R Systems International Limited ($RSYSTEMS)

Ladies and gentlemen, good day, and welcome to the R Systems Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference has been recorded. I now hand the conference over to Mr. Kumar. Thank you, and over to you, sir.

Thank you, Sapna ji. I welcome all participants to R Systems Quarter 1 '26 Earnings Conference Call. Since R Systems follow calendar year as is financial year Jan to March quarter is quarter 1 for us. We have today with us Nitesh Bansal, Managing Director and COO R Systems; and Nand Sardana, CFO R Systems. We shared the investor presentation late evening yesterday as well as uploaded on company and Stock Exchange website. 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 financial overview by Nand. Thereafter, we'll have a closer statement by Nitesh. Subsequently, we'll open 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. Company undertakes no obligation publicly to update or revise any such statements. These statements may undertake the reason because of information, future events or otherwise. Actual performance achievement could differ from those expressed or implied in such forward-looking statement. Now I am handing over to Nitesh for his opening comment. Thank you. Over to you, sir.

Thank you, Kumar, and welcome to everyone from my side as well to this first earnings call of this year. For those of you who are following the presentation, I'll call out the slide number. Others, of course, as I walk through the numbers and performance, I'm sure you'll be able to follow me. So I'm going to be starting with the overall financial performance for the first quarter, which is Slide #4. Very happy to report that we posted a revenue of INR 574.8 crores or $62.8 million in the first quarter, which represents a year-over-year growth of 29.9% on a quarter-over-quarter growth of 3.5%. The adjusted EBITDA adjusted for RSU expense and nonrecurring costs stood at INR 115.7 crore or $12 million, which is an EBITDA percentage of 20.1%. This is a year-over-year growth of 50.6% and a quarter-over-quarter growth of 13.7%. The adjusted net profit for the same period stood at INR 75.8 crores or $8.3 million, which is an adjusted net profit of 13.2%. This represents a year-over-year growth of 74.8% and quarter-over-quarter growth 25.5%. The adjusted EPS stood at [ 6.4 ], which is similar 74.6% year-over-year growth or a 25.4% quarter-over-quarter growth on the EPS numbers. If you look at the last 8 quarters graph, it shows consistent growth every quarter that the company has posted a barring a minor dip in Q1 '25, very minor indeed. And with a strong growth and deal momentum across the last 4 quarters, as is quite visible. We've continued to maintain our margins in a very healthy range as we had guided in the 17 plus kind of a range. And this quarter, if you look at the bridge, of course, we all know that we had a sharp movements in foreign exchange in rupee depreciated significantly against the dollar. So we have also seen a significant rupee depreciation benefit which has taken our EBITDA to 20.1%. But even without that, we stand in the [ 18 ] or rather actually 19-point-something range. Quickly moving over to detailed margin and EPS analysis, Slide #5, comparisons based on the same quarter last year year-over-year. Last year, Q1, our revenue stood at INR 442.5 crores, which has now come to INR 574.8 crores. That's a 29.9% growth year-over-year. Adjusted EBITDA at INR 76.8 crores, which is now INR 115.7 crores, that's a 50.6% growth or from 17.4% to 20.1%, which is 276 bps of increase year-over-year. On a net profit basis, from INR 43.4 crores to INR 75.8 crores, that's a 74.8% growth in net profit or 9.8% to 13.2%, which is a 339 basis points increase and the EPS going up from INR 3.7 crores to INR 6.4, which is 74.6% increase. Same numbers compared to our quarter-over-quarter, which means from Q4, '25 to Q1 '26. We went from INR 555.1 crores to INR 574.8 crores in revenue, that's a 3.5% quarter-over-quarter growth or INR 101.7 crores to INR 115.7 crores in EBITDA which is a 13.7% growth or 18.3% to 20.1% EBITDA, which is [ 180 basis points ]. On adjusted net profit, INR 60.4 crores to [ INR 75.8 crores ], that's a 25.5% growth or 10.9% to 13.2% as a percentage of revenue, which is 231 basis points growth. And on EPS basis for INR 5.1 to INR 6.4, which is a 25.4% growth in EPS. Quickly looking at the operating metrics on Slide #6. Our revenue distribution is largely in the same range. Americas contributes to about 69.3% of our revenue, with APAC contributing 17.5% and Europe 9.6% and Middle East and Africa are rather mostly Middle East, in this case, geography that got added due to the acquisition of Navigo contributes about 3.6% of the total revenue, which is not a significant change from last quarter. It's a few percentage points here or there. In client concentration basis, while a total contribution from our top 10 clients in revenue in dollar terms has remained the same because the baseline total of the company has increased. We see slight percentage dip in top 3 clients going from 13.2% to 11.5%, top 5 going from 18.2% to 16% and top 10 going from [ 26% to 24% ]. But broadly speaking, approximately 25% of our revenue comes from our top 10 clients, our client contributes about 5.8% of the total revenue. Utilization, as we had been talking about a lot of investment in AI and building our systems as an AI-first company. Over the course of last 2 quarters, we have significantly expanded our bench and COE investments in AI and data, which has also led to the launch of our AI studio called EXIQO, and I'm going to talk about it in a short while. But there's a deliberate decrease in utilization as a result of which for creating that COE and the deliberate bench onboard data and MDI talent, thus bringing our utilization down to about 80% -- 80.5%, which was at its peak at about 84%. Largely in the last 2 quarters, taking approximately 2% to 2.5% dip on utilization to be able to invest in creating the AI-first, the platforms that is offering, having the people ready and being able to service the market in that space. Our DSO has remained largely in the same range, 60 to 63 -- 64 days in terms of billed DSO, in 76 days in terms of DSO, which