Hi, good afternoon, ladies and gentlemen. I'd like to warmly welcome everybody to hSenid Business Solutions' quarterly investor update. Before I kind of pass it on to Nilendra to go over the presentation details and how we would attack, how we would actually conduct this, I just want to give an update to all of you that in 2021, end of in 2021, when we went public, we actually had a plan that we actually put out to in our prospectus as well as in our quarterly updates, AGM, that we had a plan on how we would want to utilize the funds and what our plan was in the execution of hSenid Business Solutions. So in that, we had a very laid-out plan that we wanted to tell everybody what our investment strategies as well as how we would do the market expansion.
In that process, now we are actually coming to the tail end of that, most of our investments being done, and we will still do a certain amount of market expansions, but I think the underlying thing is that now we are seeing what we have been able to deploy over the last three years and what some of the results that we see, and most of you would notice how it has kind of helped in growing the organization and the kind of the prospects for us into the future. With that opening remarks, I will actually pass it to Nilendra to talk about the structure of the presentation and how we want to take it over. Over to you, Nilendra.
Thanks, Dinesh. Hello, everyone. Thank you for joining the Q2 Financial Year 2026 Investor Call of hSenid Business Solutions. We are excited to share the progress made on our journey towards being the most preferred HR tech solution provider in the emerging markets. Today, we'll discuss our recent achievements, financial performance, and overall strategy to drive sustainable and profitable growth that creates long-term shareholder value. The quarterly earnings presentation was uploaded to the IR website as usual shortly after the release of the quarterly filings. Before we get into the Q&A, as usual, I'll go through a summarized readout of the performance of the second quarter and then open the floor for questions.
To start out with a quick rundown of Q2, we recorded a revenue of LKR 516.9 million, almost LKR 517 million, for the three months ended September 30, 2025, reflecting a robust 23% year-on-year growth in both LKR and USD constant currency terms. PBS HR Cloud continued to be the lead top-line performer, delivering 34% year-on-year growth in LKR terms and 35% year-on-year growth in USD constant currency terms. All recurring revenue streams accounted for 72% of total revenue, with recurring subscription revenue delivering strong year-on-year growth of 34% in LKR terms and 36% in USD constant currency terms. By the end of Q2, co-exit annual recurring revenue surpassed $4.9 million, continuing the strong momentum in ARR-led growth. New deal closures for the quarter amounted to approximately $382,000, with 76% coming from the PBS HR Cloud segment.
After adjusting for one-off staff restructuring expenses, normalized EBITDA margin improved significantly to 11%, more than quadrupling from the Q1 margin of slightly around 2%. The strong improvement in operating profitability marks a key step forward as we stand on the verge of achieving normalized EBIT break-even point. The company recorded a net loss of LKR 25.9 million. However, this was after incurring a one-off restructuring expense of LKR 25.5 million, while adjusted free cash flow remained positive for the third consecutive quarter. As we progress through FY 2026, we remain focused on driving growth across key markets, advancing towards sustained profitability and delivering greater value through our evolving HR tech product portfolio. With that, our opening remarks come to an end, and we will now move into the Q&A session. As usual, you can use the Q&A function to send in your questions or use the raise your hand button.
Click on the raise your hand button so that we may then provide you the opportunity to raise your question using your mic. With that, I'll open the floor for questions.
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I think we have one question that has come in. When are you projecting to return to net profit? Second question, any top line, bottom line, and margin projections for this year and the next few years? Third one, reasons for improved performance this quarter. Maybe I'll take it since it's on the financials. The first sub-question, when are you projecting to return to net profit? In Q4 of financial year 2025, on the quarterly IR call, we gave an expectation that Q3 of this fiscal year we will be profitable. Now we are on the second quarter call and going in quarter three right now as far as the fiscal year is concerned.
We can confirm to you that we expect to achieve profitability at PAT level in the third quarter, in line with what we mentioned in the fourth quarter call of last fiscal year. In terms of top line, bottom line, and margin projections, I think we've been consistently maintaining that as a SaaS company, our target is to achieve and exceed the rule of 40, which we believe is kind of the gold standard for SaaS company operating benchmarks. The rule of 40 is made up by two components, one being ARR growth in annual terms plus free cash flow margin. As we speak, second quarter, we have an ARR growth of about 30%-35% actually, with an adjusted free cash flow margin.
