Q1 20/21

Jul 27, 2020

Ladies and gentlemen, good day, and welcome to Persistent Systems Earnings Conference Call for the '1 Ended thirtieth June twenty twenty. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. We have with us today on the call, Doctor. Anand Deshpande, Chairman and Managing Director Mr. Christopher O'Connor, Executive Director and Chief Executive Officer Mr. Sandeep Kalra, Executive Director and President, Technology Services Mr. Sunil Satre, Executive Director and Chief Financial Officer Saurabh Devedi, Head of Investor Relations and Mr. Amit Atri, Company Secretary. I would now like to hand the conference over to Mr. Christopher O'Connor. Thank you, and over to you, sir. Thank you very much. Good morning. Morning and good afternoon. It's our pleasure to be here with you today, and it's also our our pleasure to to have this opportunity to speak with all of you regardless of where you are in the world. I wanna open this with a heartfelt wishing of safety for all of you during these times and for all of your families. It's unprecedented times in the world, and I think it's important that we always start with safety first. It gives us a lot of pleasure to share today's results with you. You've seen the earnings results as we published them. Arguably, this has been one of the most interesting business environments we've all seen in the last thirty years, and it unfolded in a very interesting and very good fashion for us as we went through the quarter. Let's quickly just highlight the results in U. S. Dollars. Dollars 131,000,000 of top line, which is our best quarter ever, 3.1% Q on Q, 9.5% year on year growth in terms of that top line. We saw growth of 1.8% quarter on quarter in our services business, which translates very well into a growth of year on year of 15.3%. We also saw our IP led revenue grow by 9.8% quarter on quarter. While that was a decline of 11.6% year on year, we think directionally this is an improvement in the right direction for a variety of reasons we can talk about as we go through the call. Our margins, likewise, crept upwards. EBIT at 10.4%, we think that's sustainable. And we think in the future, there could be upside on that as well. The quarter, quite frankly, unfolded for us in two broad trends. First, we worked with all of our people and all of our clients to get through the COVID transition, and you should think of that as pretty much the month of April. The second thing that we noticed as we went through April was that client curiosity was at an all time high. Clients were were open for suggestions and opportunities and discussions of all types, whether that was in the way that they made software or the types of solutions they brought to market. And in the sectors where we focus, this turned into growth for us. It turned into growth in existing clients, and it turned into new clients, all of which we managed to obtain and close inside of the quarter at the same time. So just a fascinating and very busy quarter in terms of all of those items that we did to accomplish where we are today. Let's talk about the COVID situation for a minute and its impact on our business. First, we brought on everybody in the company in about a week during early April and late March. This included all of their work. It stressed and tested our IT systems. We used many of the technologies that we work with our customers on, and and we held up. We held up well. So basically, everybody came home in a week. Everybody was productive. Nobody was not productive. And with the exception of maybe one one minor case where we had a client where we had to work through some fiduciary terms, all of our work came home with us. And so we came home in a very neutral and flat trajectory, meaning that we had everything that we started with, and we didn't lose much, if anything, along the way. This this gave us a lot of strength, right? We had a couple of ramp downs during the quarter, a few discounts, most of which were minor, some of which have already ended in their discounts and have gone back to to normal pricing or normal rates as a part. Our cloud pipeline in digital projects was strong as we entered the quarter, and it maintained its strength. We found that digital cloud projects maintained strength the entire time and grew and opportunities as that client curiosity kind of took over and clients started asking themselves, how can I use cloud oriented digital technology to extend my business during this situation and for the future? So that pipeline was active as we entered the quarter, and it became more active as we went through the quarter. And the market was just simply active. If you answer the questions of the customers and the curiosity was there, we found work. And as I mentioned already, we expanded existing clients and found new clients as well. And overall, there was a demand for improvement in how the people write software too. We found a certain set of clients were very open for the idea that we could help them do software better than they could by themselves, and that led to both expanded existing business and new business. And we think that client curiosity remains high as we exit the quarter, and we certainly have it as a goal to continue to work as we go into 2Q as well. Last, the COVID situation also led us to think very much about how and who we are in the industry. We we announced donation of 25 pro, of which we started that contribution during the quarter. And so that is baked into our financial results, and we can talk about that as well. But that is included in our results for the quarter, it's part of all of the numbers that I just reflected with you. So we feel strongly as persistent and as who we are, that's part of our responsibility is to help the regions and areas of the world where we participate, and we know the clients and and the population's needs. And we're very proud of the donations that we've done around the world as a result of that. Our growth engine continues to progress. We talked in previous sessions with you about the need to bring together a very integrated system, the need to not just rebrand the company but to have marketing and sales work in a coordinated fashion. We continue to make significant progress this year or this quarter as a result. The thing that quarter provided for us was the opportunity to really retool how we think about market progression and how we think about creation of pipeline. And so our marketing team went completely digital. Instead of having this blend of on premise events and things that people would usually go to, We went completely