<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000 or
----------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-22903
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Syntel, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Michigan 38-2312018
- ------------------------------- -------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2800 Livernois Road, Suite 400, Troy, Michigan 48083
- ---------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(248) 619-2800
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, no par value: 38,367,439 shares issued and outstanding as of May
2, 2000.
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SYNTEL, INC.
INDEX
Page
----
Part I Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis of 8
Financial Condition and Results of Operation
Part II Other Information 11
Signatures 12
Index to Exhibits 13
2
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SYNTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
3 MONTHS
ENDED MARCH 31
-----------------
2000 1999
------- -------
<S> <C> <C>
Revenues $40,506 $38,797
Cost of revenues 25,513 23,942
------- -------
Gross profit 14,993 14,855
Selling, general and administrative expenses 8,993 7,245
------- -------
Income from operations 6,000 7,610
Other income, principally interest 780 532
------- -------
Income before income taxes 6,780 8,142
Income taxes 1,628 2,708
------- -------
Net income $ 5,152 $ 5,434
======= =======
EARNINGS PER SHARE
Basic $ 0.13 $ 0.14
Diluted $ 0.13 $ 0.14
Weighted average common shares
Outstanding - diluted 40,168 38,886
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
SYNTEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 64,243 $ 63,611
Accounts receivable, net 24,239 23,800
Advanced billings and other current assets 8,558 9,522
-------- --------
Total current assets 97,040 96,933
Property and equipment 16,874 15,812
Less accumulated depreciation 10,075 9,390
-------- --------
Property and equipment, net 6,799 6,422
Goodwill, net of amortization 18,863 19,113
-------- --------
$122,702 $122,468
======== ========
LIABILITIES
Current liabilities:
Line of credit, bank
Accrued payroll and related costs $ 10,709 $ 12,748
Accounts payable and other current liabilities 11,973 14,853
Deferred revenue 4,105 4,506
-------- --------
Total current liabilities 26,787 32,107
SHAREHOLDERS' EQUITY
Total shareholders' equity 95,915 90,361
-------- --------
Total liabilities and shareholders' equity $122,702 $122,468
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
SYNTEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,152 $ 5,434
-------- --------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation 604 533
Goodwill amortization 331 0
Deferred income taxes 0 (44)
Compensation expense related to
stock options 30 14
Changes in assets and liabilities:
Accounts receivable, net (439) 1,282
Advance billing and other assets 964 23
Accrued payroll and other liabilities (4,919) (1,615)
Deferred revenues (401) (3,390)
-------- --------
Net cash provided by operating activities 1,322 2,237
Cash flows used in investing activities,
property and equipment expenditures (1,062) (418)
Cash flows provided by (used in) financing activities:
Net proceeds from issuance of stock 415 24
Common stock repurchases (14) (590)
-------- --------
Net cash provided by (used in) financing activities 401 (566)
Effect of foreign currency exchange rate changes on cash (29) (25)
-------- --------
Net increase in cash and cash equivalents 632 1,228
Cash and cash equivalents, beginning of period $ 63,611 $ 64,660
======== ========
Cash and cash equivalents, end of period $ 64,243 $ 65,888
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
SYNTEL, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying condensed consolidated financial statements of Syntel, Inc.
(the "Company") have been prepared by management, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the accompanying unaudited, condensed consolidated financial
statements contain all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial position of Syntel, Inc. and it's
subsidiaries as of March 31, 2000, the results of its operations for the three
month period ended March 31, 2000 and March 31, 1999, and cash flows for the
three months ended March 31, 2000 and March 31, 1999. The year end condensed
balance sheet as of December 31, 1999 was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10K for the year ended December 31, 1999.
Operating results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000.
2. PRINCIPLES OF CONSOLIDATION AND ORGANIZATION
The condensed consolidated financial statements include all the accounts of the
Company and its wholly owned subsidiaries; Syntel Software Private Limited
("Syntel India"), an Indian limited liability company, Syntel (Singapore) PTE,
Ltd. ("Syntel Singapore"), a Singapore limited liability company, and Syntel
Europe Ltd. ("Syntel Europe"), a United Kingdom limited liability company. All
intercompany accounts and transactions have been eliminated.
