IRIS RegTech Solutions Limited (540735) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the IRIS Business Services H1 FY '21 Earning Conference Call. We have with us today on the call Mr. S. Swaminathan, Whole-Time Director and CEO; Ms. Deepta Rangarajan, Whole-Time Director; Mr. Balachandran Krishnan, Whole-Time Director and CFO. [Operator Instructions] I would now like to hand the conference over to Mr. Swaminathan for his opening remarks. Thank you. And over to you, sir.

Thank you. Thank you for the introduction. I welcome you for this half yearly conference call today. Just as a matter of housekeeping. The platform that we use actually does not support the simultaneous presentation. We have filed the presentation with the Bombay Stock Exchange website. So if you would like to download that and follow that when we make the -- that when we go to the opening remarks, that may be very useful. So if you go to the BSE website and look for IRIS, you will see the presentation that we have uploaded today, which is the basic presentation. It's been a very interesting half year for us. We've tried to build on what we did the previous year. And traditionally, our first half is always not as good as second half, and you will see it in the numbers itself, though we managed to -- thanks to a significant surge in our SaaS revenues, we managed to improve our revenue percentage from last year. We are still EBITDA positive, but definitely incurred losses for the last half year. And to take you through a detailed numbers and take you through the whole thing, I presume that you have the time to download the presentation, will give you the extra 2 minutes while Balu get ready to take it to the numbers in some detail. Happy to take any questions on thereafter. Over to you, Balu.

Thank you, Swaminathan. Welcome, everyone, for this investor call. My name is Balachandran. I'm the CFO of this company. I could wait for a minute, maybe till you download the investor presentation and then we could start. It's a brief presentation, and it will give you the highlights of how we have done the previous 6 months. So I just wait for 20, 30 seconds, then we can start.

Excuse me, members of the management, we are unable to hear you.

