Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Phaneesh Murthy – Chief Executive Officer, President

Sujit Sircar – Chief Financial Officer

[Salil Revendrun] – Director of Investor Relations

Analysts

Brian Kislinger - Sidoti & Co.

John Mayetta - Needham & Co.

Tim Brown - Ross Capital Partners

Vincent Colicchio – Noble Financial Group

[Jacque Sonnins] – Great Gable Partners

iGATE Corp. (IGTE) Q3 2008 Earnings Call October 17, 2008 9:00 AM ET

Operator

Welcome to the iGATE corporation Q3 2008 earnings quarterly conference call. (Operator Instructions) It is now my pleasure to introduce your host Mr. [Salil Revendrun] Director and Investor Relations for iGATE.

[Salil Revendrun]

With me on the call today are Phaneesh Murthy President and Chief Executive Officer of Finance and Sujit Sircar, iGATE’s Chief Financial Officer.

This call is being recorded with and a replay of this call will be available within a few hours. Our earnings release which has been forwarded to our people is now posted on our website.

I would like to remind everyone that statements made during this call that are not historic in facts of forward looking statements. These forward-looking statements include our financial growth and liquidity productions.

As for the statements about our plans, strategies, intentions, or beliefs concerning our business, capitals, costs, and the market in which we offer it. Without limiting the foregoing the worst beliefs and anticipates, plans, expects, and similar expectations are intended to identify forward-looking statements.

These statements are based on information currently available to us and we assume no obligation to update these statements as a consensus change. Then are uncertainties that could cause actual events to be materially different from these forward-looking statements including both the cautionary language, some of which are beyond our control. As a reminder we will not discuss further earnings during the quarter in one on one meetings of cost and we have no intention at this time of forbidding should our circumstances change.

I will now turn the call over to Phaneesh.

Phaneesh Murthy

Thank you [Salil] good morning everybody. Clearly we all live in interesting times and it’s a fascinating field and the U.S. economy and I say even the global economy. I’ll just start with some broad reason market and then boil it down to iGATE’s results.

So from the read on the markets, as many of the American companies moving to budgeting for 2009 I think our overall sense is that individual [inaudible] budgets are actually going up for 2009.

However, because the overall market is contracted the number of companies being significantly less, I think the market tries to make, to some extent has problems already. We don’t, we actually anticipate that some of the trends in the market have come to our favor.

The first is that some of the companies that we are working with are actually doing quite well. Royal Bank of Canada, Union Bank of California, etc. are doing quite well. That’s one. The second more important thing is that because we don’t have a large geographical reach the fact that the market has got consolidated and we have a fewer number of customers to go after.

Clearly we will I think that the four dollar model of an inch wide and mile deep kind of business philosophy so all in all I think while the market conditions continue to remain challenging the decision making continues to be a little slow.

The fact that we have a clearly depreciated business model, the fact that I talked variable pricing, pricing is actually being seen more and more as an advantage in these uncertain conditions. Coming to the business reductions of iGATE itself I think clearly in spite of challenging times and particularly where you feel revenue growth is challenging in effect what we end up doing is hunker down and try and insure that we tighten our operations and squeeze costs out.

So our revenues remain largely flat, you know, there have been a $600,000 exchange rate negative impact so otherwise it would have grown by 1% but awfully flat you could say from a revenue perspective.

Margins have gone up very nicely part of the margin increases actually comes from the exchange rate moving to our advantage in the last quarter but that’s a small part of the margin growth. The others have come because of increase in utilization based on the restructuring that we did to our operations in total.

We’ve added seven new customers during the quarter, again, some of these names are very good quality names and have potential to do well for us in 2009. The, iGATE was ranked as India’s number one top IT employer in the Dataquest IDCE and best IT employer so we saw again we were act number three in the same survey last year, so again fairly big kudos to us.

We’ve completed all of the corporate actions that show pending in the company. The Mastech holdings spin off is completed. And, also, the sale of the iGATE clinical research business was completed.

Also, I want to welcome on this call Sujit Sircar, you know, first time we are having him on the call as almost all of you know, probably, our last CFO Ram has a wreck sudden and untimely death in the middle of the quarter so we do have welcome Sujit Sircar on this call.

