R Systems International Limited (RSYSTEMS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the R Systems Q4 and CY 2023 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kumar. Thank you, and over to you, sir.

Thank you, Ray. I welcome all participants to R Systems Quarter 4 and CY '23 Earnings Conference Call. We have today with us Nitesh Bansal, Managing Director and CEO R Systems; and Nand Sardana, CFO R Systems. We have shared the presentation with the investors earlier today. Hope all of you have received that. We will start the call with opening remarks on the performance of the company by Nitesh followed by the financial overview by Nand. Thereafter, we'll have a closing statement by Nitesh. Subsequently, we will open up for a Q&A session. Before I hand over, let me read out the customary disclaimer statement on behalf of the company. Investors are cautioned that this presentation contains certain forward-looking statements that involve risks and uncertainties. The company undertakes no obligation publicly to update or revise any such statements. These statements may undergo revision because of new information, future event or otherwise. Actual results, performance, achievements could differ from those expressed or implied in such forward-looking statements. With this, I'm handing over to Nitesh for his opening comment. Thank you. Over to you, sir.

Thank you, Kumar, and good afternoon to everyone joining the call, and good morning to those joining from Western region. I'm really happy to be on the call and to be talking about our Q4 and CY '23 results. The agenda that we'll be covering covers key highlights, operating metrics and financial results, followed by some commentary on the building for the future and outlook, summing up and looking ahead for the next year. Assuming all of you have received the presentations and if you're referring to it, then I'm on Slide #4. The key highlights. Very happy to highlight that the company has crossed INR 1,600 crores in the annual revenue run rate, it's about $200 million in annual revenue run rate in 2023. We've also crossed INR 240 crores in EBITDA, which is 14.7% EBITDA for the year, which would otherwise be 15.7%, including the onetime fee that we received in the previous quarter. We are also happy to report INR 145 crores adjusted PAT with a year-on-year growth of 4.2%. The company has also earned the certification of a Great Place to Work at all the countries -- in all the countries that we have full-time workforce. It is a great testament to -- of what we do as our people practices and also stands us at par with a lot of industry peers as Great Places to Work has become an industry standard certification. Moving on to the next slide, Slide #5, key highlights for Q4 of 2023. Our revenue stood at INR 4,163 million or USD 50 million, which is a year-on-year revenue growth of 4.2% with a year-on-year EBITDA growth of 7.7%. Our net profit stood at INR 459 million with an earnings per share of INR 3.88 per share. Comparative EBITDA compared to Q4 last year from 14.9%, we've grown to 15.4%. Compared to the last quarter, where we reported 18.8% EBITDA, net of the onetime BOT fee would have been 15.2%, has gone to 15.4%. What we have shown on the slide also is provided an EBITDA bridge from Q3 to Q4 because of the onetime fee that we received in Q3, which had an impact of about INR 193 million and then the lower working days, which would have an impact of INR 66 million. And through our natural operations of selling and delivering more business, we made an additional INR 43 million in EBITDA that's coming to the final number. The adjusted EPS before nonrecurring and onetime tax reversals would stand at INR 3.01 per share. Moving to the FY 2023 or CY '23 results since we follow our calendar year, the revenue stood at INR 16,845 million or $204 million with a year-on-year revenue growth of 11.1% and year-on-year EBITDA growth of 27%. Our net profit rose to INR 1,401 million or $17 million and earnings per share stands at INR 11.84 per share. Adjusted for nonrecurring and tax provisions, et cetera, it would be INR 12.30 per share. So if I look at the EBITDA comparison from '21 all the way to '23, we've gone from 14% to 15.7% in EBITDA and from INR 11,556 million to INR 16,845 million in revenues. Some of the key balance sheet items, the equity attributable to shareholders stood at INR 6,114 million or $73.5 million, and the cash balances of the company, net of short-term borrowings, stood at INR 1,338 million or $16.1 million. I'll hand it over to Mr. Nand Sardana to take you through detailed financial performance and contribution and analysis, which is the next slide, Slide 7.

