Sify Technologies Ltd (SIFY) 2011 Q1 法說會逐字稿

Greetings and welcome to the Sify Technologies First Quarter 2011-12 Financial Results Conference Call.

At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS.)

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Christopher Chu, with Sify Technologies. Thank you, Mr. Chu. You may begin.

Thank you, operator.

I would like to extend a warm welcome to all of our participants on behalf of Sify Technologies Limited. I'm joined on the call today by Raju Vegesna, Chairman and CEO, 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 call us at 646-284-9400 and we'll have one sent to you. Alternatively, you may obtain a copy of the release at the Investor Information section on 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 Information section on 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 unaudited 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 on 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'd 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. These 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 in 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 and CEO of Sify. Raju?

Thank you. Good morning, Chris. Thank you. And good morning, everybody. Thank you for joining on the call.

It gives me great pleasure to report our recast business structure is beginning to show results. We have unbundled our broad services portfolio, making them available across all customer segments. This has increased the flexibility and the scalability of our business. It has also allowed for cross-function sharing of our strengths and quicker deployment without the accompanying manpower costs.

Our Enterprise business maintained its consistent growth with a growth of 40% over the same quarter of last year. Network services saw positive momentum in the first quarter, with revenues from internet growing by 18%. The (inaudible) business continues to show signs of growth with (inaudible) regarding about $680 million for the quarter. The (inaudible) business grew by 55% over last quarter in terms of the revenue. The wholesale (inaudible) grew about 25% over the preceding quarter.

Our partnership with the global telecoms is also helping in adding new customers to our customer base. Our focused business group of the government started making some sizeable wins, and three data centers are on (inaudible).

The government of India, which is also the largest spender on IT, has classified the proposed fiberoptic network as a national resource, and that is going to help to benefit a lot of Sify's services to reach (inaudible).

With our network (inaudible), data center footprint across metros and small cities, homegrown applications (inaudible) on the cloud portal and our international bandwidth capacity, we are ideally positioned to leverage our investments. I'm happy to report that our move to offer (inaudible) services on a single platform was a step in the right direction. The [overall] IT services grew significantly by 67.4% over the same quarter last year, with the core services (inaudible) IT services [doing] the growth.

Hosting business grew 23% over the last year, Q1, with the new customers being added from the government, large enterprise sectors, like IT (inaudible) and (inaudible). The (inaudible) of our leadership position in Hosting came in the form of the Best Data Centre Award from the CMAI. The Managed Services, including [Cloud] Services, also grew 18.4% over the same quarter last year.

These (inaudible) results have shown that our recasting of consumer business as a (inaudible) business, hosted integration, Sify has launched a new set of pre-paid broadband products. We have acquired SoHO and SMB customers across multiple industries like manufacturing, dealers, professionals, cyber cafes and retail outlets. This has resulted in a customer growth by over 75% over the last quarter. Our Tier 2 and Tier 3 cities are turning out to be the new hunting grounds, with about 60% of the signups happening from them.

Now next comes to the portal. Sify.com, our portal, saw an upswing in visitor growth of 36%. Now Sify (inaudible) is one of the top 10 portals in India and continuing a quarter-to-quarter growth. Our retail broadband access point, called Mylife Outlet, and that is also -- (inaudible) we are showing a tremendous growth coming up in the signing of those kind of (inaudible) after we changed the model.

Our initiative to focus on Sify Software as an organization supporting all functions (inaudible) services to carriers and to (inaudible) small business customers is being accepted and gaining good traction. With the quarter-on-quarter growth and increase in the business size of the existing customers, applications team is also continuously working on improving and expanding existing portfolios. I'm happy to know that our online assessment services which we created shows a double revenue in the (inaudible) previous quarter. Our engagement with the government of India (inaudible) brought a contract to build a large and very prestigious Mission Mode project, in addition to many other new projects.

