Mr. MMEGGS: read the most recent 10Q. Cash flows from operations
have turned significantly negative in 98. This is a very bad sign.
Accounting earnings look OK but this is due to recognition of
revenues as work in progress. If you look at the increase in the
combined account receivables and unbilled revenues on work in
progress you will not like what you will see. I saw the red flags on
Sapient's accounting by myself but a friend tells me that the famed
accounting Prof. Shillit(?) had made similar comments in a recent
research report.
one more thing:
>>deferred revenues in the current
>liabilities section of the balance sheet should have a net increase in
>periods of rapid revenue growth such as SAPE is going through now. In 98Q1
>there was a significant decline, and in 98Q2 this liability account was
>about flat vs. the precious quarter.
>Of course there is always the possibility of a significant number of old
>contracts being completed without costs over runs, but in a high revenue
>growth scenario this would not be enough to offset the increase in
>liabilities resulting from the new contracts.
15 1
SAPIENT CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(UNAUDITED)
ASSETSCurrent assets:
Cash and cash equivalents.............................. $ 68,262,233 $47,314,306
Short term investments................................. 16,852,574 17,091,604
Accounts receivable, less allowance for doubtful
accounts of $425,000 and $350,000, respectively....... 22,005,451 16,217,444
Unbilled revenues on contracts......................... 17,647,357 9,070,470
Deferred income tax asset.............................. 34,914 34,914
Prepaid expenses and other current assets.............. 2,393,793 1,638,840
------------ -----------
Total current assets.............................. 127,196,322 91,367,578
Property and equipment, net................................. 7,659,025 6,315,454
Other assets................................................ 260,017 330,211
------------ -----------
Total assets...................................... $135,115,364 $98,013,243
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank.................................. $ -- $ 208,242
Accounts payable....................................... -- 15,004
Accrued expenses....................................... 1,533,372 1,924,444
Accrued compensation................................... 3,345,297 3,453,050
Accrued income taxes payable........................... 2,090,595 3,074,553
Deferred revenues on contracts......................... 4,734,667 6,307,903
------------ -----------
Total current liabilities......................... 11,703,931 14,983,196
Deferred income taxes....................................... 121,212 121,212
Other long term liabilities................................. 956,411 909,689
------------ -----------
Total liabilities................................. 12,781,554 16,014,097
------------ -----------
Stockholders' equity: Preferred stock, par value $.01 per share, 5,000,000
authorized and none outstanding at June 30, 1998 and
December 31, 1997..................................... -- --
Common stock, par value $.01 per share, voting,
100,000,000 shares authorized, 25,262,653 issued at
June 30, 1998; 40,000,000 shares authorized,
24,206,570 shares issued at December 31, 1997......... 252,626 242,066
Additional paid-in capital............................. 88,487,156 57,478,844
Retained earnings...................................... 33,594,028 24,278,236
------------ -----------
Total stockholders' equity........................ 122,333,810 81,999,146
------------ -----------
Total liabilities and stockholders' equity........ $135,115,364 $98,013,243
============ ===========
See accompanying notes to consolidated financial statements.
2
SAPIENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues............................... $35,350,203 $20,798,395 $66,080,667 $38,978,326
Operating expenses:
Project personnel costs........... 16,966,959 9,995,123 31,678,948 18,669,669
Selling and marketing............. 2,631,367 1,138,212 4,446,657 2,259,361
General and administrative........ 8,473,450 5,241,523 16,488,746 9,816,348
----------- ----------- ----------- -----------
Total operating expenses..... 28,071,776 16,374,858 52,614,351 30,745,378
Income from operations................. 7,278,427 4,423,537 13,466,316 8,232,948
Interest income, net................... 702,277 572,436 1,280,553 1,089,379
----------- ----------- ----------- -----------
Income before income taxes............. 7,980,704 4,995,973 14,746,869 9,322,327
Income taxes........................... 2,928,917 1,899,997 5,432,866 3,520,387
----------- ----------- ----------- -----------
Net income................... $ 5,051,787 $ 3,095,976 $ 9,314,003 $ 5,801,940
=========== =========== =========== ===========
Basic net income per share............. $ 0.20 $ 0.13 $ 0.38 $ 0.24
=========== =========== =========== ===========
Diluted net income per share........... $ 0.18 $ 0.12 $ 0.34 $ 0.22
=========== =========== =========== ===========
Weighted average common shares......... 25,134,991 23,844,854 24,740,475 23,783,212
Weighted average common share
equivalents.......................... 2,862,813 2,041,764 2,798,903 2,078,018
----------- ----------- ----------- -----------
Weighted average common shares and
common share equivalents............. 27,997,804 25,886,618 27,539,378 25,861,230
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
3
SAPIENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
-------------------------
JUNE 30, JUNE 30,
1998 1997
-------- --------
Cash flows from operating activities:
Net income................................................ $ 9,314,003 $ 5,801,940
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization.......................... 1,571,039 856,280
Deferred income taxes.................................. -- (97,089)
Changes in assets and liabilities:
Increase in accounts receivable, net................. (5,788,007) (2,961,704)
Increase in unbilled revenues on contracts........... (8,576,887) (1,075,636)
Increase in prepaid expenses and other current
assets.............................................. (754,953) (555,556)
Decrease in other assets............................. 71,983 --
(Decrease) increase in accounts payable.............. (15,004) 265,177
Decrease in accrued expenses......................... (391,072) (493,648)
Decrease in accrued compensation..................... (107,753) (22,874)
Decrease in income taxes payable..................... (983,958) (754,146)
(Decrease) increase in deferred revenues on
contracts....................................... (1,573,236) 77,388
Increase in other long term liabilities........... 46,722 173,809
----------- -----------
Net cash (used from) provided by operating activities....... (7,187,123) 1,213,941
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment........................ (2,914,610) (3,153,799)
Sale of short term investments............................ 239,030 3,316,723
----------- -----------
Net cash (used in) provided by investing activities....... (2,675,580) 162,924
----------- -----------
Cash flows from financing activities:
Proceeds from stockholders for notes receivable........... -- --
Proceeds from exercise of stock options................... 717,843 142,450
Proceeds from public stock offering......................... 29,296,406 --
Proceeds from employee stock purchase plan.................. 1,004,623 589,511
Principal payments on notes payable to bank................. (208,242) (126,461)
----------- -----------
Net cash provided by financing activities......... 30,810,630 605,500
----------- -----------
Increase in cash and cash equivalents....................... 20,947,927 1,982,365
Cash and cash equivalents, at beginning of period........... 47,314,306 50,301,285
----------- -----------
Cash and cash equivalents, at end of period................. $68,262,233 $52,283,650
=========== ===========
Supplemental disclosures for cash flow information:
Cash paid during the period for income taxes.............. $ 6,416,824 $ 4,348,635
=========== ===========
See accompanying notes to consolidated financial statements.
4
SAPIENT CORPORATION |
