Good morning, ladies and gentlemen, and thanks for joining the Mphasis Q3 FY 2025 earnings conference call. I am Dhavan, your moderator for the day. We have with us today Mr. Nitin Rakesh, CEO of Mphasis, Mr. Aravind Viswanathan, CFO, and Mr. Vinay Kalingara, Head of Investor Relations. As a reminder, there is a webcast link in the call invite mail that Mphasis management team will be referring to today. The same presentation is also available on the Mphasis website, www.mphasis.com, in the Investor section under Financial and Filing, as well as on both the BSE and NSE websites. Request you to have the presentation handy. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes.
Should you need assistance during this conference call, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. Before we begin, I would like to state that some of the statements made in today's presentation may be forward-looking in nature and may involve certain risks and uncertainties. A detailed statement in this regard is available in the Q3 results release that was sent out to all of you earlier. I now hand the floor over to Mr. Nitin Rakesh to begin the proceedings of this call. Thank you, and over to you, Nitin.
Thank you, Vinay, and thanks, everyone, for joining us today. Hope you had a great start to 2025. We appreciate your interest in Mphasis. As our AI thesis is starting to play out, over the past few years, we've spoken about service-led transformation, AI platforms such as Mphasis NeoZeta and NeoCrux, as well as Agentic AI. We are now implementing many AI projects that are fast-moving beyond pilot or POC stage. It is starting to scale and accelerating primarily due to paradigm shifts based on the following few factors: the ability to supersize deals because we can now bundle ADM, AMS, and IMS together with the service-led transformation, and also presenting vendor consolidation opportunities using the same approach. Second, we are able to augment AI with human capabilities, which changes the ROI economics of many deals.
Clients are able to achieve quicker transformations, which leads to unlocking of modernization opportunities, for example, that were previously prohibited for clients to undertake. Our ability to compete and win in more opportunities, leading to an expansion of our total addressable market, is also helping pipeline expansion, and finally, the infusion of platforms and productivity gains offered earns us a seat at the transformation table. The infusion of platform-led approach is increasingly table stakes for many programs, especially around modernization, ADM, and AMS deals. We have multiple implementations for large-scale financial services customers. Mphasis NeoZeta platform accelerates re-learning productivity much faster and more broadly than was previously possible, completing re-learning in a matter of days versus weeks. NeoCrux, on the other hand, is an integral part of all NeoZeta pilots to do forward engineering from re-learned business rules, data dictionaries, and business capabilities.
We've completed two implementations with nine more in the works. We've seen productivity gains of 30% to 60% across different phases of the SDLC, including improvement in code quality, generating unit test cases and code documentation, thereby accelerating implementation and reducing project risks. Our clients who have signed up for this exciting journey are spread across all our target industry verticals. As called out in the last quarter, there is significant visibility in pipeline growth, and we are increasing the number of AIOps deals, for example. I'd like to highlight a few things on the TCV chart. BFS pipeline is up 58% YOY, and non-BFS pipeline is up 44% year-on-year. Last year's pipeline is up 49% sequentially. Significant increased traction in AI archetypes, including AIOps and modernization, including core. We have over 20 large deals where Zeta and Crux are in play as well.
Q3 saw a high share of proactive deal wins as we stayed focused on deal-making. TCV closure for the quarter was $351 million, which is the highest in the past six quarters. We have five large deals in Q3 at FY 2025 and 11 large deals for YTD FY 2025 as well. TCV wins are across verticals, client pyramid, and archetypes. There is also an increasing pace of conversion of TCV to revenue, and we continue to be structurally forward-leaning, making investments where we expect demand. In addition to Q3 TCV wins, we have closed an additional $100 million deal in the BFS vertical in January of 2025. This will reflect in the Q4 FY 2025 TCV wins.
few of the large deals that we won in Q3, a large wireless network operator in the U.S. selected Mphasis to provide scalable and differentiated multi-year services across design, experience, and quality engineering. Mphasis leveraged its strong capabilities in diverse areas like UX, research, and quality engineering. Second, a technology major engaged Mphasis to contribute to digital experience innovations, architecture, and the technical roadmap. The client engaged us because of our strong capability to support their future projects in AI and Salesforce agentic AI for integration with their existing systems. Third, a large BFS client engaged Mphasis for application development and cloud transformation across product lines and business lines. Just a few examples of the large deals we signed in this quarter. We also made significant investment in GTM, including talent acquisition, and we appointed a head of our strategic engagements team, Mike Meyer, as we announced earlier during Q3.
Mike will spearhead strategic deals in collaboration with various business units, enhancing overall growth, alignment, and effectiveness. He's also responsible for pipeline development along with the end-to-end sales cycle management to optimize market opportunities for high-value contracts. In addition, we also inaugurated a Cyber Fusion Center in Bangalore, which is a state-of-the-art facility representing a significant milestone in our commitment to enhancing cybersecurity solutions for our global clients across industries. The center is providing 24/7 advanced threat detection, incident response, and continuous threat monitoring, leveraging cutting-edge AI, ML, and automation capabilities. This will not only improve our efficiency in responding to cyber threats by over 50%, but also reduce the attack surface by 45%, ensuring high visibility of threat landscapes across IT and operational technology platforms. Going to performance by segments, we continue to push for revenue growth, which is anchored in our strong client mining model and tech-led offerings.
