Persistent Systems Limited (PERSISTENT) Earnings Call Transcript & Summary

Ladies and Gentlemen, good day, and welcome to Persistent Systems Limited Conference Call for discussing acquisitions of SCI Fusion360 and Shree Partners. We have with us today on the call Mr. Sandeep Kalra, Executive Director and Chief Executive Officer; Mr. Sunil Sapre, Executive Director and Chief Financial Officer; Mr. Jaideep Dhok, Senior Vice President, BFSI Business Unit; and Mr. Saurabh Dwivedi, Head of Investor Relations. [Operator Instructions] Please note, this conference is being recorded. I now hand over the conference to Mr. Sandeep Kalra. Thank you, and over to you, sir.

Good morning, good afternoon, good evening to all of you depending on where you're joining from. We hope you are doing well and keeping safe in these times. As you know, we announced the acquisition of SCI and Shree Partners yesterday. So this call is focused on the acquisition details. We will not be talking about our current quarter given the silent period, and we would request you not to ask any questions about our current quarter as we go along to the Q&A session. The way we have structured this session is we have 4 of us on the line. We have myself; our CFO, Sunil Sapre; Jaideep Dhok, who is the Head of Engineering for our BFSI segment; and Saurabh Dwivedi. Just to refresh everyone, for those of you who are new, at Persistent, we are roughly at about $600 million run rate for trailing 12 months. The last quarter for us was roughly about $167 million. We service about 350-plus customers globally with an employee strength of 14,500-plus. Now jumping into our M&A strategy that we have been saying over the last many quarters, just to refresh all of you. We have said there are 3 pivots for our M&A strategy. We have talked about going deeper in the industry verticals that we have, capturing the high-growth segments wherever we have complementary capabilities from a target acquisition perspective, bolstering our existing capabilities from a service line perspective, going deeper into any of the areas, whether it is cloud, data, security, sales force and the likes and expanding our geographic footprint. In line with this, we have announced a couple of acquisitions yesterday. And let me go through the details of these at a high level. So first of the acquisitions is a company called SCI, which is an affiliate company called Fusion360, the 2 of them are 1 entity. They are focused on the payment solutions market in North America region. They have been in existence for 30 years. They are, in terms of the domain side of it, at the heart of the banking system. They are experts in payments around the ACH side of it, check processing, corporate payments, the gateways and the new payment rails as well that are coming up. For us, if you look at it, BFSI constitutes roughly about 35% of our annual revenues. And given the 35% that we have in BFSI, we are wanting to get more deeper into certain areas, which are at the heart of the banking system. And payments are absolutely at the core and they are the most profitable business for any bank. And given all the changes that are happening in the banking system, this aligns very well with the forward-looking strategy of many of our customers. Now as far as Fusion360 and Software Corporation are concerned, they started off with doing work around IBM FTM, which is IBM's product, the financial transaction manager, focused on the large banks. And they have a pretty good footprint in the top 20 banks here in North America. As they went along, they have, by the virtue of working with FTM, being integrating with many different products and platforms and off-late they have also been working on payment modernization for many of the customers. In terms of the revenue for financial year ended December 2020, SCI and Fusion360 were at $17.1 million, and they have been growing at roughly about 12.5% on a yearly basis. They are 100% focused on North America. They have 10 of the marquee customers, which we would categorize as among the top 20 banking customers in North America between the U.S. and Canada. And if we look at their employee base, there are roughly about 90-plus people based in North America. So their headquarters are in Charlotte and that's where I'm taking this call from. And they have a pretty good footprint in terms of an office, employee base and capabilities and a lab here in Charlotte. Now when we come to Shree Partners, it's a small company. It's a $7 million company for financial year '21 ended, roughly $7.6 million. Now interestingly, Shree Partners comes through us -- to us through a vendor consolidation deal that we have won at one of our larger customers. This is a 5-year deal, and we will announce the details of this deal as we announce our results at the end of the quarter. Now when we were