Infinite Computer Solutions (India) Ltd. Q1 FY 16 Post Result Conference Call Transcript August 17, 2015 Infinite Management: Upinder Zutshi Managing Director & CEO Sanjeev Gulati Executive Vice President & CFO Moderator KEYUR PANDYA PRABHUDAS LILLADHER PVT. LTD. Thank you. Good evening everyone and welcome to Q1 FY 16 Earnings Conference Call of Infinite Computer Solutions Limited. We have with us the management of the company represented by Mr. Upinder Zutshi who is the MD and CEO, and Mr. Sanjeev Gulati, Executive Vice President Finance. We will start the call with some initial remarks, after which the management can proceed with the Q&A. Thank you and over to you sir. Thank you Keyur, this is Upinder, and good afternoon to all of you and thank you for taking time to join this call. I ll give you a quick update on the quarter and after that Sanjeev is going to give you the details of the financials. Post Sanjeev and I will be very happy to take any questions that you may have. Starting with just an overview of the quarter, I think by and large this quarter has been in line with our expectations and in line with the plans that we had for this financial year. In addition to numbers, we had a very good quarter in terms of sales. So sales activity has been quite significant, we have started seeing the results of the teams that we had put in place and the sales and marketing investment that we had done over the last 12 months. The result of that has been signing of multiple new deals as well as some new clients, I ll briefly touch upon that as part of my presentation. To give you an overview of the numbers as far as the earnings are concerned in terms of revenue we closed the quarter at Rs. 470 crores which was up by about 21% YoY and 11% QoQ in terms of INR. In terms of USD the revenue was US $ 74 million which is up 13.7% YoY and 8.4% QoQ. As far as margins both EBITDA and PAT we ve seen improvement over the last quarter,, the last quarter was very down as far as the margins are concerned. The margins have started going up, though it s still not at the level that we expect it to be in the coming quarters, however as far as the Q1 is concerned the operating profit is Rs 38.3 crores which is down 19% YoY but up about 58.5% QoQ in terms of INRand in terms of USD we did EBITDA of US $ 6
million, which is down 23.8% YoY whereas it is up 55.4% QoQ basis. As far as PAT is concerned we closed the quarter with Rs 25.5 crores which is down 5% YoY, but up by 150% QoQ in terms of INR and in terms of USD the PAT is US $ 4 million which is down 10.7% YoY and up by 144.5% QoQ. As far as people are concerned, the global head count has broadly been at the same level. Global head count is 5,063 out of which we have 3,157 in India and 1,906 outside India. The cash and cash equivalent has increased in this quarter, it has gone up to Rs 193 crores, and it s up from Rs 177 crores at the end of Q4FY15. We ve seen a free cash flow of Rs 34 crores translating into cash per share of Rs 48.23 and EPS for Q1FY16 of Rs 6.35. As I mentioned we ve added 11 new clients in this quarter and some of them are quite significant, I will briefly talk about that. In addition to that we ve also added 5 new clients for our EMS (Enterprise Messaging Solution) product, which is quite encouraging and we re very excited about that aspect of our business. On business update, as far as the major MSA and deals are concerned, the details are provided in our presentation and I ll briefly take you through that. In the healthcare vertical we have signed a deal for property tax management contract which is US $ 5 million over 2 years, we also signed a very large healthcare contract for a US state on the west coast,the total value of the contract is US $ 31 million and it would be spread over 2 years. A similar healthcare contract has been signed with a state on the east coast of US and the value of that contract is about US $ 5.5 million. We ve also signed a few Medicaid and other contracts, which totalled about US $ 2 million with one of our existing healthcare client. We have a reasonable amount of success in the banking and financial space, as I had mentioned in the last call, this is another vertical that we have started to focus.. We signed a share point services contract for a fairly large regional bank in the US, the value of the first phase of that contract is about US $ 2 million and it will be executed in this year, and the work has already started on that. We also signed a network segmentation contract for a fairly large money transfer agency, It s a new client that we ve signed and the value of that contract is about US $ 2 million. With one of our existing financial services client we signed an extension of the payment gateway services and the value of that contract is about US $ 2.5 million. In the technology vertical space we signed a managed services deal in Infrastructure Management Services in Singapore. It s a multiyear deal with an annual value of about US $ 2.5 million per year. We have signed a similar managed services deal in the US, that s for providing support