Gentlemen, good day, and welcome to Newgen Software Technologies Limited Q3 FY 2022 financial results 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. Deepti Mehra Chugh from Newgen Software Technologies. Thank you, and over to you, Ms. Chugh.
Good day, everyone. I'm Deepti Mehra Chugh, investor relations, Newgen Software Technologies Limited, and I welcome you all to the Q3 FY 2022 results of the company. Wishing everyone a happy New Year, and I hope everyone on the call is keeping safe. Joining with me today on our call is our management, Mr. Diwakar Nigam, Chairman and Managing Director of Newgen, Mr. Virender Jeet, Chief Executive Officer, and Mr. Arun Kumar Gupta, Chief Financial Officer. Before we move on to the discussion, let me highlight that this call may contain certain forward-looking statements concerning Newgen's future business prospects and profitability, which are subject to a number of risks and uncertainties, and the actual results could materially vary from the forward-looking statements. Past performance may not be indicative of the future performance.
The company does not undertake to make any announcement in case any of these forward-looking statements become materially incorrect in future or update any of these forward-looking statements made from time to time by and on behalf of the company. For any further details, you may please refer to the investor relations section of our website. I will now hand over to Mr. Nigam for presentation of the results, which will be followed by a Q&A. Thank you.
Good afternoon, everyone, and thank you for joining us today. First of all, let me wish all of you a happy and a healthy New Year. I hope all of you are keeping safe amidst another COVID wave. For Newgen, Q3 has been a quarter on the path of continuous progression amidst the ongoing uncertain environment. Our revenues were at INR 203 crores with a growth of 9% YoY. We witnessed acceleration in business from existing customers and healthy operating margins. Our subscription revenue continues to be the strongest component, witnessing a growth of 20% YoY. Several of our subscription orders have long gestations, leading to deferment of revenues. As we had mentioned earlier, moving forward, we are pushing for changes towards subscription-based pricing model only. Annuity revenues were INR 112 crores during the quarter, witnessing a growth of 11% YoY.
SaaS revenue was INR 14.2 crore. SaaS growth was muted during the quarter due to the impact of period adjustment of one of our projects, one of our clients. The product license business witnessed a growth of 37% during the quarter. In terms of markets, EMEA and APAC continue to outshine during the quarter. We witnessed several expansion deals with existing customers following our land and expand strategy. Unfortunately, travel has not resumed at the same pace as we had anticipated at the beginning of the year. In the U.S., revenues have been stable. Revenues last year included catch-up revenues related to PPP logos, which are not there anymore. Overall, we added 17 new logos. Some of these logos are still in the process of being built currently. We continue to help our existing and new customers in creating digital capabilities across the modern-day business needs.
Our key orders from new and existing customers during the quarter include cloud order for a captive premium financing arm for leading global automobile manufacturer, project for a diversified financial services company in the U.S. providing a full range of commercial banking, consumer banking, and wealth management solutions. Cloud order for a leading specialty finance provider in the U.K. and Ireland for Newgen's automation platform to enhance its premium finance process for business insurance customers. Customer mining for additional license business from one of the world's largest investment management companies. Order from an existing customer in Singapore, which is part of a leading international banking group. Moving to update on our offering and opportunities. During the quarter, we launched an upgraded version of our industry-recognized low-code process automation platform, iBPS. The latest version enhances personalization option of end users and provides an upgraded rule engine for improved decision-making.
Further, the platform offers improved data handling, enhanced capabilities in Robotic Process Automation Deployment, containerized deployment, upgraded mobile app capabilities, and more. Reinforcing our strong position in the industry, we continued to receive additional analyst recognition during the quarter. We are positioned as a visionary in the 2021 Gartner Magic Quadrant for Content Services Platform for our ability to execute and completeness of vision. We are positioned as a strong performer in the Forrester Wave for Digital Process Automation software Q4 2021. These recognitions further validate our commitment to drive product innovation to facilitate end-to-end digital transformation. We now have 22 patent grants in place. We were granted a patent for invention entitled Centralized Controlled Printing and Administration. We were also granted a patent for an invention entitled Integrated Capture and Analysis of Documents.
This patent protects the invention to automatically capture the best quality document imaging using mobile or tablet devices with the help of real-time calibration of various parameters. As further step to tap the growing enterprise IT budgets in the space of artificial intelligence and machine learning, we are happy to announce that Newgen is acquiring India-based Number Theory, an AI/ML data sciences platform. Subject to completion of conditions as stated in the approved share purchase agreement. This acquisition is expected to further strengthen Newgen's low-code digital transformation platform with AI/ML modeling and data analytics capability. We look forward to accelerating our journey in data science and AI/ML domain with this acquisition. On the operational front, last quarter, Newgen senior management and other teams were back in office. It was good to have face-to-face meetings. The team has participated in personal events.
