iGATE Corporation Q2 2008 Earnings Call Transcript

| About: iGATE Corporation (IGTE)

iGATE Corporation (NASDAQ:IGTE)

Q2 2008 Earnings Call

July 18, 2008 8:00 am ET

Executives

Salil Ravindrar - Director of Investor Relations

Phaneesh Murthy - President and Chief Executive Officer

Ramachandran Natesan - Chief Financial Officer

Analysts

Brian Kinstlinger - Sidoti & Company

Tim Brown - Roth Capital

John Maietta - Needham & Company

Vince Colicchio - Noble Financial Group

[Jacque Sonnins] – Great Gable Partners

Operator

Welcome to the iGATE Corporation second quarter 2008 earnings quarterly conference call. (Operator Instructions) It is now my pleasure to introduce your host Salil Ravindrar, Director of Investor Relations for iGATE.

Salil Ravindrar

Welcome to the Second Quarter 2008 Earnings Call of iGATE. With me on the call today are Phaneesh Murthy, President and Chief Executive Officer of iGATE and Ramachandran Natesan, iGATE’s Chief Financial Officer. This call is being webcast on our website and a replay of this call will be available in a few hours. Our earnings release which has been forwarded to all of you is now posted on our website.

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

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

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

I will now turn the call over to Phaneesh.

Phaneesh Murthy

It gives me great pleasure to announce our second quarter results. I think there are five or six major themes in our results. The first big theme of course is that we continued to deliver on our objective of delivering best in class earnings growth, very strong earnings growth in iGATE. I think primarily driven by three factors. The first one is better efficiency in our delivery operations which helped keep our gross margins up in spite of absorbing the salary increases.

The second, better SG&A cost management after taking over of iGATE Corp and we moved a lot of the back office functions of iGATE Corp to India, so better management of SG&A functions. The third piece is better foreign exchange management. I think all of these three has helped us deliver fairly robust earnings per share of $0.15 which was a 67% increase from last years second quarter outlook.

The next big story and the next big theme I think for the quarter from our point of view was that we continued to see significant traction in our iTOPS business model and we believe that particularly in these challenging market conditions that our outcome price based iTOPS model is catching on more and more attractiveness with the customer. Consequently we continue to hope that that will continue to drive our top line and our bottom line growth in the future as well.

The third big theme and this is very big from our perspective of course is the fact that out of many many hundreds or whatever it is number of entries the Everest Outsourcing Awards of Excellence of 2008 were announced and the iGATE RBC Partnership was rated as the best customer partnership in financial services.

This basically reinforces our belief that mid-size companies probably have better partnering models and know how to partner better than larger companies. We believe that more and more of the market will understand the needs for partnering not just for efficiency but also for innovation and other areas and will turn to companies like us for their future outsourcing needs.

The last piece is that on our corporate restructuring our clinical research business is pending reserve bank approval. We anticipate that that will get done in the next few weeks and the spin off of the Mastech holding the professional services division of iGATE is also pending SEC reviewer comments and approval. We expect that also to be done in the next few weeks. This has taken maybe a little longer than we anticipated. We were hoping probably to have got it done by this time. The process is underway and is proceeding smoothly its just taking more time.

Overall good strong quarter from earnings. I’m now going to hand over the phone to Ram to talk about some of our detailed financials and then I will come back either on questions or in wrap up to talk about where we see the market heading in the future.

Ramachandran Natesan

I’ll take this opportunity to briefly discuss with you the key highlights of our financial performance for the quarter ended June 30, 2008. Consolidated revenues increased 6% to $80 million compared to $75.6 million in the second quarter of last year. For the first half of 2008 the consolidated revenues totaled $159.8 million compared to $115.5 million in last year’s first half.

While the iGATE segment grew 15% from the second quarter of last year to 55.6% the professional services segment declined 10% from last year to $24.4 million. The improvement in the revenues of the iGATE Global Solutions segment was due to ramp up from existing top customers and increases in the number of customers added.

The second quarter of 2008 has been a reasonably satisfying quarter on the margin front. We continue to focus on improving operational efficiencies which resulted in an increase in our gross profit margin to 31% from 28% in the second quarter last year. The gross profit margin in the iGATE Global Solutions segment increased significantly to 36% compared with 31% a year ago.

