Q2 19/20

Nov 5, 2019

Ladies and gentlemen, good day, and welcome to the Persistent Systems Earnings Conference Call for the Second Quarter of FY 'twenty ended thirtieth September twenty nineteen. 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. Hanand Deshpande, Chairman and Managing Director Mr. Christopher O'Connor, Executive Director and Chief Executive Officer mister Sandeep Kalra, executive director and president, technology services mister Mark Simpson, president, IBM Alliance Business mister Sunil Sapple, executive director and chief financial officer Mr. Mukesh Akarwal, Chief Planning Officer and Mr. Amit Atri, Company Secretary. I'm now glad to hand the conference over to Mr. Christopher O'Connor. Thank you, and over to you, sir. Thank you very much. It's my privilege 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, 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. Revenue was USD 125,500,000.0, growing at 4.9% quarter on quarter, which is 6.2% year on year. Margins standing at 13.8% EBITDA and EBIT stand at 9% and out 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 the structural shifts and how we work as well as rebranding the persistent company and setting us up for market lift into 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 quote 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. And 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. So to us, this kind of 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. And I think the most pleasurable highlight of our IP revenue was that it was very balanced. It was balanced coming from our software business, our large alliance business and from our own organic activity. We're almost in equal portions when we look at how that revenue came in and the growth of where it came from. And so 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. And so that was a highlight of our IP business. We increased deal size, as I mentioned, and we started to develop our pipeline out and a view on bookings, which is a new process for the system to enjoy, 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. So all in all, 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, as Mark will talk about, grew at 6%. These businesses were highlighted by launching new solutions in digital banking. In conjunction with our partners, 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. So it gave us a real opportunity to show our understanding of the market and how to present ourselves and what we intend to capitalize and build on that as we go forward. We direct presented to multiple thousands of clients. A week to go into the fashions with our partners, often decided working with the same clients in that work. So using marketing, using market impetus and designing Lyft 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 the 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, Euperience, a European based sales force company. And in this fourth quarter, that company operated inside of the domain of technology services, and Sandeep will reference that as he speaks further. We will continue to look for a positive target of choice, And 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. So all in all, that's a 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 work through several onetime events and occurrences such as the rebranding of Persistent, events around staffing and structural changes that have changed in timing oriented qualities to them, as well as some seasonal things that came to hit us. So, 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 are persistent. We'll 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 entire that we want to. So with that, I'm gonna break. I'm gonna turn it over to Sandeep. Sandeep, take care of the services, and then we'll move on to the Alliance business. Thank you, sir. Good afternoon, good morning to you all. Let me start with giving you an update on Technology Services Q2 business. As Chris alluded to by both, we came in with about 3.5% growth, ending that Q2 with a revenue of $84,890,000 This contributes this standard at about 10.5 of year on year growth. The quarterly growth came on that of 10.9% organic growth. The rest was on behalf of experience, which is our Europe based sales force acquisition that we closed last quarter. From From a segment perspective, BFSR came in strong, contributing about 7.7% growth, followed by Healthcare and Licensing at 1.9% GMV growth. Year on year, Banking Financial Services grew at 21.9%, Healthcare and Licensing 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 US based independent retirement college savings service provider. 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 intelligence and personalized investment experience. Another one of our multiyear, multimillion dollar deals was with direct rate of surety and security bonds and insurance. As a part of this engagement, we'll be building digital platforms to support their different lines of business. In healthcare life sciences, we won a multimillion dollar multiyear deal with a U. Based nonprofit healthcare delivery system, a provider as we may classify them to help digitize referral management and claims and services authorization process. We also signed another year renewal with one of our largest customers, a platform provider in the healthcare space. And we are gonna build the next generation of their insight platforms that that help present data to providers in a digestible form and minimize