is built for some built. Quickly looking at a few key wins in 2026, first quarter and important thing is that as the market has heated up in AI the space, our readiness in those service offerings and preparing our organization to the AI-first has actually started showing result or paying dividends. The [indiscernible] is a leading global technology research advisory company, which asked us to develop an API-based platform, for making sure that all their research templates, all their research, data, et cetera, can we properly secured, access, delivered in for custom research reports and see that they deliver. It's a micro services environment, built using AI, and that's something that we've been -- we obviously won against some stiff competition and the customer awarded us looking at our capabilities in this space. The second one is a North America-based technology company. They're specialized in creating digital engagement and by digital engagement, it means for a lot of B2C platform companies, these are the ones who help them create and the digital experience of the customer. So they onboard large B2C platforms as their customers to create digital experiences using AI, creating the creating the golden records of data, creating the personalized [indiscernible] clients around it, and we are the ones who are actually helping them and working with them to do this. The third one is a leading platform on life insurance and annuity insurance, which obviously is extremely both secure and data sensitive. And this platform is used by some of the world's largest life insurance company to write their life insurance and annuity plans. The platform had been written in certain legacy languages has been working for over 20 years, and they wanted to modernize both the platform, tech stack as well as the experience that it delivers to be more maintainable. But for each customer because every customer has their own products and et cetera, which are written on it. So we have been chosen as the trusted partner to create those playbooks for platform upgrades for each of those large life insurance companies where we go in and upgrade the platform using AI tools so that it creates minimum disruption and is done in a very quick time line. The fourth one is a major hyperscaler, one of the large hyperscalers, leading Cloud and Cloud data services companies using our capabilities and the platform that we have created and an AI platform that we have created to actually accelerate cloud adoption and improve performance and efficiency of clients who use their cloud services. And last but not the least, a very interesting global life sciences company in the aesthetics and cosmetic broad space is -- has asked us to develop an end-to-end consumer loyalty program, which is panning both medical aesthetics as well as retail products spaces, which can create the digital engagement for their clients and help them make those clients for life. So all in all, every single deal that we've been part of every single conversation today is obviously has a little bit of an AI flavor, a lot of it has to do with data, but ultimately, using AI and delivering those outcomes to the customers. Quickly moving on something that we had shared with you last quarter, our trailing 12-month ACV view of wins, we had $76.5 million of of ACV on a TTM basis last quarter, we are reporting $82.5 million of ACV wins this quarter. So it shows positive deal momentum, continued wins in the market and we continue to build our book of business according to it. Moving on to Slide #9. Very proud to share that we've refreshed our brand, while we've not changed the name, we are R Systems International, but as the brand logo and the entire look and feel of how people see us, how we are perceived, how our website and the content around it has all become very AI-first. And it is a refreshed brand look as well as the image, and I would invite all of you to please look at it if you go to rsystems.com, you'll get to see the new RSI branding and logo. Along with that, we also launched our AI studio, it's called EXIQO, it stands for EX for experience, IQ for intelligence and O for orchestration. EXIQO is our AI, which combines the power of people, our AI trained talent, we call them AIEV train talent. Along with the Optima platform, which I've obviously talked to all of you about in the last forming calls, we have worked on it over the last 20-odd months. matured the platform. It covers the learnings that we have had across over 130-odd projects that we've done using the platform. All of that experience and intelligence coming together stated to deliver governed enterprise grade, agentic AI solutions and the traction we are seeing in the market, et cetera, is very high. I would invite you to go to EXIQO.AI, which is AI-studio website, or you can go to it to rsisystems.com website as well. We're also proud to report that within the first quarter, we also won the AICONIC award hosted by Financial Express for the best use of AI in manufacturing. And this was for what we've built as an AI-powered factory copilot solution which works -- we developed it for an IoT SaaS platform company, who sells to various manufacturing companies to gather all their IoT data and produce the insights and analytics that will lead to good manufacturing decisions that ultimately those companies can implement. The role of the Agentic AI powered the whole AI engine that we built behind was acknowledged and awarded through this iconic award. And then last but not the least, I'm very happy to also announce that we recently onboarded Farooq Ahmed, as our Chief Revenue Officer. He's going to be leading our sales engine, strengthen the go-to-market approach and lead the [indiscernible] across key markets, especially focusing on North America in the tech space. He's based in the Bay Area, he comes with a very deep background and almost 3 decades of experience working largely in the tech sector in the Bay Area, helping companies grow their revenues. Very happy to onboard Farooqn to the leadership team. At this point, I would probably want to hand over to Nand to walk through the detailed financial statements before I come back to the final summing up point looking ahead kind of a summary. Nand ji, over to you.