doing this vendor consolidation exercise, this was a proactive outreach from Shree Partners. Basically, the customer where we were doing this vendor consolidation was responsible for roughly about half of their revenues. And so it was a very sweet fit for us, and it had the blessings of the customer as well. So it made sense for us to acquire them from that perspective. They also bring in good capabilities and a couple of other good customers, among others. This relationship with Shree Partners also gives us a footprint in the National Capital Region of India. If you look at Persistent's presence in terms of delivery centers and otherwise in India, we are focused between Nagpur and down south from there, between our locations in Nagpur, Pune, Bangalore, Hyderabad and Goa. So this is a very complementary addition from having our first foray into the northern side of India. And we have a full intent of going big using this as a seed for our sales in the National Capital Region of India. Now with this, let me go a little bit more into the strategic rationale for these deals. Now if we look at it, as I alluded to before, and we will have Jaideep talk a little bit more in the later part of this call. For us, this allows -- the SCI acquisition allows us to get into the fast-growing sector in terms of IT services for payments, and it embeds us in the transformation agenda of our BFSI clients. As Jaideep will kind of walk you into the details. A lot of our customers are moving on to the cloud part of it from even the payment side. And many years -- so if you look at, let's say, 5 years back, nobody would have wanted payments to move on to the cloud. Today, everyone is talking about cloud initiatives. And even in our relationship with the largest customer that we have, we have been working on taking the FTM onto a hybrid cloud using the OpenShift technologies from them. So it's a very complementary fit where we have been doing the cloud enablement, the hybrid cloud enablement for the FTM product and these guys from SCI have been working on taking it to the banks. And as we see the pipeline for going from, let's say, the version 3 of FTM to version 4, which is basically a cloud-enabled version for FTM and doing integration with multiple different payment systems because in any banking system, you will find there are not just 1 product platform. There are many different platforms based on the use case. And that's where this fits in, very, very complementarily to us. So in our mind, there are 3 legs to the stool. One is the entire complementary relationship between us developing the product and getting the professional services and the inroads into the customers. Second, we get roughly about 10 of the marquee logos among top 20 banks in the U.S. and Canada put together. Some of them are common customers, but most of them are not. And that ways, it gives us a footprint for us to take payments to our customers as a service, and it gives us a very good complementary ability to go and mine the customers, some of which are the absolute participation among the top 10 banks here in the U.S. where we don't have a footprint as of this point in time. Now if we look at the other side of it, from the geographic footprint, SCI has a very good footprint in Charlotte. And so that ways, Charlotte is the most important emerging hubs for banking financial services with headquarters of some of the top banks and their regional banks also being here in Charlotte. So that perspective, we get a very good footprint between our existing employees and the new team that we are inheriting and that gives us a fairly good presence to be able to mine. And from a Shree Partners' perspective, I talked about how it gives us a new point of presence and also makes us more strategic to one of our existing customers. Now this set of transactions also gives us a good leadership team to add to. So from our perspective, Keith Sides, who's the CEO and President at SCI; and Eric, who is the President at Fusion360, both of them will be the leaders for us. And as you would have seen in our press release, we have announced a payment business unit. So Keith will lead the payment business unit. The entire initiative would be about, number one, integrating the 2 organizations; number two, going deeper into their customers and our customers; number three, doing some tuck-in acquisitions, et cetera, to make us even more stronger in the payment ecosystem, which is very fast evolving as Jaideep would talk in a few minutes from now. Along with that, from Shree Partners' perspective, their CEO will continue with us and so will their management team. So that ways, we also get a set of new leaders to add to our management team. With this, I will hand over to Sunil Sapre, our CFO, to talk about the financial details of the transactions. Sunil, over to you.

