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

Ladies and gentlemen, good day, and welcome to Newgen Software Technologies Limited Q3 FY '22 Financial Results Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Ms. Deepti Mehra Chugh from Newgen Software Technologies. Thank you, and over to you, Ms. Chugh.

Good day, everyone. I'm Deepti Mehra Chugh, Investor Relations, Newgen Software Technology Limited, and I welcome you all to the Q3 FY '22 results of the company. Wishing everyone a happy New Year, and I hope everyone on the call is keeping safe. Joining with me today on our call is our management: Mr. Diwakar Nigam, Chairman and Managing Director, Newgen; Mr. Virender Jeet, Chief Executive Officer; and Mr. Arun Kumar Gupta, Chief Financial Officer. Before we move on to the discussion, let me highlight that this call may 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 could materially vary from the forward-looking statements. Past performance may not be indicative of the future performance. The company does not undertake to make any announcement in case any of these forward-looking statements become materially incorrect in future or update any of these forward-looking statements made from time to time by and on behalf of the company. For any further details, you may please refer to the Investor Relations section of our website. I will now hand over to Mr. Nigam for presentation of the results, which will be followed by a Q&A. Thank you.

Good afternoon, everyone, and thank you for joining us today. First of all, let me wish all of you a happy and a healthy new year. I hope all of you are keeping safe amidst another COVID wave. For Newgen Q3 has been a quarter on the path of continuous progression amidst the ongoing uncertain environment. Our revenues were at INR 203 crores, with a growth of 9% Y-o-Y. We witnessed acceleration in business from existing customers and healthy operating margins. Our subscription revenue continues to be the strongest component, witnessing a growth of 20% Y-o-Y. Several of our subscription orders have long gestation leading to deferment of revenues. As we have mentioned earlier, moving forward, we are pushing for changes towards subscription-based pricing model only. Annuity revenues were INR 112 crores during the quarter, witnessing a growth of 11% Y-o-Y. SaaS revenue were INR 14.2 crores. SaaS growth was muted during the quarter due to the impact of period adjustment of one of our projects, one of our clients. The product license business witnessed a growth of 37% during the quarter. In terms of markets, EMEA and APAC continue to outshine during the quarter. We witnessed several expansion deals with existing customers following our land and expand strategy. Unfortunately, travel has marketed due at the same pace as we had anticipated at the beginning of the year. In the U.S., revenues have been stable. Revenues last year included catch-up revenue related to PPP logos, which are not there anymore. Overall, we added 17 new logos. Some of these logos are still in the process of being built currently. We continue to help our existing and new customers in creating digital capability across the modern day business needs. Our key orders from new and existing customers during the quarter include cloud order for a captive premium financing arm of a leading global automobile manufacturer; project for a diversified financial services company in the U.S., providing a full range of commercial banking, consumer banking and wealth management solutions; cloud orders for a leading specialty finance provider in the U.K.; and Ireland from Newgen's automation platform to enhance its premium finance process for business insurance customers; customer mining for additional license business from one of the world's largest investment management companies; order from an existing customer in Singapore, which is part of the leading international banking group. Moving to update on our offering and opportunity. During the quarter, we launched an upgraded version of our industry to recognize low code process automation platform, iBPS. The latest version enhances personalization option of end users and provides an upgraded rule engine for improved decision making. Further, the platform offers improved data handling, enhanced capabilities with robotics, process automation, deployment, containerized deployment, upgraded mobile app capabilities and more. Reinforcing our strong solution in the industry, we continue to receive additional analyst recognition during the quarter. We are positioned as a visionary in the 2021 Gartner's Magic Quadrant for content services platform for our ability to execute and completeness of vision. We are positioned as a strong performer in the Forrester Wave for digital process automation software Q4 2021. This recognition further validates our commitment to drive product innovation to facilitate end-to-end digital transformation. We now have 22 patent grants in place. We were granted a patent for invention entitled centralized control, printing and administration. We were also granted a patent for an innovation entitled Integrated Capture and Analysis of Documents. This patent protects the invention to automatically capture the best quality document in imaging using mobile or tablet devices with the help of real-time calibration of various parameters. As further step to tap the growing enterprise IT business in the space of artificial intelligence and machine learning, we are happy to announce that Newgen is acquiring India-based #3 and AI under data sciences platform. Company subject to completion of conditions as stated in the approved share purchase agreement. This acquisition is expected to further strengthen Newgen's low code digital transformation platform with AIML, modeling and data analytics capability. We look forward to accelerating our journey in data science and AIML domain with this acquisition. On the operational front, last quarter, Newgen's senior management and other teams were back in office. It was worth to have face-to-face meetings, the team had participated in personal events. However, we have again been forced to moved to work from home for the time being till the situation is stabilized. Collective safety and productive working are kind of moving for us. We shall review the situation and make changes as warrantied from time to time. As the situation improves, with the impact to the hybrid work model ensuring productivity, cultural accumulation and offering flexibility of the same. We continue to remain focused on long-term talent development and its utilization. During the quarter, we have also come out with an RFP scheme for employees. On the sales and marketing front, we are continuously working on building our focused alliance with GSI. We are driving sales and marketing activities and campaigns, as well as joint solution development with our partners. We are working on our GSI pipeline. However, as mentioned last time, the contracting period of some of these projects are inaugurated. On the profitability side, despite the escalation, we have delivered another quarter of healthy margin. Our EBITDA was INR 58 crores, and profit after tax was up 35% Y-o-Y at INR 48 crores. EBITDA decreased on account of normalization of cost base compared to last year as well as increased remuneration to manage attrition. We continue to invest heavily in our global expansion of our products and in our people. During the quarter, R&D expense comprised about 10% of sales and sales and marketing expenses comprised 20%, as usual. Our balance sheet is strengthening with every quarter. Our cash and bank balance and investments when put together amount to INR 479 crores and the net cash generated from operating activities was at INR 147 crores for the first 9 months of the year. Our data days continue to show improvement. Our net trade receivables were INR 184 crores at the end of December, which resulted in net DSO of just 90 days on back of sales and collection improvement. For the 9-month period of this year, revenue from operations were INR 548 crores, up 16% Y-o-Y. Annuity revenues were at INR 331 crores, witnessing a growth of 16% Y-o-Y. Our subscription revenue witnessed a growth of 19%, EBITDA was INR 127 crores and profit after tax, up 45% Y-o-Y at INR 107 crores. Looking forward, the demand environment continues to be robust. The GSI engagements are positive. We look forward to the integration of number theory with our platform to boost our customer image. With this, I end my commentary on the results and wish you a safe and happy year ahead. We now are open to question and answer. Thank you.

