NEWGENNSEQ1 FY2023July 20, 2022 Newgen Software Technologies Limited
8,624words
117turns
12analyst exchanges
5executives
Management on call
Aniket Pande
LEAD TECHNOLOGY ANALYST - ICICI SECURITIES
Diwakar Nigam
CHAIRMAN & MD – NEWGEN SOFTWARE TECHNOLOGIES LIMITED
Varadarajan
WHOLE TIME DIRECTOR - NEWGEN SOFTWARE TECHNOLOGIES LIMITED
Virender Jeet
CEO - NEWGEN SOFTWARE TECHNOLOGIES LIMITED
Arun Kumar Gupta
CFO – NEWGEN SOFTWARE TECHNOLOGIES LIMITED
Key numbers — 40 extracted
18%
us today for our Q1 results call. We are starting FY2023 on a strong note with revenue growing at 18% Y-o-Y. I would like to highlight once again that there is a seasonality in our business due to th
33%
at, we are now increasingly seeing a growth in Cloud Subscription side of business, which grew by 33%. The Cloud and Subscription revenues put together have now reached 38% of our total revenue. This
38%
business, which grew by 33%. The Cloud and Subscription revenues put together have now reached 38% of our total revenue. This shift is expected to lower the seasonality in the coming years and lea
Rs.131 Crore
rmly in revenues across the quarters. The annuity ~ newgen revenue for the quarter was Rs.131 Crores witnessing a growth of 25% Y-o-Y. The annuity revenues comprise now 70% of our total revenues in
25%
The annuity ~ newgen revenue for the quarter was Rs.131 Crores witnessing a growth of 25% Y-o-Y. The annuity revenues comprise now 70% of our total revenues in Q1. In terms of geographi
70%
the quarter was Rs.131 Crores witnessing a growth of 25% Y-o-Y. The annuity revenues comprise now 70% of our total revenues in Q1. In terms of geographic growth during the quarter was led by India an
Rs.19 Crore
r us given the non-linear revenue across the quarter. Our profit after tax for the quarter was at Rs.19 Crores. We are increasingly witnessing normalization of the cost base. Employee costs have increased on
11%
our global expansion, our product, in our people. During the year R&D expense comprising about 11% of the revenue and sales and marketing expenses comprise 25% of the revenue as usual. As an organ
Rs.73 Crore
ross initiatives to achieve the same. Our net cash generated from the operating activities was at Rs.73 Crores. Our net trade receivables were 226 Crores at the end of the June which resulted in net DSO of 1
226 Crore
cash generated from the operating activities was at Rs.73 Crores. Our net trade receivables were 226 Crores at the end of the June which resulted in net DSO of 102 days. To conclude, we believe we have
5 Crore
or last six quarters ending up to March we had a one-time PPP revenue which was generally between 5 Crores and 8 Crores on every quarter which was not sustainable and recoverable. The second part of th
8 Crore
rters ending up to March we had a one-time PPP revenue which was generally between 5 Crores and 8 Crores on every quarter which was not sustainable and recoverable. The second part of this issue is als
Guidance — 20 items
Deepti Mehra Chugh
opening
“Nigam for presentation of the results, which will be followed by the Q&A.”
“The next phase of our product journey will be led by Artificial Intelligence and Data Sciences led digital automation.”
“As an organization we remain committed to our medium-term margin targets and working across initiatives to achieve the same.”
“Q1 we have missed some orders which have slightly got delayed or deferred, but on a yearly basis we are still on track to do around number of 50 to 60 new logos and we are hopeful that, that is going to happen.”
“I think we are hoping that this year also will be doing better number than that, but it is not at the same speed.”
“We are still planning to hit our target of around 20% growth.”
“We have already integrated in certain lending solutions in our case and we have started taking them to market and we are very happy with the response, but over a period of a time we will be going and integrating this platform into all other aspects of our products and services and that is where we will see much more value.”
“But we are hoping the planned attritions for next quarter are showing a decline by around 5%, 6% but I think it is too early I think things are changing but the overall sense is that it may stabilize in next two quarters for sure.”
“And you maintain your margin guidance that you have given around 21%?”
“Yes, see I am saying the margin is a factor of our topline, our topline guidance is to keep meeting our 20% growth and in case of that we should be able to be close to our margin guidance.”