Earnings from share were $.15 for a very robust $.15 per share and, you know, this is from the continuing operations. This is an increase of about 200% from the corresponding quarter last year.

So I think clearly the fact that we can deliver a margin expansion, earnings growth, our comment was to try to be as close to best in class in earnings and growth and I think clearly we have demonstrated that. We are there.

Growth margins also expanded quite nicely so all in all I would say not a great quarter from a revenue perspective but a lot of it is due to the market conditions. I think which we are all fitting in which we are all fairly well aware.

But among those circumstances I think we’ve done phenomenally well and the team has delivered really fantastic earnings growth. In addition we have a fine number of interesting deals with some of our existing customers, which are multi year deals. So taking our visibilities of revenues fall forward quite nicely.

And, now I am going to hand over to Sujit to take us through some of the financial highlights and after that we’re going to open it up for question and answers.

Sujit Sircar

Thank you, Phaneesh, good morning everyone and thank you for joining us on this call. I take this opportunity to briefly discuss with you the key highlights of our financial performance for the quarter ended September 20, 2008.

I would like to mention that all numbers that I’ll discuss are for the continuing operationd off of the professional services segment, which we completed as of 20th of September. Revenue from continuing for the quarter increased to 55.4 million compared to 50.4 million in the same period last year.

The improvement in revenue was due to existing customers and increased in the number of customers added. This is despite the period with a melt down in the financial services industry.

The third quarter of 2008 has been a good quarter on the margin front. Cross profit margin improved significantly from 32% to 38.4% year on year. The improvement in margin was, is due to the increased utilization, improved average realization and favorably [inaudible] movement.

Our SG&A including depreciation, amortization, for the quarter was 11.4 million or 20.5% of the revenue as compared to 9.9 million or 19.7% revenue the third quarter of last year. The increase in SG&A was due to increase in cost of new facilities, additions and provision for some back date and investment in sales and marketing.

Income operations for the quarter improved significantly to 7.4 million from 3.4 million in the same period last year. Operating margin has gone up to 13.4% of revenue from 6.8% in the corresponding quarter last year.

Net income from continuing operation increased to 8.5 million or $.15 per diluted share compared to net income of 2.9 million or $.05 per diluted share in the same period last year. The net profit margins too, were 15.3% of revenue from 5.9% in the same quarter last year.

The significant improvements, earning is the result of our continuing efforts to tighten our operations, which we focused on ever since the first sign of trouble in the U.S. economics. We have restructured to deliver our mission with a more vertical alignment and created a central resource pool that will help push your [inaudible] up.

These efficiency measures undertaken have been effective helping us deliver superior earnings for once again. For the nine months ended September 30, 2008 the company generated operating cash flow of $33.4 million compared to $19 million made in the first nine months of 2007.

The CapEx for first nine months in 2008 was $10.9 million compared to $6.7 million last year. As of September 30, 2008 the company balance sheet remains strong with$ 61.4 million in cash and charter investment, zero debt and $143 million in shareholder liquidity.

The DSO has also come down to 70 days compared to 73 days as of the end of the previous quarter and 80 days ago corresponding September 30, 2007 number. Our lightest customer accounted for 26% of the third quarter revenue and our top five customers accounted for approximately 61% of our revenue.

At the end of the quarter our worldwide head counts to that 6,407 people. Now let me brief you about the status of third quarter [inaudible]. During the quarter we completed the pin off of the professional services business into a publicly traded company named Mastech Holdings.

And, that happened on September 30, 2008. The same process of our clinical research business was also completed along with the statutory approval during the quarter. The results of the professionals service and clinical research business have been reported as continued operations as of September 30, 2008.

The figures for the last year have been reclassified accordingly. And the [inaudible] have not done the call back with [inaudible].

Unidentified Corporate Participant

Thank you Sujit, thank you Phaneesh, [Claudia] we may now open the floor for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question is coming from Brian Kislinger – Sidoti & Co. Please state your question.

Brian Kislinger -- Sidoti & Co.

