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Sify Technology (NASDAQ:SIFY)
Q3 2019 Earnings Call
Jan 24, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to your Sify Technologies Financial Results for the Third Quarter and Fiscal Year 2019-2020. All lines have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. [Operator Instructions]

At this time, it is my pleasure to turn the floor over to Mr. Shiwei Yin. Sir, the floor is yours.

Shiwei Yin -- Grayling Investor Relations

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. 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 Standards 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 conference 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 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 on the forward-looking statements, but are not intended to represent a complete list of all risks and uncertainties inherent to the company's business.

I would now like to introduce Mr. Raju Vegesna, Chairman of Sify Technologies Limited. Sir?

Raju Vegesna -- Chairman & Managing Director

Thank you, Shiwei. Good morning everyone. Thank you for joining us on the call. Most enterprises are viewing that current enrollment in India has an opportunity to reskill and reengineer their human power and the processes and be ready for the digital economy of tomorrow. This will drive both increase in conjunction of Sify's infrastructure offerings as well as the increasing utilization of our digital transformation skills and services.

Let me bring Kamal Nath our CEO to expand on some of the business highlights of the past quarter. Kamal?

Kamal Nath -- Chief Executive Officer

Thank you, Raju. Our vision and strategy to align a lead with hybrid and multi-cloud models supported by our relevant infrastructure investments has put us strongly in the digital transformation pursuits of customers. Our Cloud Alliance network and security transformation services are other areas, which are not only supporting the customers cloud adoption journey, but have also opened up growth areas for us.

We would continue to drive and strengthen this mostly going forward, in line with the continuing president, I would like to expand on the business highlights and our growth drivers. Revenue from Data Centers centric IT services stayed flat again in the same quarter last year. Our segment wise revenue from Data Center Services, Cloud and Managed Services and Application Integration Services grew by 15%, 7% and 12% respectively, while revenue from Technology Integration Services fell by 24%.

Revenue from network centric services grew by 8% over the same quarter last year. Segment wise revenue from data center -- data connectivity services grew 12%, while revenue from the voice business fell by 2%.

Let me now expand upon the growth drivers. The primary growth driver in the market continues to be cloud adoption led by digital initiatives and transformation. 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 objectives of the Enterprises. This results in transformation of the traditional network architecture and transformation at the edge, which connect the end user. The need for digital services like analytics, data lakes, IoT, et cetera are shifting the balance to adoption of hyperscale Public Cloud versus Public Cloud, -- versus Private Cloud. Collectively, these trends are generating opportunities for full scale cloud, data center and network service providers with digital services skills.

Let me summarize the categories of customers who are signing up with Sify as follows: Customers choosing Sify for migration of their on-premise data center to multi-cloud platforms like Cloudinfinit, AWS and Azure. They also entrusted Sify with management and security of the cloud infrastructure. Customers choosing Sify as their data center Hosting partner as they embrace hybrid cloud strategy. 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 network. 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. Vijay?

M P Vijay Kumar -- Chief Financial Officer

Thank you. Kamal good morning everyone and wish you all a very happy 2020. Allow me to present the financial performance for the third quarter of financial year 2019-20. Revenue for the quarter was INR5,891 million an increase of 3% over the same quarter last year. EBITDA for the quarter was INR1,103 billion an increase of 40% over the same quarter last year. However considering IFRS 16 on leases adoption from April 1, 2019 the increase is 23% on a comparable basis.

Profit before tax for the quarter was INR249 million a decrease of 20% over the same quarter last year. Profit after tax for the quarter was INR164 million, a decrease of 47% over the same quarter last year primarily due to tax expense of INR8.5 million during the current quarter. Capital expenditure outflow during the quarter was INR1,089 million. We continue to invest bit prudent on our capacity expansion. In particular -- in data center and in people for enhancing our scale of managed services, while revenue and EBITDA has grown the net profit has been tempered by the depreciation on new capacity which has gone live and related interest expense.