When I say adjusted, we are adjusting for the staff restructuring expenses only of 5%, which gets us almost to the 40% point. Our end goal by end of this fiscal year is to stay above the rule of 40, as we have mentioned in previous calls, maintain a minimum of 30%-35% ARR growth on an annual basis, and 5%-10% ideally on the free cash flow, which gets us above the rule of 40. We believe this will give superior valuations, valuations that are more in line with what we've been talking about in our previous calls where public SaaS companies are trading at about six, seven times ARR. Subsection three of that question, reasons for the improved performance this quarter, there are no surprises here.
I think as Dinesh laid out at the start of the call, and we have been mentioning throughout our previous calls, if you can look at it, it's uploaded on the website, the investor relations section. We have been continuously showing you the progress that we've made on the ARR growth. We've told you that the ARR growth comes with a very significant flow through to the bottom line. Every additional dollar of recurring revenue that we generate from this point has a significant flow through. By getting closer to $5 million ARR, which is a pivotal point in our journey, it's the point at which recurring revenue covers for the entire overhead base of the company, of course, assuming the tracking business and the services operation runs in a profitable manner, which it is right now. Five is a pivotal point.
I think we've spoken about this about three quarters ago as well. The fact that now ARR is going beyond this pivotal point will mean that we see that significant flow through, and you will start witnessing that hockey stick-like kind of growth in our numbers going forward. Let me stop at that and go on to the next question. The current system at our workplace users manually.
I'll follow up on that question, Dinesh. Yes.
If someone is using PBS HR platform, we have a benefit administration module. All the benefit types can be defined from the module itself, and you can control all the benefits through that, variable and fixed benefits. If there is a plugin for PickMe, there is a specific question on PickMe side. If there is a plugin on PickMe, we can integrate, and we can make it seamless in the benefit administration area.
Let me move on to the next question. When the company is expecting to reach break-even, do you believe to sustain the positive operating cash flows? I think I answered the first part of that question. Like I said, Q3 is going to be a profitable quarter and profitable on a sustainable basis because this profitability is not coming with one-off revenues, but rather continuous growth momentum that has been built in the ARR line. I think one factor that we always talk about and highlight in the IR call is the quality of revenue, meaning percentage of recurring revenue as a percentage of total revenue. Typically, in a SaaS company, this can be in the range of 80%-85%. We are at 72% this quarter. With a few more quarters of sustained growth, I think we should be able to get in line with those benchmarks.
Since growth and both profitability is driven by recurring revenue, that completely flows down to cash flows, and you see the healthy free cash flow. That is why free cash flow to us is a very important operating benchmark that we, in fact, internally even measure and monitor even on a monthly basis.
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Moving on to the next question. How does the data protection regulation impact you? Do you have a sense of whether the current HR practices in most Sri Lankan employers are in compliance with the data protection regulations? Sampath?
Yeah. PBS HR product point of view, we have incorporated data protection-related practices. We are an ISO 9001 certified company and ISO 27001 certified company and also a cloud security certified company. We have acquired all the required security certification with regards to data protection. At the same time, we are doing vulnerability assessment also through a well-known third party on the product releases. PBS HR platform point of view, we are secure in that nature. Second part of the question, Sri Lankan employer's point of view. If someone is using PBS HR platform, platform point of view, data storage point of view, especially on the cloud customers, it is secure. Other than that, we do not know about the internal practices within HR departments where we do not have control over that. Data residing in our platform is well secure.
Let me read out the next question, and also I'll pass it on to you, Sampath. The question is, could you expand on what was done in the staff restructuring exercise?
Yeah. When it comes to overall development of the company, like Dinesh mentioned, there are multiple areas we worked on. One is overseas market expansion at the same time, internal process improvements as well. We implement multiple systems at operational level and streamline the product development process, support services, how we handle then our CRM practice, our demand generation practice. We streamline with the support of technology and especially even some of the areas we start using AI. With that, we did a right-sizing of the company in each department. That's the staff restructuring we are talking about because today's organizations are very agile, and you are looking at skill set, not just number of employees. That's the restructuring happens. There's a significant cost saving goes into our P&L in the next few quarters, but there's one-off cost we incurred in Q2.
That's what Nilendra mentioned during the initial discussion.