3. PRO FORMA FINANCIAL INFORMATION
On September 22, 1999 the Company executed a purchase agreement with Metier,
Inc. to acquire substantially all of the assets and business of Metier. The
effective date of the acquisition was July 1, 1999. The unaudited consolidated
results of operations on a pro forma basis are presented below, for the three
month period ended March 31, 1999, as though Metier had been acquired as of
January 1, 1999:
<TABLE>
<CAPTION>
Three months ended
March 31, 1999
------------------
<S> <C>
Revenue 45,825
Net income 5,485
Earnings per share (diluted) $ 0.14
</TABLE>
4. CASH EQUIVALENTS
For the purpose of reporting cash and cash equivalents, the Company considers
all liquid investments purchased with a maturity of three months or less to be
cash equivalents. Cash equivalents are principally triple A rated corporate
bonds and treasury notes held by a bank with maturity dates of less than ninety
6
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days.
5. COMPREHENSIVE INCOME
Total Comprehensive Income for the three month period ended March 31, 2000 and
1999 was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
2000 1999
------- -------
<S> <C> <C>
Net Income $ 5,152 $ 5,434
Other Comprehensive income
Foreign currency translation Adjustments (29) (25)
------- -------
Total comprehensive income $ 5,123 $ 5,409
</TABLE>
6. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the average
number of shares outstanding during the applicable period. The Company has stock
options which are considered to be potentially dilutive to common stock. Diluted
earnings per share is calculated by dividing net income by the average number of
shares outstanding during the applicable period adjusted for these potentially
dilutive options.
The following table sets forth the computation of earnings per share.
Outstanding shares have been restated to reflect the 3:2 stock split for all
periods presented.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 2000 March 31, 1999
-------------------- --------------------
Weighted Earnings Weighted Earnings
Average per Average per
Shares share Shares share
------ ------- ------ -------
(in thousands, except per share earnings)
<S> <C> <C> <C> <C>
Basic earnings per share 38,589 $ 0.13 38,182 $ 0.14
Net dilutive effect of stock options
outstanding 1,579 704
------ ------- ------ -------
Diluted earnings per share 40,168 $ 0.13 38,886 $ 0.14
</TABLE>
7. SEGMENT REPORTING
The Company manages its operations through three segments, Applications
Outsourcing, e-Business, and TeamSourcing. Management allocates all corporate
expenses to the segments. Financial data for each segment for the three month
periods ending March 31, 2000 and March 31, 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
(in thousands)
<S> <C> <C>
Revenues:
Applications Outsourcing $18,918 $24,093
e-Business 11,441 3,693
TeamSourcing 10,147 11,011
------- -------
40,506 38,797
Gross Profit:
Applications Outsourcing 8,981 10,304
e-business 3,113 1,285
TeamSourcing 2,899 3,266
------- -------
14,993 14,855
</TABLE>
7
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The Applications Outsourcing segment included Year 2000 remediation engagements
for the first three months of 1999, all of which were completed before December
31, 1999. Excluding the impact of Year 2000 remediation engagements,
Applications Outsourcing revenues for the first quarter of 1999 would have been
$18.1 million and gross margins would have been $7.1 million.
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SYNTEL INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
Revenues. The Company's revenues consist of fees derived from its Applications
Outsourcing, e-Business, and TeamSourcing business segments. Revenues increased
4.4% to $40.5 million in the first quarter of 2000 from $38.8 million in the
first quarter of 1999. Worldwide billable headcount, including personnel
employed by Syntel India, Singapore, and Syntel Europe, as of March 31, 2000
decreased to 1,421 compared to 1,456 as of March 31, 1999.
