Ladies and gentlemen, good day, and welcome to Newgen Software Technologies Limited Q2 FY'23 earnings conference call, hosted by ICICI Securities Limited. From ICICI Securities, we have Lead Technology Analyst, Mr. Aniket Pande, welcoming the management and investor on this earnings call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to the management of Newgen Software Technologies Limited for their opening remarks. Thank you, and over to you. Thank you, Inba. Good evening, everyone. I'm Deepti Mehra Chugh, investor relations, Newgen Software Technologies Limited, and I welcome you all to the Q2 FY'23 results of the company. I have with me from the management, Mr. Diwakar Nigam, Chairman and Managing Director, Mr. Varadarajan, Whole-time Director, Mr. Virender Jeet, CEO, and Mr. Arun Gupta, CFO. Before we move on to the discussion, let me highlight that this call may contain certain forward-looking statements concerning Newgen's future business prospects and profitability, which are subject to a number of risks and uncertainties, and the actual results could materially vary from the forward-looking statements. Past performance may not be indicative of the future performance. The company does not undertake to make any announcement in case any of these forward-looking statements become materially incorrect in future or update any forward-looking statements made from time to time by or on behalf of the company. For further details, you may please refer to the investor relations section of our website. I would now hand over to Mr. Diwakar Nigam for the presentation of the results, which will be followed by a Q&A by Mr. Virender Jeet. Thank you. Good afternoon, everyone, and thank you for joining us today for our Q2 financial result call. In the second quarter, driven by robust demand, especially across our traditional markets, our revenue witnessed a growth of 22% YOY to reach INR 226 crore. We believe cloud and subscription revenue is a good indicator of our business momentum. The subscription revenue had been growing steadily at the healthy pace of 30% YOY. They now comprise 35% of our total revenues. The annuity revenues for the quarters were INR 143 crore, witnessing a growth of 24% YOY. The annuity revenues comprise 63% of our total revenue in Q2. While the global environment is uncertain, our traditional market continues to remain strong. We strongly believe that our products have significant leverage across both sides of the market opportunity, revenue enhancement and cost optimization and efficiency, and we can pitch accordingly. India witnessed a strong growth momentum during the last two quarters with exciting businesses from both existing and new customers. In Q2, Indian market grew by 27%. EMEA and APAC geographies have also been performing well for us, growing at 24% and 39% respectively. Our U.S. geography, however, has not been performing well. As we mentioned in the last quarter, in the U.S. region, we have been working on altering our sales methodology, moving towards larger-sized accounts with higher mining ability than the current smaller and medium-sized banks and credit unions. We have also done some reorganization and team changes in the region recently. The quarter was marked by totally 14 new logos, wins spread across geographies. We had significant deals in existing and new accounts during the quarter. We are happy to share that we have been a successful bidder for a leading bank, public sector bank, for providing solution and services for the end-to-end Digital Lending platform. The total order size is INR 49 crores spread over five years. We are also executing a mid-size product for U.S.-based banks operating in a network of banking centers throughout Colorado, Kansas, Missouri and Texas. We have also received additional business from UAE's largest bank, a cloud deal with a private sector bank in India and a mid-size project for a leading Indian private sector bank. We have also entered into the cloud deal for a multinational automobile manufacturer in USA through a system integrator. Moving to the update on our offerings and opportunities. We recently launched our comprehensive, configurable and future-ready trade finance platform for banking. The platform is built on low-code framework. That lends the flexibility to allow seamless bank-specific configurations and management of the complete life cycle. It helps banks go paperless and streamline their end-to-end trade process while ensuring compliance with domestic and international regulation. The platform involves advanced level of content management and enables the bank to process trade finance business efficiently and cost effectively while reducing the turnaround time significantly. Keeping in mind the evolving needs of business and customers, it can be configured easily to launch any new structured trade finance product. It provides cloud-native architecture and low-code integration engine. Designed by bankers and experts in trade finance and technology, the trade finance platform is a revolutionary concept. We are excited about this launch and confident that this will play a pivotal role in accelerating our company's growth. We also launched the all-new integrated robotic process automation, RPA, offering strengthening the low-code process automation portfolio. We continue to work on our long-term platform and cloud roadmap. On the operational front, we see normalization in the workplace with in-person meetings, team collaborations and regular customer meetings. Business travel has now normalized. Attrition level seems to have stabilized across the sector. We have been investing in all spheres of talent acquisition, including campus recruitment and lateral hire, as well as retention and development. In the sales and marketing front, we continue working on both our sales engine, direct sales channels and partner network to expand our market reach. We recently held our in-person customer meet, Newgen Connect 2022, in Mumbai, which received tremendous response and participation from our large Indian customers, system integrators, consulting firms and many prospects. It was a good platform where we highlighted our roadmap, customer success stories, as well as enabled customer, system integrators and