Persistent Systems Limited (PERSISTENT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Persistent Systems Earnings Conference Call for the Third Quarter of FY '22 ended December 31, 2021. We have with us today on the call, Dr. Anand Deshpande, Chairman and Managing Director; Mr. Sandeep Kalra, Executive Director and Chief Executive Officer; Mr. Sunil Sapre, Executive Director and Chief Financial Officer; Mr. Saurabh Dwivedi, Head of Investor Relations; and Mr. Amit Atre, Company Secretary. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Kalra. Thank you, and over to you, sir.

Thank you. Good afternoon, good morning, good evening to all of you, depending on where you're joining from. It is good to be with you once again, all of you are safe and healthy. Since we are speaking for the first time in the new year, I would like to extend my best issues for 2022 and hope that the new year will bring good health and success for all of us. I would like to start by thanking each and every one of the Persistent team members, our customers, partners and investors for their resilience and trust through the challenging times we have witnessed in the last 2 years due to the ongoing pandemic. With that, let me get into the business and financial updates. I'm happy to report yet another quarter of strong growth across all major business metrics. The revenue for Q3 came in at USD 199.12 million giving us a growth of 9.2% quarter-on-quarter and 36.2% on a year-on-year basis. In rupee terms, this translates into a growth of 10.4% quarter-on-quarter and 38.7% on a year-on-year basis, respectively. As you are aware, during the quarter, we closed two acquisitions, Software Corporation International and Shree Partners, boosting our capabilities in the payment segment as well as giving us a strategic relevance to a key large account. While SCI's revenue was consolidated for almost the entire period of the quarter, that of Shree Partners could be consolidated for about half the quarter, given the timing of the closure. Adjusting for these acquisitions, our organic growth in U.S. dollar terms for the quarter was 6.7% on a sequential basis and 33.4% on a Y-on-Y basis. As you are aware, this growth is on the back of two successive quarters of 9-plus percentage sequential organic growth. Our EBIT for Q2 came in at INR 2,083 million, giving us an EBIT margin of 14%. Sunil will cover more details on the profitability in his section. The Board of Directors declared an interim dividend of INR 20 per share for FY '22 on the face value of INR 10 per share. This compares to last year's interim dividend at INR 14 and the total dividend for last year at INR 20. It is our endeavor to maintain a consistent dividend payout ratio while we augment our growth through capability-led acquisitions. Coming to the order book for the quarter. The total contract value for the quarter came in at USD 334.3 million. The annual contract value component of this ACV is of the order of $291.3 million. In terms of new bookings in the quarter, the new business TCV was $157.6 million, of which the ACV component was $128.6 million. As you may already be aware by now, these TCV, ACV numbers include all the bookings, small and large renewals as well as new bookings across existing and new customers. Coming to the people front. We brought in 1,110 new colleagues, including 258 from our acquisitions of Shree Partners and SCI. This brings our total employee base to 16,989 as at the end of December 2021. Fresh graduates constituted approximately 1/4 of the organic net addition in the quarter. As you would notice, we are continuing to add a healthy number of employees each quarter, and this should help us continue our growth journey going ahead. The utilization for the quarter came in at 83%, a 0.2% improvement quarter-on-quarter, backed by deployment of a number of our hired employees over the past few quarters. The attrition for the quarter was 26.9% compared to 23.6% in Q2 on a trailing 12-month basis. As you can make out from these numbers and historical comparisons, annualized attrition has started to moderate, though it still remains at an elevated level. We expect that the trailing 12-month attrition is likely to remain on the higher side for at least another couple of quarters, after which it is likely to moderate due to the base effect and on account of the new batch of freshers who will join the industry, thereby expanding the supply for industry as an overall. We're continuing to focus on strengthening our employee value proposition. As you would already be aware, we had introduced the broad-based ESOP scheme, covering 80% of our employees in the last quarter as a recognition to the contribution of our employees to our company's success. Other initiatives such as promotions, career planning, active learning development interventions have also been taken very well by our employees. We believe an even stronger employee value proposition would bode well for us in retaining existing employees as well as attracting the right talent to Persistent. There are a few other highlights from the quarter that I would like to share with you. During the quarter, we welcomed Avani Davda to Persistent's Board of Directors. Currently, Agni is a strategic adviser in the Bain Advisory network. Prior to that, she was the Managing Director and Chief Executive Officer at Godrej Natures Basket and Tata Starbucks Private Limited. We also continue to add new seasoned executives to our leadership team. Kuljesh Puri joined us as an SVP for our IBM Alliance and Emerging Verticals. Ajai Kumar joined us as SVP for our Partner Ecosystem, which includes sourcing advisory, private equity and similar channels. And Vijay Iyer joined us as Sales VP for the digital transformation side. In addition, we onboarded a number -- first member to the Persistent adviser network, Werner Boeing, who's the former CIO of Roche Diagnostics. On the acquisition front, just to refresh everyone's memory on the two acquisitions that I had alluded to before, we closed the acquisition of SCI and Shree Partners in Q3. SCI deepens our client portfolio and relationships with 10 market-leading banks. Many of them are categorized as the top 20 banks in North America. The SCI acquisition will also be the foundation of the dedicated payment business unit, as we announced last quarter. And the future expansion in the core solutions and applications of the bank's technology architecture. Shree Partners has helped us consolidate our position in a strategic account and given us the base to attract talent in the NCR region in North India. The operational integration of these two acquisitions, including HR, finance, IT and marketing is in advanced stages and has been proceeding along expected lines. The sales and delivery integration is also underway, and the teams are jointly exploring opportunities for cross-sell and upsell, the results of which we expect to see in the coming quarters in FY '22. We continue to scout for and engage with potential targets in our focus areas, and we'll keep you posted as we make progress on these over the coming quarters. Coming to the market demand or outlook for our services. We are continuing to see a healthy demand in the industry verticals we service, that is banking financial services, Healthcare/Life Sciences and technology companies. According to various research reports from leading organizations such as Gartner, Morgan Stanley and others, the global IT services market is likely to grow at a healthy clip, anywhere between 4.6% to 5%, in IT service systems term, for calendar year 2022. This increase in demand is projected to be broad-based across industry sectors and led by customer initiatives around digital transformation and cloud computing. The services that we take to market to these industry verticals as Persistent right from product or platform development, the digital engineering side of it, the digital transformation implementation for the enterprise, the cloud computing, security, data are at the top of these growth projections in all these research reports. The healthy demand for our digital transformation is also fueling continued investments by private equity and VCs into tech companies. All of this bodes very well for us from an addressable market perspective. Our organic and inorganic investments on an ongoing basis in best-in-class digital engineering capabilities positions us well with our customers to gain incremental share of the wallet and to continue our growth journey over the next few years. Coming to the ESG side. During the quarter, we continued to make good progress on the ESG front. To highlight a few activities, during the quarter, our team planted 57,000-plus trees working alongside the local community in the Koyana river valley in South Maharashtra, India. This is the largest project of its kind in one monsoon in Maharashtra state. We estimate this will help us offset 500 tons of CO2 emissions every year in the future. We initiated the disclosure of our carbon footprint and reduction efforts along with all necessary data on the CDP portal. This is the first time for us, and this is being done in line with TCFD guidelines. We are proud to have won the state level competition by Maharashtra Energy Development Agency in the commercial building category. We'd like to point out that 55% of the electricity that we consume as an organization comes from renewable sources. Our FY '20 carbon footprint was 15,000 tonnes of CO2 equivalent greenhouse gases. During FY '21, we achieved a reduction of 41%, approximately. This overachievement was also partly due to the reduced occupancy and operations in light of the pandemic. Going forward, we have set ourselves a target of reducing our carbon footprint by at least 10% year-on-year. We are in the process of formulating our long-range ESG strategy, including the road map towards becoming carbon neutral and we'll publish the same in our FY '22 annual report. Now I'll turn the call to our CFO, Sunil Sapre, to give a detailed color on the quarterly financials and related matters. I will come back after Sunil's comments to give you some more details on the key client wins, analyst awards and other recognitions for the quarter. Sunil, over to you.

