Aurum PropTech Limited (AURUM) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Q3 FY '20 Earnings Conference Call of Majesco Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Asha Gupta from Christensen IR. Thank you, and over to you, Ms. Gupta.

Thank you, Marie. Good morning to all of you who have logged into this call. Welcome to Q3 FY '20 Results of Majesco Limited for the Quarter Ended 31st December 2019. Please note that we have mailed out the results. And also you can view it on our website at www.majesco.com. To take us through the results and to answer your questions, today, we have with us Mr. Adam Elster, Chief Executive Officer of Majesco U.S.; and Mr. Farid Kazani, Managing Director and Group CFO of Majesco Limited. We will start the call with a bit overview of the quarter, which will be given by Mr.Adam. And then this will be followed by Mr. Farid who will be going into detailed financials. We will then throw open the floor for Q&A session. I would like to remind you that everything that is said on this call that reflects any outlook for the future or which can be construed as forward-looking statements must be used in conjunction with the risks and uncertainties that we face. These risks and uncertainties are included but not limited to what we have mentioned in the prospectus filed with SEBI and the subsequent annual reports that you can find it on our website. With that said, I'd now like to hand over the call to Mr. Adam. Over to you, sir.

Thanks, Asha, and good morning to everyone on today's call. We are very pleased with our third quarter results as they reflect ongoing momentum of our business and increasingly better execution regarding our strategy. Overall revenue for the quarter was INR 269.4 crores, with adjusted EBITDA of INR 36.4 crores. We continued to see an acceleration in our overall cloud business and cloud subscription revenue grew over 39% year-over-year. This is in direct relation to our cloud wins as well as our reduced project implementation time lines. Our subscription business model allows us to generate rapid cloud services revenue during the implementation phase, and product revenue begins as soon as the project is live. The cloud subscription revenue then continues to increase over time, in line with continued adoption and direct written premium volume. Overall, our recurring product business now represents more than 40% of total revenue and the product business growth has more than offset the continued decrease of on-premise services. Once again, we were very pleased with new sales in Q3, and our 12-month backlog continues to decline and is at a record $102 million. Some of our new wins leveraging Majesco's CloudInsurer platform include a Tier 1 global insurer who is implementing Majesco's billing; a California-based Tier 2 carrier focused on nonprofits who is implementing the full Majesco P&C suite, policy admin, billing claims for its North American business including a broad spectrum of commercial products. We also had several multiyear renewal commitments. A Tier 2 insurer carrier renewed its commitment to Majesco's billing for an additional 5 years. A large Tier 1 insurance carrier continued their expansion of Majesco billing across the entire enterprise. A Tier 1 carrier renewed its commitment to the P&C suite for an additional 3 years, and a Puerto Rico-based insurance carrier signed up to transition its business to Majesco CloudInsurer platform. And just like in Q2, we were excited to have 9 customers go-live in Q3. Highlights include CCMSI, the largest privately held third-party administrator and MGA in the U.S. They are now live on Majesco's policy and billing for P&C along with our data and analytics platforms in all 50 states. Arch insurance implemented Majesco's billing for P&C on our cloud platform, and they did it in 7 months. And our first Digital1st customer, Burns & Wilcox, went live in this quarter. Other major highlights in the quarter include IT group named Majesco the top, best-in-class vendor in P&C policy administration matrix. We also hosted our 12th Annual Product Council meeting in November with more than 100 customers and partners who attended in person. I'm thrilled to announce the acquisition of InsPro Technology, a U.S.-based software leader in the L&A market. The addition of the InsPro team will only help to strengthen and expand Majesco's depth in voluntary group and worksite benefit markets, enabling successful digital transformation journey for insurers. They have a strong list of top-tier insurance customers, and this acquisition continues to advance our strategy and focus with our partners, specifically Capgemini. Cap has selected Majesco's L&A cloud platform as their standard platform. And at the same time, they have a very large TPA business that currently runs on InsPro's technology. As focused as we are selling direct to insurance companies, many use TPAs, third-party administrators, to manage their back-end business. This is an important route to market for us. Lastly, many of you have been asking for much more detail regarding the time lines and go-live launch material associated with the IBM partnership and MetLife project. In mid-December, MetLife held their Annual Investor Day, and they shared extensive collateral about their commitment to the project and business. It is all publicly available through the MetLife Investor website. Overall, I'm very pleased with the quarter, and it continues to validate our strategy as more and more companies are looking to Majesco to help them grow their businesses by leveraging modern cloud-based solutions. And with that, I will turn it over to Farid.

