Newgen Software Technologies Limited (NEWGEN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Newgen Software Technologies Limited Q3 Results Conference Call hosted by ICICI Securities Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Hardik Sangani of ICICI Securities Limited. Thank you, and over to you, sir.

Thank you, Ayesha. Good evening, everyone, and welcome to the Q3 FY '21 results of Newgen Software Technologies Limited. I hope everyone is keeping safe. Connecting with me today from the management side is Mr. Diwakar Nigam, Chairman and Managing Director; Mr. Varadarajan, Whole-time Director; Mr. Virender Jeet, Senior VP, Sales, Marketing and Products; Mr. Arun Kumar Gupta, Chief Financial Officer; and Ms. Deepti Mehra Chugh, Head of Investor Relations. I now hand over the call to Deepti for further proceedings. Thank you, and over to you, Deepti.

Thank you, Hardik. Before we move on to the discussion, let me highlight that this call will contain certain forward-looking statements concerning Newgen's future business prospects and profitability, which are subject to a number of risks and uncertainties, and the actual results can materially vary from the forward-looking statements. Past performance may not be indicative of future performance. The company does not undertake to meet any announcement in case of these forward-looking...

Sorry to interrupt. Deepti, I would request you to come a little closer to the phone, you are sounding too distant.

The past performance may not be indicative of future performance for the company. And the company does not undertake to make any announcement in case of -- any of these forward-looking statements become materially incorrect in future or update any forward-looking statements made from time to time on behalf of the company. For any further information, you may please refer to the Investor Relations section of the website. I welcome you all to the Q3 results. I'll now hand over to Mr. Nigam for presentation of the results. Thank you.

Good evening, everyone, and thank you for joining us at our Q3 FY 2021 post result conference call. First of all, a very happy New Year to you and your families. We are happy to announce another robust performance in this quarter. Despite COVID, we have maintained a business momentum over the last 9 months. We have risen up to the challenge and emerged much stronger due to our speed of adaptability. In Q3, our revenues from operations were INR 185 crores. We have witnessed a balanced growth across most of our key geographies, including the U.S., APAC and India. We are happy with our customers' expanded use of our platform and increased revenue from our existing customers. They still have major strategic digital transformation needs that we can help them with. Increased utilization of our technology in the installed base will lead to an increase in license revenues and subsequent ATS/AMC revenues for coming quarters. During Q3, we received 2 large digital transformation deals from our existing customers, leading private sector bank in India and a prominent small finance bank. We made 11 new customer additions during the quarter, with 4 new logos in the Americas region in the banking and financial services domain. We have also had a strategic win for delivery and implementation of our ECM and BPM products for a unit of government of India. In the U.K. market, we are executing a mid-sized project for a full-service retail bank, SME bank. Our annuity revenues remain consistent contributing to 60% of our revenues. 9 months FY '21, ATS revenues witnessed a growth of 20%, while SaaS/Cloud revenue substantially at a rate of 29% Y-o-Y. However, our support services revenue had been impacted due to the shift from on-site model to offshore model. In terms of verticals, banking and financial services, government and PSU and insurance segments were the key drivers during the quarter, with growth of 7%, 25% and 45%, respectively. There is an increased demand for digitization and digital information -- digital transformation initiatives in these sectors. Our EBITDA was up by 88% and reached INR 67 crores, and our profit after tax was up by 49% at INR 36 crores. For the fiscal year, cumulative 9 months, our revenues were INR 472 crores. EBITDA was up by 135% at INR 124 crores. Profit after tax was up 137% at INR 74 crores. Operating cash flow grew significantly, driven by our consistent focus on liquidity, cash management and strong collections. Our net cash from operating activities was at INR 167 crores during the period compared to INR 44 crores last year. During Q3, the company also decided to move into Vivad se Vishwas scheme with respect to partial disallowance on foreign withholding tax credit. This was on account of the difference in methodology of withholding tax reductions across various countries. Calculation of withholding tax reduction in foreign locations are based on sales and exemption allowed under income tax in India is based on profit from these locations. Hence, tax expense in the financial results include INR 14.6 crores with respect to tax provision. As we continue to work on our data base, our net trade receivables as on December 31, 2020, are INR 174 crores, which resulted in net DSO of 96 days, a great improvement from previous quarters and years. Our margin profile has expanded substantially compared to last year due to rationalization, rationalized operational manpower and sales costs. We have also optimized our execution capabilities while continuing with long-term investments in R&D and sales. Currently, R&D expense comprised about 10% of sales. Seeing growth potential in the coming times, we will continue to increase our efforts and investment in this direction. Based on our previous R&D effort, we have been granted another patent in India for an invention entitled "Remote Email Access Through Short Message Service." In addition, Newgen was positioned as a visionary in the Gartner Magic Quadrant for content services platform. Newgen platform connects content and processes with context and allows for automation with agility. We continue to build upon our capability in cloud, low-code, artificial intelligence and machine learning. All our implementation, both on cloud and on-premise continue to be executed remotely. In the last few months, our product team has worked really hard to deliver several enhancements to support remote implementation. Many of those were on cloud, including DevOps and penalization for efficient cloud deployment, enhanced user interface, better mechanism, or comprehensive testing, new record management system with scale or countrywide archives. Our partnership strategy with GSIs, Global System Integrators, is gaining momentum. Major GSIs have shown interest in promoting the platform to Fortune 2000 organization. We are looking at expanding our sale presence -- sales presence in developed market of U.S., Europe and ANZ through these GSIs. 2021 brings a new ray of hope for people, economies and business. We have a strong outlook as we get closer to the next financial year. We see a good demand environment across all key industry segments. Back in 1995, we had coined the phase, one world, one workplace. Probably, we were ahead of our time then. Today, everyone has lived this expression. This philosophy is reflected in our platform and facilities that facilitates remote working. There are hundreds of thousands of users today using our platform and application, running on it. Our platform is scalable and reliable. And is extremely relevant for clients in their digital transformation journey. This provides us with a great opportunity in the new normal. To strengthen our GTM initiatives, we have onboarded key senior leaders in sales, product development and human resources. They bring a wealth of industry experience from many prestigious organizations across the world. Their leadership will infuse new ideas and energy. With the stronger balance sheet and cash position, we are now ready to make deep investments on very various fronts, across technology, sales and marketing for long-term growth. This would involve further strengthening our international teams, especially the U.S. team, sales and marketing, product management and delivery capabilities. While we intend to keep an aggressive focus on direct sales and implementations, as we strengthen our partnership with the GSI, we would continue to deliver superior value to our customers and partners through our cutting-edge products, excellent support and lower cost of ownership. We believe we are well poised for the future. We have the financial resources, a great product and a motivated experienced team to capitalize on the opportunity. We are now open for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Hardik Sangani from ICICI Securities.