Thank you, Sandeep, and good evening to you all, and wish you all a very happy new year, a happy and healthy new year. While Sandeep has shared the market outlook and our business growth flavor, let me walk you through the financial details for the quarter ended 31st December '21. So the headline, top line was $199.12 million with a Q-o-Q growth of 9.2% and Y-o-Y growth of 36.2%. Of this 9.2%, organic growth was 6.7%. And as Sandeep mentioned, these acquisitions closed during this quarter with SCI [indiscernible] 360 closing in the first week of October and Shree Partners in the middle of November. Revenue for the quarter in INR terms was INR 14,917 million, which reflects growth of 10.4% Q-o-Q and 38.7% Y-o-Y. In terms of industry segment perspective, on a sequential Q-o-Q basis, the growth was broad-based. It was led by BFSI industry vertical, which grew by 14.7% on a sequential Q-o-Q basis aided by healthy organic growth as well as the contribution from the two acquisitions, which fall in the BFSI vertical. The Software and Hi-Tech business and Healthcare/Life Sciences segments also saw healthy growth of 7% and 6.4% quarter-on-quarter, respectively. On a Y-o-Y basis, all the three segments clocked healthy growth rates, with BFSI growing at 48.9%; Healthcare/Life Sciences growing at 47.9% and Software and Hi-Tech growing at 24.7%. In terms of the geography split of revenue, North America saw 33.1% growth on Y-o-Y basis. India came in at 71.5% growth followed by Europe at 28.6% growth and ROW at 47.9%. All these growth rates are for their respective geos on a Y-o-Y basis. In terms of the top account categories, you would have noticed that the top one customer grew by 29%, top 2 to 5 customers grew by 31.2%, top 6 to 10 by 32%, and 11 to 20 by 10.4% on a Y-o-Y basis. In terms of the client mining efforts that we have been making steady progress on, we saw the count of 5 million-plus customers move up from 22 customers in Q2 to 24 customers in Q3. And out of 1 million to 5 million customers moved up from 84 customers to 90 customers. Coming to the revenue profile, the linear revenue. I mean in respect of linear revenue, offshore linear revenue grew by 6%, primarily on account of volume growth of 7.4%, while billing rate declined by 1.3%, primarily on account of holidays. The on-site revenue grew by 12.5%, comprising of volume growth of 16%, while billing rate decreased by 3%, mainly due to softer revenue in Europe. The services revenue continued the strong momentum and grew by 8.3%. As you are all aware, this quarter is normally favorable for our IP-led revenue, which grew by 15.9% during the quarter. Accelerated line of business had a good quarter, coupled with higher royalty income. As you know, we had announced an ESOP plan, which will cover 80% of our employees. And we believe that this broad-based ESOP plan provides opportunity to employees to participate in the value creation and it has been well received by the employees. The impact of this for the quarter in terms of margin impact was 75 basis points. We continued the efforts on employee engagement as well as sustaining and improving utilization. And as Sandeep mentioned, the utilization is in 82.83% range. So on the positive side, the higher services revenue, better IP-led revenue, the favorable currency movement, which helped by 50 basis points and the continued focus on utilization helped us to offset the increased cost of operations caused by attrition, which is continuing at an elevated level and the ESOP expenses. With that, EBITDA improved by 20 basis points to 16.8% as against 16.6% in the previous quarter. Depreciation and amortization was higher on account of the new acquisitions. On a full quarter basis, the amortization impact will be about 40 basis points and then will moderate as our revenue grows. With that, the EBIT came in at 14% as against 13.9% in the previous quarter. Treasury income for the quarter was INR 251 million as against INR 293 million in the last quarter. The lower treasury income was partly due to lower investable funds post acquisition payout and partly due to M2M adjustment on mutual fund investments due to the recent increase in yields. In terms of the payout towards acquisitions, the amount was $38 million, and we have availed a loan of $25 million to part finance the same. ForEx gain was INR 30 million as against INR 10 million in the previous quarter. With that, coming to the profit before tax, which was at INR 2,364 million at 15.8% as against 16.1% in the previous quarter. The PTR for the quarter was 25.4% as against 35.7% in the previous quarter, and PAT came in at INR 1,764 million at 11.8% of revenue as against INR 1,618 million in the previous quarter, 12% of revenue. Coming to operational CapEx for the quarter was INR 277 million. In terms of other investments, we have give additional loan of INR 1,484 million to the ESOP trust to book your shares needed for the new ESOP schemes. So the total loan to the trust stands at INR 3,364 million. The total cash and investments on the books were INR 18,964 million, as at 31st December [indiscernible] in September. DSO was 58 days as against 55 days in the previous quarter. The increase being primarily due to higher IP invoicing in the last month of the quarter and some [indiscernible] collectings will be over to the first week of week of January. You would have observed that the cash flow from operations continue to be strong with OCF-to-EBITDA conversion of 1.3. Former contracts outstanding as of 31st December were $161 million at an average rate of $77.21. Thank you all, and I hand it back to Sandeep.