The tax expense is due to the company being subject to income tax in the current period, as benefit of past losses have been utilized in full until last year. Our cash balance at the end of the quarter, time fact INR2,204 million.

I will now hand you over to our Chairman for his closing remarks. Chairman?

Raju Vegesna -- Chairman & Managing Director

Thank you, Vijay. Between our unique brand of services, solution and knowledge practices, Sify has built a strong reputation as the go-to-IT architect for small and medium businesses and also some size of the Enterprises, while this has built a fairly strong following, it is time to move up the value chain as the digital transformation specialist further large enterprises, which we are doing.

Thank you for joining us on this call. I will now hand over to the operator for questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Greg Burns of Sidoti & Company. Please state your question.

Greg Burns -- Sidoti & Company -- Analyst

Good morning. We're seeing a lot of headlines around the Indian economy slowing growth there. Could you just maybe touch on the macro environment in India and how that may or may not be affecting demand for your services. Thank you.

Raju Vegesna -- Chairman & Managing Director

Vijay, do you want to handle this.

M P Vijay Kumar -- Chief Financial Officer

Yeah, as far as the environment in India is concerned, your observation is right, that -- that high level, the rate of growth of economy is lower than the past year. Having said that the demand for IT services continues to be as in the past where the companies are looking at this slowdown as an opportunity for reinventing themselves in terms of their processes by consuming IT. So we are engaged with our enterprise customers, the sales cycle is taking a little longer but it is building up a healthy funnel. So we will see organically a lower growth rate for the company compared to the previous year, but the momentum remains good.

Greg Burns -- Sidoti & Company -- Analyst

And then you mentioned, trying to move up -- market move up the value chain. What kind of -- what do you need to do that, what needs to happen for you to be able to move up market in the investment wise and technology or resources. Just how do you -- you move from SMB focused to more enterprise.

Raju Vegesna -- Chairman & Managing Director

So they -- for that, so we have both network infrastructure and the data center infrastructure in place. The things what we need to enable is more in the tools, automation and also skill sets of the people, which we had been working on it, and also the customer perception about Sify to getting into the value chain higher that our marketing initiatives. So we are winning and as we win more and more cases that will validates our integration solutions and increase our value of the proposition for the higher enterprises.

Greg Burns -- Sidoti & Company -- Analyst

And then just going back to the answer to the last question, you mentioned you're engaged with some enterprise customers, sales cycle is taking longer, is that any specific business unit Cloud Services AIS, where are you seeing that engagement and where are the sales cycles getting longer?

Kamal Nath -- Chief Executive Officer

Yeah, Raju can I answer this.

Raju Vegesna -- Chairman & Managing Director

[Speech Overlap] Yeah, go ahead, Kamal, yeah.

Kamal Nath -- Chief Executive Officer

Yeah, thank you. So we could see the engage -- while the engagements are on but the customers are by and large postponing the buying decisions. This is specifically happening in the -- in some of the large segments traditionally where we are strong. One being the banking segment where we have definitely seen an slowdown in the decision making cycle. Okay, and same holds good for manufacturing segment also, so these are the two big segments for us, where we have seen and our decisions getting delayed. The customers are not selling the projects but their decision making cycle is getting extended.

On the other hand, there are certain other verticals, were -- the -- for example, the particularly the digital native companies, they are deciding faster, because they see this as a good opportunity to grow their business model. So it's the mix of both, but for us in the banking, financial services and manufacturing, these are the two big segments. So we are seeing and also the best part Vijay was mentioning that a little slowdown on the decision making process of customers.

Greg Burns -- Sidoti & Company -- Analyst

Affecting any of your services, specifically like Data Centers, Cloud and Managed Services, where are you seeing this in terms of your services or it's just kind of broad-based across the business?