Thank you, Niteshji. Good evening to all. Thank you, everybody, for attending the call. The presentation gives both Q4 and year 2023 numbers. I will quickly cover quarter 4 and then move on to yearly numbers. As Niteshji said, revenue for the quarter was INR 416.3 crores or $50 million as against INR 457.3 crores or USD 55.3 million in quarter 3. Excluding onetime BOT fee, the Q3 revenue was INR 438 crores or $53 million, which is a decline of 5% quarter-on-quarter growth. The gross margin was 34%, which was lesser by 160 basis points compared to same quarter last year. This is mainly due to impact of lesser billable days and average salary increases net of rupee depreciation. SG&A expenses reduced in absolute terms due to reversal of provisions for bad and doubtful debts along with 2 of our provisions. Resultant EBITDA was 15.4% compared to 15.2% last quarter, net of duty fees. Net profit after tax was INR 45.9 crores or $5.5 million. Now I will give a detailed overview of yearly numbers. Revenue for the year was record INR 1,684.5 crores or $204 million compared to INR 1,515.8 crore or 193.2 million last year. Excluding the impact of BOT fee, the revenue grew at 10% year-on-year. Macroeconomic situation has impacted the revenue growth over the years. Our present sales pipeline is encouraging. We are making focused efforts to add large accounts to have profitable growth. Getting down to gross margins, it was 34.5% in the current year, excluding BOT fee compared to 35.1% last year, a reduction of 60 basis points. Reduction in gross margin, mainly due to the impact of increasing average sales is net of improved utilization and rupee depreciation. Getting down to SG&A expense line. SG&A expenses have increased by INR 5.5 crores. In percentage terms, the SG&As were above 20% this year compared to 21.4% last year. EBITDA net of BOT fee was INR 245.2 crores or $29.7 million compared to INR 208.3 crores or $26.5 million last year. As a percentage of revenues, EBITDA was 14.7% in 2022 compared to 13.7% last year. The company has been able to expand the sustainable margins through efficient operations and cost optimization. Also, we are committed for improving margins in the coming quarters. Getting down to depreciation, the total expense was INR 54.4 crores compared to INR 35 crores last year. The decrease is primarily due to amortization and intangible on acquisition of Velotio and Scaleworx. Nonrecurring costs for the year was INR 11.2 crores, which is USD 1.4 million, which represents expenses with respect to acquisition of Velotio and Scaleworx. Charges paid to Noida Authority, recruitment fee for the hiring of new CEO and one time joining fee. Interest expenses is INR 9 crores in 2023 compared to INR 4.9 crores last year. Increase is mainly due to interest on short-term borrowing and an office lease taken last year, which is capitalized under Ind AS 116. Other income in 2023 was INR 11.2 crores compared to INR 1.7 crores last year. This year, we had an exchange gain of INR 2.3 crores compared to exchange loss of INR 7.9 crores last year. Further, the other income comprises the interest income of INR 7.2 crores this year compared to INR 4.6 crores last year. During the year 2023, the average rate for USD and euro were INR 82.57 and INR 89.29, respectively, as against last year's average rate for USD and euro of INR 78.47 and INR 82.56, respectively. These are the 2 main currencies for our system. At year-end, we have a total forward cover of $39.15 million with average rate of $84.1; and euro cover of $2.7 million with average rate of 93.38%. This has already been mark-to-market as a closing date of 31st December. Our tax expense was INR 60 crores in this year as against tax of INR 30.5 crores last year. Effective consolidated tax for 2020 is 30% as against 17.9% during last year. Our effective tax rate has increased due to onetime tax provision for dividend received from a subsidiary company plus amortization of intangible on Velotio acquisition, which is not eligible for tax benefit. Excluding these normalized effective tax remains 25% approximate. Net profit after tax was INR 140.1 crores or $17 million compared to INR 139.7 crores or $17.8 million last year. EPS for the year was INR 11.84 compared to INR 11.81 last year. However, after registering the BOT fee, nonrecurring onetime tax, the adjusted EPS is INR 12.3. Getting down to asset side in the balance sheet. On last 8 quarter trends, revenue has grown at compounded quarterly growth rate of 2.4%. However, last quarter was an aberration. The quality of revenue has improved with large deal sizes and new technology deals. Further, we have consistently expanded the EBITDA margins. On the operational metrics, revenue by geography has been consistent with 74% revenue from North America, 12% from Southeast Asia and 10% from Europe. Top 10 customers contributed 24%, with the top customer contributing above 7%. We have been working to improve utilization to expand our margins. Last quarter, reported blended utilization is 79.1% as against 78.7% last quarter. Our days sales outstanding, including unbilled is around 60 days. It is higher in this quarter due to timing reasons. With this, let me hand over to Niteshji for closing remarks.

