Ladies and gentlemen, good morning and welcome to the IKS Health Q4 FY25 Earnings Conference Call hosted by ICICI Securities Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations the company has on the date of this call. These statements do not guarantee the future performance of the company, and it may involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will remain in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal the operator by pressing star, then zero on your touch-tone telephone. Please note that this conference is being recorded. I now hand the conference over to Ms. Ruchi Makhija from ICICI Securities Limited. Thank you, and over to you.
Good morning, ladies and gentlemen. Thank you for joining us today on Q4 FY25 Earnings Call of IKS Health. On behalf of ICICI Securities, I would like to thank the management of IKS Health for giving us the opportunity to host this call. Today, we have with us Mr. Sachin Gupta, Founder and CEO, Ms. Nithya Balasubramanian, CFO, and Mr. Saransh Mundra, AVP Investor Relations. I'll turn over to Saransh for safe harbor and to take the proceedings forward. Thank you, and over to you, Saransh.
Hi, everyone. Welcome to our second earnings call as a public company. I'd like to begin with a safe harbor statement before I hand over to Sachin with the remarks. As part of the prepared statements and during Q&A, we may make certain statements which are forward-looking and may involve significant uncertainty. We don't take any responsibility to update such forward-looking statements, and your discretion is advised when making any investment decisions. Over to you, Sachin.
Hi, thank you, Saransh. Good morning, good evening, everyone, depending on where you are. Excited to discuss our performance for Q4 fiscal 2025 as well as the full year fiscal 2025. On today's call, I have with me, of course, in addition to Saransh, who leads investor relations, Nithya Balasubramanian, to get the name right, our CFO. And I will kick it off with some remarks that I have on the overall health of the business and performance at a high level, the financial performance. And then I will invite Nithya to dive into the financial performance in a little bit more detail, after which we will open it up for some questions. So with that, I wanted to start off again, at the risk of a little bit of repetition, with a recap of our business. This is only our second earnings call.
Some of you might still be new shareholders. So I'll just give a quick recap of the business and our strategy, and then talk to how we're executing on that strategy and the resulting financial performance from that strategy. And given, obviously, we're a niche business, I think that'll be best for everyone. So just so you know, we're operating in the U.S. healthcare provider market. And specifically, given its cost, quality, and access challenges, one of the things that we have seen that is happening is this transformation from reactive hospital-centric medicine to physician-led, patient-centric, and proactive medicine. And so we believe that the physician setting becomes a new fulcrum of care delivery as a result of that. That physician setting in the U.S., as you will remember, is about a $1.5 trillion market. And that has undergone a tremendous amount of consolidation over the years.
Hence, it has created this enterprise-scale market segment that IKS operates in. Our fundamental thesis is that when a cottage industry like the original physician market was, as you'll find, fragmented in the U.S. with 900-odd thousand physicians, most of which existed in groups of five or less, when a market like that consolidates into enterprise scale and needs to become the new fulcrum of care delivery, they go through some fundamental transformations. One such transformation is what we call this transformation from where they rediscover their core versus chore equation within their task continuum. The smart enterprises figure out that they should focus all their energies on the few core tasks where they create the most differentiated value.
And then a lot of the chores that are important to run the business but might not be where they create differentiated value typically get delegated to some platform or entity that can do these chores better, cheaper, faster, at scale. Now, obviously, given the size of the U.S. healthcare market and specifically the physician market itself being $1.5 trillion, the chores that we have identified, which cut across the entire spectrum from the exam room where the physician sees the patient all the way to the back office, those chores are almost 15% of their revenue, which makes for about a $225 billion TAM just for the chores that we have identified. And what we saw over the last 15 years with the business is that this phenomenon of consolidation and hence the delegation of chores really started to play out.
And hence, about $35 billion of that $225 billion has already been delegated. And so this $225 billion odd TAM is actually growing at nearly 8%. But the outsourced segment, which is around $35 billion right now, is growing at 12%. And that's really that outsourced segment or the concentrated or the consolidated segment of that outsourced segment is really what we are addressing. One other point, obviously, to remember is our ranking thing, right? Now, in a market which is as large as $225 billion growing at 8% or $34 billion growing at 12%, obviously, a lot of players come in because they want to share of that pie. Now, what happens, though, unfortunately, is because the size of the TAM is so large, a lot of players that have come in are really point solution vendors, as I call them.
So they've decided to focus on one or two or, maybe in some cases, four or five of these chores. And our thinking was that as the market matures, buyers will realize that they can't be in the business of buying 10, 12, 14 point solutions, integrating them. And so our vision was we will create a platform that has the full breadth of these 16 odd chores. And eventually, buying behavior will graduate more and more to that platform buying behavior. And so having said that, because that buying behavior is a sort of graduation curve, today we have to live in the duality of certain buyers that still are buying more point solution and then early innovators that are starting to demonstrate the platform buying behavior. And that becomes a very important strategic execution predicament for us.
Just in a couple of minutes, I'll lay out five key strategic execution pillars for ourselves. One of those pillars, as a result of this dynamic of buying behavior, where some are buying point solutions and expanding, whereas others are now starting to buy platform, we have to execute in a way where we are leaders in each of the features of the platform so we can win in the point solution buying behavior, as well as we are, of course, the only company in the world, perhaps today, that is having the full breadth of the platform. So if you can go back to the previous slide, Saransh. That's a high-level overview of the marketplace. Let me now talk a little bit about the five key strategic pillars with which we are executing in this business, right?
The first and foremost pillar is that we are moving to an AI-led, AI-native manifest of this platform. I've always spoken in the past about we started in a human-led tech-in-the-loop model, and we've gone from human-led tech-in-the-loop now starting to go to tech-led human-in-the-loop. But with the pragmatic use of GenAI, we now have another set of evolution happening rapidly, which is going from tech-led and human-in-the-loop to fully autonomous technology for certain features. That's going from human-led tech-in-the-loop, in some cases, to tech-led human-in-the-loop, but in many cases, to fully autonomous GenAI and even the execution of features is one of the most important strategic execution pillars for our strategy going forward. That's number one. Number two, as many of you will remember, we acquired a significant-sized business called AQuity in the third quarter of FY24.