[Operator Instructions] The first question is from the line of research team of Carlin Asset Advisors. Hello?

I have 2 questions pertaining to the growth aspect. So when I look at geographical breakup of our revenues, right, when I see the India revenues. So we have been in the range of INR 59 crores to INR 60-odd crores here and there for quite a few quarters now. So if you could help understand that. And also in the U.S., you did mention that there was some one-offs. If I understood correctly, in Q3 FY '21, but again, when I look at U.S. region as well, our revenues need to be quite stagnant for the last few quarters. So if you could help understand how our revenues are moving in line with the traction that we have from global system integrators. That would be pretty helpful.

I think there are 2 parts of your question. One is about the segmentation of revenue. As you have seen, I think the growth predominantly has been driven from this quarter, India and Middle East. And you're right. On the India's trend, both the COVID year and even the last 6 quarters. We have been quite muted on the site of new logo acquisition. There are 2 reasons for that. One is predominantly on the overall economic sector, there has been a slowdown in the first 6, 7 months. Rather government which has a substantial part of our India business has completely stopped or come to an halt. So the government and the new logo acquisition have been slower last 5, 6 quarters in India. On the other hand, I think we have seen a substantial improvement of sales in existing accounts in India. Most of our large banks, most of our large insurance companies are expanding their digital initiatives. And that's why in spite of the dip in the new sales part of it, we are able to maintain India revenues and growth them slightly incrementally. On the U.S., if you look at the COVID year for U.S. last year was extremely good. In fact, some of the quarters, we have between 20% to 40% growth. And as we had mentioned that, that growth was on account of our supporting the PPP initiative in the U.S. for series of packs. Since that was a onetime initiative that revenue does not come up as a cumulative year after year. So whatever subsequent growth happening is U.S. is compensating for that revenue. So the market is pretty wide out there. We continue to win logos. So that come but it does not reflect in the overall growth of the territory. On the account of GSIs and other initiatives, see what's happening is 2 things. One is some part of the U.S. revenue is getting compensated for the loss of PPP. But the other bigger part is that most of the new logo acquisitions, like even in this quarter, we had a substantial number of new logo acquisitions. Since we are shifting deliberately from onetime jerky perpetual license revenue to subscription licenses or cloud, the reinnovation of our revenue comes at least 2 or 3 quarters later, and it comes slightly in a more gradual rather than our upfront we have seen a few. Looking at all these 3 factors, that's the reason about looking at flatter revenue numbers in U.S. And while as in other territories, still there's a license business being pursued, and there are still some accounts that are delivering license business. That's why we are having growth out there. On the other hand, Middle East and APAC, both have been growing for us. And last year, COVID year Middle East was slow. This year, it was predominantly delivered for all 3 quarters and APAC has delivered in both the quarters. I hope that answers your question.