services to their cloud servers, again it s a multiyear deal and the value of that deal is US $ 5 million per year. In the telecom vertical, we signed a US $ 2 million deal for reengineering of the optical module, with one of our existing Tier-1 telecom vendor clients. We signed an MSA with a new client who is a leading network software provider. This client is in UK, and the MSA we have signed will be for the services in APAC region, Europe and Middle East, broadly this contract would be to help them in installation and deployment of these products in these regions. We also signed multiple new contracts with one of our existing telecom client and the value of all these contracts put together is about US $ 5 million. As far as other verticals are concerned, we signed an MSA with a new client which is a US $ 5 billion revenue company, and they are one of the largest suppliers of industrial and environmental machinery and they are headquartered in the US. We are fairly excited about
this client. We also signed an MSA with another new client, which is a Network Management Company from Sweden and the contract is to provide product development and enhancement support. We also signed a contract, an SOW with a new client in Canada; they are one of the largest manufacturers of satellites for the defence industry. The contract is for providing SAP support and enhancement services. These are some of the major deals and MSAs that we have signed. As you see there has been a significant amount of traction in that quarter. For many of these deals that we have signed work has already started towards the middle or end of Q1FY16, and we would start seeing revenue coming in from these contracts in the next three quarters. As far as our mobility and messaging platforms and IT services platforms are concerned, and as mentioned earlier we signed 5 new deals for our EMS product. One is with a California based Technology company, the other one is a Europe based global Communication Technology provider, the other deal we signed is with a Taiwan based global Value Added Services company for mobile inter-connectivity and another deal we signed is with a Telecommunication Service Provider out of Europe. Through our partner we ve signed 5 healthcare service providers in Singapore. Overall it s been a fairly good quarter as far as the EMS product is concerned. In terms of market and media announcements, Western Union finally announced that it has launched Infinite s EMS Service as its next generation messaging platform. This launch happened in the month of April and the platform is live. They ve started using the platform and we ve started generating revenue from this platform. We also launched a new product offering EMS Flex, in the month of May. Infinite s new mobile technology was awarded with a patent, and that was announced in June. In terms of IT services, business and the platforms that we are building, during this quarter new platforms were developed for mobility. Specific platform which is chain of custody which is used for asset tracking M2M and Internet of Things (IoT) solutions. It takes data and input from machine sensors, field measurement devices and so on. We also built an Enterprise Analytics Platform for the health industry to provide health analytics and it uses big data and predicative platform for patient health. And lastly our healthcare platform which is a patient centric connected care, has been further enhanced; we have introduced specific solutions for the provider and payer industry, and that platform has also started to generate traction in the market. As all of you are aware, we had announced buy back during this quarter, start date of the buyback was 6th July 2015, and we had to finish the buyback by 5th January 2016. As per that buyback, the total number of shares that were proposed to be bought back was 14.5 lakhs, out of that as of 12th August 2015; we ve already bought 11.4 lakh shares. So the total numbers of shares remaining are about 3 lakhs. Total amount that was proposed for buyback was Rs 31 crores, we have utilized till 12th August 2015Rs 22.42 crores and we have also bought since then, and I think shortly we should be able to close this buyback. The Board also discussed the dividend policy. What we decided is that in view of the business growth, the niche areas that we re looking at and some of the strategic opportunities that we are pursuing as of now, the Board decided to revise the dividend policy to provide flexibility and
