Syntel Reports Solid Fourth Quarter and Full-Year 2002 Results
Quarterly Highlights: * Revenue for Q4 totaled $42.3M and FY2002 was $164.4M * Gross margin reached 47.5% (44.7% after excluding one-time effect) * EPS for Q4 and FY2002 was $0.32 and $0.86 per diluted share, respectively ($0.22 and $0.75 per diluted share, after excluding one- time effects), respectively * Billable headcount grew by over 200 consultants in Q4 * DSO's dropped further to 52 days * Cash accretion was $16 million, resulting in year-end cash balance of $141 million.
TROY, Mich., Feb. 12 -- Syntel, Inc.
, a global software applications outsourcing and e-Business company, today announced solid financial results for the fourth quarter and full year ended December 31, 2002.
Revenue from Syntel's two strategic offerings -- Applications Outsourcing and e-Business -- increased sequentially to $39.1 million, compared to $38.4 million last quarter and $38.3 million in the prior-year period. The Company's two main service offerings now account for 92.4 percent of total revenue, compared to 91.2 percent in the third quarter and 88.3 percent for the prior-year fourth quarter. This revenue mix reflects the Company's continued de-emphasis of its TeamSourcing staffing business. Total revenue for the fourth quarter was $42.3 million, compared to $42.1 million in the third quarter and $43.3 million in the year-ago quarter.
On a GAAP basis, net income for the fourth quarter increased to $12.9 million or $0.32 per diluted share from $2.2 million or $0.06 per diluted share in the prior-year period. The prior year's net income included a write- off of software development costs relating to the Company's incubator investments of $1.0 million and other investments of $3.1 million, both net of tax. On a GAAP basis, the operating margin reached 42.6 percent for the fourth quarter, as compared to 25.7 in the prior quarter and 14.6 percent in the year-ago quarter.
During the 2002 fourth quarter, the Company reversed previous accruals of $1.3 million due to an internal policy change relating to unused employee vacation time, as was discussed during last quarter's conference call. Also, during the quarter, the Company concluded most of the matters of litigation related to the Metier transaction, an IT services company that Syntel acquired in 1999. Accordingly, $5.7 million of accrued Metier liabilities have been reversed into income during the quarter. As of December 31, 2002, $0.9 million remained in accrued Metier liabilities.
The Company's gross margin (47.5% on GAAP basis), excluding the one-time vacation accrual reversal recorded in the fourth quarter, continued to expand, reaching 44.7 percent in the fourth quarter of 2002, from 44.6 percent in the previous quarter and 38.3 percent in the fourth quarter of 2001.
"Syntel's better-than-expected earnings reflect the leverage inherent in our business model -- the offshore outsourcing of strategic IT solutions for the Global 2000," said Bharat Desai, Syntel Chairman and CEO. "As we had long expected, recent project wins have begun to ramp up and long-term recurring relationships have continued to migrate overseas. We have continued to increase the value-added component of our global delivery solutions and remain focused on enhancing operating efficiencies, which, when combined with more work being performed from our lower cost centers in India, resulted in sustainable expansion of our gross margin both sequentially and year-over- year."
Desai added, "The challenging economic environment has caused a growing number of corporate IT departments to seek out more cost effective and value- added technology service providers. Industry analysts are projecting that a growing number of prospective companies will soon pilot offshore outsourcing projects for the very first time. Therefore, while IT spending levels are not back to normal and decisions on a number of multi-year, multi-million dollar contracts continue to be extended, we are encouraged by this on-going trend. Syntel is well positioned to benefit from this movement as its on-site customer-centric focus, delivered seamlessly from our offshore service centers, is an especially attractive model to first time adopters, due to our domestic presence shouldering much of the responsibility and complexities involved in offshore delivery."
Full year revenue for the Company was $164.4 million, compared to $172.3 million in 2001. Applications Outsourcing and e-Business accounted for $148.8 million or 91 percent of the Company's overall revenue compared to 87 percent in the prior year.
On GAAP basis, net income for 2002 increased to $34.3 million or $0.86 per diluted share from $20.4 million or $0.52 per diluted share in 2001. Net income for 2002, after excluding the one time effects of the Metier related liability reversal and vacation allowance reversal, increased to $30 million or $0.75 per diluted share from $25.3 million or $0.65 per diluted share in 2001, excluding $4.1 million, net of tax, related to an impairment of investments and write-off of software development costs and $0.8 million in operating losses related to the Company's incubator investments.
During 2002, Syntel added 33 new corporate clients to its roster and launched 252 new engagements in the applications outsourcing and e-Business arenas. During the fourth quarter, more than 94 percent of the company's revenue came from customers who had been doing business with Syntel for more than one year.
Syntel's financial position remains very strong. The Company generated $16 million in cash during the quarter resulting in a cash position, including short-term investments, of $141 million on December 31, 2002. Additionally, the Company remains debt free with significant unused borrowing capacity.
