Syntel's (SYNT) CEO Nitin Rakesh on Q4 2015 Results - Earnings Call Transcript

| About: Syntel, Inc. (SYNT)

Syntel, Inc. (NASDAQ:SYNT)

Q4 2015 Earnings Conference Call

February 18, 2016 10:00 ET

Executives

Zaineb Bokhari - Vice President, Finance

Bharat Desai - Chairman

Prashant Ranade - Executive Vice Chairman

Nitin Rakesh - President and Chief Executive Officer

Anil Agrawal - Acting Chief Financial Officer

Rakesh Khanna - Chief Operating Officer

Analysts

Edward Caso - Wells Fargo

Dave Koning - Baird

Frank Atkins - SunTrust

Vincent Colicchio - Barrington Research

James Friedman - Susquehanna

Mike Reid - Cantor Fitzgerald

Anil Doradle - William Blair

Josh Seide - Maxim

Puneet Jain - JPMorgan

Arvind Ramnani - Gordon Haskett

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Syntel Fourth Quarter 2015 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded today, Thursday, February 18, 2016. I will now turn the call over to Zaineb Bokhari, Syntel’s Vice President of Finance.

Zaineb Bokhari

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

On the call with us today, we have Bharat Desai Syntel’s Chairman; Prashant Ranade, Executive Vice Chairman; Nitin Rakesh, Syntel’s CEO and President; Anil Agrawal, Syntel’s acting Chief Financial Officer; and Rakesh Khanna, Syntel’s Chief Operating Officer.

Before we begin, I would like to remind you that some of the comments made on today’s call and responses to question 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 and thank you for joining us today. I am pleased with the progress our company made during 2015. We began with a proactive strategy to align our services and capabilities directly with the priorities of our customers, supporting their digital aspirations, while presenting them with a path to modernizing with existing systems. To accomplish this, we challenged ourselves to think and behave like a startup, intensely focused on innovation, but supported by a disciplined operation and a very healthy balance sheet. Born out of this strategic focus, our robust solutions that enable our customers to be future-ready. In the coming year, we will further cement our gains as we broaden our reach across industries and geographies.

The digital channel is a major growth driver for companies across all industries. Major corporations are facing disruption from new entrants who are drawing customers to personalize service, frictionless commerce, choice and instant response. Success and even survival in this hypercompetitive environment requires companies to reinvent themselves for risk disintermediation. Reinvention can be complex, cost prohibitive and fraught with execution risks. This is because legacy systems that keep the lights on at these organizations are difficult to scale, expensive to maintain and typically require costly technical support. With the stakes being so high, the legacy systems that run critical day-to-day functions at large companies must be transformed to digital technologies that support future growth.

Syntel’s approach towards digital modernization employees are focused on both domain and technology. Our M3 offering, migrate, manage and modernize framework, presents a clear path for successful legacy transformation from planning to digital-ready to always on. Powered by our SyntBots’ recursive automation platform, the journey from legacy to digital is accelerated, while improving productivity and customer service. We have developed these capabilities with the realization that transformation can open up attractive opportunities, but can also pose tremendous risks for companies. Our technology leadership and thoughtful approach is resonating with our customers and partners. I am optimistic that Syntel is building strong momentum for future growth.

I would now like to turn the call over to Nitin Rakesh, Syntel’s Chief Executive Officer and President to provide further details. Nitin?

Nitin Rakesh

Thank you, Bharat and welcome everyone. Before I begin my review of the fourth quarter, I wanted to provide you some perspective on what we have been hearing from customers, how that has allowed us to identify and pinpoint their most critical needs, and helped inform and guide some of the strategic investment decisions we have made.

We have spoken at length about the two speeds at which major companies run their internal IT. Today, across the industries we serve, the C-suite is feeling intense pressure to reign in the cost associated with running their legacy systems. Digital modernization is at the core of every CIO strategy. Increasingly, customers are enacting plans to break the inertia and rip and replace the legacy systems and legacy service providers that can no longer support their growth plans.

As Bharat mentioned, we focused on developing preemptive solutions to address their strategic pinpoint by providing transformation leadership and serving as a change agent to help our customers redesign operations. Our M3 digital modernization offering powered by the records of automation capabilities of SyntBots is a great example of our thought leadership in this area as customers look for ways to channel resources towards areas of competitive differentiation, instead of investing further in big iron systems that are placing limits on business agility.

