Ladies and gentlemen, good day and welcome to Persistent Systems Earnings Conference Call for the second quarter of FY 2025, ended September thirty, two thousand twenty-four. We have with us today on the call Dr. Anand Deshpande, Chairman and Managing Director, Mr. Sandeep Kalra, Executive Director and Chief Executive Officer, Mr. Vinit Teredesai, Chief Financial Officer, and Mr. Saurabh Dwivedi, Head of Investor Relations. Please note all participants' line will be in listen-only mode, and there will be an opportunity for you to ask questions after management's opening remarks. Should you need any assistance during the conference call, please raise your hand from the Participant tab on the screen. While asking question, request, request you to please identify yourself and your company name. Please note, this conference is being recorded. I now hand over the conference to Mr. Saurabh Dwivedi. Thank you, and over to you, sir.
Thank you, Vandit. Good evening, and good morning to everyone on this call. We are grateful for your participation and for spending time with us today. We hope you have had the opportunity to review the results that we published a few hours ago. Let me quickly outline the agenda for today's call. Sandeep will begin with an overview of our results and commentary on business. Vinit will take you through the financial details and some of the key operational metrics for this quarter. I will then provide an overview of our key deal wins and awards and recognitions in the second quarter of FY twenty-five. Post that, with Sandeep's closing comments and summary of prepared remarks, we will open the conference for questions.
Let me also remind you that as part of our prepared remarks, and during Q&A, we may make certain statements which are forward-looking and may involve significant uncertainty. Persistent does not take any responsibility to update such forward-looking statements, and your discretion is warranted while making any investment decisions. With this, let me hand over to Sandeep for his prepared remarks.
Thank you, Saurabh, and greetings to everyone joining us on the call today. With this, let me now start with a quick financial summary. We achieved a healthy revenue growth of 18.4% year-on-year and 5.3% quarter-on-quarter to reach $345.5 million in Q2 of fiscal 2025. This marks our eighteenth sequential quarter of quarter-on-quarter growth. In rupee terms, the growth for the quarter came in at 20.1% year-on-year and 5.8% quarter-on-quarter. EBIT margin for the quarter came in at 14%. In rupee terms, this translates into an EBIT of INR 4,062.3 million, an increase of 22.8% year-on-year. The profit after tax for the quarter was at 11.2%. Vinit will provide detailed color on the financials and margin movement later in this call.
Now, coming to the order book for the quarter. The total contract value for the quarter came in at $529 million, with TCV of new bookings being $389.8 million. The annual contract value component of this TCV is at $348.3 million, of which ACV from new bookings contributed to $288.6 million. As always, these TCV, ACV numbers include all bookings, renewals, as well as new bookings across existing and new customers. Please note that our revenue conversion on a quarterly basis is a function of annual contract value bookings done in previous quarters, as well as conversion from multi-year deals that we have booked in previous years, which are included in our reported TCV bookings. Now, moving to the client engagement service.
Let me give you some color on our client movement across various reporting categories. We witnessed healthy year-on-year growth among our client buckets, with our top five customer revenue up by 31.5%, top 10 up by 24.6%, top 20 up by 22.1%, and top 50 up by 20.9%. As you would notice, this is a secular growth across all customer segments, whether it's top one, top 50. The contribution from top 10 customers is at 41.5% in this quarter, an increase of thirty... from 39.5%, same quarter last year. In this quarter, we reported 184 customers with TTM revenues over $1 million, compared to 178 in the same quarter last year. All our top client buckets have shown good growth this quarter.
On a year-on-year basis, the number of customers in the $1-$5 million bucket increased by five, while those in the $10-$20 million bucket increased by four. This is a clear demonstration of our ability to scale customer relationships significantly over a period of time. Coming to the details on our geographic performance. In terms of year-on-year growth in USD terms, North America grew by a healthy 21.6%, India grew by 11.7%, while Europe revenue declined by 1.3% year-on-year. However, on a sequential quarter-on-quarter basis, Europe grew by 6.6%. Rest of the world grew 19.2% year-on-year, a bit on a very low base. Now, let me give you this quarter's performance from an industry segment perspective.
This quarter's growth was led by HLS and BFSI industry verticals, which grew by 71.2% and 15.3%, respectively, on a year-on-year basis. Software, High Tech, and Emerging Verticals marginally degrew 0.5% year-on-year. Now, moving from operational metrics to certain strategic highlights for the quarter. Launching our T-100 program. Recently, we brought together 250 of our senior leaders and customer-facing team members for a strategic offsite in New Jersey. During this event, we launched the T-100 program, an initiative focused on our top 100 clients. This program is designed to drive enhanced customer value, deepen customer intimacy, and unlock the next wave of opportunities for both our clients and for us. The T-100 program is centered on four key pillars. Talent amplification: herein, we are developing a high-caliber workforce to deliver premium services and expand mind share with our clients.
Value maximization: this focuses on leveraging our core strengths, and we are committed to enhance client ROI and foster long-term strategic partnerships. Focusing on AI-driven innovation, wherein we deploy advanced AI and platform-based solutions to create a differentiated high-impact services based on the latest innovations in GenAI and other. Ecosystem leadership: within this, we are positioning Persistent as a key orchestrator of choice in the partner ecosystem to bring disruptive value to our customers, not just based on our solutions, but based on the power of the entire partner ecosystem that we build. This program underscores our ongoing commitment to innovation and customer value creation and will lay the foundation for our two billion goal and beyond. Moving on to our strategic investments and updates on AI. Our comprehensive AI strategy continues to be built on two key vectors: AI for technology and AI for business.
