Ladies and gentlemen, good day, and welcome to the Latent View Analytics Limited Q1 FY 2024 earnings conference call. As a reminder, all participant lines will be 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 an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Asha Gupta from EY Investor Relations. Thank you. Over to you, ma'am.
Thank you, Zico. Good evening to all participants in this call. Welcome to the Q1 FY 2024 earnings call of Latent View Analytics Limited. The results and presentation have already been made to you. You can view them on the website www.latentview.com. In case anyone does not have the copy of press release or presentation, or you are not in our mailing list, please do write to us. We will be happy to send you the same. To take us through the results today and to answer your questions, we have the CEO of the company, Rajan Sethuraman, whom we will be referring to as Rajan. We also have the CFO of the company, Rajan Venkatesan, we will be referring to as Raj, to avoid the confusion while doing the transcript.
We will be starting the call with a brief update of the quarter, which will be given by Rajan, then followed by the financials given by Raj. As usual, I would like to remind you that any statement on this call that reflects any outlook for the future or which can be construed as forward-looking statements must be viewed in conjunction with the risks and uncertainties that we face. These risks and uncertainties are included, but not limited to, what we have mentioned in the prospectus filed with the SEBI and the subsequent annual report, that you can find it on our website. Having said that, I will now hand over the floor to Rajan. Over to you, Rajan.
Thank you, Asha, and thank you all for joining in for the first quarter's earnings call of this fiscal year. As Asha mentioned, I will share some business highlights, and then I will pass it on to Raj to provide more details around the financials. First off, we are happy to be back on the growth track after a slightly sluggish quarter that we had towards the end of the last fiscal. In this quarter, we grew 4.7% quarter-on-quarter and 23.1% on a year-on-year basis from a rupee standpoint. That kind of signals a bit of the back to the growth track.
While I would say that this is still not as great as what we were doing in the last year, I think it still signals that the work that we are doing is resonating well with the client audience. To that extent, we have been able to retain and actually grow incrementally on book of work that we were doing for our clients in the last fiscal. We also added quite a few new accounts to the list this year. Some of them have been shared as part of the press release that we have put out. Particularly happy that we are starting work with one of the large iconic food service restaurants everybody knows about.
We had our first win in the European market since we started investing in Europe around the middle of last year. This is the second, one of the largest manufacturers of tires in the world, we have started working with them. We also had a very interesting piece of work that we won for one of the large two-wheeler manufacturers in India, and I'm particularly happy about that because it validates the strategies that we're taking into the Indian market. We are able to bring in a bit of the expertise that we have built servicing clients in the US there for the Indian market as well.
However, I would need to add that many of the new wins that we have had have started off on a much smaller ticket size in comparison to what we have experienced in previous quarters. I think that is reflective of the general macroeconomic scenario and the sentiment that we see. However, these are all high quality accounts, and we believe that the start that we have in this quarter will pave the way for expansion in the quarters to come as some of the uncertainty drops. We were also fortunate that we had significant growth in many of our existing accounts. So much so that two of our accounts have now crossed $15 million per year run rate in terms of what we are clocking with them.
Strong growth on the technology sector. We saw growth in CPG, and we also saw growth with the largest of the industrial side. Many of these accounts are long-standing relationships, and we are very happy that we are able to build on the relationship and bring in more value addition to the clients that we are working with. As we have entered the Q1, we do have a fairly strong pipeline that we are pursuing, and this pipeline includes conversations that we are having with many of our existing accounts for growth in the accounts.
There is also a very good mix of new logos that we are having conversations with, where we expect that closures will happen in the next few months, and we'll be able to see further updates right through the remainder of the year. With all this, I would say that quarter two we will be able to show growth, probably along the lines of what we've done in Q1, if not better. However, it remains to be seen how the rest of the year will play out. In general, the market is still a little slow when it comes to decision-making. Many of the clients who even have budget at this point in time, are still sitting on the fence when it comes to kicking off large initiatives.
While they are ready to take on some small pilot activities, but the commitments to the larger initiatives will take a little bit more time. At this point, we are still optimistic that the second half of the year will pan out better compared to the first half of the year. Potentially, we'll start seeing some green shoots towards the end of this quarter as client decision-making improves in relation to the macroeconomic scenario. There are a few other highlights that we had in this quarter, which I thought I would share. I have mentioned in the past that our go-to-market strategy is now dedicated largely on the impactful value propositions that we are seeing. We saw really good traction on several of them. A few notable ones that I wanted to call out here.
One is our on-shelf availability value proposition, which is part of our supply chain analytics practice. That is resonating really well with CPG as well as retail clients that we are having conversations with. Similarly, the multi-tier supplier visibility value proposition, MSV, as we call it, is also finding a lot of favor. Most organizations, whether they are in the automotive industrial space or whether they are in technology device manufacturers, they are all still seeing a lot of disruption to their supply chain. The multi-tier supplier visibility value proposition provides a very integrated view of their extended supply chain, like the component manufacturers and the suppliers, and that is also resonating well.
A third one that is really finding a lot of favor is what we call as One Customer View, which is a 360-degree customer view that can be made available for any organization that is interacting with either B2B or B2C customers. Which dramatically improve the personalization that they can do and offer the stability in front of these customers. Finally, we've been building out capabilities around generative AI for smart search, and our bird view value propositions are again resonating quite well.
In fact, over the last year, there has been a very interesting use case that we have been implementing for one of the top device manufacturers in the U.S., around how do you use customer sentiment and review analysis to identify improvements that we can bring about in making parts available, in predicting failure, and in ensuring that the right inventory of parts is available, right, even before the device is released. We're using Generative Transformer models for a period of time to help solve these problems.
