Probably the only living beings that did not participate in the Internet boom last year were the bears that are now coming out of hibernation—with the exception of that clever entrepreneur trying to develop hibernation.com for bears ;-). We now see that many of the high tech stocks have ceased to be the high flyers they once were, and that there seems to be more interest in companies who have a long history in the marketplace. As Lyra Spratt Manning of privately owned RWS notes, “Increasingly, we are seeing customers asking about the financial strength of the companies they do business with […] profitability is no longer to be hidden.”

All in all, language stocks have survived the dips better than most. In the last couple of months, the language industry has been marked by further consolidation and second-tier financing as well as a constant stream of funds earmarked for spreading the word about localization.

The promise of globalization—and the service providers’ piece of that pie—remains a compelling story. There is more press on globalization in the US today than ever before and I have never seen more rumors circulating about new mergers, acquisitions and consolidations. We can expect more news of deals being finalized in the next couple of months.

According to Phil Scanlan at Worldlingo.com, “There is a major mismatch: 86% of Web pages in English, 50% of Internet users do not speak English. This mismatch creates a major opportunity and money is going to pour into companies that can profitably exploit the mismatch—hence the VC flowing into start-ups. We are looking to raise a round of VC finance for Worldlingo.com in May/June and we have already had a lot of interest.”

L&H writes a compelling story

L&H was the most compelling high-tech story on Wall Street during the last quarter. L&H stocks went all the way to USD 140 a share before tumbling back to about USD 100 as we go to press (early April). The combination of voice recognition and localization skills makes L&H a favorable stock pick. High-tech Investing noted in its April issue that voice recognition is one of six tech revolutions that investors have to be aware of, and L&H is their top pick. The market also greeted L&H’s acquisitions of Dictaphone and Dragon Systems favorably. The stock fell as NASDAQ plunged and profit takers decided to take their winnings. Their market capital is now around USD 4.5 billion.

Alpnet on the radar screen

Interestingly, Alpnet (AILP) was mentioned in an L&H press release, prompting a day trader to write the following message on a stock trading message board, “There is no link between L&H’s press release and ALPNET. The linkage is that both companies are in the language services business. L&H let it slip that they will be buying Alpnet; it was an accident that Alpnet was associated with the press release. I liked that Alpnet was associated with that story—more awareness of Alpnet as a player in the translation market.” Alpnet’s stock reached 10 11/16 on February 15, but had fallen to 5 by April 4, leaving it with a market cap of USD 138 million. Alpnet’s sales in 1999 came to USD 52 million with a net income of USD 716,000.

Berlitz’ revenues up

Berlitz stocks (BTZ), which hovered around USD 15 a share for the last quarter, fell to USD 12 a share upon news of its loss for the last quarter. Berlitz reported sales of USD 446.2 million for 1999 as a whole, with localization services accounting for USD 95.4 million. As we go to press, its market cap stands at approximately USD 115 million.

Berlitz’ management is planning to divide the company into two subsidiary companies with Berlitz GlobalNET as the localization focus (see Industry News). GlobalNET’s revenue was up almost 10% for the year and 15% for the last quarter. According to the company, these results “reflect strength in traditional business, volume increase in certain Scandinavian countries, results from acquisitions in Poland and France, and acquisitions in the Americas completed in June and August 1999.”

Lionbridge gets mixed reviews

At press time, the US-based NASDAQ went for a tumble and many Internet related stocks fell. At the same time the Lionbridge Technologies (LIOX) share price fell to its lowest point since September 1999 (USD 12 3/4) before rebounding. In other news, Lionbridge announced that it was acquiring well-respected Harvard Translations, following the merger with INT’L.com which is to be finalized this summer.

You have to love the day trader message boards on Lionbridge stock, ranging from “This stock really held up well during the correction,” to “SELL this dog! She isn’t going anywhere but down.” Comments from Lionbridge’s analysts aren’t as entertaining as those from the day traders, but two analysts still rate LIOX as a “strong buy” and one as a “buy”. In terms of earnings growth, LIOX rates 22nd out of 111 in the industry ranking. Lionbridge’s market cap is USD 207 million and the target price is still USD 35 a share.

Bowne breaks the USD 1 billion mark

Bowne (BNE) has became a billion dollar company with its stock trading at around USD 13 a share and a market cap of USD 507 million. Bowne Global Solutions, the localization division, reported sales for the quarter ended December 31, 1999 of USD 15 million, down from USD 18 million in the previous year. Sales for 1999 as a whole reached USD 58.7 million, up from USD 55.3 million in 1998. Bowne Global Solutions reported EBITDA of negative USD 4.4 million up from negative USD 11.1 million the year before. InfoInvest is Bowne’s Internet stock tracking service in Brazil, which tracks 600 Brazilian stocks. Bowne Internet Solutions installed the site and Bowne Global Solutions localized it. This is a prime example of the type of synergy the company hoped would develop between its divisions.