Thank you, Nandji. Just for reference sake, I'll be referring to Slide #11. This is about the transformation and strategy and the business that we have been undertaking as of the last 3 months and reference to which I have also made in the previous investor call. So the things that we have been working on that have taken shape is we have aligned our go-to-markets more sharply with sales and delivery organization reorganized on vertical lines to create a sharper focus on target industries where we have developed differentiated capabilities over the years. We've also increased our investment in sales across North America and Europe regions to put more feet on the ground to have a more targeted go-to-market offerings. On the partnership angle, we have put dedicated focus on developing partnerships with ecosystem players such as hyperscalers, meaning mostly AWS or GCP, et cetera, automation and AI technology providers and also global enterprise software providers. This will further enhance the value of our offerings to our customers. In terms of the offerings when positioning itself, we have cloud and DevOps COE has been built to focus on cloud migrations and optimization solutions. Data and AI COE is building AI and generative AI solutions, and we have recently launched a partnership together with the AI department of IIT Delhi to have an academic -- academia relationship and partnership together for being able to leverage the best-in-class research and talent from IIT Delhi. We've also revamped our corporate website, which was launched in December, which serves as the gateway for our global customers to understand our service offerings and reach out to us from an inbound perspective. We've also made some additions and enhancements to our leadership team where we have hired a Chief Customer Officer, who's been onboarded with clear responsibilities towards growing existing business and developing deeper relationships with channel sales and partnerships. This is in line with what we said during the previous investor call that we are putting sharper focus on farming existing customers and deepening our positioning and expanding the share of wallet with existing clients. We've also added some client partners and engagement leaders for our top customers to focus on the farming aspects. Moving ahead, lastly, summing up, looking at the market trends and what we see happening, we believe that the market headwinds may remain for the first 2 quarters of CY '24, but we are entering '24 with a strong pipeline and with a maturing GTM motion. So our GTM motion is obviously getting well entrenched within the organization and also offering us higher opportunities. What we want to do is to be more relevant for our clients. So hence, looking at sharper offerings, focused farming and cross-selling efforts. And in terms of new logo opening, we're looking at opening larger customers with larger deal sizes. And we are seeing some early green shoots of that beginning to take place. What we believe are the trends that will shape 2024 for our customers, cost will remain a strategic focus. For us, that opens new opportunities for cost-led value propositions, and we are already working with our few customers in those aspects. We believe that the software component of both products and services will continue to increase with greater movement towards end-to-end customer journey and platform plays. This plays weekly in our sweet spot because we enable our customers to develop those platforms, to build those customer journeys and to have products more digital as they launch those. AI and specifically generative AI will remain the talk of the town. It pretty much was the top discussed item for the large part of the last year. Our building -- we already have an AI COE that we have been nurturing over some time. We have seen green shoots of customer engagements in those spaces, customers asking us to build AI-based applications, integrate AI into their products, and we have enhanced that with our partnership with IIT Delhi. And we also believe that the prolonged war in Ukraine and Middle East will further deepen the talent focus towards India and LatAm. And this is highly relevant for a lot of tech companies who have their own offices or captive centers in a variety of places who are looking at moving those centers to India or LatAm and largely to India where we believe that we would also benefit from such a move. That really is it in terms of what we wanted to share today. Actually, we do have also some awards and recognitions to talk about. Like I already said, we have been recognized as a Great Place to Work across all countries we operate. Our systems was also profiled in the business, connect into National Magazine in the month of December. Dun & Bradstreet honored us as India's Top 500 value creators in 2023. We were also recognized by Marksmen as one of the most preferred workplaces in IT and IT-enabled services for the year of 2023-'24, which obviously talks a lot about our employer brand. Our subsidiary Velotio was awarded the 2023 Clutch Global Award for Product Engineering, Cloud and DevOps as well as Data Engineering Services. And they were also awarded a Champion Award for being top rated leader based on client satisfaction and high-quality service ratings. So with that, I would hand it over back to the operator for opening the Q&A.

[Operator Instructions] The first question is from the line of Abhinav Chandak from Ratnabali Investment.

