Latent View Analytics Ltd

NSE:LATENTVIEW

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Latent View Analytics Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Ms. Asha Gupta from ENY Investor Relations. Thank you, and over to you, ma'am.

[Asha Gupta]

Thank you, Zico. Good evening to all participants in this call. Welcome to the Q1 FY '24 Earnings Call of Latent View Analytics Limited. The results and presentation have already been mailed to you, and you can view them on the website, www.latentview.com. In case anyone does not have a copy of press release or presentation or you're not in our mailing list, please do write to us, and we will be happy to send you the same. To take us through the results today and to answer your questions, we have the CEO of the company, Rajan Sethuraman, whom we will be referring to as Rajan; and we also have the CFO of the company, Rajan Venkatesan, we will be referring to as Raj to avoid the confusion while doing the transcript. We will be starting the call with a brief update of the quarter, which will be given by Rajan and then followed by the financials given by Raj. As usual, I would like to remind you that anything that is said on this call that reflects any outlook for the future or which can be construed as forward-looking statements must be viewed in conjunction with the risks and uncertainties that we face. These risk and uncertainties are included, but not limited to what we have mentioned in the prospectus filed with the SEBI and subsequent annual report that you can find it on our website. Having said that, I will now hand over the floor to Rajan. Over to you, Rajan.

[Rajan Sethuraman, executive]

Thank you, Asha, and thank you all for signing in for the first quarter's earnings call of this fiscal year. As Asha mentioned, I will share some business highlights, and then I will pass it on to Raj to provide more details around the financials. First off, we are happy to be back on the growth track after a slightly flattish quarter that we had towards the end of the last fiscal. In this quarter, we grew 4.7% quarter-on-quarter and 23.1% on a year-on-year basis from a rupee standpoint. And that kind of signals a bit of back to the growth track. While I would say that this is still not as great as what we were doing in the last year, I think it still signals that the work that we are doing is resonating well with the client audience and to that extent, we have been able to retain and that will grow incrementally on the book of work that we were doing for our clients in the last fiscal. We also added quite a few new accounts to the list this year. Some of them have been shared as part of the press release that we have put out, particularly happy that we are starting to work with one of the large iconic quick-service restaurants that everybody knows about. We had our first win in the European market since we started investing in Europe around the middle of last year. And this is again one of the largest manufacturers of tires in the world, and we have started working with them. We also had a very interesting piece of work that we won for one of the large two-wheeler manufacturers in India. And I'm particularly happy about that because it validates the strategy that we're taking into the Indian market where we are able to bring in quite a bit of the expertise that we have built servicing clients in the U.S. to bear for the Indian market as well. However, I would need to add that many of the new wins that we have had have started off on a much smaller ticket site in comparison to what we have experienced in previous quarter and I think that is reflective of the general macroeconomic scenario and the sentiment that we see. However, these are all high-quality accounts, and we believe that the start that we have in this quarter will pave the way for expansion in the quarters to come as some of the uncertainty evolves. We were also fortunate that we had significant growth in many of our existing accounts, so much so that 2 of our accounts have now crossed the $15 million per year run rate in terms of what we are clocking with them. Strong growth on the technology sector. We saw growth in CPG, and we also saw growth with the logistics on the industrial side. And many of these accounts are long-standing relationships, and we are very happy that we are able to build on the relationship and bring in more value addition to the clients that we're working with. As we have exited Q1, we do have a fairly strong pipeline that we are pursuing, and this pipeline includes conversations that we are having with many of our existing accounts for growth in those accounts. And there is also a very good list of new logos that we are having conversations with where we expect that the closures will happen in the next few months, and we'll be able to see further uptick right through the remainder of the year. With all this, I would say that quarter 2, we'll be able to show growth, probably along the lines of what you have done in Q1, if not better. However, it remains to be seen how the rest of the year will pan out.