At this point in time, there are quite a few conversations, which are looking at leveraging generative AI and large language models to analyze unstructured data, especially around customer reviews and sentiment analysis, and also around large volumes of unstructured text data that might be available with organizations, either in form of legal contractual documents, or process flows and documents, or internal knowledge bases that they might have created. There is quite a bit of action happening on that front. We also onboarded another senior member to our advisory council this quarter.
Uh, he, uh, uh, he has been working with, uh, multiple, uh, uh, CPG and retail brands in the past, and, uh, we believe that we can, uh, leverage his expertise and experience in, uh, how we are shaping some of the work that, uh, we're going to be doing in this space. Uh, uh, from an addition to the bandwidth, uh, on the front end, we continued to make progress over the last quarter. Uh, I would say that at this point in time, uh, we have, uh, made the investments that, uh, we intended to make, uh, on the client servicing as well as on the sales side, uh, in the US as well as in Europe. In addition to that, we also onboarded, uh, quite a few people into an India-based sales team to focus on the US market.
I think the combination of all of those investments means that we are well set up in terms of the bandwidth that we need to identify and pursue opportunities in the U.S. as well as in Europe. Of course, these investments will pan out over the next several quarters, but at this point, I think that we are adequately capacitated in terms of go-to-market bandwidth that is available. One other thing that I wanted to call out is that we were recognized as one of India's great midsize workplace, or the Great Place to Work Institute.
We came in at rank 39, and we are particularly proud of this achievement, given that we are largely a B2B business, and it is a testament to the caliber of the people, plus also the fact that they see themselves as very integral parts of how we are able to create impact and of idea and value for our clients, and we are able to monetize that in terms of our revenue and growth so far. One other thing that I wanted to mention is that this quarter saw further moderation on the attrition front. From a trailing 12-month perspective, our attrition came down by almost 10% in comparison to where we were previous quarter.
We have not had any incremental growth in terms of head count in this quarter. Which is largely because of the fact that we did have adequate capacity within the last quarter, and we have been able to increase the utilization of the people that we had. That utilization increased, the build count increased by as much as close to 4%, and the utilization improved in terms of that as well. We have now about 300+ campus hires that we have in the range. These are all offers that we have made in the last season, and we have been engaging with those campus hires. Some of them have already onboarded.
We are expecting to onboard the remainder of the people as the demand scenario unfolds over the next few months. Finally, I would say that one important people initiative that we had this quarter was around launching a framework that will guide our employees to consider different career options and possibilities that they have within Data and Business Services. Aimed at bringing greater clarity on job roles and the career paths that are available for them, and enabling them to have high-quality career conversations with their managers and with their peers and with the L&D team. This will also help implement better decisions from a talent perspective and improve the engagement that we have with our employees.
We work with an external partner for the developing this framework, and it's very comprehensive in terms of the job roles and families, and the kind of skills that are needed for people to be successful within their careers. We are expecting that the employee engagement will improve as part of this initiative. Overall, I would say that it's been a good quarter for us in many ways. We believe that we are well set up for the remainder of the year. We will be watchful of the macroeconomic scenario in terms of how the demand unfolds and the decision-making, especially with respect to some of the larger opportunities that are there in the pipeline, and then we'll calibrate any further investment decisions based on that.
With that, I'll hand over to Raj, our CFO, to give some additional insights on the question.
Thank you, Rajan. Good evening, everyone, Welcome to our Q1 FY 2024 earnings call. Talking about our quarterly performance, like Rajan mentioned, we are happy with the quarter growth trajectory. Quarter ended June 30th, we are happy to report a 0.7% growth on a sequential basis and a 22% growth on a year-on-year basis. Obviously, we have, you know, in terms of where we would have liked to be, that number, you know, should have been a little higher. As elaborated earlier, the macroeconomic environment at this point in time, means that there is a little bit of sluggishness that we are witnessing in closure of new deals, and that is what, in some sense, has impacted the growth rate in this quarter.
In dollar terms, again, our growth rate was close to about 4.6%. Pretty much, the revenue growth that you see on a repeat basis is the same as the dollar revenue growth. In terms of what really drove this revenue growth, it's the combination of one, growth that was seen in terms of our largest logos. That is for the fact that there were 4 largest logos now, at this point in time, are well past the $15 million annualized revenue run rate. Those two were the key reasons, you know, revenue growth in those two accounts were the key reasons why we were able to maintain a growth rate of 0.7% in Q1.
Other part, we've also seen a few marquee deal wins in Q1, which we believe, we have the ability to build on some of these wins. Although, at this point in time, their initial contract value, some of these wins are smaller. The ability to mine these accounts and make them into larger accounts is definitely there, that we are excited about some of the deal closures, on the new logos that we were able to accomplish in Q1. The income for the quarter at about INR 17.9 crore, witnessing an increase of about 90% on a sequential basis, and 83% on a year-on-year basis. The increase again, was primarily driven by higher investable surplus, which we had, generating comparably higher yields.
Also, increasing interest rates in both U.S. and India, where predominantly most of the surfaces part also led to the book in other income. EBITDA for the quarter came in at about INR 38.1 crore, and the EBITDA margin was at 19%, which is, you know, witnessing a drop of 20-30 basis points on a quarter-over-quarter basis. While we had positive movement in, on the revenue side, which gave an EBITDA benefit of about 3.8%, this was offset by higher payroll costs, which was because of the impact of wage inflation in Q1, where, you know, there were wage increments that were given to the tune of about 9% in India and 4% in the U.S.