We have again been forced to move to work from home for the time being till the situation is stabilized. Collective safety and productive working are paramount for us. We shall review the situation and make changes as warranted from time to time. As the situation improves, we will move back to the hybrid work model, ensuring productivity, cultural assimilation, and offering flexibility at the same time. We continue to remain focused on long-term talent development and incentivization. During the quarter, we have also come out with an RSU scheme for employees. On the sales and marketing front, we are continuously working on building our focused alliance with GSI. We are driving joint sales and marketing activities and campaigns, as well as joint solution development with our partners. We are working on our GSI pipeline.
As mentioned last time, the contracting period of some of these projects are elongated. On the profitability side, despite the escalation, we have delivered another quarter of healthy margin. Our EBITDA was INR 58 crores, and profit after tax was up 35% YoY at INR 48 crores. EBITDA decreased on account of normalization of cost base compared to last year, as well as increased remuneration to manage attrition. We continue to invest heavily in our global expansion, our product, and in our people. During the quarter, R&D expenses comprised about 10% of sales, and sales and marketing expenses comprised 20%, as usual. Our balance sheet is strengthening with every quarter. Our cash and bank balance and investment portfolio together amount to INR 479 crores, and the net cash generated from operating activity was at INR 147 crore for the first nine months of the year.
Our debtor days continue to show improvement. Our net trade receivables were INR 184 crores at the end of December, which resulted in net DSO of just 90 days on back of sales and collection improvement. For the nine-month period of this year, revenue from operations were INR 548 crores, up 16% YoY. Annual revenues were at INR 331 crores, witnessing a growth of 16% YoY. Our subscription revenue witnessed a growth of 19%. EBITDA was INR 127 crores, and profit after tax up 45% YoY at INR 107 crores. Looking forward, the demand environment continues to be robust. The GSI engagements are positive. We look forward to the integration of Number Theory with our platform to give our customer an edge. With this, I end my commentary on the results and wish you a safe and happy year ahead. We now are open to question and answer. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask the question. The first question is from the line of research team of Cardinal Asset Advisory. Please go ahead.
Hello.
Hello. Please go ahead.
Yeah. Thank you for the opportunity. I have two questions pertaining to the growth aspect. While I look at geographical breakup of our revenues, when I see the India revenues, we have been in the range of INR 59 crore to INR 60 crore here and there for quite a few quarters now. If you could help understand that. Also in the U.S., you did mention that there was some one-off, if I understood correctly, in Q3 FY 2021. Again, when I look at U.S.A. region as well, our revenues seems to be not quite stagnant for the last few quarters. If you could help understand how our revenues are moving in lines with the traction that we have from global systems integrators. That would be very helpful.
Yeah. Thank you for that question. I think there are two parts to your question. One is about segmentation of revenue. As you have seen, I think the growth predominantly has been driven from this quarter, India and Middle East. You are right. On the India front, both the COVID year and even the last six quarters have been quite muted on the site of new logo acquisition. There are two reasons for that. One is predominantly on the overall economic sector, there has been a slowdown in the first six, seven months. The other, government, which was a substantial part of our India business, has completely stopped or come to a halt. The government and the new logo acquisition have been slow over last five, six quarters in India.
On the other hand, I think we have seen a substantial improvement of sales in existing accounts in India. Most of our large banks, most of large insurance companies are expanding their digital initiatives. That's why in spite of the dip in the new sales part of it, we are able to maintain India revenues or grow them slightly incrementally. On the U.S., if you look at the COVID year for U.S., last year was extremely good. In fact, some of the quarters were between 20%-40% growth. I mentioned that growth was on account of our supporting the PPP initiative in U.S. for a series of banks. Since that was a one-time initiative, that revenue does not come as accumulative year after year. Whatever subsequent growth is happening in U.S. is compensating for that revenue. The market is pretty wide out there.
We continue to win logos. That component does not reflect in the overall growth of the territory. On the account of GSIs and other initiatives, what's happening is two things. Some part of the U.S. revenue is getting compensated for the loss of PPP. The other bigger part is that most of the new logo acquisitions, like even in this quarter, we had a substantial number of new logo acquisitions. Since we are shifting deliberately from a one-time jerky perpetual license revenue to subscription licenses or cloud, the realization of revenue comes at least two or three quarters later. It comes slightly in a more graduated rather than a upfront jerky revenue. Looking at all these three factors, that's the reason about looking at flatter revenue numbers in U.S.
