Ladies and gentlemen, good day and welcome to Newgen Software Technologies Limited Q3 FY26 earnings conference call hosted by ICICI Securities Limited. 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 touch-tone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Ms. Seema Nayak from ICICI Securities Limited. Thank you, and over to you, ma'am.
Thank you, Rudri. Good evening and welcome to the Q3 FY26 earnings call of Newgen Software Technologies. It's my pleasure to introduce the senior management team of Newgen. We have with us today Mr. T. S. Varadarajan, Co-Founder and Director, Mr. Jeet, Chief Executive Officer, Mr. Arun Gupta, Chief Financial Officer, Mr. Tarun Nandwani, Chief Operating Officer, and Ms.
Am I audible?
Yes, you are now.
Hello, Mr. Jeet, and welcome to the Q3 FY26 earnings call.
Hi, Seema.
Can you come in a better reception area, please?
Is it better now?
Yeah, it's better now.
Hi, everyone. Welcome to the Q3 FY26 earnings call of Newgen Software Technologies. It's my pleasure to introduce the senior management team of Newgen. We have with us today Mr. T. S. Varadarajan, Co-Founder and Whole-time Director, Mr. Virender Jeet, Chief Executive Officer, Mr. Arun Gupta, Chief Financial Officer, Mr. Tarun Nandwani, Chief Operating Officer, and Ms. Deepti Mehra, Head of Investor Relations. I now hand over the call to Mr. Jeet for further discussion. Thank you, and over to you.
Thank you, Seema. Good afternoon, everyone, and welcome to the Q3 FY26 results of the company. Before we move on to the discussion, let me highlight that this call may contain certain forward-looking statements concerning future business prospects and profitability. These 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 announcements in case any of these forward-looking statements become materially incorrect in the future or update any forward-looking statements made from time to time by or on behalf of the company. For further details, you may please refer to the investor relations section of our website. I would now hand over to Mr. Varadarajan for presentation of the results, which will be followed by a Q&A by the management.
Good afternoon, everyone, and thank you for joining us today for the Q3 FY26 earnings call. As we reflect over the first nine months of the year, it showcases our strong business momentum. We achieved a revenue of INR 1,122 crores during the period, witnessing a 7% YOY growth. Overall, in the nine-month period, we onboarded 34 new logos, reinforcing the trust and preference of global enterprises placed on our platform. Subscription growth remained robust with strong contributions from the U.S., U.K., and Australia, validating our geographic expansion strategy. Q3 was a quarter of balanced performance in a still selective market environment. During the quarter, we achieved revenues of INR 400 crore, witnessing a growth of 5% YOY. Last year's Q3 and Q4 were among our highest licensed revenue quarters, creating a naturally high base and making year-on-year comparisons challenging under current market conditions.
However, we remain confident of a license recovery in the quarters to come, supported by active near-closure deal pipelines. However, we acknowledge that the larger enterprise deals are facing elongated decision cycles, and traditional people-based support engagements are more difficult to scale in today's tight market. Despite these macro factors, underlying demand remains healthy. Order bookings continue to scale sharply, particularly across different revenue streams, enhancing revenue visibility and long-term stickiness. Our annuity revenues continue to grow steadily.
Annuity revenues were at INR 250 crores during the quarter, witnessing a 20% YOY growth. Within this, subscription revenue reached INR 134 crores, witnessing a strong growth of 29% YOY. We witnessed a significant growth contribution from the U.S. geography during the quarter at 21% YOY revenue growth, while the APAC region witnessed a growth of 7% during the quarter. India and EMEA regions were weaker in terms of growth during the quarter.
During the quarter, we made seven new customer logo additions. Our key wins in Q3 include an order from a public sector bank in Saudi Arabia for designing and developing a loan origination system with an order value of ₹38.6 crores over the next two years. Agreement with a leading financial institution in the U.S. for enterprise content platform with an aggregate value of $5.3 million over a two-year period. Providing contract management platform for a specialist insurance company in Europe, helping users across the enterprise to create and manage policy documents. The agreed order value is £1.5 million. Working with a leading bank in Malaysia to provide end-to-end project management services for enterprise content management system implementation with an order value of approximately ₹14 crores.
An order from a large bank in India for supply installation, customization, and maintenance of digital lending platform with an order value of INR 16.5 crores. An order from a captive finance unit of a leading car manufacturer in India for a loan management system with an order value of INR 14 crores. Our leadership in insurance is deepening steadily with our policy administration system offering, helping us secure a strong foothold in this high-value vertical. Meanwhile, our AI-driven solutions are gaining global traction, most notably through impactful early deployment, establishing us as a credible player in applied AI for mission-critical use cases. We are also strengthening our offerings in our core vertical organically. Our global customer base remains extremely strong and sticky, and we are expanding our footprint both within existing accounts and across new markets.
