Lionbridge's CEO Discusses Q3 2012 Results - Earnings Call Transcript

Lionbridge Technologies Inc. (NASDAQ:LIOX)

Q3 2012 Results Earnings Call

November 7, 2012 9:00 AM ET


Sara Buda - Vice President, IR

Rory Cowan - Chairman and CEO

Don Muir - Senior Vice President and CFO


Amit Singh - Jefferies & Company

Richard Baldry - Wunderlich Securities

Ben Rose - Battle Road Research

George Sutton - Craig-Hallum

Kevin Liu - B. Riley

Vince Colicchio - Noble Financial


Welcome and thank you for standing by. At this time, all participants are in a listen-only mode. (Operator Instructions)

Today’s conference is being recorded. If you have any objections you may disconnect at this time. Now, I will turn meeting over to Ms. Sara Buda.

Sara Buda

Hi. Thank you. Welcome everybody to the Lionbridge Investor Call to discuss Financial Results for the Third Quarter of 2012.

During this call we may make certain statements that may be considered forward-looking statements under 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, 2012, the factors that may cause such differences.

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

Rory Cowan

Great. Good morning, everybody, and thanks, Sara. Welcome. Today we’ll talk about our solid third quarter results and our positive revenue trends across offerings, verticals and our ongoing earnings momentum.

Then as -- as normal, Don, will then talk about our initial outlook for 2013, which points to further acceleration of revenue and profit growth. So let’s get started with the financial highlights of the quarter.

As you saw, we delivered about $112 million in revenue this quarter, growth of about $5 million from last year. But in constant currency revenue grew more than $8 million or 8% year-on-year.

Don will detail the segments for you. But clearly the GLC Language business is getting momentum from ongoing growth in our GMO marketing offering -- to our ongoing traction in manufacturing and life sciences end markets. So the strategy for growth is really beginning to work.

We have a more diverse revenue base across end markets. GMO offering is scaling ahead of plan and our largest plant is returning to growth.

Our historic total gross -- total company gross margin was about 32%, reflecting ongoing improvement year-on-year and we continue to manage cost even after our investments in the business.

As a result, we continue to see strong conversion of incremental revenue to operating profit year-on-year. In fact, in Q3 about half of incremental revenue was straight to operating profit. While this conversion might not happen every quarter, you can see that the positive underlying earnings momentum of the business is really showing through.

GAAP earnings were $0.7, a well ahead of expectations. And finally, we generated about, $13 million cash flow from operations, one of our strongest cash flow quarters in history. And we ended the quarter with about $28 million in cash even after paying down $4 million in debt.

So you can see Q3 was a solid quarter. We grew 8% year-on-year in constant currency, delivered strong earnings, excuse me, and are generating record cash flows. So let’s talk about the revenue growth and where it’s coming from, and where it will coming from.

Just remind you, we have really two areas we are focusing on for revenue growth, one is new offerings around our technology-enabled services, and the second, is a new vertical strategy sort of for the go-to-market expansion.

I’ll also talk about the growth we are seeing from existing clients. So let’s start with the new offerings.

For 2013, we are focusing on three offerings for technology-enabled services. The first is our GMO, global marketing operations offering. The second, is our GeoFluent real-time translation technology and an emerging offering we will be focused on enterprise crowdsourcing for a variety of end markets.

So let’s start with GMO. I’ll remind you what it is? GMO, is a technology-enabled service that targets global marketing organizations that are looking for our services partner that can create, deploy, manage and track digital marketing programs across geographies and technical platforms, that’s a real mouthful. But it really involves everything from global search engine optimization to deploying 100s of locally relevant digital marketing campaigns across 50 countries concurrently.

As we launched GMO late last year, it became clear that we have a unique value proposition for these global marketers. We excel in all aspects of global content publishing lifecycle. That’s what we do.

Today GMO is our fastest growing offering, referring well ahead of plan for 2012. In fact, it grew 25% from Q2 to Q3 and it’s now on track to see $20 million or $20 million target for this year. So GMO presents yet another exciting growing opportunity for us that will accelerate our growth in ‘13 and beyond.

So the second offering is GeoFluent. As you saw today, we announced joint sales and technology partnership with Telligent, a leader in enterprise community software. Effectively we’re integrating our GeoFluent real-time translation technology with Telligent software for managing technical support forums and this is of course is the new model for receiving information on the web.

