Intellect Design Arena Ltd

NSE:INTELLECT

Earnings Call Transcript 2023-Q2

[Unknown Executive]

[Audio Gap] and to all of you and is also available on our website. Our leadership team is present on the call to discuss the results.

We have with us today Mr. Arun Jain, Chairman and Managing Director; Mr. Prabal Basu Roy, Adviser to the Chairman and Director on the Corporate Board, Mr. Manish Maakan, CEO of iGTB; Mr. Rajesh Saxena, CEO of iGCB; Mr. Banesh Prabhu, CEO of Intellect SEEC, then we have Padmini Sharathkumar, she is Chief Talent Officer; Mr. Venkat Saranu, CFO; and Mr. Andrew England, Full Time Director.

Besides some of the senior members of Intellect management team are also present on the call. Mr. Venkat Saranu will present to you the deck and then the commentary we made, by Mr. Arun Jain. On Safe harbor,we would like to remind you that anything which we say which refer to an outlook of our future is a forward-looking statement.

With this, I handover to Venkat.

[Venkateswarlu Saranu, executive]

Thank you, [ Pravi ]. Greetings. I will very briefly walk you through the investor deck. I guess the investor deck and the PR already with all of you. It's also on our website. It's in the stock exchanges as well. As they've articulated in several of the earlier investor conferences and calls, as a product Intellect product and platform organizations, our results are our best viewed on an annualized basis. On that note, we will start with the -- reviewing the performance for the last 12 months, which ended on September 30.

For this period, our revenues grew 27% moving from INR 1,640 crores last year to INR 2,087 crores this year. So on an annualized basis, its [ run rate ] crossed the INR 2,000 crore mark in this, when we closed this quarter. Gross margins moved up by 25%. They can see revenue growth of 27%. They were largely kept us moving from INR 931 crores to INR 1,166 crores. The EBITDA margin moved up by 9% moving from INR 417 crores to INR 455 crores, while the profit after tax has remained flat, almost around INR 311 crores to INR 314 crores. The gross margins as the slide shows, is fairly constant. And the EBITDA percentage is 22% against 25% last year.

Collections during the quarter have been healthy. So the last 12 months collection is around INR 1,905 crores. Some of the -- going into the granularity of the revenue. In the past -- in the Technology Day 2 -- 1 and 2 sessions, which were booked in 2021. We spoke about our progression from a products organization to a platform organization and perhaps eventuate to a marketplace. So the platform -- so the most gratifying metric that we would like to share is the stupendous growth in platform revenue. Platform revenues have grown 62%. They were from INR 276 crores to INR 448 crores in this. License revenues have remained flat.

AMC revenues, which are driven by progressive go-lives and inflation coming on board have grown by 11%. License-linked revenue is the other key metric that an IP-led organization like Intellect would like to benchmark itself on, that has again grown healthily north of 20%, it's grown by 22% from INR 929 crores to INR 1,132 crores.

The other one is the annual recurring revenue, metric which we have been presenting in most of the recent investor meets, which is an assurance of future revenue streams. That's again grown well by 35%, moving from INR 587 crores to INR 790 crores. Now in the full year, the last 12 months, we had 41 wins of which 14 wins were specifically in the last quarter. Look at -- specifically in the last quarter, our revenues were at INR 528 crores, which represents 17% year-on-year growth compared to the second quarter of last year. Gross margins against the 17% growth of revenue moved up by 5%, moving from INR 262 crores to INR 276 crores and EBITDA was a drop of 29%, moving from -- dropping to INR 84 crores from INR 118 crores.

And PAT, we closed at INR 46 crores against INR 79 crores last year. The gross margin as a percentage of revenues is at 52% against 58% last year and EBITDA is at 16% versus 26%. As I mentioned, the collections have remained healthy. They are at INR 472 crores in this quarter. The research and day sales outstanding has been at 128 days, of which the DSOs for India-based customers did 164 while for the rest of the world has 115.

Again, looking at the granular view of the revenues. The platform revenue continuous -- growth continues to be robust. It grew by 33% from INR 90 to INR 119 crores. License revenues are at INR 68 crores versus INR 86 crores in the corresponding period last year. AMCs, as I mentioned for the last 12 months, it's grown at 10% based on the go-lives. We had 14 go-lives, digital transformations, which went successfully like in the quarter.

So the AMC moved up from INR 81 crores to INR 90 crores. License-linked revenues grew by 7%, while the annual recurring revenue has grown by 22%. As I mentioned a while back, we had 14 wins this quarter, of which 9 are platform based, which means more than half of the wins of this quarter are coming from the 6 platforms that we launched in that group. As I mentioned, there have also been 14 new digital transformations where our MACH compliance architectures, or our accelerators, our own technologies and -- such as iTurmeric and Canvas have helped us deliver at least 35% to 40% faster go-live cycles.

The revenue mix -- the next slide gives the revenue mix in terms of the currencies. As you all know, the rupee has significantly weakened. We had a significant Indian rupee earning, which impacts the conversion of that into dollars. So really, the weakening of the European-based currencies, which is euro and the pound, where we hold significant revenue streams, also has affected our dollar-denominated revenues this quarter.

Looking right into the future, the pipeline growth has been -- continues to be strong. There's a 36% increase in pipeline correspond against the corresponding quarter last year, moving from INR 4,800 crores to INR 6,500 crores. In the recent quarters, we -- more than the overall pipeline, it is growing. We continue to benchmark ours in terms of the destiny deals, which are the key deals above, as in the next slide -- it's above INR20 crores of value, which we track the entire leadership team focuses on them. So that grows both in terms of the number of deals as well as the customers, the market logo as a ticket in order, and as well as the average deal size.

So as you can see, compared a year ago, the number of deals have grown up from 54 to 66, with more deals growing in the higher tier of deal size, which is over INR 50 crores -- INR 30 crores to INR 50 crores.

Obviously, we're not articulated in this slide. But in the subsequent commentary, we would hear that some of the -- some of these deals have pursued it market rebels as well and we are at advanced stage of evaluation or negotiation in several of these things. As I mentioned, there are 14 wins this particular quarter, of which 9 were with Intellect platforms. As we have mentioned in the 2 technology sessions about our architecture, our -- the 4 core technologies of Intellect, the accelerators and the rich referred to that we have a 300-plus packaged business components on user journeys.