Am I audible now?

Yes, sir.

Yes, carry on.

Sir, just a couple of questions. Sir, just pertaining to this quarter closely, what would be the puts and takes of the margin performance which we had in this quarter? As we have a meaningful improvement, are there any one-offs which could be helped? Secondly, as you -- as Mr. Nigam alluded, couple of our peers also have alluded that growth is back to what it would have been in pre-COVID times and the volumes are already exceeded. So to understand in next year as -- do we see the growth coming back to pre-COVID levels? And has our deal conversions back to what they used to be? And sir, thirdly, so we have, in current quarter, done some investments regarding sales and delivery. So for next year, what will be the some of the specific areas with regards to investment and how do we like expect the margin to be as some of the one-offs which were during this year like lower travel and some of the other expenses, which should come back in next year as well? That's from my side for now.

Hardik, thank you, and there are a lot many questions. Let me try to answer them one by one. On the Q3 margin, as you look at what we have on the EBITDA and the PAT, for -- on a Y-o-Y basis for Q3, the EBITDA grew by 82%. And our PAT grew by roughly around 48%. And on a quarter-to-quarter compared to last quarter, the growth was roughly around 64% and 21%. There was substantial growth on EBITDA on both these things. Of course, for 9-month period, it was much higher. Regarding our growth levels for next year, I think this year, we have not really gone to our previous growth levels. We are still maintaining a healthy growth in areas like U.S., India and APAC, while we have also kind of some amount of deceleration in territories like EMEA. Next year, we hope that by April, we should be in a position that all the international travel can restore to a substantial extent, and we can be in fact of clients to pursue the deal momentum for new deals as well as good mining opportunity in existing accounts. So we should be coming back to our average growth rates, which have been more in the range of 15%, 20%. So that's where we look at next year. In terms of -- sorry, go ahead.

No. Sorry, please continue.