Thank you, Adam, and good morning to everyone on the call. Majesco's transition to a product-focused company successfully continued through the third quarter of fiscal 2020. And I'm pleased to summarize our financial results as we continue to experience positive revenue and profitability trends across key performance metrics of the business. Overall, the third quarter has been a successful pullback from the previous quarter across all operating metrics. Let me enumerate the key highlights on the performance for the third quarter, starting with the operating revenue. The operating revenue for the quarter was INR 265.1 crores, an increase of 10.6% in rupee terms and 8.3% in constant currency from the INR 239.8 crores in Q2 of FY '20 as well as an increase of 4.1% in rupee terms from the INR 254.7 crores in Q3 of the last year. The total revenue for the quarter was INR 269.4 crores, an increase of 9.3% from the previous quarter. The growth was primarily on account of increase in cloud revenue with projects going live and new business additions in the P&C group. The operating revenue for the 9-month period ended 31st December 2019 was INR 763.8 crores as compared to INR 736.6 crores in the similar period of the previous year, reflecting a growth of 5.1% in rupee terms and 4.2% in constant currency. In terms of total revenue, we ended up at INR 779.2 crores for the 9-month period under review as compared to INR 750 crores in the similar period of the previous year, reflecting a growth of 3.9%. The increase in the revenue during the 9-month period ended 31st December 2019 was on account of the growth in the North America business with significant increase in the product revenues, especially in the P&C segment. The adjusted EBITDA for the Q3 FY '20 was INR 36.4 crores, that is 13.7% of the operating revenue as compared to INR 27.1 crores, which was 11.3% of the operating revenue in Q2 FY '20 and INR 35.4 crores which was 30.9% of the operating revenue in Q3 of the last year. Sequentially, adjusted EBITDA increased by 34.7%, which is directly related to higher subscription revenue and better operating leverage. Adjusted EBITDA for the 9-month period, 31st December 2019, was INR 97.1 crores, which was 12.7% of the operating revenue as compared to INR 89.6 crores, which was 12.3% of the operating revenues for the similar period of the previous year. Over to the details on the cloud and recurring revenue. The total revenue from cloud-based customers for Q3 FY '20 was INR 116 crores, which is 43.8% of the operating revenue as compared to INR 92.4 crores, which was 38.5% of the operating revenue in Q2 FY '20, reflecting a growth of 25.6% on a Q-on-Q business and an increase of 9.2% when compared to INR 106.3 crores, which was 47 -- 41.7% of operating revenue in the Q3 FY '19. Total cloud subscription revenue grew by 21% to INR 43.8 crores, which is 16.5% of the operating revenue in Q3 of FY '20 as compared to INR 36.2 crores, which was 15.1% of the operating revenue in the previous quarter of Q2 FY '20, and an increase of 39.2% as compared to the INR 31.5 crores, which was 12.4% of the operating revenue in the previous year Q3. For the 9-month period under review, the total cloud revenue was INR 305 crores, which is 40% of the operating revenue, reflecting a growth of 8%, and the total cloud subscription stood at INR 110.4 crores, which is 14.5% of the operating revenue, reflecting a growth of 32.1% when compared to the similar periods of previous year. The total number of cloud customers now stand at 63 at the end of 31st December 2019. As you can see, there has been a steady increase in the subscription revenue each quarter with projects going live on successful and rapid implementation and addition of new cloud customers each quarter. For the third quarter, our total recurring product revenue, which includes license fees, recurring cloud subscriptions and the support and maintenance revenue, was INR 109.8 crores, that is 41.4% of the operating revenue as compared to INR 99.8 crores, which was 41.6% of the operating revenue in Q2 of FY '20, reflecting a growth of 10% on a Q-on-Q basis, and an increase of 22% as compared to the INR 90 crores, which was 35.4% of the operating revenue in the Q3 of last fiscal. The total product revenue was INR 320.4 crores for the 9-month period, 31st December 2019, representing 41.9% of the operating revenue and a growth of 30.4% as compared to similar period of the previous year. In the third quarter, the product development expense stood at INR 33.2 crores, which is 12.5% of the operating revenue as compared to INR 31.4 crores, which was 13% of the operating revenue in Q4 FY '20 and INR 34.5 crores, which was 13.5% of the operating revenue in the previous Q3 fiscal. As you'll be aware, during the quarter, we launched the version 11 of the P&C Suite, the L&A Suite and the distribution management platform. We also introduced additional features on our Digital1st platform recently. For the 9-month period ended 31st December 2019, the product R&D expenditures were higher by 2.2% as compared to the 9-month period of the previous year. The company continues to invest based on the R&D road map to create products which are more out-of-box solutions. The net profit for the quarter was INR 30.1 crores in Q3 FY '20, an increase of 79.1% from the INR 16.8 crores in the previous quarter, Q2 FY '20, and an increase of 52% from the INR 19.8 crores in the Q3 of the last fiscal. The 9-month profit for the period ended 31st December 2019 stood at INR 58.9 crores as compared to INR 61 crores in the similar period of the previous year. From a geographic standpoint, the North America constituted 88.6% of the business. And both U.K. and APAC regions represented 5.7% for the third quarter operating revenue. In terms of business splits, the P&C represented 76.9%; the L&A, 22.8%; and the noninsurance at 0.4% for the third quarter's operating revenue as compared to 67.4%, 31.8% and 0.8%, respectively, for the Q3 of the last fiscal. The decrease in the life and annuity as a percentage of the revenue was due to the reduction in the implementation revenue as a major customer preferred to go-live in this current fiscal year. In terms of client concentration, the top 5 clients constituted 21.7% and the top 10 constituted 36.1% for the third quarter of the fiscal 2020. Turning on to the balance sheet. Majesco's balance sheet as of 31st December 2019 continues to reflect a debt-free company. The company is generating cash sufficient to fund its operations, ended -- ending with a total cash, cash equivalent and short-term investment of INR 359 crores as of 31st December 2019 compared to INR 391 crores as of 30th September 2019. This was after making an investment of an amount of INR 113.1 crores for acquiring 4.7% stake in Majesco U.S. in December 2019. Excluding the investments, the net cash addition has been approximately INR 80 crores, built upon overall good performance in Q3 and an improvement in the working capital. The cash balance provides us with significant flexibility to investing in growth-producing opportunities. The DSO was approximately 100 days at the end of 31st December 2019. Strong bookings in the third quarter ended 31st December 2019 reflected a continued momentum in the business. The 12-month executable order backlog increased 19.3% to INR 726.3 crores, which is $101.7 million, as compared to INR 608.7 crores, which was $87.2 million, as compared to 31st December 2018. Operationally, we are focused on effectively managing resources to ensure client projects are properly staffed, while still investing in products and innovation areas. As of 31st December 2019, our total head count stood at 2,507, which is a decrease of 67 from the previous quarter, 30th September 2019, where the head count was 2,574. I would like to quickly update you on our Majesco's U.S. subsidiary acquisitions. So on 30th Jan 2020, the company's U.S. subsidiary, Majesco, entered into a merger agreement with InsPro Technologies, a U.S.-based software leader in the life and annuity insurance market. In consideration for the merger, Majesco will pay the sellers USD 12 million, which is subject to adjustments, including the cash and certain debt in InsPro, upon closing of the transaction, which is expected in April 2020. Accordingly, after the closure of merger, InsPro will become a directly wholly owned subsidiary of Majesco and a step-down subsidiary of this company. So overall, the quarter and year-to-date financial results demonstrate strong results across key metrics, including revenue growth in key product lines, customer acquisitions, cloud-based metrics, margin expansion, order backlog growth and positive cash flow. This concludes our prepared remarks. I'll now pass on to the operator to open the call for questions. Thank you very much and appreciate your continued interest in Majesco.

