Note from the MD`s Desk

Note from the MD’s Desk
The results of the quarter are disappointing and require the management to introspect
on its actions and next steps. While I will comment further on steps we are taking I will
take the opportunity to highlight some encouraging developments.
We are well placed to win a significant three year opportunity with a large aerospace
major against well-established competition. Early in the current quarter, we received
confirmation we won another multiyear aerospace contract in North America, which
places us in a position to bid for work in other units of this leading conglomerate.
Revenues from these contracts will begin to filter into our stream over the next two
quarters. Our pipeline continues to be healthy and we have several opportunities in North
America and Japan in PLM software. While these are in early phases, the fact is that after
years of managing their PLM environments through enhancements and upgrades, the
automotive industry appears to be gearing up to revamp their environments to take
advantage of new capabilities and approaches. Another development is that our joint
venture company 3DPLM commenced operations of its joint venture company, 3D Global
Services (3DGS) which is charged with supporting the Dassault Systemes ecosystem by
providing high quality services around DS technologies. The Geometric group will be one
of its customers.
Moreover we continue to invest in the future in other ways. Two major actions are;
setting up an innovation business unit, whose role is to create solutions for our customers
leveraging our uniqueness viz. capability in Software, Embedded Systems and Mechanical
Engineering. We are also setting up a separate Sales Team to seek new customers who
can scale to become multi-million dollar accounts.
Returning to the past quarter’s results, we have identified three causes for the revenue
decline viz. adjustments to revenues to the tune of $1.5 M; Foreign exchange fluctuations
mainly due to euro weakness of approximately $1.45 M and delays in projects start as
well as other reasons $1 M. The adverse revenue situation which, had a direct impact on
margins was further affected by some unusual charges in G&A to the tune of ₹ 40 M. The
adjustments to Revenues were driven by the switch over to the new ERP system which
resulted in substantial increase in unbilled revenues. Management has, by way of
prudence, reversed 100% of unbilled revenues prior to 31.12.2014. The management has
put in place stringent measures to prevent recurrence of this effect through a set of
checks and balances.
We recognize that our EBITDA percentage is well below that of our peers. Hence we have
taken steps to streamline all three major cost centers viz. Operations, Sales and Marketing
as well as G&A. The impact of these actions will be felt in phases in the 2nd and 3rd quarter.
We have also eliminated the office of the COO. By the fourth quarter of FY 16, I expect
our efforts will improve our EBITDA margins, which should be in the low teens in the 4th
The changes we have instituted will not be restricted to operational activity. As already
disclosed, my contract has been extended. However, with a view to ensuring a smooth
transition we have commenced the process of CEO succession. The steps I have outlined
above taken together with recent wins and the developments in the marketplace make
me believe we are in for a better year, with a strong foundation for future growth.