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

iGATE Corp. (NASDAQ:IGTE)

Q4 2008 Earnings Call

January 21, 2009; 11.30 am ET

Executives

Phaneesh Murthy - Chief Executive Officer, President

Sujit Sircar - Chief Financial Officer

Salil Ravindran - Director of Investor Relations

Analysts

Brian Kinstlinger - Sidoti & Co.

John Mayetta - Needham & Co.

Tim Brown - Roth Capital Partners

Del Warmington – Delwar Capital Management

Vincent Colicchio - Noble Financial Group

Jacques Soenens - Great Gable Partners

Operator

Greetings ladies and gentlemen and welcome to the iGATE Corporation fourth quarter 2008 earnings quarterly conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)

It is now my pleasure to introduce your host Mr. Salil Ravindran, Director of Investor Relations for iGATE. Thank you Mr. Ravindran, you may begin.

Salil Ravindran

Thank you, Rob. Good morning ladies and gentlemen and welcome to the call to discus iGATE financial results for the quarter end, full year ended December 2008. With me on the call today are Phaneesh Murthy, President and Chief Executive Officer of iGATE and Sujit Sircar, iGATE’s Chief Financial Officer.

This call is being webcast on our website and a replay of this call will be available within a few hours. Our earnings release which has been forwarded to all of you is now posted on our website. We’ll start with a brief overview of iGATE’s performance during the quarter and the overall outlook by Phaneesh, which will be followed by the financial highlights by Sujit; subsequently we’ll open the floor for q-and-a.

Before I hand over the floor to Phaneesh, I would like to remind everyone that statements made during this call that are not historical facts, are forward-looking statements. These statements include our financial growth and liquidity projections, as well as statements about our plans, strategies, intentions or beliefs concerning our business, cash flows, costs and the markets in which we operate.

Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify certain forward-looking statements. These statements are based on information currently available to us and we assume no obligation to update these statements as circumstance change.

There are risks and uncertainties that could cause actual events to differ materially from these forward-looking statements including those listed in the cautionary language at the end of our news release, some of which are beyond our control. As a reminder, we will not discuss further guidance during the quarter in one-on-one meetings or calls and we have no intention at this time of updating our guidance as circumstances change.

With this I will now turn the call over to Phaneesh.

Phaneesh Murthy

Thank you Salil and good morning to all of you in North America and good evening based on if you are in Asia or Europe. I just want to go through a little bit of the market and the highlights for the quarter from an iGATE perspective; I think three or four key highlights.

I don’t know if all of you had access to the second press release which actually went out more recently. The first is that we as a Board met and decided on a broad dividend plan which will mean about 20% to 40% of the company profits will be paid out in the form of dividend every year. For the first year, the Board has recommended $0.11 per share dividends; so the 20% is really of the profits of the company.

Other major highlights for the quarter: first, good earnings growth. I think if you look at from a gross margin and operating margin perspective, I think it’s been actually an excellent performance. We reached our goal of 40.5% gross margin; we were 40%, 45% gross margin in the quarter ending December, but we also crossed 30% EBITDA, so on the margins things actually are pretty good.

On the revenue side on constant dollar terms, we stayed flat and we basically saw 7% impact on the revenue because of further facts that 42% of iGATE’s revenues come from non-US dollar denominated currencies. So, volume was flat and the currency brought the sequential revenue down by about 7%.

Other major highlights during the quarter were that we were ranked number two by the Mercer Business Today study for best companies to work for in India. This is a survey which is for all industries, so particularly it’s good for us. Last year we were ranked number six; we moved up to number two this year.

I think it’s difficult to conclude a call without adding a few points about what has happened to one of the other IT companies in the marketplace which is Satyam. I just want to reassure all of you that the corporate governance processes in iGATE are extremely strong. We are a U.S. corporation bound by U.S. laws.

We’re NASDAQ listed, we have been the soft compliant for a number years and over the last many years we have been extremely conservative in all our accounting principles and have a lot of principles of good strong governance that you might not see in many larger companies. So, net-net I just want to let you know that you can have complete faith in the company and I’m happy to address anyone’s concerns or any questions somebody might have in the wake of what’s been happening in the marketplace.