While as in other territories, still there's a license business being pursued, and there are still some accounts which are delivering license business. That's why we are having a growth out there. On the other hand, Middle East and APAC both have been growing for us. Last year, COVID year, Middle East was slow. This year it has predominantly delivered for all three quarters. APAC has delivered in both quarters. I hope that answers your question.
Just few follow-up questions. On the USA part, if you could help understand the amount of the one-time work that we did, what was the amount out there, which was there in the last quarter?
I think for the year it was somewhere between INR 20 crores-INR 30 crores.
Sorry, sir, I missed out. What was the amount?
Sir, for the year it was somewhere around INR 20-30 crores, Dipti can provide you more details and numbers. Few crores for the quarter, I'll get back to you with the exact amount.
Sure. As far as India goes, you said that basically, you're not seeing any traction from the government part of the business. What is the outlook out there, going forward now since things have started to resume and economic activity has also kind of started to pick up. How is the traction on that front?
See, I don't think any substantial change has happened over last three quarters on the ground itself, though the activities, they keep on starting and they keep on stopping. We don't see lot of government initiatives coming in the typical spaces where we are operating. Even when there are RFPs, we are sitting on those RFPs for a very long period of time Unless we are really behind this COVID for at least a couple of quarters, then only it will be more accurate to predict how the India market will behave. If you leave out government, the other segments are surely showing a lot of interest, both in the new financial services as well as our MCA accounts. We do see a better momentum building over next quarter on that.
Thank you very much. A request to all the participants, please restrict to two questions per participant. If time permits, please come back in the question queue for a follow-up question. The next question is from the line of Karan Doshi from Edelweiss Financial Services. Please go ahead.
Hi. Congratulations on a good set of numbers. My question is that last quarter we've seen good deals and healthy logo additions. Some of these deals have slightly longer gestation periods leading to deferment of revenues. Given that one of our key strategies is expansion in mature markets, my question is, what is the proportion of new deals and new logos from, let's say, North America or Europe? Can we see a spurt in business in mature markets over the next one or two quarters once this gestation period for new deals end? Can they start contributing incrementally in the next six months? Thank you.
Karan, thank you for your question. You are absolutely right. Logo acquisition has improved over the last quarter as well. You're right that since most of these logos, they don't contribute to revenue of that quarter or subsequent quarter. You're absolutely right. In two to three quarters, you will see that building up and adding to the numbers. On the number of new logos coming from mature market, I don't have the exact number, but we did have wins out there. We had wins in U.S., we had wins in Europe, we had wins in Australia this quarter, at least four or five. I think some of them, at least three, were through the GSI channel. There is a momentum picking above there.
Once the base is established and the run rate is established, in few quarters, you'll see that start reflecting it also on the top line and the numbers. Regarding exactly the number of logos we have won in mature markets, Deepti can send you the data.
Okay. I think that's it for me. Thank you.
Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Akshay Satija from Alpha Invesco Research. Please go ahead.
Hi. Thank you for the opportunity. Sir, if you could help us, how do these contracts with GSIs actually work? We understand we are mainly into product, and GSIs provide these services. What could be the quantum of the implementation of these services and the other services? When it comes to cloud, is it a revenue distribution? What is the model out there for cloud-based platforms?
Thank you, Akshay. Akshay, you are right. What is included in GSI contracts, predominantly we are looking at the revenue streams which are more license subscription-based. They could be cloud or they could be increased, but it is predominantly on the license side we charge. The revenue share, it depends on the contract size. On the long term, the long-term view of the customer is that since these accounts are very large, the implementation or service revenues around these clients are multiple times than the license revenue. The deals could vary. The initial deals could be from $500,000 all the way up to $3 billion, $4 billion. The lifetime value for our product is typically multiplication of that license value or the upsell we do on the license.
While on the service side, it could be very wide because they could do global rollouts, they could do additional services around that product. Generally, it can be anywhere 3 times to 10, 20 times than the license value. Does that answer it?
Okay. Earlier we used to do all these services. Is it that now GSIs would be taking away all these services revenue, or there would be some portion that flows to us? Is there some revenue distribution kind of a thing there?
Yeah. That's one way of looking at it. You're right. Since we are not executing these projects, the GSI does this revenue, and we don't do this revenue. The other way of looking at is that these are the accounts generally which we are not being pursuing. This is a market which is getting opened and extended. Through the GSIs implementation, we are able to scale it as a channel. It's not an order. You have to look at GSI as a channel by which they can give you multiple orders where they are able to service.
Okay.
