Chris Chu – IR
Raju Vegesna – CEO & Managing Director
M. P. Vijay Kumar – CFO
C. V. S. Suri – COO
Sify Technologies Limited (SIFY) F2Q10 (Qtr End 09/30/09) Earnings Call Transcript October 23, 2009 9:00 AM ET
Greetings and welcome to the Sify Technologies second quarter fiscal year 2009/2010 financial results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Chu, for Grayling. Thank you, Mr. Chu, you may begin.
Thank you, operator. I’d like to extend a warm welcome to all of our participants on behalf of Sify Technologies Limited. I'm joined on the call today by Raju Vegesna, Chairman and CEO; C. V. S. Suri, Chief Operating Officer; and Mr. M. P. Vijay Kumar, Chief Financial Officer of Sify Technologies.
Following our comments on the results, there will be an opportunity for questions. A copy of the press release is being disseminated shortly. Please keep track of all the wires, as we get the release out. Apologies for the delay on this, this one time. A replay of today's call may be accessed by dialing in on the numbers provided in the press release or by accessing the webcast in the Investor Information section of the Sify corporate website.
Some of the financial measures referred to during this call and in the earnings release may include non-GAAP measures. Sify’s results for the year are according to International Financial Reporting Standards or IFRS, and will differ somewhat from the GAAP announcements made in preceding quarters.
A presentation of the most directly comparable financial measures calculated and presented in accordance with GAAP and a reconciliation of such non-GAAP measures of the differences between such non-GAAP measures and the most comparable financial measures calculated and presented in accordance with GAAP will be made available on Sify's website.
Before we continue, I would like to point out that certain statements contained in the earnings release and on this conference call are forward-looking statements, rather than historical facts, and are subject to risks and uncertainties that could cause actual results to differ materially from those described.
With respect to such forward-looking statements, the company seeks protection afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive developments, and risk factors listed from time to time in the company's SEC reports and public releases.
Those lists are intended to identify certain principal factors that could cause actual results to differ materially from those described in the forward-looking statements, but are not intended to represent a complete list of all risks and uncertainties inherent to the company's business.
I would now like to turn -- introduce Mr. Raju Vegesna, Chairman and CEO of Sify. Raju? Hello, Raju?
I will commence with the opening remarks -- hello?
Yes, Raju, we can hear you. Go ahead.
Okay. Thanks. I will commence with my opening remarks on our performance in the second quarter ending September 30, 2009. We continue to grow revenue with significant growth in our Enterprise Services, which is positioned as a complete managed services provider. Companies are engaging us to help create new business capabilities and significantly advance their business objectives over the short, medium and long term.
We continue to experience demand across data center services, managed network services and managed voice services. On the consumer front, we are seeing traction in the online advertising space and expect the consumer market to continue to going forward. So we continue our initiatives to consolidate and rationalize access services through cyber cafes and expect to experience the positive effects of the initiatives in the coming quarters. In the consumer broadband services, we have continued our focus on new products, new partners, customer upgradation and promotions.
Many of you know we completed 10 years on the NASDAQ on October 19 and were invited to open the market on that day. I would like to share with you some of the observations I made at the lunch following the market opening ceremony on the opportunities and challenges that I see.
One of the largest emerging opportunities is the Indian government who are doing a huge push into e-governance over digital infrastructure for greater efficiencies, transparency and convenience. Sify is actively working with the government, both at the central and the state level, for various services, data center services, applications development, network services, and so on.
I believe that working with the government and the revenues from such services have the potential to scale significantly in the future. Demand for every more sophisticated services or managed services from the enterprise sectors will increase. And we are all well positioned to meet the demand, for we are now positioned as the most complete managed service provider in the country with the network, hosting, applications, managed voice and systems integration services. The telcos do not offer this entire range [ph], but they are largely constrained to network or some also offering hosting services.
We are also India’s first next-generation network and are preparing to roll out the next generation services such as virtualization and cloud computing based on the evolution of the demand. A large and growing opportunity is the small and medium business sectors, which we are targeting with the focus that was with the separate business team and products and services formulated to meet their needs. This includes -- one second. This includes --
First form of utility computing.