digital, and we went digital with our partners, doing strong lead demand generation events with people like Salesforce, AWS, Mambu, Appian, etcetera, a whole variety of of them that we did. And we've never done it stronger. So we we got the digital marketing machine engaged. We got the marketing machine engaged with partners. Partners, likewise, for the first time, started to donate marketing spend dollars to Persistent, meaning clients, meaning partners spending money on funding Persistent's marketing of the overall story we have to tell in the market. And we received funding from Salesforce, from AWS, and from IBM to help tell our story with them as our partner in the industry. We see this as significant trend oriented progression of our story, of our solutions, and of the value we can bring clients and cloud oriented digital technology and the solutions that they engender. So we think this is paying off. Let's move last and finally to focus on the two units as we have been operating in this year. Technology Services, run by Sandeep, who's here on the call with us today, just continued steady growth in numbers for this quarter. Sandeep will give you a great overview on the TSU results and also the details of what we're sharing now with you in terms of our DSSI and our Healthcare Life Sciences businesses and how well they're doing. From my point of view, I'm only impressed by the track record of TSU, and it continues in an impressive fashion. And Sandeep will give you that overview in just a minute. The Alliances business unit also grew during this quarter. It grew at 6.6% quarter on quarter. The growth was driven under the new leadership of a new President, Tiani Zhang, who could not be with us today due to time zone differences. In short, if I had to summarize what happened, she focused on services to our largest clients and services through them to their enterprise clients, particularly in cloud and Red Hat domains. If you followed our quarter, you'll notice that IBM did a press release with us around their Cloud Pak software. This is a software that IBM is leading into the market around how they're approaching cloud, and they announced a partnership with Persistent as one of the premier providers of capabilities to help clients deploy and gain value over that. And in this quarter, we closed our first several wins in that area also with IBM, which helps us build a pipeline into subsequent quarters of that growing as IBM focuses there and as we can focus there as well. We likewise grew the IP revenue. We grew total revenue in other areas as well, bringing this more into balances. Our reseller business did well. Our reseller business also included services in nearly every contract that they did, which is a change for us. We have put a a very keen focus on making sure that there are services attached to every reseller deal. And in nearly every deal that we did, including Europe's largest airplane manufacturer, we brought home services as a part of those components of the deal. And it gives us more balance. It gives us better control on the margins out of that business, and it gives us more build and strength in terms of things we can do with those clients in the future. IBM, for its own part, focused on their own contracts with all of those vendors. We have over a 100 contracts with them, and we're happy to say that nearly every one of those contracts was held in place. And we survived and and worked through all the questions that IBM had with all of its vendors around their own spend rates. And we came through very well, in terms of the contracts that we have existing. And so we are optimistic on what we see happening with our businesses with Red Hat and IBM, as well as the work that we're doing around cloud, as well the continued good trajectory for our IP businesses that we do with that client as well. So we think this is key. And finally, our largest client recognized us as a key GSI among five others in their earnings report as well as personally in a pen in a letter penned by Arvind Krishna to all of his employees. We've never had this type of recognition from our largest client before, and we think it propels us well into being a recognized provider of capabilities for their enterprise clients as we look forward. All in all, just a tremendous amount of activity this quarter. The team, frankly, refused to lose. We gave the team just a simple mandate, which was after we got home, we just simply told them to grow. And nearly all of our teams did that and accomplished that with the pipeline they had and the pipeline they built. I can't articulate the amount of activity well enough or how proud I am of the team, but it was a fantastic journey this quarter for us. With that, let me turn it over to Sandeep for his overview on the TSU business. Sandeep, over to you. Thank you, Seth. Good morning, good afternoon to all of you. We are happy to report Technology Services delivered yet another strong quarter. As we have mentioned in the last quarter, we have combined the business for Acceleride with TSU. So whatever I'm gonna talk from here on in terms of numbers is a combination of the two businesses. From a q one FY twenty one perspective, the numbers, you know, stand out at 100 and 100,970,000 versus q four f I twenty of 98,840,000. This represented q on q sequential growth of 2.14% and y on y of 16.9. This is for the combined accelerate and technology pursuit, the s five numbers. From an industry vertical perspective, and this growth was broad based. The EBITDA came in at 4.9%. Healthcare life sciences at 5.7%, and tech companies in emerging verticals at one percent. From a horizontal performance perspective, the service lines that we have, as Chris pointed out, the digital product engineering service line as well as cloud and infrastructure service line find out at the top with others following situation. From a top customer's quarterly revenue growth within TFT, we had a healthy broad based growth as a part of our strategy to mine our customers effectively. The top customer in TSU grew by 11.3% sequentially on a quarterly basis. Top five by 5.8%. Top 10 by 4.5%. Top 20 by 9.2. So the fact that the top 20 grew by 9.2% sequentially should give you the comfort that the mining strategy that we have in place is working out there. From a order booking perspective, it was a good quarter once again for TFT. We won a number of multimillion, multiyear deals. These were across existing and new customers, both. In terms of significant events and large deals in the quarter, from a GFSI perspective, one of our leading