Yes. In case of deal conversions, I think there are still challenges because especially with the customers who have not seen Newgen before, the new logos, what we call purely the relationships we don't have. Still, we don't have enough face time and enough control on those accounts to have -- so the conversions are still a challenge. Having said that, we have maintained that we have -- in first 9 months, we have closed roughly around 50 new logos. And next year, we think this should be substantially better as we can be in front of the client because the demand is there. I think the need for our kind of products and the way we are partnering in the new initiatives of low-code or digital journeys, we see a strong need out there. So we should be able to build on that. From investment on next quarter, I think, as we had announced in the previous quarter that we would be looking at increase of our salary costs because we have gone ahead with the increments. We have gone ahead with planning certain recruitment for our next year. We are also building some capacity on the leadership side. We have invested in that. So we'll continue to have some more investments in that. So our costs on the manpower side will be slightly more than this quarter by maybe around INR 10 crores more than this quarter. But also, Q4 is a larger quarter for us on the revenue side compared to Q3. So we should be able to still able to protect and expand margins on that trend. I hope I covered all 3 questions.

Sure, sir, just adding on to that. So other expenses have like reduced quite a bit in Q3. So I just wanted to -- so in previous quarter, it was -- on a similar revenue basis, it was around 26%. This quarter, it is around 18%. So just wanted to see if there are any savings which we would have done, which can come back from next quarter?

No. I think on all other expense side, so the travel still remains a challenge. So the benefits of travel will be the same. The only difference would be that we'll have higher manpower costs. All other expenses would remain on a similar track. So there won't be -- but on the margin side, we hope to have a higher revenue as well as we hope to have -- get better margins in terms of -- because we won't have the costs of onetime tax adjustment, which we did, that will improve our PAT margins.

[Operator Instructions] The next question is from the line of [ Piyush Chadha from Serendipity Software ].

Just wanted to clarify, could we look for year-on-year growth in the fourth quarter of this financial year?

Yes, we would look at a single-digit growth in the fourth quarter.

In the fourth quarter. Also 1 request, a lot of IT companies tend to give constant currency growth numbers, et cetera. Could we provide some of those numbers? Or do we already do that? I couldn't find them in the presentation.

No. We don't generally provide that because the numbers have not been in terms of -- that has not been a major impact in our -- but I think on the constant currency, I can share you. We are roughly around 1% down on the constant currency, while we are roughly around 0.5% up on the INR.

Okay. That helps. I mean as you grow more global, that information becomes increasingly more valuable.

We'll try to get it into the presentation.

[Operator Instructions] The next question is from the line of [ Ashok Kumar ], retail investor.

Am I audible now?

Sir, if you can speak a little louder, please?

Yes, sure. Sure. Is this good enough to continue the question?

Yes. Sure. Go ahead.

Yes. So first of all, congratulations on good set of numbers and also being maintaining the previous year's sales momentum. My question is, I have got in 2 parts. So one is majorly on the cost rationalization activities, which we have taken because of the current challenging situation. So if I understand correctly, overall, for the 9-month period, we have saved almost INR 69 crores of the cost, I mean the overall cost compared to the previous year numbers of the 9 months period. So I just want to understand, out of the INR 69 crores of cost rationalization saving, which has happened, how much will be sustainable going forward? That's my first part of the question. And second part, in terms of the revenue growth for the next year, I think it has been answered already, but how about the overall industry situation in terms of our products and demand coming back to the previous levels of 15% to 20% growth going ahead? And maybe if you can give some color on the Q4 growth, that would be really helpful.

Okay. Thanks, Ashok. I'll try to answer your questions. So on the cost rationalization, the predominant cost rationalization has been across all heads. But for us as a company because a lot of our costs are around international travel. So there has been a substantial head of International travel. What we see that a large part of that in terms of our sales travels would come back. But on the service delivery travel, there is going to be natural optimization because the pattern of work has changed. So there may not be the need of that kind of a travel. But really put a number on that, maybe a very difficult job right now. So some part of these cost rationalizations are there permanent in business, but some will come back to as the business and the sales momentum grows, we will be able to come back to that. On the employee benefit cost, I think our cost will come back to the normal level. We don't think anything. In fact, they will go up as we start growing as a company, and we'll keep on adding people on that. And so broadly, I think we would still rely on our sales, the top line growth number, and that's what we think that over next year. And part of this quarter, I think we would start with that. And over next year, we can come back to the regular momentum. That's what... On the Q4 side, generally, our Q4s have been larger quarters compared to Q1, Q2, Q3. We do expect this year to be the same, and we do expect to lock some kind of a growth over the previous number. But it will be very difficult to really put a number. We are looking at single-digit growth. And then next year, we can go for a larger growth momentum. But I think there are still many variables in that. It will depend on the whole COVID situation, Europe opening up, how much of U.S. travel can happen. So there are variables. It will be very difficult to estimate. But then demand -- on the demand side, as you understand, I think there's a demand for the whole digital, people are unable to operate in certain areas where they have not done automation. We are great partners to automate both internal systems as well as launch of new services around. That's what we have done in a lot of new customers as well as existing customers. So we will still see demand, but conversions will also need a lot of stability of other factors. I hope that answers your question.

