Sure. Ladies and gentlemen, good day, welcome to Persistent Systems Earnings Conference Call for the first quarter of FY 2024, ended on June thirtieth, 2023. We have with us today on the call, Dr. Anand Deshpande, Chairman and Managing Director. Mr. Sandeep Kalra, Executive Director and Chief Executive Officer. Mr. Sunil Sapre, Executive Director and Chief Financial Officer, and Mr. Saurabh Dwivedi, Head of Investor Relations.
Please note all participants lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the management opening remarks. Should you need any assistance during this conference call, please raise your hand from the Participant tab on the screen. While asking questions, request you to please identify yourself and your company. Please note this conference is being recorded. I now hand the conference over to Mr. Sandeep Kalra. Thank you, and over to you, sir.
Thank you, moderator. Good evening, good afternoon, good morning to all of you, depending on where you're joining from. We would like to start this call by thanking each one of our customers, partners, and investors, as well as our 23,000+ team members for their resilience and continued trust in us. Let me now start with our quarterly financials.
We are happy to report yet another good growth quarter across major business and financial metrics, even as the macroeconomic environment remained uncertain. The revenue for Q1 came in at $282.9 million, giving us a growth of 3% quarter-over-quarter and 17.1% year-over-year. In INR terms, the growth for the quarter came in at 3% quarter-over-quarter and 23.6% year-over-year basis. Coming to EBIT.
Our EBIT for Q1 came in at 14.9%. This translates into a growth of 29% on year-over-year basis. On a quarter-over-quarter basis, the EBIT margin declined 50 basis points, as the tailwind of revenue growth was offset by higher visa costs, higher amortization costs, and doubtful debt provision. Sunil will provide more color on the EBIT margin movement later in the call.
We are happy to report that we have implemented salary increments for our global employees as per our regular cycle, effective July 2023. We expect to offset most of the margin headwinds due to the wage increase through cost rationalization measures, which are being set in motion from Q2 onwards. We remain committed to our goal of improving EBIT margins over the medium. Coming to the order book for the quarter.
The total contract value for the quarter came in at $380.3 million, with new bookings TCV coming in at $237.2 million. The annual contract value component of this TCV is of the order of $271.9 million, of which the new booking ACV component contributed to $144.1 million. While the demand environment remained stable, there were a few instances of delays in customers' decision-making, owing to which some deals got pushed out to subsequent quarters, and we are hopeful of closing these deals in Q2 and subsequent quarters.
Please note that, as always, these TCV ACV numbers include all bookings, small and large, renewals, as well as new bookings across existing as well as new customers. Coming to the client engagement sides. Let me give you some color on our client engagement sides.
We are pleased to report that our top customer revenue saw a healthy growth of 13.4% Q-on-Q in USD terms. This was on the back of 30%+ growth in the previous quarter. We continue to partner closely with our top customers to help them achieve their digital transformation objectives, while also exploring meaningful opportunities for long-term collaboration.
Our overall portfolio of top 50 customers grew by a robust 5.7% during Q1. As you would appreciate, our base of top 50 customers is a portfolio of our strongest relationships, and different customers are likely to take leadership in driving growth of this portfolio in different quarters.
We are excited to report that the progression of our clients across important revenue threshold continues, with one additional customer moving into the $20 million-$30 million band during the quarter, scaling up from the lower client revenue bucket. The total count of $5 million-$10 million customers increased to 21 from 17.
The total count of greater than $5 million customers is up to 38, compared with a count of 34 in the last quarter, and 26 such customers in Q4 of FY 2023. On the geography side, North America grew 4.9% quarter-over-quarter in USD terms, while India revenue grew by 1.5% quarter-over-quarter. Europe revenue declined 2.8% quarter-over-quarter on a smaller base. Coming to the people front.
In Q1, we added 241 colleagues on a net basis, taking our total headcount to 23,130. We continue to increase the deployment of freshers on customer projects, though significant room still remains in improving fresher utilization, and this will be an important margin lever for us in the next few quarters.
The blended utilization for the quarter came in at 78.3%, as against 77.3% in Q4 FY23, aided partly by increased fresher utilization. On the trailing twelve-month attrition, we saw the quarter come in at 15.5%, compared to 19.8% in Q4. Attrition has come down to a more comfortable band compared with the last few quarters.
The decline in attrition should nonetheless be seen in the context of general moderation of hiring across the sector and positive outcomes from our employee value-related interventions by our HR team. Moving on from operational metrics to certain strategic highlights for the quarter. A number of you have been inquiring about the generative AI and our forays into the same.
Let's start with that. As a pioneering digital engineering firm, Persistent has been committed to innovation and staying ahead of the curve across major technological developments. We have been working in the field of AI and related technology segments for last several years, and have been working with several enterprise customers in their data transformation and AI programs, as well as with technology companies in building the technology for the enterprises.
Our many AI practitioners, researchers, and senior leaders have been closely following the generative AI developments, and are enabling us to strategically adapt to these evolutions in the field of AI, and meaningfully participate in the growing opportunities of generative AI. Over the last several quarters, we have been working on strengthening our partnerships with the leading hyperscalers, AWS, Microsoft, and Google, around their GenAI initiatives, as you would have noticed from our earnings presentation and factsheet.
In the GenAI domain, our target is to train 16,000 of our employees over the next several quarters. We have developed playbooks to effectively use code assist tools such as AWS CodeWhisperer and Microsoft GitHub Copilot, to systematically boost productivity of our engineers while resolving the privacy and licensing challenges, working closely with our hyperscalers and other technology partners.
An advanced level training will focus on competencies such as AI engineering, enterprise architecture, deep understanding of IP, data privacy, security, product liability, trust and identity considerations as we move deeper into generative AI. We have and will continue to train our architects and developers to build AI-infused applications from the get-go to ensure AI is embedded into our work culture.