The value for clients is compelling. With GeoFluent companies can finally take their support forums global rather having to a create -- rather having to separate, to rather having to separate disconnect support forums in each country that are often subscale just not people participate. They can deflect calls to one global support forum where users can communicate and resolve technical issues in real-time in their own language.

So, Telligent joins a growing list of partners for GeoFluent as we focus on multilingual chat and global support forums. I think this has been the biggest [halve] for us as we’ve really begin to accelerate our software investment. Is that it’s clearly a partnership sale.

So establishing relationships with companies like Telligent is really helping us to accelerate adoption. So we’ve talked about GMO and we talked about GeoFluent before, both are gaining solid traction as we leave 2012 and enter 2013.

So in ‘13, the third option that I really want to formalize now is enterprise crowdsourcing. As many of you know, our language has been providing test-based global crowd in the cloud solutions since our inception. We’re the early cloud company if you will from translation to global search relevance to in-country testing.

Each of these solutions rely on our global virtual crowd of professionals that interact with our cloud-based work platform. We find, recruit, manage and pay our private cloud of workers in over 110 countries.

A component of our growth strategy is to extend this capability to other areas of crowdsourcing from data entry to data enrichment to big data management. It’s clear that enterprises across industries are looking at crowdsourcing as a new alternative to contingence staffing and BPO offerings, of course, a real estate heavy. With our global crowdsourcing expertise and our proven crowd in the cloud model, Lionbridge is uniquely positioned to capitalize on this growing demand.

So there our three offerings that should accelerate our growth with both new and existing clients, GMO, GeoFluent and now, enterprise crowdsourcing.

We’re also focusing when we take these to market part of the reorganization we’ve had this year in three key verticals, life sciences, manufacturing and of course, our traditional technology sector, and we see strong growth of opportunities in each sector.

First, let’s talk about life sciences. The team is driving solid growth this year with pharmas, medical device companies and clinical research organizations. Those are really three distinct sub-segments of the life sciences world.

We build a unique model for managing content in these heavily regulated environments and as a result, we are driving solid new business growth and expanding existing accounts. This year it looks different, life sciences will be on track to grow about 20% year-on-year in constant currency with ongoing expansion in 2013.

Our manufacturing vertical is growing as well. The PRI acquisition we made earlier this year is already delivering real value with new growth opportunities to clients such as Cummins Engine and Rolls Royce.

As I said in our last call, we believe the manufacturing sector hold a solid growth opportunity of this client develop, distribute and document their products that are increasingly digital and increasingly global. Many of these products have components that really mere the software industry something we excel at.

And so traditionally we’ll finally talk about our traditional tech sector. Even as we drive growth in new verticals we are still growing with many of our traditional tech clients. As we saw in Q3, it’s clear that our largest client Microsoft has return to growth.

As we expected, we are benefiting from their multi-year shift to cloud, mobile and consumer. Our growth with Microsoft reflects our strategic focus on digital marketing as they begin several multi-quarter global campaign to drive adoption of a new platforms and devices.

In addition to Microsoft, many of our other large tech clients grew solidly year-on-year HP, Samsung and of course, well-known West Coast Personnel device manufacturer. So we’re pleased with the traction among our large tech accounts.

Looking at the business sequentially from Q2, a few of our accounts were little quieter than we had expected in September. Although, revenue was still within our range, September did not come in quite as strongly as we had expected.

So this was a likely a bit of spend to management from a few accounts as we saw many tech companies report weaker earnings. But we do have a lot of customers have sort of a lumpiness underlying their spend with us.

That’s said. We’re fortunate that the nature of our business means that we are fairly well-insulated for any significant macro weakness for two reasons.

First, we are not unit dependent, whether our clients sell one unit or million units in a specific market, they still need to spend with us in order to support their customers in that geography.

And secondly, many of you asked about Europe and I’d like to remind you that only 15% of our revenue from clients comes from clients that are headquartered in Europe. And for those plans, we do serve in Europe, mostly American companies. We help them sell into their export markets, which is why you see nice growth from clients like Porsche, for example.

So unlike other companies, which we met on, we have not seen any effect of the European slowdown. It doesn’t mean it won’t happen, but we’ve been through this before and we’re generally better insulated than most.

In sum, the growth strategy, we put in place several quarters ago is clearly the right one and as we begin to prepare for 2013, I’m seeing a strong pipeline of business that should accelerate our revenue and earnings growth for yet another year.