The open architecture with 900+ APIs which allows us to practically work with any ecosystem integrate with any other technology partners that are our customers -- the banks or PoC, and the speed with which we are able to complete this integration, which is traditionally a big pain point in our implementations. These demonstrated capabilities and the rreferenceability is that they provide help us accelerate the [indiscernible].

Like I mentioned, 9 of the wins are in platforms. One is a Foresight, which is a major insurance client in the U.S., has chosen a full state of underwriting, it's a combination of Magic Submission, Risk Analyst and Xponents. You would have heard the entire data are seeing a colleague Deepak presenting about the entire data cycle in the technology, the recessions. So right from the stage of data uptake, to data enrichment, triangulation to decision grade information to the underwriter for faster and sharper codes. So the entire cycle -- the entire value chain of underwriting, which is an entire accuracy is provided by this platform. We -- we mentioned as a focus on upcoming a promising geography in one of our earlier calls. That is bolstered by 1 more win for the CashCloud.

CashCloud was also a recently announced platform where we also had signed a partnership with Microsoft Azure. But the -- and that when the second deal in Saudi Arabia. We have a win in Egypt for our lifestyle banking where we had about winning of an implementation in the Middle East. So that is drawing more traction as we move along.

ESG has always has obviously been the most trendy [indiscernible] with a lot of investment bankers, a lot of financial institutions, investors, private [indiscernible] was just focusing on the quality of the ESG assessment of their target investments. To that end, one of the world's largest sovereign wealth funds has chosen our ESG platform, which is again driven by data and AML Technologies to implement this ESG assessment for all their investment evaluations. There are -- we had also 1 more insurance company win in North America for magic submission, which uses our Top 2 API technology in conversion of structured and unstructured data into -- which could be readily used by the person in the insurance organization.

So I mentioned briefly about Saudi earlier. We have 1 more win in Saudi for a micro services organization sort of debt management platform. This apart, our products in the transaction banking and the consumer banking business continue to fire. So the core product-led deal wins, we had 5 such wins, 1 in -- among the top 3 U.K. banks where we already have a relationship that signed up for payments.

Similarly, payments had its second biggest win with another Canadian bank where we have -- it did have a very strong relationship. That relationship has been so that deepened by a win. UAE has always been one of our most successful markets. And we had one of the top 3 banks we won for a mobility upgrade, the consumer banking business also won a digital deal in Africa. Last year, you would recollect that we had mentioned about 3 large central banking deal wins in and around Africa. That winning streak is continuing with the digital core win during this quarter.

And in India, we did mentioned 2 significant wealth platform deal wins last year and in the earlier quarters, that referenceability has helped us with win moving in this current quarter. So these are small, the deal wins. And I mentioned about the go-lives. So totally, we've had about 14 transformations going live during this quarter. And in the next couple of slides, we have given details of each of them. And so that sort of summarizes very briefly in terms of the numbers, our performance during this quarter. More importantly, as we always measure ourselves as an IT-led organization, how we have performed over the last trailing 12 months.

What is in store ahead? What has been the quality, more importantly than the numbers that we've given to the soft line what has been the quality of some of [indiscernible]. Why are they promising in a -- and what message they convey towards, and what confidence they give us, and what has been our success story with some of the transformations and where do they put us in our growth. So that is a very brief summary.

I would now hand over to our Chairman, Managing Director, Arun, to share his perspectives and give us a larger view of the overall the market, the product technology scenario and where we are in our journey at this point in time. Thanks.

[Arun Jain, executive]

Thank you, Venkat. Take the whole presentation deck at a very fast pace. So I'm sure the smart investor would have picked up all the numbers which you have thrown in the last 15 minutes. Looking at the numbers of the quarterly numbers when you look at it, I feel that a lot of investors on the Street would be disappointed. I acknowledge that the disappointment based on the numbers which are there from the perspective of the quarterly results, but we consistently communicated that as heavily focused license revenue company, which is adding a portfolio of platforms, it may result into a few quarters where we will not be sure of the final number. .

And that was a kind of a perspective we always added to the communication with each investor conversation that we can only be -- design our business on an annualized basis. And on an annualized basis, what bank has put it 27% LTM growth. That's the right metrics.

Now this can get colored from the perspective of saying, this quarter is a trend which is coming from a few quarters like this or this can be construed as a trend, whether we can trust the company for the future revenue or some analyst report on the street. That could be coloring the perspective from investor perspective. So let me just take you to L1, next level detail of the results. The next level details of the result is -- switch off the presentation. No need of the presentation.

So next level details is that we have a shortfall by $6 million in our revenue numbers. So that's the underlying equation of revenue and cost. If you would have $6 million additional revenue, we would have been right number around INR 570 crores, and our cost EBITDA would have been INR 125 crores plus, would have been the number from the $6 million. And this $6 million consists of 2 elements. One element is when we -- moving from product to platform, this is a like-to-like license revenue.

So like-to-like license revenue, we won 3 platform deals as announced by Venkat. And these 3 platform deals resulted into like-to-like license revenue of $2.9 million is the number which is coming like-to-like. So we measure internally 2-year ARR of the platform as a like-to-like license deal to compare license deal versus platform deals. And this 2-year ARR is what tend amounts to $2.9 million, and that's how we calculate our internal business plans and revenue streams based on that 2-year ARR as a part of MIS.

Unfortunately, on accounting principle, there is a 0 accounting or a less than $100,000 accounting in the last quarter of, out of $2.9 million in this for winning this deal, while winning the deal, contracting, everything has been done, which is a very, very celebrating movement, which we are celebrating. Banesh and his team has done a wonderful job in getting this $2.9 million of a deal on this quarter. Second thing is out of $6 million, $3.1 million is at 2 -- deal which are closed but not contracted. And this $3.1 million is already in the back, but not contracted, so it cannot be accounted in the quarterly results. So that's a story of the numbers -- from a numbers perspective.

Now if I look at it from a qualitative perspective, the team which is working in Intellect. I think we are surprised -- we ourselves got surprised more than what market is expecting or market is trusting Intellect as. What is the surprises coming? So we are calling this as a wide window movement for internally for this quarter. In the last 6 months, our journey which happened. It's a wide window moment for us, which is making us move from 2.0 to 3.0. What we spoke about in Technology Day 2 is all coming through within the 9 months of our Technology Day 2. It very rarely happens when company is able to present something in December [ 9 ], 2021. And what market is looking for is what we presented at that time.

