Ladies and gentlemen, good day, and welcome to the Persistent Systems earnings conference call for the second quarter of FY 2020, ended 30th September 2019. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. We have with us today on the call, Dr. 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. Mark Simpson, President, IBM Alliance business; Mr. Sunil Sapre, Executive Director and Chief Financial Officer; Mr. Mukesh Agarwal, Chief Planning Officer; and Mr. Amit Atre, Company Secretary.
I'm now glad to hand the conference over to Mr. Christopher O'Connor. Thank you, over to you, sir.
Thank you very much. It's my pleasure to be here, and welcome. We're going to talk about our results, we'll talk about our work, and we'll talk about how we view the market and our surroundings. To open up with, I think the first quarter of the year was a very reflective time of change for Persistent and gave us the opportunity to learn and evaluate and constitute structure, which we talked about last quarter. This quarter has been a quarter of implementation and execution from our observations from Q1, putting structural starting points behind us and into execution mode and moving those forward. We're pleased to see that many of the areas that we're working to provide the right leverage for are indeed taking place, and we're pleased with the results that you have in front of you.
Our revenue was $125.5 million, growing at 4.9% quarter-on-quarter, which is 6.2% year-on-year. Margins standing at 13.8% for EBITDA and EBIT stand at 9%, and PAT at 9.7%. We executed and used the structural changes that we talked about in the first quarter to help propel the work that yielded these results, both in structural shifts in how we work, as well as rebranding the Persistent company and setting us up for market lift in the coming quarters with that work as well. The quarter was framed in my mind by a very strong quarter of organic growth, which was really a pleasurable point for us to see. No one single deal, no one large deal, no single client dominated the quarter.
We quite frankly, were able to release some of the constraints that we saw through the structural changes and the branding work that's in process to help us achieve this growth. It was across the board in all of our segments. It was in all of our customers of all relevant sizes, from our high-volume customer set that does smaller deals with us to our largest 10 customers, we experienced growth in size of deal and in the type of deals that we're able to do with our clients. To us, this helps set us up for how we want to be able to look at the company with the organic growth target that we experienced across the board. IP revenue was strong, as you see. I think the most pleasurable highlight of our IP revenue was that it was very balanced.
It was balanced to coming from our software business, our large alliance business, and from our own organic activities, almost in equal portions when we look at how that revenue came in and the growth of where it came from. To us, that is a hallmark of how we want to attack the business, which is to be able to grow our own IP, to be able to take advantage of the IP of our partners, and to leverage our software at the same time. That was a highlight of our IP business.
We increased the size, as I mentioned, and we started to develop our pipeline out and a view on bookings, which is a new process for Persistent to employ, developing systematically a way to have headlights around not only current quarter, but also quarters to come, of which we have optimism of our ability to sustain growth into those next quarters. All in all, a solid educational quarter from our first quarter of observation as a new management team here at Persistent. Technology services, as Sandeep will talk about, grew at 3.5% quarter-on-quarter, while our alliance business, which Mark will talk about, grew at 6%. These businesses were highlighted by launching new solutions in digital banking.
In conjunction with our partners who have strong capabilities inside these solution sets, publicly taking the stage and leading the discussion on solutions in banking and in other areas, generating multiple new leads, multiple new sources of revenue, as well as presenting Persistent as a solutions company in many of these events for the first time. It gave us a real opportunity to show our understanding of the market and how to present ourselves, and we intend to capitalize and build on that as we go forward. We directly presented to multiple thousands of clients in each of the organizations with our partners off and beside us, working with the then clients in that work. Using marketing, using market impetus, and designing lifts to take us into the future is a huge part of how we see our growth and our growth strategy going forward.
This really sets up a foundation for our organic system. I think it's important to note that we believe the organic system of growth is a strong foundation of how we need to sustain growth quarter on quarter. We believe that that is in our target and our horizon to be able to do in the coming quarters. Conversely, we did execute as well on the small acquisition of the company, Youperience, a European-based Salesforce company. In this full first quarter, that company operated inside of the domain of technology services, and Sandeep will reference that a few streets further.
Obviously, your suggestions are going to be key in that, as well as how we approach the market and look for targets as we go into future quarters, given our current cash position, which is a positive place to be. All in all, that's the summary. We remain focused on growth. We remain focused also on the control of margin and in the preservation of cash. We will talk to, and I'm certain that you'll ask questions on how those things come into balance. In the preservation of margin, you'll find that we worked through several one-time events and occurrences, such as the rebranding of Persistent, events around staffing and structural changes that have change and timing-oriented qualities to them, as well as just some seasonal things that came to hit us.