Sify launched a new messaging product called SLEMS 11.0 with the collaborations (inaudible) like calendar chat, mobile, etc. Sify's e-learning customer base expanded into new markets in the Gulf countries where we have new partnerships when it landed a contract to build an online learning module (inaudible) agency in the Middle East.

I would like to reiterate the important fact -- how we structure the organization. The way the organization -- three services -- network services, IT services and software solutions. These are captured as product line services. And the way that we (inaudible), we have Enterprise and SMB and SOHO. That is the second. Third is our government sector (inaudible). And the fourth is our international (inaudible). So three services for clients and four (inaudible) channels. That is the way we are going after this market and approaching and making the [accountability] and the sales target for each channel. Secondly, as our investment will bear testimony -- as you see, we are making the progress -- we are here for the long term.

Now I will Vijay, our CFO, to explain the financial highlights of our performance, after which I will summarize our focus for the current quarter.

Thank you, Raju, and good morning, everyone.

I will now provide detailed financial results for the first quarter of financial year 2011-12.

Sify's revenues for the quarter were $50.73 million as against same quarter previous year revenues of $38.64 million, an increase of 30%.

EBITDA for the quarter increased to $2.8 million, as compared to $510,000 in the corresponding quarter previous year. Growth was driven by revenues from Enterprise Services, which grew 40% over corresponding quarter previous year. This included a $10.3 million for a project executed for a large telecom company.

Net loss before tax for the quarter was $1.91 million as against a net loss of $4.05 million in the corresponding quarter previous year. Tighter fiscal discipline has ensured we recorded a lower loss over the same quarter last year and [efforts] continuing that direction.

We are now in the process of building additional capacity to our data center build plan, network expansion and new developments for Sify software. As expected, these are putting pressure on the bottom line in the short term. The new investments will add to the existing portfolio of our network presence in 667 cities, 6 data centers, millions of (inaudible) across different business verticals and an appreciating investment in our financial services entity.

Next, I would like to talk about our share count in the market. As of June 30, 2011, Sify's total number of issued and outstanding ordinary equity shares was 178.4 million shares. Of this, 38.9 million shares are American Depository Shares (ADS). The remaining 139.5 million shares held in India are not deposited as ADS and do not trade on NASDAQ or any market in the US or India. As previously reported in Sify's filings with the United States Securities and Exchange Commission, in August 2010 the Board of Directors approved the issuance of 125 million shares to Sify's promoter group in a private placement, and the private placement was approved by Sify's shareholders in September 2010. We refer investors to our previous filings with the SEC for further details on our equity capitalization since the end of financial year March 31, 2010.

I will now hand over to Raju for his final comments. Raju?

Thank you, Vijay.

Our move to recast the business was based on a simple model -- that going forward, any and all of our businesses should be able to adapt into our cross-functional skill set, products, services and quickly adapt to the customer's changing needs and profile. With our past (inaudible) behind us, I see Sify as an agile player in the market in the days to come. Let me assure you that our customer (inaudible) with SMB and SOHO business (inaudible) into the Tier 2 and Tier 3 cities and the results in the government sector are just the beginning. That said, I thank you for joining -- all of you -- on this call.

I will hand over to the operator for questions. Operator?

Thank you. (OPERATOR INSTRUCTIONS.) Thank you. Our first question is from the line of Piera Chaundry with J. Goldman. Please state your question.

Hi. Thanks. I had three questions. First, what is the deadline to file 20-F for Sify? Second, your previous auditor resigned. Do you have a new auditor compliant with SEC guidelines? And third, can you talk about your competitive dynamics with (inaudible)? Why are they growing faster? Thank you.

Thanks for joining and interacting. I will address the first two queries and I will request my CEO, Raju, to answer on the third. As far as the deadline for filing 20-F is concerned, being a foreign (inaudible) issuer, the deadline is the 30th of September 2011. And as regards the change of auditors, the new auditors have been appointed, and we have made adequate filing of the same. And the new auditors are currently auditing the financial statements and they will be signing the new 20-F which we'll be filing before the deadline.

