would like for us to own data center services in context of the markets that we operate in. This is really a further validation about our extremely high focus and seriousness in the infrastructure services space.
We clearly believe that this is a service line where we can strongly differentiate ourselves and where we compete (inaudible) with respect to the global (inaudible).
It also taking along with that a very rare mainframe skill set and most important and you need to have all three. You need to have the asset light model that we have acquired, you need to have the mainframe skill set and you need to have an experienced management team to manage all of that. We are getting all of the three in one (inaudible).
plans to literally double our operating margins, not double our operating margins, just about double our EBITDA margin.
But with the expanded growth rate that we are going to achieve, that we expect to achieve would be (inaudible) Wipro consolidation and the joint go to market strategy, we expect this to happen much faster on a much larger scale, and in fact, at an enhanced rate.
Abi Gami: What is the average duration of your backlog contracts? Does your two to three, your operating margin target indicate that you’ll go back for pricing increase or is there some sort of value upsell or is that target could be achievable as contracts roll off and new contracts come on?
Zach Lonstein: You know what we have I think it’s important and I think over time the analyst group will understand, our contracts really for the most part do not roll off. This is not project-oriented work. So this is—our contracts not only last, you know, on the average, four years, but typically renew. So, we have clients that are with us ten years. We sign a client and it’s a $200,000 or $300,000 a month and it can be a ten year stream of revenue. That’s the part of the business that we see, recurring aspect of our business that I personally find so appealing.
So, it’s not really a roll off situation at all and in addition, we do expect to significantly cross sell additional services. We are already engaged in that program selling managed services WinTel type UNIX or whatever services to our mainframe clients and mainframe services to our server clients and we were achieving a lot of success.
I’ll give you a quick example. We have an international oil company as a client. We started out seven or eight years ago as simply a mainframe client and they are still now a mainframe client, but in addition has given us over 600 servers to manage, 450 of them are in our data center, 150 of them are in the client’s facilities.
So that’s a typical growth strategy for us. And, again, now we would like to sell application development services, support services, and all the other kinds of services that (inaudible) Wipro. And we are behind the gates with this client so to speak. We don’t have to break down the door to get to them, we speak to these clients every single day. So the access is unparalleled.
Abi Gami: That’s great. I appreciate that. One last quick follow-up on that then, is have you been assigning subcontractors for the other work historically or it that business that just never flowed for you at all?
Zach Lonstein: In some cases we had relationships and right now, for example, we are going to market with Wipro on a very large opportunity and that’s no
uncommon for us, but very often these requests from clients, either we just simply recommended somebody or they went unanswered.
Abi Gami: Thank you very much.
Operator: Thank you. Your next question is coming from Mark (inaudible) of Piper Jaffray.
Mark: Zach, I think earlier you mentioned in your capacity utilization is approximately 50% and I’m curious, is there a certain amount of excess capacity that’s “normal” to meet your service level objectives with your clients?
Zach Lonstein: You know historically in the industry everyone says that you really can’t get to 100% capacity, and, you know, 90% maybe is the maximum capacity. And two things about that. One is the footprint of equipment gets continuously smaller, so actually the capacity in a strange way the size of the data center is increased.
But the limiting factor really and from a capacity point of view for the most part, yeah the corollary to that is so we are able to put more equipment in less space, but the electrical demand increases significantly. And that’s been—it started to become really the gating factor in terms of data center expansion in the US.
And we - our data centers especially two of them are superbly designed to allow for incremental expansion with minimal incremental cap ex. And so we have significant capability for the foreseeable future. I mean, we’re talking about no matter how fast we grow, we are a couple of years away from any capacity issues, more than a couple.
Mark: And Zach, just as a follow-up. What was your utilization say two to three years ago?
Zach Lonstein: Well, you know, you really—in a sense, we’re an unknown company. We grew the company to a great extent by acquisition, so if you look back two to three years ago, we had a couple of acquisitions less and each time we made an acquisition for the most part, we acquired, last acquisition we acquired two data centers. And so we were at 50% capacity two years ago with three data centers and now we’re at 50% capacity with five data centers
Mark: Okay. Thank you for the color.
Operator: Thank you. Your next question is coming from Anthony Miller of (inaudible) Research.
Anthony Miller: Yes I have a couple of follow-up questions if I might. First thing, I was just a bit unclear about the organizational structure of the deal if the deal goes through because I think he said that IFOX will run as some sort of separate
subsidiary. So, I guess my first question is, you know, who will actually own Wipro’s infrastructure management services post the acquisition or will there, in fact, be two infrastructure management services groups and how will that work in terms of go to market?
Suresh Vaswani: Okay. This is Suresh Vaswani here. So number one in terms of structure of the business—it will become a business unit service line as a part of the Wipro’s organization structure. So that is the first point. Second point, is the business. Infocrossing has an ongoing business, has good potential for growth, right, and has limited terms of addressing the market today.
So that we absolutely will make sure that it continues to do so and the focus remains in terms of let’s say traditional Infocrossing business. The third—the second point is the enormous possibility of cross leveraging between let’s say our traditional infrastructure services line and the Infocrossing business.
