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

Ladies and gentlemen, good day, and welcome to IRIS RegTech Solutions Limited Q2 and H1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Asha Gupta from E&Y LLP Investor Relations. Thank you, and over to you, ma'am.

Thank you, [indiscernible]. Good evening to all of you. Welcome to Q2 and H1 FY '27 Earnings Call of IRIS RegTech Solutions Limited. The results and presentation have already been mailed to you, and you can view it on our company's website. In case anyone does not have a copy of press release or presentation or you're not marked in the mail, please do write to us, and we will be happy to send you the same. To take us through the results today and to answer your questions, we have the top management of IRIS RegTech Solutions Limited, represented by Mr. K. Balachandran, Co-Founder, Whole-Time Director and CEO; Ms. Deepta Rangarajan, Co-Founder and Whole-Time Director, along with other management team members. We will start the call with a brief overview of the quarter and half year contact, which will be then followed by the Q&A session. Before we proceed, I would like to remind you that the discussion may contain certain forward-looking statements that may involve known or unknown risks or uncertainties and other factors. It may be used in conjunction with our business risks that could cause future results, performance or achievements to differ significantly from what we have expressed or implied by such forward-looking statements. Having said that, I will now hand over the call to Mr. K. Balachandran. Over to you, sir.

Thank you, Asha. Good afternoon. Happy [indiscernible] and welcome to the IRIS first half earnings call. A good number of people have turned up in this call on this early weekend, and we are grateful for the time you are spending with us. Apart from me, I have Deepta; Vineet Kandoi, our CFO; and [indiscernible], who heads our consulting attending this call. As Asha mentioned, we are uploading initial presentation on the exchange website STB along with [indiscernible] as well. And we hope that many of you have the opportunity to see this as well. Our commentary on the business and financial performance would largely be on a 6-month basis, given that we are making a fair gap of 6 months. Let me dive into the business performance of IRIS. We are pleased to report that over the past 6 months, we have sustained our growth momentum with revenues growing at over 30% on a year-on-year basis in both the first and second quarters of this financial year. We're also pleased that we have been able to grow at a good clip amidst the increasing economic uncertainty in the global economy. Our performance was especially buoyed up by the traction that we are recording in our enterprise SaaS business, particularly the carbon, the discussion environment offering that we have rolled out in the previous financial year. We have now more than 50 clients seeing our DM platform, and the feedback is helping us to further improve the product as well. The annual recurring revenue, ARR, of IRIS CARBON jumped 52% from the number as of March 31, 2026. We also did back a large enterprise deep that contributed to the sharp uptick in the ARR of IRIS CARBON. Last year [indiscernible] our focus on the enterprise SaaS business is [ totally ] to grow the annual recurring revenue, where there is a concomitant requirement to expand the pace and marketing activities and spend as well. We talked about growing our stats revenues at about [ 35% ] on an annual basis in the foreseeable future. While we have suffered our target halfway through this year at this point of time, we do have more work to do in terms of building the IRIS CARBON brand, especially in the U.S. market as well as strengthening the product and building our partnership networks. I should add that in the SaaS world, companies typically spend well more than their [indiscernible] in sales and marketing spend per rupee of net annual recurring revenue. But I am happy to say that in the first 6 months of this year, we have spent a little less than [indiscernible] per net ARR and that do not factoring in the large enterprise deal ARR. So we have been quite efficient in that respect. Having said that, it is maybe not that easy to say that this trend could continue, we have to wait and see. Coming to our BFSI automated regulatory reporting solution, IRIS iDeal, we are now pitching for end-to-end automated reporting which leads to higher deal sizes and is both an upsell and a new client opportunity. We have successfully completed a certain implementation in India recently and are now pursuing similar business in countries such as Mauritius and [indiscernible] apart from India. Sales cycles in the business are low, but we do have a few interesting discussions developing at this point of time. Let me now look at the subset business briefing. The global economic uncertainty, especially that in the Middle East, has had an impact on the new order intake that we had anticipated in this segment. However, we are in the play with a few [indiscernible],and I expect the second half of the year to be better. In addition, I should say that we have been successful in mining our existing customers for additional work during this day. We expanded our product suite to offer more end-to-end features on the regulatory -- for the regulatory customers, which includes this bar supervision, licensing and a few other modules as well. The idea is to expand the product suite so that we are like a one-stop as far as regulatory reporting requirements are concerned for any financial regulators and even departments, the government departments, who undertakes to provision from a financial and operational perspective. Now coming to financial performance, we have seen that as a past performance is concerned, our second half revenues and profitability are normally better than the -- better than in the first half of the year. In this year, for example, higher ARR of our RegTech business should lead to higher revenues in the -- as the third quarter unfolds. We also mentioned before that our endeavor is to partially balance our customer acquisition expenses in the SaaS business with profits emanating from the SupTech and iDeal business so that our EBITDA numbers are carefully managed. Our cash portion is quite comfortable, and we do plan a higher outlay on our SaaS sales and marketing expenses going forward. Let me close by saying that we are well poised to grow both our RegTech and SupTech businesses. We recognize that we have a long way to go, but we are pleased with the early results as we continue to work hard on the engineer space growth across our businesses. Hopefully, conditions should improve in the global economy which could also play a role in faster conversion in certain pipelines that we are at play. Thank you so much.