From a market perspective, I think we have entered into a scenario in the marketplace where predictability and visibility has become quite difficult. Among the positive trends that we are seeing is that we actually did add eight new accounts in the last quarter, which actually surprised us also a little, because in general decision making has slowed down and also we are actually finding that customers, while wanting to do more are probably afraid to start and this is something that we’ve found even in the 2000, 2001 kind of a timeframe where they were a couple of quarters, two or three quarters of a little bit of uncertainty and then the market picked up again, and therefore I continue to believe that the second half of 2009 will pickup again, just from a fundamentals perspective.

The volatility and the uncertainty in the market actually are reflected in multiple phases of the market. I think one is in the foreign exchange, where we saw roughly something like a 17% to 28% change against the US dollar for some of our currencies. Our Australian dollar revenues were down by 28% and some of the other currencies were down by 17%, 18%, 20% etc.

So, on the one side the currencies things are quite volatile and on the other side we see a very recessionary kind of an environment, particularly in the U.S. and spreading to Europe. I think looking forward has become actually quite difficult and challenging. In this environment what we’ve done effectively is manage costs and increase margin, and that’s something I think that we have done fairly well.

On the positive sides, I think from the margin perspective, I think this year in 2009 we will see much, much smaller salary increase; none of those figures are out. Typically the Indian market does their salary increases in April, but the anticipation is that their increase will be single digits and maybe mid single digits, not even high single digits is the current anticipation. It could go up based on how things are going in April.

So, with that what I will do is that I will handover the mic to Sujit, our CFO and ask him to take you through some of the financial highlights of the company. Sujit.

Sujit Sircar

Thank you, Phaneesh. Good morning everyone and thank you for joining us on this call. I’ll take this opportunity to briefly discuss with you the key highlights of our financial performance for the quarter and full year ended December 2008. I would like to emphasize that all numbers that I will discuss are for the continuing operations, including the comparisons to previous periods.

The Professional Services segment has been spun off and the Clinical Research has been sold during the year. Results of the Professional Service and Clinical Research business have been reported as discontinued operations.

Revenue from continuing operation for the quarter was $51.5 million compared to US $53.6 million in the same period last year. The decline in the reported revenue is due to the significant depreciation of non-US dollar currencies against the US dollar. However, on a constant currency basis the revenue has gone up by 4% year-over-year. The fourth quarter of 2008 has been another good quarter on the margin front.

Gross profit margin improved significantly to 40.5% from 34.4% in the corresponding quarter last year, achieving the company stated growth of 40% gross margin. This improvement in margin is due to increased offshore leverage and depreciation of the Indian Rupee against the US dollar.

Selling and general administrative expenses including depreciation and amortization for the quarter was $13.2 million as compared to $13.8 million in the fourth quarter of last year. The decrease was primarily due to reduction in depreciation, which more than offset the increase due to new facilities and provision for iGATE.

Income from operation for the quarter improved considerably to $7.6 million from $3.9 million in the same period last year. Operating margin has more than doubled to 14.8% of revenue from 7.3% in the corresponding quarter last year.

Net income from continuing operation increased to $7 million or $0.12 per diluted share compared to net income of $3.9 million or $0.07 per diluted share in the same period last year; the net profit margins stood at 13.5% of revenue from 7.2% in the same quarter last year.

Revenue from continuing operations for the year was $218.8 million compared to US $201.7 million in the last year. The improvement in revenue was due to ramp-up from existing top customers and the increase in the number of customers added, despite the headwinds of a loss of a few key customers and continuing economic slowdown.

We again witnessed a significant margin improvement; gross profit margin improved to 37.6% from 32.3% in the previous year. This improvement in margin is due to increased utilization, increased offshore leverage and depreciation of Indian Rupee against the US dollar.

Income from operation for the year almost tripled to $27.7 million from $9.5 million in the last year. Operating margin for the full year had shot up to 12.7% of revenue from 4.7% in the previous year. Net income from continuing operation increased to $29.3 million or $0.53 per diluted share compared to net income of $10.5 million or $0.20 per diluted share in the same period last year. The net profit margin stood at 13.4% of revenue from 5.2% in 2007.