Congratulations Niteshji and Nandji and the entire team at R Systems for an okay set of numbers. So I have a couple of questions. One question is around the growth that we have shown. So if I break your numbers and if I exclude Velotio, the organic growth that we have shown is probably that we have degrown. So just wanted some thoughts and some color on what exactly is happening there. Even if I look at the Q-on-Q numbers, excluding the onetime BOT fee, we reported revenues of INR 437 crores last quarter. This quarter, the revenues are INR 416 crores. So what exactly has gone wrong there? Have we stopped some -- discontinued some business? Have we lost a customer? What exactly is happening there? This is the first part of the question. So I wanted some focus on what exactly is happening on our top line, and what exactly are we doing about it? So this is the first part of the question. The second part of the question is the progress that we are doing on our M&A front. So it's been almost now 1, 1.5 years since there was a change in management. And apart from Velotio, not much progress has been made on that front. So if you could throw some light, what are the kind of assets that we are looking at? What is the size of the assets that we are looking at, it would be of great help. And if you could also give some guidance on your numbers, say, next year as well as midterm, where exactly you see R Systems in, say, 3 years from now?

Thanks, Abhinav, for those questions, and thank you for being regular on the calls. Let me try and answer those questions one by one in the sequence as you asked. So looking at quarter-on-quarter going from INR 437 crores to INR 416 crores, part of the business that -- which we transferred as part of BOT, obviously is a business that goes away, right, as well as Q4 traditionally is a quarter with lesser number of working days with furloughs in the U.S. So it traditionally does bring a dent in revenue typically in that quarter 4. Apart from that, I think some customers' projects naturally coming to an end or shifting out has been -- those are business cycles that we see pretty much every quarter. So there isn't really a specific reason that we would attribute but a combination of the BOT transfer as well as the smaller number of working days is largely responsible for the decline. On a year-on-year basis, minus Velotio, I don't think we have degrown. We have largely remained flat. And that, again, is owing to largely macroeconomic cycles, as we have seen a lot of customers have had delayed decision-making there. The customers themselves have had their projects shut down or stopped and which are pending decisions, which I think we have also seen reflected across the industry. So it's not something that we are singularly experiencing that. Now having said that, we have had a robust pipeline through the year. We have made up for whatever were project closures that naturally came to an end because they were discretionary project spends. We have made up for those with our new wins. We have seen that pipeline build up over the time as I think the customers also expect that this thing should bottom out. And that way, we believe that we are -- we have a robust pipeline to enter the new year.

So sir, if I understand correctly, the numbers which I gave, INR 437 crores, those were excluding the BOT projects. So the 4% sequential quarter-on-quarter decline in revenue, you are seeing is primarily attributable to customers or the projects coming to an end because BOT is something which I had excluded already. So is that correct that 4.5%, 5% decline in sequential quarter-on-quarter revenue is mainly because certain projects came to an end? If that is the case, sir, by when do we see revenues going back to normal? When do we see growth in this company? I understand we have a very healthy pipeline, but when will the growth come back?

Nandji, you want to -- you wanted to say something?

Sure. Abhinavji, so excluding onetime BOT fee, we are at $53 million. And so there is a reduction of close to 2.7 or so. So that's close to 5%. You are right. So there are 2 big things which has happened in quarter 4, which were not there in quarter 3. The BOT customer who gave us $2.3 million in cash had a revenue of close to $1.3 million in Q3. Now Q4 has 2 lesser number of days and furloughs, as you know, and a lot of people take leave. The impact of that is more than $1 million. So I mean, we feel that broadly, the reduction in revenue is the impact of these 2, 3 reasons. Excluding that, some projects have gone reduced, but we have got some new projects also. If you exclude the impact of these 2, we are almost flat. So we hear you, this has not been that great. So that is the answer to your question.

And sir, if you could guide something on medium term to next year, how do you see revenue growths and all?

