Ladies and gentlemen, good day, and welcome to the Persistent Systems Earnings Conference Call for the third quarter of FY 2024, ending December 31, 2023. We have with us today on call 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 the listen-only mode, and there will be an opportunity for you to ask questions after the management's opening remarks. Should you need assistance during the conference call, please raise hand from the participant tab on the screen. While asking questions, request you to please identify yourself and your company, and please note this conference is being recorded. I now hand over the conference to Mr. Sandeep Kalra. Thank you, and over to you, sir.
Thank you, moderator. Good morning and good evening to all of you, depending on where you're joining from. I would like to start by wishing everyone a very happy New Year 2024, and I hope the new year has started well for all of you. We sincerely appreciate you taking time with us, despite today being a holiday for most of you. Before discussing our financials, I would like to highlight two significant recognitions we received during this quarter. First, we were named the Most Promising Company of the Year at CNBC-TV18's India Business Leadership Award. Second, Persistent was included in three major capital market indices: the MSCI India Index, S&P BSE 100, and S&P BSE SENSEX Next 50 indexes.
These recognitions are a testament to Persistent's strong fundamentals, growth potential, and competitive edge in the global technology services market, as well as an unwavering commitment to creating sustainable value for all stakeholders by maintaining high corporate governance standards. With this, let me now start the update on our quarterly financials. I'm proud to share with you that we crossed the $300 million mark in revenues in Q3, clocking $300.55 million, representing a growth of 3% sequential quarter-on-quarter and 13.7% on year-on-year basis. In rupee terms, the growth for the quarter came in at 3.6% quarter-on-quarter and 15.2% on year-on-year basis. On a constant currency basis, this translates into a growth of 3.1% sequential. Coming to EBIT.
Our EBIT margin for Q3 came in at 14.5%. The EBIT margin expanded 80 basis points quarter-on-quarter, despite the impact of furloughs, aided by higher utilization, cost optimization measures undertaken in Q2, and lower travel cost. Sunil will provide more color on the EBIT margin movement later in this call. We remain committed to our goal of improving EBIT margins by 200-300 basis points over the next 2-3 years. Now, coming to the order book for the quarter. The total contract value for the quarter came in at $521.4 million, with TCV of new bookings being $277.4 million. We crossed the $500 million TCV mark for the first time, reflecting a healthy pipeline conversion.
The annual contract value component of this TCV is $392.1 million, of which the ACV from new bookings contributed to $182.9 million. As most of you may be aware, 79% of our business comes from North America, and we typically see higher quantum of renewals in the December quarter, leading to substantial increase in renewal ACV and TCV numbers in this quarter. This corresponds to the end of financial year for most of our customers in North America. While the demand environment remains fluid, our focus on account mining and large deals were key factors that aided our healthy order bookings in Q3. Please note that, as always, these TCV and ACV numbers include all bookings, small and large, renewals, as well as new bookings across existing and new customers. Now coming to the client engagement size.
Let me give you some color on our performance across client engagement size. We witnessed healthy growth among client buckets, with our top five customer revenue up 2.1% sequential quarter-on-quarter, top ten up 2.4% sequential quarter-on-quarter, top twenty up 4.7% Q-on-Q, and top fifty up 3.4% sequential quarter-on-quarter. Our top fifty customers, a portfolio of our marquee relationships, delivered a secular growth of 3.4% in Q3, which is better than the overall revenue growth of the company in the quarter and reflects our continued momentum. The progression of our customers across engagement size categories continues with a total of 176 customers in the greater than $1 million bucket in Q3.
I'm happy to report the entry of new customers in the $1-5 million and $20-30 million buckets, which have the potential to scale up further in the upcoming quarters. In terms of the geographical breakup of our revenues. From a geography perspective, North America revenue grew by a healthy 3.6% quarter-on-quarter in USD terms, while India revenue grew by 6.8% quarter-on-quarter. Europe revenue and rest of the world revenue declined 2.8% and 15.1% quarter-on-quarter, respectively, although on a much lower revenue base. Coming to the people front. At the end of quarter three, our total headcount stood at 23,336, an increase of 494 from Q2.
75% of this headcount increase is attributable to increase in lateral headcount, while majority of the remainder is owing to the fresher hiring. We have added a total of roughly 400 freshers in Q2 and Q3 of this year. The blended utilization for the quarter came in higher at 81.5%, as against 80.6% in Q2, as we continued focus on increasing utilization of our existing employee base, while adding lateral hires to augment for critical skills. The trailing twelve-month attrition for the quarter came in at 11.9%, compared to 13.5% in Q2. As you will notice, our attrition has come down to a comfortable band over the past few quarters.
Nonetheless, this decline should be seen in the context of general moderation in hiring across the sector, slowdown in sector growth over the past several quarters, as also from the perspective of positive outcomes from our employee value-related interventions. Now, moving from operational metrics to certain strategic highlights from the quarter. A lot of you are interested in the progress that we've made on GenAI, but before I get to that, let me give you an update on how we have been playing in the overall AI realm over the years. As you would remember, GenAI is just one form of advanced AI, and the market for AI and Persistent's capabilities in AI span across a longer duration of time and are much more expansive than just GenAI.
Since its inception three decades ago, Persistent has been a frontrunner in solving complex data challenges while navigating the evolving landscape of AI. Our journey with AI started in 1990s, with our partnership with the then technology leaders on engineering database products and their implementations. Our early partnership with IBM Research Labs and SPSS, a company later acquired by IBM, enabled us to work with the world's leading enterprises in solving their critical business challenges using the latest data and AI techniques. Our AI capabilities came to their full fruition in early 2000s, with us setting up analytics centers of excellence for our marquee customers and taking on end-to-end responsibility across data integration, data profiling, data processing, model preparation, and model maintenance and calibration.