Okay. So we can start now. I was waiting for people to maybe download the presentation and have it with them as we go through the highlights of the current half's performance of IRIS Business Services. Okay, let's start. Swaminathan, the CEO, has already given you a small overview of where we stand today. I will try to spend a little more time on the financial performance side of the presentation. Let me start by saying that we have mentioned this in the past as well, that our businesses to some extent is seasonal. We have more revenues coming in the second half, primarily because some of the mandates are skewed towards the second half of the year. And plus, regulators open the purse strings a little more in the second half of the year. So this holds true for this reporting period as well. But the other very important point is at this reporting period, a goal pretty much the impact from the pandemic breakout, which we mentioned when we had the conference call in June saying that there could be some short-term issues because of the pandemic breakout. And this could impact some of the regulatory business since it is basically difficult for regulators to be in the office and do certain activity which is linked to both revenue recognition as well as new orders. So that has happened to some extent. I'll maybe elaborate a little more as we go forward. Let me go to the numbers per se. I have given 2 slides, which is the consolidated numbers for both income statement and balance sheet. And the consolidated numbers, to give you the true picture, because some of the billings in Singapore and the U.S., we accrue that through our subsidiaries in those respective countries. So the numbers you look at is the consolidated numbers. So if you look at the consolidated figures, you will see that our top line has been -- top line growth has been quite modest at 2%. But this is pretty much due to a slowdown in revenues from our regulatory customer segment that we call as our Collect segment. Having said that, we have been able to arrest our expenses to some extent with a result that our EBITDA for the reporting 6-month period is it about INR 2.57 crores, a decline of slightly -- slightly more than 10% when compared to the corresponding period. My sense is that this decline is temporary and can be attributed to a postponement of revenues, primarily from the Collect segment. Now if you look at the segment wise revenues, you will see that the Collect segment has dropped by about 18%, while -- the important point is while the highlight is that we have significantly increased our revenues from our SaaS platform, and we saw our revenues from the Enterprise segment of the market. And this one we also call our Create segment. Actually, the Create segment grew by a significant 33% compared to the corresponding period. Even sequentially, it grew by 12%, if you look at the current period ending in March 2020. So let me move to the balance sheet. You will notice that our debt is steadily coming down as we continue to repay our term loan. Having said that, we have availed the moratorium, which we mentioned in our June call as well. So the repayment installments have been deferred from March to August 2020, in line with the RBI relaxations. Still, there has been a small reduction on the total debt. On the receivable side, there is a drop by about INR 3 crores, as we focused on improving our liquidity. And the same focus has helped us to increase our net cash flow during the reporting 6 months, which is now at about INR 5.6-odd crores compared to about INR 1.6 crores for the previous 6-month period. So our focus has been to make sure that in this extraordinary period that we are going through, that it is -- make sure that liquidity wise, we are okay, and then we'll build the business as things improve. In the reporting period, of course, we have also reduced the payables. We have been kind to our vendors, and we reduced the payables to -- by as much as 50%. Now let me look at the revenues more closely. You'll find that the share of recurring revenue has gone up quite sharply. In fact, there's a 23% growth in recurring revenues compared to the corresponding period. Recurring revenues accounted for us with a 77% of the revenue for this half, increasing substantially over the previous period. That might reduce a little bit going forward because the Collect segment will kick in. And one part of Collect segment is, of course, implementation of revenues. And that growth of 77% could come down. But the important thing is that there's growth in the SaaS business, and that is helping us to increase the recurring revenue portion of the overall pie. And a bulk of this recurring revenue has obviously come from the Create segment. Of course, there is one part of recurring revenue also going from the Collect segment as well because we maintain, we manage the platforms for regulators. But the Create segment is the main contributor to our recuring revenue. Overall, the Create segment contributed as much as 50% of the revenues for the first half, which is quite an improvement compared to the previous or corresponding halves. And within the Create segment, if you look at, you'll see IRIS Carbon which is our flagship SaaS platform for enterprise reporting, has grown quite substantially. And we have been aided by increased revenues from our existing U.K. mandate, U.K. market, what we call the HMRC mandate. Plus, we have made an inroad to the European market where there is an mandate called the ESEF, European Single Financial Reporting mandate in XBRL where we have made many inroads. And we have started accruing revenue, albeit on a small -- albeit at a small number, but this is poised very interestingly as well. The other important segment -- product line in the Create segment is the GST suite of applications, where the adoption of the e-invoicing mandate has helped us to increase the revenues as well. This e-invoicing mandate is actually unfolding as we speak. It started on October 1. Of course, we did some onboarding of customers in September, that's why there has been some contribution of the GST revenues in first half from the e-invoicing segment, but this should accelerate in the second half of the year. Now let me move to the expenses part. Nothing very earthshaking report here, except that we have been very prudent and as usual, we have contained our costs. Employee expenses have moved up little bit at 13 percentage compared to the corresponding period. That is partly because we have invested in our marketing -- and sales and marketing resources as we focus more on SaaS revenues from overseas markets. The -- obviously, similar to many other companies, our overheads, which includes rent, electricity and travel, have reduced in this half. And overall, I think we have grown our expenses about -- by 7%. Our amortization also remains pretty much steady. As far as order book is concerned, we feel the order book as a number might not be that important going forward because the SaaS revenue is really going up and that will dominate the revenue pie in the years to come. Having said that, we have slightly improved our order book by about INR 2 crores compared to what we were at -- in March 2020. And this is quite remarkable given that there's a sluggish regulatory segment that we need to -- we had to confront in the last 6 months. And we have to -- and of course, we got some revenue accruals from the Collect segment as well, and we have not got any new orders in the past 6 months yet because people were not really entertaining RFP process regulators as the pandemic was raging on. So this is where we are. This a quick update on our financial performance, and I can give back the phone to the moderator.

[Operator Instructions] The first question is from the line of Sunil Binani, individual investor.

Yes. I'm an independent analyst. I was going through your 2019-2020 annual report, and I came across an item where you said that you have more than 1,200 customers. That's a great thing. Congratulations on that. My question is, how do you -- your revenue last year was INR 49 crores. And at 1,200 customers works out to a ticket size of around 4 lakhs per customer. Now in the Collect business, you have your regulatory clients. So can you -- I mean can you throw some light on the number of customers you serve on the revenue per customer? And what are the top customers?

