Syntel Management Discusses Q4 2012 Results - Earnings Call Transcript

| About: Syntel, Inc. (SYNT)

Syntel (NASDAQ:SYNT)

Q4 2012 Earnings Call

February 14, 2013 10:00 am ET

Executives

Zaineb Bokhari - Head of Investor Relations

Bharat Desai - Co-Founder and Executive Chairman

Prashant Ranade - Chief Executive Officer, President and Director

Arvind S. Godbole - Chief Financial Officer, Chief Information Security Officer and principal Accounting Officer

Rakesh Khanna - Chief Operating Officer

Nitin Rakesh - President of Americas Business Development and Nearshoring Center

Analysts

Amit Singh - Jefferies & Company, Inc., Research Division

Brian Kinstlinger - Sidoti & Company, LLC

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Mayank Tandon - Needham & Company, LLC, Research Division

Rahul Bhangare

Manish Hemrajani - Oppenheimer & Co. Inc., Research Division

Jeffrey Rossetti - Janney Montgomery Scott LLC, Research Division

Puneet Jain - JP Morgan Chase & Co, Research Division

Vincent A. Colicchio - Noble Financial Group, Inc., Research Division

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Syntel Fourth Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded today, Thursday, February 14, 2013.

I will now turn the call over to Zaineb Bokhari, Syntel's Head of Investor Relations.

Zaineb Bokhari

Thank you, and good morning, everyone. Syntel's fourth quarter earnings release crossed GlobeNewswire at 8:30 a.m. today. It is also available on our website at www.syntelinc.com.

On the call with us today, we have Bharat Desai, Syntel's Chairman; Prashant Ranade, Syntel's CEO and President; Arvind Godbole, Syntel's Chief Financial Officer; Rakesh Khanna, Syntel's Chief Operating Officer; and Nitin Rakesh, President of Americas.

Before we begin, I'd like to remind you that some of the comments made on today's call and responses to questions may contain forward-looking statements. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC.

I will now turn the call over to Syntel's Chairman, Bharat Desai. Bharat?

Bharat Desai

Thank you, Zaineb. Good morning, everybody. Thank you for joining us today. We are pleased with our overall performance this past quarter and over the entire year. We grew our annual revenue nearly 13% year-over-year, and we did this at an attractive level of profitability. Our customers' world is changing rapidly. On one hand, we have faced significant pressure to reduce and run the business cost and improve service level. On the other, their client's expectations are evolving rapidly on how they purchase and consume goods and services. This is both a challenge and an opportunity for our clients and both present exciting potential to Syntel.

Syntel is making significant investments on many fronts. These include cloud, mobility, analytics and social media. We have successfully completed client engagements in each of these areas. Based on results, it is very clear that innovative adopters of these technologies will gain mind share and critical market momentum.

As we begin 2013, Syntel stands before a broader addressable market than ever before in our history. This is a direct result of the investments we have made in expanding our market reach, in industry expertise, in breakthrough technologies, in product partnerships and in building intellectual property.

I would now like to turn the call over to Prashant Ranade, Syntel's Chief Executive Officer and President, to provide further details. Prashant?

Prashant Ranade

Thank you, Bharat, and welcome. Syntel's fourth quarter revenues came in at $187.8 million, increasing approximately 1% sequentially and 9% year-over-year. We saw favorable results for key segments like Application Outsourcing and KPO, as the lights [ph] on portion of our business showed resilience. Arvind will provide further details on our revenue performance in his prepared remarks.

Fourth quarter gross margin narrowed by approximately 30 basis points as compared to the third quarter levels coming in at 45.2%. The appreciation in the Indian rupee had a modest impact on gross and operating margins. We continue to grow our organization this quarter. Net headcount increased by 1,215 in the fourth quarter, a rise of 6% sequentially. In keeping with our internal plan, we maintain the focus on campus hiring. We are positioning ourselves for the opportunities we see in the seasonally stronger periods ahead. However, as a result of this, offshore utilization for IT fell to 63% in Q4 from 70% in Q3 on a period-end basis and to 66% from 67% on average. This decline is typical for Q4 and we expect utilization in 2013 to reflect quarterly hiring trends.