Yeah. Just to put things into context, I think we've mentioned this even during our last call. I was going through the transcript today. With our current staff strength, of course, the mix would change. We might lean more towards having more sales and marketing investments and cutting down in other areas. We are confident that we can get to our goal, which is $10 million in ARR, annualized recurring revenue, with predominantly this staff strength. That is about some of the improved productivity and efficiency measures we've done internally. The next question, can the company absorb unexpected infrastructure developments and unexpected costs after breaking even? Maybe I'll take that since it's touching on the cost. Yes, infrastructure is a significant component of our cost structure. However, we do have long-term agreements with our infrastructure providers as well.
These are the hyperscalers, predominantly Microsoft and other cloud infrastructure providers. Typically, we have three-year lock-ins on the price so that we have that certainty to the business. From an unexpected cost point of view, right now, we do not foresee anything. Frankly, I mean, it is very hard to look far into the future, but we have taken all measures to kind of contain those wherever possible with contractual undertakings. Of course, as our customers' usage of our product increases, naturally, infrastructure costs will kind of scale up with that. We have this regular repricing or renewal intervals that happen with our customers where we take this up for discussion and then go through a repricing exercise so that the revenues reflect the level of usage of the product and also the heightened, if any, heightened infrastructure cost.
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I'll move on to the next question. Reasons for reduction in year-on-year admin expenses and sales and marketing expenses. Sampath, do you want to take that or?
Yeah. One area is actually we change our practices a little bit, like sponsoring large-scale events too. We move to pocket events in some of the regions we are developing. That brings us the cost-effectiveness. Also, we deploy some of the local resources in some of these regional countries and looked at country-level heads rather than looking at global leadership for sales and marketing area. These country-level heads will give us the focus to develop that particular country, and that is more sustainable. That reduces our cost structure at the same time, improves our efficiency on GTM practice.
Let me read out the next question and also probably hand it over to Sampath. Is the restructuring exercise fully complete now? Do you expect any further staff restructuring expenses in the second half of the 2026 financial year?
We are not expecting restructuring expense in H2, that is remaining part of the current financial year. Of course, with the improvements we are doing, overall headcounts can go down with natural attrition and stuff like that, but we are not expecting any major restructuring expenses in the second half of the year.
I'll move on to the next question. Can the company absorb higher marketing costs post-break-even to acquire more clients? Maybe I'll give a quick answer there. The profitability we are achieving, which we have said that we are achieving in third quarter, is after accounting for this customer acquisition cost that we anyhow incur on a quarterly basis. I think we've mentioned in previous calls, we measure the effectiveness of that sales and marketing cost by looking at GTM efficiency ratios, meaning how much of sales and marketing expenses are we investing through the P&L to acquire a dollar of net new ARR. We always try to be more efficient than the benchmarks out there. I think we've mentioned in this deck as well that our GTM efficiency is at about 150%, meaning we spend $150 in sales and marketing expense to acquire $100 of net new ARR.
When this ARR continues, typically that would mean in the second half of the second year, that is in 18 months, it will be fully paying off for the customer acquisition cost. Yes, the marketing cost required for the current run rate is already baked into the P&L, and we are talking of profitability after accounting for this customer acquisition cost. I'll move on to the next question. Can we get a sense of the customer churn rates and acquisition rates each quarter? The churn rate, I think we report gross revenue retention, GRR. GRR is essentially one minus churn rate. The GRR annualized number is 95%, which means annual dollar basis churn rate would be 5%. Again, to put that into context, that compares with roughly 10%-12% of churn rates that is common in the B2B SaaS industry.
The second part of that question is about acquisition rate. I think the easiest way to look at and interpret the health of customer acquisition is to look at the quarter-on-quarter growth in recurring revenue. I think we've mentioned this again several quarters ago that our aspiration is to stay at 8%-10% quarter-on-quarter growth, which means that on an annualized basis, once you compound it, that would be somewhere around 30%-35% to slightly above 40% in terms of annual ARR growth. I think that would be a good way to measure our performance on a quarter-on-quarter basis as to how we are acquiring clients is to look at the quarter-on-quarter ARR growth. I mean, simple math shows that if you can achieve 10% quarter-on-quarter, that compounded over a four-quarter fiscal year would even be higher than 40% when compounded.
