Good evening, ladies and gentlemen. Good day and welcome to the Persistent Systems earnings conference call for the Q3 of financial year 2023 ended December 31st, 2022. 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. Sunil Sapre, Executive Director and Chief Financial Officer, Mr. Saurabh Dwivedi, Head of Investor Relations, and Mr. Amit Atre, Company Secretary. Please note all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the management's opening remarks. Should you need assistance during the conference call, please raise hand from the participants tab on the screen. While asking questions, request you to please identify yourself and your company. Please note this conference is being recorded. I now hand the conference over to Mr. Sandeep Kalra.
Thank you, and over to you, sir.
Thank you, operator. Good evening, good morning, good afternoon to all of you, depending on where you are joining from. I would like to start by wishing everyone a very happy, healthy and prosperous New Year 2023. I hope the new year has started well for all of you. With this, let me come to the quarterly financials. We are happy to report yet another solid growth quarter across all major business and financial metrics, despite a dynamic and rapidly evolving macroeconomic environment. The revenue for Q3 came in at $264.35 million, giving us a growth of 3.4% quarter-over-quarter and 32.8% on year-over-year basis in dollar terms. On a constant currency basis, this translates into a sequential revenue growth of 3.5%.
This information is also available in our analyst deck with prior quarter data available for comparison. In INR terms, the growth came in at 5.9% QOQ and 45.4% on YOY basis respectively. Our revenue growth in Q3, though impressive was impacted by seasonal furloughs, less working days and certain client specific ramp downs in our top client. Coming to EBIT. Our EBIT for Q3 came in at 15.4%. This translates into an EBIT growth of 11.6% on a QOQ basis and 60% on YOY basis. The EBIT margin expanded by 80 basis points on a sequential basis, aided by growth leverage, better lateral utilization, increased fresher billability, as well as positive currency impact. Sunil will provide more color on the EBIT margin movement later in the call.
Coming to the order book for the quarter. Q3 was a record high for us in order of TCV order wins. The total contract value for the quarter came in at $440.2 million with new bookings TCV coming in at $239 million. This implies a robust growth in TCV of 20% on QOQ and 30%+ on YOY basis. The annual contract value component of this TCV is of the order of $326.3 million, of which the new booking ACV component contributed to $143.8 million. We've surged past the $400 million mark in our TCV bookings for the first time, reflecting robust pipeline conversion.
Please note, as always, these TCV ACV numbers include all bookings, small and large, renewals, as well as new bookings across existing and new customers. Coming to the client engagement buckets. Let me give you some color on the client engagement size and the behavior we saw in the last quarter. Coming to the top two customers. Our top customer contributed to revenue decline in this quarter per the planned ramp down initiated on some programs in the last quarter. We are hopeful of reversing this trend and getting the top client back on the stable and growth trajectory over the next several quarters. Revenue from our second-largest customer declined slightly on account of seasonal furloughs that happen every year. Outside of the top two customers, we saw a broad-based growth on our other customers in top 50.
I am pleased to note that in Q3 FY 2023, the top 50 customers other than the top two contributed to a very healthy 7.7% sequential quarter-on-quarter and 53.8% YOY growth. It is very heartening to see the progression of our clients across important thresholds with two additional customers moving in the greater than $30 million and three customers in the $10 million to $20 million revenue bracket. In terms of the geography breakup. From a geographical perspective, we saw a 1.5% sequential growth in North America market, 12% in Europe and 10.4% in India. The lower growth during the quarter in North America was predominantly on account of top customer decline and furloughs in a couple of other large customers as spoken before. Coming to the people front.
In Q3, we are happy to share that as a result of our significant investments in training our freshers over the past four to six months, we were able to deploy about 600+ freshers. Just to remind everyone, we had brought on board 3,000+ freshers in H1 of FY23. As a result of this, we were able to reduce our dependence on lateral hires, adding a net of 93 technical lateral hires while balancing our talent pyramid. This was an important margin lever for us in Q3 and will continue to provide us tailwinds on the margin front over the next several quarters. Utilization for the quarter came in at 77.6% as against 79.9% in Q2.
It should be noted that excluding freshers, our blended utilization came in at 83.3%, higher by 340 basis points quarter-over-quarter. The freshers were not included in utilization metric in Q1 and Q2 of FY 2023 as they were still undergoing training. As already stated, going forward, the improvement in utilization of these trained freshers will be an important lever for project ramp-ups and margin improvement. The trailing 12-month attrition for the quarter came in at 21.6% compared to 23.7% in Q2. The annualized attrition for Q3 is slowly reaching a level which is in line with our long-term average. We believe that the TTM attrition will continue to moderate going forward, aided by better outcomes on our employee value, related interventions, and a general moderation of hiring across the sector.
Moving on from operational metrics to certain strategic highlights for this quarter. Q3 is usually the quarter in which we declare the interim dividend. I am pleased to share with you that the board of directors declared an interim dividend of INR 28 per share for FY 2023 on the face value of INR 10 per share. This compares to last year interim dividend at INR 20 and total dividend for last year at INR 31. It is our endeavor to maintain a consistent dividend payout ratio while we augment growth through capability-led acquisitions. Coming to the culture initiative. About nine months back, we had embarked on an important initiative to transform our culture in the light of the challenges associated with high growth in an environment of remote operations and work from anywhere.
This involved engaging our colleagues across our multiple locations in India, Europe, Americas, and embarking on a number of long-range initiatives as a result of that aimed at strengthening our culture and overall employee engagement. I am pleased to share that this exercise has brought together teams across locations and with diverse backgrounds to identify with the common cause of taking Persistent to the next orbit of our growth. We are pretty enthused with the progress, and we'll share more details on this in the coming months and quarters. Coming to planning and roadmap for our future. Building on our culture-related initiatives, we did a two-week planning workshop in Pune and Goa called the Persistent Huddle 2023, in which 300 of our global leaders brainstormed about our FY 2024 plan, as well as the $2 billion roadmap.