The company's SG&A expenses increased $8.5 million during Q4 as compared to 1 year ago, impacted by a higher headcount and related expenses. On a sequential basis, SG&A declined $0.9 million. The appreciation in the rupee had a modest impact on SG&A, while factors such as currency-related balance sheet translations and lower marketing expenses had more of an impact. We are pleased with the level of operating profit this quarter even as we continue to grow our ranks and invest in our capabilities. However, we do not consider this level of operating profit to be sustainable. With respect to full-year 2013, we believe the overall environment has improved over the past 12 months, and we see a robust pipeline for both our horizontal and domain-led services. Client budgets are finalizing, and we expect 2013 budgets to be comparable to slightly up from what we saw in 2012. We see reasons for optimism ahead despite muted macroeconomic growth as offshoring frees up client resources for further innovations.

We continue to enjoy strong relationships with our customers and expect to build on these as we demonstrate the value we add in support of the business outcomes our customers want. We experienced favorable results in 2012 from our efforts to grow with client 6 through 25, as well as position to garner more successes in 2013.

Key to driving towards future success is the strength of the leadership team at Syntel. We have spent time and considerable effort on developing internal talent as well as making opportunistic additions this year. As a result, we have a team in place, which I believe is stronger than ever, united by a focus on driving innovation and serving our customers. On that note, I want to thank all the employees of Syntel around the world for their continued dedication and hard work.

I would now like to turn the call over to Arvind Godbole, Syntel's Chief Financial Officer, who will discuss Syntel's financial performance. Arvind?

Arvind S. Godbole

Thanks, Prashant, and good morning. After my comments, we'll open the call to questions.

Syntel's fourth quarter revenue came in at, $187.8 million, up 9% from year-ago period and about 1% sequentially. For the fourth quarter, Applications Outsourcing accounted for 76% of revenue, KPO was 15%, e-Business represented 7% and TeamSourcing was 2%. From a vertical perspective, financial services contributed 55%; with healthcare at 17%; insurance, 14%; retail, 5%; automotive, 4%; and all other that accounted for approximately 5%. Vertical growth was led by insurance and automotive, which both grew about 4%, sequentially. Syntel's customer concentration levels remained comparable to prior periods. Our top 3 clients represented 52% of revenue, top 5 contributed 65%, and top 10 came in at 79%. The fixed-price component of our business was at 38% of revenue for the quarter.

With respect to Syntel's margin performance, our gross margin was 45.2% in the fourth quarter. This represented an increase versus 42.1% reported in the year-ago period but declined modestly on a sequential basis from 75.5% in the third quarter of 2012. The Indian rupee appreciated by 0.4%, lowering growth revenue [ph] by 10 basis points. We are utilizing hedge fund related to higher available hedge fund during the quarter also impacted the gross margin. By business segment, gross margin for Applications Outsourcing was 41.8%; KPO was 62.2%; e-Business was 45.2%; and TeamSourcing, 42.1%.

Moving down the income statement, our selling, general and administrative expenses were 15% in the fourth quarter of 2012, compared to 11.4% in the year ago period and 15.6% in the third quarter. On a dollar basis, SG&A was lower by $0.9 million, sequentially. The impact on the SG&A from the balance sheet calculation adjustment this quarter was lower $1.4 million gain as compared to the $3.4 million loss recorded in Q3 of 2012. Appreciation of the rupee increased SG&A by $0.28 million. Aside from these factors, higher lower tax results as compared to the previous quarter increased SG&A.

Other income decreased by $2.4 million from the prior quarters coming in at $12.2 million [ph]. The company recorded a $0.9 million loss on hedging; brokerage, $1.5 million gain in the third quarter. And this year's net other income increased by $0.7 million in the fourth quarter as compared to the previous quarter. In addition, we recorded a $0.96 million profit from [indiscernible] assets in the other income hedge during the third quarter which did not recur in the fourth quarter.

Our tax rate for the fourth quarter sending us 32% as compared to 21.7% listed in Q3. Net income for the fourth was $41.9 million or $1.19 per diluted share, compared to $44 million or $1.05 per diluted share in the prior-year period and $51.5 million or dollar $1.23 per diluted share in the previous quarter.

The company's balance sheet at the end of the fourth quarter of 2012 remains extremely healthy. Our total cash and short-term investments on December 31, 2012, was $421.3 million, and DSOs levels were at 47 days. Capital spending for this year was $32.3 million.