Just a few follow-up questions. So on the USA part, what was if you could help understand the amount of the onetime work that we did, what was the amount out there, which was there in the last quarter?

I think for the -- for the year, it was somewhere between INR 20 crores to INR 30 crores.

Sorry, sir, I missed out. What was the amount?

It was -- for the year, it was somewhere around INR 20 crores to INR 30 crores, but this we can provide you more details and number. So few crores for the quarter, I'll get back to you with the exact amount.

And as far as India goes, you said that basically, you're not seeing any traction from the government part of the business. So what is the outlook out there going forward now since things have started to resume and economic activity has also kind of started to pick up? So how is the traction on that front?

See, I don't think any substantial change has happened over the last 2, 3 quarters on the ground itself. Though the activities they keep on starting and they keep on stoping. But we don't see a lot of government initiatives coming in the typical spaces where they are operating. Even when there are RFPs there just -- we are sitting on those RFPs for a very, very long period of time. Unless we are really behind this COVID for at least a couple of quarters, then only it will be in a more accurate to predict how the India market will behave. But if you leave out government, the other segments are surely showing a lot of interest, both in the new financial services, as well as our existing accounts. We do see a better momentum building over next quarter on that.

[Operator Instructions] The next question is from the line of Karan Doshi from Edelweiss Financial Service.

Congratulations on a good set of numbers. So my question is that last quarter we've seen good deal wins and healthy logo additions. But some of these deals have slightly longer gestation periods leading to determent of revenues. Given that one of our key strategies is expansion in mature markets, my question is what is sort of the proportion of new deals and new logos from, let's say, North America or Europe? And can you see a spot in business in mature markets over the next 1 or 2 quarters once this gestation period for new deals end. And can they start contributing incrementally in the next 3 or 6 months?

Karan, thank you for your question. You're absolutely right, we have -- logo acquisition has improved over the last quarter as well. And you're right that since most of these logos, they don't contribute to revenue of that quarter or subsequent quarter. But you're absolutely right in 2 to 3 quarters, you will see that building up and adding to the numbers. On the number of new logos coming from mature market, I don't have the exact number, but we did have wins out there. We had wins in the U.S, we had wins in Europe, we had wins in Australia this quarter at least 4, 5. And I think some of them at least 3 were through the GSI channel. So there's a momentum picking above there. And once the base is established and the run rate is established, in 2 quarters, you see that starts reflecting it also on the top line in the numbers. Regarding exactly the number of logos we have won in mature markets, which we can send you the data.

[Operator Instructions] The next question is from the line of Akshay Satija from Alpha Invesco Research.

Sir, if you could help us how do these contracts with GSIs actually work. So we understand we are mainly into production with GSIs to provide these services. Sir, what could be the quantum of the implementation of these services and the other services or when it comes to cloud? What sort of -- is it a revenue distribution? What was the model out there for cloud-based accounts?

So thank you, Akshay. So Akshay, you are right. So what is particularly GSI contract. Predominantly, we are looking at the revenue streams, which are more licensed subscription based. They could be cloud or they could be in premise, but it's predominantly on the license side we charge. So the revenue share, it depends on the contract side. But on the long term, the long-term view of the customer is definitely, the accounts are very large. The implementation of service revenues around these clients are multiple times than the license there. But the deals could vary. The deals could be the -- initial deals could be $500 to all the way up to $3 million, $4 million. But the lifetime value for our product is typically multiplication of that license value or the upsell we do on the license. While on the service side, it could be very wide because they could be global rollouts, they could do additional services around that product. So generally, it becomes it can be any 3x to 10x to 20x in the license side.

Okay. So is it that -- so earlier, we used to do all these services. So is it that now GSIs would be taking away all these services revenue or there would be some portion that flows to us? Is there some revenue distribution kind of a thing there?

Yes. So that's 1 way of looking at it. So you're right. Since we are not executing these projects, that GSI does with revenue, and we don't do this revenue. But the other way of looking at it is that these are the accounts generally which we have not been pursuing. So this is a market which is getting opened and extended. And through the GSI's implementation, we are able to scale it as a channel. So it's not an order, we have to look at GSI as a channel whereby which they can give you multiple orders, where they are able to service. And either ways we are at a company at a smaller level at $100 million company, we will not be able to service all the global customers across all. So GSI or a partner base is a strategy which is a call for the companies. Yes, so it's a scale-based model for us.