I remain bullish on a statement that we made last quarter, which is our seasonal or our regular long-running, not seasonal, but our long-running margins of Persistent will continue to remain where we will get back in line to. It will just take a little bit of time to make that adjustment as we get growth to move at the targets and at the environment we want to. With that, I'm going to break. I'm going to turn it over to Sandeep. Sandeep's going to take us through technology services, and then we'll move on to the alliance business.
Thank you, Chris. Good afternoon. Good morning to you all. Let me start with giving an update on technology services Q2 business. As Chris alluded to the growth, we came in with about two and a half percent growth, ending that Q2 with a revenue of $84.89 million. This stands out at about 10.5% of year-on-year growth. The quarterly growth came on the back of 10.9% organic growth. The rest was on the back of Youperience , which is our Europe-based Salesforce acquisition that we closed last quarter. From a segment perspective, BFSI came in strong, contributing about 7.7% growth, followed by healthcare and life sciences at 1.9% year-on-year growth. Year-on-year banking financial services grew at 21.9%, healthcare and life sciences at 7.2%.
To give you an insight into some of the larger deals that we did, in banking financial services, we won a deal with one of the leading U.S.-based independent retirement plan savings service providers. This is a three-year deal, and it's roughly a double-digit million dollar deal, helping them develop and manage a comprehensive investment management platform that offers intelligent and personalized investment experience. Another one of our multi-year, multi-million dollar deals was with a direct writer of surety and fidelity bonds and insurance. As a part of this engagement, we'll be building digital platforms to support their different lines of businesses. In healthcare life sciences, we won a multi-million dollar, multi-year deal with a U.S.-based non-profit healthcare delivery system, a provider, as we may classify them, to help digitize referral management and clinical services authorization process.
We also signed a multi-year renewal with one of our largest customers, a platform provider in the healthcare space, and we are going to build the next generation of care insight platforms that help present data to providers in a digestible form and minimize the administrative burden. In the third segment, which is our ISV and emerging verticals, we won a large deal for setting up an outsourced development center for one of the leading providers of home service plans in the U.S. This will be focused on building digital customer engagement platforms for them. Now, in terms of our horizontal practices, the Salesforce practice that we have continued its growth momentum. We grew about 13% quarter-on-quarter. This included our acquisition of Youperience , as I alluded to earlier.
We were also recognized by the leading outsourcing advisory, ISG, as a rising star in the provider lens for Salesforce implementations, categorizing us as one of the leading service providers. We also happen to be among the top 20 Salesforce implementation providers globally. In our intelligent business automation practice, we continue to build on our strength, wherein we continue our practices on Appian and OutSystems, building business process-related applications for different industry segments. A proof of our strength was in our recognition by OutSystems as the NBD Partner of the Year for 2019 in their yearly conference just gone by. In our security practice, we built on our practice by building new partnerships with companies such as Ping Identity and Saviynt.
These practices have started to benefit from these partnerships, wherein we are starting to implement various cloud security and identity solutions and also helping customers migrate from legacy platforms. We have also built IP around the partnerships that we have done in order to accelerate the implementations and win more business around these. Among other significant updates, we had mentioned that we are investing in our advisor relations and alternate channels such as private equity. We continue to see a good traction with them, and we are also seeing some initial deal participation through these channels. With this, I'll hand over to my colleague, Mark Simpson, to give an overview of our alliances unit and our industrial segment. Mark, over to you.
Thanks, Chris and Sandeep. It's also my pleasure to be here again this quarter. Let me start also with an update on Q2 business from alliance perspective, then I'll give you an update on some other strategic initiatives. Excuse me. Our alliance business ended the quarter just over INR 35.3 million. As Chris alluded to, this represented a quarter-on-quarter growth of 6%. We also had a 93% renewal rate on our existing contracts, which was a little higher than we normally see. We also had an increased client sat score with our key alliance partners. These two things together give us confidence of an ongoing solid foundation for the business as we execute on our growth initiatives. Finally, we acquired 10 new logos in the industrial market this quarter. Specifically, this was in government defense, transportation, and industrial manufacturing segments.
With IBM, who's our biggest alliance partner, we're watching quite closely the execution of the Red Hat acquisition. In the near term, this has presented opportunities for us, helping IBM modernize their software stack, leveraging Red Hat technologies, both with contracts we've already won, as well as building a strong pipeline. Longer term, we're engaged directly with Red Hat as an independent division of IBM via their partnership program, selling directly to the enterprise. With Dassault Systèmes as our other partner in industrial markets we serve, we continue to see success with joint marketing programs, specifically around aerospace and the associated supply chain. Finally, and with noting our relationship with IBM, we've recently been recognized with two pretty significant awards. Last month in Munich, Germany, out of 20 finalists, Persistent was recognized as the Partner of the Year for the IBM's Engineering Lifecycle Management segment.