The improvement in margin in the iGATE Global Solutions segment from last year is due to increase in the contribution from higher margin customers, improved average fee additions, reduction attrition rates, the favorable exchange rate improvement helped also to contain the cost structure. As regards the selling and general administrative expenses including the depreciation and amortization for the quarter it was $16.1 million as compared to $17.9 million in the second quarter of last year a decrease of almost 10%.

The SG&A expenses including depreciation has gone down to 20% of the revenues from 24% in the corresponding quarter last year. We believe that we have made sufficient investments in our SG&A and that these levels are sustainable subject to any incremental costs that we may add in the front end sales and marketing.

Income from operations improved significantly to $8.5 million from $1.3 million in the same period last year. Last year’s second quarter operating income was impacted by a good will impairment charge of $1.9 million related to the loans to acquisition. Operating margins was 11% of revenue compared to 2% in the corresponding quarter of last year.

Net income increased 306% to $8.4 million or $0.15 per diluted share compared to net income of $2.1 million or $0.04 per diluted share in the same period last year. The net income from continuing operations improved 271% to $8.5 million from $2.3 million last year. The net profit margin was 11% of revenue from 3% in the same quarter last year.

For the first half of 2008 the net income was $15.8 million or $0.29 per diluted share compared to $6.4 million or $0.12 per diluted share in the last year’s first half. However the last year’s income was adversely affected as mentioned earlier by non-operational items of a good will impairment charge of $1.9 million and loss of investment of $600,000.

Net cash flows from operations for the quarter was $15.9 million and $23.1 million for the first half of 2008. The capital expenditure during the quarter was $3.9 million and $6.3 million for the six months to June 30, 2008. As of June 30, 2008, the company’s balance sheet continued to remain strong with $61.3 million in cash and short term investment, zero debt and $155.9 million in shareholders equity.

The DSO was 67 days as of the end of June compared to 66 days at the end of the previous quarter. Our largest customer accounted for 18% of the second quarter overall revenues and our top five customers accounted for approximately 47% of our revenues. At the end of the quarter our worldwide headcount was 7,100 people.

As regards the restructuring activity at the corporate level as Phaneesh mentioned the sale of clinical research would be completed any time now. We are only waiting for the regulatory approval in India from the Federal Bank. The spin off of the Professional Services segment is also proceeding on track and we are awaiting a review and comments and we expect to close and complete this spin off during this quarter.

In the quarter ended June 30, 2008, we repurchased 220.22 million shares for $2.1 million of our subsidiary iGATE Global Solutions in India as a part of the delisting process from the Indian Stock Exchange. The announcement of our intention to de-list iGATE Global Solutions in October 2007 from the Indian Stock Exchanges we have purchased a total of 5.8 million shares for $60.6 million increasing iGATE’s total shareholding in that company to 98.67%.

The balance of 1.3% is also in the process of being acquired and we expect that this subsidiary will be a wholly owned subsidiary of iGATE Corporation.

I will now turn back the call to Phaneesh.

Phaneesh Murthy

Before we go into questions just a few broad comments on the market. I think while the conditions tend to be a little challenging we believe the off shoring momentum will continue. We also believe that based on our iTOPS model we will continue to win deals. We hope that we can continue our trend of delivering best in class earnings growth. Can you please start taking questions?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Brian Kinstlinger - Sidoti & Company.

Brian Kinstlinger - Sidoti & Company

In your last comment you mentioned about the market and off shoring gaining traction. Is it fair to assume then you expect modest sequential revenue growth in the third quarter compared to the second?

Phaneesh Murthy

My sense is that I tend to look at it from a more long term perspective. My comment is that it’s my estimate that 16% to 17% of IT budgets are spent in India and based on the maturity of the operations and my survey among multiple CIOs it is my assessment that they will be willing to spend up to 25% of their IT budgets in India. I do believe that even if the IT budgets were to down therefore the off shoring momentum will continue.

How much, I think we have been having more sequentially in spite of a lot of cutbacks and cancellations. We just hope that trend continues unless something catastrophic happens.

Brian Kinstlinger - Sidoti & Company

Based on your customer commitments is your expectation, nothing is guaranteed but do you expect to have at least higher revenues in the third quarter compared to the second?

Phaneesh Murthy

We don’t have guidance but yes, clearly that would be our goal.

Brian Kinstlinger - Sidoti & Company

The rupee continues to depreciate and with the way you have leveraged I’m curious is there any reason to believe that the margins won’t increase such as been the case in the last two or three years in the third quarter compared to the second.