In general, the market is still a little slow when it comes to decision-making. Many of the clients who even have budgets at this point in time are still sitting on the fence when it comes to kicking off large initiatives and while they are ready to take on some small pilots, I believe that the commitment to the larger initiators will take a little bit more time. At this point, we are still optimistic that the second half of the year will pan out better in comparison to the first half of the year. And potentially, we will start seeing some green shoots towards the end of this quarter as client decision-making improves in relation to the macroeconomic scenario. There are a few other highlights that we had in this quarter, which I thought I will share. I have mentioned in the past that our go-to-market strategy is now predicated largely on the impactful value propositions that we are building. These are really good traction on several of them. A few notable ones that I wanted to call out here, one is our on-shelf availability value proposition, which is part of our supply chain analytics practice. That is resonating really well with CPG as well as retail clients that we are having conversations with. Similarly, the multi-tier supplier visibility value proposition, MSV as we call it, that is also finding a lot of favor. Most organizations whether they are in the automotive industrial space or whether they are in technology, device manufacturers, they are all still seeing a lot of disruption to their supply chain. And the multi-tier supplier visibility value proposition provides a very integrated view of their extended supply chain, like the component manufacturers and the suppliers, and that is also resonating well. A third one that is really finding a lot of favor is what we call as One Customer View which is a 360-degree customer view of -- that can be made available for any organization that is interacting with either B2B or B2C customers, which helps them dramatically improve the personalization that they can do and offer that they're able to put in some of these customers. And finally, we have been building out capabilities around Generative AI. So our Smart Search and our bird-view value propositions are again resonating that quite a bit. In fact, over the last year, there has been a very interesting use case that we have been implementing for one of the top device manufacturers in the U.S. around how do you use customer sentiment and review analysis to identify the improvements that we can bring about in making parts available in predicting failure and in ensuring that the right inventory of parts is available right even before the device breaks down. So we've been using Generative AI to transform our models for a period of time to help solve these problems. At this point in time, there are quite a few conversations which are looking at leveraging Generative AI and large language models to analyze unstructured data, especially around customer reviews and sentiment analysis. And also around the large volumes of unstructured text data that might be available with organizations, either in form of legal contractual documents or process flows and documents or internal knowledge bases that they might have created. So there is quite a bit of action happening on that front. We also onboarded another senior member to our Advisory Council this quarter. He has been working at multiple CPG and retail brands in the past. And we believe that we can leverage this expertise and experience in how we are shaping some of the work that we're going to be doing in that space. From an addition to the bandwidth on the front end, we continue to make progress over the last quarter. I would say that at this point in time, we have made the investments that we intended to make on the client servicing as well as on the sales side in the U.S. as well as in Europe. In addition to that, we also onboarded quite a few people into an India-based sales team that is focused on the U.S. market. And I think the combination of all of those investments means that we are well set up in terms of the bandwidth that we need to identify and pursue opportunities in the U.S. as well as in Europe. Of course, these investments will pan out over the next several quarters. But at this point, I believe that we are adequately capacitated in terms of go-to-market bandwidth that is available. One other thing that I want to call out is that we are recognized as one of India's Great Mid-Size Workplaces by the Great Place To Work institute. We came in at Rank 49, and we are particularly proud of this achievement given that we are largely a people-based business, and it is a testament to the caliber of the people plus also the fact that they see themselves as very integral parts of how we are able to create the right kind of idea and value for our clients, and we are able to monetize that in terms of our revenue and growth performance. One other thing that I want to mention is that this quarter saw further moderation on the attrition front. From a trailing 12-month perspective, our attrition came down by almost 10% in comparison to where we were in previous quarters. We have not had any incremental growth in terms of head count in this quarter, which is largely because of the fact that we did have adequate capacity exiting the last quarter. And we have been able to improve the utilization of the people that we had and utilization increased -- the build count increased by as much as close to 4% and the utilization improved on account of that as well. We have now about 300 plus campus hires that we have in the [ reach ]. These are all offers that we have made in the last season, and we have been engaging with those campus hires. Some of them have already onboarded. We are expecting to onboard the reminder of the people as the demand scenario unfolds over the next few months. Finally, I would say that one important people initiative that we had this quarter was around launching a framework that will guide our employees to consider different career options and possibilities that they have within Latent View. So this is aimed at bringing greater clarity on job roles and the career paths that are available for them and enabling them to have high-quality career conversations with their managers and with their peers and with the L&D team. And this will also help implement better decisions from a talent perspective and improve the engagement that we have with our employees. We work with an external partner for developing this framework, and it's very comprehensive in terms of the job roles and families and the kind of skill sets that are needed for people to be successful within their career. So we are expecting that the employee engagement will improve on the back of that initiative. So overall, I would say that it's been a good quarter for us in many ways. We believe that we are well set up for the remainder of the year. We will be watchful of the macroeconomic scenario in terms of how the demand unfolds and the decision making, especially with respect to some of the larger opportunities that are there in the pipeline and then we'll calibrate any further investment decisions based on it. With that, I'll hand over to Raj, our CFO, to give some additional insights on the financials.

[Rajan Venkatesan, executive]

Thank you, Rajan. Good evening, everyone, and welcome to our Q1 FY '24 earnings call. Talking about our quarterly performance, like Rajan mentioned, we are happy to be back on the growth trajectory. For the quarter ended June 30, we are happy to report a 4.7% growth on a sequential basis and a 23% growth on a year-on-year basis. Obviously, in terms of where we would have liked to be, that number should have been a little higher. But as elaborated earlier, the macroeconomic environment at this point in time means that there is a little bit of sluggishness that we are witnessing in closure of new deals, and that is what, in some sense, has impacted the growth rate in this quarter. In dollar terms, again, our growth rate was close to about 4.6%. So pretty much the revenue growth that you see on a rupee basis is the same as the dollar revenue growth. In terms of what really drove this revenue growth, it's a combination of one, growth that was seen in some of our largest logos, Rajan spoke about the fact that there were -- 2 of our largest logos now at this point in time are well past the $15 million annualized revenue run rate mark and that -- those 2 were the key reasons -- revenue growth in those 2 accounts were the key reasons why we were able to maintain a growth rate of 4.7% in Q1. But that apart, we've also seen a few marquee deal wins in Q1, which we believe we have the ability to build on some of these wins. Although at this point in time the initial contract value of some of these wins are smaller. The ability to mine these accounts and make them into larger accounts is definitely there. And therefore, we are excited about some of the deal closures on the new logo side that we were able to accomplish in Q1. The other income for the quarter stood at about INR 17.9 crores, witnessing an increase of about 19% on a sequential basis and 83% on a year-on-year basis. The increase, again, was primarily driven by higher investable surplus that we had generating comparably higher yields. Also increasing interest rate in both U.S. and India, where predominantly most of the surplus of this part also led to the growth in other income. EBITDA for the quarter came in at about INR 28.1 crores, and the EBITDA margin was at 19%, thereby witnessing a top of about [ 235 ] basis points on a quarter on quarter basis.

While we had positive movement on the revenue side, which gave an EBITDA benefit of about 3.8%. This was offset by higher payroll costs, which was because of the impact of wage inflation in Q1 where there were wage increments that were given to the tune of about 9% in India and 4% in the U.S. So that was one of the main reasons why there was a bit of a dip in the EBITDA margins. The other one is also on account of the cyclical visa expense, which tends to be typically higher in Q1 and the impact of higher Visa expense was about 0.8% in Q1. If you were to exclude the cyclical sort of visa cost, our EBITDA margin for this quarter, would have been close to about the 20% mark, which is in line with what we reported the last quarter. Of course, the investments that Rajan spoke about, a lot of those investments were made towards the middle of Q4, right, the people addition that we did. And we're happy to report that most of the additions in terms of head count are already in place. But the full-blown impact of all the additions that we did in Q4 was seen in Q1 of the current fiscal and that again had an impact. Of course, the hope is that these investments will play out and we will start seeing deal closures in the coming quarters, which would unlock operating leverage for the business. In terms of the overall margin guidance itself, we had indicated that we will not -- at this point in time, we will continue to keep the investment levels high because we believe that downturns or periods of uncertainty are the best time to invest in the front end and build relationships because once the demand scenario comes back, it will be beneficial for us to have made these investments because -- and we've seen this in the past down cycles where we actually paused investments during a downturn. And when demand came back, we didn't have sufficient people on the ground to drive deal closures.

