BearingPoint Reports Second-Quarter Financial Results

BearingPoint (NYSE:BE), one of the world’s largest management and technology consulting firms, today announced its second-quarter financial results for the period ending June 30, 2008.

Ed Harbach, BearingPoint’s chief executive officer, said, "I am pleased to announce that BearingPoint has returned to GAAP profitability during the second quarter by posting its first quarterly net income in more than three years. We also posted an operating profit for the second consecutive quarter and improved our net revenue. In addition, we reduced our year-to-date SG&A costs by 19 percent versus 2007, and feel good about our plans to hit our targets for SG&A in 2008 and further reduce SG&A in 2009.

"Our results reflect that, in spite of a difficult economy, we are able to successfully execute on our strategy as we streamline our business and tighten our focus in targeted areas where we have true industry leadership,” Harbach continued.

"The BearingPoint team continues to work tirelessly to serve our clients, improve our outstanding customer satisfaction record and strategically execute every day. We still have a lot of work to do, but we continue to move closer to our goal of profitability—one step at a time. This quarter was a clear step forward in that journey,” Harbach concluded.

Second-Quarter 2008 Financial Results

• Gross revenue was $886.7 million in the second quarter compared to $875.3 million in the second quarter of 2007, an increase of 1.3 percent.
• Net revenue (gross revenue less other direct contract expenses) was $694.0 million in the second quarter compared to $685.8 million in the second quarter of 2007, an increase of 1.2 percent.
• Gross profit was $209.5 million in the second quarter compared to $142.5 million in the second quarter of 2007, resulting in a gross margin (gross profit as a percentage of revenue) of 23.6 percent in the second quarter, compared to 16.3 percent in the second quarter of 2007. This increase was largely due to a $56.6 million reduction in professional compensation expense and an $11.4 million increase in revenue. The professional compensation reductions were driven primarily by the reversal of accruals associated with our global tax equalization expenses and reduction in stock compensation expense.
• Selling, general and administrative (SG&A) expense was $140.9 million in the second quarter, a $33.9 million and 19.4 percent decrease from $174.7 million in the second quarter of 2007. This improvement was primarily due to lower labor costs and other costs related to the closing of the Company’s financial statements.
• Operating income increased by $100.8 million to $68.6 million in the second quarter compared to an operating loss of $32.2 million in the second quarter of 2007, marking the second consecutive quarter of operating profit.
• Net income in the second quarter was $18.5 million compared to a loss of $64.0 million in the second quarter of 2007. Income per share basic and diluted was $0.08 in the second quarter compared to a loss of $0.30 in the second quarter of 2007. Our second quarter tax provision includes an $18.9 million foreign corporate restructuring charge, related to a reorganization of our European operations.
• Cash balance was $350.9 million on June 30, 2008, compared to $352.9 million on June 30, 2007.
• In the second quarter of 2008, BearingPoint won business with the following customers: Crestron, the Travel Channel, Southern Company, Manitoba Insurance, Northern Trust, Maryland Dept. of Education, the New York City Housing Authority, the Navy Recruiting Command, the Army Contract Agency Contracting Center of Excellence, the Dai Nippon Toryo Co., Nikon, Bendigo and Adelaide Bank, and OAO TNK-BP Management.

Second-Quarter 2008 Metrics

• Bookings were $675.3 million compared to $746.8 million in the second quarter of 2007, a decrease of 9.6 percent year-over-year.
• DSO was 87 days at June 30, 2008, compared to 95 days at June 30, 2007.
• Utilization was 79.4 percent compared to 76.3 percent for the second quarter of 2007, an increase of 310 basis points.
• Billable headcount was approximately 13,400 compared to approximately 14,800 for the second quarter of 2007, representing a decrease of 9.5 percent.
• Voluntary attrition was 26.1 percent compared to 26.4 percent for the second quarter of 2007.

Harbach added, "Improving DSO’s is one of the highest priority issues for the company and in the second quarter we continued to achieve meaningful progress versus both the prior year and historical patterns. We must continue to accelerate collections and run the business effectively in order to improve our overall cash position.”