Thank you, Nitesh ji. Good morning to all. Thank you, everybody, for attending this call. For those referring to the investor presentation, this is the last page. Revenue for the quarter was INR 574.8 crores or $62.8 million as against INR 555.1 crores or $62.5 million last quarter, and INR 442.5 crores that is $51.1 million in the same quarter last year. This is year-on-year growth of 29.9%. This is on account of volume growth as supported by rupee appreciation and Navigo acquisition. We have started witnessing the results from our investment in cloud, data, AI and automation in terms of large deal conversion, which is supporting sustainable revenue growth. The gross margin was 36% compared to 38.9% last quarter and 36.7% same quarter last year. Our quarterly margin are primarily impacted by reduction in utilization due to investment in AI and 1 lesser day. Also Q4 has benefit of some fixed price projects [indiscernible] up. SG&A expenses decreased by INR 229 crores from [ INR 14.3 ] crores in last quarter, INR 291.4 crores this quarter. This is mainly due to reversal of consolidated AR provision on account of realization in this quarter, as well as top of year-end provision taken last quarter being the year-end. The adjusted EBITDA was 21% compared to 18.3% last quarter and 17.4% in the same quarter last year. The company has been able to report robust margin percentage through operational leverage, improved revenue mix and favorable exchange rates. The RFC cost under management incentive plan is INR 6.4 crores compared to INR 7 crores last quarter. EBITDA net of expense is 19% as against 17.1% last quarter. Getting down to depreciation and amortization, the total expense was INR 21.5 crores compared to [ INR 19.2 crores ] last quarter. This includes INR 9.3 crores for intangible capitalized on account of past acquisitions. non-expenses are on account of severance payment for certain deninpositions. Interest expense is INR 9.6 crores compared to INR 6.8 crores last quarter, increases on account of fourth quarter impact of debenture interest. Other income was INR 13.1 crores compared to INR 2 crore last quarter. For effective 1st January, we have adopted hedge accounting, where the effective portion of changes in fair value loss amounting to INR 18 crores has been recognized in the hedge reserve under equity. This will be reclassified to profit loss account when the corresponding hedge transaction occur. Obviously used to mark-to-market [indiscernible] or loss, but now we have aligned with most of the companies which follows hedge accounting. Further, we had an exchange gain of INR 11.3 crores compared to exchange loss of INR 10 lakhs last quarter. Further, the other income comprised of interest income would be INR 60 lakh this quarter compared to INR 1 crore last quarter. During the quarter, the rate was USD and euro was INR 91.48 and INR 107.12, respectively, as against last quarter average rate of USD 89.06 and euro, EUR 103.6 respectively. These are the 2 main currencies for our system. As at year-end year total forward cover of $46.25 million with average rate of [ 91.13%. ] Our tax expense was INR 24.2 crores this quarter as against INR 9.4 crores last quarter. Tax rate new nondeductible amortization for intangibles acquired 2 acquisition as after certain tax [indiscernible]. Our normalized effective tax rate is around 28%. Net profit after tax was INR 65.4 crores or $7.2 million compared to INR 36.4 crores or $4.1 million last quarter. Basic EPS for the quarter was INR 5.52 compared to INR 3.8 last quarter. Adjusted decrease for the quarter is INR 6.4 as compared to INR 5.1 last quarter. With this, let me hand over to the Nitesh for closing remarks.