Yes. Thank you, Sandeep, and good afternoon and good day to everyone. Let me quickly give you a, you can say, overview of the 2 transactions. Well, you would have seen the details, and I'll also kind of go over the details of the purchase consideration quickly to refresh your memory. So the total purchase consideration for Fusion -- for Software Corporation International, SCI Fusion360, as we call it, is $53 million, comprising of $34 million upfront and balance in allowance and retention. And I will tell you the details of that also a little later. The run rate, as Sandeep mentioned, of SCI is annual revenues of $17.1 million. So the purchase consideration works out to an implied multiple of 3.1x on the revenue. In terms of the margin profile of SCI Fusion360, they have healthy gross margin, so better than Persistent's gross margin. So we'll have margin accretive kind of a situation. So far as the EBIT is concerned, as you would know, the amortization charge would be the reason for the 50 to 75 basis points impact that we see from this acquisition. As regards Shree Partners, the total purchase consideration, which is $6.9 million, comprises of $3.4 million upfront and the balance in allowance and retention, and I'll tell you the details about that as well. So with the annual revenue of $7.6 million, it is just about 0.9x in terms of the revenue multiple. And here again, it is gross margin accretive. And given the size of this acquisition at the EBIT level, the impact will be very minimum. So let me now tell you the details about the actual upfront and the amounts involved in this. So in terms of SCI Fusion360, the upfront payment is $34.45 million. There is an earn-out of about $6 million per annum, so about $12 million over 2 years, the earn out is over 2 years. So $34.5 million plus $12 million is about $46.5 million. And then the balance amount is in form of retention over 3 years. So while the earnout is over 2 years, the retention is over 3 years, just to ensure that we have engagement with the employes for a longer period. And in terms of Shree Partners, as you would have seen it's a smaller transaction competitively. But in terms of the upfront payment, it is $2.37 million in U.S. and $1 million in India. In terms of earn-out, it is $1.5 million per annum for 2 years. So $3 million in earn-outs and the balance $0.5 million is in the form of retention. That is again over 3 years. So this construct of both the deals is similar, earn out over 2 years and retention over 3 years. So that's the broad construct, and as we have outlined here in terms of the gross margin accretiveness of the transactions and so far as the EBIT impact from both the transactions put together will be of the order of this 50 to 70 basis points. And I think I will now request -- hand over to Jaideep for a little more deep dive on payment space. Jaideep, over to you.

