Hexaware Technologies Ltd — Q4 FY26

Hexaware Technologies Ltd Q4 FY2025-26 Earnings Conference Call https://www.youtube.com/watch?v=Lr3V0iS4VEs Published: 6 days ago

0:01 1 second Ladies and gentlemen, good day. Welcome to Hexawware Technology Limited's conference call for the Q1 CY26 earnings 0:08 8 seconds call. We'll begin today's session with a presentation from the Hexawware management team, followed by a Q&A segment. To ask a question during Q&A, 0:17 17 seconds please use the raised hand feature located at the bottom of your Zoom interface. This will place you in the virtual queue. I'll now hand the 0:25 25 seconds conference over to Mr. Narrage Kempka, head of investor relations. Thank you. Over to you, Mr. Narj. 0:33 33 seconds Thank you, Sean. Hello everyone. Welcome to Exava Technologies CY 26 Q1 earnings call. In the call today, we have with us 0:41 41 seconds Mr. Ash Krishna, CEO and Mr. Vikage, CFO. In the course of this call, we will make certain statements which are forward-looking and may involve a number 0:49 49 seconds of risk and uncertainties. All forward-looking statements made herein are based on information presently available to the management and the 0:56 56 seconds company does not undertake to update any forward-looking statements that may be made in the course of this call. In this regard, there's a full disclosure which has been included in the investor 1:04 1 minute, 4 seconds presentation and the press release. We consider that as read with this I'll hand over the call to k over to you. 1:12 1 minute, 12 seconds Thank you d uh good morning or good evening everyone. Thank you for joining. 1:18 1 minute, 18 seconds Uh I want to start by continuing our conversation on AI and if you could actually move to slide four and then we were going to come back to slide three. 1:31 1 minute, 31 seconds So first let me say that at the end of Q2 results shortly after our Q2 results 1:40 1 minute, 40 seconds we will hold an AI day. We will do it in Chennai. So I'm hoping all of you will find time to get there. 1:48 1 minute, 48 seconds And in that we will walk you through our strategy in detail. But more importantly the reason for Chennai is that for each 1:56 1 minute, 56 seconds element of what we talk about we will present multiple proof points and platforms. 2:03 2 minutes, 3 seconds So that's uh shortly after we announce Q2 results and we will uh announce a day 2:09 2 minutes, 9 seconds soon for all of you. Now our objective 2:15 2 minutes, 15 seconds is to become a trusted partner for our customers AI journey in everything they 2:23 2 minutes, 23 seconds do and for that the first thing is that we have a comprehensive range of services anything and everything that a 2:31 2 minutes, 31 seconds customer will want to do and we think of that in three buckets AI for IT AI for 2:40 2 minutes, 40 seconds business and both Both of these are often enabled by a common foundational layer. Now we are undergoing a rapid 2:49 2 minutes, 49 seconds pivot and the pivot is in the services we deliver the talent our business model uh and how we charge uh for our services. 3:00 3 minutes Now we've identified across this page about a dozen areas of new revenue 3:08 3 minutes, 8 seconds opportunities for us and this is something we will detail out when we talk about this in the AI day in detail. 3:16 3 minutes, 16 seconds But let me give some examples now if you'll go to the next slide please. 3:22 3 minutes, 22 seconds on AI for IT. We have a very comprehensive set of services that both 3:30 3 minutes, 30 seconds address our current core and protecting and going our C core but also addresses 3:37 3 minutes, 37 seconds several new opportunity areas. Let me give a couple of client examples. 3:44 3 minutes, 44 seconds We renewed in a competitive bid a large ITO customer. 3:49 3 minutes, 49 seconds What our platform enabled us to do is to renew the contract at 4:04 4 minutes, 4 seconds that became larger. So we were able to address 50% more volume at about 10% more revenue. 4:13 4 minutes, 13 seconds We give an example on software engineering. This is an airline client for which they have their core systems 4:20 4 minutes, 20 seconds on legacy and in this case legacy is like 10 years old 15 years old legacy written on Java. 4:28 4 minutes, 28 seconds What we're doing is to strangulate the core out by keeping just the core but everything 4:37 4 minutes, 37 seconds else we are moving to agent tech and this improves the velocity of the 4:44 4 minutes, 44 seconds product. it you know reduces the cost and improves the maintainability substantially. 4:53 4 minutes, 53 seconds The two most exciting services we launched in this space in this quarter. 5:01 5 minutes, 1 second One and we spoke briefly about it last time was what we called a zero license offering which we of which we announced in Jan. 5:10 5 minutes, 10 seconds SAS is a $400 billion market. I think the last decade people have gone from 5:20 5 minutes, 20 seconds you know building custom software to building the same functionality on SAS. 5:26 5 minutes, 26 seconds I think you're going to see a significant reversal of that. We are the first and probably still the only IT 5:33 5 minutes, 33 seconds service provider to have a focused offering around getting customers to zero license and independence from SAS. 5:43 5 minutes, 43 seconds And this is not just a concept. It is based on a module we've built in Rapidex that allows us to do what most customers or most of our competition cannot. 5:55 5 minutes, 55 seconds The second most interesting service we launched is a new generation of our IT operations platform Tenzac 6:04 6 minutes, 4 seconds and what we built is reasoning ops capability in this. So this platform actually has three differences. 