Thank you, Sunil. So let me give you a color on some of the wins for the quarter. Starting with Banking, Financial Services and Insurance. So we were chosen by a leading mutual property casualty insurer to modernize their agent-facing system design and development work for personal and commercial line products. This multiyear deal was awarded to us based on our expertise in technologies like low code/no code, cloud and conversational AI. We were chosen to partner with a unique India-based next-generation banking technology company, which is a pioneer in developing payment solutions on NPCI platform. We'll be partnering with them in product development of treasury management system, bill payment systems and prepaid card user interface. The partnership holds tremendous potential for future expansion and taking over maintenance support for 600-plus banks and exploring opportunities for transaction-based pricing. We were chosen as a partner to establish a Canada-based development center for a leading provider of financial software for consumers and small-to-medium businesses. The engagement includes developing an end-to-end CRM portal using OpenSource technologies. Coming to Healthcare & Life Sciences. We were chosen to build the next-generation platform for a leading organization in the pharma and healthcare domain, providing end-to-end solutions for planning and executing, live and virtual events for healthcare professionals. The engagement involves migration of existing application stack to the cloud and modernizing it. We were chosen to build a patient 360-degree platform using the Salesforce Health Cloud for a healthcare leader, providing kidney dialysis services. The engagement will enhance the patient experience, create a single view of the patient journey and enable the client to move to value-based care. Coming to Software, Hi-Tech and emerging technologies. We were chosen by a top 3 global education publisher for platform re-architecture, integrations, UI development, site reliability services for developing digital education content. As a part of this engagement, we are establishing a team cutting across offshore and nearshore in Mexico. We partnered with one of the leading hyperscalers to build and support a multitude of connectors that enable customers to securely transfer data between other SaaS applications and platforms and the hyperscalers platform. We are very excited about this engagement as this opens up larger opportunities for us to further expand into the connector ecosystem of this hyperscaler and with other partners. Moving on to awards and recognitions for the quarter. Q3 saw us get continued recognition from industrial leading analyst firms and associations. To mention a few: Information Services Group, ISG, a leading global technology research and advisory firm, announced that Persistent has won four categories in the annual ISG Star of Excellence Awards. These categories included analytics, sales force, intelligent automation and manufacturing. The award winners were selected based on direct client feedback from more than 300 enterprise clients. This acknowledgment builds on our last year's win in the ISG 2020 Star of Excellence Awards, where we won global awards for BFSI, Healthcare/Life Sciences as well as for North America and APAC as regions. In addition, you may note for the last seven consecutive quarters, we have been recognized as a top 15 sourcing standout for managed services in ISG Global Index Booming 15 under a $1 billion category. Other recognitions and awards for the quarter included Zinnov Zones ER&D Services 2021 leader position, and we have been in this position for the last 9 consecutive years. We were recognized for excellence in learning and development at the SHRM India Excellence Awards 2021. We also won TISS LeapVault CLO Award for Best Corporate University, Best Games Based Learning Program and Best Quality Management and Best Improvement Training Program for 2021. In summary, we delivered yet another strong quarter. We continue to see good traction for our services in the markets we serve, and we are confident of our growth journey going ahead. With this, I would like to conclude the prepared trends and would like to request the operator to open the floor for questions.