This further contributed to energizing the team and has brought clarity about our goals and the journey to our next milestone. We plan on doing an investor day in second half of calendar 2023 to share more details on our $2 billion roadmap with you. Coming to the addition of senior leadership. We are pleased to welcome Dr. Rajesh Gharpure as the Chief Delivery Officer for Service Lines. Rajesh has over 27 years of experience in global delivery and operations, digital transformation, consulting, and finance at LTI. He brings with him rich industry experience running large global delivery organizations, building competencies, providing thought leadership to clients, and leading various internal transformation initiatives for organization growth and excellence. Coming to an update on our acquisitions.
All our acquired businesses over the last four to five quarters have now been fully integrated, and each one of them has shown good growth, including contribution to our go-to market and operational synergies. The teams have come together as one Persistent to win large deals in fintech, insurance, healthcare, consumer tech, and retail sectors. We are hopeful we can repeat the same synergy-led performance in the coming quarters and years. Given the fact that these acquisitions are panning out along expected lines, we are starting to get active once again on the M&A front. In line with our stated strategy, we continue to look for tuck-in acquisitions to expand our geographical markets and complement our current capabilities. We'll report progress on this over the next several quarters. Coming to ESG and some other administrative updates. We continue to make good progress on the ESG front.
Last quarter, we talked about our participation in Dow Jones Sustainability Indices survey. I'm pleased to share with you that Persistent has achieved a score of 47 in the Dow Jones Sustainability Indices survey this year. We have taken ambitious goals to take our score on this important metric up to 65 over the next three years. For the first time, we participated in the public disclosure category of the Carbon Disclosure Project. On the administration side, in Q3, we opened several new offices, including offices in Bangalore, Indore, and London. In the month of January, we inaugurated a brand new 1,200-seater state-of-the-art dedicated learning and development center in Hinjawadi. This center is in line with our commitment to constantly upskill our talent and deliver best-in-class capabilities to our customers in leading technology areas.
This center has been aptly named Ramanujan per our employee suggestions after the famous Indian mathematician. In the coming quarters, our expansion plans include locations such as Jaipur, Kochi, Chennai, Calcutta, and New Jersey. Our endeavor is to provide world-class facilities to our employees in locations close to them and encourage them to work collaboratively from office a few days every week. In summary, we are pleased with our performance in Q3 FY 2023 with continued healthy revenue growth, record high order wins across our focus industry segments, good pipeline and improving profitability despite the macro hand-headwinds. Now I'll turn over the call to our CFO, Sunil Sapre, to give a detailed color commentary on quarterly financials and related matters. I'll come back after Sunil's comment to give you some more details on key client wins, analyst awards, and other recognitions for the quarter. Sunil, over to you.
Thank you. Thank you, Sandeep, good evening and good day to all. I wish you a very happy new year, thank you for the time that you're spending with us today. Sandeep has walked you through the market outlook and business performance. I will take you through the details of financial performance for the quarter ended December 31st. The revenue for the quarter at $264.4 million registers growth of 3.4% quarter-on-quarter and 32.8% year-on-year. Within this revenue, the services revenue grew by 3% quarter-on-quarter, while IP-led revenue grew by 8.6%. You will notice that our IP revenue continued to grow this quarter on the back of 18.1% QOQ growth last quarter.
As you're all aware, the quarter Q3 witnesses furloughs and lesser working days due to festival season, due to which services revenue grew by 3% vis-a-vis 4.9% QOQ last quarter. Our total revenue for first nine months stood at $761.4 million with YOY growth of 38.9%, with services revenue registering growth of 47.3% and IP revenue showing decline of 17.6%. You will recall that last year's nine months included royalty revenue from one of the contracts that was restructured at the end of Q3 of FY 2022 and was converted into a TNM contract with a revised scope. IP revenue for nine months of this year does not include any revenue from the restructured contract, and the revenue built on TNM basis is included in services revenue.
Coming to revenue in rupee terms, the revenue was INR 21,693.7 million, reflecting growth of 5.9% quarter-on-quarter and 45.4% year-on-year. For nine months, the revenue was INR 60,961.2 million with a growth of 49.7%. Coming to segmental growth for the quarter, BFSI grew 2.6%, healthcare 3.1%, and technology companies grew 4.2% quarter-on-quarter. In respect of linear revenue, the offshore linear revenue grew 3.3%, comprising of volume growth of 5% and billing rate decline of 1.6%. The onsite linear revenue grew 2.5% on account of volume growth of 4% and billing rate decline of 1.3%.
The slight decline in the billing rate is also a result of our presence in nearshore centers in Costa Rica and Mexico, which get classified as on-site. As a result of fresher intake, as Sandeep mentioned in the earlier quarters, the net addition to lateral headcount this quarter was minimal. Improved utilization during the quarter, coupled with freshers getting progressively billed, helped us in managing the costs. Additionally, favorable currency also helped margin by 60 basis points. The headwind to margin in Q3 included furloughs and lesser billing days, which was partially offset by higher IP revenue. On the cost side, the headwind was in form of some increase in travel and facility costs. Overall, the EBITDA came in at 18.5% in Q3 as against 18% in the previous quarter and 16.8% in Q3 of last year.
EBITDA for first nine months of the year was at 18.1% as against 16.6% in the corresponding period last year. Total depreciation and amortization was 3.2% of revenue as compared to 3.4% of revenue in the previous quarter. For the nine months period, depreciation and amortization was 3.3% vis-a-vis 2.8% in the corresponding period of previous year. You will notice that while we have done acquisitions, the impact of which is seen in amortization, the consistent growth in revenue has allowed us to manage the impact of amortization within a reasonable range. With this, EBIT came in at 15.4% as against 14.6% in the previous quarter and 14% in the corresponding quarter of last year.