Thank you Nand. Coming back to this is Slide #10, and I usually take a view of the market and provide how we see it and what it means for us. So we ourselves had conducted a research study covering over 200-plus organizations to look at how the mid-market players are adopting AI and how are they scaling it. And some of the findings of that result, of course, that helps us in kind of building our narratives and our offerings to the market. The survey in this global mid-market also authored by jointly by Average Group, shows that almost 43% of organizations are lead forming directly from the classical ML and advanced analytics directly to Agentic AI models without going through a middle phase of using generative AI and generative solutions. There are almost 64% organizations that show high adoption of of AI in various things, but the actual productive deployment is only at about 15%. The gap between where the organizations are already spending and doing stuff on AI versus only 15% can be deployed, is the clear opportunity for organizations like us to help those organizations realize value from their investment. And that's really the big market, which is available to us. Second point, as we saw through the survey and also through our experience throughout the year, getting ROI from AI is not really a tool question. It is a talent question. and our moves in training our people and having all our people trained on the AI with 1,400-plus people AIEV certified is a great asset and a differentiator to be able to service the market in a proper manner. So if you look at the trends that are shaping this year, offers organizations are running towards adopting AI in whatever manner but also beginning to look at the cost of running AI as an important factor. And as they start looking at what does it cost to run AI, they obviously then start looking at players like us to architect AI-efficient solutions and the end-to-end systems, which will actually deliver the results without burning a hole in their pocket. Legacy modernization continues to be a very large total addressable market and across all sorts of companies, whether they are dealing with legacy core basis legacy data estates or reporting landscape that they want to modernize. We have ourselves seen significant wins in this area, both last year and this year as well. Advisers have begun to recognize that engineering velocity is a key differentiator in achieving ROI from AI initiatives. And this has been our narrative on EXIQO right from day 1 that through our AI studio in EXIQO, we deliver engineering velocity because finally, with the same commercially available tools, everybody can potentially theoretically achieve the same outcomes. But the gap between those who achieve the outcomes versus those don't, is really the engineering velocity that is brought in by AI experts who do it first time right and get the efficient solutions sold in in an enterprise-ready manner very quickly. I think all of these forces that are shaping up and the way we have prepared ourselves over the last year or 20 months is definitely going to create a convergence we are seeing that kind of momentum in the market, and we are hopeful that it will continue to help us and become a tailwind for us. So with that, I'll end the presentation and open up for questions.

[Operator Instructions] We will take the first question from the line of Sandeep Shah from Equirus Securities.

First question in terms of the AI impact on the LDLC software development life cycle. So where various industry research report indicates LDLC may have relatively higher impact versus other, so how are we witnessing such kind of conversation with the clients about opportunity or a threat? I do agree that we have done a lot of development in terms of reverting from just the manpower kind of a delivery to AI-led delivery, but will this have immediate impact on the growth where clients are upfronting asking and demanding AI and productivity gain pass on versus revenue recognition may happen later?

Sandeep, thanks for your question. And again, thanks for always being the first one to ask. So clearly, look, AI and LDLC is a huge area. And our report also suggests that LDLC is one of the largest areas that gets impacted and it has the best outcomes and returns. We ourselves have been using AI and LDLC for, like I said, over the last 20 months, developed a lot of reusable assets, our Optima AI platform actually boosts almost around 50-plus agents, more than 1,500 prompts and a bunch of other reusable components that actually enable an SDLC to be enterprise-ready. Now to the second part of your question, and I think I've said this in the past also, AI and SDLC is a huge benefit or efficiency gainer for all parties. For us who are doing the work, we can do the work in a much lesser effort and much less time and for the customer, it is an outcome, which can be delivered in a much faster manner with high efficiencies. Now does that create a risk for us or an opportunity. It's a huge opportunity for us. Reason being, we are a project organization, and we've said that multiple times, most of our -- in fact, over 90% of our revenue is coming from discretionary spend where we're doing project work for our customers. What that means is that it does not take away anything from us, right? It's not that we are doing some support maintenance, et cetera, in a very traditional banner, which will now shrink in size because of AI. In fact, what it does is because we are constantly going after the discretionary spend and new projects every time, every new project that we bid for is already bid in a much more efficient manner, which keeps us ahead of the competition. I think it is almost impossible for us to think today that we will bid for a project or a new development, enhancement, modernization, migration, whatever it is, without putting AI into it. And that's become the norm, and it gives -- it acts as a competitive advantage for us. It gets us into those deals and we win those deals. So net-net, it is expanding the target market, total addressable market for us. And we are winning those deals and hence, it's a huge opportunity for us. Average deal size, if you compare, the deal sizes have become smaller because it doesn't take the same amount of time and effort to do it. But on the other side, so the target market, our total addressable market has expanded, it overcompensates for it. I hope that answers your question.

Yes, Yes. And sir, just further to this, in the last days, the frontier model vendors like Entropic and open AI also announcing floating their IT services company in association with some of the global investment bankers where they want to tap the small- and medium-sized enterprises. So I do agree it's early days, may not have a view, but how do you see this kind of an announcement from the tier model? Will it be a big competitive threat?