As AI technologies kept unlocking newer possibilities, we continuously engaged in niche projects such as early detection of lung cancer and chronic kidney diseases, automation of sanction screening process in trade finance, autonomous enterprise insights, to just name a few. This paved the way for our deepening relationships with leading hyperscalers such as Microsoft, AWS, Google, as well as data technology providers such as Snowflake and Databricks, among others. In each evolutionary stage of AI, from descriptive to predictive and now generative AI, Persistent has gathered a treasure trove of insights and experiences and customer relationships while working with the technology leaders. Today, our data and AI business is pretty robust and is powered by over 3,000 data engineers and experts working across a range of mission-critical customer requirements. With this background, let me also give you an update on the latest in GenAI ecosystem.
For the last twelve months plus, our team of AI practitioners, researchers, and senior leaders have been strategically adapting and actively participating in the rapidly evolving GenAI space while being guided by industry thought leaders from the domain. While our current engagements in GenAI are modest from a revenue perspective, there's a clear indication from our customers that this trend is on the cusp of a significant shift. I'm excited to share that we are already witnessing the green shoots of large-scale opportunities at the convergence of AI, data, cloud computing, and automation. Let me now share some examples of recent engagements on the GenAI. In the BFSI sector, we are collaborating with a Fortune 500 financial services company facing challenges due to a complex collection of thousands of analytics reports developed over the years, leveraging a multitude of technology stacks.
This complexity was a significant barrier to efficient data analysis and decision-making, not to mention the cost sprawl that happened due to the use of multiple technology stacks. Our team undertook a comprehensive migration project utilizing our proprietary GenAI-powered report migration tools. This innovative approach enabled us to transition these reports to a unified modern technology stack, 30% faster and with significantly higher accuracy than traditional manual migration methods. This not only streamlined operations, but also allowed us to identify and rationalize unused reports, reducing costs associated with legacy technology stacks. As a result, our client can now access and derive insights more efficiently and cost-effectively. Similarly, in the healthcare space, we are engaging with a global healthcare company that needs to revamp its data management and AI initiatives to become more agile and innovative.
We are building a strategy along with the client that includes launching an internal marketplace for their users to consume and share information, establishing an AI center of excellence to explore new business use cases, and automating data consumption and product development through expanded data fabric, while propagating safe and ethical AI usage. These initiatives aim to unlock the full potential in data and AI, and drive innovation and achieve strategic growth objectives across the organization. In keeping with our innovative spirit, we recently launched an innovative GenAI-powered open source maintenance service, a pioneering solution in our industry. The service targets both enterprise software as well as enterprise IT organization, and utilizes advanced GenAI technologies to ensure that an organization's open source software remains current, incorporating all necessary patches, bug fixes, and the latest software releases.
Each of these engagements and offerings have the potential to be multi-million, multi-year deals, replicatable across organizations. We strongly believe that AI will be a driving force, driving significant productivity in engineering transformation and enterprise modernization, and this will also spawn off much more downstream work through the need for improved data quality. Now, coming to the analyst recognitions related to GenAI. I'm pleased to share with you that Persistent has been recognized as GenAI market leader in the HFS Horizons Generative Enterprise Services 2023 report. This accolade is a testament to our rich heritage in digital engineering and data proficiency, along with the early adoption and leadership in the domain of GenAI. It is a recognition of the clarity and boldness of our vision, and the strong endorsements from our customers and hyperscaler partners.
We were recognized by Everest Group in their PEAK Matrix Assessment as a leader for talent readiness in the next generation IT services, reflecting our team's preparedness for next-gen technology challenges and our comprehensive learning and development initiatives focused on cutting-edge skills, including GenAI, cybersecurity, and overall the data domain. We were also named a leader in Everest Group's Data and Analytics Services for mid-market enterprises, PEAK Matrix Assessment 2023, acknowledging our substantial investment in next-generation technologies, including dedicated AI labs, and our strong partnerships that enhance cloud capabilities and our commitment to delivering business outcomes. Now, coming to the updates on our hyperscaler partnerships. Keeping up the momentum on our hyperscaler partnerships, we announced a strategic collaborative agreement with AWS earlier this quarter to accelerate GenAI adoption.
Through this alliance, Persistent gains an early access to AWS GenAI resources to build proof of concepts to help clients achieve tangible business outcomes. Adam Selipsky, the CEO of AWS, spotlighted our achievements in his keynote at the annual AWS re:Invent conference, underscoring the strength of our partnership and our dedication to enhancing developer productivity. Coming to our other investments in GenAI. To accelerate our co-innovation with our customers and partners, we marked a new milestone this quarter with the launch of state-of-the-art GenAI Studios across U.S., U.K., and India. These innovation hubs serve as a playground for Persistent, our customers, and our partners to lead at the forefront of AI technology and creativity while shaping the future of industries together.
Last but not the least, I'm excited to announce the appointment of Praveen Bhadada, one of our distinguished leaders and my current chief of staff, to spearhead our GenAI business portfolio company-wide, effective immediately. In his new role, Praveen will unify our overall AI initiatives, including GenAI, across the organization under one umbrella, giving us the power to synergize across industries, and will focus on propelling our growth trajectory in the same. With this strategic pivot towards AI-powered digital engineering and enterprise modernization, our endeavor is to be at the forefront of AI revolution and deliver unprecedented value to our customers across the industries that we service, and also have a leapfrogging of our capabilities and service offerings powered by AI across our service stack. We'll continue to highlight the progress on this topic in the subsequent quarters. Now, coming to the management updates.
