Black Box Limited (500463) Earnings Call Transcript & Summary

So ballpark the recent orders to be in the range of 20%, 25% and a little back to that. We are slightly lower over the last couple of quarters on that. So that would be in that range. So if you look from a perspective of overall $1 billion, we expect over $200 million, somewhere in that range to be in that range, right? With respect to our project time lines in general, depending when we book the projects, our average project time lines are between 6 to 9 months' time. So we will carry forward and we said we want to book that a significant amount of uptick with respect to our backlogs going forward. 80% of our business is outside of the data center. It includes networking, good infrastructure model work. This also includes our technology products. That's a Black Box product business.

And what is the size of orders you mentioned as an incremental order?

The size of orders, I think we are focused, as we told before for the last 2, 3 quarters, we have been saying that we have been pivoting from Black Box of a very long list of customers over a couple of thousand to focus customer focused on larger deals because we believe that, that's where our focus would be. We are seeing that the contribution in our quarterly order booking pertaining to larger deals, over $1 million, over $5 million is much more. And as we move forward, we expect that to -- it will go better this worth $10 million or more, $20 million more. So that's where the focus has been over the last several quarters, and we are at the right spot at this time to make a win across data centers, across infrastructure, across the airports, health care and all the verticals that we operate. That's where we have been focused on a long-term larger deal, multiyear annuity. So these are focus areas. And that's where we see our company heading towards.

[Operator Instructions] Our next question is from the line of Jatin Deshpande from PKD Advisors.

Can you hear me?

Yes, sir. You're audible.

Yes.

So my first question was that the data center industry is going through a boom in the U.S. The numbers aren't rising as fast. And so what is the reason for that? And also, last call, you mentioned that the marginal decrease in revenue was one of the reasons was that due to the [indiscernible] of your client base? So is there any specific reason why you need to remove the long-tail clients before you add new larger clients to ensure that the revenue doesn't drop? And also, I'm assuming that tariffs have only come recently. So that is not the reason.

So we'll answer the first part and [indiscernible] to Deepak. So I think so the data center, of course, you see a lot of announcements in the data center between the announcements of data center, the time it goes online project with a huge lag, right? So I think if you see an announcement of data center for 2 gigawatts from the announcement to the removal of the [indiscernible] by the time we have to -- we get to do our work, there is a lag out there. In the last 6 months or so, almost 6, 9 months or so, we have reorganized our focus on the data center. We had 1 large hyperscaler client, which we did not produce enough in the last 6, 9 months. That [indiscernible] we are sitting at a very large pipeline and win rate coming forward from that client. But more importantly, we are now -- have won and gotten into other large, global multi-location colo provider. We're also in active engagement. So the pipeline from a win ratio perspective, the relationship from that perspective with other hyperscalers and colo supervisors are much better. The closing of a deal for a hyperscaler for the world that we do is a long lead time unless you get to use it for a long period of time as a partner. There's also a dynamics with respect to line hyperscaler as working collaboration with large deal contractors, end customer visit hyperscaler and multi-vendor approach, right? So we will make it a little complex. So there is a lead time and lag time from when we start off engaging for larger projects for the time we get to contracting and by the time we start delivering the of -- from the order book. So that's -- there is a time lag. So where we stand today from our B2C pipeline conversion, the line of sight is much better. And therefore, I said, we expect sent continuous movement both in order book and revenue going forward. So that's one. The second question, I heard [indiscernible] talk about margin. I didn't get the question exactly, but maybe, Deepak.