the administrative burden. In the third segment, which is our ISP 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 US. This will be focused on building digital customer engagement platform for them. Now in terms of our horizontal practices, the sales force practice that we have continued its growth momentum. We grew about 13% quarter on quarter. This included our acquisition of experience 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, and we also happen to be among the top 20 Salesforce implementation providers. In our intelligent business automation practice, we continue to build on our strength, wherein we continue our practices on APM and our systems, building business process related applications for different industry segments. The proof of our strength was in our recognition of our systems as the NDD Partner of the Year for 2019 in their yearly conference just gone back. On our security practice, we built on our practice by building a new partnership with companies such as Ping Identity and Servant, And 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've also built IP around the partnerships that we have done in order to accelerate the implementation and then more business around these. And another significant updates, we had mentioned that we are investing in our advisory relations and alternate channels that is private equity. We continue to see a good traction with them, and we are also seeing some initial deal participation through these channels. So 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, and then I'll give you an update on some other strategic initiatives. Our lines of business ended the quarter just over $35,300,000 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. And we also had an increased client SAT score with our key alliance partners. And 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 acquisition. In the near term, this has resulted opportunities for us, helping IBM modernize our software stack, leveraging Red Hat technologies, both the 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 the SOE Systems, which is 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. And 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 iBIMs Engineering Life Health and Management segment. Also in the same month, in iBIMs Call for Code event at the United Nations in New York City and 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 summary. Thank you, Mark, and good evening, good morning to all. And hope you all had a good Diwali. We'll let Chris, Sandeep and Mark talk about the business outlook and market perspective. So let me now take you through the financial performance and cash flow and other details. So the revenue for the quarter was 125,510,000.00, came in at a growth of 2.9 quarter on quarter and 6.2% Y o Y. In repeat terms, it is 46,008,000 rupees, growth of 6.3% Q o Q and 5.9% Y o Y. 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 EMEA revenue grew by 1.6% comprised of volume growth of 1.4 and increasing billing rate by 0.2%. The on-site EMEA revenue grew by 6.8% constituted by increase in volume by 4.2% and billing rate by 2.5%. Moving on to the direct cost, 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 light revenue, which helped in a significant manner when there is a persistent IP plus our own IP conversion to margins is significantly higher. The reduction in Visa cost which is there in Q1 also helped the gross margin and 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 will see some of those in the sales and marketing costs as Chris mentioned. And from the expense side, we had the brand refresh exercise this quarter, which has resulted in one time cost and part of the cost has come in this quarter. We also had the experience 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 and the relationship. All these items which in, you know, bucket of sales and marketing expenses led to the increase in sales and marketing expenses from 9.2 to 11%. Now just to reflect on what we had said in last time, first quarter call that in April, June, we had a reversal of the sales incentives pertaining to FY 'nineteen, where the revenue growth was not very good, but we had not reversed those incentives which were not payable to the sales force at the March and that exercise was done in a pre May quarter. So a pre May quarter had a credit to the extent of point 6%, and the actual sales and marketing expenses were 9.8%. So you should be actually looking at in the marketing going up from 9.8 to 11%. And we believe as we go along and increase the revenues, this number will start moving down towards 10% over time. On other items, there are two items which have a impact on positive impact with respect to direct cost. So we had reversal in terms of certain employee benefit provisions, which are long term employee benefits and we had a change in new policy this year, which was implemented on July 12, where the accumulation of leave has been reduced from seventy five days to sixty days. The net impact of these changes had a credit of million in terms of long term employee benefits. And 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 PNL was between $35,000,000 which is not a material amount, but it will help to understand the movement of items like S and M, why it has gone up significantly, Why did gross margin remain at the same level despite the high cost being there in this quarter? The normal course, in terms of the sales and marketing headcount, you would