[Operator Instructions] The first question is from the line of Rahul Jain from Dolat Capital.

Congratulations on very strong numbers. Firstly, on the Digital1st going live in your one account. So what it changes for us from our marketing pitch to existing as well as potential client? And how big it could be from a revenue potential, both to existing as well as potential client on this product?

So we're very excited by the Digital1st go-live with Burns & Wilcox. It's -- we have done about a half dozen deals so far with Digital1st, and they were the first to go-live. So we're excited about adding this new business line and that it's a product that was only launched a year earlier. And what we are finding is certainly some companies like Burns & Wilcox who are looking to use the platform as their core platform, but we're also finding a number of our existing customers who want to use Digital1st to augment what they're already doing with us. So we're excited about the business. It's a very small business for us now. It's only a few million dollars in revenue at the moment. So it's a small business, but we believe it has tremendous potential in the future for the most new, small companies as well as add-on sales to our existing base. But it's a little early in the life cycle to predict a long-term revenue.

Okay. Secondly, on the earnout failure in the Exaxe acquisition. So how much the miss was there on the growth and EBITDA target, if you could share that?

So Rahul, the target was only the EBITDA, okay? And we had obviously kept a pretty decently strict EBITDA for them to achieve. The earnout worked in such amount that they do not get paid if they do not achieve a minimum 75% of that targeted EBITDA. They achieved close to 65% and they fell short by some marginal amount, okay? Which really did not give them any payout in this first year. Though they were tracking pretty much in the first 2 quarters on that target, they had a slip-up in the third quarter, which actually resulted in going below the 75%, okay? They are quite optimistic of achieving the target for the next 2 years because they have a 3-year earnout. But unfortunately, they couldn't make the first year, and which is why we had the figure, which was reflected as contingent consideration, that has now been reflected through the P&L account and added back to our results.

Sir, that way, in case if they don't achieve this, the similar entries would also happen in the next 2 quarters -- next 2 years on the same period?

Yes. The determination period is Jan to December. Whatever reflection in terms of their achievement will get reflected in the Jan of next 2 fiscals.