Ramachandran Natesan

Rupee cost structures will certainly be well managed because of our hedging strategies. We are quite confident that at least the exchange rates will not impact adversely the margins. If anything we are quite confident that we will only be performing better than the industry levels in so far as the impact of the exchange rates are concerned.

Brian Kinstlinger - Sidoti & Company

I’m now thinking big picture, we talked about where to get your operating margin to. Your peers are roughly at 20% on average and you’re making great progress there. My question more is over the course of next year, year and a half, do you think you will continue to approach those margins that the industry is at?

Ramachandran Natesan

I think our long term goal clearly is to get to what we are calling our 40/20 structure, 40% gross margin and 20% operating margin. We don’t necessarily believe that both those goals will be achieved at the same time. My sense is yes we’ll continue to make margin progress through the rest of the year and we’ll continue to make progress over the next year. I don’t know whether it’s 12 or 18 months I don’t know whether its 24 to 30 months but clearly our goal is to get to that sooner rather than later the 40/20 structure.

Brian Kinstlinger - Sidoti & Company

Your continuing operation after July when the staffing is gone is it correct that you have NOLs that you are hardly paying any tax this year? Is the rate going to continue around 10% or below?

Ramachandran Natesan

Yes, it would continue at that rate though one of our business units in India is coming out of the tax holiday this year because we have already exhausted that period. That said, yes we would maintain the tax rate in the short term at this level.

Brian Kinstlinger - Sidoti & Company

Is it fair to assume maybe it will go up to 15% to 18% next year but not a normal US tax rate when you say those tax holidays are expiring is that correct?

Ramachandran Natesan

Next year you mean 2009? Yes 2009 we may pay a little higher tax.

Brian Kinstlinger - Sidoti & Company

In terms of spending what I was hearing was the companies that understand outsourcing and are already out there continue to spend, there is not as much sign of weakness, it’s the guys who aren’t out there that are fairly new to the process are very slow to ramp. Is that what you’re seeing I’m curious if that’s the case and what are your expectations of the new customers you’re winning?

Phaneesh Murthy

I do believe that in the market momentum is shifting more strongly towards offshore regardless of the type of customer. Even in the new customers that we are winning we are finding that there enough managers who understand off shoring process. People have moved around and stuff like that. I think the weakness sign, if you want to call it that is coming from the fact that so many companies are closing down. Therefore, to that extent if you are working with those customer that takes ahead.

For example, we were working with Bear Stearns that took a hit for us. If somebody else is working with let’s say a company let’s say a company WaMu or whatever, I’m assuming they will take a hit, or IndyBank. I think that’s really the challenge that a number of companies and the total spend there coming down but if you are working with the right companies I think the spends are actually going up and more projects are being done.

Even if it means that the project mix is shifting a little more towards application maintenance and application support rather than new discretionary spend.

Brian Kinstlinger - Sidoti & Company

The hiring utilization, first of all, another industry trend being talked about is more just in timing hiring. The lead time isn’t as long allowing companies to keep their utilization higher as previous risks about not enough supply of workers was overblown. I’m curious do you plan to do the same less lead times for hiring. I saw your actual IT technical billable employees went down what was the reason for that this quarter compared to last?

Phaneesh Murthy

There are two or three pieces to this. Yes, the idea is clearly that we continue to maintain fairly close to just in time hiring principles. Also what we did was that we de-structure a little and created a new central management pool in our delivery operations which allows us to utilize the bench a little more efficiently. We don’t need to hire as quickly for replacement there too. That’s the reason why whatever attrition we had we didn’t backfill immediately because of the centralized bench management that we are adopted last quarter.

Brian Kinstlinger - Sidoti & Company

What are your plans for hiring the second half of the year?

Phaneesh Murthy

We will probably end up hiring about 800 to 1,000 people total from April to March that’s the indication we had given.

Operator

Your next question comes from Tim Brown - Roth Capital.

Tim Brown - Roth Capital

I had a few question about what the cost structure is going to look like going forward. First on the SG&A there was about a $2 million drop in IGS and cost cutting was there a portion that’s related to the currency effect as well?

Ramachandran Natesan

The bulk of the cost savings on SG&A came from the fact that we trimmed the iGATE Corporation share services and costs and moved bulk of back office back to India.