Our new offerings and new verticals are growing ahead of plan. Our largest account has return to growth and most importantly, our earnings model is proving itself as incremental revenue converts at a strong rate to income growth.

So, now, I’ll turn it over to Don, who will provide a bit more detail on Q3, discuss our share repurchase program and outlined our expectations for strong ‘13. Don?

Don Muir

Thanks, Rory, and hello, everyone. Today, I’ll provide a financial overview of our third quarter, discuss some of the drivers behind our positive revenue earnings trends this year and then provide an outlook for Q4 and our initial thoughts around 2013.

First, let’s talk about our third quarter. We delivered revenue of $112 million, which reflects growth of about $4.5 million or 4% in normal currency. In constant currency, Q3 revenue grew about $9 million or 8% year-on-year.

We increased operating income ex restructuring by about $2.5 million year-on-year, marking yet another strong quarter of incremental revenue conversion. We delivered strong GAAP earnings of $0.07 per share and adjusted non-GAAP earnings of $0.11 per share.

And finally, we generated strong cash flow of $13 million during the quarter, making one of the strongest cash flow quarters since I joined the company five years ago.

Now, let me provide a bit of detail behind our solid performance this quarter and year-to-date.

Looking at our revenue, we can see that our GLC Language business is growing nicely. In Q3, our GLC segment grew 6% year-on-year in nominal currency and more than 10% in constant currency despite the decreases from client such as Nokia and Dell as we expected.

Revenue in our GDT Testing segment was up about 2% year-on-year. While GDT has seen solid growth of about 10% year-to-date, it was a bit quitter in Q3, largely related to a large search client during the quarter. However, looking ahead, we do expect GDT revenue to pickup a bit in Q4.

Looking at gross margins, our GLC Language segment delivered solid gross margins of 33.5%. Our GDT testing segment gross margin grew to 31.3%. So it seems our new general manager for GDT is doing a good job managing costs and interpretations gross margins were 15.5%.

Turning to operating expenses, we kept sales and marketing relatively flat year-on-year despite the increasing revenue. Frankly, I’d like to see sales and marketing grow bit closer to 8% as a percentage of revenue to support our ongoing focus on topline growth.

Q3 G&A was down about $500,000 year-on-year, but consistent with our expectations for about $19 million per quarter. Depreciation and amortization were essentially flat year-over-year.

And finally, we had about $250,000 of restructuring in Q3. As we’ve indicated, last quarter marked the last chunk of restructuring expense related to the plan we’ve announced a few years ago.

As we grew revenue, expanded gross margins and controlled our expenses, we continue to see strong leverage of incremental revenue to operating profit in Q3. This underscores the underlying profit potential of the business and I’m delighted that this year it’s finally starting to show through.

As you look below the operating profit line, you’ll see that other expense was only about $160,000 this quarter. As most of you know that other expense is largely related to the currency effect of balance sheet revaluations. So we continue to manage our FX exposures quite well.

As we said in past calls via models going forward, we expect the other expense line to be plus and minus about $500,000 per quarter. Our tax provision for the quarter is about $700,000 in Q3.

We said that long-term, our tax rate expectation for this business should be about 25%. We did a bit better than that in Q3 with a tax provision of about 15% of pre-tax income. So our tax to profit continues to manage our global tax complexity quite effectively.

So to summarize the P&L, Q3 was the solid quarter. I’m pleased to see our core language business delivering strong revenue growth and gross margins. Our GDT Testing business was a bit subdued in Q3, but is still on track to deliver solid growth for us this year.

And I think the team continues to do a good job of managing operating expenses and finally, we continued to see solid revenue and profit momentum which sets the table well for a strong 2013.

Moving to the balance sheet, we generated $13 million in cash flow from operations in the quarter and we paid down yet another $4 million of debt related to our PRI acquisition.

Despite paying down debt and continuing to fund our investments, we ended the quarter with the cash balance of over $27 million and as we’ve said in the past, we need about $18 million to $20 billion to run the business. Given the strong cash flow generation of business, we are clearly starting to put our cash to work, driving long-term value.

We will continue to pursue tuck-in acquisitions that give a strong vertical market presence, but it helps us bolster one of our growing offerings. These tend to be small acquisitions that we feel could be quickly accretive and that don’t require a lot of integration. So tuck-in M&A will continue to be one of our focus areas.