6:14 6 minutes, 14 seconds First historic uh automation in the IT space has focused on task level automation and you 6:22 6 minutes, 22 seconds keep automating tasks and there is a ceiling. What it did not do is edge cases, complex edge cases because that 6:30 6 minutes, 30 seconds requires reasoning. And so we've changed the fundamental approach, gone away from task level automation to complex 6:38 6 minutes, 38 seconds reasoning that looks at the whole of our customers IT. 6:44 6 minutes, 44 seconds The second difference is that we've done this with an SLM for enterprise IT and 6:53 6 minutes, 53 seconds we built a custom ontology model that enables us to onboard any clients onto a standard ontology model. 7:04 7 minutes, 4 seconds And finally, because it is an SLM, it captures a lot of the inferencing in the SLM rather than going to SLMs. 7:13 7 minutes, 13 seconds And it saves on token costs for customers, but it's also a new revenue and profit opportunity for us to capture 7:22 7 minutes, 22 seconds a part of the savings in token costs that customers would have otherwise spent. Go to the next slide, please. 7:32 7 minutes, 32 seconds Now while AI for IT is interesting, it is still smaller in aggregate. 7:38 7 minutes, 38 seconds Everything in AI for IT is still smaller in aggregate than AI for business. 7:44 7 minutes, 44 seconds You know, in the last few weeks, there are two of our clients in different industries that announced agentic AI platforms. 7:55 7 minutes, 55 seconds In both these cases, one more and one less, we have been involved in helping the customer launch this platform. In 8:04 8 minutes, 4 seconds both these cases, these platforms are meant to change fundamentally how our customers do business. 8:12 8 minutes, 12 seconds So, let me give a few examples from different industries. 8:19 8 minutes, 19 seconds Um for a client in pharma we are going to 8:26 8 minutes, 26 seconds redo their entire clinical data management systems with agenti. 8:31 8 minutes, 31 seconds Now apart from reducing cost of how they do this one of the outcomes will also be 8:38 8 minutes, 38 seconds a zero license because eventually the platform they use for clinical data which is a cop's third party platform will become irrelevant. 8:49 8 minutes, 49 seconds I give you an example in airlines for client. We brought the power of 8:55 8 minutes, 55 seconds multimodal AI and VR together to help engineers that are repairing complex aircraft parts. 9:06 9 minutes, 6 seconds Each airline spends about $5 million per aircraft per year. And this not only reduces the cost and time but also 9:14 9 minutes, 14 seconds substantially improves compliance while doing that. 9:19 9 minutes, 19 seconds Now 9:27 9 minutes, 27 seconds do is to show multiple examples for each of our strategies. 9:34 9 minutes, 34 seconds If you go back to slide three please. 9:43 9 minutes, 43 seconds In terms of a quarter, we had a better quarter than what we expected. I think the last time we spoke, we said we will 9:50 9 minutes, 50 seconds have a soft quarter. Um, you know, in general, we said it'll be a quarter with 9:56 9 minutes, 56 seconds contraction. There wasn't much. Um we had a decent quarter on revenue but we had a good quarter on profitability. Uh 10:06 10 minutes, 6 seconds if you recall we cut it for quite a bit lower. We said there'll be improvement in the outer quarters. That part is still true but we started off better 10:15 10 minutes, 15 seconds than where we expected we will be. As always our cash management is very 10:22 10 minutes, 22 seconds strong and we closed with a strong cash balance of 220 mil. 10:28 10 minutes, 28 seconds Our IT headcount continued to increase. 10:33 10 minutes, 33 seconds We continued to hire uh well we had a net headcount reduction that was on account of DPS and in IT we had a net 10:41 10 minutes, 41 seconds headcount addition which is actually 11th straight quarter of IT headcount addition. Our attrition remains amongst 10:48 10 minutes, 48 seconds the lowest in the industry and our utilization is rangebound. 10:54 10 minutes, 54 seconds Now we added two clients at a 10 million pyramid. So this is good growth because these are the clients that help us now get into higher layers of the pyramids. 11:04 11 minutes, 4 seconds We now at 34 clients that give us over $10 million. 11:12 11 minutes, 12 seconds If you go to slide seven please I want to talk about some of the wins. I think we had numerous wins at the highest level. 11:20 11 minutes, 20 seconds You know, I I spoke a bit about last quarter that one of the more fundamental changes we've made is to substantially improve our hunting 11:28 11 minutes, 28 seconds and we won an enormous number of deals in the quarter. So I I've put out eight kill. 11:38 11 minutes, 38 seconds Um first this is a and as always the deals are a mix of outsourcing consolidation and transformation deals. 11:49 11 minutes, 49 seconds So this is a large speaker manufacturer. 11:52 11 minutes, 52 seconds Um we have a full scale ITO um plus some BO and eventually more uh of both. Um 12:03 12 minutes, 3 seconds this will be delivered globally. Um this is a nice large deal that will start giving us growth from uh late Q2 and certainly to H2. 12:13 12 minutes, 13 seconds The biggest positive surprise for us in Q1 was a large global bank that went through a consolidation deal last year. 12:25 12 minutes, 25 seconds They had spoken about a phase two but we were not sure if that'll happen or not. 12:31 12 minutes, 31 seconds Not only did they proceed on phase two, we wound up on the winning side. Um, this is a very large bank with a very 12:39 12 minutes, 39 seconds large spend and they are aggressively consolidating. 