Sify Technologies Limited
Q2 2007 Earnings Call Transcript

Published: 24 Oct 2007

[Operator:]

Greetings and welcome to the Sify Technologies LimitedSecond Quarter 2007 Earnings Results Conference Call and webcast. At this time,all participants are in a listen-only mode. A brief question-and-answer sessionwill follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is nowmy pleasure to introduce your host, Mr. David Thierry, Investor Relations forSify Technologies Limited. Thank you Mr. Thierry, you may now begin.

[David Thierry:]

Thank you, Operator. I'd like to send a warm welcome to allour participants today, on behalf of Sify Technologies Limited. I'm joined onthe call today by Raju Vegesna, Chairman of the Board and Chief Executive Officer;Suri Venkat, Chief Operating Officer; and Vijay Kumar, Chief Financial Officer. Following our comments on the results, there will be anopportunity for questions. If you do not have a copy of our press release,please call the Global Consulting Group at 646-284-9407, and we will have onesent to you. Alternatively, you may obtain a copy of the release at theinvestor information section on the company's corporate website, atwww.sifycorp.com. A replay of today's call may be accessed by dialing in on thenumbers provided in the press release, or by accessing the webcast in theinvestor information section of the Sify website. Some of the financial measures referred to during this calland in the earnings release may include non-GAAP measures. A presentation ofthe most directly comparable financial measures calculated and presented, inaccordance with GAAP, and a reconciliation of such non-GAAP measures of thedifferences between such non-GAAP measures and the most comparable financialmeasures calculated and presented in accordance with GAAP, are also availableon the Sify's website. Before we continue, I would like to point out that certainstatements contained in the earnings release and on this conference call areforward-looking statements, rather than historical facts that are subject risk,and uncertainties could cause actual results to differ materially from thosedescribed. With respect to such forward-looking statements, the companyseeks protection afforded by the Private Securities Litigation Reform Act of1995. These risks include a variety of factors including competitivedevelopments and risk factors listed from time to time in the company's SECreports and public releases. Those lists are intended to identify certain principalfactors that could cause actual results to differ materially from thosedescribed in the forward-looking statements, but are not intended to representa complete list of all risks and uncertainties inherent to the company'sbusiness. I would now like to introduce Mr. Raju Vegesna, CEO of SifyTechnology's Limited. Raju.

[Raju Vegesna:]

Thank you, David. I would like to welcome everyone on thecall once again, thank you for joining us. I will now commence with the openingremarks on our performance in the last quarter. We have done well to accelerate our revenues in the Enterprise market. Withthe business models, our team our now well set and beginning to yield results.We will continue to grow [Technical Difficulty] going forward. We alsoinitiated the integration of our consumer services lines and infrastructure,leveraging synergies across all consumer platforms. We believe we'll be able to see the results of theseinitiatives over the next few quarters. However, the full benefit of theseefforts will be realized during the course of the next year. Now, I would like to introduce Mr. MP Vijay Kumar, our ChiefFinancial Officer, who joined recently. I will now request him to take throughour financials [Technical Difficulty].

[Vijay Kumar:]

Thank you Raju, and hello everyone. [TechnicalDifficulty]that I am delighted to be part of this equity and to be able tocontribute to the company's growth story. I shall now go in to the details ofour financial performance for the quarter. Our revenues were $37.02 million for the second quarter,ended 30 September '07, 4.7% higher than the immediately preceding quarter and6.4% over the same period last fiscal. Sify's net profit was $1.12 million, as against $0.58million in the previous quarter. However, post exceptional, [TechnicalDifficulty] $1.25 million, as compared to the previous quarter and a loss of$1.27 million. We incurred exceptional expensesof $1.8 million for legal expenses this quarter, relating to a case againstanother Internet company. The total expenses incurred so far in this regardsamount to $3.27 million during the current year. [Technical Difficulty], asagainst the cash profit of $3.32 million in the preceding quarter. Our efforts to bring down theprovision for doubtful debts, PDD, have resulted in their coming down to lessthan significant level, and I believe we will be able to manage them at theselevels going forward. We have also done well to generate cash from operationsduring the quarter and expect to continue doing so in the future. I will now hand over to Suri, whowill take you through some of the key initiatives during the quarter. Suri?