announce the dividend during the fourth quarter. This was basically to see during this year what would be our need for cash if there are any strategic opportunities. Based on that at the same time keeping in mind to create shareholder value, we will decide in the fourth quarter whether to pay dividend, and if yes then how much. So that s briefly as far as the overview is concerned. Lastly before I hand over to Sanjeev, as far as the guidance is concerned, based on what we have seen in Q1, though there are quite encouraging signals and signs as far as new deals are concerned, however we re still keeping a wait and cautious approach. We continue to stay with the earlier guidance that we had announced at the start of this financial year, which is a revenue growth of 5-10%, and we would expect PAT to be broadly flat. So that s briefly from me. I now hand over to Sanjeev to give you a read out of the key metrics. SANJEEV GULATI- EVP & CFO, INFINITE COMPUTER SOLUTIONS LIMITED Thank you very much Upinder and thank you everybody for joining this call. The balance sheet, Profit and Loss Statement, Cash Flow and the other numbers have already been shared with you all via the fact sheet and the earnings call presentation. However I will take you through some of the key matrices regarding revenue analysis. Revenue by offering in this quarter, IT services revenue has gone up from 75% to 75.5%. Product engineering revenue has gone down from 14.6% to 13.2%, though, in absolute terms, the revenue is same as that in the previous quarter. Revenue from Messaging has gone up from 10.4% to 11.3%. Revenue by industry in this quarter we have reclassified our revenue into verticals which are more aligned with our company s focus areas of business. Accordingly we have reclassified revenues for this quarter and for the previous 4 quarters into Telecom and Media, Healthcare, Mobility, Technology, BFSI, and others. Revenue from Telecom and Media has gone down from 34.7% to 33.5%, though in absolute terms the revenue is about the same. Revenue from Healthcare has gone up from 15.6 to about 18.4%,in absolute terms there has been a small increase. Revenue from Technology has gone up from 41.5% to 42%, in absolute terms the revenue is the same as in the previous quarter. Revenue from BFSI is down from 2.7% in the previous quarter to 2.3%. Revenue from others is down to 3.8% compared to 5.5% in the previous quarter. As far as revenue by region is concerned, US continues to be the main contributor to our revenue, and revenue for this geography this quarter is about 87.6% compared to 85.6% in the previous quarter. Revenue from the APAC region has gone down from 6.7 to 5.9%, though in absolute terms it remained the same. Revenue from India has gone down from 7.6% to 6.4%. As far as our revenue by model is concerned; Time & Material continues to be the main model which is contributing to our total revenue. The revenue from Time & Material in this quarter is 70.1% compared to 69.1% in the previous quarter. Revenue from Fixed Price and SOW based business is down from 18.2% to 16.3%, in absolute terms there is a small fall. Revenue from revenue share business has gone up from 12.7% to 13.6%.
Revenue by customers, our Top customer has contributed 53.9% compared to 52.5% in the previous quarter. Contribution of the Top-5 customers is 79.8% compared to 77.8% in the previous quarter. The revenue contribution by the Top-10 customers is 92.2% compared to 89.8% in the previous quarter. The revenue by client profile is about the same as that of last quarter, we had 15 clients who gave us a revenue of more than US $ 1 million, 9 clients who gave us a revenue of more than US $ 5 million, 6 clients who gave us a revenue of more than US $ 10 million, and 2 clients who gave us a revenue of more than US $ 20 million, and we have 1 client who gives us a revenue of more than US $ 50 million. Coming to the business metrics, the revenue mix, the onsite revenue has gone up from 79% to 81%, correspondingly the offshore revenue has reduced from 20.9% to 18.9%. The bill rates for this quarter are in line with those of the previous quarter. The onsite billing rate is about $80 an hour, and offshore billing rate is about $23 an hour. The people metrics at the end of the quarter, the head count stood at 5,063 compared to 5,138 in the previous quarter. The attrition for the quarter was 18.4% and utilization was 79%. The DSO from the core business at the end of the quarter was 115 days compared to 129 days in the previous quarter. Cash per share at the end of the quarter was Rs 48.2 compared to Rs 44.2 in the previous quarter. That s all from my end, now we will be very happy to take any questions which you may have on our presentation and on the fact sheets which have been sent to you. Hello thanks for taking my question. My question was regarding your Top client as well as your second client. There seems to be an increase on a QoQ basis in terms of the revenue contribution. Is that because of your rollover which was pending from this client? You re saying that the Top Client revenue has gone up QoQ? Yes, there are multiple contracts, multiple projects we have with our top client, and it keeps going up and down in different quarters based on the contract that we ve signed or executed or end. So it s usual business so there is nothing or, no major change with that client. Okay. And the reorganization that you needed to do with your top telecom client last quarter, what exactly is the detail that you can share? Sorry I didn t get that question. Reorganization of what? Basically there was an issue with your telecom client in the previous quarter. So what exactly is the update on that?