Syntel’s digital transformation solution offers a very compelling value prop for our customers. We have taken this holistic approach, because we recognized that without modernization the true promise of digital cannot be actualized and informed decision-making, tailored user experiences and high availability of services will remain siloed and largely theoretical. We have a clear message and the right solutions to address the digital disconnect that has plagued many companies.

Syntel was early to market with this vision, supported by an operational strategy to make it a reality. These capabilities are opening up growth opportunities with new and existing customers. We have invested in managed services and we commit to outcomes. Our entire organization has locked on to the goals of becoming a leader in digital modernization by adopting a mindset for growth supported by innovation. One good example of this is what we have done for a large regional retailer, whose IT operations were structured in the traditional eye on the glass approach to system performance monitoring, heavy on engineer involvement with a complex team structure and a lot of manual operations. They placed high priority on accuracy and efficiency and had active digital and IoT initiatives, but were limited because they operated multiple environments.

Given the manual nature of their IT operations, this was a significant challenge. Our domain and technology capabilities provided a strong path for addressing these customers transformation and modernization goals as the move towards the always on digital model. We took an end-to-end view of the company’s business and technology introducing automation at an enterprise level as opposed to the business silos. We provided context around cost efficiencies by evaluating the resulting business impact and instituted agile development to support faster rollout of solutions. We introduced automation and other changes in several ways supporting the case for moving to the next step through measurable improvements along the way. In the end, the customer experienced nearly 100% improvement in quality, significant reductions in process handling times, while realizing numerous cost efficiencies. I am very excited about the leadership position we have carved out for ourselves in digital modernization and automation. Our focus on these areas underscores Syntel’s commitment to provide value migration for our customers.

Now, let’s review the quarter. Syntel’s fourth quarter revenue was $254.6 million, rising 8.2% year-over-year and approximately 0.4% on a sequential basis. We executed well in the fourth quarter despite the one-time impact from the historic rains at our Chennai delivery hub. I am pleased with the rapid mobilization of our teams, who worked tirelessly to mitigate any impact to our customers from this event. The business environment remained stable during Q4 and many of our industry groups showed healthy growth year-over-year.

Our manufacturing, healthcare and life sciences, and retail, logistics and telecom industry groups each posted double-digit year-over-year gains, and banking and financial services grew in high single-digits. Europe remained a strong engine of growth in the fourth quarter, rising 17.4% over the prior year period and 9.7% on a sequential basis. We see additional opportunities to make indoors in Europe with investments aimed at expanding our delivery and sales presence in the region.

The demand for digital services remained strong in Q4. We estimate that digital projects accounted for approximately 15% in Q4 compared to 14.2% in Q3 far exceeding overall company growth. We started sharing this metric with you last year, but in reality, as a customer embarks on the transition towards becoming a digital enterprise, we have increasingly seen concurrent demand for digital enablement, and modernization. So we are examining the way we have defined the revenue streams we include in this category.

From our perspective, we are driving towards 100% digital, because that is where we think the market is eventually heading. Our insurance industry group continued to face some growth challenges in Q4, as underlying business trends in the personal lines segment remained weak. As we noted last quarter, this weakness could persist for a few more quarters, as companies in this sub-segment adjust to prevailing conditions and manage the risk exposures. Based on the health of our pipeline and our discussions with customers, we remain optimistic that growth will return and we are positioning ourselves to take advantage of opportunities across the insurance industry.

As we begin the year, our pipeline continued to build and demand environment remains stable. Based on the discussion with our customers, we expect 2016 budgets to be largely consistent with the prior year and we continue to see the allocation of budgets shifting towards discretionary spending. There are clearly some unknowns with respect to global macroeconomic trends, pending M&A activity in the healthcare industry and we have taken all of these factors into account, while stepping our 2016 outlook. If you look across the year, we think the normal seasonal patterns will prevail, but specific quarters, particularly at the start of the year where visibility is more limited can have some variability due to some of these factors.

Fourth quarter gross margin contracted 57 basis points to 41.8% from 42.4% in the third quarter. We continued to see incremental shifts in the mix between onsite versus offshore delivery during Q4 as compared to Q3 supported by continued customer interest in digital projects. In addition, offshore utilization for IT fell to 70% in Q4 from 75% in Q3 on a period end basis and to 72% in Q4 from 76% in the previous quarter on average. While our utilization rates dipped this quarter, we continue to expect that utilization will stay above historic trends, given the strong customer interest we are seeing in our managed services offering and the SyntBots automation platform.