Yes. This includes virtualization and cloud computing based on the demand. A large and growing opportunity is the small and medium business sectors, which we are targeting with the focus -- the efforts with the separate business team and products and services formulated to meet their demands. This includes the forms of software-as-a-service as well as range of needs (inaudible) connectivity, security, hosting, et cetera.
The consumer market for Internet, both access and content, has not yet met the earlier promise of rapid growth, even we thought about five years ago. These are due to a variety of reasons spanning the regularity, economic and demographic characteristics of the Indian market, which is still clearly an opportunity to grow [ph] with the size of potential market of at least 100 million English-speaking users and many times that number in languages.
We believe that penetration has reached a point where it can begin to scale exponentially soon and that there will be positive changes in the environment with the government and business mutually [ph] concerned about competitiveness and effectiveness that broadband can give.
It is also clear, however, that the way we approach the market and the business models need to change as the economic environment and the consumer have changed significantly over the last two years. We are reformulating our product offerings in the access market, both broadband and cafes, and developing strategies for profitable growth.
We are also looking at alliances that can help accelerate the growth of revenues and profitability. The strategy will be viewed (inaudible) excessive utility and generate higher revenues and margins from value-added services across the entertainment, education, travel and so on. Yet again, we know have skill sets and infrastructures developed based on the enterprise services demand in place, the portal already has some strong properties in sports, finance, movies, online games, and so on. And further, we will also focus on enhancing such localization of content and value-added services and content on mobile going forward. We will also need to invest in building the bank.
Let me share with you some challenges that I’m seeing going forward. The delay in liberalization policies and regulations with regard to Internet has been a challenge, while India has done a great deal on the telecom side to emerge as a fastest growing telecom market in the world that unfortunately cannot be said for Internet.
With the huge focus on the e-governance and the growing realization of the importance of the broadband penetration, we accelerate economic growth under the effects of social economy confirmation. This would change. I believe that bandwidth prices will continue to fall, but along with that, the price to the customers, whether enterprise or customer, will also fall. This will erode margin, so we need to ensure that we are able to add sufficient value in our portfolio of managed services to maintain margins going forward.
Our International Services will also be a source of higher margin revenues and we expect to grow these at a faster pace. Fortunately, we are based in a robust economy of over $1 trillion growing at over 6% per annum. In fact, the Reserve Bank of India has recently raised that to about 8% for the year based on the growth in the industrial production in recent months.
So while there are challenges that need to be managed, the opportunities before the company are large and our infrastructure is in place. What we need to do is to capitalize on this optimization -- opportunities smartly to build the Sify brand, grow revenues and reach profitability.
Now I request Vijay Kumar, our Chief Financial Officer, to take you through our financial performance of the quarter.
M. P. Vijay Kumar
Thank you, Raju. And hello, everyone. I should now present the highlights of our financial performance for the second quarter ending September 30, 2009. Revenues for the quarter were $38.28 million, 17% higher than the same quarter in the previous year and 12% higher than the preceding quarter.
Enterprise services registered strong growth from data center, managed voice and systems integration services. International services revenues also registered strong growth. Consumer services revenues were lower than previous quarters, with the focus on making the businesses profitable, before growing subscribers and revenues.
Net loss for the quarter was $2.36 million as against a net loss of $6.12 million in the same quarter in the previous year and a net loss of $3.35 million in the immediately preceding quarter on a comparable basis. Net loss for the previous quarter is however subject to a one-time beneficial tax adjustment of $1.83 million on account of the merger of Sify Communications with Sify Technologies Limited.
Capital expenditure during the quarter was $3.60 million on account of data center and network infrastructure expansion during the quarter. We ended the quarter with a cash balance of $5.36 million.
We have done well to continue to grow revenues and reduce operating losses by maintaining fiscal discipline and operational excellence. The merger of Sify Communications with Sify Technologies will further improve efficiencies in operations and infrastructure utilization.