This dual approach has been driving our innovation and growth, and I would like to elaborate on how we have advanced in the past quarter on each of these areas. First, coming to AI for technology. As most of you know, Sasva is our flagship AI-driven platform designed to enhance software engineering services across the product development lifecycle. With the launch of Sasva 2.0, we have made substantial progress in our journey of platform-driven software engineering. You may have seen the press release in this regard. Let me now highlight some key impact areas of Sasva, Sasva 2.0. Starting from a comprehensive assessment, wherein Sasva evaluates a product engineering project or a product holistically, providing insights on the product, people, process maturity, security, posture, and technology debt.
Coming to the efficiency and value maximization, Sasva identifies high-impact areas for productivity gains, accelerated time to market, and cost reduction based on the current status and wherein AI could be applied in this platform. Intelligent backlog management and roadmap planning. Sasva leverages historical data and market trends to create prioritized, context-driven, near and long-term roadmaps and release plans aligned with team strengths and capacity. This can be very effective not just for engineering, but for product managers who are leading the entire product efforts. Context awareness release planning. Herein, Sasva prioritizes tasks, estimates effort, recommends optimal frameworks and technology stacks, aligning with the team's strengths and capacity, while intelligently distributing tasks between human developers and AI agents. It also supports integration of external development tools for seamless experience.
Sasva also plays a critical role in customer support and professional services activities, complementing the engineering activities in product development or application development. Wherein Sasva provides real-time and context-aware insights into projects, issue history, client-specific knowledge, best practices continuously sync with project management tools, service tickets, and knowledge bases. Let me share two case studies that demonstrate the real-world impact of these enhancements. Persistent was selected by a leading provider of full-stack observability platform to partner with them on their product engineering as well as data engineering for their core application, performance monitoring, and observability platforms. Our advanced delivery frameworks, leveraging Sasva and other accelerators, and the depth of our university's learning and development platform, were key differentiators for us in winning this engagement.
The benefit to the customer includes accelerated roadmap and the establishment of a core R&D team in India for them to continue their leadership positioning in the observability domain. Persistent was selected by a leading financial analytics firm based in North America, to accelerate the roadmap of its flagship products in the domain of pricing and profitability management solutions. Sasva platform's identification of the accumulated technical debt with clear, actionable roadmap items was instrumental in Persistent winning this engagement. The benefit to the customer here includes acceleration of the go-to-market for faster releases, upgradation of latest technology stack, and optimized delivery model powered by Sasva. These case studies highlight how Sasva 2.0 is driving tangible improvements in efficiency, cost effectiveness, time to market across different industries, and making us win more in competitive bids. Now let me talk about our AI for business venture.
We've seen rapid adoption and expansion of our GenAI Hub and iAURA platforms across various industries. We have expanded our GenAI Hub library of pre-built AI models and use cases by over 50% since Q1 FY 2025. Also, our iAURA platform has been upgraded with advanced data quality assessment tools and automated data pipeline generation tools. The impact of these developments can be seen in key customer case studies, which I will highlight now. We are helping one of the largest global pharma companies to accelerate their drug discovery process by integrating complex biomedical databases into our GenAI-enabled knowledge graphs. Our iAURA solution has reduced query response times, in this case, by 60% for a global clinical research provider, a CRO, which makes tracking patients' health and status of trials extremely efficient.
For one of the leading construction companies out of Europe and Australia, we are building a data lake, ETL pipeline, and GenAI model to use historical construction data, including design, material, labor, site condition, and schedule, to enable better decision-making for their in-flight and upcoming projects. Moving on to our acquisitions and partnerships. As you would have noticed, we recently announced our plan to acquire Arrka, a Pune-based company focused on data privacy management. Arrka's solutions will enhance Persistent's offerings by helping customers manage data privacy risks and comply with various legal and regulatory requirements globally. This acquisition will also significantly bolster our AI governance and cybersecurity capabilities.
Among other initiatives, we are integrating Arrka's expertise with our Sasva and iAURA platforms to provide enhanced data privacy features in Sasva security assessments, improved AI governance mechanisms in iAURA's data management processes, and comprehensive cybersecurity measures across both platforms, to give you a few examples. Arrka's capabilities will complement our existing AI offerings and platforms, and in meeting the growing demand for comprehensive digital solutions that are both trustworthy and ethical. It aligns perfectly with our commitment to be responsible, to develop responsible AI and positions us to better serve clients in an increasingly complex regulatory environment. Second, following our Q1 announcement, we have fully integrated Starfish. We are enhancing our contact center portfolio with AI-enabled administration and call flow assistance, and we expect to report by the end of next quarter some early deal wins from this portfolio.
We have had strong collaboration with all hyperscalers and are jointly developing solutions with their teams. This includes development of connectors and integrators, and integrations for GenAI offerings of hyperscalers, as well as taking their solutions into different horizontal use cases, such as contact center AI and document processing, and so on. As a part of these initiatives, we recently co-hosted the Google Gemini Summit in Pune, featuring top leadership from Google Cloud Platform and Persistent. Throughout Gemini Week, our teams engaged in comprehensive training initiatives, emphasizing certifications and hands-on experiences to harness the full power of Gemini. As a premier Google Cloud partner, we're uniquely positioned to help businesses across industries innovate, scale, and achieve their digital transformation goals. As we move forward, AI remains integral to both Persistent's operations and our clients' digital transformation journeys.