leading, you know, BFSI customers selected us in their vendor consolidation exercise. And so we are expecting that account to grow further with more business coming our way along with other, you know, vendors who are among the preferred partners in this account. For a US based retirement, health care, education savings, a partner services provider, we won a multiyear, multimillion dollar deal. This is to roll out and manage an AI enabled IT service management, asset management platform for this. In health care life sciences, we won a number of deals, and a number of them are making in the factories as well. To give you an example, for a large pharmacy benefit manager, we wanna deal to build a collaborative platform using Salesforce. This is for less practitioners and caregivers to coordinate care in a better. From a technology company perspective and then the emerging verticals perspective, you would remember earlier in the quarter gone by, we had announced a large deal. This was with a leading enterprise software company in data virtualization space. This deal was done with this existing customer and has incremental revenues of $50,000,000 plus over five years. Similarly, we won a number of deals in the enterprise software slash enterprise space on the g product in the range as well. From a go forward perspective, you continue to have a reasonably decent pipeline of multiple, multi million, multi year of deals, which are looking promising for q two. These are a mix of our proactive proposals in our existing accounts and a number of RFP invitation from your partners. On the analyst recognition, again, we had a good quarter. Among various recognitions, there was this IP recognition winning us as a top 15 sourcing stand out in less than billion dollar category. This is based on the deal flows that I received from various providers being invited to, and so it was a good recognition for us. In summary, q one was a good quarter for us. We remain cautiously optimistic, and we believe, you know, pending any other events, you know, this quarter would also be a fairly decent quarter for us. With this, I'll hand over to the person in a second for a second. Thank you. Yeah. Thank you. Thank you, Chris and Sandeep, and good evening. Good morning to you all. I hope you're all doing good and safe and healthy. So while Chris and Sandeep have given you the business updates and some of the developments as we see in the market as where we are placed, let me take you through the margin movement and certain financial details for the quarter. The revenue at $1.31.02 with q o q growth of 3.1%, Y o Y growth of 9.5%. The rupee growth was 7% at $9.09 $14,000,000, and Y o Y growth of 19.1%. The linear revenue grew by 1.8% quarter on quarter and 15.3% year on year. And as you know, the growth in linear revenue is net of the impact of COVID in form of discounts and ramp downs. The IP led revenue grew by 9.8% quarter on quarter, while on year on year basis, as Chris mentioned, it declined by 11.6. The growth was mainly driven by reseller business here, while the royalty income was steady. Coming to linear revenue, the on-site linear revenue grew by 5.5% comprised by volume growth of 7% and decline in billing rate by 1.4%, reflecting some of the discounts agreed. The offshore linear revenue declined by point 6% constituted by increase in volume by part 2.2%, while there was a decline in billing rate by 2.7%. So this decline in billing rates is essentially the effect of discounts offered to customers over a shorter term, and this will progressively come down in the subsequent quarters. I would like to draw your attention to the fact you would have seen the segment reporting. So given our focus on industry verticals, we have decided to reorganize the segment reporting into BFSI, health care and life sciences and technology companies and emerging verticals. The revenue contribution by the organization unit is also given in the back seat, which is technology services and alliance being the two units. And as Sandeep mentioned, the Accelerate unit is now part of the technology services unit effective April 1. In terms of industry verticals, the BFSI growth was 2.9% quarter on quarter and 26% year on year, and Healthcare growth was 5.7% quarter on quarter and 14.1% year on year. In terms of the technology companies and emerging verticals, the quarter on quarter growth is 1%. And on Y o Y basis, we saw a dip of point 6% mainly on account of a wide dip in the royalty income that you would have seen. Sandeep has already given you the numbers with respect to the PSU growth, which was 3.1% quarter on quarter, 17.8% year on year in its old format. And including technology services, it was 2.1% quarter on quarter and 16.9% Y o Y. So in support, we will report PSU numbers along with Accelerate. Now moving to gross margin. The gross margin for the quarter was 33% and against 33.8% in the previous quarter. Gross margin reflects the impact of COVID informed customer discounts and some other months and the increase in the resale revenue. This was partially offset by lower person months deployed in the IP portfolio. You would have seen that in the IP person months. Lower salary cost due to the pay cuts and the current benefit. Sir, I'm sorry to interrupt. Your voice was breaking. Hello? Is it okay now? Yes. A little better. Thank you. Okay. We expect the discounts, as I said, to taper down over the next two quarters, and, we should be, looking at, normalization by the end of third quarter. In some of the new engagements we started recently, we have higher subcontracting expenses, which are also expected to come down over the next couple of quarters. Coming to sales and marketing cost, you would have seen that being much lower at 8.7% of revenue as against 10.2% in the previous quarter, mainly on account of lack of travel expense. The admin and other expenses were lower at 8% of revenue as against 9.1% last quarter as we could see reduction in our facility costs. And also in the previous quarters, we had been providing for ILNFS deposits, which were fully provided by March 20. Coming to the doubtful debt provision, we have provided for an expected credit loss of $6.50 k dollars, on customer outstandings where we see some stress, and this is required as per COVID reporting guidelines, and that reflects in the higher provision for doubtful debts. In addition to the regular CSR spend, we had additional spend on account of COVID donations of $5,074,000,000, which accounted for point 7% of our revenue. So out of the 25 crores that we have committed to donate, about 30 percent