Cost optimization initiatives undertaken in the last few quarters have started yielding results and we will also see the benefit of these going forward. The resilience of our business model, backed by continuous review and strategic decisions to provide increasing value to our customers, is the key to achieving profitability.
I will now hand over to Suri who will take you through the initiatives during the second quarter. Suri?
C. V. S. Suri
Thank you, Vijay. And good morning, everyone. Enterprise services registered a 15% growth in revenues across services over the preceding quarter, despite the slowdown in the economy when Internet services under connectivity growing three-fold over the same period last year. We added 100 new customers in managed network services and managed a 50% growth in business from the small and medium business segments over the previous quarter.
Our security business deployed solutions for customers across verticals, including the financial services sector. Our positioning as a managed services provider resulted in customer engagements for multiple products and services during the quarter gone by.
The international VoIP business scaled significantly with traffic growing by 20% over the previous quarter. We also launched hubbing services during the quarter for the SAARC region. Launch of newer services in both national long distance and international long distance services are planned in the coming quarters. We are now partnering with IBM for FILENET solutions in the Indian market. This alliance expands our portfolio of application services for content, document and business process management.
Our focus in alliances resulted in a significant engagement for a very large MPLS VPN deployment of over 67 locations within India. We have also signed a bilateral agreement with one of the largest Asian carriers, which enabled us to extend our reach in the Asian region, while enabling our partner to reach across in India. Rollout of new services in the domestic market combined with a strong pipeline of opportunity in connectivity and systems integration will ensure continued growth in the coming quarters.
In the International Services segment, we expanded engagement with key infrastructure management services customers during the quarter and also developed a significant sales pipeline that will mature over the coming quarters. Overall, the market demand for our service offerings is healthy and is generating interest from prospects across verticals.
Our eLearning services acquired three new accounts in the Technology and Skills Training sectors as also including the acquisition of a Global Development Agency contract during the quarter. We were also awarded work in leading-edge product and service areas of Virtual Worlds and Interactive PDF documents.
We launched a Virtual World University platform during the quarter in collaboration with MERLOT, an international cooperative of higher education institutions and professional organizations, to increase the efficacy of teaching and learning online. LiveWire, an open source learning management system on a Software-as-a-Service platform, was launched during the quarter by Sify.
In consumer broadband services, our current product portfolio was enhanced with the launch of a new set of products. These are an extension of our data transfer products with specific focus on enhancing night time usage. Sify will continue its focus on expansion with new partners, promotions, new products and customer upgradation, while it’s focusing on building profitability.
Our ePort cyber cafes focused on value-added services. To add to the range of value-added services, we tied up with VIA for flight bookings nationwide. This particular alliance offers Sify customers more attractive fares and also more options in terms of airlines. We are also partnering with CDAC, the Center for Development of Advanced Computing, of the government of India for a specific engagement with the Government of Punjab state.
Our portal, Sify.com, was judged to be one of the three leading publishers for online display advertising in India, in a study by The Nielsen Company for the period June to August 2009. Sify.com has also redesigned its homepage based on user feedback and consumer behavior, while bringing in new brand elements.
Sify Finance introduced live updates on the stock market along with relevant buy/sell recommendation by experts. Sify Sports continued to enhance its position with coverage on significant events across sports such as cricket and tennis during the quarter gone by.
This brings us to the end of this section. I will now hand over to Raju once again for his closing remarks. Raju?
Great. Thank you, Suri. I would like to conclude by reaffirming our focus on driving cost-effective growth towards profitability in an environment that is once again in our current outlook -- economic outlook. In pursuing opportunities in India, growth story, we will make selective investments in expanding our infrastructures and service capabilities in a strategic manner.
I will now hand over to the operator for questions. Operator?
Thank you. (Operator instructions) Thank you. Gentlemen, there are no questions over the phone at this time. Do you have any further comments?
Thank you for everyone joining on this call and we look forward to interacting with you all through the quarters or around this time thereafter. Thank you, and good bye.
This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
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