12:43 12 minutes, 43 seconds Um, and we expect to see material increases in volume from that in the second half of the year. 12:52 12 minutes, 52 seconds A third one, again, a European bank consolidation deal. This is an existing client but there's a pool of work uh 12:59 12 minutes, 59 seconds outside of what we currently do which is one large program which they were consolidating down to two vendors and we are one of the two. 13:10 13 minutes, 10 seconds Um this is a global profit services firm not the one that we won in last year. 13:17 13 minutes, 17 seconds There's another one that initiated uh consolidation of a book of work uh within the quarter and we closed it 13:25 13 minutes, 25 seconds within the quarter. Uh we are now sole provider for a service for this cloud. 13:32 13 minutes, 32 seconds We will become the sole provider after we complete transition. 13:38 13 minutes, 38 seconds One of the really interesting deals is on AI for business. 13:44 13 minutes, 44 seconds This is a fab based manufacturer uh which is going through an significant boom due to air. 13:54 13 minutes, 54 seconds What instead of the client expanding and investing in more fabs, one of the efforts is how can you improve productivity 14:02 14 minutes, 2 seconds in each fab and how can you produce more SKUs per fab and they've instrumented their plants with any number of sensors, 14:11 14 minutes, 11 seconds but what we're doing is to help build custom models that will improve Fab performance. 14:20 14 minutes, 20 seconds Now, that's how it started. you know, we're also doing other normal IT work for them, but the key basis of why we 14:29 14 minutes, 29 seconds won is our capabilities in being able to build custom models. 14:35 14 minutes, 35 seconds Um, the large brand name workspace company uh for which there's an AMS deal 14:42 14 minutes, 42 seconds that we won on a 14:52 14 minutes, 52 seconds I also picked two examples from recent acquisitions. Uh the the next one here, 15:00 15 minutes a data center company and that in of itself is good because they're growing quite a bit. Uh as are all data center 15:07 15 minutes, 7 seconds companies. Um this came from our serviceol acquisition. We won a deal here on identity cyber security. And the 15:17 15 minutes, 17 seconds last one is a large asset manager for whom we will set up uh GCC. 15:26 15 minutes, 26 seconds With that over to you Picash. Thanks H. Let's move to the next slide. 15:36 15 minutes, 36 seconds So revenue for the quarter came in at 389 million. In absolute dollar terms, 15:43 15 minutes, 43 seconds revenue was largely flat driven by volume growth of close to $3 million and we had an impact associated with 15:51 15 minutes, 51 seconds calendar and furloss which we had called out which was a headwind of close to 3 million. Now calendar and furlow impacts 15:58 15 minutes, 58 seconds are seasonal and we expect this to reverse materially in Q2. That's what we had called out in the last earnings call 16:05 16 minutes, 5 seconds too. The volume growth of 3 million is also reflected in the net headcount additions that we did during the quarter 16:12 16 minutes, 12 seconds and also has a full quarter impact of the hires that we made in last quarter. 16:18 16 minutes, 18 seconds License revenue for the quarter was at 11 million flat sequentially and was tag below our historical quarterly average which is close to 13 million. 16:29 16 minutes, 29 seconds On margins, we have aligned our margin reporting to EBIT. EBIT excludes other income and forex impacts related to 16:36 16 minutes, 36 seconds hedging and translation which is consistent with the market practice. 16:41 16 minutes, 41 seconds Reported EBIT for the quarter was 13%age up 570 pips sequentially. Normalized for 16:48 16 minutes, 48 seconds one timers that we had last quarter EIT was flat sequentially. Now even though the EIT was flat sequentially there were few puts and takes. 16:59 16 minutes, 59 seconds uh we did get a bit of a tailwind from Forex of close to 90 bips. There were operational improvements associated with what we're driving in the business that 17:08 17 minutes, 8 seconds added close to another 50 bips. The 140 bips that we had from Forex and operational improvements were offset by 17:16 17 minutes, 16 seconds lower calendar of 90 pips. large deal ramp ups which we had spoken about the new deals that we are signing in the 17:23 17 minutes, 23 seconds initial phase are going to have a bit of a margin headwind and in the later part of the year will start improving and the 17:29 17 minutes, 29 seconds impact of labor code of 20 bits. The labor code impact is the continuing impact of the new wage code and it will be a recurring item every quarter. 17:40 17 minutes, 40 seconds There are no oneoffs any bit in the current quarter. I'd also like to uh make a specific call out during the 17:48 17 minutes, 48 seconds quarter there was an earnout reversal associated with SMC acquisition. The earnout payable towards the CY25 17:56 17 minutes, 56 seconds achievement was close to 23 million. Of the same the performance achievement actually is leading to payable of close 18:04 18 minutes, 4 seconds to 20 million. So a large part of what we thought that the asset that we are acquiring is expected to deliver is happening and close to $3 million was 18:13 18 minutes, 13 seconds reversed out. Now consistent with the accounting practice, the reversal is recorded in other income and does not impact the reported EBIT numbers. 18:23 18 minutes, 23 seconds Let's move to the next page. 18:28 18 minutes, 28 seconds Some color on the unit level performance. Starting this quarter, HTPS has been split into professional 18:34 18 minutes, 34 seconds services and TPP technology products and platforms. 