Looking ahead, we are particularly excited about next-generation AI-led products, which will significantly enhance customer productivity, design intelligence, and automation. Examples include AI-powered document understanding, generative process design, intelligent communication automation, AI-first vertical solutions, and these innovations will not only strengthen our competitive differentiation but also elevate customer value across industries. AI is increasingly embedded in our deals, and we continue to work on creating viable use cases in AI through significant investments in AI-driven products and solutions. We have also launched our employee AI upskilling program to build and scale a cohort of AI-skilled talent within the organization. During the quarter, the company was recognized as a niche player in Gartner Magic Quadrant for Business Orchestration and Automation Technologies. We have also been added as a representative vendor for Gartner and Forrester in various market guides.
Coming to costs and profit, while Q3 registered a muted 5% growth rate, we maintained margin strength through improved productivity initiatives. We are accelerating AI-led engineering, automation, and operational efficiency across our delivery and product team. Our adjusted profit after tax for the quarter, without considering the impact of the new Indian labor code changes, was at INR 90 crores, and net margins were at 22.5%. During the quarter, we have considered a one-time impact of new Indian labor code to the extent of INR 35 crores. In the nine-month period, the profit after tax before considering the impact of the labor code changes was at INR 222 crores. The profit after tax after considering the impact was at INR 194 crores. We continue to prudently invest in R&D and sales and marketing initiatives. In the nine-month period, we have invested 9% of our revenues on R&D initiatives.
We are also investing around 23% of revenues on the various sales and marketing initiatives. On the balance sheet front, we witnessed robust cash flow generation with our net cash generated from operating activities at INR 154 crores during the nine-month period. Our net trade receivables were at INR 530 crores as of 31st December 2025, which resulted in net DSO of 125 days. In summary, with strong deal momentum, expanding subscription revenues, a sticky global customer base, deepening vertical leadership, and the transformative potential of our next-gen AI products, we remain confident in driving long-term sustainable and profitable growth. We anticipate a healthy recovery in the traditional markets and are well-positioned to capitalize on emerging opportunities. Thank you very much. We are now open for Q&A.
Thank you very much. We'll 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'll wait for a moment while the question queue assembles. The first question is from the line of Ruchi Mukhija from ICICI Securities Limited. Please go ahead.
Hi. This quarter, growth in our core markets was strong. As you look into your pipeline, how do we see the health of business in the core markets of India and the US?
Ruchi, thank you for your question. First of all, new year, and wishing everybody a Happy New Year. You're absolutely right. I think while we had a strong deal momentum, almost getting 24 new logos, which is typical to what we did also last year with a healthy growth, for markets like India and Middle East, the numbers did not add up because though we won the deal, we did not get substantial large license deals in these two markets. I think if you look at globally, the pipeline is looking very strong, and I think we'll see some amount of what we are waiting for is the larger deals convergence. So I think we are seeing slightly more deferment in large deals, decision-making. So cases are there, but the conversion of cases are typically slightly larger. It's much more slower at this moment of time.
So in the near term, I think for the next quarter, we may find some convergence out of the pipelines which have got slightly pushed out. But I think next year, we think this thing should shape up much better. Some amount of recovery and confidence in the market is expected. Some amount of uncertainty around AI has to settle down. And this is a challenge we are seeing across all markets. When we, at the beginning of the year, realized this challenge, we had really pushed for deal acceleration and increasing the final velocity. We have been able to successfully do that, get our both new deals and existing logo deals. But the larger ones are a challenge. And I'm not very sure how soon that challenge will get resolved.
We hope that some part should get addressed in Q4, and then next year, we should get into a better shape. Ruchi, does that answer your question?
Yeah. You did mention that. I mean, AI is a kind of leading to some kind of uncertainty. But when we look at, let's say, India and EMEA versus USA, we see different vectors of growth or different growth momentum. So are we trying to suggest that in our domestic market, there is more reconsideration and maybe the catch-up how enterprise clients think about AI will need some maturity or some catch-up before we see similar momentum as we see in the US or the developed market?
Yeah. I think what is happening in, at least this is what I feel, what is happening in emerging markets, people are keen about venturing into AI-led, AI-led solutions. But also on the traditional solutions, friends, they are looking at more AI-led services and solutions to solve their market, which is creating a bit of more debate and more of deferment rather than anything else right now. I think as soon as it's also about business confidence and overall business activity, once the business confidence is there, the decision-making cycle starts becoming better. So Indian customers are also very keen, and they're also along with the Middle East also, they're very keen to go ahead with AI projects. But also we see also on the downside that any large initiative, there is a slowdown in decision-making.