Our Q3 revenue came in at $419 million on a spot basis, a growth of 0.2% sequentially and 4.6% YOY in constant currency terms. Our direct business accounted for about 96% of our overall revenue in the quarter. We expect the pace of revenue and deal conversions to remain strong, propelled by the savings-led transformation themes I just talked about. Our direct revenue for the quarter increased by 0.2% sequentially and by 5.1% year-over-year in Q3 FY 2025 in constant currency terms. Our growth momentum in direct continues despite the seasonality impact in Q3. For the quarter, our anchored U.S. grew by 0.6% sequentially and 6.3% YOY in direct. EMEA region declined sequentially by 5% in constant currency terms, following primarily the seasonality impacts. The rest of the world grew 3.3% sequentially and 14% YOY in constant currency terms.
Our core service line, Enterprise App, constitutes about 72% of revenue, and the revenue contribution from this service line continues to grow. We grew about 0.7% sequentially in CC terms in direct apps. The BPS segment grew 0.4% sequentially and 3.7% on a YOY basis as projects continue to ramp up, and we see continued uptake in our mortgage business as well. Going to performance by vertical, our BFS and TMT verticals continued the growth momentum. At an overall company level, BFS was up 1.6% sequentially and 8.6% year-over-year in Q3 FY 2025, and specifically in direct, BFS was up 1.8% sequentially and 9.5% year-over-year. BFS growth has largely been driven by wallet share gains in existing accounts and strong execution in new account wins, including the accounts that were opened in the recent few quarters. Insurance vertical grew 4.4% sequentially.
TMT vertical grew 2.9% sequentially, with direct TMT growth at 15.7% YOY, driven by continued deal wins and conversion of recent large deal wins to revenue. Our client pyramid continues to improve across the board. Sequentially, we've added one client in the 75 million-plus range and two clients in the 20 million-plus and 10 million-plus categories, respectively. One of the new BFS clients we signed last year has already ramped up to a 20 million-plus account. Also, on a quarterly annualized basis, we have a BFS client crossing 100 million account as well. New accounts in TMT are also showing good traction. With the recent large wins in the last three quarters, we ramped up a high-tech account to an approximately 50 million annual revenue run rate account. Our top 10 accounts declined 0.8% sequentially, and 11 to 30 accounts grew 0.6% sequentially.
On an LTM basis, 11 to 30 grew at 3.1% YOY. Coming to our financial metrics, we delivered to our philosophy of maintaining margin in the stated bank while making investments for growth. Despite the seasonality impact, our EBITDA margin remained stable at 15.3%. Reported operating profit for the quarter grew 0.2% sequentially and 9.7% year-over-year. EPS of INR 22.6 for this quarter represents a 1% sequential growth and a 14.1% year-over-year growth. Operating cash flow generation continues to be strong at $55 million for the quarter, 110% of net income. DSO of 72 days improved one day sequentially, aided by better collections. Summarizing our Q3 25 performance, we have seen broad-based pipeline growth driven by large deal opportunities.
We've had traction in the AI archetypes, including AIOps modernization, continued high share of proactive deals, as we've been calling out, improvement in TCV closures across the verticals, and continuing to gain across the client pyramid with a tech-led account-focused strategy. The growth has definitely been led by BFS and TMT verticals, and execution trigger delivered stable margins within the target band of 14.6%-16%. Coming to the outlook for the remainder of the year, a few key messages. We continue to execute in an environment steadily moving in the right direction, focusing on the micro as the AI-led opportunities play out. The macro continues to turn in a favorable direction for BFS, while there are still some things to be sorted through. We see some recovery in discretionary spend continuing, while there are signs of uptake visible in the mortgage business despite the uncertainties.
We've seen visible momentum in pipeline conversions and expect to be above industry growth for the full year, gaining from improving TCV revenue conversion and strong TCV wins, while at the same time targeting sustainable margin within the current band of 14.6%- 16%. On that note, let's open the call for questions, operator.
Certainly, sir. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have the first question from the line of Sudheer Guntupalli from Kotak Mahindra AMC. Please go ahead.
Yeah, Nitin, thanks for the opportunity. Good morning. So to remain above industry average growth for FY 2025, and industry average can be broadly assumed to be in the range of around 4.5%-5%. So we should be able to clock 3%-3.5% kind of growth or thereabouts in March. So what gives us the confidence on that run rate? Apart from the deal wins, my question is broadly, is there any other leakages that you're worried about, or the portfolio can be assumed to be largely stable with incremental TCV to revenue conversion becoming faster?
Sudheer, I think the math is the math. You've done the math already. I think we do expect Q4 to be, I would say, the best quarter in the last three years from a sequential growth perspective. I think you've already displayed some of the math skills. From the point of view of the portfolio, I think we are fairly forward-leaning, as I mentioned, to making sure that the pipeline continues to convert to TCV. We've seen some, again, a six-quarter high in TCV in this quarter. In addition, we signed a large deal already in Q4 within the first two weeks. That actually gives us some boost to converting some of that into in-quarter revenue as well. All things put together, puts and takes, there's always going to be portfolio approach.
At this point in time, I think we are fairly comfortable with where we stand, especially as it relates to the remainder of the year. As we get into FY 2026, we'll probably give you more color. There is always work to be done, whether it's in some client segments, some verticals, some geographies. I mean, we called some of those things out in the script as well. But more importantly, I think staying very focused on conversion of both pipeline to TCV and TCV to revenue.
Got it, Nitin. And the sharp decline in logistics vertical that we are seeing this quarter, is this one client-led or this is more broad-based and industry vertical specific? And a related question is, any update on the logistics client where there is a bit of speculation that we may have lost this client and so on and so forth?
