MPS Limited (MPSLTD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY 2027 Earnings Conference Call of MPS Limited. [Operator Instructions] I now hand the conference over to Mr. Rahul Arora, Chairman and CEO. Thank you, and over to you, sir.

Thank you so much, Avira, and good evening, everyone. A very warm welcome to our Q1 FY '27 earnings call. Some of you may have already got me on CNBC earlier this afternoon. Let me now take you inside the quarter properly. Today, I have most of the team in one room with me at a [indiscernible] office. It said something about how we run now run as 1 MPS. With me are Prarthana Agarwal, our CFO; Sukhwant Singh, our Chief Delivery Officer for Research Contract Solutions; Christine Miranda, Senior Vice President for Research Solutions; and Sanjiv Silva Senior Vice President, Business Head for Education Solutions. . Soma Bhaduri, SVP and Business Head of [indiscernible] which is our corporate learning business, joins us on Bangalore. You will notice a fuller cast than usual, and that is deliberate. This quarter, we are splitting the voice over on research between Sequent and Christine, so that you can hear the 2 halves business for the 2 people who actually run them. And Sanjiv steps in to take you for the education business. During the business directly from the people building it is exactly how I want these calls to feel. Here is how the next few minutes will run. Prarthana will take you through the financial performance and reaffirm our FY '27 outlook that we shared last quarter. Sukhwant and Christine will then cover research solutions between them. Sanjeev will then follow on education, a segment that keeps earning a larger place in our growth story. Soma will walk you through corporate learning. Finally, I will come back at the end with a few strategic thoughts in particular on AI and on a major shift, you will hear trade through our entire segment in it, the move towards outcomes-based revenue. Before we open the floor to questions, let's get going. Over to you, Prarthana.

Thank you, Rahul, and good evening, everyone. Q1 has opened FY '27 as the strongest first quarter in the company's history on every line that matters. Reported revenue for the quarter was INR 224.4 crores up 20.4% over the same quarter last year. EBITDA was INR 7.96 crores up 53% with EBITDA margins expanding to 34.3% from 27% a year ago. Profit after tax grew 43% to INR 60.9 crores, and basic EPS came at INR 29.7 an all-time Q1 high, up from INR 20.78. I want to pause on the shape of these numbers because that is the real headline. Revenue grew 20%. EBITDA grew 53%, headcount rose less than 3%. That is operating leverage doing exactly what it is meant to do with growth converting into margins rather than consuming it. Strip out AT, which is resetting by design and which Christine will speak to, the underlying business grew faster revenue up 28.4% to INR 198.47 crores, EBITDA up 56.5% and the margin expanding close to 6 points to 33.7%. A few balance sheet and housekeeping items. The total cash and cash equivalents stood at INR 13.02 crores as of 30th June against the borrowing of INR 37.3 crores relating to the facility we grew for the ongoing medicine acquisition. Correction stay tight with DS improving to [indiscernible] at the end of March. As there are no exceptional items in the quarter, so the results read game. On the outlook, our position is unchanged and if anything formal. We continue to expect the company to comfortably cross INR 300 crores in EBITDA in FY '27. I would ask you to read the numbers the way we lead is internally as a floor other than as a ceiling. It is built bottom up from each segment's operating plan at an unchanged planning base, and it implies a 3-year EBITDA CAGR of roughly 21% from FY '24 to FY '27. Q1 has landed ahead of a straight line path to that mark and our second half has historically out our first. So we enter the rest of the year positioned to clear the line comfortably not to stretch towards it. With this, I hand over to Sukhwant to take you through the reserve ignition. .