Also in the same month, in IBM's Call for Code event at the United Nations in New York City in Manhattan, Persistent won two awards. First, we were one of the five companies worldwide to be recognized as a corporate engagement honoree, and second, Persistent was recognized as a winner in the Latin American region. With that short update, I will turn it over to Sunil for his comments.
Thank you, Mark, and good evening, good morning to all, and hope you all had a good Diwali. You have heard Chris, Sandeep, and Mark talk about the business outlook and market perspective. Let me now take you through the financial performance and cash flow and other details. The revenue for the quarter at $125.51 million, came in at a growth of 2.9% quarter-on-quarter and 6.2% year-over-year. In rupee terms, it is INR 8,846 million, growth of 6.3% QoQ and 5.9% year-over-year. The linear revenue grew by 3.6% quarter-on-quarter, while IP revenue grew by 9.7%.
In terms of linear revenue, there was an increase in volume as well as billing rates by 1.8% each. The offshore linear revenue grew by 1.6%, comprised of volume growth of 1.4% and increase in billing rate by 0.2%. The onsite linear revenue grew by 6.8%, constituted by increase in volume by 4.2% and billing rate by 2.5%. Moving on to the direct costs. As you know, this is a quarter when our annual pay hike becomes effective. This cost of pay hike were partially absorbed by the growth in IP-led revenue, which helped in a significant manner when there is a Persistent IP plus our own IP converging to margins is significantly higher. The reduction in visa cost, which was there in Q1, also helped the gross margin.
We had a small benefit from currency depreciation, which helped by about 25 basis points. Let me explain certain one-time items on expenses side and income side this quarter. You'll see some of those in the sales and marketing costs, as Chris mentioned. On the expense side, we had the brand refresh exercise this quarter, which has resulted in one-time costs, and part of the cost has come in this quarter. We also had the Youperience acquisition, which had certain legal costs relating to the due diligence. In one of our major customers, we also had a discount coming in as more of a relationship time goodwill gesture. All these items, which in a bucket of sales and marketing expenses, led to the increase in sales and marketing expenses from 9.2% to 11%.
Just to reflect on what we had said in last time's first quarter call, that in April, June quarter, we had a reversal of the sales incentives pertaining to FY 19, where the revenue growth was not very good, but we had not reversed those incentives which were not payable to the sales folks at the end of March, and that exercise was done in April, May, June quarter. April, May, June quarter had a credit to the extent of 0.6%, and the actual sales and marketing expenses were 9.8%. We should be actually looking at sales and marketing going up from 9.8% to 11%.
We believe as we go along and increase the revenue, this number to start moving down towards 10% over time. On other items, there are two items which have a positive impact with respect to direct costs. We had a reversal in terms of certain employee benefit provisions, which are long-term employee benefits, and we had a change in leave policy this year, which was implemented from first July, where the accumulation of leave has been reduced from 75 days to 60 days. The net impact of these changes had a credit of INR 185 million in terms of long-term employee benefits. If you look at both the items, the one-off items on the expense side and one-off items on the income side, the net credit to P&L was INR 35 million, which is not a material amount.
It will help to understand the movement of items like SG&A, why it has gone up significantly, why did gross margin remain at the same level despite the high cost being there in this quarter, et cetera. In the normal course, in terms of the sales and marketing headcount, you would see an increase of 13 people, which largely were additions in the U.S. sales team. We also had some churn in the sales team, due to which we carried costs of the overlap time, as you would appreciate that people do come in first and after certain overlap, some of the others may exit the system. Overall, the gross margin remained at 34.7%, at same level as previous quarter. The SG, as I said, increased. EBITDA came in at INR 1,216 million, or 13.8%, as against 13.4% in the previous quarter.
As you know, we have an exposure on IL&FS. The total exposure is at INR 430 million, of which we had provided INR 280 million till last quarter. This quarter, we have provided additional INR 50 million, taking the cumulative provision to 77% of the exposure. Coming to cash generation, we have couple of big-ticket items affecting working capital, which I would like to explain. There was an increase in receivables in this first half as compared to last year's first half. You'll recall that last year's first half had one large deal of about INR 7 million in the alliance portfolio, where the entire money came in the same quarter, which had helped the cash flow. If you look at the composition of revenue, there was one bumpy item which got collected, and it helped the cash flow.