Let me answer the second question that you had, which was around that. And you said that it's been 1, 1.5 years to the change in management, et cetera. I just want to be very clear that the change in management actually took place end of May of 2023. So it's basically 7 months or 7.5 months to that change. It does seem like a longer time. But in reality, it's basically been 2 full quarters. And during that time, we carried out the acquisition of Velotio, which has been a great acquisition, both from revenue and margin accretiveness perspective. And to integrate a company into the operations and also to set a little bit of focus and new strategy in place has taken us this kind of time, which is very natural because you can't do these things in a shorter time. So we are obviously open and looking for newer opportunities to acquire. But to answer your question, we have taken the time to integrate Velotio to make them part of our systems to start operating as one. Otherwise, we would have run the risk of losing the value of that acquisition. And we are still in that process because this process will -- integrations don't happen in 3 to 6 months. While we set the foundation, the actual integration of people working together as one, forgetting the boundaries that existed will probably take another 2 to 3 quarters before it completely settles in. To the point of guidance, as we have, I think, said even in the past, we do not provide guidance midterm or long term. However, what I would definitely want to restate or reemphasize is that we are going after larger customers and larger deals. We are looking at some of that strategy beginning to bear fruit. We are also looking at, like I said earlier, a robust pipeline. We have to -- and since January is when most of the customers return back to start working on their budgets and other things with the new budgets, we are looking at -- in Q1, we'll start getting the outcomes or results of a lot of those motions because customers would be in a position to make those decisions. And that will start shaping up the quarter and the year for us. We are quite confident in moving forward and that our strategies are going to play out for us. But rest, I think we will have to continue to stay with the market.

Next question is from the line of Harsh Chaurasia from Vallum Capital.

So I have 2 questions. So if I look at -- in the closing statement, you mentioned like R Systems is mainly focusing on increasing the wallet size of the large clients. But if I see in this quarter, the large client share of the revenue has declined from 7% to 6%. So can you give some sense on this number? And my second question is on some of the geographical breakup side, if I see as -- if I just compare to your other peers, the European continent has seen a significant growth for major IT companies. But for R Systems, it's around 11% growth based on -- and it's a very small number or it's a very low base. So these are the 2 questions. Can you provide some sense on these 2?

Yes. Thanks, Harsh. I think on the first question on farming and increasing wallet size, that is what we are beginning to do now. And what that means is that where we have clients who are currently not in our top 10 or top 20 by doing more focused approach and selling efforts to them, we should be able to grow the wallet size with them to get them probably to our revenue size, which is currently with our top 10, top 20 kind of customers and hence, the mix of both our clients in that revenue bracket as well as their overall contribution can change. Now while we've started that exercise and we've seen some early successes, it does not change what our top clients have been giving us. And along with the company's trajectory of growth over the years, these clients have continued to grow along with us and the percentage contribution has largely kind of remained the same. So our top client still remains the top client and gives about the similar size of revenue. While we are looking at actively cultivating a lot of the next 20 or next 30 customers to become larger, that's what I meant by saying farming and building on wallet size. From a geographical split perspective point is absolutely valid. A lot of our peers do make a larger percentage from European operations. But then again, the nature of work and services that they do versus us may or may not be comparable. However, we also want to grow our revenue from all geographies that we're working in and hopefully can grow Europe faster than the rest, but that's something we have undertaken as part of our go-to-market strategy and something that I mentioned earlier is that we are investing in growing sales, both across North America and Europe. And we will obviously continue to watch that, nurture that and try and grow that.

The next question is from Riddhesh Gandhi from Discovery Capital.

Historically, a lot of the Blackstone portfolio companies have been excellent at sort of cross-selling to other portfolio companies. Is this initiative which we are pursuing aggressively? And how should we be thinking about that?

Sure. Thanks, Riddhesh. Yes, you're right that one of the value propositions of being a Blackstone portfolio company is the ability to cross-sell across the portfolio. We have basically been part of the portfolio for, like I said earlier, only 2 quarters. But good news is that within those 2 quarters, we have seen a good traction with a lot of portfolio companies. We have actually managed to add several new customers or logos from within the Blackstone portfolio companies as well. So that is true. And we see that strategy playing out for us and...

And the order sizes, we expect to increase over time on these logos, which we have...

Absolutely, we -- like with any of our customers where they are sizable customers, we do believe typical to the industry itself that we should be able to gain a meaningful entry and then be able to expand on those credentials.

Sure, sure. The other question is that given you guys have just been at the wheel for 6 months or so. Just wanted to get your own hands on any of the positive surprises, any -- actually negative surprises? And is there any change in strategy compared to what the organization would have done earlier?

