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Sapient Releases Strong First Quarter Results

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By on Consumer Staples, Energy & Solar, S&P 500

Sapient released strong first-quarter results. Revenue of $342 million grew 17% year-over-year (16% in constant currency), above management’s guidance of $328 million-$338 million and above the consensus of $334 million. Outperformance was driven by SapientNitro (up 16% year-over-year) and Government Services (up 45% yearover- year). SapientNitro growth was primarily driven by strength in Europe and a onetime project success fee, but was slightly offset by slower cycle times in North America. Government Services outperformed in the quarter primarily due to the company’s recent acquisition of OnPoint Consulting.

Non-GAAP operating margin increased by 70 basis points year-over-year, to 10%, delivering GAAP earnings per share of $0.09, a penny below our and consensus estimates. Operating leverage was partly offset by an increase in sales and marketing and acquisition-related expenses recognized in the first quarter without associated revenue. We were pleased to hear of stable demand and pipeline growth across SapientNitro, Global Markets, and Government Services. Still, management commented that it has witnessed some pricing pressure due to more in-depth involvement of procurement organizations.

While the company indicated the headwind was not due to competitive issues, it has kept decision cycles lengthy. The company maintained 2014 revenue guidance, calling for 11%-15% growth, versus consensus at 13.5%. Non-GAAP operating margin is expected to be 13%-14%, up 30 basis points versus 2013 at the midpoint as a result of higher utilization, G&A leverage, and higher profitability from international investments, partly offset by expenses related to two acquisitions (which will add roughly $3 million to non-GAAP operating profit). We expect GAAP EPS of $0.65, $0.04 below the Street, which translates to growth of 20%.

 

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