We have also been leveraging GenAI technologies in our own internal landscape as a customer zero, and are unlocking significant productivity across several use cases, across functions such as HR, marketing, and IT workflows. With all this, we are finding good momentum on the business side as well, and are in discussions with over 50+ clients on generative AI-related project opportunities.
These are a combination of GenAI advisory, GenAI-powered pair programmer, legacy code base migration, conversational AI, enterprise search, enterprise data modernization, GenAI security, as well as GenAI, you know, broader engagements, to name a few. We expect the adoption of GenAI to pick up significantly Over the next several quarters and years.
As of this point in time, while the revenue from this may be smaller, but the adoption of this should significantly increase over the next three to four quarters in subsequent years. Coming to the updates on the M&A side. At this point, all our earlier acquisitions are fully integrated, and we are proud to say we are winning deals jointly based on the joint capabilities, and these are fructifying through the combination of the Persistent and the acquired companies.
We are once again active on the M&A front, and will report progress on this front over the next several quarters. On the board front, we welcomed Dr. Ajit Ranade as an independent director to our board of directors. Dr. Ranade, a renowned academician and economist, brings to Persistent his impressive experience of 32+ years to help guide our strategy and accelerate our growth journey.
We are looking forward to working closely with him as well as our other board members for the next phase of Persistent's growth. We have shared more details as a part of our Q1 earnings release for our investors reference. Coming to the updates from our AGM. We recently conducted our 33rd Annual General Meeting earlier this week on 18th July. I am pleased to share that all the resolutions that were put to vote have been approved by the shareholders with requisite majority.
On behalf of all of us, I would like to take a moment to thank all our retail and institutional shareholders for their support in this regard. Coming to the administrative updates. On the administrative side, we opened a new office in Jaipur, India, as our latest CoE for Salesforce-related technologies.
Krakow, Poland, as an extension of our nearshore capabilities in Europe, and Dallas, Texas, as the latest hub for our private equity-related competencies. In the coming months and quarters, our expansion plans include locations such as Kolkata, Kochi and Chennai. Our endeavor is to provide world-class facilities to our employees in locations close to them, and encourage them to work from office a few days every week. In summary, we are pleased with our performance in Q1 FY 2024 in a challenging business environment.
I would now like to invite Sunil, our CFO, to give a detailed color on the quarterly financials and related matters. I'll come back after Sunil's comments to give you some more details on key client wins, analyst awards, and other recognitions for the quarter. Over to you.
Yeah. Thank you, Sandeep, good evening and good day to all. Thank you for taking the time to join us today. Sandeep has given a detailed update on the business side and the market perspective. Let me now take you through details of financial performance for the quarter.
Before I start detailing on the quarterly financials, I would like to call out some of the changes we have made to our quarterly disclosures, which most of you would have noticed. We have provided additional disclosures in the nature of revenue contribution from top 50 clients. The total client base with annualized revenue in excess of 250K per annum. Effort mix between global delivery centers in India, return on capital employed.
At the same time, we are discontinuing certain data points, including metrics across services and IP business, such as the breakup between services and IP revenue, services and IP client base, and person-months. As a result of that breakup of direct costs between employee-related expenses, purchase royalty, and project-related travel expenses.
These details are, of course, available in the detailed financials, it is on the face of the fact sheet, it is not there. As our business has become more complex, comprising of fixed price and managed services deals, the breakup across services and IP revenue is becoming less meaningful, and hence the discontinuity of this disclosure. Moreover, you will also observe that post-restructuring of one of the contracts with our top client some quarters ago, the IP-led revenue as percentage of total revenue has been less than 10%.
It has been ranging between 7%-9%. In view of the same, going forward, we'll be reporting the total revenue. This being the quarter of change in disclosure, I would like to share that our services revenue grew by 2.7% quarter-on-quarter, and IP revenue grew by 8.8% quarter-on-quarter. The few other data points which I mentioned above, which we are discontinuing, is about the revenue by delivery centers, the bill person months, and on-site offshore utilization, while we continue to disclose blended utilization rate, including trainees.
As most of you are aware, we make the changes to our metrics at the start of a fiscal year, and we have made these changes, which I just called out, keeping in mind the industry practices and based on inputs we have received from the analyst community over a period of time. Let me now share with you the details of financial performance.
T he revenue for the quarter came in at $282.9 million, with a growth of 3% quarter-on-quarter and 17.1% year-over-year in dollar terms. Revenue for the quarter in INR terms was INR 23 to double one point 8 million, reflecting growth of 3% quarter-on-quarter and 23.6% year-over-year. As I mentioned, services revenue grew by 2.7%, while IP-led revenue grew by 8%.
Coming to sequential growth for the quarter, BFSI grew 6.2%, technology companies grew 3.3%, while Healthcare and Life Sciences de-grew by 2.8% quarter-on-quarter. On the effort side, our blended utilization, including trainees, was 78.3% as compared to 77.3% last quarter, and attrition was 15.5%, reducing from 19.8% last quarter.
As you all are aware, and as Sandeep mentioned, we achieved $1 billion in annual revenue in FY23, and it was only possible because of continued support of our customers, partners and employees. We had organized events across the globe to commemorate our journey with them and express our gratitude for their support. These events were well-participated.
The total one-time expense for these events and employee gifts amounted to INR 486 million, which impacted the margin by 2.1%. As you are aware, the board recommended a special dividend of INR 10 per share as a gesture of our appreciation of the support and continued trust by our shareholders. Let me now give you a walkthrough of other details for the quarter.