In either way, we are at a company at a smaller level, at an INR 100 million company, we will not be able to service all the global customers across all. GSI or a partner-based is a strategy which all product companies do.
Got it.
Yeah. It's a scale-based model for us.
Okay. Sir, if you could also help us, how many SaaS customers do we have versus what we did in last year?
Sorry, I don't have a number, overall, we are roughly around 30 customers in SaaS right now on cloud. On subscription license, we'll have many more. Dipti can send you more data on that.
Okay. Also, sir, one last thing. Sir, what would be our sales team in U.S.? I believe we have roughly 300 employees in sales and marketing. What portion of it would be in the U.S.?
Okay.
Around 60 people.
Yeah.
Overall in U.S., I think we have around 60 people.
60 people are not all in sales and marketing, but some of them are also front-ending the service element of that. The direct, we have roughly around 10, 12 people in direct sales. Then if you include the enablement and other things, another 20 people around that. Around 20, 25 people in the sales and sales enablement role.
Okay, sir. Okay, got it. One more thing. We have been talking about the key difference between us and the competitors like Appian and Appian's and Pega would be the value proposition that we provide. If you could help us understand, is there a cost differentiation between them and us? If it is so, what could be the quantum of the difference?
Akshay, this is a very long question and a long answer. Predominantly the value proposition is around what the complete offering which we have. We have a philosophy of being. The approach of low-code has been very integral to what our product we have developed. Our NewgenONE positioning, if you go to our website, you can see that our ability to provide Content Services, Business Process Management, and Customer Communication Management as a single platform reduces a lot of cost of ownership for the customer. The ability for us to execute a project in a much compressed time cycle make many projects viable. Broadly, that is the core value prop. Beyond that, whether it's two times or five times, depends on the complexity of the deal and what you are trying to do and with geography.
We do provide a substantial value when it comes to competing. I said then, every company becomes expert in certain domains and in our core domains, especially in financial services and any content-centric business processes, we are very difficult to compete with. In fact, we end up winning most of those deals.
Okay.
Akshay, just to add, on overall on the cloud, I think, cumulatively we have about 45+ logos.
Okay. On the cloud part. Okay. One last question. Are we looking forward to launch any new platforms along with the current existing three platforms, Customer Communication Management or anything on that front?
See, broadly, these three platforms are very large. The potential of these platforms, we have not really realized fully. We are just partially realizing that in certain verticals, in certain areas. As a company, we'll continue to strengthen these platforms and expand. Within these platforms, there's a huge space to expand, getting into more verticals, getting into more solution areas. With our investments in analytics and with the new approach of getting Number Theory, which we just even talked about, we are further strengthening our whole ML and AI capabilities in the platform and then expand in further use cases for the customer.
Okay. Got it. That's it from my side. Thank you.
Thank you.
Thank you. A request to all the participants. Please restrict to two questions per participant. The next question is from the line of Hinal Gara from ICICI Securities. Please go ahead.
Hi. Thank you for giving me this opportunity. Just for margins, if I see your employee cost as a percentage of revenue, they've actually dropped sequentially. If you could give some color on that. Also just for understanding, please correct me if I'm wrong, do we give wage hikes during quarter three itself or is it some other quarter?
Yeah. Hinal, thank you for the question. One part of the employee cost will drop as we scale out because a lot of our revenue streams have no direct cost associated with that, especially the license, the subscription, ATSs. It's a natural phenomenon of the business. Having said that, I think there's a huge cost pressure in the whole industry about people. Last year's base cost was not the realistic cost because the costs were less. This year, the costs have slightly rationalized back and we are looking at increasing the cost of manpower. The salary wage hike, generally the cycle hits us in the July month. It was part of Q2 as well as will be part of the Q3. That's not end of it.
I think we'll be further looking at improvement of compensations to manage our attrition and manage our people and talent. There may be further some increase in the cost in this quarter and that would increase the base cost for the next year.
Okay. If I see your 9 months EBITDA margins, they come to almost the lower end of our guided range for 23%-25% that we want to achieve.
Sure.
Given that we're already at the lower band and we still expect some of, I mean, as you said, employee costs to increase and once the situation completely normalizes, we'll expect further costs as office travel resumes. Can we say that the 23%-25% aspiration band that you have might take a bit longer for us to see that?
No, I don't think so. I think as you are rightly pointing out, we are already in near the band which we had already anticipated for the whole year. What happens is typically, since our revenue is lopsided, the margin expansions happen in more in Q3 and Q4. In spite of taking higher costs, we should be able to deliver further small amount of expansion on the margin for Q4. Next year, generally again in Q1, Q2 you will not see the numbers as at the same level, but in Q3, Q4 again they will expand. I don't think we need to revise our guidance on the net margin and the EBITDA margin. We should be able to meet around 19%-20% and roughly around somewhere between 23.5%-25% on the EBITDA.