So those are some of the lessons that we've learned from the past, and we would definitely not slowdown in terms of investment. So our margin for the next couple of quarters would also continue to be in the same range, but we do expect that H2 demand could come back. And once that comes back, we will hope to end the year with the EBITDA trajectory of between 23% to 25%.

Our PAT for the quarter stood at about INR 32.9 crores, reflecting a growth of about 4.4% on a year-on-year basis and a decline of about 3.9% on a year-on-year basis.

There is an impact of tax as well on our profits because the Chennai office, which is located inside a special economic zone, we have 2 facilities over here, SEZ 1 and SEZ 2. SEZ 1, we've lost direct tax benefit or the 10-year period that you typically get as a part of being in the SEZ or located in the SEZ came to an end as of 31st March 2023, which has resulted in a slightly higher tax expense than the previous quarter. Of course, on the U.S. side, the benefit from -- I would say the ESOP exercise that we had from the last quarter continued in this quarter as well, and we believe will continue for the rest of the year as well. In terms of the ETR, we expect the ETR to remain consistent for the next 2 to 3 quarters. But maybe beginning of FY '25, we will see the ETR for the company inch back to the 25% or 26% mark. In terms of the geographical split of the revenues, U.S. still continues to be the dominant geography contributing 96% of our overall revenues. Europe where we made a significant investment is still subscale. We want Europe to be between 5% to 8% by the end of FY '24. And our investments that we made are in line with the growth trajectory that we expect. Technology continues to be the largest vertical for us contributing 69.2% of our overall revenues, which is followed by Industrial. And both these verticals witnessed fairly strong momentum in the current quarter, which is -- and Industrial, in specific, we are seeing a lot of green shoots in terms of existing logos as well as new logos that we've won or deals that are there in the pipeline. Industrial at this point in time promises to be a fairly strong vertical for us. In terms of our balance sheet, our cash level for the current quarter stood at about INR 1,114 crores. The one other question that I'm sure is on everyone's mind is in terms of M&A. We would like to update you that we have added people, specifically in the corporate development or M&A team, and these are people who come with a deep background in M&A. So the intent definitely is to try and increase the velocity of the work that we're doing on the M&A side.

Even during the current quarter, there were several opportunities that we did evaluate, but we didn't proceed with any of them because of lack of, I would say, fitment or cultural -- we didn't have cultural fitment in these cases. And that's the reason why we were not able to consummate any transaction, but the intent is to increase the velocity and accelerate our efforts on the M&A side. We hope to have some positive development by the end of the year on the M&A front. In terms of the head count, we closed the quarter with a head count of about 1091. Like Rajan said, we will continue to invest in people. We, at this point in time, have numbers close to about 300-odd campus hires who we will look to onboard in a staggered manner over the next couple of quarters. With that, I would like to end the management presentation and hand it over to Asha for Q&A.

[Operator]

[Operator Instructions] Our first question is from the line of Mohit Jain from Anand Rathi.

[Mohit Jain, analyst]

Sir, congrats on strong comeback from last time. I have three questions. One is on high-tech client outlook. So what are you guys hearing because you had good growth and pipeline also seems to be better. So how much of the environment in your business has changed versus last quarter? So that is one. And then I have two follow-ups on the cost side.

[Rajan Sethuraman, executive]

I'll answer the follow-up questions. So on high-tech contract that is our largest vertical. As I said earlier, we are already seeing signs of growth. In fact, I called out the 2 largest accounts that we have, right, where we have crossed the mark from run rate. Both of them are high-tech clients. And we have seen incremental growth happening with these stakeholders that we are currently working with. We also added at least half a dozen new stakeholders in these accounts. But as I pointed out earlier, the projects that have been kicked off are slightly smaller in nature. I mean, we did have one win with this, beyond that [indiscernible] but the others are kind of in the $200,000, $300,000 range because they are just testing out a few things, especially around concepts such as Generative AI. I would say that the tech environment is looking resilient for us at this point in time. However, I wouldn't call out that it's growing by leaps and bounds as we would have expected it to. I believe that there is still some uncertainty and there are quite a few cats on the wall. We're expecting that some of that uncertainty will resolve over the next couple of quarters. There are at least 2, 3 big opportunities that we have in the high-tech sector, which could be in the million dollar range, right, in terms of overall size of opportunity. So optimistic cautiously at this time. We are still waiting for some of the deals to come through, right, in a full blown fashion.

[Mohit Jain, analyst]

And when you say incremental business, this is like business as usual for you? Or is there a new service line or offering where you are seeing more growth compared to the regular part of the business?

[Rajan Sethuraman, executive]

Yes. So within the tech sector, a lot of it is -- when I say incremental, it is basically additions to existing scope of work, expansion there, and therefore, you see if we have, for example, a dozen statement of work that we are executing. In several of them, we would have seen additions of 2, 3 people happening, right? And that is what is contributing to the increment. So more in the nature of the work that we are currently doing. I think the big, the exciting thing that everybody is really evaluating is around the whole Generative AI and large language models, like the GPT stuff. So there, there is a lot of excitement and interest. Quite a few pilots that we're doing. In fact, that today, as we were having the Board meeting, we also held the second internal analytics convention and this analytics convention that we had today was completely focused only on Generative AI and there are at least half a dozen teams that presented [indiscernible] piloting with their customers. So there's excitement around that topic, I did mention One Customer view, right, that is resonating well as well. So there are a few focused conversations. But otherwise, the incremental growth is broad-based around the scope of work that we are doing.