Okay. Let me explain regarding the (inaudible) and us. There is a strategy difference between (inaudible) and Sify. (Inaudible) is focused mainly on the network expansion as a -- like a world telecom player -- whereas in the case of Sify, we are expanding as an IT company. That means we are not just focused on the network services; we are focused IT services as a solution (inaudible). And that is where we are looking at providing as a solution and both networking, data centers and managed services and applications that we do. Our growth is going to be -- it comes from all of them, and doing this -- we are doing the investments for the overall long-term gain. It's not just we are looking at the connectivity. As a connectivity, there is no stickiness. So connectivity can -- today it can connect you to get to one place, and tomorrow, there's no stickiness. So our overall game plan is stickiness, customer service and the company's solutions. That is where we changed the strategy a few years ago. That is the path we are going to bring the business overall.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS.) Our next question is coming from [Louis ] of (inaudible) Capital. Please state your question.

Hi. I had a question regarding the $10.3 million project that you said was executed for a large telecom company. It looks like that accounted for most of your growth in the Enterprise business. It went from 32 to 45 on the strength of that. Can you talk about maybe what that was? And looking at your gross margins, it looks like year over year, your gross margins fell by 500 basis points, and I assume that's because most of the revenue associated with that was probably very low-margin revenue.

Let me talk to you (inaudible) the project. One of the things is, in India, the biggest IT spending is also coming from the government and the major telecom players. So these are the large projects. And it's a very competitive market. So, by the way, we're going to see, as in emerging countries -- we are going to be seeing these opportunities and also it's going to be a very competitive market. So as we are going -- as in Enterprise -- and we are also looking at government and the big telecom projects. So that's what we are looking at that's where we are looking -- (inaudible). Our objective in securing this project, we want to expand our network and we want to build our data centers beyond what we have. So we are continuously growing in both (inaudible).

So was this a project for the Indian government?

No, it's a telecom company for the moment.

Okay. And is this the kind of business that you hope to continue to land in the future?

The question is like this. Indian government is -- today probably about 30% of IT spending in India happens from the government and public sectors owned by the government. So we were not participating those kind of opportunities previously. We started focusing those businesses, as you can see from the (inaudible) data center businesses. Now we are focusing in that market also to go forward.

Okay. And so was that something that was anticipated on the last call, because I don't remember that you were talking about anything of that magnitude for the quarter, in terms of looking for the future?

These opportunities -- we've mentioned about the state data centers, and winning the state data centers for the few quarters.

Okay. So in terms of the margins, if your blended rate previously for gross margins was about 38% for your different businesses --

Right.

It looks like probably this large contract was closer to the low 20's?

Yes. I don't have exact number (inaudible).

I'm sure you'll appreciate transaction-specific margins would be not really appropriate to discuss because they have -- about our customer relationships, but I can share with you that this particular transaction did help us in terms of the gross margin.

It helped you in terms of the gross margin?

Yes.

I don't see how that's possible because your gross margin was down 500 basis points year over year.

Okay. Okay. In comparison with the previous quarter year on year, it was reduced. I was referring to the immediately-preceding quarter. You are right. Compared to the previous year first quarter, there's a reduction in the gross margin. You are right (inaudible). Because there's a large transaction which is a project execution -- project execution -- which skews the denominator. It skews the denominator. The gross margin percentage per se tends to come down on a comparable basis.

Well, it looks like the gross margin was also about 38% in the March quarter --

Yes.

And I'm getting 32.8% in the June quarter. So it looks like, sequentially, your margins were also down about 500 basis points.

Yes. When you do a single large project which skews the denominator, that particular large transaction would specifically not contribute similar gross margin as your recurring services, and consequently, would not be reflected in the [overall] gross margin. But sans this transaction -- excluding this transaction -- the gross margins continue to be in the same range as in the past.