see an increase of 13 people, which largely the additions in the US sales team. We also had some churn in the sales team due to which we carried cost of the overlap time, and we would appreciate that people will come in first and after certain overlap, we are working with the system. Overall, the gross margin remained at 34.7% at same level as previous quarter. The SGA as I said increased. EBITDA came in at INR1216 million or 13.8% as against 13.4% in the previous quarter. As you know, we have an exposure on AirlineFS. So the total exposure is at rupees $430,000,000, of which we had provided $280,000,000 till last quarter. This quarter, we have provided additional rupees 50,000,000, 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. And you'll recall that last year's first half had one large deal of about $7,000,000 in the alliance portfolio, where the entire money came in the same quarter, which had added the cash flow. If you look at the composition of revenue, there was one bumpy item, which got collected and it had the cash flow. We neutralize that the last year's first half cash flow would be to that extent lower. On the table side this quarter, we had lower table side at the September, 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 5,500,000,000. To that extent, the cash flow for the next quarter will be improvement because the cash flow has already been accounted in this quarter, Q2 quarter. The other reason of course is the lower operational profit as compared to H1 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 intangible coming in from the acquisition of Ethereum and the earlier acquisition which we had done of Veralda and also payment made towards the new ERP licenses. With this, the EBIT came in at million or 8.9% of revenue as against 9.8% in the preceding quarter. The treasury income for the quarter was INR22.6 million as against INR302 million during the previous quarter, helped by certain mark to market gains due to a softening of the year curve. The foreign exchange gain was at INR138 million as against INR18 million in the previous quarter as the hedges which were taken at similar time last year were at good rates. PBT was INR $1,156,000,000, a margin of 13.1% as of 13.2% in the previous quarter. As regards to tax provision, we have reviewed our position with respect to the new corporate tax rate regime and will be opting for the same. In this quarter, we will see we are 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 and l like provision for IL and SRS 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. So 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 ETR to be in the range of 24% to 25% as against the current 26% to 27% to 28%. The PAT for the quarter came in at INR861 million, INR9.7 percent as against 9.9% in the previous quarter. The operational CapEx for the quarter was INR202 million and during the quarter we had payout towards the premium acquisition amounting to the $430,000,000 and final dividend payout of rupees $280,000,000. The cash on the books amounted to the $12.61 rupees close to about $180,000,000 as of thirtieth September as compared to $1.03 $3.00 1,000,000 at the end of last quarter. The value of forward contact that we hold on books was 112,000,000 at an average rate of $50.73.33 per dollar. Thanks for patiently waiting. It took me some time for covering all the items, but I think it will be helpful. I hand it back to Chris. Yes, Sandeep, Bharat and Sunil, thank you. We're now going to open up for general questions. We're all here through the scoping. Thank you very much. Ladies and gentlemen, we will now begin the question and answer Anyone who wishes to ask a question, press and one on their touch tone phone. If you wish to remove yourself from the question queue, you may press 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 Prinsy Bansali from Anand Raji. Please go ahead. Yeah. Hi, sir. Just one just one question. Ma'am, I'm sorry. You're not audible if you can speak on the handset. Oh, yeah. Am I audible? Yes. Thank you. That's correct. Yeah. So where is your revenues of Uperium? It's in the services or the digital? The weekly or the digital side? Digital side. Digital side? Yeah. Yeah. So excluding the revenues of UPS, there is a decline in digital business. What's the reason for that, and when can we see it through? So from our perspective, we made a statement last time as well. The way we classify digital and the way the whole industry classify the digital is totally different. So 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 a few other platforms. Now, if you look at the overall color commenting that we gave, even the wins that we talked about in BSFI or healthcare, in terms of building digital platform, that is reflected in our services classification as of today. So if you were to look at overall app business that we do, which involves digital technology, it's growing significantly. And as we go along in the next few quarters, we will see a three classified Can you please just hold on? It seems the line for the management is disconnected. Participants, 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, press and 1. Prinsy, you can continue with your questions. Yeah. Sir, you can continue. Yeah. Thank you. So I 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, you know, 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 peers on discount today. And we believe most of the work that we do are persistent. And even the examples