As you all know, this is a quarter where we do the H-1B visa filing, so this cost came in this quarter and accounted for 40 basis points of impact. We have been encouraging all our employees to work from office at least 2 to 3 days a week, and during the last couple of years, in order to be closer to employees and also attract talent in various parts of the country, we have opened offices in Indore, Jaipur and Ahmedabad.
As you recall, with our acquisitions that we did about a year ago, we have now presence in NCR at Gurgaon and Noida. This, coupled with expenses on food and due to increase in the offices, had an impact on margin by about 20 basis points. The slight increase in doubtful debt provision of 10 basis points impact on the margin.
With the above, EBITDA for the quarter was at 18.2%, as against 18.5% in the previous quarter. Depreciation and amortization expenses were at 3.3%, as against 3.1% in the previous quarter. Last quarter, there was final allocation of purchase consideration for acquired entities, resulting in a credit of INR 40 million in amortization expense.
In the normal course of business, there is an increase in amortization on account of investment in software tools for learning and development and for improved cybersecurity measures. As a result, in absolute terms, amortization, which was INR 434 billion in Q3 and had declined to INR 404 million due to the credit, as I mentioned above, is currently at INR 476 million in this quarter.
With this, the operational EBIT for the quarter was at INR 3,466 million at 14.9%, as against 15.4% in the previous quarter. Treasury income for the quarter was INR 154.58 million, as against INR 129.05 million, mainly on account of increased interest rates and treasury funds. Forex loss was INR 64.1 million, as against INR 189.1 million in the previous quarter.
Profit before tax for the quarter was INR 3,070.5 million at 13.2%. If we adjust one-time expense for the $1 billion celebration, the PBT comes to 15.3%, as against 15.1% in the previous quarter. CTR was 25.5%, as against 26.2% in the previous quarter. PAT for the quarter was INR 2,287.7 million at 9.9% from a margin perspective, adjusting for one-time expense net of tax.
Comparable PAT was INR 2,649.9 million before one-time expense, which is 11.4% of revenue, as compared to INR 2,515.1 million in the previous quarter, at 11.2% of revenue. EPS for the quarter was INR 30.49, adjusting for one-time expense, it would have been INR 35.32, as against INR 31.9 in the previous quarter. As I mentioned, we have disclosed ROC for the quarter, which came in at 30%, as against 28.8% in the previous quarter.
Operational CapEx for the quarter was INR 140.4 million. Total cash and investments were INR 14,089 million as at 30th June 2023, as compared to INR 15,991 million as at 31st March. The cash balance at the end of Q1 was partially impacted by annual bonus payouts that happened in this quarter, as well as MCs and health insurance premium, which is the seasonal item in this quarter.
DSO came in at 67 days, as against 68 days in the previous quarter. Due to long weekend in the US coinciding with the quarter end, collections amounting to $9.8 million spilled over to first week of July. Otherwise, DSO could have come lower, and more importantly, it could have helped the cash.
Forward contracts outstanding as at 30th June were $230 million, at an average rate of INR 83.53 per dollar. Let me explain the working capital movement and reasons for lower cash conversion during the quarter. As mentioned above, this quarter had payout of annual performance bonus to employees, which amounted to INR 1,886 million. Software license purchases and health insurance premium renewals amounted to INR 890 million.
There was an increase in GST receivable, primarily on account of the software licenses as mentioned above, and purchases of furniture and fit outs at our new learning and development center at Pune, totaling INR 570 million. The unbilled revenue went up this quarter due to delay in receipt of POs from few customers, some of which have already been received in July and have been invoiced.
As regards collections, as mentioned above, due to the long weekend, collections to the tune of INR 800 million came in the first three working days of July in the US. All these factors cumulatively impacted cash conversion during the quarter.
You will observe that first quarter of the year is seasonally lower for us in terms of cash conversion, but this time, higher spend on software purchases, increase in unbilled revenue, and higher spillover of collections bunching together impacted the cash flow. This is under focus, and we expect the same to even out over the next couple of quarters. With that, I thank you, everyone, and hand it back to Sandeep.
Thank you, Sunil. I'll now talk about the key deal wins for Q1 by industry segments. Starting with the software, high tech and emerging industries. We were selected by a leading provider of a SaaS platform for customer service, sales and customer communication. This is a large deal for us, spanning over 3 years, in which we will establish an offshore development center to undertake engineering on existing as well as new products for the customer.
Persistent was selected as a strategic partner by a multinational conglomerate in digital communications domain for engineering and support of its network services orchestration platform. This is a multi-year, multi-million dollar deal and involves vendor consolidation and transfer of work from on-site to offshore over a period.
Persistent was selected as a strategic partner by one of the leading hyperscalers to develop generative AI strategy and proof of concepts, database connectors, etc, for serverless data integration. Coming to banking, financial services, and insurance.
Persistent was selected by the financial services arm of a Fortune 500 automobile company to drive digital transformation of its customer acquisition platform, sales journey platform, customer service and contact center, as well as marketing automation platform.
This is a multi-million, multi-year deal encompassing implementation as well as managed services. Persistent was selected as a digital transformation partner by a leading US-based financial software company to migrate applications from the environment of one of its acquired businesses to the customer's platform and provide managed services for such migrated applications.
Persistent was selected by the U.S. subsidiary of a leading Japanese bank as a strategic IT services partner to develop data science platform for risk management, identity and access management applications, as well as regulatory and compliance applications. Coming to healthcare and life sciences.
Persistent was selected by one of the largest Fortune 500 company in the healthcare domain, to undertake engineering on data and machine learning platforms of the company, as well as to partner with them in innovation and transformation roadmap. This is a more than $50 million TCV deal for us, spanning across 3 years.