I'll move on to the next question. You mentioned that reaching an ARR of LKR 5 million marks the break-even point. In fact, it's $5 million. I'll continue with the question. Beyond this level, approximately how much growth in EPS can we expect for every additional $1 million increase in ARR? Typically, given that most of the costs on the P&L are rather fixed to a larger extent apart from certain infrastructure-related costs that might be variable, as a rule of thumb, a good 70%-75% of incremental revenue flows down to the P&L. You can work the numbers to see how that would reflect in terms of profitability growth. By and large, that's kind of the flow-through rate we look at when it comes to incremental revenue.
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I'll read out the next question and hand over to Sampath. How is the project in pipeline? And from which region are they from?
Yeah. We are targeting three regions, especially Southeast Asia market, then the Middle East and African region, and South Asia market. South Asia point of view, Sri Lanka is doing a good job as usual. The balanced revenue comes from Southeast Asia and Middle East and Africa. Africa, we got a good traction during the last couple of months as well, and that is continuing. Southeast Asia market demand generation is happening at a healthy level. With that, actually, the pipeline is strong in all three regions we are working on at the moment.
Which countries drive the growth of 34% year-on-year growth of PBS HR Cloud revenue? Can you mention the country-wise contribution to growth? Is it due to ongoing migration to the cloud in Sri Lanka? I think Sampath's answer to the previous question, across the board, we are seeing this growth coming. Like the second part of the question mentions, yes, the migration from on-prem to cloud is helping us get more kind of traction in Sri Lanka. Broadly, from a region point of view, we see growth coming across the board. Of course, like we have mentioned in previous calls, the focus is to accelerate overseas revenues, which tend to have higher margins as well. Let me move on to the next question. Could you give examples of the variable costs that could occur in the future, and what is the percentage on total cost?
Typically, every additional dollar of ARR, we would have additional infrastructure costs and additional support costs. At most, these could be in the range of about 30%-40%, which goes back to what I mentioned where the high flow-through happens to the P&L. That kind of gives you an idea of how growth can be as we continue to build on ARR. There's another question. Okay. There's a rumor circulating that HPS might be planning to sell the company. If that happens, what would the potential valuation be? I'm sorry, there aren't any events that kind of require disclosure or any events of that nature that require disclosure to the market ongoing. If and whenever anything of that sort happens, we will go by the listing rules and make necessary disclosures. I would like to just touch on the second part of the question.
Leaving any transaction or any speculation out, we have been continuously maintaining the fact that as long as we as a company can deliver on the rule of 40, which is free cash flow margin plus ARR growth being 40 or above 40, that puts us in the top quartile of SaaS companies globally. This means public SaaS companies today trade at roughly 7 times ARR. If we can stay above the rule of 40, that means we get a premium. There are certain SaaS companies globally that even achieve 60. There is ARR growth plus free cash flow margin of 60. They trade at sometimes even double-digit ARR multiples. I do not think we are in a position to tell where the market should trade at. I think the market will figure it out.
I think at least looking at these KPIs and where we are heading on those KPIs, I'm sure informed investors and analysts can form their own opinions about the valuations. I think we've included a slide on our deck as well showing where we are kind of compared to that median line. I think we can move to that slide just to flash it on the screen. As of releasing this, I think the market may have moved in the last couple of days. As of releasing this from a rule of 40 basis, we've almost gotten there, almost 39 points something, which is close to 40. From a revenue multiple, we were around 1.2-1.3.
I think some of the market movements over the last couple of days may have taken us closer to maybe about two and a half to three times, maybe around that. I have not calculated the exact numbers, but you see the median there. Median is somewhere above five, closer to six. The more we outperform on the rule of 40, you see how the multiple is upward-sloping and correlated to performance of the rule of 40.
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Okay, I'll go back to the questions. Do you have a timeline attached to the 10 million ARR goal? Sampath, do you want to comment on that?
Yes, so Nilendra mentioned our ARR growth is quarter-on-quarter, 8%-10%. We are planning to continue that growth momentum into this financial plus next couple of financials as well. You can predict the ARR growth, and that is more or less now steady.
Yeah, so I mean, again, like I said, 10% quarter-on-quarter, if you project that forward, hopefully if we continue to execute as we are and as we have been executing over the last quarters, I think within 10 or 12 quarters or so, you can work the math. We should be able to get there. What are the expectations for business pipeline growth and new deal closures in Southeast Asia and the Middle East and Africa regions, Sampath?