has been contributed during the quarter. With the lower spend on SG and A, the EBITDA was 14.8% as against 13.8% in the previous quarter. The currency benefit in terms of favorable impact on margin is 110 basis points. Depreciation and amortization accounted for 4.4% as against 4.5%, so fairly steady there. The operational EBIT was 11.1% without considering the donation for COVID relief and on constant currency basis at 10% as against 9.2% in the previous quarter. Post COVID donation, the EBIT was 10.4%. Casualty income for the quarter was $279,000,000 rupees as against $229,000,000 rupees. The reduction in interest rates and the rally that happened helped us to, have better gains in terms of mark to market gains on debt funds. So that's the reason for the increase in treasury income, while the interest rates have dropped on the fixed deposits that we rolled with banks. ForEx loss was rupees 88,000,000 as against a gain of rupees 45,000,000 in the previous quarter, mainly due to loss on realization against hedges booked last year. Finally, the profit before tax was 1 to $2.00 rupees at 12.3% as against 12.2% in the previous quarter. ETR for the quarter was 26.2%, and PAT was rupees 900,000,000 at 9.1% as against 9% in the previous quarter. Coming to operational CapEx, we had a little higher operational CapEx this quarter amounting to INR $280,000,000. This included procurement of laptops to enable work from home and certain printouts expenses being cut at our Indiwari campus for housing the newly started engagements. The addition in intangible assets includes payment of dollar 1,800,000.0, which was part of the large deal we won during the quarter. Being a long term contract over five years, this amount is treated as an intangible asset in form of contractual rights and will be amortized over the contract period. The cash and cash equivalents amounted to rupees $1.04 $9.04 0 rupees as compared to $1.04 $7.01 7,000,000 rupees. The increase in DSO from sixty five to sixty nine days includes, spillover of collections from a large customer, which happened in the July, which impacted DSO by two days. And the other two days is because of slowness we saw in certain collections, impact of COVID. We expect the DSO to come back to 65 levels within a quarter. In terms of forward contracts, we hold steady hedges of $121,000,000 at an average rate of 75.39. Just to also update you, you might have read that in the press release in respect of our board, mister Kiran Umrutkar, who was the chairman of the audit committee, and mister Pattar Sivan, retired as independent directors at this AGM which we had on July 24. So with that, I thank you all, and I hand it back to Chris. Mister Okono, please unmute the line from your side. Thank you, Sunil. Thank you, Sandeep. And I appreciate the updates. And team on the phone, we're ready to enter the q and a period. So let's with that, let's go ahead and open up the lines, and let's see what questions we have. Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. The first question is from the line of Sandeep Shah from CGA CIMB India. Congratulations on a very strong execution. I think one of the very few companies which reported a positive growth in this quarter as a whole. So congrats to the management. This question to first to Sandeep related to technology services. Can you give details in terms of the growth outlook? Because you said at least for 2Q, you believe the growth momentum can continue. So and also the deal pipeline which you are looking going forward, Vishal. And in this quarter, outside of $50,000,000 deal, have you had enough wins outside that as well? Sandeep, I'll take your question that it was around. So outside the $50,000,000 win, were there other wins that we saw in this quarter? Yes. We had multiple deals in in this quarter, and there were, like, multiple multimillion dollar, multiyear deals. Many of those are mentioned in the spreadsheet that we have circulated. As far as the pipeline for this quarter is concerned, yes, we have a decent healthy pipeline of similar kind of deals. We don't give forward looking guidance, so I'll not be able to give you, you know, the color on the revenue side. But as far as pipeline is concerned, we have a healthy pipeline, and we are healthy, you know, bookings last quarter. Okay. Okay. And, Chris, can you give outlook in terms of alliance business? Because if you can break down within IT and services, because if you sell our business, so the potential looks good, but it still continues to remain lumpy. And do you believe, by what time this services business within Alliance because of the Red Hat tire, can actually start turning around and can start showing a sequential growth? A lot of lot of questions in there. We we continue to remain optimistic and bullish on the composition of the Alliance Business Unit. And as I've told you in prior calls, the trick to this is to get the pieces to work in concert. So our reseller business on straight resell grew this quarter, adding multiple new clients and several major clients. The the piece that I'm watching carefully on the reseller business is our catch rate of services, which which we have not done before. And so while we've while we've attempted it before, we haven't executed it well before. This quarter, we executed well. We changed the composition of our team a little bit. We got focused on on selling services with every resell deal. And in nearly all the deals, we included a service component. So this included opening up services at, for example, Europe's largest aircraft manufacturer, a major German automotive company, several industrial clients in The United States. And so so to me, that builds durability because the resell deal will come and go inside of the quarter. But leaving behind your people, becomes a durable, facility to revenue growth. And this is this is a focus of ours right now to to help make that happen. So we saw evidence and progress and deal wins there. Likewise, we have doubled down in the Alliance Business Unit on focusing on our largest clients' clients. And so this led us to the cloud announcement that we did with them led us to putting a lot of work and effort behind marketing their cloud capabilities, including Red Hat. We found we found new clients as a result of doing that, that that started the pipeline, would be the right words, and and we've built a pipeline to go after now in subsequent quarters with them. So so we're motivated by that as well. We think all of this will balance the IP revenue, which will continue, and I think continue to be strong, but as we