Persistent was selected by a large U.K.-based medical equipment manufacturing company for building and managing a unified data platform encompassing supply chain, manufacturing, regulatory, product quality, and finance functions.
We were selected by a leading company specializing in the detection of early-stage cancers, to re-engineer its platforms for curation, analytics, and laboratory information management, as well as migration of its data lake platform to the cloud. Coming to the awards and recognitions for the quarter. Q4 saw us get continued recognition from industry-leading analyst firms and associations.
To mention a few. Persistent was featured in Everest Group's 2023 PEAK Matrix Service Provider of the Year awards under the top 10 ITS challengers list. Persistent was named as a leader in the Everest PEAK Matrix on Payments IT Services 2023. We were recognized as a major contender in Everest Group's Healthcare Data and Analytics Services PEAK Matrix Assessment 2023. We were awarded by the Times Power Brands 2023 under the Excellence in Talent Acquisition category.
We also won several awards from ISG, including being named a leader in ISG Provider Lens, Digital Engineering Services Quadrant U.S. 2023. A leader in Salesforce Ecosystem Partners 2023 ISG Provider Lens study. Last but not the least, top 15 sourcing standout in the Q1 2023 ISG Global Index. In summary, we continue to deliver top quartile revenue growth in FY 2024, despite a challenging macro environment.
We remain watchful of the macroeconomic situation and are proactively staying closer to our clients, aiding them in prioritizing their technology spend towards transformation as well as cost optimization, and we are cautiously optimistic about our growth momentum. I would like to once again thank our management team and global team members, who have persevered through these uncertain times and delivered yet another growth quarter for all of us.
Our decision to go ahead with normal wage increase in this macro environment is a testament to our gratitude for the same. With this, I would like to conclude the prepared comments, and would like to request the operator to open the floor for questions. Operator, over to you.
Thank you, sir. We will now open the call for Q&A session. We will wait for a few minutes until the queue assembles. We request participants to restrict to two questions and then return to the queue for more questions. Please raise your hand from the Participant tab on the screen to ask questions. The first question is from Abhishek Bhandari.
Yeah, thank you. good evening, management team. Sandeep, I have two questions. First is, you know, you have been talking in the past of your aspirational growth number of 3%-5% every quarter. good to see you still doing around 3% this quarter. If I heard you correctly in the CNBC interview today morning, you alluded to 2%-4%, to 3%-5%, depending on macroeconomic. I couldn't quite get it. Are you saying that if the macro remains uncertain, you could go below your 3%-5% number?
Look, we don't give the forward-looking guidance. Having said that, we have said it very clearly, in a good economy, we'll be between 3%-5%. In a bad economy, we may get to 2%-4%, and we have persevered through it. Even in the current macro, you have seen all our peer results.
We have persevered, and we have delivered 3%. Our endeavor is to deliver the best growth we can, and we are at it. Our bookings, etc, if you look at our traditional bookings, although this quarter was a tad bit lower, a few things slipped over, not necessarily lost, but slipped over and have closed or are closing. Our endeavor is to do what we have said, and we'll go from there.
Sure. Thank you for that. The second question is on the margin part. You know, given that, you know, probably the growth is, you know, slowing down a bit for us, do we still believe that, you know, this year we could have a margin expansion compared to last year? While I understand your medium term, you want to go, you know, up by 200-300, but more from a next, you know, 4-5 quarters, do you think? What could be the upward bias on the margin? What would be the levers driving that?
If you look at the overall front, not just margins, our first priority is to make sure that we have a healthy growth momentum carry forward. That is our first thing. We are investing in our growth, whether it is on our sales and marketing side, whether it is on our capabilities on generative AI or other technologies that we are, you know, dabbling in, cloud, data, security, nine years.
That is the first priority. We are not hung up on optimizing the margins in the next two, three quarters. We have said our aspiration over the next two to three years is 200 to 300 basis points, and we are at it. In terms of the levers, we still have a significant amount of underutilization in the pressures that we took.
There is 12-15 months that many people have spent with our company. They have been trained, they have been, you know, shadowing different programs. We have significant dry powder in terms of talent. That is one lever, obviously.
There are other things, whether it is our lateral utilization, which also, if you look at it today, we are in the range of 78%. If we move from 78% to the highest that we have seen in the range of 83+, every percentage of utilization gives us 30 basis points. There are many others, including revenue increases and so on. We have certain levers, but our first priority is to make sure we grow healthily, and then we'll go from there.
Got it. Thank you, Sandeep. Maybe one small last follow-up. You know, while you know, hinted at some of the AI-related initiatives, both from an internal and external perspective. You know, if you could give some, you know, idea about, you know, any large investments you think would be needed to, you know, probably cure the service line? If so, like, is it going to be more in terms of, you know, acquisitions, or how are you thinking about, you know, bolstering your AI, you know, portfolio?
Sure. Abhishek, I'm sure a lot of other people are also interested in this, let me just spend a minute on this. If you look at Persistent, you know, right from the get-go, we have been working on data. The name Persistent also comes from the persistency of databases, and R&M itself is a PhD in databases.
That's our genesis. Over the years, we have done multitude of AI products related work, whether it is, you know, for technology companies building the technology. For the hyperscalers itself, we are working on their machine learning related technologies, which is the underlying, you know, thing behind all this.
For, you know, enterprises and healthcare licenses, we have worked with them on doing platforms for tracking the progression of renal diseases and predicting the newer, you know, patients renal disease progression or diabetes progression, or in financial services, in trade finance, and many, many, many use cases. This is not new to us. It doesn't make sense for us to go and acquire another services company because this field is pretty new.