18:41 18 minutes, 41 seconds And this this split was done to sharpen the strategic focus. TPP the business unit led by Rhabi while currently the 18:48 18 minutes, 48 seconds smallest vertical represents a meaningful growth opportunity for us. In the quarter, four of the seven verticals 18:56 18 minutes, 56 seconds delivered year-on-year growth led by banking, HNI and MNC. Sequential growth was primary driven by HNI and PS. Now, 19:06 19 minutes, 6 seconds sequential softness in select units is primarily a result of the seasonality and a little bit of GSC headwind. Each 19:15 19 minutes, 15 seconds is going to touch on that later during the presentation, but we did call out a bit of a headwind in the last quarter. So, it's an impact associated with it. 19:24 19 minutes, 24 seconds uh few units to be called out. HNI very strong sequential and yearon-year growth. It's driven by large rampups and the broad-based growth across Europe. 19:34 19 minutes, 34 seconds And that is reflected even in terms of the strong year-on-year growth you see from a Europe perspective. In our last 19:42 19 minutes, 42 seconds earnings, we had called out HNI to grow at a pace faster than the company and we see that play out from this quarter itself. 19:50 19 minutes, 50 seconds MNC uh was a drag in the because of the tariff and other macros in H1 of last year. We see that coming back to the 19:59 19 minutes, 59 seconds growth. So there's been a healthy year onear growth supported by traction both in existing accounts and new logos and it has delivered strong year-on-year 20:08 20 minutes, 8 seconds growth starting H2 of last year. We expect MNC to be a fullear growth contributor. The sequential decline what you see in MNC is driven by seasonality. 20:18 20 minutes, 18 seconds Q4 demand is a bit higher on account of festive reasons for some of the client uh retail clients and also calendar 20:26 20 minutes, 26 seconds banking uh the sequential decline is due to seasonality however very strong year-on-year growth in line with the 20:35 20 minutes, 35 seconds last few quarters trend and we expect the vertical to have a strong CY 26 on geos all geos delivered year one-year 20:44 20 minutes, 44 seconds growth North America performance is after including the headwind from the GSC client which we had called out in Q1 20:51 20 minutes, 51 seconds and Q4 of last year. So it's a impact of that which is getting reflected in the year-on-year growth. Europe returns to 21:00 21 minutes strong growth and is expected to lead the full year growth driven by account ramp ups and new logos. APAC sequential softness reflects the Q1 seasonality. 21:11 21 minutes, 11 seconds Now more commentary on CY 26 outlook by unit will be covered later during the call by cage. 21:19 21 minutes, 19 seconds Move to the next page. 21:24 21 minutes, 24 seconds We continue to add meaningful clients to our client base. One of the ways we measure broadbased growth is to track the number of clients delivering greater 21:32 21 minutes, 32 seconds than $10 million revenue. As you heard Keith say that in terms of the greater than $10 million revenues, we have had two clients what we have added on a 21:41 21 minutes, 41 seconds sequential basis. That number is four on a year-on-year basis. Next chart. 21:52 21 minutes, 52 seconds A bit of a highlight on the operational parameters. Offshore mix continues to improve uh on the headcount as K called 21:59 21 minutes, 59 seconds out. Even though the overall headcount is a decline of 46, we continue to add in it and BPS was declined. This marks 22:08 22 minutes, 8 seconds the 11th consecutive quarter of ID headcount edition utilization closed at 82.6 22:15 22 minutes, 15 seconds 180 pips up sequentially and this reflects the reversal of the seasonal cue for impacts both with respect to the furlows and the leaves that we had called out. 22:26 22 minutes, 26 seconds Next page. 22:30 22 minutes, 30 seconds Closing cash balance of 220 million and the company continues to remain debt free. DSO for the quarter came in at 75 22:38 22 minutes, 38 seconds days which is within the level we would expect. Last quarter we had called out that the DSO of 67 days was a high water mark at the at the year end. 22:49 22 minutes, 49 seconds On the cash flow we had changed our cash flow metric reporting in line with the margin metrics. So the OCF took that on 22:56 22 minutes, 56 seconds LTM basis was 125%age and and will continue to be and it's one of the industry leading and we expect it 23:03 23 minutes, 3 seconds to be continues to be high in the coming quarters too. ETR for the quarter came in at 25.5%. 23:11 23 minutes, 11 seconds And we continue to reiterate our full year for CY 26 to be between 25 and 26%. 23:20 23 minutes, 20 seconds With that, I'll pass it over back to you, K. Uh, you're on mute. 23:31 23 minutes, 31 seconds Thank you, Vicash. And if you go to the next slide, please. So, we're going to talk a little bit about outlook for rest of the year. You know, at the highest 23:40 23 minutes, 40 seconds level, we feel very good about where our business is. We are hitting a phase of sustained growth. 23:51 23 minutes, 51 seconds Um you know last quarter we said uh you know we've been running faster for a 23:58 23 minutes, 58 seconds while but it's going to show up time to it's going to take time to show up the numbers. Been running faster but we had to outrun some of the headwinds. 24:08 24 minutes, 8 seconds Booking takes time to translate to revenues and there was calendar issues. 