For the year ended December 2008, the company generated operating cash flow of $43.2 million compared to $29.9 million made in 2007. The company spent $14.2 million on capital expenditure in 2008 compared to $8 million in the previous year. As of December 2008, the company’s balance sheet remains strong with $65.5 million in cash and charter investment, zero debt and $146 million in shareholder equity.

The DSOs at the end of December reduced to 65 days from 70 days as of end of the previous quarter. Our largest customer accounted for 25% of the full year revenue and our top five customers accounted for approximately 61% of the revenue. At the end of the quarter, our worldwide headcounts stood at 6,658 people.

With this I will now turn the call back to Salil.

Salil Ravindran

Well, thank you Sujit. Rob, we can now open the floor for q-and-a.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is coming from the line of Brian Kinstlinger with Sidoti & Co. Please go ahead with your question.

Brian Kinstlinger - Sidoti & Co.

Great, thanks. Hi guys. The first question I had, two; well to each of you one. We had a 7% effect of volumes based on currency, not in volumes of revenue. Have we already felt that based on what the average price is in the fourth quarter compared to the first quarter? Are we also seeing a headwind in the first quarter?

Phaneesh Murthy

I think, we are not seeing too much of a headwind in the first quarter from the currency point of view as of now, but like I said the markets are fairly quite volatile and the currencies have been swinging quite a bit. However, from the project flush, we opened eight new plans, but we are not seeing the major flush of projects, plus given the fact that some of the existing customers are really keen to reduce rates etc, my sense is that the first couple of quarters will be reasonably challenging and the second half of 2009, starting in the July quarter I think like I’ve been maintaining for sometime now I think will be the time when the recovery really happens for us.

Brian Kinstlinger - Sidoti & Co.

How many of those eight clients were those Fortune 1000 or however you -- significant client wins you talked about?

Phaneesh Murthy

I think we had three of those, out of the eight were reasonably large clients.

Brian Kinstlinger - Sidoti & Co.

How do you think about, when a client comes to you and says what kind of business is bad, we would like some pricing to be eased; how do you respond generally and what do you do to combat it? Do you try to push more fixed work? Do you try to do more offshore? Are you improving utilization? What are you doing to offset that weakness?

Phaneesh Murthy

I think the first strategy clearly is to try and being able to do the same work at a lower cost by trying to move more offshore; well, that’s the first strategy. That actually helps margins and doesn’t destroy any volumes and stuff like that.

The second thing of course is to try and do more and more fixed price kind of contracts which are annuities. So, we are shifting the mix more and more to longer term revenues and annuity kind of revenues; and then the third thing is there are some cases where we don’t have any option, but to reduce the rates a little. So, I think all of these three things are going on.

Brian Kinstlinger - Sidoti & Co.

Are clients more receptive to offshore and fixed price, which obviously you can control a little bit better. I mean you’re already did 18, 20 offshore or are more and more clients not accepting that and saying “No, we’d rather have slightly lower rates.”

Phaneesh Murthy

I think there are more clients which will accept the offshore and the fixed price. I think the concern will be it’s large customers or any of our large customers who are all hurting. Actually all our customers are hurting right now right, as a challenge.

In addition, one of our challenges was that our SG&A went up quite dramatically this quarter, much higher than what we expected because we took a provision for Circuit City which actually went into into chapter seven. So, the environment is a little negative. So that’s one additional problem that we had in the last quarter.

Brian Kinstlinger - Sidoti & Co.

How high are you willing to move your offshore utilization to offset that net? That will get into the obvious question of what are your hiring plans and the second piece – Well, that’s actually the only question sorry. How much utilization do you think you’re comfortable with?

Phaneesh Murthy

I think we have piloted in large customers and found that we can probably reach something like an 84%, 85% offshore. I don’t know whether we can reach it in all customers, but that’s probably the math that we can push it. So, we have probably 6%, 7% to go. We’re at about 79%, so we have about 5% or 6% to 84%, 85%.

Brian Kinstlinger - Sidoti & Co.

You’re saying you can be 84, 16 offshore versus onsite?

Phaneesh Murthy

We have done that in one large customer as a pilot and therefore we think that’s theoretically a possibility in case a push comes, because that’s our fourth preference, right. Obviously if a customer is saying that I want to reduce the total cost, that’s our first preference.