We don't expect them to miss the results for next year. When you boil down the issue they faced, they had 1 customer, 1 customer who canceled a new project. Without that one issue, I think they would have hit the marker. So we're not expecting them to miss next year.

Of course. And next, in terms of InsPro's acquisition, you gave some opening thoughts on that. If you could bit elaborate in terms of what are the true potential out here and how the Capgemini relationship also can be leveraged in this thing? Sir, if you could give an overall L&A potential with InsPro and Capgemini in mind?

Yes. Absolutely. So we were excited last May to announce the partnership with Capgemini. And Capgemini had decided that their focus for the partnership with Majesco would be the L&A business. So that was a new business line for them and obviously a newer business line for us. So we were excited about the partnership. One of the things that we are doing with them is we are certainly focused with looking at new customer acquisition with new deals with -- and partnering with them and have built some pipeline. But at the same time, they have a very large business where they operate as third-party administrators. So what that means is, for many insurance companies, rather than do all the system and maintenance work and all that administration, they actually hire third parties like Capgemini to do that work. And those teams then, in turn, have to use technology and have systems to manage it. So Capgemini has a large business headquartered in the Southern United States where they support a lot of marquee customers and you can go on the InsPro website and find the names, but there are very many name brands who are currently using the InsPro technology as the backbone. So we see it twofold. One, now that Capgemini is using us for new opportunities, we also have a deep partnership with this acquisition of their existing book of business, and we can not only sell new opportunities, we can do cross-sells of our overall technology and platform and have a large pool of Capgemini resources who know the InsPro technology, who can be trained as well on Majesco. So when we look at acquisitions, this one checked many boxes. We knew we wanted to invest in L&A. It was an L&A business. We knew we were invested in partners like Capgemini. Capgemini is already invested in that. We knew that we needed to acquire new customers in L&A, and InsPro gives us marquee names of customers in L&A. And last and certainly not least, they weren't that expensive. So honestly speaking, for the multiple -- to get a multiple of revenue, the way we got it, we were excited about the price as well. So in the scheme of acquisitions, this checked basically all of the boxes we are looking for. Hopefully, for many of you, that was a lot more information on InsPro, and that was helpful.

Right. Just to extend the same thought a bit more. So are we trying to say that there is a big overlap between the clients who were already using Capgemini as a TPA and are also InsPro customer? And what is this overlap base on a customer base and what are the incremental things that we could sell to existing customers where they have overlap?

So it's not overlap as far as different lines of businesses use the different technology. So it's not overlap with the same line of businesses using both. So it's new lines of business. And then when you look at our portfolio, we have a much broader portfolio than InsPro. So it allows us to pivot across our entire portfolio within their installed base. So thanks. I appreciate the questions.

[Operator Instructions] The next question is from the line of Rohith Potti from Marshmallow Capital.

Congratulations on a good set of numbers. My first clarification is on the order book. Am I right to think that this order book that is executable over the next year is broadly comprised of the implementation that you expect to get from the new clients and the minimum subscription from the existing implementations already done and nothing else?

Yes. It will include implementations from these cloud customers, okay? Which are -- which have been acquired. And it only includes the minimum subscription revenue, okay? It does not include potential increase, which will be either on adoption or any increase or new lines of businesses that they add on beyond what has already been signed up.

So it just includes only the cloud revenue that you expect over the next year?

That's correct. Basically, the revenue that we will account as cloud revenue is next year only, does not include anything beyond that.

Okay. Yes. But what I'm asking is, does it just include pure cloud revenues and no services or license or any other revenue?

No. Whatever the implementation is typically the professional services fee, okay? And then there is cloud subscription. If there is anything that comes on top of that, it's not included at all.

Okay, fine. That clarifies it. And the second question I had was that there is -- again, our cloud implementation revenue seems to have gone back to the levels we had -- we were seeing when IBM deal was going on. So is it a single customer? Or is there a large number of customers who are going through implementation right now?

A lot of it was related to what I talked about in the third quarter. We had 9 customers go-live. So obviously, in our third quarter, we are working on a lot of projects in our third quarter to bring the customers live. I think it's a closer reflection on our order book over the last 9 months. As you've seen the order book grow, there have been a lot of new projects that we've started and go-live. So -- but compared to the IBM, from a dollars perspective, I understand the comment. Actually, I would tell you, it's much healthier revenue because it's not 1 customer, that revenue is spread over multiple new customers. So actually, the revenue and the increase is very helpful for our business model.

Understood. That was helpful again. My third question is on the acquisition of the -- acquisition by Majesco India of the Majesco U.S. stake. Could you explain the rationale? Because this particular stake from Nasdaq was available for a long time. So what changed the management's mind to buy that portion of stake in the U.S. entity this quarter?