consultant network to provide their input, understanding the product capabilities, collaborate and exchange notes. We will be hosting such events in other markets as well in the next few months. Profits and margins. Our profit after tax for the quarter was INR 30 crore, INR 30 crore. On the cost front, there has been a continued impact of elevated employee costs driven by the industry-wide supply side challenges, which are now gradually abating. There has been pressure on costs on account of increased go-to-market initiatives, return to in-person events and gradually normalizing travel expenses. We continue to invest heavily in our global initiatives, our products and in our people. During the year, R&D expenses comprised about 11% of the revenue, and sales and marketing expenses comprised 24% of the revenue. In the first half of the year, our total revenues are INR 414 crore, witnessing a growth of 20% YOY. Our profit after tax is INR 49 crore. However, I would like to highlight that given the seasonal nature of our business and linear costs during the year, usually profits in the second half of the year are higher than the first half. On the cash flow and balance sheet, our net cash generated from operating activities was at INR 67 crore in Q2. Our net trade receivables were INR 258 crores at the end of September, which resulted in net DSO of 111 days. The DSO has been higher in the current quarter, but we expect the number to stabilize in the future quarters. We are taking prudent steps to tap newer opportunity and combat uncertain environment as we continue our growth momentum. We believe that we have a solid product in place that is highly appreciated by our customers and adds significant value. We have a loyal customer base in place. Our cloud and subscription revenues have been growing at a fast pace, providing healthy visibility of long-term revenues. We continue to invest cautiously in improving our product and marketing strength and transforming business for growth and operational efficiency. We are now open for question and answer. Thank you. Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Anyone who has a question may enter star and one. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Aniket Pande from ICICI Securities. Please go ahead. Hi. Thank you for the opportunity to host you and wishing all the members of Newgen Software a happy festive season ahead. I had couple of questions. Your revenue growth looks quite impressive at around 22% YOY in this quarter. Earlier, you have mentioned a guidance of 20% YOY revenue growth for FY 2023, which implies around 20% YOY growth in your second half of this year. It seems like you can easily exceed this guidance based on your historical trend. Any comment on that? Thanks, Aniket, and good evening, and wishing you the Happy Diwali. You know, you're right. Generally our Q3 and Q4 are higher revenues, but so have been also the past year revenues are higher. It is a seasonality. To do 20% growth in those quarters is on a much higher base than on a Q1, Q2 base. We will be doing. These quarters will be significantly larger than Q1 and Q2 per quarter, thus they will have a higher degree of margins. Right now, we are, you know, looking at accelerating growth and finding ways to accelerate that. What percentage we'll hit, I think it's an outcome very, very difficult to comment on that. Okay. Sir, how are your conversations going on in U.S. and European markets actually? Are you seeing any impact because of macro headwinds? Has the deal closure cycle further elongated as compared to last quarter? Or still as of now you aren't seeing any incremental pain coming? Yeah. You know, fortunately right now our growth is driven from the markets which are, you know, beyond U.S. and Europe. That's our traditional markets, you know, like India, Middle East, and Asia Pacific. U.S. and Europe, we have, as last quarter we said, there is clearly a much more pain in those markets than we see in the traditional markets. The profile of customers which are very large, we are seeing, you know, hearing conversations of, you know, uncertainty. Does it really affect our business growth or this next quarter? It's very difficult to say. Right now we have a large number of opportunities where clients are confident that in this environment also they can go ahead and do those deals. Nobody can comment on completely this because as the situation is unfolding, all businesses are redefining their plans. Unless we are completely in a more stable environment, we don't know what's gonna happen. There's an uncertainty in deals, but surely the interest is right now quite high in what we are doing. Okay. One last question. Your annuity-based revenue share has improved quite a lot at around 70% as of last quarter, but it has dropped a bit in this quarter. How should we look at annuity-based revenue going forward from here on? See, as we grow, the annuity will keep on growing because that's what. You know, you will see those streams are growing at much higher rate than the company. You know, SaaS, ATS, as well as support, these all three are growing at a much higher rate than the overall growth rate of the company. Looking at quarter-on-quarter basis may not be fair because what happens is if there's a license component, higher or lower will determine the percentage of annuity. On a yearly basis, I think last year we were sub 60%. This year already for the first half we are much higher than 60%. At the end of the year we'll do substantially better than last year. Thank you. That's it from my side. Thank you. Okay. Thank you. Our next question is from the line of Akshat Agarwal from Jefferies. Please go ahead. Hi. Thank you for the opportunity, and I wish a very Happy Diwali to all of you from the Newgen management team. I have a few questions. Firstly, congratulations on a good set of numbers, particularly on the growth side. This year, this quarter the growth has primarily been led by the India and the Middle East markets besides the growth, the step-up in APAC. Could you please help us understand what sort of growth can we expect from India and Middle East over a two- to three-year period? I was under the impression that we had a very high market share in these markets, so