24:12 24 minutes, 12 seconds So we said it will the results will start showing from Q2. We are in Q2 and 24:20 24 minutes, 20 seconds the next quarter you will see the outcome of it and when you see the outcome it will not just be a one-off 24:28 24 minutes, 28 seconds and we think it'll be a sustained momentum uh of growth from this point from us for us at a minimum. We are 24:36 24 minutes, 36 seconds reaffirming what we said last time as uh you know uh the floor of growth of 7.6%. 24:46 24 minutes, 46 seconds Um I've spoken about deals already. I spoke about some of them but I want to tell you that actually there are quite a 24:53 24 minutes, 53 seconds number more. So real estate we it we will do eight deals. There's quite a bit more that we won. Um I would say right 25:02 25 minutes, 2 seconds now AI in SDLC is the biggest source of differentiation and the biggest source of deal activity. 25:13 25 minutes, 13 seconds There's a sudden and extreme urgency with clients to demonstrate serious 25:20 25 minutes, 20 seconds value in SDLC using AI and that's driving a lot of conversations and that is driving a lot of deals. 25:41 25 minutes, 41 seconds even prior to a decision they uh there are more headwinds in the year. So at 25:47 25 minutes, 47 seconds this point we feel like you know um so they did decide um they're down to three vendors. 25:55 25 minutes, 55 seconds They're consolidating a large number of vendors down to three. So right now we expect stability. Uh we've had I don't 26:04 26 minutes, 4 seconds know 40 45% down over the last four quarters. 26:10 26 minutes, 10 seconds Um that's not going to happen. So we expect stability, not necessarily growth immediately, but we could see growth coming back over a period of time. 26:21 26 minutes, 21 seconds Um and and we spoke about other deals. So essentially what all these deals and a 26:29 26 minutes, 29 seconds continued strong pipeline means that we are reiterating our growth. Um 26:37 26 minutes, 37 seconds we you know the current growth is underpinned by deals already won and much like we said the last time there 26:44 26 minutes, 44 seconds are pathways and opportunities for us to improve this but we want to first show Q 26:51 26 minutes, 51 seconds results before talking about what more uh we could do in the year. 26:58 26 minutes, 58 seconds there is some changes in verticals. Um you know HNI will lead growth, banking 27:06 27 minutes, 6 seconds will do well. We've been speaking about MNC turning the corner. I think MNC is going to wind up in a pack that will be 27:14 27 minutes, 14 seconds among uh growth leaders. It'll you know lead company growth for a year. I think 27:21 27 minutes, 21 seconds it's a bit of macros and some of uh portfolio specific issues that we've solved for far and it is back to decent 27:28 27 minutes, 28 seconds growth. Um on the other hand uh TNT uh will lap due to macros primarily due to 27:38 27 minutes, 38 seconds fuel price issues that impact the industry. 27:44 27 minutes, 44 seconds We've started better on margins than we planned for. Again uh like in revenue right now we are sticking to our 27:53 27 minutes, 53 seconds guidance of the range of 13 to 14% for a bit. 27:58 27 minutes, 58 seconds However we also want to reiterate what we said last time that margins will improve through the year especially in 28:06 28 minutes, 6 seconds H2 and our exit rate will be higher than what it is for the full year. 28:14 28 minutes, 14 seconds With that we will stop for questions. 28:23 28 minutes, 23 seconds Thank you very much. We will now begin the question and answer segment. To ask a question, please click on the raised hand button at the bottom of your Zoom 28:31 28 minutes, 31 seconds interface to enter the queue. Once announced, kindly unmute yourself, state your name and organization, and proceed 28:39 28 minutes, 39 seconds with your question. If your query is addressed before your turn, you may press the lower hand button to exit the 28:46 28 minutes, 46 seconds queue. We'll pause briefly to allow the team to assemble the list of participants. 28:57 28 minutes, 57 seconds Our first question is from Pritik Mayhar Shwari. Please unmute and ask your question. 29:04 29 minutes, 4 seconds Thank you for the opportunity. Um K and I uh congrats on the good set of results. I think uh this quarter went by much better than what you guys expected. 29:16 29 minutes, 16 seconds at the end of the summer quarter. Uh I had two questions. Uh first I would like you to kind of expand on the comment 29:24 29 minutes, 24 seconds that you've made on the agent AI being implemented in the SDLC life cycle and uh and you're seeing strong momentum on 29:31 29 minutes, 31 seconds that. Also you commented that you guys are now seeing a phase of very strong uh a phase of sustained growth now. Right? 29:41 29 minutes, 41 seconds So if we look at your larger peers, they have commented for higher AI deflation in 2026 versus 2025, right? Uh and you 29:49 29 minutes, 49 seconds guys are talking about better uh on this front. Plus also also I've seen your mid tier peers also saying very similar 29:57 29 minutes, 57 seconds comments. They have a better growth expectation than larger peers. So just wanted to understand first of all on the industry level how do you guys see the AI definition? Do you guys also see that 30:06 30 minutes, 6 seconds midiers are better placed in in this front? Uh so that's my first question. 30:13 30 minutes, 13 seconds Sure. U you know on AI deflation we called it out last quarter. Okay. Um 30:21 30 minutes, 21 seconds there was mixed chemistry last quarter from our peers that people are saying the you know opportunities will kind of 30:28 30 minutes, 28 seconds outrun the deflation right now. What we thought even last quarter there will be deflation. Okay. We simply budgeted for the deflation in our numbers. 