So let me take you through each story of wide window movement, what we have. First, area is we plan 3 units. One-by-one, we said GTB unit will go to the market first and take a product leadership where liquidity, and GTB becomes a market leaders and take the market share. Then we say next 2 years, we'll look at -- GCB will take the major -- I mean major winning spree. Last year, you have seen the results, whatever the investment we made in GCB, core banking, lending and winning that deal in central banking and Quantum all are driving towards the second wave. Third wave was Intellect SEEC, which we renamed it to Intellect AI. Intellect AI was the unit where we looked at it as a phase 3 of driving the revenue growth. And this year, in last 6 months, the platform deals, substantial growth is being visible in Intellect AI.

We have merged best management unit also as a part of Intellect AI unit. So that's a -- combined unit is under leadership of Banesh, is delivering the results. So first, wave was Manish. Second wave was Rajesh. Third wave is Banesh. Now when we look at it, that our calibrated strategy is panning out in the same way as we projected in 2017. Again, that is a validation of our strategy that the company is performing as per the strategy, not by chance or not by market tailwinds or market headwinds. During this period, we had a Brexit, we have a Trump. We have everything happened during the period. But nothing has impacted the overall strategy and consistency of the strategy.

Now looking at what we are seeing in the marketplace today. When we are winning the large deal from the largest fund from Europe on AI for ESG. What it means for a company like us, as a technology company? They are highly invested company where each company has invested more than $150 million to $250 million invested company in AI and data space. And against them, we are winning a deal on a complex topic like ESG, which is just an emerging topic and winning the deal against all American, against all European competition, that signifies a wide window moment for us.

It has not resulted into single revenue for this quarter, 0 revenue for this quarter. But it's a lead indicator which is like we cracked the fabric data services AI algorithm of multi-quotient search. The moment of truth in the life when Google was there. So we look at it when Google was doing a good search engine, they didn't have revenues, but they had algorithm which was good algorithm and that's a great algorithm, we call it the wide window movement. And that is not about ESG or magic invoice or magic submission. There are 3 products we launched, but they are built on the same technology platform investments we made in the last 5 years of our journey.

And for each platform, the incremental investment is less than $3 million per platform. In the last 6 months, this platform would be able to compose as soon as we see the opportunity of ESG. Within 6 months, we could be able to pitch in for the largest fund house of Europe, and win the deal against all the competition. The second wide moment is when we are looking for a wide window movement is -- when we are getting a large core banking space. In the core banking space, we all know, is the largest, biggest market space.

You must have read the market space size of $16 billion of core banking space which published by Temenos in their results at how big is the market size. Till last year, we were contender in that space. Now we are getting to a leadership quantum of that space. Now we are rubbing shoulder with Thought Machine, Temenos and Intellect are the 3 players which are rubbing shoulders on architecture, on APIs, on micro services, on cloud and on depth of the product functionality we are competing with the largest player.

Now this pace of $16 billion where the deal value multiplies, the size of deal value in our pipeline are running into double-digit license numbers, double-digit million dollar license numbers, and we are participating in those deals, which we never participate in our 10-year journey. Those are our dream deals or dream deals for any company when you are the rubbing shoulder with this player. So we are in the backyard of the competition where, in Thought Machine, which is led by Google -- ex Google player in 2014, you must do a research on Thought Machine.

The $550 million funding has happened on that particular company for building the core banking product, and still we are head-to-head in 4 deals in Europe with Thought Machine, and similarly on Temenos, beating Infosys, Flex, Oracle, PCS wide window movement for Rajesh. Rajesh and his team is extremely, extremely busy in bringing POCs and POVs. And a lot of presale investments are going in, almost more than 8 deals in Europe we are participating over a period of time, and that's giving us the confidence of saying, we can -- on an annualized basis, we can still do 20% of the growth numbers in rupee terms.

The third moment is our -- creating a new opportunity window where we are seeing consumer addition of [ transported ] banking. We created a space called GTB in 2014. When we started the business. We created a space called Global Transaction Banking space, and that space -- then we were able to displace multiple players from 2014 onwards. There was a player called [indiscernible] At that time, there was a player called Fundtech at that point of time. Now this new space, which we are creating called consumerization of corporate banking, just to understand from the perspective.

They're at least 15 startup in this space, which is called embedded finance. Maximum amount of money which is coming in corporate banking space is it in the space of embedded finance. Where corporate banking is embedded with the final accounts where the payment recon can happen. Like say, Coca-Cola is a corporate account of HSBS Bank, then all the vendor suppliers of Coca-Cola will also be part of the virtual network of the bank and how do they participate over there. That is a consumerization. Uber -- when Uber is account and drivers of Uber drivers are a part of the virtual accounts. That's an embedded finance, and that is about consumerization because the drivers of Uber is consumers, while Uber is a corporate. And that's the consumerization of corporate banking.

This is a new space which we launched in sibos. Last 2 years, we were working in this space. We signed up 3 customers in this space before we are announcing consumerization of corporate banking, which is a third wide window movement, which we are experiencing. The more than 25 leads got generated in sibos within a small event of 3 days. And we are changing the narrative. In this, we are changing the narrative. And this is base behind one of the largest European deals from a U.K. bank. We are a payment space, which is crowded by a lot of European player.

Again, the payments -- corporate banking payment space is one of the largest invested fund in all the start-ups and fintechs. We are able to win the deal for the largest -- one of the largest U.K. bank on the -- building the payment system for them.

So all this -- 3 lead indicators, one on consumerization of corporate banking. Second is Intellect Digital Core, which is built on completely microservices API, cloud-native headless articture. We have -- more than 300 APIs are working on it with more than 200 micro services, which we are combining core banking, lending and credit card. And third is entire data space. These are like 3 different large-funded entities within a 1 single ecosystem called Intellect Arena, equivalent to almost 3 company each one has a potential to lead their own journey and fight the battles, and they're fighting -- all the 3 are fighting with because of the kind of culture we created in the Intellect Design Arena where all the 3 companies can go together in this space.

All the deals -- new deals signed up during this period are the indication of 14 deals to we are accelerating a number of deals in coming quarters. We are well positioned to ensure that these license numbers can give us a good consistency going forward. And this is nothing new for us. That 1 quarter will go back. We were -- I will not say we are sure of it. But any point of journey, we were expecting such movement where 1 quarter can go -- $6 million can go in 1 quarter with 1 -- $2.9 million goes from a perspective of -- moving to the platform, and $3.1 million goes where the deal is closed, put a box in, customer is convinced about it and everything is there. And we'll end up into not able to contract before 30th September. Because date of auditors is 30th September to date, getting contracting that.

