Q1 Review | Persistent Systems On Earnings Report | BQPrime
Transcript
00:00 Thanks so much for tuning into this earnings conversation with Sandeep Kallrao of Persistent.
00:03 We look forward to this conversation every quarter because we talk to Sandeep about what's
00:07 happening in the bucket that they so specialize in and talk in such telegrowth quarter after
00:13 quarter and especially at this time when some of the other companies have sounded out bugles
00:18 of warning, which are very diverse, if you will.
00:22 So Sandeep, thank you for taking this time out and for the next 10-15 minutes that we
00:26 have, I would love to talk to you as much about Persistent as also about what's happening
00:31 within the space as well.
00:33 Let me start with your quarter.
00:35 The revenue numbers were largely in line and if I adjust for the one-off expenses that
00:40 you guys incurred, there was not a very large miss on the other numbers as well.
00:45 How would you sum up the quarter?
00:48 So Neeraj, let me give the high-level numbers and then I'll give the color commentary on
00:51 our summary so that the viewers get a sense of where we are.
00:55 So for us, the quarter was a good healthy quarter from a growth perspective.
00:59 We came in at $282.9 million for the quarter.
01:01 This gives us a sequential growth of 3% quarter on quarter, 17.1% year on year basis.
01:07 This is on the dollar terms.
01:08 In rupee terms, this translates into 3% quarter on quarter, 23.6% year on year.
01:13 Now coming to the profitability side, the EBIT for the quarter came in at 14.9%.
01:18 This compares to 15.4% from the last quarter.
01:21 But there is a seasonality of the visa expense that comes in in this quarter, which contributes
01:26 to roughly about 40 basis points.
01:28 And then there are small puts and takes in terms of amortization and this that.
01:32 So from an overall perspective, EBIT came in tad bit lower.
01:37 From an overall PAT perspective, as you would have noticed, we did a number of events with
01:42 respect to our billion-dollar achievement.
01:44 And we also rewarded our employees with a small gift.
01:47 Now obviously, these are the people who are making our growth happen year over year, quarter
01:52 over quarter, month over month.
01:53 And we deserve to reward them as we reward our investors with dividends and so on and
01:57 so forth.
01:58 So adjusted for that, our PAT actually grew.
02:00 With this expense, our PAT came in at 9.9%.
02:04 If we take that one-time exceptional amount, our operational PAT comes at 11.4%, which
02:09 gives us a QonQ growth of 5.4% and YonY growth of 25.2% on the PAT side.
02:14 Now coming to the order book for the quarter.
02:17 The order book for the quarter came in with a TCV of $380.3 million.
02:21 The new booking TCV was at $237.2 million.
02:25 So overall, I would say the quarter was good.
02:28 Now obviously, we have to keep in mind there is a macroeconomic environment, which is very
02:32 different than what it was, let's say, four quarters, six quarters back.
02:36 If you look at any of our peers, growth and so on, you will figure out that the sector
02:41 obviously has its own small challenges, which are linked with the macroeconomic.
02:45 So I'll take a pause and I'll be happy to make it a discussion with you.
02:50 I'm trying to get a smaller piece out of the way first.
02:52 When I was looking at your geographical numbers, and I'll come to NA, which is the bulwark
02:56 for you, but Europe, in your case, this quarter showed a bit of a drop there.
03:02 Now is this seasonal?
03:04 Is this maybe client specific?
03:06 Or could this be an issue that could large?
03:09 I mean, it's only 10%, but still, I would just love to understand.
03:11 So there's no structural issue.
03:13 So from that perspective, look, these are percentage that happen one quarter or the
03:16 other.
03:17 There is nothing to worry in that.
03:18 From an overall perspective, there's a healthy growth, there's a healthy pipeline, whether
03:21 it is North America, whether it is Europe, and we are pretty reasonably confident, obviously
03:26 cautiously optimistic on the growth in all the regions, but there's nothing to worry
03:29 about in this.
03:30 Got it.
03:31 Now, Sandeep, I know for a lot of people may not quite know that your model is not necessarily
03:36 plain Jane IT services, but I'm just trying to understand and compare what you are feeling
03:41 on the street versus what some of the peers are.
03:44 Now, it was not a worry when one or two or three companies came out with slight misses,
03:49 but a large IT companies on call yesterday, spoke a lot about how client conversations
03:57 are slowing down, large deals are getting spread out instead of getting executed within
04:02 a bunched up time as earlier was envisaged.
04:06 And there is a deferment of sorts in client decision making as well.