With the underlying cash generation of the business, we should also be in a position to buyback stock from time-to-time. Our Board and our bank have authorized an $18 million share repurchase program as you can see from today’s release.

So the operating cash flow from a core services business remains very strong and we will be applying that operating cash flow and the right investment priorities, funding topline growth in new programs, investing in new business and buying back stock as appropriate. These investments position us well for long-term growth.

Global DSOs of 51 days in the quarter, a decrease of about three days than last quarter, so the quality of our revenue remains very strong.

In summary, our Q3 result underscore solid topline growth and looking forward to Q4, we’re estimating revenue to be between $112 million and $115 million. This should result in full year growth for 2012 of about 7% normally and roughly 9% in constant currency, assuming today’s FX rates prevail for the rest of the year, which should also lead to very strong earnings growth year-over-year.

For 2013, we are raising the bottom end of our previous revenue growth rate range from 5% to 10%, to 6% to 10% year-on-year growth. And we expect an annual gross margin percentage improvement of between 50 and 100 basis points over 2012 as expected gross margin percent depending on currency.

It should lead to meaningful operating income growth roughly in the range of between 20% and 40% year-on-year. So, I’m feeling quite positive above the early indications for a strong 2013.

So, in summary, I’m very pleased with Q3. Revenue was growing, we’re on track to deliver record levels of earnings and cash flows, and our balance sheet remained strong.

So, Rory, back to you.

Rory Cowan

Thanks, Don. So as we prepare for 2013, you can see that we’re relatively pleased where we are. Our revenue is accelerating across new offerings and new verticals with some new customers as well. The pipeline is building for stronger growth in ‘13.

We’re accelerating profitability with strong conversions with all of the costs, work that we’ve done over the past years are beginning to show through. We’re generating strong cash flows and this cost model, growing demand and a solid balance sheet, we think we are going to be able to use cash in a variety of ways that will increase shareholder value.

So, now, I’ll open the call up to questions.

Question-and-Answer Session


Thank you. (Operator Instructions) Our first question comes from Jason Kupferberg of Jefferies & Company. Your line is open.

Amit Singh - Jefferies & Company

Hi. This is Amit Singh for Jason. Just a quick question first on the quarter, the slowdown that you are seeing, especially in the GDT segment, is that temporary down in this quarter and should we expect that vertical to be back to normal growth next quarter?

Don Muir

We do expect it to be up bit as I said sequentially versus the third quarter and Q4.

Rory Cowan

Yeah. I think it’s pretty -- our customers are specific we are seeing the new leadership we have in that group has a lot of new business development activities going on as we said. I think things are a little lumpy for our tech customers right now, particularly those that are centered around the PC world.

Amit Singh - Jefferies & Company

All right. And just quickly on next year, you talked about pipeline being strong, could you just give us a little more details on that what gives you confidence for the sort of a revenue acceleration next year. I know lot of offerings had been there now too. I mean what is different that you are seeing out in the market for the acceleration in revenues to happen next year?

Rory Cowan

Right. So, I think we’re at about 9% this year constant currency. So I think we are -- we had given that sort of 5% to 10% range. So we’re feeling pretty good as we’re coming through where this year will end up. Next year as I mentioned, we have our new end market orientation, which is Life Sciences, Industrials and Tech. I think you’re going to see more out of Life Sciences and Industrials in terms of end-market, is what I’m seeing right now.

And then in terms of offerings, we’ve really got the GMO activity seems to getting quite a lot of traction as people realized that the shift from digital, from rod-based marketing to digital marketing, is not just buying some software or outsourcing it to an ad agency, you need a sophisticated global company to niche technologies, peoples and company, the technology countries and campaigns together to a consistent global branding. And I think that those are the three things we’re going to see the real power from.

Amit Singh - Jefferies & Company

All right. Thank you.


Richard Baldry of Wunderlich Securities. You may ask your question.

Richard Baldry - Wunderlich Securities

Thanks. If I look at last three years, sequentially revenues has been about flat, for you’re looking for flat to possibly higher. You hadn’t look digi comp would add for this fourth quarter and also can you talk about what’s the strategy around the buyback would be? Do you think it’d be an accelerated program given the current valuation to trying to get ahead of what looks like an upturn in net income next year that could drive the shares higher or just what are the measured based buyback and then the types of tuck-in acquisitions you’d be looking at? Thanks.

