Syntel's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Syntel (SYNT)

Q1 2012 Earnings Call

April 19, 2012 10:00 am ET


Zaineb Bokhari - Head of Investor Relations

Bharat Desai - Co-Founder and Executive Chairman

Prashant Ranade - Chief Executive Officer, President and Director

Arvind S. Godbole - Chief Financial Officer, Chief Information Security Officer and Principleaccounting Officer

Rakesh Khanna - Chief Operating Officer


Jason Kupferberg - Jefferies & Company, Inc., Research Division

Bhavan Suri - William Blair & Company L.L.C., Research Division

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Brian Kinstlinger - Sidoti & Company, LLC

Unknown Analyst

Edward S. Caso - Wells Fargo Securities, LLC, Research Division

Puneet Jain - JP Morgan Chase & Co, Research Division

Manish Hemrajani - Oppenheimer & Co. Inc., Research Division

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Vincent A. Colicchio - Noble Financial Group, Inc., Research Division



Ladies and gentlemen, thank you for standing by and welcome to the Syntel's First Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded today, Thursday, April 19, 2012. I will now turn the call over to Zaineb Bokhari, Syntel's Head of Investor Relations.

Zaineb Bokhari

Thank you, and good morning, everyone. Syntel's first quarter earnings release crossed GlobeNewswire at 8:30 a.m. today. It's also available on our website at

On the call with us today, we have Bharat Desai, Syntel's Chairman; Prashant Ranade, Syntel's CEO and President; Arvind Godbole, Syntel's Chief Financial Officer; and Rakesh Khanna, Syntel's Chief Operating Officer.

Before we begin, I'd like to remind you that some of the comments made on today's call and responses to questions may contain forward-looking statements. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC.

I'll now turn the call over to Syntel's Chairman, Bharat Desai. Bharat?

Bharat Desai

Thank you, Zaineb. Good morning, everybody, and thank you for joining us today. We're pleased with our overall performance this quarter as growth in revenues of 17% from the prior year reflects the relative stability in the business environment and healthy demand for IT services.

Customers continue to look to us as a trusted partner as they navigate through market conditions. We're seeing this in our building pipeline, and it's coming through in the conversations that we have with our customers. Our deep engagement with our customers and our responsiveness and preparedness to help them with their business needs definitely set us apart from the pack. We expect outsourcing to continue to garner a rising share of IT budgets. Our customers are looking for innovative solutions to their business challenges, and we at Syntel continue to invest in building industry expertise, in the heavy-lifting technology skills, as well as the market-leading offerings in cloud, mobility and analytics.

Our DNA of innovation and our focus on helping our customers win in the marketplace will help Syntel outpace market growth in the current year and over the long term. Our commitment to the long-term success of our customers will ultimately drive our long-term success as a company.

I would now like to turn the call over to Prashant Ranade, Syntel's Chief Executive Officer and President, to provide further details. Prashant?

Prashant Ranade

Thank you, Bharat, and welcome, everyone. Syntel's first quarter revenues were $170.7 million, rising 17% year-over-year and declining 1% sequentially. We saw revenue growth across many of our verticals on a year-over-year basis, with health care and retail showing some of the strongest growth. We continue to strengthen some of our largest relationships and saw growth among clients 6 through 20 continue to outpace the company overall. On both a sequential and year-over-year basis, Arvind will provide further details on our revenue performance in his prepared remarks.

First quarter gross margins narrowed 27 basis points as compared to fourth quarter, coming in at 41.8%. The Indian rupee appreciations during the quarter impacted reported gross margins, as well as operating margins, and Arvind will elaborate on this later. We continued to add to our employee roles and maintain the focus on campus hiring. We grew net headcount by 175 in the first quarter, a rise of 1% sequentially and nearly 12% from a year ago. However, as a result of this, off-shore utilization for IT fell to 63% in Q1 from 64% in Q4 on a period-end basis, and to 63% from 67% on average. We expect these levels to improve in the coming quarters.

The company's SG&A expenses increased $2.3 million during Q1 as compared to a year ago, impacted by the appreciation in the rupee. On a sequential basis, the appreciation in rupee increased SG&A modestly, while currency-related balance sheet translations had a more significant impact. We are pleased with the level of operating expenses during the quarter as we maintain our cost discipline with a plan for further investments in the months to come.

As 2012 unfolds, we are keeping an eye on macroeconomic conditions and would still characterize the overall demand environment and new business pipeline for our services as stable and healthy. Client budgets are finalized in line with our expectations and we still hold a view that 2012 budgets are comparable to what we saw in the previous years. And as Bharat mentioned, offshoring will continue to garner a rising share as clients look to optimize their investment.

We continue to feel good about our business and the growth opportunities that lie ahead. We'll invest in our capabilities, build on our domain expertise and leverage our strengths to grow faster than the market in coming years and over the long term. The commitment our customers get from us will help us strengthen existing relationships and grow newer ones. We are seeing that with clients 6 through 20, and we expect to see that with some of our new clients we have signed in more recent quarters.

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