that I gave you of deal wins, maybe today classified as services in our offline definition while they are actually digital work. So if you look at our bulk of our company's revenue, about 89% of the revenue is what the industry usually has classified as build through. And if you look at our growth rates, whether it is within the PFG side of the house or overall persistent are pretty healthy. So we would tend to believe that our digital, you know, revenues growth rate is anywhere between three and a half to 4%, if not more, of the growth that we showed. Okay, sir. Thank you. Thank you. Okay. A reminder to the participants, anyone who wishes to ask a question may please press and one at this time. The next question is from the line of Mahir Parkaria from Wealth Managers. Please go ahead. Go ahead. Hello? Am I audible? Yeah. Good evening to the management team. Actually, just wanted to understand is, you know, when you gave a detailed understanding of lots of items on the revenue side, margin side, cash flow side, where, you know, there are, elements which have impacted the financials, while, most of them still appear to be all business orientated. So instead of trying to adjust and look at all of them separately, the you know, we would still like to keep it at, you know, at one level and, you know, still, it what it shows is, at the end of the day, there is an impact on the EBITDA margin. So just wanted to understand how do you manage to ensure that the EBITDA margin starts actually, falling EBITDA margin has curtailed, and we start seeing an improving cycle. So I'll take the first pass and so you can you can add any details there. Certainly certainly our path is to continue to grow as the structural effects that we put in place are now behind us. As Sunil mentioned, you have an overlap period of time where you cut in change and then change takes place with the going all the way through the system. I think that that is moving behind us. Likewise, we rebranded the system and used the professional to help us get that done, and that organization and their costs are moving behind us as well. And so, you know, those three items coming together, which is moving through structural changes, moving through onetime occurrences and continual forward view into growth in the coming quarters help us restore our margins. It will take us a little bit of time, but it gives us no reason to doubt that we'll get back to install for now. So, Chris, while they're onetime, it does not mean they're onetime It it is still recurring. It is that that the levels of these expenses have gone up by the restructuring exercise. Right? So that is what am I will it be right to say that? I I don't believe that the levels have risen risen to new permanent levels. For example, the work that we did around restructuring company, that's a true true piece of work we have did to engage a professional team to help us get that done. We actually started rebranding exercise in about a quarter, which is a phenomenal speed. And those 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 to value of of where our marketing expense has been. The same is true with some of the shifts that we've done done. We brought in change change to some of the traditional sales focus and teams, and we have excellent progress at the same time. We've overlapped we've been mapped and overlapped in terms of just riding out what the HR system is gonna gonna allow you to do, well as there's places where turnovers and handovers are part of it that we're actually as well. So so we can see true true risk restoration in this. Do expect with growth that we'll need to move commensurately to make sure the structure supports it as well, but that should be aligned with our expectation of where we want the EBITDA to be, not in terms of where it is today. And maybe just to add to what you said, on the EBITDA, your basic question is what are the levers to improve EBITDA, right? Essentially, you would have seen that we have added people in the system in the anticipation of growth. You see our headcount has been now at 10,500. So the last two 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 get more orders to build these people which are already there in the system. So that is, in my view, the biggest lever. Apart from the fact that the pieces that we are working on in persistent IP and some of the partner IP, it will help us to convert better margin. There is hard work to do. There is no demand there. And what would be our what would be the contribution of now Salesforce vertical in our revenues? The Salesforce, horizontal product, this is about 55 to $66,000,000 on a current basis. And that's the best way to be rating based on order of itself. Run rate? So I'm talking about the the $65,000,000 annual payment payment kind of 100. And on this quarter run rate basis, it will be close to about 60 plus million dollars. Okay. $60,000,000. That is our best value for this quarter. The trailing twelve months of the 02/1955. Yeah. And so and most of the revenues around this vertical would be on implementation revenues? Yeah. So we did Salesforce as a horizontal. We discussed across the verticals which we have as financial services, healthcare life sciences, and, you know, other verticals like industrial, etcetera. Now when we talk of Salesforce, Salesforce will do multiple kind of work. So it can be around sales cloud, marketing cloud, you know, could be work that we are doing around applications development on the