So we will have a go to market mechanism of our selling Infocrossing services in (inaudible) of the (inaudible) accounts of Wipro selling their services, which would include application services into potential Infocrossing accounts. And like I said at the beginning of the call in total outsourcing type of contracts which need data center capability and a lot of the total outsourcing contracts do need that, we would go jointly between the existing infrastructure services plate and the Infocrossing plate into the market place.
So, you know, this sort of addresses the whole rationale of our acquisition in terms of the enormous leveraging capability that is there between the two organizations. You can have a follow-up question in case I’ve been too wordy on this.
Anthony Miller: I must admit I’m not convinced because it really does sound like then Wipro is going to have two infrastructure management businesses and I don’t really understand why you’re not lashing the two together pretty much from day one with a single leader and just get that out of the way so that you can go to market as Wipro rather than Wipro and Infocrossing or whatever branded combination you might be looking at.
Suresh Vaswani: Okay. So, therefore, let me just sort of step in here. I am Suresh Vaswani. I would be the integrated leader as I am across most of the infrastructure services. I would be the integrated leader so to speak. The reason why we would keep this as a distinctive offering is because there is a run rate that Infocrossing has, there is a consumer base Infocrossing has, and there is a growth strategy that Infocrossing on a standalone basis has that we absolutely want to make sure that we sustain.
And then—so it’s a plus. Keeping it distinctive is really a plus to make sure that we don’t disrupt the existing business and we continue the
momentum on the existing business but also divide the synergies as a part of the (inaudible) owner of the two organizations. So we believe that is the best strategy in terms of making sure that we get a multiplier growth.
Anthony Miller: Okay. And could you also just elaborate a little bit on what you do see as the cross selling opportunities of Wipro’s other IT services to IFOX accounts? I don’t know whether it was alluded to before, but if you look at the broad sort of panoply of IFOX’ client base are there also other systems integrators in there either US or for that matter Indian or is it virgin territory for Wipro now?
Suresh Vaswani: The way I would answer that is there is a set of Infocrossing accounts, there is a set of Wipro accounts and (inaudible) between the Wipro accounts and the Infocrossing accounts, and, therefore, that gives us—gives both Infocrossing and Wipro tremendous possibilities in terms of leverage. So if there is a large Infocrossing account with a strong (inaudible) base, it becomes a logical play for us to offer more infrastructure services (inaudible), to offer more application services. And we—Wipro (inaudible) addresses a large client base where we have, you know, fairly deep (inaudible) attraction and they’re looking for more and more services from us including data center services. So it becomes a potential for Wipro to take Infocrossing into that base.
Zach Lonstein: And you know the opposite side of that is that the Infocrossing accounts we provide managed services, but only up to the operating system, not into the application itself. Yet, many of our clients now would like us to provide services both from an application development, an application maintenance point of view and we do not have that capability to any significant (inaudible). And so we will now be able to offer those services to our existing client base and in some opportunities that we come across, we are in fact closed out because we do not offer those services. So we will be able to offer those services going forward.
Sudip Nandy: Anthony, this is Sudip Nandy. In response to your previous question, there is a single offering that goes with the infrastructure services from Wipro. For the fledgling mainframe services that Wipro has will be much into the mainframe services that Infocrossing brings along. The hosting and the data center capability Wipro does not have would be the primary offering that Infocrossing appears to have. The remote infrastructure management for the (inaudible) and all of that will be for services that (inaudible) business, so they (inaudible) marketed area there’s no overlap. And the go to markets for (inaudible) account is very (inaudible). But it is (inaudible) all common clients, there is commonality, there is also a distinct customer set (inaudible) the term collective outsourcing before, which (inaudible) to be different for Infocrossing.
Anthony Miller: All right, guys. Thanks very much. (Inaudible) I’ll probably suggest this (inaudible) we can at some point produce a couple of extra charts, which just kind of shows how this will all work together it will be very helpful for (inaudible) investment.
Operator: Thank you. Once again if you do have a question, you may press star and then the number one on your telephone keypad at this time.
Zach Lonstein: Operator?
Operator: We have no one else in queue, sir.
Zach Lonstein: Okay. Very good. Hopefully—thank you all for joining us and we look forward to talking to you again in the future. Thank you for your very insightful questions and have a good day.
Operator: Thank you. This concludes today’s teleconference. You may now disconnect.
Additional Information
The tender offer described in this transcript has not yet commenced, and this transcript is neither an offer to purchase nor a solicitation of an offer to sell Infocrossing, Inc.’s (“Infocrossing”) common stock. Investors and security holders are urged to read both the tender offer statement and the solicitation/recommendation statement regarding the tender offer described in this press release when they become available because they will contain important information. The tender offer statement will be filed by Wipro Limited (“Wipro”) with the Securities and Exchange Commission (“SEC”), and the solicitation/recommendation statement will be filed by Infocrossing with the SEC. Investors and security holders may obtain a free copy of these statements (when available) and other documents filed by Infocrossing or Wipro with the SEC at the website maintained by the SEC at www.sec.gov. The tender offer statement and related materials, solicitation/recommendation statement, and such other documents may be obtained for free by directing such requests to Infocrossing, Inc., Investor Relations, 2 Christie Heights Street, Leonia, New Jersey 07605, (201) 840-4700.