So big or small only time will tell, Sandeep. But the first thing that I see with that is it validates two points. Number one, it validates that AI is fundamentally a people problem, not a tools problem, right? Because it was only tools, then those frontier companies have already released the tools. They are also realizing that everybody who is buying their tools and using their tools is still complaining about not getting the benefits, right? So they need the right kind of people in the equation to make those tools work and to deliver the enterprise benefit. So one, it is a huge validation of what we have been saying and also doing is that it is a people issue, not a tools issue. Everybody has the same commercial tools. Number two, it is -- if it comes down to talent, it is about what kind of talent are they going to be assembling up and hence, at what price point and how will they be able to serve the mid-market organizations. Clearly, sure, they have a game plan. There are large private equity companies who are joining hands and forces. So there will be some cover there. But the market is so big that, again, it becomes availability of talent, right kind of talent in the right places at the right cost right? And that obviously is not something that can run at the speed of AI. They will also have to go through the same motion of assembling a team, training them, getting them ready, bringing them in front of the client, et cetera. sure, they will become a competition. But as a total, it expands the market, and there are one more player in it, where I'm already a layer who's playing, I think there is enough to go around, and we all will have a significant piece to kind of work with. So right now, I see it as validation of what we are doing. And as they really grow their feet and hit the ground, we will start seeing what kind of competition will become.

Okay. Okay. Fair enough. And just last few and then I may come in the follow-up. It seems the growth could have been driven by full quarter consolidation of Novigo in this quarter, and there could be a possible decline in the organic revenue which could be also due to seasonal weather higher number of holes being there on a Q-on-Q in the first quarter. So we believe this is a quarterly operation and we can organically have a growth turnaround starting again from the second quarter, and ACV, which we have disclosed in this quarter is on the same definition, excluding Novigo, correct?

So let me answer the 3 parks in 3 different things. Number one, we do have the benefit of full quarter consolidation of Novigo, so no doubt about it. However, -- just wanted to clarify, and this question may come up later again, is that the Novigo revenues though they are a full quarter, this was the first full quarter of Novigo that got consolidated with our systems. And this is also the first fiscal year end for Novigo that happened together with us. As a result, and which is the right practice to do, we have aligned a lot of their accounting practices to align with our systems spaces, including accounting policies and revenue recognition norms, et cetera. As a result of which, there is a certain amount of revenue recognition change that has taken place going from gross basis to net basis on some certain kind of license revenues, some norms on fixed price accounting and those kind of things. So, what we had originally, what you may have in mind is what we had given as the size of Novigo revenues, full year revenues when we had acquired the company at about $32 million a year. That restated will stand at about $21 million, $22 million a year. And as a result, you would see that Yes, there is a small amount of degrowth in quarter-on-quarter basis because, of course, there's a reduction in number of days versus Q4. And like Nand ji said in his financial statement readout, that we also had benefits of some fixed price project [indiscernible] ups in Q4 as they normally take place. But having said that, we have largely remained flat organically, and we have very strong deal momentum and we have been confident that the organic growth continues to be there. and we continue to gain the market share and we'll continue to grow. Novigo adds to that, and they also continue to grow in their markets. They obviously were also impacted by the Middle East crisis to some extent in Q1. So that, hopefully, will be a thing behind us and then that will contribute to positive growth in that front as well. So overall, I don't see any challenges to the positive outlook for this quarter as we are in and we'll continue to report accordingly.

We will take the next question from the line of Vinay Menon from Monarch Capital.

A couple of questions from my side. One, we recently read that Blackstone is partnered with Anthropics and a couple of other private equities are also there. and they're planning basically to deploy their engineers within the organization and even to the portfolio companies within Blackstone now that is an area where we have done well over the last year, 1.5 years. So how do you see this playing out? And could this kind of model that in other mid-market players as well?

So Vinay, again thanks for joining in and for your question. So yes, Blackstone and a bunch of other private equities have joined in to put in money in what would eventually be some kind of a consulting company within Anthropic, et cetera. And without reading too much into it, whether it's any private equity, they are all going to look at a good opportunity as an investment opportunity and would invest. So not reading too much into that. Going back to whether this will get deployed across port cores or mid-market companies, and they will benefit from it. Possibly all of that, obviously, early days, they need to stand up the team and build the team and build their [indiscernible]. Like I was saying earlier, I see it as a strong validation of our playbooks that value from and ROI will come through engineering velocity. Can you need those kind of AI specialists to be able to implement it in a manner that it brings the velocity. It is also a combination of understanding your clients' business and how they're going to use AI, which we believe we have developed over the last 20, 30 years of working with clients in various industries in learning their business and then understanding how we can impact -- that's again something that will be slightly challenging to stand up over overnight. But having said that, when it comes to Blackstone business, we have continued to win against competition. I have said that earlier in many calls as well, we are lucky to be part of Blackstone portfolio because we do get introduced to various portfolio companies and can have a quicker path to having a conversation with them but beyond that, I have to win a deal based on merit against competition in the same manner as anybody else does. And we would just see them as one more competition because neither us nor them will get pushed into an account as like somebody has -- is mandated to use either of us, right? So we will have to continue to cater to our strengths. And we believe that the experience we have that the platform we built, which is directly targeted towards delivering ROI to enterprises and all our working practices will continue to hold us in good stead. They will have their strengths and suchlike any competition, we will have to measure up their strength and then continue to divert on our playbooks to make sure that we continue to win. So right now, it's a lot of hypothetical, Vinay. They don't really have a company today. So we'll keep a good watch on it and clearly see how it plays out.