My first question is did you experience some start up delays and if so are those programs now be done so that you may or may not have confidence that you’ll return a sequential growth in the fourth quarter?

Phaneesh Murthy

I think Brian we have started many projects with existing customers, but we’ve also, like I've said, taken some hits with the collapse of the Bears Stearns and the Lehman Brothers and stuff like that. My own view is I think that any reasonable sequential growth for this quarter is very, very unlikely.

I think we will continue to focus on delivering good quality margin. You know, I have been talking to a number of my colleagues in different companies and I think everybody is in fact expecting December to be a really nasty quarter.

We have reasonable visibility but my concern is that I don’t see any significant growth in this quarter.

Brian Kislinger -- Sidoti & Co.

Okay and let me just reconcile that because I though Bear Stearns was the first of half event and you had hardly any exposure to Lehman. I am sure you’ve other clients that aren’t discussed, I mean you don’t have two clients but it seemed to me that it sounds like a lot of your individual clients are doing pretty good so and you’re starting up a couple of new contracts so I am curious why there might not even be nominal, you know, sequential growth?

Phaneesh Murthy

I think two, three things. I think a couple of our financial services plans are clearly are doing well. No question about that. But, we’re also seeing in many of our other financial services plans some kinds of cutbacks.

Lehman like you said was, you know, not a very large customer, a 1.5% kind of a customer but still, I’m sorry, that’s 1.5% of the business. So I think it is just the fact other than these couple of financial service companies where things are going well, we have seen sluggishness all around in all our other customers. So that’s clearly the challenge.

Brian Kislinger -- Sidoti & Co.

Okay, and can you give us a sense for what the average bill rates and then offshore and onsite utilizations were during the quarter?

Phaneesh Murthy

Both, the offshore and onsite bill rates actually went up during the quarter, the onsite bill rates actually went up by about a percent quarter-on-quarter and then the offshore bill rates went up by about 0.5% quarter-on-quarter.

Brian Kislinger -- Sidoti & Co.

Can you give us those numbers by any chance?

Sujit Sircar

Yes. Brian I will send you those fact sheets on an email or something?

Brian Kislinger -- Sidoti & Co.

Right, well, I guess I am curious because you’re specifically say in your numbers that or in you’re presentation that utilization went up so I am curious how much it went up and then I am curious where you hope to take it in the next three to six months based on what’s going on in the market place.

Unidentified Corporate Participant

Our utilization actually went up from 76% last quarter to 80% this quarter and in terms of average bill rate it has gone up from 20.5 in offshore to 20.6 and onsite bill rate has gone up from 68.7 to 69.6.

Brian Kislinger -- Sidoti & Co.

And when you guys think about a little bit slower demand environment do you think that 80 can go to 85? Or do you think 80 is where you want to be right now?

Phaneesh Murthy

Actually I think there are two factors for the disposition Brian. The first one was because of the, what we did was that we actually restructured our operations and created a more central resources pool where we reallocated our bench to central resourcing so that we could leverage that more equally in these conditions.

So clearly because of that we’ve been able to gain some efficiencies there. So we may have a point or two more that we can gain but not a whole lot more on the utilization. So I think we, you know, right now I would say that our utilization will probably be just typically around 80 or just a little north of the 80 for the foreseeable future.

Brian Kislinger -- Sidoti & Co.

I’m interested in your thoughts on salary increases for the industry. Before there was robust demand, you know, hiring was sort of competitive with all your peers and now given hiring has slowed and the demand for people probably isn’t as difficult. Do you see less than 10% salary increase at the next go round?

Unidentified Corporate Participant

Yes, I think it’s about six months away that we are talking about.

Brian Kislinger -- Sidoti & Co.

Of course.

Unidentified Corporate Participant

It will but I think if this environment continues I do believe that the salary growth rate will slow down to single digits.

Brian Kislinger -- Sidoti & Co.

Okay and then my other question is I just want to talk about the rupee real quick and from our conversations I think I’m understanding that you’re pretty hedged this year so I’m curious how much hedging cost you this year and then as I looked at 2009 is that when you’ll get the full effect or windfall if we stayed here at currency rates?