I think it's pretty much the confidence of the business that is doing pretty well. And as you've seen that the Majesco U.S. entity is now doing pretty well on their operating revenues, on their cash flows and has generated significant amount of cash in the last 12 months. The cash that was lying at Majesco Limited was actually parked in treasury funds, which were yielding around 6%, okay? We did believe that making an investment of another 5% or 4.7% in the Majesco U.S. is a good value investment on a long-term basis for Majesco Limited shareholders. Secondly, if you look at -- on a going-forward basis, Majesco U.S. will need funds for doing large acquisitions whenever it comes across the right value acquisitions. And at that point in time when it dilutes Majesco Limited, it does get an additional 5% room for the -- okay? So that the dilution doesn't happen significantly beyond the 70% that we were earlier. So I think that was one reason. Ultimately, we are buying into a company that we feel very confident in terms of value that value can be accretive over a period of time for all the shareholders.

So 2 questions here, sorry. So, first one is, with the amount of cash that Majesco U.S. has and [Technical Difficulty] which is pretty healthy there. Do you still see the potential for dilution? Number one. And the second question is on Majesco India's 75% holding right now. So one worry for shareholders is how -- the holding company discount that seems to be there. So I agree with you that the Majesco U.S. is a wonderful asset, and it will be nice to own more of them at the price that they're quoting there right now. So why not more -- why not -- why did we not buy more of it if -- I mean if the asset is so cheap and we understand it so well?

So one is, we are, obviously, limited to the extent of the cash available in our Majesco Limited book. So if you look at the total cash before the acquisition, we had around $21 million. We spent $16 million to buy the 4.7%. And we've kept the $5 million, which is still good enough for us to hold on to. I don't think we wanted to go and leverage -- to go and buy an additional. So whatever we could buy in our capacity based on available cash, we bought the 2 million shares from Nasdaq. Yes? And to the earlier question that you had is, Majesco U.S. will only require cash if it requires for a large value acquisition. And that is not something that we can determine at this point in time. The good part is that it is generating between $10 million to $12 million of cash every year, close to more than $1 million a month. And I think they -- over a period of time, they will be generating a good kind of war chest to do a good, decent acquisition. Out of the $45 million that they already have, they'll be expanding the $12 million for the InsPro acquisition, and they will still be having more than -- close to $35 million even after the acquisition. So the fact is that Majesco U.S. is generating good cash flows that allows them even to do some decent small acquisitions. Only if a big acquisitions requires additional cash, at that point in time, we will decide how to structure a deal, whether it has to be in the form of debt at Majesco U.S. or it has to be in the form of any further dilution.

[Operator Instructions] The next question is from the line of Vijay Lohia from Maxim Asset Management.

Congratulations on a good set of results. Two questions from my side. So I wanted to understand a little bit on the cloud subscription business. So we do know that it is linked to the volume of the policies written but I wanted to understand if there is a minimum subscription limit, and then it goes up or down depending upon the volume of policies written by your clients? Or how does it work? Is that the right way to think about it?

That is the exact way to think about it. It doesn't go down. So that's the good news. What it does is -- what we do is when we sign a contract, we come up with a minimum revenue commitment. We call that an MRC. So what we do is we say, in the contract, based on a certain amount of money that you're going to put on our platform, you have -- you pay us a minimum revenue commitment every month. And that's a number that's calculated against how much direct written premium that they put on the platform. And then the way the contracts work is there are tiers. So you might pay us a certain rate between $0 and $50 million of policy on the system. And then you pay us a higher rate if you go from $50 million to $100 million on the policy. So what we do is on a monthly basis, we calculate how much premium is written on the platform and whether they've broken through to a next tier where we could increase the amount of money that we've built. So at the moment, the majority of our customers are still in their first tier of minimum revenue commitment, so they won't go down. But at the moment, we're waiting for more premium to be put on the platform so they start breaking through the levels where we are able to build more money.

Great. And then the other one. Do you -- so the number of cloud customers that you are continuing to win is pretty impressive. I just wanted to understand or get a sense whether you have -- internally have any market share aspirations or the number of cloud customers that you think you can gain over the next 5 years or maybe 10 years?

Means, do I have aspirations? Yes. How well calculated the market share is? I would tell you that's a very tricky thing to do in the insurance industry. And in fact what we're finding is many other competitors are double- and triple-counting market share. So I, honestly, am not very confident when I hear my competitors talk about the numbers because we all talk about the exact same customers. So if I'm running in a Tier 1 customer and I run billing, I count that customer. And if they're running claims, they count the customer. So at the moment, my aspiration is to win at least 30% of the deals that we're participating in. I think that would be a really good goal for us. We're in probably at about 25% right now. So I'm more focused at the moment in our win rates and looking at the number of deals. But market share right now, I would tell you, one of the things that gets me most excited about this vertical is that still, I would tell you, 80% of insurance industry and direct written premium is still sitting on legacy on-premise systems. So the reason I'm excited about the business and not to the point where I'm counting the pennies on market share is the majority of insurance companies are still using legacy systems. And there's still a lot of opportunity for all of us. So I know it's not a clean answer or exactly the one you want. What I would tell you is I'm right now more focused on our win rates than I am on competitors and market share because I still think there is a great deal of white space in the marketplace.