If you neutralize that, the last year's first half cash flow would be to that extent lower. On the payable side this quarter, we had lower payables as at the end of September 2019, and this is because of the fact that we accelerated payments to vendors for the reason that we are migrating to a new ERP, and in the wake of Diwali and so on, we did not want the transition to affect any vendors. This amount was significant to the tune of INR 500 million. To that extent, the cash flow for the next quarter will see improvement because the cash flow has already been accounted in this quarter, fiscal quarter. The other reason, of course, is the lower operational profit as compared to June of last year, and the fact that the reversal of long-term employee benefits, which I explained above, is a non-cash item.
Depreciation and amortization was 4.8% of revenue, as against 4.6% in the previous quarter. The increase is due to amortization of the intangibles coming in from the acquisition of Youperience and the earlier acquisition which we had done of Herald Health, and also payment made towards the new ERP licenses. With this, the EBIT came in at INR 792 million at 8.9% of revenue, as against 9.8% in the preceding quarter. The treasury income for the quarter was INR 226 million, as against INR 202 million during the previous quarter, helped by certain mark-to-market gain due to the softening of the yield curve. The foreign exchange gain was at INR 138 million, as against INR 80 million in the previous quarter as the hedges which were taken at similar time last year were at good rates. PBT was INR.
INR 1,156 million, with a margin of 13.1%, as against 13.2% in the previous quarter. As regards tax provision, we had reviewed our position with respect to the new corporate tax rate regime and will be opting for the same. In this quarter, you will see ETR at a slightly higher level for the reason that there is a reversal of deferred tax assets. As you know, the deferred tax asset gets restated at the new corporate tax rate. These are items which basically have been charged to P&L, like provision for IL&FS or provision for any doubtful debt, which are not adjusted for tax now, but will get adjusted for tax whenever the actual write-off happens. Earlier, these were stated at the earlier tax rate. Now they get restated at the new tax rate.
On a steady-state basis, we expect the EPR to be in the range of 24%-25%, as against the current 27%-28%. The PAT for the quarter came in at INR 861 million, at 9.7%, as against 9.9% in the previous quarter. During the quarter we had payout towards Youperience 's acquisition amounting to INR 430 million and final dividend payout of INR 218 million. The cash on the books amounted to INR 1,261, close to about $180 million as of 30th September, as compared to $134.01 million as of the end of last quarter. The value of forward contracts that we hold on books was $112 million at an average rate of INR 73.33 per dollar. Thanks for patiently listening.
It took me some time for covering all the items, but I think it will be helpful. I hand it back to Chris.
Of course, Sandeep Kalra. Thank you. We're now going to open up for demo questions, and we're all ears here to listen.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Princy Bhansali from Anand Rathi. Please go ahead.
Yeah. Hi, sir. Just one question.
Ma'am, I'm sorry you're not audible. If you can speak on the handset.
Yeah. Am I audible?
Yes. Thank you.
That's better.
Yeah. Where is your revenues of UPN? It's in the services or the digital, the legacy or the digital side?
Digital side.
Digital side.
Yeah.
Yeah. Excluding the revenues of Youperience , there is a decline in digital business. What's the reason for that, and when can we see it growing?
From our perspective, we made the statement last time as well, the way we have classified digital and the way the whole industry classifies digital is slightly different. The way digital is classified right now for us is some of the platform work that we do, whether it is Salesforce, whether it is Oracle Identity and Access Management, and a few other platforms. If you look at the overall color commentary that we gave, even the wins that we talked about in BFSI or healthcare in terms of building digital platforms, that is reflected in our services classification as of today. If you were to look at overall our business that we do, which involve digital technologies, it's growing significantly, and as we go along in the next few quarters, you will see us reclassify digital.
Please just hold on. It seems the line for the management is disconnected. Participants, you are requested to stay connected while we reconnect the management. We have the line for the management reconnected. Just a reminder to participants, anyone who wishes to ask a question may press star and one. Princy, you can continue with your questions.
Yeah. Sir, you can continue.
Yeah, Princy. I don't know where I got dropped, but what I was saying is we as a company, the way we have defined digital and in our industry, there is no standard definition that we have been able to find between our peers and we've spoken to many of the peers and even some of your analyst peers on this call today. We believe most of the work that we do at Persistent and even the examples that I gave you of deal wins may be today classified as services in our outside definition while they are actually digital work. If you look at our bulk of our company's revenue, about 80%-90% of the revenue is what the industry loosely has classified as digital.
If you look at our growth rates, whether within the BFSI side of the house or overall at Persistent are pretty healthy. We would tend to believe that our digital revenues growth rate is anywhere between 3.5% to 4%, if not more of the growth that we showed.
Okay, sir. Thank you.
Thank you.
Okay.
The next question is from the line of Mayur Parkeria from Wealth Managers. Please go ahead.
Mayur
Hello. Am I audible?
Yes.