Sure. Swaminathan here. So when you look at the numbers on the aggregate, very often, a lot of things get lost in aggregation. This is almost like head in the oven, foot in the freezer on balance sheet okay kind of situation. So when you look at our segments, I look at say, for example, Create segment, which is where we provide solutions to enterprises for filing with the regulator. On the ROC side, the ticket size can be as small as INR 10,000 per customer. When you look at ROC filings in India, that's the kind of pricing that's there for the lowest end of the customers. And then there are high-end customers who pay a lot more. When you look at ROC filings in the U.K., it's closer to about GBP 150 to GBP 200. When you look at ROC filings in South Africa, it's roughly in the same range. When you look at ROC filings in other markets, it's again roughly in the same range. So GBP 150 to GBP 200 will again come down to between INR 10,000, INR 15,000 per customer literally. And that brings -- that increases the number our customers, and there's many, many more things one can sell to those customers, but the per ticket size is very, very small. When it comes to GST filings, it's a lot more because it is linked to the volume of transactions of the companies, the volume of invoices, and so on and so forth. Therefore, the per customer realization will be much, much greater. When it comes to BSE filing, well, they currently use a free tool for the market. When it comes to U.S. SEC filings, the ticket size are much bigger. The values -- it's again negotiated. They are fixed prices, but then people do negotiate. When it comes to Europe as well, the price is much, much higher. But I think what brings it down, so the preponderance of ROC filing customers is what brings the per unit cost down. But having said that, that's the nature of the business. So we actually believe that selling additional products to these people will increase the share of each customer in the total revenues, and that's exactly what we are moving towards. So when you look at the suite of products that we actually have, are there ROC customers we can sell our GST solution to? Are there GST customers who we sell our ROC solutions to? That's the way we're actually approaching it. So our whole approach is to sell adjacent solutions, adjacent products to the same customer to increase our revenue. And that's something that we will be successful at going forward. In the case of Collect, which is basically the enterprise where we basically sell our solutions to the regulator, the -- it's -- the ticket size is much, much bigger. So it could be as high as $300,000 to $500,000 very easily per customer. But what brings the whole thing down in terms of the 1,200 companies you talk about is large number of companies, small ticket items.

[Operator Instructions] The next question is from the line of Narendra Negandhi from Beehive Capital.

I have one -- I'm just looking for some progression. When are we coming to the positive? That's one. And second thing, I had asked a question last time, but I was not responded, was that the PBT was INR 5.35 crores, and still we ended up paying tax to the extent of INR 24 lakhs. Why was it so?

I will answer your question, Swaminathan here. And -- so to answer your question, when will we turn positive. I think if you see the numbers as of even last year's annual report, we did turn positive last year. The nature of our business is like this, ROC filings happen once a year, GST filings happen every month. Your ROC filing in every country happens just once a year. So there's a seasonality to our revenues, which basically means that our first half is certainly on the lower side year after year after year. So that's how it will be. And unless we increase the number of customers we actually serve or unless we increase the diversity of the customers that we serve in terms of having different calendar years and having using the same solution for different applications, this will remain. We're trying to change that. We've had some modest success, which is how we grew our revenues this past year. But as far as -- on a year-to-year basis, if you take a look at our last year's numbers, we did turn positive already. And to the second question, I will pass it on for Balu.

One more, one more. Just to question a counter question. If we knew about -- I'm sorry to intervene.

Yes.

If we knew about the COVID since March, okay, and we knew that things are not going so well, why is it that we ended up with the marketing expenses?

The question was not audible. Can you just repeat the question, please?

Sorry. I'll repeat it. See, while answering the first question, we were told -- rather during the presentation that the marketing expenses we have added some resources in marketing, correct? Now why was it so when we knew about the COVID and the consequent lockdown? So that is what has increased the salary expenses, the employee benefit expenses and that is what has led to the negative.

Sir, it's a chicken and egg situation. If I don't add marketing people, if I don't add sales people, I will do much worse off than otherwise, number one. That's something very important to bear in mind. The bulk of the growth in revenues that happened in the last 6 months have happened from selling our solutions in Europe. We don't have people on the ground in Europe. We need to hire people here to be able to call those people in Europe to get some business. At the end of the day, the reason any shareholder comes into our company is because of the growth of the company on account of sales. And the only way to grow sales is by getting more and more people to help, contact more and more companies to grow it. We did not add people who are not productive. We added people who brought in revenues into the company. And that's the reason why we would even report the growth that we reported. But for having those people on the ground, our SaaS revenue would not have gone up. But for bringing those people into the company, our revenues would not have increased by 2% that it did. So I think without these marketing and sales people, which I think is extremely important, every company that we admire in the world are companies that do well in sales and marketing. And for us, the focus is on growth in revenues and growth in profitable revenues. And growth in profitable revenues requires people on the ground or people who can actually pick up the phone and call people and add more customers. We also added people for the e-invoicing mandate for GST, where we've had some significant success in terms of bringing in new customers. I think at the end of the day, the salespeople speak for themselves in terms of the performance we have actually delivered once they handled full volumes.