So that can be a fairly long answer, but I'll try to keep it concise. So yes, you're right, it's been 6 months so I've looked at -- I've had the privilege to look at the company with a fresh pair of eyes and coming from outside in. And I had quite a few positive surprises. And in terms of both the nature of work that the company does for its customers, very high-quality work with significantly good customer satisfaction and customers being very happy with the kind of both talent capability and attention that the company is able to provide. Also have had positive surprises in terms of finding out how well the company has managed to retain the customers for a longer time as well as retain the employees for a long duration, which, as we know, during COVID was a big challenge for a lot of companies. I think the negative surprise front largely has been the macroeconomic climate where a lot of us have, obviously, since the beginning of '23, been looking out at 2 quarters and then another 2 quarters kind of a thing. And with the kind of tech layoffs that have happened across United States and Europe, which have continued unabated through Q4 and unfortunately, even through January this year, that has been a negative surprise beyond control. But that macroeconomic landscape has certainly been a bit of a negative surprise. But none of this changes the thesis for us or the fundamental strategy. We are a software product engineering company and digital services company, and we continue to stay on that path. We believe we have developed micro niches with certain industry verticals over time, and that's what we are trying to deepen and go further into. And we believe that strategy will play out favorably for us.

Got it. And the other question was with regards to any changes in strategy from what that the company was pursuing earlier and how we're looking at the things now with the new management in place?

Well, like I said, I thought I'd answer part of it. So we stay focused on the same macro as to say the industry, the offerings we make. From a change of strategy, I would not call it a change of strategy because it sounds really ominous, but it is sharpening our ways of how we approach our clients with more focused offerings, building more focus into cloud, data, AI, which have become extremely important for being able to do product engineering work because these days, everybody wants products from cloud, SaaS products and those kind of things. So in a way, the strategy is further sharpening the focus, deepening our capabilities, improving our right to win. And from a go-to-market perspective, like I already mentioned, we have verticalized the sales force as well as our delivery organization, which actually allows us to do this and to capture that additional right to win -- right to play and right to win, if you may say. Similarly, the sales force is also looking at larger value clients, larger deals, which again, I won't call it a massive strategy shift, but it's a move in the direction to become closer to -- or dearer to the customers and have larger-sized customers to build sustainability in our revenue base.

The next question is from the line of [ Ashok Vedi ] who is an Individual Investor.

Sir, I have a question regarding the largest client percentage revenue. If you see quarter-wise, it is like declining. Earlier, it was in quarter 4 '22 and quarter 1 '23, the largest client revenue was higher as compared to the last 2 quarters.

Let me -- give me one moment to quickly refer back to the numbers you're referring to. Nandji, you have?

Yes, I have that number. So the largest client number, which was in Q3, 6.54 has gone down by 6 -- has gone to 6.3. So it's a point 3. It's a small kind of aberration which is sometimes what happens is that there is some ramp down, ramp up and towards the end of the year. So there's nothing to -- much to read on this. And if you see on year basis, it was 6.7% in 2022. And now -- so on a year basis, it is almost flat. If you see 6.7% and it's just 6.6%. So it's just 10 basis points kind of. So there is not -- almost same, I would say.

And my second question was there, we -- have we lost any major client or any addition of any major client in top 3 or top 5 or top 10? Or what is the ratio if you lost or any addition?

So Ashok, during the year, we do have a natural attrition of a few clients as their discretionary spend, either naturally comes to a close because of project closed and they did not have another one to work with or some who would essentially have their own projects, et cetera, coming to an end or achieving whatever MVP or whatever product launch that they wanted to achieve. So that happens through the year, and we keep on adding new clients. We have definitely, like every year, we have added a significant number of customers. We believe that some of them will eventually get into our top 20 and top 10 customers, but the customers added during the year itself would not get into the top 20 or top 10 within the same year, right? So I think we would be building on them. And as we kind of grow with them, we might see that our top 10 or top 20 customer mix will start kind of getting influenced or changed.

I just want to add here, the BOT customer was one of the top 5 customers for which we got a BOT fee and the contract ended on September 15.

Next question is from [ Nitin Rege from ChrysCapital ].

So I just wanted to ask about the 3- to 5-year outlook for the company. Do you think we can double our revenues, let's say, in the next 4 years?

Nitin, I wish we had that kind of a mirror. And also, we do not provide forward-looking guidance. But having said that, look, we do have a fairly strong belief that the industry as such is poised to grow. There have been these macroeconomic headwinds that everybody has gotten impacted with. But hopefully, it has bottomed out, that we should be seeing the upturn coming in. And we do expect that we would be able to grow at least slightly higher than the market normally across the industry. So I don't think I would provide anything beyond that at this moment.