Thank you, Sunil, and good day and good afternoon to everyone. Let me share the rationale behind why we are focusing on payments, why this particular transaction and why a specific dedicated payments business unit. As we all know, payments business is 1 of the more lucrative, more profitable revenue streams for the banks. The market research says that the payment-based revenues are likely to grow at about 6% CAGR to almost $2.1 trillion in the next 5 years, all the more reasons for banks to focus on payments and payments modernization initiatives and so on. The bigger push is obviously coming from the consumer experience as such. The global trend that we see is projecting a very solid growth across all types of digital payment products be it mobile payments, e-commerce payments or the latest trend around what is called as buy now, pay later payment, which is a very interesting combination of lending and payments. So it's a very interesting end-to-end customer journey that the banks are focusing on and there are more reasons for banks to go more aggressive on the payment modernization initiatives as such. Checks, cash, those are going down, digital payments are going up. And that's basically all the good reasons for banks to adopt technologies and go faster on that particular transformation journey. If I had to share the numbers, if I just look at certain types of payments, contract like payments in U.S., 136% increase year-on-year. Real time payments, 48% increase. E-commerce payments, 20% increase. And all these are during the pandemic times, which is where you would not see the business growth to come. But even during those times basically, the payment -- the digital payment, so to speak, have gone up. So COVID has actually, in fact, has pushed the cost towards the transformation even further. Now banks are responding at multiple levels. If you just look at the history of payment and payment rails, there are more number of payment rails, which are getting introduced. There are more number of payment modernization which are coming across and knocking the doors. And the latest trend you will see is going all the way up to central bank digital currencies, although that is still a little far, but that's where banks are exploring more and more payment options, virtual customer experiences across the globe. Now all this leads to some really fantastic time for us, close to about $16 billion, $17 billion at about 12%, 13% Y-o-Y growth in terms of the IT spend, which is where this particular transaction comes in. So why SCI, why Fusion? They bring a very core fundamental domain consulting capability around certain platforms that bolsters our presence in the payments area and it in turn elevates our end-to-end servicing capability in the banking and financial payments services space, which is where we have a larger presence at this stage. We already working in the wider spectrum of engagements across large enterprises, product companies and fintechs in the payment space, wherein we help them in transformation initiatives, more on the design and engineering side. Now that we have SCI and Fusion onboard, we are strengthening our domain and functional capability even further. We are elevating our overall value proposition, and that's where the main charter of this payment business unit comes in. We are going to focus on 3 major categories. We're going to continue implementing, upgrading and managing the core platforms, more around the established payments ecosystem that includes the likes of ACH and cards and checks. That's where the mainstream ecosystem is going to be and it is going to continue for a while. We also are very excitedly looking at the cloud opportunities, as Sandeep alluded to earlier. So while you have the existing ecosystem, there is a bigger play to move the ecosystem to cloud. Second, we are also targeting the payment transformation, where banks are trying to focus on the emerging payment products or alternative payment products such as Zelle and RTP in U.S., and those payment rails are going to undergo changes, new payment rails are going to come in, and that's all part of the payment transformation that we're going to focus upon. And finally, some of the imminent needs more from the compliance and the open banking perspective, which banks have to follow across the globe, which is what is going to add to the payments business unit focus from our perspective. Payments is a our widespread area since it touches multiple ecosystems within a bank. And we expect that with SCI coming onboard, our target spectrum will go more end to end. We believe that this is a foundation setting for our payments business unit. We will continue to build on it organic and inorganically. And this is probably just the beginning from our perspective. [ Suneet ], can we go to the next slide, please? What we've done is internally crafted a very branched up detailed plan on how we want to internalize and leverage the synergies around this particular transaction. Here is how our ambition metrics looks like. If you look at bottom-up starting at the Persistent's core expertise, we want to continue to grow our core expertise, build on the synergies by leveraging this particular transaction, and respond to the impact in the payment -- trends in payments that I talked about a few minutes back. We enjoy a very strong footprint around the digital banking mosaic working for multiple clients across enterprises and technology companies. Payment is obviously a critical component, as I alluded to in the mosaic for us, and it is only going to get a further boost from this particular acquisition. SCI's domain and functional concern capability will surely help us take reacher services and expertise to our clients. In turn, we'll also be taking our -- the host of our digital engineering services to SCI's market clients. Sandeep talked about that in that particular section. But together, what we believe is we are very well poised to elevate our collective value proposition, help our combined customer base and essentially be prepared better to respond to the payment trends that are coming across all our way. Thank you, Sandeep, and back to you.

So with this, we would like to open for question and answers. So over to you, moderator.

Thank you very much. We will now begin the question-and-answer section. [Operator Instructions] First question is from Vimal Gohil.

I hope I'm audible?

Yes, you can go ahead.

Yes. Sir, my first question is, if you could just give me a broad split -- and by the -- all my questions are related to SCI. So if you could just give me the broad split between how much would be the pure payment solutions business versus FTM, broadly?

So FTM -- so Vimal, FTM is a software that enables the payments business. So the entire business that SCI and Fusion do is only in the payments domain. Out of that, about 75% to 80% is around FTM and the rest about 25%, 30% is around other payment rails, implementations or integrations, whether it is Zelle related or other similar products and so on.

And sir, how much of the business would be pure consulting-led and how much would be pure support services, et cetera?

In the mix, roughly about 30% of the revenue is consulting, 70% is implementation and support.

Okay. Fair enough. And do you -- will this -- is this consulting piece expected to sort of increase going ahead as and when we sort of improve our engagement levels with our clients?

Absolutely. So look, if you look at the SCI side of the house, at $17 million run rate going to $20 million or whatever it is, obviously, their investment capability was limited as a small company. Now with our aspirations and the ambition metrics that Jaideep showed you, our intent is to definitely go double down on this and expand our capabilities beyond what they have today, and we will be absolutely doubling down on the consulting side. And obviously, the downstream revenues are bigger than even consulting.

Right.

Our ambitions are fairly significant in this space. As we go along, you will hear about those in our quarterly calls, and we may also do more tuck-in acquisitions.