When we acquired AQuity, we had to execute on that acquisition in four key dimensions. One, of course, given the size of their business, which is almost similar to our business at that time, we had to integrate this into one core organization that came across as a platform in the market. So that, I'm happy to note, we executed really well on that, mostly through FY25. That was one of the big focus areas of FY25. The second piece was, as you remember, AQuity was a very human-led, U.S.-based headcount execution model, and hence it presented a huge margin optimization opportunity. And one of our key vectors of execution within the AQuity acquisition was getting their margins. You'll remember our pro forma margins in FY24 when we acquired AQuity had gone to about 24%.
And the idea was that as we transform AQuity's operating model, we'll be able to get our blended margins to the early 30s over a period of time. So that was something that we knew we would execute on through most of FY25, and then, of course, some going into FY26 as well. The third key vector was that AQuity's 450+ large enterprise-scale clients, there was a big opportunity to cross-sell the various features of the IKS platform into the AQuity install base. Remember, we had 16 features in our platform. AQuity barely had about three. So created a whole cross-sell opportunity. But that, obviously, execution had to be started late FY25 and really will start manifesting most of FY26 onwards.
Then last but not the least, another important vector was, in addition to 450 clients that AQuity had, they had another nearly 250 clients that were not those consolidated enterprise-scale clients. And as you know, the cost of servicing small clients is almost as much as servicing large clients, and they don't yield as good margins. So the idea was, through FY25 and FY26, we would cut a lot of that scale of AQuity customers, which I'm happy to report also is something that we've executed fairly well on in FY25. From the time of our acquisition, when we had 850+ customers, now we are down to, as the math tells, by 2025, about 700-odd customers. Still some ways to go in FY26, but that's a vector that we have executed well on in FY25. So that's the strategic pillar number two.
Pillar number one, take the platform from human-led to autonomous in some cases and tech-led in some cases. Pillar two, get all the elements of the AQuity acquisition correct. Pillar three, execute on this thesis of being number one or two or three in each of our 16 features, even as we are executing on building the platform. That requires us to establish leadership in each of the features and prove that leadership through Ambit's rankings. We are typically focused on KLAS, Black Book, Everest, and Becker's. And so I think we've made significant progress along those lines in FY25, and I will talk to that pillar. The fourth pillar, obviously, is the growth strategy.
On the growth strategy, I just want to clarify there are essentially three market segments that we are operating in: large health systems, mid-size health systems, and independent physician groups that could be private equity-owned or sometimes they are public companies as well. And in those three, we have a differentiated go-to-market strategy. Large health systems, the buying behavior is still very, very rigid on point solutions. So there are strategies we will continue to operate. We will land and expand strategy. We will establish leadership in our features and sell those features as a point of entry to those large health systems and then expand from that. In mid-size health systems, I think we're already starting to see a graduation from point solution buying to platform buying. So there our go-to-market strategy will be much more platform-oriented.
And then, very interestingly, in the PE-led platforms or even publicly traded platforms, we're starting to see more and more appetite for the platform buying. So just keep this in mind. Two of the three market segments, mid-size health systems and independent physician groups, we will see more and more of a platform-driven go-to-market. In large health systems, we'll still have a more land-and-expand type of strategy. That's our fourth key strategic pillar, which is our growth strategy. And the fifth one is that slowly but surely, we will continue to move more and more to an outcome company.
Now, this is a really important area because most of the healthcare IT ecosystem that exists in the U.S. has been in the world of, "We will provide you a piece of technology and leave you with the challenge of figuring out how to deliver economic or clinical value from it." We believe that one of our moats going forward, based on the history of our company over the last 18 years and the genetics that we have built, with a little bit of fine-tuning, we will be able to be in the business of taking more and more accountability for driving outcomes from our platform rather than just providing them the widgets, and that is a gene pool that we are now starting to hone and build, and that becomes the fifth key strategic pillar of our execution approach.
And so what I wanted to lay this out for you all, because every earnings call, I will now refer to these five pillars of execution so that we can relate to them and understand what is working. And if we have to pivot on any of them, we will talk about that. So with that said, let me just quickly talk about our execution across these five pillars and put it in the context of numbers very quickly. First, of course, let's just go to our future client platform view. And I'm happy to note that we've actually made significant progress in that transformation from both human-led to tech-led, but in some cases, tech-led to autonomous GenAI-enabled.
If you look at the chart that Saransh is flashing, you'll see Scribble is now we have a variant of Scribble called Scribble Now, which is a fully autonomous ambient listening strategy technology built on GPT-4 and in the market now. With Scribble Now, we now have the most comprehensive range of clinical documentation solutions for physicians in the U.S., meeting physicians where they are in their journey of using clinical documentation, all the way from transcription, dictation-oriented transcription solutions to fully autonomous ambient listening technology. We've also made significant GenAI-enabled progress in our coding feature, which is a very large feature in our platform.
We already have the autonomous coding piece figured out for at least two very significant specialties, medical specialties, and we'll continue to progress that rapidly, having figured out how that technology works and having the access to mature that technology based on all the data in our development. So significant progress towards autonomy in coding, massive progress towards autonomy in another very important feature, which is patient credential clearance, which is essentially built around prior authorization. Many of you must have heard prior authorization for care that patients need is a very big challenge in the U.S. Often, lack of prior authorization leads to care not being allowed for patients, critical care not being allowed in some cases for patients.
And so it's a huge burden for physicians to prove that the care that they are about to provide to the patients or recommend to the patients is actually needed for their condition. So we've actually built a very exciting autonomous technology called EVE that actually addresses that problem. And then there's been a whole bunch of progress from a GenAI perspective in several features of our revenue cycle feature cluster within our platform, where a lot of progress has been made in the denial prediction and prevention dimension. Because revenue cycle is garbage in, garbage out. The more you prevent at the front end, the less work you have to do at the back end. And our denial prevention strategy is a very, very important part of that.