Thank you, Prarthana, and good evening, everyone. Retail Solutions did what an anchor is supposed to do this quarter. It held the portfolio steady while still growing. Segment revenue was INR 13.23 crores, up 13.2% year-over-year and it remained the largest part of MPS at 55% of total revenue. What I would draw your attention to is the quality of that growth. EBITDA grew 37.9%, well ahead of revenue and the segment margin widened to 45.1%. Such aside and the core of research grew 26.3%. Scale and margin moving together like this is the reset of last 2 years turning into how we now simply operate. I want to further describe this business the way we now run it, not as a services book, but as an AI-first none solution company, serving the research economy built on a stack of product layers. I will share context on a few years and Christine will pick up Office Solutions and peer review. The first layer is trust and integrity. DigiCore, our AI-enabled production ecosystem is now live in client deliveries across our top-tier knowledge organization. Research Integrity Check sits on top of it, detecting paper mills entry fraud and image manipulation. The bottleneck in results today is no longer generating content. It is verifying it. This is precisely the control point we occupy. The second layer is production itself where AI has moved from pilot to core delivery. Our AI-enabled composition and quality workflows are live in customer delivery and are moving clients onto a modern, high-productivity platform. On our largest programs, this is showing up as 1 touch workflows, automated all tech for accessibility and AI-driven quality checks that cash errors even before they ever reach roofs. This is how we -- how the segment took on materially more work while building its cost line and expanding margins to 45%. The third layer is the platform stack, which is the stickiest revenue we have. high wire, DigiCore and ThinK365 now in production from the hosting and publishing backbone for our largest clients on multiyear contracts that run mission-critical workflow and are not easily replaced. Behind all of it fits MPS Labs, our AI and engineering engines whose work compounds across every segment at very little marginal cost. This is not a feature. It is a structural move. Heading into the rest of FY '27, my priorities are simple. Sustain this operating leverage as new work reaches steady state, scale digital and integrity adoption across the renewal base and keep -- and keep converting the platform pipeline into revenue. The thread through all of it is the one you will hear from me every quarter. We are positioning NPS at the layer where AI cannot afford to be rock. Let me now hand over to Christine to take you through Auto Solutions and peer review.

Thank you, Sukhwant, and good evening, everyone. Let me pick up the 2 layers to 1 last me. They sell almost offer stories that add up to the same strategy. I'll start with AE, our Auto Solutions business. You have heard us describe AE as resetting by design, and this quarter shows what that discipline looks like. As the customer base finds its new level, the revenue is deliberately smaller but it is also far more profitable and far higher in quality than the inflated base we carried 2 years ago. What is left is the high-value core, premium editorial and language editing services and AI-assisted auto workflow. Just as important, AJE has started inventing again. We launched free submission per review in April up for genuinely new service in more than 2 years, and demand has run well ahead of what we planned. The pruning is behind us. And from here AJE is set up to grow on value rather than volume. The second layer is where our offense is a free acceptance peer review and Journal editorial office business. a layer that scaled because of the acquisition of AG. This is one of the fastest growing lines at MPS. We are now the second largest peer review provider by volume and our aim is to be the first by the end of this year. That growth is anchored by the largest publishers in the world, interesting us with more of their submission workflow, including some of the more sensitive portfolios, which is not a decision anyone makes lightly. A step of homegrown AI tools is how a team of our site handles that volume at all. I want to connect both of these to a team Rahul will return to. In Auto Solutions, we are increasingly paid for an outcome rather than for hours of pages, a manuscript that gets accepted an integrity decision, a publisher interest, a submission process and move forward. Our controlled work shows a manuscript acceptance rate of roughly 52% and against an industry baseline near 32%. That is a measurable result we can attach revenue to, and it is where Auto Solutions is heading. Premium tiers were after pay for quality and faster turnaround. AI-driven productivity wins, we share partly with clients and partly keep the margins and expansion into fast-growing research ecosystem such as China, where we have already begun signing partnerships. With that, let me hand over to Sanjiv to take you through education.

Thank you, Christine, and good evening, everyone. It is a privilege to join our first MPS earnings call and to do this in a quarter like this one. Education has become MPS's second growth pillar, and this quarter, it delivered a skin. Segment revenue grew 42.2% year-over-year to INR INR73.41 crores and 22.1% over the prior quarter at a 35.1% EBITDA margin. A good part of the setup is unbound medicine, now in the base for its first full quarter. And you can see it most clearly in our client count, which goes across the company to 84 from 44 a year ago. as announced institutional subscribers come into our books. Rahul will pick up the strategic picture on our inbound shortly. So let me spend my time on the rest of the education, which grew strongly in its own right. Underneath the acquisition, our content and learning business kept compounding on its own account, 3 things grow it. First, our AI-enabled content and production work deeper several of the largest U.S. knowledge organization across Kiel and hired moving from pilots into multiyear multi-programs checking our accessibility lines where we produce accessible learning media at scale with AI kept building toward a large journals rollout later this year and remains a high-margin, high-growth business. And third, we are opening generally new lanes, including work with clients now paid to review quality check, AI-aided instruction content, a service that did not exist for us a year ago and they now want us to grow. Adding into the rest of FY '27, we have a healthy pipeline across our largest relationships and focus on extending into international knowledge organization. That, together with the first full year of unbound to build on gives us real conviction under the guidance protein. Let me hand over to Soma for corporate learning.