Sudheer, I think firstly, this is not linked. The decline you're seeing is not linked to any one customer. Some of it was expected, but it's not just one customer-led. I don't think we will, I don't think it's constructive to over-index the conversation on a customer. As I said, right, we are aware of all the speculation and the rumors. It's very difficult to address each one of those, especially on unfounded, or the ability to name customers and discuss them gets very limiting from a management standpoint, given the broader context of competitive intensity, customer relationship, confidentiality contract, and so on and so forth.
So I think take it for what we are giving you, which is the ability to drive growth through the remainder of the year, the ability to focus on pipeline and conversion, and the confirmation that the decline you're referring to in Q3 is not linked to any one single large decline. Again, if you triangulate it, right, if you guys have all looked at the numbers, if that was the case, the U.S. would have had a bigger decline than Europe, just to give you some context. So I think sometimes it's good to triangulate data points versus focusing on the narratives that you hear from the market or from our competitors.
Got it, Nitin. And just last question, what might be the impact of furloughs this quarter, if you can call out?
It's pretty similar to what we experienced last quarter, right? Last year.
Last year. So I think the number is around 2% is what you can consider as the furlough impact for the quarter. And sure, Aravind, and most of it is expected to reverse in the March quarter, or are you seeing any peculiar impact of extended furloughs or something of that sort?
Yeah, I think there are two parts to that answer. Firstly, I mean, the nature of the business is such that there is no automatic reversal of furlough in the following quarter. So we have to make sure that we continue to work at a client level and an account level to recover as much as we can recover back because there's a logical reason for that year-end action. You look at budgets getting closed at the end of the year, and that also leads to certain action in Q3. Seasonality comes from furloughs and some of those actions. Because if reversal was automatic, then almost every peer of ours would report growth in Q4, and that's not the case. So we are expecting to recover a portion of it back for sure. I would say a good healthy portion of it back.
We are not seeing any material extension of the furlough into Q4. We probably saw some of that over the last two years. This year seems to be a little bit better, and hence, that's also going into the confidence that I gave you on our Q4 performance.
Thanks, Nitin and Aravind. All the very best for the future.
Thank you.
Thank you. We have the next question from the line of Nitin Padmanabhan from Investec. Please go ahead.
Yeah, hi, good morning. Congrats on the solid deal wins. Nitin, two questions for you and one for Aravind. So one is that I think a peer basically talked about how they've had to pass on a lot of AI-led productivity benefits to a very large customer. Are you seeing that, and how are you thinking about that in terms of how much you'll be able to relatively retain? So that's one. The second is, I think if I look at the portfolio, it looks like BFSI, TMT, all of those are leaning towards high single-digit year-on-year growth rates. But the only drag is from a logistics and transportation perspective. Now, here, if you think about it, is the current quarter more furlough-driven impact, and do you expect that to come back?
And second, when you look at the deal pipeline and the order book within that vertical, do you see things improve? So those are the two questions for you, Nitin. And there's one for Aravind we can ask.
Yeah, you get to Aravind once I'm done because otherwise I forget my questions. I think the first question around AI-led productivity. I think it's a fairly nuanced answer because if the expectation is to implement it in a current portfolio where you're either doing a large dev program or a large run program, and you have to protect your turf, then you obviously have to be fairly sharp about how much of that can you retain and how much of that you have to give back.
But I think if you move the conversation away from just efficiency and cost savings to a savings-led transformation approach, then the ability to bundle either a multi-tower or AD with AMS or run with change, for example, you take on an existing application portfolio with a very strong modernization story linked to it, then I think you have the ability to not only protect margins but actually grow your wallet share. And that's kind of what we are seeing. I mean, I can't comment on what somebody else said in terms of what they had to do. But in our case, we are not seeing this as any major headwind to either wallet share or margin. In fact, where we need to be, we will be very forward-leaning on supersizing deals using this. And that's what I called out in the commentary.
And a little bit of that definitely is playing up in the fact that pipeline is up 50% year over year because we are able to bundle a larger construct because that provides efficiency, certainty of outcome, and rapid deployment of some of these solutions as the three key levers besides just cost. If the focus is going to be over-indexed on just cost saving, then it'll be very hard to convince the customer why they can't take all of that back into their P&L. So that's kind of on the first one. I'm happy to take more questions on that if you have. On the second item, I think the pipeline is actually very, very broad-based. Some of our largest deals are spread very well across all the verticals, including L&T. So we do expect good deal activity. I don't think this is a very large furlough component.
Some of it may be in there. This is definitely more a question of certain client-related project items or, in some cases, year-end-related budgeting issues. But we do expect uptake in deal-making in that vertical. I think the other vertical has also been contributing to a decline a little bit. It's been a little patchy in healthcare. We've had a couple of good quarters, and then there were certain other payer-related headwinds that came in. So there's work to be done for us in healthcare as well. And again, from a pipeline standpoint and from a deal closure standpoint, I think there is good activity in that vertical also. So I think, as I mentioned, a little bit more consistency needed across segments. That's very much the focus. But good news is there's visibility in the pipeline very much there for all the verticals that need some work.
Perfect. That's helpful. Aravind, is there any one-off within the D&A line item with a marked increase this quarter? And any specifics on revenue from TSYS that could accrue in the next quarter?
Yeah. So no, one-timers per se, right? There are typically some marketing events that we've done and spends around that that has come through. But I think if you see a three, four-quarter trend, it kind of oscillates a little bit. So I don't think there is nothing much to read into it.
I was referring to depreciation amount.