04:10 Now, these are not very pleasant things to hear.
04:13 Just trying to understand, are you sensing something like this in your client conversations
04:18 as well?
04:19 Right.
04:20 So, look, we all live in the same kind of universe.
04:23 We all look at the same kind of customers, maybe slightly different mix at times.
04:27 So as far as we are concerned, look, the fact of the matter is if we had to bring in $100
04:31 of bookings one year back, if we needed a funnel of, let's say 1.6 to 1.8 times that,
04:38 today we need more than that, because the decision making definitely is getting delayed
04:41 in certain pockets.
04:43 Now, that is what we have to deal with.
04:46 So this is the environment.
04:48 And so the way we are dealing with it at our company is we are doubling down, we are proactively
04:52 going back to our customers and prospects, creating the pipeline to be able to support
04:55 our growth journey.
04:56 That is what has held us in good spirit.
04:59 Did we have some of the order kind of get delayed?
05:02 This was also a quarter where the end of the quarter people had taken vacations.
05:06 July 4th is basically a long weekend and US is roughly 80% of our business, 78 plus percent.
05:11 So we are seeing all kinds of these things.
05:14 But the maturity of any organization, whether it is us or anybody else, is to sense the
05:17 environment, balance the demand, balance the various equations and deliver to it.
05:23 So do you, I mean, are you leaving it open in that it is not a done deal that these things
05:29 are materially slowing down and you will get the proof of the pudding only as the next
05:34 couple of quarters go behind you, Sandeep?
05:38 So from what we are hearing from our discussions with customers, and since I live in the US,
05:43 I have a fairly active set of conversations at any point in time with our customers.
05:47 So from customers perspective, every one of them is expecting the things to improve over
05:51 the next one to two quarters.
05:52 The next one to two quarters are tough.
05:55 If they are tough for our enterprise customers, they are tough for our product customers,
05:59 the customers that we do product engineering for.
06:01 And all of them are expecting this to kind of go back up in terms of acceleration two
06:06 to three quarters from now.
06:07 So that is a reality on the ground that we are listening to.
06:10 But at the same time, there are cost optimization deals that are there.
06:13 These are there on the table.
06:15 Now it is for every company to understand in their own areas of expertise, how do they
06:19 morph their pitch, how do they capture more of the market.
06:23 And I am proud to say at Persistent, if you look at our last eight, nine quarter journey,
06:27 we have outperformed the market, not by waiting for RFPs to come our way, but by proactively
06:32 working with our customers.
06:33 That is our endeavor.
06:35 And this is the 13th sequential quarter for us for revenue growth and 3% revenue growth
06:39 in this macroeconomic environment, by no means is a small task.
06:42 No, no, not at all, not at all.
06:44 Nothing to take away from there.
06:46 So for sure, just trying to understand Sandeep, and it may well be the nature of the game,
06:52 because in tough times for customers, you have to go out and try and give them a helping
06:58 hand as well.
06:59 For you to be able to get the kind of deals that you are going, getting even now, are
07:03 you having to kind of backtrack a little bit on pricing that you would otherwise be able
07:11 to charge because they are in a tough spot?
07:14 So I don't think pricing is necessarily the biggest thing.
07:18 Pricing pressure is there in some of the larger customers, where it is multi-vendor kind of
07:23 an environment.
07:24 There are people like us, then there are the bigger peers of ours and so on.
07:27 So the pricing pressure happens more in those kinds of environments.
07:31 When we are going with a proactive pitch, when we have a clear understanding of what
07:34 the customer is trying to achieve, when we are crafting a three year to five year kind
07:38 of a deal construct, when we are helping them optimize, pricing is not the biggest pressure.
07:42 What happens in those kinds of deals is we are at times normalizing the savings, we are
07:47 passing on savings upfront and we are optimizing it over a period of time.
07:50 That puts a little bit of pressure on profitability.
07:53 But when you run a P&L of a billion dollars, these are puts and takes you will have to
07:56 do.
07:57 So those are where your grit of managing your profitability and your deals that are new
08:02 with lower profitability sometimes versus deals that are getting into higher profitability
08:06 that you booked over the last several quarters, all of that balances out.
08:10 So no pricing pressure per se, but better management of overall P&L.
08:17 Yeah, point well taken.
08:18 The other interesting piece that I thought was, and please correct me if I'm wrong here,
08:22 but the way NA did not show issues for you, BFSI, which has been a pain point for some
08:30 customers has not been an issue for you.
08:33 But there has been a bit of a pullback in this quarter on your largest vertical.