all know, has a little bit of a cyclical fashion based on how they sell. So we think this will help us balance out, and we saw good evidence there. And, Chris, just a follow-up, whether the OPD business within the Alliance can actually also have an upside because of the Red Hat where some of the legacy products of IBM can actually be upgraded for the Red Hat platform, or do you believe that maybe your expectation far in future? We we've actually been doing work with our largest client on upgrading every product they have to include Red Hat OpenShift cloud based capabilities. And so this is absolutely a part of every IP piece of work that we do. And and at the guidance and in conjunction with with our largest client, we've been upgrading actively and releasing that software back out with OpenShift and Red Hat technologies included in its core. And it gives that software, frankly, a cloud based point of view, which it never had before, which we think is exciting for their clients. Okay. And just a last question to CFO. In terms of CapEx, if I look at the intangibles, you mentioned that $1,800,000 have been paid because of the large deal. But if I look at outside that also, the organic addition to the software and the acquired contractual rights has been much higher in a working basis this time versus what it used to be earlier. What So is the nature of that? Is it the transition from WIP to the gross block, or is it the incremental spend which we have capitalized as a whole? And a bit of a clarity in terms of margin sustainability going forward in the coming quarters, I would say. Yeah. Yeah. Absolutely, Sandeep. So that is you are right. It is conversion from WIP to the asset block because we capitalized the ERP implementation cost that we had incurred in the last year. And as we went live on the ERP models, that was the main item there. And in terms of margin sustainability, as you would have seen from the comments I made with respect to specifically the gross margin area, we have several levers, and we are working towards each one of them to improve the margins. So there is enough, you know, room available for us to sustain the margins at these levels. Okay. Okay. If I have, I will come in a follow-up. So you can come back. Yeah. Maybe we can have other Yeah. Yeah. Let's let's move on to the next question. And if we could stick to one or two questions per person, that would be great. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference call, please limit your questions to one per participant. For any further questions, you may come back for a follow-up. The next question is from the line of Sandeep Agarwal from EagleWise. Yes. I thank everyone for taking my question, and congratulation on extremely good set of numbers, very good execution in this difficult time. So I have only one question, which is little on the strategic side. So, Chris, what is your sense? How has this pandemic impacted the tech sector? I'm not asking a very near term impact because, obviously, you know, in near term, there is lot of strain in different economics, so things may not be as great. But from a medium to long term perspective, do you think that, you know, tech spends have got accelerated and tech client queries have accelerated and things may, you know, improve much more? People would be happy to spend more on tech, or you would say that it is too early to comment? I I I have a view which is still forming, but the view the view is as follows. You know, the words tech sector is a pretty big a pretty big word. Inside of of of tech sector, I think there's gonna be puts and takes. Clients have clearly shown an interest in understanding if they've optimized how they build and make software. And and I believe that has accelerated as clients that that were profitable or that had growth, but hadn't tuned their software r and d, now are seeking to tune every area they have, and that includes how they build software. And I think inside of tech sector, optimization of software R and D will continue to be a very important subject for clients. And it will have an effect long term, I believe, of moving that capability into a much more mechanized and and manufacturing oriented approach for experts like Persistent that know how to do it well. So that's one trend that I see. The second trend that I see is that clients are digitizing and going to cloud based technologies in an increased rate as a result of what's there. The trend was already there, but the businesses were approaching it in a more casual style. We see a much more concerted press to bring a digital front door to their clients and to how they do business. I use the word front door because that doesn't mean a complete application overhaul in all cases. It doesn't mean an application migration. In all cases, it could. But that this notion of digitally extending yourself, even existing things that you have is is is very, very active. And and I think that will continue if that accelerates as well. I think on the other end of it, clients are looking at status quo areas or or build build and and run areas that they have with a new light of negativity in terms of how much am I going to spend there. And I think you'll see that trend continue also as you look forward. So those are the macro movements. But it's puts and takes in tech sector. I think it remains strong, but those are the growth areas we see very active in the market. Thank you. The next question is from the line of Mohit Jain from Fabricia. Please go ahead. Hi, Mohit. Hi, sir. This is Mohit from Anand Rathi. Two questions. One is on your outlook on pricing. Like, are we done with it? You said it will gradually trade off over the next How about Excuse me. This is the operator. Mister Jan, your voice is breaking. Yes. I'm talking about pricing. Are the realization discounts, sir, as you said in the opening remark, the discounts will fade off automatically over the next two quarters. So how much impact, will be there from a full year perspective in terms of price discounts that you've offered to your clients? Sandeep, maybe you wanna give perspective, Ron. What's your thing? Sure. So from our perspective, these discounts are not very steep discounts or anything, and they're not across board. They are, you know, in very specific customers and, you know, we have a handful of customers in travel, transportation, hospitality, and similar sectors which are noted. Outside of that, there are a handful of other customers. We don't expect this to continue for too long. A few of them have already stopped. So I don't think we should take it