Applications Outsourcing Revenues. Applications Outsourcing revenues decreased
to $18.9 million for the first quarter of 2000, or 46.7% of total revenues, from
$24.1 million, or 62.1% of first quarter revenues for 1999. The $5.2 million
decrease in revenues was attributable primarily to the completion of Year 2000
remediation projects that contributed revenues of $6.0 million in the first
quarter of 1999 as well as the completion of outsourcing and development
projects that contributed $2.3 million in the first quarter of 1999. These were
partially offset by net growth in several engagements as well as new
engagements, which combined, contributed approximately $3.1 million in the first
quarter of 2000.
Applications Outsourcing Cost of Revenues. Cost of revenues consist of costs
directly associated with billable consultants in the US and offshore, including
salaries, payroll taxes, benefits, relocation costs, immigration costs, finders
fees, trainee compensation, travel, and warranty reserves. Applications
Outsourcing costs of revenues decreased to 52.5% of total Applications
Outsourcing revenues for the first quarter of 2000, from 57.2% for the first
quarter of 1999. The decrease in cost of revenues as a percent of revenues was
attributable primarily to a release of warranty reserves that were no longer
deemed necessary in the first quarter of 2000, contributing approximately 7.4%
to the reduction in cost of revenues as a percent of revenues; partially offset
by high margin Year 2000 remediation engagements during the first quarter of
1999 as well as increased compensation levels on existing engagements of 2.0%
and 0.7%, respectively
e-Business Revenues. e-Business revenues increased to $11.4 million for the
first quarter of 2000, or 28.2% of total consolidated revenues, from $3.7
million, or 9.5% of total consolidated revenues for the first quarter of 1999.
The $7.7 million increase was attributable principally to the acquisitions of
Metier, Inc. and IMG, Inc., as well as new engagements, contributing
approximately $4.2 million and $3.5 million, respectively, to the increase in
e-business revenues.
e-Business Cost of Revenues. e-Business cost of revenues consist of costs
directly associated with billable consultants in the US and offshore, including
salaries, payroll taxes, benefits, relocation costs, immigration costs, finders
fees, trainee compensation, and travel. e-Business cost of revenues increased to
72.8% of total e-Business revenues for the first quarter of 2000, from 65.2% for
the first quarter of 1999. The increase in costs of revenues as a percent of
revenues was attributable principally to reduced consultant utilization levels
due to temporary softness in the Oracle marketplace and the establishment of a
loss reserve for a fixed price engagement that is expected to require more
resources than previously anticipated; contributing approximately 11.0% and
3.0%, respectively, to the increase in cost of revenues; partially offset by
improved gross margins on non-Oracle engagements, contributing approximately
6.4%.
8
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TeamSourcing Revenues. TeamSourcing revenues decreased to $10.1 million for the
first quarter of 2000, or 25.1% of total revenues, down from $11.0 million, or
28.4% of total revenues for the first quarter of 1999. The $0.9 million revenue
decrease was attributable primarily to a $1.7 million reduction due to a
decrease in U.S. based billable consultants in various engagements, partially
offset by billing rate increases of $0.8 million.
TeamSourcing Cost of Revenues. TeamSourcing cost of revenues consist of costs
directly associated with billable consultants in the US, including salaries,
payroll taxes, benefits, relocation costs, immigration costs, finders fees,
trainee compensation, and travel. TeamSourcing cost of revenues increased to
71.4% of TeamSourcing revenues for the first quarter of 2000, from 70.3% for the
first quarter of 1999. The increase in cost of revenues as a percent of total
TeamSourcing revenues was attributable primarily to increased travel,
relocation, and training costs, as well as increased compensation costs in
relation to respective bill rates, contributing approximately 0.6% and .5%,
respectively to the decreased margins.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses consist primarily of salaries, payroll taxes and
benefits for sales, solutions, delivery, finance, administrative, and corporate
staff, travel, telecommunications, business promotions, marketing and various
facility costs for the Company's Global Development Centers and various offices.