Net headcount increased by 723 employees on a sequential basis in the fourth quarter to 24,537 and was essentially unchanged from a year ago. We have noted on previous calls that we are hiring across each of our geographic regions. Our focus remains on readying an organization for the demand of the digital economy. We have made solid progress in implementing the workforce management strategy we announced several quarters ago. The close alignment between the skill sets and mindsets of our associate is going to play a critical role in helping our customers navigate changes in their industry. Attrition, calculated on a current quarter annualized basis was at 25.8% in Q4, up from 22.2% in Q3. We expect attrition to remain above historic trends for some time, as we continue to rebalance our global workforce. Anil will expand on our Q4 metrics and 2016 outlook in his prepared remarks.

I want to conclude my comments by thanking the employees of Syntel for their efforts. I take great inspiration from the strong collaboration and teamwork that they demonstrated both in the midst of a natural disaster and in response to the shifting dynamics in our own business. We are stronger and better positioned today because of all your contributions.

I will now turn the call over to Anil Agarwal, Syntel’s Acting Chief Financial Officer, who will discuss Syntel’s financial performance. Anil?

Anil Agrawal

Thanks Nitin and good morning. I am very pleased to be speaking with all of you today. After I conclude my comments, we will open the call for questions. Syntel’s fourth quarter revenue came in at $254.6 million, up 8.2% from the prior year period and approximately 0.4% higher than the prior quarter. For the fourth quarter, Banking and Financial Services contributed 50.3%, with Retail, Logistics and Telecom at 16.4%, Healthcare and Life Sciences 16.4%, Insurance 12.4%, and Manufacturing 4.5%. On a year-over-year basis, segment growth was led by Manufacturing, Healthcare and Life Sciences, and Retail, Logistics and Telecom, which grew approximately 47%, 21% and 10%, respectively.

Syntel’s customer concentration levels were as follows. Our top three clients represented 49.1% of revenue in the fourth quarter of 2015, up from 48.5% in the year ago quarter and 48.2% in the third quarter. Accounts 4 to 30 represented 42.3% of revenue in the fourth quarter of 2015, down from 45.7% in the year ago quarter and 43.3% in the third quarter. The fixed price component of our business was at 43% of revenue for fourth quarter of 2015. With respect to Syntel’s margin performance, our fourth quarter gross margin was 41.8% as compared to 41.4% reported in the year ago period and 42.4% in the third quarter of 2015. By segment, gross margin for Banking and Financial Services was 41.6% with Retail, Logistics and Telecom at 45.2%, Healthcare and Life Sciences at 46.2%, Insurance 39.2% and Manufacturing 33.9%. The Indian rupee depreciated by 1% sequentially during the fourth quarter. This raised gross margins by approximately 13 basis points.

Moving down the income statement, our selling, general and administrative expenses were 11% in the fourth quarter of 2015 compared to 10.2% in the prior year period and 6% in the third quarter. On a dollar basis, SG&A was higher by $12.9 million sequentially. The impact on SG&A from currency-related balance sheet translations this quarter was $1.8 million gain as compared to $14.5 million gain recorded in the third quarter. The depreciation of rupee lowered SG&A by $0.2 million. Other income was $14 million during the fourth quarter as compared to $10.2 million in the third quarter, including a gain of approximately $8.4 million from mutual fund sales in the fourth quarter versus $4.2 million gain in the third quarter. Our tax rate for the fourth quarter came in at 19.7% as compared to 24.3% posted in the third quarter. During the fourth quarter, we had a one-time reversal of approximately $1.2 million in tax provisions. Net income for the fourth quarter was $74.2 million or $0.88 per diluted share as compared to $70.7 million or $0.84 per diluted share in the prior year period and $77.7 million or $0.92 per diluted share in the previous quarter. The company’s balance sheet at the end of the fourth quarter of 2015 remained healthy.

Our total cash and short-term investments on December 31 were $1.04 billion and the portion held in U.S. dollars stood at 66%. DSO levels were at 59 days. Capital spending for the fourth quarter was approximately $3.2 million. Syntel ended the fourth quarter with total headcount of 24,537 of which 7,452 were assigned to KPO. Our billable headcount was 4,804 onsite and 18,086 offshore for a total of 22,890. Our global headcount was up by 3% from the third quarter. Utilization levels at the end of the quarter were 92% onsite, 75% offshore and 79% globally. Our delivery mix at quarter end was 25% onsite and 75% offshore. Voluntary attrition during the quarter was 25.8% compared to 22.2% reported last quarter. Syntel added 6 new customers in the fourth quarter.