Our own capabilities are pretty good. We are working with our, you know, hyperscaler partners. We are very closely collaborating with people like AWS, Microsoft and Google to understand their foray. We are using ourselves as customer zero. If you look at press releases that we have done, we have collaborated with Microsoft to use Viva and OpenAI in our own, you know, environment. Today, for our HR, we are using that business case.
Now, for our own developer productivity, we have experimentation going on with AWS as well as with Microsoft. Similarly, in many of the customer environments, we are working on Bard or OpenAI, or we are working closely with Google on their technology. There's a significant investment that we are doing in putting a team together, which is basically going to evangelize this with our customers and even internally.
Somewhere down the line, in the next 2 to 3 quarters, we would have trained all our engineers on the different technologies, whether it is developer productivity, whether it is building these LLMs or foundation models, or deploying them in an enterprise. We are not going to do acquisitions as of now in this because there's nothing to acquire. Everyone is learning, and we are ahead of them. That is our foray, and we are putting investments into our own teams and their learning.
Thank you, Sandeep, for the detailed answer, and all the best for the year.
Thank you.
Thank you, Abhishek. The next question is from Siraj.
Hello. Am I audible?
Yo u know, speak a little louder, but you're audible.
Yeah. Sandeep, I have a couple of questions. During the quarter, one of our global peer reduced their guidance. How are we reading that? Have we made any changes in our client strategy and all to, you know, mitigate such uncertainty which can come going forward in the year? Second, we're opening offices in tier two and tier three town to attract the talent and all. Does it give us a lever going forward that we will have a, you know, a labor cost relatively lower compared to what we get at tier one cities and town? Yeah.
Sure. Let me start with the first question. As far as our global peer is concerned, who reduced the guidance and so on. Look, every company is different. We can't manage other people's guidance. All we can do is perform well and within the hand that is delivered to us, whether it's a good macro or a bad macro, we are trying to do our best.
This is an economy in which, you know, we have to be proactive. We have to proactively, based on our understanding of our customers and prospects, we have to take a cost optimization pitch and so on, and that's what we have been doing. You know, this is the 13th sequential quarter for us for revenue increase and profit stabilization and increase. That should give you a proof point of we are at it.
We can do better, obviously, and we will try and do whatever we can, but we are not giving any forward-looking guidance, reducing or increasing. We have delivered well, and we'll continue to execute. As far as the tier two, tier three cities are concerned, the basic rationale for us was, as the pandemic happened, a number of our employees also moved back to their hometowns, and some of these are tier two, tier three cities that we have opened offices in.
Wherever we saw clusters of our own employees moving back, and we also saw clusters of talent availability. To your point, yes, it could be a margin lever for us as we go ahead, because if we are taking our offices to where the talent is and not necessarily hiring in a high-cost location like a Bangalore or
Hyderabad or, you know, maybe even Pune, you know, and we are diversifying our, you know, pool that we are getting the catchment area, you know, spread out to, that is the whole, you know, strategy. We are also expecting this to not just expand the pool, but also reduce the attrition, both of which can be margin accretive.
Thank you. One more question.
Siraj.
One more question, if you allow. Yeah.
I would request you can join back to the queue.
Yeah, sure. Thank you.
Okay. Thank you, Siraj. The next question is from Sandeep.
Can I ask you a question, or if you're on mute, unmute and ask.
Can you unmute, Sandeep Shah?
Yeah. Can you hear me now?
Yes.
Yeah, yeah. Thanks for the opportunity. The first question is, Sandeep, this time the impact on the growth looks like is more with the decaying buckets, not with maybe top clients, but set of clients. Whether this phenomena is correct and whether it is restricted to one or two verticals, or is it broad-ba sed? Second, the projects which are actually getting stopped and paused, do you believe it may come back, or clients are actually rethinking in terms of not starting those projects and those may be actually canceled?
Look, if one has to take a bigger picture view of things, at a uber level, it is not that everything is getting impacted. There are different shades of customers. There are customers who are getting impacted in this macro a little more than others, we have seen some of these, including some of the strongest hyperscalers, take care of their own cost ahead of whatever it is.
We had, for example, last quarter said one of the largest hyperscalers, we had a ramp down of $3 million a quarter. I can tell you, without naming anyone else, it's not just us. Most of their strategic suppliers went with the same hand. Some of the weaker customers may postpone the, you know, deployment of capital. I don't think these are getting canceled.
If there are any material things that get canceled, as we declared last quarter, openly, we will come and say. There may be a little bit of a pushing out in terms of, you know, wrap-ups. There may be a little bit of spend pullback.
What we are hearing from our customers is clearly, the next 1-2 quarters are where it is tough, and then they are also expecting the market to open up for themselves, and hence we are also hoping to see acceleration over the next 3-4 quarters. That is where we are. Nothing that, you know, we can say this particular vertical, this particular customer set is suffering more than others.
Okay, thank you. All the best.
Thank you.
Thank you, Sandeep. Next question is from Prajaj.
Hello, am I audible?
Yes, please.
Yes, sir. I just have a small question. When we are saying that it's a 200 basis point to 300 basis points of improvement, are we talking about PAT margin or EBIT margin? Just one clarification on this.
We are talking about the EBIT level.
Okay, fine. Thank you.
Thank you. The next question is from Dipesh Mehta.
Yeah, thanks for the opportunity. 2 question. First of all, just want to get some sense about the vertical. BFSI, I think most of peers indicated, challenges in growth. We have very strong performance. HLS, we are seeing some weakness. If you can provide some sense, how we look these 2 vertical, and high tech also.
Second question is about the expenses side. Software license expenses have seen significant increase as a % of revenue over the last couple of quarters. If you can provide some sense, what is driving it and how one should model it? Thank you.
