Newgen Software Technologies Limited (NEWGEN) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to NuGen Q1 FY '27 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I now hand over the call to Mr. [indiscernible] from ICICI Securities. Thank you, and over to you, Ms. Sema.

Good evening, and welcome to the Q1 FY '27 Earnings Call of Newgen Software Techologies. On behalf of ICICI Securities, it's my pleasure to introduce the senior management team of Newgen. We have with us today, T. Varadarajan, Vice Chairman and Full-time Director; Mr. Virender Jeet, Chief Operating Officer; Mr. Tarun Nandwani, Chief Operating Officer; Mr. Arun Gupta, Chief Financial Officer; and Ms. Deepti Chugh, Head of Investor Relations. I now hand over the call to Ms. Deepti for further proceedings. Thank you, and over to you, Deepti.

Thank you so much, Seema. Good evening, everyone. 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 future performance. and the company does not undertake to make any announcements in case any of these forward-looking statements become materially incorrect or update any forward-looking statements made from time to time by or on behalf of the company. For any further details, you may please refer to the Investor Relations section of our website. I will now hand over to Mr. Varadarajan for presentation of the results, and that will be followed by a Q&A by Tarun and team. Thank you.

Good evening, everyone. Thank you for joining us today for our Q1 FY '27 earnings call. beginning as Newgen continues to advance its vision of estating intelligent enterprises. We have shared important leadership announcement during the quarter that will guide the company into its next phase of growth. As Deep has decided to step down from his role, Tarun has been appointed as Chief Executive Offer at Newgen effective August 1, 2026. Tarun has been associated with Neuren for the past 33 years and has been a key contributor to Newton's growth journey. He will drive the next chapter of growth at Newgen. We have also created the role of Chief Growth Officer at Newgen and Pramod has been appointed to this position. He will use his growth agenda with a focus on driving growth strategy, product alignment, I enablement, global market expansion and ecosystem development. These appointments reflect Newgen's commitment to leadership continuity and our confidence to the opportunities ahead. I would like to take this opportunity to thank Jeet for his outstanding leadership and invaluable contributions in shaping Newgen into the global organization it is today, where we shall continue success in the next chapter of his journey. With that note, we now move to the financial performance for the first quarter of FY '27. We have started FY '27 on a steady note. With Q1 reflecting continued resilience in our business model, sustained customer engagement and healthy momentum to our annuity-led revenue streams. During the quarter, our revenue from operations stood at INR 357 crores, representing year-on-year growth of 11%. Key highlight of the quarter was the continued strength of our annuity revenues. Total annuity revenue stood at approximately INR 250 crore -- INR 204 crores, witnessing a growth of 14% Y-o-Y. With this SaaS and license subscription revenue continued to grow strongly reaching approximately INR 60 crores for the quarter and growing at 40% Y-o-Y. This reinforced the increasing predictability and durability of our revenue base as more and more customers continue to engage with Newgen through subscription-led and recurring models. For majority posed, we saw a broad-based contribution across all markets. EMEA remained -- the largest contributor during the quarter at approximately INR 114 crores, followed by India at approximately INR 96 crores, the US at approximately INR 92 crores and APAC at approximately INR 56 crores. This geographic diversification continues to support the resilience of our business and provides multiple levers for growth across markets. U.S. geography witnessed a strong growth of 27% Y-o-Y followed by APAC geography at 12%, EMEA geography at 10%. Implementation revenues had been weaker in the quarter due to the lowest project starts. Across markets, especially EMEA. We added 10 new logos during the quarter. Our key wins in the quarter include a core insurance platform, policy administration system formation project for a customer in Kuwait valued at approximately INR 26.7 crores, a retail loan origination solution deployments for an [indiscernible] the Philippines valued at INR 16.2 crores an order from Annapurna Finance Private Limited in India for the implication maintenance of AI-enabled loan origination and collection system valued at INR 15.6 crores. And engagement is a leading U.K. enterprise to implement Newgen's enterprise content management platform valued at INR 14.5 crores. Our industry mix also continues to reflect the strength of our focus on complex, regulated and process intensive sectors. Banking financial services remained our largest vertical, contributing approximately INR 225 crores during the quarter. and growing at 5%. Insurance and Healthcare also continue to be an important growth area, contributing approximately INR 79 crores and growing at 8%. These sectors continue to prioritize automation, digital transformation, customer experience, complains and increasing lag modernization. As we had mentioned earlier, enterprises today are not merely looking at digitizing individual processes. They are looking to create more connected, intelligent and adaptive operating environment. This shift aligns closely with Newgen's core string -- our platform brings together content, process, communication, low-code analytics and AI capabilities into a unified execution layer. -- enabling customers to move from fragmented automation towards intelligent orchestration. The conversations with customers are increasingly centered around how they can operationalize AI responsibly, improve agility, reduce turnaround time, strengthen governance and deliver better comes at scale. We believe this creates a meaningful opportunity for Newgen as organizations increasingly look for trusted platform that combine deep domain capabilities, enterprise grade, governance and scalability. During the quarter, we continue to invest in our platform road map with a strong focus on AI-led capabilities. We are running our enterprise agent orchestration capabilities and strengthening AI governance and trust framework. Our focus continues to be on disciplined execution, stronger customer engine, annuity-led growth, product innovation and operational efficiency. We believe the investment we have made in our platform, people and global presence position us well to capture long-term opportunities as enterprises accelerate their journey towards intelligent operations. Coming to our profits and margins. Our profitability performance remained healthy. EBITDA adjusted for other income stood at INR 56 crores translating into an EBITDA margin of around 15.7%. Profit of tract was INR 630 crores, reflecting year-on-year growth of about 2% with a net margin of around 17.6%. During the period, we have invested nearly 9% of our revenues on R&D initiatives and around 26% of revenues on various sales and marketing activities. To summarize, Q1 FY '27 reflects the resilience of our business model. and the strength of our strategic direction, we are well positioned to accelerate growth and help enterprises orchestrate intelligent enterprises. Our annuity revenues continues to expand, profitability remains healthy, and our platform remains strongly aligned with the emerging needs of enterprises seeking intelligent, governed and scalable transformation. We entered the rest of the year with confidence while staying focused on disciplined execution and sustainable long-term growth. Thank you very much, and we are now open for Q&A.