Sir, if you could also help us how many SaaS customers do we have versus what we did in last year.

I have -- sorry, I don't have a number. But overall, we are roughly around 30-30 -- around 30 customers in SaaS right now on cloud. But on subscription license, we will have many more. Deepti can send you more data on that.

Okay. Okay. Also, sir, 1 last thing. Sir, what would be our sales team in U.S. So I believe we have roughly 300 employees in sales and marketing. What would be -- what portion of it would be in the U.S?

Overall in U.S. I think we have around 60 people.

60 people are not all in sales and marketing, but some of them are also strengthening the service element of that. But the direct, we have roughly around 10, 12 people which is direct sales. And then if you include the enablement and other things, another 20 people around that. So around 20, 25 people in the sales and sales enablement role.

Okay, sir. Okay, got it. Sir, 1 more thing. We have been talking about that the key difference between us and the competitors like Appian and Appians and data would be the value proposition that we provide. If you could help us understand is there a cost differentiation between them and us and if so, what could be the quantum of the difference?

So Akshay, this is a very long question and a long answer. See predominantly, the value proposition is around what the complete offering which we have. We have a philosophy of being the approach of low code has been very integral to what our products we have developed. And our NewgenONE positioning, if you go to our website, you can see our ability to provide content services, business process management and customer management communication as a single platform reduces a lot of cost ownership of the customers and the ability for us to execute a project in a much compressed time cycle, make many projects viable. So broadly, that is the poor value drop. And beyond that, whether it's 2x or 5x depends on the complexity of the deal and what you are trying to do in this geography. But we do provide a substantial value when it comes to competing. And I said then every company becomes experts in certain domains, and in our code domains, especially in financial services, and any content-centric business processes. We are very difficult to compete with. In fact, we end up winning most of those deals.

And Akshay just to add overall, on the cloud, I think cumulatively, we have about 45 plus logos.

Okay, on the cloud front. Okay, sir, 1 last question. Are we looking forward to launch any new platforms along with the current existing 3 platforms. Customer management or anything on that front.

Broadly, these 3 platforms are very, very large. And the potential of these platforms, we are not really -- realized fully, we are partially realizing that in certain verticals, in certain areas. As a company, we continue to strengthen these platforms and expand. But within these platforms, there's a huge space to expand, getting into more verticals, getting into more solution areas. And with our investments in analytics. And with the new approach of getting number theory which we -- yesterday even talked about, we are further strengthening our whole ML and AI capabilities in the platform and then expand in further use cases for the customer.

[Operator Instructions] The next question is from the line of Heenal Gada from ICICI Securities.

So just in for margins, if I see your employee cost as a percentage of revenue, it has actually dropped sequentially. So if you could give some color on that. And also just for understanding, please correct me if I'm wrong, do we give wage hikes during quarter 3 itself, or is it some other quarter?

Yes, Heenal, thank you for the question. So to one part of the employee cost will drop as we scale out because a lot of our revenue streams have no direct process with that, especially the license, the subscription ATS'. So it's a natural phenomena of the business. But having said that, I think there's a huge cost pressure in the whole industry about people. And last year's base cost was not the realistic cost because the costs were less. This year, the costs have slightly rationalized back, and we are looking at increasing the cost of manpower. So the salary wage hike, generally the cycle hits us in the July month. So it has -- it was part of Q2 as well as will be part of the Q3. But then that's not the end of it. I think we'll be further looking at improvement of compensations to manage our attrition and manage our people and talent. So there may be further some increase in the cost in this quarter, and that would increase the base cost for the next year.

Okay. Okay. And if I see your 9 months EBITDA margin, they come to almost the lower end of our guided range for 23% to 25% that we want to achieve. So given that we're already at the lower band and we still expect some of, I mean, as you said, employee costs to increase. And once the situation completely normalizes, we'd expect further costs as office, travel resumes. So can we say that the 23%, 25% aspiration band that you have might take a bit longer for us to see that?

No, I don't think so. I think as you are rightly pointing out, we are already in near the brand, which we had already anticipated for the whole year. But what happens is typically, since our revenue is lopsided, the margin expansion happen in more in Q3 and Q4. So in spite of taking higher costs, we should be able to deliver further small amount of expansion on the margin for Q4. Next year, generally, again, in Q1, Q2, you will not see the numbers at the same level. But in Q3, Q4, again, they will expand. So I think -- I don't think we need to revise our guidance on the net margin and the EBITDA margin. We should be able to meet around 19%, 20% and roughly around somewhere between 23.5% to 25% on the EBITDA.