So that's a story which I'm saying why we feel so excited as a management team over here. Now we are in a window of opportunities, which has opened up with this 5 winter movement is phenomenally large. A lot of time we are spending nowadays, more than 10 to 12 hours a day of our R&D teams or our sales teams, presales team building POCs. It's a humungous amount of excitement in the -- behind the scene. So if you look at behind the scene, if you get an opportunity to see the BTS of Intellect, you will feel the pulse of what is happening at intellect.

Thank you for participating and attending in numbers for this call. So for us, it's a journey which we are very excited about in spite of a slowdown or high inflation rates in the industry, how their decision is slowing down, some impact is there. So we acknowledge that the slowdown impact because of high inflation in Europe and low growth indexes over there is creating our cost structure because of talent are going up more than what we anticipated or planned for and tech structure, which is resulting into that.

Our higher -- lower PAT margins since tax rate is moving from 16% to 26%. So these are 3 factors we acknowledge, which are market realities. But in spite of those 3 realities, we have 3 windows of opportunities which are led by our wide window moment. Thank you. We can open it for questions.

[Venkateswarlu Saranu, executive]

No, I think we can start the Q&A, Arun?

[Arun Jain, executive]

Yes, please.

[Venkateswarlu Saranu, executive]

Now we are starting Q&A. [Operator Instructions]

First, we have Mr. Mukul Varma.

[Unknown Analyst]

Sir, this presentation, when we gave that pipeline, so we give a pipeline comparing it to year-on-year, can we put quarter-on-quarter as well as 1 more column, so it gives us a clear perspective where we are moving quarter-on-quarter as well. Although we are looking at the company from a yearly perspective only. But just to draw a point that quarter-on-quarter how we are moving.

[Arun Jain, executive]

We can give it quarter-on-quarter.

[Unknown Analyst]

Quarter-on-quarter, we can do that. So we can now quarter-on-quarter, just to give that perspective. And so when you mentioned when you say that $6 million is something which could have come into the quarter 2 but could not come due to noncontracting and the platform thing. So we assume that this is a one-off quarter where profits have come on a lower end. And on a yearly metrics, we will go at a 20% pace as we have been looking at [indiscernible].

[Arun Jain, executive]

That's right, Exactly. It's the one-off quarter.

[Venkateswarlu Saranu, executive]

Next we have Mr. Krishna [ Takkar ].

[Unknown Analyst]

Yes. I think I have 2 questions, but of course is that $6 million follow up. So as I understand, $3 million, you guys will possibly report in third quarter because it has already been signed. So we'll get that extra revenue. But the balance $3 million is converted or is spread over 2 years or 3 years, and then you will book only a few thousand month or quarter. If this was to continue, do you think given our high license contribution? And I'm expecting, as you migrate more towards platform, there will be more shifts coming ahead. So structurally, your revenue growth for 1 or 2 years could be a little slower in this transition phase.

[Arun Jain, executive]

Yes. That's exactly which will happen. That whenever -- but what we need to look at it, we need to publish a number for this kind of a deal. So that's what we need to publish a separate number that how many platform deals are getting signed and with the kind of ARR we are signing. So -- but actual number, book number will be lower. So that's what we are now thinking about it. As of now, we have not made a decision, how do we communicate this platform deals to the investors so that they make a right decision.

[Unknown Analyst]

Okay. And so possibly 20% may not be the right number to look at it from a growth perspective, while you may do it this year, but from a longer time or is it maybe 2 years, 3 years, we should be more conservative till that.

[Arun Jain, executive]

Yes. In dollar terms, yes, definitely.

[Unknown Analyst]

And the second thing, sir, in terms of cost structure. Now I have a -- when we [indiscernible] your numbers, most of the costs are probably in light. It is only that revenue mix, which is flowing through to EBITDA and to PAT. In terms of cost, have you built in all the costs? Or do you think this 3, 4Q because generally, you plan ahead for the next year? So are there any incremental costs which we should build in for the rest of the year? Or do you think costs will remain steady, and therefore, that additional $3 billion will not come be additional cost in third quarter.

[Arun Jain, executive]

Most of the costs are always built in on an actual basis the cost we can take run forward. The cost is all built into this. But the incremental cost of the salary increment, as you know, we do a quarterly salary increment, not an annual salary increment. So those cost of the talent still will be there. But those numbers will not be significantly...

[Unknown Analyst]

What I mean to ask is generally -- like I have been following the company for a few years. So typically, you build in the second half for potentially FY '24. Sometimes you hire more, sometimes [indiscernible] onetime step-up cost. Is that something we should expect in 3Q, 4Q? Or do you think cost structure is currently perfectly sized?

[Arun Jain, executive]

Yes. What I'm trying to say is the cost structure from this perspective as of now, INR 443 crores is a total cost structure, pre-EBITDA cost is INR 443 crores. It may go by some $2 million, $3 million per quarter based on the new talent requirement, a new platform in GTM. So those costs will be there, our POC cost. So these are the few cost numbers which will go up, but they are not in that significant number as what we had experienced, Q1 numbers. We have travel costs and other costs, all of them went together.

So now travel costs are now stabilized. Infrastructure costs has stabilized. So it's only that talent increase costs will be now hit on us. Q3, we have marketing costs also like sibos and other things will be there, few marketing costs up to INR 3 crores will be there. But those are not natural cost, which is there in the business. So no extraordinary cost.

[Unknown Analyst]

Okay. And last was, therefore, I mean consecutively if by revenue growth is going to be 20%. Earlier, we used to have this outlook on margins of 23%, 24% wherever we end up. So should we assume that it is only a quarter slippage and therefore, 16%, 17% is not the recurring margin. And next quarter, we should be back to -- from a full year perspective, project, we should look at 23%, 24% margin.

[Arun Jain, executive]

It's difficult to give you an exact number, but it will be 20% plus for the full year.

[Unknown Analyst]

20% plus...

[Arun Jain, executive]

On a full year basis.

[Unknown Analyst]

I think, sir, your last 12-month average including the bad quarter is 22%.

[Arun Jain, executive]

Yes. Don't commit to something else. [Foreign Language] We'll try, and still have a...

[Unknown Analyst]

16, 17, 20% should be the new base is what you're saying rather than going back to 24%.