In terms of YTD nine months, EBIT margins stood at 14.8% as against 13.8% for the corresponding period last year. Coming to items after EBIT, during the quarter we have reversed export incentives worth INR 297 million relating to earlier periods of 2015, 2016 to 2017, 2018. The company believes that its services are eligible for export incentives, the dispute is purely an interpretation issue given the highly technical nature of this matter. With the intention of avoiding prolonged litigation and settling the dispute, the company has requested the relevant authorities for settlement of the case and has submitted an application before settlement commission on December 29th, 2022. While the hearing against this application is awaited, the company has recognized a provision of INR 297 million for the quarter ended December 31st.
The treasury income was INR 87 million as against INR 60.8 million, mainly on account of increased interest rates and treasury size. Forex gain was INR 105.4 million as against loss of INR 91.3 million in the previous quarter. Profit before tax was INR 3,227.9 million at 14.9% as against 14.4% in the previous quarter. So far as ETR is concerned, it was 26.3% as against 25.6% in the previous quarter. With this, the PAT for the quarter was INR 2,379.5 million at 11% of revenue as against INR 2,200 million in the previous quarter at 10.7% of revenue.
For nine months, the PAT was INR 6,696 million as against INR 4,894 million, reflecting growth of 36.8%. In terms of percentage to revenue, PAT is 11% of revenue as compared to 12% in the corresponding period of previous year. EPS for the quarter was INR 31.9 as against INR 29.61 in the previous quarter. The growth in EPS is 7.7%, while growth in reported PAT was 8.2% quarter-on-quarter. As you know, for the purpose of EPS calculation, shares held by ESOP trust are excluded. Coming to some other items. Firstly, the DSO which came in at 67 days as against 60 days in the previous quarter. There are three key reasons for this increase.
Firstly, in case of certain customers, there was spillover of payments to first week of January due to holidays, causing an impact of two and a half days. In respect of certain IP deals, we have in the Accelerite portfolio, we have deferred credit arrangements with certain large enterprise customers. This has an impact of three and a half days on the DSO. While this will take a few quarters before this starts getting normalized, these are with very good customers of good credit quality. Other than this, for certain customers who have December as their fiscal year-end, the services for December also got converted into invoicing, which would in normal course pass through unbilled stage for a month.
This is reflected in lower unbilled revenue. This had an impact of 1.1 days in billed DSO while there is a decrease in unbilled DSO. Next item on the operational CapEx for the quarter was INR 292.4 million. The cash on books is INR 16,907.9 million as compared to INR 15,719 million at the end of last quarter. Forward contracts outstanding as at December 31st was $214 million at an average rate of INR 81.55 per dollar. Thank you all. I hand it back to Sandeep.
Thank you, Sunil. I will now talk about the key deals for the Q3 quarter by industry segments. Starting with software, high tech and emerging industries. Persistent was chosen by a leader in online retail in the U.S. to set up a dedicated global technology center across multiple technology tracks, including infrastructure and platforms, marketing technologies, search and recommendation, and fintech and loyalty. This is one of the largest deals in our recent history with a TCV of about $70 million over three years and embodies the key tenets of our systematic large deal program. This is a proactive deal with scope for further growth on account of vendor consolidation.
Cross-functional collaboration between the various teams from acquired businesses was a key to winning this deal, with significant collaboration between our data and integration business as well as Google business unit, since this online retailer has chosen Google Cloud as their predominant cloud. This also entails cost optimization play, leveraging globalization and vendor consolidation, as I mentioned earlier, of smaller vendors over time while driving enterprise digital transformation at scale. Persistent was chosen by a global technology leader that has some of the most well-known brands used by millions of people around the world. We would be partnering in the development of niche virtualization product of the company. This is a double-digit million deal spanning across three years. Coming to banking, financial services and insurance.
We were chosen by a leading HR applications development platform company to support their next generation HR applications development and enhance the quality of existing features for a leading platform. Persistent was chosen to transform the legacy check platform and enable cloud readiness to future-proof the business for one of the largest U.S. banks. This is another example of the synergy playing out with our payment business unit formed through our SCI acquisition. Coming to healthcare and life sciences. Persistent was chosen by one of the largest global instrumentation companies to modernize its technology stack and streamline its customer order orchestration, financials and warehouse management platform. This is a double-digit million multi-year deal leveraging our low-code/no-code expertise. Persistent was chosen to leverage enterprise integration expertise to improve the quality and delivery of service for one of the largest multinational medical devices and healthcare company.
This is again a multi-million, multi-year deal. Moving on to the awards and recognitions for the quarter. Q3 saw us get continued recognition from industry leading analyst firms and associations. To mention a few. Persistent was named a leader in Everest Group Software Product Engineering Services PEAK Matrix 2023. For the 10th consecutive year, Persistent was identified in the leadership position in Zinnov Zones' 2022 engineering research and development services ratings. Persistent was named as a leader in Agile application development projects in ISG Provider Lens Next-Gen ADM Services for U.S. for 2022. In summary, we continue to deliver top quartile revenue growth in Q3 FY 2023, along with healthy profitability in spite of a difficult macro environment. We continue to see good traction for our services among our client base, along with new deal wins and new logo additions at scale.
We remain watchful of the macroeconomic situation and are proactively staying close to our customers, aiding them in prioritizing their technology spend towards transformation and cost optimization, and are optimistic about our growth momentum. With this, I would like to conclude the prepared comments and would like to request the operator to open the floor for questions. Operator, over to you.
Thank you very much, sir. We will now open the call for the Q&A session. We will wait for a few minutes until the queue assembles. We request participants to restrict to two questions, please, and then return to the queue. For more questions, please raise your hand from the Participant tab on the screen to ask a question. First question is from Abhishek Bhandari.
