could you just give us a full update on that business specifically?

Marc Litz

Sure. So I think during 2015, they were distracted by the whole integration effort, and I think as we talked about, we had a client early on in ’15 that cut their spending significantly. But you know, the team is stabilized now, they’re back to work. Q1 for CLS is typically strong - as Rory mentioned, they’re heavy in financial services so a lot of the annual reports obviously get issued in January, February and March, so we’d expect another strong quarter, Q1 from them as we do in--they’ve got that seasonality that offsets our sort of softness in Q1, if you will.

George Sutton

Okay, thanks guys.

Rory Cowan

George, one fun fact for them, which we’ve learned, is that this finance focus here is I think they have something like 50% of all public Swiss companies do their translation and publishing with CLS, so we’re now learning how to productize that business. Again, this finance and legal vertical shows some very real opportunity for us as we’re getting skills in these new markets and domain expertise. Now, our job as corporate managers here is to take that knowledge and apply it more broadly country by country, and market by market.

George Sutton

Perfect, thank you.

Operator

Our next question comes from Kevin Liu. Your line is now open.

Zach Cummins

Hi, this is Zach. I’m subbing in for Kevin today. So I was wondering if you could just give us more of an understanding of the macroeconomic conditions that you guys are currently facing right now.

Rory Cowan

Yeah, it’s a hard one because, of course, we’re in 30 countries and five or six different end markets, so it’s really sort of anecdotal from my chair, looking at our weekly sales forecasting system. Just to remind you all, I run two forecasting systems here, much to the team’s dismay. I do a bottom-up ops forecast and I also do a real time weekly sales forecast as well, and then I sort of triangulate those two just to get a sense of things here.

We are seeing--what can I say we’re seeing? First, Q1 is always a difficult quarter because in the U.S., budgets aren’t released until a week or two into January, and Europe doesn’t come back, so I look at Q1 as really being more or less a 10-week quarter, so you really begin to see. Right now, we’re getting a sense of what’s happening in the business, and it varies by end market. We’re seeing, as I think there’s some hesitation around tech, as I think we shared with you, but we’re seeing some firmness around our non-tech markets writ large. That’s first.

Second in the legal vertical, we’ve had some very significant--they’ve only been with us a couple months now, but we’re probably--I would say we’re ahead of plan there given a number of our global delivery power and their domain expertise, there are a couple of large global disputes. Remember, the firm we hired, whenever there’s any global bad news, it drives business for them - you know, FCPA issues in Latin America, diesel car issues in Germany, oligarch problems in London, all sorts of things that drive significant revenue to them, and these guys are swimming in all those pools right now. So our ability to really support that domain knowledge is feeling very positive.

So it is uncertain, and you’re right to ask the question that it feels different by end market right now. It’s a little early to call whether it’s going to be a--you know, are we heading to 2007 again or is this just 2008, 2009, or is this just a pause that refreshes?

Zach Cummins

All right, thank you. That was very helpful. I just have one other question. I see that you’re continuing to diversify your business and shift more towards non-tech verticals. I was wondering if you kind of have a target revenue percentage that you’re trying to get to. Are you trying to get it more of a 50/50 between tech and non-tech, or are you still just trying to rapidly expand that into the non-tech verticals?

Rory Cowan

Yeah, I don’t want to say I have any particular target, because we want it all in every market; but I think that really the way to think about this is really is a two-by-two matrix, which the top half would be marketing across all end markets, and then tech and non-tech on the bottom half of that two-by-two. So we’re finding that we really want to emphasize in marketing activity, as we’ve shared the journey at Microsoft. That business now has a center of gravity in marketing content versus product content, and we’re beginning to see activities in other end markets, both marketing and in product.

I think that in general, non-tech feels more stable. Now, it’s early days yet. It’s about half our business already. We’re about 50/50 in this world, so we’ve already made great progress with it. I think more importantly though, it’s probably the balance--I don’t want to say less testing and more language, but really think about it as more offering that we’re looking at. We’re getting really good in our language automation, our language platform connectivity, so I think you’re--and we’re also seeing just more demand in that area than we are in the testing businesses. I think testing seems to be getting more technologically automated and much more focused on the traditional Indian offshore providers.

Zach Cummins

All right, thank you. That was very helpful. No more questions for me.

Operator

Again to ask a question, please press star, one on your phone.

Rory Cowan

Well great, everyone, I think that’s it. Thanks very much for participating on the call this morning. I know it’s a busy morning, reading what’s on the screens here. You know where to find us after the call for any other questions. Again, thanks for attending, and thanks for your interest in Lionbridge.

Operator

That concludes today’s conference. Thank you for your participation. You may now all disconnect.

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