Yes. Really not interested in getting the number for Q4. As we understand, there are lots of variables around that. But if I understand correctly, there are some cost rationalization activities which are permanent in nature. Can we understand those are significant number? Or you see that as nonsignificant in terms of our overall cost rationalization activity?

The way I would look at it for a year, which was like a flat year or a small growth year, you will see substantial cost margin improvements because, generally, you will not be spending aggressively on sales and marketing and other variable costs for growth. But on a growth year, which will be like a 15%, 20% growth here, our costs will come back to the normal level because we want -- we need to not only invest for that year's growth, also for subsequent year's growth. So on the larger time, we don't see -- we see a minor cost structures to improve over a larger time frame, but to come back to the similar cost levels as they had before.

The next question is from the line of Akshat Agarwal from Jefferies.

Sir, I had a follow-up on your remarks earlier. You mentioned that the growth outlook is primarily depending on travel opening up, so is your new logo win. And as far as I understand, some of the support revenues declined, as I said, because of the on-site asset mix changes. So if we were to operate in a scenario where things don't open up for the next 6 to 9 months, what kind of growth can we expect from the business? That's my first question. And I have another question on the normalized margin. So given that there has been a structural reset in the margins upwards over the past 3 quarters, how should one think about margins going forward?

So you're absolutely right. Our long-term growth of coming back to 20 or higher number is entirely depending on 2 things, which is -- 1 is predominantly the new logo acquisition. And we do think that new logo acquisitions are dependent on travel because for us, these are enterprise sales, long-term relationships. So there is some amount of face time. So we have done well this year, but I think bringing the momentum with the travel would be an important part of that. There's also -- a part of that is when we go into newer implementations, there's a need to travel, there's a need to support these customers on-site. There is more on-site component of the work, that's where the support revenue got impacted, and that can come back. So if we say that the whole world is again shut for 6 to 9 months, I think we will continue to still gain momentum as we have gained in Q2 to -- Q3 to Q4. So we're still looking at single-digit growth that we can push. But we think it may be difficult to push up to a 20% growth rate on that number. So we'll still look at healthy single-digit growth rates in the current scenario because the demand out there is quite strong. On the margin front, we have always explained that being a product company, we can easily look at -- overall at EBITDA level of roughly around 24%, 25% and come to a PAT margin of 19%, 20%. I think we have -- that's quite possible. And I think we are almost near that at the end of the year, and we can maintain those levels.

[Operator Instructions] The next question is from the line of [ Venkata Karna ], an individual investor.

My question is what is the percentage...

Sorry to interrupt. Sir, we would request you to please speak a little louder, please?

Sure. Am I audible now?

No, sir, you're still not very clear.

Am I audible now?

Yes, sir. You can go ahead, please.

Yes. I have 2 questions. The first question is what is the percentage of annuity recurring revenues in this current quarter? And then second question is what are the entry barriers for the competitors to get into our product space?

Thank you, Venkata, for the questions. Let me check the number. Our annuity is around 60%, right? So 60% of our revenue is our annuity revenue, which has 3 streams; our regular ATS and AMCs, our SaaS and our continuous support for these clients. So that's roughly around 60%. See, our entry barriers for every -- we are in a software product company as -- which are already playing in a very niche area of our -- anything with content, business processes, low-code. So this is a very unique area. We have been in this market for 20 years. We have a kind of a history of proving ourselves. In different markets and different verticals, we have gained our strength in terms of our installed base, our domain knowledge and other things. So entry barriers are for any product companies to compete in the product space is typically, there's a long-term credibility issue that you got to be in that ecosystem for 15, 20 years. And you can see that from any of my competition name is a guy who has been invested in these product spaces for at least 20 years. So we have established ourselves as a global brand. We are in top 9, 10 brands in our product spaces, and that's how we play. And depending on the domain and country, we have different strengths we can play. Broadly, our philosophy has been -- as our brand said one world, one workplace, enabling people to work across the globe, using -- providing them systems and what you call software to connect people and systems together. And finally, we are very good in what we do, and that's where we compete. For us, any new guys, there's a huge entry barriers because the product area is a credibility issue. You need to establish yourself. Enterprises don't buy products which have been born yesterday. They take time to evaluate them. Also these installations are typically life long installations. Anywhere I sell software, these customers end up using it for 10, 15, 20 years. So that's the kind of entry barriers we have.