Okay. Got it. Got it. But we must be having some internal targets, right, which we have set, especially of our size right now. So I think you did answer that, right, because you expect to grow faster than the industry, but any number on that?

Internally, of course, we set targets and goals, which we try to achieve, which are ambitious in nature, and obviously, continue to look at the market, the conditions and try to capture as much as possible. I don't think beyond that, anything would actually become a forward-looking statement in that sense.

Okay. And where will we see our margin settle? Can we get to a 17%, 18% EBITDA margin?

We have been working on operational efficiencies and margin improvement consistently over the last couple of quarters. We are seeing positive impacts of that. But in parallel, we would also, like I said, are making investments towards our -- improving our sales and go-to-market motions and building the kind of competencies that we believe are needed in today's world to be competitive. We believe that we will be able to sustain our margins for sure and whatever other expansions that we are able to get will, of course, get reflected in our results.

Okay. And the last one is just a suggestion rather than a question. Is it possible or request you to please show the depreciation and amortization of goodwill separately in our press releases, so investors can assess our operating profitability a little more accurately.

So Nitin, goodwill is not amortized, but I think probably, you are referring to the customer contract and noncompete, which we have paid for Velotio acquisition. Yes, we can start showing that separately so that you can make an assessment. We can do that going forward. Not a problem.

The next question is from Harsh Chaurasia from Vallum Capital.

So I just wanted to know, you mentioned that you are seeing some green shoots in the deal pipeline. So what would be the time line where we can expect the deal getting converted to the revenue?

So Harsh, our typical deal conversions, at least historically, without the kind of headwinds that the markets have seen used to be anywhere between 2 to 3 months or 3 to 4 month cycles. We have seen those cycles extend beyond 3 to 4 months in the past couple of quarters. But typically, assuming it takes around that time to convert those deals. And then, of course, as you deploy the teams and start delivering, we should start seeing those revenues getting reflected. Now having said that, I just want to be careful, should you read it as saying that -- so if we have deals in pipeline today, they take so much time to convert and then you get to Q2 and those things, please remember, deals are -- we have had pipeline working for us in Q3 and Q4 as well, which is -- which will come through for Q1. And that's where the decision-making time line does play a role, but it's not something that is starting off a clean slate.

And just one more question. In the current deal pipeline, what would be the contribution from the Blackstone portfolio companies? Like is there any demand you are seeing from the portfolio companies?

So I don't think I would be able to give you a percentage, but I can definitely tell you that there are a significant number of deals from the -- a significant number of leads/opportunities that we are actively pursuing in the Blackstone portfolio companies, and this is spread across both North America and Europe. And yes, I mean, it's -- look, pipeline is very dynamic. So -- but going back to your earlier question -- or no, actually, that was a question from Riddhesh that we have seen a good traction develop. And we are seeing some of those deals actually come to fruition as well.

And just rough estimate, what would be the deal size from the Blackstone leads you are seeing?

Harsh, I think that would be very difficult for me to answer.

And just one last question -- one last suggestion, it could be. Can you provide the -- your revenue in the presentation? It will be very helpful for us to get more -- better perspective for the company.

So that's something, Harsh, that we'll definitely try and see if that's something that we are able to bring in.

Yes, both from the vertical side as well as the capability side, like the software product engineering and the digital services.

Yes. Broadly, like I said, most of our revenue is software product engineering and currently, digital services get embedded into the product work that we do. But if -- like I said, as we mature in our ways of working and embed this deeply, we'll definitely try to see how we can bring that into our investor presentations.

The next question is from [ Ravi Anand ] from InCred Asset Management.

This is just furthering the last question. Can you please elaborate on the type of partnership we have with the tech companies? As in at what stage of the value chain do they exactly come in? Is it at their product development stage or implementation stage or maintenance or at cloud stage? Just wanted to understand the quality of the services we are integrated with our partners. This is number one. The second is, currently, we have 7% to 8% of BPO services, balance 93% in IT services. Now in this 93% IT services, how much is the mix of product engineering and how much is the mix of traditional IT services?