Yeah. Good evening to the management team. Actually, just wanted to understand is, while you gave a detailed understanding of lots of items on the revenue side, margin side, cash flow side, where there are elements which have impacted the financials. While most of them still appear to be all business orientated. Instead of trying to adjust and look at all of them separately, we would still like to keep it at one level and still, what it shows is, at the end of the day, there is an impact on the EBITDA margin. Just wanted to understand, how will you manage to ensure that the falling EBITDA margins is curtailed and we start seeing an improving cycle?
I'll take the first pass and Sunil you can add any details there. Certainly our path is to continue to grow as the structural effects that we've put in place are now behind us. As Sunil mentioned, you have an overlap period of time where we cut in change, and then change takes place with going all the way through the system. I think that is moving behind us. Likewise, we've rebranded Persistent and used a professional to help us get that done and that organization and their costs are moving behind us as well. Those three items coming together, which is moving through structural changes, moving through one-time occurrences, and continual forward view into growth in the coming quarters, help us restore our margins.
It'll take us a little bit of time, but it gives us no reason to doubt that we'll get back to historical levels.
Chris, while they are one time, it does not mean they are one time. It is still recurring. It is just that the levels of these expenses have gone up by the restructuring exercise. Right? Will it be right to say that?
I don't believe that the levels have risen to new permanent levels. For example, the work that we did around restructuring the company had two pieces of work. We engaged a professional team to help us get that done. We exercised a rebranding exercise in about a quarter, which is a phenomenal speed. Those folks that came to help us have come in, they've applied their craft and they are exiting the system now, and that'll be a true return to value of where our marketing expense has been. The same is true with some of the shifts that we've done. We've brought in change to some of the traditional sales folks and teams. We have exits in progress at the same time. There's a natural overlap in terms of just riding out what the HR systems can allow you to do.
As well as there's places where turnovers and handovers are part of it that we're exiting as well. We can see true risk restoration in this. We do expect with growth, that we'll need to move commensurately to make sure the structure supports it as well. That should be aligned with our expectation of where we want the EBITDA to be, not in terms of where it is today.
Yeah, maybe just to add to what Chris said. On the EBITDA, your basic question is what are the levers to improve EBITDA, right?
Correct.
You would have seen that we have added people in the system in the anticipation of growth. If you see our headcount has been now at 10,500. Over the last few quarters, the people that have been added, to some extent, our utilization numbers have come down, and that's the lever that will be used as we book more orders to bill these people which are already there in the system. That is, in my view, the biggest lever, apart from the fact that these pieces that we are working on Persistent IP and some of the partner IP, will help us to convert better margins. There is hard work to do. There is no denying that.
Okay. What would be the contribution of now Salesforce vertical in our revenues now?
The Salesforce horizontal for us gives us about $65 million-$66 million on a current run rate basis, and that's supposed to be accelerating based on our good visibility.
Quarterly run rate.
I'm talking about the $65 million annual, trailing 12 months kind of run rate. On this quarter run rate basis, it will be close to about $60+ million.
Okay, INR 60 million.
That was our rough value for this quarter, but trailing 12 months are roughly about 65%.
Yeah. Most of the revenues around this vertical would be all implementation revenues?
Yeah. We treat Salesforce as a horizontal, which cuts across the verticals which we have as financial services, healthcare life sciences.
Right
ISV and other verticals like industrial, et cetera. When we talk of Salesforce, we do multiple kind of work. It can be around Sales Cloud, Marketing Cloud, it could be work that we are doing around applications development on the Salesforce platform itself. There are multiple different kinds of work that we do in the Salesforce horizontal.
Okay. Thank you. Any comments?
To make it even more simpler, if you were to look at any of the larger NBFCs in India, when they launch their loan products or any other products, that's the kind of work that we do for them. We pretty much have some of the largest NBFCs in India on that. If you look at the healthcare side of it, the large provider systems, which are the hospital systems in the U.S., that's a big segment for us. Outside of that, even in the ISV and emerging verticals, there are many large brokers where we have done work developing applications on the Salesforce platform or implementing the CRM side of the house or as I said, Service Cloud, Marketing Cloud and other things.
Okay. Any color on why when you look quarter-on-quarter, the 3 million number of clients, they have fallen from 22 to 20, while last quarter when we announced the deals, we thought this number should have actually gone up. Any specific color on it?
We think the number that we're at is not reflective of the bookings that we see and the growth that we're on. We've looked at this quite deep. We don't see this as a systemic issue there or as an indicator one way or the other. Our top 10 accounts continued to grow. Some of the names change sometimes in those accounts. Sometimes there's accounting for how contracts end and contracts start. We took an absolute end of the quarter date. This reduction of 22 to 20, and then the overall number of accounts, we feel is consistent with what we tried to do this quarter, which was to grow and to leverage expansion of deals, and to do more cross-sell inside the deals that we have. I think you'll see the raw number of deals increase as we look forward as well.