It is difficult to clearly estimate what is leading, what is the cause, and what is the effect. But this is what we have seen at least in four or five of our large deals where people are just waiting and holding onto decisions, seeing what else is happening across the world and in their own enterprise.
Are smaller ticket size AI deals easy in the domestic market and India?
Yeah, yeah. I think what smaller ticket size is typically tactical in nature. See, all deals have an AI component nowadays. I think that's given. So those things out there, we don't see the same amount of challenges. And that's also. You will see that acceleration in our deals. I think we have not gone down in terms of number of logo wins or number of minor orders. We continue to see that. The only difference is the large license deals which were there last, at least Q3, Q4 last year. We are not getting the same number of large license deals.
Okay. AMC revenue has caught up a healthy pace of growth. Now, do we see this pace of growth or momentum continue in the near-term quarters?
Yes, I think surely. This is also because AMC growth is led with also the previous performance of years of your license revenues and completion of projects which are going live. More and more projects are going live, so the AMC keeps on accumulating. So at least in near few quarters, we'll see that momentum, that growth momentum continue.
Okay. Thank you and all the best.
Thank you.
Thank you. Participants are requested to press star and one to ask a question. Next question comes from the line of Meet Virani from MNS Investments. Please go ahead.
All right. So thank you for being with us. Given the strong volume and recent deal wins, can you specify the expected timeline for revenue conversion and indicate in which quarter we should start seeing a meaningful improvement in reported revenue growth? Hello. I hope I'm audible.
Hi. Can we move to the next question?
Sure. Next question comes from the line of Rahul Jain from Dolat Capital. Please go ahead.
Yeah. Yeah. Thanks for the opportunity. Basically, my question too is around Deepti. We have seen that our other announcement, even in Q2 and Q3, were pretty strong. But that translating into growth has not been the case in terms of the actual revenue. So is it that there are some nature of deal where we are not able to recognize as much as we have been doing in the past because of the SaaS nature or any other factor? And even from QoQ perspective, I thought the implementation tailwind of Q2 strong deal win should have supported Q3, and there are further Q3 wins. But that part of the revenue stream has also fallen. So is there a challenge around companies ramping up on the decision that they have taken, or they are ramping on the schedule? Thank you.
Yeah. Thanks, Rahul. I think you're absolutely right. I think on the announcement front, there are two things. As the companies, the materiality limit of announcements is also very low in terms of it's almost becoming equal to many of the orders which we win. So as the logo acquisition and the deal win rate is same, so the announcements will be there. Having said that, you're absolutely right. A lot of orders of Q2, Q3, you would have seen have come from regions like U.S., U.K., Australia, which are typically subscription-led sales, where the upfront realization is almost nothing, or there's a ramp-up period before the revenue gets realized. So there's a lesser correlation directly with order booking and the revenue realized in immediate quarters, while traditionally on our traditional markets, since licenses are realized, there's a more upfront realization of those revenues.
On the account of order wins which have happened in Q2 and the impact on the implementation revenue, I think you are right. In a way, what is happening, the larger order deals, the ramp-up periods are slightly slower in terms of when the revenue will start coming in. Also, on the subscription orders which we have got, also it takes slightly a little more amount of time to ramp up for the implementation streams. So eventually, they should ramp up because as the order deals have a significant part of implementation, we should be able to service them. But so I don't see the short-term challenge, but implementation will start reflecting the size of typically the number of deals we win orders significantly. It should downstream impact the implementation revenue.
Right now, it is not showing in numbers because we are almost for nine months, almost 7%, 8% of implementation growth or more flattish around that, but yes, I think in coming quarters, as the more and more orders start rolling out, we'll have higher implementation revenues.
Sure. Sure. Just one clarification. You said the implementation is slower even in the SaaS or subscription deal. Can you elaborate why you say that?
So in subscription also, I think before the order post-order, since the revenue realized in all orders is typically you have to ramp up, you have to set up the cloud infrastructure, you have to eventually start the engagement, and only after that you can start realization. So it lags almost by a quarter to start realizing the implementation revenue. And then also initially, you will start realizing very little implementation revenues because it's going to be milestone-led or some of those things. So between second to fourth quarter, that's where you will get the maximum implementation revenue for engagement.
Okay. So we charge implementation after going live?
No. No. It's typically milestone-based, but revenue is realized in terms of your efforts, how you realize. But the starting date, the lag between the order and the start date of implementation, there is a lag. And that lag can be almost a quarter.