Salesforce platform itself. So there are multiple different kinds of work that we do in the Salesforce account. Okay. Thank you. I'll come you. To make it even more simpler, so if you were to look at any of the larger LBSTs in India, they launch their loan products or any other product. That's the kind of work that we do for them, and we pretty much have some of the largest LGSTs in India on that. If you look at the health care side of it, the large provider systems, which are the, you know, hospital systems in The US, 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. Okay. And any color on why are when you look quarter on quarter, the $3,000,000 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. So any specific color on it? So we think the number that we're at is is not reflective of of the bookings that we see and and the growth that that we're on. We we looked at this quite quite deep. We we don't see this as a systemic issue there as an indicator in 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 our contract and then contract start start, where we put an absolute end of the quarter date. So this this is up to '22 to 2020 and then the overall number of accounts that 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 of the deals that we have, and 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 to put them irons in the fire that are starting to to be very positive. And I think you'll see the absolute numbers as well. But our focus this quarter was to grow revenue and to get our engine running that started to truly harvest all of our system inside of our clients and and provide more value. Okay. 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 and one. The next question is from the line of Manish Patel, an individual investor. Please go ahead. Manish, you're not audible. Can you hear me now? Yes. Thank you. Okay. Thanks for taking my question. Actually, I'm an independent investor. So, you know, I I I have I have invested in the process system stock. So my question is how do you think this result, this JV 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? So 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. And the call is basically to address any of the queries that you have about what we have done and the earlier decision that you have heard. There are all all deals in the market. Right? The market will pass more than what one can build in any any operating model in an Excel sheet. Mhmm. So whatever your questions you have, what you can ask. We have no way to predict the market. I see. I see. No worries. Thank you, sir. Thank you. A reminder to the participants, anyone who wishes to ask a question may please press and one at this time. The next question is from the line of Punya Mehta from SBA Cap 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 this is a typical seasonality to play out? And if you could give some color on how this business will perform going forward. The question is about traditional seasonality. I think that we're seeing that stabilize. And 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 Tas from Sherkan. Please go ahead. My question is on Accelerate business. This quarter, we have seen a good jump on that revenue growth, Accelerate growth. So how this Accelerate business will do in coming quarters for next year, outlook on the Accelerate? So as we talked about last quarter, the Accelerate business is a stand alone business in today and how we show and record it. If you look under the covers of the Acceleride 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. And then 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 selling off that maneuver. It's always good to see something that you haven't planned before forward, And that's why you see the revenue acceleration. As you look at Acceleride 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'll see as we exit this year that Acceleride 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 not a software nor is it services. It is a blended solution set in terms of that execution, and we'll execute in time. Accelerate will blend into the horizontal stats that I just mentioned. And as we head into the fiscal year 2021, we'll be reported inside of those stacks as the individual components grow. And that's the same way you see us showing today our growth and our work around BFSI and health care. You have to just talk about our other technology sectors as they become significant and well defined. So it's all right. We'll head down that path, and I believe it's the right path for Persistent to consider ourselves a leasing company, and that's how we'll feel better in the future. Okay. Another question is on IP. Actually, in Q3, there is a seasonal impact, okay, always we have seen in IP led business. So next quarter, are we going to see any seasonality on the IP led business? So seasonality can always exist around our alliance in the IP discussion that's there. And 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 Accelerate stack continues to have its independent and effective revenue stream. The third component that I mentioned also earlier was that we have our own persistent IP in other segments of technology and in industrial sector that we sell and accelerate 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. And 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. So our anticipation is that the seasonality effect will smooth to being nondistinguishable as we move into the next couple of quarters. So