Sure. I'll answer the vertical-related question, and I'll have Sunil answer the software licenses-related question. If you look at the vertical side of it, while BFSI came in strong for us, from our customer conversations, we can see that the next few quarters are going to be a tad bit soft for BFSI. We'll see how it pans out in actual execution.
From a healthcare licenses perspective, the de-growth that we saw was particularly restricted to what we call scientific instruments and medical devices segment. There are four segments in healthcare that we deal with: scientific instruments, medical devices, payer, provider, and pharma. When we look at the scientific instruments, you know, segment, there are a few of our customers who had seen a windfall in terms of their revenues because of their play in the COVID value chain.
Whether they were people who were providing reagents or test kits or equipment in the whole value chain. That, their revenues are now going down, and they are recalibrating to their new reality, and that includes some spend with us. If you look at our bookings, from our bookings, the largest deal that we won in this quarter was with a payer and a tech company in the healthcare segment.
If I look forward from what we know today, healthcare licenses is going to be a good growth segment for us, while it may have seen one quarter dip. Banking financial services will be a little tepid. As far as technology is concerned, that is a segment where we have the strongest, you know, right to win and seat to the table. That is going to be a good forte for us going ahead. Hopefully, that answers you, and Sunil will answer the question on software licensing. Sunil, over to you.
Yeah. Hi, Dipesh. In terms of software licensing, there are basically, as you know, two items: one, which is used in project delivery for customer projects, and the second for own use. Own use, basically, we have made, you can say, strengthen our own cybersecurity defense. We have also done some investments in learning and development-related softwares.
These are two areas where you can see there is an increase in that type of expenses. Far as the delivery related expenses are concerned, these are basically part of larger engagements where we use softwares or third parties which are embedded in our deliveries. That is the main reason for this.
Thank you, Dipesh, for your question. The next question is from Ravi Menon.
Hi, thank you for the opportunity. Sandeep, just wanted a sense of, you know, are things slightly improving or what do you think, you know, will happen with client budgets? You know, what we've heard from other people is that budgets stay allocated, but, you know, clients are just not ready to spend as if they're waiting for the macro to improve. Any improvement in the conversations over the last three months?
Right. I would say incrementally over the last several quarters, it has been a little more pullback than actually decision-making getting accelerated. People have the money, but they are all delaying their decision. They're also like, you know, a number of you are worried about the macro.
They are also worried about the macro. There is definitely a delay in decision-making, which is leading to a little bit of stress, if you may, on the sectors that we deal with and downstream the revenues that we get. Even if we look at our own revenues, there was a time in the last... If I go back in 4 to 6 quarters, we were growing anywhere between 5%-9%. Our growth today is 3%, and it's a direct reflection of the environment.
While 3% in our sector today, I would be, you know, I would be proud that we have delivered one of the best. Obviously it has come down from the times where we were 4-6 quarters. From our conversations, we are clear. People are expecting this to be maybe around that bottom in the next 1 quarter, 2 quarters, and then accelerate from there.
Do you think that, you know, the, your top customers seem to be all doing well? Is that expected to sustain, or, you know, are there any pockets of weakness outside this, top 10 that you'd want to call out, you know, whether that's a particular geographic segment or, a vertical?
Look, if we knew anything that was material, we would have announced it on this call. There is nothing that as of today, that is known to us, which is a material negative impact on us. We are at it. We are, you know, working towards, you know, maximizing our, you know, revenues, delivering well on profitability. There's nothing that is known to us, which is a material impact, whether it is top customer or top 10 or top 50, and so on.
Okay. Thanks. Thank you, and best of luck.
Thank you.
Thank you. Participants who wish to ask questions can raise your hand from the participant tab on the screen. The next question is from Vipul Singh.
Yeah, hi. Thanks for taking my question. I hope I'm audible? Yeah, thanks. See, my question is basically on the revenue composition. I think for the second consecutive quarter, we have seen the top client contributing significantly to our revenue. This quarter, the top client forms 40% of our incremental revenue, Q and Q, and last quarter, that number was almost 60%.
Of course, in the preceding quarters before that, we as a strategy had kind of ramped that client down, and we were always talking about its share of business actually reducing in our overall composition. What is the kind of strategy that we are looking at in terms of top client?
Also, I know you don't share that details explicitly, but, the revenues from the top client, in terms of margin profile, is it any different from our overall company margin profile or pretty much similar, as the other projects are?
Okay, there is a number of points out there. If you look at it historically, we had ramped down one program with our customer, which was on the IT side, which was not profitable for us, but that was done nearly a year back. Two quarters back, we had got ramped down from them, and it had significantly decreased the revenue, and we worked with them to understand their priorities, because everyone today is trying to optimize for their business needs.
They have a business to run. They have to optimize vendor spend, whether it was with us or others, and we could, you know, happily work with them based on our 18 years of working with them to craft out a win-win with them, and that's how we saw the revenue come back. Now there are a number of programs.
Some of them may be time-bound, some of them may be, you know, longer term. Overall, from a top one customer perspective, I am not expecting from what we know today, it to be, you know, a seesaw. It is going to be steady.
There may be a certain addition, there may be a certain deletion, depending on the programs being added or, you know, finishing and so on, but it will be a stable, you know, customer for us from what we know today and what we see. As far as, you know, other margin profile, etc, is concerned, for a customer at that size, it's a reasonably decent margin that we do with them, and we are happy where that margin is.
Got it. Do you, I mean, just to finish up on that part, do you expect this top client, I mean, and them being the large client and, of course, being one of the large vendors in the tech domain, could we actually, at some point of time, start to become a good, a large partner to them in their endeavor of the overall tech modernization part? I mean, by increasing our share, or do you think the scope of work with us for them is going to be limited in the size and nature?