Okay. And one more question is, like, in general, in Q4, what would be the percentage of annuity in general?

I think we will be at similar numbers.

[Operator Instructions] The next question is from the line of Hardik Sangani from ICICI Securities.

Now am I audible?

Yes.

So sir, with respect to the GSI strategy which we have, so lately, all the GSIs have been winning large transformation deals where they are modernizing their applications and all that. So do we see an increased scope or an increased traction in those parts of work? And secondly, in light of the current digital transformation, which anyway the other enterprises are doing, a lot of work has been modernized or digitized like RPA and all those schemes. So do we have a specific way or a specific industry, for example, manufacturing insurance or IT, BPO, where we see an extra leg of growth which we can capture?

Yes. Thanks, Hardik. So GSI is a very prominent strategy for us to grow at a substantial level over the next 2, 3 years. And we have already an established story with most of our GSIs, like Infys and TCS we have worked. And we have already, over the last 1 or 2 years, got substantial wins from there. I think now it's the time we have really invested in that. We have created a sales structure to support that, a complete enablement structure, we have invested over this year to that. And we are working now with at least top 3 to 4 GSIs globally across to look at how do we build these funnels. We have good stories of modernizing, part of their new modernization view. And some of those wins, we have been a part of their story out there. So that's a large part of our growth story. We think that's where we can work on. On the areas of digital analytics, I think we are building those capabilities in the product. We have rolled out those for multiple customers. And certain areas like banking or enterprise are our core focus areas. We're very strong in banking, but with the GSIs, we are also focusing on especially Fortune 2000 enterprise customers. And that's where we are going to focus right now. On our core verticals, we have been strong in government, insurance, banking and shared services. We are right now seeing that we'll consolidate on those 4 core verticals and through system integrators we'll concentrate on other verticals. That's our core strategy right now.

The next question is from the line of Akshat Agarwal from Jefferies.

I have a couple of questions. Firstly, sir, will you just help us understand what's driven the sharp drop in the last Saturday from a level of 180 over 3 quarters back to close to 120 now? And I initially thought that it would be because the share of government in the overall revenues have come up, but actually it's gone up. So what's driving this? That's my first question. Secondly, what has driven the sharp fall in the revenues from shared services segment? These would be 2 questions.

Akshat, I'm very sorry. I can't -- is the first question related to the DSO, you're saying?

Yes.

Okay. So I'll answer because then I'll -- please repeat the second question. So on the DSO front, we have -- when we -- over 2 years back, we had promised to the market that this was the part of function of certain geographies we operate as well as certain internal business practices. So we have tightened our whole contracting. We have really gone very aggressive on the way we evaluated deals and really pushed our internal structures to make sure our collections and revenue realization practices are very, very strong. As a part of that process, we have repaired it. Now it doesn't matter whether we are going to be in the government segment or which territory, we will continuously see improvement in these areas. So this is a structural change, which is across all areas of operation we have done so that we bring the DSO back to the normal, which is a committed 120 level. So from here also, there may be a quarter variation because of the variation in the quarter revenues. But over a larger period, we'll still see this significantly coming down over the next 2 years, 3 years. So that was about DSO. Does that answer what you asked?

Yes, it does. My second question was on the drop in the BPO/IT revenues, the shared services revenue, this quarter?

Yes. So there's nothing specific to that. I think our ability to service larger customers like banks, insurance was high. Their investment on the digital side is growing right now. They've got to service their customers. While on BPO/IT side, we could not make a lot of new deals eventually. And the mining potential in that kind of a segment is limited. So we are relying on the BPO and IT growth on new logos predominantly. So that's why there's a decline. These declines are still transient, 2 large deals in any of these changes these numbers. So we don't see them as very permanent. There are -- I think the bases are quite small right now to have very permanent shifts or number to read too much. But what is more significant, that there is a -- the banking and the insurance are still growing for us. And that you will see in the overall pie of the revenue, they're still growing.