In line with our growth aspirations, we continue to add muscle and fortify our management team. We welcomed Dhanashree Bhat as our Chief Operating Officer. With her over 28 years of experience, Dhanashree will further strengthen Persistent's operations to ensure client success. She'll be responsible for talent supply chain, delivery excellence, learning and development, enterprise risk management, IT, and facilities, among others. Prior to joining Persistent, Dhanashree was the chief delivery officer of Communication, Media, and Telecom vertical at Tech Mahindra. We also welcome Barath Narayanan as our head for Global BFSI business, as well as our Europe geography. Bharat comes with over 24 years of experience and brings to us deep experience in managing large P&L units, shaping and winning large deals, managing consulting businesses, and delivering complex programs that drive growth and profitability.
Prior to joining Persistent, Bharat was heading the digital and cloud business globally for Wipro. Coming to the ESG and administrative updates. As we continue our journey on our commitment to be among the best in class for our ESG endeavors, I'm glad to report that our corporate sustainability assessment, S&P Global score, has moved from 47 to 60. On the scope one through scope two emissions, our aspiration is to become carbon neutral by 2025, and towards this, we are working on sourcing 100% of our electricity consumption from renewable sources. Our efforts are now towards net zero carbon emissions, much ahead of the stipulated timeline, 2050, set by United Nations Intergovernmental Panel on Climate Change.
On the facilities side, we inaugurated a new office in Kochi, Kerala, in November 2023, as part of our continued efforts to reach out to locations where our employees are based. We also expanded our presence in our New Jersey office in the U.S. In summary, we are pleased with our performance in Q3 of 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 items. Sunil, over to you.
Thank you, Sandeep, and good morning, good day to all. Thank you for taking time to join us today. Wish you all a very happy 2024. Sandeep has shared some business outlook. Let me now walk you through the financial performance for the quarter ended thirty-first December, 2023. The revenue for the quarter was $300.55 million, the growth of 3% quarter-on-quarter and 13.7% YOY. Revenue for the quarter in rupee terms was INR 2,498.2 million, reflecting growth of 3.6% quarter-on-quarter and 15.2% YOY. For the nine months, the cumulative revenue is $875.2 million, with a growth of 14.9%.
In rupee terms, the revenue for nine months is INR 72,311 million, reflecting growth of 18.6%. Coming to sequential growth for the quarter at segment level, healthcare and life sciences grew by 16.6% quarter-on-quarter. IT and emerging verticals grew by 0.1% quarter-on-quarter, while BFSI declined by 0.7%, mainly on account of furloughs. As you know, seasonally, Q3 of the year is impacted by furloughs. The overall impact on the margin was 60 basis points during the quarter due to the furloughs. There is an increase in on-site effort mix which we'll observe, which is due to initial phase of deal ramp-up of the deals won in the previous quarter, which is also reflected in increase in subcon expenses. The impact on margins due to the higher on-site mix was about 60 basis points.
These margin headwinds were more than compensated by margin accretive composition of IP revenue, which contributed 80 basis points, higher utilization and lower travel expenses, each contributing 30 basis points, and SGA rationalization in Q3, coupled with benefit from headcount optimization undertaken in Q2, are contributing the majority of remaining improvement in margin of 60 basis points. Attrition continued to decline in line with industry trend, with TTM attrition at 11.9% as compared to 13.5% in the previous. With this, the EBITDA margin for the quarter was 17.7% as against 16.8% in the previous quarter. EBITDA for nine months period stands at 17.6%, vis-à-vis 18.1% for the comparable period last year. Depreciation and amortization was 3.1%, same as in the previous quarter.
The increase in amortization in absolute terms is due to amortization of software used for internal systems. We have been working on strengthening these to support the increased scale of operations. The EBIT came in at 14.5% as against 13.7% in the previous quarter, and EBIT for 9 months period stands at 14.4%, vis-à-vis 14.8% for the comparable period last year. As I had mentioned in the earlier quarter, we have invested in sales and marketing, and there is an increase in G&A expenses due to more employees working from office. The treasury income for the quarter was INR 181.08 million, as against INR 166.28 million, mainly on account of improved cash flow.
Forex gain was INR 80.9 million, as compared to INR 83.7 million in the previous quarter. Profit before tax for the quarter was INR 3,893 million at 15.6% as against 14.8% in the previous quarter. ETR was 26.5% as compared to 26% in the previous quarter. PAT for the quarter was INR 2,861.3 million at 11.5%, while YTD PAT for nine months was INR 7,782 million at 10.8%. Excluding the one-time expense in Q1 on $1 billion milestone celebration, PAT was 11.3%. EPS for the quarter was INR 37.83, as against INR 35 in the previous quarter.
ROC for the quarter was 29.3% as against 30.2% in the previous quarter. ROC is based on trailing twelve months EBIT. The operational CapEx for the quarter was INR 321.32 million. Cash conversion for the quarter continued to be good at 101% of EBITDA. OCF to EBITDA for nine-month period ending December 31 stands at 0.71, vis-à-vis 0.60 in the corresponding period last year. Total cash and investment on books is INR 1,847.2 million at the end of December, as compared to INR 1,569.3 million at the end of September. The DSO came in at 66 days, same as in the previous quarter.
Forward contracts outstanding at the end of December was $240 million at an average rate of INR 84.04 per dollar. Couple of other updates for this quarter. As you know, Q3 is usually the quarter in which we declare interim dividend, and I'm pleased to share with you that the board of directors declared an interim dividend of INR 32 per share for FY 2024 on the face value of INR 10 per share. This compares to the last year's interim dividend of INR 28 per share. It's our endeavor to maintain consistent dividend payout ratio while we augment our growth through capability-led acquisitions.