So would it be fair to assume that your win rates will improve from here on? So -- in 2019, you did about 19 cloud customers. So would it be fair to assume that it stays at these levels or improves from here?

It will improve slightly. The -- what's interesting is the number of deals that actually happen for core systems annually hasn't really changed in the last year. So let's say, roughly 100 new core systems are put in place every year, we're winning as much as our top 2 competitors. We're winning the same number of deals. So we hope the volume of deals in the market increases and our win rate gets a little better. But we think that your numbers are pretty accurate with where we think it's going.

And if I can just push in one more. Why is the head count decreasing? So your revenues are increasing, you're expanding, you're gaining new clients. But we see the head count is going down. Is there any particular rationale? And if you can sort of give us a [indiscernible] salespeople and the outside...

No, I -- and again, it's a great question. And I've answered it most quarters because it's exactly what we talk about with our strategy. Over the last several years, the amount of on-premise services has decreased. In fact, if you look at our on-premise services year-over-year, it's down, I think, almost 20%, 25%, on-premise services. So as a result, we're seeing such an increase in our product and subscription revenue, what we've been doing over the course of the last year, and if you look at the head count quarter-over-quarter-over-quarter, we have a number of legacy on-premise businesses that have been decreasing, and we have been adjusting our overall costs in line with those businesses. So what we've seen is we've actually seen an improvement in our margin and services by doing some of the things that we've done, and we've got the number of some of the legacy businesses more aligned with the market. And that's been directly associated with some of those costs. And it's something I've talked about, I think, most quarters since I joined the company. And I think now you're really starting to see some of the effects when you look at the profit.

[Operator Instructions] The next question is from the line of Gautam Gupta from Nine Rivers Capital.

Wanted to have a sense on the operating leverage and this is carrying forward from the reply Adam gave to the previous question. So if I look at the last 5 quarters, we've just been able to keep operating costs pretty flat. And I think the biggest component of that is employees and R&D. My question was where do we see operating leverage from this level? The current operating expenses or the establishment that we have, what top line and what kind of top line growth can it support?

We are specifically not guiding for any top line numbers as of now.

Sir, I'm not asking you for guiding me on top line growth. I wanted to know your sense on operating leverage. So at what level do we really need to start expanding the establishment, add head count? Or the current operating run rate -- OpEx run rate, where could it take us? I'm not asking you to guide me on revenue, just on the operating leverage.

So just to give you specific numbers on the product R&D, we are actually running at around $4.5 million a quarter on the product R&D, okay? And I think the spend will be in the region of $4.5 million to $5 million, okay? On a running basis, okay? Linked to some of the stuff that we still need to kind of build, especially in our L&A and in our digital solutions, okay? Which means if the revenue grows faster than this particular, you will see further operating leverage in this particular area. On the G&A, it obviously has 2 components. It has an S&M and it has a G&A. The G&A is pretty much invested in the sales, so no further spend on the G&A. So the total SG&A is close to 30%, and it's roughly split around -- almost equally, 14%, 15% between S&M and G&A. We do believe that we need to invest on the S&M side, especially in the places that we believe to increase our bandwidth on the partnerships, which Adam did allude to. And in some areas that we believe we need to build -- get more reach around the cloud business in North America. On the G&A, it will remain flat. So if I have to kind of conjecture how this particular 30% will move, you will see anywhere between 100 to 150 basis point improvement each year linked to how the revenue builds up. If the revenue is faster, you may get a faster kind of operating advantage. And in quarters, it will vary based on activities that are especially linked to the sales and marketing efforts here.

Fair enough. I think that's very helpful. Second question, more of a housekeeping question in nature. The on-prem revenue, would it be possible to get a breakup between license services and support?

So -- I do give the breakup in the revenue analysis sheet. But in the professional services, which you see, which has 2 components, which has an on-prem services and it has a Majesco Consulting Services, okay? So if you look at this quarter, the total professional services is roughly 31.4%. The breakup is roughly 15.5% and 16%; 15.5% for on-prem and 16% for the Majesco Consulting Services. If you compare it with the previous quarter, I think this total professional services is close to 35%. The breakup was 17% for on-prem professional services and roughly 18% for Majesco Consulting Services, yes?

The next question is from the line of [ Deepak Dalal ] from Maybank. [Operator Instructions] Due to no response, we'll move to the next question, which is from the line of Amit Chandra from HDFC Securities.