Thank you, Sanjiv, and good evening, everyone. Corporate Learning was a segment that carries the more stress last year, and it is now the segment most clearly turning upon -- this was our second consecutive quarter of growth. Revenue grew about 6.9% year-over-year to INR 27.60 crores. And the story underneath is the margin. grew 6.7% and the margin expanded to 25.3% from under 17% a year ago. We did that on for head count roughly 1/3 lighter than last year, which is last year's restructuring finally flowing through to returns. And this is not a recovery of the legacy business. It reflects a business that is fundamentally repositioned itself from learning creation to enterprise capability enablement. Today, we help clients call workforce challenges through AI-enabled and immersive solutions that embed learning and performance into the flow of work by enhancing existing LMS, LXP SharePoint and Enterprise platform, with AI, simulations, [indiscernible] experiences, we create scalable solutions that can be reused across business units and geographies. The result is deeper client relationships greater scalability, stronger margins and a business built for sustainable profitable growth. Growth is also broadening with new client additions across geographies and AI-led wins increasingly acting as strategic answers into larger enterprise transformation programs. Heading into the rest of FY '27 our focus is to fold this exit margin as a run rate, make AI led delivery the dominant part of the mix and complete the integration of our legacy entities into 1 unified liberate global brand. The base is ready. With that, let me hand it back to Rahul.

Thanks, Soma, and thank you, team, for those rich updates. Before I close, let me pick up [indiscernible] myself. Because this is one of the most strategic initiatives we are working on this financial year. This was a full quarter inside MPS, and the headline for me is a prove the thesis rather than the pitch. Unbound brings exactly what we build for a recurring higher renewable subscription business anchored in medicine and nursing sold to a broad institutional base of medical [indiscernible] schools, hospitals and libraries. That base that's 2 things for us. It lowers our customer concentration and it gives us far more predictable forward revenue than a traditional project book. None of our [indiscernible] relationship is billing less. We have simply added a long tail of high-quality recurring accounts on top of it. It also brings the capability we care about and what we call unbound intelligence, a knowledge engineering layer that turns trusted medical content into AI products that do not hallucinate. We are integrating deliberately, learning that renewals cycle before we commit to synergy time lines, and we have started early cross-sell conversations with some of our customers. It's behaving exactly as we underwrote it. And on the acquisition of this importance, that's the best thing I can tell you. Now let me close the opening section with 3 thoughts before we take your questions. First is on because it runs through everything you just heard. We run MPS on one principle when it comes to AI. It should show up in our revenue, not on slides. DigiCore and research integrity check are deployed at scale. Our AI auto workflows have processed well over a million manuscripts, which AI is translating at an enterprise scale inside corporate learning. The common across all 3 segments is that we sit at a layer where AI cannot get it wrong. Cannot afford to get it wrong. Where every fact has to be sourceable and every output has to be trusted. When the market worries that better models will commoditize everyone, my view for the work we do is opposite. As model gets stronger, the constraint moves from generating content towards verifying it, validating it towards domain context towards the last mile inside available workflow. Last mile is exactly where MPS sits as a tailwind for us, not a fact. The second thought is the one on you take from uniting and heard every the touch in it. Our revenue is steadily shifting from being paid for effort to be paid for outcomes. For most of MPS's history, we were paid for Pages produced powers worked. Increasingly, we have paid for a manuscript that gets accepted for a paper mill got before it gets published for acceptable assets delivered at scale for a subscription that renews every year at unbound for a learning program that changes how someone performs on the job. Outcomes carry better economics than effort because the value sits in the results rather than the input. And they are far harder for anyone to commoditize. That shift is a large part of why revenue grew 20% this quarter when EBITDA grew 53%. As the mix keeps tilting towards outcomes, this is the engine under the margins, and that is deliberate which is in to my third part on FY '27. Before the guidance itself, let me give you one framing in my own words because I know some of you measure it this way. There's a simple test in the finance world called the rule take company's revenue growth and added to its EBITDA margin. And is it too clear 50, we are looking at a business that is compounding rather than buying its own growth in margin. This quarter, our 20% revenue growth and over 34% EBITDA margin put us comfortably past the rule of 50. So let me measure about it. I'm not promising that we will clear 50% every quarter this year because phasing of our business does not work that neatly -- having said that, the analysts might come the numbers and say, no, you will cross it every quarter. But you know us as a conservative management team at MPS and when it comes to Star gating. Rule of 50 is a mark we are hopeful of theory for the full year and opening FY '27 on the right side of it tells you the operating model is doing exactly what we built it to do. On the guidance itself, Brasa has reaffirmed our expectation to completely cross INR 300 crores in EBITDA and rather than repeating the number, I won't tell you how much conviction steps behind it. This was the strongest opening quarter in the entire history of MPS. Margins expanded in all 3 segments, and we delivered it without leaning on headcount. The work to deliver this year is not sitting in front of us as a plan. It's already in flight in the way MPS now operates every day, please read the guidance as a floor, not as a target we hope to reach. We enter the rest of FY '27 with more conviction in NPS in this business than any point in the last 2 or 3 years. The portfolio is in better shape. The team is deeper and the discipline we built for last year is not simply the run rate, not the project. With that, let us open the call to your questions.

