Patni's Q2 2006 Revenues up 32%

yroll taxes based on the final liability provision for 2001 & 2002 and reassessment of liability for 2003 & 2004 - leading to reversal of an additional provision of approx. US$ 9.0 million. -- Accrual of approx. US$2.0 million for Department of Labor review for 2004 and 2005 for our US operations.  On a corresponding quarter basis, cost of revenues was up 24.7%.  Depreciation on direct assets  In Q2 2006, depreciation on direct assets was higher by 7.0% sequentially at US$ 3.2 million (Rs. 146.3 million) from US$ 2.98 million (Rs. 132.64 million) in Q1 2006. On a corresponding quarter basis, it was higher by 40.2%.  Gross profit  Gross profit was at US$ 53.69 million (Rs. 2,462.65 million) compared to US$ 46.09 million (Rs. 2,050.08 million) in the previous sequential quarter. Compared to the corresponding quarter last year, gross profit was higher by 43.8%. Gross profit for the quarter was higher by approx. US$ 7.0 million due to net reversal of additional provisions. Gross profit adjusted for additional provisions is at US$ 46.6 million.  SG&A expenses  Sales and marketing expenses were higher by 9.9% at US$ 11.02 million (Rs. 505.68 million), compared to US$ 10.03 million (Rs. 446.25 million) in the previous sequential quarter. Current quarter expenses bore the impact of salary revisions and payment of additional sales incentives.  G&A expenses were higher on a sequential basis by 7.4% at US$ 17.10 million (Rs. 784.44 million) compared to US$ 15.92 million (Rs. 708.22 million). Apart from the salary revisions, Patni successfully managed its other indirect expenses to limit the increase in G&A expenses during Q2 2006.  Excluding the impact of salary revisions, SG&A expenses for Q2 2006 reduced by approx. US$ 0.8 million compared to Q1 2006.  On a corresponding quarter basis, sales and marketing expenses were higher by 27.2% while G&A expenses increased by 42.1%.  Depreciation on SG&A assets  In Q2 2006, depreciation on Patni's SG&A assets was at US$ 1.28 million (Rs. 58.92 million), lower by 5.5% compared to the previous sequential quarter and lower by 9.0% from the corresponding quarter last year.  Provision for doubtful debts  In Q2 2006, there was a provision for doubtful debts amounting to US$ 0.16 million (Rs. 7.39 million) compared to the provision for doubtful debts of US$ 0.13 million (Rs. 5.95 million) in Q1 2006.  Foreign exchange gain/loss  During Q2 2006, Patni recorded a foreign exchange gain of US$ 0.10 million (Rs. 4.50 million) as against a loss of US$ 0.99 million (Rs 44.20 million) reported in Q1 2006. Patni had recorded a foreign exchange gain of US$ 0.15 million (Rs. 6.72 million) in Q2 2005.  Operating income  In Q2 2006, operating income was at US$ 24.21 million (Rs. 1,110.72 million) compared to US$ 17.65 million (Rs. 784.97 million) in the previous sequential quarter. Operating income was up 59.0% compared to the corresponding quarter last year. Operating income was higher by approx. US$ 7.0 million due to the net reversal of provision adjusted in the cost of revenues. Operating income adjusted for additional provisions is at US$ 17.1 million during Q2 2006.  Other income  Other income (including interest and dividend income, net of interest expenses, profit/loss on sale of investments and other income) was at US$ 4.1 million (Rs. 186.85 million) in Q2 2006 compared to US$ 1.23 million (Rs. 54.85 million) in Q1 2006. On a corresponding quarter basis, other income was higher by 191.5%.  Other income in the quarter under review includes the benefit of approx. US$ 0.1 million from the write-back of interest and related expense provisions for prior years. This relates to the reversal of employment-related/payroll taxes recorded in the cost of revenues.  Profit before tax  Patni's income before income taxes in Q2 2006 was at US$ 28.29 million (Rs. 1,297.57 million) compared to US$ 18.88 million (Rs. 839.82 million) in Q1 2006. On a corresponding basis the income before income taxes in Q2 2006 was higher by 70.1%. PBT has gone up by $7.2 million on account of net reversal of additional provisions.  