Virtusa Corporation F4Q08 (Qtr End 03/31/08) Earnings Call Transcript

| About: Virtusa Corporation (VRTU)
This article is now exclusive for PRO subscribers.

Virtusa Corporation (NASDAQ:VRTU) F4Q08 Earnings Call May 20, 2008 5:00 PM ET


Kori Doherty – Integrated Corporation Relations

Kris Canekeratne – Chairman, Chief Executive Officer

Thomas Holler – Executive Vice President of Finance, Chief Financial Officer


David Cohen – JP Morgan

John Maietta – Needham Company

Timothy McHugh – William Blair & Co.

Moshe Katri – Cowen and Co.


Welcome to the Virtusa Corporation fourth quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the call over to Kori Doherty from Integrated Corporation Relations.

Kori Doherty

Good afternoon and welcome to Virtusa’s fourth quarter and fiscal year 2008 earnings conference call where we will be discussing our financial results for the quarter and year ended March 31, 2008.

On the call with me are Kris Canekeratne, Chairman and Chief Executive Officer and Tom Holler, Executive Vice President and Chief Financial Officer of Virtusa.

Certain statements made on this call that are not based on historical information are forward-looking statements which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

During this call we may make expressed or implied forward-looking statements relating to among other things Virtusa’s expectations and assumptions concerning management’s forecast of financial performance, the performance of Virtusa’s IT services, acquisition of new clients and growth of business, the ability of Virtusa’s clients to realize benefits from the use of Virtusa’s IT services, the planned Hyderabad campus and management’s plans, objectives and strategies.

These statements are neither promises nor guarantees but are subject to a variety of risks and uncertainties many of which are beyond Virtusa’s control which could cause actual results to differ materially from those contemplated in these forward-looking statements. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof.

Virtusa undertakes no obligation to update or revise the information disclosed during this call whether as the result of new information, future events or circumstances or otherwise. For additional disclosures regarding these and other risks faced by Virtusa, see the disclosure contained in Virtusa’s private filings with the Securities and Exchange Commission.

With that I would like to turn the call over to Kris.

Kris Canekeratne

Thank you all for joining us today on our fourth fiscal quarter and year-end conference call. This was a very exciting and successful year for Virtusa. We completed our IPO in August, signed the largest strategic agreement in the history of our company with British Telecom and added a record number of new clients during the year.

This demonstrates the success of our high performance global team and underscores that our differentiated, consultative platforming approach has enabled us to build enduring relationships with some of the largest enterprisers in the world.

These are just a few of our many accomplishments during the fiscal year and I’m very proud of our team members across the globe for delivering tremendous value to our clients.

Turning to our results for the March quarter, total revenue was $45 million, an increase of 28% year-over-year and 6% sequentially. Our operating income grew 38% year-over-year leading to earnings per diluted share of $0.21 which was above the high end of our guidance for the quarter. This was driven by strong gross profit and continued G&A leverage.

Full-year revenue was $165.2 million, 33% higher than fiscal year 2007. Operating profit was $19.4 million and increased 37% year-over-year, a notable accomplishment considering the rupee appreciated 10%.

EPS for the full year was $0.76 which came in at the high end of our guidance. Tom will go into additional details on the financials but I would like to note how pleased we are with our performance both during the quarter and the year as a whole.

As we have discussed on earlier calls, we believe that our consultative platforming approach and our best-in-class global delivery model offer a differentiated planning proposition that is really resonating in the marketplace. Together with the targeted strategic investments we have been making in sales and marketing we have demonstrably improved our pipeline and delivered a record number of new clients and expanded our relationships with existing clients.

Here in the fourth quarter we had a record 10 new clients across all industry segments. This brings the total number of new clients won in fiscal 2008 to 24, double the 12 new clients we won in fiscal 2007. This increase in momentum for the quarter and the year is noteworthy given the overall state of the economy and indicates the strength of our value proposition.

Enterprise clients are rapidly realizing the valuable and tangible business benefit of our platforming approach and this is translating into our ability to differentiate ourselves and engage new clients. Many of our recent new business wins are in the initial stages of complex engagements that will significantly improve clients’ productivity and time to market while dramatically reducing their IT costs.

During difficult economic times our value proposition resonates particularly well because clients look to platforming for significant productivity gains in addition to the economic advantages of our highly efficient builder delivery model. This combination has enabled us to differentiate ourselves and expand client relationships.