[Suri Venkat:]

Thank you, Vijay, and goodmorning, everyone. The Domestic Enterprise business continues to see gains froma number of new and prestigious customers, as well as additional business fromour existing customers. Our approach to the market withend-to-end managed services being promoted by a unified theme is also bearingfruit. We believe our efforts going forward will accelerate with the aggressivemarketing of our services. We have launched a number ofstrategic new services during the quarter, including Hosted Contact Centresolution for the domestic and international IT-enabled services and call centercompanies. Managed voice services forinbound services on MPLS connectivity that enables voice, video and datacarriage on internet protocol and premium antivirus and anti-spam services as apart of our software as a service offering. This is targeted towards the smalland medium enterprises segment to protect their messaging system. We also see momentum in our international enterpriseservices with the opening of our UKbranch, which will be our base to pursue business in the UK and Europe.We have also [Technical Difficulty] our pilot with a large global automobilemajor subsequent to which we have received a number of RF feeds from them. Sify eLearning has won two more Brandon Hall Excellence inLearning Awards, a silver and a bronze, [Technical Difficulty] developed fortwo of our key customers. This recognition follows our winning two gold awardslast year, again, for courses developed for our key customer of us. The Oscars, for example, when you look at the movieindustry, so which testifies to the fact that Sify is one of the leaders in theinternational eLearning space. Details of some of the other key wins acrossboth these businesses are available to you in the press release. One of the key initiatives in our retail access business wasthe launch of the innovative new service, Sify Anywhere, in Mumbai and Delhi. The high impactlaunch activities included various promotional events in Delhiand Bombay,including motorbike [Technical Difficulty]. Sify's Internet Telephone Booths enable the common man towalk-in and make an international call at very low rate. A price revisionduring the quarter making call charges simple and even more affordable[Technical Difficulty] market response. Instead of a long list of different rates for variouscountries, we innovatively clubbed countries together into four categorieseither at Rs2 per minute or Rs4 or Rs8 or Rs10. This resulted in a 40% growthof voice minutes during the quarter vis-à-vis the previous quarter. To widen our reach, and to improve the quality and thereliability of our broadband-to-home services, we have conducted a pilotwireless technology deployment for consumers in Bangalore. The objective of the pilot was tostudy customer acceptance as well as judge service delivery. The pilot saw 72 customers coming on board during thequarter. Our experience with this pilot will guide us in taking decisions inthis regard in the future for deployment of wireless technologyled broadband deployment. Our Direct selling Agents program has been a furtherstrategic initiative to improve customer acquisition [Technical Difficulty] incustomer acquisition during the quarter compared to the first quarter, dueprimarily to this particular [Technical Difficulty]. During the quarter, through a new initiative, we ensuredthat 175 cafes now open at 6

[Raju Vegesna:]

[Technical Difficulty], that our focus going forward will beon growing our business profitability. We have passed the hurdle doubtful debtand have cleaned up the financials. We are generating in cash and are notprofitable and have $50 million cash reserve to fund our growth. We are well set with our Enterprise business, we will see the benefitsof new initiatives on our consumer side of the business going forward,especially during the course of the next year. I will now hand over to theoperator for questions. Operator?

[Operator:]

Thank you. We will now be conducting a question-and-answersession. (Operator Instructions). Our first question is coming from ColinGillis of Canaccord. You now ask your question.

[Colin Gillis -Canaccord:]

Yes, hello everybody.

[Vijay Kumar:]

Hi Colin

[Raju Vegesna:]

Hi Colin.