Great.
Would this expansion, in my understanding, is it just based on the fact that we'll have better deals going forward, or is it some operational levers that will also improve? If you could give some color on that as well.
One of the simple facts is generally our Q3 and Q4 are larger quarters compared to other quarters. If you look at independently, the Q3 margin, EBITDA and net margins are at 28% and 23%. Q4 would have similar, even if we take some out of cost, it will still deliver higher margins. As a overall for the whole year, the margins will be in the range which we have projected.
Right. No, no. I'll put it in the other way. I understand that your Q3, Q4 is always strongest in terms of margins. Going forward, as our travel costs and all will come back, are we depending solely on the fact that Q3, Q4 will have better revenues, which is why the additional costs will be absorbed, or are there any other operational levers in terms of reduction in some other costs that we see might help us?
Two, three things. I think one, you are right. I think the cost basis will increase when it normalizes. Travel would normalize, but it will never come to that percentage it was before. Some part of the travel, some part of the operational efficiency which has come is going to be retained irrespective of whether market opens or not. The second part is what you see in our business model. You will see the higher margin revenues, which are typically around annuity, which are around subscription. Keep on growing always at a much higher speed than the overall company speed because they have a cumulative effect of that. Year-on-year, irrespective of the growth rates in terms of if we have the same growth rates, we still keep on expanding margins because that's the nature of the business.
Unless we deploy more in the sales and marketing and our R&D. As is, the business on a normal growth rate keeps on expanding margins because more than 55% of the revenue does not have any direct costs associated with it. That keeps on compounding. The way we have projected right now, I think next few years as we grow, we will keep on investing more aggressively in sales and marketing. Then only we can maintain the margins and EBITDA margins and PAT margins around 25%-20%. I hope that answers it.
Yeah. Thanks a lot.
Thank you. Participant you may press star and one to ask a question. The next question is from the line of Sushil Sharma from Edelweiss Wealth Management. Please go ahead.
Good evening, sir. I have just one question around SaaS revenue. This quarter SaaS revenue is INR 14 crore, 7% YoY growth. Sequentially-
Mr. Sushil, your voice is coming muffled.
Yes. Can you hear me now?
Much clear. Thank you.
Yeah. Yes.
Yes. Sir, my question is around SaaS revenue. This quarter, INR 14 crore revenue, 7% YoY growth, 15% QOQ decline. What I understand is that SaaS revenues, I mean, the new SaaS revenues build on the existing SaaS revenue. What I'm missing here, why on a post-pandemic start of post-pandemic for QFY 2020, first time we are seeing this QOQ decline. Is there something in billing or we have seen some cancellation in this quarter?
Yeah. It's not a cancellation. I think it was a term readjustment, one of the large contracts. If you look at nine months, our SaaS has grown at around 23%. We had to readjust the term by which we had to readjust revenues for a particular client, which is a larger client. See, what happens in even a INR 14 crore-INR 15 crore, if you have to do a INR 2 crore adjustment, it makes a huge impact on the quarter arena. If you look at the nine-month period, we have still managed to grow around 24%. This quarter change, which will only be adjusted, I don't see that happening from next quarter onwards.
Sure, sir. Thank you. That's very helpful. That's it from my side.
Thank you.
Thank you. The next question is from the line of Nilesh Jethani from ICICI Prudential Mutual Fund. Please go ahead.
Hi, sir. Thanks for the opportunity. First question was on the GSI business. I'll break it down into a few parts. Currently wanted to understand what portion we do from GSI. Currently when I say in nine-month period what we have done. Also when we do ex-GSI, my understanding is whenever we enter a client, our minimum revenue what we get from them is around $2 million-$4 million. In case of GSI, what is the typical initial revenue we get from those GSI partners? Wanted to understand the business model on that side first, sir. Thank you.
Thank you, Nilesh. See, GSI itself is new. I think last year we started it. Right now as an overall percentage, though our partner base revenue is roughly around 20%. This changes between 23%, 25%, 18%, depending on what quarter we are. GSI as a percentage will be very, very small right now. On the number of deals which we have won through GSI, I think last year we had around 16, if I'm right. This year so far, if I'm not wrong, we have 5, 16 so far we have to make sure. Dipti can get you more better data on that. Our deal sizes with GSI will matter. It could be as low as initially around $400K-$500K and as high as a couple of million dollars. We don't enter into $2 million-$4 million as our regular business.