Right. And sir, if I were to observe the growth rates for SCI, they are sort of hovering at around 12%, 13%, which is what we've grown at over a long period of time. And given the fact that they are in a space which is growing, which is expected to sort of grow quite fast, do you expect this growth rate to improve. And given the fact that they have been in this space for quite some time, could you help us understand why the growth rate is sort of -- I mean it intuitively feels that the growth rate is sort of under par. And if at all we are expecting an improvement, why would that be?

Sure.

The other part of the question is on margins, if I may continue, sorry. It's for Sunil. The 50 to 75 basis point EBIT margin impact will sort of away as and when we get the advantage of operating leverage, right? So the 50 to 75 basis point is only for the current year, that is FY '22, '23?

That's right. Vimal. Yes, we are a growing company. As you know, there are a lot of moving parts. So when you do a transaction, you have to estimate what it will mean in the near term as the business expands, obviously, the impact will reduce.

So Sunil, I'll answer the first question. So Vimal, you have a good question. Look at it this way, a company which is a privately held company with its own funds as a source for their expansion. Even if the market is big and they are expanding at 12.5%, they are happy with that. That's good for them at their levels. For a company like Persistent, which is at $668 million run rate from a last quarter perspective, and with significant cash reserves, our aspirations are very different. And our ability to invest and expand is very different. To give you a parallel example, we acquired CAPIOT, CAPIOT was a $7 million company. You can go into their historic financials, whatever it may be. Today, parts of that business is growing at 20% quarter-on-quarter. That may not have been their growth rate for a year. So it doesn't matter what SCI and Fusion's growth rate was before, combined with Persistent what the possibilities are, our real estate of customers, their real estate of customers, the synergy revenues, the possibilities of adding more tuck-in acquisitions. And that's where we are forming this payment business unit and where we are making Keith Sides, who is the CEO of SCI as the head, working with Jaideep, to expand that. So from our perspective, look, the beauty is in the eyes of the beholder. We see a lot of possibilities, and we are confident about taking it and expanding it multifold.

Next question is from Mohit Jain.

Just 1 question again on SCI. I noticed on the website, there was also some partnership with Microsoft. So just wanted to check, is there something on the Microsoft front also in this whole setup? And what can we expect from there?

Sure. So if you look at it, Mohit, see, there are a few things that are happening at a bigger picture level, and then how Microsoft fits into that. So if you look at the payments ecosystem, everyone is talking about modernization. And when they are talking about modernization, they are talking about cloud enablement. And when they're talking about cloud enablement, they're talking about multicloud. And that's where the story about the work that we have done on OpenShift on FTM and other products. The story about multicloud, whether it is Microsoft or AWS or other clouds that are lead fits in, and that's why this relationship with Microsoft fits in from a cloud enablement perspective and so on. So hopefully, that answers.

So this would be FTM hosted on Azure kind of a scenario?

So FTM will be enabled by OpenShift to use multicloud. So which can be Azure, which can be GCP, which can be AWS or which can be an IBM depending on which customer it is.

Next question is from Sandeep Shah.

Yes. Can you hear me?

Yes.

Yes. Congrats on the acquisition. Sandeep, just the first question, if I look at the SCI, it's in the market for almost 30 years, 3 decades. So it looks, the scale-up is not very impressive. And what I understand is the revenue looks more sticky. So is it the FTM, IBM FTM wallet share on the market is lower versus the other platforms for the payment or you believe that more push is required in front of the client, which can happen post the integration with Persistent, which may scale up the revenue further going forward?

So Sandeep, valid question. So 2 parts to it. Number one, yes, FTM is 1 product. And look, at a scale of $17 million, $20 million companies choose their battles. So they chose the FTM battle and over a period of time, 25% of their revenues come from others. But if we look at our aspirations, our aspirations are to double down on both. And to give you an example, right now, for example, FTM version 3 to version 4, the biggest change is hybrid cloud. And we are very key participants in engineering that story. SCI fusion is very key to taking that story to market. But at their scale, at a scale of 90 people, they can do what they can do. And at a scale of roughly 15,000 people, we can take that and multiply that multifold and that's where the journey on FTM side is. Now non-FTM we are already engaged, they're already engaged with multiple other participants in the market. And so the next story is how do we take the other part of the story in terms of non-FTM things, and that's where there's another TAM. And so there is 3 or 4 different synergies here. And look, they have grown, and they are satisfied with their growth for the last what many years. You have seen our story and you have seen our growth. And our aspirations, we are clearly saying this is an investment that we are doing, and this is the start of an investment, not the end of an investment. So we are very bullish on this, and we are very confident. We have done our due diligence, and that's why we have acquired this company because we definitely feel we can take this TAM whatever is the addressable TAM, even if you get a small sliver of it, the growth that we want will be there.