[Arun Jain, executive]

Yes, yes. So it can happen, but we can't commit right now. 20, 20 is number 20% rupee growth and 20% Margin growth.

[Venkateswarlu Saranu, executive]

Next, we have [indiscernible]

[Unknown Analyst]

I just had a similar question on the growth -- on the growth trajectory and if you look at just the license AMC SaaS revenue mix, that there is a significant deceleration. I do understand the color -- extra color that you have given -- but is there something structural that you're seeing in the market, maybe it is on account of the pressures you're seeing in your -- with your end customers or maybe just a natural trajectory that the business was to follow because there was this sudden surge in implementation revenue, and that's bound to decelerate. So could you give us color there?

[Arun Jain, executive]

Yes. I think there are 2 things that Jay mentioned. One is the license revenue of $3.1 million. If you look at it, so some acceleration will be less as far typically million, $11 million, $12 million, $13 million in license revenue we signed license revenue growth in -- so you asked a structural question. Second question, obviously, is because of the high inflation, the market environment. There's some structural delays happening on closing the deal. The last minute -- closure cycle times are getting elongated. So that's a structural issue we are facing. And that's an issue. We are not a different island than any other player in the marketplace. So we are partially sitting in the same island of technology companies, where some slowdown is happening on the technology investments as we move forward.

Second change is license, AMC and implementation. Those numbers on a quarter-on-quarter basis, doesn't mean much of it. Look at it from the annualized LTM basis. That will give us a good indication because AMC is growing 11%, which is -- which we expected around 11% -- so number. So that is a license number growth will be 10%, 11%. That's a number we expect. Our core value as a company, which we have changed our trajectory from Intellect 2.0 to 3.0 is our own platform. The platform is what is making a difference in the pre-wide window movements, which I mentioned, are those -- those 3 units in any business performing at the same time is very rarely I've seen in the -- in my life that 3 out of 3 units are performing where we put in back down. So that's what I can respond to your question.

[Unknown Analyst]

And in terms of implementation with iTurmeric, I understand that your implementation cycles have shrunk? And is that -- does that have a role to play? Because we have seen a very strong growth in implementation over the last 12 months or, let's say, 5 quarters. And is that something that 1 should factor in, and that implementation again would have a linkage with the pace of new wins. So is that the right interpretation? I mean in terms of your organic growth of revenues versus just the accrual of revenues over a shorter period because of the faster implementation.

[Arun Jain, executive]

Yes. No, I think a very good point you picked up. First of all, I must congratulate that you are tracking the companies well that you are even looking at that implements life cycle. So that become a competitive edge because my implementation cost for winning the deal will be lower because of iTurmeric I'm using for reducing the cycle time, and this may result into the lowering of the implementation revenue.

What we are trying to do now is that we want to participate in a more cross-selling propositions. So we identified 20 accounts where we are looking at to help them these accounts for digital transformation using our compose-able and contextual technology. And those revenue, as of now, get booked under implementation revenue. We will be looking at it, whether we create a line item called digital transformation line item. But yes, implementation revenue will come down because the cycle time is coming down.

So if I have a deal of $1 million, which I'm bidding, $600,000 for license. So I mean -- so customer has a final budget of $1 million. Now I'm able to do 65% to 70% on license and 30% to implementation, while earlier, it used to be 50-50 or it used to be 45% for license, and 55% for the implementation. So very well picked up by you, [indiscernible].

[Unknown Analyst]

Sure. And in terms of your deal, if I look at the data that you gave around Destiny deals, I can see that across all ticket sizes, your funnel has seen very healthy accretion. But if I look at the pace of wins that has been more or less within the 4 to 5 -- 1 quarter excluding the 4% to 5% range. And while the number of pipeline continues to grow. So what is going behind? Are these deals taking more time to close? Are you -- is the size of deals or the nature of deals such. So could you just join the dots between the increasing number of deals in the funnel and the actual win rate. And considering that the commentary around competing with the top tier is very encouraging.

[Arun Jain, executive]

Yes. I think what happened now the -- the decision cycle has got 2 angles to it. One is an environment issue with delaying some of the decision. But second angle is with the cloud technology available, the way the client evaluate a vendor has changed substantially. Earlier, most of the deal we used to win based on that, a lot of presentations, a lot of dance and drama on the boardrooms on the capability of the product. What is working in our favor is now on a cloud technology available, customer is asking for proof of concept, where they are taking a real-time scenario, and they want to run on a system.

So they have a longer cycle time. So when we first qualify under dance and drama session. So first of all, in the proposal session, then there's a dance and drama session on the board rooms on the technology and the domain. And now there is actual real play, which happens -- which takes another 3 to 6 months. And that is where these deals are getting delayed. Rajesh can speak about it, how many -- how much work he has to do for a single large deal. Rajesh, you want to share something?

[Rajesh Saxena, executive]

So I think from a deal perspective, if I can put a little bit of the GCB context to it, I think Arun very rightly said, there are a couple of quarters and couple of years bad, the deals that we were competing were relatively smaller, and we were fighting with smaller peers. Now as you rightly pointed out, we have moved into the big boy category, where now we are looking at some very, very large Destiny deals.

And in these large Destiny deals which cuts across maybe multiple countries, multiple product lines, et cetera, the process of winning this deal, time line that is required is much longer. And that is what is being reflected as you've seen in the data. A number of opportunities are rising because we are now competing with, let's say, from a core banking perspective, our Temenos or Thought Machine. So the deal values are very high that we are chasing, but it is also taking us longer as compared to 4 or 5 quarters back, when you were still competing with Fenestras and Finacles and et cetera. The game has changed a little bit for us, especially in markets like Europe.

[Unknown Analyst]

That's helpful. If I may just add one more question on the cost structure side. So you did mention -- call out the ESOP number in your notes. But within the software development cost, is there -- is that kind of the new base and will continue to grow? Are there any other one-offs? Are you including any -- the employee cost for R&D, how do you allocate that between the R&D cost and this line -- this software item?

[Arun Jain, executive]

We are looking from last few years, our R&D budgets are $20 million. $20 million translates to INR 120 crores when it's INR 60. Now it's around INR 75, it's translates into INR 150 crores. So we are in the similar budget. So we capitalized -- this quarter, I think we capitalized around INR 35 crores, So which is same number as close to $5 million -- or less than $5 million -- $4.5 million we capitalized on the R&D cost.