Well, I guess my question is if this is the kind of the business that you anticipate -- you want to see more of this business in the future -- this is what you're gearing up for, then overall, you're gearing up for business that's coming in at -- just eyeballing it -- maybe 25% gross margins versus 38% for the rest of your business previously? I -- you reported a substantial revenue growth, but the revenue hasn't helped that much with profitability relative to what you might expect, and that's because the business is at a much lower gross margin. And if that's what you can hope to continue to see, then as you grow, we need to be modeling for much lower gross margin really than I think you'd ever seen before.

Let me explain you at the high level, is we cannot avoid these kind of businesses. You can say what other gross margin it is. One, these are the opportunities help to expand our network. So once you build a network for this kind of projects, (inaudible) you can help this kind of transactions to a data center solution. It's going to be (inaudible) -- you're right. These kinds of projects are very competitive and the gross margins will be less, but how this (inaudible) helps because that helps to increase the overall network and amortize our corporation costs -- being a demand for whatever it is -- and the way we are driving is we are -- we would not participate in this market and that will limit our expansion (inaudible) the business because that cost -- if I do it for only for the normal business work we are doing -- that's becoming higher. So we are using these kinds of projects as an expansion strategy, and so that's what we are planning to continue. Yes, you're right, and if we are -- as we are expanding with this kind of market, the overall -- immediately, the overall -- the gross margins will be lower, but this is the strategy we are using to expand our business.

Okay. Can you give us an update on the amount of money from the private placement that took place that has actually come in? I believe last quarter it was about $22 million out of the $86 million that was due.

You're right. As of last quarter it was $22 million, and the next tranche of $22 million is expected in this quarter.

In the September quarter.

You are right.

And the money is coming in along with your CapEx spending expectations. Is that right?

You are right. You are right.

And so $22 million in the September quarter will get you up to 50% of the total, and should we expect another 25% the following quarter and 25% in the March quarter?

It is early for me to comment on that. We will take adequate (inaudible) on this once we freeze our capital expenditure plans and keep the market informed appropriately.

Okay. I have just a larger question about the private placement. You issued 125 million shares at a price of $0.69 a share, and the stock currently is trading in the mid-$4 range. You put up $22 million for stock that's worth well over $500 million right now. I'm just wondering why the Board chose to do a deal where you didn't need the money immediately for CapEx expenditure. You didn't need the money immediately for operating expenses. But you basically were able to sign a deal where the management team got what looks today like a very sweet deal that maybe is not in the interest of the rest of the shareholders, given that if you wanted to sell stock today, you could do it at 7 times the price that you paid just last summer.

Yes. I would refer the information on this to be accessed from what we already made public at the time of issuance of the shares, and some of these are (inaudible) which can be made in hindsight. And at that point of time, these have been done as per the assessment of the requirements over a period of time, and also, the approval of the shareholders at that point of time.

But the shareholders -- the management team had majority control of the stock at that point, right? So the shareholders were essentially the management team voting on a deal that, even when the shareholders approved the deal, the price was $0.69 and the stock was trading, I think, at $2.40 or something like that.

I don't recall. I don't recall that price.

Thank you. Our next question is from Madhu Kodali with Yaksha Capital. Please state your question.

Hi. Actually, my questions have been answered. The only question I have is this $10.8 million bill that you were trying to answer -- what exactly is that? Is it services? Is it equipment? Would you elaborate a little bit on the nature of the --

It has both pieces. It has equipment and it has deployment of the equipment and also the services on top of the equipment. This (inaudible) everything what Sify does (inaudible) customer. So this is not anything out of the order different from other services work we do.

Could you break down as to how much equipment, how much --

I don't think -- we cannot break it because this involves multiple pieces into it kind of thing.

Okay. And I think you said this is non-recurring, right? Non-recurring revenue -- more like a one-time deal at this point?

Yes. It's the deployment. Right.