Syntel ended this fourth quarter with a total headcount of 21,407, of which 6,330 were assigned to KPO. Our billable headcount was 3,107 on, on-site and 16,834, offshore, for a total of 19,941. Net additions to the global headcount were 1,215. Utilization levels at the end of the quarter were 94%, on-site; 71%, offshore; and 75%, globally. Our [indiscernible] mix in the year-end was 20%, on-site; and 80%, offshore. Voluntary attrition during the quarter was 15.6%, up from 15.3% as compared from the last quarter. Syntel added 3 new customers in quarter 4.

[indiscernible] I would now like to provide you with guidance for 2013. With our current visibility level, Syntel expects revenue to be in the range of $780 million to $810 million, and EPS to be in the range of $4.15 to $4.45 for the full year, 2013. The company currently has 58% visibility to the lower end of the revenue range, and our guidance is based on an exchange rate assumption of INR 53 to $1. We expect that operating margins will be in the 26% to 30% range, and that our effective tax rate will be in mid-20s. CapEx for this year is expected to be in the range of $60 million to $65 million.

We will now open the call for a question-and-answer session. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Jason Kupferberg of Jefferies.

Amit Singh - Jefferies & Company, Inc., Research Division

This is Amit Singh for Jason Kupferberg. I just want to start off with your 2013 guidance. For your full year 2013 guidance indicates that the year-over-year revenue growth would be around 10%, and that has been on a decline recently. You had 13% in 2012, 21% in 2011 and then even higher 27% in 2010. I'm just trying to get a sense of you -- if you talked about your addressable market, are you seeing some sort of saturation there which is maybe causing some type of revenue growth slowdown, and do you expect this trend to continue? And just to add onto that, a couple of days ago, NASSCOM came out with their guidance for next fiscal year and then their growth guidance is 13% to 15% and your next year guidance now would be lower than industry and you generally used to be higher than industry. Just trying to get a sense of the type of market that you're seeing and how you're -- what you're seeing out there?

Zaineb Bokhari

Well, Amit, I would say that the broader environment has improved versus the prior 12-month period. And in terms of the outlook that we're sharing with you today for revenues, our guidance is influenced by the visibility that we have into the full-year, and we are following our normal practices in providing you this range. At this time of the year, we have about 58% visibility to the low end of the range. And the upper end is based on a review of other factors, our current pipeline, new business find, et cetera. But what we typically do is we continue to provide updates as warranted in each of our subsequent calls, as you know, and we will continue to do that. The outlook that NASSCOM had shared was 12% to 14%. The -- we have a long-term growth objective of growing at or above industry growth and that's very much in keeping with our 2020 vision. And if you look last year, the actual growth rate for the market based on their review is about 10%, and we grew at nearly 13%. So we did that last year, and our aim is to continue to do that. But our range is a function of the visibility that we have.

Amit Singh - Jefferies & Company, Inc., Research Division

Okay. Great. And just coming back to the fourth quarter, you had provided an updated guidance at the beginning of December, and you're overall results for the full year came out above the guidance both top line and bottom line that you provided. So just trying to get a sense of what changed over the last 3.5, 4 weeks, that made the actual numbers come above the guidance that you have provided? And just related to that, if you could talk a little bit more about your top outsourcing client, which was primary related to your guidance cut? What type of budget spending and growth trend that you're seeing for 2013 over there?

Zaineb Bokhari

So when we revised the revenue range in December, we shared with you that range that you mentioned, 720 to 722, and that was based on our assessment of what the potential impact was going to be at the time of that initial notification. Now, the actual results was a little bit better than the expected outcome, and we also continue to add business from our other customers as you would expect. As far as budgets, broadly speaking, the 2013, as Prashant mentioned, is looking to be comparable to slightly up from 2012. But we want to stay away from commenting on a client-specific level with respect to budgets. But our client relationships with our large customers remain very strong and also with some of the strategic growth accounts that we are focusing on as well.

Operator

Our next question comes from Brian Kinstlinger of Sidoti & Company.

Brian Kinstlinger - Sidoti & Company, LLC

I want to ask something different about your view versus the NASSCOM view, I realize, how you come up with your numbers and it's been consistent for at least 10 years. I'm curious why you think that you might not have more revenue in hand that would allow you to put guidance up at least in line with the market? Again, I haven't seen you guys lose share in a long time. So why do you think the customer commitments already aren't a little bit higher?