Looking forward, I would now like to provide you with guidance for 2016. Based on our current visibility levels, Syntel expects revenue to be in the range of $1.25 billion to $1.65 billion and EPS to be in the range of $2.75 to $3 for the full year of 2016. The company currently has 60% visibility to the low end of the revenue range and our guidance is based on an exchange rate assumption of INR68 to the dollar. We anticipate that operating margins will be in the 27% to 29% range. And our effective tax rate will be in the mid-20% range. CapEx for the year is expected to be in the range of $25 million to $30 million, excluding land purchases.

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 the line of Edward Caso of Wells Fargo. Your line is now open.

Edward Caso

Hi, good morning, good evening. I guess, my question is you have a $1 billion in cash, and if I heard correctly about two-thirds of it is in the United States. Can you talk maybe more specifically than historically what’s your possible use of that cash would be in other words, how about returning some to shareholders? Thank you.

Bharat Desai

Ed, I will just correct your understanding and then pass it to Bharat. I think 65% of the cash in U.S. dollars, not in the United States. 89% of the cash is actually in India. Let us go ahead.

Edward Caso

And what are the implications there for the ability to return some of it?

Bharat Desai

Yes. So, the normal taxes would apply for any kind of a repatriation of cash both in India and the U.S., And I think one important decision that we have taken as you have noticed is to maintain our balances in dollars to mitigate any currency fluctuations. And at this time, our board is considering different options for the deployment of that cash.

Edward Caso

Okay. Any issues with your upcoming credit line refinancing or would you just pay it down with this U.S. dollar denominated cash?

Bharat Desai

I don’t know we have a few more months before that comes up. We are looking at all options and we will update you probably in our April earnings call.

Edward Caso

Right. My other question is on revenue guidance historically, the company is always very good with the margins and beating the EPS expectation, but always seems to come up a little light on the revenue line, not meaningfully so, but a little bit light. So, I am trying to get a sense for how good your forecasting is or is just a reflection of that fact, you have several large clients and it’s a little bit harder to predict?

Nitin Rakesh

Great question, Ed. Let me just answer that in two parts. I think first and foremost, we have used a consistent methodology that we have shared with you. We typically use visibility to the lower end in doing our forecast and typically range between high 50s to low 60s. For this year, we have 60% visibility to the lower end, which last year we had about 59%. So clearly, I think there is a certain method that we have used and we have been consistent with that. I think your other question about, whether it is getting harder to forecast, I think there are number of factors that play. I wouldn’t really go into the size of customers or the relationships, because I think that actually we drive strength from, but given the shift towards more discretionary spending, the focus on clients on digital modernization, the focus on reducing run the business costs, clearly, there is an impact on the forecast ability. So, I think from our perspective, we feel good about the position we are in especially getting into 2016 with our disruptive modernization and automation offerings. So, hopefully as we go through the year, we will continue to update you on the visibility and the guidance.

Edward Caso

Right, thank you.

Operator

Thank you. Our next question comes from the line of Dave Koning of Baird. Your line is now open.

Dave Koning

Yes. Hey, guys. Another great year for you guys. And I just want to – I guess, first of all ask the question about, if you can give us any color on seasonality, typically Q1 is down a little bit sequentially I think last year. There was a little extra weakness around AMEX, maybe you can tie in both how to think about AMEX this year given that they have had some struggles, although it seems like they keep spending with you and then also just Q1 if we should expect revenue to be down sequentially?

Zaineb Bokhari

Yes. Hi, Dave. Thanks for that question. So, I think just keying off of some of what Nitin mentioned, given what we are seeing in terms of budget allocations, continuing to skew towards more discretionary spending, you are going to encounter some of the lumpiness in terms of predictability and things of that nature. I think we have got a good beat on the forecast. We have taken into account everything based on customer conversations and their spending priorities etcetera. But I think normal seasonality will prevail for the year, and as Nitin mentioned, in the earlier quarters, where visibility is a little bit lower, you can expect to see some variability.

Dave Koning

Okay, great. In AMEX, you haven’t seen any real big changes in their patterns of spending, but it looks like the last year or so, I mean it was still up a little bit in 2015. And just wondering if they have relayed to you any plans just given they have lost a couple of clients?

Nitin Rakesh

So Dave, I think we feel really good about the fact that we have had a solid relationship. We actually continue to grow that relationship and we see further opportunities for growth in all of our customer relationships, including AMEX. So I think what’s important to note is that we are very pleased with the fact that we are able to align with their priorities of optimizing run and funding the change initiatives as they go through their modernization journey. So again and as Zaineb said, we have baked in what we know and we will continue to update you, but as I said we feel great about the relationship and the fact that we are actually able to show growth in it.