In order to make it more convenient for shareholders to participate in Persistent stock, the board of directors has also recommended to the shareholders a resolution to split the face value of shares from INR 10 per share to INR 5 per share. This will be subject to shareholders' approval, which will be processed in due course. Thank you, all, and now I hand it to Saurabh for covering deal wins and awards and recognitions. Saurabh?
Thank you, Sunil. I will now talk about key deal wins for Q3 by industry segments. Let me begin with software, high tech, and emerging industries, our largest vertical. Persistent was selected by one of the leading providers of remote work tools for collaboration and IT management to transform its Salesforce-based applications, connector factory, and IT service management under a managed services model. This is a $50 million+ TCV deal, and it's another major successful win for our private equity channel. Persistent was selected by a leading publisher to establish a greenfield IT setup and provide managed services over a five-year period. This entity is a newly formed organization as part of a carve-out done by a leading private equity from a global media conglomerate.
This is another case study of Persistent's established framework for carve-out transactions, which leverages Persistent's intelligent IT operations framework and components from hyperscalers and leading technology vendors. Persistent was selected by two of the hyperscalers as a strategic partner for the development and support of their connected development programs. These deal wins are special because they provide us access and partnership with the next-generation tool development programs of these hyperscalers, including in the generative AI domain. Coming to banking, financial services, and insurance, Persistent was selected by one of the largest U.S. banks to develop and maintain its applications across domains such as capital markets, payments, treasury, and customer support. This is a $50 million+ renewal deal, where Persistent is also a beneficiary of vendor consolidation.
Persistent was selected by a leading Canada-based provider of financial technology to credit unions for developing and supporting the core banking platform, which will be rolled out to more than 40 credit unions. As part of the engagement, Persistent would also manage the cloud and security operations of the customer. Persistent was selected by a large global financial conglomerate to modernize its security operations center for its American operations, including providing a holistic view of its security posture to the top management. This is a managed services engagement with complete ownership with Persistent and has the potential to be replicated in other geographies for the customer.
And finally, within our healthcare and life sciences vertical, Persistent was selected as a strategic partner by a leading analytical instrument company to engineer their key product suite, including building data analytics capabilities for the chromatography platform, instrument support solutions, and algorithms for microarray images. This is a large renewal deal with one of the largest healthcare customers for us. Persistent was selected by a Fortune 500 scientific instrumentation company to undertake upgrade and migration of the database for its clinical research group, while ensuring regulatory compliance in the U.S. and Japan. Persistent was selected by a leading pharma contract research, development, and manufacturing organization for development of artificial intelligence-led drug discovery platform. This platform will accelerate drug discovery process from molecular design to preclinical candidate selection by creating a central reusable repository for quick decision-making for compound synthesis and biological evaluation.
Now, moving on to the awards and recognitions for the quarter from leading analyst firms. Q3 saw us get continued recognition from industry-leading analyst firms and associations. To mention a few, Persistent was recognized as the only provider to win in four different categories in the Star of Excellence Awards based on voice of the customer. The ISG Star of Excellence Awards, part of the ISG Provider Lens Research Program, is the premier industry recognition program for the technology and business services industry. These awards recognize exceptional client service experience and serve as a benchmark for measuring client centricity in our industry. Following were the categories in which Persistent was recognized. Persistent was recognized as ISG Star of Excellence, Universal Industry. Persistent was recognized as ISG Star of Excellence, BFSI Industry. Persistent was recognized as ISG Star of Excellence, Healthcare and Pharmaceuticals Industry.
Finally, Persistent was recognized as ISG Star of Excellence, Cloud Native. Additionally, Persistent was recognized as a Breakout 15 provider in the Q3 2023 ISG Global Index for the second consecutive quarter. Moving on from the ISG awards, Persistent was recognized as a leader in IDC MarketScape Worldwide Software Engineering Services 2023 Vendor Assessment. Persistent was recognized as a leader in the Zinnov Zones ER&D Services and Digital Engineering Services 2023 report for the eleventh year in succession. Persistent was recognized as a Best Enterprise Services Vendor of 2023 by Constellation Research. This completes the section on key wins and awards and recognitions. With this, I would like to conclude the prepared comments and would like to request the operator to open the floor for questions.
Thank you, sir. We will now open the call for Q&A session. We will wait for a few minutes until the question queue assembles. We request participant 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. Okay, the first question is from Sandeep Shah.
... Yeah, good morning. Can you hear me?
Yes, we can.
Yeah, yeah. Congrats on a good execution. Sandeep, just wanted to understand, entering into 2024, any signs of recovery in our discretionary small size, faster converting, deal wins, in terms of client discussion, starting some of the projects which are put on hold in any of the verticals?
Look, from our perspective, yeah, the discretionary spend, we are seeing some green shoots, but it is, I wouldn't say that the environment is any significantly different from the last few quarters. Most of our growth, if you see, is coming from the proactive efforts that we have had in our existing customers and new, and these are longer-range deals that we are winning. So I wouldn't say necessarily that we are seeing too many green shoots. There are some green shoots, we'll let the time pan out and see how this goes from a discretionary perspective.
Okay, thanks. And Sunil, sir, looking at the margin walk which you have provided, with subcontracting cost and furloughs together impacting margin by close to around 120 basis points, is it fair to assume furloughs may reverse in the fourth quarter, and we can exit the fourth quarter with a 15% EBIT margin?
Yeah. So as I mentioned, you know, the increase in subcontractors is on account of the ramp-up in the recent deal wins. This will continue for some time before the offshoring starts. You're right directionally, this thing. We are working towards multiple levers to improve the EBIT margin, and that's the effort to continuously improve the EBIT margin from here on.