Kamal Nath -- Chief Executive Officer

Right, so we expected that these segments would adopt cloud probably more aggressively than what is exactly happening now, because of business plan was very much cloud aligned but this is one area and also the market is not -- market is actually not behaving and a slower than what it was predicted for the cloud adoption, particularly the BFSI and manufacturing segment.

Greg Burns -- Sidoti & Company -- Analyst

All right. And then lastly, what was the debt balance at the end of the quarter?

Kamal Nath -- Chief Executive Officer

I didn't get your question please.

Greg Burns -- Sidoti & Company -- Analyst

The debt -- the balance of the debt at the end of the quarter?

M P Vijay Kumar -- Chief Financial Officer

The balance of our term debt at end of the quarter is about $60 million.

Greg Burns -- Sidoti & Company -- Analyst

$60 million.

M P Vijay Kumar -- Chief Financial Officer

$60 million, term debt.

Greg Burns -- Sidoti & Company -- Analyst

Okay. And the total debt?

M P Vijay Kumar -- Chief Financial Officer

Total debt is $110 million.

Greg Burns -- Sidoti & Company -- Analyst

Okay, all right, thank you.

M P Vijay Kumar -- Chief Financial Officer

Welcome.

Operator

Our next question comes from Jon Atkin of RBC. Please state your question.

Jon Atkin -- RBC Capital Markets -- Analyst

Thank you. A couple of questions about the data center co-location infrastructure segment and as we think about data localization initiatives in India. I wondered if you could provide an update as to what one could expect on the legislative or regulatory front that might affect the fundamentals of co-location demand particularly from international customers, perhaps being required to store more data in India and driving the sector, is there any kind of an update or set of expectations that you could share?

Raju Vegesna -- Chairman & Managing Director

Hi Jon. So I think data localization and continued penetration of hyperscalers in India, is growing well because hyperscalers, if we look at it big cloud players just enter -- couple of them are entered, couple of them being entered into the market and I think that progress is going very well, and similarly, we see the same trend from our enterprise and SMB market. So as the Vijay and kamal has explained and due to some of the slowdown of the economy, I think we have a little bit pause kind of thing, but what we see it is as the economy is coming back, now, I think everybody saw the advantages of this clouds being public, private or hybrid clouds, you will see much more penetration of this digital transformation going forward and we see the continuous demand of the building the data centers across India.

Jon Atkin -- RBC Capital Markets -- Analyst

And then related to that, there has been quite a lot of interest on the part of both new entrants getting into the market, whether it's capital sources from within India or internationally, an example being digital realty in their announcement with undrawn the enterprises, And I wondered if you could provide a perspective as to how that affects Sify in terms of your strategic positioning or competitively commercially how that might affect you.

Raju Vegesna -- Chairman & Managing Director

So yeah, that's a valid question, Jon. You will see a lot more people coming, that will validate what are the business we are in, in the last 20 years. So, definitely there are more players are coming, but we are an establishing player and we have established operation and have established our skills and established engagement both in our hyperscaler cloud providers or any enterprise -- international enterprise customers and the local customers. So without existent in the business for a such a long time and continues sustainable and operations plan that gives us an advantage and that will along -- having more people entered into the thing market that definitely validates the potential to grow this market.

Jon Atkin -- RBC Capital Markets -- Analyst

Thank you.

Operator

[Operator Instructions] And there appear to be no further questions at this time, I will now turn the conference back over to management for closing remarks.

Raju Vegesna -- Chairman & Managing Director

Thank you everyone for joining us on the call and we looking forward to interacting with you throughout the year. Have a great day. Thank you, bye.

Operator

[Operator Closing Remarks]

Duration: 21 minutes

Call participants:

Shiwei Yin -- Grayling Investor Relations

Raju Vegesna -- Chairman & Managing Director

Kamal Nath -- Chief Executive Officer

M P Vijay Kumar -- Chief Financial Officer

Greg Burns -- Sidoti & Company -- Analyst

Jon Atkin -- RBC Capital Markets -- Analyst

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