The next question is from the line of Puneet Saraogi from Hill Fort Capital.

I just have a couple of questions. One, on the product side, sales side where you sort of think about the key obstacles in making us here. What would those obstacle things be? And perhaps a later question is, when you think about sort of internal metrics, to think about whether the client satisfaction levels are higher, like, what numbers do you look at? Is it renewal rates? Is it conversion rates? I'm just trying to figure out how to think about this product side business in a better way.

See, on the product side, I think every product has got huge coverage. So it's like -- the same is true for us. And -- so what happens in certain verticals, you end up becoming very strong depending on the case -- use cases you handle. And the challenges you will have on the product side is kind of the next level opportunities which we are going. So like some of the challenges for us that now we are going to sell-through GSIs to a large extent. So we're looking at what the GSIs would expect from a product in terms of how they can use it, how they can implement it well, how they can manage their larger customers. Similarly, in certain markets, they may have different expectations of integrations or sitting in ecosystems which may be very different than the ecosystems which we have previously that could becoming core banking or ERP systems. So some of our challenges -- predominant challenges would be around upgrading these areas in the product. Making product more user-friendly to people, making it more user-friendly to sit in ecosystems. And that's what we are working continuously on that. On the metrics for -- to understand customers -- so on the -- we have a third-party customer satisfaction survey, which we do every year. It does across various dimensions about right from the user group to the decision makers. And that's where we look at various aspects of our business, right from product to service delivery to our engagement and all the way up to the billing and how we deal with the customers. So that's 1 input for us. The other input is typically we track in terms of our larger customers, which are like -- which do give us an annuity of more than INR 50 lakhs, their retention rates because that's very essential for that. So out there, we are able to have 90%, 97% retention rates for all those customers at that level. So these are broad 2 parameters, which we look at it. Does that answer your question?

[Operator Instructions] The next question is from the line of [ Piyush Chadha from Serendipity Software ].

Once again, I just wanted to learn a little bit as to what the -- where does our product sit. Do we have business logic as part of the product? Or is it mainly -- or is it in the infrastructure layer and the business logic is either the DSI or the user's responsibility?

So predominantly, this is -- I think there are multiple categories of product. We come in a category which is called enterprise content management and business trust management, and lately getting pushed towards low-code. These are products which are bought as infrastructure by enterprises because they have plans to use them -- these products across their business lines and business operations. So a lot of the domain or the business logic is built over that, and it's a different way of doing it -- things over a period of time. These spaces are roughly around $20 billion market in these product categories, which is expanding with low-code to a much larger number. So there's a recognition around these product categories. And I think there is -- there are enough coverages from industry analysts like Gartners and Forresters of the world who track these categories of enterprise content management, business trust management and low-code. And they do eventually evaluate all the products and we have been in that space for... So for end customers, they buy these platforms for multiple users. Sometimes they can buy it for a tactical use to start with, but the whole idea is that they will roll it out around various processes. So the example would be in a bank, our platform could be used to transform their digital lending because we would sit somewhere in between their customers and their internal systems and orchestrate their work. Same could be true in insurance, it could be around claims, policy servicing. In a BPO, it could be around processes which they're outsourcing. It could be in FN -- financial processes. In government, it could be around student services. So the use cases are multiple. But predominantly, we are typically an infrastructure to orchestrate systems, people, processes to a very differentiated technology of building systems for change and building them fast.

I appreciate that. This is valuable. So a key component of revenue growth should then be mining of existing logos because as you expand the number of seats for licenses sold to a logo, your revenue should go up?

Yes, you're right. So there are 2 things. One is that in an enterprise, we have a play of reaching -- traditionally, our entry levels could be anywhere between $100,000 to $200,000. Now over the time, the larger accounts can have grown up to an annuity of $1 million, $2 million. That's the expansion. So sometimes it takes 1 year, 2 years, 3 years, 4 years to do that, but that's the predominant growth, 1 area. For any product company, since we are clearly specialized in the area, we need to have more logos to make that sale. For both our growth drivers, new logo acquisition because for future expansion, but also -- so we do get almost 40% of our license revenue comes from our existing logos.

From the existing logos. And do we have an annuity-based license policy? Or is it like a onetime upfront payment?