Prashant Ranade

Okay, thanks. Thanks, Brian. As you know, over the last few years, our growth has been higher than market growth rate. As Zaineb just shared with you, the current NASSCOM forecast for market growth rate for 2012, 2013, which is our 2012 fiscal year is just about 10% and we are pleased with our growth rate being higher than that. As far as 2013 forecast, first of all, it starts from April through March. So those numbers are applicable for April 2013 through March 2014. And we are very consistent with our guidance. Our low-end guidance is based on 58% visibility, and we feel good about what we have in pipeline about different projects, comments from customers and overall budget outlook and we'll revise that as we increase visibility.

Brian Kinstlinger - Sidoti & Company, LLC

Okay. What does that assume about your top 3 customers? Did you assume that your top 3 customers will grow faster, slower, will they be growing in 2013 in your view? Or would they be declining, which has maybe contributed to that?

Prashant Ranade

As we have shared with you, our model being nimble, flexible and with client-centricity, we are pleased with our relationship with all of our clients, which includes our top 3 clients. But as I shared in our previous calls, it is fair to expect that from an overall growth rate, the top clients will have slightly lower growth rate and our clients 3 through 25 or 6 through 25 will have a higher growth rates than we were able to realize during 2012. I would also request Rakesh, to make comments specific to different industries to give you color on how we are doing in different industries.

Rakesh Khanna

Sure. So in fact we're focused on creating intellectual property to help customers reduce or run their business costs. And we are investing in new areas to help customers in areas such as analytics and cloud. Now if you look at the healthcare, clearly, we see legislation around the medical loss ratio, premium tax and health exchange, is driving some lumpiness in the discretionary spend, where you see progress having shortened delivery timeframes, prototypes, et cetera, before they commit to long-term investment. But having said that, we are confident of good prospects in the long term.

Brian Kinstlinger - Sidoti & Company, LLC

Great. 2 more quick ones. The first one is you grew revenue 1% sequentially, but headcount, 6%. But we didn't see the gross margin move sequentially all that much on what seems like lower overall utilization. Can you just sort of discuss what offset that in the -- sequentially in the quarter to keep margins relatively flat?

Arvind S. Godbole

Yes, this is Arvind here. Because, predominantly, the demographics have increased because of additional hiring and also the [indiscernible] that we make to visibility the year-end. And also, it is actually partially offset by some frozen reductions to the current net impact of $1.2 million for the quarter.

Brian Kinstlinger - Sidoti & Company, LLC

Sorry. $1.2 million of what? What was the reverse of what?

Arvind S. Godbole

No. It is the -- we will -- all the provisions relating to the implied payroll as well as the liability [ph]. And that is why typically, under the portion of the [indiscernible] that is reversed during the last quarter. So it is every year we do that, and that was $1.8 million which was for the addition and also we had an additional hiring impact when we have demonstrated it for the year, which had a net impact for the year of $7.3 million.

Brian Kinstlinger - Sidoti & Company, LLC

Okay. Last question I have, you clearly stated over the last 2 quarters that you said operating margin was sustainable here, that shouldn't be surprising. My question is in 2013, what are the factors that will drive the margin down the year? Maybe you should talk about each one of those individually and which ones have more impact than others?

Arvind S. Godbole

First, actually, is the rupee level that will have an impact on the 2013 because we're estimating the current guidance of 2013 is at INR 53, so that will impact. Also in impacting the business tax rate which is in mid-20s from current 22%. So that will have an impact of roughly $0.08 to $0.10. And we'll also get additional revenue, which was offset by our hiring cost, our Visa cost and our facility, which we're financing. So that is why the EPS for the year is unchanged -- almost unchanged.

Brian Kinstlinger - Sidoti & Company, LLC

Okay. And those hiring and Visa cost were more than last year per person?

Arvind S. Godbole

It is more or less at the same level.

Operator

Our next question comes from Dave Koning of Robert W. Baird.

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

My first -- yes, my first question, I guess, is along the same lines. Just with margins, I think you said 26% to 28% in 2013, if that remains it kind of around the high end of what the industry is doing at your scale is quite a bit smaller than some of your big competitors. And I'm just wondering, is that level sustainable? And maybe does it require kind of the rupee to be in this sort of level? I guess those 2 questions.

Arvind S. Godbole

Yes. These numbers that we are forecasting for 2013 are at INR 53 to the $1. So if the rupee appreciates, it will have a negative impact. If it would depreciate, you could have positive impact on the PMI.