[Operator Instructions] First question is from Vimal Gohil.

Many congratulations on a very strong quarter. Sir, firstly, I just wanted -- I have three questions actually. Just wanted one data point on your -- could you just help us with your contribution from SCI and Shree Partners individually, how much did they contribute in terms of revenues for this particular quarter, if you could give me the revenue number? That's question number one. The second question is basically on the company's overall strategy. While we have been -- this company has been pretty unique in terms of its exposure to the start-ups in the valley. And we are doing some very interesting work along with these start-ups. But it is a known fact that some of these start-ups are sort of thriving today and are flushed with funds. But what happens is in terms of risk when the funding sort of dries out that really impacts their own spends on newer products, which ultimately impacts us. So just wanted to know what have been our key learnings from these trends before. And how do we sort of hedge our bets in case that is to sort of play out going into the future? How much -- if you can maybe -- if it's possible, if you can quantify what is the kind of exposure do we have over there? And the third question is simple, on the outlook of the subcon cost. We've done very well in terms of containing our subcon costs in this quarter. So I just wanted to get your sense as to should this trend continue going into the future.

So Sunil, if you can answer the SCI, Shree Partners and the subcon part. I'll take care of the overall strategy and the questions there.

Yes, yes, sure. So Vimal, in terms of this quarter's revenue, like so far as SCI is concerned, it closed earlier in the quarter, just a week prior the 30th September. And revenue from that was $3.7 million. And so far as Shree Partners is concerned, which closed in the middle of the quarter, the revenue was about $800,000. In terms of subcon costs, what you reported, you're right in your observation. We have been making conscious efforts to contain this. One of the benefits that we have is longer visibility of some of the contracts where we have been able to deploy people on a NFT basis rather than on a subcontractor basis. So this is a directional trend we would like to pursue and contain this upon costs. I hope that helps you [indiscernible] understand.

Sir, any number that we sort of target here because from 13-odd percent currently -- 13.6%. Are we targeting any number in the near future? What would be a sweet spot?

There is -- I mean, the whole idea is to have the right talent available at the rate time, right, to be able to start the projects and ramp them up. So it is very hard to put a number and predict like that. I mean it's common sense that they come in at higher cost. But at the same time, in the current context, you also don't want cost to be idling in any form. So there is a trade-off here. It is not just about that percentage cost. But otherwise, in salary cost, it might sit if it is NFT. So to balance this and most importantly, it's the availability because of the COVID pandemic still prevailing and restricting mobility. We would like to work on this all the time to ensure that we optimize it and not worry too much about it with the growth that we have seen the need to fulfill the projects that are there. We cannot become overly restricting that particular flexibility in terms of deployment.

And sir -- but ideally, we would want to go along with our on-site employees rather than subcontractors, if availability is not an issue.

That is...

Yes. So -- Sunil, sir, let me just answer that. So Vimal, look, right now, there's no clarity on the pandemic and how it will like subside, or the Omicrons of this world came out of, again, the wood works. So we will take a call on this as the situation gets clearer. And yes, you're right, our preference would be to have our own employees. But again, with travel restrictions, with all these things, we have to be prudent. We have to -- if we have to keep getting market share, we have to be able to execute in time and we'll do the right thing by that. And I want to be conscious on time. There are a lot of other people in the line for our questions. So let's keep moving along. I'll answer your next question. And then if you have more questions, please come back in the line and we'll love to do it. Or you can connect us with -- on an off-line basis. Now you had a question on the overall strategy and the exposure to the start-ups and so on. So look, our overall strategy, we came from a product development background. We are very strong in what we call digital engineering. It marks itself into application development, equivalent or platform development for the enterprise. Today, if I look at it, roughly in the last quarter, the tech companies, we had across product companies, which are horizontal software companies versus vertical software companies, like fintechs, like health techs, et cetera, our contribution to the revenue was $93.8 million. Keep in mind, this is not just the venture-funded companies. It's a very small portion of our [indiscernible]. Venture-funded companies by the nature of venture funding, they're not huge companies. They're smaller companies, but the exposure to them gets us a cutting-edge technology work. So that is what we look for with them. The biggest technology company that we work with in terms of revenue contribution is IBM, and it's a well-known fact that the top one customer is more than $100 million for us. So I don't think anyone should be worried about our exposure to VCs. Our exposure to VCs is very, very small. And even if it was to, God forbidden, go down, I don't think we are subject to any major swings because of that. Our contribution from verticals like HLS and BFSI outside of tech development also is a fairly healthy contribution. All of that data is available in our fact sheet, and we can also take an off-line question if required. So hopefully, that gives you a direction.