Sir, on your second question, I would revert separately. I don't have the answer right now. I remember there was a technical issue. And I remember this question and we had collected the answer as well. But right now, I don't have it, and I'll definitely revert.

Fine, fine. No problem. I can wait. I can -- can I get it on e-mail then? Can I get it on the e-mail?

Feel free to e-mail.

[Operator Instructions] The next question is from the line of Tirubaj Kishor, individual investor.

I'm an individual investor. And congratulations, sir, on a good set of numbers. I have just -- I think I had attended the AGM and the previous con call post-March results. So I just wanted to see that how has COVID impacted going forward over the next 1 year? So is it going to impact our business in the second half of this year and the early half of next year? And which -- sorry...

Thank you for the questions. COVID has impacted badly. I think it's a challenge to even stand in one place in terms of this COVID. So let me explain to you how it's happened. When you look at the Collect segment of our business, RFPs have dried up completely. No regulator is currently preparing to implement a new disclosure platform. We've had no business from any new regulator in the last 6 months. And no regulator anywhere in the world issued fresh RFPs for bringing in -- for creating a new disclosure platform. How are we coping? We are trying to move as many of them as possible into a SaaS model by basically telling them don't pay any money upfront, but basically pay us over a 10-year period. So like the -- what we've done in the case of Mauritius, where we get paid on a per filing basis, where the Mauritius regulator had to pay nothing upfront, we are now approaching countries in different parts of the world basically saying, how would you like to work with us where we take a platform, you take our platform, don't pay anything upfront, but pay us on a software rental basis. That's one approach we're actually taking. As far as the second business concern is concerned, Create basis concerned, there are 2 ways which are actually affecting us. So the European regulator had announced an IXBRL mandate that were supposed to be effective from 1st of January 2021. Now the European Parliament is currently seized of a new law postponing that mandate or giving the flexibility to individual countries to postpone the mandate. So the big issue here is acquiring new customers. So acquiring new customers has been difficult. It's not been very easy at all. Even before this mandate postponement discussion happened, we've actually -- have been struggling to get people because we're not able to go to Europe and talk to companies. And ultimately, you need to be there physically in front of a customer very often to be able to give them the satisfaction which we deliver because compliance is such a sensitive subject and compliance is something where you need to give them assurance. Fortunately, my colleagues have done some really good groundwork in the period before COVID. In fact, one of my colleagues just left, one of the last people to leave Europe to come back to India just before the flights got suspended. And her hard work that she put in the 3, 4 months preceding that ultimately ensured that we are -- we've got a reasonable set of companies coming and signing with us. What my colleague has also done is recruit somebody in Barcelona. So we have one local person in Europe who's helping us acquire new customers. But I think the acquisition of new customers have been very, very slow and very, very painful. It's something that we need to do, and it's something we're trying to do. So I think COVID has affected in terms of acquiring new customers in this area and also our inability to travel. And that's -- I hope I answered your question?

Okay. And so for the next 1, 1.5 years, do we feel like our revenues getting a bit tapered down or degrowing a bit? Or is it going to be at the same level given that our existing customers will still stick around, but the new accounts might not be coming through as such?

I think a very good question. There are 2 parts to the answer. One is we are going to sit on the backside and wait for things to happen. We're actually trying to see whether we can open up new markets, we're trying to see whether if we can open up new customers. Even in Europe with the mandate getting postponed, we're still in touch with companies, we're still in touch with countries trying to figure out where it gets postponed, where it does not get postponed. So I think Germany will probably not get postponed. Let me do one thing. In terms of the European mandate, what the current status is, I'll have my colleague, Deepta come and share with you her view what's happening in Europe. Europe was extremely important part in our [Technical Difficulty]

This is Deepta speaking. So just to add to what Swaminathan already said. [indiscernible] There is a move to postpone it, and it's kind of pending parliament approval. Different countries are making decisions differently. So some that have already enacted in their individual countries laws are deciding to go ahead and roll out with the mandate. Also, even if there is a postponement, companies still have the option to voluntarily transition to this new reporting format, XBRL, because anyway, they will have to do it a year down the road. So many companies that we are in touch with, our sales engine is in touch with, they are saying that even if there is a postponement, we just decided we are too far down in the process and we want to proceed. We don't want to halt this now. So those kinds of things are happening as well as far as the European opportunity is concerned.