Brian Kinstlinger - Sidoti & Co.

How about utilization offshore which is in the 70s? I mean can that move up as well.

Phaneesh Murthy

Yes, that can move up a little and now we are doing all of that, because what we did was that we implemented a central resourcing function. We moved the bench out from all of the individual units and put them in a separate group so that we can manage that more effectively as a larger group which is easier to optimize on. So, that’s the second step that we have taken to cut costs.

The third step that we have taken to cut costs is we’re actually hiring pretty much only at under three years kind of a level right now. Entry level most of it is under three years most of it, and then lastly we are trying to move more and more to just in time hiring right now for the next quarter or two rather than trying to do anything as a planned hiring.

Brian Kinstlinger - Sidoti & Co.

Okay, two more questions. Does that mean then that you really don’t have a hiring goal until you see how demand is playing through the year; is that accurate or not?

Phaneesh Murthy

I think it’s a very fair statement to say that. We are just going to hire based on specific projects and specific processed that we get from clients.

Brian Kinstlinger - Sidoti & Co.

One more question and then I’ll get back in the queue. I do have two others that I’ll let some others ask, but Satyam was from what I understood and you correct me if I’m wrong. They did have some real clients obviously and some real revenues and from what I understood one of their initiatives was doing a lot of ERP work, SAP and such. How big of a business -- correct me (a) if I’m wrong and (b) if I’m right. How much of that do you have in your upper tier which would suggest maybe you could and even at GE obviously you guys overlapped there. Give us a sense of what the opportunity is maybe for you.

Phaneesh Murthy

I think the opportunity is an interesting one, particularly where there is an overlap of customers. So just to let you know very quickly, they were doing some small work in an out force of RBC. I think we’re going to be transitioning that work. They were doing very small unfortunately, because (Inaudible) it might have been good for us, because the transition is happening almost immediately.

They were doing some small work in another client of ours and again the transition is happening almost immediately. So, wherever there were overlaps I think we have been able to transition the work. GE of course has not yet decided on the transition. I think strategies and plans are probably being put in place, but no formal transition as yet. However, I think uncertainty on Satyam continues to grow because many more clients have publicly been leaving Satyam and I think therefore overtime it may be that more and more clients will leave and we are hoping to pickup some.

So, I think there is a window of time where there is a specific opportunity; we’ll have to see how we do it, because I think part of the opportunity or a large chunk of the opportunity is going to the other preferred partners already in that system, just like we found for the two clients that they were there. Unfortunately in our case it just happened that they were very small.

Brian Kinstlinger - Sidoti & Co.

Okay, thank you.

Operator

Thank you. Our next question is coming from the line of John Mayetta of Needham & Co. Please go ahead with your question.

John Mayetta - Needham & Co.

Hi, thank you very much.

Phaneesh Murthy

Hi John.

John Mayetta - Needham & Co.

Hi Phaneesh. Phaneesh the first question I have is just the piggy back of Brain’s question regarding Satyam and how long do you think that one opportunity remains opened? Do we have another three weeks or so or four weeks before the bulk of that work is decided upon?

Phaneesh Murthy

I think it depends on the customers. Many customers have given them three months to comeback with clear plans based on the reflex of the new Satyam Board. I think some customers are putting in place plans as we speak. So my own sense is that the window of opportunity is anywhere between now and the next three months depending on the customers and stuff like that. Of course one of the positives probably in our favor is the fact that we are a U.S. company. One of the negatives which are against us is the fact that we are a much smaller company. So we’ll have to see the net impact of these two and see where it ends up.

John Mayetta - Needham & Co.

That makes sense. Then with regard to pricing, you’d mentioned some pressure with existing customers; with regard to the new clients that you’re signing these days, are those new clients coming in at higher price points than business you may have signed last year.

Phaneesh Murthy

I think the new clients are coming in at price points that are higher than our averages. So that’s the positive point, but new clients came slower than the existing clients, if they drop prices of existing clients, drop in price impacts revenues immediately versus new clients which came slower.

John Mayetta - Needham & Co.