structurally these markets are expected to grow slower compared to U.S. or the newer geographies that we are looking to expand, particularly Australia. That's the first question. I'll ask my follow-ups after this. Yeah. Good evening, Akshit, and wishing you the Diwali as well. You are right. This quarter the growth has been, and even last quarter, the growth has been predominantly led by India, APAC, and Middle East, and they have grown at a substantial rate. If you look at next three years, I know though we have a strong penetration of, or presence in India, it's not exactly true in Middle East and Asia Pacific. I think our penetration out there is quite thin yet because the number of countries is very large and the kind of markets we operate is still very few out there. Having said that, there's one fundamental difference which is happening in all these three markets. We are getting into larger accounts with larger deal sizes, which is making a difference. I would state that the potential of these markets, if the oil remains stable and the overall economic situation remains good in these markets, there is no reason why we'll not continue to growing. India has been always growing for us. It's only that during the COVID era it was really in a bad state in terms of spending for many sectors. That's the time. If you'll see that last year India did some growth, and this year I think first it's been leading the growth by almost 35% H1 growth. Same is true with APAC, and I think Middle East will also, you know, do a good growth on a very high number, which was last year. I don't see any reason why the next three years they can't be the growth drivers up to this percentage in terms of when I say, you know, doing around 20% growth. Having said that, our long-term story of, you know, our higher numbers of growth has to come from mature markets, and that's where we are investing in building the strategy. Right now, you know, we are pivoting out there a bit in terms of redefining what we are, we have been doing in banking. As in the earlier call, Mr. Nigam has articulated that in the banking, we are trying to shift to slightly larger accounts because of the lifetime value of those accounts is gonna be much better than the businesses we have pursued so far and, as well as looking at our sales strategy and various ways to how to accelerate that. I'll stop there. I hope that answers your question. No, that's very helpful. Thanks a lot, sir. Just to follow up on this. Just supposing your strong growth in India, Middle East and APAC to U.S., wherein on same-currency terms, perhaps your revenues would have been flattish to slight decline on a year-on-year basis. Is it fair to assume that over the next couple of years, the traditional markets are going to be the growth drivers, while U.S. Might take longer than expected to again become the growth driver like it was in 2021? No. We are not waiting that long. I think our strategy, we are waiting for couple of quarters to bring it to a, you know, a better growth trajectory. It will. If you've seen the U.S., this quarter we've also grown a bit and it will continue growing over next two quarters. Next year we should again look it as one of the growth engines, at least at equal terms to other markets, if not higher. We are not waiting for two, three years. We are waiting typically for next two quarters to reset the market. Okay. Perfect. That's very helpful. Final question from my side, and that's on margins. This quarter we've seen a very sharp increase in other expenses as a percentage of revenues on year-on-year basis. Has this entirely been driven by higher marketing and travel costs, or is there any one-off over here? Yeah. No, this is predominantly marketing and travel, and also in terms of the offices have restated the other costs of running the facilities. There's that has gone up. You know, there is no one-time thing in this. In terms of your margin expectations, could you just give us some sort of an outlook? What sort of margins should we be expecting from you then, maybe this year and the year after this? Any sort of guidance would be helpful. You know, I may not be able to give you exact guidance, but what happens if you look at historically, the Q3, Q4 will have much higher expanded margins if we meet our, you know, growth targets on those markets, so those quarters. You know, from the current, you know, H1, around INR 50 crores of PAT, we should be able to have a much significant larger number in the H2 of that. This business generates high gross margins. As you know, it's around, you know, between 65% and around that gross margin. The rest depends on our top line growth of that year as well as investments. Investments in sales and marketing and R&D are almost set at 10%-11% and around 24% this year. They won't change much. Now, it completely depends on the top line we hit and then the margin which unfolds. Got it. Perfect. Thanks a lot for this, and wish you all the best. Thank you. Thank you. Our next question is from the line of Mihir Manohar from Carnelian Capital. Please go ahead. Yeah. Hi. Thanks for giving the opportunity, and congratulations on the good revenue. Largely I had a question on the GSI side of the business. I mean, just wanted to understand, you know, what is the GSI traction now? What are the number of deals that you have won from GSI, and what is the traction here? Second question was, you know, on the currency impact. I mean, we are having 22% YOY revenue growth. If you could quantify what is the currency impact, currency depreciation here, that will be really helpful. My third question was on the low-code trade finance platform and, you know, the launch that we have done. So just wanted to understand the strategy behind this and, you know, what is the market that we are targeting? What is the market size over there? What kind of strategy are we going to adopt, and what is the internal revenue target that we are looking for this particular platform over the next three to five years? Yeah. Those were the three questions. Good evening, and thank you, Mihir, for asking. On the GSI front, we are continuing to push that strategy and we are, you know, increasing our funnel. The funnel has improved from deals up to almost 