Newgen Software Technologies Q1 FY25 earnings call

Newgen Software reported a robust Q1 FY25, with revenue reaching INR 315 crores, a 25% year-on-year growth. Profit After Tax (PAT) saw an even stronger increase of 58% year-on-year, totaling INR 48 crores, resulting in a PAT margin of approximately 15% for the quarter. The growth was broad-based across regions, with EMEA growing at 25% Y-o-Y, India at 20% Y-o-Y, and APAC demonstrating significant momentum with 65% growth. The US region, however, grew at a more modest 13%.

Annuity revenues for the quarter stood at INR 201 crores, contributing significantly to the overall revenue. On an annual basis, annuity streams (ATS, AMC, SaaS, and support) comprise about 60% of total revenues, with license revenue at 18-20% and implementation revenue at 21-22%. The company maintained a healthy balance sheet, with net trade receivables at INR 402 crores as of June 30, 2024, translating to a Net DSO of 112 days. Collections witnessed an 18% Y-o-Y growth, and cash and cash equivalents totaled INR 850 crores.

Newgen continues to invest prudently in R&D and sales and marketing initiatives to drive future growth. A key highlight was the launch of LumYn, a Gen AI-powered hyper-personalization platform specifically designed for the banking sector. This product aims to enhance profitability and customer experiences by adapting to evolving preferences. While there is significant excitement, management indicated that it is an early-stage product and may take 3 to 4 years to evolve its funnel and contribute substantially to revenue.

The company's aspiration to be a global leader includes expanding its footprint in mature markets like the US and Europe. While initiatives are underway, including team restructuring, the US market's growth at 13% in Q1 trailed other regions. Management remains conservative about the US market for the current year, acknowledging that a significant momentum shift has not yet occurred, and the business model in these markets is still license-based, leading to lumpiness in Q3/Q4.

Historically, Q1 is the leanest quarter, though its impact is slowly reducing, with Q1's share of annual revenue shifting from 17-21% to 20-21% over the last three years. Annuity revenues are non-seasonal, but the lumpiness in overall revenue is driven by license sales and milestone revenues, which typically close in Q3 and Q4. Management aims to achieve an annual PAT margin of roughly 20% and an EBITDA margin of 23-24%, driven by sustained growth rates above 20-25% and improved productivity.

Newgen added 13 new logos in Q1 FY25, demonstrating continued client acquisition. Upselling and cross-selling to existing customers also contributed significantly to revenue growth. The average deal size substantially grew by approximately 20-25% last year, a trend management hopes will continue, although Q1 being a smaller quarter makes it too early to judge its impact on deal sizes for the current year.