As Sandeep mentioned, we have a variety of mechanisms or irons in the fire, that are starting to be very positive there. I think you'll see the absolute number grow. Our focus this quarter was to grow revenue, and to get our engine running, that started to truly harvest all of Persistent inside of our clients and provide more value.
Okay. Thank you so much. Wish you all the best.
Thank you. A reminder to participants, anyone who wishes to ask a question, may press star and one. The next question is from the line of Nimish Patil, an individual investor. Please go ahead. Nimish, you're not audible.
Can you hear me now?
Yes. Thank you.
Okay. Thanks for taking my question. Actually, I'm an independent investor, I have invested in the Persistent Systems stock. My question is, how do you think this Q2 results will impact the stock price? Are you more bullish on the stock or do you expect more downfall in the stock price before we can see any upward momentum? This is purely from an individual independent investor perspective.
We are here to tell you what we have done. The market is the best mirror that can judge where we are going. This call is basically to address any of the queries that you have about what we have done and earlier discussion that you would have heard. There are all deals in the market, right? The market forecasts more than what one can build in any operating model in an Excel sheet.
Whatever questions you have, what you can ask. We have no way to predict the market.
I see. No. Thank you, sir.
Thank you. A reminder to the participants, anyone who wishes to ask a question may please press star and one at this time. The next question is from the line of Tanmay Mehta from SBICAP Securities. Please go ahead.
Yeah. Thanks for the opportunity. I just had one question on the alliance business. We see that it is a very seasonal business. Do we expect the typical seasonality play out? If you could give some color on how this business will perform going forward.
Seasonality.
Yeah. If the question is about traditional seasonality, I think that we're seeing that stabilize. We're seeing that stabilize in the diversity of deals we do with IBM, and the fact that we've extended the alliance to resell IBM software as well as other partner software, allows diversity and a stabilization of the seasonality moving forward.
Okay. Thanks.
Thank you. The next question is from the line of Ashish Das from Sharekhan. Please go ahead.
Hi. My question is on Accelerite business. This quarter, we have seen a good jump on that revenue growth, Accelerite growth. How this Accelerite business will do in coming quarters as per next year? The outlook on the Accelerite.
As we talked about last quarter, the Accelerite business is a standalone business in today and how we show and record it. If you look under the covers of the Accelerite business, it's really a small portfolio around data. It's a small portfolio around cloud. It's a small portfolio of capabilities around security. The jump that you see this quarter, we were able to bring forward some significant deals, in particular, one larger one that was able to be brought in out of a future quarter and into this current quarter. My hats go off to our sales team for pulling off that maneuver. It's always good to see something that you haven't planned before forward. That's why you see the revenue acceleration.
As you look at Accelerite and you think about the definition I just gave you, which is, it really is a set of capabilities around data, around cloud, and around security. You will see as we exit this year that Accelerite will start to be folded into the way that we show those units work, and inside of the technology services unit run by Sandeep as a part of their overall capabilities. We see the world as a solution-oriented world as we look forward. The digital discussion that we had earlier exemplifies that the world is neither software nor is it services. It is a blended solution set in terms of that execution. We'll execute in kind. Accelerite will blend into the horizontal stacks that I just mentioned. As we head into the fiscal year 2021, we'll be reported inside of those stacks as the individual components grow.
That's the same way you see us showing today our growth and our work around BFSI and healthcare. You'll see us talk about our other technology sectors as they become significant and well-defined. Accelerite will head down that path and I believe it's the right path for Persistent to consider ourselves a solution company and that's how we'll fold that in the future.
Okay. Another question is on IP. Actually, in Q3, there is a seasonal impact always we have seen in IP-led business. Next quarter, are we going to see any seasonality on the IP-led business?
Seasonality can always exist around our alliance in the IP discussion that is there. We're subject to the habits of our partner when they do that. I think there's two things to look at in our current IP-led business results. One is that our software, the Accelerite stack, continues to have its independent, unaffected revenue stream. The third component that I mentioned also earlier was that we have our own Persistent IP in other segments of technology, and an industrial sector that we sell in Accelerite also. Our strategy is to balance the singular component of IP-led, which has been largely led by our alliance partner, with other types of IP revenue.
As I mentioned earlier, it really was a good sign to see us be able to balance that as we executed this quarter and focused on it, both selling our own IP as well as selling the IP of others at the same time. Our anticipation is that the seasonality effect will smooth to being non-distinguishable as we move into the next couple of quarters. I would anticipate you'll see a minimal effect in a future quarter to no effect as we head into several quarters out in the future. We're taking effects, plans to be able to execute in kind.