Our platform-led services approach, exemplified by Sasva, GenAI Hub, and iAURA, position us to enhance productivity and fuel our growth, capturing a decent market share in these initiatives at our customers. In summary, we are pleased with our performance in Q2 FY twenty-five. I would now like to invite Vinit to give a detailed color on the quarterly financials and related matters. After which Saurabh will provide an overview of our key deal win and award and recognitions. I'll come back after Saurabh's comments to summarize our prepared remarks before opening the floor for Q&A. Over to you, Vinit.
Thank you, Sandeep. Good evening, and good day to all of you. Thank you for taking time out to join us today. Let me now take you through the financial highlights for the quarter gone by. Q2 FY 2025 revenue stood at $345.5 million, registering a year-on-year growth of 18.4%. In rupee terms, it translates to INR 28,971.5 million, growth of 20.1% year-on-year. This quarter, effective July 2024, we awarded regular pay hikes to all eligible employees. I'm glad to announce that despite this, we have delivered an EBIT margin of 14%, a 30 basis point improvement year-on-year. In rupee terms, EBIT for this quarter was INR 4,062.3 million rupees, translating to a growth of 22.8% year-on-year.
Now, let me provide some commentary on the quarter-on-quarter margin walk. Let me first start with the headwinds. Wage hikes this quarter have impacted our margins by 210 basis points. As I had called out in the previous quarter, we had taken some policy rationalization initiatives, the benefit of which was visible last quarter. In the current quarter, the absence of that benefit has impacted our margins by 130 basis points. There was a fresh issuance of ESOPs in the latter half of Q1, the impact of which was only partly visible last quarter. In the current quarter, there was an incremental impact of 60 basis points. This quarter, we also had a lower earn-out credit as compared to the previous quarter. This has resulted in a headwind of 60 basis points. Coming to tailwinds for the quarter.
Last quarter, I spoke about our revenue growth and cost optimization programs that are in action for the fiscal year 2025 and beyond. I'm happy to share that the benefit of these programs are reflecting in the current quarter, and we expect them to continue in subsequent quarters. While our revenue has grown by 5.3% quarter on quarter, it is important to note that this has come on the back of reduced headcount of 282. This has led to an improvement in utilization from 82.1% in Q1 to 84.8% in Q2, which has helped our margins by 120 basis points.
Additionally, reduction in subcontractor cost resulted in the benefit of 70 basis points. Lower resale business helped by 50 basis points, and balance 130 basis points benefit came on account of combination of factors like pricing and rightshoring. Favorable currency movement has helped our margins by 30 basis points this quarter, and absence of H-1B visa costs this quarter has given an additional tailwind of 60 basis points. In a nutshell, all the tailwinds stated above have helped nullify the effect of headwinds, enabling us to maintain our EBIT margin at 14%. With the growth and cost programs that we are running at Persistent, we are well-placed to continue our journey of margin improvement in the subsequent quarters. Please note that going forward, in our investor presentation, we'll be merging the CSR spends with general and administrative expenses, and doubtful debt provisions with the sales and marketing expenses.
Other income stood at INR 176.9 million, as against INR 172.5 million last quarter. We had a one-time gain of INR 80 million on account of pre-closure of some of our leased premises in Pune and Indore, which were underutilized, and have additionally invested in newer facilities in Chennai and Hyderabad. Overall treasury income was lower than last quarter, owing to payouts for acquisition and payment of final dividend for FY 2024 during this quarter. There was a foreign exchange gain of INR 106 million against a loss of INR 7.3 million in Q1. Effective tax rate for the quarter came in at 25.2%, compared to 23.5% in Q1. This increase is due to higher profits in high tax geographies.
We expect our overall ETR for the year to remain in the range of 23.5% to 24.5%. Profit after tax was INR 3,250 million, a growth of 23.4% year-on-year. This translates into a margin of 11.2%. Earnings per share stood at INR 21.20 per share, compared to INR 17.90 per share same quarter last fiscal, a growth of 18.3% year-on-year. Return on capital employed for the quarter came in at 38.1% versus 37% in Q2 of last year. Total cash and investment stood at INR 17,916.2 million as on thirtieth September 2024.
Forward contracts outstanding as on 30th September were $270 million, at an average rate of INR 84.80 per dollar. Operating cash flow to PAT for Q2 FY 2025 stood at 108.3%, compared to 49.3% in the previous quarter. Our overall DSO has remained flat this quarter, with bill DSO at 68 days and unbilled DSO at 24 days. Now let me give you key operational updates. At the end of Q2, our total headcount stood at 23,237, an increase of 395 from Q2 of previous fiscal year, and a decline of 282 quarter over quarter. As highlighted earlier, the blended utilization has improved from 80.6% in Q2 of FY 2024 to 84.8% this quarter.
In the foreseeable future, our endeavor is to maintain this in the band of 83%-85%. Trailing twelve months attrition this quarter came in at 12%, compared to 13.5% in Q2 of... Coming to ESG updates for the quarter. We are delighted to announce that we have achieved carbon neutrality for Scope 1 and Scope 2 emissions ahead of schedule. This significant milestone reflects our unwavering dedication to sustainability. Our renewable energy consumption, which includes our extensive rooftop solar installations and windmills, now accounts for an impressive 39% of our total energy usage across our global operations. We are also proactively working towards achieving net zero carbon emissions well ahead of the Science-Based Targets Initiative goal of 2050.
In terms of our ESG performance, we are thrilled to report that our S&P Dow Jones Sustainability Index ESG rating has risen to 85, up from 61, while our SES ESG rating has improved to 77 from 72. Additionally, we have made commendable progress in our MSCI ESG rating, advancing from BB to BBB. We are also proud to be recognized among India's top 50 most sustainable companies for 2024 by BW Businessworld, a leading business publication in the country. On the social front, we are excited to highlight the launch of our Women Leadership Program, Aspire 3.0. This initiative underscores our commitment to fostering diversity and empowering women within our organization. Let me now hand over to Saurabh for commentary on key deal wins and awards and recognitions that we have received during the quarter.