Got it. Got it, and one bit more on this large deal holding up in terms of getting signed and decisioning, so how do you think this would shape up from a calendar 2026 perspective? What percentage that could add to the confidence in terms of how the year should pan out?
See, what I was right, the funnel does not show any weakness of large deals. The funnel has substantial amount of large deals. The only behavior in India and Middle East of not fruitifying those deals is what we have seen. We are quite hopeful about Q4, and we will see early signs in Q4 in case we are able to create a significant amount of those deals. If that starts happening, we'll have a confidence that the next year can also continue to have the large. But we are, again, we have to discover. So that's one strategy. The other is about increasing the overall deal velocity. That's what we are working on. We are working on getting the number of wins both in mining and new logos at much higher rate, which can compensate for that.
And then there are also new solutions both in AI or in PaaS or in insurance, what we are trying to do, which are higher ticket items. And they should also add to larger deal accounts for it. So multiple efforts are being done on that. But right now, as of now, what we have seen the challenge in at least this part of the year is in India and Middle East, the large deals. It's not that no large deals have happened, but the number of large deals we traditionally used to win with one lesser amount of deals. And also one thing we should look at when we look at numbers, it's clear just to if you look at last year, Q3, Q4, we are over the largest ever license sale quarters.
We almost reach from a regular run rate of INR 30-40 crores of license to INR 90 crores. And so the bases are much higher. So this year also, I think we have maintained a INR 70-crore run rate of license, which we have to improve to like INR 100 or INR 120 crores. That's the target.
Yeah. And just last bit, if I could. We have seen two, three years of back-to-back pretty strong performance. And this is not a business where you I mean, this is a business where you have to replenish a lot of your revenue because they are one-time in nature. So is it fair to expect this kind of a year once every three, four years because that is how it would stream out at some point of time? And also, does this kind of a year also make you think from a two, three-year perspective, a more realistic growth that we would say from a rolling basis should be more like 15% rather than 20% plus that we were conveying, let's say, beginning of the year?
See, I think mathematically what you are saying does make sense because typically since there's a lot of revenue which has to be repeated and has to be replenished, so typically, if you have high velocity growths, then you have to continue to maintain higher velocity growth, so that's one way of looking at it, but I think for us, the way we look at it is we also look at it compensating with our foray into mature markets and compensating more from the subscription growth, which will give a more strong base, right now, last three years, our U.S., Australia, U.K. have not grown at the same size as India and Middle East growth.
The way I look at it is that we will have license growth coming from our traditional territories, but higher subscription value and higher size of business coming from mature markets, which should even it out over a period of time. The second thing, the way we look at is overall broadly, the addressable market for us is pretty wide. So it does not matter if we have grown by 20% or 30%. The potential for the business to continue to add growth is quite clear out there. But yes, you are absolutely right. Since if the license part of the business alone keeps on growing for a few years, then again, you have a risk every few years that, hey, you may have a slightly slower because the license does not repeat.
But we think in the next phase of our growth for next three, four years, our subscription, mature market, and cloud revenues will also grow at a thing so that there is going to be lesser impact in terms of slight drop on license.
Thanks a lot for that elaborate answer. Just one small suggestion. We could possibly start giving an RPO data or an executed book data because now if the business keeps shifting towards SaaS, I think that would be one more data to monitor the traction because recognized revenue could be not justifying the traction that the business might have because of the deferment.
Yeah. That's a good idea. I think we'll just consider it, and we can work with the team to bring it as part of the data point.
Thank you and all the best.
Thank you. Our next question is from the line of Ashish Sriram Thavkar from JM Mutual Fund. Please go ahead.
Opportunity. So, at least in terms of growth, so follow up to the earlier participant question, last two to three years, we did really well, but the nine-month growth revenue growth number is just 6%. How do you look at quarter four?
Yeah. Something changed.
Am I audible?
Ashish is not there. We can move to the next question.
Yeah.
Okay. Hello.
Sure.
Our next question is from the line of Venkat from Mirabilis Investment. Please go ahead.
Hi. Thanks for taking my question. My question seems to be a bit repetitive, but in the last three or like one, two years, DLP, I mean, lending platforms drove bulk of our growth in India. Now that seems.
Hi. Can you check the line once? I believe people are not able to.
Yes, ma'am. You are audible.
Yeah. But the question, we are not able to hear.
Hello?
Let me reconnect. Ladies and gentlemen, we have the management lines reconnected. Venkat, can you please repeat your question?
Hi. I hope I'm audible now. I wanted to understand what is the opportunity size in India and how will the growth come? For the last two, three years, lending platforms drove bulk of the growth. So hello.
Yeah.
Hello.
So you are audible. Can you hear us?