Thank you for the opportunity. You know, happy New Year to the management and congrats on good result. Sandeep, I have two questions. First, you know, in the TV, you know, interview today in the morning, you said, you know, the top client seems to be bottoming out over next few quarters. That coupled with, you know, with the strong tailwinds, should we assume, you know, we should go back towards
4% to 6% kind of, you know, growth, what we were doing, before Q3.
Two parts to the answer. The first part about the top customer bottoming out. It is pretty much bottomed out. There may be a small bit of decline maybe, and we will try to avoid that in the next quarter. There are some very good discussions which may also over the next several quarters bring the trajectory back to growth in the top customer as well. That's the first part. Second, in terms of the growth, look, we don't give the forward-looking guidance, but the endeavor would be to reach whatever percentages you said.
Thank you, Sandeep. Sandeep, the second question is on your medium-term, you know, margin guidance, or your margin aspiration rather, where you said you want to lift the EBITDA margin by almost 200 to 300 basis point over medium term. If you could clarify what that medium term mean, and you know, also what are the big levers you have in terms of improving the margins, you know, significantly from here? Thank you.
Sure. If you look at it, when we talk about the medium term, we are talking about the next two to three years. If you look at our track record over the last two to three years, every quarter we have attempted to stabilize and improve the margins. Our attempt would be to go up by 200 to 300 basis points over the next two to three years. Obviously, the levers in that are right from the scale of revenue. As we scale the revenue, some costs are not proportionately, you know, scaled with that. Second, if you look at it, we have brought in freshers at scale. We have trained them. We are deploying the freshers and building our own talent pipeline for the longer run. Building our own talent rather than, you know, going out and hiring people from the market.
That would be the second piece of it. Third piece of it, if you look at it, if you look at our client, you know, mining efforts. Even in this quarter, we have moved from greater than 5 million customers being 30 last quarter to 34 this quarter. That is the other part of it, where we are trying to bring more service lines into the same customer, leverage our SD&A much more effectively. Last but not the least, our ability to do larger deals, you know, longer-term deals. It also has, you know, an NVT component built up, which also reduces our, you know, start-stop effect of the bench that may be.
There is a bunch of these and a few other operational things that we will do, including building more and more solutions and some amount of IP, not as in a product, but IP that can make us better, faster, and more profitable in implementation of services. Hopefully that gives you color.
Yeah. Thank you, Sandeep. You have a good 2023. Thank you.
Thank you very much, sir. The next question is from Mr. Bhavik Mehta.
Yeah. I'm audible?
Yes, Bhavik.
Yeah. A couple of questions. Firstly, just on the margin bit again, you know, you made three and a half this quarter and my assumption is that without furloughs you could have even done 16%. Let's say over CY 2023, FY 2024, how should we look at margins? Where do you think is the sustainable level of margins, given the growth you are projecting? That's one. Second is on hiring. Hiring has been slowing down over the last couple of quarters. Obviously one way to look at it is that you are, you know, increasing the fresh utilization and making them billable, which helps. Given the kind of growth you see, given the deals which you have, do you think you will have to start ramping up hiring going ahead?
Is this the new normal of hiring and the focus will be on just improving the utilization further from here on?
Sounds good. I'll briefly answer both of these. As far as the margin is concerned, look, we have been working on improving our margin over the last, you know, several years, and we have made significant progress. We will endeavor to do incremental progress, but that will not be at the cost of growth. We have to make sure that we have a pretty good growth, even in whatever macroeconomic circumstances may exist today, a few quarters from now, and so on. That is our priority number one. We have already talked about the medium-term two to three-year aspiration of taking it up by 200 to 300 basis points, and we'll stick to that. We'll keep making progress on that.
In terms of hiring, now, look, we have been saying very consistently over the last several quarters, we have hired 3,200 freshers over the last many quarters. For the last six months, one of the biggest investments in Persistent has been in our learning and development, you know, investments, whether it is in terms of learning and development staff, our own delivery leaders and their teams getting involved in training our freshers, making sure that we are building the talent the way we need in different technology tracks. The software platforms which offer online courses and so on. There has been a significant investment right from hiring the people, training the people. Obviously, we are intending to, you know, deploy them.
The whole attempt is to create a longer-term cycle where we not only for the last year, this year also, just to give you insights, we've already offered 1,200 freshers, and this will come over the next several quarters. I'm very proud to say we are among the only companies in India today who have hired 100% and, you know, given full credence to all the offers we have given and onboarded all the people. From that perspective, rest assured it is not lost on us that the growth has to be the priority, but we have to build our own talent for the longer run. Look, our engine, if it can hire 800 laterals to 1,200 to 1,500 laterals, we have that engine and we can activate that any day if we need to hire more laterals.
Our focus for the next few quarters first is to take the inventory and then we will keep bringing whatever number of laterals we need to.
Okay. Got it. Thank you. Congrats once again for another good quarter.
Thank you.
Thank you very much, sir. The next question is from Mr. Manik Taneja.
Hi. Good evening. I hope I'm audible.
Yes, Manik. Hello.
Thank you once again for the opportunity and congratulations for the resilient performance. Sandeep, I wanted to pick your brains around the comment that you made around top customer growing going forward. This is a customer which
In absolute terms of revenues has gone nowhere for us. We've had some down years. Last year it grew. This year once again it has declined sharply. If you could help us, while I understand there is some element of the IP restructuring that we did in this customer account, but if you could help us understand what's happening from a services landscape at this customer. That was question number one. The second thing is the industry essentially has seen significant tailwinds from price increases over the last couple of years. If I'm thinking now over the next 12 to 18 months timeframe, just wanted to understand how do you see the situation play out? Yeah. Thank you.