SDL on a shopping spree

ITP is another localization firm that used to be buried deep inside a much larger organization, DCC plc. That has all changed since SDL plc, flush with the proceeds of a 1 for 6 rights issue (GBP 22 million) and its IPO (GBP 7 million), bought ITP for GBP 14.25 million in cash plus assumption of ITP’s debts. Those debts currently amount to approximately GBP 2.17 million.

SDL reported sales of GBP 12.9 million in 1999, registering an after-tax loss of GBP 762,000. In reference to the acquisition, SDL stated that: “Although certain reorganization and restructuring measures will be required, the businesses together will be able to benefit from each other’s strengths in their target markets. ITP has been losing money for the last two years and the Directors are confident that a larger business can be created with a lower aggregate cost base on the basis of the economies of scale resulting from a merge of the two businesses.”

SDL also purchased Stockholm-based ATR for GBP 335,000 and Asian Localization Services for GBP 209,000. As stated in its press release, all of these moves will help expand SDL’s “global reach.” SDL stock was trading at 532 pence at the time of writing, down from its high of 902 pence.

LanguageWare and WholeTree—getting the word out

Perhaps the biggest stock price jump came from LanguageWare (OTC Bulletin Board: LWNTF, LWNUF), which saw its stock go from nine cents to over four dollars a share. LanguageWare has created a US subsidiary called WholeTree, which evolved from the old Accent International. While WholeTree is not yet profitable—losing USD 1.4 million in 1999, USD 6.8 million in 1998, and USD 13.4 million in 1997—we are already seeing a turnaround.

LanguageWare took several steps in 1999 to strengthen its balance sheet, including converting its USD 1.2 million long-term debt into equity and raising USD 2.2 million through the sale of equity and securities. It recently acquired Star+Globe, a privately held Singapore company specializing in Asian character processing.

Confident that it has turned a corner, WholeTree began an extensive advertising and branding campaign. One of its catchy ads depicts a couple kissing and reads: “Monique is in love, not with Philippe, with the Internet. Too bad she’ll break your website’s heart. She speaks French. Your website speaks English.”

According to WholeTree the ad will run in the Wall Street Journal, Business 2.0, Wired, and The Industry Standard. They will also broadcast spots in New York, Chicago, and San Francisco on CNN, Bloomberg, and MSNBC. This will keep globalization in the public eye and to my knowledge is the first time that a localization company has used broadcast advertising. The company also announced that it has engaged SGCowen Securities as its financial advisor to helped develop some additional financial strategies.

This is a penny stock that some day traders like. A couple of message board items: “I hope that the old patience is a virtue saying holds true with LWNTF,” “L&H is the largest shareholder of LWNTF. LWNTF WILL EXPLODE THIS YEAR.” and “I do like the way Deb (their PR person) keeps us informed. Her e-mails are very informative and if you notice they all have a positive flair” [Author’s note: should they be otherwise?].

Logos—Italian style

Reading financial statements and press releases in English to write this column is not that much fun, so when I checked out the Logos Group’s Web site (the Modena Italy version) recently it was a joy to read about money in Italian.

La LOGOS in Borsa—il 25% delle azioni
(LOGOS offers 25 percent of its shares)

The Logos Board has voted to offer 25 percent of shares on Milan’s New Market, choosing Credit Suisse First Boston as its global coordinator, assisted by the Italian Rolo Banca as designated sponsor. The ramp-up for flotation, which has been underway for some time now, recently received a boost as Logos drew up 1999 financial statements in preparation for early certification. The offering calls for the sale of 25 percent of the company’s stock, based on an increase in share capital (15%) and the sale of the shares of Rodrigo Vergara, the Logos Group helmsman (10%). Vergara, who currently holds 68 percent of Logos stock, has resolved to reduce his share to 51 percent and may decide to relinquish his majority holding altogether after entering into a share option agreement with the other original partners of the company. The company also plans to introduce a stock option plan on 10 percent of the capital.

At the close of 1999, Logos registered sales of USD 12.8 million with USD 2.2 million in after-tax profits, which displays a healthy margin of some 17 percent. In the words of Vergara, “Our margin is high because we have built our operations entirely around the Internet, which has enabled us to keep tight control of operating and sales costs.” Forecasts for 2000 point to a 60 percent growth in turnover, with the net margin remaining in the 15-17 percent bracket. Logos has also discussed raising money in the U.S.

VC news

Among the companies attracting venture capital, Idiom Inc. and Trados had the most to report of late. Idiom managed to raise USD 15 million in second-round financing from four venture capital firms: Jafco, Greylock, North Bridge and Sigma. According to a spokesperson “Idiom expects the investments to provide the funding necessary to aggressively pursue international partnerships and customer opportunities arising from the remarkable worldwide growth of e-business.”

Trados, on the other hand, raised USD 10 million from Mercury Private Equity, a subsidiary of Merrill Lynch, following USD 5 million in first-round financing from Charlotte-based First Union Capital partners. “Translation is becoming a must for companies doing business,” said David Scanlan, principal of Capital Partners.

NB: Stock quotes in this article refer to current prices when the article was written [April 10].

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John Freivalds

JFA
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E-mail: JFA@worldnet.att.net