08:37 Now what's happening in healthcare?
08:40 So in healthcare, look, we are exposed to different constituents within healthcare.
08:43 So healthcare for us is on one side, instrumentation companies and medical device companies.
08:48 Some of these companies and the rest of the things are pharma, payer and provider.
08:52 Some of the medical device instrumentation companies, etc. had a big leg up in the COVID
08:57 period.
08:58 So when you look at all the companies that are exposed to the COVID tests, various parts
09:01 of that value chain, they are now seeing a decline in their revenues.
09:05 With their revenue declining, some of them are optimizing their own operation in the
09:09 new reality.
09:10 So they spent more when they were seeing an uptick.
09:13 And so some of our constituents are optimizing their spend, including their spend with us.
09:17 But overall, if you look at our order books, one of the largest deals that we won, which
09:21 is fairly bigger than $50 million, TCB, is in the healthcare space.
09:25 It's with a payer kind of a company.
09:28 And so we are reasonably confident, it's a small blip, it will come back.
09:32 It's like you're managing a portfolio of businesses.
09:34 There's nothing to worry in that.
09:36 We know exactly where the issue is, and we know how it is getting fixed.
09:40 Sandeep, as somebody who's shepherding such a large ship, how do you think of the deal
09:46 win momentum?
09:47 Because obviously, it will slow down.
09:49 People who are not in your seat might think of it as a much larger issue than what you
09:55 might.
09:56 So I'm just trying to get inside your head and try and understand, what do you think
09:59 when you think of deal win momentum in an environment like this?
10:03 Right.
10:04 So, yeah, from an outside perspective, I can understand it.
10:07 I can empathize with people who think a little bit of order wins here or there make a lot
10:11 of difference.
10:12 But when we look at ourselves, look, the fact of the matter is, there is a healthy pipeline.
10:17 There is an execution engine that we have in place, which has delivered very well for
10:22 the last 13 plus quarters.
10:23 We are confident, small things here, there, you know, they will keep happening.
10:27 And those adjusted for those, we have the confidence, we are in a good spot compared
10:33 to the environment we are in, compared to, you know, five, six quarters back where we
10:37 had five sequential quarters of 9% growth, it was a different environment.
10:41 Comparing apples and oranges doesn't yield good results.
10:43 But if you compare us with the environment that has been handed over to us over the quarters,
10:48 if you compare us with the industry and the peer growth, I am relatively very confident
10:52 we are in good spot.
10:54 Obviously we'll have to be at it and execute to it.
10:56 That's what I may have my final question.
10:58 I may have missed this, but have you kind of given any kind of color as to what you
11:03 would do for the year or is it too fluid and environmental to try and make such a prediction?
11:08 So Neeraj, we don't give forward looking guidance at all.
11:10 So it's not about the environment or not.
11:12 We don't give forward looking guidance.
11:14 All I can say is we are at it.
11:16 We have a track record of 13 plus quarters of sequential growth and profitability either
11:20 at a stable or a healthy growth.
11:22 There are quarters where there will be, you know, a few things here, there.
11:24 So we are relatively confident.
11:26 Two other things that I want to point out for you and your viewers, we have not delayed
11:30 any people joining, whether it was a pressure that we took earlier, whether it will be the
11:34 pressures that we take in the future.
11:36 We have already gone ahead and given the salary hikes that were due to our employees.
11:40 We are not going to manage our profitability by cutting the stomachs of our employees.
11:44 We have given seven and a half percent average in India.
11:46 We are given three and a half to 4% depending on which geography we are talking about abroad.
11:51 And look, all of that coupled with the fact that we paid 109% minimum corporate performance
11:56 bonus for the last year, which was paid in this quarter gone by, you know, we are confident
12:01 of our performance.
12:02 We will stick it in, come, you know, a good macro or a bad macro.
12:06 And we are poised to deliver relatively well in whatever environment is given to us.
12:11 The second point being, sorry, I thought you said you wanted to mention two things.
12:14 So basically the employees, we have not deferred any joining and we will not defer any joining.
12:19 Second is we paid all the bonuses, we have done all the increases.
12:22 So from that perspective, one does not do all this if one is trying to artificially
12:25 manage the profitability.
12:28 Point well taken.
12:29 Sandeep, thank you for taking the time out and giving us some color.
12:32 It's good to hear a confident CEO in these tough times and which is very warranted.
12:36 So thanks for taking the time out.
12:38 Pleasure talking to you.
12:39 Likewise.
12:40 And viewers, thanks for tuning in.
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