Yeah. We can't hear the question. Our line is fine. So we don't have to describe. We were checking the question queue lines once.
Venkat, can you come back?
Hello. Am I audible now? Can you please confirm that?
Deepti ma'am, can you hear Venkat?
No. We can't hear Venkat.
Okay. Okay.
I guess there's a line problem from their side.
You can move to the next till then.
Next question is from the line of Aditi Patil from ICICI Securities Limited. Please go ahead.
Yeah. Thank you for the opportunity. Can you hear me?
Yeah. Yeah. We can hear you clearly.
Okay. Yeah. So my question was on margins. So our margins have held up. Nine-month FY25 EBITDA growth has been in line with revenue growth. So can you help us understand how we are managing this? Because earlier, we used to guide that our cost will at the start of the year, we budget for a 20% YOY increase in cost, and revenue growth above that directly flows to margins. So this year, have we recalibrated our sales and marketing expenses, and how should we think about this going forward?
So thank you for the question. I think you're right. So what happens on the margin front, there are three, four things which have really helped on the margin front. One is about there is a great operating leverage coming out of using AIs in the general engineering and tooling. So the need for the number of resources typically for the same job has gone down. And since we are still talking of our growth rates, which are not very significant, so we didn't have a lot of need of people. In terms of our number of people, it's almost that has got even optimized by a bit of now. So overall, the manpower cost has come down. The second amount of variabilization has also kicked in because we are typically running on very extremely high sales performance numbers.
So typically, there is a variabilization of salary build-up because of that. So that has optimized. And broadly beyond that, if you look at our investment in R&D and sales and marketing, it's held to the same 9% and 22%-23%. That has not gone down. But overall, we have been able to manage the cost because of these two operating levers we have got in this. The other things also, you will look at the high gross margin part of the revenue, the AMC, the license, subscriptions have grown, which are not direct cost-related. So typically, the operating margin overall has improved for us. So though at the beginning of the year, we had planned for much more higher cost investments, but we could variabilize them looking at the business performance.
We do feel that what is happening over next two, three quarters also, there is an opportunity to also still have better operating margins as you optimize and do more AI-based enabling of various functions. So we should be able to increase our acceleration of engineering, increase our velocity of product development, and as well as other functions. So there is some amount of margin, which is a good thing which has been able to help. We have been able to hold on to it.
Okay. And this quarter, did we roll out wage hike?
Yes. I think I said that for roughly around 3,000 people or something like that. Yes. More than 3,000. Out of 4,500 people, almost 3,500 people, we had rolled out the wage hikes in October.
Okay. And so our sales and marketing investments as a percentage of revenue remain constant, but as the revenue has come down, the absolute amount has also come down. So do you think you may need to increase this to mine for, I mean, to get newer areas to go for newer areas of growth?
So, Aditi, when we look at sales and marketing product investments, they don't take very quarterly lenses or yearly lenses. They are more long-term. They are depending on opportunity in the market where we are also able to find right talent. So we'll keep on investing. It's not that we will not investing. So what happens is a cycle of we have been investing very aggressively for three, four years. Then there's a cycle of optimization and look back, and again, I think in this quarter and next quarters, we'll keep on investing. So they are slightly more long-term views of things. They are not short-term views of things.
Okay. Got it. And the wage hikes were in line with the previous years, or what was the quantum of wage hike?
Slightly less, since we covered up to—we have not covered all 400—typically up to GM and above. We have not gone ahead with wage hike this year. So it is lesser in total value compared to last year.
Okay. Got it. Okay. Thank you.
Thank you.
Thank you. Our next question is from the line of Ashish Sriram Thavkar from JM Mutual Funds. Please go ahead.
Am I audible now? Hello. Hello.
Yes. Please go ahead.
Yes. So I had this question. The last two, three years when we.
Sorry. We can't hear Ashish.
Hello.
So we are able to hear every alternate question. We can't hear all the questions.
I'm able to hear the management, but it seems there's some problem.
So, either Ashish can drop in and then come again and.
Yeah. Requesting Ashish, please come back. Participants, you are requested to press star and one to ask a question. Our next question comes from the line of Srinivasu K. from TIA. Please go ahead.
Hi, sir. Thanks for the opportunity. Am I audible?
I think, Rudri, you can connect at the alternate line. Somehow, we are not able to.
Yes, ma'am. Yes, ma'am.
Yeah.
Hello. Am I audible now?
Yes. Hello? Let's wait.
Ladies and gentlemen, we have the management line reconnected. Our next question is from the line of Meet Virani from MNS Investments. Please go ahead.
Hello. Am I audible? Hello.
Yes.
All right, so my question is around growth sustainability.