Got it, okay. So I know a lot depends on the mix, but assuming constant currency, do you think you’d have some opportunity to expand gross margins as we move through 2009 from where they are today?

Phaneesh Murthy

It’s difficult to say. To be honest I mean we are doing a fantastic job on efficiency improvement and things like that. So, if that continues, we will see expanding gross margins, but my concern is I think the pricing pressures in the market will probably offset that and more. So if at all, I would say that my sense is keeping it flat actually would be very good for us in 2009.

John Mayetta - Needham & Co.

Okay and then just a couple of more questions and maybe Sujit you could help me with these. The first question I had was around your active clients. The number of active clients today; how does that compare to the end of last quarter?

Sujit Sircar

Our active clients as of today is 90 and we have as of September ’08, 89 clients, as in active clients.

John Mayetta - Needham & Co.

Okay and then just the final question Sujit was with regard to your tax rate, what’s kind of a reasonable range for 2009? How should we think about that?

Sujit Sircar

I think it should be around between 6% to 8% because this year we had a lot of deferred tax asset based on the news on the STPI getting extended by one year. So, we had a lot of deferred tax assets this year, but next year I think the tax rate should be between 6% to 8%.

John Mayetta - Needham & Co.

Okay, thanks very much.

Phaneesh Murthy

Okay.

Operator

Our next question is coming from the line of Tim Brown with Roth Capital Partners. Please go ahead with your question.

Tim Brown - Roth Capital Partners

Yes hi, good morning guys.

Phaneesh Murthy

Hi Tim.

Tim Brown - Roth Capital Partners

I just wanted to follow up on GE. Have they made any contact with you in regards into how they are going to parse out that Satyam business?

Phaneesh Murthy

We are in daily touch with GE on multiple things. I think from our perspective I think the thing is right now GE has not made any decisions at all, but if I just look at the broader trend, where existing other preferred vendors are picking up the Satyam business as and whenever that decision is made, because I truly believe unfortunately that at the pace at which decisions are being made in Satyam, it’s unfortunate, but I think the origination will probably implore and so at some point of time I think a decision will be made and I’m hoping that because they are one of the preferred partners of GE we’ll pick up some of that work.

Tim Brown - Roth Capital Partners

Okay, I guess the timing is just tough to predict at this point.

Phaneesh Murthy

Yes, I think it’s difficult to comment on the timing, because obviously from a client prospective, GE has been a client to many of us for 10, 15 years and they may be one of the more reluctant ones to pull the plug on something like this.

Tim Brown - Roth Capital Partners

Yes, and then Phaneesh I mean I guess obviously if Satyam is going to likely potentially go bankrupt I was just curious if you could comment on some of the newspaper articles citing you as a possible CEO for Satyam as one of the people on their short lists.

Phaneesh Murthy

It’s amazing what all one reads in the papers nowadays and finds out about oneself. I think the fact is that there was a point of time when at iGATE, I was interested in procuring some of the key assets of Satyam, not as an individual. As iGATE, I think there was a good -- we thought that there were some good assets, but the pace of the division making and the fact that the liabilities are so large and unknown, prevented us from being able to do anything of any reasonable size and therefore we just let it be and now we’re just taking a wait-and-watch kind of an attitude.

Now I think, as and when customers are contacting us about contingency plans, we’re happy to assist them with all of that, but the answer to the question is no. I have not been approached by anybody in Satyam to run the company nor have I any interest in running the company, nor have I approached them.

Tim Brown - Roth Capital Partners

Okay, good to hear. Then Circuit City, what was the provision? How much was the provision you took in Q4 and can you just give us an idea of what their quarterly revenues were for you?

Sujit Sircar

We had $700,000 of provision on Circuit City and our quarterly revenue run rate was around $520,000.

Tim Brown - Roth Capital Partners

And that I’ll assume go to zero in Q1, or it’s already at zero

Sujit Sircar

Yes, it’s already zero. Actually it is zero, it’s amazing that somebody actually asked us “Can you continue?” but if the company doesn’t exit, what are you asking us to continue to work for.

Phaneesh Murthy

That’s right. It’s unfortunate, but many companies I think will be in a position where things won’t be going on for them.

Tim Brown - Roth Capital Partners

Yes and how many clients I guess have you lost in Q4 then and obviously Circuit City being one is there any others?