So on the depreciation side, as you know, we had won a deal last quarter on one of the large telcos, right? And as part of that deal, it was a consolidation deal for which there was money paid for rebadging employees. And as part of that, while the accounting followed M&A accounting, there is no goodwill or assets taken over. The entire amount paid is amortized into the P&L as depreciation of intangibles. And that is the amount that has kind of come in. I expect that that will normalize, but you have other transactions that we do, and we will have to see how that comes. But it is largely driven on the back of a new deal that we announced in October. On TSYS, we're not giving details on breakouting. It's a similar kind of.
Should we take this as a steady state?
You can take it as actually, see, it will oscillate. I don't want to get into a quarter-wise forecast on this, but as we do deals like these, because we won another deal which we have talked about this quarter also as part of the consolidation. So maybe the previous one will a little bit taper down, and the new one will have an impact. So I would say that right now, you may not see a very big difference in Q4 versus Q3 on that line item.
So Nitin, I can maybe from a philosophy standpoint, what Aravind is explaining is the accounting treatment.
From a philosophy standpoint, wherever we see an opportunity to do tail consolidation or take on contracts that might be with non-strategic vendors or that gives us an opportunity to structure a large five-year deal, we would actually do that, even if that means that we have to structure a transaction where it works for both the customer and us. Some of these will continue to be one-offs that you will see primarily driven by the fact that we see opportunity, we take it, and we invest in the business and with the customer. That's how we are getting these clients to progress through the client pyramid as well.
Got it, but would we need to worry about headwinds to margins with these transactions, or it should be accurate, or it's a life cycle? How should we think about it?
I think these are highly accurate deals if you look at the nature of the transactions, the tenure, and the profitability. So you don't need to worry so much about the accounting impact-related headwinds. Otherwise, we would have called it out, and you should have seen that. You could have seen that in Q3 and in our guidance for Q4. So I don't think that's the case.
Yeah. Sure. Perfect. Thank you so much and all the very best.
Thank you.
Thank you. The next question is from the line of Abhishek Kumar from JM Financial Limited. Please go ahead.
Yeah, hi. Good morning. Two questions, Nitin, both on TCV. First, you said in the presentation that TCV to revenue conversion is improving. Now, two parts here. One, what was happening earlier? Was it just the slow conversion that was impacting the headline growth number, or was it slightly elevated leakage because of mortgage and some of the other stressed top 10 accounts? And second, what has changed that is giving you the confidence that TCV to revenue conversion will be better going forward?
I think both great questions. There was definitely churn in the business. I mean, we've talked about at peak what the contribution from mortgage was to at bottom what the contribution was, and there was a pretty big swing within four or five quarters. That stabilized definitely at the end of 2023 when we called for a bottoming in the business. Now, this is the fourth quarter where we've seen sequential growth. I think we need a little bit more consistency in that number from a quarter-on-quarter perspective, which is what we are all focused on. From what has changed, I think some of the uncertainties that at a macro level started getting addressed, whether it was peaking of the interest rate cycle. Middle of 2024, it was clear that cycle has peaked, but it took another three months till September for the cuts to start.
Between September and December, we had a 100 basis point cut that definitely had some uptake to not only volumes, but more importantly, confidence in the cycle and the soft landing. Secondly, if you look at the outcome of the elections, there is some degree of certainty on the fact that the tax cuts will get definitely extended, which means that enterprises can now plan budgets with that assumption in mind versus an uncertainty around how that goes and where that goes. That definitely leads to higher enterprise confidence when it comes to committing to larger programs. The issue earlier was they would commit to a program, but it was one step forward, one step backward because the data points were so co-mingled and confusing that it was hard for them to take a two-year, three-year view as to whether they can commit that kind of budget in that duration.
So there was a very high scrutiny on projects and spends. It's still high scrutiny. It's not that there's free money available, but at the same time, there is more confidence, and the ability to commit to some of these larger programs is definitely uptake in the last, I would say, three months or so. So that's kind of where we are seeing the business and the approach and the confidence arriving from. And that also, if you can see, we've closed $450 million in the last three months, including the January deal. That's a six-quarter high, probably more than the last two quarters put together. Pipeline is up. In addition to these big closures, pipeline is actually not just in stock, but it's actually jumped up to a number where we are 50% high. It's a record number.
23% sequential growth in pipeline is not something that I've seen often in the business. Obviously, we've been investing in the large deal framework. We've talked about adding a new leader and very much, and as I said, forward-leaning on it, purely based on the qualification of the deals in the pipe as well as the ability to continue to originate deals as well. So I think it's all put together. Environment looks to be improving further from where we were definitely this time last year. There was a little bit of a tentativeness in the recovery, and obviously, for the first two quarters of calendar 2024, there was a fair amount of skepticism around whether the recovery will take shape. We've seen that across the industry now in the last three quarters, so I think it's just a continuation of that trend.
Just to follow up on what you said towards the end, you've hired a new leader. You're looking at some of the large deals, and we just discussed some of the rebadging, etc. So is that a conscious strategy to go after these consolidation deals, those sort of 100 million-plus kind of consolidation deals, which we were probably not participating as much given higher exposure to apps, etc.? Is that a conscious strategy that has changed recently, and therefore we should expect slightly more larger deals going forward?
I think the answer is this is very much a deliberate effort to balance risk-reward as we look for opportunities and deals, and the reason I say that is that just because we are doing these consolidation deals, which require some element of structuring or investment, doesn't mean that we are throwing caution to the wind and doing deals that shouldn't be done. Right? I just want to make sure that I articulate that very openly. Of course, we've focused on large deals. We've been reporting the number of large deals, I don't know, for the last five years now. We used to do one to two a quarter. We are now between three and five a quarter. Average deal sizes have gone up slowly but surely. We had a mega deal a quarter, mega large deal quarter about six quarters ago.