Rudri, we're not able to hear it again.
Rudri, it's a problem from your end. It's nothing to do with our line. So we can't hear the question.
Am I audible? Hello.
Yes, sir. You're audible.
All right.
No. We can't hear the questions.
Rudri, we can't hear anybody.
I think we are facing a frequent problem.
Ma'am, can you hear me now? Hello.
Rudri, we can hear you, but we can't hear the questions.
I think it's getting a problem from your end.
Next question is from the line of Mihir Manohar from Trust Mutual Funds. Please go ahead.
Yeah. Hi. Thanks for giving the opportunity. Am I audible?
Yeah. Meer, we can hear you now. Sorry to keep you waiting.
Yeah. Sure. Sure. No issues. No issues. Yeah. Thanks for giving the opportunity. Sir, at the start, you made a comment that there is AI-led uncertainty, which is becoming an impediment for making a decision. Can you throw some more light over here when we say AI-led uncertainty? Is it the case that the customers want more better products, more better offerings across the AI-led space, or is it just a deferment happening because of the uncertainty which is there?
So I think let me explain what I feel like, which is AI-led uncertainty. So one thing is typically whether it's a business environment or internal landscape of IT, what we are seeing is the largest orders across geos, at least in India, means are taking more time, and some of these orders, what we have discovered since with the huge interest in enterprises around AI, generative AI, all other tools and technologies which are emerging around that, customers are also having a re-evaluation in terms of how is the AI going to impact that area of the business, so while they may have worked on the RFPs, they may have built business cases, they are slightly unsure about taking large orders for us. This is our impression on the business. Now, on the ground, I am not sure whether that is exactly what's happening.
But clearly, what we have seen, at least in a few of our projects, even at the late stage of decision-making, customers are slightly reluctant in terms of they're looking: are there alternate ways to doing it, are they getting the right technologies back, should they wait for a few months and see what things are happening, how the AI settles down, or the tooling settles down. So that is what I meant by in terms of AI uncertainty. The degree of interest on AI, AI-led use cases and POCs is high. So that's not the case. The issues but on all other traditional cases, AI is disrupting it in a way that customers are re-evaluating whether that's the right way to proceed. Does that answer your question?
Yeah. Okay. Understood. Second question was on the Middle East side. I mean, Middle East last four quarters, the YOY numbers are, I mean, on the muted side. The expectation earlier was that, I mean, as travel restrictions will get eased, we will see growth coming back on the Middle East. So is there a challenge on the demand side, or I mean, is it a challenge pertinent to resupply of services?
No. Yeah. So the challenge remains, as I said, the challenge remains the same. I think what we are winning deals, I think, in the Middle East, but we have not significantly won large license deals in the Middle East compared to our license revenue for the first nine months in the Middle East has declined by at least 15%-20%, if I'm not wrong. In spite of the number of deals being the same as last year. So the larger deals of licenses we are not getting. So that is impacting our business. So we do expect things to start improving and slightly shaping up more in terms of both our getting more number of deals on our table, but also some of the larger deals getting fructified, getting the orders getting sorted out that.
As I said, also because the uncertainty which the whole AI environment is creating is also creating after the orders have gotten initiated. Sometimes our orders are put on hold in execution stage because people want to reconsider or the board is reconsidering things, so this is some amount of uncertainty we are clearly seeing in at least the Middle East and India.
Okay. Understood. That's information. Thank you.
Thank you.
From the line of Meet Virani from MNS Investments, please go ahead.
Hello. Now, I'm audible. Can anyone answer?
Yes. Okay. Yes, please.
All right. So my next question would be on around the growth visibility. Despite a strong order book and pipeline, we have seen revenue growth has remained muted over the last few quarters. But what specific changes should investors track that would signal a clear inflection growth? I mean, in which part of FY21 or in part of FY28, do you realistically expect this inflection to materialize?
Sorry. I got half of your question, but I'll try to answer, so I think, yes, one of the things is typically since we have very lumpy revenues of licenses, so predicting in future about immediate growth in that quarter becomes difficult because it is based on at least in the last year, the same quarter is completely high on license, so unless a large significant of license is recovered in the same, you will not be able to predict, so there are three, four pillars of prediction. The growth and annuity models are quite predictable because they don't go down or up so soon. They are more consistent, but the license jerkiness will be, but if you are looking at to predict it for three, four quarters, I think new logo acquisition and growth in order book are two indicators of that.
The growth in order book but can have this bias that whether there are subscription orders or license orders. So it's a combination of growth in order book, the new logo acquisition, and the jerkiness of license revenue needed to be realized in the same quarters. So these three factors are important to look at what's going to happen in next quarter or next going to happen. So in that, we may have some amount of prediction about based on the order book of previous quarters and the subscription growth, but on the license front, we'll have to rely on the performance of that quarter and closure of some deals on that quarter.