How should we think about that in the past and how should we think about that going forward?

Phaneesh Murthy

If you really look at it from other industry, other company perspectives, there’s a lot of other income, [inaudible] people have taken during a couple of quarters which we have not done if you have seen our income statement and this is because of our sound hitting quality.

We kind of go ahead and take up two years hedging and we keep on, you know, honoring, doesn’t matter if it goes up or down because when the rupee was going at 40 and people were thinking it will go down to 25, Europe that time also people took lots of liberty structure but we have some hedging policy, which kind of give us every month on month we take our rupee heading position.

So, currently what I am saying is that Europe, we think the rupee is going to be Europe until the economic business company will be [inaudible] driven situation and nothing to do with depreciation of dollar, the way it is going on right now.

And, we, based on that we have kind of hedged couple of years and our, we don’t foresee a major [inaudible] you know, income so far, margin, I think it should have an impact in [inaudible] 1 to 1.2 person income so for our margin.

But that gets settled out in your exchange loss or gain in the other incomes. So, you know, it, to be very frank I think next six months the rupee will stay where it is now and after that it should have its status based on the economic situation.

Brian Kislinger -- Sidoti & Co.

Right, so what I don’t understand is I am not worried about where it goes, we have gone from 38 to 48.

Phaneesh Murthy

Right.

Brian Kislinger -- Sidoti & Co.

And, so, I am curious, I mean month to month or two years I’m not sure, but I want to know when this hedging, when most of your hedges end and then if that is in the first quarter of ’09 or the second quarter of ’09 at a 20% move and you pay your people in rupees, that huge.

And, so, I am curious when that expires and if so, when that does will see that big windfall at that point of lower costs?

Phaneesh Murthy

Yes, so, Brian, just so I can answer that question. I think this will give you a little more color. Roughly about 30% of our hedges are three-year hedges. The balance of our shorter term hedges, one or two year hedges, so the answer is that in 2009 if our commissions stay like this we will get a bump up in 2010 we will get a bump et cetera because our average or realized rate for the rupee will keep on going up.

Brian Kislinger -- Sidoti & Co.

And, it will, doesn’t seem like that would be modest, am I correct? I mean, there’s, this has been a huge move, 20%.

Unidentified Corporate Participant

Yes, but you know, roughly, you know, if you look at, the way it works is that for every 10% in currency movement you gain about 2% in margin.

Brian Kislinger -- Sidoti & Co.

Well, that’s a lot.

Unidentified Corporate Participant

Yes, that’s a lot.

Brian Kislinger -- Sidoti & Co.

If we moved your margins up 4% that would be huge.

Unidentified Corporate Participant

Yes.

Brian Kislinger -- Sidoti & Co.

Great I will ask other questions after others get a chance thank you.

Operator

Our next question is coming from John Mayetta with Needham and Co. Please state your question.

John Mayetta -- Needham & Co.

Okay, thanks very much. Phaneesh on the last call you had mentioned sort of a long term 40% gross margin target, 20% operating margin target, given what you have done here in terms of kind of rationalizing and enhancing the efficiency of the operation do you think maybe that 40% gross margin target has some outside potential? Over time, I mean, not immediately but –

Phaneesh Murthy

I think the answer is yes and I think the answer is also the fact that, you know, I think we have said that a 40\20 was kind of a longer term target with clearly the 40% looks not as long term as the 20. So I think there are both [inaudible] to this.

One is the fact that we probably will reach it a little earlier and second potentially or longer term we have set on that.

John Mayetta -- Needham & Co.

Got it, okay. And just kind of a couple of housekeeping questions here. You didn’t pay taxes this quarter; you got a nominal benefit should we revert back to the modest tax expense in Q4?

Unidentified Corporate Participant

See there are three things, one of the tax expenses because of our [inaudible] has been off, the continuing operation is solely the iGATE coop expenses which is kind of, you know, getting recorded so then we are getting a tax benefit out of that.

That’s one. Two we are kind of, you know, coming to an end after our tax holiday period which is in 2010 so they're counted; they’re for tax assets to that exchange. So that’s the second position and the third we have kind of created a cross in India for our domestic business which gives you a tax free position on the order of the benefit you put in there.