Thanks, Ravi. Coming to the first part of your question in terms of when we work with tech companies, what stage we engage in. Being the software product development company, a large percentage of our -- or majority of our engagement actually happens in the design build phases, which is either the customer already has a product design or we collaboratively help and contribute to the design. But mostly, the build part of the product, which is where they need scale and capacity and capability, which is where our teams work together with them to launch those products, release new features, help them take it to the market in terms of the product releases itself. In a certain percentage of our customers, we also continue to manage and maintain their products. We provide them product portfolio management, as we call it, where we provide them support for ongoing technical debt reduction or new feature enhancements. And even, to some extent, product changes when there are either issues or bugs or customer requests that come in that space. We also actually, just to add to it, though you've not asked for it, we also provide product professional services, which basically means where our clients' products require integrations at the time of implementation. Some of our clients do work with us to become their professional services arm to help them accelerate their own revenues by deploying those products faster. As to the cloud part of it, in today's world, many of these engagements are cloud-first engagements. So a lot of this product design or development actually happens in a cloud-native format or cloud-native environment. We also have engagements with customers where they would migrate their on-premise products to cloud and make them cloud-native and in all forms of those engagements. Coming to the second part of your question on the IT services side, how much is product engineering versus traditional. Almost the entire work that we do, and I wouldn't put a percentage because whether it's 98% or 99% or 97%, perhaps that's where we would draw a cut. But 98 -- in my guess, 98% to 99% of our business is all product engineering and not traditional IT. What that means is we are not doing infrastructure support or we are not doing ERP implementation or we're not doing a bunch of those enterprise IT, kind of traditional IT support kind of work for our customers. Our customers come to us for doing product engineering work, handle their products, enhance them, build them, release new features and even manage and do professional services like I described earlier.

Got it, sir. And sir, if I can squeeze in one more question. Can you also please elaborate on the BPO services? Is it voice? Or is it a BPM? And what is the vertical we are catering to? And what would be a sustainable margin is it vertical because the margin has been going up and down?

Well, let me first provide you a kind of a sense of the BPO business, as you call it. We obviously do not call it BPO. It is knowledge services and why we call it knowledge services is because what we're doing is we are taking a certain problem of the clients' business and using a lot of automation to first automate the client's business process in that space. And then in many cases where it still requires a human in the loop, we actually take ownership of it and run the process for them. And it is actually much closer to digital operations than really BPO in that sense. The kind of verticals we are catering to over there, prominently our health care and manufacturing, where we provide very specialized services where we've built automations and tools that enable us to actually carry out those functions. Almost -- I would say, a very negligible part of our business is voice, and it's actually not -- in many cases, it is outbound voice coupled with a very, very large number of -- the actual automation and process work. But -- so voice is really negligible, sometimes just as a necessary part of the thing. Some of this work is actually extremely high-quality work, requires not typical, what you would call BPO talent. It actually requires deep technical talent to carry out. Nandji, I think margins, I think -- I don't think we have seen a lot of up and down there, but...

There is not much up and down. These are good margin because in this comparatively, the cost, as I said these are lesser -- rates are also a little lesser. But margins are as good as in our product engineering rather, I would say, a bit higher.

If we strip out the BPO margin, I'm looking at the EBIT margin. So the IT services margins are somewhere around 10%. So we assume that this should improve going ahead. So any sustainable margin in the IT Services segment you would want to guide going ahead?

So probably you are referring to the segment reporting part. Is that correct?

Yes.

So I think the way it is kind of prepared as per Indian GAAP, it's not the correct way to look at this. If you ask me, honestly, our offshore margins -- okay, let's talk about gross margin front, then my gross margin is close to 34% or 35%. I would say by the offshore margins are, let's assume 40%, and the -- other than the offshore margin are, let's assume, say, 27%, 28%. So BPO or KPO, knowledge service, which I said, when I said it's 40%, so it's a much higher gross margin compared. That is the real way to look at from a U.S. GAAP and gross margin front.

And what would be the offshoring mix ex our BPO at the company level?

So the offshore part what you are referring to on an annual basis is close to $18 million, $19 million out of the -- let's assume simply if we are $200 million, then it is like $18 million, $19 million. So 9%, 10%, that's it.

[Operator Instructions]

Actually, we have overshoot the time. If there is no question, we can close it. It's already 1 hour, 5 minutes.

That's right. There are actually no further questions. So I would now like to hand the conference back to Mr. Nitesh for any closing comments.

Well, I just want to thank everyone for joining the call and asking all insightful questions because your questions keep us honest and also give us ideas for how to improve on our both reporting and transparency for time to come. And I look forward to continuing to engage on these calls going forward, too. So thank you so much for your time, and thanks for all the questions.

Thank you very much. On behalf of R Systems, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.