So would this expansion in my understanding, is it just based on the fact that we'll have better deals going forward? Or is it some operational levers that will also improve, if you could give some color on that as well.

So this was 1 of the simple fact is generally our Q3 and Q4 are larger quarters compared to other quarters. So if you look at independently the Q3 margins, EBITDA and net margins are at 28% and 22%. So Q3 -- Q4 would have similar even if we take some amount of cost. It will still deliver higher margin. So as an overall -- for the whole year, the margins will be in the range which we have projected.

Right. No, no. So my -- like I'll put it in the other way. So I understand that your Q3, Q4 is always strongest in terms of margins. But going forward, as our travel costs and all will come back, are we depending solely on the fact that Q3, Q4 will have better revenues which is why the additional costs will be absorbed? Or are there any other operational levers in terms of reduction in some other costs that we see might help us?

Assuming for the 2, 3 things. I think one, you are right. I think the cost basis will increase then normalizes. So it's travel would normalize, but it will never come to that percentage it was before because some part of that travel some part of the operational efficiency, which has come is going to be retained, irrespective whether the market opens or that. The second part is what you see in our business model. You will see that the higher, what we call, higher-margin revenues, which are typically around annuity, which are around subscription, keep on growing always at a much higher speed than the overall company speed because they have a cumulative effect of that. So year-on-year, irrespective of the growth rates in terms of if we have the same growth rate, we still keep on expanding margins because that's the nature of the business. Unless we deploy more in the sales and marketing and our R&D. So as the business on a normal growth rate keeps on expanding margins because more than 55% of the revenue does not have any direct cost associated with that, and that keeps on compound. So the way we have projected right now, I think next few years as we grow, we will keep on investing more aggressively in sales and marketing. And then only we can maintain the margins and EBITDA margins and PAT margins around 25% to 30%. I hope that answered your question.

[Operator Instructions] The next question is from the line of Sushil Sharma from Edelweiss Wealth Group.

I just had 1 question around SaaS revenue. This quarter, SaaS revenue is INR 14 crores, 7% Y-on-Y growth. [Technical Difficulty]

Sir, currently your voice is coming muffled.

Yes, can you hear me now?

Much clear, thank you.

Yes, yes, much better.

Yes. Sir, so my question is around SaaS revenue. This quarter, INR 14 crore revenue, 7% Y-on-Y growth, 15% Q-on-Q decline. What I understand is that SaaS revenues built -- I mean the new SaaS revenues built on the existing SaaS revenue. So what am I missing here? Why on a post-pandemic start of post-pandemic 4Q FY '20. First time we are seeing this Q-on-Q decline? So is there something in billing or do you have seen some cancellation in this quarter?

Yes. So for a cancellation, I think it was a term readjustment front of the large contracts. So if you look at 9 months, our SaaS has grown at around 23% So we got a -- we had to readjust a term by which we have to readjust revenues for a particular client to the larger client. See what happens in even a INR 14 crores, INR 15 crores, if you have to do a INR 2 crore adjustment it makes a huge impact on the quarter. But if you look at the 9-month period, we still managed to go down 24%. And this is -- this quarter change, which will only be adjusted. I don't see that happening for next quarter onwards.

The next question is from the line of Nilesh Jethani from BOI AXA Mutual Fund.

So first question was on the GSI business. So I'll break it down into two parts. So currently, I wanted to understand what portion we do from GSI. Currently, when I say in 9-month period what we have done. Also, when we do ex-GSI, my understanding is whenever we enter a client, our minimum revenue what we get from them is around USD 2 million to USD 4 million. But in case of GSI, what is typical initial revenue we get from those GSI partners. So I wanted to understand the business model on that side first, sir.

Yes. Thank you, Nilesh. So see, GSI itself is new. I think last year, we started it. And right now, as an overall percentage, though, our partner-based revenue is roughly around 20%. And this change is between 23%, 25%, 18% depending on what quarter we are. So GSI as a percentage is very, very small right now. On the number of deals which we have won through GSI. I think last year, we had around 16, if I'm right. And this year, so far, if I'm not wrong we will have 5, 16 so far we would have make sure, but Deepti can get you more better data on that. Our deal sizes with GSI will matter. It could be as low as initially around $400,000, $500,000 and as high as a couple of million dollars. But those are -- we don't enter into $2 million to $4 million as our regular business. Our regular business is also are in a smaller range than this. So broadly, if you look at most of the GSI funnels, which we have right now, is around 60 to 70 cases which we are pursuing in the market, which are typically in U.S., Europe and Australia. That's where we are focusing. And we do expect that over the coming years, since becoming a substantial part of the funnel. So this overall in next 4, 5 years, contributing roughly around 40%, 50% more overall business from these large customers. But right now, it's a big leap, and we are working on it.