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Okay. My higher level question though, I understand how the rupee affects your margins. But are margins in that 26% to 28% level sustainable? Just given you're operating at a revenue scale that's quite a bit smaller than some of your competitors and yet you're at industry-leading margins, which is pretty admirable.

Prashant Ranade

As I said in my prepared remarks, the margins that we had in Q4 or during 2012 are not sustainable. And that's the reason we have reduced those margins to take advantage of the demand we see ahead of us as well as opportunities to grow the revenue. So that is the reason we have actually reduced them -- the margins from last year's level. Having said that, as Arvind said, the impact of exchange rate will cause fluctuation there, and we do manage our business efficiently and that is our commitment to our clients. So providing the best support, best technology, innovative ideas and staying flexible, nimble and lean.

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Yes. That's great. So it sounds that like this year's margin, the 26% to 28% in 2013, there's nothing in this year's margin that you'd say is unsustainable, but that level can continue for a long period of time?

Prashant Ranade

Well, right now, we are giving guidance for 2013. So as the year progresses, and we know how the market looks and it unfolds, we'll continue to watch it because it is a dynamic business. But as you know we have managed the relationship between opportunity to grow, delivering higher-than-industry growth rates and a strong profitably. So that will remain our focus.

Operator

Our next question comes from Mayank Tandon of Needham & Company.

Mayank Tandon - Needham & Company, LLC, Research Division

Prashant, just to go back to the demand theme. I just want to understand that a little bit better. I think you said that upfront that you feel better about this year as you entered 2013 versus last year. Could you maybe comment specifically on the pipeline versus both a year ago and versus say, 3 months ago, and the revenue conversion cycle at your clients?

Prashant Ranade

Yes, so those 3 areas, first of all, compared to 12 months back or even 6 months back, both the pipeline, clients sentiment as well as confidence in budget is at a higher level. So that is the reason for our guidance as well as hiring ahead of the curve like we did in fourth quarter. And what was your first part of your question? I know there were 2 parts.

Mayank Tandon - Needham & Company, LLC, Research Division

I was trying to get a sense in terms of the revenue conversion cycle at your clients versus say, 3 months ago or even 12 months ago.

Prashant Ranade

So conversion cycles have certainly improved particularly on KPO side, where if I go back 2 years, the cycles were very, very long. Last year, we saw opportunities, but still the cycles are long. Our last quarter -- or 2 quarters, we have seen encouraging signs of decision making cycle shortening.

Mayank Tandon - Needham & Company, LLC, Research Division

I know you don't want to talk specific clients, but would it be fair to say that the drag from the client that was the reason for the weakness in 4Q, is the reason why the guidance for the year is lower versus where you guided when you started 2012?

Prashant Ranade

Okay, I will say again we won't comment on a specific client. But we had -- when we filed our 8-K, we had indicated that, that reduction in spending was for the period through end of 2012.

Mayank Tandon - Needham & Company, LLC, Research Division

Okay, fair enough. And then just wanted to talk about margins a little bit more. So just going back historically, Syntel has talked about a 2020 target. I realize that's a long-term target. But you were running at about a 20%-type margin for a long time, and now you're guiding to 26% to 28%, if I heard you right. What gives there? What's different about the margin profile today versus say, a couple of years ago?

Zaineb Bokhari

Mayank, the 2020 vision, on the margin side, that's never meant to have been a specific margin target. We've always said that we would invest at the right level of margin rather than a specific 20% margin. But we did deliver a nice year last year in terms of profitability. This year, we do have higher headcount, and some have been turned that in some of the facility investments that we're going to be making and some of the sales initiatives and investments that we have in place. But our aim is to maintain our objective on growing at or above market growth rate, and then doing it at a healthy level of profit without a specific targeted level of profit.

Mayank Tandon - Needham & Company, LLC, Research Division

Okay. then on the gross margin level, there again you're running significantly above where a lot of your peers are running today. Could you maybe just give a little bit more detail in terms of what the drivers might be? Is the mix different in your case? Are you getting offshore leverage at clients versus your peers? Is pricing different? What is the explanation behind having higher gross margins than some of your peers?

Prashant Ranade

First of all, the margin is a function of differentiation, which we have always believed in staying close to the clients, and in a minute I will request Nitin to go over of what we are doing as far as client-facing initiatives. But in terms of gross margins, we ensure that our operations are lean. We ensure that our utilization and how we manage all our engagement is efficient. And then, we are able to articulate the specific revenue that we are delivering to clients. And in addition to that, to grow the business, Nitin will go over what we're doing as far as Americas.