Sir, my question is related to the on-prem, on on-prem revenue decline that you mentioned that the decline is around 20% to 25%. So this is, I think, in line with the decline we have seen for the last 4, 5 quarters. So if you can elaborate that, how the on-prem revenue is split between P&C and the L&A? And what part of the customers are seeing the highest impact? And can we see some stability there on the on-prem services because we are seeing -- we are seeing the cloud for the revenue accelerated well. But this on-prem revenues, if it stabilizes, then we'll see the acceleration and the growth at the overall level.

Yes. That's -- all of the on-premise services are P&C. So 100% of this on-premise services are P&C. And what we have been seeing is on the -- as far as the deceleration, we definitely have -- think that over the next year, we will continue to probably see a slowdown of that overall on-premise services. We think for the next year, we're still going to see some decreases in that over the next year. Many of those customers have either gone live with projects or they've -- or moving to the cloud. So we think we're still going to see some decreases over the next year. Probably maybe 10% over the next year.

Okay. And sir, on the cloud subscription revenue. So right now, on the last 4 quarters, we are doing roughly $20 million of cloud subscription revenues. And we have around 63 cloud customers. So just to get a sense that out of the 63 cloud customers, how many would be contributing to this cloud subscription? And what kind of growth we can see in the cloud subscription and how many of them are roughly -- I'm not asking for a number, but just to get a sense that how many would be above the threshold limit?

So Amit, there are customers that are there in various stages. We have broken them up into, obviously, customers that have gone into implementation and during implementation they give some very small percentage of subscription, which is called preproduction, okay? Subscription, which is a very small component. But if you look at bulk of customers who have then gone live, they start giving us the MRC. So basically, a large component of our customers are on MRC right now, okay? And there, again, we've actually consciously grouped them up into 4 buckets: Customers that we do expect high growth, moderate growth, low growth and no growth, okay? So we do believe that there are customers that will perform exceedingly well as they kind of expand their business and add more premiums on the platform, and that's where you'll see maximum growth. So if you look at the growth that we've witnessed this year, it has been on the back of multiple customers that have gone from implementation into MRC. So the MRC is now almost at -- I mean if you look at the subscription, it's at $6.1 million in this quarter. And overall, it has actually grown on a year-to-year basis by 26%, okay? Now we should end up with a much higher growth by the end of Q4 because the Q4 is likely to be also better. On going-forward basis, as Adam did mention, that as customers move out from MRC into adding more business and adopting more, that each -- that customer will give incremental subscription, okay? Plus on the back of additional new customers that we add from now until next year, we will see the overall subscription bucket increasing. I do not want to give any percentage or growth forecast, but we do expect a very good and aggressive growth in our subscription revenue next year.

The next question is from the line of Rohith Potti from Marshmallow Capital.

My question is a follow-up to the previous participant's. So just wanted to understand broadly of the total 63 customers that we have, what number is it -- is on the MRC -- is in the MRC bucket?

If you look at customers, roughly around 20 customers would be in the implementation, so they have not even got into MRC, okay? You have to assume that the rest are already on MRC, and some of them have gone, probably a couple of them would have gone into adoption. So that would be the rough number, but I don't have exact numbers to share with you right now over the top.

So excluding the implementation customers, you would say that more than 80% are on MRC and probably very little have gone to the next bucket, am I right?

No. So there are customers that have already gone into MRC's first line of business that they've adopted. But there are customers who are in MRC, but they're adopting the second line of business, okay? Because they're expanding their business. So there are customers who are giving the implementation for the second line of business, but MRC when they've already gone to the first line. So there are multiple such customers. So therefore, it's very difficult for me to give you the breakup the way you're asking.

Oh, understood. So in such a case where the customer initially came to you for one line and then he's adding another line, do you double count him or is he seen as 1 customer in your book?

No, no, we don't.

No, the way...

We don't double count him.

No double counting. The way to think about it is, I have one line of business. I'll make a simple example, homeowners insurance, and I go up and live, and I put some of that business on the platform, while I can keep selling additional homeowners insurance to put on the platform or I can go sell automotive insurance. And maybe I'll move that automotive insurance onto our platform. In either case, we would be able to increase the amount of revenue we generate from the customer. So either because their business is growing and they're writing more direct written premium of a line of business or they decide to put another line of business on the platform as well. So in many cases, while we might be in an MRC, there's multiple ways in which we can grow and break through those levels over the course of the next several years.

This right. So from 1 customer, there are 2 ways in which we can increase revenues. One, we write more premium from the line of business that we have given in software part and the second is we add newer lines of business for the same customer?

That's it. Exactly right. And obviously, once you get one line of business up and running, it's much easier to speak to that customer and convince them they should put another line of business on it. So -- and for most of these customers, they have, as you can imagine, probably 8 to 10 different lines of businesses. So this can really multiply over the coming years.