Okay, will come in the follow-up. Thanks.
Thank you, Sandeep. The next question is from Manik Taneja.
Hi, good morning to the leadership team. I hope I'm audible.
Yes.
Yes.
So couple of clarification questions. Sunil, the first question is for you. When I look at our segmental performance, what we see is that through the course of last three or four quarters, our segmental margins on the high-tech side have been coming off, with the exception of this particular quarter. So what is explaining the movements in terms of segmental margins, given the fact that in the past we renegotiated the deal at the large customer, which was to step up the margins for the business? And also, the second question is basically clarification on this large deal ramp-up. Is this largely to do with the healthcare business, which was a deal that you won on the healthcare payer side in the prior quarter?
Yes, Manik. So, the answer to the second question is yes, that is. But it is also not just that one deal. There are some other deals, as you would recall, we had announced in the earlier quarter, which are also ramping up. Coming to segment margins, what you mentioned about the high-tech margins, basically it is a function of three areas. The high-tech is an area where we have the larger ISV business, which includes a top customer. There are IP-related revenues that are coming over there, not just in the large customer, but also in our accelerate portfolio. And there is also the recent trend where we are seeing carve-out kind of deals, right? There is also certain portion of IP revenues over there.
So the margin is a function of if there are partner IP revenues coming in that, the margin conversion on that is lower. And in this quarter particularly, we had good accretive our own IP revenues, because of which the margin on the high-tech side is higher this quarter. So it's a portfolio of customers we carry, and the deals in every quarter may have, you know, relevance to the way margins pan out. But overall, if you see, the gross margin is steady, and we have been able to improve the EBIT margin instead.
Sure. Thank you, and all the best for the future.
Thank you, Manik. The next question is from Ravi Menon.
Congratulations on a really good quarter, everyone. You know, one question is on the healthcare side. You know, if I look at your breakup of customers, it looks like there is now pharmaceutical companies, payers, providers, and clinical research organizations. Is this a change from the whole specific instruments and medical devices focus that you had maybe three years back? Are most of these new customers?
So Ravi, good observation. So if you look at our healthcare portfolio, we have had a good footprint in the scientific instruments, medical devices. That was the leading segment for us, which used to contribute, lion's share. We did have pharma customers, providers at scale. Providers is where our Salesforce business dominates in the U.S. compared to our competition. What has happened is there have been some good accounts super-sized in all these domains, and we have invested heavily in the payer domain. And some of the larger wins we are getting are additionally in the payer domain. So now it's a very well-balanced portfolio across scientific instruments, medical devices, pharma, where we play mostly on data analytics and specialty pharma on the Salesforce front.
Providers, where we are leaders based on Salesforce and other CX initiatives, and payers, where our next-generation development capabilities, as well as data analytics, is playing out well. So now, yes, it's more diversified and scaling in all of this.
I also see that you, beyond the top 10 customers, the traction continues. You know, I think you explained also that you're seeing some wins from your private equity channel. Anything else that you could call out? You know, some of these customers, is there potential to take them to the top 10?
... Yeah. So, so good question. So if you look at the mix of the wins that we have had. So as we have grown from being a $500 million organization to a $1 billion organization, as we have grown our capabilities significantly, along with the addition of leadership teams and so on, we are now being invited to the much bigger bids. So today, if you look at the wins that we are having, they are against the top five in India, the big five across the globe, and so on and so forth. So the, the revenue mix, the client mix is changing, and to your point, some of these customers have the propensity to, you know, absolutely become among our top five, top 10 customers.
You will see the top 10 customer mix changing in, in terms of the names moving in there, the quality of, you know, customers moving in there over a period of time.
Thank you so much. One last question on the SD&A side. You know, you used to have about 20% of your revenue as SG&A, and now it's down to 16% or so. Do you think there is further leverage possible?
Yeah, so, so good point. Let me, let me answer a few more things along with this. There have been a few questions alluding to the margin side of it before, and all of this, you know, comes together. So if you look at the sales and marketing side of it, if we look at our investments in sales and marketing, we have brought in a significant rigor to sales and marketing. We have over-invested in sales and marketing as well. In absolute terms, if you look at it, if you look at year-on-year comparison, not just quarter-on-quarter comparison, we may be at a higher level in terms of SD&A from a year back.
Part of it, whether it is direct SD&A investments, part of it are investments which are in enabling things which enable our sales to be much more productive, whether it is in our, you know, capability build around the private equity side, capability build around our AI and GenAI side, capability build more deeper into certain parts of our cloud infrastructure and security, and so on. All of them are enabling the growth, and there is definitely further leverage on the SD&A side as we go along. Now, let me also take this opportunity to answer the broader margin question before, you know, everyone asks us the margin question in different forms and shapes. We have said very clearly we will increase our margin from 200 to 300 basis points between now and the next two to three years.
I do want to recognize a mistake. On one of the earlier calls, I had said 150-200. Our, our intent is 200-300 basis points. I want to clarify. Now, let me build it up for you before, you know, everyone asks the same question. If you look at our utilization, today, our utilization is at 81.5%. If you decipher that utilization into two distinct buckets, the laterals that we have and the people we hired from the campuses who are yet to become productive, and these are... I'm talking of the volume hiring that we had done two years back. That hiring is yet to be productive, more than 64% of what it was. Our laterals are running at 85%.
So as a company, we have the propensity, if we, you know, look forward, to inch our utilization up from 81.5% slowly up to 83%-85%. For each percentage of utilization going up, there's 30 basis points of margin that we release at the back end. So keep that in mind. That's one part. We talked about the SD&A leverage. So we have invested significantly in our SD&A, and not only SD&A in terms of sales force, but if you look at the leadership hires that we have brought on board in the last, you know, 1-2 quarters, those are leaders that will kick in in high gear as we move along. They don't have the impact on the current quarters. They're just settling in. But as we move into the next financial year, we will have a leverage of that.