as a very material impact going ahead. From q two onwards, you should see these come down to very low levels. Thank you. Thank you. The next question is from the line of Mathul Babu from Centrum Broking. Please go ahead. Yeah. Hi, sir. On this cloud opportunity and cloud migration deals, could you elaborate more on that? Because we have both AWS and IBM Cloud Paks announcement. So what are the kind of deal sizes and any enterprise deals we're doing on the cloud migration? Because that is a hot area just now. Thanks. Sandeep, over to you on on cloud business and cloud opportunity. Sure. So, Maru, this is. Both the things are there. We are seeing traction in enterprise cloud application migration where the trend is only accelerating. So that is one side, and there we are strong on the three clouds, AWS, Azure, and now we are also seeing increased participation in GCP. Although that's relatively much smaller than AWS and Azure. On IBM Cloud Pak, you know, we are obviously that's the building that has started over the last one, two quarters. That's accelerating as Chris pointed out as well. So all these things, you know, they have been because of COVID, things are more accelerated then. So that's that's high level that I can do for you. Yeah. I I I would point out on this that our clients are not making singular choices. In many cases, they have all three of these cloud environments, and they're looking to understand how to bring that together and and the best technology to build solutions from. And so this this notion of hybrid cloud is very active in a lot of the work we do, and we don't see our partnerships as opposing each other. We actually see them as complementary. Thank you. The next question is from the line of HR Dalla from Finvest Advisors. Please go ahead. Yeah. Hi. Congratulations for good set of numbers. Just one question. It was very nice to see, Chris, in the annual report that your mission is to be $1,000,000,000 company. Now can you tell what will be the rough time frame? And by reaching that level, what kind of structural changes do you expect in the business in terms of different verticals with clients and the practices that you follow? And how will that spell on the margin, which is currently, say, around 13%, 14% at EBITDA level? I think on your first question on timing, the world is a funny place right now. So any timing that I could potentially give to you would probably be not not the reality. So we watch the world today to see how it unfolds. However, we are focused on getting there. And with that said, we're focused on our organic path in terms of the businesses we see. We like the segments we're in. We like the world of DSSI. We like the world of Healthcare Life Sciences. We are greatly enjoying our work around technology sector and engineering and the work that we do with ISVs. Likewise, the fact that we're able to start to sell services with our largest client is popular as well. As these units continue or as these sectors continue to do well, one could picture that they become primary structures for us as we look forward into the future. Likewise, on the inorganic side, we continue to think broadly in the marketplace. Have nothing to announce today, but that would be a component of our of our growth as well. Not looking to advance into areas we have no knowledge of, but more looking to build complementary structures and enjoy the people that come, and let's say, with that at the same time as future members of the Persistent team. So hopefully, that gives you kind of a broad based set of thoughts, and we are executing in kind. Thank you. The next question is from the line of Ditesh Mehta from SBI Cap Securities. Please go ahead. Yes. Thanks for the opportunity. Two questions from my side. First, about the margin outlook. I think in Q3 earnings call, we indicated about 35% gross margin expiration. Q1, we are around 33%. So should we expect there is still some scope left for gross margin expansion, which likely to flow to EBITDA margin. So if you can provide some your thought process around margin. Second question is about segment outlook, if you can provide across segment. And what is what are the other major sub segment part of your emerging vertical? And any investment plan to build capabilities to create new growth engine as a part of your emerging industries? Thank you. Sunil, I think I think what's going to right for you. Yeah. Hi. Hi, Ditesh. So even in the gross margin, as I mentioned, the levers, there are multiple levers that are there in this quarter. Of course, the great impact that we saw due to rundowns in, discounts that unwind in the starting second quarter as we talk. The other bigger, opportunity there is, where we have begun the new engagements. Right? These new engagements start with little heavy initial preparatory costs, which won't repeat in the next quarter. So that is the other part that will be there. And the third thing that I talked about is with respect to the subcontracting expenses. We are working in a focused way that how that can be, you know, transition to our own teams and reduce that part of the expense. And then the royalty income also looks up that adds directly to the margin. So it has seen some softness in the last couple of quarters as you would have seen, but that's the lever there. We don't directly control, but, yes, that is another additional item. Over to Chris from the trends, which one and the emerging verticals part. So in terms of outlooks, our segments that we're reporting on today, obviously, are segments we continue to think will be strong. Inside of tech companies and emerging, we have businesses that we continue to grow around the work we do with other software providers, ISVs. We likewise have inside there the work that we're doing around industrial sector. We have smallish pieces of work that we do with several other sectors, including telecom and media and in some other areas. As they grow and as they turn into key focus areas in terms of the sustainability, we'll break those out going forward. But those are the types of things that are in that role that we say are tech companies and emerging verticals. The next question is from the line of Manik Tanujar from MK Global. I just wanted to take Excuse me. This is the operator. Mister Paniga, may be requested to use your handset, please. Your voice is not very clear. Sure. Able now? Yes, sir. Thank you. Yeah. So just wanted to get your thoughts with regards to the kind of deal that we signed during the quarter. Do you see a significant pickup in activity around transactions like this given