90 deals now in the funnel we have. We are, you know, also spreading across, going into other GSIs which have shown more interest beyond the traditional ones where we had already done the leads. This quarter we have closed 2 deals with GSIs, one in Australia and one in U.S. You know, we expect that momentum to keep on improving slowly. Of course, it's not at the same rate as we had expected to GSIs to fill. That's why we are trying to look at various strategies of helping that business to grow further. You know, on the GSI front, I would say that, you know, in terms of investment, enablement and the building that structure, I think that there is a lot going on. On the funnel a lot is going on, but on the conversion it's a bit slow. It may take a bit more time for us to accelerate that. On the currency impact, yes, there has been a, in terms of currency gains. In terms of, on a constant currency, we have roughly around 16% of growth, if that was your question. There's also in terms there will be some amount of losses on account of, in terms of some amount of on the hedging. You know, Arun can give you more details about that if you want on that. On the low-code trade finance, I think we are very excited about. We have been always, you know, creating product lines based on our low-code platform. We were very lucky to get opportunities of redefining product for some of the most leading financial institutions in India on trade. We have been able to launch this new product. The market is very right for this product in, you know, emerging markets like Southeast Asia, India, some part of Middle East and but Europe. Europe is a very large buyer. Trade is on our understanding is trade is also on the verge of being transformed. All the current solutions are around seven, eight years old. We have a new generation product which solves the current trade problems which business is looking at. Right now we are pursuing at least 30 different opportunities in our funnel across various geos. We do expect that, you know, this year we will close another three to four trade opportunities. The difference is that these opportunities are pretty large, unlike our traditional deals. The deal size is out here, and the long tail is very pretty large. We have not really drawn how much of revenue on its own will come from this product line, but we are in the process of setting that business plan. Maybe in next few quarters we'll have more clarity about how independently it can be a growth driver for the company. Sure. Yeah, that's really helpful. I have just one more question on the margins. I mean, you know, we had anticipated for 23%-25% kind of margins for the full year. When I do the math for the second half of the year, that comes to around 30%+. We just wanted to understand how confident we are of, you know, having 30%+ margin given the fact that now non-COVID costs are coming back and travel costs is coming back, R&D costs is coming back. How should we see the margins for the balance part of the year and consequently the guidance that we have for the full year? You know, on our guidance, we only have a number which is of a trend historically. We have clearly said that last year margins are not the reflection of business because, you know, lot of elements of our business which we are pursuing have not had the costs factored in. We had a history of having roughly around 9% of our revenue as travel, which was zero last year. Similarly, SG&A expenses were much muted. The manpower, which is this one time correction in the market, which has led to around 25% of growth in the manpower cost. Having said that, you know, our cost bases in Q1, Q2 generally tend to be the highest cost base. From here, the cost for the remaining part of the year is slightly lower. It's not substantially lower. It is slightly lower in Q2 and Q3. Now in terms of, you know, doing higher level of revenues compared to Q1, Q2 and stable or lower cost base in Q3 do expand margins. Now, whether they will be significantly higher, as high as 30-31% or more like 27-28%, we'll have to see. Sure. Sure. That's really helpful. Thank you very much. Best of luck for all the endeavors. Thank you. Thank you. Our next question is from the line of Chirag Kachhadiya from Ashika Institutional Equities. Please go ahead. Mr. Chirag Kachhadiya, could you please unmute your audio and proceed with your question? Mr. Chirag Kachhadiya? There seems to be no response from this line. We will therefore move to our next question. That's from the line of Deepak Poddar from Sapphire Capital. Please go ahead. Hello. Hello. Hi, Deepak. Yeah. Hi. Good afternoon, sir. Thank you very much, sir, for the opportunity. I just wanted to understand now, number one, I was reading an article in PTI. There it was mentioned that we expect to double our revenue to $200 million by FY 2024 on the back of this recently launched trade finance platform. Just wanted to understand your perspective on it. See, you know, we are, you know, in that range of $100 million, and we have ambitious target of taking this company to the next step of $500 million over the next five to six years. Mm-hmm. There are multiple drivers for that, and the trade initiative is just one of the drivers on that. On its own it will, I think, play a significant part in pushing the growth up. I think the exact date of doubling it by 2024 is flexible. Okay. They take that. They take our freedom to a next level. Yeah. You know, I think we are looking at accelerating growth beyond. Now, if you can see, we are doing a significant growth without the U.S. engine firing right now. Mm-hmm. With U.S. and GSI giving us some momentum, I think we should be able to accelerate the growth and meet those aspirational goals. Mm-hmm. Our stance remains that we are looking to accelerate growth on the back of this new game changing platform that you kind of indicated, right? Exactly. At a higher operating leverage, I mean the revenue base, what is the sustainable EBITDA margin that our kind of business can see on an annual basis after factoring in the seasonality that we have in our business, right? Is it in the range of 25%-30%? Would that be a fair, also assuming now the travel cost has come back, right? That 25%-30% range, is that a fair