LTMNSEQ3 FY'23January 20, 2023

LTM Limited

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Management on call

Debashis Chatterjee

Chief Executive Officer and

Nachiket Deshpande

Chief Operating Officer and Mr. Vinit Teredesai - Chief Financial Officer.

Key numbers — 40 extracted

rs,

nce of the combined entity LTIMindtree unless stated otherwise. For the convenience of our investors, our Q3 FY'23 fact sheet has an addendum that presents comparable quarterly performance of LTIMindt

1 billion

report that the combined entity has started out with a quarterly revenue run rate of more than US$1 billion. For the quarter, our revenues came in at a Healthy US$1.05 billion, up 16.3% Y-o-Y in constant c

1.05 billion

revenue run rate of more than US$1 billion. For the quarter, our revenues came in at a Healthy US$1.05 billion, up 16.3% Y-o-Y in constant currency. We are pleased with our top quartile growth performance de

16.3%

of more than US$1 billion. For the quarter, our revenues came in at a Healthy US$1.05 billion, up 16.3% Y-o-Y in constant currency. We are pleased with our top quartile growth performance despite it bei

13.9%

th momentum to accelerate in Q4 as the impact of furloughs eases. We delivered an EBIT margin of 13.9%. As expected, our Q3 profitability has seen a one-off impact of merger-related integration cost t

100 basis point

our Q3 profitability has seen a one-off impact of merger-related integration cost to the tune of 100 basis points. With the bulk of the integration cost behind us and in view of the growth tailwinds ahead, our

1.25 billion

eturn to our normalized profitability in Q4. We are pleased to report a robust order inflow of US$1.25 billion. Although LTIMindtree began operations only in the middle of the quarter, we are encouraged by e

22%

, let me now turn to our Businesses: Our Banking, Financial Services and Insurance business surged 22% Y-o-Y. We are pleased to share that Banking and Financial Services portion alone is at an annual

100 million

ultiple product lines and countries. Notably, the revenue from Insurance platforms has hit the US$100 million annual revenue run rate. Our Hi-Tech, Media and Entertainment business grew 9% Y-o-Y. The strong

the US$100 million annual revenue run rate. Our Hi-Tech, Media and Entertainment business grew 9% Y-o-Y. The strong growth momentum that we witnessed in the Hi-Tech vertical earlier in the year,

8.8%

modernization, leveraging cloud for OTT streaming. Our Manufacturing and Resources business grew 8.8% Y-o-Y. The growth in Manufacturing was the result of an improved outsourcing pipeline and good de

10.7%

modernization. Our Retail, CPG and Travel, Transportation and Hospitality business grew 10.7% Y-o-Y. Within Retail and CPG, clients are being cautious because of high inflation. Even so, they

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Guidance — 20 items

Debashis Chatterjee

opening

“We expect our sequential growth momentum to accelerate in Q4 as the impact of furloughs eases.”

Debashis Chatterjee

opening

“We expect the momentum to continue in this business except for the real estate portion of the portfolio that could experience headwinds due to the increase in interest rates.”

Debashis Chatterjee

opening

“The strong performance of the Health and Life Sciences business which grew 23.6% Y-o-Y was partially offset by the project-specific softness in our Public Services portfolio.”

Debashis Chatterjee

opening

“As clients are still finalizing their IT budgets for next year, we will have greater clarity on the exact spends only later during the fourth quarter.”

Debashis Chatterjee

“So, given all these things, we knew that there will be some impact because of furloughs.”

Sudheer Guntupalli

“So, basically a lot of this will be regained in the subsequent quarter if it is just a furlough/working days kind of an impact, is that understanding correct?”

Sudheer Guntupalli

“So, if you can speak about how broad base the coverage would be, and what percentage of senior employees would be covered, and how they would be taken care of given that naturally when the corporate actions happen, it is natural for everyone to expect some sweeteners or retainer benefits?”

Vinit Teredesai

“So, there will be a little bit of an additional uptick in the next three quarters.”