[Mohit Jain, analyst]

Raj, so investments in SG&A, as you spoke about and also shown in the PPT from a head count addition perspective, are we done with it? Or do you think some bit of cost increases may come in second quarter as well?

[Rajan Venkatesan, executive]

So in terms of the SG&A, the head count addition we're talking of, Mohit, all of that is fully baked in. The current quarter has the full-blown cost of the investment on the front-end side, right? So there, all of that cost is baked in to the current quarter additions.

[Rajan Sethuraman, executive]

So any additions that we will have on the front-end capacity will only be replacements, okay? I mean, of course, given that the go-to-market team is something that we will continuously evaluate. There will be opportunities where we can fine tune. But these will be backfills where necessary and not net new additions.

[Mohit Jain, analyst]

Like, what I meant to ask was that cost increases will now be slower compared to the revenue growth expectation that you guys have for the rest of the year?

[Rajan Venkatesan, executive]

That is correct. That is correct.

[Mohit Jain, analyst]

And that thing is also related. Now we don't get the split of gross margin versus SG&A. So when you say this drop on the account of people cost, is it fair to assume gross margin is more or less flattish for the quarter versus last quarter? Or do you think there will be some drop there and then some drop in SG&A on account of SG&A?

[Rajan Venkatesan, executive]

So not a substantial drop in gross margin. Of course, there is some impact of [indiscernible] on the gross margins in the current quarter, Mohit. But to some extent, Rajan also spoke about improving utilization, right? So that is something that we are focused on, in fact, in the current quarter. The reason why you don't see an addition in the head count is because we also reviewed performance of people, and there were maybe a few folks who were -- based on performance, were -- that there was some level of involuntary attrition in the company as well. And so that also helped us improve our overall utilization for the quarter. So the gross margin is not substantially different from what we reported in the last quarter, if that answers your question.

[Mohit Jain, analyst]

[ Pressure ] is not there, so to say. The drop we are seeing is essentially investment rather than any other sector.

[Operator]

Our next question is from the line of Utkarsh Katkoria from PGIM India Mutual Fund.

[Utkarsh Katkoria, analyst]

Just a more long-term thought process just to understand where you see yourself or the company, say, 3 to 5 years down the line in terms of what is the sustainable growth rate? What is the sustainable EBITDA margin band?

[Rajan Sethuraman, executive]

Yes. So from a growth rate perspective, we have in the past indicated that we would want to be around 5% to 8% better than the industry growth rates, and we are confident of that. I mean, you do see the bounce back that has happened in this quarter. And we also talked about all the investments, which we believe are the right kind of investments that need to be made whether in terms of capacity of the front end or the very specific value propositions of the new generation technology. And I think we are well positioned for capitalizing on the industry growth rate and doing beyond that, right, when the turnaround happens. From a margin standpoint, we did go ahead with investments ahead of the curve. And we took a call that we will not slacken on these investments, even though this macroeconomic downturn is happening. And I think that will place us well when the turnaround starts materializing. So while the current demand scenario means that these investments are a bit of a drag on the margin, I believe that the very same investment will give us better margins, right, as things turn around. So we are expecting that we will be back on that 25% kind of trajectory by the end of the year, assuming that the second half does witness the turnaround from a macroeconomic standpoint. But otherwise, we believe that we have made the investments that are necessary. And from here on, any further investments will be calibrated. So we don't expect that there will be any margin dilution on account of that. So from here on, you should actually see the trajectory improving to the 25% kind of a mark.

[Utkarsh Katkoria, analyst]

I just had one more question. So just to understand, our deal size data we have. But typically, what is the tenure of these deals? How are you seeing the pricing environment currently and maybe over the longer term as well? And are the deals getting smaller? Or are they getting larger?

[Rajan Sethuraman, executive]

Yes. So the typical deal sizes that we were witnessing, say, 3 quarters back, right, or a year ago. They're all in the $600,000, $700,000 kind of range. And we did have quite a few closures, which are even significantly larger. For example, last year, we had a $2 million win, right, on just one opportunity. So if I kind of average out, we were doing somewhere in the $600,000, $700,000 per statement of work kind of a mark.

What we have witnessed in the last 2 quarters, in particular, is because of uncertainty, most new projects that get kicked off, they are smaller insights. I mean even if there is some clarity in terms of the end state and the larger initiative, we see that clients are unwilling to stake everything at this point in time. And therefore, they want to kick off something which is smaller, manageable where they can show an improvement and then potentially follow it up with a larger initiative as the external scenario improves as well. So in the last couple of quarters, the deal sizes have fallen down to maybe the $250,000 kind of a mark. But from a long-term perspective, I believe that we will get back on the earlier trajectory. In fact, if anything the deal sizes should improve even further. I mean you would imagine that as analytics initiatives become larger and more complex, we will see several million dollar plus initiatives. And that will also mean that the tenure of the initiatives will get longer, not just ones that get executed within 6- to 12-month time frame, but once that go past the year mark.

Many deals, especially in the data engineering, data platform kind of space will mean that the deals will be larger and complex and need to be executed over a 24-month time frame, for example. So we are expecting that the tenure of the deal will also go up in the coming years. Of course, some of this has to pan out, and it will mean that the external environment has to be ready for that as well. But I would say that if you are asking me about a 3-year kind of a trajectory, I would imagine that the average deal size will inch up closer to $1 million kind of a range and the tenure will get longer than the 12 months that we are typically used to [indiscernible].

[Operator]

[Operator Instructions] Our next question is from the line of Vimal Jamnadas Gohil from Alchemy Capital Management Private Limited.