Rest of the cost, which is for technology upgrades, we put into part of research and engineering group, and which is we take the recharge as and when it occurs. So this charge is around INR 40-plus crores for this quarter. So that's our total R&D spend one of the lowest in the industry from that perspective.

[Venkateswarlu Saranu, executive]

Next, we have Mr. Vivek [indiscernible].

[Unknown Analyst]

Sir, on the cost structure, you mentioned that we should expect another $2 million, $3 million for the next 2 quarters. Will that be the new norm? Or should we expect, say, after Q4 for it to slow down a bit? And in terms of the head count, are we now at a $90 million run rate? I mean, now that we are moving some revenue from product to platform. I'm guessing that will take more time. But in terms of the headcount, do you think we are at the $90 million capacity?

[Arun Jain, executive]

Yes. So head count is almost there. I mean we still needing more head count on sales and marketing side per platform. we need to build up our capacity in the sales and marketing side. So that is not in head count terms, but it will be in the qualitative -- higher cost inputs will be there from the perspective of looking at it. $2 million to $3 million cost increase with a kind of talent, let's see how the market stabilize, then we can comment on it. But as of now, for next 2 quarters, this number is visible to us because of whatever the raises they get in first quarter and second quarter, third quarter and fourth quarter has to be in line with where our raises are, related to the first quarter and second quarter.

[Unknown Analyst]

Sir, in terms of -- so we were expecting previously to hit $100 million under in the next 8, 10, 12 orders. Do you want to now stretch that? And do we still hold on to the 30% margin target at $100 million? Or do you need to scale that back by a few points?

[Arun Jain, executive]

Let me not comment on it as of now because the market is too volatile right now, and this -- situations are too much right now. So this quarter will not be right time, maybe another 3 to 6 months, we can come back on to that number of 2 to 3 years. But $100 million, reaching $100 million in 8, 12 quarters. I think that is -- we are quite confident about. On the margin side, we just need to look at the market volatility.

[Unknown Analyst]

Sir, you mentioned that you're still confident about hitting a 20% growth for this year. Is that depending on you on us signing a few big deals which are in the pipeline, as Rajesh had mentioned? Because if those don't come through the numbers, it might drop it down significantly. Or are we reasonably confident that those will come through?

[Arun Jain, executive]

We have not taken those into account in this 20% on rupee growth.

[Unknown Analyst]

Okay. So -- but we've not taken those big deals when you talk about 20%. So previously, we were talking about a 20% dollar growth run rate. I mean is there any -- some change in the market? I mean because...

[Arun Jain, executive]

Obviously, there's some change in the market. I think we need to recognize that some slowdown is happening. So this slowdown has resulted into dollar number. So we always mention to you is that we have designed that business for 20%. So last year, we did 26% in dollar terms. But I constantly kept on saying a lot of time investors are saying, why shouldn't you grow more than that? We say 20% plus, minus 5% is a kind of, it can happen because of the market scenario. And that is what exactly which will happen in this year. Yes. So if we win more deals, it can be much more closer to 20%. It may be closer to lower end of the 15%.

[Unknown Analyst]

Sir, just one more qualitative question. On the one hand, we keep talking about that there's a slowdown in the market. And then we are pressing ahead with so much of investment. Don't you think you might run into a wall where we've bloated up the cost structure, but the revenues aren't coming in? Or are you reasonably confident that with the headcount increase, I mean there's enough business to be had? Because, I mean, I can't square the 2 together, where you're talking about a macro [indiscernible] and the other end are increase in the pace of investments.

[Arun Jain, executive]

I think you should I'll give you the indication. There's a company called Modern Treasury.

[Unknown Analyst]

Yes. I mean they signed up a deal with Goldman Sachs.

[Arun Jain, executive]

Okay. So there's a company called Modern treasury They are getting -- Manish can share the color on it. and there's a company called Thought Machine. So if you just study these 2 companies, that what are they seeing, the new investors, which are coming at a valuation of Thought Machine at $2.7 billion for $50 million, $60 million revenue company. What are they seeing the market size in core banking space that what is the kind of inefficiencies that are sitting on the core banking side in Europe and America, which is leading to that. Similarly, what are the opportunities in modern treasuries in same space as consumerization. Manish, you would like to put a color on it?

[Manish Maakan, executive]

Yes. There are also about $25 million, $27 million revenue and -- between $2 billion to $2.5 billion market cap. This is primarily because the TAM being very high, and this is based on volume of transactions, the whole platform banking as a service, which we have launched. This is based on a transaction value, volume, multiple similar parameters. We're also competing in North America, the same market. A number of these individual fintechs are running. I think the difference between them and us would be they are borrowing someone else's money and burning it out. We are organically funding and competing and winning against them.

Our base assets were strong that tuning it for the right market segment, we could do it at a much lower cost. Like Arun said, where we might look at is on a sales marketing, some of the cost, but from a product readiness, the composable nature of our products, straightaway we are able to get in a segment where there are more happening. And the TAM on -- if you look and study the TAM on embedded finance in general, both on consumer and corporate, the numbers are in trillion dollars. This is a new segment, which is happening, and this is where growth is happening very significantly.

[Venkateswarlu Saranu, executive]

Next, we have Mr. Harshil Shethia from AUM Advisors.

[Harshil Shethia, analyst]

Sir, I want to ask so our operating cash flow for the first 6 months is at INR 45 crores. So -- and it was INR 94 crores for the same time last year. So what has happened in the first 6 months that our operating cash flows have reduced. I see that our DSO days has increased by 13 days in post 6 months.

[Arun Jain, executive]

I think this operating cash flow coming down is basically on a bonus payout. So bonus payout is higher this year. Demand is not a part of operating cash flow. So operating cash flow is a bonus, bonus payout for the last year, we grew very well. Close to 27%, we grew last year. So the bonus payout was higher than that. previous year on that basis. Collection is same as INR 460 crores last quarter and INR 460 crores this quarter, is the same line of business. And salary costs are higher in this year compared to the salary cost were there in the last year. So yes, there is a marginal drop, but this is the 2 places, salary cost increase and travel cost increase compared to the last year where travel was not there last year same time. And the third is here.

[Harshil Shethia, analyst]

And sir, my question for the DSO days that it has increased. So -- which was ex India, 95 days or 2 quarters. That has gone to 115 days, currently.

