Syntel Inc. Posts $45.1 M for March Quarter

Mumbai: Keshav Murugesh, chief financial officer, Syntel Inc, the global information technology services firm, today announced the financial results for the first quarter ended March 31, 2004. Syntel (SYNT) is a leading global provider of custom outsourcing solutions in a broad spectrum of information technology and information technology-enabled services

Syntel's total revenue for the first quarter was $45.1 million, compared to $44.1 million in the prior-year period and $47.4 million in the fourth quarter of 2003. The company's gross margin was 42.1 per cent in the first quarter of 2004, compared to 43.1 per cent in the prior-year period and 43.6 per cent in the fourth quarter of 2003. This quarterly reduction in revenue and margin levels was anticipated due to the successful completion of two large-scale development projects at the end of 2003.

During the first quarter, Syntel's core focus area of ‘applications outsourcing’ accounted for 75 per cent of total revenue, with e-business contributing 19 per cent, TeamSourcing just over five per cent and business process outsourcing (BPO) at one per cent.

Syntel's income from operations was 22.5 per cent in the first quarter, compared to 25.2 per cent in the prior-year period and 27.5 per cent in the fourth quarter of 2003. The combined effects of continued offshore transition, reduced onsite profitability and consequential transfer pricing related changes, resulted in reducing the tax rate to 16.5 per cent. The tax reduction had a positive impact on EPS of $0.02. Net income for the first quarter was $9.3 million or $0.23 per diluted share, compared to $8.4 million or $0.21 per diluted share in the prior-year period, and $10.9 million or $0.27 per diluted share in the fourth quarter of 2003.

Syntel continues to maintain an industry-leading fixed price delivery component. This is important for a few reasons. First, customers increasingly demand fixed price delivery. Additionally, fixed price engagements coupled with our strong project management capabilities, provide Syntel with the potential for better productivity and execution levels as well as enhanced financial visibility.

For the first quarter, Syntel's fixed-price portfolio was at 51 per cent of total revenue. This level combined with our strong margins is a testament to our ability to deliver fixed-price solutions on time and within budget. This is a key differentiator for Syntel in the marketplace today.

Syntel's financial position and cash generation remain very strong. The company ended the first quarter with $145.6 million in cash and marketable securities. The company remains debt-free.

"We are encouraged by the all-time high interest levels in global sourcing solutions," said Bharat Desai, chairman and CEO of Syntel. "We believe we have built the foundation for Syntel to continue to add value to our customers and deliver solid returns to our shareholders."

In Q1 2004, total global headcount ended at 3,956, compared to 3,861 in the fourth quarter. Syntel's billable headcount at the end of the first quarter was 2,660, compared to 2,664 in the fourth quarter. Delivery mix at the close of the quarter was 47 per cent on-site and 53 per cent offshore with corresponding billable headcount figures at 1,241 on-site and 1,419 offshore. This represents a 47-person reduction on-site and a 43-person increase offshore. Utilization rates for the quarter were 98 per cent domestically and 61 per cent offshore.

Murugesh said, "Syntel has finalized vendors for its 40 acre, campus project at Pune. We will complete the site office and commence construction of the campus during Q2 of 2004. Phase 1 involves 2,500 seats and a spend of approximately $20 million. We are also developing another 1,600 seats at interim facilities even while this campus is being created.

“These are for our IT and BPO businesses. We are pleased with the way the operating metrics for our business are shaping up, and are making significant investments in India in these exciting times in the IT area and where IT and BPO intersect, as one of the leading players in this business working the US-India corridor."

Syntel remains cautiously optimistic with respect to 2004. A key business initiative for 2004 is the acceleration of outsourcing activity levels with key clients. While being focused on this objective, the timing of the scale-up continues to present a challenge

Syntel is reiterating its 2004 guidance with revenue in the range of $198 million to $208 million and EPS to range between $0.92 and $1.00. The 2004 guidance reflects aggressive hiring plans as well as significant investments necessary to fuel growth.

Syntel Inc's vertical practices support the entire design-build-operate-optimise lifecycle of systems and processes for corporations in the financial services, insurance, retail, health care and automotive industries. The first US-based firm to launch a ‘global delivery service’ to drive speed-to-market and quality advantages for its customers, Syntel now leverages this efficient model for the majority of its ‘global 2000 customers’. Recently named one of Forbes "Best 200 small companies in America," Syntel is assessed at Level 5 of the SEI's CMM and is ISO 9001:2000 certified