So that has also presented us some tax benefits and that’s the reason that you see the tax being negative there. On Q4 we’ll be, you know, we will be, our business benefits will kind of reverse out over the period of time I think that there will be an additional charge of $150,000 on that, Q4.

John Mayetta -- Needham & Co.

Okay. And, then Sujit with regards to the balance sheet item, there is an item liability and outstanding derivative contract. What exactly is that in relationship to?

Sujit Sircar

We go by the cash flow hedges and what happens is that, whatever, for three years period whatever the MPM, month to month, MPM, provisions have been, that might, as long as the cash flow hedges get reversed the charge gets, you know, kind of put in the income statement and that’s what the, you know, past 133 of hedging instrument. Hedging contracts.

John Mayetta -- Needham & Co.

Okay. And then I guess just a last question I had, finish with regard to if you look at sort of the top ten customers that, did that customer group grow sequentially in September?

Sujit Sircar

Yes, top ten accounts have been growing for us. It has gone from 70% last year to 75% in this quarter.

John Mayetta -- Needham & Co.

Okay and actually just one more quick one. With regard to the seven new customers added in the quarter are those kind of spread across all industry verticals? Or were they concentrated in a particular industry vertical?

Sujit Sircar

We had a couple of companies in financial services but really we ended up finding that we we’ve expanded, that the industry verticals to most of the other companies have come out in manufacturing and oil and gas and stuff like that.

So we actually ended up picking up customers in different verticals.

Operator

Our next question is coming Tim Brown – Ross Capital Partners.

Tim Brown -- Ross Capital Partners

Hi, morning guys, a couple of questions, first just trying to drill down on your current revenue base. I was wondering if you could give us just an idea of in Q3 how much of the spending you would consider discretionary, just as a percentage?

Phaneesh Murthy

It's difficult because we don't classify it like that and I'll tell you why. We had, for example, towards the end of June, GE contract on a lot of spending and when GE cut back, at least – let me rephrase that. A couple of divisions of GE cut back on a lot of spending towards the end of June and when they did that it was just not project that we thought were discretionary that were cut. It was also some maintenance work which we were doing which got cut.

So I don't know if once you have started a project I don't know if the classification of discretionary versus non-discretionary is still being held valid because if even maintenance work was being cut to that extent I think clearly we are finding that everything is discretionary.

Tim Brown – Ross Capital Partners

And I guess just looking at your customer base in Q3, how much revenues did you get from Bear, Lehman or anybody else that is in financial trouble?

Phaneesh Murthy

I think about a percentage of our revenue roughly.

Tim Brown – Ross Capital Partners

So that's down to about a percent and I assume most of that is going to go away in Q4?

Phaneesh Murthy

Yes.

Tim Brown – Ross Capital Partners

And then in the press release I think you mentioned iTOPS is getting pretty good traction. I'm just curious at this point what percentage of the business is iTOPS and where do you think that goes in 2009?

Phaneesh Murthy

I think iTOPS hasn't moved appreciably in this quarter. Having said that just based on the order book in the pipeline we see that it's growing. Our goal is to get it up to about 30% in 2012 and we see that 2009 will be a year which will contribute towards a significant uplift in that iTOPS revenue.

Tim Brown – Ross Capital Partners

And in the press release you guys, you had a bunch of wins that you mentioned in the press release and I'm just curious are those wins already in the revenue at this point? Are some of these expected to be ramping up in the next couple quarters?

Phaneesh Murthy

No, when we talk about a client win we only talk about a client win after we have started the post project. So we don't just count and MSA as a win. Until we have started the post project we don't, however, having said that the first project may be a small project, and so all the clients are in the revenue. So we've actually opened [inaudible], you could look at it that way, 90 clients year-to-date in 2008 and that would be our best record ever.

Tim Brown – Ross Capital Partners

But I guess just later in the press release I think there were some key customer wins and significant projects, some iTOPS deals and I was just curious if those had already been in the revenues or if those are still to be ramped up separate from the others?

Phaneesh Murthy

I think some of it is still to be ramped up and some of it could have started off at some revenue then to ramp up to slightly more revenues in the next quarter.