It is still the same, there is no change. I mean the issue with that client was that there was a significant drop in the annual support fee for the year, so that stays and there is no change in that. What we had projected in that quarter, we will take that hit during this year. It is a status quo the way it was last quarter. Sure got it. And this big bump up in your healthcare vertical, could you just provide some colour on that please? This is largely from the deal which we had signed, if you remember, we had signed that US $ 100 million deal over 5 years with one of our healthcare clients, that has started contributing. Though it is a little behind as far as what we had initially expected would happen in Q1FY16, but those projects have started and the revenue has started coming in and it will keep going up in the quarters to come. Okay sure. Could you just clarify a little bit on the 5 customers on the EMS product? How is it going to scale up going forward? This EMS takes time, as first step is just to get the deal and install the product, but that is not the end of the story, because the revenue starts coming in, when they start using the platform. So it has a particular time frame, like the big client which is the Western Union client that we ve signed, we have started seeing traction and I think currently it s on a run rate of US $ 3 million. That s one client, now all these 5 clients have just been signed, and we will take about few months to implement the product and after that the revenue will start coming in. Okay. So the deal size is similar to the Western Union one? There is no particular deal size, It depends on the traffic and how many messages they have sent and they will send. Now the size of the deal would really depend on how big and how large the client is, so that will determine how many messages they will potentially send. Out of the 5, I can t give the names, but 2 of them are as large a company as Western Union. The number that I mentioned for that client, is also a starting number which we expect to grow significantly in the years to come. That is just a first year number, but broadly speaking that s the range we re talking about at least for 2 clients and the other three clients are smaller clients, So we will reach that level in this case. MODERATOR Next question is from the line of VP Rajesh from Banyan Capital Advisors. Please go ahead.
Good. So a bunch of questions. On the traction on the EMS product side, I was just curious if the client additions that we have seen will result in our revenue for the year exceeding last year s revenue in mobility? It won t unfortunately because while this revenue is going up, as you know we had to take a very big hit on the annual support fee for our core platform SMS and MMS platform. So that s a hit which to an extent these may compensate, but I don t see the revenue from that division being more than last year. In fact it will be lower than last year in spite of these new deals. And what will be the impact in this quarter of that US $ 9 million support fee which we had discussed in the last quarterly call? So it s roughly US $ 2 million a quarter. And then in terms of the healthcare client which is starting to ramp up, what was the revenue contribution in this quarter? MR. SANJEEV GULATI- EVP & CFO, INFINITE COMPUTER SOLUTIONS LIMITED That was about US $ 3.5 million Yes, about US $3.5 million. So it seems that this will continue to ramp up and increase in the next few quarters. Is that correct? That s absolutely correct. And as we have re-categorized the industry vertical, the breakup two questions on that. Other than your top clients, is there any other client in technology, the vertical that you have identified now? There are a couple of smaller clients. But the top client is 95% of that vertical. Okay. And apart from technology where is the majority of the top clients revenue? Is it in telecom and media or does it go into the other buckets?
It is basically telecom, media and healthcare. Oh so your top clients is distributed across these three verticals? Top 9 clients are across these verticals. 10th client is in the BFSI space. Oh sorry Upinder, I was just focusing on the top clients. So our top client we put entirely in technology. Entirely in technology? Entirely in technology, yes! No, because the revenue from the top client was Rs 253 crores this quarter and your technology is Rs 197 crores. So the remaining about Rs 55 crores or so must be from other verticals. Yes, there is some let me just clarify. See as far as the top client is concerned, what we re doing for them, that is part of technology, and whatever work we re doing for the end clients, that goes into the end client industry. So some of that revenue goes into telecom and media and little bit in others. Classification is that if the work is being done for their internal work, then it is technology, if it is done for end clients and we re able to identify the end clients, then it goes to the end client vertical. Okay. And then just going back to the mobility products, any color on next year what is the traction in the marketplace? Next year I think if we re not hit by anything and all goes well, I think next year could be a pretty big year for mobility. For two reasons, one is that we re hoping that the support fee will be higher than this year, that s one, right now it s a hope and hopefully it should happen. And then all the new clients that is EMS, RCS, the big US client, they are all set to launch this year and the multiple EMS clients that we have signed they will all start contributing more next year compared to this year. So, I think if you are able to get the annual support contract back on track, next year could be a fairly big year for mobility and messaging business.