Okay, thanks.
Very good.
Thank you.
Thank you.
The next question is from the line of Susmit Patodia from Motilal Oswal. Please go ahead.
Hi, good evening, everybody. I had a couple questions. Firstly, take us through the operating cash flows. They are down from INR 2.6 crore to INR 0.86 crore H1 over H1. How much of this is because of working capital? The second aspect is, almost 15% of your revenues were not audited by the current auditor. If you could give some color on who are the other auditors, because it's quite a material size of the revenue.
Keshav?
Yeah. see, on the auditors front, what you are referring to is about the subsidiaries-
Yeah
outside of the material subsidiary, which is the U.S. subsidiary, which is audited by the principal auditors, which are the main statutory auditors signing off the accounts. The other companies which are there are essentially in the Europe region. One, which is PARX, the other, which is [inaudible], and the third one, which is our subsidiary in France. These are the main places, and these are audited by the subsidiary auditors. They work on the terms of reference from the statutory auditor, and they have discussions before they close off and sign off on the main financials. That is about your second question.
On the first question, yes, operating cash flow, I give out certain details to you in terms of what kind of items, one bumpy item in terms of cash flow for the last first half when you compare, there's a big $7 million deal, which have resulted in payment, which has the cash flow. In terms of the payable days, you will find the payable days significantly lower for the simple reason that we had paid out all the vendors in anticipation of our transition to the new ERP. Of course, the reduction in operating profit itself by about INR 20 crore versus last year's H1 is one of the other reasons. We have more questions coming up. Probably. I mean, I've given enough detail. You can just reflect on that when you have the transcript of the call and reach out to us in case you need anything more.
All right. Thank you very much.
Sure.
Thank you.
The next question is from the line of Amit Chandra from HDFC Securities. Please go ahead.
Yeah. Thanks for the opportunity. I have two questions.
Amit, you're not audible.
Is it audible?
Yeah, now it's audible. Thank you.
Yeah, I have two questions. On the alliance business, what is the reseller revenue that you have booked in the alliance business, and how do you see the seasonality playing out in the second half in the alliance part of the business? Also on the digital part of the business, we have seen internal growth in the digital part of the business. What is the outlook of growth on this part of the business?
Were you able to get his question?
Amit, you were not very audible in the second part. If you can please repeat your question, that would be helpful.
Just restate first question on the alliance, please, and the second question.
Alliance. In the alliance, I asked about the reseller part and the seasonality, and the second, the growth outlook for the digital business.
I'll answer the first question, then we can escalate the second question. The first question was, what's the essentially percentage of our reseller business on the alliance? It's about 15% or so. We don't report exact numbers, but that gives you an idea. What was the second question?
Outlook of growth on the digital part of the business. We have seen the digital business returning to growth in this quarter compared to previous quarter-on-quarter. How do you see that business planning out from here?
Sure, Amit. From our perspective, see, we made a comment on the digital business earlier, I'll not repeat that. The way we have currently classified digital business, it's a combination of a few horizontal businesses on our side, which includes things like Salesforce, our intelligent business automation platform for security, [step-up, PD] , and a few others. If you were to even look at our current run rate, and to just give you a simple example, the Salesforce statistics that we talked about, trailing 12-month revenue for us is close to INR 55 million, and the current quarter, the Q2 quarter gone by, the revenue for us was INR 16 million. You can pretty much see that the run rate for even the Salesforce package is pretty much going up.
We don't give profitability guidance, but we are seeing a healthy uplift across the segment, the way we define digital today, and a bunch of digital stuff that we house as of now, as per our PA's definition in the services business. These are platform development, AI, machine learning work that we do across goods. We are seeing a very healthy demand. We have a very healthy order booking in the last quarter and a very healthy pipeline on those lines.
Okay, sir. Okay, thanks.
Thank you. The next question is from the line of Mayur Parkeria from Wealth Managers. Please go ahead.
Thank you for taking my question again. Sandeep, the question, one for you is, on the digital side, earlier we understood that the effort for Persistent was to, or for the industry also, is to move from linearization of revenue to non-linearization. Now, since the digital part which is growing strongly for us now has started growing again, is there any opportunity right now itself where there is an up for non-linearization of revenue, or these are one-time projects and services which are there?
If you look at the examples of how we could make it non-linear, to build on your question. For example, when I refer to the securities and new alliances that we have done, one of those alliances is with Ping Identity as a company, and Saviynt is the second one. When we are working on these partnerships, go-to-market strategy for us involves implementation and managed services, et cetera, around these. While doing that, we are also building our own IP, which is kind of a surround IP to help do faster implementation or do faster integration or even build on certain functionalities. Those are IPs that we are building as a surround IP to the partner IP, et cetera.