Risks & concerns — 12 flagged
At the same time we continue to offer the required flexibility to our employees, we have been investing in all spheres of talent acquisition, retention development and incentivization to mitigate the impact of elevated attrition cost across the industry.
— Diwakar Nigam
A couple of questions from my side; Firstly why is it that we are seeing a steady decline in new logo additions for the company over the past several quarters?
— Akshat Agarwal
So there is a decline, but the other bigger factor is we have realized that in U.S., some tier of accounts which we are pursuing as part of our direct go-to market strategy on banking.
— Virender Jeet
Of course during the COVID period those banks behaved very differently and we did not have a lot of banks winning, but the other bigger challenge we did not see long-term potential in some of that account base because they were too small to give us repeat businesses.
— Virender Jeet
The second part of the GSI as I told I think we have done a fuel work on the GSI ecosystem, now we have strategic partnership with multiple players, we have funnel going we are approaching that market but the challenge is our control on the deal has been very less out there in terms of closure cycles and we have seen sometimes the deal will take multi-years for us to close for the GSI because since really substantial.
— Virender Jeet
So there is a lot of activity happening and all these smaller accounts have started reopening for us, but you are right on the other front the larger accounts I think we are talking a lot about what is going to happen down the next three quarters this is a challenge and I do not know today we see any concerns but a lot of people see kind of an apprehension.
— Virender Jeet
Does it make it difficult to sell as and when you go there versus an Appian which has a local sales force selling the product to a local customer does that make a huge difference in conversion?
— Giri Shetty
But we are hoping the planned attritions for next quarter are showing a decline by around 5%, 6% but I think it is too early I think things are changing but the overall sense is that it may stabilize in next two quarters for sure.
— Virender Jeet
Second thing about the margin I know you said in the previous concall that the margins are going to decline, will it recover from here for the rest of the year and also want little bit detail on why the margins have been impacted?
— Saurabh Sadhwani
Yes sure, and just from the deal size I mean the 15 deals that you are looking in what is the average size of the deals that we should consider I mean I understand it is difficult to pinpoint a number but just from an understanding only?
— Mihir Manohar
is a big market for us and especially banking segment with that is what we are hearing and what is the view that we have in terms of any kind of slowdown from the strengths from some of these banks in the U.S.?
— VP Rajesh
It is very difficult to predict the future but if I look at how historical data we have been able to grow at 20% of growth with much lower cost of growth around 13% to 15% has been the cost base in those years.
— Virender Jeet
Q&A — 12 exchanges
Q
Good afternoon Sir and thank you for the opportunity. A couple of questions from my side; Firstly why is it that we are seeing a steady decline in new logo additions for the company over the past several quarters? It used to be about 20 new logos every quarter it is currently come down to 6 that is one. Secondly we were expecting a step up in growth in the U.S. markets particularly driven by our partnerships with GSI what is happening there and why is it that U.S. markets are not performing the way we expected them to perform? That is it from my side, thanks a lot.
Virender Jeet
First on the new logo front we have historically been able to generate around 50 to 60 logos a year and we have also moved away from some channel-based sales which we used to generate larger momentum of logos there were smaller ticket items. In last two, three years we have deliberately shifted from them and as we are progressing in the markets its getting more and more meaningful for us to get after slightly larger deals which fit in our profile of about 200k of annuity or more. This is one of the switches and one of the reasons in fact where we have also suffered in terms of moving away from
Q
Thank you for the opportunity. My question was largely on U.S. because that is one of the key regions for your larger strategy. So can you give more qualitative comment what is happening at a GSI front though you covered a bit on a previous question’s previous answer but can you give more quality because I think it is last one and half or two years you are making efforts towards U.S. and we are not seeing meaningful traction yet. So can you give more qualitative input how it is unfolding for you one from GSI monopoly and second your direct sales point of view?
Virender Jeet
I will try to further give you some color. See what has happened in U.S. as you are rightly saying we have two businesses one is our direct sale business which is typically going in to tier two, tier three banks in U.S. Out there we have a steady funnel of winning deals. Of course during the COVID period those banks behaved very differently and we did not have a lot of banks winning, but the other bigger challenge we did not see long-term potential in some of that account base because they were too small to give us repeat businesses. So the cost of sale our lifetime was not recoverable. So we
Q
Sir, thanks for the opportunity. My question was you mentioned about the six logos right, what is the average ticket size of the six logos acquired? That would be my first question.