Selling, general, and administrative costs for the three months ended March 31,
2000 were $9.0 million, or 22.2% of total revenues, compared to $7.2 million or
18.7% of total revenues for the three months ended March 31, 1999. The $1.8
million increase in selling, general, and administrative costs was primarily
attributable to acquisition related operating costs and associated goodwill,
contributing $1.7 million and $0.3, respectively to the increase in sales,
general, and administrative costs; partially offset by savings in marketing,
recruiting, and other administrative expenses, which combined, contributing
savings of approximately $0.2 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company generally has financed its working capital needs through operations.
Net cash generated by operating activities was $1.3 million for the first three
months of 2000, compared to $2.2 million for the first three months of 1999. The
number of days sales outstanding in accounts receivable was approximately 53
days and 52 days as of March 31, 2000 and March 31, 1999, respectively.
Net cash used in investing activities was $1.1 million and $0.4 million for the
first three months 2000 and 1999, respectively. Cash used for investing
activities for the first three months of 2000 consisted principally of
capitalized software development costs of approximately $0.8 and computer
equipment of $0.3 million. Cash used for investing activities for the first
three months of 1999 consisted primarily of capitalized development costs of
$0.2 million and computer equipment of $0.2 million.
Net cash generated in financing activities for the first three months of 2000
consisted primarily of $0.4 million from the issuance of stock from the employee
option program. Net cash used in financing activities for the three months ended
March 31, 1999 consisted primarily of the purchase of 65,000 shares of treasury
stock for $0.6 million.
The Company has a line of credit with Bank One which provides for borrowings of
up to $40.0 million. The line of credit expires on August 31, 2000. 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 prior consent of the bank. The line of credit also
requires the Company to maintain certain tangible net worth levels and leverage
ratios. At March 31, 2000, 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 with the bank at the time of borrowing. In
addition to the bank line of credit, the Company has a $20.0 million facility
with Bank One to finance acquisitions which also expires on August 31, 2000. The
Company has not borrowed any amounts under this facility. The Company intends to
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<PAGE> 10
renew both the $40 million and the $20 million line of credit before the
expiration date. 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.
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements, including those with respect to
future levels of business for Syntel, Inc. These statements are necessarily
subject to risk and uncertainty. Actual results could differ materially from
those projected in these forward-looking statements as a result of certain risk
factors set forth in the Company's Annual Report Form 10-K document dated March
30, 2000. Factors that could cause results to differ materially from those set
forth above include general trends and developments in the information
technology industry, which is subject to rapid technological changes, and the
Company's concentration of sales in a relatively small number of large
customers, as well as intense competition in the information technology
industry, which the Company believes will increase.
10
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is currently not a party to any material pending legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description
- ----------------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K
The Corporation did not file any reports on Form 8-K during the three month
period ended March 31, 2000.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Syntel, Inc.
--------------------------------------------
(Registrant)
Date May 11, 2000 By /s/ Bharat Desai
------------ -----------------------------------------
Bharat Desai, President and
Chief Executive Officer
Date May 11, 2000 By /s/ John Andary
------------ -----------------------------------------
John Andary, Chief Financial Officer
(principal financial and chief accounting
officer)
12
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EXHIBIT INDEX
Sequentially
Numbered
Exhibit No. Description Page
- -------------------------------------------------------------------------
27 Financial Data Schedule 13
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 64,243
<SECURITIES> 0
<RECEIVABLES> 24,239
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 97,040
<PP&E> 16,874
<DEPRECIATION> 10,075
<TOTAL-ASSETS> 122,702
<CURRENT-LIABILITIES> 26,787
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 96,519
<TOTAL-LIABILITY-AND-EQUITY> 122,702
<SALES> 0
<TOTAL-REVENUES> 40,506
<CGS> 0
<TOTAL-COSTS> 25,513
<OTHER-EXPENSES> 8,993
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (780)
<INCOME-PRETAX> 6,780
<INCOME-TAX> 1,628
<INCOME-CONTINUING> 5,152
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,152
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.13
</TABLE>