kind of EBITDA margin level that one can see in our business? See, we are a product-based business with high, very high gross margins. Mm-hmm. In case you stop investing, like in a very bad year, you end up expanding margins because finally the gross margin starts reflecting in the net margin position. Our aim is to invest for growth, invest in product development, go and spend on travel, go and spend on sales and marketing. What we have said that anyway we want to maintain it around 18%-20% net margin with around 23%-25% EBITDA margin. Whether we reach that in this year, next year, that depends on how the top line and the costs unfold. You are right, product companies can generate much higher EBITDA margins anytime their growth rates slow down for some time. Mm-hmm. Because overall the business is generating a lot of margin. Absolutely. It's not one either, right? I mean, we can do both, continue to invest as well as per optimum requirement and as well as continue to generate healthy margins for us as a company. I hope so. I think that happens more at bigger sizes. I think right now with this kind of a turmoil in the system in terms of cost basis, higher attrition, uncertainty, you will have to sometimes pre-invest for the growth to return or sometimes also, you know, wait for just the returns and not invest in growth like we had last two years. You can't balance it every time. But on a long term, yes, I think the business will keep on expanding margins as its percentage of subscription revenue grows, as percentage of, you know, volume of business grows because your cost bases are fixed. Fair enough. That's interesting. My last query is the interesting that you mentioned about the $500 million revenue in next 5-6 years, right? That factor in your growth that you might see from Trade Finance platform and even this Robotic Process Automation that kind of you have recently launched as well, and more product into the pipeline, right? Our long-term goal of, you know, being a first billion-dollar company or doing $500 million over the next five years, these goals, all the initiatives are towards those goals. There is not a single entity. Even the current product lines have enough capacity to take us there. We keep on doing these new initiatives. Mm-hmm. The idea what we are trying to communicate is we will always be interested in growth, spending aggressively for that growth and pursuing all avenues to make sure we grow at much higher speeds than traditional growth rate. Mm-hmm. Okay. Understood. Yep. That's it from my side. All the very best. Thank you so much. Thank you. Thank you. Our next question is from the line of Harsh Shah from Dimensional Securities. Please go ahead. Hi, good afternoon, sir. Good afternoon, Harsh. I want to understand. Sorry to interrupt. Mr. Shah, if you could just use your handset and speak, sir. We can't hear you that well. Sure. Is this better now? Much better. All right. Just wanted to understand that in your one of your slide, you mentioned that the subscription revenue is at around INR 79 crore. Then when you give the revenue break-up below that, you have mentioned that SaaS revenue is 10%, which comes to around INR 22 crore. Just wanted to understand this difference between INR 22 crore on SaaS and INR 79 crore on subscription revenue. Yes. I think, you know, The SaaS is typically the revenues we, as we have changed the licensing from perpetual licenses to cloud-based or SaaS-based licenses. This is the licensing part of annuity-based license we are generating. That has reached around 10% of the business. On the other hand, on the traditional license sale, we are charging an annuity, which is called, traditionally called the ATS. That is remaining part of, you know, our, around INR 55 crore for the quarter. Collectively, between, you know, subscription revenue, which is a combination of our SaaS subscription and traditional license subscription, which is called ATS, which is roughly around now INR 79-80 crore for this quarter. Of this is this- Sorry, sorry. Please go ahead, Harsh. Yeah. The INR 22 crore, which is the 10% of our revenue, which you qualify as SaaS, this is typically based on volume basis, right? This is the revenue which is based on per transaction or per item basis. This is typically per user per month, sold as per user per month or sold as an annual license charge. On this license fee, there is no perpetual right to license. This is kind of a consumption-based license or a PUPM-based license on that. Okay. The remaining INR 55 crore is fixed in nature. It is. Regardless of volume. No, it is not. It also varies. For that to vary, you have to sell additional license to the customer on which you will generate on 22% of the ATS. Okay. Understood, sir. The difference is, so the first one is equally divided. The second one is the majority is upfront loaded, which you already realized previously, and only are getting only 22%. Understood. Other question pertains to, do we have any plans to get into the transaction side of the business? Because globally, the payment side or the payment business, not typically transaction, but payment business, which is expected to grow phenomenally well. Are we already present there or do we want to be there? Any thoughts on that? We would continue to be a software product company and providing software products in various spaces. In financial services, we keep on expanding into different verticals. We are not a payments business or a transaction-based payments business. We don't have any plans to go into that business at all. No, I mean, I'll reframe it. Not getting into business what Paytm does, but would you be an enabler for them? The back end which someone like Paytm or you have many fintechs which are into BNPL, all that kind of stuff. Would you be into software services which enables them or helps them in doing those things? We have software products which help those businesses, and there are some customers who are using our software products in part of their payments businesses. It's one of the spaces in many spaces we operate. In terms of looking at as a focused area on which we want to build growth, we have not paid too much of attention to that right now. Okay. Understood. On the annuity part, so when