That was one of the key main reasons why there was a bit of a dip in EBITDA margins. The other one was also on account of the cyclical visa expense, which tends to be typically higher in Q1. The impact of higher visa expense was about 0.8% in Q1. If you were to exclude the cyclical sort of the visa costs, our EBITDA margin for this quarter would have been close to about the 20% mark, which is in line with what we reported the last quarter. Of course, the investments that Rajan talked about, a lot of those investments were made the middle of Q4, right?
We have to look most of the additions in terms of headcount, are already in place. The full-blown impact of all the additions that we did in Q4 was seen in Q1 of the current fiscal. That again, had an impact. Of course, the hope is that these investments will play out, and we will start seeing deal closures, in the coming quarters, which would unlock operating leverage for the business.
In terms of, in terms of the overall margin guidance itself, we had indicated that we will not, at this point in time, we will continue to keep the investment levels high, because we believe that downturns or periods of uncertainty are the best time to invest in the front end and build relationships. Once the demand scenario comes back, it will be beneficial for us to have made these investments, because, and we've seen this in the past down cycles, that we paused investments during a downturn, and when demand came back, we didn't have sufficient people on the ground to drive deal closures.
That's, you know, those are some of the lessons that we've learned from the past, and we would definitely not slow down in terms of investments. Our margin for the next couple of quarters would also continue to be in the same range. We do expect that H2 demand to come back, and once that comes back, we will hope to end the year with a EBITDA trajectory of between 23%-25%. Our tax for the quarter stood at about INR 32.9 crore, reflecting a growth of about 2.2% on a year-on-year basis, and a decline of about 3.9% on a year-on-year basis.
There is an impact of tax as well on our, because the if any office which is located inside a Special Economic Zone, we have two facilities over here, SEZ 1 and SEZ 2. SEZ 1, we've lost the direct tax benefit of or, you know, the 10-year period that you typically get as a part of being in the SEZ or located in the SEZ, which ended as of July 1st, 2023, which has resulted in a slightly higher tax than the previous quarter. Of course, on the U.S. side, the benefits from, I would say, the e-commerce side that we had from the last quarter continued in this quarter as well, and we believe will continue for the rest of the year as well.
In terms of the ETR, we expect the ETR to remain consistent for the next 2-3 quarters. Maybe beginning of FY 2025, we will see the ETR of the company inch back to the 25% or 26% mark. In terms of the geographical split of the revenue, U.S. continues to be the dominant geography, including 96% of our overall revenues. Europe, where we made a significant investment, is still sub-scale. We want Europe to be between 5%-8% by the end of FY 2024, our investments that we made are in line with the growth trajectory that we expect. Technology continues to be the largest vertical for us, contributing 69.2% of our overall revenues, which is followed by industrials.
Both these verticals witnessed fairly strong momentum in the current quarter, which is. Industrials in specific, we are seeing a lot of green shoots and in terms of existing logos as well as new logos that we won. Our deals are there in the pipeline. We still, at this point in time, continue to be, or, industrials at this point in time, promises to be a fairly strong vertical for us. In terms of our balance sheet, our cash levels for the current quarter stood at about INR 1,115 crore.
One other question that I'm sure is on everyone's mind in terms of M&A. We would like to update you that we have added people, specific, specifically in the corporate development or M&A team. These are people who come with a deep background in M&A. The intent definitely is to try and increase the velocity of the work that we're doing on the M&A side. Even during the current quarter, there were several opportunities that we did evaluate, but we didn't proceed with any of them because of lack of, I would say, fitment, or cultural. Yeah, we didn't have cultural fitment in these cases. That's the reason why we were not able to consummate any transactions.
The intent is to increase the velocity and accelerate our efforts on the M&A side. We hope to have some positive development by the end of the year on the M&A front. In terms of the headcount, we closed the year quarter with headcount of about 1,091. Like Rajan said, we will continue to invest in people. We at this point in time, have close to about 300 odd campus hires who we look to onboard in a staggered manner over the next couple of quarters. With that, I would like to end the management presentation and hand it over to Asha for Q&A.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star 1 on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star 2. All participants are requested to use answers while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Mohit Jain from Anand Rathi. Please go ahead with your question.
Sir, great strong comeback, from last time. I have three questions. One is on high-tech client outlook. What are you guys hearing? Because you had good growth and also seem to be better. How much of the environment in, in your business has changed versus last quarter? That is one. I have two follow-ups on the cost side.
Hey, Mohit. Thank you. That's an answer to follow-up questions. On high-tech, that is our largest vertical. As I said earlier, we are already seeing signs of growth. In fact, I called out the 2 largest accounts that we have, right? That have crossed the from our run rate. Both of them are high-tech clients, and we have seen incremental growth happening with these stakeholders that we are currently working with. We also added at least half a dozen new stakeholders in these accounts. As I pointed out earlier, the projects that have been kicked off are slightly smaller in nature.
I mean, we didn't have one thing with beyond the $50 million, but the others are kind of in the $200,000-$300,000 range because they are just still testing out a few things, especially around concepts such as generative AI. I would say that the tech environment is looking resilient for us at this point in time. However, I wouldn't call out that it's growing by leaps and bounds, right, as we have expected it to. I mean, I believe that there is still some uncertainty, and there are quite a few cats on the wall. We're expecting that some of the uncertainty will resolve over the next couple of quarters.
There are at least, two, three big opportunities that we have in the high-tech sector, which will be in the million-dollar range in terms of, overall types of opportunities. Optimistic, cautiously at this time. We are still waiting, for some other things to come through, right, in a, in a few quarters.
Right. When you say incremental business, this is like business as usual for you, or is there a new service line or offering, where you are seeing more growth compared to the regular part of the business?