[Operator Instructions] The first question is from the line of [Shubi] Gupta from Trinetra Asset Management.

So far, our EBITDA margins have expanded from 14% to about 15.7% in this quarter. So what are the primary cost efficiency drivers for this? And should we assume 15% to 16% range to be sustainable for the remainder of the year? And the second question is that how are you monetizing these AI agents, like are they being added to the existing modules? Or it will be bundled into a new gene license like new license?

I'm Tarun. So answer to the first question is that the margin expansion is a function of optimization of the AI practices in our engineering that we have in coated and the efficiency gains are being passed on for customer success for faster implementations and operational efficiencies that we are getting. So we hope that we will continue with these efficiency gains in coming quarters. To your second question..., I think...

15% for the full year, the EBITDA would expand. So Q1 is the lowest in terms of margin. So we usually have 23% to 25% EBITDA margin for the entire year.

On the AI product side, as the platforms have native AI capabilities, which you are aware of. We have also launched the AI product in our vertical streams. So AI in trade, AI in insurance AI health care and AI in government. Now if we go slightly deeper, the trade finance bank guarantee import modules the AI product features allow them for classification and extraction of data. and analyzing of documents and implementation of the recommendation of the outcome. So this is based into the platform for auditability and government space. Similarly, we have launched AI products for our insurance orders in life health in general. Our government vertical knowledge management tools has AI ban for the knowledge management vertical product. And in our health care, we have incorporated AI products for appeal events and provider life cycle management. So they are currently being sold as part of our vertical product offerings which sit on our platform AI native capabilities.

The next question is from the line of Aditi Patil from ICICI.

Congratulations team on a good execution in a closed environment and congratulations Tarun on stepping into the role of new COO, and I wish all the best for Jeet for his future and over. My first question is on what led to decline in implementation revenue. Was it because of delays in implementation or since we had lower license revenue in the past 4 quarters and hence, lower implementation revenue?