And then, of course, we've also been able to make some progress from a technology perspective and a GenAI perspective in predicting issue behavior and differentially nudging patients both to improve clinical outcomes and credential outcomes. So that's been some of the progress on that key vector of moving from human-led to both tech-led and autonomous-enabled through GenAI. What does it do for us? It does three things. It fundamentally improves the scalability of our solution. It improves the velocity at which we would scale. Because imagine a deal like a platform deal that we would do in a pure human-oriented model, it might take us six months to implement with the platform. In an AI-oriented model, we might be able to implement the platform in three months across all the features.
So scalability, velocity, and then, of course, margins continue to improve as a result of more and more tech deployment. So tremendous progress in that strategic vector. I will talk about our progress in the other four strategic vectors more in the context of our actual financial numbers. So let me provide a high-level overview of our financial performance for the fiscal quarter four or fiscal year FY25. I have to say that I think we've had a tremendous performance quarter that gives us a lot of excitement going into the future. For fiscal quarter four, we're happy to report a 17% year-on-year growth in revenue, coming in at about INR 724 crore. In addition to this performance, it's important to note that this 17% growth is in spite of the headwind of cutting the AQuity customer base. Remember, we've taken that from 850 total customers to now 700-odd.
Also, it also withstands the loss in revenue per customer that happens as we transform the AQuity margins. Because obviously, we incentivize customers to transform the model from a pure U.S.-based headcount model to a tech-led, in some cases, a GenAI autonomous tech model supplemented by a push for human capital in India. So in spite of those headwinds in revenue, 17% year-on-year revenue growth, absolutely tremendous execution on margins. Our EBITDA came at INR 226 crores for Q4 fiscal 2025, which represents a 68% year-on-year growth from Q4 FY 2024. So tremendous execution on the margins. I will say, and this tells perhaps quite a bit more details than needed, there were some one-offs in the FY24 Q4 numbers that were deflating the margins. So that has partly contributed to the 68%, but irrespective, a very tremendous growth.
And then, of course, that's resulted in a massive PAT growth of about 133%. So tremendous execution across the top line and the bottom line in Q4, leading to a successful quarter. EBITDA margins have gone from the 24% pro forma that we had in FY24 to now Q4 FY25 has come in at 31% EBITDA. So I think that's been a tremendous progress in this quarter as well. We stay on track for the margin optimization endeavors that we had spoken about when we started introducing the business to you. So this starts to speak to that second vector, which is the AQuity acquisition, right? The second strategic vector. We are fully integrated as we talk on AQuity. The margin optimization is in full flow, which has led to this 31%+ EBITDA in FY25 Q4.
Of course, there's a little bit more to come in FY26. I will talk about the cross-sell. I'm happy to report that we've been able to cross-sell features of the IKS platform to four significantly large health system customers in the AQuity install base. We're not at liberty to reveal their names, but super excited to see that early green shoots of cross-sell play out. Then I already said the right sizing of their customers has happened from we went from total customer base of 850 to 700. So that second strategic vector is execution, strongly reflected in our numbers. One other thing I want to say about our Q4 numbers is I have said this on our last call as well. In our business, due to quarterly seasonality, typically, it's not necessarily a good idea to look at QoQ growth.
But I realize that you guys are used to looking at QoQ growth in addition to year-on-year growth. So we put those numbers here as well if you look at the graphs quickly. And the QoQ growth on a consecutive quarter basis for FY25 is 10% QoQ on revenue, nearly 13% QoQ on EBITDA, and 14% QoQ on EBITDA margin. So not only a strong quarter of execution from a year-on-year perspective, but a very strong quarter of execution from a consecutive quarter basis as well. All of this, if you would move to the customer side, has essentially been enabled with strong transformation of margins in the legacy AQuity customer base, but then also some tremendous customer additions that we've had that we are happy to announce. And I'll put them in perspective of our market segments. The first one I'm going to talk about is Sky Lakes.
This falls into that mid-size health system marketplace. When I spoke about our growth strategy pillar, I spoke about the market segments, and I said mid-size health systems. Mid-size health systems are showing more and more of a proclivity to the platform construct. And so I'm happy to report that Sky Lakes has actually committed to the entire IKS Care Enablement Platform for their employee physician base. Super exciting. It's a mid-size system in the Pacific Northwest. Our definition of a mid-size health system is one that has revenues south of about $1 billion. So sort of like $250-$300 million to $1 billion health system range is how we think about these mid-size health systems.
What's also exciting about Sky Lakes is, if you remember, we have 16 features that enable the physician business, but we were also being pulled by the health system, the hospital ownership for these physician businesses in the market segment of the health system, saying, "Why don't you apply the same core versus offshore discipline to our hospital business as well?" And we were just sort of dabbling in it. But the way IKS typically works is when we want to really launch in a particular space, we like to take on ownership of the function end to end. So in Sky Lakes, what makes it super exciting is they've also given us ownership of their entire hospital revenue cycle. Now, you'll see that in the hospital RCM space, there are many vendors that do point solutions even within RCM, where they'll just be doing AR follow-up or patient AR.
With Sky Lakes, we have responsibility for their entire hospital revenue cycle in addition to the adoption of the full IKS Care Enablement Platform in their employed physician base. Important to note that if we're able to monetize and grow this business effectively in the hospital RCM space, that actually expands that $225 million TAM by another maybe $50-odd billion, which is the hospital RCM TAM, so super excited about Sky Lakes. Reflects that strategy that we have around mid-size health systems' proclivity to buy more and more of platform deals. Second exciting deal, Western Washington Medical Group, already an RCM customer of ours, independent medical group in the Pacific Northwest, also has embraced full adoption of the IKS Care Enablement Platform. Again, very consistent with our strategy. Two segments of the market showing proclivity to platform constructs, mid-size health systems, and independent medical groups. They could be private equity-owned.
They could be publicly traded. Western Washington, fine example of that. Third super exciting win, Platinum Dermatology Partners, another private equity-owned dermatology platform, maybe the number two largest platform for dermatology in America, also with an RCM customer originally. Now they've embraced the full breadth of the IKS platform that will be implemented there. A very important win also for New York that really starts to put us in the orthopedic specialty, which is also going through massive consolidation and maybe embraced our revenue cycle platform and are also doing some innovative things with us in the patient engagement feature of our platform. Then last but not the least, a massive, massive win for us with GI Alliance. This is a $2.5+ billion company that employs 1,000+ digestive health physicians.