New and growing client engagements build the foundation for sustainable and predictable long-term growth. Projects for the clients we have won over the last several quarters are ramping up and we believe they will contribute more meaningfully later this year and in the years to come.

When we add a new client our account teams systematically demonstrate our value as deliver unparalleled service, delight our clients and diligently work on expanding our relationship. Our new client additions span all our service offerings and market segments and we believe that many of them will evolve from initial engagements into longer-term outsourcing relationships. We have been successful with these expansions in the past and we believe we will have similar opportunities with our new clients.

It is worth pointing out that although we have added a record number of new clients and expanded many of our enterprise clients during fiscal 2008 we have also taken into consideration several factors as we deliver our fiscal 2009 guidance. These factors include the current economic outlook for the remainder of this year, some client consolidation and a comprehensive analysis of our accounts. Tom will spend more time on fiscal 2009 guidance.

Financial services grew 41% year-over-year and 43% in fiscal 2008. While there continue to be economic pressures in parts of this market as well as client consolidation, we believe financial services will remain a healthy industry group for us and will grow commensurate with the company in fiscal 2009. This is based on the strength of many of our existing client relationships, new clients that we have added and a strong pipeline.

Communications and technology grew 33% in the fourth quarter and 34% for the full year. British Telecom is our anchor client in this vertical. We remain strong partners and were successful in winning new business opportunities that we believe have the potential to provide significant downstream revenue.

We expect our growth at BT will be strong again in fiscal 2009, however, not at the levels experienced in fiscal 2008. We are also extremely pleased with the number of new client additions in communications and technology as nearly half of the new clients added this year were in this industry group.

Media information is essentially flat for the quarter and grew 16% for the full year. While media information is smaller than the other industries we serve we believe that media information is an important industry segment for us. We are confident of the long-term opportunity for Virtusa in this industry because of recent client additions and a strong pipeline for both direct and partner activity.

For the fiscal year we added 711 new IT professionals, ending the year at 3,963 slightly below our targeted range. Our hiring engine is working well and is meeting our needs. We believe the opening of our Hyderabad campus shortly will provide us with better facilities and further increase our profile as an employer of choice in India. In Sri Lanka we remain the IT employer of choice and continue to recruit top talent.

Attrition increased in the quarter to 21% on a trailing 12-month basis and remains an area of focus. We see slight increases in attrition as part of the normal ebb and flow of our business. While we are riding above our targeted levels we remain confident in our ability to lower attrition through programs that improve professional development opportunities and mentoring for our employees.

Looking forward I will now discuss some of the strategic growth opportunities for Virtusa in fiscal 2009. Of particular interest to fiscal 2009 is our partner strategy. In fiscal 2008 we focused on building out our partner strategy and making investments in working more closely with our partners and their technology. This led to adding several new clients where Virtusa took on the systems integration work. We believe this is an important growth opportunity for us in fiscal 2009 as we leverage some of our existing ISP relationships and build successful go-to-market strategies around their product offerings.

Currently we are operating on three distinct go-to-market strategies with select ISPs. The first is simply when our technology partner recommends us as their systems integrator of choice for an implementation project. This has been an important and successful area for us and has led to very desirable contracts.

Second, systems integration work is a great way for us to initiate a relationship and expand by identifying other opportunities where we can provide comprehensive outsourcing services that enable us to leverage our platforming approach and deliver additional value to our clients.

Third, we create processes, methodologies and framework based on our partner’s technology and leverage these for new business opportunities. As an example, we have adopted one of our partner’s products to create a business process management offering for financial services and insurance companies. This is a win-win for both Virtusa and our partner.

In fiscal 2009 we will also invest in expanding our presence into new international markets and establishing our leadership position where possible. These markets are still embryonic for us but we believe that new geographies present long-term growth opportunities. Markets such as the Middle East can be served very well out of Asia and we can leverage our existing resources to serve the new client.

As seen before and for fiscal year 2009 we see good momentum with many of our existing clients. We are also pleased with the number and quality of the new clients signed as well as the opportunities we see in the pipeline. However, we are not immune to the economic factors impacting some of our clients as well as recent client consolidations across our industry groups. We believe this will have an impact during the early part of our fiscal year, temporarily masking the underlying growth in our business.

We expect growth to improve in the second quarter as the impact from past client consolidations decreases and as we expand our new and existing client relationships. I would like to take a moment to thank all Virtusa for their hard work, dedication and contribution to an extremely successful year.

