BearingPoint Reports First-Quarter Financial Results

BearingPoint (NYSE:BE), one of the world’s largest management and technology consulting firms, today announced its first-quarter financial results for the period ending March 31, 2008. Ed Harbach, BearingPoint’s chief executive officer, said, "BearingPoint’s first quarter results for 2008 are meaningful in a number of important ways. We posted an operating profit for the first time in seven quarters, we made significant improvements in our selling, general and administrative expenses and posted the smallest net loss in nearly two years. "With increases in other critical metrics like utilization and bookings, which increased year-over-year for the first time in five quarters, BearingPoint has made notable strides in its effort to turn the corner financially, underscoring that our efforts to increase operational profitability are working,” Harbach continued. "Further, net revenue remained flat, signaling our ability to maintain our revenue base even as we streamline our business and tightening our focus in targeted areas. "We remain committed to focusing on delivering differentiated solutions in target markets where we can win and be profitable, motivating and developing our world-class employee base, improving our operational excellence and managing costs,” continued Harbach. "We believe these efforts will lead to continued long-term improvement in our financial condition and overall growth.” First-Quarter 2008 Financial Results Gross revenue was $830 million in the first quarter compared to $866.3 million in the first quarter of 2007, a decrease of 4.2 percent. Net revenue (gross revenue less other direct contract expenses) was $671.7 million in the first quarter compared to $670.4 million in the first quarter of 2007, an increase of .2 percent. Gross profit was $152.7 million in the first quarter compared to $132.1 million in the first quarter of 2007, resulting in a gross margin (gross profit as a percentage of revenue) of 18.4 percent in the first quarter, compared to 15.2 percent in the first quarter of 2007. Selling, general and administrative (SG&A) expense was $142.7 million in the first quarter, a $34.5 million and 19.5 percent decrease from $177.2 million in the first quarter of 2007. This improvement was primarily due to lower costs related to the closing of the Company’s financial statements and internal control remediation. Operating income increased by 122.1 percent to $10.0 million in the first quarter compared to an operating loss of $45.2 million in the first quarter of 2007, marking the first operating profit in seven quarters. Net loss in the first quarter was the lowest it has been in seven quarters at $23.2 million compared to a loss of $61.7 million in the first quarter of 2007. Loss per share basic and diluted was $0.10 in the first quarter compared to $0.29 in the first quarter of 2007. Cash balance was $413.4 million on March 31, 2008 compared to $248.8 million on March 31, 2007. In the first quarter of 2008, BearingPoint won business with the following customers: the Korea East West Power Company, Dyno Nobel Canada, Total SA, The U.S. Navy Program Executive Office for Enterprise Information Systems, The Department of Homeland Security, the U.S. Army Medical Research and Materiel Command, the City of Toronto, the City University of New York, Toyota Tsusho, a large Japanese trading company, and IHI Corporation, a diversified manufacturing company. First Quarter 2008 Metrics Bookings were $745.4 million compared to $709.5 million in the first quarter of 2007, an increase of 5.1 percent year-over-year. DSO was 85 days at March 31, 2008 compared to 91 days at March 31, 2007. Utilization was 77.8 percent compared to 76.6 percent for the first quarter of 2007, an increase of 120 basis points. Billable headcount was approximately 13,800 compared to approximately 15,200 for the first quarter of 2007. Voluntary attrition was 26.3 percent compared to 23.7 percent for the first quarter of 2007. "Our bookings for the first quarter were amongst the highest they’ve been in seven quarters and we have reduced DSOs each and every quarter on a year-over-year basis, for the past 12 quarters. Continuing these improvements is critical to our ability to generate positive free cash flow,” said Harbach. 