We explained this question earlier as well. As I told you, primarily two regions, Southeast Asia market and East African region plus Gulf, that is Middle East region. Those are the three regions we are expecting our pipeline growth. There is a good demand generation happening in these primary two regions we mentioned, other than Sri Lanka, because Southeast Asia market, we are looking at Sri Lanka. Of course, Southeast Asia and East African belt giving us good traction. That will contribute to our pipeline.
Why should a Middle Eastern, Asian, maybe ASEAN, ASEAN customer come to you other than going to another HR? I suppose that's HR, another HR tech player. Sampath, do you want to take this?
We have identified our value proposition. When you position our product into a market, we look at local players available in the market at the same time, global players available in the market from the U.S. and Europe as well as Indian high-end tech players. That is where we position rightly. We look at the localization aspect as well when you move to a new country. We identify certain niche areas to cater to that market segment. That is how we identify the market potential and cater to the market requirement through PeoplesHR platform. At the same time, we look at certain industries where we are very strong overall when it comes to acquisitions and demand generation. We have a clear plan for that. With that, actually, both the regions' product is competitive.
As seen with PickMe, the market seems to be quite forgiving of capitalized contract costs. Why take such a conservative stance with only 15% of revenues on marketing and only $5.5 million in capitalized contract costs in your case? We can't comment on the level of conservativeness or aggressiveness of other companies. That's not something we know, and it's not right by us to do that. On our approach, I think we do what we think is right by the business and right by the shareholders. Whatever commission costs and customer acquisition costs that is directly identifiable to a sale, we go ahead and capitalize. I think the note on the annual accounts also kind of indicate what has been capitalized and what has not been. We prefer doing it that way. Okay, that question is a repeat of the repeat.
Could you comment a bit on the recent trend on new customer additions and also a bit about the competitive landscape in Southeast Asian region, Sampath?
As I told you earlier, there are two segments. That is the high-end segment. Global players are available in the market targeting large conglomerates. At the same time, there are local players working on the low end of the market. That is SME sector plus middle sector as well. We are positioned in between so we can compete from a product point of view, the future point of view. We are also an end-to-end product that is high to retire in our terms. We can position in all these segments. We are not getting into the SME sector at the moment. Yes, we are operating with some local players on the SME sector. Medium sector, we have a good potential product point of view. At the same time, we compete in the large-scale conglomerates as well.
We are well positioned, as I told you, in the region because we have done the product localization to cater to the local requirement, even the language localization to support the local market needs. Stat point of view, we have localized the product to the regions we operate. As I told you earlier, Middle East and Eastern African region. At the same time, Southeast Asia region. Product catered to the localization, including language capabilities. We are well positioned in that segment.
Okay. With a 1.5-year breakeven and strong retention, are there any real constraints to scaling beyond just increasing marketing spend? For instance, can your cloud infrastructure handle a large customer base or onboarding limitations?
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Maybe I'll add a few perspectives to this, and Sampath, feel free to add in as well. Yes, definitely one lever that we have to push to grow is sales and marketing spend. I think, like we all understand, the world has moved beyond the growth-at-all-costs kind of era. Being very disciplined and very granular about what you spend and what you get in return for that spend is really important. That's why we continuously talk about GTM efficiency ratio. I think we've been talking about it for the last four or five quarters, if not longer. We believe this 150% ratio is the right place to be from a financial discipline point of view. The second part of the question touches on infrastructure limitations. No, there are no infrastructure limitations. I just want to put a case in point.
The question is, is the product capable? A good example for that is the Government of Uganda project, 453,000 employees. 453,000, that's 500,000, almost 500,000, including the topmost employee number one president of the country right down to the lowest government public servant is using People's HR. That is a really good example for how the product can be deployed at scale. That is a very important statement because not many products can handle that scale. I think that's something I need to mention. Of course, there is another. Yeah, Sampath, go ahead.
Go ahead, Nilendra. Yeah.
I just want to say something that we've been also investing in and maybe not talking a lot about is building this partner ecosystem. Partner ecosystem-related investments take long to pay off, but adds a lot to scalability because if you have, for example, hypothetically, 100 organizations buying your software tonight, tomorrow, I mean, we can create copies and deploy the software on the cloud. We also need onboarding capabilities, which we are now building through. We have been building through our partner network. The more partners you have who can understand your software, deploy it in the proper way, and are trained to do that, that adds even more multiple layers of scalability into your software. I just want to mention that. Sampath, go ahead.