As time goes on, I believe that our global teams will continue to systematically improve and enhance client productivity creating a more efficient IT environment for our clients. Through our transformational services we will enable our clients to launch new products and services to market faster, reduce their overall IT costs and greatly improve their end consumer experience.

With that I will turn the call over to Tom Holler to review our financials in more detail.

Tom Holler

Let me start by summarizing the results of our fourth quarter after which I will review our full fiscal year results for the annual period ended March 31, 2008. Then I will conclude with our fiscal 2009 guidance.

Please note that all the numbers being discussed are U.S. GAAP. Revenue for the fourth quarter came in at $45 million. This represents year-over-year growth of 28% and sequential growth of 6%. Our operating profit for the quarter was $5.6 million or 12.5% of revenue. This represents growth of 38% on a year-over-year basis.

Fourth quarter operating margin increased approximately 100 basis points year-over-year. Operating margin was positively impacted by approximately 200 basis points due to leverage in our SG&A and by approximately 200 basis points due to high margin, fixed price consulting projects. This impact was partially offset by a net 300 basis points due to the appreciation of the Indian Rupee against the U.S. dollar and by approximately 100 basis points from increases in compensation and other expenses.

On a sequential basis, as anticipated, operating profit margin declined by 130 basis points reflecting our stated strategy to invest in on-site senior leadership, business development initiatives and people practices.

Other income increased $1.2 million year-over-year primarily driven by an increase in interest income on higher cash balances as the result of our IPO. The effective tax rate for the fourth quarter was 22.3%. Our fourth quarter income was slightly higher than prior guidance resulting in additional income from higher tax jurisdictions. Our effective tax rate for the full fiscal year was 21.5%.

Net income for our March quarter was $5.3 million or 45% higher year-over-year. Diluted earnings per share were $0.21 in our fourth quarter of fiscal 2008, $0.01 higher than the high end of our stated guidance due to favorable gross profit. Year-over-year EPS increased by 12%. The change in EPS reflects a 30% increase in our diluted share count driven by our IPO shares and by British Telecom’s strategic investment in Virtusa.

Turning to the balance sheet, cash and cash equivalents plus short-term and long-term investments totaled $99 million on March 31, 2008. Our DSO including unbilled receivables was 78 days. This was a 9-day increase from the December quarter just slightly higher than our long-term goal which is in the mid-70’s. Cash flow used for operating activities were $3.2 million in the fourth quarter driven primarily by our higher DSO.

Capital expenditures were $3.4 million in the quarter. Spending on our Hyderabad campus was $2 million in the March quarter. The total investment in our Hyderabad campus in the fiscal year was $7.2 million. Campus spending in the first quarter is expected to be $5 million with campus spending for fiscal 2009 currently expected to be $15 million.

Now let me turn to some additional quarterly metrics beginning with those related to our fiscal fourth quarter revenue. Revenue by geography was as follows: North America was 67% of revenue, growing 20% year-over-year. Europe was the remaining 33% of revenue, growing 45% year-over-year.

Revenue growth across our industry groups was as follows: Banking, financial services and insurance was again our fastest growing industry group growing 41% year-over-year representing 38% of total revenue. Communications and technology is still our largest industry group representing 42% of revenue and growing 33% year-over-year. Media information and other contributed the remaining 20% of revenue, growing 1% year-over-year.

Revenue across our services offerings was as follows: Application outsourcing represented 67% of revenue and grew 27% year-over-year. IT consulting and implementation services was 33% of revenue and grew 28% year-over-year. Time and material contracts were 74% of revenue with fixed price contracts being the remaining 26%.

We are extremely pleased with our ability to win new business having signed a record number of new clients during the quarter. We ended the quarter with 56 active clients, up from 47 last quarter. For the fiscal year we added 24 new clients. Our top client, British Telecom, contributed 29% of revenue in the quarter. We completed some strategic consulting engagements in the quarter for British Telecom which contributed to strong sequential growth.

Our top ten clients for the quarter represented 76% of revenue. Excluding British Telecom no client contributed more than 10% of revenue in the quarter. 94% of our revenue came from clients we have partnered with for more than one year.

Turning to other operating metrics, global utilization excluding trainees decreased quarter-over-quarter to 71%. Utilization remains within our targeted range of 70-75%. We finished the fiscal year with 4,265 global team members. We increased the number of IT professionals by 140 or 4% to finish the quarter with 3,963 global IT professionals. Total employee attrition calculated on a trailing 12-month basis was 21% for the period ending March 31, 2008, a slight increase from the prior quarter.