Okay. Alright. Thank you. That's it for me.

Thank you. Our next question is coming from the line of Charles Rasmussen with (inaudible) Capital. Please state your question.

Yes. Hi, guys. Thanks for taking my questions. Some hard questions already so congratulations for bearing it out and putting up great results. Maybe just turning to the -- let's clarify the gross margin question because I think -- I don't know if it was you, Vijay, but you said it was a positive impact gross margin. I think the previous caller actually had his numbers wrong. He said your gross margins were down 5% quarter on quarter. They were actually down 9% quarter on quarter. And it looks like revenues -- and correct me if I'm wrong, Vijay. Revenues were up about $12.5 million sequentially while cost of goods sold were up $11.6 million, and all of the revenue change happened in Enterprise. So presumably all of the change in cost of goods sold also happened in Enterprise. That's only a 7.6% contribution margin on your incremental revenue. So is that the right way -- was this just pass-through? Were you just buying equipment or taking on expenses for the government and then passing it through and recognizing revenue?

Two points on this. One is if you look at the gross margin, we need to also look at it in terms of the absolute amount and not merely as a percentage.

But it was only -- $900,000 is the absolute amount (inaudible) revenue.

Yes. In absolute amount, there's an increase. Second is, as far as this kind of telecom deals are concerned, they basically involve both deployment (inaudible) services, and some of these actually create subsequent revenue-generating potential. And these are things which are won on competitive bids. And given the focus which we have (inaudible) over the last one year in the government vertical, we are likely to win a few large government deals like this, and it is difficult to predict the pattern of how the government deals will come and when they will (inaudible). So when they (inaudible), they typically give two streams. One is immediate revenue stream and subsequent monetization opportunity, as Raju was mentioning -- where you can monetize through your other services. So for this particular partner, this transaction tends to give a lower gross margin as a percentage, but we need to look at it holistically in the context of the company's overall business strategy.

Got it. That makes -- that actually -- that makes a lot of sense.

And thank you for that -- I appreciate the question.

Yes. That's a very good answer. Only one other one. Can you maybe just walk through -- I'm not familiar with the Ministry of Commerce in India, but there appear to be differences between your past 20-F and what was filed with the Ministry of Commerce in India. Is that just accounting differences between the two different regions?

Yes. About your question, what we file with Ministry of Company Affairs in India is stand-alone financial statements. What we file 20-F is consolidated financial statements. In India, since we are an unlisted company, there is no requirement of filing consolidated financial statements. So what the financial statements are filed in India are not comparable with the financial statements which are filed as part of 20-F.

Great. Great. And we'll see the balance sheet and cash flows in the 20-F, I presume. Can you maybe give us a little color on what operating cash flow was in the quarter? I know EBITDA you reported was $2.8 million -- was cash flow. Was that a good proxy for cash flow in Q4? And for the year -- last year -- and I know we'll see this in the 20-F, but you did $6.14 million in EBITDA. Is it fair to assume that's a good proxy for operating cash flow as well, or will operating cash flow be negative?

Yes. You are right. You hit it spot on. The operating cash flow for this quarter is improved, and it is about [$88] million, which is partly due to the revenue coming through in the last transaction which (inaudible) done it and the payments which are scheduled to happen over a period of time. But still, as you mentioned, it is a positive operating cash flow.

It was positive in fiscal 2011. Cash flow was positive?

Fiscal year 2010-11?

Fiscal year '11, yes. Okay. So it was positive in fiscal '11 and we'll see that in the 20-F. Thank you very much for taking my questions.

Thank you. Pleasure interacting with you.

Our next question is from the line of [H. K.] Gupta with [MDR] Capital. Please state your question.

Hello, guys. I was wondering if you provided guidance for the long term in terms of both revenues as well as margins -- gross as well as EBITDA.