Next question is from Manik Taneja.

I had a couple of questions. One thing was with regards to the movement that we are seeing with regards to both of our onshore and offshore revenue realizations, if you could talk about what's impacting that. And the second question was a bookkeeping question around the employee metrics or the employee split up across geographies. We have seen a significant increase in terms of the North America headcount. Is that a function of the near-shore delivery ramp-up that we're doing in Canada and Mexico? And is that also playing an impact with regards to our revenue realization rates?

Sure. So I'll take the second question and then Sunil, please answer the first one. So in terms of the employee metrics, look, there are a few things that are happening. Number one, we are continuing to ramp up in our nearshore things, as you rightly pointed out, like Mexico and Canada. But more importantly, in the last quarter, if you look at it, the acquisition of SCI, SCI is a purely U.S.-based and a very small portion in Canada. So that also added to our U.S.-based headcount from that perspective. So -- and as a strategy, as the virus and this COVID subsides, we definitely want to ramp up in Canada. We definitely want to ramp up in nearshore in Mexico, and you will also see that pan out in the numbers as we go around. So Sunil, on the realization part, please?

Yes. So Manik, this on-site realization basically is a function of, as you rightly observed, the geo mix within on-site. So the realization rates, as you know, are higher in U.S. and Europe. And then in nearshore, so far as Canada, Mexico, Malaysia, some of these geographies where we have presence, these rates are a little lower, particularly Mexico and Malaysia, that much more. So this quarter, basically, there has been increase in the activity in Mexico as well as Malaysia. And so far as Europe is concerned, it has been soft because of holidays impact basically. So far as U.S. is concerned, it is [indiscernible] really steady. There isn't much volatility over there. But these two factors have both contributed to pulling down the on-site realization rate, and there is nothing beyond that. In fact, we have been able to get, you can say, better pricing as an overall basis, so I do not have to worry about the trend as such on that.

I'll get back in the queue. One last clarification was with regards to the restructuring of the IT deal with IBM. If you could help us understand, would that have any dilutive impact on growth in the near term? And any kind of restructuring cost involved there?

Right. So from an IP restructuring perspective, look, we basically had said that there will be a continuation of the revenue to a certain extent in time and material basis, which will be at a higher contribution margin or a higher gross margin to us. So from that perspective, on a quarter-on-quarter sequential basis, we expect the revenue impact to be in the range of $3 million to $4 million. And at the momentum that we have, we are not very worried about that. So our momentum should take care of a decent amount of growth, including accounting for this. And as far as the margins are concerned, as we progress into the next few quarters, as we are able to redeploy and get over the restructuring costs that we may have to take as a one time, the margins will also improve. So overall, I think, this bodes well for us over the shorter, medium, longer term, and we are not explicitly worried about this.

Next question is from [ Devashish Mazundar ].

And congratulations for the very good set of numbers. So I have two questions. One is related to your top line. So if I see there, there's a good growth that has come back, especially the current quarter, or last quarter. So what is expected on that side? Are we getting back into the growth mode into that business after a long period of time? And the second part of the question is around India market that has grown significantly for us in the last 2, 3 quarters. It has become 11% of our revenue now. So what is happening on that side?

Sure. So look, we have a very healthy growth rate across whether it is top 1, 2 to 5, 6 to 10 and even further down up to the 50 customers and so on. So a number of these are based on the initiatives that we have to mine the customers. But there may also be seasonality involved in some, for example, the top 1 customer, there's a little seasonality involved in October, November, December quarter. So that may be playing out. But overall, there's a secular trend in terms of client mining playing out, and that is very evident in the greater than $1 million customers, greater than $5 million customers and those similar metrics. So from a mining perspective, healthy trend, not an issue. And what was your second question?

So that was about Indian market. So if I see India growth, yes.

Yes. On the India market, so there are -- so -- we are a significant player in the sales force ecosystem in India market as well as we have expanded our footprint in the India domestic financial services market in a big way. And so that has boded well for us. And we want all the pies to grow. And so we have a focus with separate teams in different markets. And this team has done well. And we expect this to remain steady in terms of growth. And overall, also, it's contributing well to the [indiscernible] margins.

Just a follow up on that, this Indian market projects, do we have similar kind of pricing and margin as compared to our U.S. and Europe projects?

So look, it may be a tad bit here, a bit there. But it is a fairly decent scenario for us. I'm not overly worried about the margin in the India market as of this point in time.

Next question is from [ Rishi Modi ].

Sandeep, a couple of questions for you. The first one is -- so we acquired SCI, right, and we went -- entered into the payments business. So if you could give an outlook on what we intend to do in this vertical and what's our strategy going to be to acquire market share in this space and what kind of work we are going to do. If you could give that. And then I'll ask my second question once you answer that.