[Vimal Gohil, analyst]

And once again, a great comeback. And I just want to understand more about the revenue growth for the resurgence that we've seen sequentially after a tough quarter -- a tough Q4. Now you had highlighted in the conference call as well as a couple of media interviews that Q1 and maybe Q2 will sort of stay soft. And by new means, I would consider a 5% Q-on-Q increase for this quarter and possibly even the next quarter. So my presumption here is that things have changed fairly quickly for us for the good against what we saw in Q4. So what has really changed? And plus we are also indicating that our macro continues to remain soft. So how should we join the dots here, sir, if you could just help me with that?

[Rajan Sethuraman, executive]

Sure. Yes. I think the situation is getting better. But internally, when we talk within the organization, our expectations were even higher, okay, in terms of the turnaround that we could see in quarter 1. So I would say that it's been a little slower than we wanted it to be or we expected it to be. And that is just a reflection of the external uncertainty, right, the macro. I mean, I'm sure that we are getting commentary from other organizations as well. So that sluggishness and the uncertainty continues to be there. Many people will look at analytics and consulting type of initiatives as discretionary. What is happening for us is that the work that we are doing is seen as very core critical important so much so that, as I mentioned earlier, that all of the book of work that we had for the last year, that has all been renewed, and we have also had some incremental growth. In many of these instances, the stakeholders that we were working with, the business sponsors and the stakeholders, they have seen their mandate -- they have mandate and they have seen their own remit within their organizations increase as well in this uncertain environment. Of course, we have also had one or two instances where people have been rotated out or they have gone onto other roles and jobs. But for a vast majority of the people where they are continuing to play the role, their mandate has increased and their ambit has increased. And therefore, that is what is resulting in the incremental growth that I talked about. So these stakeholders have slightly larger budgets or some rationalization has been done and they have been given the money to continue to spearhead what they are doing. So that is resulting in some of the incremental growth that we are witnessing. The other big thing I would say is the investment strategy. I mean we did talk about all of the front-end investment that we have made, and we have continued to support all of the investment and the client servicing and the growth team capacity with the right kind of backup from an internal demand generation team from a marketing, events and all of that. So that is also paying some dividends. Of course, it is not exactly in line with the kind of investment. That's why I said that we have ended up front ending the investments, and we believe that we should not take the foot off the pedal on that one because as the scenario unwinds -- uncertainty, unwinds, we believe that these investments will serve us even better. So I would say it's a combination of those 2 things. So working with the right stakeholders, their mandate and ambit increasing, which is providing us the incremental growth and the front-end investments and the support that we've been providing on the marketing of the events and the demand generation and the value proposition, starting to yield early benefits. Of course, we are expecting that those investments will pan out even more in the coming quarters. And when that happens, you will actually -- I mean we would then be back on the double so 8% to 10% or 12% kind of a quarter-on-quarter growth trajectory. So that is what we are pushing for in terms of the kind of investments that we're making. So that is something that we expect will unfold, right, as the uncertainty is resolved.

[Vimal Gohil, analyst]

So the 8% to 10% quarter-on-quarter is very encouraging. Sir, my next question is a bit more industry-led, and of course, related to you. Our core expertise of data engineering, which happens to be our largest space, how do we make sure that we shield this particular service line against the disruption that comes with Gen AI. I understand you've spoken about initiatives that you're taking, but what is the risk that your clients, especially on the technology side, will leverage Gen AI as a platform to engineer the data internally and probably, you will have to sort of look at other revenues. So any thoughts around this?

[Rajan Sethuraman, executive]

Yes, sure. First, I'll give you a little context, data engineering work today roughly makes up about 20%, 23% of the work that we do. So that is not the biggest chunk. But it is a very important and growing type of work, right, component of work that we do. The bigger chunk of work is in the diagnostic disruptive analytics, predictive prescriptive analytics and the consulting work, right, I mean they make up the remaining 80% -- 75, 80-odd percentage of the work. But data engineering has grown for us significantly in the last couple of years, and I expect that it will continue to grow as well.

[Vimal Gohil, analyst]

Sorry to interrupt. But sir, even the predictive analytics there could be some portion that could be -- that portion could get impacted because of the Generative AI abilities that it brings, that technology brings. On an overall basis, how do we shield ourselves? How do we keep ourselves more relevant and make sure that 8% to 12% sequential growth happens in background of disruptions?

[Rajan Sethuraman, executive]

Interestingly, if you look at Generative AI as technology, right, and what it is capable of doing. The realm is largely in the unstructured space, right? You would have heard about all this -- the hallucination challenge, right, that Generative AI technology has. It generates a lot of stuff, a lot of it is stuff that doesn't exist, right, in some sense. It works great when you are on a creative quest or at least when you're on a so-called creative quest. But the moment you start talking about structured data and insight generation from structured data, there is a lot of hoops that you need to go through.

In fact, today's analytics convention that we had, the focus was on those 2 different types of problems. How do you use Generative AI to solve problems in the unstructured data domain? And how do you use Generative AI -- can you use Generative AI to solve problems in the structured data? For example, if somebody has a sales database or if they have a supply chain database, can you use Generative AI to come up with the kind of insight that may not be possible through classical diagnostic descriptive, driver analysis and those kind of approaches that are available there. And I think on that, the jury is still out. There is still quite a bit of hoops that one needs to go through in order to come up with the right kind of insights and approach that would be possible. So the reason I'm mentioning that is that in some sense the whole concept of how do you apply Generative AI when it comes to insight generation, which are factual database, especially on structured data is a problem that people are still going through. Of course you can use it for coming up with SQL queries and code bases and stuff like that, right, that you can quickly get started. But those things, I believe, will only help improve the productivity of the people that we have. They're not going to replace the kind of work that they do. It will help them do the work faster so that they can get on to the more challenging and complex problems, right, that need to be solved.