I would anticipate this to be a minimal effect in the future quarter, to no effect as we head into several quarters out in the future. And we're taking effects, plans to be able to execute in time. Okay. Thank you. Thank you. The next question is from the line of Sushmet Patodia from Motilalu Swai. Please go ahead. Hi. Good evening, everybody. I had a couple of questions. Firstly, the updated to the operating cash flow will be down from INR256 to INR86 crores, H1 over H1. And how much of this is because of working capital? And the second aspect is almost 15% of your revenue were not audited by the current auditor. So if you could give us some color on who would be who are the other auditors because of Yeah. So see on the auditor's plan, this what you are referring to is about the subsidiary Yeah. Outside of the material subsidiary, which is The US subsidiary, which is audited by the principal auditor, which are the main statutory auditors, you know, signing up the accounts. The other companies which are there are essentially in the Europe region. One which is Park, the other which is Ethereum, and the third one which is our subsidiary in France. So these are the main places, and these are audited by the subsidiary auditors. They work on the terms of reference on the 32 auditor and they have decisions before they close off and sign up on the main financial. So that is about your second question. And the first question was 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 was a big $7,000,000 deal, which have resulted in payment which had the cash flow. In terms of the payable days, we 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. So and of course, the reduction in operating profit itself by about INR30 crores versus last year's H1 is one of the other reasons. So we have more questions coming up for probably, I mean, I've given you enough details. You can just reflect on that when you have the transcript of the call and reach out to us in case we need anything more. Oh, thank you. Thank you. The next question is from the line of Amit Chandra from HDFC Securities. Please go ahead. Yes. So so thanks for the opportunity. So I have two questions. Amit, you're not audible. Is it audible? Yeah. No. It's audible. Thank you. Yeah. I have two questions. So so on the alliance business, what is the what is the reason of revenue that we have booked in the alliance business? And how do you see the seasonality growth We are very good questions. Amit, we are not very audible in the second part. If you can please repeat your question, that would be helpful. Yeah. Just restate both questions on the alliance, please, and the second question. Alliance, how no. In the alliance, I also bought the reseller, you know, reseller part and, you know, the seasonality. And the second, the growth outlook for the. I'll answer the first question, then we can take the second question. So the first question was, what's the, essentially, percentage of our resort business on the alliance? And and it's about it's about 15 or so. We don't report exact numbers, but that gives you an idea. And what was the second question? The outlook of growth on the on the digital part of the business. So we have seen the, you know The digital business returning to growth in this quarter, 3.2% quarter on quarter. How do you see that business plan planning out? Sure, Amit. So from our perspective, see, we made a comment on the business business earlier, so I'll not repeat that. But the way we have currently classified business business, it's a combination of a few horizontal businesses on our side. This includes things like Salesforce, our intelligent business automation practice, the security stuff that we do and a few others. Now if you were to even look at our current run rate and we just give you a simple example, the Salesforce architecture that we talked about, trailing twelve months revenue for us is close to 55,000,000 and the current quarter, the Q2 quarter gone by, the revenue for us was 16,000,000. So you can pretty much see that the run rate for even the sales force sector is pretty much going up. So we don't give probability guidance, but we are seeing a healthy uplift across the segment. The way we define the beginning today and a bunch of business stuff that we house as of now as per our years recognition in the services business. We have platform development, AI, machine learning work that we do across it. So we are seeing a very healthy demand. We have a very healthy order booking in the last quarter and a very healthy pipeline on this end. Okay, sir. Okay, thanks. Thank you. The next question is from the line of Mahir Parquiria from Wealth Managers. Please go ahead. Thank you for taking my question again. So so, Sandeep, the question is one for you is, you know, on the digital side, the, you know, means earlier we we we understood that, you know, the effort for Persistent was to know or for the industry also is to move from linearization of revenue to nonlinearization. 