Sudheer Guntupalli

“Even if you expect there is some incremental ESOP related costs, you still believe that we'll be able to reach back to our earlier profitability levels by the next couple of quarters?”

Vibhor Singhal

“So, as you mentioned around 100 basis points was the integration impact, which of course, you and DC called out is going to be non-recurring one and we'll see that reversal in next quarter.”

Risks & concerns — 15 flagged

We expect our sequential growth momentum to accelerate in Q4 as the impact of furloughs eases.

— Debashis Chatterjee

As expected, our Q3 profitability has seen a one-off impact of merger-related integration cost to the tune of 100 basis points.

— Debashis Chatterjee

While marketing technology and operations, cloud, risk and compliance and M&A integration drove sustained demand, we are seeing cost optimization, customer experience transformation and regulatory or efficiency- focused initiatives emerge as the key areas of focus.

— Debashis Chatterjee

Within Retail and CPG, clients are being cautious because of high inflation.

— Debashis Chatterjee

The impact of furloughs and fewer working days was 130 basis points.

— Vinit Teredesai

And increased employee and operational costs resulted in an impact of 130 basis points.

— Vinit Teredesai

Notwithstanding any near-term impact of budget changes on short notice, we still remain upbeat about the longer-term demand for our end-to-end offerings.

— Debashis Chatterjee

See, as far as the margins are concerned and as far as the integration is concerned, we have been very upfront that we will see some one-time impact of integration.

— Debashis Chatterjee

You know that Q3 is a seasonally weak quarter, and we tend to have furloughs during this quarter, and also the number of working days are little less.

— Debashis Chatterjee

There is a once in a quarter seasonal impact of as the freshers come into the mainstream, some impact of their annual increment comes into the play.

— Vinit Teredesai

On the furloughs due to the fewer working days, impact of 130 basis points, that of course should take care of itself and the growth comes in the other quarter.

— Vibhor Singhal

Just on the increase in costs, if I can delve on that once again, so, the impact of this 130 basis points, if I understand correctly, you are trying to say that basically as a percentage of revenue that has kind of gone up.

— Vibhor Singhal

So, the impact of that gets scattered over a period of full year.

— Vinit Teredesai

That's right, that 100 basis points includes the impact of the INR 50 crores.

— Vinit Teredesai

And because of the macro issue, is there any client specific issues are we witnessing in our top 10 or top 20 accounts as a whole because we have lot many clients within the Hi-Tech as a vertical and lot many has announced the cost takeout plans, layoffs as a whole, so is there any budget pressure in some of our top clients as a whole?

— Sandeep Shah

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Q&A — 13 exchanges

DC, a couple of questions. Looks like the weakness in both revenue and margin was largely led by the erstwhile top Hi-Tech account. Is this entirely furlough-led or any part of this was driven by certain, client-specific spending bottlenecks, or maybe our internal sales or delivery bandwidth issue given that we are also going through integration and naturally there would be some distractions during the quarter?

Debashis Chatterjee

So, let me give you some high-level comments and then I let Vinit and my other colleagues comment. See, as far as the margins are concerned and as far as the integration is concerned, we have been very upfront that we will see some one-time impact of integration. And what you see in terms of the drop in margin, and as Vinit articulated, 100 basis points is due to the one-time integration cost, majority of that we have already baked into Q3. You know that Q3 is a seasonally weak quarter, and we tend to have furloughs during this quarter, and also the number of working days are little less. So,

So, DC, a couple of questions from my side; one for you and one for Vinit probably after that. So, we've seen very good growth in the BFS segment and also the verticals basically in terms of a strong growth in the Retail and transport vertical as you mentioned. Just wanted to pick your brains, specifically in these two segments, I think base is they would not have been too much of a client overlap, be it Retail or travel or Hi-Tech. The little client overlap that we've had, how is that process going on in terms of overall aligning the sales team and all? And to that extent, how are we equipped