Income taxes  In Q2 2006, Patni provided US$ 31.49 million (Rs. 1,444.53 million) for income taxes compared to US$ 4.44 million (Rs. 197.34 million) in Q1 2006. This included US$ 27.1 million pertaining to re-assessed corporate taxes for earlier years.  Net income  Net income in Q2 2006 was lower at (-) US$ 3.21 million (Rs. 146.96 million) compared to US$ 14.44 million (Rs. 642.48 million) in Q1 2006. Net income in Q2 2006 was lower by 122.4% compared to the corresponding quarter last year.  Net income in Q2 2006 adjusted for additional provisions is at US$ 16.7 million.  Balance Sheet / Cash Flow perspective  The days' sales outstanding (DSO) levels were at 64 days in Q2 2006 compared to 56 days in Q1 2006.  At the close of Q2 2006, cash and cash equivalents (including short term investments) were at US$ 271.06 million (Rs. 12,433.30 million) compared to US$ 284.20 million (Rs. 12,641.07 million) at the close of Q1 2006 and US$ 151.06 million (Rs. 6,572.58 million) at the close of Q2 2005. During the quarter under review, US$ 12.66 million was used towards capital expenditure.  Revenue analysis  Top clients  During Q2 2006, Patni's top client GE contributed 14.5% of revenues compared to 16.5% in Q1 2006. GE revenues during Q2 2006 were sequentially lower by 3.1% compared to Q1 2006. On a corresponding quarter basis, GE revenues were lower by 16.9% as starting Q4 2005 Patni has re-classified its revenues from Genworth, previously a GE Group company, as non-GE business following its sale by GE. Revenues from the top 10 clients (excluding GE) were higher by 12.0% during Q2 2006 compared to the immediately preceding quarter. On a corresponding quarter basis revenues from top 10 clients (excluding GE) expanded by 38.7%.  Revenues from clients outside the top 10 showed a rise of 13.4% compared to Q1 2006 and increased by 52.9% compared to Q2 2005.  Active / million-dollar relationships  The number of million-dollar relationships increased to 64 at the end of Q2 2006 from 61 at the close of Q1 2006 and 50 at the close of Q2 2005.  Client acquisition data  During Q2 2006, 23 new clients were added compared to 20 in Q1 2006 and 19 in Q2 2005. These additions took the number of Patni's active relationships up to 220 at the end of Q2 2006.  Vertical focus During the quarter under review, Patni witnessed growth along all major vertical/technology segments. Revenues from telecom, manufacturing, and the ISV practices expanded by 16.7%, 16.0%, and 12.6% respectively compared to Q1 2006. The sequential expansion in Financial Services, Product Engineering and Insurance was 8.3%, 7.2% and 6.1% respectively  On a corresponding quarter basis, Patni's telecom and product engineering technology practice were the outstanding performers, expanding by 76.6% and 86.9% respectively.  Geographical contribution  Patni's US-based revenues were sequentially higher by 7.5% during Q2 2006. Business in other regions expanded significantly - Europe grew 21.3%, Asia Pacific (ex-Japan) by 115.3% and Rest of the World by 59.4%. Non-US contribution to overall revenues was 19.0% in Q2 2006 compared to 17.0% in Q1 2006 and 14.7% in Q2 2005. Accordingly, U.S. contribution to revenues now stands at 81.0% compared to 85.3% a year back.  Fixed price / T&M contracts  In Q2 2006, revenues from fixed price contracts contributed 36.0% to overall revenues as compared to 37.3% in Q1 2006 and 39.0% in Q2 2005. T&M project revenues expanded by 12.5% on a sequential basis and 38.0% on a corresponding basis, and their contribution to overall revenues has steadily increased.  About Patni:  Patni Computer Systems Limited (NYSE: PTI, BSE: PATNI COMPUT, NSE: PATNI) is a leading Indian provider of information technology services. Patni offers its services through industry-focused practices, including insurance, manufacturing, financial services, and telecommunications, and through technology-focused practices.  Patni's service lines include application development, application maintenance and support, packaged software implementation, infrastructure management services, product engineering services, business process outsourcing and quality assurance services.  For more information on Patni, please visit www.patni.com.