Don Muir

Yeah. Hi, Rich. This is Don. We’re pretty comfortable given the pipeline that we have that we should be in the range of the guidance we’ve given certainly, up slightly for Q4 versus Q3. That’s what we see today.

Rory Cowan

Yeah. I think we said a lot of this is company specific and December now that the election behind us, we should begin to see some strength here in our customer spend that was the first question.

Second question is the nature of the buyback. I think -- I don’t think we are going to have anything. We are not going to rush in and spend all $18 million today. Clearly, as you know, there are many restrictions about how you can do that. We are meeting with our board next week to determine the specific nature of it. It is a three-year program $18 million. And so I think that we will participate in that as appropriate.

I think the last question you had was about offerings, in particular. If I reflect, you had three questions embedded in that. Richard, what was your last one?

Richard Baldry - Wunderlich Securities

The type of tuck-in acquisitions?

Rory Cowan

Sorry. Tuck-in acquisitions. As you look at this crowdsourcing world, we are beginning to see our unique skills and we spend the past sort of six months with some new leaders in this area really surveying the market. We find that we have a unique skill for all sorts of applications that need a global presence for both cost and capability.

On the acquisitions, there might be something around the unique technology, around the unique end market, but those are the activities we are looking for more of the task management model. We have the crowd, we have the cloud, now it is task management components that we are looking at. So we’re pretty excited there.

The second one might be further integration or further debt in the Midwestern United States. As I said, we are beginning to see some very real strength in the industrials as they begin to embrace digital platforms for everything from marketing also for their product support.

Richard Baldry - Wunderlich Securities

Thank you. Congrats on a good quarter.

Rory Cowan


Don Muir

Thanks, Rich.


Ben Rose of Battle Road Research, you may ask your question.

Ben Rose - Battle Road Research

Good morning. Wanted to ask you Rory little bit about the crowdsourcing initiative that you announced. This is kind of first time at least I’ve heard about this new initiative? And I wanted to know what you’re finding out there in terms of the availability of part time translation folks to engage in these kinds of activities. And maybe a little bit more about, what kinds of specific programs you would foresee within this initiative?

Rory Cowan

Yeah. Thanks, Ben. First, you really have to think of Lionbridge as we were the original crowdsource, if you will, because for -- since our founding, we have been outsourcing translation to individual translators around the world.

About five years ago, somebody really build our own technology and put all those translators on a common platform, that then let us to the ability to do other activities and translation in the cloud, things like search relevance testing where we test algorithms for search engines to make certain of there delivery what the developers expect they’ll deliver. So it’s translations to search relevance.

That then took us to a number of customers, asked us to do some individual sort of small million dollar projects, so can you do this for us globally. That’s now taking us to really formalizing this group, as people begin to look at crowdsourcing as an alternative to BPO which is a call center activity.

We have a lot of real estate in one country and lot of people to really looking at -- taking the crowd into the cloud for other applications. And it could be everything from data entry to a technical support and of course, our core translation and search relevance business. So it really broadens lots of activity.

In addition, we have an in-country test capability, which we’re deploying quite effectively for mobile device manufactures. You know that the cycle time for releasing a mobile device globally now is shrinking. And these devices have to be tested in all 100 countries and they have to have network compatibility, payment compatibility all sorts of activities.

We’ve developed a cloud-based capability to do that in parallel for people rather than sequentially. So that’s another cloud-based activity based on our global bilingual workforce.

Last part of your question was availability of workers. We are finding this availability workers is almost unlimited because there are many, many people that prefer to work part time around the world or there are people between jobs and also people who cannot work from home. And we have an ability to find and test them for unique skills.

So, I think that this is going to be -- I think this is a how changing the model and also a watch bringing it new services to new end markets.

Ben Rose - Battle Road Research

Okay. Thanks very much.

Rory Cowan

Okay. Thanks Ben.


George Sutton of Craig Hallum, you may ask your question.

George Sutton - Craig-Hallum

Thank you. Don, you mentioned growing sales and marketing dollars next year and into a little bit higher range. Can you detail plans you have there?

Rory Cowan

Well, we certainly have talked a lot about it, trying to re-class the sales organization and bring more hundreds into the mix and position ourselves better in these verticals and against these offerings that we have and also be thought some of the marketing support that helps the sales organization pursue those goals. So, that’s why we want to uptake the spending more towards 8% to revenue range then where we are today little bit below that.