Debashis Chatterjee

Thank you, Vibhor. If I understand your question correctly, if you are talking about the overlap of clients across the two erstwhile entities, they're just a handful. And I think that was one of the exciting part of this integration, because we can cross-sell and up-sell to a host of 700-plus clients where only one of the organizations was present earlier. So, one of the things that we ensure that none of these clients see any change on the ground in terms of the teams that they have been working with, and we took care of those aspects and all those designs are complete as we speak. So, I don'

So, just a follow up on the previous one. So, I was not sure if we were following the same practice earlier because this time for the first time we had this 130 basis points increment coming up in the third quarter. So, while estimating ahead, should we assume that this will keep recurring every third quarter or will you sort of revert back to one wage hike cycle during the year?

Vinit Teredesai

You also need to understand, Mohit, that both the companies had a different intake cycle of the freshers. So, now what you're seeing is basically combined effects; some will come in Q3, some will come in Q4. But with the growth, I don't think so this impact is a cause of worry, this will get easily absorbed. Our freshers intake and fresher absorption into the mainstream is very, very strong. And that's where we believe that once we are into the normal period in FY'24, we will be able to leverage this and gain momentum on our margins. So, the next hike we should factor in is approximately Q2 or

So, the first question that I had was with respect to the normalized profitability levels. So, DC, we mentioned that we hope to return to these levels in FY'24 starting from next two, three quarters. But just wanted to understand what are those levels now, I mean, LTI used to operate at 14% to 15% PAT levels and Mindtree at 20%-plus EBITDA, so, in a combined entity, how should we look at that?

Vinit Teredesai

We are not giving any guidance. What we are saying is that we will return back to those industry- leading profitable growth, that's our aspiration, and that's what we are confident on. As you know that the levers are pretty much the common, we will try to leverage more on getting us much more, I would say, going to the customers getting little bit of a price increase benefit for the niche skills, keeping our utilization in check, keeping our headcount given that the base has now become pretty strong, and also right now out of the general macroeconomic caution, we will not go and do excess hiri

I wanted to take your thoughts on the cost deals. We have heard from you, also from your peers, that there are a lot of focus on cost optimization deals. Could you talk about how in terms of tenure and other deal dynamics, what do you see ? Are they large tenure or any other characteristics that you would want to call out?

Debashis Chatterjee

Let me give you some color and then I will request Sudhir to add. See, Ruchi, what happens is typically when the clients are looking at cost takeouts, it has to be a multiyear transformation deal because you typically cannot do the cost takeout unless it is 4-5 years tenure, so that is something which we are seeing right now in the market place, but the more important thing that we need to understand is that the last two years, the clients have started so many transformation initiatives within their organizations. It is very important for them to continue with the transformation initiatives an

Gentlemen, congratulations on the merger, I have two questions, one, DC, do you think that with merged entity having sized closed to 100,000 people, are you able to now target larger deals and starting to set up a large deal team to go after perhaps even deals as big as US$500 million?

Debashis Chatterjee

Yes, so deals team. We already have large deals team across both the erstwhile entities. We have just ensured that we have a common leader across those two and bring all the capabilities together and one of the rationale of this merger was that we should be able to pursue larger deals and when we talk about cost takeouts that is when the large deals get created and I am hoping that we should be able to talk about more of this in the coming weeks and quarters. And second is, as a combined entity, do you think that in absolute because the employee base is now much bigger, will we top out utiliza

DC, just wanted to understand because the expectation from the management side as well as investor side is the merger will lead to one plus one being greater than 2, so how are we measuring this KPIs in terms of large deal traction where average size of deals above US$50- 100 million, are you witnessing that despite we are very new in terms of post the merger announcement, the pipeline in terms of number of deals above US$50 million, US$100 million, cross selling, up selling has started firing or it will take slightly longer time and one can expect this to happen more in FY 24 rather than seco

Debashis Chatterjee

Well, that is a great question, Sandeep. I think one plus one more than 2 is not just only for deals, it is across the organization. If there is any internal message that has gone to the organization, everybody, whoever is doing whatever in their spear of life they should think of how can they do things better and that is what we mean by one plus one more than two, so across the board, across all activities and across all aspects of the business, but to your specific question on deals, we talked about the order inflow and also the pipeline which we have not talked about. We have a very healthy

DC, my first question is on the order book that you have reported, I am presuming it is for the entire wins, just not make it to large deals, so if you can give some perspective for this US$1.25 billion number, how does it compares in a Y-o-Y or Q-o-Q basis, so we can understand how does it paid or we can interpret correctly, that is the first question?