So broadly, today, there is no much difference in the initial business we get either from our own sales thing or either GSI business and it ranges from $300,000 to say, $500,000, $600,000.

Yes, initial deal sizes can vary, but that depends on the kind of customer with GSI. Our objective is go to Fortune 2000. So the potential generating a $1 million, $2 million benefit from that is very high compared to a mid-tier bank or a smaller account in other dues. So when we enter that account, the entry can be at $1 million or it can be at a $500,000 or $400,000. The potential of those accounts are much better. So that will be realized over 2, 3 weeks after we enter.

Got it. Perfect. And sir, would there be any difference in the margin profile via GSI? And what is that difference number?

So the margin profile is based on the revenue stream. So since it's a subscription or a licensed, these are generally at high gross margins, roughly around 90%, 95% gross margin. But it does not have to do with the GSI or nonGSI deals. Since most of the revenue of -- from GSI would be coming as licenses of subscription, so it will just add only higher gross margin business to the company.

Got it. Got it. Sir, second question was on the segment-wise revenue. So we have been off late focusing on the banking and the insurance space trying to enter into small banks or insurance company or wealth business or lower USP revenue terms. I wanted to understand on a Y-o-Y basis when I compare because our business is more comparable on a Y-o-Y basis. Growth doesn't seem to excite us. Is there a lot of churn happening of clients at lower levels? Or what is happening exactly? I wanted to understand that on a banking and the insurance space.

See on the banking and insurance space, I think last year, we had a flattish year. And so there was no growth, so there was no excitement. But I think our banking/insurance are the fastest growing segment. Even for this year, for first 9 months, the revenue growth in banking is more than 26%. Whereas, because the other -- the government and other ones have squeezed. So banking has still continued to give us momentum. So I don't see the reason that there's a concern on these segments, and they are doing very well for us and in fact they are doing very well for the whole industry right now. We do expect that in coming years, even it's becoming even stronger as we are getting more strongly positioned in banking, both on our solution or vertical side, as well as horizontally declaring our platforms to larger customers. We will see that growth momentum continue to do that. The challenge probably, I may be speculating that we are thinking about the net logo acquisition. In net logo acquisition, a lot of logo churn happens in small partner accounts. And that is where I think we don't see net new addition of logos. But on the revenue side in financial services, we have always a very healthy revenue addition. Nilesh if you want more details, Deepti can send you the banking. Banking Financial Services even this year while the company is just around 16% growth...

Got it. And so on this -- am I audible?

Yes, yes. Sure.

So on this banking piece only, I remember in the earlier discussions you had, there were some opportunity which was laid down where there are around 900 banks out there in this revenue category of USD 20 billion to -- USD 250 billion of the asset size. So I wanted to understand how well are we penetrated, what number of clients we have. I remember last time we discussed, we had around 30, 40 clients in this segment. So I wanted to understand how has been the growth on client addition side or the number remains same?

No, we have -- I think this year also we -- okay, we have not really added the amount of clients we expected to do around 20 to 25 clients a year. But so far, we have only 4, 5, 6 clients in the year. We may add another 4, 5 in this quarter. So there was a drop in the overall addition rate in the U.S. So on that segment which you're addressing, which is typically around 900 accounts of asset size, $2 billion to $20 billion asset size. So you are penetrating that market, but overall, what is happening whilst there is a huge boom in the digital in the overall IT industry. But the market, which is typically in these small banks in the U.S. don't respond the same way. Most of these accounts have been either working on the lending pay check parity program for last year and this year, they've been struggling with COVID. They don't have the same traction and same kind of a momentum. But I'm very sure as the markets stabilize and market opens, I think they will all restore and come back to that healthy growth rates.

Got it, sir. Got it, sir. And then last on the clarification, I wanted our EBITDA margin guidance remains at 23% to 25%. Am I right?

Yes.

And any guidance on growth?

See growth, we -- this year was to come back to our historical around 20%. I think Q1, Q2, we did meet around that number. And Q3 was slightly a larger quarter, and also we had some issues in there is some geos where. So we are still trying to push back to the last year, previous year's growth. And let's hope where we are. Right now, we are around 16%. Let's see over the year close. Maybe difficult to predict right now.

So I think travel also hasn't started to the extent that you would have otherwise planned.

[Operator Instructions] The next question is from the line of Rahul Jain from Dolat Capital Markets.

