Earnings Call Transcript - SIFY Q1 2020

Operator, Operator

Good day, ladies and gentlemen, and welcome to the Sify Technologies financial results for the first quarter and fiscal year of 2021 and 2020 conference call. Instructions: At this time, it is my pleasure to turn the floor over to your host, Mr. Shiwei Yin. Sir, the floor is yours.

Shiwei Yin, Investor Relations

Thank you, Jess. I would like to extend a warm welcome to all our participants on behalf of Sify Technologies Limited. I'm joined on the call today by Raju Vegesna, Chairman; Kamal Nath, Chief Executive Officer; and M. P. Vijay Kumar, Chief Financial Officer of Sify Technologies. Following our comments on the results, there will be an opportunity for questions. And if you do not have a copy of our press release, please let us know and we will have one sent to you. Alternatively, you may obtain a copy of the release at the Investor Information section of the company's corporate website at www.sifycorp.com. A replay of today's call may be accessed by dialing in on the numbers provided in the press release or by accessing the webcast in the Investor Information section of the Sify corporate website. Some of the financial measures referred to during this call and in the earnings release may include non-GAAP measures. Sify's results for the year are according to the International Financial Reporting Standard, or IFRS, and will differ somewhat from the GAAP announcements made in previous years. A presentation of the most directly comparable financial measures calculated and presented in accordance with GAAP and a reconciliation of such non-GAAP measures and of the differences between such non-GAAP measures and the most comparable financial measures calculated and presented in accordance with GAAP will be made available on Sify's website. Before we continue, I would like to point out that certain statements contained in the earnings release and on this earnings call are forward-looking statements rather than historical facts and are subject to risks and uncertainties that could cause actual results to differ materially from those described. With respect to such forward-looking statements, the company seeks protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive developments and the risk factors listed from time to time in the company's SEC reports and public releases. Those lists are intended to identify certain principal factors that could cause actual results to differ materially from those described in the forward-looking statements but are not intended to represent a complete list of all the risks and uncertainties inherent in the company's business.

Raju Vegesna, Chairman

Yes. Thank you, Shiwei. Good morning, and thank you for joining us on the call. As the world comes to terms with the new normal, it is becoming increasingly clear that investment in business continuity and highly automated processes is no longer an option. During this period, we have benefited from our ongoing efforts to automate a majority of our network, data center and service escalation processes. Our services, having withstood the test of this pandemic, are now more relevant than ever in a rapidly evolving IT landscape. True to our customers' business promise, I would like to assure our clients that we will continue to extend all our support in keeping them ahead. Let me now bring in Kamal, our CEO, to expand on some of the business highlights for the past quarter.

Kamal Nath, CEO

Yes. Thank you, Raju. Over the last quarter, we, along with our customers, have learned to adapt to new modes of doing business. Our Cloud@Core products and services are emerging as the most relevant to the altered ground realities. Previously, cloud-hostile and cloud-skeptical customers have opened up conversations about cloud adoption to de-risk their dependency on on-premise IT. Our cloud portfolio, together with our cloud-adjacent data centers, are the perfect solution for customers looking for quicker adoption of hybrid IT. In line with the precedent, I would like to expand on the business highlights and our growth drivers. Revenue from data center-centric IT services grew 5% over the same quarter last year. Segment-wise, revenue from Data Center Services and Cloud and Managed Services grew 49% and 42%, respectively, while revenue from Application Integration Services and Technology Integration Services fell by 16% and 42%, respectively. Revenue from network-centric services fell by 12% over the same quarter last year. Segment-wise, revenue from Data Connectivity Services grew 1%, while revenue from the Voice business fell by 42%. Let me now expand upon the growth drivers. The pandemic has accelerated the primary growth drivers in the market for cloud adoption, led by digital initiatives. This trend is triggering movement of workloads from on-premise data centers to hyperscale public cloud and hosted private cloud in varied degrees based on the digital and cost objectives of the enterprise. Let me summarize the categories of customers who are signing up with Sify. To start with, customers choosing Sify for migration from their on-premise data center to multi-cloud platforms like Cloudinfinit, AWS, Azure, and Oracle, they also entrusted Sify with management and security; customers choosing Sify as their data center hosting partner as they embrace hybrid cloud; customers choosing Sify as their digital services partner; and customers choosing Sify as their network transformation and management partner as they migrate to cloud-ready networks. A detailed list of our key wins is recorded in our press release, now live on our website. Let me bring in Vijay, our CFO, to elaborate on the financial highlights for the past quarter.

M. Vijay Kumar, CFO

Yes. Thank you, Kamal. Good morning, everyone. Let me briefly sum up the financial performance for the first quarter of financial year 2021. The revenue for the quarter was INR 5,259 million, a decrease of 5% over the same quarter last year. EBITDA for the quarter was INR 1,153 million, an increase of 32% over the same quarter last year. Profit before tax for the quarter was INR 266 million, a decrease of 17% over the same quarter last year. However, the increase in profit before tax is 52%, excluding the impact of interest income of INR 146 million, which was recognized in the same quarter last year on a tax settlement recognized on receipt basis. Profit after tax was INR 172 million for the quarter, a decrease of 20% over the same quarter last year. As stated above, for the same reason, the increase in profit after tax on a comparable basis is 45%, excluding the post-tax impact of interest income of INR 146 million received in the first quarter of last year on a tax settlement, which was recognized on receipt basis. Capital expenditure during the quarter was INR 321 million. The operating profit performance has been good despite the challenges of the pandemic. We continue to stay focused on ensuring liquidity and fiscal discipline. We will, as always, continue to exercise caution on our capital expenditure plan and are making aggressive curbs on discretionary spending for the remainder of the year, while continuing to invest more in people, tools, and our digital transformation capabilities. Cash balance at the end of the quarter was INR 3,568 million. I will now hand over to our Chairman for his closing remarks.