Tim Brown – Ross Capital Partners

And in terms of, moving back to sequential revenue growth, is that something you think you can do in Q1 of '09, or the March quarter of '09? Or is the visibility just not there?

Phaneesh Murthy

Yes, I think that's the challenge here. It's getting difficult to forecast that. I think we had that and what we had was good visibility, good audibles, good potential for growth and stuff like that. And then all of a sudden some of the bottom did drop out of the market. So we did the best that we could by squeezing on other aspects and making sure that the margins continued to grow.

I think to be honest our strategy for the next one or two quarters is just going to be focus on margin growth. We want to do that. We'll push for the revenue. I don't know how much is out there. To be honest I just don't know how much is out there and how soon the money will start getting released.

Tim Brown – Ross Capital Partners

And I guess in terms of the new, the 19 clients that you signed this year, how many – can you give us an idea how much revenues they've generated? I mean is this where, I guess we're looking into '09 and if you get incremental revenue in '09 is it going to be coming from these 19 clients or already existing clients?

Phaneesh Murthy

We think that just on a rough model basis we think that these clients may contribute roughly about 10% of our '09 revenues.

Tim Brown – Ross Capital Partners

And then just the pipeline for additional client wins, can you just give us a little bit of color there?

Phaneesh Murthy

I think win [inaudible], again, my sense is that we will be at this level, the six or seven level. Things are looking good. We will be at the six or seven level OND. It is I think the problem that I'm seeing is that the initial project titles, at least for us, seems to have come down a little. When you open a client the initial project that the client is giving you probably has some down inside so that's one little bit of a challenge.

But the fact that we're opening these doors and the fact that we're opening these doors at a senior executive level and engagement level seems to be high. It gives me good hope and optimism for the future.

Tim Brown – Ross Capital Partners

And then just on the P&L, the SG&A, I was surprised it went up sequentially and I was wondering if you got a foreign exchange benefit versus Q2? And I don't know if you can just give us a little bit of color on how much bad debt was in there?

Phaneesh Murthy

Yes, we can actually on the – see I think there were two or three factors here. The first factor of course is the fact that in the previous quarter we actually had a significant reversal of provision for bad debt. So that helped bring it down below the normal running SG&A level. This quarter we actually had an increase in provision for bad debt because of some of the other financial services missed. So that had taken it up beyond the thing. In addition there is for a 2001, what is it?

Sujit Sircar

There is some tax liability which has come in part in 2002, 2003 which we have taken some provisions off of that and this is a long, obviously we're taking a provision we have to go and see what – how to kind of reduce that but that. And any kind of per cost which comes in which we see a potential that we kind of take a provision for that charge, so that's a couple of hundred thousand.

And as Phaneesh was saying that there was a reversal last quarter. This quarter there was addition so gave us close to from $700,000 of in fact in addition to that we have opened up a couple of facilities in our [Hydrobad] and [Chenai] and for which there is an additional facility cost which has also kind of impacted us.

Tim Brown – Ross Capital Partners

So I guess going forward, I mean is the $13.8 million a reasonable run rate or do you expect that to go back down?

Phaneesh Murthy

I'll tell you what. The additional facility costs which started from September onwards will have an additional impact in terms of the cost but it will be offset – we don't see any more kind of provision on the account of receivables, so more or less that will set it off. So we think this is the level which will continue for one or two quarters now.

Tim Brown – Ross Capital Partners

And then just finally on gross margins you had such a sequential rise. Do you expect to be able to continue to move up sequentially to that 40% over the next couple of quarters?

Phaneesh Murthy

I think one of the things, as you know, we have grown from $35.7 to $38.4 in this quarter which is almost $2.7 and 1% out of that is definitely due to the [Beiching] movement and this is not in our hand. This is a market and how it kind of moves in, but only with respect to the efficiency we have moved a couple of percent page forward because of our efficiency based on our utilization.

And that definitely kind of going up and that's our focus, so basically what I want to say is that one is without – we don’t have control over it and one we have control over it in terms of the utilization and in terms of our average utilization we are certainly doing lateral things to kind of bump it up and we hope exchange also moves in our way.