That will help us in increasing both the linear revenue by having more of those businesses in implementation, and second, the non-linear one, where we bring our IP to the table. Like that, we are doing across goods. Chris, if you want to add to it, please go ahead.
Yeah, thanks, Chris. I'll just add a little bit more color to the word digital. Coming into the company and picking up the definitions that we've had. The digital to services transition number is really reflective of a past event of the market recognizing that it needed to move from on-prem to a new cloud-based, digital services-based world. If you ask the view of Persistent today, and you ask them to go through each of the lines of business, everybody from Dassault Systèmes is asking us to engage in a new cloud-based MES to a banking solution which we just released this quarter, which is all online, bringing together digital components from partners like Mambu and else whose space sitting on AWS. None of these things are classified in the old definition we've had of what a digital business is that we currently show.
You'll see us show the current definition just as a courtesy through the end of this year, and then we will restate either Persistent as a digital business, or we'll remove the classification altogether because the market has simply moved past that. I just thought I'd share that with you as a view coming into this fresh and my evaluation of all the work we're doing. Second, on your point, just to kind of add some more color there on Sandeep's point. We released a digital banking solution set this quarter, which has partner software inside of it, digital partner software inside of it from companies such as OutSystems and Mambu.
Depending on what part of it you buy from us, and whether you want to be a wallet or a bank or a credit union, you include different partner revenue and our opportunity to include the resale of that partner software along with it. As well as IP components that we're building that will be IP-led charges or IP-led revenue for us, in addition to the actual work that we would do then to put that system in. This is a significant shift from us in terms of how we think about banking, where we look for work to do, versus leading out a solution, leading out our partners' software as the seller and our own IP into the mix. I call this revenue stacking. This revenue stacking phenomena, we have the opportunity to execute across the board in all of our horizontals and verticals.
We intend to enjoy that. It's how Mark has alluded to, we're smoothing out the seasonality of IBM revenue by adding only one piece of revenue, by mixing it with other revenue stacks. We'll do that inside the technology services unit as a deliberate part of our strategy to move on the journey to solutions for our products. Hopefully that gives you a little bit more color, a little bit more understanding of our thoughtfulness around this.
Chris, pardon me, I did not get the entire picture, but I could capture the few things of it. Let me just try and understand. When we are seeing incremental revenues, are we seeing or let me dissect it and ask that, are we looking at increasing the non-linear revenue pie?
Well, I think that's fair to say. I think that's one way to look at it, which is growing as an annuity-oriented business is absolutely inside of what you get when you think about our own IT. As well as the work we do with partners has a different definition, but it is an annuity-oriented approach in terms of our work with them by owning entire territories or becoming the primary driver of sales in certain pockets of the world where our partners are advocating that we do so. So we pick up their tail of existing clients as well as we deliver the new, all those head counts as well on Persistent paper, which Mark is enjoying in particular in the alliance business unit that we anticipate doing out there as well.
Yes, but it's not an annuity as you think a traditional software product, it's a blended business model.
Okay. Final question from my side is, earlier, if I understand, when we looked at the reorganization completely structured, the HR function was a centralized function, right? Earlier.
Yes.
Unlike housing it under the respective segments of technology, digital or earlier, was it like that? Currently how it is?
We continue to enjoy a central set of services. We think about our business units as a composition of vertical and horizontal execution points in the market where we want to be excellent. We have services around IT, HR, a variety of other capabilities that we continue to enjoy that way and shall in the future.
Just to clarify, if you are referring to the management of talent across business units, the management of bench across business units, it's all central. The business units are more based on market segments that they cater to. As far as the HR is concerned, it's all central. As far as talent management is concerned, it's all central. Hopefully that clarifies.
Got it. Yes, sir.
Even the requirement of salespeople as well as the technology people for the respective business units is a central function or is it-?
I'll give you some brief color as we draw to a close. We have central services, and we have central capabilities that enable that acquisition of talent. The individual description of a role may be written by a particular line of business or by a particular market segment that has a particular need, and they'll help provide the fidelity of definition. The way that we do this is consistent across the system, and we think that enjoys an advantage for us, and we also are able to move people, add, use them at will, to help balance our business completely.
Okay. Thank you.
Well, I think that brings us to the top of the hour. I think that brings us to a close. I'd like to thank everybody for their participation. We've enjoyed the questions. Certainly, we are available for follow-up. Phil Fersht will be available as well, and we'll be happy to take questions off of that. With that, thank you, and enjoy your day.
Thank you very much. Ladies and gentlemen, on behalf of Persistent Systems Limited, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.