Phaneesh Murthy

I think if you just look at from a numbers perspective we had 89 active customers in September ‘08. We added 8 customers and the total net count is 90. So we actually lost clients, because one is anything marginal, they are also going ahead and closing down, because the risk and the exposure is becoming higher right. Because if they don’t pay it and you just have to take a write-off and if it’s marginal there is very little value in it.

So, again the drive towards cleaning up on the revenue which we have done three, four years ago, I think we continue to do one more try towards cleaning up that revenue, because in 2009 my concern is the exposure that we will be taking on it ER if any of these companies file for Chapter 11, and I can tell you that there are a lot of companies which are looking like they may.

Tim Brown - Ross Capital Partners

Yes, I guess part of the question is, do you expect more cancellations during Q1 as you kind of go through that process?

Phaneesh Murthy

Yes, I think so. I can tell you that one very large customer that we opened in Q4 already cancelled the first project with us and they may end up in Chapter 11. Luckily we collected the money, but it was a very large deal, it was a large account, it was a good sized deal to start with. It took us 12 to 15 months to get in and within three and a half or four weeks of starting somebody doesn’t have any money to do anything and everybody now thinks that they may end up in Chapter 11 within the next few weeks. So, this is a difficult environment to predict anything Tim. I mean it’s really very complex I think as you all know sitting there.

Tim Brown - Ross Capital Partners

Yes, absolutely. Just the only other, just on the current revenues, how much of the current revenues and maybe if you could just give us a ballpark percentage, would you term it as discretionary type projects?

Phaneesh Murthy

I think we have moved almost 60% of our revenues to annuity kind of stuff. The others also a lot of it is support kind of work and I would say probably less than 20% of our revenue right now is discretionary projects. So there has been a drive over the last five, six months in the company to try and move the stuff to more back end, annual committed annuity kind of revenue.

Tim Brown - Ross Capital Partners

Okay great. Thank you. That’s helpful. Thanks.

Phaneesh Murthy

Thank you.

Operator

(Operator Instructions) Our next question will be coming from the line of Del Warmington of Delwar Capital Management. Please go ahead with your question.

Del Warmington – Delwar Capital Management

Yes, one quick question. Quarter-over-quarter there was a decline in the top line [Inaudible] explained on the call. What caused the decline in revenue?

Phaneesh Murthy

The decline in revenue quarter-over-quarter was only because of the foreign exchange difference between the U.S. dollar and other major currencies in which we do work. 42% of iGATE’s revenue comes from non-U.S. dollar denominated revenue and our reporting currency is U.S. dollars. So, on a volume basis we were flat, but because the reporting currency was U.S. dollars, I think I mentioned earlier in the call that there are currency which have gone from 17% to 28% just in that quarter difference. So the Australian dollar for example has depreciated by 28% against the U.S. dollar in that quarter alone.

Del Warmington – Delwar Capital Management

Do you think you can maintain that [$20] rate for your offshore business?

Phaneesh Murthy

I think certainly, because many of the new clients that we are bringing on are coming on at a higher than average rates, because of the higher value points that we are able to offer. On the other side, on the negative side, there are existing customers who are feeling pressures and looking for cost reduction. So net-net I think, yes I would say that average of that would probably be -- it could end up being just down a bit.

Having said that I do want to caution that this is a very difficult time to do any visibility and predictability; among the worst environments too and I have gone through two or three such cycles and this is significantly worse from a predictability point of view than any of those other cycles.

Del Warmington – Delwar Capital Management

Okay and last question, what percent of your revenue is now BPO?

Phaneesh Murthy

Around 12% of the revenues are in BPO.

Del Warmington – Delwar Capital Management

Thank a million.

Phaneesh Murthy

Just to clarify, our BPO means iTOPS largely and yes that’s 12%.

Operator

Thank you. Our next question is coming from the line of Vincent Colicchio with Noble Financial Group. Please go ahead with your question.

Vincent Colicchio - Noble Financial Group

Phaneesh, what percentage of your revenue comes from financial service and could you talk a little bit about which verticals are looking the best right now or the least worst right now?