Yeah. Within the tech sector, a lot of it is, when I say incremental, it's basically additions to existing scope of work, expansion there. Therefore, if you, if you have, for example, 12 statement of work that we are executing, in several of them, you would have seen additions of two, three people happening, right. That is what is contributing to the incremental. More in the nature of the work that we're currently doing. I think, the big, the exciting thing, that everybody is really evaluating is around the whole generative AI and large language models, like the GPT stuff. There is a lot of interest, quite a few pilots, that...
In fact, today, as we were having the board meeting, we also held the second internal analytics convention. This analytics convention that we had today was completely focused only on generative AI, and there are at least half a dozen teams that presented the pilots with their customers. Around that topic, One Customer View that is resonating well as well. There are a few focus conversations, but otherwise the incremental growth is broad-based around the scope of work that we are doing.
Raj, investments in SG&A, as you spoke about, and also shown in the PPT from an account page, from an account addition perspective, are we done with it, or do you think some bit of cost increases may come into control as well?
In terms of the SG&A study, all of that is the current quarter as the full-blown cost of the investment on the content side, right? There all of the cost is the current quarter additions.
Any additions that we will have on the front-end capacity will only be replacements. Okay. I mean, of course, given that the go-to-market team is working, that we will continuously evaluate, there will be opportunities where we can come to. These will be backfills where necessary and not net new additions.
Like what I meant to ask was, cost increases will now be slower compared to the revenue growth expansion, which you guys have invested.
That is correct. That's correct. Yes.
Second thing is also related. Now, we don't get the split of gross margin versus SG&A. When you say this drop on account of people cost, is it fair to assume gross margin is more or less flattish quarter versus last quarter? Do you think there would be some drop there and then some drop in SG&A, on account of SG&A?
Not a drop in gross margin. Of course, there will be some impact of inflation on the gross margins in the current quarter, Mohit, but to some extent, Rajan also talked about improving utilization, right? That is something that we are focused on, in fact, in the current quarter. The reason why you don't see an addition in the headcount is because we also reviewed performance of optical, and there were-
You know, maybe a few people who were, you know, based on performance was, you know, that there was some level of involuntary attrition in the company as well. That also helped us improve our overall utilization for the quarter. The gross margin is not substantially different from what we recorded in the last quarter, if that answers your question.
Pressure is not there. To say the drop here, I think, is essentially investment rather than any other factor. Okay. That's all. All the best, and thank you.
Thank you.
Thank you. Our next question is from the line of Harsh Kataria from PGIM India Mutual Fund. Please go ahead.
Yes, sir. Good evening, sir. Thank you for taking my question. Just a more long-term thought process, you know, just to understand where you see yourself for the company, say, 3-5 years down the line, in terms of, you know, what is the sustainable growth rate? What is the sustainable EBITDA margin band?
Yeah. From a growth rate perspective, we have in the past indicated that we would want to be around 5% to 8% better than the industry growth rates. We are confident of that. You see the outspending that's happened in this quarter. We also talked about all the investments which we believe are the right kind of investments that need to be made, whether in terms of capacity or the front end of the very specific value proposition of the integration technology. I think we are well-positioned for capitalizing on the industry growth rate and going beyond that, right, when the turnaround happens. From a margin standpoint, we did go ahead with investments ahead of the curve.
We took a call that we will not slacken on these investments, even though this macroeconomic downturn was happening. I think that will place us well, when the turnaround starts to materialize. While the current demand scenario means that these investments are a bit of a drag on the margin, I believe that the very same investment will give us better margins, right, as things come around. We are expecting that we will be back on the 20% kind of trajectory by the end of the year, assuming that second half does witness the turnaround from a macroeconomic standpoint.
Otherwise, we believe that we have made the investments that are necessary, and from here on, any further investments will be calibrated. We don't expect that there'll be any margin dilution on our part. We should actually see the trajectory improving to the 25% mark.
Sure, sir. Thank you for that. I just had one more question. Just to understand, you know, our deal size, data we have. Typically, what is the tenure of these deals? How are you seeing the pricing environment currently? You know, maybe over the longer term as well, and, you know, are the deals getting smaller or are they getting larger?
Yeah. The typical deal sizes that we were witnessing, say, three quarters back, right, or a year ago, they're all in the $600,000-$700,000 kind of a range. We did have quite a few closures which are even significantly larger. For example, last year we had a $2 million bid, right, on just one opportunity. If I kind of average out the deal, somewhere in the $600,000-$700,000 per case of work kind of requirement. What we have witnessed in the last two quarters in particular is because of the uncertainty, most new projects that get kicked off, they are smaller in size.
I mean, even if there is some clarity in terms of the end state and the larger initiative, we see that clients are unwilling to stake everything at this point in time. Therefore, they want to kick off something smaller, manageable, that they can show some improvement, and then potentially follow it up with a larger initiative as the external scenario improves itself. In the last couple of quarters, the deal sizes have fallen down to maybe INR 250 thousand per month. From a long-term perspective, I believe that we will get back on the earlier trajectory. In fact, if anything, the deal sizes should improve even further.
I mean, you would imagine that, as analytics initiatives become larger and more complex, we will see several million dollar plus initiatives. That will also mean that the tenure of the initiatives will get longer, not just ones that get executed within a 6 to 12-month time frame, but ones that go past the year mark. Many deals, especially in the data engineering, data platform kind of space, will mean that the deals are getting larger and complex, and will need to be executed over a 24-month time frame, for example. We're expecting that the tenure of the deals will also go up in the coming years.
Of course, some of this has to pan out, and it will mean that the external environment has to be ready for that as well. I would say that, if you are asking me about a three-year type of a trajectory, I would imagine that the average deal size will be closer to a $1 million kind of a range, and the tenure will get longer than the 12 months that we are typically used to asking.
