BearingPoint posts third quarter financial results

by Editor 11/11/2008 3:53:00 PM
BearingPoint, one of the world's largest management and technology consulting firms, has announced its third-quarter financial results and operating metrics for the period ending Sept. 30, 2008.

BearingPoint stated that its quarterly results continue to be reflective of the same dynamics that have driven its year-to-date results: improving operating income and margins on flat to decreasing revenues. These operating improvements are primarily the result of reductions in selling, general and administrative (SG&A) expenses, professional compensation expense reductions driven primarily by the reversal of accruals associated with our global tax equalization expenses and a reduction in stock compensation expense. Nonetheless, year-over-year improvements in operating profits, continue to be offset by a combination of increased interest and income tax expense, as well as unrealized foreign currency losses attributable to short-term inter-company borrowings.

Third-Quarter 2008 Financial Results

  • Gross revenue was $801.0 million in the third quarter compared to $861.9 million in the third quarter of 2007, a decrease of 7.1 percent.
  • Net revenue (gross revenue less other direct contract expenses) was $629.4 million in the third quarter compared to $658.9 million in the third quarter of 2007, a decrease of 4.5 percent.
  • Gross profit was $144.5 million in the third quarter compared to $132.6 million in the third quarter of 2007, resulting in a gross margin (gross profit as a percentage of gross revenue) of 18 percent in the third quarter, compared to 15.4 percent in the third quarter of 2007.
  • SG&A expense was $139.9 million in the third quarter, a $20.4 million and 12.7 percent decrease from $160.3 million in the third quarter of 2007.
  • Operating income increased by $32.3 million to $4.6 million in the third quarter compared to an operating loss of $27.7 million in the third quarter of 2007, marking the third consecutive quarter of operating profit.
  • Net loss in the third quarter was $30.5 million compared to a loss of $68.0 million in the third quarter of 2007. Loss per share was $0.14 in the third quarter compared to a loss of $0.32 in the third quarter of 2007.
  • Cash balance, which includes restricted cash, was $333.0 million on Sept. 30, 2008, compared to $431.2 million on Sept. 30, 2007.
  • In the third quarter of 2008, BearingPoint won business with the following customers: Time Warner, Total US Exploration and Production, the Maryland Department of Human Resources, the Texas Department of Information Resources, Bendigo and Adelaide Bank, the U.S. Air Force, the U.S. Marine Corps, the U.S. Department of State, the U.S. Government Services Administration and Unifi Mutual Holding Co.

Third-Quarter 2008 Metrics

  • Bookings were $739.4 million compared to $764.1 million in the third quarter of 2007, a decrease of 3.2 percent year-over-year.
  • DSO was 78 days at Sept. 30, 2008, compared to 89 days at Sept. 30, 2007.
  • Utilization was 79.1 percent compared to 78.5 percent for the third quarter of 2007, an increase of 60 basis points.
  • Billable headcount was approximately 13,100 compared to approximately 14,500 for the third quarter of 2007, representing a decrease of approximately 10 percent.
  • Voluntary attrition was 25.4 percent compared to 26.6 percent for the third quarter of 2007.

Ed Harbach, BearingPoint's chief executive officer, said, "In what has become one of the most challenging economic environments in memory, we posted an operating profit for the third consecutive quarter, reflecting the resilience of our business and our continued efforts to make the Company more efficient through diligent expense control.

"Our pipeline remains strong and we had record bookings in Public Services; and increased gross margins compared to the third quarter of last year," Harbach continued.

"Despite our significant operational improvements this year, we must accelerate our efforts to more efficiently coordinate and manage the cash and tax planning needs of our diverse, international organization. I am keenly aware that we have much left to do in a short period of time. We must aggressively pursue efforts to more efficiently move and manage our global cash balances, continue our ongoing efforts to further improve our DSOs and cash collections, reduce our SG&A costs and exit unprofitable areas of the business," Harbach continued.

The Company also announced that in early October it retained AlixPartners, an internationally known business and financial advisory firm, to assist in developing its 2009 plan, participate in its upcoming negotiations to restructure its indebtedness and lead a number of key cash management initiatives. The Company has also appointed AlixPartners managing director Kenneth A. Hiltz as BearingPoint's chief financial officer effective November 11, 2008. Hiltz will replace BearingPoint interim chief financial officer, Eddie Munson, who will continue to serve on BearingPoint's Board of Directors and resume his duties as a member of the Audit Committee of the Board of Directors.

"We're pleased to have Ken join the Company and will look to him to help us focus on improved cash management and debt restructuring," said Harbach.

Hiltz stated, "During the last month, I've not only conducted an in-depth review of BearingPoint's financials, but become heavily engaged in the Company's 2009 budget and planning process. While it's too early to make a definitive forecast, I feel very comfortable that we will have enough cash to allow us to work through the next couple of quarters as we focus, almost exclusively, on cash and other balance sheet improvements."

Update on Strategic Alternatives

As previously reported, BearingPoint retained financial advisors to explore ways to improve its capital structure and liquidity in light of its evolving cash position. These alternatives initially included a merger or sale of the Company as a whole, a sale of all or substantially all of the assets of the Company or the sale by the Company of any of its six principal business units. While the recent and sudden downturns in global financial and credit markets have created significant challenges in the pursuit of a merger or sale of the Company, they have also presented other opportunities with interested parties, which the Company continues to pursue. Because the Company has not yet reached a strategic agreement regarding a merger or sale, its Board of Directors has also directed the Company's financial advisors to begin discussions with debt holders to explore the feasibility of restructuring its debt or exchanging existing convertible debt for equity. The Company has begun to make contact with debt holders in the past week. At this time, BearingPoint can provide no information regarding the outcome of these discussions or on the timing of when they will be completed.

Forward-Looking Guidance Withdrawn

The Company announced it has withdrawn all remaining forward-looking guidance for fiscal year 2008. Given the recent dramatic changes in global financial and credit markets and the continuing pressures that these events have placed on the Company's share price, the Company is no longer confident that it can assess the near-term implications that these developments will have.

"While businesses around the world are feeling the effects of a difficult macroeconomic environment, I remain impressed with the resilience in our business," said Harbach. "However, we are uncomfortable trying to predict how client demand and the perceptions of entering into long-term engagements with BearingPoint will affect our financial position for the remainder of the year. We've factored a number of considerations into our decision, including: the speed at which our clients are making decisions based on their own outlook; the uncertainties that we face while we resolve issues such as our own noncompliance with New York Stock Exchange continuing listing standards; and our view that we increasingly believe a strategic transaction or restructuring of our indebtedness will be necessary for us to continue to fund our 2009 operations and debt obligations.

"I can only reassure our clients, our investors and our people that we will continue to explore and pursue all options that are in the best interests of our various constituencies," continued Harbach. "We currently plan to provide a business update later in the quarter after we have finalized our 2009 budgeting process, and have moved further in discussions with debt holders and other possible transaction counterparties," Harbach concluded.

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