Yeah, so two points to add. Like Nilendra mentioned, not only the HR aspect, actually, the 453 people are getting paid every month through our PeoplesHR platform salaries plus the pension payments through one single.
453,000, yeah.
Yeah, 453,000 people's salaries are paid from the PeoplesHR platform. That shows the scalability. Of course, the regional growth, we are looking at sustainable growth, like Nilendra mentioned, partner-driven approach and building our own teams in some of the countries because we believe we can grow with the localization aspect. When the product is ready for a particular market, we can achieve sustainable growth in that particular market because customer references are very important to build the market. That is what happened in Sri Lanka. We are getting similar momentum in certain other regions as well. We are planning a sustainable growth in some of the regional countries.
Would you consider inorganic type growth in a potential market, in your potential markets, that can accelerate customer acquisition, or is that model not workable at all? If I go back to what we told the market and the shareholders when we did the redeployment of the IPO funds, the key metric that we looked at is out of the opportunities out there, at what kind of multiples are you going to buy that revenue? Six, seven, eight times at a minimum versus if you can organically grow at 1.5 times or the 150% GTM efficiency ratio, spending $150 to acquire $100 of new ARR, then clearly the organic route seems to be a better way to bring that growth about. I mean, having said that, if some opportunity that is attractive comes our way, we would be more than happy to look at it.
For the moment, I think we are focusing our heads, keeping our heads down and focusing on organic growth since we are executing well as witnessed by the quarter-on-quarter and year-on-year ARR growth levels. There's another question I'll put it to Sampath, referring to a competitor. Do you think a certain competitor is becoming a strong competitor to you in the Sri Lankan market, or will HBS remain the market leader?
I don't want to talk about the competitors. There are many competitors available in any market we operate. Our position is very much clear. We are competitive, and we look after our customers as much as we can because we have a customer success team closely working with our customer base, not only in Sri Lanka, in multiple regions. We keep our focus on existing customers and focus on acquiring new customers in the places we operate, the regions we operate. Of course, like every country where we go, there's competition. There are new players coming into the market. There are players moving out of the market, but we remain consistent on these market segments and markets.
The ARR growth over the past few quarters has been impressive. In your view, what are some possible risk factors that could derail this growth momentum? Is the growth in ARR a result of improving market share, or is the pie growing overall at the same pace as well?
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Sampath, do you want to take it?
I feel like growth is happening from all areas. Like when we open the product into multiple markets, our pipelines are building, as we discussed earlier, and the ARR, our majority of revenue, core revenue, if you look at, comes from the ARR side. Even the $300,000-plus revenue we acquired, new revenue we acquired during last quarter, also majority is ARR revenue increase. The revenue contribution, ARR contribution happening from all three regions we operate. It is a steady ARR growth.
Yeah. If I may add to that, outside Sri Lanka and Bangladesh, frankly speaking, all these new markets we are getting into, the total addressable market is really big. These are highly populated countries with a significant share of private sector participation in the economy, which means private sector labor force is very large. We pick countries where industrial share in the GDP structure is large as well because that tends to have workforce-heavy businesses that really feed into where our product is strong. If you really look at some of these countries and the potential, the total addressable market they have, we are just touching the surface. I think it all boils down to us really buckling down and executing correctly so that we can slowly but surely improve our market share.
The volume is so big in these markets, the opportunity is so big that in terms of hSenid Business Solutions growth, that can have very, very significant impact on our numbers. Can you comment a bit on the penetration in the local market? How much market share do you have? Also internationally, if you have figures.
I'll put it in a different way. If you look at, if you list down top 100 companies, LMD or any other source, top 100 companies in Sri Lanka, 70% use our platform. That shows our strength in the local market. When you're getting into other markets, different markets, our positioning can be different. Like if you look at the African region, we directly touch the top tier, banks, insurance companies, tier-one companies with the government sector, tier-one organizations. When it comes to Southeast Asia, it can be a little different. We can't right now tell you a market share, a percentage point of view, but there's a good growth momentum happening in some of the countries we operate, especially large employee markets.