Thank you, Vinit. I will now talk about key deal wins for Q2 by industry segments. Let me begin with Software, High Tech, and Emerging Industries, our largest vertical.
... Persistent was selected by a leading U.S.-based cybersecurity company to set up a global technology center for product engineering, customer support, professional services, and FedRAMP support services. Persistent was selected on account of its product engineering expertise in the cybersecurity domain. The benefit to the customer includes accelerated product roadmap and productivity enhancements across customer support and professional services. Persistent was selected by a global leader in food services and facilities management based out of Europe, to build a data lake on the Azure platform and build an integration layer for exchange of data across different enterprise applications. Persistent's strength in data engineering and automation of key tasks using Persistent's iAURA platform were critical in us winning this engagement. The benefit to the customer includes standardization of data handling across the organization, leading to enhanced employee utilization, improved stock prediction, and reduction in food wastage.
Coming to Banking, Financial Services, and Insurance. Persistent was selected by one of the largest U.S.-based fintech companies to modernize the user experience of its cloud-based accounting software platform and its report generation capabilities. The benefit to the customer includes improved user experience and enhanced business efficiency, leading to increased revenues. Persistent was selected by a large financial institution with presence in Japan, APAC, Americas, and EMEA, for modernization of its front office and regulatory technology to bring them under a common technology framework. The benefit to the customer includes technical debt reduction, efficiency enhancement, and end-user experience improvement. And finally, within our Healthcare and Life Sciences vertical, Persistent was selected by a leading life sciences and scientific instrumentation company for establishing an AI-enabled software engineering capability hub and a scalable and modern cloud infrastructure.
Persistent's deep capabilities and experience in the scientific instrumentation and medical devices domain, and the compelling value proposition in the private equity carve-out space, were instrumental in us winning this engagement. The benefit to the customer includes standardized product management and engineering across all its product lines, and setting up of its modern IT infrastructure to exit the current transition services arrangement with its erstwhile parent company. Persistent was selected by a leading U.S.-based precision medicine and omics analytics provider for transition of their core R&D center to India. Persistent's thirty-plus years of product engineering heritage, combined with our strategic focus on clinical diagnostics, bioinformatics, and life sciences research, along with the center of excellence we have built around user experience, cloud, and GenAI, have been instrumental in us winning this engagement.
The benefit to the customer includes accelerated, risk-free, and cost-effective transition of their R&D center to India, with no adverse impact on customer deliverable and revenues. Persistent was selected by a leading U.K.-based medical device manufacturer that specializes in organ preservation and transplantation devices. The engagement involves development of core applications for customer onboarding, device management and monitoring, report management, and CRM integration. The benefit to the customer includes systematic onboarding of customers, centralized monitoring of all devices for regulatory compliance, and potential for penetration into new geographical markets. Moving on to the awards and recognitions for the quarter from leading analyst firms. This quarter saw us get continued recognition from industry-leading analyst firms and association. To cite a few, Sandeep Kalra was named the Best CEO in the IT Services Emerging Companies category by Fortune India.
Sandeep's leadership in driving industry-leading growth and shareholder value creation was critical in winning this award. Persistent upgraded to version three of CMMI Maturity Level 5 certification that places us among the elite group in the industry. This top-tier level of maturity signifies Persistent's commitment to setting new benchmarks in quality and efficiency, and being a pioneer in the adoption of advanced technologies. Persistent was recognized as a challenger for the second year in a row in Gartner Magic Quadrant for Public Cloud IT Transformation Services 2024. This recognition highlights our strategic use of AI and automation stacks, deep business and domain expertise, and our ability to provide personalized client experiences. Persistent was named a leader in Everest Group's BFSI-specific software product engineering services PEAK Matrix Assessment 2024.
Persistent's robust BFSI-specific intellectual property suite, including underwriting, digital banking, payment automation, and claims processing, was instrumental in winning this recognition. Persistent was named a leader for the second consecutive year in ISG Provider Lens for Google Cloud Ecosystem Partner 2024 report. Persistent was recognized for its robust services portfolio and our expertise in implementing the Google Cloud ecosystem. Persistent has been included in Constellation ShortList 2024 for demonstrating expertise in services relating to public cloud transformation services, AI services, custom software development services, and customer experience operations services.
...Persistent was cited as the fastest growing Indian IT services brand by Brand Finance, with 327% growth in brand value since 2020. Persistent's people-centric culture, excellent service delivery and alignment with client needs, and its adaptability to dynamic market needs are key factors that helped win this recognition. This completes the section on key events and awards and recognitions. With this, let me hand it back to Sandeep for his closing remarks.
Thank you, Saurabh. In summary, we are happy with our performance in this quarter. Before I conclude and open the conference for questions, I would like to share a professional milestone. Tomorrow, October twenty-third, marks my fourth anniversary as the CEO of Persistent. It has been an incredibly satisfying journey, and I sincerely thank all our employees, customers, partners, investors, and our board for their unwavering support over these years. Leading our esteemed company with its world-class capabilities and a motivated team has been a privilege, and I'm excited about the future as we continue to strive for an industry-leading performance. With this, I would like to conclude the prepared comments, and would like to request the operator to open the conference for questions. Operator, over to you.