[Arun Jain, executive]

This fluctuates quarter-on-quarter. I think this is it will come back once we get an advanced payment, we get some large deal payments on closure of the projects. So this is a -- this 10 days here and there is fluctuating in the product business compared to the services business.

[Harshil Shethia, analyst]

Okay. So what would be a standard sustainable range of DSOs?

[Arun Jain, executive]

We try to look at it between 115 to 125, which fluctuates on an overall basis. So it goes to 120 plus. It comes down to [ 116 ]. So if you look at it last 16 quarters, you'll have this position in the same range.

[Venkateswarlu Saranu, executive]

Then next, we have Mr. Ravi Mehta from...

[Arun Jain, executive]

I just want to clarify. Some of the investor reports, which is floating around unbilled revenue that unbilled revenues or fake revenue. I think somebody -- analysts has looked at it as if unbilled revenues are fake revenue, and that is projected in an investor report. I want to -- we got very hurt with that kind of non-knowledgeable people sitting in doing the analyst community to say that unbilled revenues are not appropriate. Unbilled revenue are the nature of the business.

So if somebody has to try to report, he should talk to us that what the nature of the business is there. Anita's business is that when we sign the contract, we have some commitment of business outcome-based deals we signed. Based on that, we have -- when we completed the outcome, we build a bill to the customer. But whatever the efforts we've put in during the -- building the solution for the customer when the customer is not achieving the milestone, it lies into unbilled revenue. Unbilled revenue is not a new phenomenon. It's always happened in many civil contracts when the building has to be constructed. There's a huge amount of unbilled revenue will be sitting in books of the -- any work in progress business.

So that is 1 point since you mentioned about DSO days. I just want to cover up that point because this was -- I received some of the calls after the report was published that somebody is looking unbilled, why won't you give a clarification. I said, I don't need a clarification for anybody when we are doing the right business in this area.

[Venkateswarlu Saranu, executive]

Thanks, Arun. Next, we have Mr. Ravi Mehta from Deep Financial.

[Ravi Mehta, analyst]

Yes. Am I audible.

[Venkateswarlu Saranu, executive]

Yes, Ravi. Please go ahead.

[Ravi Mehta, analyst]

Just 2 questions. One was on the presale investment because you're looking at the larger deals and also the POC involved in platform deals, what kind of resell investment, if you can share some number vis-a-vis what we used to do because I think the margins, what we see captures the presale, which wasn't that high earlier. So maybe some color around presale investments?

[Arun Jain, executive]

So if you look at S&M investment, which is close to now INR 150 crores for this quarter, so it's around INR 600 crores. So presale is embedded into this particular cost of S&M and which has grown by INR 7 crores from last quarter to this quarter. So that's the kind of a presale investment, which is booked. So they are not capitalized or anything. They are just expensed out.

[Ravi Mehta, analyst]

Sure. And also one more question was that in this quarter, we signed 9 platform deals out of the total [ 14 ]. But the platform revenues, the subscription revenues are flat Q-o-Q. So just wanted to understand the cycle as to when you book a deal, by when we see the revenue flowing into the subscription dimension.

[Arun Jain, executive]

Typically, it takes between 3 to 6 months to get a flow in because when somebody starts consuming the platform, the payment starts from the day when he is consuming the platform. So the initial product business, which used to called implementation. So we used to have 2 revenue streams earlier. We used to have a license booked on the day of looking at it. And if you have to make somebody live in 6 months' time, then 6 months was the implementation cycle time. So in platform deal, we have reduced the cycle time of going live. In some situation, 2 months, some situations 3 months, some situation 4 months, depending upon various platform when it becomes live, the platform revenue gets booked.

[Ravi Mehta, analyst]

And then on any implementation component when the platform deal is going live, maybe 2 or 3 months.

[Arun Jain, executive]

In few cases, it's there, a few cases is not there. So it's not a -- normally, if it's a standard platform, no changes are there and just onboarding of the customer, so then there's no implementation charge. But there could be set up charge for certain large customers, we may have a set up charge for him when we are onboarding a customer, and he has some specific requirement for building the -- using the platform, like its largest financial services company of Switzerland, if they start using our platform, then obviously, they take -- we need to integrate their platform with their security structures, their cybersecurity issues, and we need to spend a lot of time with it. That time does not pay us a set of fees.

[Ravi Mehta, analyst]

Sure. That helps. And just one small follow-up to the clarification you just gave prior to my question regarding those [indiscernible] unbilled revenues and the DSO days. Just wanted to check that. The unbilled portion was increasing pretty sharply in last few years. So is that a function of the cloud business, the platform business? Is it a function of that?

[Arun Jain, executive]

Yes. I think there are 2 other functions of that. One function of this unbilled related to the contractual payments. We signed a 5-year deal. We have -- we have to book the revenue based on the accounting principle -- on the date of booking the deal. And then the contracted payments are annual basis. So some of the deals in the cloud nature where we sold a license, we have accounted the deal on the date of booking the contract that delays -- that increases the unbilled component.

Second is more and more customers are now looking for outcome-based deals, outcome-based deliveries. So major milestones payments are not equally proportioned every 3 months. They are linked at the time of UAT sign off or when business is going live because of which the market situation is changing from that perspective. So there are 2 factors which are resulting into higher unbilled revenue.

[Venkateswarlu Saranu, executive]

We have next, Mr. Rahul Jain from Dolat Capital.

[Rahul Jain, analyst]

Hello. Yes. Is my line fine?

[Venkateswarlu Saranu, executive]

Yes, please go.

[Rahul Jain, analyst]

Just 2 questions. Firstly, on the business side, I mean, is there a way that we should now look next 12 to 18 months a little different than how -- what we were perceiving on the demand scenario? And what aspect of the business in terms of the segments -- multiple segments we operate should see a behavioral change in terms of the customer spend? Any color on those front end a base case demand thought process, if you could share, assuming that macro is uncertain. I can understand it's very difficult to compute a number for next year sitting today. But any base case number 1 can go from a next 12-month perspective, that would be an additional color, if we could give in any form, that would be of help.

[Arun Jain, executive]

On the 3 indicators when we say wide window movement for us, I'll ask Manish to look at that opportunity, what he's seeing in the data depository. Data is such a big space emerging. So fortunately, our technology day was a path-breaking day. December 9, when we presented the Technology Day to all of you, I think you should go back to those presentation decks. We were expecting that to come through in next 2 years from what we presented in Technology Day in December.