[Colin Gillis:]

Hi Raju, just want to make sure you hear me here. So justbriefly, what are you seeing for targets in the United States, and what is yourappetite for expansion in that region?

[Raju Vegesna:]

Now we have the money and we have the machine cleaned up, Ithink we are going to be looking at some acquisitions on our internationalmarket, especially our infrastructure management services.

[Colin Gillis -Canaccord:]

Okay, great. And then just on the Internet side, you've gota pretty strong base of users, any notion of turning that into a socialcommunity of any kind or increasing that efforts beyond the game plan?

[Raju Vegesna:]

Yes. So basically, it is more of a social network kind ofcommunity, if it makes sense. And we are coming up with new plans in that, howdo we’re going to turn our portal business. And Suri, you want to elaboratethis?

[Suri Venkat:]

Yeah. You know, for example, the city live sites that wehave cater to specific cities and people living in those cities. And we arealso ramping up programs, publicity programs, which are going to be builtaround building communities within those locations. From that, of course, we have a couple of other plans forcross national community network, which we would be coming forth with in duecourse of time.

[Colin Gillis -Canaccord:]

Okay. Just the last piece on that side of the business. Anyefforts to attract global brands and to hire direct sales that might be basedout of New York Cityor other major centers of the world?

[Raju Vegesna:]

I am not very clear about the question, Colin.

[Colin Gillis -Canaccord:]

Sure. You know, in order to attract direct advertisers, areyou looking to expand the sales force and have representative in major cities?

[Raju Vegesna:]

Yeah. But see, if you look at it, Colin, majority of ourbusiness is in India.

[Colin Gillis -Canaccord:]

Yeah

[Raju Vegesna:]

And we are India-focused. And Sify brand in Indiais very strong. And so, we are going to count on that. And if you look at -- weare invested -- if you see, the Sify name also changed into the SifyTechnology. And we are putting in the new branding campaign coming up, and thatis the market we are looking at.

[Colin Gillis -Canaccord:]

Sure. I guess…

[Suri Venkat:]

Colin, just to round it off, there are two aspects of this. Oneis related to Samachar, which is primarily targeted at Indians living abroad.

[Colin Gillis:]

Yeah.

[Suri Venkat:]

Significant number of them also being in the US. Wealready do have some advertising going on there. The other aspect is that asignificant number of the Fortune 500 Companies are already present andoperating in India,and they are a part of our target segment for advertising.

[Colin Gillis -Canaccord:]

Sure. But do you need to target them directly or do you needto target the ad agencies to get their budgets?

[Suri Venkat:]

We have to do both.

[Colin Gillis -Canaccord:]

Okay. So, I mean, is it unthinkable that you might beexpanding your presence in New Yorkto target the ad agencies more?

[Raju Vegesna:]

No. A significant part of the advertising is done locally inIndia through Indianadvertising agencies or international agencies present in India.

[Colin Gillis -Canaccord:]

Yeah.

[Raju Vegesna:]

So those are the people that we currently work with.

[Colin Gillis -Canaccord:]

Got it. Okay, great. Thank you.

[Raju Vegesna:]

Thank you.

[Operator:]

(Operator Instructions). Our next question is coming fromMike Cahill of Chilton Investment Company.

[Mike Cahill:]

Hi, guys. Nice quarter on the revenues. Just a couple ofclarifications because you were cutting in and out a little bit on the call.What was the actual provision for doubtful accounts in the quarter? Hello.

[Vijay Kumar:]

The provision for doubtful debts for this quarter is $0.75million.

[Mike Cahill:]

How much?

[Vijay Kumar:]

As against $1.28 million last quarter.

[Mike Cahill:]

What was the figure? I'm sorry, I couldn't hear that.

[Vijay Kumar:]

I am VijayKumar, CFO.

[Raju Vegesna:]

No, no. How much is the figure?

[Suri Venkat:]

$0.75 million.