2008 Business Outlook BearingPoint revised its estimates for 2008 indicating that its results for the year would likely include: Flat net revenue growth SG&A expense in the range of $580 to $585 million Net loss of approximately $70 million Year-end cash and cash equivalents in the vicinity of $500 million Free-cash flow of approximately $30 million "We have made a great deal of progress in re-focusing our North American Commercial Services and Financial Services practices but, frankly, more work is needed if we are to be able to meet and exceed today’s revised estimates,” said Harbach. "We are working tirelessly in our efforts to accelerate our business turnaround, but our 2008 results will depend, in large part, on how quickly we can complete that turnaround as well as on the continued success of our Public Service practice. Like many global companies, currency fluctuations and global economic and business conditions will continue to play a significant role in our ultimate results for the year.” BearingPoint also noted that it is currently considering certain actions with respect to outstanding Performance Share Units previously granted to its employees. BearingPoint indicated that, if such actions are taken, the Company could incur significant additional non-cash, stock compensation expense in 2008 that is not currently reflected in the revised outlook it has provided. Segment and Region Results (in thousands)   Three Months Ended March 31 2008   2007   Operating   Operating Revenue Income (Loss) Revenue Income (Loss) Public Services $ 340,098 $ 67,956 $ 361,693 $ 64,960 Commercial Services 112,431 14,077 136,282 20,827 Financial Services 49,384 1,223 72,205 3,898 EMEA 210,634 34,717 188,805 36,029 Asia Pacific 89,266 21,831 83,155 11,541 Latin America 27,692 3,708 22,266 (4,255 ) Corporate/Other   515   (133,522 )   1,846   (178,184 ) Total $ 830,020 $ 9,990   $ 866,252 $ (45,184 ) Conference Call BearingPoint will host a teleconference call and an audio cast beginning at 5 p.m. E.T. on Monday, May 12. To listen via telephone, please dial 1 (800) 399-6696 [+1 (706) 679-7614 outside the United States, Puerto Rico and Canada] approximately 15 minutes before the scheduled start of the call. The audio cast will be available on the Investor Relations section of the BearingPoint Web site at www.bearingpoint.com. Approximately two hours after the end of the meeting, a replay will be available online at www.bearingpoint.com and via telephone by dialing +1 (800) 642-1687 [+1 (706) 645-9291 outside the United States, Puerto Rico and Canada] and entering conference code 42664440 from 7 p.m. E.T. on May 12 through 11:59 p.m. E.T. on May 26. About BearingPoint, Inc. BearingPoint, Inc. (NYSE:BE) is one of the world's largest providers of management and technology consulting services to Global 2000 companies and government organizations in 60 countries worldwide. Based in McLean, Va., the firm has approximately 16,000 employees focusing on the Public Services, Commercial Services and Financial Services industries. BearingPoint professionals have built a reputation for knowing what it takes to help clients achieve their goals, and working closely with them to get the job done. Our service offerings are designed to help our clients generate revenue, increase cost-effectiveness, manage regulatory compliance, integrate information and transition to "next-generation” technology. For more information, visit the Company's Web site at www.BearingPoint.com. Forward-Looking Statements This release contains forward-looking statements. Words such as "may,” "will,” "could,” "would,” "should,” "anticipate,” "continue,” "expects,” "intends,” "plans,” "believes,” "in the Company’s view” and similar expressions are used to identify these forward-looking statements. These statements are only predictions and, as such, are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict and could materially and adversely affect the Company’s financial condition and results of operations. Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. As a result, these statements speak only as of the date they were made, and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The Company’s operations, financial condition and outlook are subject to various risks. For information regarding these risks, please refer to the risk factors included in Item 1A, "Risk Factors” to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, and in its quarterly reports on Form 10-Q for its 2008 quarterly periods, as filed with the U.S. Securities and Exchange Commission and available at http://www.sec.gov. These risks include, but are not limited to the Company’s ability to: meet client demands; maintain billing and utilization rates and control costs; successfully implement its new North American financial system; significantly reduce selling, general and administrative expenses; minimize cost overruns relating to its services; meet expected near-term cash needs, and generate sufficient positive cash flow from operating activities, including to meet its obligations under its debentures (including the repurchase of $200.0 million of its debentures as early as April 2009); manage legal liabilities and damage to our professional reputation from claims made against our work; post cash collateral to support obligations under its credit facility or surety bonds if so required; obtain new surety bonds, letters of credit or bank guarantees in support of client engagements; file timely SEC periodic reports; and avoid potential delisting from the New York Stock Exchange. Financial and Operational