30:39 30 minutes, 39 seconds Um I I do think the opportunities are significant. Okay. Um and you know there 30:47 30 minutes, 47 seconds are new opportunities. Um you know I I gave an example on zero license a full 30:54 30 minutes, 54 seconds SAS that will get 12 um opportunities we've identified. 31:07 31 minutes, 7 seconds Sorry, I think we we lost for a few seconds. Uh just might have to repeat the last two lines. We lost you for a few seconds. 31:15 31 minutes, 15 seconds Okay. Thank you. Uh is it better now? Yes. Yes. 31:20 31 minutes, 20 seconds Okay. So, so sorry I don't know when you lost me so I'm going to repeat a bit. I was saying we called out the air deflation last quarter. Uh while there 31:29 31 minutes, 29 seconds was big from our peers, we did say there will be deflation and we budgeted it for it in the numbers. Second, I do think 31:36 31 minutes, 36 seconds the opportunities are real and we've identified 12 opportunities. one example I gave on zero license and in our AI we 31:45 31 minutes, 45 seconds will talk through what those 12 opportunities are and show you what we're doing and proof points for 31:52 31 minutes, 52 seconds platforms and customers in each of those um AI SDLC you know agent 31:59 31 minutes, 59 seconds right now what is happening is I would say over 90% of clients maybe 95% of 32:07 32 minutes, 7 seconds clients have bought some tool but they don't know what to do with it. 32:12 32 minutes, 12 seconds their their teams have are experimenting with it but there's a pretty hard ceiling of I don't know 10 15% that 32:21 32 minutes, 21 seconds they're getting from that what we are showing is hey you don't you know don't go chasing the next best tool don't go 32:29 32 minutes, 29 seconds chasing you know whatever is announced last week basis what you already have we 32:36 32 minutes, 36 seconds are able to demonstrate to clients uh how they can materially up the productivity 32:43 32 minutes, 43 seconds by better use of tools, changing the SDLC process and reconfiguring what squads should look like. 32:53 32 minutes, 53 seconds And we are not doing this in isolation. 32:56 32 minutes, 56 seconds We're doing this at scale. And let me give you an example. 33:00 33 minutes In our FS vertical, we have 75 delivery AI champions that work across all of our clients. 33:12 33 minutes, 12 seconds to continuously deliver new projects using AI. Now the impact this has on us 33:21 33 minutes, 21 seconds is that we're certainly reducing the you know volume of work in our existing lens. 33:28 33 minutes, 28 seconds But because we're doing this proactively because we're able to demonstrate better outcomes than our peers, it places us in 33:35 33 minutes, 35 seconds a great spot to gain market share in SDLC. 33:42 33 minutes, 42 seconds Thanks K. Ke uh I had another question on your GSC client u consolidation program. So congratulations on getting 33:51 33 minutes, 51 seconds selected in the top three. Uh and I know you said uh for some stabilization there. I just want to understand uh what 33:58 33 minutes, 58 seconds is your confidence level that probably um this client could also start growing in this year itself. U uh if you could expand on that please. 34:10 34 minutes, 10 seconds I don't think they'll grow this year. Uh I think it'll be next year. Okay. Uh they could be moderate. Uh you know plus 34:18 34 minutes, 18 seconds or minus but that's normal course of business. We don't expect anything significant this year. 34:25 34 minutes, 25 seconds Okay. And last question is for Vikas. So Vikas uh I know you guys expect a bit of improvement in the margins for the full 34:32 34 minutes, 32 seconds year. uh and there's also I think earlier on there were some transformation costs that would have gone away but you guys uh need to invest 34:40 34 minutes, 40 seconds on that. So just want to understand uh so right now as Keith said right you guys have squads and you've got 75 champions right you're seeing similar 34:48 34 minutes, 48 seconds kind of setups happening with other IT as well right so do you think the the margin expansion that you're getting from the automation or AI implementation 34:56 34 minutes, 56 seconds right is is that leading going into investments in such as these things where you're probably getting much 35:03 35 minutes, 3 seconds higher caliber team uh to probably go and disrupt some of your existing business to win new ones 35:11 35 minutes, 11 seconds Hey, do you mind if I address that at least one dimension of it and then you can add to that? Okay. So, I think first 35:18 35 minutes, 18 seconds I want to say that 75 we spoke of is for one vertical that's for our FS vertical that are similar in each vertical right. 35:27 35 minutes, 27 seconds Um I I will say two different things as it pertains to structural profitability and then Vicash can add more specifics here and now. Right. 35:37 35 minutes, 37 seconds one I think we are seeing from clients a willingness of about 10 to 15% gap 35:46 35 minutes, 46 seconds between productivity gains and economic gains now that 10 to 15% from exare and token 35:54 35 minutes, 54 seconds cost is outside and AI costs are outside in that kind of 15% I think some of it 36:01 36 minutes, 1 second will be higher cost for us better talent higher cost of talent that will be deployed. Some of it could result in 36:10 36 minutes, 10 seconds improved profit pools but this early views I am seeing clients are okay conceptually saying hey you give me 40% productivity I'm only expecting 25%. 36:28 36 minutes, 28 seconds You know I spoke about three differences differentiations in our new tensai reasoning ops platform. 