So at this moment, we've not -- we are not seeing any evidence of the insight generation and the analysis work being replaced by the concept and theory, right, that comes from the Generative AI landscape. In fact, I would say that you should use that for particular kinds of analysis. I gave examples of customer sentiment and review analysis, right? That is where you can use Gen AI concepts and you can actually quickly change the -- reset the bar in terms of the kind of insights that are made available. Overall, if you ask me as a philosophy, I think any new technology, right, that is sufficiently disruptive like Generative AI will mean that the level playing field will get resettled. There will be a higher bar that everybody now aspires to and that can -- they can easily get in place by using the technology. But that will only open up a lot more nuanced complexities and problem-solving opportunities that are available. I mean that is what we are witnessing at least in terms of the conversations that we are having. So I don't think the growth rates that I talked about is under any threat because of the emergence of new technology. On the contrary, I would argue that the new technologies will actually open up so much more [ vistas ] that will make the growth rates even more probable.

[Operator]

Sorry to interrupt. Mr. Vimal may we request you to rejoin the question queue for follow-up questions as there are several participants waiting for their turn. [Operator Instructions] Our next question is from the line of Hitesh Malla from Steinberg India Advisors.

[Hitesh Malla, analyst]

Congrats on a good set of numbers. My first question was on the Europe side. We have been consistently winning deals and investing over there. But this quarter, there was a very sharp decline in revenues. I agree it's a subscale business for us, but like an 85% drop in revenues sort of concerning. So can you just clarify like what exactly happened there?

[Rajan Sethuraman, executive]

You're right. I think I would actually say that the entire Europe business is going through a reset phase at this time. So the decline that you see is on account of a little falloff in revenue with one of our existing accounts. But to contextualize that we had all of 3 accounts, right, in Europe, which were generating revenue earlier. And when you have such a small subscale operations, even a small change in the revenue that we have from one account will have a very big impact from a percentage standpoint. As we've pointed out earlier, we have won the first new account in Europe, and there are at least 40 conversations, right, that we are handling and most of these are with really high-quality accounts, like clients and prospects. In fact, we are also leveraging the relationships that we have with the same accounts in the U.S. and trying to look at how can we open up opportunities in the European markets. Many of these accounts, especially in the technology space and also in the CPG space, they have substantial European operations, and we are having conversations with many of them. Having said that, I would add that Europe in general is a tough market. To crack it, takes longer lead time to operate on the strength of the relationships that you are able to build. In this tough macroeconomic scenario, we are seeing that it will take even longer. The good thing is that we have a good caliber team that is there in the market, and that is what is driving the 40-odd conversations that I talked about. We also have a very strong adviser and set of advisers that are helping us open doors and getting the right kind of connection. We haven't seen that kind of closures that we would have wanted to see so far. So I think we still need to give a little bit more time, especially given the macroeconomic environment. I'm expecting that when I report back to all of you in a quarter's time, we would have had at least 2, 3 more wins [ under our bed ], okay, in Europe. I still don't know how big they will get within the next 2, 3 quarters. But as Raj point out, the aspiration and the goal is that in a 3-year time frame, Europe will contribute to 10%, 15% of our revenue. So that is the trajectory and that is the kind of [indiscernible].

[Hitesh Malla, analyst]

And just one follow-up from my side. While the commentary in Technology and Industrial verticals is quite encouraging, there have been certain pockets like retail, BFSI, and for that matter, even like the non-top 20 client accounts, which have seen very sluggish dollar revenue performance over the last 4, 5 quarters, not in the last 2 quarters. So just wanted to get some sense of what is happening with these pockets. What are you doing to address and like sort of kickstart the growth in these pockets.

[Rajan Sethuraman, executive]

Right, yes. So you're absolutely right. I mean BFSI and retail were traditionally not a strong [indiscernible]. We were quite underrepresented, right, in these verticals. By the time that we made the decisions to make the investment. And this is like about a year ago, in some instances even putting track, we started bringing in the people, right, who could drive action. We started witnessing some of the external uncertainty. You bring in somebody, it starts, it takes at least 6 months for them. However, experienced they might be in their domain, for them to come and assimilate the kind of value propositions and ideas that we have and what they can take to the table, it takes that kind of time. And by that time, they had done that integration, and they had assimilated what we have to offer, we were already starting to witness the external uncertainty. BSFI and retail have been impacted significantly in terms of sluggishness around new initiates kickoff. So that's kind of reflecting in what we are seeing. So for the last several quarters we had such challenges. But BFSI, we did have some wins. I mentioned that out of the existing logos where we saw growth in this quarter, there were 2 important accounts that we had on the BFSI side. And in both of them, we saw one strong comeback in terms of the total quantum of work that we are doing. We are expecting that we will continue to build on them. We are having conversations with 2, 3 large banks and other logos as well at this time. So again, we could see some conversion at least in the BFSI space in the next quarter.

I think retail might take a little market. So while the investments are being made, I think just the current environment means that the closure, the sales cycles are going to be a little longer. But again, there, we have a few conversations that are currently underway. I'm hoping that we will have better results to share, right, on the retail front in a quarter or 2 from now.

[Operator]

Mr. Hitesh, may we request you to rejoin the question queue for follow-up questions. Our next question is from the line of Sameer from ICICI Prudential AMC.

[Sameer Dosani, analyst]

Raj, if you can just provide overall -- you've spoken about the consolidation exercise in one of our top clients last quarter. I'm not sure if you've given an update. Can you just share an update of that, whether we have won this share of business or how is the progress?

[Rajan Sethuraman, executive]

So we are happy to report that this client, which is our top 5 client, again, that after the 2 top accounts is actually the third largest account in the Technology vertical. We've managed to renew our entire book of work with this particular account at the same rate as well. So that is the first positive news.