Outlook
Syntel remains cautiously optimistic regarding 2003 despite the continued weak economic environment in the U.S. A 67 percent jump in the number of preferred partnerships the Company established with large clients in 2002 over 2001 supports this optimism, as does the solid traction the offshore delivery model has achieved in the marketplace.
"Syntel has been successful at establishing new global delivery relationships with major clients in 2002," concluded Mr. Desai. "However, one of our challenges has been the accurate determination of the ramp up and contribution to revenue of these new engagements. During 2002, this rate of acceleration was slower than Syntel would have liked as the client largely retains control of project timing. Therefore, for now, the Company is providing guidance only for the first half of 2003. At this time, we expect revenue to range between $85 and $87 million and earnings per share of $0.40 - $0.42 for the first six months of 2003. We look forward to providing updated guidance as the year progresses."
Syntel to Host Conference Call
Syntel will discuss its fourth quarter performance today on a conference call at 10:00 a.m. (Eastern). To listen to the call, please dial (888) 689-9220. The call will also be broadcast live via the Internet at Syntel's web site: www.syntelinc.com under the "Investor Relations" section. Please go to the web site at least 15 minutes prior to call start time to register and download any necessary audio software. A replay will be made available by calling (800) 642-1687 and entering "7787535" beginning at 1:00 p.m. (Eastern) on February 12 through midnight (Eastern) on February 17, 2003.
About Syntel
Syntel
is a global e-Business and Applications Outsourcing company that delivers real-world technology solutions to Global 2000 corporations. Syntel's portfolio of services includes e-Business development and integration, wireless solutions, data warehousing, eCRM, as well as complex application development and enterprise integration services. The company was the first US-based firm to launch a Global Delivery Service to drive speed-to-market and quality advantages for its customers. Syntel has more than 2,500 employees worldwide and is assessed at Level 5 of the SEI's CMM and is ISO 9001 certified. To learn more, visit us at: www.syntelinc.com.
Safe Harbor Provision
This news release includes forward-looking statements, including with respect to the future level of business for Syntel, Inc. These statements are necessarily subject to risk and uncertainty. Actual results could differ materially from those projected in these forward-looking statements as a result of certain risk factors set forth in the Company's Annual Form 10-K document dated April 9, 2002. Factors that could cause results to differ materially from those set forth above include general trends and developments in the information technology industry, which is subject to rapid technological changes, and the Company's concentration of sales in a relatively small number of large customers, as well as intense competition in the information technology industry, which the Company believes will increase.
Balance sheet and income statement to follow.
SYNTEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
December 31, December 31,
2002 2001
ASSETS
Current assets:
Cash and cash equivalents $134,976 $88,010
Investments, marketable securities 5,737 17,203
Accounts receivable, net 24,329 29,146
Advanced billings and other
current assets 8,545 9,132
Total current assets 173,587 143,491
Property and equipment 20,950 19,041
Less accumulated depreciation 15,801 13,823
Property and equipment, net 5,149 5,218
Goodwill, net of amortization 906 906
Deferred income taxes & other
noncurrent assets 2,801 2,632
$182,443 $152,247
LIABILITIES
Current liabilities:
Accrued payroll and related costs $10,885 $14,930
Accounts payable and other current
liabilities 12,557 19,608
Deferred revenue 5,286 5,451
Total current liabilities 28,728 39,989
SHAREHOLDERS' EQUITY
Total shareholders' equity 153,715 112,258
Total liabilities and shareholders'
equity $182,443 $152,247
SYNTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
3 MONTHS 12 MONTHS
ENDED DEC 31 ENDED DEC 31
2002 2001 2002 2001
Revenues $42,294 $43,321 $164,410 $172,283
Cost of revenues 22,216 26,735 94,010 106,943
Gross profit 20,078 16,586 70,400 65,340
Selling, general and administrative
expenses 7,776 8,651 31,421 34,522
Capitalized Development Cost
impairment 0 1,624 0 1,624
Write Back, related to
Metier Settlement 5,698 0 5,698 0
Income from operations 18,000 6,311 44,677 29,194
Other income, principally interest 985 803 3,191 3,780
Income before income taxes 18,985 7,114 47,868 32,974
Income tax 5,919 1,778 13,467 8,636
Net income before loss from equity
investment and
investment write off 13,066 5,336 34,401 24,338
Loss from equity investment and
investment write off
(net of tax) 141 3,141 141 3,893
Net income $12,925 $2,195 $34,260 $20,445
EARNINGS PER SHARE
Basic $0.33 $0.06 $0.88 $0.53
Diluted $0.32 $0.06 $0.86 $0.52
Weighted average common shares
outstanding :
Basic 38,913 38,348 38,733 38,220
Diluted 40,107 39,523 39,868 38,987
Source: Syntel, Inc.
CONTACT: Jonathan James of Syntel, Inc., +1-919-656-0294, or e-mail,
jonathan_james@syntelinc.com, or Stephanie Prince, or Julie Prozeller,
+1-212-850-5600, both of FD Morgen Walke, for Syntel, Inc.
Web site: http://www.syntelinc.com/