From all indications, iGATE appears to be riding high, but let's take a closer look at the first quarter and look forward to see whether this success will continue.
Figuring it out
Revenues for the company increased by almost 31% to $75.8 million compared to the start of last year. However, they also fell by almost 6% on a sequential quarter basis. This drop was mainly due to project delays, as clients, at the start of the year, had yet to finalize their IT budgets.
Incidentally, the company suffers the fate of having a relatively small number of clients who can either make or break entire quarters. For example, the biggest revenue provider in the first quarter was the Royal Bank of Canada
If we look at the trend throughout 2010, iGATE's top line increased continuously throughout the year. This year, fueled in part by the Patni deal, we can expect this number to go way up. Patni raked in $190.1 million in the first quarter of the year.
iGATE's net income for the first quarter went up by 54% to $17.9 million on a year-on-year basis. EBITDA went up by almost 41%. The adjusted EBITDA excluding the acquisition-related expenses was almost $20.5 million, up from $14.4 million a year ago, which is pretty impressive.
Cash flow, however, was steeply down. iGATE attributed the decline to acquisition-related expenses and a ramp up in days sales outstanding. Rising DSO, a measure of a company's ability to collect revenue, can be troubling. However, iGATE attributed the rise in a large customer changing its billing methods. Seeing as how large customers should be credit-worthy, this rise shouldn't be troubling if it corrects itself in future quarters. However, this is an area investors should keep an eye on in future earnings releases.
The Foolish bottom line
iGATE has had a strong start to the year, and I think it looks strong for the rest of the year as well. The merger with Patni not only gives it access to a wider market in India, which is continuously growing, but also better equips it to face competitors such as Accenture
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