I have a question which is related to we can gear this demand traction for SaaS-based low code offering in many companies, especially in the Indian IT services side as a very strong tailwind from the implementation opportunity perspective. And as a result, we have already seen the growth rate for these companies have significantly increased versus what they've been doing in the past. So with that background, do we see that it would be visible for us where we can say that our growth for the next couple of years kind of see the growth rate that you might have delivered in the pre-pandemic period.

Rahul I am sorry, you're not very clear towards the last part of the question, but if it's about the growth, overall growth rates of the low code SaaS-based companies, then I can take up. Is that what you're asking?

Yes.

Could you just repeat this question once.

Could you just repeat that question because I lost you by the end of it.

Yes. Yes. Is it any better now?

Yes, thank you.

Yes.

Yes. So essentially, if I have to rephrase it, basically, I'm asking, do you see any reason to think that our growth rate can be substantially better than what we used to do pre-pandemic as the same thing we are observing for the IT services players who are basically more on the implementation side of the business and is leveraging adoption of SaaS low code kind of event while we being the product side of it, is not reflecting that growth now, but is there a reason why it can happen in any time future where our growth rate of past could be exceeded in, let's say, next couple of years?

I think it's a very fair question, and you are right. There's a huge traction on the low code play. And low code is not only on SaaS, but across all business lines. Customers are expecting that to solve their digital journeys or to solve their digital problem. Low code is always deployed as an initiative. And Newgen being one of the top 4, 5 companies in the world to play in this low code area. And it's a market getting -- the second phase is should we expect growth coming out of -- I think, surely. And I think one of the most important things which we keep on repeating that, for us, since we are a smaller company and our coverage is in the accounts is limited to our product portfolio for us, new logo wins, for acquisition of new clients is very, very important. And that is not easy to do completely remote. Since most of our sales strategy was India-based or India supported sales strategy, so we'll have to go and win new logos. And I'm very sure as soon as the momentum of the travel starts back, I think the acceleration of our use case is because of low code or because of our own vertical, the financial services and other verticals were strong. We should be able to push back the growth moment, and it should translate into a demand for our kind of products. But I think we are more hopeful than the low code SaaS. We are more hopeful about the overall GSI initiatives and the partner base sales, which is picking up. And that should push us to a higher growth momentum than that which used to traditional record before COVID.

Okay, just an extension to the same question, and I have a follow-up. The -- as you said, low travel and I can understand the constraint. So can you say that the disadvantage -- or disadvantage does not exist for people who are serving the same market, let's say, for U.S. or European company being more local, is still taking advantage of adoption of low code solution since there is a limited travel constraint to them being a local? Or is it a different nature where the kind of customers we are chasing in a nondecision more given that they are working remotely? That is a bigger concern. And if the concern is point number one, then it's not -- since it's almost like 2 years we have in pandemic, have we identified ways to address this, assuming this situation remains like this for, let's say, another couple of years? So do we continue to see this as a challenge or we have rectified the ways to solve that issue?

No. I think your point is absolutely. I think surely companies which are completely very close to the mature markets and how our substantial presence do find an advantage. And that advantage comes not only from the -- or way to operate. It also comes from their existing customer base around those areas. Because most of the -- in this period, most of the growth has come around accounts which people already have and those accounts are demanding more work and more resources and more software solutions. But if you had acquire and starting new initiative, it's been all challenging, whether you are close to the market or remotely. Having said that, we have also shifted a lot of our sales. In fact, this year. So far, we have done around 34 low code acquisitions. Now this is almost 2 years down in the pandemic. So all these accounts have been operated, acquired through a very different model than the traditional model of Face Time. So we're also picking up the game out there. But I think there are 2 points to it. One is the advantage is more surely, they're able to capture the market who have already the customer base, especially the larger customers in mature markets. And second is surely, your direct presence, your ability to be close to a customer, have a relationship with the customers or the customer trusts you for placing new orders. Those things do help. So I think both play a part.

Okay. Okay. That's helpful. Just lastly if you -- you mentioned somewhere that you have a funnel of 60, 70 cases in these 3 markets, U.S., Europe, Australia. Just wanted to understand because is this more like a qualified pipeline versus a total pipeline where we could be like L2, L3 kind of, I think, last 2, last 3 kind of a thing. Because if we have mentioned in the past that we work with multiple GSI plus, we are in multiple product as well as, we are in multiple markets. So if we just have a pipeline of 60, 70, which would mean that sales percent for the GSI, it could be just chasing 4 or 5 customers at max per client. So how serious opportunity it is from the partner perspective?