The presentation mentions that the company secured multiple high-value banking and insurance clients in Sri Lanka. Could you elaborate on the scale of these projects and clarify whether they fall under the cloud business segment? Maybe I'll make a quick comment there. Yes, predominantly all of these are cloud projects. I mean, I wouldn't say the scale is, it is in line with the usual enterprise-sized deal that we would do, so nothing out of the ordinary there. I mean, like we said, these are some valuable brands. I think when the projects go live, we will be making usual social media kind of publications, celebrating the go live events. That will be visible at that point. Do you believe hSenid Business Solutions has successfully overcome the challenging period? Will the coming quarters be a good time for the company? I am one of your long-term shareholders.
I'll maybe answer that from my side.
I'll add a point then Nilendra can explain further. We won't say it's a challenging period because like Dinesh mentioned, it's an investment period. We utilize the capital raised for market development and other internal development work, product development, market development, and internal process improvements. That's a period we went through during the last three years. With that, I think we have built the company to move to the next level. Yes, Nilendra.
Yeah. I think, again, I think it's a nature of SaaS businesses that we've been talking about probably for the last so many ARR calls that customer acquisition cost is the biggest lever that you have to pull in order to grow. Unfortunately, given the nature of the business, customer acquisition cost is front-loaded. It's the P&L. You'll begin to see revenues maybe 12-18 months. Profitability and proper cash flow in these new markets will be probably 24 months down the line. I think we've gone through that kind of almost two-year period. I would invite all of you to kind of judge us and monitor us on those key KPIs, pre-cash flow margins, quarter-on-quarter, and year-on-year ARR growth because these are the indicators that would ultimately reflect in the valuation.
Of course, whatever the sales and marketing expenditure that we are investing, continuing to invest through the P&L, how productive it is as measured by the go-to-market efficiency ratio. That is the total fully burdened sales and marketing cost divided by net new ARR. We are continuously focusing on these numbers and trying to optimize ourselves around these numbers so that we can grow and grow sustainably and profitably. There is a comment at the end. Thank you to the management and the entire HBS team. Wishing you all the best. I hope HBS will trade at 7-8 ARR soon. The market has already reacted. The results appear ready. Thank you for your comment. I think we have gone through all questions that have been posed to us. Let me repeat once more. If you have any questions, you can send it on the Q&A.
If not, click on raise your hand so that you can raise your question. We can give you the opportunity to raise your question on the call itself. Maybe we'll give one more minute before we wind up.
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Dinesh, I think we are good. We can wind up.
Yeah, again, thank you for everybody being here today. I think especially, a kind of heartfelt thank you for all our stakeholders, especially our shareholders, as well as who believed in the journey that we have gone through and what we are doing. Something that we did not mention too much, but we are heavily investing into AI. AI is something that we all believe is a disruptor. You would have seen latest versions have actually quite a bit of AI built in. That part of some of that, there are two areas. One is that you have it built into the system. Maybe Sampath can give a quick update on that. The second part is, I think, is the efficiency that we are taking from AI within the organization.
As most of you will see or have already seen, that is where we are moving. You will see quite a bit of activities in that area from hSenid Business Solutions coming in the future. We are on top of that. I think that this particular inflection point will actually further develop what we are doing. Once again, I would like to thank stakeholders for believing in us and the team. Maybe Sampath, if you want to just say kind of maybe.
Yeah, just yeah, once again, thank you for long-term investors at hSenid Business Solutions. So the AI point of view, as Dinesh rightly mentioned, one layer is internal AI implementation in almost all areas, product development to support services to everywhere. Customers who are getting our support service now, they can get into our AI journey as well, giving support through AI, a very efficient way. So that's one area we have deployed within the organization to improve all our internal processes. At the same time, people sit our platform point of view. We are releasing, we are going, planning actually a product release. We did the product release already, but we are doing some videos and product launch will happen within the next couple of weeks. We have done some videos as well for that. So we have integrated AI layer inside the PeoplesHR platform.
There are two things that can happen. One is actually providing the relevant information for HR users, HR leaders, and the top management of the company. That is one side. Second side, action-oriented area. You can action certain things with the support of AI. You will feel different when you access our PeoplesHR X latest platform we released during our last product release. We will do some marketing activities during the next couple of weeks. Stay focused with us.
Excellent. All right. Thank you very much. Thanks, everybody.
Thank you, everyone.
Thank you.