So this is very much a deliberate attempt at building muscle that we think is required. And by the way, not only is it required to get scale, but there's an opportunity to use the capabilities that we've been invested in. And I talked a fair bit about that in the script as well. So I think this is very much a deliberate, conscious attempt. Unfortunately, in business, you can't really have a subconscious competence-driven winning strategy. So we are focused very much on consciously driving growth through this.
Great. That's helpful. Thank you and good luck.
Thank you. The next question is from the line of Vibhor Singhal from Nuvama Equities. Please go ahead.
Yeah. Hi. Thanks for taking my question. Nitin just want to dwell a bit more on the logistics vertical. I know we've dwelled a lot already. I mean, it stands out as a sharp contrast to all the other verticals, which actually reported quite a handsome growth in this quarter, so what ails this vertical particularly? If you can dwell a bit more on this, is it that the vertical itself is facing tech spends which are coming lower? Is it some clients who are actually ramping down, or is it loss of wallet share or something like that? And can you provide some trajectory as to when do you think this vertical could bottom out for us in the coming quarters?
Let me first break down the vertical for you. It's called logistics and transportation because it has a combination of logistics, airlines, railroads in there. Logistics isn't just what you think it is. There is a supply chain element to it. There are shipping companies in there. Airlines is well understood. It's a new vertical we created over the last two, three, two and a half years. We've announced multiple wins in that area, including the recently won AWS Partner of the Year Award for airlines in 2024 that was handed to us at the re:Invent. Then, of course, there's the railroads element. If you look at all of these three have a different dynamic and a growth trajectory. The airline business has grown well for us. Obviously, it's a very small base.
We expect that to become a much more meaningful portion of this business over the next 18-24 months. A large number of deals and the activities that we are talking about actually do sit there. Same with some of the other segments of this vertical. The decline, as I mentioned, is not related only to one large customer or only one single customer. It's a combination of things that happened. And again, as I mentioned, there are seasonality factors at play, not just the cyclicality of the business. The non-airline business is also something that is exposed highly to global macro and supply chain headwinds. There is definitely work to be done there. And again, not every customer in every segment will grow at the same pace, either on a sequential basis or on an annual basis.
So this is kind of the puts and takes that we are dealing with, fairly focused on driving growth through deal wins and, of course, making sure that we continue to protect what we can with existing customers as well as acquiring new customers.
Any timeline that you could provide that when you think with the effort that we are making in terms of airlines and other subsegments, when this vertical could bottom out for us, we could start seeing positive sequential growth in this quarter? Any kind of a subjective direction itself also would be helpful.
So Vibhor, I can give you an answer, but the answer can change within one deal being signed up, right? Because that's the nature of the, I mean, this is not the vertical the size of banking for us. So the shape of the vertical can change very, very quickly. So I think what I will tell you is the portfolio visibility that we've given you for Q4 assumes a certain set of actions that could change as we announce or as we try to close deals and we announce activities there. So instead of giving you a timeline by which this will bottom out, I would just tell you that we'll continue to update you as we progress our actions because there are some really interesting actions that we're trying to execute.
Got it. Got it. That was helpful. Also, just to quickly pick your brain on the insurance vertical, how do you see the outlook for that vertical going forward? I think BFS, I think we've spoken a bit about that. I think that's quite clear. On the insurance, any key puts and takes that you would probably want to share? The growth has been quite good through this year, in fact, through the last six quarters. Do you expect the momentum to continue?
I think, again, we started talking about stabilization in that about a year ago, and we've seen pretty decent growth in that business sequentially this quarter. Some of it is linked to new cloud acquisition and expansion of our volume in that business. That business obviously is across both sides of the Atlantic. So there is a U.K. and European element, and then there's obviously a U.S. element. I think at this point, it looks like that it will continue to give us sequential improvement. We have visibility into existing clients that where we want volume and deals that will continue to convert. So I mean, from the point of view of leading the growth, I think it will still probably be led by banking and TMT, but insurance definitely is a contributor to growth from an overall company standpoint as we go over the next few quarters.
And again, caveat that with the fact that deal activity can change all of that pretty quickly, right? So that's the focus on from a pipeline conversion standpoint.
No, got it. That's really helpful. I think the deal conversions have been quite good, and fingers crossed that continues to change the momentum for us. Great. Thanks for taking my questions, and I wish you all the best.
Thank you.
Thank you. We have the next question from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Yeah. Thanks for the opportunity. Nitin, just wanted to understand any client conversation in the insurance segment because of the California fire. Do you believe the growth momentum can disrupt going forward?
I think it's still a little bit early days. We have not at this point seen that conversation reach our offices or desks or interactions. I think it's a very complicated state as well as a federal subject. Maybe some clarity will emerge now that the administration is in place. I mean, there's definitely going to be some impact on some large carriers, especially that cover home and auto, because both of those will take an impact. But I think there is probably a realization that there is a dollar limit to that given the backstop that was given by the government in California. So at this point, nothing to call out. We'll keep watching it. I don't think the incidents are behind us yet because there seems to be some more activity this week. So I think nothing to call out on that front.
We probably will know more about it as they report their current quarter earnings and make some disclosures. On the flip side, though, I think it gives us an opportunity to sharpen our pencils and go to them with some propositions, so that's something that we've already started to think about.
Okay, and in terms of large deals with a conscious effort to increase, is it fair to assume that these large deals will also be at a company average, or there could be some investment which may lead to some compromise on the margins going forward?