But I think the goal is to get to that [inaudible] within a couple of quarters, yes.

Operator

Our next question is from Vincent Colicchio – Noble Financial Group. Please state your question.

Vincent Colicchio – Noble Financial Group

Good morning, guys. Just a couple of questions, most of mine were answered. How many clients, new clients added of the seven were foreign businesses?

Phaneesh Murthy

Actually, some of them were non-U.S.

Vincent Colicchio – Noble Financial Group

The reason I ask, you’ve had some success in recent quarters adding, diversifying outside of the U.S. Should we expect that to continue going forward? What's the outlook there?

Phaneesh Murthy

I think, yeah - I think we should, because we’ve had, and we ask you to remember, some of our in our operations, both in Europe and Australia, so we are continuing to have plans there. So the answer is, yes I think you should continue to see addition of non-U.S. plans in [inaudible].

Vincent Colicchio – Noble Financial Group

And on the overall competitive environment, are there any unique aspects? Anything different happening there, and looking ahead, if we stay in a really difficult market through mid next year or after, do you expect at some point pricing pressure? What are your thoughts there?

Phaneesh Murthy

I, actually, on the market, to be honest, it sounds strange, but I’m actually salivating a little, because what happened is that the number of financial institutions has compressed. Because a number of financial institutions has compressed is that large companies which traditionally had to lead had a huge advantage, I think that has gone away. We've got instead of ten now you've got only three or four financial institutions.

We believe that we have a very good differentiated model, and, for others we have always been a little more laser-sharp kind of a focus, so to that extent I do believe that we will have a little, I’m hoping that we come out with a little better advantage with all of this. Now, due to the fact that that number of customers have contracted and everybody that will have to do with customers yet, and I do ask that they will become driving pressure because of the competitive environment that that will be created in the fewer customers who are actually going to spend more money.

Operator

Our next question is coming from Brian Kislinger – Sidoti & Co.

Brian Kislinger -- Sidoti & Co.

Okay, thanks. I have a couple of follow-ups. The first of all, you mentioned Australia, and I wanted to talk about that. You obviously signed your first state there a little bit ago. What’s the pipeline for other states, and have they decided to slow down based on the overall world economy, or are they continuing to discuss or start to issue RFPs?

Phaneesh Murthy

No, I think – I don’t feel that the states have an issue with this. One is because this is a clear cost reduction from them. My sense is that another state will probably come on, not as big. They will probably come on potentially this quarter. At least we are hoping that we will find agreement potentially this quarter. But we are actually acquired another financial services customer in Australia in the last quarter. So my sense is that, I don’t see that the states will have a particular problem because of what’s happening in the economy in this particular case.

Brian Kislinger -- Sidoti & Co.

Great, and at the beginning of the year, you mentioned a customer delay from industrial goods company, and it was a significant delay for you guys at the time, and I’m wondering if there’s any update on that situation.

Phaneesh Murthy

It is still being discussed. I mean they still haven’t decided between Oracle and the city, and they’re moving at a very leisurely pace on that decision. And while we are in there discussing with them, I mean clearly we can’t helping our revenues right now.

Brian Kislinger -- Sidoti & Co.

Okay. So it’s not a near term catalyst because it’s going slow. Is that fair?

Phaneesh Murthy

Yeah, I think a fair comparison.

Brian Kislinger -- Sidoti & Co.

Great, and then in the SG&A, did you have any of the continuing operations, did you have any non-recurring costs from the spinoff, and if so, how much?

Phaneesh Murthy

In the SG&A, did we have non-recurring costs?

Brian Kislinger -- Sidoti & Co.

I mean didn’t you have costs from the spinoff that won’t repeat itself from where is that and how much?

Sujit Sircar

No, the non-recurring expenses that’s for the discontinued operations has been kind of classified in discontinued operation itself. We don’t have any non-recurring expenses.

Brian Kislinger -- Sidoti & Co.

And with the changes in interest rates, what kind of return should we expect on your cash?

Phaneesh Murthy

Currently for in India we are getting around 8% on our interest rate, but I think that the liquidity cost - I think we stay in this range of ten.