Thank you so much. We will now open the call for Q&A session. We will wait for a few minutes until the queue assembles. We request participants to restrict to two questions and then return to the queue for more questions. Please raise your hand from the participant tab on the screen to ask the question. The first question is from Bhavik Mehta.
Thank you. So a couple of questions. Firstly, Sandeep, you know, obviously, we have seen very strong growth over the last couple of quarters, but, you know, going into second half, which is typically seasonally weak, you know, period as such, due to furloughs and overworking days. How should we think about the growth trajectory from a sequential perspective over the next couple of quarters? And also, if you can highlight how the demand environment has changed versus, let's say, three months ago. The second question is to Vinit. You know, incrementally from here on, we are targeting to expand margins in the second half. Incrementally, what levers do we have which can, you know, help drive margin expansion over the next couple of quarters? Thank you.
Great. So, Bhavik, as far as the seasonality, et cetera, is concerned, the second half is concerned, so those are events as regular. And if you look at it from our perspective, October, November, December, we see some furloughs in many financial services, some other customers and a couple of customers in the high tech sector. That has traditionally been the things, and this is something that we always plan for. If you look at our order book, order book has been pretty healthy for the last several quarters. We have a decent pipeline. Obviously, as the quarter goes through, we'll convert those as well. Overall, we are looking at a healthy growth, and quarter on quarter there may be a little bit fluctuation here or there, but we are relatively confident of continuing the healthy growth that we have had.
As far as the demand environment is concerned, I think, this is a good question by now, because there are many things happening in the world which are not in our control. But what we have done is we have mastered the art of figuring out the patterns. Within these markets, which are tough, there are always revenue pools and profit pools available, and we have been pivoting per the market, you know, demands, and that has been reflected in our eighteen sequential quarters of growth. So we are relatively confident. Whatever the market conditions may be, we'll pivot as a team, and we'll deliver healthy. With that, I'll hand over to Vinit. Vinit, if you can answer the question.
Yeah. So, Bhavik, see, there are a couple of things that are still working in our favor. As I mentioned in my comments, we will continue to maintain our utilization in the 83%-85% band. At this point of time, the labor market is soft, and we do not see any urgency at this point of time to go and build up a bench or hire ahead of time. Secondly, if you look at our agenda as overall spend, it's we have made significant amount of investments in the last couple of quarters.
Now, we think, going forward, the pace of investments into GenAI will not be the same, and we'll be able to basically reap the benefits that we have made out of the investments that have been made in the last couple of quarters. Again, rightshoring, pricing, you know, and all of... And obviously, the growth momentum that we are seeing at this point of time, and the flexibility that we have at this point of time and the growth, will continue to help us in terms of maintaining and improving our margins going forward.
Okay. Thank you.
Any more Nitin?
Thank you. The next question is from Nitin Padmanabhan.
Vinit, Saurabh. A couple of questions. So one is a little philosophical one. So I think yesterday Microsoft spoke about how scaling laws are sort of doubling computing power every six months versus two years under Moore's. So your thoughts on, shouldn't this ideally lead to higher business velocity? Right, so that's one. Second is, from a utilization perspective, you mentioned 83%-84%. I remember pre-COVID, you had sort of entered a massive hiring, sort of had a good view on when demand will pick up and so on and so forth. Looks like at this point in time you're not seeing that, so just wanted your thoughts. Is this a very near-term sort of view, or is it a slightly longer view?
Third thing is, you had a view that margins will sort of expand by 200-300 basis points over the next two years. Do you still stick to that, or do you think that sort of takes some more time? I have a lot more, but I'll just push in one more. Let's say the technology vertical, what's your view there? Do you think that's sort of bottoming out, or that sort of continues to be a pain point?
...Perfect. So, Nitin, good questions. I take those. And from here on, our request to people asking questions is please limit them to two, because we want to take questions from many, and then we can always circle back. So quickly, as far as the scaling is concerned, look, if you look at it in the last several quarters, we have been saying that we want to be a platform-driven services company. So we are using AI to develop platforms. And that also links to your second question about utilization, hiring, and so on so forth. Our endeavor is, as we become a platform-driven services company, our revenue per employee goes up because we bring something which is very differentiated. We are using AI platforms to deliver more value to the customers and also partaking part of that.
So our revenue per customer, profit per customer over a period of time, as we deliver disproportionate value compared to the industry, that should help us, and that should also mean that we need to hire lesser people to deliver higher revenue. So keep that in mind when you do any, you know, hypothesis philosophically. Now, as far as the tech vertical is concerned, we do think it is bottoming out. Based on the pipeline, based on the deal wins, we do think coming in the next one to two quarters, because some of these programs will take time to ramp up. The complex programs which we have won based on the platform-driven approach that we have taken, we are relatively confident all of our verticals will kick in. All of the verticals will have secular growth, including the tech vertical.
Please keep in mind, there may be cyclical things. There was a time when tech vertical was leading the growth. There's a time when healthcare is leading the growth. But overall, as a company, we are confident all three will kick in, all three will be growth enablers, and we are fairly confident of expanding the margins over the next two to three years based on whatever Vinit said and our approach of using platform, driving higher revenue, higher profitability per revenue.
Super. Thanks a ton. I'll jump back in the queue.
Thank you. The next question is from Ravi Menon. Hi, Ravi. Requesting you to unmute and ask the question.
Oh, sorry about that. Yeah. So now we have 375 million plus customers. Is it fair to say there is one from each vertical now?
Yes, absolutely fair to say.
And do you still see headroom for growth even from here with at least some of these customers? Or should we think that, you know, this is where it kind of tops out, or we are fairly close to topping out with some of these top customers, at least?