Yes. Yes. So I can take that. So on the long-tail customers, we have already informed everybody that our -- we deal primarily with the large Fortune 500 clients. And in every vertical, what we have announced, we want to deal with the top let's say, 100, 200 customers. And that's where I think the biggest penetration is. We used to have more than 2,000 customers 2 years back on a long tail side of it where the value of the deal, the engagement with the customer is a onetime engagement in the year or 2x or the value of the deal is between $10,000 to $50,000 and all those things. The cost to deliver that customer was extremely high in terms of the overheads, while the gross margin may look okay. But then the SG&A will be higher to deliver that. And that is why we took a conscious call to reduce our long-tail customers. So that exercise is going on. You would have -- we will continue to see that now we have less than 1,000 customers, in fact, on that long tail thing because you cannot suddenly reduce everything, but we are doing a consistent effort to do that. And that's where I think the -- because last year, total impact was between $16 million to $17 million of that on the revenue. This year, we are not expecting that, that much of impact. This year, the total impact we are expecting in the range of primarily $6 million to $7 million, which is already built in what the guidance we have given that is already built in, in that. With that, I think our streamlining on the long-tail orders will be over, let's say, on a consistent basis in the current fiscal year?

Got it. Got it. That was helpful. And sir, can you help me understand your customer on the data center side? So do you directly deal with, let's say, for example, Meta? Or are you dealing with their vendors? Like, do you have any preferred vendor position with any of them?

We are -- yes, that's a good question. So we are -- we deal directly with Meta both from a contracting perspective and from a net perspective. We also deal with Meta's large vendors, mostly master contractors in some cases. So Meta already has a hyperscaler for the matter. Utilizes both channels, the money side, the contract directly, the many work that the contract is we're putting up gas network divide contradict in. So some sites, considering the nature of the site, the way they have contracted, the master contractor could be a [indiscernible] would be a lockup in a pretty much was built like an airport or a the railway system, right? I mean, you might give it to Siemens or somebody else, and they become the master contractor. So they utilize both. So we have relationships with their master contractors that work with -- so these are multibillion-dollar large master contractors. We also have to work directly, irrespective of the contract sometimes with the master contractor because that's what we prefer. But the design element, the discussion element is more like a tripartite moving with all because each is interconnected. So to answer to your question, we have both kinds of contracts directly living to Meta in certain sites, in certain geographies. For example, we do a large work for them in Europe, we contract directly in some sites in America, we contract directly, we also contract them directly that to what their preference is.

Got it. Got it. And sir, you have guided for a significant inorganic growth through FY '29. So do you have any plan on how you're going to fund this? Like are your internal accruals? Or do you plan to raise any debt or...

So I will give it to Deepak.

Yes. So for the organic growth as such because for the organic growth, we require just a working capital, that working capital, we have the off-balance sheet facilities, and I think we should be able to fund it through our internal accruals and all those things. For the inorganic activities, we may have to raise the debt depending on the situation and all those things because normally, our philosophy on the inorganic acquisition is that, that we continue to look for suboptimal or subpar performance type of companies, which we can get at the lower price where we put our capability to transform those businesses. And then we do type of structure in terms of deferred consideration and pay upfront, something and all those things. So right now, we are not envisaging that we will be enhancing the debt of [indiscernible]. But if we find some good asset, which is a large size or something and if we need to take that in terms of achieving our targets, and we feel that, that offset is a transformable and we can transform it quickly and all those things, probably it all depends on the situation on the inorganic growth, how that evolves and everything.

[Operator Instructions] Our next question is from the line of Sukrit B. from iSight Finite Private Limited.

And my question is to Mr. Sanjeev Verma. In the last con call, I believe you had emphasized a shift from stabilization to growth, targeting approximately $2 billion revenue by FY '29. So just an extension to that question. As Black Box transitions from stabilization to growth, how are you thinking about evolving your engagement model from a -- with hyperscalers and large enterprises from being a systems integrator to a strategic core innovator in areas like AI, infra, edge computing or sovereign cloud? And are there plans to co-develop IP or enter joint GTM partnerships that could deepen wallet share and create annuity-like revenue stream for the company?