Fair enough. Second, just if I look at our relation, which is also very strong with the IBM. So why is this decision to build the capability inorganically rather than organically either?

Sure. So 2 parts to it. One is the capability side. Second is anyone who has dealt in the BFSI ecosystem to get the top 10 out of the top 20 banks in the U.S., their NSAs, their working relationships that are anywhere between 5-plus years old deeply entrenched relationships, multiyear SOWs, that's a very different ball game. And look, from our perspective, one side of the story is about getting deeper into payments and getting deeper into the accounts that they have from a payments perspective, taking them into our accounts from a payments perspective. Second side of the story is those marquee logos that we don't have today, now we get a right or a seat on the table to go and sell our services. So the play here is far bigger. It's a very complementary play. And if invested the right way around, executed the right way around, it opens TAM not just in the payment space, but a whole lot of new market for us in banks and financial institutions in U.S. and Canada that we don't have today. So there is far more to this than just the payment and the FTM story.

Okay. Okay. And Sunil, sir, if I'm not wrong, it looks like the retention payment may pass through P&L. So when you say 50 to 75 basis point impact, that is also after retention coming into P&L or that is only the impact coming through amortization?

No. See, the gap between gross margin to EBIT impact comprises of 2 things: the retention payments and the amortization payments, right? And the part which is linked to earn out, it happens based on performance. So there, we do not expect too much of an impact on the margins because of the earn out because it happens when there is performance. So it bakes in the 3 elements. And our job is to ensure, like Sandeep mentioned, the faster growth of these things so that the margin conversion and all that plays out in that fashion.

Okay, okay. And just a last clarification for the Shree Partners, the client for where the vendor consolidation is happening. Sandeep, you said in your opening remarks, they had revenue, which is 50% of the revenue, which we get, is it correct? Or...

No. So they get -- the 50% part is of their revenue. So that $7.6 million translate 50% of that is what they get in this customer today. And the customer had 4 service providers. We were among the larger ones. We are consolidating 3 out and this is 1 of the consolidated partners. And when they knew that they were being consolidated out, they start the customer permission, approached us proactively to be acquired and so that's where the discussion started.

So out of 4, now it's only 1 vendor, which is you?

Yes. We are the primary vendor. The other vendor left is with a very small sliver that may also go away with time.

We will close this call at 4:45 p.m., we request participants to ask 1 question only. Next question is from [ N. G. N. Puranik ]. [Operator Instructions]

Hello? Can you hear me?

Yes.

Yes, yes. We can hear you.

Yes. Sandeep, you have hit up on a very promising space. The payment space is ever expanding space, it's a wonderful space to be in. It's very strategic in terms of expanding your BFSI presence, which have been very consciously doing over the last few years. So I think this -- what I want to understand is the payment value chain and how do you leverage the presence of these guys in the payment value chain in constructing a large deal, taking a current $5 million deal to $20 million deal, how they will -- this value chain will play an important part? Also in terms of getting in any M&A, the upstream, downstream, particularly in consulting, how do you get the downstream revenues going is important. So there, you would become extremely relevant. How do you expand the deal? How do you cross-sell in a deal? I would like to understand that.

Sure. So I'll let Jaideep answer the first part, and I'll come in for the second one. Jaideep, over to you.