Okay, let me take the second one first. It's an easier question, and I can wrap it up quickly. Little-known fact, for the last 12 to 18 months we were at it in terms of price increases. Look, nobody has a crystal ball, but, you know, when the inflation was so high, the customers were amenable before, you know, the real cloud of macroeconomic, et cetera, you know, started coming in. Thankfully, with respect to our customers cooperating with us, we had done a good amount of price increases earlier itself. That's also in a way, you know, to add to what I said earlier, been a margin lever for us. That has panned out well. I don't think the market will be very ripe for doing a lot of price increases in the next, you know, 6 to 12 months.
Maybe things will change after that. We are well taken care of. As far as Persistent is concerned, we have done what we needed to do proactively, and that has been the thing for us. Proactive deals, proactive margin expansions, proactive fresher hiring, proactive training deployment. That is what has helped us so far. Now coming to the top customer. Look, it was a very cautious decision, as you know well, and for other investors on the call who don't know, there was a fairly large contract that we had with the top customer which was not very profitable for us, and we requested to kind of terminate it at the culmination of five-year period of the contract.
That is where it also contributed to the top customer revenues coming down for us significantly, to the extent of roughly about $25 million to $30 million impact is just because of that contract itself in terms of the decline. The top customer of ours has been, you know, obviously they have seen a CEO change. The company has done well over the last 12 to 18 months. If you look at their results and their performance, they are stabilizing and doing very well. There are many discussions which are also aligned with their forward-looking path that we have, and we are confident, given our 18+ years of history with this customer and the strong relationship we have across the leadership, that we should be able to go back in and grow over the next several quarters.
I just leave it there. I can say with pride our relationships are fairly strong. Our revenues may have gone a little bit sideways for certain quarters. As long as the relationship is strong, I am confident the relationship will lead to revenue growth as well.
Thank you, and all the best for the future.
Thank you.
Thank you very much, sir. The next question is from Mr. Abhimanyu Kasliwal.
Good evening, sir. Am I audible?
Yes.
Okay. Thank you so much, Sandeep. Congratulations on wonderful performance this quarter. My question was regarding other income. I mean, there was not really speaking about operations, they are going brilliantly, but I'm curious, other income has jumped up this quarter Q O Q. Is this a sustainable increase? What does it consist of? Because the other income was a good percentage of the net profits, at least 10-ish or slightly more. What would be your take on that?
Sunil?
Abhimanyu, if you are referring to other income the way it appears in the newspaper advertisement, it has two components. One is the income on surplus funds, that is the treasury income, and the other is the Forex gain. If you see the last quarter, what happened was that the appreciation in the U.S. dollar that led to loss on hedges that we had booked in the earlier year. Whereas in this quarter, the way hedges panned out, that loss was less, whereas the actual gain on realizations, that when we collect the money from the customers, that came in at the spot rate which had elevated to almost 82, 83 levels as you know during this quarter. Against a loss of INR 9 crores, what you call last quarter in terms of Forex loss, this quarter there is a gain of INR 10 crores.
That's where you see almost like a INR 20 crore swing, and that is what is leading to that number what you are referring to as jump in other income. I hope that helps you get a perspective on that.
Thank you very much, sir. The next question is from Mr. Vimal Gohil.
Yeah. Thank you for the opportunity, sir. Sir, my question on your acquisitions has already been answered. Thanks for that. Another question that I had was on subcontracting costs. They've been unusually sticky, despite, you know, the company has made a lot of efforts on opening up onshore centers. Just wanted to get a sense on that. Plus it was quite, I was quite surprised to see that particular element of our, of subcontracting cost not there, did not have a mention in your margin levers. They are probably we have one of the highest subcontracting costs as a % of our sales in the industry right now.
Just wanted to get your sense on how will that pan out going forward?
Sunil, you wanna take it or should I take it?
No, I think, what I would like to mention is subcontracting costs for us have been in the range of, you know, between 12% to 14%. The way it has happened is that if you look at the furlough impact in this quarter, what happens is that you may have subcontractors who are continuing on these engagements and just the fact that revenues are not there. In terms of that is why it reflects in a higher percentage to revenue. In terms of absolute levels at which we are operating with the subcontractors, yes, definitely there is a reason and room to see how we can optimize this. These are across geographies and, we will take, you know, the rightful approach to see how this can be consistently reduced.
It has to be sustainable, and that is where some of the challenges in the midst of people's willingness to move across, you know, zones within the U.S. also has been a challenge, and we have had to continue with some subcontractors. Sandeep, if you want to add anything.
I think that's fair.
Sure.
Fair enough, sir. Sir, just on, you know, macros plus how we are sort of reacting to it. Product R&D is relatively. Does it seem to be more insulated in terms of, you know, how the macro is panning out in the West? The related question to that is, you know, the reaction from enterprises versus ISVs. Enterprise product roadmap may have some delays, while ISV may continue to spend on their, you know, existing bread-and-butter products, which will help us. If you can just help us take us through how will these, both of these segments for you sort of pan out, and how will it also impact our TCV and ACV tailwinds going forward? Thanks.
I'll try and keep it brief, but please bear with me. Because this is a very philosophical and a bigger level question for us. If you look at the enterprise side of the house, now, there are multiple things that are happening there. On one side, the enterprises are trying to conserve cash while making sure that they are able to do the digital transformation that they had started. A number of these exercises started, you know, about a year, two years back during the COVID period. They are not gonna be immediately stopped or anything. They are trying to squeeze the business as usual cost and still keep the transformation, you know, going. Second part, when I talked about even if you look at the biggest deal that we announced, what is happening there?
People are continuing on the transformation journey, but they're using more globalization. Earlier, people were willing to pay anything to get cloud, data, AI, kind of, you know, technical talent here in the U.S. That is now moving for saving cost. All of that will move to offshore or a significant amount of that will move to offshore, nearshore and so on. What does that mean for the enterprises? It means cost saving. What does it mean for people like us? It means more business. Same way, if you look at it, if the enterprise spend is gonna be slightly squeezed or squeezed in different forms and shape, whether it is transformation or BAU on software vendors, the software vendor's revenue will go down. We have talked about it on our earlier calls as well.