We have several corporate initiatives underway to help improve attrition and bring it in line with our goals and we anticipate seeing the impact of these initiatives during fiscal 2009. We continue to focus on attracting, hiring and retaining the best IT talent. Consistent with past performance we deliver our services using an industry leading, highly efficient global delivery model. Our build effort mix was 18% on-site and 82% offshore.

I would now like to briefly summarize our financial results for the full fiscal year 2008. Revenue for the fiscal year ending March 31, 2008 was $165.2 million, an increase of 33% over fiscal 2007. Operating profit was $19.4 million, or 11.7% of total revenue representing an increase of 40 basis points over fiscal 2007.

For the year, operating margin was negatively impacted by 420 basis points due to the appreciation of the Indian Rupee and increased variable compensation. This was offset by slightly higher utilization and almost 300 basis points of SG&A leverage.

Net income in fiscal 2008 was $17.8 million, which was a decline of $1.2 million compared to the prior fiscal year due to a one-time $5 million discreet income tax benefit from the release of our deferred tax asset valuation allowance in fiscal 2007.

Diluted EPS for the full fiscal year 2008 was $0.76, down from $1.03 in the prior year. The year-over-year decrease was driven by the previously mentioned release of the deferred tax asset valuation allowance in fiscal 2007 combined with a 27% increase in diluted shares outstanding.

Our annual revenue growth of 33% was broad based. Revenue contribution from our European business increased in fiscal 2008 growing 60% representing 31% of total revenue. North America was the remaining 69% of revenue, increasing 23% year-over-year.

By industry group, communications and technology grew 34% in fiscal 2008 and represented 40% of revenue. Banking, financial services and insurance grew 43% and represented 38% of total revenue. Lastly, media information and other accounted for the remaining 22% of revenue, growing 16% year-over-year.

Revenue from fixed price engagements represented 21% of revenue in fiscal 2008. Time and material contracts represented the remaining 79% of revenue. Finally, application outsourcing revenue grew 29% in fiscal 2008 and represented 70% of total revenue. IT consulting and implementation services accounted for the remaining 30%, growing 41% year-over-year.

Now I will provide our current guidance for the June quarter and for full fiscal year 2009. As a reminder, all of our numbers are on a U.S. GAAP basis. Revenue in the first quarter of fiscal 2009 is expected to be $45-46 million. Diluted earnings per share in the first quarter of fiscal 2009 is expected to be $0.13 to $0.16. Earnings per share assumes a fully diluted share count of approximately 24.8 million. Please note that the first quarter diluted share count is approximately 23% higher than the first quarter of fiscal 2008 primarily driven by our IPO in August 2007.

For the full fiscal year ending March 31, 2009, our revenue range is currently expected to be $196 to $203 million representing 19-23% annual revenue growth. Fully diluted earnings per share for the full fiscal year 2009 is currently expected to be in the range of $0.70 to $0.79. Full year EPS assume fully diluted share count of approximately 24.9 million. The diluted share count for full year fiscal 2009 is approximately 7% higher than for fiscal 2008 primarily driven by our IPO.

Our guidance is based on the following set of assumptions; Asia salary increases in our June quarter will be approximately 14% on average, impacting our first quarter operating margin by approximately 250 basis points. In other income we modeled interest income using an annual effective interest rate of 3% on our average projected cash balance including long and short-term investments.

Our expected effective tax rate for the full fiscal year is 21%.

Foreign currency hazards are in place for the full fiscal year covering approximately 85% of our forecasted Indian-borne expenses at an average Indian Rupee to U.S. dollar conversion rate of 39.6.

Before concluding I would like to share additional insight into our fiscal 2009 guidance. As a result of our past investments in business development initiatives we begin fiscal 2009 with a healthy pipeline. Our client relationships remain strong and we believe recent new client additions will increasingly contribute to our revenue growth in fiscal 2009.

Our revenue guidance balances the positive underlying momentum of our business with current economic conditions and some client consolidation. Specifically, in Q1 we expect revenue expansion from both established and new clients to be somewhat offset by client consolidation. Additionally, coming off an exceptionally strong fourth quarter the contribution from British Telecom is expected to be slightly down sequentially.

Our relationship with British Telecom remains very strong. Based on our current visibility into additional opportunities we believe that British Telecom will continue to be a growth account for us in fiscal 2009. We also believe that revenue growth will accelerate exiting our first quarter driven by clients added in fiscal 2008, new clients that will be added in fiscal 2009 and by our established clients’ intentions to expand their current engagements and start new projects.