Okay, sir, that was very helpful. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to 1 or 2 per participant. Should you have a follow-up question, we would request you to rejoin the queue. Thank you. Our next question is from the line of Vimal Goel from Alchemy Capital Management Private Limited. Please go ahead.
Yes, sir, thank you for the opportunity. One second. And I just want to understand more about, you know, revenue growth for the resurgence that we are seeing, usually after the fourth quarter. Now, you had highlighted in the conference call as well as the interview that Q1 and maybe Q2 will sort of say, myself, and by new means, I would consider a high to kind to want to do things better and possibly even the next quarter, you know. So my presumption here is that, you know, things have changed fairly quickly for us against this story. So how can we change? And plus, you are also indicating that the micro continues to remain low. So how should we join force here, sir?
If you could just help me with that.
Sure. Yeah. I think the situation is getting better. Internally, when we talk within the organization, our expectations were even higher, okay, in terms of the turnaround that we could see in quarter one. I would say that it's been a little slower than we wanted it to be or we expected it to be. That is just a reflection of the external uncertainty, the micro. I'm sure that you're hearing commentary from other organizations as well. That additional uncertainty continues to be there. Many people will look at analytics and appreciate the discretion. What is happening for us is that the work that we are doing is seen as very core critical importance.
That as I mentioned earlier, that all of the work that we've had for the last year, that has all been renewed, and we have also had some incremental growth. In many of these instances, the stakeholders that we were working with, the business sponsors and the stakeholders, they have seen their mandate, and they have seen their own limits within their organizations increase as well in this uncertain environment. Of course, we have also had one or two instances where people have been rotated out or they have gone on to other roles and jobs. For a vast majority of the people, where they are continuing to play the role, their mandate has increased and their ambit has increased.
Therefore, this is what is resulting in the incremental growth that I talked about. These stakeholders have slightly larger budgets, some rationalization has been done, and they have been given the money to continue to stay with what they are doing. That is resulting in some of the incremental growth that we are seeing. The other big thing I would say is the investment strategy. I mean, we talk about all of the front-end investments that we have made, and we have continued to support all of the investment, client servicing and the growth in capacity with the right kind of backup from internal demand generation team, from our packaging, events, and all of that. That is also paying some dividends. Of course, it is not exactly in line with the kind of investment.
That's why I said that we have ended up structuring the investments, and we should not take foot off the pedal on that one, because as the scenario unwinds, uncertainty unwinds, we believe that investment will serve us even better. I would say it's a combination of those two things. Working with the right stakeholders, their mandate and ambit increasing, which is providing us the incremental growth and front-end investments and the support that we have been providing on the packaging, the events, the demand generation, and the value proposition starting to yield early benefits. Of course, we are expecting that those investments will pan out even more in the coming quarters. When that happens, you will actually...
I mean, we would be back on that level, so 8%-10% or 12% kind of a quarter-on-quarter growth trajectory. That is what we are pushing for in terms of investment opportunity. That is something that we expect will unfold, right, as the uncertainty is resolved.
8%-10% quarter-on-quarter, it is very encouraging. Thank you for that. Sir, my next question is a bit more specific and of course, related to you. Our core expertise of data engineering happens to be our largest case. How do we make sure that we shield this particular service line against the disruption that comes with Gen AI? I understand you spoke about the initiatives that you're taking, but what is the risk that your clients, especially on the multi-side, will leverage Gen AI as a platform to engineer the data internally, and probably, you will have to, you know, sort of set up strategies for or, you know, any thoughts around this?
Yeah, sure. First, I'll give you a little context. data engineering work today roughly makes up about 20-23% of the work that we do. That is not the biggest chunk, but it is a very important and growing type of work, right? Component of work that we do. The bigger piece of work is in the diagnostic prescriptive analytics, predictive prescriptive analytics, and the consulting work. I mean, they make up the remaining, you know, 70-80% odd of the work. Data engineering has grown for us significantly in the last couple of years, and I expect it'll continue to grow as well.
Sorry to interrupt. Even though the digital analytics that there could be some portion that could be, you know, that portion could get impacted because of the generative AI capabilities that it brings, the technology brings.
Yeah.
I mean, how do we shield ourselves? How do we keep ourselves more relevant and make sure that 80%-12% growth happens? Same background of, you know, the discussion.
Interestingly, if you look at generative AI as a technology, right? And what it is capable of doing, the realm is largely in the unstructured space, right? You would have heard about all this hallucination challenge, right? That generative AI technology. It generates a lot of stuff, a lot of stuff that doesn't exist, right? In some sense. It works great when you are on a creative quest, at least when you are on a so-called creative quest. The moment you start talking about structured data and insight generation from structured data, there is a lot of thought that you need to go through. In fact, today's analytics convention that we had, the focus was on those two different types of problems. How do you use generative AI to solve problems in the unstructured data, domain?
Can you use generative AI to solve problems in the structured data? For example, if company has a sales database or if they have a database, can you use generative AI to come up with the kind of insights that may not be possible through classical diagnostic, descriptive, driver analysis, and those kind of approaches that are available there. I think on that, the jury is still out. There is still quite a bit of hoops that one needs to go through in order to come up with the right kind of insights and approaches possible.
The reason I'm mentioning that is that, in some sense, the whole concept of how do you apply generative AI when it comes to insight generation, it's a factual database, especially on structured data, is a problem that people are still going through. You can use it for coming up with SQL queries and code bases and stuff like that, right? You can quickly get started. Those things, I believe, will only help improve the productivity of the people that we have. They're not going to replace the kind of work that they do. It'll help them to work faster so that they can get on to the more challenging and complex problems, right? That need to be solved.