we say our annuity revenue is around INR 142 crore for this quarter, so do we mean that if we stop investing, this is the revenue which we'll continue to get? What we call annuity is generally the contracts which are renewed year after year. While, you know, there is two part of this. One is the subscription, which is typically on a license profile, where the gross margins are in the range of 90% or higher. The second part is about, you know, higher degree of support, which is a customer support which customers contract for year after year. Out there, the revenue profile is more like service revenue profile. But both these things are contracted year after year as a renewal contracts. That's why we call them as part of the annuity revenue. Subscription revenue is subset of annuity revenue. Yes. Yes, exactly. Subscription is a subset of annuity. The difference The difference between- Okay. That INR 142 crore includes INR 79 crore. Includes INR 79 crores. The difference is the INR 79 crores is a high gross margin revenue. It has got a license- Mm-hmm. Gross margin kind of a thing, no cost. Mm-hmm. As the remaining part of INR 63 crores has got the margin profile as a service margin profile. Okay. Okay, sure. Mr. Harsh Thank you. Thank you so much for your answers, and best wishes for festivals. Thank you so much. Thank you, Harsh. Thank you. Before we take our next question, we'd like to request participants to please limit their questions to two per party so that all participants on this call will get an equal opportunity to ask their questions. Any participant who has a question may enter star and one. We'll take our next question from the line of Utkarsh Katkoria from PGIM India Mutual Fund. Please go ahead. Yeah. Hi, sir. Thank you for taking my question. Sure. Just continuing on this revenue split, if you can please explain. It's in your presentation, revenue split by segment. When we talk about annuity plus subscription revenues, what does that include? When I look at, you know, revenue split by segment, it says implementation 16%, support 28%, ATS/AMC 25%. Can you help us understand that chart? If you look at the revenue segment, there are three, four. One is the sale of software, which is the license software sale, which is perpetual in nature. Which is SaaS. SaaS is the license sale which is sold as subscription. But traditionally Okay. Since we have still older customers and existing customers who buy in the perpetual license model, where it's one time license sold, and only the ATS gets added to the annuity part of the business. That's Okay. Roughly around 15%. You have this. Sorry, not 15%. Sorry. Yeah. Yeah. The second part which is called the license SaaS revenue or license SaaS license, which is Yeah. which is around 10% of our revenue. This is typically software sold as PUPM basis. Generally on cloud or on-premises, but the licensing model is PUPM. The third one is the ATS/AMC. ATS/AMC is for the traditional perpetual license which was sold for many years. I get a 20% annuity for all that sale every year. That is. Okay. What the 25% of that is, you know, the revenue is coming from ATS/AMC. Support is another head which is typically people beyond our standard ATS contract. That's for additional support in which, because they have larger complex implementations, they want more people to have a dedicated support team. That is generally- Is support classified as subscription plus annuity or support is not classified in that category? Support is client, you know, as part of annuity revenue because the profile of revenue is that it gets renewed every year. Okay. Is not put in subscription revenue because the margin profile that is very different. Understood. Can I safely say that support plus ATS/AMC plus SaaS is your subscription plus annuity revenue? That pool includes these three buckets. Exactly. We call it together annuity revenue. Yeah. Oh, okay. Implementation and other services and sale of products is outside the annuity reach. Exactly. Yeah. Okay. We expect this annuity revenue stream to keep increasing, which has relatively better margins. Exactly. That's the whole idea. Because that's more predictable revenue, we are able to remove the jerkiness in our business. We want to be able to smoothen the quarter or the lopsidedness nature of the businesses by increasing this annuity portion. Okay. Just a follow-up. If you can explain what is the sale of products? Sale of product is generally, before we used to sell our software license as PUPM, we used to sell it as perpetual license. Even today we do, in some deals we have perpetual license. Again, if a government is coming with an RFP and they want to buy software, they would say they would like to buy a perpetual license. That means they get the right to use it perpetually, but they will pay you a recurring support charges or an ATS charges. Okay. Which is typically for upgrade, maintenance. That is what- Implementation is just a one-time thing, right? You implement the software for your client and that is done. That revenue accrues and then there is nothing recurring about that. Exactly. It's also, customers can again contract you for something more. Sure. Yes, once the contract is over, there is no recurring element of the implementation. Now that's very clear, sir. Thank you so much. Thank you. Thank you. We'll take our next question from the line of Saurabh Sadhwani from Sahasrar Capital. Please go ahead. Hi, thank you for the opportunity and congratulations on the good results. I wanted to know some details about the Trade Finance platform. How are you pricing the Trade Finance platform? Is it based on a per transaction charge or is it based on a per user per month basis? Secondly, what would be the deal size, average deal size for the Trade Finance platform? There are different. You know, first to understand our Trade Finance, first of all, its licensing model remains the same as the underlying platform licensing. The way we sell our low-code platform, the content management platform, which is based on some kind of usage, whether it's number of users, number of transactions, number of servers, it depends on that. Over and above that, depending on the complexity of trade, there are multiple levels of trade solutions. You