R Systems Intl.

R Systems International reported a strong Q1 FY26 with revenue reaching INR 574.8 crore ($62.8 million), marking a 29.9% YoY and 3.5% QoQ growth. Adjusted EBITDA stood at INR 115.7 crore ($12.6 million), achieving a 20.1% margin, up 50.6% YoY and 13.7% QoQ. Adjusted Net Profit increased by 74.8% YoY and 25.5% QoQ to INR 75.8 crore ($8.3 million), resulting in an adjusted EPS of INR 6.4, a 74.6% YoY increase.

The adjusted EBITDA margin improved to 20.1% from 17.4% YoY and 18.3% QoQ, driven by operational leverage, improved revenue mix, and favorable exchange rates, particularly rupee depreciation. Gross margin, however, saw a slight dip to 36% from 38.9% last quarter, attributed to reduced utilization due to strategic investments in AI and a lesser number of working days. SG&A expenses decreased by INR 22.9 crore QoQ to INR 91.4 crore, primarily due to a reversal of conservative AR provisions and year-end true-ups.

The company is actively pursuing an 'AI-First' strategy, launching its AI studio EXIQO and expanding its bench and COE investments in AI and data, leading to a utilization rate of 80.5%. This strategy is yielding results, with the trailing 12-month ACV wins increasing to $82.5 million from $76.5 million last quarter. Key wins include developing an API-based platform for a global technology research firm, digital engagement solutions for a North American tech company, and modernizing a life insurance platform using AI tools. Approximately 29% of current revenue is derived from AI and AI-enabled services.

The first full quarter consolidation of Novigo contributed to the overall revenue, though its revenues were restated to $21-$22 million annually from an initial $32 million due to accounting alignment. Organic growth was largely flat this quarter, partly due to fewer working days and Q4 fixed-price project true-ups. Novigo's Q1 performance was also 'to some extent' impacted by the Middle East crisis. Despite this, management expressed strong confidence in continued organic growth and market share gains, with cross-engagement in 'close to a dozen deals' between R Systems and Novigo clients.

R Systems sees the rise of AI as a significant opportunity, validating its focus on AI talent and engineering velocity. The company believes that while new players, including frontier model vendors backed by private equity, will emerge as competition, the expanding market and R Systems' established expertise will allow for continued growth. The company also views the trend of clients establishing Global Capability Centers (GCCs) as an opportunity to partner and provide expertise, rather than a threat to its client base.

The company's global headcount stands at approximately 5,400 employees. The attrition rate is currently around 11%, which is reported to be lower than the industry average, indicating effective talent retention. Utilization decreased to about 80.5% due to deliberate investments in building AI capabilities and expanding the bench for AI and data talent.

The company is strategically shifting its business mix towards fixed-price and outcome-based contracts, especially with the increasing adoption of AI-led transformation offerings. While fixed-price contracts were around 10% previously, they are estimated to have increased to 15-16% in 2025 and are expected to continue growing, reflecting a move towards higher-value engagements.