There's enough headroom in these customers for us to grow. There are many of our competitors who are there, so I'm pretty sure there is headroom. It's upon us to deliver more value and grow. And this also demonstrates philosophically, if we look at our earnings call over the last several years, there has been a debate whether Persistent can have more than $100 million-dollar customers, more than $7 million-dollar customers. So if you look at our trajectory, we have proven we are worthy of our customers giving us more at scale compared to some of our tier one, you know, competitors, peers, whatever you want. So, so there is enough and more to me.
Thanks so much. Best of luck. I'll come back in the queue.
Thank you.
Thank you. The next question is from Chirag Kachhadiya.
Congratulations on the beating for the solid numbers. I have one question that in H2, from margin perspective, what headwinds are we looking? And second, the target to reach the $2 billion kind of top line, do you think that we will achieve that ahead of the time than our stated guidance? Yeah.
Yeah, as far as the $2 billion top line growth is concerned, Chirag, we do believe we are on a decent trajectory, and we'll let the time pan out. Because, you know, there are things in our control which we are performing, but let's have the time go by. As far as the margin is concerned, Vinit, you want to comment on the H2 margin headwinds?
Yeah, no, I think so. As you know, that typically there are seasonal furloughs that come up in the second half. That only is probably the... At this point of time, we do not anticipate them to be anything different than what we have seen in the last year. So that's the only probable potential headwind that we have at this point of time.
Oh, thank you.
Thank you. The next question is from Sandeep Shah.
Yeah, thanks for the opportunity. Just wanted to understand, Sandeep, in this quarter, if we look at new business to total TCV, it is close to 74%, one of the highest in any quarter. Is it fair to say the client decision-making on our discretionary projects have picked up? That's question number one. Question number two is, if I look at the first half, reversal of amount has been close to 190 basis points, and if I'm not wrong, we called out it may continue in the second half as well. So, Vinit, are you worried in the next year, absence of this, with wage inflation, it could be a big headwind to maintain margin in FY 2026? Thanks.
I'll take the first question, and I'll have Vinit answer the second part. So as far as the new business is concerned, look, we have explained on many earnings calls, when people look at Persistent and say we are discretionary, spend risk or dependent on that, I don't think we agree to that. Many of the deal wins that we have had are with various sectors, whether it is the healthcare life sciences or the tech segment and BFSI, where we are working on platforms which are revenue bearing. Whether it is like setting up large teams for some of these, where we are even transitioning works from some of the incumbents, whether they be our bigger peers or it is new work being outsourced to us, which is revenue bearing and so on, so forth.
So bulk of the work that we do is critical to these companies, and it's not necessarily discretionary. I wouldn't, you know, basically correlate our order books being healthy to discretionary spending coming back and so on, so forth. I would say it is basically our ability to deliver more value with respect to our competitors, and even mine our customers more effectively. So that's where I would do it, and any earn-out reversals and go to.
Now, see, if you look at the cost optimization program that we are running within the organization, we are making structural changes to our cost base. And some of the expenses that we are today incurring as a result in order to support that cost optimization program, will not be there in the next year. So we have a couple of tailwinds also that will be coming into our help when we enter FY 2026. And as a result of that, we are pretty confident that our margin improvement trajectory that we have talked about will continue to happen.
So thanks and all the best.
Thank you. The next question is from Girish Pai .
Hi, team. Thanks for taking my question. I had a couple questions, please. So the first one is on ACV. Can you maybe help us understand how this will trend going forward, and how much of this ACV is AI driven? That was my first question. And then the second one is, you spoke about, you know, Sasva and iAURA helping you win deals. Could you maybe talk about what the attach rate of those is in the deal wins, and what is the ideal target? And just as a follow-on for that, is the profitability of these deals, i.e., the margin profile of Sasva and iAURA, higher than the base business? Thanks for those questions.
Sure, so let me take that question. As far as the ACV is concerned, so ACV, look, we don't give forward-looking guidance in terms of revenue or order books. So I would say, look at our historic journey. ACVs have been pretty healthy, and this quarter for us, the October, November, December quarter for us, given the fact that 80% of our revenues come from the U.S., is a quarter where we have seasonally, if you look at last several years, a higher order book for renewals. Couple that with the new events, typically this is a quarter where you will see a little higher ACV, but we'll let it pan out. The second part of it, you talked about how much of the ACV is AI driven, how much of the attach rates can we, you know, basically attribute to Sasva, iAURA, and so on.
Look, we don't want to get into the business of defining how much is our AI revenue. We are trying to infuse AI into everything that we do, and we do believe AI will become table stakes in terms of getting infused. How well you use it is where the differentiation will come, so that is as far as the attach rate question is concerned. In terms of profitability, yes, the profitability of these deals going ahead will be higher, and that's where, to my earlier comment, the revenue per employee, the profit per employee, over the next several years, that is where we are trying to disproportionately move, and that will also help us in our goals of overall improving the company margins. Hopefully, this answers your question.
Sure. Got it. Thank you.
Thank you. The next question is from Vibhor Singhal.
Vibhor, we can't hear you.
Okay, can you hear me now?
Yes, please.
Yeah, sorry for that. Yeah, hi. Thanks for taking my questions, and congrats on solid execution, once again. Sandeep, just, I mean, most questions I think have already been answered. Just quick take on basically post the interest rate cut that we have seen in U.S., is there any change in conversation, specifically in the BFSI segment, or let's say in more of leveraged segments, in which clients might be talking about maybe higher tech spends, if not today, tomorrow, day after tomorrow? Anything on that that has changed, and leading to that, any early conversations regarding how the furloughs would be this year as compared to last year, and of course, how the tech budgets for next year could be? I know it's too early for that, but I guess if any color on that would also be helpful.