Yes. So the first part of the question is we are focused on moving from stability to hyper growth going forward. And we are on the right path to be able to do that. We called out earlier, we expect our coming quarters to gain velocity and momentum both in order book and revenues going forward. Specifically, coming to hyperscalers or -- so the world of hyperscaler is broken into 2 distinctive parts. One, of course, hyperscaler that built their own projects largely at the core, largely to build large mega infrastructures. And then, of course, there are various multi-tenant colo providers which also build and support these hyperscalers largely at the edge, right, which we built in the cities, they build various sites for them on the likes of QTS or CyrusOne or others in that space also partner. In fact, if you look at India, many of the colo providers now are actually a wholesale provider to Google and AWS. The model that they started earlier are different, right? So now the consumption happens. So coming back to your question. From a transactional provider to a strategic one, that's exactly what we are doing at this time, engaging with the hyperscalers that we have, starting from building the core infrastructure with the connectivity and networking. We're also doing some other work pertaining to that infrastructure and value infrastructure. The larger the hyperscaler, the buy differently. We don't expect to be selling compute to them. We actually don't buy compute from anybody. They're starting to build their own compute. So we -- so that's one side. From a long-term partnership perspective, we do provide what we call data support, which is it in nature. So once the work is done, the work is never finished. So we need to support the work that you do, then there always some move back changes going on. So when we -- 10% of our workforce -- somewhere around 10%, 15% will continue to remain to support the way to support, and there is to be able to do that longer term. When we come down to some of their partners, which is colocation providers, multi-tenant, the ability to do with them is a little bit more because they do a small format. So we went to work with GTS and we'll work with little realty or we could go up the value chain from where the earlier on there, too, and we are also forming partnership with them over the last several quarters with the investment that we have made in the talent that we have brought in quality, safety, project controls, high-level [indiscernible], our engagement now both with hyperscalers outside of our single largest client that we have is not easy and our current engagements is across various multi tenant various hyperscalers both from a pipeline perspective, and we expect to be able to become their core-strategic partner. We'll do a project that lasts for 1, 2, 3 years' time. You cannot be a connection [indiscernible] vendor. [indiscernible] is also working with building of these providers in more than one country, and we have done to expand. For example, we're focused now in Europe in some markets, especially in Spain, U.K. and other areas. Is it the back of a relationship. In summary, we are looking forward to long-term relationship. That's the reason why we are focused on larger and similarly, we have been giving it larger enterprises as well, similar nature. So therefore, we've decided not to be able to [indiscernible] everybody here. That's the reason why we're moving out of the long tail. And most of our engagements are now focused on long-term contracts, either projects, or long-term multiyear annuity contracts that we do for several creating infrastructure like the airport. We support some of the largest airports in the U.S. So that's the initiative.

Great. That was good insight. Just on an ending note, I just want to understand from you, as a CEO of a company, how do you decide where to focus between U.S. hyperscalers and India's digital infra? What is the framework behind those choices from your point of view?

So from a size perspective, as I said told before, we have -- we focus on where we believe we will get better yield from the effort that we put besides the market for the U.S. is much larger. Of course, India is a growth country. So we have also pivoted to look at India as a growth market for us at this time, but it still remains a small portion of the overall business. So we're looking at putting our resources where we believe that we can get volume, and we can also get value. So America can provide value and volume growth. India, of course, has volume coming in. So we are currently engaged with India for larger projects. We recently received and partly delivered a very large server security project. There is going to be a lot of data center as well. Many of them are currently in the conceptualizing stage. They're announcing the project like Google announces $1 billion. They're announcing the projects coming through is a long lead time. But India has a [indiscernible] value. That is a cost-plus company. So we begin causes, how to make our gas work better, how to make our capital also work better, right? And what yield can we get from that perspective. So as a CEO of a company, we said we are looking to drive hyper growth, but we're looking to drive hyper growth margin as well. And India, of course, remains very core to our business, both from growth perspective, but also from a delivery perspective. As you know, we're using India for our global capability center in Bangalore. So it will remain a key aspect of our overall success, both from a local business, which we are cautious about because we do not want to [ repeat ] our margins, but also from a delivery and skill standpoint that we utilize in India, we have 500 people supporting our global operations. We expect that to grow of [indiscernible] business

Okay. As the current participant does not responding, we have the next participant, Vivek Sharara, an individual investor.