Our success in fiscal 2008 reinforces our strategic commitment of investing for long-term, sustainable top line growth while expanding margins over time. Operating margin expansion will come from amortizing G&A expenses over a larger revenue base and from efficiencies gained from optimizing our infrastructure investments.

However, as we have stated in the past we believe operating leverage will be realized over time as we benefit from our new campus in India, consolidation of some of our older facilities and continued productivity initiatives.

Accordingly, in fiscal 2009 expect to continue to make investments in revenue-generating initiatives including sales and client leadership. These initiatives along with wage increases and fixed infrastructure investments including our Hyderabad campus will pressure our near-term operating margins. However, we remain committed to expanding operating margin over time in line with our long-term goal of 16%.

In summary, we are pleased with our achievements in fiscal 2008. Our investments in sales and client leadership are yielding results. In fiscal 2008 we broadened our relationship with existing clients and added a record number of new clients. Our continued focus remains partnering with our clients and helping them benefit from the efficiencies that can be gained from our platforming approach and our efficient global delivery model.

I will now turn the call over to the operator to begin Q&A.

Question-And-Answer Session


(Operator Instructions) Your first question comes from David Cohen – JP Morgan.

David Cohen – JP Morgan

I think if I heard you right you said that some softness in the economy would have a bit of adverse effect on fiscal 2009. Did I get that right?

Tom Holler

Yes, our expectation is for some impact due to the uncertain economic conditions. Specifically we are expecting a slower rate of growth in IT services spend.

David Cohen – JP Morgan

Can you help me just reconcile that with, I think Kris you commented at the beginning there would be an acceleration because of the difficult economy. So is it just a timing thing that things are going to take a little longer but then the platforming will bring more work your way over time?

Kris Canekeratne

Just to build on that a little bit, we clearly see very strong underlying growth in our business and at the same time we see as the result of client consolidation some projects that have been terminated especially in the financial services arena, that there will be a temporary slow down in growth that will impact Q1. We have also won a record number of new clients. We won ten last quarter, five the quarter before that and I think for the full year we won 24 clients and clearly these clients are starting to ramp up also.

As the year progresses although we will see a little bit of a slow down in Q1 once again the underlying growth in our business is very healthy.

David Cohen – JP Morgan

In terms of consolidation, can you quantify how much of the revenue is going to come out because of consolidation and then maybe talk about it by vertical as well?

Tom Holler

I can’t specifically quantify in dollar amounts or percentage necessarily for you. What I can tell you is that we have seen consolidation in each of our industry groups. We saw some impact in our fourth quarter. We will see a continued impact near-term which is reflected in our guidance and as Kris stated the impact of the client consolidation is masking the underlying health of the business.

We are seeing existing client expansion. We have a nice portfolio of new clients that are expanding and will continue to expand at an increasing rate throughout the fiscal year but near term we do see impact from some of this consolidation.

David Cohen – JP Morgan

In terms of the cash short-term and long-term balances, can you talk a little bit about how much cash you need inter-quarter to run the business, how much you expect to need for CapEx for building out and then how much is excess?

Tom Holler

We generate pretty healthy cash from operations and that will continue to run positively and it will fund our CapEx investments and our campus investments for fiscal 2009. As I mentioned earlier we will invest $15 million for the year on our Hyderabad campus and we have build out needs in other locations as well but essentially all of our CapEx and infrastructure investments can be funded by we believe by our cash from operations. But having said that our cash will pretty much remain flat for the entire fiscal year.

David Cohen – JP Morgan

Just in terms of inter-quarter, how much cash do you need to run the business in terms of working capital?

Tom Holler

Working capital needs of this business is not very substantial. It increases about 2-3% a quarter. Again, our operations can be funded by our internally generated cash.

David Cohen – JP Morgan

So then most of the cash, aside from the campus build out would be excess for the time being. Would that be a fair summary?

Tom Holler

That is a fair statement.

David Cohen – JP Morgan

I think you said the DSO’s were a little bit above the target range. Do you expect them to come back down? Anything change in terms of receivables?

Tom Holler

It really reflects where our business is coming from. Our European business grew at a faster rate than our North American business and DSO tends to be longer with longer payment terms there. So it really reflects the mix of our business. The quality of our receivables are extremely high. The balance as of the end of March, about 90% of that was under 60 days old. We have collected over half of that balance so far this quarter.