Phaneesh Murthy

I think, nearly from our perspective, the Banking and Financial Services is down to about 49% of our revenue. The couple of verticals which are I think going to do well for us, one is healthcare. Healthcare continues to be reasonably sound. We’ve opened a couple of healthcare clients. So I think healthcare will be something interesting going forward.

The second area where I think we are seeing significant cost pressures and willingness to talk offshore which earlier was very feeble is media and entertainment. So both of these segments, if at all those are probably slightly good prospects in terms of industries if you will.

Vincent Colicchio - Noble Financial Group

And as far as service lines, could you give us a similar analysis?

Phaneesh Murthy

I think from our perspective I think if I lookout to whatever I can currently in 2009, I think clearly iTOPS/BPO will be a little bit of a growth driver. Other than that it will be largely application maintenance, because we are signing a lot of those deals, we are converting many of our deals to AMO kind of deals. So, it will be application maintenance and iTOPS/BPO.

Vincent Colicchio - Noble Financial Group

Is there anything new you could tell us on the customer that -- I think it was an industrial customer that couldn’t decide which ERP package to go with SAP or Oracle?

Phaneesh Murthy

I think they decided that they are not going to go ahead. After having invested in the license they decided that they are not going to go ahead with an implementation. So now I think they are actually trying to negotiate back with Oracle to see if they can get a refund on their license fee and I think good luck to them to try and to get back in this environment. It’s a little bit of a tough environment.

Vincent Colicchio - Noble Financial Group

Thanks

Operator

Thank you. Our next question is coming from the line of Jacques Soenens of Great Gable Partners. Please go ahead with your question.

Jacques Soenens - Great Gable Partners

Hi guys. One follow-up question on iTOPS and the eight customer wins. Can you clarify how many of the eight customers wins were iTOPS this quarter?

Phaneesh Murthy

This quarter, actually all our wins were IT service wins.

Jacques Soenens - Great Gable Partners

I think one of the ones in your press release says it was a multimillion dollar iTOPS deal to a government agency in Australia. So, I feel like there is one at least, but I could be wrong.

Phaneesh Murthy

No, actually the thing is, let me just clarify. When we define a win, so that win will actually be recorded in our books chart as a win in Q1 of 2009, because from a reporting purpose what we actually do is that when we are reporting here as a win, it means that we have started work and raised an invoice, okay. So we might have a client win which will not be reported yet.

Jacques Soenens - Great Gable Partners

Okay and so I think a gentlemen earlier mentioned at the question of the revenue mix of iTOPS, you said it was about 12%. The first customer win in the press release that you discussed, which was the North American Financial Conglomerate. That contract seems to be BPO like, it’s transaction based pricing. It would seem that that would be an iTOPS deal, but given what you just said that it’s not. Is work like that transaction based pricing, is that higher margin, higher growth? Are you making a bigger push in that type of work? Are you finding more success or is that still very challenging given the environment?

Phaneesh Murthy

I think clearly from our perspective it’s a lot better to go into transaction pricing because of the fact that we typically end up getting higher margins. So, that is one and that’s the best strategy to actually get rid of this unit price pressure kind of stuff.

Also, just to let you know that the government agency in Australia; to do the bonds processing, this is actually a good thing for us because they are already doing this bond processing on the same platform for another State in Australia already. So, we are starting to try and expand on this, what we call the shared services kind of model, where we are trying to pickup some multiple States to do the same thing on a shared services platform. So in effect, we get incremental number of transactions, but we have to add incrementally very few people because of the tech platform and the processing work that’s already done.

Jacques Soenens - Great Gable Partners

Okay, thank you very much.

Salil Ravindran

Rob, do we have anymore questions?

Operator

There are no further questions at this time sir. I’ll turn the floor back over to you for closing comments.

Salil Ravindran

Thank you, Rob. Thank you everyone for joining us on this call and I look forward to speaking with you in about three months or in between in one of the investor meetings. If you have any follow-up questions that you might like to discuss feel free to send me an e-mail or give me a call. Have a good day.

Phaneesh Murthy

Thank you all.

Operator

Ladies and gentlemen this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for you participation.

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 Corporation Q4 2008 Earnings Call Transcript
This Transcript
All Transcripts