Okay. And in terms of the ACV, if you can -- like you have mentioned that the deal sizes are coming down. So if you can just mention what kind of deal sizes were there, which we've added this quarter? And you said the time is increasing. So a little bit more color on that would be helpful.

So Vinay, when I say deal sizes are coming down, I don't mean deals sizes for us are coming down. What I meant was that a deal which delivered in a traditional manner, would have been x now because of AI can be delivered in a much lesser than x kind of a thing, right? But for us, on the other hand, average deal sizes have gone up because we are now being able to -- as we have transformed our own offerings, we are now doing, we are taking end-to-end objectives. We are doing transformations for our customers. So what used to be build one feature or put a Sprint team together and put a lot of people has now converted to conversations where we like here is a large application to 3 million lines of code written in legacy, can you migrate it in a short period of time using AI. And we would have that as probably $1 million lease, right? Now that itself in the past would have been $1.5 million or $2 million deals, which is now $1 million because it is done through AI but for us, these sizes, because of this new TAM, our deal sizes are still improving, right? So the market may look at it as okay? It takes much lesser to do the same thing. That's the AI efficiency. But we are benefiting from it because we are able to play in that new TAM until that deal sizes accordingly.

Okay. And just last 1 thing that SG&A came down this quarter. I just want to get an idea on how it will be one because we obviously in terms of the growth we are doing, I think it should normalize maybe in the next few quarters?

Yes. SG&A coming down is not a reflection of any reduction in investment or people neither in sales nor in G&A. It's actually -- and Nand ji would probably explain it if needed in detail. Q4 being the last quarter and before closing the books, we have to provision for any AR, et cetera. And and through whatever follow-ups, et cetera. In Q1, we ended up collecting all of that AR. And that reversal is what kind of reflects in the reduction of SG&A. So it's our investments in sales and marketing and all of those are intact. In fact, we continue to increase those. And hence, when we look at going forward, perhaps I think this quarter, we're talking about $10 million, it will probably -- our normal run rate is at 11-point something and will come back to that.

Next question is from the line of Anmol Garg from DAM Capital.

I had a couple of themes that I wanted to understand. Firstly, now that Novigo has been fully integrated with within R Systems. And as I understand it, is that it has relatively larger set of customer. So, have we been able to make any inroads with R Systems delivery portfolio for particularly Novigo? I know it's early days, but anything that you want...

Yes, sure Anmol and thanks for that question. While it is early days, but right from day 1, we have focused on getting our go-to-market aligned and making sure that both Novigo and R Systems are able to leverage each other's capabilities. Very happy to say that today, there are at least, I would say, close to a dozen deals where Novigo and R Systems teams are cross engaged and at least maybe 3 clients where Novigo clients have received R Systems service delivery because of competencies or new capabilities that we sold to them and at least one client where R Systems client is using Novigo's competence to deliver. So that kind of cross leverage is already happening. That's the fundamental premise of doing an acquisition, which complements us and capabilities and so that we can expand our offerings with our clients. So absolutely, we're seeing the evidence of that taking place.

Understood. Sir, and also wanted to understand organic growth in this quarter. You said that it is flattish. However, if we include 1.5 months of Novigo acquisition, which could contribute nearly about 5%, 6% to the growth rate in the some reduction in the revenues, then also there would be around 3% of the [indiscernible], which will be 3% to 4%, which will be from the Novigo acquisition [indiscernible] so just from that perspective, I wanted to understand what would be the organic growth in this quarter? And secondly, also the outlook for this year, how are we thinking about growth in this particular year organically from the R Systems perspective?