the current macro environment? And secondly, just wanted to understand from you, what are the sustainable margins for the sustained over a two to three year time frame? And what levers do you think, will drive that, you know, drive those margins? I'll do a quick summary on the last question. Then Sandeep, I'll turn the deal question over to you. On the margins, we think our margin level we have today is pretty sustainable. It's the right range for the the the international, you know, churn that we see. If you look forward a couple of years, I think it will rise. I think getting back to historic levels of where we were in 02/2019, I've always said, is is achievable. We think we're on our way to that. So if you look forward, let's just take EBIT as a eight level to to look at. EBIT heading into the 12% range is certainly long longer term. When exactly? Probably will depend on worldwide conditions, but hopefully, that gives you a margin overview. Sandeep, overview for deal composition and how you feel about the deal. Sure. So so, Manik, as we said before, there were multiple deals in the quarter gone there. So in q one, we saw multiple deals, and they are there in the factory segment. From a current quarter perspective and an ongoing, you know, pipeline perspective, we have a decent pipeline. I would say, you know, this is a combination of proactive proposals that we have, you know, ongoing with our existing customers. There are RFI, RFP, mitigation, both from existing and new customers. And then there are multiple other panels where we get invited to deals. These are certain advisers like ISB, you know, etcetera, etcetera. And then there are, you know, other panels that we closely have relationships with. These are private equity, you know, portfolio companies and the vision funded companies and so on. So we are seeing a decent amount of inflow. And for now, you know, I would say that they have a deal flow. Thank you. The next question is from the line of Prakash Chelan from Marathon Edge. Please go ahead. Hi Prakash. Hi. Can you give a sense of the your deal wins have been fantastic Given the outlook given by Gartner and IDC, whether talking about a drop in IT services spend recently updated in May. Could you give us some color in terms of incremental revenue growth? How much of this is coming from existing customers versus new new customers? And also sense of how much of this is market share that you're taking away from somebody else as opposed to brand new engagement that you're creating for yourself? If could give me some color on that, that would be great. Thank you. Yes, yes. So I'll answer the last question first, and then Sunil, I'll turn it over to you for our numbers in terms of new and existing. So the broad trends in those studies, they're very inclusive of of everything. Whether they're right or they're wrong, I think is is is their opinion, and and and they might be right. However, inside of that is, you know, a a huge set of different types of capabilities and projects, and so you gotta break this apart. And when you break it apart, we see quite a bit of acceleration and need inside of what we refer to as digital cloud oriented project solutions and works, extending client domains to be associated with others using cloud and digital capabilities to be able to do that extension. And that segment, where we are focused, is large and very active. And so while it's a component of potentially a larger report like you mentioned, and there could be some other areas that have negativity, we are enjoying just quite a bit of growth in terms of that area. We think we do it well. We think we compete well. We think we end up in the final talks with all of the clients we bid for there. And we often win as a result of the work they've done. So for us, it's a very competitive area to address, and it's how we're focused. Sunil, maybe you want to comment on composition, new versus existing. Yes. Yes. Sure. Sure. Yes. Hi, Prakash. So, you know, in terms of the new deal wins, you know, the last quarter and this quarter, whatever deal that happened will take a couple of quarters to play out in terms of the actual contribution to total revenue as the engagements ramp up. What effect actually you can see is between five to 10, where the existing accounts are also high. So that is the, what you call, validation, how the existing accounts are also going. And we would be in touch as you kind of see where we talked about the 10 to 20 as well. Right? So that is the place where we would see the new clients contributing to revenue. It will take a couple of quarters to make a sizable difference in terms of total volume. Thank you. Thank you. The next question is from the line of Sushmet Pattoria from Motilal Loswell Asset Management. Please go ahead. Good evening, and congratulations on a great sort of numbers. I wanted to check from a cost base perspective, assuming, forget the operating level that may come from higher revenues, and the cost base will be most optimum in Q1. That's the first question. Second question is, what are the headwinds that you see from a revenue perspective? Or what are the Q3 that we should be mindful of? Sunil, you wanna take the first half of this question? Yes. Sure. So, you know, especially the first quarter was something that had lot of limitations on what we could do with changing on this whole lot. So we can make the you can say several adjustments to ensure that we work with the client, don't take the lid off the every opportunity that came our way and ensure that we fulfill that. But there are levers in terms of the optimization of the account that we deploy in our IP portfolio as you would have seen some optimization. And whenever we have growth opportunities internally to release the people from the IT portfolio into the normal services business and keeping the option to swap them back when they are required to fulfill the new projects that hit the IP roadmap. The third angle which is there is, of course, the increase of the the new deal that have happened, where some of the portion of the deals on-site, which also get converted to offshore. So, sir, I would say the main key areas which leverage the operating leverage and the cost base can improve. There is some other topic. I can take the second part. Yeah. Yeah. I can take the third part. Just, Krishna, you talked about the headwinds from a revenue perspective. So, you know, the fact of the matter is COVID nineteen, it has not gone away. In that time, there were vaccine and or an antidote both. Right, it's it's gonna be uncertain times. So while