All right. Okay. Thank you.
Participants are requested to press star and one to ask a question. Our next question comes from the line of Ritvik Reddy from RFI Investment. Please go ahead.
Hi. Good evening. Can you hear me?
Yeah, Ritvik. We can hear you. Thank you.
Can you comment on how US and Australia are doing?
Yeah, Ritvik, I think Australia is an Asian territory for us. What we have done is we have reached in a few years, we have reached a stage that it's a self-sustaining territory and regular orders are flowing in. If not every quarter, but every alternate quarter, some orders are flowing in. We do expect few closures and that. So this territory right now, our initial target was to build it to $5-$10 million territory so that the base referenceability of customers gets established. We should be very close to that number. I think this year we may cross more than $5 million or something like that. And the potential to cross $10 million next year is quite high.
U.S. is shaping well on account of a couple of things. I think we are finding some foothold in the insurance space, which we invested heavily on that, both in horizontal cases and journey cases. We got some great deals on the health insurance side, and then the ECM-led large banking cases are also showing some, so U.S., because the revenue is slightly more smoothened out because of subscription sales, the performance of previous quarters is now reflecting in the numbers, and we hope to continue that going forward.
Okay. In general, how effective the AI in our business segment and within the next two, three years, how do you expect how much more effective is it going to be?
Sorry. Could you repeat? Is it about how AI affects business?
Yeah. How effective AI in our current business segment and in two, three years, how much more effective it is going to be?
See, right now, AI is. I think everybody is excited aboust AI. All technology areas are getting impacted and influenced. But there is huge interest on the enterprise side to start deploying the technology for all use cases. So for us, I think what we are seeking, we are excited about our AI roadmap, our AI-led products which are coming into the market. We are very first, we are lucky to get our initial orders of AI, both in India and Singapore, and some of those are live now. We are excited about replication of those use cases. So I think in the next two, three years, you will see AI central to all use cases which are sold across all verticals or across all solution areas.
For companies like us, which are product companies getting ready for that change and preparing products to compete in that, is what we have been investing for the last two, three years. We're excited that as the customer patterns and buying behaviors start getting settled and the business certainty starts coming back, we should see far more acceleration of AI-led deals happening in the market.
Okay. What I meant is, are companies looking more effective? Is this the uncertainty? Is this because the companies are looking for much more effective? That's why there is a difference?
No. I think companies are right now looking at setting up their roadmaps of AI in terms of what are they going to do with it, what toolset, what technology, which areas. So basically, we are right now in this whole great area of experimentation. From now, I think experimentation is typically has to be converted into real benefits. So that's where customers are trying to now make the final choices about their AI products, which projects to prioritize, how to start leveraging, what benefits to get. So I think you will see more acceleration now in spending in the whole digital area, whether it's AI-led or around AI.
Okay. Thank you.
Thank you. Our next question comes from the line of Deepa Brijwani from White Whale Partners. Please go ahead.
Hi. Am I audible?
Yeah, Deepa. Please go ahead.
Yeah. So my question was more on the annuity part of the business. It's a 50% plus of the revenues now. So any metric that we track, like gross retention, net retention, the concern comes from that are we facing any pricing pressure from our legacy customers because of the AI thing and of at least the core verticals that we've got like ECM and BPM? Is there any threat currently? Is there any threat to the products or our pricing on the annuity part of the business per se?
Yeah. So I think broadly, the answer is at least no, we have not realized any threat to the product pricing or in terms of product categories we have. So predominantly in product businesses, people end up assuming typically the products which are at the top of Magic Quadrants or Gartner Wave Reports - sorry, Forrester Wave Reports and Gartner Magic Quadrants - you expect those products will be always ready with whatever has happened in the technology. So it is given that our all products are AI-ready or they are helping customers use those AI use cases. So we don't see that. The pressure on the annuity side of the revenue is going to come on typically, which is where we have seen, which is typically people-led revenues, streams where you are deploying people for further enhancement and upgradation and rolling out more journeys with the product.
In the current environment, very few enterprises are looking to augment people aggressively, so we have seen some amount of challenges in those cases in terms of some optimizations happening here and there, but nothing very significant, but as we roll out more and more use cases, we'll have some amount of teams getting added at all places, so I would say this concerns a bit of concerns around support part of our revenue, but not our ATS subscriptions, which are more committed, and there's always a room to really increase the prices out there.
Got it. That's helpful. Thanks.
Thank you. Our next question is from Srinivasu K. from TIA. Please go ahead.