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 nonlinearization or revenue? Or these are onetime projects and services, etcetera? So if you look at examples of how we could make it nonlinear to build on your question, so for example, when I refer to the security, the new alliances that we have done, one of those alliances is within identity as a company and Servient is the second one. When we are, you know, working on these partnerships, go to market strategy for us involves implementation and managed services, etcetera, 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, you know, do faster integration or even build on certain functionalities. So those are IPs that we are building as a surround IP to the, you know, partner IP, etcetera. And that will help us in increasing both the linear revenue by having more of those businesses in implementation and setting the nonlinear one where we bring our I. C. Together. And like that, we are doing the crossroad. Okay. If you wanna 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 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 me my view of the system today and you ask me to go through each of the lines of business, everybody from default systems 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 and partners like Nambu and our systems sitting on AWS. And none of these things are classified in the old definition we've had of what are digital business is that we currently shop. You'll see us show the current definition just as courtesy through the end of this year, and then we will restate either Pacifica as a digital business or we'll remove the classification altogether because the market has simply moved past that. So I decided I'd share that with you as view of coming into this fresh and my evaluation of all the work you're doing. And second, on your point, just to kind of add some more color on each point. We released the digital banking solution set this quarter, which has partnered software inside of it, digital partner software inside of it from companies such as our systems and Nambu. And depending on on what part of it you buy from us and whether you wanna be a wallet or a bank or a credit union, you will include different partner revenue and and our opportunity to include the resell 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. So this is this is a significant shift from us in terms of how we think about banking where we look for work to do versus leaving out a solution, leaving out our partners' software as the seller and our own IP into the mix. And I call this revenue stacking. And this revenue stacking phenomena, we have the opportunity to execute across the board in all of our horizontals and verticals. And we intend to enjoy that. It's how Mark has needed to. We're smoothing out the seasonality of IBM revenue by having only one piece of revenue by mixing in with other revenue stacks. And we'll do that inside the technology services unit as a deliberate part of our strategy to move on the on the journey to solutions for our clients. So also, it gives you a little bit more color, a little bit more understanding of our thoughtfulness around this. So 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. Is there a while when we are seeing incremental revenues, are we seeing the let me dissect it and ask that. Are we looking at increasing the annuity revenue pie? Yeah. I think I think that's 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 IP. And 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 parts of the world where our partners are advocating that we do so. And so we pick up their tail of existing clients as well as the ability to remove all their headcounts as well on persistent paper, which Mark is enjoying, in particular, in the Alliance business unit, but we anticipate doing elsewhere as well. So yes, but it's not an annuity as you said, a traditional software product. It's a blended business model. Okay. Final question from my side is, you know, earlier, if I understand, when we look at the or the organization completely structured, the HR function was a centralized function, right, earlier? Yes, sir. That's correct. Unlike housing it under the respective, you know, segments of technology, digital or or would it earlier, was it like that? And currently, how it is like? We we we continue to enjoy a central set of services, and we think about our business units as a composition of vertical and horizontal execution place in the market where we wanna be excellent. And we have services around IT, HR, a variety of other capabilities that we continue to enjoy that way and and shall in the future. Right. And then to clarify, if you are referring to the the management of talent across business units, the management of them across business units, it's all central. So the business units are more based on market segments that they cater to. But as far as the HR is concerned, it's all central. As far as talent management is concerned, it's all central. Hopefully, that's all. All right. Okay. So even the requirement of salespeople as well as the technology people for the respective business units gets, you know, is a central function or is it I'll give you I'll give you some brief color as as we as we launch it. So we we have such a services and we have such a capability 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. But the the way that we do this is consistent across the system. We we think that it enjoys an advantage for us, and we also are able to move people at ease and at will to help balance our business completely. Okay. Thank you, Faradish. Well, I think that brings us to the top of the hour. I think that brings us to a close. And I'd like to thank everybody for their participation. We've enjoyed the questions. And certainly, we are available for follow-up. Full transcript will be available as well, and we'll be happy to take questions off of that. So 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.