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

Congratulations on good numbers. And it's good to actually see such a large pad on the call as well. So my first question is actually related to that. Over last one year, we have actually seen some movement in the people in the -- at a management level. So first of all, what is driving some of these exits and replacement? And the second part to that is that, I mean, considering we are geographically spread across the globe now -- how are we ensuring that the operational and the cultural continuities there across our acquisitions across our business lines as well.

Yes. Thank you for that thoughtful question. So as an organization, of course, while we discuss Vision 2027 and FY '28 we are building for 2022. That's the overarching kind of long-term planning that we're doing. And as we're building towards that, the talent machine is growing both internally and well externally. Now as the talent machine expands in a very quick span of time, sometimes you make mistakes, sometimes things go well. I think overall, as a management team and as a Board, are very pleased that more often than not, we get it right, sometimes we don't get it right. But just looking at -- if you benchmark ourselves to markets in general, MPS is performing better than market when it comes to external talent acquisition. In terms of success rate. In terms of internal rates, we are seeing, we saw farmer promotions this financial year than previous year than the previous couple of years, in fact. So the internal talent machine is also throwing up good managers from the system. In addition to that, your question was on how do we maintain culture. So I think kind of going bottom-up, we are grounded in our core values of what we call the Triple E, Excellence Efficiency and Empathy. Those values have kind of stood the test of time and get translated to every asset, every business that we acquire. And these values are then kind of executed through 1 singular culture principle, which is an ownership mindset. So between the cultural principle and the EEE values is how we integrate acquisitions across the globe, not just in India.

Okay. Great. On the second side, we have seen actually a reduction in our employee base. Now I believe some of it may be because of our acquisitions having some redundancy in terms of employees. We were also looking to outsource or use the gig workers as part of our process. And I'm sure there is a productivity also involved over last one odd year. So from that when we specifically look at productivity part of this reduction, how are you actually looking and ensuring that we are not diluting the quality of the offerings that we have with our customers. You have highlighted and how you're using AI and I think even Sukhwant has touched upon it as well a little bit in your opening remarks. But if you can just ensure that how are we looking to ensure that the quality remains at what we are how to deliver.

Thank you for that question. I'll ask Soma to specifically answer this from a corporate learning perspective, what has been the impact there in terms of -- of course, the whole gig worker approach having a network, et cetera, is more kind of consistent with the corporate learning business. Once Soma is done, I'll come back and talk a little bit about this from a stand-alone MPS perspective that does not include a couple of items.

Absolute. Sure. So the corporate learning headcount like we saw has -- is down about 30% year-on-year, and it breaks into 3 parts. Last year is really the structural redundancy. Now after last year's restructuring the consolidated duplicated roles, and we delayer the delivery model. It is more like a onetime effect rather than a recurring impact. The second [indiscernible] is the move from fixed to variable capacity. With that, we are shifting a share of delivery to a peak and associate model. So this is really so that we flex cost with project demand instead of carrying it throughout the year out. The third and smallest today but growing, as I could see, is productivity. Because as AI-enabled offering content and quality flows are coming into the picture, that led to a smaller team to deliver the same or more. And on quality, which is the right thing to grow and thank you for touching on that. Maybe if I touch the senior -- if I talk about corporate learning, we did not touch the senior instructional design or the client-facing binge, to be honest. The reductions were concentrated in redundant in non billable layers and our delivery quality and plant retention has held through this transition very well. We watch that quality at the engagement level. The margin has expanded without a corresponding rise in rework or client escalations, which is kind of a proof that we at structure, but really not the ability and also into this entire aspect, I would also like to add that the improvement that we have seen has come from the mix and the operating leverage where in Q1, we've been able to show both of them working. Our revenue has grown and I'm specifically talking about profit earning at 6.9% to INR 27.6 crores but EBITDA grew 60.7% and the margin moved from 16.9% to 25.3% because we rebuild the cost base rather than chasing volumes or -- Yes, that would be my answer on if you may please to this.