36:38 36 minutes, 38 seconds One of them is that it's a enterprise custom LLM that we built and what that 36:46 36 minutes, 46 seconds does is to trap the inferencing at the SLM not 100% of inferencing but it'll 36:52 36 minutes, 52 seconds trap maybe 80% of inferencing at SLM and 20% or so will still go to LLM but 37:00 37 minutes that's a savings for clients and the model we're doing is to you know charge for a percentage age of what customers will save on inferencing with LX. 37:14 37 minutes, 14 seconds So that's a second structural source of potentially improved profitability in future. 37:22 37 minutes, 22 seconds Thank you. Thank you Keith. Thank you guys. nothing and and and to yeah we can yes I was just rounding up the whole 37:30 37 minutes, 30 seconds conversation with the fact that hey from full year perspective we reiterate our margin guidance of 13 to 14 even though 37:38 37 minutes, 38 seconds there are aspects which are leading to uh improved profitability we continue to invest in the business because that's what is important from a growth 37:46 37 minutes, 46 seconds perspective thanks Our 37:54 37 minutes, 54 seconds next question is from animal gar. Please unmute and ask your question. 38:04 38 minutes, 4 seconds Yeah. Uh hi, thanks for the opportunity. 38:07 38 minutes, 7 seconds I have couple of questions. One uh more of a broader question for K. uh you know uh currently just wanted to understand 38:15 38 minutes, 15 seconds what kind of AI models are we using in our uh delivery and currently what is the understanding between us and the 38:22 38 minutes, 22 seconds clients on who beers the token cost particularly when it comes down to the outcome based contracts. 38:31 38 minutes, 31 seconds So first off, I think it depends on what service we're delivering and you know I will talk about AI for IT 38:40 38 minutes, 40 seconds and AI for business differently. Let's start with AI for IT. Even within AI for IT, I think there is a difference in 38:49 38 minutes, 49 seconds fundamental approach between SDLC and in IT operations and I would say 38:55 38 minutes, 55 seconds SDLC and data are somewhat similar. So think of SDLC and data engineering on one pool and IT operations in the second 39:03 39 minutes, 3 seconds pool. In IT operations, I think there is more willingness. This is consistent with what has happened in the past of 39:11 39 minutes, 11 seconds giving out holes for pieces of operations through firm outsourcing 39:18 39 minutes, 18 seconds contracts that includes you know baked in future productivity benefits from air. 39:26 39 minutes, 26 seconds Now like I explained in our new platform um we are actually um providing the 39:35 39 minutes, 35 seconds inferencing not 100% of it but a good chunk of it which will be lower than inferencing from LLM the inferencing 39:45 39 minutes, 45 seconds that does go out LLMs the customers still pay for it on SDLC you know most large customers 39:55 39 minutes, 55 seconds for Most programs is not for all you know they kind of it's mixed 40:03 40 minutes, 3 seconds teams it is client and us and they you know are a significant part of the large program so they kind of decide on tool 40:11 40 minutes, 11 seconds chains we help them do it and they own the licenses and they own the token cost. 40:19 40 minutes, 19 seconds Uh understood, understood. And uh secondly uh more a question for this quarter. So sequentially uh you know we 40:27 40 minutes, 27 seconds have seen our license revenue at $11 million up from $7 million and there was some incremental uh revenue which came 40:35 40 minutes, 35 seconds in from cyberolve as well. Uh so organically when it comes down to services how much decline was there uh 40:43 40 minutes, 43 seconds in this particular quarter and how much uh of that was an impact from uh particular GSSE uh client. 40:54 40 minutes, 54 seconds So license sorry go ahead. 40:57 40 minutes, 57 seconds Yeah so the license sales for the current quarter was flat. So what we had from a sequential basis was the same license sales in the current quarter as 41:06 41 minutes, 6 seconds in the last quarter as I highlighted that the volume growth in the current quarter was 3 million with close to 2/3 41:13 41 minutes, 13 seconds of that coming from the acquisition what we did the balance of it was organic in fact on a gross basis the organic volume 41:20 41 minutes, 20 seconds growth was significantly higher but that was after absorbing the headwind from one of the GSC client where in the last quarter we had pointed out that there 41:29 41 minutes, 29 seconds was a bit of a ramp Now in the month of March it had a full quarter impact from the current quarter 41:37 41 minutes, 37 seconds right and and Vikas just continuing on the same uh so for the for as per our guidance of 7.6% 6% uh which we are 41:44 41 minutes, 44 seconds which is a flow right now for us the requirement or the CQGR requirement is nearly about 4 and a.5% uh for the next 41:51 41 minutes, 51 seconds uh three quarters and given that uh fourth quarter is usually a seasonally weak quarter the uh bump up have to 41:58 41 minutes, 58 seconds happen uh in second quarter and the third quarter. So what kind of deals uh do we have which will be ramping up which could give us uh that kind of growth over the next couple of quarters. 