Don Muir

And I think our other analysis is with some of these tuck-in acquisitions. You can get some of these smaller owner operator $5 million, $10 million companies that have deep relationships in a target segment. And it may actually be easier to acquire customer relationships through a tuck-in acquisition rather than hire three or four sales people and have one of them successful three or four years from now, two or three years from now.

So, that’s what we are playing with George, the balance of tuck-in acquisitions with deep customer relationships or hiring a number of sales people in specific region with a specific vertical.

George Sutton - Craig-Hallum

Got you. And Rory as you look out to next year and you are, kind of, in the 6% to 10% range, if you end up at the high end of your range or even better when we look back where do you think that’s strength, where might those surprises have come from?

Rory Cowan

I think you’re again -- we are getting traction in our global marketing operations, which is a horizontal offering. So that’s digital marketing globally across all end markets. We look at verticals, the industrial vertical again is beginning to embrace a digital activity. And I really think that is GeoFluent of the software component really begins to get its traction.

We’ll begin to see some strong if these numbers of pilots that we have begin to convert o commercial deployments which we are beginning to see now. That should give us some great earnings surprise, of course, not a lot of revenue surprise. But then, lastly, of course, our existing accounts we should see them returning to growth particularly, our largest account.

George Sutton - Craig-Hallum

And just to be clear, what kind of a macro scenario would you like to see to get to the upper end of that range?

Rory Cowan

Yeah. I think a macro scenario for us is just, I’m just -- I'm old school I guess. The only sustainable competitive advantage is hustle. I think we just have to just have more people knocking on more doors, delivering more activities and I will tell you the headwinds as we all know is the transition from PC to tablet, traditional product localization is probably little bit more challenge then it’s been, but tablets are driving and mobility is driving all source of demand for other services for us. So, that’s going to be questions of balance story.

George Sutton - Craig-Hallum

Okay. Thanks, guys.


(Operator Instructions) Kevin Liu of B. Riley. You may ask your question.

Kevin Liu - B. Riley

Hi. Good morning. Regarding the GMO operations, I think you’ve talked about being add 20 million run rate than growing faster than expected. I’m so -- just wondering what sort of growth is implied in terms of the outlook for next year, whether that growth you’ve seen this year is coming from expanding the regional customer engagements you had or actually winning new customers of late?

Rory Cowan

I guess, the heartening thing is both. Some of the smaller customers, the anchor customers have grown and as we interact with Senior VPs or Marketing and Chief Marketing Officers around the world, everybody now realizes that agencies are organized country-by-country-by country. So, they’re unable to manage global campaigns for them.

Technologies often each country has put a different technology in place. So, they can manage it internally. And so they look to someone like Lionbridge that has this combination of a global footprint, a cloud awareness and this global local knowledge to execute for them.

So, we’ve also organized a separate delivery unit around GMO inside the company that will be broken out starting next year for just looking at after delivery side of things. And in ‘14 or ‘15 that may lead itself to an individual to a separate segment for the company depending upon other growth rate.

So, I think it’s all of the traditional. The current ties are growing. We’re finding a lot of new people. It does take us four to six months to really ramp these customers though, because this is a global reengineering process for these companies. Once, they are through that the benefits are very, very strong.

Kevin Liu - B. Riley

Got it. And on -- one question on the enterprise crowdsourcing effort, I understand that you guys have had kind of one off projects in the past. Do you have any clients already who are operating under any sort of formal program that you would look to scale up?

Rory Cowan

Of course, we’ve had -- you can think about our search relevance offering and then that was -- those are multiyear agreements that are scaling as they change their algorithms. And that is in fact, global crowdsourcing right there. That is enterprise crowdsourcing, very different from the eBay for services all the venture startups that you’re seeing are right now. These are deep programs with lots of sophistication, very tight metrics management of a global workforce.

We’re also seeing people approach us about data entry, our activities, because that is another area that has been offshored, but you think with real estate and all the complexities with that, it’s really -- we have a much better cost to model. So, I think you’re going to see us work more through that data area.

We’ve had number of -- we’ve had actually one significant player, travel industry as well that we’ve worked with a lot of their user generated content around the world. So, that’s another application. And that’s a multiyear program. So, we’re feeling pretty good about this area now.