Then I've just one follow-up question for you.
Sure. So as far as the furloughs are concerned, as Vinit articulated, we are expecting them to be in the same range as last year for us. So we are not expecting it to be anything different based on what we see today. But you know, typically these decisions get crystallized towards November and mid-December. That is the time when these things finally come together, and there is always a discussion between us and the customer on how to tackle it. So that is as far as that is concerned. Now, interest rates and you know, things around that, I think it's too early to say about interest rates impact right now, because there's other dynamics like the elections, et cetera, that are there in the U.S., so I think it is too early to call one way or the other.
So we'll let it pan out, and that will also impact the third part of your question, which is the technology budgets and so on. But look, having said all of this, today, as a company, we are in a position where we have performed in good times or bad, whether it was COVID, whether it was post-COVID, whether it is, you know, whatever happened over the last several months. So our endeavor would be, even in a difficult time, we will try to be in the best performing quartile for the sector. So that's where I leave it. Any follow-on questions then?
Got it. Sandeep, thanks a lot. Vinit, just one quick clarification. The earn-out reversal has contributed to almost, if I get my math right, around 230 basis points in the last quarter, around 150 basis points in this quarter. What more of this reversal is left to be captured, and will it be captured only in FY 2025, or will it spill over into FY 2026 also?
So what, whatever is pertaining to the acquisitions that we have done in the last couple of years, we can anticipate the balance reversals to happen in this current financial year itself. The recent acquisitions that we have done, obviously, they are in the very early stages, so they will if there is anything pertaining to that, that will be coming up only in the next year, and we'll see at that point in time.
But at this point-
Just to answer your question slightly differently, in addition to what Vinit has said. Look, and this is to others as well, who, you know, wonder about these earn-out reversals. Why is an earn-out not paid? An earn-out is not paid because the hypothesis of the revenue growth or the profitability for acquisition did not pan out in line with whatever it was supposed to. We have done seven acquisitions or more in the last five years, in the time that I have been here, and within that, some have panned out very, very well. So there are smaller acquisitions which have grown three-fold, four-fold, and we have paid them even an upside. When an acquisition does not deliver to the commitments, doesn't mean that Persistent does not deliver to the performance.
Persistent, as a company, you know, invests in sales and marketing, invests in additional efforts, still delivers the industry-leading growth, and that comes at a cost, and that cost is offset by the reversals that we do. So please look at both sides of the coin. If we are delivering industry-leading growth, last four years, we have delivered 24% CAGR, and this is a 16% relative outperformance to the sector if you compare the Indian IT services. If we have delivered that outperformance and we have done these puts and takes, knowing fairly well if something is not going to perform, we have stepped up, invested, still delivered the performance. So to be fair, you should have the puts and takes like a debit and credit and look at the holistic picture. That's my request to you and the other, you know, analysts and investors on this call.
Fair point, Sandeep. Thanks a lot for taking my questions and a detailed explanation. Wish you all the best.
Thank you.
Thank you. The next question is from Varun Ginodia.
Hi, Sandeep. Very congratulations on your professional milestone. Just, just a disclaimer, I'm not a techie, so please correct me if my understanding is wrong. My view is that right now, the value is in building models, analytical models like Sasva. But later on, in near future, when the value shifts from building to inferencing, what kind of value can we unlock, can Persistent unlock from clients?
Sounds good. First of all, thank you. Now, if you look at it, Sasva is not a model. Sasva is actually a platform that leverages multiple models under it. So it leverages a combination of large language models, which are open source, customized by us in a secure manner, you know, and combined with some small language models, et cetera, et cetera. So, Sasva is not a model-building exercise. We are too small to build newer models, which are large language models, and invest in all them. All we are trying to do is leverage the technologies that are being available, made available by these larger companies. Some of it is open sourced, some of it is, you know, like OpenAI is through Microsoft and so on, so forth.
And we are doing engineering, inferencing in your loosely held terms based on that and taking actions. So we are on the second step of it, and that's where the value is.
Right. Right. I see. Thank you for explaining it simply.
Thank you.
Thank you. The next question is from Abhishek Kumar.
Yeah, hi, good evening. Thanks for taking my question. Two questions. One, I heard in couple of the deals that we have won this quarter, there was an element of us setting up centers for our clients. So is this phenomena relatively new, you know, where we are helping them set up a GCC or something of that kind? And are these kind of slightly longer in tenure and therefore it impacts ACV versus TCV kind of calculation? That is my first question, then I have a follow-up.
Yeah. So, when we talk of setting up centers, these are offshore development centers, people may call it global technology centers and so on. These are basically things where we are scaling teams in our parlance, when managing the end deliverable out of that in conjunction. It's a co-engineering that we do on behalf of our customers. We are an extended team, and that's where it is. The GCC definition can vary. The GCC can be where you are doing it for someone else, in their premises, et cetera. We participate in that as well. But most of our deals that we are talking about are offshore development centers, extended engineering or IT arms to our customers, longer-term relationships, and that's where the ACV to TCV ratios are different. These are three- to five-year engagements, which are...
You can simply put, look at them as capacity, which is a hardcore engineering capacity that delivers value on an ongoing basis in a planned manner for our customers. So that's where it is.
Great. My second question is, you know, the onsite effort share has gone up. It looks like some of the deals, large deals that we won last year, we're ramping up. Now, as we talk about rightshoring, that can have a deflationary impact on the revenues, so how does that pan out in the second half on top of furloughs and other headwinds that we have?