Dave Koning

Great, thanks. And just a couple of just real quick just modeling questions, just your other income line, I know you talked about an $8 million gain, but that’s been very stable around $10 million to $15 million or so every quarter for the last many, many quarters now. But if you look at the $8 million gain in Q4 that would mean the underlying other income would only be $6 million. So, I am wondering is that more how we should model it or should we model it more like the 10 to 12 that’s pretty normal for what 8 to 10 quarters in a row?

Bharat Desai

So, directionally, other income will be lower than 2015 as we increase our U.S. dollar holdings. Further, mutual fund realized gains tend to be lumpy with very – which vary from quarter to quarter. We expect other income to steadily decline and yield is expected around 2% to 2.5% in 2016.

Dave Koning

Okay. And then SG&A that line, do you assume no FX gains in the SG&A line for 2016 as of today?

Nitin Rakesh

Yes. That’s correct.

Dave Koning

Okay, great. Well, thanks. Good year.

Nitin Rakesh

Thank you.

Zaineb Bokhari

Thank you.

Operator

Thank you. Our next question comes from the line of Frank Atkins of SunTrust. Your line is now open.

Frank Atkins

Thanks for taking my questions. Wanted to ask about utilization trajectory going forward and what impact SyntBots or automation has on that as you look across the year?

Zaineb Bokhari

Yes, Frank, thanks for that question. So first of all, with our workforce rebalanced strategy, we have stated that we are looking at ways that we can delayer the delivery organization. The other impacts that you made you have seen in the reported numbers is that the pace of hiring has also slowed. We saw a bit of a step up in utilization – I am sorry, step down in utilization from the fairly elevated levels in Q3. But I think that given the strategy that we have undertaken, you can continue to expect utilization to trend above the levels we have seen historically.

Nitin Rakesh

And then if I may add, I think the other part of the question really was how does automation play into this, so Frank actually that’s a great question. If you looked at our performance for this year, we have kind of funded all of our growth without really any additional to headcount on a YoY basis. And obviously, utilization is an element, but there is also an additional element of what we have been driving towards, which is creating a certain degree of de-linkage between revenue growth and headcount growth. And that’s a conscious strategy using managed services powered by automation. And we will continue to drive that and hopefully make further progress as we made this year, which we are very pleased with.

Frank Atkins

And then as a follow-up, wanted to ask about the fixed price content that ticked up a little bit, anything driving that and do you expect that to continue?

Nitin Rakesh

Again, links to the previous discussion, I think we have typically been in the high-30s, low-40s range for fixed price, which also includes our managed services contract. Directionally, you can expect that to stay elevated and potentially be higher than our current levels as we go forward. Obviously, on a quarter-on-quarter basis that number might be vary.

Frank Atkins

Alright, great. Thank you very much.

Operator

Thank you. Our next question comes from the line of Vincent Colicchio of Barrington Research. Your line is now open.

Vincent Colicchio

I was curious, obviously digital is an important growth driver, could you please summarize some of the other important growth drivers going forward in terms of big horizontals, maybe KPOs base for example, would be one thing to talk about?

Nitin Rakesh

Sure. I think as you probably made out from our script and our commentary. We clearly see digital modernization to be the core of a number of opportunities that we are going after. And we are using every channel to drive the direct advisor, consultant led and so on. Absolutely, focused on creating this automation led managed services offering, furthering that, expanding our market share with the disruptive automation. And more importantly, we also continued to drive growth through our solid growth in Europe and accounts 4 to 30. So I think the strategy is fairly consistent on these three fronts.

Bharat Desai

Vincent, I would just like to add. Really in terms of SyntBots, our ability and our service offerings help us drive efficiency through automation and run the business side, more also on the change in the business using DevOps and also on process automation. So the underlying theme really is to use recursive automation to drive lot of value using Syntel IP and bring it to the clients. So that’s clearly our key theme going forward.

Vincent Colicchio

And then clients 4 to 30 increasing their share has been an important strategic objective for some time, will we see that improve – that share improve in ’16, what are your thoughts there?

Nitin Rakesh

Absolutely, I think directionally that still continues to be one of our strategic growth drivers. I think ex-insurance, each and every customer segment in 4 to 30 actually showed growth even in the fourth quarter. So I think what you are seeing as a group of 4 to 30, including Insurance definitely is looking muted, but we definitely expect to use that as a growth driver.