Nitin Rakesh

Sure. I think we talked a little about the fact that accounts 6 through 25 actually grew faster than accounts 1 through 5, and we think that's the trend that we want to continue to invest in. To that effect, we made expansion in our client-facing teams, especially to strengthen the sales coverage to these accounts as well as outside of these accounts. But the idea is to bring them closer to the kind of coverage and penetration we've had in accounts 1 through 5. So I think, we'll continue to update you as we progress through the year. But that's, I think, in the fourth big issue that we've gone off terms of terms of coverage to some specific accounts.

Mayank Tandon - Needham & Company, LLC, Research Division

Great. And just finally, any update on the State Street JV?

Prashant Ranade

As we updated you last year, we've signed a longer term contract. Our relationship like we have with other key clients remains healthy. And we continue to find ways to provide additional value to our clients..

Operator

Our next question comes from Bhavan Suri from William Blair & Company.

Rahul Bhangare

This is Rahul Bhangare in for Bhavan. Earlier in the call you mentioned about traction with social analytics, cloud, et cetera. Can you give us a sense for how big that business is today and your expectations going to 2013, and how fast the business is growing?

Bharat Desai

The client is starting to explore the potential of these areas. And as you know, these would all be in the discretionary spend area. So I think clients are looking to see how they can grow this. It is, I'd say, modest at this point, and Rakesh is actually going to make some additional comments on that.

Rakesh Khanna

Sure. And a great example is something what we see happening in the retail, for example in the Omni channel, which is the multichannel commerce, which is a focus area for the retail customers. And there, we are investing heavily in helping the retail customer win social media, with Big Data solutions using structured and unstructured data feeds for our Hadoop and learning analytics. So there is specific areas like that where we are beginning to see some opportunities.

Rahul Bhangare

Okay; and then last quarter, you mentioned strength in regulatory spending as financial services customers, did that continue to the fourth quarter and are you expecting regulatory spending to be a material tailwind to the 2013 growth?

Rakesh Khanna

Definitely. So we definitely to see the continuation of spend around the regulatory and the compliance space. And what we're also seeing in the financial institutions, 2 more shift. The other shift, what we see is most spend around managing the internal risk for the financial institution and doing a lot more STP, which is straight-through processing to reduce the manual processes and move more towards automation. So these are clearly the shifts to what you're seeing in the financial arena.

Operator

Our next question comes from Manish Hemrajani of Oppenheimer.

Manish Hemrajani - Oppenheimer & Co. Inc., Research Division

Just looking at your guidance, if you view [ph] no growth at your largest customer, it would mean a growth of 11% to 16% on the remainder of your business. That looks more in line with what you have guided in the past, and what would seemed appropriate given the industry growth rates of 12% to 14% forecast by NASSCOM for next year. Is that how you're looking at it? Can you give us some more color there?

Prashant Ranade

Well, first of all, in terms of guidance, we don't provide customer-by-customer guidance. In terms of NASSCOM, there is a lot forecast, NASSCOM, a couple of days back, they provide, as I mentioned earlier, guidance for next year of 12% to 14% growth, which covers period of April 2013 through March 2014. And our guidance is always visibility-based. So as I have shared with you earlier, we are feeling good about what we see in the pipeline about overall market condition. And based on that, we have added the headcount during quarter 4 and as our visibility increases, we revise the guidance. That has been our past practice.

Manish Hemrajani - Oppenheimer & Co. Inc., Research Division

Okay. Got it. And then if you look back 2012, 2012 has been a year of decelerating growth for you. And when you look ahead to 2013, how do you seeing seasonality playing out for this year?

Prashant Ranade

Well, as far as 2013 is concerned -- I mean, fell was concerned, I'm sorry, the after quarter 1 or starting with Q4 of '11, the conditions as well as uncertainties and particularly, on a macroeconomic uncertainty was causing issues in terms of decision-making, in terms of budget, which has progressively improved over the last 4 quarters. So our growth rate of 2012, relative to the market, we are very pleased with because we had almost have 13% growth rate versus the latest NASSCOM data or more 10% market growth.

Manish Hemrajani - Oppenheimer & Co. Inc., Research Division

And if I heard you correct, you pointed out to higher marketing expenses in the fourth quarter. What should we be reading into that? Should we continue to see elevated marketing expenses going forward? And is there attempts here to add more diversification?