The second one is within the existing -- one of the existing groups, we were able to, as a part of the consolidation that we spoke about, we've in fact been able to add a book of work, which is on an annual basis, close to about [ $800,000 ]. That is something that we were able to add. And then incrementally, there was one new group which is a part of the gaming business of this particular account where we were again able to win an additional account to the tune of about [ $700,000 ]. So on an overall basis, this entire consolidation exercise that we spoke about has actually been beneficial for us. In fact, we've managed to regain a lot of lost ground in this particular account. On an overall basis, we added close to about $1.5 million in terms of the total order book with this particular account.

[Operator]

Our next question is from the line of Ruchi Mukhija from Elara Capital.

[Ruchi Mukhija, analyst]

Thank you for the opportunity. Pardon me if is coming at the cost of repetition. In earlier conversation, the Generative AI came up under discussion, it was painted with a risk characteristic, but given your portfolio, which is more concentrated around data engineering. And as we understand about the AI where if you don't have a data strategy, it's difficult to build the AI strategy. In that context, could you help me understand for your business you would see Generative AI more as an opportunity? And how could you see risk in your -- maybe from the service line perspective for you?

[Rajan Sethuraman, executive]

Yes, sure. Thanks for the question, Ruchi. I think you are right. I mean, see, any analytics work that an organization wants to undertake, they should have a very strong data foundation and a database. In fact, if you go back, say, 3, 4 years in time, organizations used to work with data that is available within their particular business or functional silos, could be coming out of their ERP systems or transaction processing system, but they typically worked with some silo of data that they have, and they were solving simpler problems, lower hanging fruit, right? And that meant that you needed a certain maturity from a data, data engineering, data platform perspective.

Now we have seen that in the last 2 years or even a slightly longer time frame that the complexity and the maturity of initiatives are increasing. And that means that the low-hanging fruit has been taken. You are now going after problems that require a more holistic, integrated perspective, right, across the entire organization, and therefore, you need to be able to harvest data from multiple parts of the organization, bring it all together into one platform. So definitely, data engineering is on the upward curve from a type of work perspective. The good thing is that as you bring in all of those data and especially if you're talking about unstructured data from outside of the enterprise, from social media, from reviews and other mechanisms, that is what creates the kind of opportunity that I talked about. Generative AI and large language models are particularly suited for unstructured data, for text data. And now that organizations are collecting that kind of data from the multiple customer interactions that they are having, it will mean that there's plentiful opportunity, right, for how you can apply Generative AI kind of principles, right, to mine that data.

Now Generative AI as a technology and as a new tool itself is exciting and interesting for people to play around with and experiment with. But the real value of all of that can be achieved or realized only when you have very solid use cases on what data are you going to analyze, what problem are you looking to solve? And how do you address some of the hallucination challenges that I talked about earlier, referred to earlier. You want to make sure that whatever these large language models are throwing out are completely fact-based and there isn't any extraneous inferences that are being made, right, that are not connected with the data and the unstructured information that might be there. So I think that is where the opportunity would be. In fact, you would have heard the word or terminology called prompt engineering. Prompt engineering itself can be a very, very interesting space, if you have data and if you have technology such as large language models. How do you use prompt engineering and the right kind of interaction so that you are making the best use of tools that are available. So I'm expecting that on the back of what is happening in the Generative AI space, there'll be even more opportunity, right, to undertake the right kind of predictive, prescriptive analytics and what you can do with the kind of customer information that you are able to collect at this point in time. So in some sense, we are quite positive about the impact that Generative AI can have on the entire analytics landscape.

[Operator]

The participant has left the queue. We move to the next question. Our next question is from the line of Karan Uppal from PhillipCapital India.

[Karan Uppal, analyst]

Just one clarification. You mentioned that you're seeing Q2 to be similar to Q1 in terms of growth. And you also mentioned that H2 will be better than H1. But also, you have mentioned that there is some uncertainty which is there in the market. Clients are taking some more time to close the deal. So in that context, how should we look at the trajectory of growth from here on?

[Rajan Sethuraman, executive]

Yes. So sitting in the -- towards -- I mean, we are at the end of July now. So 1 month has already gone by in quarter 2. And if I look at my full potential pipeline for this quarter and then the probability weighted pipeline for this quarter I can see that our growth rate for quarter 2 will be a little better than what we have done in quarter 1, okay? So that is something that is based on just the data that I already have in terms of the opportunity that we have, what we have closed, confirmed, right, all of the stuff. Now for Q3 and Q4, what I have is like a large pipeline. Of course, the current trajectory is assured, meaning whatever we end up doing in Q2, we will continue to do in Q3 and Q4. But the growth on top of that, that is currently -- largely a pipeline, right, of opportunities. So that will depend on how quickly those opportunities are closed. So if I have a few good closures in Q2, in the remainder of Q2 than Q3 starts looking a lot more interesting than what it is right now. So that is where we are. I mean, so in some sense, I mean, I'm not able to give any more assurance than what I see at this point in time. I do see the kind of growth that we have in Q1 continuing into Q2 and Q3, right, so that will happen. Further uplift on that will be on the back of at least some good closures that we have, right, in the remainder of quarter 2.

[Karan Uppal, analyst]

Okay. So basically, our visibility is limited to a quarter at this point of time. And beyond that, given the uncertainty, we are still not sure of the trajectory. Is it a fair understanding?

[Rajan Sethuraman, executive]

Yes. So I'll just rephrase that. What we have confidence about is the current growth trajectory. For the trajectory to become steeper, I will need more closures.

[Karan Uppal, analyst]

And in terms of margins, so we are talking about margin improvement from here on investments we have already made and no further incremental investments we are planning to make and wage hike impact is already behind us. So from here on, as the growth improves, margins should also improve, is that the way to look forward?

[Rajan Sethuraman, executive]

That's correct, yes. You're correct. Right.

[Operator]

Our next question is from the line of Swechha from ANS Wealth.