Tim Brown - Roth Capital

Was there any foreign currency effect at all there?

Ramachandran Natesan

No, no foreign currency effect on that.

Tim Brown - Roth Capital

Going forward the $1.3 million in iGATE shared services is that going to be moved into IGS or is that going to go away with the clinical trials business?

Ramachandran Natesan

That is going to be moved into IGS. When we talk about our numbers they are actually including that figure.

Tim Brown - Roth Capital

Going forward when the clinical services is gone is there going to be an additional cost savings?

Ramachandran Natesan

No, because the clinical services in this quarter has already been separated out, there’s no more cost savings. We’ve already streamlined that.

Tim Brown - Roth Capital

Can you give us an EPS number for IGS?

Ramachandran Natesan

The IGS EPS number for the quarter the basic EPS is $0.14. The value to the EPS is $0.13.

Tim Brown - Roth Capital

When IPS spins off is there going to be any major balance sheet changes. Specifically are they going to take a chunk of cash with them?

Ramachandran Natesan

No, the cash would be roughly about $1.5 to $2 million that may be going out. All the charges that are now reflected as professional services segment those will be win out.

Tim Brown - Roth Capital

Moving to the top line, were there any other challenges besides Bear Stearns in the second quarter? Do you see anything in Q3 or Q4 the second half of the year related to specific customers?

Phaneesh Murthy

We did see cancellations on projects from discretionary spend and financial services customers. We also saw some delayed starts from some projects and we had one very large project cancellation from a manufacturing customer. That is what we have seen in the past. A lot of this happened to some extent in the first half of the quarter. We hope that the trend stabilizes now and things will move forward from here onward.

Tim Brown - Roth Capital

In terms of discretionary spend can you give us an idea of how much of your revenue or maybe a percentage of your revenue you’d categorize as discretionary.

Phaneesh Murthy

I don’t know if I have that metric but I would broadly. I don’t know it’s very difficult to predict. For example, where we have seen the kinds of projects we have seen new website for better customer interferes or whatever it is. Where we have seen increased spending is also what I would still call in discretionary line which is things like work flow imaging and those kinds of areas, still discretionary in the sense it didn’t have to be done. It’s not like keeping lights on. It is trying to make the operations more efficient. I don’t really have that breakup.

Tim Brown - Roth Capital

Looking forward is it realistic to expect the 4% to 5% type sequential growth anytime in the second half or maybe you can tell us when you expect things to normalize and you can return to that?

Phaneesh Murthy

That’s a little trickier question to answer. You may have to be a [inaudible] and tell me what’s going to happen in the financial solutions. Just a little more tricky to answer that but I think our perspective is that we also continue to grow and our perspective is that we will continue to manage our costs well so that our earnings growth is good.

Tim Brown - Roth Capital

In the second half is there anyway you can get to that 4% to 5%?

Phaneesh Murthy

It’s our goal and the short term conditions make it challenging. Going out in the second quarter of the second half maybe we can trying and get there. That’s our goal clearly.

Tim Brown - Roth Capital

What verticals are you seeing any strength in? Obviously financials isn’t doing as well, for instance media and entertainment.

Phaneesh Murthy

Media and entertainment is doing well for us. We actually opened a new COE on media and entertainment based on the strength of some of the work that we are doing there. That’s doing well. I don’t want to say financials is not doing well but actually if you look at our financial services revenue is going up. Like I said, customers are working with us are working more with us. If I just look at some of our larger customers who are all doing tech work with us for example have all started looking at ops work with us.

That whole iTOPS model is playing in and stuff like that. That’s what I was saying. I do believe that it is not as much sector thing but really for me concern is more firm dependent. If a firm that you’re doing business with is not doing well then that’s the challenge, it’s not sector.

Operator

Your next question comes from John Maietta - Needham & Company.

John Maietta - Needham & Company

I was wondering if you could comment on pricing what you’ve seen has pricing and bill rates remained stable.

Phaneesh Murthy

I think pricing and bill rates are reasonably stable. I actually feel that for two or three reasons, two reasons primarily. The first reason is that there’s enough noise about the weakness of the US dollar so typically there’s an environment created where people expect that anything coming from outside the country would tend to be more expensive. That’s one thing.