Right. So as far as SCI is concerned, the strategic rationale for acquiring SCI was to basically get bigger in the payment space. As Persistent, we already had some engagements in the payment space, but SCI is a company that was focused predominantly on the payments side of the house. And all the work that they do in their customers is only payments-related. So there are two things that happened with this acquisition. One, we got some very good customers. The top 10 banks are fairly well represented in their portfolio. So we had some additional good banks coming over to us as customers. Second, we are focusing with them to define how we take that as a seed and grow that into a much bigger payments unit as we go along. We'll give the progress report of that in the next few quarters. But in short, they are working on things, platforms like they have FTM, FIS, they have done good amount of work with Zelle, integration with the banks and so on. So there's a lot of good things there, combined with our own capabilities and our investments that we want to continue to do in this. We should be able to, over the next 2, 3, 4 quarters, take this and make this into a bigger success story for us in the payment space across the banking financial services and even the fintech market space. So that's the short version of it. As we make progress and have wins, we'll come back and report.

Okay. And the second question is that -- so historically, as well as recently, we've been seeing a lot of changes at key management positions, be it business heads or SVP level with -- as latest as, [ Stefan Trilochan Ganesan ] as last year. If you could tell me, apart from ESOPs, what are we doing to retain the talent pool at these levels? And what -- how do we expect to reduce the churn at this level, if you could give us some guidance on that?

Sure. So while you have talked about the exit, please visit LinkedIn and other sources and figure out the additions as well. So if you look at it, we have come from a journey of -- over the last 4 years, we have grown from $471 million to $570 million to $471 million to $481 million to $501 million to $566 million and this year, you can do the numbers. We are on a very healthy clip. And we are targeting to be a $1 billion-plus organization over the next 4, 6, 8 quarters. And with that, we have a need to reinforce our structures in every part of the organization. So we have been bringing good talent. If you look at our earnings releases, and the way we have been talking about bringing in talent, whether this quarter, even right from our Board to our exec level and even within the N-2 levels as well, there's a lot of reinforcement in the organization that has happened. With that, obviously, there are some people who would want and who are good contributors to us who may also want to have other aspirations. And then we want to do something else. So all in good spirit and the fact -- the proof of the pudding is higher order bookings, higher revenue growth, higher margins and a very vibrating organization. So I'm not worried. I don't think it's a big churn issue. It's a lot of good leadership addition at all levels.

Next question is from [ Nagendra Muria ].

Just a couple of the questions. I just wanted to know the -- how much revenue is dependent on the IBM partnership? And this quarter seems very healthy order booking. So just wanted to understand which segment has contributed more on the order booking side. And what is the outlook on the order booking? And is there any other acquisitions of pipeline currently?

Sure. So I'll try and keep it brief. So in terms of the top 1 customer, if you look at the breakup, we give it in the fact sheet as well. So it's about 17.5% for the quarter, the revenue contribution from the top 1 customer. And that is what you were looking for in the named customer that you talked about. Now obviously, there are some seasonality on the IP part within that. And that kind of goes up and down. October, November, December is seasonally pretty strong in that segment, and that's what has also contributed to our growth there. Now if you look at the other parts of the ecosystem, the bookings, et cetera, they are all pretty secular. I don't think it is any one segment standing out. It is proportionate to the contribution from various segments. So hopefully, that answers you. And if we can keep on time, there are many other people in the line. So we can take your next question if you allow us to answer the other questions from other people, please.

Next question is from Dipesh Mehta.

Congrates for strong execution. I have just one follow-up question and there 2 segments there. Firstly, how much did TCV accrued from acquisition this quarter, if you can give that number?

So right now, it is too early to kind of -- it's been 1 month and most of the effort has gone into the acquisition integration. And these are small companies, right? So if you look at the revenue contribution that Sunil talked about from SCI, for example, it was $3.7 million. From Shree Partners, it was $800,000 in terms of revenue contribution. So the TCV, et cetera, right now, it is not something to point out separately. But as we go along, these acquisitions bring us some very good capabilities and relationships. And we'll definitely come back and report to you. Keep in mind, the SCI -- the Shree Partners' part, we've already talked about a fairly large deal, which was basically a vendor consolidation deal. That total amounted with the acquisition and everything else to about $60 million. And as far as the payment BU is concerned, as we kind of get together with them as the two sales teams collaborate and so on, we'll come back and announce them.

So this $60 million is part of our $334 million, right?

So $60 million, part of it was already taken. About $50-plus million was taken in the last quarter. The $10 million part is taken in this quarter.

And the last part related is now if I could cover Y-o-Y growth NPC as well as SME, in low teen kind of growth rate. Anything do you -- would like us to read into revenue trajectory from that number? Or do you think it is to sort period to extrapolate for revenue conversion?