First, thank you for your wishes. The implementation revenue, yes, you are correct that the last financial year had a decline in the license revenue. But we had a lumber quarter for Q1 in terms of license. The implementation revenue is build up from the unexecuted order book of last year plus the current quarter order executed book. So what happened in this is that there we saw some delays due to the environmental factors of our customers. because of which -- specifically EMEA and some kind of some other parts and that led to the decline in the quarter 1 implementation revenue, but we are optimistic that Q2, we will cover up with the -- the current executed [indiscernible], we will be able to cover up for the Q1 loss as well as the our quarter 2 projections.

Okay. Got it. Can you share your outlook on India and EMEA geography?

The demand pipeline is healthy in both India and EMEA. India is seeing good demand in our pipeline due to large cases coming in the area of NBFCs, which is LOS and LMS and trade. This has led to both growth in pipeline for India, and we see this demand closing in coming quarters. has seen good demand in digital transformation, AI-led tools and the past pieces. Europe has seen very good demand in our AI-led ACM, CCN policy binding cases. The the modernization programs in Europe is showing healthy demand, and we are seeing a lot of modernization ramps there.

Okay. So our developed market revenue has been growing at a strong base since last few quarters. So overall, should we see our developed market revenue sustaining and improving revenue growth in India and EMEA?

Yes. See, mature market revenues are all subscription-based cloud native, so we are seeing a positive side in the growth there, which will be a continued momentum. And India and EMEA good pipeline growth in terms of the license cases and large program modernization programs. So we are expecting India and EMEA to come back to growth number.

Okay. And on DSO. So was it because of the delay in billings in EMEA that our days were slightly higher in Q1?

Yes. So if you see from [indiscernible] DSO is a challenge we recognize, but there is a decline from Q4 to Q1, where we have worked upon our collections. We have worked upon the invoicing and contract terms. And the delay in DSO EMEA, as you know, because of the macro environment, certain payments were delayed because of those issues, but we are seeing a positive trend of DSO declining in coming quarters.

Okay. All the best for future quarters.

The next question comes from the line of Rahul Jain from Dolat Capital.

Congratulation for the new induction for the role and thanks, Jeet,for making us understand this business better and driving whatever you could during your tenure. My question is for this fiscal year, when we look at FY '27, what are the -- some of the positive things that is shaping up from a industry point of view, maybe something around AI driving the tech modernization or core modernization theme -- are we seeing any delta coming from that kind of a thought process among your clientele? And also from a macro point of view, how the decision-making are getting affected and how you plan to mitigate those challenges in the coming quarter? If you could share your thoughts on that.

Thanks, Rahul. See, as you know, Newgen's strategy is focused on customer success and investing in innovation. As I explained earlier, Newgen is investing heavily in horizontal and vertical product lines. and our domain solutions are becoming more and more appealing and basing to customers with respect to the AI based into the various product lines of CASA, lending, trade finance, PaaS, underwriting, ECM, communication hub, CCM, knowledge management, which is RMS. So the AI, there will be a lot of investments going on which are going on and the products will evolve more and more with coming times. So that is the trend that we are seeing that AI demand is coming with [indiscernible]. So to your second question, as you know, that Newgen is diversified across geographies and industries, we are in good attraction in commercial insurance space with policy binding solutions, we are seeing ECM in retail in mature markets. RMS in -- again, in NBFC sector in mature markets, and in India and APAC markets, we are seeing good demand in our original domain-led products, which is AI-based trade, AI-based lending. These are in good demand and pipeline we're seeing good growth. Similar trends we are seeing with APAC, which is seeing good demand in government where knowledge management kind of solutions are showing good traction in various government departments in the APAC region and the traditional solutions of LOS digital transformations are seeing platform-based loan origination and LMS is seeing good growth in APAC. So overall, in all markets, we are seeing good demand today for AI led these product lines, our offerings.

Sure. And if you could help me out with the total headcount situation at the end of FY '26 and now?

So we were approximately 4,200 at the end of...

FY '26 and currently also at a similar number.

So headcount, we have not grown?

Yes. Thanks, Deepti.

Yes. If I see this data, this has been, I think, 4,500 or 4,600 in FY '24, '25 respectively, it's 4,200 now after 1.5 years. I can understand there is some automation and some leverage from an AI point of view. Within the spectrum of skill that we have within this 5,000 odd people, is it more like our head count on the implementation side has come off because of some automation and maybe the increased contribution from GSI pool, if that has increased, what could have caused this reduction?