Very, very good question. I think the stance that we've taken is, and we've talked about it for the last, I would say, a few quarters, maybe even a few years, is we'll continue to prioritize growth and hold the margins steady, which means if we have the ability to drive operational efficiencies, we'd love to invest that back into growth. Growth can come from, I mean, investment requirement is in three or four different buckets. First one is definitely capability. We've actually upped our investment in capability competency as we built these AI platforms over the last few years, especially over the last 18 months. Second investment required is in GTM, which, for example, setting up the large deals team, expanding our coverage on accounts, going from just the top 10 to the next 20 accounts, expanding into newer verticals and newer geographies.
All of that requires investment in GTM. And the third investment is at a deal level within a large deal construct, what investment is required and how much of that can be absorbed. And that's why I think Aravind was explaining earlier, as we've looked at some of these large deals, we felt we could absorb that level of investment without disrupting our overall margin profile. So we do expect these deals to obviously be either at or above the overall company average if we have to hold our margins steady. So I think that's the approach and the philosophy with which we are approaching the market. Again, the ability to use discontiguous opportunities using some of these platforms gives us confidence that we have line of sight to what's the art of the possible, what's the size of the prize.
Of course, competitive intensity in the business is always high. There are peers who are in a way punting the savings percentages in the outer years to get into the deal in the earlier years. We have to just be very careful that we have the level of confidence that we can actually execute to those programs, and I think given that we've been executing these large deals over the last few years already, I think we do have a pretty good idea of what the guardrails should look like.
Okay. And just a last bookkeeping question. The 9th January deal which we have signed with TSYS Inc., is it the deal construct like M&A or the deal construct is similar to what we have signed in DXC, and that may keep the amortization cost higher for a forward-looking future?
It will be identical, Sandeep, to the DXC. It's another vendor consolidation deal, right, with people takeover. So it will be identical to that. And again, at a deal level, these are, I would say, accretive to the company margins, even post the amortization. So that's the way you should look at that.
Okay. So amortization line as per you, Aravind, may not materially decline in the fourth quarter, but may come down starting next financial year.
Yes. Yes. Unless we win more deals which necessitates such line items to come through.
Okay. Okay. Thanks, and I will come back in the queue.
Thank you.
Thanks, Sandeep.
The next question. Sorry. The next question is from the line of Rishi Jhunjhunwala from IIFL Institutional Equities. Please go ahead.
Yeah. Thanks for the opportunity. Nitin, if we look at, say, our revenues over the past three years, including the down cycle of FY 2024, we are up 5%. If we look at headcount during the same period, it's down 15%, and even in the last one year now, as of 3Q, YOY basis, our revenues are growing 5%, our headcount is down. We just wanted to understand, I mean, and you've talked a lot about the contribution of AI into some of the deals that we are winning. We just wanted to understand how much is the non-linearity getting played out in the new business that we are doing, and whether it is fair to assume that even going forward, for the revenue growth that we might achieve, the non-linearity is potentially going to expand and, as a result, could be a margin lever.
Rishi, great question. I was waiting for someone to ask the question because I knew this was going to be an item for discussion. If I look at the metrics you shared, especially over the last 12 months, I think there are three components to it that you should think about when it comes to revenue-to-headcount correlation. The very first component is very evidently reported as utilization. We were running at a lower-than-industry utilization because of the infusion of pyramid. We've talked about construction of the pyramid in 2022, 2023. That doesn't happen in one or two quarters. It actually takes multiple quarters to do. So the shape of the pyramid definitely changed, and that meant that we had to actually lower our utilization. And now we've been eating into that utilization over the last four quarters. Still work to do.
We'll probably see some infusion again at the bottom of the pyramid. We'll continue to work on those actions based on the rolling 90-day headcount requirement plan that we run. Second element of the headcount to revenue correlation is onshore versus offshore. If you see in the same period, onshore headcount has actually gone up at a believable level. And that's because we are, as we do some of these deals that Aravind talked about, they start onshore, and then we transition them over a period of one or two or three quarters. And that, I think, has distorted a little bit of the revenue-to-headcount correlation purely for the last four quarters. Nothing alarming because in the end, the thesis will always be 30, 70, 20, 80. That's the reason why clients look for savings. Our ability to infuse right-shoring with tech is important.
We've already talked about centers outside of India that don't count in the offshore locations. So that's all sitting in there. Third element of that is the AI or non-linearity that you talked about. We are definitely seeing some of that, especially in areas that require AI-led ops, for example, production support, enhancements, QA. The ability to drive 30%-40% of the manual effort is definitely driving conversations. Now, again, I mentioned the fact that not all of that has to be in a T&M construct. So when we do some of these in a managed outcome basis, when we do, even in the mortgage business, we have the ability to drive efficiency using some of the same constructs. That is starting to play out. It's a little bit early days for that, but it's definitely very much in that equation in the last four quarters.
We'll probably be more in the equation over the next four quarters because some of the deals we've sold very recently will require us to strengthen that muscle. In the longer run, the correlation between revenue growth and headcount growth will not go away, but it won't be as high as it used to be in the last 10 years.
Understood. And just one confirmation. You made a comment earlier in the call that 4Q could potentially be the strongest 4Q you have seen from a QoQ growth perspective in the last three years. And just confirming, the last three years, you mean 4Q FY 2023, 2024, and 2025, because 4Q FY 2022 was 4.3%?
Yes, you're right.
Okay. Thank you so much.
That was the previous peak.
Thanks.
Since then is what I meant when I said last three years.
Yeah, yeah. I just wanted to confirm. Thank you.
