Newgen Software Technologies Ltd Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Aditi Patil - ICIC Securities - Analyst : Congratulations on good set of numbers. So at the start of the year, you had mentioned that order book is growing faster than revenue at around 30%-plus growth. Can you provide some color for the order book? And also, can you provide some color for the order book? Can you provide some color on the order book growth momentum currently? And based on this order book growth, do you expect the 25%-plus growth in revenue to continue in the near term, like for next two to three quarters? Unidentified Company Representative Good evening and thank you, Aditi. Aditi is right. In the next two to three quarters, the order book has significantly grown and that's also on account of larger deal sizes we are doing with the customers. And some of these order books are typically one year or multi-year as well. So right now, I think for the first nine months, our order book growth has been roughly around 20% for nine months period. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2024 / 10:30AM, NEWG.NS - Q3 2024 Newgen Software Technologies Ltd Earnings Call However, the order book, which we have already accumulated over the last four quarters, there is a significant part of that yet to be executed over the next two to three quarters. We do see generally our growth will be more determined from our deal velocity and in terms of new deals which will be in the market. And out there, we are convinced that our, as the market is right now looking, both India and Middle East, and also the markets where we are trying hard, like US and all are showing good traction. And we find that the growth momentum can continue. Exactly what the numbers will be, as I told last time also that our Q3, Q4 are significant quarters. We have seen a higher growth rate in the Q3 quarter which has given us more confidence to have a strong Q4. But we'll have to wait for exactly what the numbers are.

Question: Aditi Patil - ICIC Securities - Analyst : Okay, got it. And the growth in subscription revenue, is it largely driven by growth in US geography, or in other geographies also, you are able to get subscription-based deals? Unidentified Company Representative I think US predominantly has the largest, but other geographies are where we are adding the new logos and new customers out there in subscription. So right now, the growth is determined as an outcome of total company's revenue across all geos.

Question: Aditi Patil - ICIC Securities - Analyst : Okay, got it. And one last question on the Gen AI-based new product which you have launched. So what is the interest among clients for this product? And are you able to price higher for the NewgenONE Marvin? Unidentified Company Representative So basically what's happening globally, all products are looking at leveraging AI to drive use cases and drive functionality. And with the kind of innovation and the interest market has seen in generative AI over the last, it's a natural expectation from all product categories to leverage that. So our Marvin is an extension for the same in terms of we are looking at how we can enhance the local capabilities of our product, how we can enhance the content management capabilities of the product. So these are horizontal capabilities that is our product, which will just make our product better and more competitive in the market. Some of these components are priced separately the customers buy, but most of these capabilities get bundled as part of the enhancement of the product in that. So we are not looking at Marvin on its own to drive revenue schemes, but we are looking at the essential capabilities to augment our product and make it more competitive for both mature markets as well as our [existing] customers.

Question: Aditi Patil - ICIC Securities - Analyst : Okay. Got it. Thank you. Unidentified Company Representative Thank you.

Question: Baidik Sarkar - Unifi Capital Pvt Ltd. - Analyst : [Jaspal], hi. Good evening and congrats on a very short term. So, [Varun], clearly we are in the midst of a new technology refresh cycle. How do you reckon we understand where exactly we are in the cycle, right? Are we significantly early days or do you reckon that we are closer to a more mature phase, because this refresh cycle perhaps started right after COVID? How do you reckon we imagine that, firstly? And secondly, how should we deconstruct the growth in your vanity business between newer logo editions versus ramp up in existing logos that have already won, say, over the last few quarters? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2024 / 10:30AM, NEWG.NS - Q3 2024 Newgen Software Technologies Ltd Earnings Call Unidentified Company Representative Thanks, Sarkar. And so, you see, on the tech cycles, I think every few years I think we have some major enhancements happening in tech cycles globally and they are determined from various factors. Right now, I think you will see more coming from what's happening in AI, how it's influencing. But also previously, whether it was around cloud service platforms or mobility. Generally, it's part of the product companies to be slightly ahead of the tech cycle because when your customers are buying products, they are buying it for typically a long, long-time usage and they don't want to buy something which is not more contemporary and is not going to keep them slightly behind their tech or technology innovation curve. So, it's a structured process in any serious product company to stay slightly ahead of tech cycle and then invest right in time so that you are not left behind or your products won't become obsolete. So, I think we are quite comfortable. And what we think with AI, the way as well as generative AI, the way they are leading changes in some of the way the customers are going to consume the system or how the new use cases are going to be delivered. That's why a lot of investment, the number theory acquisition was part of that plan. Our generative AI launch is part of that plan. And more and more use cases are coming. So, we think we are quite comfortable and, in fact, we'll be leading in some of these areas with our customer base.

Question: Baidik Sarkar - Unifi Capital Pvt Ltd. - Analyst : Yeah, yeah. I mean, it does. If I could just squeeze one last question, which is, you know, it's getting to be financial year, right? We noticed H1 versus H2, the absolute seasonality kind of contracted this year, FY24, which means H1 to that extent has a bigger base to be defended the next year. Do you think this is a base we can defend comfortably as we step into the next fiscal? Or would you caution saying that given how low the gestation periods are, it's something that you -- I mean, it's something that is really not in the bag at this time today. Unidentified Company Representative See, one of the issues of anytime you grow faster, you've got a next quarter challenge of growing even faster than that. That becomes the dynamics of business. But having said that, in our business, there is some amount of annuity getting generated, which gets some compounding effect, whether it's through annuity revenues or through compounding ATSs. And generally, the relationships, once you start, they are long-term, so they keep on continuing. So, somehow, we are always comfortable going into next year as the base of the business has increased substantially. Having said that, we strongly depend on our ability to go and sell again, which is the reason, you know, in a post-COVID, we have really grown faster as the markets have opened up. So, we'll have to still go and execute our business plans next year. But we don't think the market has a constraint. We don't see right now the conditions in the market seem to be quite favorable, and our products and services are being received well. So, I don't see any reason. But, yes, there's a lot of hard work for growth, which we need to still do.