And to specifically answer your question about revenue progress for the going forward. Well, I think you said which is the order book for the current year. And it's our attempt to ensure that as much of the order book is executed. Something that are not in the hands, especially when our clients will come back to the respective offices to give a sign off to be able to book the revenues. We have a very conservative way of booking our revenues. And it's almost like it is a joke that's told about a couple of newspapers in India, saying they don't write an obituary without checking with the person. So we're most like that. So we are very conservative when it comes to booking our revenues because we believe that's the only way to do it. So we have every hope and every confidence that we should be able to maintain the number we've actually given so far. We're not in business-making, forward-looking statements subject to our sharing of information on the order book, which we have done.

Sir, follow-up question on that. So from that, I think in our previous call, I think you had mentioned that there is a project that we are doing with the RBI in collaboration with TCS. So is that something we have already delivered and there's some traction on that front? Or is it still in the second half of the year?

That is a fixed price project, where, as we complete, we recognize revenues. As I mentioned to you, our conservative approach meant that we could not take credit for all the revenues we could have booked otherwise. And I believe that as we complete more and more and more, we will be able book further revenue. But it's a fixed price project, where by doing more work, we don't get paid more. It's already factored into the numbers, into the order book that we actually talked about. So there's no additionality on the account of that beyond what we mentioned in the order book. It's already there in the order book.

[Operator Instructions] The next question is from the line of Sunil Binani, individual investor.

Yes. I have again one question, and this is based on your 2019-2020 annual report. Last year, the total debt was INR 8.7 crore, that's long-term and short-term debt. On which, you paid an interest of INR 1.3 crores. That works out to a 15% rate of interest, which seems a little bit high. Any steps by the company to renegotiate the rates? That was my first question. The second question is, out of the total turnover of INR 49 crores, debtors were INR 16.4 crore, and they could not pay you because of COVID. Now what was the current state of the debtors? And what are the current debtors as compared to the sales in the current 6 months? Can you throw some light on that?

Thank you for the questions. Point number one, when it comes to the interest cost, actually, our cost of -- our interest rate is at about 13% for our long-term loan and about 11.5% for working capital. So I don't know how the 15% that is written on our numbers on which interest rate is calculated. I can go back and see how that 15% has came. Having said that, even these 2 numbers on the highest side, we are renegotiating, and we should be having a much better interest rate going forward. Our credit rating also has improved compared to where we were a year back. So I'm hoping that from January onwards, our interest rate, both on the term loan and the working capital loan should come down. And point number two was on the debtor levels, very important question. These 6 months, we had reduced our debtors to some extent. Of course, revenues compared to the previous quarter -- half year has been less as well. We are running it about 110 days excess which we know is on the higher side. It should come down when the contribution from the Create segment goes up. This 6 months, we have been also impacted to some extent from the -- in terms of cash flow from our Regulatory segment because some of the sign-offs could not happen because they were not physically present. And that has impacted in the sense now we can book revenues when the UAT is completed. But since the go-live hasn't happened because of the COVID issue, they're not able to release the payment. So this has had some impact. So we remained at 110 days in terms of receivables. Our target is to bring it down to about a level of 80 over a period of time.

I'd like to add what Balu Said, also, we believe the changes of composition of revenues moving more fast that will come down dramatically.

[Operator Instructions] The next question is from the line of Girish Kurup, individual investor.

Can you hear me?

Yes, we can.