So Sanjeev, our Q4 order booking -- our Q4 order booking was in the range of $200 million, if I'm not incorrect, before FY '25. And Q1, that has actually gone down from $200 million to $176 million. So can you just please explain why we're still confident of putting orders to the tune of $1 billion in the 12 months trailing? I mean our order booking has, in fact, gone down. So I'm not able to square the 2. And the second part of my question is we are almost through the first half of the second quarter. How has order booking been because I think growth is what is all in the company. I mean we've done tremendously well on the margin front. It's the growth part which I need a bit more color on.

Yes. So I think I'll first accept your question with respect to growth, and that's that sort of focus is. And with respect to our confidence, this is full casting away and looking at closing an absolute number of $1 billion starting at $175 million and $176 million that we were this quarter. We are staring at large bookings coming up that we expect to close in Q2, Q3 and Q4. Many of the engagements currently from a large ticket perspective, which is over $10 million, $20 million, somewhere to $50 million in the works. And that constitute today our pipeline. And the pipeline, if you go back 12 months' time, of course, we did report a breakover pipeline. It still remains $1.6 billion or something in that range. Was what made up of lots of smaller deals as well. We have cleaned that up with respect to what we believe we should be focused on. In summary, to answer where we stand today, I expect the service to have at least [ 50 ] of growth in revenue sequentially going forward. We expect some of the quarters to be very larger from a perspective, it will in fall in within a large hyperscale deal that we expect to win going forward. Considering [indiscernible] of $175 million to $150 million deal for projects that last for 9 months, 12 months or 24 months. Since [indiscernible] win rate much larger from a percentage perspective. So when I look at absolute volume perspective as to where we are and take the view of the next 9 months, considering we are 1.5 months down in this quarter, we are confident of where we will be in bookings this quarter, and therefore, the revenue coming at the back and going forward. Also, what I see in Q3 and Q4 with respect to the world that has happened of how many engagements are on the table discussions going on with respect to our contracting. That gives us a positive outlook that we would be able to deliver on and about $1 billion worth of absolute booking. And if you do that, we expect that we should be able to open the backlog, which is now at $520 million range. The expectation is that we open backlog with just $700-odd million going forward to set the tone for fiscal '27.

I have a second question. Since we've reorganized the GTM team and with [indiscernible] as the Chief Revenue Office, can you speak qualitatively as to what impact you've seen on [indiscernible]? I mean, we've talked about margin and stuff. But I just wanted you to speak to -- I mean, as a company, you've been the CEO for a long time. Can you speak qualitatively as to what difference you're seeing on the ground as far as deal engagement and the win distance. And are you seeing a considerable difference if we were bidding for $100 million worth of orders, is the win rate doubling? I mean, because everything now hinges on us delivering both.