Debashis Chatterjee

Let me request Sudhir Chaturvedi to answer that. So, Pankaj, this US$1.25 billion is the overall order inflow in this quarter, so that is the way to look at it and it is in the first quarter that we have adopted this measure and disclosing it, so this will be tracked from this quarter onwards going forward and if you were to look at comparison, I think you compare it with quarterly revenue, but look at it over a four quarter cycle at least, that will give you the overall trend. So, that is our advice on this new disclosure that we are making from this quarter onwards. My second question Vinit

Just on continuing on the margin point, I am a bit not clear about the employee related cost which you explained, is it something different which we are doing for freshers compared to the earlier practice which both companies used to have about giving annual increment because I think that might be the usual practice where we might be giving annual increment at the end of first year, if you can clarify that thing?

Debashis Chatterjee

No, this is not something new, this is something which we have been doing it consistently in the past as we mentioned that in the past 2 years we were in a very high growth trajectory, the impact of furloughs, etc., was not as high as what we have seen in this particular quarter. That is why you are feeling it that this time that the cost as a percentage has gone up because of the severe impact of the furloughs, but this is not something new, this has been done in the past. The only difference is both the companies had different cycles of intake of pressures. That is why in the past independen

impact in this quarter in Hi-Tech is not related to the largest account of erstwhile Mindtree, is that correct?

Vinit Teredesai

That is right. So, how come basically that the impact given the dominance of that client in the overall vertical revenue, I am just surprised that why did the margins of Hi-Tech segment then declined so much on sequential basis? It is on account on furloughs that you have seen in some other accounts in the Hi-Tech part of it. That is the reason for the decline. The second question I had is, Vinit again on profitability, you mentioned that 130 basis points impact is due to compensation increase that possibly at the level, is that reading right and do freshers got that much of a hit on profitabi

Just wanted to check in terms of our cash generation, our cash generation seems to be muted at around 48% OCF-to-EBITDA or 36% FCF-to-PAT and this was similar last quarter as well, so what essentially is driving that and when do we see that come back to our normalized levels?

Vinit Teredesai

So, Ashwin, as you know that our merger happened in the middle of the quarter and we initiated, the novation agreements etc., with the customers just being sort of probably very difficult, it is probably not the best quarter in terms of getting those contractual changes done in a very quicker way because most of the customers go on vacation post the 15th of December, so we had only 30 days honestly to push for and get few of these things done. This delay in some of these novation, etc., is resulting in delay in doing the invoicing as well as delay in collection of some of the past dues because

Just couple of clarification, first on from Sudhir Chaturvedi, while we understand like this is the first time you guys are giving that combined order inflow number, but can you just help us qualitatively how we should kind of look at this because earlier obviously both these companies used to adopt different ways of sharing that information while we are seeing fairly strong growth in terms of the deal inflow across your peer group, can you share some sense in terms of how you are seeing order inflow versus how can it used to be earlier?

Sudhir Chaturvedi

So, Mukul, just let me reiterate this is the difference better order inflow and order book, so this is not a book, this is the inflow within the quarter. So, the deal wins within the quarter totally added up is what we are reporting to you on an order inflow basis. I would say, reiterate what I said earlier, please compare it vis-à-vis our revenue run rate, so if you see it is approximately 20% above our revenue run rate for the quarter. That is the metric you should keep in mind and then track it over four quarter period use this as the base, but we will continue to provide this data to you a

Thank you everyone for joining the call and support. You may now disconnect your lines. -------------------------------------------------------------------------------------------------------------------------------------------------- (This document has been edited for readability purposes) Contact Information