Vincent Colicchio

If I am understanding correctly your – the midpoint of your operating margin outlook for ‘16 is somewhat lower than what we were this year or last year in ’15, to what extent is that pick up an increase in investments versus other drivers?

Nitin Rakesh

I think there are two primary factors, so absolutely we will continue to invest in our business, but more importantly what you are seeing for 2015 also includes currency impact into the SG&A number, when we haven’t baked any of that in our forecast.

Vincent Colicchio

Okay. Thanks guys.

Operator

Thank you. Our next question comes from the line of James Friedman of Susquehanna. Your line is now open.

James Friedman

Hi, I was hoping that at least qualitatively you could decompose what you are seeing out there in terms of pricing between the run the business and the discretionary parts of your service lines?

Nitin Rakesh

Sure. I think again, there are two parts to that answer. Clearly, one – in one format is run the business and change the business. I think the way we look at it is given the fact that we are leading with significant investment that we made in our IP, in our tools, in our platform. We are really using that as to our advantage, when it comes to pricing discussions. So for us the pricing environment is fairly stable. I know that some of our peers have reported pressure in the run the business side of the house and that’s primarily, because the approach has probably been more legacy versus the approach we are taking which is to bundle in automation and managed services. And we are actually looking at the entry approach, which is migrate manage and modernize all bundled in together. So our ability to work on both run and change in a bundle contract actually gives us a lot of price protection.

James Friedman

That’s interesting. And one follow-up maybe for Rakesh, how should we think about the delivery trends, will you need more, I know there has been ongoing theme last few years, but will you need more onsite, onshore delivery as some of the changes to the business escalates as a percentage of your solutions?

Bharat Desai

Yes. Jamie, yes we should continue to sort of see current levels of onsite-offshore leverage, so no major shift happening there. But typically what we see is as we engage more on the digital projects, the initial first few phases are more onsite centric with very close engagement with the customers. And then over a period of time, that gets off-shored and then obviously developed on a prototype and so on and so forth. But in terms of the onsite and offshore percentage, I don’t expect a major shift out there.

Nitin Rakesh

Yes. But again Jamie keep in mind what we talked about bundling in our migrate manager and modernized offering in our managed services contract, that gives us a lot of flexibility to use automation and offshore leverage. So I think our intent continues to be to drive higher offshore leverage, especially by through the use of managed services contract. At this point in time, we are where we are and we will continue to update you.

James Friedman

Got it. Thank you.

Operator

Thank you. Our next question comes from the line of Joseph Foresi of Cantor Fitzgerald. Your line is now open.

Mike Reid

Hi guys. This is Mike Reid on for Joe. I just had a couple of more quick questions about the client revenue growth. On the outside of the top 30, those have seen some pretty good growth numbers in the back half of the year, do you think you can kind of sustain a lot of this momentum there going forward into 2016?

Nitin Rakesh

Sure. I think again, good question. We talked about three or four growth drivers. So if you look at the segment that you are referring to, I think there are two of those factors that play. One, our growth in Europe continues to give us some of the wins in the segment that you talked about. And second, our disruptive capability to go into new client situations or even existing client situations that we have a small wallet share and expanding that through use of automation, managed services and bundled services actually gives us the ability. So we do expect to continue to see share gains as we look at new customer acquisitions, especially in Europe as well as in North America.

Mike Reid

Okay. And then so with two and three, I guess Street FedEx, they have been doing fairly well, as well as they are kind of a difference between how they are doing as one kind of being more of a driver of the other, do you spell that out?

Nitin Rakesh

Again, we see every account as a growth account. Obviously, every account doesn’t move in the same trajectory every quarter, but we are very pleased with the growth we have seen in our top three client relationships in 2015 and we continue to expect to drive further efficiency and gains there as well?

Mike Reid

Okay, alright. Thanks guys.

Operator

Thank you. Our next question comes from the line of Anil Doradle of William Blair. Your line is now open.

Anil Doradle

Hey guys. Couple of questions, I think you talked about elevated levels of attrition for the company going forward. And you talked about I think realignment of workforce. Can you dig a little bit deeper and share with us what that really means?

Zaineb Bokhari

Yes. Anil, the plan is to prepare our company for major shift in the industry and also for the changing the customer preferences due to their adoption. So as Nitin mentioned, investments in areas like managed services, digital modernization. These are all steps to ready ourselves with the future. And we have to be very focused on aligning the skill sets with the talent base, with these requirements and this is happening across each of the geographies that we operate in. The other thing is tied to some of the de-layering that we discussed earlier, leveraging our automation capabilities, as we are going through this transition, the pace of hiring has slowed from what we have seen in the past years. And this is definitely contributing to the rise in the current quarter annualized attrition metric that we are sharing. At the same time, we are not seeing impact by way of SLAs or anything like that.