Then again, if you look at, you know, things like our facilities and so on and so forth, there is certain amount of leverage that will come in because we invested in certain facilities. You would have seen many announcements in India and outside, and as we, you know, see our revenue growing, all of those is gonna kick in. It is not going to necessarily increase in line with the revenue part. Not to mention the amortization that we have from the earlier M&A that we have done. As our revenue increases, that also gets defrayed over a larger thing. So overall, from a margin perspective, we are reasonably sure, and we have initiatives inside the company where we will incrementally, whether it is next quarter or the next few years, move up.
Now, obviously, in certain years, when the macro is soft, we will not press the trigger on margin improvement that hard. If you look at the current year, we wanted to make sure we come in first on the top end of the growth quartile, and then comes the margin initiative. As the economy stabilizes, the focus will move, and it will always be cross-balanced, with growth being the first priority. With that, back to you, moderator.
Thank you so much, Praveen.
Thank you, Ravi. The next question is from Karan.
Karan, we can't hear you.
Hi, can you hear me now?
Yes.
Okay, great. Again, you know, obviously, congratulations on a fantastic quarter, and looking forward to see what, you know, what comes ahead. So I just wanted to dig a little bit into the GenAI pipeline. And let me start with a basic question, which I know you won't answer, but I'll try anyways, and then I'll ask, just 1 or 2 sort of follow-up question to that, which is, you know, is it possible, you know, to get to sort of $100 million of revenue from GenAI, you know, over the next 2-3 years? Just in terms of size, scale, and scope. Of course, there, there's no kind of firm guidance for anything, but just in terms of how big it can be.
I guess as part of that, my question would be, you know, can you add some color on just the size of the pipeline, in the sense that, you know, how many of your 176 clients have some kind of POC, you know, related to GenAI? And then related to that, you know, what percentage of POCs are leading to production? You know, we've seen surveys where actually the vast majority, more than 50% of POCs will, you know, enter production. So actually the technology works broadly. And I think everybody understands and realizes there's a lot of POCs out there, but they have an uncertainty around you know, what that conversion rate will be, but the leading indicator seems very strong. So, if you can just add some color there. I know a lot of questions there, but-
Sure.
but whatever you can add.
Sure.
Those are excellent points.
So, so the first question: Can GenAI lead to a $100 million business over the next 2-3 years? Look, anything is possible. So GenAI is one form of AI, and, and look, GenAI cannot be implemented beyond POCs till the time you have an enterprise-wide, you know, wherever use cases you are trying to put clean data available to you in very simple terms. And if you have to do that, GenAI, you should look at it as a tip of the spear. For us to be able to deliver to any enterprise, and for any enterprise to be successful on GenAI, it will spawn off many different initiatives, which will involve data engineering, data cleansing, many other things. So GenAI, in absolute terms, just as a simple use case, will have many other things.
If you put all those things together, can it lead to a $100 million business for us over the next three years? Absolutely. The answer is yes. Now, we'll let the time pan out, and we are not going to get into that conundrum of now report your GenAI, you know, revenues like people used to do digital revenues, and so on. I think GenAI is gonna be mainstream in everything that we do in the next 2-3 years. So keep that in mind as well. Now, second part, of the 176 customers, how many POCs are we running? Today, if I was to look at overall at Persistent, there are more than 75+ POCs that are running on GenAI in different forms and shapes. How much of those will get to production? You know, we'll see how that flows in.
Today, any boardroom, whether it is ours or our customers', there are discussions on GenAI, and that spawns off initiatives. And, you know, CIO organizations, CTO organizations, the business leaders are, are given the mandate to go and experiment with GenAI in their own, you know, fields, and that's what is leading to those POCs. And that's what is also leading to the collaborative agreements that we have with the Amazons of this world, the Googles of this world, Microsofts of this world, to go and do more POCs so that we can unlock the, you know, aperture and people look at different possibilities. Very hard to say how much of those, 50%, 100%, what will lead to production, but over a period of time, it will definitely lead to good amount of revenue uptake. One last thing I'll say on this: not everything will lead to GenAI.
GenAI is one form of AI which is easy to use, and so on, but also keep in mind, the bills on GenAI can very soon go up for enterprises. There are alternate forms of AI which are available. Not everything needs to use GenAI as a use case, and we have been doing that for, you know, many years. That's why in my prepared comments also, I referred to it. We are very, you know, positive about AI being there in every part of Persistent service lines, digital engineering to Salesforce implementations, to, you know, the cloud infrastructure security, and so on. You will see us announce many more initiatives in the next three to six months. Back to you, Mohan.
Thank you. Thank you so much.
Sandeep, there is a question on the chat, a related one-
Okay
... on GenAI, where Gaurav Rateria is asking us, "Have you been part of discussions in helping clients save costs somewhere else by becoming more productive and channelizing those savings in these GenAI initiatives?
Yeah. So look, every enterprise or every enterprise software company, at the end of the day, their ability to spend, if I may say so, their expense budget or their pot of gold is only limited. So when a number of people are looking to forward-looking initiatives... And this is nothing new, this has been happening for long. People look at where you can reduce the spend in business as usual, and take that to, you know, more next-generation initiatives. In this case, it is GenAI. And there are other ways also people are looking at us to help them, whether it is enterprise software companies or enterprises, right?
From developer productivity, now looking at, you know, their own implementations of developer productivity tools like Microsoft Copilot or AWS CodeWhisperer, to many other things that we bring to bear with our IP, like, you know, the code rationalization tools, and so on. There are many things that are there on cost reduction, and taking that money to see how we can impact the revenue side of it or customer experience side of it using GenAI. So yes, there are many initiatives like this.