Our regular businesses also are even a smaller range than this. Broadly, if you look at most of the GSI funnels which we have right now, is around 60-70 cases which we are pursuing in the market, which are typically in U.S., Europe and Australia. That's what we are focusing. We do expect that over the coming years, this becoming a substantial part of the funnel. This overall in next four or five years, contributing roughly around 40%-50% of overall business from these large customers. Right now it's a beginning and we are working on it.
Broadly today, there is no much difference in the initial business we get either from our own sales team or either GSI business, and it ranges from $300K to say $500K-$600K.
Yeah. Initial deal sizes can vary, that depends on the kind of customers. With GSIs, our objective is go to Fortune 200. The potential generating INR 1 million, INR 2 million annually from that is very high compared to a mid-tier bank or a smaller account in other geos. When we enter that account, the entry can be at INR 1 million or it can be at INR 500K or INR 400K, the potential of those accounts are much better. That will be realized over two, three years after we enter.
Got it. Sir, would there be any difference in the margin profile via GSI and what is that difference number?
The margin profile is based on the revenue stream. Since it's a subscription or a license, these are generally at high gross margins, roughly around 90%-95% gross margin, it does not have to do with the GSI or non-GSI deal. Since most of the revenue from GSI will be coming as licenses or subscription, it will just add only higher gross margin business to the company.
Got it. Sir, second question was on the segment-wide revenue. We have been of late focusing on the banking and the insurance space, trying to enter into small banks or insurance company or wealth business or lower USD revenue terms. Just wanted to understand on a YoY basis when I compare, because our business is more comparable on a YoY basis, growth doesn't seem to excite us. Is there a lot of churn happening of clients at lower levels? What is happening exactly? Just wanted to understand that on the banking and insurance space.
On the banking and insurance space, I think last year we had a flattish year, there was no growth, there was no excitement. I think our banking, insurance are the fast growing segment. Even for this year, for first 9 months, the revenue growth in banking is more than 26%. Because the government and other ones have squeezed. Banking has still continued to give us momentum. I don't see the reason that there's a concern on these segments. They are doing very well for us, and in fact they're doing very well for the whole industry right now. We do expect that in coming years, even this becoming even stronger. As we are getting more strongly positioned in banking, both on our solution or vertical side, as well as horizontally taking our platforms to larger customers.
We will see that growth momentum continuing to that. The challenge probably, I may be speculating, that you're thinking about the net logo acquisition. In net logo acquisition, lot of logo churn happens in small partner accounts. That is where I think you don't see net addition of logos. On the revenue side, in financial services, we have always a very healthy revenue addition. In fact, if you want, I think we can send you the banking financial services even this year, while the company has grown 15%-16%
Got it. Am I audible?
Yeah, sure.
Yeah. On this banking piece only, I remember in the earlier discussions we've had, there were some opportunity which was laid down where there are around 900 banks out there in this revenue category of $2 billion to $50 billion USD or the asset size. Wanted to understand how well are we penetrated, what number of clients we have. I remember last time we discussed, we had around 30, 40 clients in this segment. Wanted to understand how has been the growth on client addition side or the number remains same?
No, I think this year also, we have not really added the amount of clients we expected to do around 20 to 25 clients a year. So far, we may have done only four, five, six clients in a year. We may add another four, five in this quarter. There is a drop in the overall addition rate in U.S. On that segment which you are addressing, which is typically around 900 accounts of asset size $2 billion to $20 billion asset size. We are penetrating that market, overall, what is happening, while there is a huge boom in the digital, in the overall IT industry. The market which is typically in these small banks in U.S. don't respond the same way.
Most of these accounts have been either working on the lending PPP program for last year and this year they've been struggling with COVID. They don't have the same traction and same kind of a momentum. I'm very sure as the market stabilizes, the market opens, I think they will all restore and come back to that healthy growth rates.
Got it. One last on the clarification I wanted. Our EBITDA margin guidance remains at 23%-25%, am I right?
Yes.
Any guidance on growth?
See growth. This year was to come back to our historical around 20%. I think Q1, Q2, we did meet around that number, and Q3 was slightly a larger quarter, and also we had some issues in some geos where we didn't. We are still trying to push back to the last year, previous year's growth. Let's hope here we are. Right now we are around 16%, let's see whether the year closes. May be difficult to predict right now.
Okay. Got it, sir.
Also, I think.
Yeah.
I think travel also hasn't started to the extent that we would have otherwise planned.
Yeah, makes sense. Okay. Thanks, sir. Those were my questions. Thank you so much for patiently replying to each one of them. Thank you so much.
Thank you.