I see. And just a few questions on the financials. Our employees expenses were up about 29% YoY but the number of people has gone down. So is it that we re hiring more expensive people on our onsite businesses? What s the color on that? There are 2 or 3 reasons, one is if you look at the work, although the total headcount has come down but the onsite headcount has gone up. Right. So, if the onsite headcount has gone up then you know it costs more. Yeah. I guess my question was that how much is your annual increase etc versus the increase because of more onsite personnel? MR. SANJEEV GULATI- EVP & CFO, INFINITE COMPUTER SOLUTIONS LIMITED There is an increase of about 100 headcount at onsite this quarter. Previous quarter it was 1,800 now it is about 1,900. So one reason for the increase in manpower cost is basically there is a direct increase as a result of the 100 people. These 100 people would have joined the company at three different months of the quarter, some would have come in the month of April, and quite a few would have come in the month of June. So the entire impact may not be there. The other reason is that there is an impact in this quarter compared to the previous quarter because of the wage hike which has been given. I was just trying to figure out that out of the increase, what is the contribution from the wage increases versus the increase in the onsite numbers. MR. SANJEEV GULATI- EVP & CFO, INFINITE COMPUTER SOLUTIONS LIMITED We don t have that analysis offhand just now, but we can definitely share it with you later. No problem. And I saw that your cash flows jumped up quite a bit and there was a big jump in the working capital items. So any color around that? MR. SANJEEV GULATI- EVP & CFO, INFINITE COMPUTER SOLUTIONS LIMITED Working capital is dependent on two things: one is what the margin we make in that month is. Definitely the margin in this quarter is higher than that in the previous quarter; and the second is a change in the working capital cycle, is a result of realization from receivables. So in this quarter the receivable realization was far higher than what we ve been having in the previous three quarters. But that does not mean that this number which we are showing as Rs 34 crores, is going to repeat QoQ.
No, no, I understand. I was just trying to understand that is it related to your APDRP receivables which have been pending for a while. We have not yet got the money from APDRP If you see, the DSO has significantly come down QoQ. And that I think that was a major contributor. Just on the guidance side Upinder, we have seen the net profit is going to be flat, and the tax rate this year of this quarter has come down quite a bit compared to the last year. So would you mind sharing what guidance translate into the EBITDA margin? Can we expect double digits EBITDA margin this year or will it be south of that, that s what I am trying to understand. EBITDA margin will be more or less same as last year, I mean around that range. Okay. And what s the tax rate for the year? MR. SANJEEV GULATI- EVP & CFO, INFINITE COMPUTER SOLUTIONS LIMITED Rajesh, the tax rate for the entire year will be around 22 to 23%. This quarter it was an exception because certain MAT credits came in. And then you know foreign exchange is going to really help you given your hedging policy or decision to not hedge. So curious if that will actually give upside bump to the Net Profit numbers. The guidance what we had given out was at Rs. 60, now if the rupee goes the way people are expecting, then definitely it will have a positive contribution to the bottom line. Got it. Okay thanks. If I have any more I will get back in the queue. Thank you Rajesh. MODERATOR Since there are no further questions from participants, I would now like to hand over the floor back to Mr. Keyur Pandya for his closing comments. Over to you sir. MR. KEYUR PANDYA PRABHUDAS LILLADHER PVT. LTD. Thank you. I would like to thank the management for providing us the opportunity to host the call, and everyone for taking the time out. Thank you and have a nice day.
Thank you. MODERATOR Thank you very much Sir. Ladies and gentlemen with this we conclude today s conference call. Thank you all for joining us and you may now disconnect your lines.