Raju Vegesna, Chairman

Thank you, Vijay. We view the current pandemic as an accelerator for our business model of digital transformation services. Companies are actively seeking us out for our cloud-based services that have time and again delivered customized cost-effective solutions. We are now recognized as a solutions provider that can quickly expand capabilities across multiple landscapes. Our focus now is to consistently broaden the value that we deliver to our clients. Thank you for joining us on this call. I will now hand over to the operator for questions.

Operator, Operator

Instructions: We'll take our first question from Greg Burns at Sidoti & Company.

Gregory Burns, Analyst

So it looks like we're seeing the acceleration in demand in your data center and Cloud and Managed Services. But it's not -- we're not seeing that translate into the Technology Integration Services. So why is there this dichotomy where you are seeing the strong growth in certain parts of your Data Center Services but maybe larger projects from transformational projects aren't moving forward? Can you just talk about that? And in general, what you're seeing with your customers in terms of conversations in the Technology Integration Services and, yes, the length of sales cycles there?

Kamal Nath, CEO

Raju, can I answer this?

Raju Vegesna, Chairman

Yes, please. Yes.

Kamal Nath, CEO

Yes. So as all of us are aware, most of the Technology Integration Services business is where the customer spends their money upfront. And with this current situation going on across the globe and definitely also in the Indian market, we expect this business to decline not only for us but for all the relevant players in the market. More customers will be adopting cloud models, where they need not spend CapEx. They will have a variable model of IT consumption, which will be guided by their own business growth and IT consumption around that growth. So this is a trend which you have started seeing for the past few quarters. But the pandemic has only triggered that trend further now.

Gregory Burns, Analyst

Okay. So I guess -- so this is a longer-term -- this is not necessarily -- maybe it's been accelerated by the recent events in the market with COVID. But this is a longer-term trend you expect that the business -- to transition more to the consumption data center and managed services away from kind of the Technology Integration Services. That's something outside of COVID that you expect to happen over time?

Raju Vegesna, Chairman

Yes. I think...

Kamal Nath, CEO

Correct. It would...

Raju Vegesna, Chairman

What is happening is that before, system integrator hardware sales and on-prem data centers used to be there. Now it's moving towards the cloud and the colo data center space. And now being cloud-based, that technology integration is becoming more about system integration going down. That means we're seeing more adoption of the cloud, whether private, public, or hybrid. We are seeing across all three fronts, especially hybrid, which is very important because nobody in the world just transitions to public cloud. It is hybrid. So that is the way we position -- we service. We have our own cloud platform, and we also service public clouds. Additionally, we are one of the data center colo players. So the direction it's going with COVID is the direction we would like to see, and it's accelerating. We are seeing trends moving toward that helping us, while our traditional technology integration sales are decreasing.

Gregory Burns, Analyst

Okay. Perfect. And then in terms of the network services, can you just talk about the dynamics there with the voice? What was driving the significant decline in voice? And do you expect that to stabilize and rebound at some point this year?

Raju Vegesna, Chairman

Yes. I think that one will temporarily reduce, but I believe that it will come back over time. People continue to communicate, right? And that aspect will return. Our traditional network business is intact, but this voice segment is experiencing what we believe to be a temporary slowdown.

Gregory Burns, Analyst

Okay. Is there a difference in the margin profile of the voice versus the data component of the business?

Raju Vegesna, Chairman

Yes. We would like to focus on selling data. We are one of the largest data network providers. Our interest is to sell more data than just voice minutes.

Gregory Burns, Analyst

Okay. All right. What was the debt balance at the end of the quarter?

M. Vijay Kumar, CFO

The debt balance at the end of the quarter, net of cash, is $80 million.

Gregory Burns, Analyst

USD 80 million?

M. Vijay Kumar, CFO

Yes. Yes. Yes.

Gregory Burns, Analyst

Okay. And then it seems like you had a couple of big CapEx years the last two years. It seems to have slowed down a little bit this quarter. But what's your outlook in terms of investment this year around your network and data centers? Do you expect it to slow this year? And then I guess, do you expect your debt balance this year to decline?

Raju Vegesna, Chairman

I think we are going to invest in both data centers and the network in the coming years. And actually, this is a great opportunity to expand our data center business. We're also focusing on Metro networks, so we will start spending to seize this opportunity, positioning our data center in the network. So Vijay, do you want to address the debt point of view?

M. Vijay Kumar, CFO

Yes, yes, yes. As far as our debt balance is concerned, we currently have leveraging ability. As we keep executing our expansion plans, we will use a combination of accruals and some amount of leveraging to meet the capital expenditure. It's likely to increase marginally as far as the end of the year is concerned. However, in the relatively longer term, we might try to use the leveraging ability effectively.

Operator, Operator

Instructions: And I currently have no other questions holding. At this time, I'll turn the conference back to management for any additional or closing comments.

Raju Vegesna, Chairman

Thank you, everyone, for joining us on the call. We look forward to interacting with you throughout the year. Stay safe, stay healthy. Have a good day. Thank you.

Operator, Operator

Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time, and have a great day.