Again, $2.5+ billion in revenue, the world's largest digestive health physician roll-up. They were recently acquired by Cardinal Health, which is a Fortune 50 company, for a cash transaction, maybe $3.9 billion. With that acquisition, Cardinal has also announced that they will be expanding GI Alliance's capabilities into other specialties like urology. And the idea there really is for us to become the de facto RCM execution platform for all of their endeavors across all of their specialties. So really, really marquee and exciting set of wins that, again, talk to the strategy that we have for growth, where mid-size systems and independent groups are showing more and more proclivity to buy platform.
Large health systems still continue to show more point solution behavior, which is why I'm also happy to report, like I was saying earlier, that four of our customer wins have really been able to cross-sell our IKS platform to four of the AQuity customers. Last but not the least, my remarks are, if you would go to the execution that we're having around being a leader in each of the features versus building the whole platform. I'm really happy to announce that Black Book has recognized us. I'm just going to go to the next slide. Black Book has recognized us as the number one player in AI-driven RCM solutions with documentation and medical coding. In addition to that, KLAS continues to recognize us as the number one player in transcription.
But they've also indicated that they will collapse all of the variants of clinical documentation into one category. And if they did that, I think we emerge naturally as one of the leaders in that space. And then, of course, from a hygiene perspective, we continue to advance all our security-related controls through the HITRUST r2 certification. So all in all, a very, very exciting and successful execution quarter that I think encapsulates all the hard work that the teams have been doing. At a very high level, as we touch upon FY25 before I turn it over to Nithya. FY25, if you could go to that graph slide for FY25, a year of strong execution, 47% year-on-year growth in revenue that has led to nearly a 50% year-on-year growth in EBITDA.
Revenue came in at INR 2,664 crores, resulting in a INR 791 odd crore EBITDA that then created a INR 486 crore PAT, which was a 31.2% year-on-year growth for FY25. Obviously, the PAT growth is a little muted relative to the EBITDA growth because of two reasons. One is the interest that came on the debts that we had taken on to acquire AQuity. And second is the amortization of the intangible assets that came with the AQuity transaction. So again, to sum it up, strong quarter of execution, FY25 Q4, resulting in a pretty strong year. Good execution across each of those five strategic pillars that we will keep talking about. With that, I'll turn it over to Nithya. I have one other remark to make after Nithya finishes right at the end, but with that, Nithya, over to you.
Thank you, Sachin.
So we have, I think, Sachin's provided you enough color on revenue, so I'll talk a little bit about the expenses. If you look at, I'll start with Q4 quarterly and then give you a bit more color on the full year as well. If you look at employee benefit expenses, which tends to be our largest expense item, you will actually realize that we have been able to reduce that significantly both year-on-year as well as quarter- on- quarter. If you compare it to Q3, this number was 57.3% as a percentage of revenue, from where we have been able to bring it down to 51.8%. If you compare it to Q4 of last year, that number was 60.8%. We have actually been able to grow revenues despite the reduction in headcount. Headcount, you will note that we were at 13,241 at the end of last year.
From there, in Q4 FY25, we went up year-on-year at 12,661. If you look at adjusted EBITDA, which excludes ESOP cost, that stood at 32.8% for the quarter. EBITDA, as Sachin had mentioned, stood at 31.2% compared to 30.5% in Q3, a 70 basis points margin expansion, and if you compare it to Q4 of last year, that number was 21.7%, so significant expansion compared to last year. It's been driven by two, three different factors. One was, of course, there was a little bit of a one-off in the base, which was towards the integration and acquisition cost when we were acquiring AQuity last year, but even excluding for that, margins have expanded very significantly, driven by, one, realization of cost synergies in the administrative expenses.
But more importantly, the transformation of AQuity's business model, where we have been able to do both a combination of deployment of IKS's tech as well as changing the mix from onshore to offshore. And of course, there has been a ramp-up of the new customers as well. Looking at the finance cost, we had about INR 20 crore of finance cost in the quarter, and EBITDA was at INR 28 crore. Year-on-year, you'll actually see a meaningful reduction in finance cost, and that has been driven by our strong cash generation and therefore our ability to pay down debt. If you look at ETR for the quarter, it was about 18%, but for the full year, it was about 19%. This took PAT INR 248 crore for 20.4% in terms of margins.
The ETR for the full year, as I mentioned before, was 19%, but please expect ETR for the next year to be around 21%-22% because we will be using some tax breaks on one of our SMB units. A few more commentary on the full year numbers. The full year revenue growth, as you will note, is 46.5%, but do remember that the base FY24 includes five months of AQuity. We ended the year with an EBITDA of 29.7%. You will note that the pro forma EBITDA of IKS and AQuity combined for 12 months in FY24 was 24%. A significant margin expansion compared to FY24. Finance cost has increased to INR 89 crore for the full year, but this is due to the full year impact of the debt that we had incurred when we acquired AQuity.
Full year PAT was 18.2% as against the 20.4% last year. Please note that the pro forma PAT was actually 12%. So again, comparing like to like, PAT has also expanded quite significantly. Saransh, if you can go to the cash flow slide. So our cash flow remains very, very healthy. If you look at the operating cash flow, we ended the year at INR 434 crores. If you look at free cash flow, it ended at INR 275 crores, both of which represent very, very strong growth year-on-year. This is despite a INR139 crore performance guarantee that we had extended to Palomar Health, one of our marquee clients. We had discussed this with you in the last call. If you look at our net debt position, again, we have been able to pare it down quite significantly. If you look at FY24, we ended the year at INR 850 crores.
From there, we have been able to bring it down to INR 560 crores, again, despite the performance guarantee we had extended. If you can go back one slide up. So EPS for the full year was INR 29, and return on equity remains healthy at 27.2%. The gap between FY24 and FY20 is 25, which is largely explained by the fact that some of our strategic investments were revalued at a higher number. Therefore, the equity expanded without any commensurate expansion in profits. I will stop my remarks here and hand it over to Sachin.