The second piece is that in CIO world there’s enough knowledge about the fact that Indian salaries do go up 12% to 14% year on year. I think from that perspective there’s a little bit of sympathy there. I would say that the pricing environment is actually reasonably stable. We are not seeing any dramatic down tick in pricing.

John Maietta - Needham & Company

You signed five new clients in the quarter I bet that was pretty healthy given the challenging economy here in the US. If you could talk about the pipeline and do you think you would be able to maintain that pace of signing roughly five new customers a quarter going forward?

Phaneesh Murthy

I think so. The five new clients that we signed more than the five I think three Fortune 1000 that we signed are very good high quality client traditions. When I say high quality client traditions clearly all of those three Fortune 1000 customers that we signed we anticipate multi-million dollars of revenue is 2009. That’s very positive, three very good strong clients and I think we’ve got our sales engine working at what I would believe is mix level.

We went up from about three last quarter was seven so I don’t think that’s a sustainable seven but I do believe we are around the five sustainable in terms of our sales right now.

John Maietta - Needham & Company

If you could qualitatively talk about how some of the newer clients that you signed in the past couple of quarters and how they are ramping. Are you generally pleased with how clients are ramping up this stage that you signed over the last three to six months?

Phaneesh Murthy

I think the clients in the last six months we signed which are in the Fortune 1000 space I think all of them are ramping very well. That’s positive, that actually helped us offset some of the client closures like the Bear or Option One and those kinds of things.

Operator

Your next question comes from Vince Colicchio - Noble Financial Group.

Vince Colicchio - Noble Financial Group

In terms of some of your big relationships RBC and GE could you give us some color on how those relationships are progressing?

Phaneesh Murthy

I think pretty well. We grew in both GE and RBC. We actually have started doing a very small ops piece in GE for the first time. I do believe that the ops world we start opening up was in GE also in 2009. That’s very positive. There are pockets in GE where they’re having budget cuts. We are working in some of those pockets a couple of projects they have had. Overall GE has actually grown for us. We maintain a good strong healthy relationship.

The RBC front I think we continue to enjoy a very healthy relationship with RBC. We have initiated a number of operations kind of projects also tech and operations kinds of projects in RBC in addition to the tech work that we’ve been doing for the last three years. I think both of those are fairly healthy relationships.

Vince Colicchio - Noble Financial Group

Should we expect if the US economy remains weak, I suppose even if it doesn’t remain weak, you will continue to diversify internationally. I know you set up in Australia operation maybe you could talk a little bit about business development opportunities?

Phaneesh Murthy

We won a very interesting deal from the Australian down there and I think the more interesting part of the deal is that it’s an ideal model to reach our goal of the shared services model. It’s really what we’re doing is, this is processing of bonds in the State of Victoria. Most of the states have very similar needs. We built the platform, we built the process framework and we think that we will get more of those things in the future. That’s point number one.

Point number two is our European business is also picking up some good traction. Having said all of this I do believe our North American business including US and Canada will continue to grow because of the fact that I keep maintaining that even if things are a little tough people are still doing offshore projects. They’re still spending money on offshore even if the trend is shifting from more discretionary to maintenance support work continuing to come.

Vince Colicchio - Noble Financial Group

On your sales force I know since hiring you changed some things around, incentives and you’ve been expanding your sales force can you give us an update on that, are you continuing to expand the overall group?

Phaneesh Murthy

I think we’ll continue to expand based on the geographies. If at all the SG&A of our company expanded slightly to be in the area. That will be based on are we going to newer geographies. There we continue to do good work in repair and I think we’ll continue to expand as our revenues expand, as the number of customers expand and as the markets in which we are offering expands.

Operator

Your next question comes from [Jacque Sonnins] – Great Gable Partners.

[Jacque Sonnins] – Great Gable Partners

As I think about the foreign exchange impact the dollar versus the rupee really started to improve at the end of April to mid May implying that the FX impact probably only partially helped you in Q2 and could probably help you even more in Q3. In light of the impressive gains in your margins is that a fair assessment of the FX impact?

Ramachandran Natesan

On an oral basis that FX spend would appear to be right but having said that I should also qualify that. We take hedging positions and one of the fundamental objectives of hedging positions is to eliminate the short term impacts of changes in the currency moment. Yes, as I said earlier you would certainly feel confident that we will not be adversely in bad debt but any of those moments. If anything we would only be better off than the industry performance in so far as the impacts of the foreign exchange is concerned.