A follow-up here, again, what if the same customer -- he gives you separate geographies. Does that add additionally again on top of it or the line goes across all geographies that they're operating in?

It typically includes additional services to do some configurations related to how each state operates. So typically, the contract will be for a line, let's say, homeowners or auto insurance. Those are simple examples. But the way it works is each state has different regulations for how they do reporting and billing and other things. So typically, it doesn't really affect the product revenue. It can increase the volume, obviously, if they put on the platform, which is helpful. But there's also some services that typically go with it to do some of the configuration. So it definitely helps more states better, but there's definitely some one-time cloud services that goes with it as well.

Okay. So last question related to this from my end is, of the 63 customers, how many have you seen add additional lines to whatever you already are giving them? Do you have a broad number there?

I don't have that number.

I don't have numbers. There are quite a few of the clients which are doing that.

If you want, from last year, our, I think, Investor Day in May last year, we -- there's a page in there where we actually list how many lines of businesses for each one of the products. But we haven't updated that publicly, so I don't have that material handy.

The next question is from the line of Vijay Lohia from Maxim Asset Management.

So your cloud subscription business continues to grow at a pretty healthy clip. From -- in that context, how should we think about the consulting practice because I see that your consulting revenues are broadly flat and -- sort of over the last 2, 3 years? So what kind of linkages are there broadly in consulting practice with the incremental cloud and non-cloud business win? And how should we think about this going forward?

The consulting business has been a pretty flat business for us. But it also continues to produce good margins. So we're happy with that business, but we are very much focused on the cloud subscription business moving forward.

All right. So should the trend continue? So should we think of it as sort of the way it's been behaving over the last few years?

I mean we -- I don't think it's going to materially change. So that -- we've been pretty happy with the performance of that business.

The next question is from the line of Rahul Jain from Dolat Capital.

Just on this couple of things. Firstly, on this IT services business, which is a professional services business, what should be the strategy out here? This business has been sort of declining in the past. How much it is relevant for our existing offering? And what should be the future out here?

We think of it as a flat business. So it's been a flat business. We think that business will likely perform similarly in the future, and we believe that there's not much in opportunity associated with it.

Okay. And also, does it -- is it relevant that we count license revenue as part of our recurring revenue since we have changed the accounting methodology in Q1?

So Rahul, just to give you a clarity on that and the way we reflected also in the U.S. is recurring product revenue, okay? And it includes the license. So in my call, I also just clarified that again. The recurring product revenue includes license fees to support maintenance and the cloud subscription. So we stick with that, okay?

Okay. So when we booked a large number in Q1, I think that was related to some prior period that we used to book annually. Has that changed now?

So the booking is going to be based on how the 606 standard is, okay? In the U.S. So if you draw license fee where there is no further obligation of the software that you've delivered to the client, you book the entire term license. So if the term license is for 3 years, you book the entire 3-year license in revenue on that date, okay? Whereas when you look at it in actual fact, you are billing a customer -- billing the customer on an annual basis and recovering the money from him on an annual basis. So one of the reasons where you see our unbilled and if you see our unbilled outstanding has increased, it is to the extent of that license, it is already taken as revenue but not yet kind of billed and collected from the customer, which gets done on an annual basis. But from a nomenclature that we reflect recurring product revenue, since it's recurring because every time it uses our system, we will keep billing them. It is counted as recurring product revenue, yes?

Okay. Just to ensure that I'm getting the thoughts right. So when we say we booked INR 11-odd crores of revenue in this quarter on the license front, this includes for the entire tenure of the deal, which we might have won on the on-premise basis? Or is it only the annual part of that deal, which we have booked in this quarter?

No. We have not won any license deal in this quarter. So there is no -- the entire booking of a single license deal for us. This is actually annual license fee. This is accounted for the Q3 on a proportionate basis for the quarter. So if you look at the...

Of the past wins?

Of the past wins, yes.

So if we don't add this, this should -- if we don't add anything else now, this should remain the run rate?

Yes.

Okay. And we saw good growth in the top 5 clients, if you could share any thoughts where it came from? What are the incremental drivers for that?

So I think it has been from the top 5 clients. As you're aware that IBM is among the top 5 clients. So that does -- whatever little implementation and the subscription revenue that is there from them. There are other large clients which are giving us business. So I have not seen a major movement in the top 5 clients. But if you compare it with the last year, last year we had large revenue from MetLife IBM project and, therefore, last year the top 5 client was much higher, I think at around 28%. Now it's around 21%.

Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Great. Well, thank you, everyone. We appreciate your time today, and we appreciate all of the questions. Again, we are very excited about our results from Q3. I think they reinforce our improving execution against our strategy, and we look forward to speaking with you all soon. Thank you very much, and have a good day.

Thank you.

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