As far as the enterprise software companies are concerned, they go by a Rule of 40. Basically your revenue growth and profitability growth. As long as it's more than 40, you are golden. That's a very thumb rule metric. If the revenue growth is not gonna happen because enterprises will try and squeeze the product vendors, maybe they'll spend lesser for the next, you know, 6 to 12 months or more. The enterprise software companies' revenues will come down. Their imperatives for again optimizing their profits will go up. If they have to continue to be competitive, and they have to be on their roadmap, they need to work with people like us and optimize their costs. Again, while they optimize, there's opportunity for us. We have to be, you know, clearly seeing, yeah, there's a cloud, call the macro.
There's the headwind. There's a, you know, tailwind, the silver lining, where we can help, whether it is the enterprise or the enterprise software companies, you know, optimize while delivering to their goals. I'm keeping it at a very high level because, you know, we could go on this topic for long. The headline news here is, if we are able to analyze the trends, if we are able to work with the enterprises or the enterprise software companies, there's enough for a company like Persistent to do. We are very differentiated as far as it comes to enterprise software and taking the same tenets in terms of digital transformation to the enterprise. That should hold us very well, along with the acquisitions that we have done over the last several quarters. Hopefully, that answers.
Thank you very much, sir. The next question is from Mr. Ravi Menon.
Thank you. Best regards to everyone for doing a great show this quarter. I want to ask you two things, Sandeep. One is on the enterprise side. You know, in some parts we've seen some, you know, more move offshore, for some of this. Are people cutting back on any programs at all? Are they putting some things in cold storage or shelving some of it when they're trying to conserve cash? Are there any programs that we should think about as, you know, discretionary at all? Most of that kind of cutbacks have already happened as people worried about the recession even entering, or as they were going through CY 2022.
Ravi, look, there is even in the digital transformation programs, these are not programs that are monolithic programs. Today, everyone does these programs in phases. It's all based on agile development. People are definitely prioritizing within the digital transformation itself. They may, if they had a plan of spending, let's say $100, they may spend, let's say $85. Part of which may be functionality decrease, part of it may be more globalization and so on and so forth. There is definitely, I would be amiss if I was to say no, everyone is doing 100% of the programs the way they are taught one year or two years back. There is certain amount of rationalization that is happening there. There's a certain amount of support-related rationalization that is happening. That is happening even in the enterprise software side.
Where, you know, products that are not necessarily the biggest margin earners, there are certain things that are being reduced on those as well. Obviously, whether it is transformation or, you know, it is business as usual, there's reprioritization, reducing of dollars, and then within that dollars, seeing how much of that dollar can be shaved off by doing more globalization and outsourcing to people like us. All of that is in the play as we speak.
Great. Thanks. I want to follow up on, you know, the deal that you won with vendor consolidation. Who are the sort of vendors that are getting consolidated? Are these local subcontracting outfits or people who are just skills providers, you know, who are slightly higher billing rates? Is this part of this move offshore that you mentioned?
It is both. This deal, basically one of the largest system integrators in India, one of the largest peers for us was also involved, so part of the work is moving away from them. Part of the work is moving away from the niche vendors here in the U.S.. It's a combination of both.
Thank you very much, sir. The next question is from Mr. Mohit Jain.
Yeah. Sir, I have three questions. One, is there a difference that you guys are seeing in, say, ACV versus TCV? ACV growth this quarter was slightly on the lower side. Should we read it as an aberration or is it more like people are more moving towards higher TCV and lower ACV kind of a setup for next year? Second was I did not fully understand your remarks on receivable days, which is going up for us sharply. Should we expect it to sort of reverse? You guys are saying, is it because of holidays, that's why three key numbers are high and therefore where should we expect it, let's say on a recurring basis? The third related question is also balance sheet related on the CapEx side.
You are also, as per the opening remark, opening various centers, and our CapEx for last two years is, and in fact, as an average last four years is relatively on the higher side. Should we expect that CapEx to remain high for the next two years also, or should we expect this to more or less converge to the industry as we move forward?
Sounds good. I'll take the ACV TCV question and I'll have Sunil, you know, answer the other two. On the ACV TCV, I don't think you should read anything into it. The only thing if I was you, I would read is, look, all of you want us to do larger deals, NVD business and so on so forth. We are heads down on doing longer term deals. The more longer term deals we do, the TCV will be much higher than the ACV, and that's what is reflected in some of the quarters where we have had better longer term deal wins. ACV wise, we are comfortable with the ACV that came in. I don't think there's any worry there or anything much to be read in, into that. Overall, it's a healthy pipeline conversion over time. Sunil.
Sure.
Yeah. On the Mohit, on the question on receivables, the situation is like this, that you will see out of the three items that I spoke about, you know, the spillover of collections and conversion of unbilled, DSO into billed DSO. These are not something that, you know, are recurring, and this is where we have the opportunity to reduce the DSO. From a level of 67 in the near term, we would target to be, you know, around 65. The reason for the slight increase is, as I mentioned about the third item, which is deferred credit, deals, where it will take some time before they normalize and the repayments start coming in, so they may take a little longer time to come off.
The levels that we had seen earlier of 60 days around that, it will take a few quarters to get down to those levels. On the question on CapEx, see there are two aspects playing out that in certain locations, we have CapEx incurred on our own, and in certain locations we have plug-and-play kind of facilities being rented out. The fit outs are done by, you know, the service provider, and that CapEx is not reflected in our books. If you have anything else, you can connect all. I don't have exact details of that right away, but I can update you on that later. Thanks.
Thank you very much, sir. The next question is from Mr. Chirag Kachhadiya.