know, the smallest trade deal one can be like a few INR crores. It can be roughly around INR 3-4 crores, and the larger one could be like as large as INR 15-20 crores. It depends on the usage and the number of modules which that business is buying. Okay. The average deal size would be for average yearly revenue from a client in Trade Finance platform would be around? Can be easily for around INR 5-6 crores. What was the deal size for the logos added in this quarter? The average deal size for the 14 new logos that we have added? I'm sorry, I don't have that data offhand, but maybe you can write to Yeah. Deepti and she can help you. Yeah, yeah. Sure. No problem. Our average deal size is, has continuously for so many years kept on growing, so it would have grown even this time. We can send you the exact data. Yeah, sure. Yeah. That's it from my side. Thank you very much. Have a very Happy Diwali. Thank you. Same to you. Thank you. Our next question is from the line of Jitendra Chawla, an individual investor. Please go ahead. Yeah. Hi. Am I audible? Yeah. Please go ahead. Hi, Virender Jeet. I have just one question from you. I mean, our business doesn't require other than the promotional spends that you do, which you call investment every year. Hence we are net cash flow positive. That cash pile is kind of increasing and it's affecting our ROC negatively. What plans do you have to utilize this cash? Are you looking at any inorganic opportunities? If not, could there be possibility for a buyback? Because our valuations are very attractive. Any buybacks which you do would be very EPS accretive. If you can shed some light on that. Thanks, Jitendra. You're right. We have accumulated cash, and I think we are very happy that as a product company at $100 million, we are generating cash and profits, which is a real thing. Having said that, our core focus right now is all on growth and invest whatever we have for growth. That means, you know, also exploring inorganic opportunities in markets which will suit us for really rapidly growing further. We are giving ourselves some time, maybe a year or so, to look at options. Beyond that, in the meantime, we'll still be accumulating and generating more cash. You know, if we are not able to successfully deploy it, then we'll look at various options of returning either higher dividend or buyback to shareholders. All right. That's it from my side. Happy Diwali to you all. Thank you. Our next question is from the line of V.P. Rajesh from Banyan Capital Advisors. Please go ahead. Yeah. Hi. Thanks for the opportunity. A Happy Diwali to you all. My question is regarding the growth. You said that in five, six years, you will be half a billion dollar company. That suggests a very high growth rate. The question is that, are you thinking of inorganic growth during this five-year period? Or the product set that you have will lead to such a wonderful growth outcome? Thanks, Rajesh, for the question. From the onset, let me clarify. I, you know, the aspiration of being INR 500 billion has not been translated directly into a target. Having said that, we are looking at all avenues. As said, inorganic is not out of, you know, of the table. We are looking at inorganic ways. But right now the kind of product set we have in terms of the low-code product and the content management product, there's enough market globally for that. The market itself is growing, and we have got excellent customer base who is showing a lot of confidence in that product. We don't see the product or the product coverage being a challenge in doing that. Of course, the challenge is in terms of how fast can we, you know, establish ourselves in the mature markets, how fast can we accelerate the GSI ecosystem, selling our products. Those will be some of the challenges we'll keep on investing on and working on that. The current pro-product, whether it's trade or an RPA or the new version, they will all help in that cause. Let's say if we think about three-year time frame and let's exclude any inorganic growth, what kind of organic growth can we expect from the current and future products in the business? See, we have grown for a very, very long period of around 20%, and with some of these initiatives, we want to accelerate it beyond 20%. I would say that, you know, next two to three years, we should be able to, you know, if everything fires, we should be able to accelerate this 20% much beyond this 20%. That is where we can reach on that. It's very difficult for me to put our number right now on that. Right. You're saying the floor is 20%, and depending on how the market develops for some of these newer products, it could potentially be in that 25% plus range. Is that a fair way to understand your thinking? I think that we have a bare minimum expectation of doing 20% because that's what historically the minimum the company has been delivering. Now every all these initiatives and all the investments which we have done in various areas should accelerate the growth further. We are anticipating and, you know, having hopes of even higher than 25%. Okay. All right. Thank you so much, and all the best. Thank you. Thank you. Our next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead. Yeah. Hi, sir. Thank you for taking my question. So, sir, firstly, on the increase in a cost base that we have seen, it's been a sharp increase Q1, Q2 as well. You know, in Q1 of, in the last quarter, you had mentioned that this year you are budgeting around 18%-19% growth in the cost for the year. If I look at this number and if I assume that, you know, you're gonna do the same kind of cost number for next two quarters as well, we are broadly gonna increase our cost base by more than 25%. What's changing that outlook from 18%-19% to this very high number? If you can highlight that. Yeah. I don't think we had an outlook of 18%-19% ever. We had already an outlook of around more than 20% of growth. 