Yes. No, very good question. So I'll just add up. So we do have the [indiscernible] Chief Revenue Officer for North America. We also added -- I don't know if you probably -- with respect to the [indiscernible] wire came over 2 months back to that data center, which is an adjusted business, which is outside of Jeff's span of control. So it's very focused data centers. We have 2. So coming back to your question, the answer is yes. They're anchored with the exposes experience and its team members, which also have come from, which is our vertical heads. There's a dramatic shift with respect to our engagement, quality of engagements. Let me call out, for example, we are -- if you look at consumer and public sector, which is [indiscernible], I think we are currently engaged with very many airports. We had Miami [indiscernible], if you remember, as one of our largest customers, which is we are currently contracting to renew for several years. But we have [indiscernible] going on with some other large airport infrastructure, many airport infrastructures are getting refreshed. As you know, in America, most of them are treating infrastructure not because they don't want to spend, that were possibly made 30, 40 years ago. So we are engaged with them for quality and engagement perspective of volume. Also, from our existing customers to a single credit, we are selling networking in one customer, possibly a workplace and some other customer. So multisided horizontal approval that we have taken connectivity, networking, workplace, cyber. We are seeing multi-horizontal therefore, in share of wallet in some of the existing customers. an some of the new customers. Many of these vertical heads, including the CRO numbers come with deep experience, relationship and creating new solutions that we can do. So we are now engaged with very many managed services long-term contracts that we've never had before. Now this takes time. It has to come to a certain tenure and [indiscernible]. So qualitatively and quantitatively, the engagement quality. As we speak, we are hosting in Raleigh very many CIOs from health care, we recently concluded a customer advisory council in Florida that attended Deepak as well with me, where we came out with very good engagements leading to over $100 million worth of active customer pipeline. I'm not saying we'll win all of $100 million, but we'll surely make $20 million to $30 million worth of engagement from top customers, including large pharma, large life sciences. We intend to do very many more customer advisory councils that we are doing now, where we [indiscernible] customers. As we speak, so [indiscernible] heading to the West Coast with respect to our data center, similar format. So with the engagement quality, conversation with our customers, using multi horizontals over the last 6, 9, 12 months' time has dramatically improved. This take time to build. As we're speaking and looking forward in the next 7.5 months that we have, that's where we're seeing a what do we expect in quarter 2 as we called out earlier to better significantly. And also some of these engagements to turn in October, November, December going forward. So yes, a good change in conversations, quality of engagements, multi country, global engagements. Reimagining the Black Box paradigm inside our existing customers. They have a recall of a certain kind. We had a very good -- of customers, as you know. But they have a recall of a certain kind that we do network or we do connectivity infrastructure, the total store taking go to market horizontal solutions making a bit to that. I think we are at a better place than what I would say we were about 2, 3 quarters back.

Just one last question. Sanjeev, for FY '26 Deepak in his initial remarks, I had sort of alluded to the margin guidance. Our lower end of the top line guidance will need us to deliver almost 1,700 quarters, INR 1,700 crores per quarter. Should we start to see at least 10% to 15% growth from Q2 onwards and then that accelerating as we move into Q3 and Q4? I mean, so far, we -- I mean, I'm sure you can see that we need to start walking the talk. So should we start to expect quarter-on-quarter growth on the top line from Q2 and then that accelerating as we move into Q3 and Q4 because we are at INR 1,400 crores. Are asked for the next 3 quarters is close to INR 1,700 crores. If you are to meet the lower end of the top line guidance.

Yes. So I think as I said before, the statements, we expect to move forward in the quarter with a minimum of 15% [indiscernible] [ 20 ] or beyond to hit that number. We expect that we need to start moving in that direction starting quarter 2. And as rightly said, to take it from there, we keep the momentum 15-odd-percent or more, we're able to catch up the -- I think we are currently intending and cover to track starting in quarter 2.

Our next question is from Nandan Manatial from JM Financial Limited.

Am I audible?

Yes, sir, you are audible.

So I was -- I just wanted to get some clarity on the exceptional items that have been reported in this quarter. What will be the trajectory of these exceptional items going forward?

So on the exceptional items, because we are doing some restructuring, continue to do some restructuring and all those things, we are expecting exceptional items in the range of around INR 40 crores to INR 50 crores for the whole year. That's what we have given the earlier guidance also last time on our earnings call.

Okay. On a sustainable basis, what do you expect this -- when would they stop?

I think this year, it should be the last unless otherwise something more comes up depending on the economic situation of the macroeconomic situation, something else comes up. But otherwise, this year should be the last for this broader thing. And I don't expect that this should go to FY '27 or something in a larger way.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments. Over to you, sir.

I would like to thank everyone for joining the call. I hope we have been able to address all your queries on this call. For any further information, kindly get in touch with Purvesh Parekh, our Head of Investor Relations, our Strategic Growth Advisors, our Investor Relations advisers. Thank you so much.

Thank you.

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