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Syntel Reports Fourth Quarter and Full Year 2009 Financial Results

Highlights:

• Q4 revenue increased to $117.8M, up 12% from year-ago quarter and 12% sequentially
• Q4 EPS of $0.86 per diluted share, up 34% from year-ago quarter and 18% sequentially
• Full Year revenue increase of 2% to $419.0M
• Full Year EPS increase of 36% to $2.86 per diluted share
• 2009 year-ending cash & short term investments of $200.1M

Syntel, Inc. (Nasdaq:SYNT), a global information technology services and Knowledge Process Outsourcing (KPO) firm, today announced financial results for the fourth quarter and full year, ended December 31, 2009.

Fourth Quarter Financial Highlights

Syntel's revenue for the fourth quarter increased 12 percent to $117.8 million, compared to $104.7 million in the prior-year period, and also increased 12 percent sequentially from $104.7 million in the third quarter of 2009. Sequential revenue improvement was driven by broad-based growth across verticals and service offerings, and by approximately $6 million of short-term discretionary project work. During the fourth quarter, Applications Outsourcing accounted for 75 percent of total revenue, with Knowledge Process Outsourcing (KPO) at 17 percent, e-Business contributing five percent and TeamSourcing at three percent.

The Company's gross margin improved to 50.2 percent in the fourth quarter, compared to 48.3 percent in the prior-year period and 49.3 percent in the third quarter of 2009. Selling, General and Administrative (SG&A) expenses were 17.0 percent in the fourth quarter, compared to 19.4 percent in the prior-year period and 18.1 percent in the previous quarter. Syntel's income from operations expanded to 33.2 percent in the fourth quarter as compared to 28.9 percent in the prior-year period and 31.2 percent in the third quarter of 2009.

Sequentially, operating margins during the quarter were favorably impacted by short duration development projects and associated operating cost leverage. This favorability was partially offset by lower utilization and a 3.6% appreciation in the Indian Rupee.
Net income for the fourth quarter was $35.8 million or $0.86 per diluted share, compared to $26.7 million or $0.64 per diluted share in the prior-year period and net income of $30.3 million or $0.73 per diluted share in the third quarter of 2009.

Full Year 2009 Financial Highlights

Revenue for 2009 increased two percent to $419.0 million, from $410.4 million in 2008. The Company's operating margins in 2009 expanded to 29.9 percent, compared to 24.0 percent in 2008. Net income for the year was $118.5 million, or $2.86 per diluted share compared to $86.7 million or $2.10 per diluted share in 2008. Net income rose 36.7 percent for the full year and associated earnings per share rose 36.2 percent.

During 2009, Syntel spent $25.5 million in CAPEX largely in support of campus infrastructure, paid $10.0 million in dividends ($0.24 per share), and finished the year with cash and short-term investments of $200.1 million. The Company added 22 new clients during the year and ended 2009 with 12,567 employees globally.

Operational Highlights

"Our fourth quarter financials were indicative of an improving market for offshore services," said Syntel Chairman Bharat Desai. "Syntel's sequential revenue growth was strong during the quarter, and benefited from short-duration development projects. The rapid revenue expansion also helped improve the Company's margins and EPS."

"Given the economic climate we faced heading into 2009, Syntel is extremely pleased with our operational and financial performance during the year. Despite the challenges of a difficult business environment, the Company was able to post record revenues, margins, earnings per share and cash in 2009."

"As we look forward into 2010, we are optimistic that demand for offshore services will continue to progress," said Desai. "We anticipate that our clients' budgets will remain relatively flat in 2010, however we believe that a larger share of their spending will be allocated to offshore partners. Currently, our clients remain comfortable moving forward with cost reduction initiatives and are increasingly willing to discuss strategic technology and process-related investments.

"While we expect the demand environment to improve in 2010, margin pressures will increase. Wage inflation, appreciation in the Indian rupee, and the possible outcomes from a large contract negotiation could all create margin headwinds this year. Syntel will continue to take a long-term view of our business and focus on driving sustainable value for all of our key stakeholders."

2010 Guidance

Based on current visibility levels and an exchange rate assumption of 46.0 rupees to the dollar, the Company is providing 2010 guidance of $430 to $460 million in revenue, and EPS in the range of $2.15 to $2.45. Syntel's guidance assumes a range of discounts related to its KPO joint venture which would impact both revenue and margins in 2010. Guidance does not assume that the client will exercise its option to purchase the joint venture, nor does it assume that the contract will continue with the same pricing, terms and conditions and without economic impact to Syntel.