Thank you, Nithya. Appreciate all the details. So as you saw, a really strong quarter of execution and really a strong fiscal year of execution that has now resulted in us being one platform that is ready to execute in this mission of creating pretty much what is a new market.
Saransh, you can move to slide five for my last set of comments. I want to end with saying that it's really important to also recognize what's happening in the market. In addition to talking through the numbers, my other two objectives from this call were to lay out the five pillars of our execution strategy for you so that we can continue to refer to those pillars and build a consistency in our dialogue. And the second was this whole conversation around making sure we calibrate on what's happening in our market from a competitive perspective. Just to put it in perspective, there's been $45 billion of equity investment from 2021 to 2024 in this larger healthcare IT landscape.
This $222 billion TAM are now with $275 billion TAM with acute RCM coming in, as well as the $35 billion-$40 billion TAM that's already outsourced that's going at 12%. Important to note, what are the key characteristics of this investment of $45 billion? Most of it has gone towards what I call point solution companies. A lot of it, specifically within point solutions, revenue cycle point solutions. So whether you look at the big boy R1 that was taken private from being public by CD&R and TowerBrook for a valuation of $9 billion, even when they were barely making any net income, $3 million net income.
Or when you look at some of the marquee private equity arms, Indian arms of marquee global private equity firms investing in more India-based task RCM vendors that are trying to graduate and go upstream and working directly with healthcare providers in the U.S. For example, the GeBBS, Omegas, Accesses, and the Infinxes of the world, or the AGSs of the world. Or then you start looking at the U.S.-based venture capital type leading players. You start to think about the money raised by Abridge, which, as you know, is actually one of our strategic investments as well. And we had invested just about 18 months ago, perhaps, at a pre-money valuation of nearly $100 million. And they just raised $400 million at a valuation of $2.75 billion. So within 18 months, the valuation has gone from $100 million to $2.75 billion.
Of course, they don't yet make money in their predominantly point solution vendors, specifically in the ambient GenAI clinical documentation space, or Suki AI for that matter, where Zoom made a strategic investment, and they're also a point solution for clinical documentation, or for that matter, Innovaccer, where they recently raised a big chunk of capital at a valuation of $3.5 billion. All this to say that there's a lot of investment happening in this space, and in my mind, that investment signals two things. First, it is an imminent recognition of the massive opportunity in this space, so that is really, really important. The type of players that are investing in the quantum of capital that is being invested is massive. Second, naturally, that's going to create competitive intensity, and so yes, we should expect significant competitive intensity backed by large pools of capital in these spaces.
But what's exciting for us is really, if you think about it, most of these companies are still very point solution oriented. Especially after some of our wins of this quarter and last quarter, we feel like our strategy of where there will be recognition by the buyers of the value of the whole being greater than the sum of the individual parts and the graduation towards a platform approach, I think is going to be a very, very important cornerstone of our strategy. And hopefully, if we can translate that to also really making sure we deliver outcomes from the platform, it starts to create a moat that, in spite of all this capital going into these point solution companies, we will be able to withstand the competitive intensity that is coming our way without compromising margins.
And then last but not the least, humbly, I want us to think a little bit about the capital efficiency with which we are building the business. As you can see, so much capital is going into each of these point solution companies, and here we are building the full breadth of the platform, essentially through the internal accruals and the power of our own organic balance sheet. So I wanted to sort of bring that to sort of conclusion. In conclusion of my remarks, again, a strong quarter of execution. Hopefully, through this dialogue, we'll continue to calibrate more and more on our strategic execution pillars and continue to report our performance against them.
One last remark, obviously, given that this is still a market that is being discovered at the platform level, I do want to highlight that we're not yet in our market at the level of maturity where you can model out exactly what the growth curve will look like. And hence, I've humbly been saying, "Look, I believe we will grow faster than the TAM is growing." The TAM is growing. The outsourced TAM is growing at 12%. I do believe, fundamentally, if you model us out in the long term, we will continue to grow faster than the 12%, and our earnings growth will continue to be faster than the revenue growth. But it's impossible for me to provide any guidance as it relates to what will happen next quarter and next quarter after that. So I know many of you are anxious for that.
Many of you are wondering if it was INR 225 crores of EBITDA in Q4 FY25, how much can we lock in from that for FY26. I just want to highlight that it's not a mature enough market where I can give you that type of guidance, which is why I will continue to refrain from giving guidance about future performance, and if you could please keep that in mind as you ask questions. With that, thank you for your time and attention. I will turn it back to the operator for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Ruchi Makhija from ICICI Securities Limited. Please go ahead. Ruchi, if you can please unmute your line and ask your question. Since there is no response, we move on to our next question, which is from the line of Sameer Shah from ValueQuest. Please go ahead.
Yeah, hi. Congrats, great numbers. First question is if you would like to address the UnitedHealthcare news flow and the impact that it would have on our company. And second, these large deals that we have signed, typically what is the kind of ramp-up time that they would take?
Right away, thank you for the question and your compliments. Appreciate it. First, United Healthcare. Look, guys, it's obviously a difficult time for them. They have been hammered with three macro issues that have hit them sort of back to back, right? One, of course, is the HCC version 28 that is compressing their margins on the Medicare Advantage contracts that they have, which is a big part of their business. Second, as you know, the CEO of their insurance business got assassinated just a few months ago. And third, they have this big security issue with Change Healthcare. So I will tell you that there are not many other companies in the world that can withstand three such back-to-back events that come at them in such dramatic fashion. Having said that, they are still the world's largest commercial health insurer.
They actually have something like 60 million American lives insured, just to put that in perspective. And the reality is IKS's relationship with UnitedHealthcare is through Optum Health, which is about a $110 billion subsidiary of UnitedHealthcare, which employs 50,000+ physicians, the world's largest physician employer. And we obviously are building our care enablement platform for Optum Health. And remember, our care enablement platform works on the non-discretionary spend, on the OPEX. And so our platform is all about creating more financial value from the OPEX that they're already incurring. So if you look at what's happening with us over the last 18 months, where they've been hit by these three dramatic events, I think our business with Optum Health has grown at least 25%-30%, if not more, over that duration. So without going into any speculative thinking about, "Oh, what might happen?