Brian Kislinger -- Sidoti & Co.

Can I put my money in that savings account?

Phaneesh Murthy

Yeah, but you have to go through the risk of the exchange.

Sujit Sircar

You have to go through the exchange with it. That's the problem.

Brian Kislinger -- Sidoti & Co.

Yeah, well, hopefully we’ll stay here. The next question I have you provided in the past was –

Phaneesh Murthy

Just to clarify that 8% typically ends up on about half our cash balance.

Sujit Sircar

Correct.

Phaneesh Murthy

It is not all our cash balance because some of the cash balances is spread across in different subsidiaries that appear in branches which are there that which we need for cash and operations and working capital and some of the cash, because they're for salaries for people in the U.S. and in Canada, etc., that’s why we don’t actually give it back to India.

Brian Kislinger -- Sidoti & Co.

That’s very helpful. Thank you for that point. Million-dollar clients, you haven’t provided this in a couple of quarters, and I just wanted to see overall, I see 30 in the last time I recognize it in June of ’07 the last time you mentioned it. Can you tell us where that is right now?

Phaneesh Murthy

We have 27 million-dollar clients.

Brian Kislinger -- Sidoti & Co.

Okay. And what about the number, you say - you provided a number of client wins, but in the past you’ve given the number of significant wins, whether that’s Fortune 1,000, 5,000 or something of potential. How many of those were of the quality that you’ve reported in the past?

Phaneesh Murthy

I think in this quarter, the last quarter, out of the seven, I would say that two are very high quality.

Brian Kislinger -- Sidoti & Co.

And then what percentage of revenue came from financials, insurance, and that whole gambit?

Phaneesh Murthy

Fifty percent.

Brian Kislinger -- Sidoti & Co.

Fifty percent. And what was your turnover in the quarter?

Phaneesh Murthy

Attrition actually comes out quite dramatically and the annual attrition now is less than about 16%.

Brian Kislinger -- Sidoti & Co.

I have one last question. You said $600,000 of exchange for revenue, but do you get revenue actually from some customers in rupees?

Sujit Sircar

We do get some, yes, but there are some customers that are only using rupees, and there are some revenues that come in pounds, and euros, and yen and all of that.

Operator

Our next question is coming from [Jacque Sonnins] – Great Gable Partners. Please state your question.

[Jacque Sonnins] – Great Gable Partners

Good morning. I just have one or two questions. Your GSOs declined to 70 days year-over-year. Can you talk about, is that a result of a stronger push to collect or, and what should we expect going forward? Are companies pushing out payments or is that still pretty steady?

Phaneesh Murthy

I think that GSO is reasonably steady, but we remain a strong push to collect from any customers we are considering at risk, based on uncollected debt.

[Jacque Sonnins] – Great Gable Partners

Also, over the past year you’ve talked about ramping up and empowering yours sales force to a higher degree, and it seems like it’s translating into new customer wins. Can you elaborate on what specifically still needs to be done, or are you happy with the state of sale force today?

Phaneesh Murthy2

I think we are reasonably happy with the progress made. Clearly we have gone from roughly about 12 a year level in 2006 and 2007, to probably roughly about the 25 level in 2008. I think we have two tasks more. The first one is to take this 25 up to about 30, 35 level, and secondly, we are to – I think Brian asked the question how many, what quality wins, how many would you think would end up being stars? That was two out of seven. So we are trying to make that probably 50% or 60% of the mix rather than 33% of the mix.

[Jacque Sonnins] – Great Gable Partners

Just for clarification, when you say move from 25 to 30 to 35, you mean sales people?

Phaneesh Murthy

No, no. This is a new accounts added in a year.

[Jacque Sonnins] – Great Gable Partners

A new account added per year. Okay.

Operator

There are no further questions.

[Salil Revendrun]

Thank you everybody for joining this call. If you have any follow-up questions that you might like to discuss please feel free to send me an email or give me a call. Look forward to speaking with you all in about three month's time. Good day to all of you, thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: iGATE Corp. Q3 2008 Earnings Call Transcript
This Transcript
All Transcripts