The next question comes from John Maietta - Needham Company.

John Maietta – Needham Company

Tom I was wondering if you could give us some color with regard to the BT relationship. Should BT approximately grow in line with the revenue growth rate you put forth in the fiscal 2009 guidance?

Tom Holler

Yes. That is our current expectation.

John Maietta – Needham Company

Kris or Tom could you provide some color with regard to the 14% wage increase you talked about? How does that break down between freshers and more experienced hires?

Kris Canekeratne

Clearly overall for the year our wage increases are approximately 14%. That is quite normal within our industry. The wage increases at the fresher level is very minimum or nonexistent in some cases. Most of the wage inflation actually is for as we promote people up the pyramid for lateral hires that people bring in obviously more experience and clearly the more experienced, more tenured team members. We don’t break it up by any particular tier for the categorization in that.

John Maietta – Needham Company

With regard to the ten new clients in the quarter how does that break down across industry groups?

Kris Canekeratne

It actually is across industry groups. Tom do you want to get into specifics on that?

Tom Holler

The ten clients for the quarter were more skewed towards North America. We did see some new wins in Europe but it is pretty much broad based across the three industry groups that we serve.


The next question comes from Timothy McHugh – William Blair & Co.

Timothy McHugh – William Blair & Co.

I wanted to ask about price first tier. What is the pricing on the new clients that you are adding in? Is that having any impact on the guidance that you gave for 2009?

Tom Holler

We haven’t really reflected that in our guidance. Our new clients we are seeing higher average bill rates on our new clients but until they start contributing at a more meaningful level it doesn’t really move the needle on the company’s average realized bill rates. The pricing environment outside the new clients is stable. We’re projecting it to be stable for the year. Exiting the year we would like to see some uplift driven by these new clients.

Timothy McHugh – William Blair & Co.

Did client consolidation. I had understood Bear Stearns was 2-3% of revenue. Are you implying that all that revenue has essentially gone away in the consolidation there or at least that is your expectation at this point? Or do you still see opportunities to do some of that work?

Tom Holler

We continue to see opportunities. We have a very strong relationship at Bear as well as JP Morgan. Some of the projects we were working on have been cancelled but many of them are ongoing and we expect to continue work on those projects. It is in a core asset area that is of high interest to JP Morgan which suits us well. Year-over-year we do expect a revenue decline since we had received at Bear from 2008 compared to what we will get in 2009. But we do see opportunities given that both of the companies are very strong clients of ours.

Kris Canekeratne

Just a bit on that, as you probably know we have a very strong relationship with JP and have had one for quite a long period of time. Right now we believe that as the year progresses that our relationship with JP&C as well as the Bear integration of JP&C is only going to become much stronger.

Timothy McHugh – William Blair & Co.

Can you tell me what was depreciation and amortization in the fourth quarter and what is implied in your guidance for 2009 particularly in the build out?

Tom Holler

For fourth quarter our depreciation and amortization was $1 million. For 2009 it will increase largely driven by the campus build out coming on line and it is approximately $6 million for fiscal 2009 in our guidance.


The next question comes from Moshe Katri – Cowen and Co.

Moshe Katri – Cowen and Co.

You said that Q1 is going to be active for both deferrals and cancellations. Can you quantify in any way more than that?

Tom Holler

I think that it is really being impacted by the consolidation we mentioned, of work being taken in-house related to some of these prior acquisitions more so than cancellations or deferrals. I think it is not really cancellations or deferrals it is to some extent reflects the slowing rate of increase of spend of some of our larger clients. But there is really no major cancellations or major deferrals. It is really more of just an easing of the growth rate of some of our established clients.

Moshe Katri – Cowen and Co.

You say it is across most verticals. Is it mostly financial services?

Tom Holler

I believe the largest impact was to our financial services group, yes, but we did see it in each of the three groups that we serve some impact or will see a near-term impact.

Moshe Katri – Cowen and Co.

Can you quantify the impact in financial services out of that?

Tom Holler

Not specifically, clearly Bear Stearns is part of that and there is one other client that was in Europe that is also part of that.

Moshe Katri – Cowen and Co.

You said North America was 67% of total rev in Q4?

Tom Holler

Yes. 67%.


There are no more questions at this time.

Tom Holler

Kris and I would like to thank everybody for joining the call today. We look forward to speaking with everybody at our next earnings call when we will provide first quarter results and an update for fiscal 2009. Thank you very much.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!