Thank you very much. A request to all the participants, please restrict to two questions per participant. The next question is from the line of Rahul Jain from Dolat Capital Market. Please go ahead.
Hi. Thanks for the opportunity. I have a question which is related to, we've been hearing this demand traction for SaaS-based low-code offering in many companies, especially on the Indian IT services side, has seen a very strong tailwind from the implementation opportunity perspective. As a result, we have already seen the growth rate for these companies have significantly increased versus what they've been doing in the past. With that background, do we see that thing to be visible for us where we could say that our growth in the next couple of years can actually have a growth rate that we might have delivered in the pre-pandemic period?
Rahul, I'm sorry, you're not very clear towards the last part of the question, if it's about the overall growth rates of the low-code SaaS-based companies then I can take up. Is that what you're asking?
Yeah.
Can you repeat the question once?
Could you just repeat that question because I lost you right at the end of it.
Is it any better now?
Thank you.
Essentially, if I have to rephrase it, basically I'm asking, do you see any reason to think that our growth rate can be substantially better than what we used to do pre-pandemic? The same thing we are observing for the IT services player who are basically more on the implementation side of the business and is leveraging adoption of SaaS low-code kind of event. While we being the product side of it, is not reflecting that growth now. Is there a reason why it can happen in any time future, where our growth rate of past could be exceeded in, let's say, next couple of years?
I think it's a very fair question, and you are right. There's a huge traction on the low-code play. Low-code is not only on SaaS, but across all business lines. Customers are expecting that to solve their digital journeys or to solve their digital problems, low-code is always deployed as an initiative. Newgen being one of the top four, five companies in the world to play in this low-code area. I think surely. I think one of the most important things which we keep on repeating, that for us, since we are a smaller company and our coverage is in accounts is limited to our product portfolio. For us, new logo is win. Our acquisition of new clients is very important. That is not easy to do completely remote.
Most of our sales strategy was India-based or India-supported sales strategy. We'll have to go and win new logos. I'm very sure as soon as the momentum and the travel starts back, I think the acceleration of our use cases, because of low-code or because of our own verticals in financial services and other verticals where we're strong, we should be able to push back the growth momentum, and it should translate into a demand for our kind of products. I think we are more hopeful than the low-code SaaS. We are more hopeful about the overall GSI initiatives and the partner-based sales, which is picking up, and that should push us to a higher growth momentum than we used to traditionally record before COVID.
Okay. Just an extension to the same question, and I have a follow-up. As you said, no travel, and I can understand the constraint. Can you say that this advantage or this disadvantage does not exist for people who are serving the same market, let's say for U.S. or being more local, is still taking advantage of adoption of low-code solution, since there is limited travel constraint to them being a local? Is it a different nature where the kind of customer we are chasing are in a non-decision mode, given that they are working remotely, that is a bigger concern. If the concern is point number 1, then is not, since it's almost like two years we are in pandemic, have we identified ways to address this, assuming this situation remain like this for, let's say, another couple of years?
Do we continue to see this as a challenge, or we have rectified the ways to solve that issue?
No. I think your point is absolutely. I think surely companies which are completely very close to the mature markets and have a substantial presence do find an advantage. That advantage comes not only from the presence or way to operate, it also comes from their existing customer base around those areas. In this period, most of the growth has come around accounts which people already have, and those accounts are demanding more work and more resources and more software solutions. If you have to acquire and start a new initiative, it's been all challenging, whether you are close to the market or remotely. Having said that, we have also shifted a lot of our sales. In fact, this year, so far, we have done around 34 local acquisitions.
This is almost two years down in the pandemic, all these accounts have been operated, acquired through a very different model than the traditional model of face time. We are also picking up the game out there. I think there are two points to it. One is, the advantage is more. Surely, they are able to capture the market who have already the customer base, especially the larger customers in mature markets. Second is surely your direct presence, your ability to be close to the customer, have a relationship with the customer, so the customer trusts you for placing the order. Those things do help. I think both play a part.
Okay. That is helpful. Just lastly, you mentioned somewhere that you have a funnel of 60, 70 cases in these three markets, U.S., Europe, Australia. Just wanted to understand, because is this more like a qualified pipeline versus a total pipeline where we could be like L2, L3 kind of a thing, last two, last three kind of a thing? We have mentioned in the past that we work with multiple GSI, plus we are in multiple product as well as we are in multiple markets. If you just have a pipeline of 60, 70, which would mean that per salesperson for the GSI, it could be just chasing four or five customer at max per client. How serious opportunity it is from the partner perspective?