At this moment, we are not seeing any evidence of the insight generation and the analysis work being replaced by the concept and theory when it comes to the generative AI landscape. In fact, I would say that you should use that for particular kinds of analysis. I gave examples of customer sentiment and review analysis. That is where you can use gen AI concepts, and you can actually quickly reset the bar in terms of the kind of insights that are made available. Overall, if you ask me, I think any new technology that is sufficiently disruptive, like generative AI, will mean that the level playing field will get reset.
There'll be a higher bar that everybody now aspires to and that they can easily get in place by using the technology. That will only open up a lot more nuanced complexities and problem-solving opportunities that are available. I mean, that is what we are discussing in terms of conversations that we are having. I don't think the growth rate, right, that I talked about, is under any threat because of the emergence of the new technology. On the contrary, I would argue that the new technology will actually open up so much more vistas that will make the growth rates even more powerful.
Sorry to interrupt. Mr. Vimal, may we request you to rejoin the question queue for follow-up questions, since there are several participants waiting for their turn. Thank you, sir. Ladies and gentlemen, in the interest of time and fairness to all participants, may we request you to limit your questions to one or two per participant. Should you have a follow-up question, we would request you to rejoin the queue. Thank you. Our next question is on the line of Hitesh Gala from Spark Capital Advisors. Please go ahead.
Yeah. Hi, hi, Rajan, thanks for the opportunity to get comfortable with the members. My first question was on the Europe side. You know, we have been consistently winning deals and investing over there, but we discovered there was a very sharp decline in revenues. I agree it was a scale business, but an 85% drop in revenues, sort of is concerning. Can you just clarify what exactly happened there?
You are right. I would actually say that the entire Europe business is going through a reset phase at this time. The decline that you see is on account of a little falloff in revenue with one of our existing accounts. To contextualize that, we have all of three accounts, right, in Europe, generating revenue earlier. When you have such a small upscale operation, even a small change in the revenue that you have with one account will have a big impact, right, from a percentage standpoint. As I pointed out earlier, we have won the first new account in Europe. There are at least 40 conversations, right, that we are having.
Most of these were, are with really high quality accounts, right? Clients and prospects. In fact, we are also leveraging the relationships that we have with the same accounts in the U.S. and trying to look at how can we open up opportunities to European markets. Many of these accounts, especially in the technology space and also in the CPG space, they have substantial European operations, and we are having conversations with many of them. Having said that, I would add that Europe in general is a tough market, so practically it takes longer, operates on the strength of the relationship that we are able to build. In this tough macro environment, I think that it will take even longer.
The good thing is that we have a good caliber of team that is there in the market, which is what is driving the 40 odd conversations that I talked about. We also have a very strong advisor and set of advisors that are helping us open doors and getting the right kind of friends. We haven't seen the kind of closures that we would have wanted to see so far. I think we do need to give a little bit more time, especially given the macroeconomic environment. I'm expecting that when I report back to all of you in the quarter time, we would have had at least 2, 3 more wins on our side in Europe. I still don't know how things they will get within the next 2, 3 quarters.
As Raj pointed out, the aspiration and the goal is that in a 3-year timeframe, Europe will contribute to 10%-15% of our revenue. That is the trajectory, and that is the kind of
Just one follow from my side. While the commentary in technology and industrials verticals is quite encouraging, there are certain companies like CPG, BFSI, and for that matter, even like the non-top 20 client accounts, which have seen very sluggish dollar revenue performance over the last 4, 5 quarters, not just the last 2 quarters. Just wanted to get some sense of what is happening with these topics. What are you doing to address, and like, you know, sort of kickstart the continuation of these projects?
I mean, you're absolutely right. I mean, BFSI and retail were traditionally not our strongholds. We were quite underrepresented, right, in these verticals. By the time that we made that difference to make the investment, and this is like over 1 year ago in terms of looking back, started bringing in the people, right, who could drive action. We started witnessing, you know, the external uncertainty. I mean, you bring in somebody, it takes at least 6 months for them. However, experienced that they might be in their domain, for them to come and assimilate the kind of value propositions and ideas that we have and what we can take, it takes a lot of time.
By the time they had done that integration, and they had optimized what we had to offer, we were already starting to see the external uncertainty. BFSI and retail have been impacted significantly in terms of the sluggishness around the new initiatives. That's kind of reflecting in what we are seeing. The last 7 quarters have reflected on this. BFSI, we did have some wins. I mentioned that out of the existing logos where we saw growth in this quarter, there were 2 important groups that we had on the site. In both of them, we found strong progress in terms of the total quantum of work. We're expecting that they will continue to build on them.
We are having conversations with pretty large banks and other logos at this time. Again, we could see some conversion, at least in the BFSI space in the next quarter. I think retail might take a little longer. While the investments are being made, I think, just the current environment means that the closure, the sales cycles are going to take a little longer. Again, there we have a few conversations that are currently underway. I'm hoping that, you know, we will have good results to share, right, on the retail front in a quarter or two from now.
The non-top 20 line.
Mr. Hitesh, may we request you to rejoin the question queue for follow-up questions? Thank you. Next question is from the line of Samir, from ICICI Prudential AMC. Please go ahead.
Thanks for the opportunity, Raj. If you can just provide you know, you've spoken about consolidation exercise in different top clients in the past quarter. I'm not sure if you've given out. Can you just share an update of what okay, you have on the share of interest or on how it progressed? Thanks.
We are happy to report that this client, which is our in our top five clients, again, in fact, after the two top accounts, is actually the third largest account in the technology vertical. We've managed to renew our entire book of work for this particular account and the same rate as well. That is the first positive news. The second one is, within one of the existing groups, we were able to as a part of the consolidation that we spoke about, we've in fact been able to add a book of work, which is on an annual basis, close to about $800K. That's something that we were able to add.