Anil Doradle

Great. And Bharat, I had a bigger picture question, I mean you talked about close to 7,000 people in your BPO, KPO business. Have you considered totally reshaping the company more as a KPO, BPO company rather than an IT company, because if you look at the trends in the whole BP and BPO whatever you want to call it, KPO, it’s evolving in the right direction, their multiples are expanding, growth in demand environment is improving and it’s becoming very apparent that the IT part of the industry is under a lot of pricing pressures, scale is becoming more important. So, why not – I mean you already have a clear differentiation, why not reinvent the company as a kind of a KPO BPO company?

Bharat Desai

Thank you again Anil for that question. We have a somewhat different view from that, from the one that you have just articulated, if we look medium to long-term. I think customers are going to look for an end-to-end play, where they are looking for business outcomes and where IT and KPO will be fused into one business outcome offering. So we think we are really well placed, because as you have – as I am sure you have noticed, we have stayed away from the commodity part of the KPO business. So, we are in domain intensive KPO businesses. And that has helped us build significant knowledge and create IT in each of the industry verticals where we play. We think when you combine automation, business knowledge and customers’ expectations of business outcomes, you will see a very different kind of service emerge and I think we are at the leading edge of that.

Anil Doradle

Okay, great. Thanks a lot, guys.

Operator

Thank you. Our next question comes from the line of Josh Seide of Maxim. Your line is now open.

Josh Seide

Hi, thanks for taking the questions. Are there any industry verticals where you expect to post above average growth in 2016? And conversely, are there any where you expect potentially a contraction? Thanks.

Nitin Rakesh

We did call out for the fact that we expect to see continued weakness for a few more quarters in our insurance segment primarily led by the weakness in the sub-segment of personal lines. I think other than that we think we have a secular tailwind in industries like healthcare and life sciences, where we have a very strong position. And I think even in banking and financial services, we think we will continue to do well as we did in 2015. So I think outside of insurance, we do expect almost all of our industry segments to show decent growth.

Josh Seide

Great, thank you.

Operator

Thank you. Our next question comes from the line of Puneet Jain of JPMorgan. Your line is now open.

Puneet Jain

Hey, thanks for taking my question. There obviously are lot of concerns over M&As among healthcare fares and I know your guidance slightly assumes a range of outcomes. Can you share what’s implied at the top-end and at the low-end of the guidance as it relates to your healthcare vertical?

Nitin Rakesh

Puneet, we don’t normally guide by vertical. But again as we did mentioned, we have taken some of that uncertainty into our guidance and we have still kind of maintained our lower end at about 60% visibility. So, I think we will continue to stay consistent. And at the same time give you more color as things do pan out. We had a good year in healthcare in 2015 despite the early hiccups that we saw in the fourth quarter of ‘14 and the first quarter of ‘15. And we still think that we will continue to have the tailwind in the industry. And we have made investments across the lifecycle of that segment as well.

Puneet Jain

Understood. And focusing beyond the near-term, do you think like you will have to focus more on customers beyond your top 30 for incremental revenue source or you think you still have significant penetration potential at say 4 to 30, which will be enough to drive growth over say next 5 years?

Nitin Rakesh

I think the short answer is both. We have to do both. So, we added 6 new customers in Q4 that we are just going to have the normal leverage we do every quarter between 4 and 6. I think we are – we did talk to you guys about the fact that we are being fairly focused in the kind of customers we chose and in the kind of customers we chase. So we will continue to drive focus, but we do have a very active strategy at play in new customer acquisitions both in U.S. and/or North America and Europe. And we will continue to make investments even on the continent, which we started doing few quarters ago and that’s also yielding results. And clearly, I think in the top 30 clients are definitely of high strategic value. So, I think it’s really a combination of both and driving that balance and finding growth from every segment.

Puneet Jain

And last one, sorry go ahead.

Bharat Desai

Yes. If I can add to that, as Nitin has stated previously, every customer is a growth client and a growth opportunity for us. And in addition to that, I think our recursive automation platform, SyntBots, which is IT driven platform is opening up many, many opportunities for us to go beyond the top 30 for growth as well. So, I would like to share that.