Hello. Congratulations on a good set of numbers in challenging environment. Sir, I have two broad question. The one of the client, through which we are facing the ramp down in revenue growth. As we have aspiration to reach $2 billion kind of revenue going forward, so what lessons we took from this experience? Because it's a very old client, so to mitigate such incident going forward. Second, what's our expectation as a sector and as a company from this coming budget?
I'll answer the first part quickly. The second is more philosophical, and we will park that question if we have time, because we only have 12 minutes and there's a bunch of questions on the side as well. If you look at the first part, the lessons learned and so on. Look, when you build a business, you are building a, you know, set of customers that you build over a period of time. If you look at our client concentration right from Q4 of FY 2021, if I was to give you a data point, our top 10 customers were 46.3% of our revenues. As of this point in time, they are 35%. We have brought in far more vibrance as we have gone along, and this is an ongoing exercise.
If you look at the number of customers in the greater than $5 million revenue bucket, for the same period, Q4 FY21, there were 17 customers in greater than $5 million annual revenue. Today we have doubled that to 34. There's a lot of growth that is happening. If you in logos which are not among the top few. If you look at my earlier comments, I have given the numbers of the growth between the top 3 to top 50, and that's a fairly good sequential growth, whether it is on a quarter-on-quarter basis or whether it is on a year-on-year basis. Quarter-on-quarter, top 3 to 50 grew 7.7%. 53.8% on year-on-year basis. There's lots that's going on, and that's how good businesses are built.
We are comfortable, and at the same time, you know, we are comfortable that our top customer will also start growing back over a period of time. Hopefully that answers. On the budget question, we'll just park it because there's many questions on the side panel as well. Operator, if you can take some of the questions that have come online and then go back to the queue, that will also be good. Let me answer a few of the questions here, and then we'll go back to the queue. There's a question from Abhishek Sharda: What is your view on attrition rate? Is lower headcount addition a sign of weakness in demand? Abhishek, the attrition rate is stabilizing because if you look at it, there are multiple things panning out.
One of the biggest things that is panning out is the macro part for some of the companies. Obviously, not every company is growing at the same rates. For some of the companies, there may be company-specific, client-specific or their own growth-related things, and so on. The demand for talent in several buckets, it's kind of moderating. Now, is lower headcount addition a sign of weakness in demand? For some sectors it may be, but for a company like ours, if you look at our order win, it is at an all-time high. For our perspective, we are not seeing moderation in demand. I can also tell you this, the harder we work, the better the demand gets. We are at it through proactive, you know, proposals and so on.
We don't see right now at a company level a lower headcount addition as a weakness. It is moderated between fresher deployment and laterals, and we have the engine to hire whatever we need to hire over a period of time. Going back to the operator. Operator, if we can take some more questions, then we'll come back to the queue here as well.
Thank you very much. The next question is for, from Mr. Vibhor Singhal.
Yeah, hi. Am I audible?
Yes, Vibhor.
Yeah. Hi, Sandeep. Thanks for taking my question, and congrats on great performance in a seasonally soft quarter. I had a couple of questions. One is, of course, on the overall, you mentioned about the top client, modeling out and probably even take up a growth trajectory, going beyond. Just wanted some clarity on the top BFSI client, where also we had probably seen some kind of rundown. Is that also kind of close to bottoming out, and do we see that trajectory there as well? Overall, just wanted to get your perspective on these two set of clients or specifically the top nine. As you mentioned, I mean, it's while it has bottomed out, what will our endeavor be going forward? Do we see as a percentage of the
its revenue come down over a period of time? Not necessarily because that client might decelerate, but because we, the other parts of the company might grow, stronger than the top line. Do you think, this top line could also start growing in a few quarters and that is what we might be looking at?
A number of questions there. Let me just start the reverse order. As far as the top client is concerned, our endeavor is to grow the top client. We have fairly good relationships. We are confident we'll turn it around over the next several quarters in terms of bringing the growth back. Now, the percentage part of it, there was a time when this top customer used to be literally 25% or more of our revenues.
Mm-hmm.
Today, with the diversification that we have seen and the overall growth that we have seen in our customer base, for the last quarter it was 7.4%. Our endeavor would be to make sure we grow the customer, we grow all other customers. As someone asked before this, there is always prudence in having a, you know, client set of buckets so that, you know, there are times when different customers have different priorities. We are not overly dependent on any one or the other. Hopefully that gives you the answer on the top client part. If you don't mind, we'll take your other questions in a little bit because there's a queue and there are only six, seven minutes left. We'll come back to your other questions in a bit.
Thank you, sir. The next question is from Mr. Nitin Padmanabhan.
Hi, Nitin.
Yeah, hi. Good evening. Congrats on the quarter. Just wanted your thoughts on Accelerite. How you're thinking about that business, and it looks like you had a decent wins and all of those things. Just wanted your thoughts on how that business is evolving. Obviously with that business growing, obviously it's an additional margin lever. Just wanted your thoughts there. The second thing I wanted to understand was, from an overall business perspective, this quarter obviously furloughs across the board. On a going forward basis, do you think most of that weakness is done with and at least on a sequential basis, things should start improving? Are there continued headwinds one should expect even on a sequential basis? Those are two things. Thank you.
Sure. I'll try and answer these questions in brief. As far as the Accelerite business is concerned, for people on the call, who are not familiar what Accelerite means for us, it's basically the IP business that we have, the product business that we have. There is obviously growth in that because we are able to give a roadmap to the customers using those products, and they are sticking more with us. Even as they grow, they're doing their true up, so we get a revenue stream out of that. We are also able to sell in a few of our services customers, you know, these products as a part of our solutions, et cetera. That's the second stream. Third, we are trying to repurpose the IP.