Virender Jeet
I do not have the exact data but these are all larger logos for us. I think maybe around 400k, 500k would be an average ticket size, but the significant size we can provide you the data if you could mail us. Also Sir I wanted to know about your sales force so if I see a company like an Appian or a ServiceNow. So these if I see their sales and marketing expenses it is quite high it comes to around 40% to 45% whereas for us I believe it is in the range of 20%. So how does it compare in terms of sales and marketing capabilities as compared to these companies especially in the U.S.? You are absolu
Q
Thanks for the opportunity. I had two questions first is India business means is the business because of the first quarter of Indian financial year licenses getting renewed or the momentum will be sustained throughout the year what do you think it?
Virender Jeet
As I said I think more and more the jerkiness in our business the license is getting minimized so whatever business happens is now more sustainable in terms of the base of that business has gone up. If you look at our subscription or our annuity business now is almost going to reach around 40 million at the end of the year. So the base 70% is of our business is annuity business where you have complete control. So the base itself is changing and the jerkiness part is going away. So I am assuming that India growth what we have achieved in Q1 we should be able to maintain such numbers and grow on
Q
Thanks for giving the opportunity. Just I had a question I mean you mentioned that you are looking to close roughly 15 deals from GSI channel this particular year. I mean just wanted to understand how is the product adaptability moving, I, what gives us confidence that we are looking at this number versus close to six number of deals in this particular financial year so what gives you confidence for that number that was the first question and second question was understanding the operating leverage. I mean more revenue coming in from GSI how would the operating leverage and how would the margi
Virender Jeet
First of all the confidence comes from the funnel and the opportunities and cases which are already running in the field. We have roughly around 79 cases which are pursuing right now with GSIs in different areas and we are very hopeful that between Q2, Q3, Q4 even if we are closing three, four cases will reach that number. So that is one, so it is clearly coming from the funnel the confidence is coming from with that. Of course there is an uncertainty on closure and but still having said that specifying that uncertainty we still think that 15 deals are doable. On the operating leverage I think
Q
Thanks for the opportunity. I joined the call late so I am not sure if this question might be asked, but there is a lot of news about some of the large banks in the U.S. pulling back on their IP spends. So I was just curious in that context given U.S. is a big market for us and especially banking segment with that is what we are hearing and what is the view that we have in terms of any kind of slowdown from the strengths from some of these banks in the U.S.?
Virender Jeet
See Rajesh one thing we have seen in our solutions, have a need for growth as well as for cost optimization. So we have seen cases even in extreme cases of contraction or pull back of spends we have seen, our kind of solutions being deployed to optimize cost to optimize back ends to reduce manpower. We put their use cases to get created in all kind of economies. Having said that today my penetration in large banks U.S. is very minimal so actually we do not have too much of insight into the ecosystem what is happening in very, very large banks. We are still working on tier 2 and tier 3 banks an
Q
Firstly what kind of increase in the cost base, have been budgeted for this year?
Virender Jeet
So overall our costs may increase in around 18%, 19%. In the long-term like four, five years what kind of sustainable growth in the cost base should we expect will it be closer around 2% or will go back to like 15% which was historically there? The reason asking this question is because this year obviously we are coming off a low base from last year so the number could be higher but in the long run what would be the run rate for that? ~ newgen It is very difficult to predict the future but if I look at how historical data we have been able to grow at 20% of growth with much lower cost of growt
Q
Good evening Sir, my question is on the deal that we have signed with Coforge and Anabatic Digital can you give us some color in terms of what kind of client additions or the events you can expect from signing this thing with such GSI also have we got a foot in the door with one of the clients at Coforge or are we still ramping up can you add some color on that piece?
Virender Jeet
So with both Coforge and anabatic we have got early successes we have already have deals together and I think Anabatic is in Indonesia if I am right it is a very, very large local system integrator and have got huge penetration in the market and our deal and signing and raising the partnership level to a level where we are having joint go to market and plan is helping. Similarly in Coforge from a tactical deal we have also signed an agreement to pursue markets in Europe, U.S. and other areas and go after carriers and set up joint targets. These are business plans. I think they do not have righ
Q
One question was that how is your sales funnel looking now and vis-à-vis let us say three months or six months ago has it been consistently going up or are you seeing some kind of pullback in that?