You're absolutely right. So I think the overall funnel roughly is around 69 cases, and that's a complete funnel. That's all from prospect to the advanced stage of engagement and closure. So the funnel is thin. And predominantly, we have been able to penetrate or do better work with some GSIs where almost 50% of the funnel is coming from a single GSI and other GSIs are starting and exploring. So the funnel, you are right, the funnel size is small right now. It does not really do justice to the kind of potential, the overall the market has. That's what we have been trying to grow in that area. Though we don't have too many front-end sales teams for GSI and not because most of our traditional sales have been on our own lead verticals. That is banking, insurance, government shared services. So the GSI sales teams also in regions are very, very thin teams, right now. They're not expanded. So 70% of the team is still working on the business as we do traditionally, which they're selling to banking, selling to insurance companies, selling to government across these strategies. So right now, they have cases, but this funnel needs to grow to a substantial side of next 1 or 2 years.

[Operator Instructions] The next question is from the line of Rohit Balakrishnan from ithought Portfolio Management Service.

Am I audible?

Yes, Rohit. Please go ahead.

Sir, just 1 or 2 questions, one, very basic. So in your split of revenue by revenue stream, there is something which is going support niche 25%. And then there is AMC also is 23%. So can you just explain what is support exactly, what exactly involved support?

So Rohit, what basically what we look at is what we sell our software licenses. Most of these customers would start, we would charge them an, what we call an annual technical subscription or a ATS or an AMC, which is kind of an insurance to keep the license updated plus content provider. So it's a kind of that annuity generated over the license. So what happened is some of these customers which have very large implementations. They beyond -- because this part of revenue does not have any direct manpower as it's stated, it's kind of an insurance, we do contract additional support, where they have basically a team of maybe 5, some people have 10 or 20 people team to implement these projects to keep on running and executing these projects over a period larger to the time. So that's kind of an extended support. So the nature of this business is more annuity since it's more renewed, since they're already having these installations. But the profile of this revenue is more typically, their margin profile looks like a support or a service profile. That's why we call it support.

Understood. Yes, that answers that question. Sir, my second question is, I mean, you've been talking about your partnership with GSI, and that should sort of open up more doors for you in the Western markets, like in the U.S. So just want to understand and please correct me if I'm wrong, maybe may review is wrong, but in terms of -- just from a GSI point to what is -- what do we -- there -- I mean what is it done for them to go for somebody like Newgen. When you have others probably, as you were explaining earlier that you have other players who are closer to the customer itself. That is present in the rational market, there is a whole market for them. So in the overall balance of power, or to put it differently, what is it -- why is GSI want to go over suppose versus Newgen versus somebody who's already well established. Making it much more tightly more difficult for them to sell as well as other more established players.

So I think this is a very typical question for where we always keep on facing this question. And the answer is very simple. So see will the market for our kind of production solutions and that's the 20 million ton market, so there is a demand. Of course, when GSIs are with customers, they're also competing for these values. So it's not that these orders are available to them. The customers is a demand, so GSI is providing a solution and he has to choose one of the proud players. Now the 2 most important things for the GSI out there are one, is the customers' acceptance of the product. Now this customer acceptance comes from the brand, so with our presence in Gartners and Forresters for the last 12, 15 years, I think that will surely qualify that. No customer can ask future views in because we are among the top 3, 4 players in the world around these areas. The second most important thing for the GSI is the probability of succeeding and the support he gets. That is where we score. Since most of these GSIs over last 8, 10 years, we are extremely successful cases. They have been in India, they have been in the Middle East, APAC, and they have now taken these initiatives outside India. And with some of these successes which has been kind of a marquee wings for the GSI also, they have realized that with Newgen, the potential for success, the value they get to the customer, and the surety they have about delivering solution is very, very high. And that's why they are able to take you. That doesn't mean that we don't have to fight. We still have convince the product, we go and sell to the end customers, we have to convince both GSIs and their end customer about the product. But there's a clear-cut choice. Given a choice to start certain GSIs in certain areas, they will prefer Newgen today. But that doesn't mean they will always put 100% time always push up Newgen. But we don't need that. We need most of cases, we are able to push, we should be able to succeed.

Got it. And sir, this are you sharing the range of the GSI that you're partnering with or you're not?

No. We don't have disclosures about that, but I think we can surely, Deepti can work out about details and whatever permissions we have got for which deals we can share those deals with.

Ladies and gentlemen, that was the last question for today. I will now hand the conference over to Ms. Deepti for closing comments.

Thank you so much, everyone, for joining in the call. For any sort of queries, you can connect to me any time or go through our website. Thank you.

Thank you very much. On behalf of Newgen Software Technologies Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.