There is, there's definitely much more work going on to see how we can maximize the return from each part of our business, Accelerite being one of them as well. You talked about the furloughs, the weakness, et cetera. I'll give just a macro answer to that. Just being respectful of time and there's only five minutes left in this call. If you look at it, are there going to be headwinds going ahead? There are definitely going to be headwinds going ahead. There are headwinds even now, there were headwinds last quarter as well. The way we are looking at it is within these headwinds, there are patterns. There's a good intersection of Persistent capabilities and strengths and revenue pools that are available in the market.
If we can figure out the silver lining to the cloud of macro, and I've talked about it earlier as well, whether it is an enterprise, whether it is the software companies, I think there are deals to be had, which is a win-win for our customers and for us. Thankfully, our capabilities are pretty differentiated, especially on the digital transformation side, whether it is doing product development to support that or taking those products and doing professional services. Look, there will be headwinds. Our task is to make sure that within that headwinds, we are proactive and we are growing to the best of our capabilities. I'll just leave it there.
Thank you very much, sir. Next question is Madhu Babu.
Yeah. Hi, sir. So just on the portfolio, like what percentage of portfolio you see as a higher risk to the macros, let us say 15% to 20% of the portfolio which you can assess internally? Second, even in a slowdown, can you say a 3.5% to 4% kind of sequential growth can be maintained over the next four to five quarters? Thanks.
Look, we keep doing our portfolio related analysis, et cetera. I can't give you a percentage of this is more prone to macro and this is not. All I can say is we are trying to be as close to our customers, trying to understand their thought process of how they are looking at the macro, how they are optimizing for the macro, how we can help them. At times, even if it is to cannibalize our own revenue in the shorter run to be able to do more with them in the longer run, we've even taken those steps. In terms of growth, our endeavor will be to deliver, you know, somewhat what you said. All I can commit to you and other investors here is we are at it.
We are proactively working with our customers, and we'll continue to grow in the top quartile of the industry. If it is X, we'll be at X plus delta X, whatever is that X as an average in the industry.
Thank you very much. Next question, Mr. Rishi Jhunjhunwala.
Yeah. Thanks for the opportunity. Sandeep, just one question on ACV, TCV, right? In your experience in the past three years, have you seen any deviation of what you announce as ACV versus what eventually ends up being in terms of revenues? The reason I also ask is that even if you assume a 30% kind of attrition in your existing revenue book, based on your past 12 months ACV, when you should comfortably do more than 20% growth in the next 12 months. You know, just wanted to understand whether, either, you know, the revenue conversion could potentially be different from what you initially end up announcing as ACV for any reason.
Right. Rishi, very valid points. Yes, there is always a little bit of a difference that happens between the ACV that we announce and the actual re-revenue realization, and I'm pretty sure it's the same for every company. When we book a deal, there is a time to ramp up, and at times that may get delayed a little bit. At times, you know, different program phases may get delayed a little bit. We typically get about 6% to 8% as the impact of that, especially when the macroeconomic conditions are, you know, a little bit iffy. When everything is good, then everyone is, you know, on the horse to do the ramp-ups as soon as possible. When the macroeconomic conditions are a little bit soft, there is about a 6% to 8% kind of leakage that can happen.
Our endeavor has been to minimize this, but that is the realistic thing. Balance about your 20% part, all the more power to you from your ears to God's mouth, and we'll deliver.
Thank you very much, sir. Last question from Mr. Anmol Garg.
Yeah. Hi. Hi. Thanks for the opportunity, sir. Just one question on the Europe part. We have seen very strong growth in Europe in this year as well as the last year. What is the outlook over there going in the next year? Particularly within the deal wins, do you think that we have enough deal wins from the European side to grow European revenue similar as the company's average revenue for the next year as well?
In terms of the deal wins, some of the larger wins that we announced over the last several quarters were from Europe. You know, from that perspective, yes, about $100 million+ TCV over the last three to four quarters has been won from Europe, from big deals itself. Forget the renewals and anything else. Definitely there is certain amount of focus that has come in in Europe. We have invested in sales leadership and otherwise as well in the geography. We will have to be a little bit cautious about the macro, how the Russia-Ukraine thing pans out. A lot of these things are also dependent on that because it has downstream impacts on gas and other pricing in Europe and inflation in many other respects.
We are watching it, you know, cautiously, but we are optimistic of having Europe grow at the company average. I think we are at end of time. Operator, if we can, you know, take one last question, then we'll stop here.
Thank you very much, sir. Last question, Mr. Sameer Dosani.
Hi. Am I audible?
Yes, please.
Any outlook on the second-largest client, because that is one of the clients that you highlighted. What is the outlook? If you can share, what has been the journey over the last few quarters? Do you think growth will come back in this account? Thanks.
For the second-largest customer, it has been a stable customer. Except for the furloughs that were there in the last quarter, it has been a fairly decent, you know, customer in terms of the revenue size, the engagement, the kind of programs, et cetera, that we do. No concerns there for the time being. You know, obviously no one has seen the future, but good relationship, good, you know, thing going. I think we started the relationship about 2010, 2011 timeframe. It's been a fairly long relationship at multiple levels, multiple business units, fairly stable. With that, we will stop. Let me once again thank our 22,500+ team members, our customers, our partners and our investors, all of you, for your support in our growth journey.
We remain optimistic in our prospects for FY 2023 and beyond, even as we are very closely watching the macroeconomic developments and staying close to our key customers. We continue to aspire to maintain industry-leading revenue growth combined with healthy levels of profitability. Thank you for spending time with us on the call today. We wish you the best for the new year, and we look forward to connecting with you again in three months' time to provide an update on our ongoing process. Stay safe. Stay healthy. Thank you.
Thank you very much to the Persistent management. Ladies and gentlemen, on behalf of Persistent Systems Limited, that concludes today's Conference. Thank you for joining us. You may now disconnect your lines and exit the webinar. Thank you very much. Good night.