Sir, shall we begin with the question-and-answer session?

We could.

[Operator Instructions] The first question is from the line of [indiscernible]

Sir, I was thinking about this Carbon disclosure management platform, and it seems it is a very, very sticky platform. So I'm just wondering that what approach you take to acquire new clients who already might be using such a platform on our site, right? So I would love to hear your news around it.

So are you asking if [indiscernible] you're seeing some other platform, how do you convert and fully understand [indiscernible]. Deepta, you want to say something like [indiscernible] in its replacement market?

This is Deepta. So when a client is already using some another disclosure management platform, we typically try to [indiscernible] them on the overall offering. So it's a combination of our -- the various modules in the product the support that we offer, the quality of our kind of structured reporting ex BRL. And of course, at that point in time, when we are engaging with the customer, we'll have to wait until they get out of contract. So typically, either they start looking at alternate options, or we are already engaging with them and keeping them warm. And at the time when it comes to contract renewal or prior to that is when the evaluate alternatives. We, of course, also have AI functionalities and features bundled as a part of our product. So we try to demonstrate to them how our product will help address their needs as efficiently is not more efficiently than what they're currently using.

I just want to add a couple of things more in this particular in this area. One is that we are able to onboard our customers quite fast compared to [indiscernible] other competitors, and that is considered to be something which we very appreciate so they can switch our fairly fast. And we take a long process to move from one discussion management platform to another. The other thing that we have seen is that since we [indiscernible] and that is something people really appreciate because their existing processes before the discussion [indiscernible] starts. Mostly, people do work on the office -- Microsoft Office suite and [indiscernible] is quite similar. So these are the 2 other points I want to mention.

Yes, sure. That helps. So sir, and ma'am, I was just thinking about it. You might comment on it whether you are following this approach or not? Or if you feel it is a good one, you may start implementing it in your approach around it. So do we take up like some kind of proof of concept where we do kind of a benchmarking with whatever they are using till date and then we provide that kind of a 3 of cost validation to them stating that how we can help them better in this current tool which they are using compared to the tower tool?

Yes, you say if we do POCs or some kind of like limited dry down, so they're able to evaluate and get a hands on fuel. In some cases, we do limited workshops, kind of where we set up their own document for them and they're able to play with our solution and make an assessment and see that they're comfortable in hands on. So depending on the client and the situation of the prospect and the situation, we do offer things like this as well. No, we were not seeing anything from here.

Another question I have is like in the recent investor presentations, you have shown this AI agent as a separate topic. So is it like an add-on to the existing platform, which makes it easier for our existing clients to use our existing platforms? Or is it like a new line of business we are starting which will have its own profit and loss statement?

We [indiscernible] to our existing customers, whether it is our customers on the supervisory side or on the enterprise side. And typically, this is -- so it's bundled in the solution itself and depending on what the customers -- so it's a little bit -- we're not offering this at solution, a stand-alone solution by itself at this point in time. But yes, we're rolling this out to our existing customer base and...

It's embedded in the products [indiscernible] Carbon at this point of time, even for our regulatory customers, we are speaking to our existing customer base and saying that can we add a layer in terms of intelligence using [indiscernible]

Can I ask a few more questions, which I have or should I come back to queue?

I think you can ask, it's fine.

So another thing, sir, I noticed was that our sales have been really good, congratulations for that. But when I see at other expenses, the pace of increase in other expenses is slightly higher even on a sequential basis also. So I'm wondering that it might be due to your sales and marketing effort you are trying to do for our RegTech division, right? If that is the case, it will be really good in your disclosures, if you can mention that how much amount went into such activities so that we have that kind of a separate note to keep in our mind that -- yes, this is not part of regular expenses, and this is something we are investing for our coming times.

Yes, I think we can do that. You're asking that we show separately the sales and marketing expenses going forward. Is that what you are saying?

Yes, somewhere in the north, if you mentioned that, okay, these are for our upcoming future business building activities, we are doing additional expenses, right? Because when we see revenue growth and then we see expenses are growing faster than revenue growth and expenses come as a single blanket right now. So for us, it is difficult to just rather regular expenses have increased so much? Or is it because of the initiatives we are taking for growing our RegTech division that is leading to these expenses?

So this is Deepta again. So just one thing. The sales and marketing expenses obviously are all for the future growth, right? I mean that entire line item of sales and marketing across the businesses on driving the future growth. So it's not [indiscernible]

Yes. So I think you're right, it's not explicitly mentioned in [indiscernible] presentation format. But I mentioned in this particular call for same that we have spent less than $1 in sales and marketing for $1 earned in ARR. And you can see that in the first 6 months, what is the ARR growth and you can see we are well within that. And typically, our contracts what we have seen, therefore, the longer period and we do get the benefits of the revenue and the margins for a much longer period than the initial expenses that we incurred to [indiscernible] the customers.