Virender Jeet
See from last six months I think things have started opening up and becoming better on the sales activity front also on the result front in terms of we have started converting from more flattish quarters to more growth quarters. So we see all across especially in markets like India and Middle East are doing considerably well. U.S. we are trying to pivot and we are trying to change some amount of strategy of how we are going and other new markets like Australia will start getting the early wins. So overall we are seeing for us the market activity becoming better over the last six months. I see
Q
Thank you for the opportunity. Sir just one question that since you mentioned that you are keeping up with our growth target should one assume that with the couple of deals that have got has postponed are likely to get closed or would have got closed in the Q2 and our H1 deal wins would look considerably stronger than compared to last year?
Virender Jeet
I would not go as far as predicting that but I am saying is that with respect of the number of deal wins the way we are building business more on less jerky that means less license based or more subscription MMC we have a continuous growth momentum and even the deals which we have added in the last year Q4 and Q1 will start contributing revenue in Q2 of this year and we will surely add many more deals in Q2 but many more deals we add in Q2 will play a part but may not play a substantial part in revenue of that quarter. Absolutely Sir I understand the revenue is a function of the order book tha
Q
Thanks for the opportunity. I was not on the call throughout the time so I am sorry if I am asking this again but I think you also spoke about 15 new deals from GSIs that you were targeting this year firstly I wanted to check how many of them have happened in this quarter and what gives you the confidence that we will be able to do 15 this year that is part ~ newgen one and part two on GSIs would the concept of deals be more depending on how they actually subside in? For example we are trying to move away from license but would that be very similar through GSI server? Would they be also be loo
Virender Jeet
I think both the questions so I first I think on the deals expectation from GSI is completely based on funnel. We are already operating kind of a 79 case funnel with some of those cases are in advanced stages and some we will add also during the year and we are hopeful that we should be able to do better than what we did last year in terms of deals wins especially since we are opening few more markets like Australia, APAC, we have also deals that are coming from GSI so I am very hopeful looking at that funnel we should be able to do much better than what the current situation is. On the questi
Q
Thank you everyone for attending the call. For any queries you can connect with me or go to our website. Thank you.
Opening remarks
Aniket Pande
Thank you Peter. Good afternoon everyone and welcome to the Q1 FY2023 results of Newgen Software Limited. Connecting with me today from the management side is, Mr. Diwakar Nigam, Chairman and MD, Mr. Varadarajan, Whole Time Director, Mr. Virender Jeet, CEO, Mr. Arun Kumar Gupta, CFO, and Mrs. Deepti Mehra Chugh, Head, Investor Relations. I now hand over the call to Mrs. Deepti for further proceedings. Thank you and over to you Deepti!
Deepti Mehra Chugh
Thank you Aniket. Good afternoon everyone. I am Deepti Mehra, Investor Relations, Newgen Software, and I welcome you all to the Q1 FY2023 results of the company. Before we move on to the discussion, let me highlight that this call may contain certain forward-looking statements concerning Newgen’s future business prospects and profitability, which are subject to a number of risks and uncertainties and the actual results could materially vary from the forward-looking statements. Past performance may not be indicative of future performance. The company does not undertake to make any announcement in case any of these forward-looking statements become materially incorrect or update any forward-looking statements made from time-to-time by or on behalf of the company. For further details, you may please refer to the Investor Relations section of our website. I now hand over to Mr. Nigam for presentation of the results, which will be followed by the Q&A. Thank you.
Diwakar Nigam
Thank you, Deepti. Good afternoon everyone and thank you for joining us today for our Q1 results call. We are starting FY2023 on a strong note with revenue growing at 18% Y-o-Y. I would like to highlight once again that there is a seasonality in our business due to the license-based model historically. Q1 is a leaner quarter in comparison to the rest of the quarters thus we do not look at the sequential performances in the business. Having said that, we are now increasingly seeing a growth in Cloud Subscription side of business, which grew by 33%. The Cloud and Subscription revenues put together have now reached 38% of our total revenue. This shift is expected to lower the seasonality in the coming years and lead to more uniformly in revenues across the quarters. The annuity ~ newgen revenue for the quarter was Rs.131 Crores witnessing a growth of 25% Y-o-Y. The annuity revenues comprise now 70% of our total revenues in Q1. In terms of geographic growth during the quarter was led by In