Hi, sir. Thanks for the opportunity. Am I audible now?
Yeah, please. Please go ahead.
Yeah. Again, my question is a follow-up to the previous two questions on the AI side. Basically, I just want to understand that there's a lot of discussion that AI is fundamentally disrupting the traditional workflows with agentic workflows, which actually lowering the entry barriers. So from user's perspective, does this disruption put pressure on our traditional BPM workflows, or does it actually expand your opportunity because of the new initiatives that you have taken?
Yeah, I think that's a very important question. And I think, yes, you will see a lot of conversation happening around agentic workflows and in terms of ease of, as you rightly say, the barrier to enter into those spaces in terms of. So there's a segment of market which is typically what we call more ad hoc or departmental or user-centric workflows, which is typically more citizen developer. That is an area which is getting slightly more transformed. But again, in that transformation, the traditional BPM or low-code companies are the ones who are going to win that area. But what Newgen's predominant focus is, our 90% of market share is very intense, rule-driven, business-centric, integration-heavy systems, where agentic would augment that workflow. So we would still use our products to deliver more and more value to the customer in those complex workflows.
But on the other hand, you're absolutely right. Some amount of disruption you will see in typically the companies which are working on typically what you call citizen development or departmental workflows because clearly there are multiple ways to solve that same problem through agentic workflows, through tools which are coming from Google. But in serious enterprise workflows, like if you're trying to implement trade or you're doing claims or underwriting or retail loan or gold loan, these are much more structured processes where AI is going to augment the process. It's going to augment human in the loop. It is going to take some amount of decision-making and make it intelligent. But the core process infrastructure will be used by products like what Newgen delivers.
Thanks for answering that. Just a follow-up on that. Over the next couple of years, do you see AI for Newgen is basically a margin lever because it reduces the implementation effort? Or do you see it as a pricing lever because agentic workflows improve the STP and reduce the tax? Or do you see it's like staying competitive because everyone is offering AI? So it's like protecting your moat.
So, I think very good question again. I think the answer cannot be one. I think it's a combination because two things. One is more and more value will be delivered out of the product and platform, we'll say. So we'll have some pricing power out there to get slightly higher value for all that. Our downstream revenues, which are typically implementation support, may have reduced what you call the time to market, time to implement, or overall effort. But you will be charging higher premiums to deliver that. So cost for the customer will come down slightly, but also you will get substantial benefits into speed and velocity of go-to-market. And as our instances grow, so there may be a time period where you will see that the larger, higher basically margin revenue streams may grow faster than the other revenue streams.
Thank you and best of luck.
Thank you.
Thank you. Participants are requested to press star and one to ask a question. Our next question is from the line of Vinay Nadkarni from Hathway Investments Private Limited. Please go ahead.
Hi. Am I audible?
Yeah, Vinay, you're audible.
Yeah. Just two questions. One is.
So your voice is echoing. Can you please speak with the handset?
Can you hear me now?
Yeah, Vinay, go ahead.
Can you hear me now?
Yes.
Hello. Yeah. Just wanted to ask, this new H-1B visa rule of $100,000, is it going to impact our U.S. revenue streams or your ability to service your customers there?
No, Vinay. We are not in the business of sending people or having manpower-based assignments. We don't need any people movement between countries. We sell products, and products don't need so much of the staff we can hire locally. And in fact, even most of the staff in our sales, marketing, and other service areas are locally hired. So we can continue maintaining expansion of our business. We don't do any H-1Bs anywhere. They're very few. Most of the companies will be intercompany transfers if and when they are needed. So for product-based businesses, H-1B is not a criteria.
Great. Secondly, if I see the India revenue for the last nine months, I mean, nine months FY 26 or nine months FY 25 is absolutely flat. Is there no opportunity for SaaS-based revenue or subscription-based revenue in India, or is it not something that Indians prefer?
No, it's not either/or. I think traditionally what has happened, Indian-based companies are more license-based companies. And that's why I think last three, four years, they've gone significantly on those licenses. A lot of deals have come in. There are also subscription deals and cloud deals in India, but they are a smaller part of the business because it's a very large territory. We've been here for 20 years. So they are not a significant part of our revenue. So I think over the next few years, you will see more and more things coming on subscription, even in India. But for many more quarters, we will still be dependent on license-based businesses.
Okay. Thank you. Thank you. The rest of my questions have been answered. Thanks a lot, and all the best.
Thank you. This is the last question. And now, hand the conference over to Ms. Deepti Mehra Chugh for closing comments.
Thank you so much, everyone, for joining in on the call. For any remaining questions, you can connect with me, or you can go to our website for details. Thank you.
Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.