TM,
Form 10Q filed 11/13/97
Last one filed.
edgar-online.com
SYNTEL INC
Filed on Nov 13 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS.
SYNTEL INC. AND SUBSIDIARY
RESULTS OF OPERATIONS
Revenues. The Company's revenues consist of fees derived from its TeamSourcing and
IntelliSourcing business units. Total revenues increased to $33.6 million for the three month
period ended September 30, 1997, representing an increase of 43% over revenues of $23.5
million for the three months ended September 30, 1996. The revenue growth was primarily
attributable to an increase in average TeamSourcing billing rates of approximately 8%,
growth in existing engagements, the addition of 18 new IntelliSourcing engagements, and new
TeamSourcing business. Worldwide billable headcount, including personnel employed by
Syntel India, as of September 30, 1997 increased to 1,593, compared to 1,172 as of
September 30, 1996.
Cost of Revenues. Cost of revenues consist of salaries, payroll taxes, benefits, relocation
costs, immigration costs, finders fees, trainee compensation, and payments for offshore
services. Costs of revenues were $23.7 million for the three months ended September 30,
1997, representing 70.5% of revenues, compared to $17.0 million or 72.6% of revenues for
the period ended September 30, 1996. The decrease in cost of revenues as a percentage of
revenues was attributable to the increased TeamSourcing billing rates and new higher margin
Intellisourcing agreements, each contributing approximately 4% to the decrease in costs as a
percentage of revenues. This was partially offset by increased compensation and benefits of
approximately 6% as well as increased trainee and other direct costs.
Selling, General and Administrative Expenses. Selling, general, and administrative expenses
consist primarily of salaries, payroll taxes and benefits for sales, finance, administrative, and
corporate staff, travel, telecommunications, business promotions, marketing and various
facility costs for the company's Global Development Centers. Selling, general, and
administrative costs for the three months ended September 30, 1997 were $6.3 million, or
18.7% of total revenues, compared to $5.0 million, or 21.4% of total revenues for the three
months ended September 30, 1996. The $1.3 million increase in selling, general, and
administrative expenses was the result of increased facility and communication cost of $.4
million, additional reserves of $.3 million, marketing costs of $.2 million, taxes of $.2 million,
and training costs of $.1 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its working capital needs through operations. A facilities
expansion program, which is currently underway in both Mumbai and Chennai, is expected
to require additional outlays of approximately $4.5 million over the next 12 to 18 months; this
outlay is expected to be financed internally with funds generated from Syntel India's
operations.
Net cash provided by operating activities was $6.6 million for the first nine months of 1997
and $2.9 million for the first nine months of 1996. The increase in net cash provided by
operating activities was due primarily to increased income as well as a five day improvement
in the accounts receivable days sales outstanding for the nine months ended September,
1997 over the same period in 1996.
Net cash used in investing activities was $1.3 million for the nine months ended September
30, for both 1996 and 1997. Cash used for investing activities for the nine months ended
September 30, 1996 included $.9 million for computer equipment and facility improvements
and $.3 million for office expansion / relocation. Cash used for investing activities for the nine
months ended September 30, 1997 included $1.1 million for computers, software, and
facility upgrades.
Net cash used in financing activities was $5 million for the nine month period ending
September 30, 1996, reflecting a dividend payment to the Company's shareholders. Net
cash provided by financing activities was $9.6 million during the nine month period ended
September 30, 1997, consisting of net proceeds from the initial public offering on August 12,
1997 of $34.6 million, the distribution of $18 million related to undistributed S corporation
taxable income, and $7 million for the acquisition of Syntel India.
The Company has a line of credit with NBD Bank with a commitment in an amount equal to
the lesser of $20.0 million or 80% of eligible accounts receivable. The line of credit expires
on December 31, 1997. The Company intends to renew or replace this facility prior to the
maturity date. The line of credit contains covenants restricting the Company from, among
other things, incurring additional debt, issuing guarantees and creating liens on the Company's
property, without the prior consent of the bank. The line of credit also requires the Company
to maintain certain tangible net worth levels and leverage ratios. Borrowings under the line of
credit are short-term and are collateralized by the Company's eligible accounts receivable. At
September 30, 1997, there was no indebtedness outstanding under the line of credit.
Borrowings under the line of credit bear interest at the lower of the Eurodollar rate plus the
applicable Eurodollar margin, the bank's prime rate or a negotiated rate established by the
bank at the time of borrowing.
In addition to the bank line of credit, the Company has a $10.0 million facility with NBD
Bank to finance acquisitions which expires on December 31, 1997. The Company intends to
renew or replace this facility prior to the maturity date. The Company has not borrowed any
amounts under this facility.
The Company believes that the combination of present cash balances and future operating
cash flows will be sufficient to meet the Company's currently anticipated cash requirements
for at least the next 12 months.
MChen |