Look, there are multiple things that you do with any customer, any of these, and the top one is one of the technology giants.
Of course.
With them, we work on developing products for them, sustaining products for them, taking those products to market in terms of doing professional services on them. They are also dabbling into GenAI in a different. There is definitely scope for us to do more. Obviously, they have to, from a go-to-market perspective, they work with multiple different service providers because each one of us has our own niche. There is definitely scope to do more. Today also, if you look at it, we are one of their most strategic partners from what we deliver in one day.
Got it. Great, thank you so much. Thanks for clarifying that. Thanks a lot and wish you all the best.
Thank you.
Thank you. The next question is from Vimal.
Thank you for the opportunity, sir. First question, I'm not sure if you highlighted this, so, my apologies in advance if I'm making you repeat it. The wage hikes are fully implemented this quarter, or is there any spillovers in Q2 that we might see? That's question number one.
Question number two, Sandeep, sir, you mentioned the CQGR growth that we are targeting of 2%-3% in case the macro remains, or rather 2%-4% in case the macro remains uncertain. That is in context after factoring in, you know, the possible slowdown in BFSI and a flattish sort of, TCV, ACV that we've seen, or rather, decline of TCV, ACV that we've seen in this quarter. We are factoring in both these facts, right?
Let me answer both. Wage hikes, fully implemented. Our wage hike cycle is July 1st. We have stuck to it. We have given 7.5% wage hike on an average in India, 3.5%-4% outside India. Obviously, this will vary on the individual, their experience. Some people get more, some people get less, whatever it is.
Now, that is implemented. We have not deferred any wage hike. We have not deferred any joining, and we are very proud to say we gave 109% corporate performance bonus at the minimum for the whole company, and more. From that perspective, we have not optimized our margins by cutting into people's, you know, bonuses or their salary increases or deferring those. Let's be clear about that, we are not managing margins by that.
We are very proud of it. Second part of it, in terms of CQGR, yes, that is our endeavor. We don't give a forward-looking guidance. If you have put on the mat and, you know, you want to extract what we want to do, that is the, you know, aspiration that we have. Come a bad economy, come a good economy, we should be in a good, healthy, you know, growth zone. That's where our endeavor is, yes. We will try and deliver 2%-4% in a bad economy and 3%-5% in a good economy. Balance will let the time come.
Just one question here. Our strengths have always been in the product engineering. Our capabilities have always been, very superior as far as product engineering is concerned. Do you think that in such an environment, probably product engineering gets more discretionary and we might have to win more wallet share to continue, you know, growing the at the pace at which we are, versus, you know, if for a pure IT services player, which is probably focusing on cost-cutting projects, etc?
When we talk of product engineering, we do product engineering for product companies. The same tenant, we take it to the enterprise in terms of doing digital transformation, which may be building a platform for internal or external customers and so on. Cost reduction can be done in many different ways.
Cost reduction is just not about internal IT. Cost reduction can be if you're developing products as a product company, can you do it by leveraging more nearshore, offshore, do the same and more at a reduced cost? That's cost reduction for them, and similarly in the enterprise.
Keeping long story short, I do think we'll have to have a different pitch for economy like this, and that's what we have been doing. That's where we have been developing our demand, and we have been delivering significantly. Now, we'll have to continue on the execution front. In all this, it's about execution.
Thank you, Sandeep.
Thank you.
Very, very helpful. Thank you.
Thank you. The next question is from Abhishek.
Hi, thank you for the opportunity. Congrats on a good quarter. Just one question on, you know, your top customer reported earnings. They talked about a lot of, you know, AI in their call as well. You know, what are we participating along with them? Any color could be really helpful.
The second thing is, you know, if I look at the high tech growth, and you mentioned that the high tech growth would be one of the pillars. You know, so X top customer, it appears to be a little soft. Now, I know you would not dissect it this way, but just trying to understand that, you know, what are we trying to build for the non-top, you know, high tech customer? Those are the two questions. Thank you.
Sure. Look, I have to be cautious of our NDAs, and I have to be cautious of time. All I can say is, with the top customer, we are working with them to understand how they are differentiating their GenAI strategy with respect to others. They were earlier on in this whole, you know, GenAI/AI game with watsonx, with a different flavor that they want to bring to the enterprise.
We are collaborating with them to do proof of concepts for some other enterprises, and we'll continue to go deeper with it. As far as the X top customer and top customer is concerned, look, we look at our, you know, entire portfolio of customers as a portfolio. There will be situations in a macroeconomic environment where some customers may perform better in a particular, you know, quarter versus others.
As long as we are focused, as long as we are seeding each part of the customer, you know, category for growth, we are good. I'm not too worried about slight slowdown in bookings. That's a timing issue more than, you know, issue of not happy. I'm relatively confident each of the customer categories, with time, will show a healthy growth.
The sum of parts is any which way, at 3%, I'm very proud to say we have delivered among the best in the industry. I don't think anyone has delivered 3% sequential Q-on-Q and 17%+ in $ terms and 23.6% in INR terms. We are on it. We're on it in terms of execution, and we'll try to even do better as we go along.
Thanks. Really helpful, and congrats on a great quarter.
Thank you.
Thank you. The next question is from Krishan.
Hi, thanks for taking my question. I just had a question around your ACV and TCV. While the trailing 12 months indicates continued robust growth, even if I assume leakages, what is your view on the deal pipeline, and how should we look at the next few quarters? For the growth for the next year after that, you might need to increase your ACV, TCV signings.
Right. Look, this is an ongoing, you know, business. As we go along, as the revenue increases, you are absolutely right, the ACV, TCV will have to increase. We have talked about how we have increased our investment in SG&A. We have talked about how we are not looking to maximize profits in the shorter run.