Zaineb Bokhari

Well, Manish, actually, what we pointed out was that on a sequential basis, we'd actually had slightly lower costs related to some marketing because of some events that did not occur in Q3 that -- I'm sorry, that occurred in Q3 but not in Q4.

Operator

Our next question comes from Joe Foresi of Janney Capital Markets.

Jeffrey Rossetti - Janney Montgomery Scott LLC, Research Division

This is Jeff Rossetti in for Joe. Just a follow-up on the prior question about analytics and cloud. Is there a way for you to quantify the percentage of revenue from that -- from those horizons?

Zaineb Bokhari

Well, Jeff, we haven't started breaking those out yet. But it's a very high growth part of our business. It's garnering a high level of client interest. But right now, we haven't made that decision to break that out as yet.

Jeffrey Rossetti - Janney Montgomery Scott LLC, Research Division

Okay. And just going back to the pipeline, in general, this strength in the pipeline, does that include -- I guess, going back to analytics and cloud, does that include a better view on the discretionary spend side?

Prashant Ranade

Yes, Joe, definitely we see the shift happening in that area. And gone are the days when we will see funding for these long-term projects. Customers like to see something delivered every quarter due to prototype and then use that to fund the next cycle and so on, and so forth.

Jeffrey Rossetti - Janney Montgomery Scott LLC, Research Division

Okay. And just one more question. Just on your offshore utilization, I think in the past, you've discussed maybe a range of 60% to 80%, and you're running maybe at the lower end, do you have any thoughts on your target for 2013? Would it be something that you could see you could improve utilization from your Q4 level?

Zaineb Bokhari

Jeff, that -- we don't necessarily target a specific utilization on a yearly basis. As you mentioned, yes, we probably have a range between that 60% to 80% level. But ultimately, it's going to be tied to the level of hiring that we do. Last quarter was a little a bit higher than we've done because of the headcount that we brought in, but it's definitely going to be tied to the hiring and the heads that we bring on.

Operator

Our next question comes from Puneet Jain of JPMorgan.

Puneet Jain - JP Morgan Chase & Co, Research Division

So the midpoint of 2013 guidance implies essentially similar sequential rates for various quarter as you reported in 2012. So should we expect normal sequential terms this year, which means revenue could be down a little bit in Q1 followed by ramp in 2Q and 3Q?

Prashant Ranade

Yes. Well, the seasonality that you described, you're absolutely right. We would expect that Q1 and Q4 are seasonally -- if you look at sequential growth, are softer quarters than Q2 and Q3, which are stronger quarters. So you're absolutely right. You would expect to -- you should expect to see that. And second part of your question, as far as midpoint of market, our revenue growth itself, as I said earlier, that the visibility base and as the visibility improves during the year, as the year progresses, we revise as you know.

Puneet Jain - JP Morgan Chase & Co, Research Division

So you do not expect any different sequential or seasonal trends based on the [indiscernible] I assume some of that growth will come through sometime this year. Do you still expect Q1 to be down on sequential basis related to 4Q?

Prashant Ranade

As you know, we don't provide a specific quarterly guidance but what I would share with you is Q1 and Q4 are sequentially weaker or flatter compared to Q2 and Q3, which was -- which are typically stronger.

Puneet Jain - JP Morgan Chase & Co, Research Division

All right. And let me ask this for the upside related to your pre-announced things, does that stem from lower than expected [indiscernible] your top line or some other areas?

Prashant Ranade

As Zaineb shared with you, when we made our filings our 8-K, that was based on the expectation of low-end reduction of about $10 million and guidance was the overall guidance was based on 99% visibility. So we were pleased with the revenues we were able to generate from other clients. So combination of those 2 allowed us to end up with revenues of higher than higher end of our revised guidance.

Operator

Our next question comes from Vincent Colicchio of Noble Financial.

Vincent A. Colicchio - Noble Financial Group, Inc., Research Division

Prashant, the e-Business is relatively weak in the quarter. I was wondering if you could give us some color there and how we may expect that business to progress in 2013?

Prashant Ranade

You are right. The e-Business growth in Q4, sequentially, was lower. e-Business tends to be in the area of BI, data warehouse, ERP, CRM, web services, web applications. And that business being -- or developmentally work does tend to be lumpy. Now earlier in last year -- earlier quarters, we did some maintenance portion of the business but the developmentally part does tend to make it lumpy. But the importance of that e-Business is, it has a pull-through effect our standard in multi-business, which is our bread and butter.