Yeah. So to your point, look, we have won over the last five years at least 35-plus large deals, and large deals are all relative terms. You know, what ACV, TCV, depending on the engagement size. We have seen multiple cycles where we are winning newer deals which have more on-site centric, because we made it during market transition. Initially, even taking over the third-party vendors related, you know, people, and then offshoring. So these are cycles. So as we are winning newer deals, we are offshoring, so the deflationary impact of that is already being addressed by the newer deals that we win. So that is not a concern, and we have been managing this for the last five years and layering our revenues based on the larger deals, longer term deals that we've been winning over a period. I wouldn't be worried about it.
I'll just add to this. I did mention it is rightshoring and not offshoring. Rightshoring means not necessarily everything coming to offshore. It also means something from offshore also going and becoming onshore.
Great. Very clear. Thank you so much.
Thank you. The next question is from Abhishek Bhandari.
Yeah, thank you. Thank you for the chance. Sandeep, you know, if I look at your sales and BD headcount, you know, it has dropped by around eighteen people or call it 4% quarter on quarter. And this is the first drop since the last twelve quarters. If you could explain, you know, what is happening on your sales and BD team. Is there, you know, downsizing more happening on the sales part? And is it also a reflection that the sales effort are normalizing? Because if I remember you saying consistently for last few quarters, the sales efforts are taking almost 2x of normal times.
Yeah, so if you look at it, Abhishek, FY 2023, we ended with 440 people in sales and research. FY 2024, we moved from 414 at the end of FY 2023 to 484 at the end of FY 2024, and in the last quarter, we were at 510, and as we have been saying all through, we are over-investing in sales because we need to. We are comfortable at this point in time with where the numbers are, and there's no downsizing that is happening. You do performance management. If something is not yielding results, you take money out of there and deploy wherever you need to, where you have a better ROI as a company.
So I won't be worried, and as Vinit said, "Look, this should actually give us a leverage." Even with this investment and a little bit more, this, the percentage for SG&A should decrease over a period of time as we grow the revenues and win more deals. So, so from our perspective, we are very comfortable and confident this is the right trajectory. We'll keep adding as we need.
Got it. Thanks, Sandeep. And my last question is, you know, some of your very recent senior hires, like your chief strategy officer, you know, they have quit very quickly. So, you know, is it a broad-based trend amongst your recent hire that their attrition numbers have been higher, or is it one-off? And, I don't want to know the, you know, reason behind one candidate, but is it like a more widespread thing, what you're seeing?
Yeah. So as you rightly said, one candidate does not make a trend. So that's where I will leave it. Look, people join, and they also have aspirations. They also have their own path, and we also have expectations. And I wouldn't say that it was any case of anything going wrong. People have choices to make as to where they want to take their own career and their own personal conditions in life, and which I don't want to get into that. So overall, I don't think it reflects on the candidate. It reflects on the present. Both are good. And we have a company to run. We'll keep hiring more people with the right aspirations, and we'll keep scaling.
Thanks, Sandeep, and wish you happy Diwali.
Thank you.
Thank you. The next question is from Sumit Jain.
Yeah, hi. Am I audible?
Yeah.
Yeah, thanks for the opportunity. So just, Sandeep, first want to understand, you mentioned that you don't have very high discretionary demand exposure, and, you know, there is a general consensus that next year with the U.S. Fed rate cuts, the discretionary demand will revive.
Yeah.
So will it actually help your business? And if yes, then in what, which key verticals?
Yeah, there's someone on the call who needs to be muted. So Sumit, from our perspective, if you look at it this way, when the discretionary demand is not that high or the discretionary spend is not that high, we have delivered good revenue growth. In our segment, healthcare and life sciences, I would tend to believe, is much more, you know, non-related to the discretionary spend, whatever needs to be done in healthcare. Yeah, there are some pockets which are related, but usually you will see that is a more resilient sector. BFSI in the middle, tech, tech suffers when discretionary spend doesn't happen, because ultimately, when newer projects are not happening and people are conserving their cost, they are spending lesser on the technology procurement in terms of software licenses, et cetera, and that, that impacts.
So we are hoping that with the things easing out, that will also have an impact on some of these things, but that is not what we are banking on. We are banking on our effort to see the trends, to see where the revenue pools, profit pools are available. More structurally after that, use technology like our AI-driven and the platform-driven strategies that we have, and our 18 quarters of sequential growth should, you know, give you enough confidence. So not worried. If it opens up, it will be only good for us.
Right. No, that's helpful, and secondly, since you are involved with hyperscalers on building their GenAI platforms and connectors, once the GenAI opportunity scales up for the industry with, you know, wider, wider system integration projects, will it actually help you more than your peers?
It should, and, you know, we'll let the things pan out. We are not giving any forward-looking guidance. We are at it. We have delivered industry-leading growth, and as I said, we have delivered disproportionately with respect to the industry, and we, we expect that our effort should continue in that direction.
Lastly, for the $2 billion target, have you given any sort of timelines, or is it like a long-term outcome?
Yeah, we have said by FY 2027 end, which basically is March 2027 end, is what we have said is our aspiration. Balance, we'll let the time pan out. With that, I think we should stop the call. We are sharp at eight o'clock. Moderator?
Thank you. Thank you very much to Persistent's management team. Ladies and gentlemen, on behalf of Persistent Systems Limited, that concludes today's conference. Thank you for joining us, and you may now disconnect your lines and exit the webinar. Thank you.
Thank you.