Puneet Jain

Understood. That makes sense. And NASSCOM recently shared their estimate for industry growth which was lower than what it was last year. So, could you share your thoughts on reasons for slower growth this year and based on what you see as this low double-digit growth like the new normal for offshore?

Nitin Rakesh

Puneet, that is very hard for us to comment on the factors that NASSCOM took into account, but I think we did refer to some of the things that we are seeing going on in the industry. Clearly, the global macro uncertainty creates volatility and the volatility creates certain balls in customer’s minds. Combine that with the commodity price action combine that with the stress that a lot of the global banks are under both from a regulatory perspective as well as from – that are not just specific to the offshore IT industry but much more I would say business centric. So I guess that’s one of the factors that the industry association took into play when they guided for 2016. From our perspective, while that’s an important number, I think our focus is to continue to drive growth through our focused efforts in the segment we talked about and continue to invest in our capabilities, especially through managed services and automation and win market share gains.

Puneet Jain

Understood. Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Arvind Ramnani of Gordon Haskett. Your line is now open.

Arvind Ramnani

Great. Thanks. I just wanted to spend a couple of minutes on SyntBots. Are you able to give us some color on SyntBots, how you will price for it, dual price exclusively for SyntBots or is it part of bundle offering? And secondly, are you at a point where you can license it?

Nitin Rakesh

Sure. It’s a very simple answer, Arvind. We are actually bundling it in our services. And if you remember, I talked about M3, which is migrate, manage and modernize and we delivered that through manage services. So, it’s really a platform that we deploy to deliver our services. And we don’t have a licensing model or it’s not a standalone offering. It’s basically bundled into our managed services.

Arvind Ramnani

Great. And from a sort of business impact, is it – are you starting to sort of see some of the impact from a revenue perspective or a margin perspective? What has been some of the benefits of getting this deployed to Syntel?

Nitin Rakesh

Sure. I think benefits are on both fronts. We are using it as a strategic lever when we go into client situations compared to building situations. And in many cases, this is actually a great conversation opener and a follow-through discussion topic with the C-suite, because they are all looking to find ways to run the business cost and find a way to transform their IT and operations. So, I think from that perspective, it’s a very strategic advantage that we have created and we will continue to invest in that. And definitely, we talked about the impact on the D-Linkage between headcount growth and revenue growth and this is a key strategic lever for that as well.

Arvind Ramnani

Great. So, when you – I am sure you have showcased SyntBots to a broad variety of your existing clients, prospective clients. And can you share with us some of the feedback you have got from clients who have looked at SyntBots and using it and some of the other folks who are for lack of better word on the fence who are still sort of undecided on using SyntBots?

Rakesh Khanna

Yes. Arvind, Rakesh here. And really the feedback has been very, very solid in – when we have deployed it in delivery. And here Arvind, the basic premise is really recursive automation. So, the attempt here is in delivery what we do is go for the low-hanging fruit, automate repetitive tasks. And having done that, then move on to the next task of we are not taking on to more complex processes, improving – Nitin referred to this earlier, improving availability, improving business metrics and so on and so forth. So it’s recursive, it’s really sort of continuous improvement, which gives us stickiness and continue value to the clients.

Arvind Ramnani

Grade. And just last question on this. Clearly, Syntel other than the industry has always focused on productivity enhancements over the past several years. So can you help us understand, why SyntBots so much more powerful than what you have typically done it from a productivity issue. Technologically, what happened where you are like looking to automate and use SyntBots versus just saying we are going to deliver certain level of automation?

Nitin Rakesh

Let me take that. We have built some really smart robotics software, which I believe is going to be the workforce of the future. And we have filed many patents for the technologies we have created. And the third statement I would like to make is I think we are just getting started.

Arvind Ramnani

Great. Very helpful. Good luck for 2016.

Nitin Rakesh

Thank you.

Bharat Desai

Thank you.

Operator

Thank you. And I am showing no further questions at this time. I would like to turn the call over to Nitin Rakesh for any closing remarks.

Nitin Rakesh

Thank you, operator. I want to close today’s call by saying that, I am very excited about the opportunities ahead of us in 2016 and beyond. We have taken some critical steps, implemented some strategic initiatives and I believe they will help us position to be a global leader in digital modernization. Our entire team has set its sights on helping our customers on their value migration journey with tremendous enthusiasm. I look forward to updating you on our progress on the next quarterly call. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. That does conclude today’s program. You can disconnect. The replay of today’s call will be available until February 25, 2016 by dialing 855-859-2056 and entering the passcode, which is 42543698. Thank you. And everyone have a great day.

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