So like I said, given that last quarter, we had half a quarter of Novigo coming in this quarter, 3 quarter and the adjustments to accounting policies as well as some amount of fixed price 2 ups, et cetera, that took place. I think the last quarter numbers do not provide a very clear straight line method to to look at top line in that manner. Good news is that all those adjustments, all those alignments to accounting policies, et cetera, have already been done. So what we are -- what you're seeing as this quarter numbers is a base line to understand what the combined numbers look like. And like I said, and maybe on a one-on-one, Nand ji can provide a little more detail, but overall, we have grown and as a company. Like I said, organically this quarter was flat. But that's, again, largely due to reduction of days and some fixed price true-ups in Q4. We have won new business and our overall -- while we don't provide any forward guidance and flavors, but very high confidence that both organically as well as combined entities, we are on the right trajectory for doing what we promised to our investors to continue to grow the organization. If you look at EBITDA numbers, we have delivered on the EBITDA as promised. And because none of the accounting adjustments impact our overall EBITDA and profit margins, and we've posted a very strong number, [ $12.6 million ] there, and we continue to be positive about capability to maintain R Systems overall EBITDA in the line.

Sure, sir. And sir, lastly, I wanted to understand in terms of the -- are we seeing any trends where GCC are being established by the mid-market players as well? And is that a risk to our client base as of now? Or do you see that maybe this can be an opportunity in terms of the GCC revenue that we might get from potential new clients?

So Anmol, we had launched our own GCC services like 6 quarters ago, when we started helping mid-market customers to establish their COEs, create their GCCs or participate in the GCC scale-up offerings. We have successfully held close to 8 or 9 organizations in various stages of the GCC formations. What we see is that when customers decide and they want to have a GCC, they will obviously want to do that. But when they do it with us, they have a much higher chance of establishing a successful GCC or COE, whichever name they want to call it. And we have actually gained a lot of trust in content with the customer in doing so, which basically means it gives us a sustainable business on a long-term basis, even if there is a part of the business that they will run themselves, we become long-term partners. So yes, we do know that there is always going to be at least in mid-market, it's something that every mid-market player is looking at. that they will look at GCC plays, but they also want experts like us to work alongside, and we are using that as an opportunity for our growth.

Understood. Understood. And lastly, one very industry-specific question that I wanted to ask is how are we seeing the token cost, particularly right now when we are using AI model? Who is bearing that cost, whether the client is building it or we are basing it? And does it differ in time and material that is outcome-based contract on UBS this fall?

So token cost for output delivered to the client is usually, I would say, in almost 100% cases borne by the client either either they provide us subscription to the fronted model that they have subscribed to or we would do it, but we'll pass on the costs. So to that extent, the token costs does belong to the client. We also end up incurring our own token costs because of the training because of our own COE, R&D development, et cetera, that we do. We believe that our ability to deliver AI with most optimal token costs is one of the differentiators because we build FinOps model within our AI ecosystem in optimize. And that is something that the CFO at the client sites really love to see because when they are implementing themselves, they actually have no clue of what those costs would be. We are at least able to give them a clear metering of what the costs are and how the costs are going to be reduced. But to your question, most of those costs when delivering to the clients belong to the clients.

We will take the next question from the line of Varun Kulkarni from Intra.

So the question on GCC has already been answered, so I'll probably skip that. Some basic questions would be in terms of the AI and non-AI, is there a revenue split? Or is it too nascent at this point to actually give that split?

It is -- well, we do try and keep a track of how R Systems AI revenue is developing because obviously, with all the investments we are making. It's not coming from a system. So we're not reporting it yet. But just to give you an idea, approximately 29% of our revenue today comes from AI and AI-enabled services.

Perfect. And I don't know, I just wanted to ask you, in terms of the total employee head count, do we report that number because it's not there in the investor PPT. And what would be the attrition rate at this point?

So we report the total headcount. It's part of the press release. You would be able to see it there. We had about 5,400 employees globally. And attrition currently is running at, I believe, approximately 11%, which is lower than the industry.

Sure, sure. And another very basic question. In terms of the verticals, so do we have the split for that? And also, are we seeing in which vertical are we seeing optimum usage of AI at this point and going forward, where are we anticipating this -- the AI implementation to be more in lease sector?

Answer the first part, we do share the split again, it's part of the press release where [ Tipichestech Internet ] platforms and services is our largest vertical. It contributes about 40% plus of our revenues. Being the entire technology product space, obviously, it's a very fast adopter of AI. So from our perspective, we do see a lot of AI usage we are in that space. We are second, third largest verticals are Telecom, Media, Entertainment and Health Care. And again, in those spaces, we are seeing the adoption happen. At various paces depending on, again, the maturity and size of the customer. I think the jury is still out in terms of who or which industry will lead the AI race. But clearly, tech companies are definitely eating their dogfood, so tech companies will continue to lead this for some time, before other industries start catching up and having investments to say that they're doing more AI than the tech companies themselves.