[Mike Cahill:]

Okay. And could you just go into a little more detail onthis lawsuit with the other internet company.

[Raju Vegesna:]

What would you like to ask or understand, Mike?

[Mike Cahill:]

Who is the company and what is the lawsuit over?

[Raju Vegesna:]

The company that we have this lawsuit is with Yahoo. And thelawsuit is about content and information about Sify, which has beentransported, transferred or whatever words you need to use illegally intoYahoo.

[Mike Cahill:]

Got it. Okay.

[Raju Vegesna:]

And they had access to this information, which we havecontested, and to various other steps taken, which have hurt our business.

[Mike Cahill:]

And how much are you suing them for in terms of damages?

[Raju Vegesna:]

We don't have a number at this point of time to share as amatter of sub judice.

[Mike Cahill:]

But, I mean, given that you've spend $3.2 million so far,it's a just pretty large number?

[Raju Vegesna:]

Well, we certainly expect that to be so, yes.

[Mike Cahill:]

Okay. Nice to have you on the cash this quarter. Thanks.

[Raju Vegesna:]

Thank you.

[Operator:]

Thank you. Our next question is coming from Louis Corriganof Kingsford Capital. You may proceed with your question.

[Louis Corrigan -Kingsford Capital:]

Hi. I had a question regarding the internet access business.

[Raju Vegesna:]

The internet?

[Louis Corrigan -Kingsford Capital:]

The retail internet access business.

[Raju Vegesna:]

Right.

[Louis Corrigan -Kingsford Capital:]

It looks like that revenue was down sequentially. But at thesame time the number of iWay cafes rose about 180 and that the number ofbroadband subscribers bounced back from them, were up about 3,000 netsequentially. And yet -- and the ARPU was also -- it looks like upslightly sequentially. So I am just wondering why was the retail internetaccess revenue down, was there a weaker revenue for internet access?

[Raju Vegesna:]

Yeah. So whilst the -- our basic model that we’ve beenworking with over the last couple of quarters, which is now falling into placehas been to ramp up the kind of services that we’re able to offer through thecafes, and that's where the effort, focus and investment has been. You would appreciate that over a period of time, there arepeople who move in and out of the iWay café access systems in terms of newusers coming in and some of the old users going on to their own systems at homethrough the broadband service. Similarly, in terms of competition and rates offered throughvarious points of time during the day, there would be variations in revenue aslong as it is restricted only to pure browsing, because broadband accessthrough cafes is a price-sensitive component. Sify is now graduating from pure browsing model to aservices model, where we are tying up partnerships at various levels, forvarious kinds of e-Commerce services or e-Services, including what has beenshared earlier in terms of railway ticketing, mobile recharge, et cetera. We are extending this further in terms of offering educationplatforms access to net education platforms also in addition to other newservices that would be coming in through this quarter.

[Louis Corrigan -Kingsford Capital:]

Well, I guess that makes it even more complicated for me,because it seems like if you’re adding more services and you’re getting betterat pricing your services for a varied customer base that your revenue in thatsegment actually should be going up instead of down. So …?

[Suri Venkat:]

What we have said is, these are things, these are steps thatwe have introduced now, and we expect to see the growth coming in during thisquarter and the next. These are new initiatives.

[Louis Corrigan -Kingsford Capital:]

Okay. So this is a transition period that we are goingthrough now?

[Suri Venkat:]

That's right.

[Louis Corrigan -Kingsford Capital:]

Okay, thank you.

[Suri Venkat:]

Thank you.

[Operator:]

(Operator Instructions). Thankyou. There are no further questions at this time. I’d like to hand the floorback over to management for any closing comments.

[Raju Vegesna:]

Thank you, everyone, for joiningus on the call. We look forward to interacting with you all through the quarteraround this time thereafter. Thank you and goodbye.

[Operator:]

This concludes today'steleconference. You may disconnect your lines at this time. Thank you for yourparticipation.