Notes We believe that it is useful to monitor net revenue because it represents the actual amount paid by our clients for the services we provide, as opposed to services provided by others and ancillary costs and expenses. Net revenue is a non-GAAP financial measure. The most directly comparable financial measure in accordance with GAAP is revenue. Net revenue is derived by reducing the components of revenue that consist of other direct contract expenses, which are costs that are directly attributable to client engagements. These costs include items such as computer hardware and software, travel expenses for professional personnel and costs associated with subcontractors. Gross revenue for Q1 2008 is $830 million. Other direct contract expenses are $158 million. When other direct contact expenses are subtracted from gross revenue of $830 million, the result is $672 million, which is net revenue. We believe that free cash flow is a useful measure because it allows better understanding and assessment of our ability to meet debt service requirements and the amount of recurring cash generated from operations after expenditures for fixed assets. Free cash flow does not represent our residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt. We use free cash flow as a measure of recurring operating cash flow. Free cash flow is a non-GAAP financial measure. The most directly comparable financial measure calculated in accordance with GAAP is net cash provided by operating activities. Free cash flow is calculated by subtracting purchases of property and equipment from cash provided by operating activities. We believe that information regarding our new contract bookings provides useful trend information regarding how the volume of our new business changes over time. Comparing the amount of new contract bookings and revenue provides us with an additional measure of the short-term sustainability of revenue growth. Information regarding our new bookings should not be compared to, or substituted for, an analysis of our revenue over time. There are no third-party standards or requirements governing the calculation of bookings. New contract bookings are recorded using then existing currency exchange rates and are not subsequently adjusted for currency fluctuations. These amounts represent our estimate at contract signing of the net revenue expected over the term of that contract and involve estimates and judgments regarding new contracts as well as renewals, extensions and additions to existing contracts. Subsequent cancellations, extensions and other matters may affect the amount of bookings previously reported; however, we do not revise previously reported bookings. Bookings do not include potential revenue that could be earned from a client relationship as a result of future expansion of service offerings to that client, nor does it reflect option years under contracts that are subject to client discretion. We do not record unfunded U.S. Federal contracts as new contract bookings while appropriation approvals remain pending as there can be no assurances that these approvals will be forthcoming in the near future, if at all. Consequently, there can be significant differences between the time of contract signing and new contract booking recognition. Our level of bookings provides an indication of how our business is performing: a positive variance between bookings and revenue is indicative of business momentum, a negative variance is indicative of a business downturn. Nonetheless, we do not characterize our bookings, or our engagement contracts associated with new bookings, as backlog because our engagements generally can be cancelled or terminated on short notice or without notice. Utilization represents the percentage of time our consultants are performing work, and is defined as total hours charged to client engagements or to non-chargeable client-relationship projects divided by total available hours for any specific time period, net of holiday and paid vacation hours.   BEARINGPOINT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (unaudited)     Three Months Ended March 31,   2008       2007     Revenue $ 830,020   $ 866,252   Costs of service: Professional compensation 453,697 474,609 Other direct contract expenses 158,277 195,877 Lease and facilities restructuring credits (6,052 ) (4,887 ) Other costs of service   71,359     68,593   Total costs of service   677,281     734,192   Gross profit 152,739 132,060 Selling, general and administrative expenses   142,749     177,244   Operating income (loss) 9,990 (45,184 ) Interest income 2,513 1,752 Interest expense (16,069 ) (10,869 ) Other (expense) income, net   (2,331 )   95   Loss before taxes (5,897 ) (54,206 ) Income tax expense   17,292     7,500   Net loss $ (23,189 ) $ (61,706 ) Loss per share — basic and diluted $ (0.10 ) $ (0.29 ) Weighted average shares — basic and diluted 222,351,767 214,372,953     BEARINGPOINT, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)     