Incrementally, there was one new group, which is a part of the changing business of this particular account, and we were again able to win an additional SOW to the tune of INR 700K. On an overall basis, you know, this entire consolidation exercise that we spoke about has actually been beneficial for us in that we've managed to regain a lot of lost ground in this particular account. All these gadgets about a million and a half INR in terms of digital order with this particular account.
Great. Okay, that's just my question.
Thank you. The next question is from the line of Ruchi Mukhija from Elara Capital. Please go ahead.
Thank you for the opportunity. I mean, pardon me if it is for the coming at a lot of reputation. In earlier conversation, when generative AI came up for the discussion, it was painted with a risk characteristic. Given your portfolio, which is more concentrated around data engineering, and as we understand about the AI, where if you don't have a data strategy, then it will the AI strategy. In that context, could you help me understand for your business, you would see generative AI more as an opportunity? How would you see risk in your maybe from service line perspective for you?
Yeah, sure. Thanks for the question, Ruchi. I think, you are right. I mean, any analytics work that an organization wants to undertake, they should have a very strong data foundation and a database. In fact, if you go back, say, three, four years in time, organizations used to work with data that are available in their particular or functional silos, could be coming out of their ERP systems or transaction processing system, but they typically work with some siloed data that they have. They were solving simpler problems, lower hanging fruit, right? That meant that you needed a certain maturity from a data engineering, data platform perspective.
Now, we have seen that in the last two years or even a slightly longer time frame, that the complexity and the maturity of initiatives are increasing. That means the low-hanging fruit has been taken. You are now going after problems that require a more holistic, integrated perspective, right? Across the entire organization. Therefore, you need to be able to harvest data from multiple parts of the organization, bring it all together into one platform. Definitely data engineering is on the upward curve from a type of work perspective.
The good thing is that as you bring in all of this, data, and, especially if you're talking about unstructured data from outside of the enterprise, from social media, from, reviews and other mechanisms, that is what creates the kind of opportunity that I talked about. generative AI and large language models are particularly suited for unstructured data, for text data. Now that organizations are collecting that kind of data from the multiple customer interactions that they are having, it'll be, it'll mean that there's multiple opportunities, right? For how you can apply, generative AI kind of, principles, right? To mine that data. Now, generative AI as a technology and as a new tool, itself is, exciting and interesting for people to, play around with and experiment with.
The real value of all of that can be achieved or realized only when you have very solid use cases. On what data are you going to analyze? What problem are you looking to solve? How do you address some of the hallucination challenges, right, that I referred to earlier? You wanna make sure that whatever these large language models are throwing out are completely fact-checked, and there isn't any extraneous inferences that are being made, right, or not connected with the data and the construction information that might be there. I think understand the opportunity, would be, in fact, you would have heard the word or terminology called prompt engineering. Prompt engineering itself can be a very interesting space.
If you have data and if you have technology such as large language models, how do you use prompt engineering and the right kind of interaction so that you're getting the best use of data available? I'm expecting that on the back of what is happening in the generative AI space, there'll be even more opportunity to undertake the right kind of predictive, prescriptive analytics and what you can do with the kind of customer information that you're able to collect at this point. In some sense, we are quite positive about the impact that generative AI can have on the entire analytics landscape.
Thank you. We've got some time left with you. We move to the next question. Our next question is from the line of Karan Uppal from PhillipCapital India. Please go ahead with your question.
Yeah, thank you for the opportunity, congratulations on a strong rebound in growth. Just one clarification. You mentioned that you are seeing Q2 to be similar to Q1 in terms of growth, you also mentioned that H2 will be better than H1. Also you have mentioned that there is some uncertainty which is there in the market, clients are taking some more time to close the deal. In that context, how should we look at the trajectory of growth from here on?
Yeah. Towards, I mean, we are at the end of July now, one month is already gone by in quarter two. If I look at my own potential pipeline for this quarter, then the probability-weighted pipeline for this quarter, I can see that our growth rate for quarter two will be a little better than what we have done in quarter one. Okay, that is something that plays on the data that I already have in terms of the opportunities that we have, what we have closed, confirmed rate, all of that stuff.
Now, for Q3 and Q4, what I have is like a large pipeline. Of course, the current trajectory for sure, between whatever we end up doing in Q2, we will continue to do in Q3 and Q4. The growth on top of that is currently exactly a pipeline rate of opportunity. That will depend on how quickly those opportunities are closed. If we have a few good closures in Q3, reminder of Q3, then Q3 starts looking a lot more interesting than what it is right now. That is, that is where we are. I mean, in some sense, I mean, I'm not able to give any more assurance than what I see at this point in time.
I do see the kind of growth that we have, in Q1 continuing into Q2 and Q3. That will happen. Further uplift on that will be on the back of at least some good closures that we have, right, in the reminder of quarter two.
Okay. We are visibility is limited to a quarter at this point in time, and beyond that, given the uncertainty, we are still not sure what the trajectory is. All right. Is that right understanding?
Yeah. I will just rephrase that. What we have confidence for the current growth trajectory, okay? For the trajectory to become steeper, I will need more closures.
Okay. Okay, sir. In terms of margins, we are talking about margins improvement from here on. Investments we have already made and no further significant investments we are trying to make, and their impact is already behind us. From here on, as business improves, margins will also improve at the regular pace?
That's correct. Yeah, you got it right.
Okay. Okay. Thanks for taking my question. All the best.
Thanks, Karan.
Thank you. Our next question is from the line of Swechha from ANS Wealth. Please go ahead.