Okay. We'll take the next question from Abhishek.
Hi, thanks for the opportunity, and wish everyone a happy New Year, and congrats on a good quarter. Again, a related question to the topic we are discussing. So Sandeep, there was a comment about an increase in the cost of ownership of software products in one of the industry analyst call last week related to GenAI spend. So first, you know, question is on that topic is: Are you seeing an increase in product engineering spends because you have a you know a very strong relationship with software product companies? And second, is there a trend in terms of you know because of that spending, we'll see a moderation in non-AI related spending, including cloud migration-related spends?
Yeah, so, so we are talking two different things here. See, the second part that you talked about, the cloud migration and so on, so that is much more relevant in the enterprise world because a number of enterprise software companies are today more and more cloud native in their new product development. And a number of them who are, you know, there from the past, have already moved their legacy products to the cloud in one way or the other, or are going to sense it. Now, as far as the spend on GenAI is concerned, in enterprise software, is there more adoption of that and broadly AI? Yes, it is.
And everyone, you know, is trying to control their budgets, moving money from where they can squeeze on business-as-usual support side of it, to doing feature enhancements using GenAI, doing Copilots, doing other, you know, things from a CX perspective, customer support perspective in enterprise software, and so on. So yes, there's a movement, and we are gainers of that. And, you know, it's early in the game. It's not just that, you know, today GenAI is accounting for majority of our growth. But GenAI and AI, over the next few years, will definitely account for more and more revenues for us.
Thanks for taking my question.
Thank you, Abhishek. The next question is from Dipesh.
Dipesh, we can't hear you yet.
Yeah. Can you hear me now?
Yes, please.
Can you hear me now? Okay.
Yes.
Two questions. First, about the private equity channel. I think now, in the last couple of quarters, we have seen a couple of successes in the private equity channel. So can you just help us understand what we are doing differently which works well for us, and any specific action we have taken which drives success? Second question is about revenue composition change. We don't report service mix, so just want to get a sense, let's say, three years back, kind of what we used to do, how it has evolved in three years, and if you can help us understand how you expect it to evolve in the future. Thank you.
Yeah. So I'll take the first question, second I'll let Sunil answer. So from a private equity channel, if you look at it, we have been, you know, developing this channel for the last 4, 4.5 years. And we have hired people who understand this channel, and so our private equity channel is housed with folks who have worked for private equity or worked in companies that have serviced private equity. On one side, we are mapping to strategic private equity folks, like accounts, so look at them as accounts we manage at the highest level. On the other side, the capability. At the end of the day, it's all about the capabilities that you bring to bear. So we understand what a private equity firm needs and what their portfolio companies need.
So we are partnering with private equity right from the stage when they're evaluating deals, so we have certain tools, techniques, methodologies that we have perfected on that. We help them analyze companies, the platform, so right using from our digital engineering capabilities to analyze the platforms that these companies that they're trying to acquire, the majority of those. Their hypothesis on engineering effectiveness, the capability to cost reduce using different levers, and innovate using the forward-looking technology. So we are right there when they're evaluating deals to the time the deals are brought in and there is work to be done. If it is a carve-out, we have more and more become a carve-out specialist, where we have tools, techniques, methodologies to de-risk the transition services, and so on.
So across the private equity spectrum, right from pre-diligence, to diligence, to the value realization once a company is acquired, to even the exit, we have a very clear set of service offerings, and those are well-proven, along with the IP assets that we have built to deliver these. So that's what is differentiating us and increasingly making us the preferred partner for all these large private equities as they go to fit. And you will-- you have seen a number of our wins come from that. Now, I'll... Sunil?
Yeah. Yeah, Dipesh, so in terms of the services and IP-led revenue composition, if you want to understand the growth profile, yes, both the parts of the business have been growing. And if you take a period of three years, the only thing that has moved is the large deal that we had, which we discontinued at the end of 2021. So that's the only period when the IP-led revenue had a bump up because of that, you know, contract. But otherwise, on our own, whatever accelerators, our own IPs in the accelerate portfolio, and the new work that we have been doing in multiple areas, where we are able to bundle our own solutions to customers-
No, Sunil, I was not looking for that service right there. I just broadly understand, let's say, in service a composition of revenue, how it is changed. Let's say, earlier we used to have very large sales force skewed kind of revenue. So over a period of time, how broad-based that revenue mix is changing?
Fine. Let me, let me take that question, Dipesh. So if you look at our services mix, so... And I alluded to that earlier in the call as well. As we have grown from being a firm which was $500 million to a firm that is beyond $1 billion now, and we have also built capabilities. Whether it was building more capabilities right from our cloud native and the digital engineering side, where we are—we have always been very differentiated. We have built on capabilities on those. We have added on application maintenance and support capabilities, the ASM part of it. We have built on the cloud part of it in terms of doing the next-generation infrastructure on the cloud, cloud ops, and so on. We've built significant capabilities on data side.
So what all this brings together is, when anyone is looking for at a, you know, one of the, let's say, Fortune Thousand companies, looking at, you know, doing a RFP and wanting to bring one or two challengers in the mix as they look at their current, you know, providers, we are definitely being involved. And that is where, if you look at some of the larger wins, we have won against the top five in India, the top five globally, and so on and so forth. So the services mix is changing towards... A lot of people think Persistent is discretionary. I would tend to believe Persistent is a lot more non-discretionary today than what it was, you know, three to four years back.