Kevin Liu - B Riley

Great. And you guys highlighted one manufacturing client win in your earnings release. I’m just kind of curious as to whether that was a cross selling to PRI’s base. And just in general, what sort of cross-sells have you guys have? What sort of cross-selling activity have you seen in between?

Rory Cowan

Yeah. I think that, PRI has only been about a quarter or two now. And we are just -- we just have the teams in here last week for integrating everybody. The lead trend has been very strong. One of our largest customers committed -- one of our largest customers in industrials, they are going through in this services component for the indirect spend as they say.

What they did with there normal supply chain four, five years ago. So, they are looking for global services partners just as they found mobile part suppliers few years ago. So, the first we’re now pronouncing that was commitment for next year from one of our largest customers, but really integrate more spend in the U.S. this year as a result of our relationship in the U.K.

Secondly, there is a large manufacturer, industrial manufacturer that’s PRI had done some work with them. And now we are starting some a small localization programs which we hopeful grow into GMO. So, its early days because wonderful thing about industrials is they don’t move quickly and that means a very thoughtful when they spend with you, but also want the relationship is embedded, it’s a very stable relationship.

Kevin Liu - B Riley

Got it. Thank you.

Rory Cowan



Vince Colicchio with Noble Financial. You may ask your question.

Vince Colicchio - Noble Financial

Yeah. Rory, nice quarter. Couple from me, most of might have been asked. Your GMO business, I’m -- how concentrated is the growth you getting. I’m kind of wondering if you have lot of opportunity with your top ten clients along moving forward.

Rory Cowan

Yeah. I think that we -- its right now, of course as we said in our call, these customers take awhile you close them, you start small, four to six months they begin to grow. And its really that second year is when you begin to really get a sense of their potential. So, this is a slow ramp. This is not like a software company.

So, the customers we closed late last year or early this year are now ramping nicely. We’ve closed a few customers Q2 of this year and those are now beginning to see the ramp as we go into Q4 and next year. So, it’s really about a three quarter ramp.

I think we probably have, I don’t know, 10 customers are there now, maybe more 20, I'm just talking up on the screen. We’ve got 20 customers there now. And so, I think that’s why we’re a pretty enthusiastic about next year.

Vince Colicchio - Noble Financial

And in terms of your sales pipeline, it increase sequentially and where is the margin on that pipeline looks like versus the whole company average?

Rory Cowan

Pipeline is hard to say that it increase sequentially across all of our customers around the world. I think we had about 21 new customers in Q3. We had about 18 customers over a million. I think we had our strongest year-over-year growth. Pipeline still feels firms, but as I said there are one or two sort of company specific issues that I’m parsing whether it’s just traditional lumpiness or their base business had some challenges.

Vince Colicchio - Noble Financial

And the margin on the new business sign this quarter is that…

Rory Cowan

It’s feel -- I don’t think there is any real change in the margin profile all in.

Vince Colicchio - Noble Financial

Okay. And then on GeoFluent, how many pilots, do you have in place right now?

Rory Cowan

I think we have five or six I’m getting on the screen here right now. We have six clients and more pilots going. So, we’ve got them serious of interest in it from -- I bumped into the team in the lunch room yesterday and they were talking about an application we haven’t thought off which was an insurer in Spain that those travel insurance wants to use to communicate with all of their customers that are losing luggage and having flight issues and other things in. So, you can do Spanish to Swedish or Spanish to Norwegian.

So, they don’t have to have local speaking people to settle. So, we’re beginning to see broad based applications for this. Of course, we’re starting with the techs and we’re starting with the partnerships, because this is unusual for us and there is a partnership sale quite largely. And I think that was -- that’s what took us some time as we try to make it in a direct sales and people have to put platform in and then we globally enable the platform.

Vince Colicchio - Noble Financial

Okay. And then just one financial question, Don, top ten as a percentage of revenue, do have that, Don?

Don Muir

Yeah. That’s pretty much, we’ve spend historically, it’s about 55%.

Vince Colicchio - Noble Financial

Okay. Thanks, guys. That’s all I have.

Rory Cowan

Great. Thanks, Vince. Great. So, I don’t think we have anybody else. So, as always if you have any questions give us a call and you can route all calls through to Sara and she will bring Don and me in, as we go through it. So, thanks to talk a lot and we’ll see you next quarter.


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