Just a small correction. Pickup we report as part of annual report, but not in the quarterly press release.

Okay. Now, I stand corrected, thanks for that information. It's part of our annual report, yes.

Yes, that's but it's more or less same like not [indiscernible].

That should be the last question. Yes, take the last question, please.

We will take the last question from the line of [indiscernible] from Camelian EMC.

My question was around your AI offering be it the EXIQO studio or the Optimi platform. Could you pinpoint which specific problem statements time trying to solve it within the enterprise architecture with this?

So, EXIQO studio is, like I said earlier, it's a people platform and orchestration and the platform in there is Optima AI. So it's one and the same thing. And if you look at our exiqo.ai website, it very clearly also lays out. We are basically addressing 3 essential problems or addressing 3 narratives. We are doing AI for achieving acceleration in the software development life cycle. This is the core bread and butter of our business, we do engineering for a living, and now we are doing engineering with AI, and we are helping companies accelerate their software development life cycle using AI. Second, we are addressing a specific component, which is about doing legacy modernization. Like I've said, it's a massive TAM for us and for everyone. And legacy modernization, whether it is legacy code base, whether it's legacy data estate or legacy reporting infrastructure. We are able to modernize it using AI from anything to our modern stack and do it in a manner that we like, we love to call it, we change it from black box to Class box. The third playbook that we are addressing is AI for business objectives, and this is where right from customer experience, contact center, customer service, all the way to deep down deep business domain workflows, which can be now done agentically. And for example, whether it is insurance claims process, whether it is revenue cycle management process in health care, whether it is KYC process and banking, or it is a bunch of the horizontal processes in the CFO area, whether account receivables tables, the P2P matching, the 3-way matching of invoices, a bunch of those things, which can now be done agentically. And we've built end-to-end agent ecosystems orchestrated together to accomplish these kind of business objectives. So 3 problem statements that we are addressing, SDLC modernization and business to flows.

Sure. And if you had to highlight you know that differentiation or moat this platform has versus platform offerings by peer IT companies, what would let 1 or 2 moats that would be -- they are right to win versus others?

So our right to win is built on the fact that this platform while we don't sell the platform. This platform is essentially providing reusable artifacts across all of these 3 narratives that I talked about. And and enables any organization to achieve enterprise-ready AI outcomes within a matter of weeks because all the essential elements we built is like a 5-layer cape, all the essential elements of security, guardrails, usage policies, token optimization, specific compliances, all of those things are prebuilt that can be applied directly to any enterprise in a matter of weeks, and this is something that organizations takes 6 months to build with expert talent also. So once that is done and with all the reusable agents, assets or everything that's there and then our AIEV-trained talent. And again, our differentiation is that AIEV is not a certification that one can buy from outside. It's a proficiency-based framework that we've come out with. And our people who know how to use AI, especially all this enterprise-ready AI efforts, which can then be deployed to a client hence, delivering the real ROI of achieving outcomes within months. And that's what we show on the website also, almost 2x productivity, almost 50% reduction in turnaround time and those kind of things. So that's what creates the moat for us with our clients wherever we are using this.

And this last question is a data point question. So how much does fixed base projects and tenuity will contribute to revenue? And how has this mix changed over the last 1 and 2 years?

So traditionally, the company's revenue was largely kind of material base because that's how tech companies usually contract and there are long-term customers where we are building products or feature sets for them, et cetera. But as we've changed our offerings to more of these transformation offerings, especially data and AI-led, our business mix has obviously moved more towards fixed price and AI will obviously lead to more outcome-based pricing as well. While these numbers are not accurate to the point, but approximately speaking, what till last year would have been approximately, let's say, 10% fixed price has -- last year, been 2024 has already probably changed to maybe closer to 15% or 16% in '25, and we believe that it will continue to move in the favor of fixed price, as we go along and as we do more and more of these transformation objectives.

Sure. Any target in mind over here, if you can give.

No, not really because we have to play with what is the business that we are attracting. And we don't have a target mix because we don't there is -- it's not a trade-off between A or B, right? I mean we are better off doing AI objectives on fixed price basis versus serving the legacy mandates on time and material basis. So it'll move along with the business mix change.

Ladies and gentlemen, we will take the last question for today. I now hand the conference over to Mr. Nitesh for closing comments. Thank you, and over to you, sir.

So thank you so much. And once again, thanks to all participants and everybody who asked questions like I've always observed these questions act has a good input to us to continue to focus on all the areas and things that if we have left out or not really considered and take them into consideration, and I continue to enjoy these calls and look forward to seeing you all on the next investor call in a quarter from now.

Thank you, members of the management. On behalf of R Systems, that concludes this conference. Thank you all for joining with us today, and you may now disconnect your lines. Thank you.