March 31, 2008 (unaudited) December 31, 2007 ASSETS Current assets: Cash and cash equivalents $ 409,460 $ 466,815 Restricted cash 3,943 1,703 Accounts receivable, net of allowances of $6,035 at March 31, 2008 and $5,980 at December 31, 2007 362,882 356,178 Unbilled revenue 348,707 319,132 Income tax receivable 12,846 8,869 Deferred income taxes 14,322 11,521 Prepaid expenses 33,628 36,500 Other current assets   43,931     38,122   Total current assets 1,229,719 1,238,840 Property and equipment, net 111,305 113,771 Goodwill 528,230 494,656 Deferred income taxes, less current portion 17,988 25,179 Other assets   117,796     108,958   Total assets $ 2,005,038   $ 1,981,404   LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Current portion of notes payable $ 5,310 $ 3,700 Accounts payable 202,041 215,999 Accrued payroll and employee benefits 379,276 368,208 Deferred revenue 97,446 115,961 Income tax payable 41,095 58,304 Current portion of accrued lease and facilities charges 17,326 17,618 Deferred income taxes 13,336 15,022 Accrued legal settlements 23,860 8,716 Other current liabilities   110,007     108,364   Total current liabilities 889,697 911,892 Notes payable, less current portion 971,899 970,943 Accrued employee benefits 129,020 118,235 Accrued lease and facilities charges, less current portion 37,933 48,066 Deferred income taxes, less current portion 11,922 9,581 Income tax reserve 248,334 242,308 Other liabilities   148,041     149,668   Total liabilities   2,436,846     2,450,693   Commitments and contingencies (note 8) Stockholders’ deficit: Preferred stock, $.01 par value 10,000,000 shares authorized — — Common stock, $.01 par value 1,000,000,000 shares authorized, 222,707,204 shares issued and 217,907,212 shares outstanding on March 31, 2008 and 219,890,126 shares issued and 215,156,077 shares outstanding on December 31, 2007 2,214 2,186 Additional paid-in capital 1,459,650 1,438,369 Accumulated deficit (2,203,767 ) (2,180,578 ) Accumulated other comprehensive income 348,334 308,857 Treasury stock, at cost (4,799,992 shares on March 31, 2008 and 4,734,049 shares on December 31, 2007)   (38,239 )   (38,123 ) Total stockholders’ deficit   (431,808 )   (469,289 ) Total liabilities and stockholders’ deficit $ 2,005,038   $ 1,981,404     BEARINGPOINT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)     Three Months Ended March 31,   2008       2007   Cash flows from operating activities: Net loss $ (23,189 ) $ (61,706 ) Adjustments to reconcile net loss to net cash used in operating activities: Provision for deferred income taxes 5,214 7,127 (Benefit) provision for doubtful accounts (1,000 ) 1,352 Stock-based compensation 21,309 16,230 Depreciation and amortization of property and equipment 12,426 17,896 Lease and facilities restructuring credits (6,052 ) (4,887 ) (Gain) loss on disposal and impairment of assets (23 ) 106 Amortization of debt issuance costs and debt accretion 2,993 2,844 Other 3,342 (518 ) Changes in assets and liabilities: Accounts receivable 5,753 20,285 Unbilled revenue (24,715 ) (89,713 ) Income tax receivable, prepaid expenses and other current assets (4,682 ) 33,711 Other assets (8,484 ) (7,657 ) Accounts payable (17,140 ) (43,781 ) Income tax payable, accrued legal settlements and other current liabilities (10,596 ) (56,802 ) Accrued payroll and employee benefits 1,396 37,854 Deferred revenue (18,687 ) (10,849 ) Income tax reserve and other liabilities   (93 )   1,662   Net cash used in operating activities   (62,228 )   (136,846 ) Cash flows from investing activities: Purchases of property and equipment (8,428 ) (12,319 ) Increase in restricted cash   (2,239 )   (191 ) Net cash used in investing activities   (10,667 )   (12,510 ) Cash flows from financing activities: Proceeds from issuance of common stock 1 - Treasury stock through net share delivery (92 ) - Net proceeds from issuance of notes payable 2,141 - Repayments of notes payable (750 ) (360 ) Increase in book overdrafts   884     4,191   Net cash provided by financing activities   2,184     3,831   Effect of exchange rate changes on cash and cash equivalents   13,356     1,433   Net decrease in cash and cash equivalents (57,355 ) (144,092 ) Cash and cash equivalents — beginning of period   466,815     389,571   Cash and cash equivalents — end of period $ 409,460   $ 245,479       Three Months Ended March 31, 2008   2007 Gross Profit Public Services $ 76,071 $ 71,005 Commercial Services 19,322 25,980 Financial Services 5,736 8,265 EMEA 40,065 41,869 Asia Pacific 24,918 13,996 Latin America 4,656 (2,786 ) Corporate/Other   (18,029 )   (26,269 ) Total $ 152,739   $ 132,060           Three Months Ended March 31, 2008 2007 Gross Profit as a % of revenue Public Services 22.4 % 19.6 % Commercial Services 17.2 % 19.1 % Financial Services 11.6 % 11.4 % EMEA 19.0 % 22.2 % Asia Pacific 27.9 % 16.8 % Latin America 16.8 % (12.5 %) Corporate/Other n/m n/m Total 18.4 % 15.2 %