Vincent A. Colicchio - Noble Financial Group, Inc., Research Division

Are you seeing an increase in consolidation at your accounts? And is that having a negative effect on your outlook?

Nitin Rakesh

So I think -- I wouldn't say we are seeing a consolidation. I think the general trend is that the contracts sizes are just either flat or actually going smaller. So we're seeing an increased activity. Based on where we stand, I think we are pretty confident that, that's not going to impact us negatively.

Vincent A. Colicchio - Noble Financial Group, Inc., Research Division

And then the last question, pricing on the quarter, what does that look like?

Zaineb Bokhari

Well, Vince, pricing was stable and there was some upward buyers that we saw in the quarter.

Vincent A. Colicchio - Noble Financial Group, Inc., Research Division

And you expect that trend to continue?

Zaineb Bokhari

Yes. We're comfortable with that trend for the coming year, yes.

Operator

Our next question comes from Edward Caso of Wells Fargo.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

This is actually Rick Eskelsen on for Ed. Just the first one is on discretionary spending. It sounds like you guys are a bit more positive there. And I'm curious, we've heard from others that they're also more positive but it seems like more in the outlook as opposed to what they're seeing right now. So I was curious if you could give me a little more color on kind of near-term versus maybe more in the back half of 2013 trends?

Prashant Ranade

Sure. Ed, for example, if you look at the insurance industry right now, what we are seeing there is that property and casualty market is doing very well, with insurance rates going up in the U.S. and Europe for the first time in a decade. And [indiscernible] carriers are adding new products, new specialist level entering the market, and we see that as an opportunity. And hence, our accelerators around data extracts using standard business warehouse predefined reports presents a very compelling story to build a market with some of these offerings. So yes, we do see some positive traction.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

And then just following up on the regulatory question that was asked earlier, I think previously, you talked about regulatory drivers being additive to the budgets, are you still seeing that? Or is it maybe taking away from some other spending that clients might have otherwise done?

Prashant Ranade

In the banking and healthcare, Ed, it is a kind of shifting towards -- so it's taking away from the normal discretionary spend. It is shifting towards more regulatory, more managing the risk kind of patterns sort of what's the emerging out there.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Then last one, just on the debt. Can you remind us on your expectations for when you plan to pay that down?

Arvind S. Godbole

Today, we are comfortable with the debt that is much lower than our total cash balance. We continue to believe the cash generation on the current environment will maintain the current flow.

Operator

[Operator Instructions] Our next question comes from Brian Kinstlinger of Sidoti & Company.

Brian Kinstlinger - Sidoti & Company, LLC

Just one follow-up on the guidance. If just took a look at the high-end of revenue, and I took your high end of your operating margin guidance and tax cuttings I get to number north of $4.60, which is in part of your guidance, is it safe to assume that if you did the high end of the revenue guidance, that you'd be hiring more aggressively relatively to revenue so that margins probably wouldn't hit high end as stated by the guidance? Is that fair assessment?

Arvind S. Godbole

I don't think there's a valid to reference at that end. Just because when we get to higher revenues does not mean that the [indiscernible] higher into the gross margin. That's why we feel very, very, very resilient [ph] . But this is a range of outcomes that are possible and it could be -- should be within that range.

Brian Kinstlinger - Sidoti & Company, LLC

All right. But if you're at high end of your revenue, and the metrics, 28%; and the 28% operating margin; 25% to 26%, taxes, it comes out higher. That was my point. That's why I thought maybe it would assume you to hire faster.

Arvind S. Godbole

I don't think that is the relationship that way. That's what I'm trying to tell you is that I think it's because if we hit the higher end of the revenue does not mean that we have reached the higher end of the gross margin as well as our operating margin.

Prashant Ranade

Brian, you have done your analysis based on higher end revenue and high end gross margin, right? And what I -- given the same gauge, that relationship is not valid. Those are the 2 ranges that we have provided.

Brian Kinstlinger - Sidoti & Company, LLC

Right. So you're in agreement that just because you hit high revenue does not mean you hit the high margins, right?

Prashant Ranade

Exactly, exactly.

Operator

This concludes Syntel's fourth quarter earnings call. A replay of today's call will be available until February 21, 2013, by dialing (855) 859-2056 and entering the passcode, which is 98221987. Thank you.

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