You are absolutely right. Overall funnel roughly is of around 69 cases, and that is a complete funnel. That is all from prospect to the advanced stage of engagement and closure. The funnel is thin, and predominantly we have been able to penetrate or do better work with some GSIs where almost 50% of the funnel is coming from a single GSI and other GSIs are starting and exploring. The funnel, you are right, the funnel size is small right now. It does not really do justice to the kind of potential the overall market has. That is what we have been trying to grow in that area. Though we do not have too many front-end sales teams for GSIs alone. Most of our traditional sales have been on our own named verticals, that is banking, insurance, government shared services.
The GSI sales teams also in region are a very thin teams right now. They are not expanded. 70% of our team is still working on the businesses which we have been doing traditionally, which is selling to banking, selling to insurance companies, selling to government across these verticals. Right now they have cases, but this funnel needs to grow to a substantial size over the next one or two years.
Thank you very much. All join requested to come back in the question queue for a follow-up question. The next question is from the line of Rohit Balakrishnan from ithought Portfolio Management Service. Please go ahead.
Hello, am I audible?
You are, Rohit. Please go ahead.
Yeah. Thanks for the opportunity. Just two questions, one very basic. In your split of revenue pie that you've given, there is something which is called support, which is 25%, and then there is AMC also, which is 23%. Can you just explain what is support exactly? What exactly involves support?
Rohit, basically what we look at is, once we sell our software licenses, most of these customers, we would charge them what you call an annual technical subscription or an ATS or an AMC, which is kind of an insurance to keep the license updated, current, contemporary. It's a kind of an annuity generated over the license. What happens is, some of these customers, since they have very large implementations. Because this part of revenue does not have any direct manpower associated, it's kind of an insurance. They do contract additional support where they have basically a team of maybe five, some people have a 10 or a 20 people team to implement these projects, to keep on running and executing these projects over a larger period of time. That's kind of an extended support.
The nature of this business is more annuity since they're already having these installations. The profile of this revenue is more typically their margin profile is like a support or a service profile. That's why we call it support. Does that clarify?
Yeah. That answers that question. My second question is, you've been talking about your partnership with GSI, and that should sort of open up more doors for you in the Western markets, especially the U.S. Just want to understand, and please correct me if I'm wrong, maybe my reading is wrong, but in terms of just from a GSI point to what is in there, what is in it then for them to go for somebody like Newgen? You have others who probably, as you were explaining earlier, that you have other players who are closer to the customer itself, whether they are present in the Western market or in the home market as well for them.
In the overall balance of power, or to put it differently, why would a GSI want to go with a partner like Newgen versus somebody who's already very established, making it slightly more difficult for them to sell us versus a more established player?
I think this is a very typical question where we always keep on facing this question, and the answer is very simple. See, there is a market for our kind of products and solutions, and it's a $20 billion market, so there's a demand. Of course, when GSIs are with customers, they are also competing for these values. It's not that these orders are available to them. The customer has a demand, so GSI is providing a solution and he has to choose one of the top players. The two most important things for the GSI out there are, one is the customer's acceptance for the product. This customer acceptance comes from the brand. With our presence in Gartner and Forrester for the last 12, 15 years, I think that we surely qualify that.
No customer can ask, "Which is Newgen?" Because we are among the top three, four players in the world around these areas. The second most important thing for the GSI is the probability of succeeding and the support he gets. That is where we score. Since most of these GSIs over the last eight, 10 years, we have extremely successful cases. They have been in India, they have been in Middle East, APAC, and they have now taken these initiatives outside India. With some of these successes, which has been kind of a marquee win for the GSI also, they have realized that with Newgen, the potential for success, the value they get to the customer, and the surety they have about delivering solution is very high. That's why they are able to take you. That doesn't mean that we don't have to fight.
We still have to convince the product. We go and sell to the end customer. We have to convince both GSIs and the end customer about the product. There's a clear-cut choice. Given a choice to certain GSIs in certain areas, they would prefer Newgen today. That doesn't mean they will always put 100% time or always push up Newgen. We don't need that. We need if most of cases they're able to push, we should be able to succeed.
Got it. Sir, are you sharing the names of the GSI that you're partnering with or you're not?
No, we don't have disclosures about that. I think we can surely, Deepti can work out about because whatever permissions we have got for which deals we can share those names with.
Sure. Thank you, sir. This is very helpful. Thanks so much.
Thank you.
Thank you very much. Ladies and gentlemen, that was the last question for today. I will now hand the conference to Ms. Deepti for closing comments.
Thank you so much, everyone, for joining in the call. For any further queries, you can connect to me anytime or go to our website. Thank you.
Thank you very much. On behalf of Newgen Software Technologies Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.