So we have -- so I think annuity, we have -- I think the markets like U.S. and Europe are more receptive to annuity and cloud subscription-based pricing, while there were some of traditional markets in EMEA and APAC. So we have both the models. Most of the customers who are coming in new market territories like U.S., Europe, Australia, will be based on annuity. And some of these existing customers in these areas will also shift over a period of time. Right now, we operate on both models.

Fair enough. Just a suggestion. We've seen similar infrastructure layer companies do extremely well through creating sort of quasi centers of excellence that demonstrate the use cases of their products in the top tier, the best clients. That's been an effective way of selling products that come sit between core infrastructure and business logic. Are we putting these in place, too?

We have a lot of infrastructure too, but we right now demonstrated to the end clients when there is an opportunity and when clients want to discover that. So we have all these systems available on cloud for people to try it out, our solutions guys to demonstrate that.

The next question is from the line of [ Nikunj Mittal ], an individual investor.

So I have a couple of questions. The first is around the patents that we have applied for and received. Could you shed some light on how this technology expertise gives us an edge and what the patterns are about? Something more on the technological front on this line would help a deeper understanding of that. And the second is about the foreign exchange fluctuation in this quarter and also your general hedging strategy regarding foreign exchange receivables. So these are my 2 questions.

Thanks, Nikunj. So on the patents, I think the best would be to probably get into the patents, you can get from the site and look at all the patents. So predominantly, what happens in product companies, the core technology components which are proprietary to us, we protect them through patents. These patents, they don't have any direct commercial relation as of now. But over a longer period of time, you are able to protect your interests. That's the whole idea. So we are going and patenting things which are very critical to our products and technology. Imaging is 1 forte we have, processing of information is another we have. So most of our patents will be in that area, what we apply. On the foreign exchange, we have some amount of natural hedging through expenses, which we have in foreign currency. And then there is a part of what we call PCFC, packing credit -- export packing credit, which we keep on revolving. So those are 2 strategies. And lately, we have also started with some amount of hedging. And -- but with these, we are able to manage large -- around 60%, 70% of our exposure.

Okay. So there was some big fluctuation in this quarter regarding the foreign exchange. What was that all about?

No, I don't think there was. So could you explain to me what are you referring to out here?

I mean in terms of the run rate we've had for the net figure that came down on the profit and loss, the effect was there because of a hit on the foreign exchange fund, if I remember correctly.

It was on -- effect of a tax. So we had a dispute going on with tax authorities for -- since 2015 around withholding tax. And that was, through this Vivad se Vishwas, our lawyers told us to settle it, it would be a better time to settle, and we settled that.

Got it. And just one last question as a follow-up on my previous one. So this whole digitization documentation business is pretty much a commoditized business and has been there for, as you said, over more than a couple of decades. So I mean, these patents over the technology that you're talking about, which is giving us an edge. I mean I'm not understanding that part. I did visit the website, but I couldn't get as to where that edge lies. If you can just deep dive a little bit on the technological side of it?

See, like other question is, like database has been there for 20 years, but still people buy an SQL and Oracle server. But what they buy and use it for, those needs have changed. Similarly, in our areas of content management, business process management, similarly, there are shifts that are happening. The way consumers are consuming the technology has changed. A lot of things is to do with analytics these days. A lot of things are to do with low-code technology in our platforms. So there's a shift around that. And that's what we are able to protect through patents. That's what we are able to invest in building those technologies. So though the area we operate right now, predominantly, our use cases are driven are around digital low-code initiatives, where enterprises are having strategic goals and they want those things to be rolled out in 4 weeks, 6 weeks, 12 weeks, mission critical applications. And that, we have a great set of tools and technologies by which we can build them rather than a traditional way, where they would take 9 months or 1 year or 2 years to do. Now to do that, there are a lot of underlying products and technologies which we have. That could be the products in capture and origination systems, it could be in analytics and processing, then it's about content store and it's about orchestration. So these stacks are very, very wide. So probably if you can look at or if you can contact our investors, they can give you a lot of material about what Gartner and Forrester, how they define that area, where are the opportunity areas because that's my play. That would be a better way to explain that.

And that was the last question. I now hand the conference over to the management for closing comments.

Thank you so much for joining us for the call. For any further questions, you can connect to me or can look at the website for further details. I wish everyone a happy New Year once again. Stay safe. Thank you.

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