[Jacque Sonnins] – Great Gable Partners

EBITDA could you just confirm what your EBITDA for the IGS portion was during the quarter?

Ramachandran Natesan

EBITDA for the IGS portion was 16.2%.

[Jacque Sonnins] – Great Gable Partners

Also you mentioned that there’s one large customer that was pushed out that’s not necessarily new news I think it’s the same customer you discussed in Q1 is that not correct?

Phaneesh Murthy

Yes.

[Jacque Sonnins] – Great Gable Partners

That customer has been going on and off. Could that customer come back eventually, who knows?

Phaneesh Murthy

Yes, they could come back but I think if he does come back it will probably come back in Q4 because they are doing an adjustment of things. I think at the time I also mentioned Option One which is one of the two mortgage customers we had remaining were acquired by Cerberus. They decided that they want to invest in their captive which they already have because they consolidated with their own mortgage operation which I think home mortgage or something. That was one hit that we took towards the end of last quarter.

[Jacque Sonnins] – Great Gable Partners

It’s nice to see the five customer wins especially given that you alluded to the fact that the majority could be multi-million contracts in 2009, did I hear correctly?

Phaneesh Murthy

Yes, in fact in a couple of them we already have the ability of multi-million dollar over 2009 and in one of them we know very clearly that their goal is to get up to a very high level because they have been largely influenced by one of our other customers. We are feeling very good about those three Fortune 1000 wins we had this quarter.

Operator

Your next question comes from Brian Kinstlinger - Sidoti & Company.

Brian Kinstlinger - Sidoti & Company

When you guys spin off the staffing business what with the DSO look like for the rest of the business?

Ramachandran Natesan

It would be around 71 or 72 days.

Brian Kinstlinger - Sidoti & Company

So it’s going to go up a little bit.

Ramachandran Natesan

Yes.

Brian Kinstlinger - Sidoti & Company

What are your CapEx plans for ’08?

Ramachandran Natesan

Our CapEx consists of our expansion in the India facilities in Bangalore, Chennai and Hyderbad. Over the next 12 to 15 months it would be roughly about $25 to $28 million.

Brian Kinstlinger - Sidoti & Company

That seem a little high from what you historically, are you guys developing your own facility now?

Ramachandran Natesan

In Bangalore we have our own facility so we are building out another 350,000 square feet of space there. A large chunk of this CapEx is coming from that.

Brian Kinstlinger - Sidoti & Company

So you expect it do double next year, is that accurate? You did $8 million last year your on pace to do about $11 or $12 million this year.

Ramachandran Natesan

No, let me just give you a quick run down. The 350,000 square foot campus is going to be done over a period of three years. A large chunk of investment which is going into that. Recently we have expanded in Chennai and Hyderbad into fee based premises which will continue to be a tax holiday for future. We made some investments there.

Brian Kinstlinger - Sidoti & Company

Starting out your CapEx is going to significantly increase that where we have been in years past.

Ramachandran Natesan

I don’t know if it will significantly increase, it will go a little more on a run rate basis because of the campus but I don’t think it will significantly increase.

Brian Kinstlinger - Sidoti & Company

But $20 to $25 million over the next 18 months.

Phaneesh Murthy

That’s correct. Because that includes substantial bid expenditure on top of which we will take the further expansions in the next two to three years.

Brian Kinstlinger - Sidoti & Company

What is your expectation of depreciation and amortization for IGS for the year?

Phaneesh Murthy

It could be in the range of 4.5% to 5% of the revenues.

Brian Kinstlinger - Sidoti & Company

What is your expectation for stock based comp for IGS? I’m trying to get a sense of the stuff that you can predict? Stock based compensation, PHAS 122. I think last quarter on the cash flow it was $1.1 million.

Ramachandran Natesan

That expenditure will remain around $1.1 to $1.2 million for the quarter. We will continue to provide our employees stock based compensation. At this time we don’t expect this expense to go up significantly.

Brian Kinstlinger - Sidoti & Company

All of that is related to IGS and there was no stock based comp for the staffing business.

Ramachandran Natesan

Very little in IGS.

Operator

There are no further questions over the phones at this time.

Phaneesh Murthy

If any of you have any follow up questions that you might like to discuss feel free to send me an email or give me a call. With that I would like to thank you all for joining us on our earnings call I look forward to speaking with you in about three months time. Good day to all of you.

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