So payment, as I also said earlier, when I explained the why part of this particular transaction is payment is central to most of the transformation initiatives that the bank could have. Whether you launch a new product, a new service, basically or you're modifying anything, payments does gets impacted direct or indirectly, right? So while we work on digital transformation initiatives, which are, let's say, more consumer-facing, we now get an opportunity to actually go and do all out end-to-end implementation on ground. When the banks seek to go through a new payment rail adoption the likes Zelle or RTP or the upcoming [indiscernible] I'm talking about the U.S. as a territory, now we will have an opportunity to basically look at that from an end-to-end perspective. That is one. Second, if you look at payment being a core system, and again it depends upon what kind of payment product you're talking about. That's a very wide ecosystem as you rightly pointed out. There are lots of upstream and downstream services that we will also be able to get into. So while we leverage them into our end-to-end digital transformation initiatives, we get an opportunity to go upscale their initiatives which are more limited towards the core payment implementation upgrade at this stage.

So, again can you give an example in the context of the deals that you're doing today in the BFSI space, I mean, Well Fargo and others? So how do you construct a large deal picking the payment -- a new payment value chain, the consulting value chain?

Right. I'll not take any specific customer example, but I'll take a particular use case that we are already implementing. So ACH is one of the very widespread, omnipresent kind of rail in U.S. Now ACH has been there for ages. We go and are -- we are chosen as a partner to modernize ACH, let's say, that's an example, we debate, right? Now what do you mean by ACH modernization, it could be a pure implement -- engineering refresh kind of stuff, modify this particular layer or that particular layer and that sort of thing. But when you talk about ACH modernization from a domain perspective, now we have a much better ability to actually go and talk about what kind of message format, what kind of payment recon we're going to do, how are we going to set out the transaction that sort of thing. So rather than just focusing on the engineering aspect of it, now we have the domain aspect of it tagged along with that. And that's how we increase the overall expanse of our deals.

Interesting. That will make a good sense to the deal size, how big it could be?

It will make a make big sense to the deal size, absolutely.

How big that could be?

The deal sizes could vary. And again, we will not go specific to the customer names that you mentioned.

No. Any customer, any large customer.

But just for your reference, we -- yes. Yes. So the deal sizes could vary between $5 million to $20 million, $25 million kind of programs that are there in the market. And so there is definitely that thing in the back of our mind as we integrate the company as we bring the teams together. That is the journey we want to undertake. And keep in mind, right now, SCI being a smaller company, they only have a U.S. footprint with a very small Canadian good, whereas we have a global footprint. So there are many other synergies where we can bring them scalability from an offshore perspective, we are slightly bigger than them in Canada and many other places, we could also leverage. And even in our existing customers, there has been demands. And increasingly, we are seeing RFXs, where we could easily take them. So there is many things there [ N. G. N. ], and just being respectful of time. We have 6 minutes left, we want to take a few more questions, but happy to have an off-line conversation as well.

Next question is from [ Abhishek ].

Congratulations on the acquisition. Just 1 question on SCI. What is the FTM market share in the payments ecosystem and -- because this will help us identify what's the deployment size that we are looking at from the current revenue run rate?

So if you look at the real-time payment ecosystem, just to give you a glimpse of this thing. We have already shared that, that market size is somewhere in the range of $16 billion, $17 billion from the IT spend perspective. And that is obviously spread across a few core players in the ecosystem, FTM being 1 of them. But you need to appreciate 1 thing that FTM is not the only product, which is out there in the ecosystem. There are multiple of those platforms that come into the place targeting specific product that they launch where ACH is 1 of them, real-time payments is another, cross-border payments is another and that sort of thing. What is more important for us to look at essentially is the customer base, which is out there with them and the FTM customer base which is out there, which is what we have our potential synergy to go after.

And once we are looking at the FTM space, so it is not restricted to that. Today, even when we -- the exciting part for us with SCI was, we were doing the engineering for FTM, they were doing the implementation, while doing the implementation, they were integrating with many other products, and they had started building capabilities on other products. So the interesting part for us is the existing account base we are getting, the kind of stickiness of that revenue that we are getting, the entrenchment we are getting in terms of the seat on the table to go and talk about other payment rails, other modernization initiatives and so on. So this thing is not just about FTM. This is far bigger, as I've said before in the call, the play for us is far bigger. The play for us is also take the seed of SCI, bring more and more investments on top of it and organically, inorganically grow much bigger.