Investor Relations

Nitin Mohta, Head of Investor Relations Email: Nitin.Mohta@ltimindtree.com

Speaking time

Vinit Teredesai

Debashis Chatterjee

Moderator

Mohit Jain

Kawaljeet Saluja

Sudhir Chaturvedi

Sudheer Guntupalli

Sulabh Govila

Sandeep Shah

Vibhor Singhal

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Opening remarks

Nitin Mohta

Ladies and gentlemen, good day and welcome to the LTIMindtree Q3 FY'23 Earnings Conference Call. Please note that this conference call is being recorded. Today, on the call, we have with us Mr. Debashis Chatterjee - Chief Executive Officer and Managing Director; Mr. Sudhir Chaturvedi President, Markets; Mr. Nachiket Deshpande - Chief Operating Officer and Mr. Vinit Teredesai - Chief Financial Officer. We will begin with a Brief Overview of the Company's Q3 FY'23 Performance, after which we will open the floor for Q&A. Please note that the numbers presented in an earnings release and fact sheet and reference in today's call pertain to the performance of the combined entity LTIMindtree unless stated otherwise. For the convenience of our investors, our Q3 FY'23 fact sheet has an addendum that presents comparable quarterly performance of LTIMindtree for the past seven quarters, starting Q1 FY'22. During the call, we could make forward-looking statements. These statements are considering th

Debashis Chatterjee

Thank you, Nitin. Good evening, and good morning to everyone on the call. It is an honor to be part of this historic moment as we report our first ever earnings as LTIMindtree. We are proud to have entered the Elite League of Top Tier IT Services Companies by merging LTI and Mindtree in a record time. What makes the feat even more remarkable is that we achieved it without taking our eyes off the business. This is validated by our strong growth in our very first quarter as a merged entity. It signifies the perfect launchpad to capitalize on a broader range of opportunities created by the growing appetite for digital transformation across every sector. I am pleased to report that the combined entity has started out with a quarterly revenue run rate of more than US$1 billion. For the quarter, our revenues came in at a Healthy US$1.05 billion, up 16.3% Y-o-Y in constant currency. We are pleased with our top quartile growth performance despite it being a seasonally soft quarter due to furlo

Vinit Teredesai

Thank you, DC. Good evening and good morning to everyone on the call. It is great to be with all of you for our first quarterly earnings as LTIMindtree. We celebrated the historic inception of LTIMindtree through a green gesture by planting one lakh saplings, one for each member of the LTIMindtree family across six states in India. Let me now take you through the Financial Highlights for Q3 FY'23: We are happy to start our combined reporting with a strong quarter on the top quartile performance. Our revenue stood at US$1.05 billion, up 14% on Y-o-Y basis. The corresponding constant currency growth was 16.3%. EBIT margins came in at 13.9% as compared to 17.5% in the previous quarter. The impact of furloughs and fewer working days was 130 basis points. Integration-related costs amounted to 100 basis points. And increased employee and operational costs resulted in an impact of 130 basis points. Net FOREX gain for the quarter was US$5.9 million, compared to US$2.5 million in the previous q

Debashis Chatterjee

Thank you, Vinit. As you are aware, LTIMindtree came into existence effective November 14, 2022. Since then, both organizations are fully aligned under the new jointly evolved organization structure and vision. Thanks to our extensive chain management experience, all vital aspects of the integration, including ongoing client projects, knowledge transfer and talent realignment are progressing as planned. We are ready with a roadmap to realize the revenue and cost synergies presented by the merger. It encompasses a wide spectrum ranging from further diversification of offerings, cross-selling, up-selling, and cross-pollination of learnings and capabilities to gain wallet share across our expanded portfolios to pyramid optimization, working capital efficiencies, inorganic growth and operating leverage resulting from scale. It is evident that we are embarking on our journey as LTIMindtree from a position of strength. Our end-to-end services portfolio, comprehensive capabilities, strong sal

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