You are right, Rahul, the AI benefits have come as tailwinds. And we are being, as I said, good benefits and operational efficiencies in our deliveries efforts and time lines.

But within the subsegment of responsibility, would you see the more optimization happen on the implementation headcount or it is broad-based across function?

The efficiencies will come broad-based across all the departments, whether these are products accelerators or deliveries. And that as I said, new gen is focused on our customer success and investing in innovation. So we will -- our core focus remains innovating for customer success and creating more and more product lines.

And have you shared the pipeline of order growth and so data? Sorry if I missed that earlier.

No, Rahul. We usually shared it at the end of the year. March is when we saw the overall bookings number. But yes, the pipeline looks strong. The booking number is also healthy and growing at double digits. So we do see strong growth in multi asset.

And if I see our product revenue have been coming off last year and the SaaS has seen acceleration during FY '26 and that has continued in Q1 as well. So is it safer to assume that incrementally, there are more deals coming on SaaS, which is affecting probably the combination part of the revenue -- and if that is the tail and it makes a lot of sense for us to start disclosing the [indiscernible] because that would represent the current momentum of the business better rather than showcasing the P&L because you would be deferring a lot of license in into the future booking, which may underscore the current performance. Any color on this aspect would be helpful.

The subscription revenue, revenues are mostly coming from U.S., U.K. and Australia. And the deal pipeline, I think we take -- so money revenue SP-2 Yes. So I think as far as booking is concerned, not yes. Yes. We cover 1 year revenue, yes, I think as far as -- but overall, I think Rahul, the point is that still it is a 12%, 13% revenue when we are talking about overall subscription revenue still. So it's just smaller bucket compared to all other buckets. So yes, your point is well taken that possibly in future course because somebody to have that number also. But maybe we have to wait for some time more. Currently, it is a better parameter to show that booking growth at a yearly level and whatever plans we can give on a quarterly basis, we will surely say that.

Yes. And please look into it because some of our PS started sharing the RPO data, which gives a far better visibility on the SaaS revenue overall underlying growth momentum. That's it from my side.

The next question comes from the line of [Vijay Menon from Monark] Capital.

A couple of questions from my side. U.S. growth looks quite good this quarter. Anything we did specifically there? Or have you win any large deals, which is there in the number, if you can give any clarity on that, that would be helpful.

See, the U.S. being majorly into a subscription-based model. the growth of last year might be different quarters get accrued in the coming quarters and this year, wins will again move on quarter-by-quarter recognition because these revenues are end quarter-to-quarter. So we are sitting on a healthy base and with additions with new customers and mining this performance and momentum will continue.

And in terms of materiality, I think we've disclosed 4 deals per quarter. So yes, we did get a few which were in the range of INR 20 crores to INR 15 crores, one in the range of INR 26 crores.

That helps. And in terms of the RFPs in India, last quarter, on similar RFPs are getting delayed and decision-making is taking time and large deals, specifically in India are not happening through banks -- so any progress there, any improvement you are seeing there in the demand environment?

Yes. As I said, the India pipeline has grown with large deals, and they are seeing activity into those RFPs and the client has moved forward with the valuation and decision-making process. So in current quarter or coming quarters, we will see some closures.

Okay. And in terms of margin, any guidance for the year you want to do anything with...

As far as margin is concerned, yes, I think as far as -- if you see first quarter also, you will see that there is a margin expansion. As Shaun has said that obviously all kind of initiatives, whether it is the AI side of optimization, which I think is coming in internal productivity also as well as the improved growth on the top line also, obviously, we -- on a yearly basis, obviously, we are seeing margin expansion also for the annual basis also. That is what we are targeting. But it is being a first quarter. Obviously, it is not appropriate to comment beyond this as far as the overall number. But yes, I think we will surely maintain this kind of number when we are to margins.

And what kind of R&D spend can we expect this year?

Currently, also, it is around 8%, 9% of the overall -- so I think -- okay. Thank you.

The next question comes from the line of Seema Nayak from ICICI Securities.

Am I audible?

Yes, you are.

So my first question is on Y-o-Y. The goal is looking broad-based. So what is the reason behind that of the other vertical? My second question is on the other income, which is fairly limited, if you can throw some light on it.

So the other income, I think it's on account of market dynamics. We do have investments.