Their CEO has changed." Look, the business isn't going anywhere. It's the world's largest commercial health insurer. It has too many lives that anything's going to go wrong. It's not like they don't make money anymore. They make money, but they make less money than they used to because of industry headwinds that they are facing. And so they have a big valuation decline. And in a country like America, big valuation decline means CEOs have to take the hit. And so that's really what is happening. Our relationship has only grown over this period, and we have no reason to believe, based on the nature of our relationship, that these headwinds that we are facing create anything but tailwinds for us.
Now, again, I don't want to be speculative, but I will tell you that from everything I'm able to see rationally, taking the emotion out, the Optum Health relationship looks very, very strong for us going forward. The second question you have, Sameer, is as it relates to the ramp-up of the new strategic customers that we have signed. I will say, Sameer, typically what happens is full platform execution takes somewhere between four to seven months, give or take, depending on the size of the customer. And if it is one feature that they're implementing, typically that can come through in about three to four months. So that is the way to think about how these ramp-ups happen. And obviously, depending on which feature it is, how much tech intervention there is or not, some of this timeline will be accelerated or not.
But generally, those are sort of good benchmarks to keep in mind as it relates to ramp-ups due to implementations.
Super. Thanks. I'll rejoin the queue. Thank you.
Thank you.
The next question comes from the line of Srivathsan Ramachandran from Avendus Spark. Please go ahead.
I wanted to just make a question across on two things. You mentioned about the changes that are happening in the industry with the amount of private equity capital and changes like this. Coupled with AI, how do you see? Because the biggest difference from a business model point of view has been the outcomes that output-based pricing model you've had. Do you see customers or competition kind of changing this, offering other options, which, again, the benefits of technology and technology improvements stay with the client and moving this strategy? Any big market changes you've seen because of these two changes that are happening in the market?
So thank you for your question. I appreciate it. Look, like I was saying, when there is this much capital being put behind point solutions and there is a democratization and acceleration of the development cycles due to something like AI, obviously, at a point solution level, the competitive intensity is going to go up, which is why, if you remember, one of our key pillars of our strategy is that we want to continue to strive to be number one or two or three in each of our features while we are the only company in the world building the full breadth of the platform. And I think that really is addressing that issue, right? The reality is that GenAI is commoditizing the rapid advancement of these features is a reality.
Our outcome from that perspective is deep customer relationships that give us access to data and context to mature the GenAI faster than some of these new competitors, even no matter how much capital they have. That continues to be an advantage for us is the deep, think about it, right? Now, GI Alliance, it's the world's largest installation of GI doctors. It's by a long way. The number two player is probably not more than 300 or 350 doctors. These guys are more than 1,000 doctors. Now, think about our ability to build the care enablement platform for GI better than no matter anybody else that comes in with large amounts of capital. We naturally have an advantage, whether it is at a feature level for the AI specialty or at a platform level. So I think, absolutely, we should expect more competitive intensity.
We should expect more players at a point solution level. Our strategy to win at the point solution level is the deep customer relationships we already have that allow us to mature the data, and our strategy, obviously, the largest strategy to win against the point solution vendors is this whole graduation towards platform buying behavior. Having said that, I think we live in a very, very disruptive world, and so one of our biggest opportunities is to stay extremely alert from a competitive perspective and track the implications of competition in the marketplace day to day.
Sure. Thanks. Just one quick question. The run-off of revenues on the AQuity revenue, we are more or less done close to the bottom of it. So I just wanted to get it done.
No one. Like I said, when I was articulating the strong vectors of that AQuity strategic pillar, that tail cutting will continue through FY25 and the larger part of FY26. And so it is not done yet. And we will see because remember I said that we went from 850 total customers to 700. Our end objective is to be ending up somewhere between the 550-600 range. And so there's still some work to be done, and there's still some customers left to be transformed from a U.S.-based headcount operating model to a tech-led offshore headcount enabled model. So those two things will continue through FY26.
Sure. Thank you. I'll come back to the queue.
Thank you.
The next question comes from the line of Nilesh Jain from Astute Investment Management. Please go ahead.
Hi. Thank you for the opportunity. Great set of numbers. My first question is I wanted to understand your strategy on your top 10 clients. So if you look at your top five clients, they do average revenue of around $15 million. I want to understand the potential for those top five clients and what is our strategy to further cross-sell or increase our wallet share there. And then on the next top five clients, we do around $8 million average revenue. How do we plan to grow these clients?
Okay. Great. Thank you for the question, Nilesh. So the reality, Nilesh, if you see is when you take our top five clients or our top 10 clients, all of our top 10 clients have a wallet possibility of at least $100 million a year ACV with us, right? So for now, our top 10 clients today, we can say that we are not anywhere close to the full wallet potential that they have. Our largest customer, the full wallet potential is north of $300 million. So the simple math, whether you look at top five or top 10, is to continue to manifest the land and expand play that we have with them. The fact that the top five and the top 10 are growing is actually demonstrating the fact that that land and expand play is continuing to work out.
Now, the other thing that's happening in that mix is we are now starting, because we are getting mid-size customers and independent medical groups that are manifesting the full platform, that list of top five or top 10 is rapidly changing, and that's why you see some of those vintages of those customers changing in the deck, is that there are some new customers coming in with a full platform manifest that they want to become our top 10, and so I think this top five, top 10 is still a little bit immature. The way to think about it is we are nowhere close to full wallet share with any of our top 10 customers. Some we have more headroom, some we have lesser headroom, but there's headroom across all.
The top five, top 10 list, hopefully, if we execute well on our strategic vectors, is actually likely going to change over the next, say, two, three years, because if we keep landing more and more platform customers, they naturally graduate to that top 10 list faster than some of the other customers.
Okay. Given it's dynamic, if you acquire, like last year, you acquired Palomar type deal. So that would change the top 10 clients. So given the, how should we look at the growth on that side for your top 10 clients? And then obviously, on the rest of the clients, obviously, depending how you cross-sell them.