Question: Chirag Kachhadiya - Ashika Stock Broking Limited - Analyst : Hello. Congratulations on good set of numbers. So I have a couple of questions. So if you look at the net logo addition on year on year, it's showing a similar trend that what we have two years back also. So what's the strategy going forward to add the logo addition? Yeah, I understand your comment that in absolute terms, on per-logo basis, the business has expanded in value terms. But from a diversification perspective and reducing the concentration risk as we move forward, how are we going to add more and more logos? So, you know, customer client risk can get mitigated. And second, on annuity revenue growth perspective, what strategy is there to, you know, maintain this growth trajectory going forward? Unidentified Company Representative Thanks, Chirag. I think you're right. On net logo for over multiple years, our typical logos additions have been similar. And what we have said is that's part of function of how we are operating the business. We are pivoting away from smaller deals. We are pivoting away from typically the small banks which we're trying to win in US. And we're going for larger deals and subconscious effort. Having said that, our ambition is to bring logo rates even when rates higher than this. So, but that's a function when all markets perform equally. Right now for us, we can say out of four markets, three markets are performing, one is very slow right now because the major markets are not firing that level. So as other markets and we start diversifying slightly more into other verticals, we should be able to get better logo rates. So you are absolutely right on that, but our targets would still remain and probably take this logo rate to 60 logos a year or 65 or 70. Not really, really high. We don't have concentration risks. I think we are typically one of the most least concentration of revenue or concentration of segments in that. So typically we have got this kind of a revenue, INR1,000 crore revenue last year by roughly around 520 customers. So, and no customer contributes more than 2%, 3% of the revenue. So there is no concentration risk in our business. And these are -- and when we say logos, these are net new logos added in that year. So we have also all the other logos. So I don't think the concentration is raised. On the NOP front, as we clearly said, as part of our licensed business, some amount of compounding of annuity happens to HDS and AMC, but also some of the licensed deals are shifting to subscription-based deals, which are automatically adding to the annuity. We do hope that our annuity licenses will keep on growing faster than the company growth rate. I think this quarter is slightly an exception, but generally, if you look at historically, that has been the case. And we may be back in next quarter or next, next quarter, we may again come back on the same trend.

Question: Chirag Kachhadiya - Ashika Stock Broking Limited - Analyst : Okay, thanks, all the very best.

Question: Rahul Jain - Dolat Capital Market Private Ltd. - Analyst : Yeah, hi, thanks for the opportunity. I just have one question to Mr. Nigam's comment where he said, we are working on helping banks related to some public digital infrastructure side. So can you slightly elaborate more what exactly we are doing out here? Unidentified Company Representative So I think just to clarify what he said, a lot of public sector banks, they are working on their digital journeys in terms of when they're trying to digitalize their journeys to improve their quality of service, improve their speed of service and scale. That's what we are helping. And I explained that, like examples are like transforming lending end-to-end. A lot of work has happened and the government has invested in digital stack, India digital stack. How to leverage that and transform the digital journey for a lending or a business loan. That's what we are helping Indian banks in that. And that's where we have got a lot of traction from these banks. And we continue to do that. That's just a clarification of that.

Question: Saram Nair - RW Investment Advisor - Analyst : Hello, thank you for the opportunity, sir. I hope I'm audible. So the implementation segment has performed very strongly this quarter. And you had mentioned that large deals would be a driver for this. But apart from that, was there any lumpy project undertaken on the implementation side during the quarter like a one-off? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2024 / 10:30AM, NEWG.NS - Q3 2024 Newgen Software Technologies Ltd Earnings Call Unidentified Company Representative No. Saram, thank you for the question. Saram, no. So if you look at service revenues, can't have lumpiness because the nature of that later on the execution. And you can't just ramp up execution for a quarter. So they are more sustained and slightly long-term. There's no single client which is driving large numbers or values. So we added some large clients over the last one and a half year. And those have the implementation and execution of those is driving this. But those clients continue to be added and we continue to do business with them.

Question: Saram Nair - RW Investment Advisor - Analyst : Sure, sir. So do you see any inorganic opportunities in pipeline? Unidentified Company Representative Our strategy around our core products and our core verticals, we are staying on that. Any opportunities which can augment that journey, we are looking at some of them, but right now there is nothing exactly finalized or something.

Question: Saram Nair - RW Investment Advisor - Analyst : Okay. So could you put a number to the growth and margin expected in FY25? Any upward revision from the 25% growth? And on the margin side, do you see also reinvesting back into the business and maintaining the 19% net profit margin? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2024 / 10:30AM, NEWG.NS - Q3 2024 Newgen Software Technologies Ltd Earnings Call Unidentified Company Representative Yes, sir. On the margin, we have a kind of an understanding which we have built internally that in spite of investing for business, we should be able to keep on delivering those. But if we find opportunities to invest aggressively for growth, I think we can go. There's no commitment or a defined value. That's what we have said. This is a number we can easily reach. And then over a longer period, we can expand that. See, on the projection of what's going to happen next year, I think that's -- it's too early. We will not be able to comment on that. And I think a lot of things will depend on, in terms of our ability to execute our business plan. And right now we are very, very hopeful that we should have good years. There's no reason we can't continue this growth moment.