[Swechha Jain, analyst]

My first question is around the order book. If you could help me understand what kind of order book do we currently have? And if you also could give me a number of the big pipeline that we have? And also, I think you had mentioned in your commentary that the new deals that we have got, the new logos that we've got, they are of a smaller ticket size. So do you think this is going to impact our margins? Like does margin vary depending on the ticket size? And if you could also give me the average ticket size that we have currently for Q1.

[Rajan Venkatesan, executive]

So I'll give you some context around the order book question first. See, one of the reasons why we -- at this point in time, we don't publish our order book is also, you'll have to understand that the nature of the business or the nature of the contract that we typically get are between 6 to 12 months. And given that most of the customers that we have, if you see are based out of North America, the budgeting cycle or the fiscal that most of our clients follow is Jan to December. And therefore, most of the renewals or extensions that we end up signing typically run through this period, which is Jan to December. So if you look at our other -- the order book that we carry at any point in time, it will be very high towards the end of the calendar year or beginning of, I would say, Q1 of the following calendar year or for us, it will be Q4. That's when our order book will be at the highest. And through the year, as we execute this order book, the confirmed order book that we carry or will actually progressively come down. But there is another internal metric that we track, which we, of course, we cannot publish or give out at this point in time is, again, extensions, right, which again is rated based on the probability of the extensions. The way we internally as management track these extensions is any account or any client where we have a history of working with that particular account for a period of more than 2 years is typically tagged as high probability extension.

Now the sort of internal metrics that we as management track is at any point in time, the order book plus the high probability extensions that we carry should roughly be higher than or equal to the trailing 12 months revenue and which is what we can at this point in time give out that the order book that we carry today is slightly higher or marginally higher than the trailing 12-month revenue that we did clock. So that's what I can put out. Your second question around margins on some of these smaller value deals, right? Just to let you know, as a benchmark or as a sort of internal metrics that we track, our threshold for taking on any new work is typically 50% gross margin in the U.S. We have a slightly lower threshold for some of the newer emerging geographies because also these are fledgling geographies. And our intent, of course, is to win marquee logos over here and build on that in the future. So that the threshold may be slightly lower for, say, Europe or APAC. But in the U.S., 50% is the threshold that we normally operate in. And even for these new small wins that we spoke about, our margins are in the same range, which is 50% plus.

[Rajan Sethuraman, executive]

On the contrary, in fact, if clients are typically signing on smaller opportunities to begin with. They also know that they cannot get the benefits of leverage. So for some of them, for example, I mean the onset/offset ratio will be of a certain nature. Once you get on to a larger initiative, then clients also understand that they get the benefits of leverage. So therefore, the pricing and margin will reflect that. So the deals that we have signed in this quarter, while they are smaller, we don't have any impact from a margin perspective on account of that.

[Swechha Jain, analyst]

Okay. And sir, my second question is, what is the revenue contribution from our top 5 customers. And if you could also help me understand what is the onshore and offsite billing rate and how do we typically bill our clients?

[Rajan Venkatesan, executive]

So the first metric you will be able to see it as a part of our investor presentation as well. Our top 5 accounts contribute close to about 60% of our overall revenues. But to answer your question, your second question was around billing rates and on-site/offshore ratio?

[Swechha Jain, analyst]

Yes.

[Rajan Venkatesan, executive]

Our billing rates, typically, you would see -- on a blended basis, right? So we -- of course, most of the contracts that we have are on a managed services contract, okay, where we have -- and what we call as a Center of Excellence model where we typically bundle a combination of on-site and offshore resources and we sell it as a Center of Excellence for the client. The average revenue per employee, if you look at that metric for us, it's in the range of about $60,000 to $65,000 and it has trended in that range for the last, I would say, 2 to 3 years. Our on-site/offshore mix is typically 1:5.5. Okay? In the past, it went as high as 1:6 but in recent times, we are again seeing that, that number is coming off, and we are closer to about 1:5.5 at this point in time. Also the reason why we don't end up tracking the rate per person or rate per hour is because we don't do a lot of work, in fact we do very, very minimal work on a [indiscernible] model. And that's the reason why I'm not able to give you a rate card or a rate per hour for on-site and offshore but our average revenue per employee is in the range of about $65,000, if that helps you.

[Swechha Jain, analyst]

Okay. So that means we don't bill our clients on an hourly basis, right?

[Rajan Venkatesan, executive]

So there's a very, very small book of work, which is less than 5% of our overall turnover, which will be in that model.

[Swechha Jain, analyst]

So how do we bill our clients? And is it contract-wise?

[Rajan Venkatesan, executive]

It is for a capacity that we give the client and that capacity will deliver a book of work to the client. So there are a set of initiatives that we agree upon with the client, and there is a capacity and skill mix that is given to the client, and we fill a fixed monthly rate to the client, and that is what we charge them on a monthly basis. Of course, this capacity itself can be dialed up or dialed down depending on the client outlook as well as the requirements from the client side. but the rate that you agree on is a fixed per month rate for this capacity.

[Operator]

Ladies and gentlemen, that was the last question of our question-and-answer session. I would now like to hand the conference over to the management for closing comments.

[Rajan Venkatesan, executive]

Well, thank you, everyone, for joining the call. Like we mentioned, we are happy to be back on the growth path and growth trajectory despite a lot of the commentary that has been coming from the market, which has been largely negative, we've managed to, I would say, press the pedal or keep the momentum going on the investments. And we continue to be fairly optimistic about the future. Some of the recent conversations that we're having and some of the opportunities that we have in the pipeline, definitely indicate that we could witness a bounce back in H2. However, there is still work to be done, like Rajan mentioned, which is why we are, at this point in time, hesitant to put out guidance for H2, but we believe we made the right investment in terms of people and capability building, which will put us back on the growth track as well as the margins that we've historically reported. We hope to be back on the same trajectory in a couple of quarters.

[Operator]

Thank you. On behalf of Latent View Analytics Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.