It is very hard for me to give you a way to truly model that. The way I would model is every year, 80%+ of our growth will come through expansion of existing customers, and under 20% will come through the addition of new customers. That I can tell you. But it's very hard for me right now in this relatively immature marketplace where there are so many dynamics, graduation from point solution behavior to platform behavior in certain market segments, full adoption of features by large health systems that we have traditionally not seen. It's very hard for me to give you how to model our top five, top 10. I will just say 80% of every year is growth, 80%+ from existing customer expansion, and under 20% from new customer acquisition.
Okay. My second question is we have seen a good amount of reduction in your employee count by almost 400, 450 employees from the previous quarter. So what is driving this efficiency? And how do we see the employee count grow for the next FY26?
So Nilesh, the way to think about it is, as this statistic, I'll ask her to tell the specifics of it, where for FY20 to FY24, our revenue grew significantly faster than our headcount. That non-linearity demonstrates the power of our technology-led disruption. And there are two vectors in our technology-led disruption, where we go human-led to tech-led, which is incremental reduction of headcount for the same solution. And then there's human-led to fully autonomous, where the disruption of headcount is significant. And that is also being manifested predominantly in the AQuity customer base, where we've dramatically transformed the AQuity margins from where we had acquired them. So that's the way to think about it. And we will continue to drive non-linearity. We have, remember now, I think, what, 460-odd technologists that are writing a lot of this proprietary technology.
We have a GenAI in terms of excellence that is producing a lot of this technology, and so that trend is going to continue to happen, Nithya [audio distortion].
The employee count reduction you're seeing, Nilesh, is predominantly driven by the fact that we have been able to deploy both IKS technology as well as the transition between onshore and offshore. If you look at legacy IKS, what we have been able to demonstrate in the past is non-linearity between revenue and employee count growth. If you go back and look at FY20 to FY24, our revenues grew about 25%. And in the same time frame, our employee count grew only 10%. So as we get technology, and I think Sachin has mentioned several times before, it remains a very high priority for us, and we continue investing there. And therefore, we hope to do as much or better in terms of our ability to drive faster revenue growth with lower employee count growth in the future as well.
All right. Got it. Just now, a last question, a broader question on the industry. Like you mentioned, the majority of the private equity players have been acquiring point solution-based companies and focusing on the RCM side. So these companies have not been able to make profit as IKS has been able to generate. So what do you think, why these companies have been able to have been facing such challenges, given you are the leader making top 30% margins, and they have been not able to even make double digits? What do you think is the challenge they are facing and what we are not facing?
So, Nilesh, I will try to refrain from commenting on what they are not doing right. I can tell you what we are trying to do. And what we are trying to do is that IKS built a business model where our pricing was outcome-based, right? We get paid as a percentage of the customer's revenue. And so when you combine that with our ability demonstrated efficiently to drive non-linearity by reducing the headcount required for a particular task at the unit task level, that naturally creates a margin-accretive business model in which the customer certainly wins because we're actually collecting more and more for them. And we win because we are able to collect that at a lower cost. And the essential question was RCM only, and focusing on that.
So it's based on the inherent structure of the business model that we built from the get-go that perhaps we are able to drive margin superiority. And that is also one of the other reasons why I said that we will continue to make that outcomes orientation one of the five strategic pillars that we will execute on now, not just for RCM, but for the entire platform. Because I actually fundamentally believe when I talk to buyers across the country, I'm finding that there is a fatigue emerging in buyers of buying the next best AI point solution and then figuring out whether it delivers value or not. And if they find models where their outcomes are aligned to the vendor outcomes, I think there's a different level of proclivity to that construct.
So again, I will refrain from commenting on sort of what they are not doing right because I'm sure they're very smart companies and they've figured it out. But my best guess is that the fundamental structure of our business model and our execution really around it is what has driven our margin superiority.
Okay. Thank you so much. And all the best. I'll join back in the queue.
Thank you.
Thank you. The next question comes from the line of Seema Nayak from ICICI Securities Limited. Please go ahead.
Hi. Thanks for taking the question. My question is more towards the sector. So what percentage of our revenue is from Medicaid? And how does the reduction in the Medicaid spending impact the provider ecosystem?
Yeah. Great question. Thank you. So please understand that our customers tend to have a fairly healthy payer mix. Depending on specialty, some of them have no Medicaid at all. And depending on specialty, they do have Medicaid. And so I don't know that I can give you the Medicaid percentage of our revenue across our entire customer base. If I were to hazard a guess, it's probably less than 10% across our entire customer base. Having said that, again, I keep reiterating this. Look, we are in the non-discretionary OpEx business. So when reimbursement per unit of care is cut, which could be, first of all, to understand the Medicaid policy, they are not cutting the. Let's say that today the government reimburses $100 per unit of care for Medicaid. That $100 grows every year based on a certain rate of inflation.
What the government is saying is if it was growing at 4% a year, they're going to reduce that growth from 4% to 2%. So first of all, on an absolute basis, the reimbursement per unit of care is still going to grow. The growth will contract. And second, when the reimbursement per unit of care is not growing as fast and their costs are still growing dramatically, it actually puts more pressure on the customers to adopt our model further. So from my perspective, I don't look at the Medicare growth contraction, not Medicaid contraction, but the Medicaid growth contraction. I don't look at it as a headwind for us. And of course, it's a small percentage of our overall payer mix. But nevertheless, furthermore, the same phenomenon is being faced in Medicare physician fee schedules as well. And in my opinion, that's an imminent tailwind in policy.
Yeah. Thanks. And one more question. Recently, there is a news that Aetna is leaving the U.S. healthcare space. So does that affect us in any way?
I'm sorry. I couldn't catch that question, ma'am. Can you repeat that slowly? Sorry.
So Aetna is going to leave the U.S. healthcare insurance space. So does that affect us?
No, not really.
Okay. Thanks. I'll get back in the queue.
Thank you. The next question comes from the line of Chetan Shah from Jeet Capital. Please go ahead.
Yeah. Hi. Thank you, Sachin and team. And congratulations for a great set of performance over the years. Just two quick questions. In your opening remark, you mentioned about intensifying competitive scenario. And also, in one of the questions, you said that it is still a premature stage because the competition is in an investment mode, and they are not exactly providing the full-fledged service the way what we are doing the business. So my question is, how do you see this thing evolving over a period of time? And in terms of business model and margin, how will this impact us? That is the first part of the question. And the second part of the question is the kind of cash flow what we generate. Do we have any plan apart from reducing our debt from the books?