Hi, sir. Thank you for giving this opportunity. My first question is around, you know, the order book. If you help me understand what kind of order book do we currently have, and if you also could give me a number of the, you know, bid pipeline that we have. I think you had mentioned in your commentary that, you know, the new deals that we have got, the new logos that we have given, they are of a smaller ticket size. Do you think this is going to impact our margins? You know, like, does margins vary depending on the ticket size? If you could also give me the average ticket size that we have currently.
I'll give you some context around the order book question first. One of the reasons why we at this point in time, we don't publish order book is also, you'll have to understand the nature of the business or the nature of the contract that we typically get are between 12 months. Given that most of the customers that we have, if you see, are based out of North America, the budgeting cycle or the fiscal that most of our clients follow is January to December. Therefore, most of the renewals or extensions that we end up signing typically run through this period, which is January to December.
Given that the order book that we carry at any point in time, it will be very high towards the end of the calendar year or beginning of I would say Q1 of the following calendar year or for, you know, for us it will be Q4. That's when our order book will be at the highest. Through the year, as we execute this order book, the confirmed order book that we carry or will actually progressively come down. There is another internal metric that we track, which we, of course, we cannot publish or give out at this point in time. It's again, extension, right? Which again, is dated based on the probability of extensions.
We internally, as management, track the extensions with any account or any client where we have a history of working with that particular account for a period of more than two years, is typically tagged as high probability extension. One of the internal metrics that we as management track is, at any point in time, the order book plus the high probability extensions that we carry should roughly be higher than or equal to the trailing 12-month size. Which is what we can at this point in time give out. The order book that we carry today is slightly higher or marginally higher than the trailing 12-month revenue that we just clocked. That's what I can put out. The second question around margins on some of these smaller value deals, right?
Just to let you know, you know, as a, as a, as a benchmark or as a, as a lot of internal metrics that we track, our threshold for taking on any new work is typically 50% gross margin in the U.S. We have a slightly lower threshold for some of the newer emerging geographies, because also we, you know, we are placing geographies and, you know, our intent is to win marquee logos over here and build on that in the future. That threshold might be slightly lower for Europe or APAC. In the U.S., 50% is the threshold that we normally operate in.
Even for these new small deals that we spoke about, our margins are in the same range, 50%+.
Okay.
On the contrary, in fact, if clients are typically signing on smaller opportunities to begin with, they also know that they cannot get the benefits of leverage. For some of them, for example, I mean, the on-site offshore ratio will be of a certain nature. Once you get onto a larger initiatives, clients need to understand that they get the benefits of leverage, therefore the pricing and the margin will reflect that. The deals that we have signed in this quarter, while they are smaller, we don't have any impact from a margin perspective on account of that.
Okay. Okay, my second question is, you know, what is the revenue contribution from our top five customers? You know, if you could also help me understand what is the onshore and offshore, you know, billing rate, and how do we typically, bill our clients?
The first metric, you will be able to see as part of our investor presentation, as well. Our top five accounts contribute about 60% of our overall revenues. To answer your question, the second question was around billing rates and on-site offshore ratios?
Yes.
Our billing rate, typically, if you would see, we on a blended basis. Of course, the most of the contracts which we have are on a managed service construct, okay? Where we have, and what we call as a Center of Excellence model, where we typically bundle a combination of on-site and offshore resources, and we sell it as a Center of Excellence for the client. The average revenue per employee, if you look at that metric for us, it's in the range of about $50,000-$65,000, and it has blended in that range for the last, I would say, two to three years. Our on-site offshore mix is typically 1 is to 5.5. Okay?
In the past, it went as high as 1 is to 6. In recent times, we are again seeing that that number is coming off, and we are about 1 is to 3.5 at this point in time. The reason why we don't end up tracking the rate per, you know, per person or rate per hour is because we don't do a lot of work. In fact, we do very, very minimal work on a stock off model. That's the reason why I'm not able to give you a rate card or a rate per hour for on-site and offshore. Our average revenue for employees is in the range of $40,000-$65,000, if that helps you.
Okay. That means we don't bill our clients on an hourly basis, right?
Okay.
So.
There's a very, very small book of work, which is less than 5% of our overall turnover, which will be in that model.
How do we bill our clients, and is it contract-wise?
It is for a capacity that we give the client. That capacity will deliver a book of work to the client. There are a set of initiatives that we agree upon with the client. There's a capacity and a skill mix that is given to the client. We bill a fixed monthly rate to the client. That is what we charge them on a monthly basis. Of course, the capacity itself can be dialed up or dialed down, depending on the client outlook, as well as the requirements from the client side. The rate that we that we agree on is a fixed per month rate for this capacity.
Okay. Okay. Okay, thank you.
Okay.
I have a few more questions. I'll be joining you. Thank you so much.
Thank you. Ladies and gentlemen, this was the last question of our question and answer session. I would now like to hand the conference over to the management for closing comments.
Well, thank you, everyone, for joining the call. Like we mentioned, we're happy to be back on the growth path and growth trajectory. Despite a lot of the commentary that has been coming from the market, which has been largely negative, we've managed to, I would say, press the pedal or keep the momentum going on the investments. We continue to be fairly optimistic about the future. Some of the recent conversations that we're having and some of the opportunities that we have in front of the client definitely indicate that we could witness a bounce back in H2. However, there is still work to be done, like Rajan mentioned, which is why we are, at this point in time, hesitant to put out a guidance for H2.
We believe we made the right investments in terms of people and capability building, which will put us back on the growth track, as well as the margin that we historically repeated back on the growth trajectory in a couple of quarters.
Thank you. On behalf of Latent View Analytics Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.