42:12 42 minutes, 12 seconds So K already spoke about the deal wins right we announced close to we spoke about few deal wins in the last quarter which has started ramping up part of 42:20 42 minutes, 20 seconds those ramp ups actually got reflected from a Q1 results perspective in the volume growth that I spoke about net of the GSC decline and the other deals that 42:30 42 minutes, 30 seconds we have signed in the current quarter both of this added with the seasonality benefit which we'll get from a Q2 and Q3 perspective are the ones which are going 42:38 42 minutes, 38 seconds to help us deliver those numbers and and as called out like it like in any case is ramp up of the existing deals uh 42:48 42 minutes, 48 seconds deals which are already won plus the new deals which are in the pipeline. Our pipeline continues to be very strong and the conversion of those pipelines and 42:56 42 minutes, 56 seconds additional revenues from those deals are the ones which will help us in terms of contributing to the current year of growth. 43:04 43 minutes, 4 seconds Uh, sure. Thanks. Thanks. Uh, that's it for my and our last question in the queue right now is from Depes Meta. 43:18 43 minutes, 18 seconds Uh, thanks for the opportunity. A couple of question. I think continuing on the uh prior question. 43:25 43 minutes, 25 seconds uh do you think usual seasonality of December quarter can be negated based on the dealing uh pipeline which you have as well as ramp up plan which you have 43:34 43 minutes, 34 seconds uh which will in a way lead to more evenly spread growth across three quarter or how one should expect let's say growth trajectory this year uh 43:43 43 minutes, 43 seconds considering all the seasonal pattern plus the deal ramp up plan or pipeline which you have if you can give some sense on that. Second question is about 43:50 43 minutes, 50 seconds the 12 opportunities which you indicated uh which can provide you confidence about growth acceleration on medium-term 43:58 43 minutes, 58 seconds perspective. Can you give some sense about them and based on these 12 opportunities what kind of canibilization existing business let's 44:05 44 minutes, 5 seconds say expected because some of them might have some cannibilization impact and last question is on vertical 44:13 44 minutes, 13 seconds perspective I think you indicated uh some of the factor affecting or out uh this quarter vertical wise but can you 44:20 44 minutes, 20 seconds give some sense about some of the puts and take which you are expecting in some of the vertical uh commentary thank 44:31 44 minutes, 31 seconds So um there were three questions on on the first one. Okay. Um I I I I just 44:38 44 minutes, 38 seconds want to say that what we are hoping to demonstrate um from Q2 onwards is a sustained kind 44:47 44 minutes, 47 seconds of growth right um it's a result of a number of things that have changed or 44:55 44 minutes, 55 seconds we've changed or in some cases macros improving like a manufacturing um so you know no matter kind of what 45:03 45 minutes, 3 seconds this year looks like I think you will see growth and accelerating wineway growth um through the year. Okay. Now in 45:12 45 minutes, 12 seconds terms of patterns for the quarter I I think there are two different things. 45:15 45 minutes, 15 seconds One is no matter what uh Q4 will be worse than Q2 and Q3 because of seasonality but independently can Q4 45:25 45 minutes, 25 seconds kind of be positive in of its own? It could be. Um but we're not you know 45:32 45 minutes, 32 seconds we're not saying that we're saying hey kind of model how you model I think you will see we will be okay for the baseline we've called out in Q2. 45:43 45 minutes, 43 seconds Um the second question was on the um 12 AI services. Sorry Vash keep me honest was that the second one? Yeah. 45:54 45 minutes, 54 seconds um the the the 12 that these are not the cannibalization these are not like let's 46:01 46 minutes, 1 second say uh re-engineering AI and SDFC or red IT operations that's a cannibalization 46:08 46 minutes, 8 seconds part these are what we think will be new opportunities in SDLC itself you know zero license 46:17 46 minutes, 17 seconds legacy modernization which we spoke a little bit about last time and again when you if you come to Chennai We will 46:24 46 minutes, 24 seconds show you multiple examples of that. Um it is things like observability, 46:32 46 minutes, 32 seconds setting up a foundation and foundry for AI. There are all of this 12 are new revenue streams. 46:42 46 minutes, 42 seconds They're not cannabis. 46:44 46 minutes, 44 seconds And you know I I think I have mentioned in the past that the core of our strategy is agility 46:52 46 minutes, 52 seconds and so we are kind of pushing ourselves to launch one new service every month. U 47:00 47 minutes either completely launch new or relaunch or redo some of what we've done in the past and we've thus far been sticking to 47:08 47 minutes, 8 seconds that. So this doesn't that we spoke of will get added to over time. 47:16 47 minutes, 16 seconds The third question um remind me what was that was vertical comment right? Yes. 47:26 47 minutes, 26 seconds Yeah. So I I think you know just in terms of what's changed I will say from our last commentary I think manufacturing will be better off than 47:34 47 minutes, 34 seconds what we said last time and travel be worse because of macros 47:41 47 minutes, 41 seconds and you know we will kind of make up for the travel downtown macros through improvement elsewhere. 47:51 47 minutes, 51 seconds Understood. Thank you. 47:57 47 minutes, 57 seconds Thank you ladies and gentlemen. That brings our Q&A session to a close. I will now hand the conference back over to management for closing comments. Over to you. 48:07 48 minutes, 7 seconds Hey, thank you all. Uh again, I just want to you know once again extend the invitation. We will probably speak once 48:14 48 minutes, 14 seconds more the quarterly call Q2 but it'll be shortly or immediately after that. So please uh make time to visit us in Chennai next quarter.