So from that perspective, long-term deals across these segments, stickier revenue, annuity revenue , that is the kind of services mix that we have built over the last few years, and that's where we are going, while not losing the sense towards of making these differentiated. Even our AMS, the application maintenance and support, we bring a lot of tools to bear. A lot of AI is what we are infusing in that. So it is the next-generation ops, the next-generation development, and so on. That is what is there, but the mix is definitely changing.
Thanks.
Thank you, Dipesh. The next question is from Chirag.
Hello. Congratulations on a good set of execution in challenging times. Sandeep, what's our M&A outlook for next two years?
... Right. So if we look at our M&A strategy, it has been built on small tuck-in acquisitions, which are based on the capabilities that we want to enhance or a geographical footprint that we want to enhance. We keep evaluating deals. Obviously, we have to make sure that the deals have the right fit, both from a technology, cultural, and the valuation standpoint. From our next one to two years, we'll be focused on deals on the cusp of AI, cybersecurity, in terms of, you know, going into verticals, micro verticals within banking, financial services, healthcare, life sciences. And finally, from a geography perspective, tuck-in acquisition in Western Europe from a revenue/customer acquisition perspective, because Europe is one place where we do want to scale up in terms of our revenues and a delivery in Eastern Europe.
So those are the broad contours, and we keep-- and, you know, we are on the lookout for good targets, and if anyone on the call has anything to refer to us, please let us know, and Saurabh also leads our competitive.
Just one follow-up. Vertical-wise, in AI-based offering, which vertical you feel will get a more revenue acceleration once client, you know, look for more deals in AI-related areas?
So our point of view is this is going to be a secular adoption of AI. Having said that, you know, healthcare life sciences has usually been a laggard in terms of adopting newer technologies. We do believe healthcare life sciences, followed by BFSI, will be the way we will see the population, but we'll let the time pan out. And then there are several use cases like contact center optimization using, you know, GenAI and so on, which are agnostic of all the verticals. So there are certain horizontal propositions and there are certain vertical propositions.
Okay. Thank you.
Thank you, Chirag. The next question is from Mohit Jain.
Sir, just one question on high-tech vertical. This quarter was a little slow, so if you could share your outlook on that vertical, and if you could split it between, say, top client and the rest of the high-tech, how should we look at it going forward? Thank you.
Sure. So, so Mohit, as you would have seen, our top client declined a little bit in this quarter, and it was a planned decline based on a particular large program. It has a profile where we had a certain amount of revenue going up, and then, you know, it has a certain tapering. So that is what caused a little bit of perturbance on the high-tech vertical. And if you look at the high-tech vertical, that has been a very strong vertical for us for growth. And so, you know, small blips will come here and there because of, you know, one or two things. And December being the quarter where there are furloughs, there were some minor things there as well. But nothing to worry there.
If you look at our overall growth, we've said that in the past, it'll be led by healthcare life sciences and high tech, followed by BFSI. So that's, that's where it is. So Operator, can we take the last question? We are coming to the end of this slot.
The last and final question is from Vibhor Singhal
Yeah, hi. Am I audible?
Yes, please.
Yeah. Hi. Thanks for taking my questions. Sandeep, just one question from my side. You just mentioned AI, cybersecurity as probably the focus areas for our M&A. But as you mentioned that if you look at a profile at more than $1 billion today, do you believe those traditional areas of, let's say, ERP or let's say BPO, which are kind of white spaces for us, would you also be looking to expand your portfolio with them as we become full service companies? And as you mentioned, we get attracted to more invited to more and more large deals. Wouldn't our, let's say, I mean, I wouldn't say inferior, but let's say a lesser capability in those domains, hamper our chances to win those deals?
Any thoughts on that, in terms of growth, whether organic or inorganic, that you're looking at?
Sure. So very valid questions, but look at it this way: we are a billion-dollar company in a much, much bigger market. As far as the ERP side is concerned, number one, there are many more, much more mature players in the market. And second, I would tend to believe, you know, ERP basically plays the role of a system of record. There's much more that can be done on top of it in terms of systems of engagement, and that's where we play. So there is, you know, if I am given $100 in investment, I wouldn't want to go after a reduction. I would want to build on our capabilities, and there is enough and more market there. Same for BPO. Where we play in the BPO realm is we go and disrupt the BPOs.
We go and disrupt the BPO using technology, using GenAI, AI, and so on, making BPOs much more effective, reducing the OpEx on the BPOs using technology, and that's where, you know, we have enough and more to do. Now, in terms of larger deals, when you go to large enterprise customers, they don't usually go with one single, you know, provider. So they go with-
Okay
... a mix of providers, even if they're going with large or, you know, a bunch of disruptors. And so there is a way to partition the deals in a way where everyone brings their strength, and the biggest strength that we have is on forward-looking technologies, and that is where there's a significant amount of addressable market for years and years to come. So we'll stick to our knitting. We'll bring AI into it. We'll bring differentiated capabilities much ahead of our larger peers and midcap peers. So that's where our, you know, focus is at.
Got it. Thank you so much for taking my questions, and wish you all the best.
Thank you. Let me try and close this call. The key message that I want to leave with our, you know, investors today is that we have delivered top-quartile revenue growth for the last, you know, 15+ quarters. Now, we are looking at good deal bookings converting into revenues going ahead, despite a difficult macro environment. We'll continue to operate as a strategic partner to our customers and enable them to drive their key business imperatives. We are positive on our growth prospects going forward, although we are cautiously optimistic on the macro environment. Nonetheless, we'll watch this macro developments, and we'll ensure that we'll remain relevant to our customers. We once again thank you for your participation, and we thank our 23,300+ team members, customers, and partners for their support in our growth journey.
We look forward to giving you an update in 3 months from now. Thank you.
Thank you. Thank you.