Sure. So look, there is -- we announced that TCV, we announced the ACV. Now when you look at some of the deals that we do, they are multiyear deals. So the revenue conversion will happen from this ACV, TCV and also from the multiyear deals that have been done earlier. So there's a certain component that comes together along with this ACV realization of this, plus the realization from the bookings that were multiyear because if you look at it, right now, when I talk about the deal, that $60 million deal, it's a 5-year deal. So it's not going to come up for renewal for the next 5 years. But it will contribute to the revenue for the next 5 years. So I don't think stand-alone, you can make the full revenue calculations based on these. We'll try over the next few quarters to see if we can give you an order backlog so you can -- executable order backlog, so you can make out the things based on that. But as far as we are concerned, a combination of the ACV, TCV wins that we've announced and the backlog we are carrying from multiyear deals, it bodes very well for our future growth. And the proof of the pudding is 3 quarter sequentially, 9.2%, it's not possible if the order books were not very healthy and they were not converting to revenue.

[Operator Instructions] And next question is from Sandeep Shah.

Can you hear me?

Yes.

Yes. Congrats on a very good set of numbers, again. So Sandeep, this year, we will approach on the services side, almost 40% growth, and that is industry leading and very strong as a whole. So just wanted to understand what can go wrong in this journey going forward, both from Persistent angle as well as macro or demand angle and as a whole? And a related question, when you took a control, your -- one of the KPIs to make more growth, more predictable annuity sticky base. So how are we planning out since you joined in this metric?

Right. So on what can go wrong, look, macroeconomic environment, we don't control. There could be many things in the macroeconomic environment that may happen. There is tensions between U.S., Russia. There are other things. So as long as any of that doesn't pan out, as long as the macroeconomic environment stays stable, I think, the demand that we are seeing, overall, for IT services, the digital transformation journeys, we are seeing the cloud adoption we are seeing, all of that should bode well for the industry. And within that for people like ourselves who are on the cutting edge of technology and who are able to move these revenue-focused programs and get more organizations onto the digital transformation, I think we should be okay. For the next 3 to 4 years, this demand should be okay, provided the macroeconomic environment remains stable. And there's no -- nothing that comes at us from the left field like a COVID kind of a situation. So that's that. And again, when we do our budgeting, when we do our execution, we are always trying to keep track of things in a prudent manner so as to plan for any contingencies. So there's a risk management function within the company that we look at. So that's the part first. And please remind me the second one.

Now about the stickier deals and longer...

Yes. Your KPI on sticky unpredictable, yes.

Yes. So look, we have talked about how we want to grow the customers in a way that we create a healthy backlog that we carry to the next year and also create a multiyear back now. And back to what I was explaining earlier. So there are deals that we are signing. If you look at even this quarter, so the renewals typically in October, November, December, a number of our renewals are yearly renewals, where ACV is equal to TCV. If you look at our TCV, ACV ratio for the new wins, it's slightly different, and it basically bodes well in terms of showing multiyear kind of engagements as that. Also, keep in mind, nowadays with the digital transformation journeys, these are iterative. These are not POs that come in one PO for, let's say, in the next 3 to 5 years, wherever we are building capacity for our customers, where we are extension to them, where we can get a multiyear kind of a PO and that's where we announced the TCVs. There are many, many places where we are doing programs which are multiyear, but which are iterative and where we get POs on a smaller basis and they get -- keep getting renewed and so on. So if you at our renewals, you will see renewal trend pretty healthy. So all of this is leading to a healthy backlog creation and stickiness of revenue. And the proof of the pudding is look at our journey for the last 8 quarters. Sequentially, it is building up. And for the last 3 quarters were 9.2%. It would not be possible if we were not building sticky revenues and the revenue builds on top of each other. So it's panning in the right direction, we can always do better.

Next question is from it Nitin Padmanabhan.

A couple of quick ones. One is, if you look at the deal momentum that we've had and the kind of sequential growth that we have had, it's been extremely solid. Sir, just wanted your thoughts in terms of when you look out going forward, you'll see that sort of continuing in a way. And do you think services business, the five -- the mid-single-digit to high single-digit kind of growth trajectory, do you think that sort of sustains for some time? And I just wanted to test your confidence on the same. The second quick one was on the ESOP cost, it's up. It's at around 1.9% of revenue this current quarter. Do you think that number sort of tapers going forward? And how should one think about it? So those are the two quick ones.

Sure. I'll take the deal momentum and Sunil will take the ESOP cost part. So on the deal momentum, look, if you look at our deal wins, they are fairly healthy. If you look at the ACV deal wins over the last 12 months, it's about $880 million. And if you look at the pipeline, we don't announce the pipeline. But if we look at our pipeline, it is very healthy. Now obviously, the market environment is good when you look at the Gartner reports, when you look at the Morgan Stanley reports, each one of them is talking about the IT services market globally, growing at a fairly healthy clip. It's about execution from companies like us. And we have proven our track record over the last 8 quarters. Hopefully, we will continue to execute. There will always be puts and takes like the talent situation that we have, whether it is the ability to hire, the ability to retain, and we are working on all of that. So deal momentum, absolutely, there is there. And hopefully, all of this pans out well in line with how we have delivered the last 8 quarters. Sunil, ESOP.

Yes, sure. So Nitin, our ESOP part, as you know, is somehow what we call the absolute value will not increase the way the revenue will increase. So you are right that as a percentage to revenue, definitely the costs will keep moderating down.