Yeah, yeah, yeah. Absolutely.
Thank you. The next question is from the line of Dipesh Mehta from Emkay Global. Please go ahead.
Yeah. A couple of questions. First, about the $100 million deal which we subsequently announced in the current quarter. If you can provide some more detail about the contour of the deal in terms of whether it is existing client, new client, vertical, if you can share whatever additional detail you can share. Second question is about the top 20 client considering because now budget cycle is getting finalized, and if one wants to get confidence about growth considering the concentration which we have, are we seeing any, let's say, signs of concern area in any of the top 20 client which can lead to, let's say, issues and derail growth momentum which we likely to see in Q4 entering into FY 2026? And last question is about if I look, we give new TCV number.
Surprisingly, it fell below 50 this quarter, which we have not seen in at least recent past. If you can provide because the way we are suggesting deal construct kind of thing, then these components should be higher. Surprisingly, in Q3, that number is the lowest which we have ever seen kind of thing. Thank you.
Sure. So I think the first one is around the new deal in Q4. It is in the banking domain, and it is a new customer. And the nature of work is application and infrastructure transformation using public and private cloud. And that's the deal that execution timelines are pretty clear, well-defined, and it's definitely a 2025 calendar year execution initiation as well. It's a multi-year deal. Second question was, do we see any clients in the top 20 that can contribute to growth, if I'm understanding correctly? Right?
Yeah.
It is reversed. Whether it can create headwinds.
Headwinds. Again, it's very difficult to call a client in the top 20. Again, you can ask that question with a different context of top 10 or verticals. So I think puts and takes will always be there. There are always clients that are declining sequentially or YOY. Our effort is to make sure that the net positives are higher than the net negatives. So from that perspective, the top 5, top 10, top 20 anyways is a dynamic list. It's not the same static list. There are clients in the top 10 today that were not in the top 10 a year or two ago. And that's very much the focus from a pyramid growth standpoint. So nothing to really call out at this point. We will continue to monitor the portfolio both at a geo, vertical, and a client segment level and report it.
The third question was around New Gen. It's a good question. We've been a little bit conservative in taking some of these vendor consolidation opportunities and not reporting them as New Gen. And that's what's driving the lower percentage because the large deal that Aravind talked about that we've done with an existing customer with a consolidation play, we so far have not applied any New Gen or AI muscle to it. So that's something that we will do during execution. But from a reporting standpoint, that's probably what's distorting the New Gen percentage. There's definitely going to be infusion of tech-led capability besides just right-shoring to make sure that the deal is executed for what we committed to the customer.
Yes. Just hopping more on the top 20, which I said. It is more from the growth perspective. Let's say we will see good momentum picking up for us in Q4. If any of those issues again cropped up, we will see deceleration considering we have fairly high concentration in top 5, top 10, top 20. And that's why I try to get sense. Do you see, let's say, considering puts and takes which we know in the portfolio of top 20 client, can provide any big headwind to our growth acceleration momentum which we have started to see?
So, Dipesh, again, difficult to give you, I mean. I really don't have a way to calibrate as to what the exact response should be, but except tell you that there will be hotspot accounts. There are hotspot accounts in the top 10, top 20 because, as I mentioned, not every account, not every vertical will grow at the same pace consistently. We will take a portfolio approach and continue to report it. We definitely have work to do where we think we can plug some of these headwinds. There are two ways to grow. One is everything grows. Other is you grow around all the issues that you have. So we try to do both of them and, wherever possible, look for opportunities to grow around issues as well. And we've done that in the past.
You've looked at our concentration to one large customer five years ago used to be almost 26%-28%. We are down to 2%. We've also looked at concentration or risk coming out of the mortgage business. So we've grown around that as well. So I think we'll continue to just apply the same playbooks that we know how to. And in a way, the lead indicators will always be pipeline, pipeline to TCV, TCV to growth.
Understood. Thank you.
Thank you. The next question is from the line of Shraddha from AMSEC. Please go ahead.
Yeah. Hi, Nitin. Two questions. 74% utilization since last three quarters. So how do you see the history of utilization?
Your voice was breaking. Can you please repeat that?
Is it better now?
Yes. Can you repeat the question?
Yeah. So we've been operating at 74%-75% utilization since last two, three quarters. So how do we read the trajectory of utilization from year onwards?
So I think we've had a sharp improvement in utilization over the last four quarters, right? I think it is safe to say that we would be around similar levels. But I think one of the points that we've at least been very focused on, right, pivoting towards growth. And I think a lot of our supply chain is determined by how the growth materializes. Now, if you really look at even the data that we share, you've seen a sharper increase in onsite over the last three, four years, right? And naturally, that lends itself to a better blended utilization because onsite always operates at higher utilization. So I would say that directionally, I don't see a major shift in utilization from where we are. But utilization, supply chain are, frankly, input parameters to manage demand, right?
And if there is a change in the nature of demand, which we don't see currently, but if there is, things will change. But otherwise, it should be along similar lines.
Right, and just a quick question on the earlier information.
Sorry, Shraddha, but your line seems to be breaking in between once again.
I'm speaking from my end. Is it better now?
Please go ahead. We'll check.
For the incentive or initial deals that we're actively pursuing now, do those deals involve a large component of the starting hardware of something specifically related to?
We can't hear you clearly, Shraddha. We can't hear you at all.
May we request you to please move to an area with better network or reception?
Okay. Thanks. Thanks.
Or if you don't mind, just send that question. Send that question on the chat window. I'm sure there is one way to do that.
Thank you. The next question is from the line of Manik Taneja from Axis Capital. Please go ahead.