So let me tell you the thing. I cannot comment on numbers. The strategy we are taking, we are taking to build the company for the long term, because as in India and emerging countries, these things are quite -- still not mature, and we are looking at IT penetration in India is substantially increasing. So we are focused for expansion of our network. Like I think we have pointed out, 600+ cities we are -- our network is present. We are continuously growing the network expansion. So when you're expanding that kind of network, you're not going to get revenue immediately. You may go to a city with a few customers and then they're -- to break-even point (inaudible) the number of the customers, the number of bandwidth requirement. But we have to take those kinds of risks to go to these kind -- to expand our network. That is the only way we can go (inaudible) the competition. Similarly, the data centers. The uses of the data centers is continuously growing, and are building the data centers. Today we have 6 data centers are we are continuously planning to build the data centers. But when you build these data centers, you cannot build it (inaudible) build substantial (inaudible). So that's requires CapEx up front. Similarly, third one, and the software applications and (inaudible), and that is also growing uses of (inaudible) services and applications usage -- the open software (inaudible) for a few quarters. And this is (inaudible) growing. In order to build these kind of things, we need to hire skillful people and train so that the investments we are doing up front, and our bet is these things will take to the next level and continuously growing. And when you look at these kind of things we have to invest up front, that means there is a substantial amount we are putting into the CapEx and a certain amount of the manpower were are hiring. That is putting pressures -- immediate (inaudible). We are building this company for the long term with the view India is going to grow as IT -- as India is growing as an [economy] -- the IT usage is increasing. That is the bottom line.

So if you exclude the growth of CapEx that you have to put in, what is the operating model -- incomes and margins?

The operating model -- it basically -- I think operationally, we will --Vijay, you can get -- use the numbers if you want to answer this.

Yes. As far as the operating margin is concerned, the businesses are broadly two. One is infrastructure-driven, which is network and data centers. Second is the services portfolio, which includes managed services, remote infrastructure management and application development. The operating model is, as far as the infrastructure is concerned, you create the capacity on ground and it gets populated over a period of time, so there is that gap between creating the facility and monetizing it. And as far as the people-driven business is concerned, it is basically consolidating and creating the skill sets, where again you see some amount of lag between creating the skill sets required for delivery of the managed services and monetization. But once this (inaudible) and you're able to achieve (inaudible) capacity utilization of good infra and demand (inaudible) of about 70%+, we should start seeing positive results. And we believe that, as Raju was mentioning, that it is an emerging market and the IT spends are on the increase. I don't want to sound forward-looking, but these are some things which are known to all of us. In India, the IT spends are on the increase, both government and non-government. We believe that we are positioning (inaudible) rightly for the monetization of these opportunities when both government and the enterprise starts spending money.

So do you have rough margins in mind in terms of like when you're kind of starting to --

Yes. As far as the margins are concerned, our (inaudible) is to improve on both the operating margins and -- both the gross margin and the operating margins. The gross margins -- we are being consistent, except for situations like what we had in this quarter where you win a large deal. And as far as operating margins is concerned, they will definitely improve as we start monetizing all this investments which we are making.

Let me address this point -- one thing. Here, people have to understand this is an emerging market. When you're an emerging market, the opportunities will not come with guaranteed gross margins. The opportunities will come and the competition is high. So Sify, in our position in India, we want to grow. We are not looking just to -- we are not going to grow for each -- bit by bit or each opportunity by opportunity, just at the gross margins. Like I know the production (inaudible) and the product companies manage the gross margins. But here, we are in an expanding stage and we cannot lose an opportunity, and we are not going to lose any opportunity to expand our network and our data centers. That way, we are taking the test. And as -- we have to (inaudible) volume to make it maturity and calculating the gross margin. At this point, we are continuously in expansion growth -- both network, IT services and managed services. That is where we are building the company and betting on -- as a group.

And in terms of revenue growth, do you have any guidance for the full fiscal year? Fiscal '11?

We don't do any forward, but we are looking forward -- continuously grow this opportunity.

Alright. Thank you.