We are, you know, even now, growth and a sustained growth is the first priority, not maximization of profits at the cost of growth. We are investing in our sales and marketing, we are investing in our go-to-market partnerships, whether it is on GenAI or other technologies. We are hunkering down with our partners to take them and become our ecosystem orchestrator of choice for our customers.
That is where we are focused on, and I'm pretty sure the ACV, TCV should reflect it as we go along in terms of the increase in those metrics in line with the revenue growth that we want to see.
got it. Thanks. How is your pipeline looking versus the previous quarters? Do you have a healthy pipeline or?
Yeah, we don't give forward-looking guidance. I can't give you a number on the pipeline because it's as good as giving you forward-looking guidance on revenues. From an overall perspective, the pipeline is good. Keep in mind, the decision-making is slow. Next one, two quarters are going to be tough, but the pipeline is fairly good. Fairly good, it is across the various segments that we deal.
Got it. Thanks a lot.
Thank you. The next question is from Rishi.
Yeah, can you hear me?
Yes.
Yeah.
Great, thanks for the opportunity. Sandeep, just one thing you mentioned about, you know, the condition of the macro today, or, basically in a bad macro, we'll grow 2%-4%, CQGR. I guess, you know, 1Q also would be a part of that, and we have done 3%. Now, some of the, you know, your peer set, large and small, have also talked about, potentially better second half.
You know, in the anticipation that some of the deals that were there potentially would have, you know, gotten delayed in terms of ramp-up. For you know, fiscal 2024, do you see it to be, you know, normal year where, you know, you end up growing largely at the same rate through the course of the year? Do you also think there could potentially be some bit of acceleration in the second half of the year?
Look, as I said before, our customers, when we have discussions with them, they also believe the next 1-2 quarters are going to be different. Everyone will have to optimize for their own business. Then on, they are also expecting the economy to recover, the interest rates,
etc, all these hikes to be behind us, maybe even a different interest rate regime, etc, coming in, and so on. Nobody has a crystal ball, but what we can see is the next few quarters are tough, but everyone is expecting the economy to come back, and that's what our peers, I'm sure, they have also been pointing out.
Right. Just secondly, on the margin side, you know, you had, you know, seen a lot of growth in the last two years and a lot of incremental revenues you would have invested back into the business. If we look at FY24, you know, how much of margin sustenance or expansion, if at all, is predicated on, you know, X
amount of revenue growth that we end up getting, versus, you know, some of the investments that you have done, which would anyways sweat out, you know, some of the margin levers that we would have, you know, basically materialized through the course of the year?
Sure. We are nearly at the end of the call. I'll just keep it very brief. From our perspective, our first task of business is sustainable growth. As far as the margins are concerned, on the full year basis, don't worry about quarter to quarter. Full year basis, adjusted for the spend that we did in giving gifts to our employees and doing customer events in the first quarter.
If you adjust for that, the first thing is grow well and be at the EBIT levels that were there for the last year. As we go ahead and accelerate our business, as the economy comes back, we have enough levers to execute to get to the 200-300 basis points aspiration that we have in terms of EBIT expansion. That's what we will execute.
Thank you so much. All the best.
Thank you.
Thank you. The last question is from Anmol.
Yeah, hi. I hope that I am audible.
Yes, please.
Yeah. Just wanted to ask that what do you think about the pricing environment at this point in time, given that there is a lot of hyper competition and the enterprise are also having their own cost pressures? As clients are asking for the pricing discount, and are we planning to give the same to win deals or the revenue or existing ones?
look, there is some segments that we deal with, some of the largest customers that we deal with, there are multiple strategic partners. It becomes hyper competitive out there, and in the last few years, we have been able to do price increases. I don't think in this environment that will be the one where, you know, in the bigger customers, we can go in and have price increases.
As far as the newer bids are concerned, a number of our newer bids are proactive bids, where we are coming up with ideas, where we can add value to the customer, whether it is cost optimization or otherwise. That's where we have better pricing power, based on the differentiation that we bring to the market, based on our capability to lead the customer in achieving their cost optimization initiatives.
It's about what business you go after, how you go after, how you execute your sales process. At a uber level, I'm not too worried about the pricing pressure as of this point in time, except for a few large customers.
Thanks. Just one last bit from my end, is that what is our hiring outlook for the next couple of quarters?
Look, the hiring will be in line with the demand scenario. Plus, we have offered about 800 freshers who will join between August to December. We have no intent of delaying their joining. We will honor the offers the way we have given them and keep the timing. Having said that, if we need to optimize our own talent for non-performers and others, that is the par for the game.
Otherwise, our hiring is going to be in line with our revenue projections. Please keep in mind, we have a significant amount of freshers who have been in our system for 12 to 15 months, who are fully trained, who have been shadowing projects. We have a lot of dry powder from that perspective to be able to grow without necessarily going out and hiring an offer.
Sure, Sandeep. Thanks for the call.
Thank you. I now hand the conference over to Mr. Sandeep for closing remarks.
Thank you. We'd once again like to thank our 23,000+ team members, our customers, our partners, and our investors for their support in our growth journey. We are cautiously optimistic on our prospects for FY 2024 and beyond, even as we merge the macroeconomic developments and stay close to our key customers.
We continue to aspire to maintain industry-leading revenue growth, combined with healthy levels of profitability. Thank you for spending time with us on the call today. We look forward to connecting with you again in 3 months' time to provide an update on our ongoing progress. Please stay safe and stay healthy. Thank you.
Thank you.
Thank you.
Thank you very much to the Persistent management. Ladies and gentlemen, on behalf of Persistent Systems Limited, that concludes today's conference. Thank you for joining us, and you may now disconnect your line and exit the webinar. Bye.