Persistent Systems Q1 FY26 earnings call

Persistent Systems reported a robust Q1 FY26, with revenue reaching US $389.7 million, reflecting a healthy 3.9% quarter-on-quarter and 18.8% year-on-year growth. In constant currency terms, the growth was 3.3% QoQ, marking the 21st consecutive quarter of growth. The EBIT margin stood at 15.5%, improving by 150 basis points year-on-year, despite a 40 basis points impact from unfavorable currency movements and another 40 basis points from higher amortization costs. Profit after tax (PAT) grew 38.7% YoY to 4,249.4 million INR, translating to a PAT margin of 12.7%.

The company secured a Total Contract Value (TCV) of USD 520.8 million for the quarter, with new bookings contributing USD 337.0 million. The Annual Contract Value (ACV) from this TCV was USD 385.3 million, including USD 211.8 million from new bookings. Client growth was healthy across categories, with top 5 customers' revenue increasing by 22.8% YoY and top 100 accounts growing by 22.4% YoY. The number of customers with greater than $5 million revenue significantly increased from 41 to 56 over the last year.

Geographically, North America grew by 17.4% YoY, Europe by 37.5% YoY, and India by 18.3% YoY in USD terms. From an industry segment perspective, BFSI led the growth with a 30.7% YoY increase, followed by software high-tech and emerging industries at 14.1% YoY, and healthcare life sciences at 12.4% YoY. However, the healthcare life sciences vertical experienced a 2.1% QoQ decline, primarily due to a planned transition of efforts from on-site to offshore in larger customer accounts.

A quarter-on-quarter EBIT margin walkthrough revealed a net decrease of 10 basis points. Tailwinds included a lower ESOP cost, which helped by 230 basis points. Headwinds included the absence of earn-out reversal (60 bps impact), delayed ramp-ups and on-site resource retention (100 bps impact), higher amortization (40 bps impact), and unfavorable currency movements (40 bps impact). The company postponed its annual wage hike by a quarter due to the uncertain business scenario. Billed DSO improved by 2 days to 56 days, and unbilled DSO improved by 3 days to 20 days. Total headcount reached 25,314, an increase of 746 QoQ, while trailing 12-month attrition stood at 13.9%.

Persistent is pivoting to an AI-led platform-driven strategy, focusing on 'AI for Technology' and 'AI for Business'. The company launched SAVA 3.0, an AI-powered digital engineering platform, which was built leveraging SASVA itself, demonstrating its productivity promise. SASVA is backed by over 55 patents and is seeing good traction in enhancing engineering productivity and tech debt remediation. For 'AI for Business', Persistent is helping enterprises modernize data architecture and build custom platforms, leveraging hyperscaler partners. The company also highlighted its investments in a Digital Trust Layer for Responsible AI, security, and governance, strengthened by the Arrka acquisition.

Management reiterated its commitment to achieving a revenue goal of $2 billion by the end of FY27, aiming for a compounded annual growth rate of 19%-20%. This growth is expected to be a combination of organic expansion and tuck-in acquisitions, with a focus on capability-led smaller deals. The company also aims for Europe to contribute 15% of its revenue in the next 2-3 years. Despite increased caution among customers and a longer decision-making cycle, Persistent expressed confidence in its growth journey, emphasizing profitable growth over growth at any cost.