Yes. I guess I have 3 questions. One is on the operating metrics and the others 2 on the product side. On the operating metrics, can you give me an idea of what is the customer concentration like, maybe top 5, top 10 for either full year basis or maybe a quarterly basis? And staying on the operating metrics, what's the typical attrition rate in IRIS? And with respect to the product, I would like to understand a little bit more about Carbon impact percent, how's it doing? Because I think I saw in your AGM that you did highlight that you have got very high rating for the quality of the filing. Did that turn out to be on the -- in terms of customer acquisition do you see these turnaround? The third and final question I have is on the Consume segment, right? I see that you had invested quite a lot in the Consume, but the turnover is still not coming up. So if you can give me some idea roughly? Is it 1, 2, 3 years that we have to wait before the Consume segment starts kicking in? That's highly appreciated. That's all from my side.

Let me start on the Consume -- question on the Consume side. I think we have invested in creating both software as well as databases to launch a business in the Consume segment. And I'm reasonably optimistic that by the end of the year, you will hear some announcements in terms of what we plan to do there. We have invested ahead of revenues coming in. We've invested ahead of launching things. But there are a few things that we've done which are significant on the Consume side which you might be aware of. So for example, taking off from the GST product which we have, we have a unique product called IRIS Peridot. Girish, are you familiar with the product?

Yes. I have installed it and I've used it also.

Have you used the latest version?

Yes, no, it's a later version, but I need to check that my investor companies, they are paying the tax or not because that's usually are...

Yes. So if you take a look at the latest version, please. If you take a look at the latest version, this is again to begin sharing with everybody on the call right now. IRIS Peridot is an app which you can download from the Google Play Store. It's also available on -- for Apple phones. IRIS Peridot, if you go there and check for any company, you will know the current tax compliance status of the company. So we're actually saying before you invested in a company, be sure. I know of many, many people who currently use the solution. So we've had over 8 lakh -- 7 lakh, 8 lakh downloaded. I recall about 4 lakh active users. And I think the number of -- I think Gautam is on the call. So Gautam can actually share data on the current usage pattern of the product. That's part of the Consume segment. A second thing in the Consume segment is currently being used by many banks is, for example, CRILC is a solution that's used by banks to detect NPAs. So several banks are using our solution to detect NPAs within their own system. So there is -- that's same part of the Consume segment. The Consume segment, there are 2 parts of the business. One is the software part of the business, one is the data part of the business. The bulk of the investments you talk about have gone to data part of the business, which have not really launched in a significant manner. [Technical Difficulty]

Well, sir, requesting you to please stay online. We just lost the line for the management. Requesting you to please stay connected. We are just trying to reconnect them back. Ladies and gentlemen, thank you for your patiently holding the line. We have the management reconnected. Over to you all, sir. We have questioner online from Girish Kurup.

Yes. I'm sorry, but we got disconnected while we were on the call. So I was answering your question about Consume, and that's where we stand as far as Consume is concerned. In the case of Carbon acceptance, again, I'll let Deepta answer the question in terms of the level of carbon acceptance, and she will also mention a new product launched along with Carbon for audit, which she will talk about.

Yes. In terms of Carbon, it's essentially used for creation and submission of our financial reports, including XBRL report. It's currently being used in South Africa, in the U.K., in India, in the U.S. and in Europe. And Europe is, of course, the latest mandate that we spoke about a little time ago, which is the ESMA, ESEF mandates. Now there are also newer opportunities. For example, in the U.S., there is a mandate by another regulator, which is the energy regulator called the FERC, the Federal Energy Regulatory Commission, and they are also moving to XBRL as a format. And so they require all energy companies to start on filing various forms and reports in this format -- in XBRL format. And Carbon is gaining early traction in the FERC opportunity as well. So in the case of Europe like the FERC mandates are gotten postponed. We wanted to be gained... [Technical Difficulty]

Ma'am, I'm sorry to mute you, but there's a lot of static coming from your audio. The audio is not audible.

There is kind of a testimonials available on our website, so you'll be able to see some of the names of the clients or customers who have already bought into the product, largely basically. So I think that there is certainly an acceptance. The products stand well positioned. Now it's -- it depends on how the mandate plays out as far as Europe concerned. In Europe, there is also another product actually which is gaining traction, too, which is called xAudit. So the unique thing in the European mandate is for the first time, the regulator has said that the IXBRL documents that are created not only have to be filed, but they also have to be audited. So for the first time, the machine readable layer also requires an audit. And so auditors are looking for a tools of solution auditing these XBRL documents. And so we launched a product called xAudit, which is also beginning [indiscernible].