Next question is from Rahul Jain. [Operator Instructions]

Yes. Am I audible now?

Yes.

Yes. First of all, congratulations on the transaction. And part of my question has been answered, but at the expense of repeating it, basically, I'm not able to reconcile the kind of a valuation that we have bought for the business which has been growing 12%, 13% gross margins are similar to higher. And at a time where the market looks more confident. So what is the motivation for the selling promotor or parties specifically in a time like this and also for the fact that most -- half of the payment is coming through earn out and retention, which means they don't have exit and they need to perform for next 2 years? So anything on that part or maybe anything on the -- what kind of target rate we have set for the earn out to achieve?

So we'll try and keep it brief. We have 3 minutes in the call. So if you look at it, the management team at SCI and Fusion, they want to be in the business for longer term. So they are not looking for a cylinder. So that is where they are absolutely happy taking an earnout. And they also understand they've also done diligence on us, and we were among 5 bidders in this. This was not a sole sourced kind of a bit. And so they had alternatives between us and Tier 1s globally and some private equity partners as well. So there is obviously a chemistry that has developed over a period of time. Transactions like these take anywhere between 4 to 6 months. Now the other side of it, they have grown aspirationally at what their aspiration was. Now they also understand with the cloud market enablement of payments, with the capabilities we bring, the relationships we bring, whether it is with IBMs of this world or with some other partners that they are also working with, whether it's Microsoft or whether it is others, there's a very good amount of synergy. So it's not just about money. It's about cultural fit, it's about market fit. It is also about where we can enable them. And it's a very complementary fit. I don't think the valuation is an issue at all. It's a decent valuation. And obviously, the earnouts are there. So with that, we will take 1 last question moderator, if we can.

Yes. So the last question is from [ Mr. Nitin ].

Yes. So 2 quick questions. So one is how is our presence on BFS in U.S. versus Europe? Do you think you need further tuck-in acquisitions in Europe? And so that's 1 element. Second is in terms of -- you've talked about payments and the interfaces improvement over time. So do you think there's room for further acquisitions in non-FTH or -- FTM? Or do you think that you need to acquire smaller slivers of people who have capability there? And do you think you need to make a UX/CX acquisition at some point in time? And finally, I think on the earnouts, the earnouts end in 2 years, I think just 7 months of FY '24. So do you think FY '24 just becomes more EBIT-neutral from a transaction perspective?

So I'll go rapid fire in the sequence that you said and if I miss anything, please tell me. So in terms of the revenues, most of our revenues in the BFSI segment today are in the U.S., I would say, about 80% -- 75% to 80% would be U.S., the rest would be split between Europe and India. India is also a big market for us. Now the second part of it, do we want to do tuck-in acquisitions in BFSI and similar spaces in Europe? Absolutely, yes. We would love to do that. And at any point in time, we are evaluating 2 to 3 transactions even today. Now when you look at FTM versus non-FTM absolutely, we'll do tuck-in acquisitions in non-FTM space. We have enough expertise in FTM between us and SCI and even some outside of FTM and SCI and ourselves. And we'll absolutely want to do more. And stay tuned over the next 6 to 12 months, hopefully, as we settle this down, we will also be doing some of that. UX/CX, absolutely, we will look at UX/CX acquisitions. Some of these tend to be unreasonably expensive. And we are in no desperation to do that. We have a good UX/CX capability, but absolutely at the right price point, in the right geography and the right capabilities, we'll be happy to do that and anyone listening to this call who has ideas on that, please reach out to us. So that's where we are. On the earnouts, yes, as our earnouts go through. And if our hypothesis goes through in terms of synergy revenues, the margin impacts will be neutralized much faster. So those are the answers.

Thank you, sir.

Moderator? Yes.

Yes. Thank you, sir. On behalf of Persistent Systems Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines and exit the webinar.

Thank you all.

Thank you. Thank you very much.

Thank you, everyone. Bye.