2008 Business Outlook

BearingPoint revised its estimates for 2008 indicating that its results for the year would likely include:

• U.S. Dollar revenues flat year-over year
• SG&A of $580 million to $585 million
• Net loss of approximately $30 million to $70 million
• Year-end cash and cash equivalents in the range of $425 million to $475 million
• Free cash flow of approximately negative $10 million to negative $60 million

Segment and Region Results

Harbach continued, "Our Public Services business, which represents 43 percent of BearingPoint’s revenue, posted good results for the quarter with a solid increase in revenues and a significant increase in gross profit. Our European practice continued to grow with strong performance in Germany and France.

"Our Financial Services and Commercial Services segments are still very much in transition. But having devoted significant efforts to streamlining and stabilizing our business model, we are now turning to aggressively rebalancing the weighting of our portfolio and market offerings to provide the greatest opportunity for a return to growth in these businesses.”

Strategic Alternatives

In early 2008, BearingPoint hired Greenhill & Co., LLC to explore strategic alternatives in order to reduce or restructure the Company’s outstanding indebtedness, including 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. The Company is currently engaged in discussions and due diligence continues. The Company hopes that these discussions can be completed in the near future, and protecting the interests of our clients, shareholders, creditors and employees will be at the heart of our analysis and decisions. At present, the Company can give no assurance that a sale of all or a portion of the Company’s business can be completed in the near term at or near current market prices or at all.

Conference Call

BearingPoint will host a teleconference call and an audio cast beginning at 5 p.m. E.T. on Monday, Aug. 11. To listen via telephone, please dial 1 (800) 299-9630 [+1 (617) 786-2904 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.

A replay of the conference call will be available online at www.bearingpoint.com approximately two hours after the end of the call and via telephone by dialing +1 (888) 286-8010 [+1 (617) 801-6888 outside the United States, Puerto Rico and Canada] and entering conference code 16824978 from 7 p.m. E.T. on Aug. 11 through 11:59 p.m. E.T. on Aug. 25.

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 more than 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

Some of the statements in this release constitute "forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. These statements relate to our operations that are based on our current expectations, estimates and projections. Words such as "may,” "will,” "could,” "would,” "should,” "anticipate,” "potential,” "continue,” "expects,” "intends,” "plans,” "believes,” "estimates,” "goals,” "in the Company’s view” and similar expressions are used to identify these forward-looking statements. Forward-looking statements are only predictions and, as such, are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are based upon assumptions as to future events or our future financial performance that may not prove to be accurate. 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.

Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. The reasons for these differences include changes that occur in our continually changing business environment, and certain additional factors, including risks relating to the Company’s ability to: sign new business and recruit and retain employees; timely and properly implement its new North American financial reporting system; meet changes in client demands for our services; maintain billing and utilization rates and control costs; significantly reduce selling, general and administrative expenses; compete effectively in the markets in which we operate; minimize cost overruns relating to its services; meet expected cash needs over time, including to meet its obligations beginning in early 2009 under its 2007 Credit Facility and April 2005 Convertible Debentures; manage legal liabilities and damage to our professional reputation from claims made against our work; 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, as well as the other 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. Please refer to these filings for additional information regarding these risks.

Financial and Operational Notes

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. (Sometimes we refer to the ratio of new bookings for a period to the difference of revenues less other direct costs and expenses for the same period as our "book to bill” ratio.) 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.

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 Q2 2008 is $886.7 million. Other direct contract expenses are $192.8 million. When other direct contact expenses are subtracted from gross revenue, the result is $694.0 million, which is net revenue.

Gross margin is a meaningful tool for monitoring our ability to control our costs of service. Analysis of the various cost elements, including professional compensation expense, effects of foreign exchange rate changes and the use of subcontractors, as a percentage of revenue over time can provide additional information as to the key challenges we are facing in our business. The cost of subcontractors is generally more expensive than the cost of our own workforce and can negatively impact our gross profit. While the use of subcontractors can help us to win larger, more complex deals, and also may be mandated by our clients, we focus on limiting the use of subcontractors whenever possible in order to minimize our costs. We also utilize certain adjusted gross margin metrics in connection with the vesting and settlement of certain employee incentive awards.

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.

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 cash balance is a useful measure because it allows us to track our total cash, i.e., cash and cash equivalents and restricted cash. Cash balance is a non-GAAP financial measure as it represents the net presentation of cash and cash equivalents and restricted cash. The most directly comparable financial measure is cash and cash equivalents. At June 30, 2008, cash and cash equivalents was $347.1 million and restricted cash was $3.7 million. When restricted cash is added with cash and cash equivalents, the result is $350.9, which is our cash balance.