Thank you. Our next question is from Janet Ramkissoon with Quadra Capital. Please state your question.

Hi, guys. Hi, Raju.

Hi, Janet.

Long time, no talk.

Yes.

Just first a comment and suggestion. Given what has happened in the last couple weeks with your stock is really not good, that if you send -- try to send an e-mail to your investor relations or corporate contact that it gets bounced back. I've tried to get a message to you, Raju, for the last couple weeks and to no avail. You -- in a situation where you have misleading information being perpetrated out there and someone doesn't know how to get to the truth, they should be able to reach somebody in the company, and that is just completely unacceptable.

I'm really sorry, Janet. We -- I don't know -- we'll correct that, and I think we -- one other thing is, Janet, we publish the data and other documents are in the SEC and all those things we did, and we will look into it why we did not -- bounce back and those kind of things.

Raju, you know me very well --

I know, Janet.

And you know -- and I've gone through the SEC documents and I still have lots of questions.

Yes.

And so -- and then when I can't get answers and the stock is going down, I'm just saying to you in a very nice way that it's just not acceptable. The second thing is that there seem to be a lot of controversy about this issue of the share count and when are you supposed to be getting this money -- these different investment tranches and what is it doing to the capital. I sympathize with one of the previous questioners about the share count and why would you accept such a large dilution. And knowing you very well, I have to say that that's a question that resonates in my mind. And I think that perhaps you might want to consider putting out some kind of a fact sheet or something that will be better explain in black and white what is it you guys are doing, what is it you're trying to accomplish, and maybe that will go a long way to easing investor concerns.

Okay, Janet. So we will consult our legal counsel and we will follow up with that, okay?

When you have people who follow your company closely and they can't figure out the gross margins by several percentage points, that really does not sound good. Now the one thing that I'm trying to understand is that, given your previous relationships with some of the largest service providers from the hardware side and from your previous life, is there any way that you've been able to use those relationships to help build the enterprise business?

Janet, I'm -- you know me for a long time, and we are working and our team is working hard to take every relationship possible to grow, and we want to build a good company. So -- and we will do -- I'm very confident that we will do that.

Thank you and I -- investor relations has my contact information. I would really like to get in touch with you, Raju.

No problem, Janet. I'll get in touch with you.

Thanks.

Thank you. Our next question is from Alex Delgaro with Asian Century Quest. Please state your question.

Hi. I have three quick questions that are related regarding some of the detail on the balance sheet. Could you please let us know what the change in debt level was in the quarter and if you're still in the bank overdraft position?

The change in (inaudible). I'll just give you the data. Can I take the other two questions, Alex?

Yes. Sure. So the second question was are you still in the bank overdraft position.

Okay. The overdraft position is about $3 million.

Got it. And maybe while you're getting the debt level figure --

Pardon?

Yes?

Pardon? I didn't get you.

Yes. Sorry. So just while you're -- you said you're still calculating the debt level figure.

Yes. I'll let you know. Just let you know.

Okay. And so then the third question was I just wanted --

(Inaudible). The reduction in debt is around $3 million -- the quarter.

And so what is the current balance? You've repaid $3 million and the current balance is --

Yes. And the term debt which we are carrying on our books is about $6 million, which is debt, which is a long-term debt will get repaid as per the terms of the debt.

Okay. And then just lastly, can you help me reconcile the change in the cash flow. So you received $22 million from the share issuance and you generated positive cash flow, but the balance seems to have only increased from $6 million to $15 million, so only by $9 million?

Yes. We have -- as I just mentioned to you, there's a repayment of debt and there's an investment in (inaudible). There's a capital expenditure which we have incurred and that capital expenditure has been funded out of capital.

Okay. Thanks.

Thank you. There are no further questions at this time. I'd like to turn the call back to management for closing comments.

Thank you, everyone, for joining us on the call, and we look forward to interacting with you all through the financial year. And thank you again. Good-bye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.