23%-24% was already projected as, you know, possible. There is no surprise on the cost front. The only surprise is probably on the manpower side, we had higher costs because the market kept on pressurizing and even for the first H1 of this year, there were higher attritions which would increase the cost base then. There is an element of growth also which will, you know, factor in that cost. On the cost base, we don't have too many surprises. We see that, you know, over next two quarters, the costs remaining or even reducing from this level. With our targeted growth rate, if we achieve that, we should be able to expand margins. All right. You, what you're saying is the cost base for next quarter is gonna remain flattish on the absolute terms is what you're saying? Exactly. On the absolute terms, yes. Okay. Compared to the Q2 cost of this year, Q3 and Q4 is gonna be slightly lower. Okay. This would be a recurring phenomenon for coming years that, you know, Q1 and Q2 would have the hike and then just be flattish for the remaining two quarters? Exactly. What happens is generally in April and June, this is the largest increment cycles in the company. That is where, because a lot of fresh people get regularized on that and a lot of people have increment cycles in April. That's why I think Q1 and Q2 are the higher quarters. Then it gets normalized for Q3, Q4. All right. Okay. Another comment that you made, I think last quarter on the cost front as well, that, you know, going ahead, we can do 10% kind of revenue growth with every 6%-7% kind of cost increase. Does that hold true going forward, the coming years as well or does it change in that outlook as well, given that, you know, you are now targeting that $500 million in very high growth rate? What I think, what I had explained is that we don't need proportionate manpower for that revenue growth. For every 10% of revenue growth, we need more like 5% of manpower growth. Because a lot of our revenue streams are disconnected from manpower. But manpower is a part of our cost. What has happened today, the costs are going more in regularization of travel, which is around 5% of the overall cost, revenue. Then also regularization of SG&A expenses, improved marketing, face-to-face events, offices. This year is generally gonna be resetting the cost base and next year onwards then we should be able to track and bring efficiency in that. Got it. Good. Lastly, again something on the cost front. Sir, Mr. Agrawal may be requested to return to the queue. There are several participants waiting for their turn, sir. Okay. Oh, thanks. Thank you. Thank you. We'll take our next question from the line of Sameer Dosani from ICICI Prudential Asset Management. Please go ahead. Hi, Jeet. Thanks for the opportunity. Just, I'm not sure whether you've clarified or not, I joined in late. You know, look at U.S.-based SaaS companies have been speaking about slowdown in decision making and having an impact on their top line. Are you seeing similar trends in U.S.? What is the overall outlook? If you can just throw some light. I mean, is there some, you know, impact of the recession or any slowdown, do you think? Thanks. Yeah. Sameer, we answered this question a bit, but I think probably you missed it. I think on the U.S. side, there is a much bigger pain than what you can see in India, APAC and Middle East because of. Right. A lot of customers are sharing that there is an uncertainty around the corner. As a result of that, we do see uncertainty in decision making. Okay. How much does it translate into business and what numbers do we hit is very difficult to predict. Sure. We think that in next two quarters we should still be able to push a bit of growth in U.S. Okay. How fast we grow is a different thing. UAE and, I mean, Middle East and India is not affected by that in that sense? So far we are not finding it. I hope it remains that way. Okay. Great. Middle East is priced, you know, oil price sensitive economy. I think right now it's holding well. India, I don't think is getting touched, the way it has been working. Great to hear that. Looking at the current performance, our 22%-23% margin guidance, does that hold or are we seeing some risk? Obviously, medium term we would have that, but in a shorter than FY 2023, do you think that will be a risk, FY 2023 and FY 2024? See, generally in this year, I think as I said, this is a process of resetting the cost base. Right. lot of costs this year are also unnatural in terms of some manpower costs are unnatural in terms of number of cycles of increments, you know, the churn because of acceleration, so you have to add and you lose talent very fast. Right. The travel is now returning and the efficiency of that travel and the business development will start reflecting in the turnover in next two quarters. Right. I think this year, we have, as I said last year, the last year margins are unrealistic because. Right. A lot of those things we are not considering. No, I'm just comparing your guidance because that is what you had spoken about, right? Sure. 22%-23%. Yeah. Yes. Yeah. We are generally looking at still or have a target of between 17%-18% of that. Okay. Okay. We may be close or we may fall short of that. It depends on how we hit on the top line. Sure. No problem, sir. Thanks for that. Lastly, how is the GSI relationship going? Because we have worked hard for that. How are you seeing things? Is there some progress you can share on that? Thanks. I think we are extremely happy with what's happening out there. I think more and more GSIs are finding it very interesting to carry our products. The funnel is growing. We are not very happy with the conversion ratio rates out there and the deal flow so far. Having said that, we did close two deals this quarter as well, and we expect in the remaining part of the year to you know, have some acceleration in that. Okay. You know, it is still a long way to go and we're working on it. Are these two deals U.S.-based? One is U.S., one is Australia. Okay. Great to hear that. All the best. Good luck for the future, sir. Thanks. Thank you. Thank you, sir. Thank you. Ladies and gentlemen, that was the last question. I now invite the management of Newgen Software Technologies Limited to add a few closing comments. Over to you, sir. Thank you so much everyone for participating in the call. For the pending queries, would like to connect one-on-one if possible. For any other further questions, you can also go to our website. Thank you. Thank you, members of the management. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.