Right. And if you look at the ESOPs, and I'll put a thread back to the earlier question. So if you look at it, the ESOPs have been given to 80% of the people. There are ESOPs and RSUs that have been given to the senior management team as well, which are the people who basically lead a significant part of our revenues, et cetera. So all of these should bode out well. To the earlier question about the motivation of senior management to stay with the company, to contribute more and our ability to attract more senior management folks, given we are doing very well, we have a very niche position in the market. And that same thing bodes well for our ability to attract newer talent. So please look at the ESOP cost holistically in that perspective as well.

Next question is from [ Hussain Qazi ].

Am I audible?

Yes.

My one question was with regards to the Europe market. I understand it's a very small portion of revenue for us. But can you help us understand what's really happening over there? Because you -- I think, you earlier mentioned that there was some softness in that market. And even last year, we are coming -- sorry, last quarter, Q2, we grew just 1% and right now it's 3%. So anything specific with regards to the clients that we have? Or is it because of the COVID thing over there? So if you could just give some comment on that.

Sure. So Europe market for us has traditionally been a smaller market, where our intent is to grow faster. COVID definitely has put a little bit of dent into our ability to move around resources and put the management attention into Europe and so on. But overall, from that perspective, we have very good capabilities that we acquired through two acquisitions that we did in Salesforce space. We have a good, healthy pipeline in sales force market in Europe as well as non-sales force market. And hopefully, the next few quarters, we should see things pan out in the other direction where you would see a positive trajectory from a growth perspective.

Next question is from Madhu Babu.

So most corporates are talking about fresher hiring. So what are the challenges we are seeing in hiring them and retaining? And what is the time taken to deploy them and -- for billing?

So look, we have been doing fresher hiring for many years. Although I will say that the scale at which we hired freshers in the last 12 months and the scale at which we will hire freshers in the next 12 months, it's disproportionate to what we used to do earlier. And Persistent is a very good brand in engineering institutions given the kind of work we do, right from our headquarters in Pune to other parts of India. We are a coveted brand for the freshers. So from that perspective, we don't have an issue of people wanting to join us. We have been working closely with the institutions that we have worked over the last many years. We have added a few more. And we are working with them to even define cost content for the final semester, where some of the things that we want to have people be trained on, whether it is overall technology landscape, whether it is specific to skills around data, AI or sales force and so on. So we have been able to work with the faculty and these institutions. And we look forward to the freshers coming in over the next few months and quarters at a bigger clip. So roughly about 3,000 is what we are looking to induct as freshers over the next 12 months, the new financial year. So hopefully, that answers you.

Next question is from Sandeep Shah.

So Sunil, sir, just a question on amortization. So you said the full quarter amortization increase because of acquisition could be 40 bps, but there could be some savings because of tapering down of earlier amortization as well. So do you believe could be a net-net headwind? Or may remain at a similar range or come down going forward as a whole? And on EBIT margin, I think, you are the company with the growth is showing Y-o-Y improvement, whether that journey continues, if the growth continues to remain industry leading going forward.

Yes, sure. So Sandeep, see, amortization, as we said, the acquisitions closed somewhere in the period. So there will be some truing up of that because of the full quarter impact. In terms of the amortizations getting over, by and large, more or less, our portfolio is right now stable. It may take 1 more year for one of the earlier product amortizations to take over. But as a percentage to revenue, obviously, since these are absolute amounts as the revenue grows, they will keep moderating down. And in terms of -- I think, your other question with respect to EBIT margins. I think over the last several quarters, we have been working at it, but the waters are not steady what with so many puts and takes that are there with the growing business on one side, attrition also elevated on other side. So we have to limit all levers being put to use, but definitely, we are working towards each and every lever to take the margins in a healthy direction, but at the same time, not hurting ourselves in terms of growth. So definitely, we want to do a profitable growth, is the objective.

We will take the last question from Abhishek Shindadkar.

Congrats on a solid execution. Just one question. I'm sure we have a lot of demand on the three vertical segments that we have. But just from a 3-year strategy perspective, anything that we would like to start building on as a kind of next leg of growth?

Sure. Good question, Abhishek. So if you look at it even earlier in the call, we said we have hired Kuljesh Puri as an SVP for IBM Alliance and Emerging Verticals. So that Emerging Verticals has a decent portion of communication, media and technology revenue under netted. And it is tending to grow well. As it grows even higher over a period of time, we'll start announcing it as a separate vertical. I don't think it will happen in the next financial year, but that is an emerging vertical. Similarly, we will look at with our organic and inorganic growth. If there are any other verticals that can be ceded to become bigger, we will also do that in the background. But we will start announcing them as they get to a critical mass of an annual revenue of $100 million or more. But there is definitely things being done in the background.

So Sandeep, that was the last question.

Perfect. So once again, thank you to all of you and to our team members, customers, partners and investors for the unflinching support in our growth journey, especially in these pandemic times. We remain bullish on our prospects for the future, and we will look forward to reporting on our progress 3 months from now. In the meantime, please stay safe, stay healthy. Thank you.

Thank you very much to the Persistent management. Ladies and gentlemen, on behalf of Persistent Systems Limited, that concludes today's conference. Thank you for joining us, and you may now disconnect your line and exit the webinar. Thank you.

Thank you.