Within 9 months, we are seeing that those are becoming reality. Those are from product to platform to marketplace. The companies which are struggling are those who stayed in a product business. Since we took a journey almost 18 months back, we are able to see some windows of opportunities. But for -- many product companies will be in a struggling phase right now. So Banesh can share the data opportunity we see because the underlying platform of Fabric data services and doc to API, our ability to create new platforms, which can compete in a new emerging scenario in the next 2 to 3 years.

That capabilities are there. Then Rajesh composability is there. So the product we are selling in the market is not the standard products with compose-able and contextual technology, 2 frames which you use compose-able frame to create new products and contextual frame for a data perspective. Both the teams are panning out so beautifully for us over to Banesh.

[Unknown Executive]

Yes. Just to add to what I think Arun was saying earlier, the data platform that I talked about at Technology Day, along with another colleague of mine, Deepak, I think the data platform is being a big differentiator for us in the U.S. where we've launched it from an insurance perspective. Now we've touched on the end-to-end life cycle of -- just to take stock again, the insurance platform that we run for commercial lines insurance is fully on AWS on the cloud.

It's a 100% subscription business. Now within the subscription, customers are clearly paying a license component that is paid over a period of time. And some of the subscription revenues are actually sticking for a lot longer period. So what we're actually seeing is a significant number of customers, and we've had some very good traction in the last 2 quarters. Both for the data platform that we use, which is using a product, which we call risk analyst, along with our Magic Submission platform. This is where people submit a lot of documents for commercial lines -- different commercial lines insurance businesses.

So doc to API, which is the platform that actually is the core platform that extracts information from insurance companies' documents, and these are pretty large set of documents, quite complex. This is not just extraction of data, but we have a lot of AI technologies that pull information. So it's actually achieving operational efficiency for the client in such a way that it's almost a low-touch operations model. So it's quite efficient for our customer to take a submission from an e-mail extracted and convert it to APIs have data platform that we have, which is FDS, which enhances the data quality on the submissions, thus some validation of the submissions and passes it to the underwriter on the underwriter workbench, which is exponent to fulfill underwriting.

[Rahul Jain, analyst]

Banesh, I think we are addressing more on the technology aspect of it. My question was more from the sense of that. I think our use cases are pretty much proven in terms of the kind of customers we have got onto those kind of products where my question is more -- I mean your insight would be more of help in terms of how we see some of these things become scalable because some of this product, like risk analyst, we've been hearing for more than 5, 6 years now. So I know the market has evolved, your use cases has evolved from insurance software into a much different set of offering.

We do understand those things. And I think you have -- as an organization have delivered much faster growth than most of your peers in the space. So I think those parts are well addressed in your bigger events. And all my simple question right now is that some of this, the right positioning of the product, be it on the cloud, be it on the otherwise, on-premise model also. With these offerings, where we stand today in this current environment because this is probably as per the various analysts thought process and all.

Probably the first down cycle in the -- potential down cycle of a banking sector that we may see ever since we came into public, right? So from that perspective, should we see anything to look into from next 12 to 18 months perspective versus whatever we have delivered on the last 5-year CAGR basis? Is that the number we can still stay as from our thought process perspective? o should we see in a different light given the macro that we are facing right now?

[Arun Jain, executive]

So Rahul, hold on for 6 months, I think that this volatility is there today. So in 30 September, a pound went down to [ 1.03, ] it came back to [ 1.16 ]. So there's volatility of 10% in the market we've never seen in the past. I think it will be better to comment. We are able to see at least up to March right now on an exact number what you're judging we see we are on a cutting edge and these technologies are required. And we are seeing the momentum of the investments coming from the -- in spite of the downturn of the start-up investment. But in these spaces, what consumerization of corporate banking, the core banking investments are coming there. So it means some market opportunities are there. How exactly how first much percentage wait for 6 months, maybe we can be able to communicate to you and during the annual cycle of the communication.

[Venkateswarlu Saranu, executive]

Next, we have [ TBK Kumar ] from [ Westfall ].

[Unknown Analyst]

Are you able to hear me, sir?

[Venkateswarlu Saranu, executive]

Yes. Yes, Mr. Kumar, please go ahead.

[Unknown Analyst]

Sir, you told about the digital core banking that we are competing with Temenos and Thought Machine. Have you won any deals? Or you're very sure? So what is the -- what is the essence of what you're seeing in that. Are you sure that you will have a reasonable market share because you're saying there's a new thing that has opened up for us. So our -- so can you just throw more light on that? That was it.

[Arun Jain, executive]

Yes. So I think let me answer that for you. I think when we look at a large player, looking at a core banking transformation, and this could be a large war in multiple country business. They start with a long list, right? And that long list could be 10 to 12 of your -- 10 to 12 of our peers; store competitors who are in that long list. And as we go through this -- as we go through the process, we go through various stages.

And what we are seeing, and that is what we summarized for you. We're saying in a couple of -- in 4 deals in Europe, we are right now in the last 3 stages, and what are we seeing there, right? And what is very interesting for us is that we see Temenos there and we see Thought Machine and we see Intellect there. I think that's where we are saying that we feel confident that large tier back.

And when you say large tier bank, if you understand their buying mechanism, it goes through functional. It goes through technical, it goes through their architects, it goes through their cloud architect. So I think it's a very thorough process. And for us to make consistently from the long list to the short list, and be in the last 3 for a couple of these very large deals gives us the confidence that our technology is the market-leading technology. And I think what we have said earlier, which is MAC, right, microservices, API and event-driven cloud and Headless is what is resonating very well for us in markets like Europe.

That's why we feel cautiously optimistic that in these deals -- you may not have won any deal because if we win any deal, this will have a significant impact on our revenues. But we feel reasonably confident that our product is well matched to our competitors or peers these 2 competitors that I talked about in this market.

[Unknown Analyst]

So we will [indiscernible] in the next [indiscernible] when will we know whether we are [indiscernible]

[Venkateswarlu Saranu, executive]

We are waiting for it, yes.

[Arun Jain, executive]

I wish we had the crystal ball.

[Venkateswarlu Saranu, executive]

So thank you, everybody, for participating in today's call. There might be a few questions which -- because of the [indiscernible] of the time we were not able to take it. Please do write to us with your questions and we'll answer you and mail you back. Thank you so much.

[Arun Jain, executive]

Thank you very much.

[Venkateswarlu Saranu, executive]

Now we can disconnect.