Hi. Thank you for the opportunity and congratulations for the steady performance. Nitin, I wanted to, while you mentioned about the fact that we should probably see the correlation between revenue growth and headcount reduce going forward, it would be great to understand your thoughts as to do you think some of these transitions towards almost like a platform business can drive margin gains for us, given in the past we've seen the industry compete away the margin gains back to customers? That's question number one. The second question, with the way that you see demand playing out across different industry segments, do you think our concentration or proportion of business coming in from banking once again grows in the foreseeable future, given the way one is seeing industry demand progress?
So I think the first question is, let me take that one. I'm not sure the second one I understand. But let's take the first one around transition to the platform model. I think that is, in a way, the North Star. The question is, as you rightly said, that industry has competed away the gains from this model back to the customer. That really is there are two issues that we are very, very watchful of. Change management at the client level. Will the client buying behavior change from buying predominantly capacity-driven contracts? Second, change management behavior will always be around competitive intensity, the ability to construct deals that actually give you some lift and some benefit. Early days, I think we are in the first innings of a baseball game, so to speak. This will play out over the next few years, definitely.
All I can tell you is there are existing instances of at least a handful of companies that have managed to transition from a pure services or a solutions business to a platform-based services business. We are very focused on learning the best practices and making sure that as we invest in some of the platforms, we will definitely take a commercial approach that is value-accredited to the customer to begin with, but most importantly, also gives us a degree of differentiation and stickiness that helps us beyond just looking at short-term margin lifts. So I think, again, early days, this is a topic that will continue to be discussed over the next few quarters. We are, again, very deliberately and consciously driving a whole set of actions around it, and we'll continue to keep you updated. If you don't mind, can you repeat the second question, please? BFSI growth.
Sure. So my second question was that in the post-pandemic demand upswing, we saw the proportion of revenue that we get from banking go up given the strong spending in that segment. Do you see that once again in terms of the foreseeable future, given the way you are seeing demand patterns play?
Manik, short answer is we will take the growth where we can find it in the short run because there is only one color of currency. If you look at our longer-term trajectory, let's take a five-year, seven-year view as well. Banking used to be 50% of revenue, and it's still very much 50% of revenue at an overall company level, give or take a percent here or there. So I think the portfolio diversification approach of building the other enterprise verticals definitely has given us good rewards in the last three or four years. I mean, TMT is a great example. The approach to very short-term will always be over-indexed on opportunity and deal-making. And the approach to long-term is to continue to look at portfolio across verticals, geographies, and services. So I wouldn't worry too much about getting overexposed. I think there is tremendous opportunity.
By the way, this is without the upside risk to business growth if the interest rate cycle truly plays out in some shape or form. This is the first time we've seen in, I think, the history of financial markets that at least I've been following, where after 100 basis points cut, the 10-year has gone the other way. I think we have suffered a little bit in the last couple of years. We'll take the benefits in the very short run, and we'll continue to focus on driving in our core vertical the right to win and expand as much as we can with existing clients, new clients, new verticals, new geographies in the BFSI segment.
Sure. Thank you. All the best for the future.
Thank you. The next question is from the line of Abhishek Shindadkar from InCred Capital. Please go ahead.
Hi. Thanks for the opportunity and accommodating me. Nitin, just one question on the headcount. Now, how should we read the declining headcount and corresponding change in the next-gen services TCV? So it seems like a strategy to focus on managed services deal. Now, are we kind of planning headcount for the potential rebranding of employees that can happen or associated with this kind of deals, or is it a change of a pyramid where we are moving from the middle layer to more freshers, and that's what is the reflection of it? Thank you.
Yeah. I think I addressed the headcount issue that Rishi had asked. I don't have anything new to add except tell you that you can't plan for a rebadge deal until the deal happens. If it happens, you plan around it, and you see how to optimize your current pyramid and your current deliverable to the customer. So I think the short answer is that we will continue to do headcount forecasting on a rolling 90-day basis, look at how the demand environment looks like across locations and skill sets, and then try to meet that with either internal utilization or external fulfillment. And that's very much an operational rigor that is well built into the company and will continue to get optimized as we grow the business.
Thanks. And just to follow up to it, as we move more towards managed services deal, has anything changed in terms of the revenue recognition for the managed services deal? Last year, we had heard of taking transition timelines up to six months. Anything changed on that account? That would be helpful. Thank you.
Yeah. I think the revenue acceleration from these TCV definitely has improved, which means the transition timelines are not as long right now. When it comes to managed services, it's a combination of right-shoring and effort elimination, as I mentioned earlier. So that will definitely play out into the aspect of the non-linearity in headcount to revenue correlation. Beyond that, I think we will report and explain away these numbers as we go forward. But we are looking actively for opportunities where effort elimination is very much part of the thesis of constructing a solution and a large deal around it.
Great. That is very helpful. Thank you for taking my question, and let's proceed to the next year as well.
Thank you. Ladies and gentlemen, we will take that as a last question for today. I would now like to hand the conference over to Mr. Nitin Rakesh for closing comments. Over to you, sir.
Thank you very much. And on behalf of Mphasis, that concludes this conference call. If you have any further questions, please reach out to our investor relations team, and we thank you for our interest and look forward to speaking to you again in three months.
Thank you. Ladies and gentlemen, on behalf of Mphasis Limited, that concludes this conference. If you have any further questions, please reach out to the Mphasis investor relations team at investor.relations@mphasis.com. That is investor relations, sorry, that's investor.relations@mphasis.com. Thank you all for joining us. You may now disconnect your lines.