Sure. Thanks, Soma. So the reason I pointed to Soma first was because the question was more about headcount. But I also want to double click on expense because that's where the special story played out of the business. So if you see on the research side, headcount grew from '26 to '22 over last year. And then on the education side, head count went down from 799 to 765. So the head count was fairly stable. The reason why the increase was nominal is because all the increases we saw, whether it was from the increments or the addition of unbound what kind of notified by AJE entirely offshoring. So all the U.S. roles was brought to India in -- by the end of Q4 last financial year. So Q1, we had very is U.S. headcount. And our NPS scores in fact, Net Promoter Scores during this period actually went up, not down. So it was -- I have never seen a transition like this where quality actually improves. But while the mind counterintuitive we suddenly now have more control of the operations, and therefore, the quality has gone out. And so overall, we've been able to play this dance where the as certain costs are going up on certain parts of the business, we've also been able to pull them down in other parts of the business.

The next question is from the line of Kashish Mata from Dolat Capital.

Congratulations on the very quarter and questions I just wanted some color on the number of clients built during the quarter. So if I look at it Q-on-Q, it has gone down from 906 to 841 so is there some client rationalization or account pruning that is going on. So just want some insights on that aspect.

Yes. The only space that there's been tuning in the business is AJE, which Christine already described. So that's the only pruning that's taken place in the business. Okay. Yes, that's pretty much .

The next question is from the line of Ravi Komanaridi from Naredi Investment.

You are doing really fantastic in last 2 years, you have changed the company totally. Sir, you had given INR 300 crore EBITDA for this financial year while our target of top line was INR 1,500 crores. So you changed the top line to EBITDA?

No, sir. So [indiscernible] thank you for your kind words, encouragement always feels good. So the INR 500 crores is for FY '28 next year. And that probably will translate to more like INR 450 crores EBITDA. This year's guidance, FY '27 guidance is that we will cross Comfort cross INR 300 crores. This is financial year. So for next year, INR 500 crores and more like INR 450 crores EBITDA.

You are really doing good. Please keep balance between cash and whatever application we are going to do because I again, telling you range of equity is very costlier to shareholders, including you. So I hope you will abide by this system and not raise any [indiscernible]

I completely agree with you. I think we've learned that today itself, right. So from my perspective, like I shared with you -- I've shared with you previously, first, strike is cash accruals. I think Prarthana pointed out, that's INR 138 crores. The business is throwing up INR 15 crores to INR 18 crores of cash every month. So that's the first of a tax. Second area of that is, again, let's assume PAT of INR 200 crores similar cash flow is normally fairly similar to PAT. So corresponding to that, debt of INR 200 crores is very comfortable. So doing an acquisition in the INR 300 crores, INR 500 crores range seems fairly doable between internal cash accruals as well as debt. So yes, I don't see an equity play here unless, again, never so have right. So but most likely in terms of likelihood, I think this is a cash plus debt financing kind of story.

Any new acquisition in pipeline?

Yes. So like I've shared previously, there's something always in the works. We have an active pipeline -- we're trying our best to not look at assets lower than $15 million in revenue. We modified that amount simply because of how good the asset was in terms of strategic synergies. But really, we don't want to be looking at businesses that are below $5 million in revenue. In terms of what are the types of acquisitions that we're looking at, I think education is the area that has been growing for us. We want to acquire more in education. In terms of domain, science is the core of MPS. As I shared previously, we are now -- 25% of our revenue is now coming from outcome-based partnerships revenue is coming from recurring themes. So overall, we want to keep that growing. So that's, again, something that we will look in the asset as well. And third, we want to look at subject matter where AI is a tailwind, not a subtractor. And what we've learned is that when the subject matter is high stakes, think of whether where the cost of getting it wrong, is so high that you will never go to 100% AI. For example, in the nursing world of the medical world, if AI hallucinates, the cost is a patient time. in cybersecurity, if AI hallucinates, there's a cost of an enterprise line. So those are the kind of assets that we're looking at, where the content itself is such high stakes that AI instead of being a subtractor actually becomes a huge multiplier and tailwind, and that's what we're looking at. So between these broad themes, there's an active pipeline. Now of course, the invisible theme is we also need a motivated seller and that will allow us to acquire the asset in a competitive way, and that then determines the close.

The next question is from the line of Mahesh [indiscernible]