And in terms of any kind of inorganic small or large opportunities, something what we did in the last six to eight quarters? These are the two broad questions. Thank you so much. And once again, congratulations. Thank you.
Thank you for your kind remarks. And thank you for the question. See, look, in terms of what the future might hold in terms of growth of revenue and margins, like I was saying earlier, sir, because of the relative immaturity of this market, remember, only $35-odd billion out of the $270 billion TAM is outsourced so far. So it's highly immature. It's very fragmented. Competitive intensity is increasing. So it's very hard for me to hazard a guess by which you can model. But I understand you guys have to model. So which is why I've always maintained, look, if the outsourced TAM is growing at 12%, my point is, if I'm growing faster than 12%, I'm gaining market share. If I'm growing slower than 12%, I'm losing market share.
All I'm able to say is if the outsourced TAM is growing at 12%, I think we will grow faster than that outsourced TAM. Now, if that growth accelerates to 15% and we gain market share, it will be faster than 15%. If that growth decelerates, which I don't see decelerating, it might be lower, and then the other thing I'm able to tell you is, based on everything I am seeing, I have confidence that for the next several years, our margin growth will be faster than that revenue growth that I'm talking about. Our focus is on gaining market share versus trying to predict the exact trajectory of growth, and our focus is on continuing to prove the superiority of our model by having industry-leading margins that continue to grow faster than the revenue growth. We're trying to keep attuned to that, sir.
It's very hard to tell you what the revenue growth and profit growth will exactly look like. That's number one. On cash flows, a great question. Look, I think if you see our 18 years of history, we are not a natural acquirer type of company. We are a very organic growth-based company. We did a very significant acquisition in AQuity. We have taken a good 18 months to digest, integrate. That's why we've laid out the four key vectors within AQuity that we are executing on. We have perhaps completed execution on two of the four vectors. Two are still ongoing. I think our stated strategy is not to acquire. Our stated strategy is to grow organically.
We might have some uses of capital periodically in these type of unique outcome-oriented deals where we might be able to participate in the outcomes that we create for our customers, thereby demonstrating skill in the game and driving that type of platform behavior. So those might be smaller uses of cash than a typically large acquisition. Also, just innately, our leadership team is not very comfortable with debt. Even today, our debt is, I don't know, 0.6x , something like that, EBITDA. And we like to operate conservatively in a manner where eventually there is little to no leverage in the business. So stated strategy, not acquisition-oriented. Never say never, but there might be some uses of capital in outcome-oriented deals with customers.
Thank you so much, Sachin, for this. I'll come back in the queue. Thank you so much.
Thank you.
Thank you. The next question is from the line of Nilesh Jain from Astute Investment Management. Please go ahead.
So last year, we did Palomar type of deal where we paid an upfront amount. Are we looking for any such more type of deals for FY 26 or FY 27 as well?
Great question. Thank you for the question. See, if you think about the Palomar deal, shortly after the Palomar deal, we did another deal that I just announced called Sky Lakes, which is in that mid-size health system segment. And that Palomar deal, by upfronting the incentive, we created a precedent of a large mid-size health system embracing the full platform, which has already paid dividends not only in Palomar, but now paying dividends in the context of Sky Lakes as well because they got the confidence that another peer health system was able to embrace the full platform successfully. And of course, in Sky Lakes, we did not have to incentivize them with any sort of outcome orientation.
Nilesh, I think the short answer is, in each of these market segments, smartly and strategically, we might do one or two example deals that might play out over FY 26 and FY 27. But it is not the way we are going to continue to operate. Yes, it's possible that there might be two, three more deals for different market segments that might emerge over the next 12 to 18 months. But we feel very confident about our strategy. And the other thing I want to lay out is we are very, very disciplined about tracking our return on capital in scenarios like that.
And so not only will those deals obviously create traditional margins by the full manifest of our platform, but we're very clear that to the extent there has been capital deployed there to incent those deals or the creation of those deals, we will be religiously tracking our return on capital on that as well. So in the end, our simple thesis is either we produce superior return on capital for our shareholders or we give them the capital back.
All right. All right. Just a bookkeeping question for Nithya. On the balance sheet, the other financial asset has gone up from INR 21 crores to almost INR 111 crores. What exactly would be that?
Other financial assets, the Palomar upfront guarantee that we had paid out. That is booked in other financial assets.
Okay. Thank you.
Thank you. We have the next question from the line of Siddharth Misra from Fidelity International. Please go ahead.
Yeah. Hi. I had just one question. Could you talk about your pipeline and the details around the pipeline?
Can you hear us, Siddharth?
Yeah. I can hear you.
Hi.
Can you hear me?
Okay. Yeah. So, I think traditionally, thank you for the question, Siddharth, and your interest. Sorry, you can hear us now. Traditionally, we haven't published our pipeline or the details. But I can say confidently that when we look at all of these three market segments that we are focused on, the mid-size health systems, the large health systems, and the independent medical groups that might be single specialty or multi-specialty, might be publicly traded or private equity owned, we are obviously tracking pipeline by each of those market segments. And the pipeline seems to suggest that we are at an all-time high in terms of where the pipeline stands. Now, I will say that the buying cycles are still a little immature, so I'm not in a position to predict the conversion rate.
The reason I'm not publishing the pipeline, Siddharth, is because I see so much immaturity still in the buying behavior, in the conversion cycles, and so as we start to get data that I think starts to make a little bit more sense that can allow you to model conversion timelines and rates, we'll be able to talk a little bit more about it, but I will say that activity for us right now is at an absolute all-time high.
Okay. Thank you.
Thank you. Ladies and gentlemen, with that, we conclude the question and answer session. I now hand the conference over to Saransh Mundra, AVP Investor Relations. Please go ahead.
Thank you, everyone. Thank you for joining the call. In case of any further questions, please feel free to reach out to us. My email ID and the investor relations email ID is there on the press release and the link for the call. Thank you.
Thank you.
Thank you, everyone.
Thank you.
On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.