we are seeing some amount of stabilization, while we are seeing some green shoots, you know, we will have to walk with caution in this part. So that's point one. Point two, you know, in larger customers, there's definitely talk of end of consolidation. We've come out as winners in many of those. So all those, you know, time will, you know, tell whether they go through those exercises or not. So we have to keep an eye open, and we have to be close to our customers. Third is we have done a number of deals, and, you know, we have to be able to fulfill those deals. And in these uncertain times, you know, getting people, you know, in the market depending on the skill set and and most of the work that we do are forward looking, you know, skill set. So from that perspective, that's another thing. Those are the kind of segments. Some of them are in our control, some of them are not. So those are the things that kind of keep us awake. Thank you. Thank you. The next question is from the line of Girish Bhai from Nirmal Bank. Please go ahead. Yes. Thanks for the opportunity. I just want to touch on the vendor consolidation that you did apparently for a leading GSI client. Can you give more color on that in terms of did you displace existing large vendor? That is question number one. Second, you mentioned that some cloud hyperscalers are probably investing some some marketing dollars in you. Is this continue, and can you quantify this amount? I'll take the first one. I'll take the second one. Yeah. Go ahead. Go ahead. Okay. So from the large bank perspective that we talked about, the vendor consolidation part, so there, you know, the there is in any large organization like that, there is a number of bigger providers, and then there's a long tail of medium to smaller providers. So they're consolidating the entire team to a selected of, you know, larger providers to them. Larger doesn't mean that the organization size is larger, or larger means that we are a significant provider to them in the technology areas and in the business areas that they're currently working. So, yes, we will be consolidating their mid to smaller suppliers over a period of time. That is on that part. And, Chris, please go ahead with the second part. Yeah. So, you know, co marketing dollars to us is an indication of of our strategy at work. It says to us that our software partners are invested in us now for their own success. And so one, just achieving them achieving that milestone is was a great thing to see happen. And achieving it with three large partners helps us balance our approach and strategy as well. So if you add it all up, you get the kind of the 6 figure number. If you add up the potential of what it could be, it could be a 7 figure number usually as you look forward in time. And that's a good expectation to try to manage your marketing team, which is to maximize that effect. It just furthers your inroads with that company in terms of helping be able to solution a client together. The next question is from the line of Rahul Jain from Dollar Capital. Please go ahead. Hi. Congrats on great performance. Firstly, if you see many digital majors have turned incrementally positive on the digital acceleration call process, and it's coming to the sales first talking about most call times in the history in the last two months. So why we cannot see that kind of an optimism extrapolated into our commentary despite strong performance and positioning in these technologies? And I missed the first part of it. I heard digital, but I missed that the word that was really slipping. So I mean, leaders like Salesforce talking about significant acceleration post COVID. So why we don't see that kind of optimism coming in our commentary despite strong performance and positioning in these technologies? I I I believe the sector for digital cloud based acceleration is the strength area of the tech industry. I think you hear our cautious optimism in that the world is an uncertain place until certain remedies are available or we can you know, resume a greater degree of of freedom of commerce, particularly geographically, which which is inhibited right now. So I I think what you're listening to is, you know, we we remain very focused on this path of digital oriented cloud and our prowess and ability to do software projects for people. And to us, has strong pipeline. However, it is subject to how the world revolves around the pandemic and how it grows and shrinks. And as we've all seen, we've seen recent lockdowns in certain countries. We've seen countries debating their approach. And we've seen certain micro geographies open up and then close back down again. So I think that's the caution to hear in our voice. Ladies and gentlemen, we take the last question from the line of Rishi Junjunwala from IIFL. Please go ahead. Yes, sir. Thank you for the opportunity. Hello? It's so dramatically for you. Mister Ginjalwala, your voice is breaking. We may wanna move along. Can hear me? Yes. Now we can hear you, sir. Okay. I'm so sorry. The line is a bit patchy. So I was asking that, you know, given the strong increase in deal wins, how are we incentivizing the salespeople and considering the fact that otherwise there is a lot of focus on cost control, What measures have we taken to, you know, basically, the incentive, I would say? Sandeep, say, we right in the warehouse. Sounds good. So let's see. From a sales perspective, we we I think we have talked about it earlier quarters as well. So we have incentivized our sales team to work on longer term, you know, the annuity kind of deal and so on. And they're in in our spaces, which are mostly digital. And so from that perspective, there is no clamping down on that. And the only clamping down on SGA that SGA that has happened is natural. It is the travel related thing. From our company wide perspective, I don't think we have done anything to clamp down on the the sales effort, the sales spend, or the incentivization for anyone. In fact, they are more incentivized to do the longer term deal with the existing customers and newer customers. Thank you. So hopefully, that answers you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Christopher O'Connor for closing comments. I want to thank you guys for all your insights and your detailed questions. We remain at your disposal. You know how to reach us if you have any follow on questions. And with that, we're going to close the call. Thank you very much. Thank you very much, sir. Thank you. Ladies and gentlemen, on behalf of Persistent Systems Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.