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

Ladies and gentlemen, good day, and welcome to the R Systems Q2 and H1 2026 Earnings Conference Call. [Operator Instruction] Please note that this conference is being recorded. I will now hand the conference over to Mr. Tarun Kothari, AVP, Finance and Accounts for opening remarks. Thank you. And over to you.

Thank you, Ryan. I welcome all participants to R Systems' Q2 and H1 2026 Earnings Conference Call. Since R Systems follows calendar year as its financial year, April to June quarter is quarter 2 for us. We have today with us Nitesh Bansal, Managing Director and CEO of R Systems; and Nand Sardana, CFO of R Systems. We shared the investor presentation late evening yesterday, as well as uploaded on company and stock exchanges websites. 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 will have a closer 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. Company undertakes no obligation publicly to update or revise any such statements. These statements may undertake revision because of new information, future events or otherwise. Actual results, performance and achievements could differ from those expressed or implied in such forward-looking statements. Now, I'm handing over to Nitesh for his opening comments. Over to you, sir.

Thank you, Tarun, and good morning, and thank you, everyone, for joining our Q2 earnings call. And very proud to start with saying that this has been one of our strongest quarters with our revenues crossing INR 600 crores with a strong margin and EBITDA. Just to let everyone know for those of you who are referring to the slides, I will refer to the slide numbers. But if you're not, as I walk through the numbers and commentary, I'm sure you'll be able to follow. So like I said, referring to Slide #4, it's been a strong quarter with INR 601.17 crores or $63.6 million in revenue, which is a 17.7% year-on-year growth in dollar basis and 30.2% in rupees, which shows a quarter-on-quarter growth of 1.2% on dollar basis and 4.7% in rupees. This also brings us to a record INR 1,200.7 crores in EBITDA -- adjusted EBITDA, which is $12.8 million of adjusted EBITDA on a 20.1% as EBITDA percentage. This is a 51.4% year-over-year growth or 4.4% quarter-over-quarter growth. The adjusted net profit stood at INR 62.9 crores or $6.6 million, which is 10.5% of revenues at year-year growth of 35.4%. The adjusted EPS stood at INR 5.3, which is again a year-over-year growth of 35.3%. As we have stated in the past as well, the adjustment to EBITDA is with respect to RSU expenses as part of non-recurring costs. We have given the adjusted EBITDA bridge just to explain the causes of increase. And while there are certain numbers that probably do not come out in this, we've definitely benefited from rupee depreciation, which has given us a boost. As we've stated in the past, we've continued to invest both in AI, AI-related sales and increase in sales and marketing. But overall, within this, what is also given is, is an uptick in both revenue and margin, which comes because of the revenue mix change, the whole AI compounded growth story, which is beginning to kick in and starting to show green shoots of better revenue per employee and a margin per employee story. Moving on to the next slide. Looking -- because this is also our Q2 and H1 closing, looking at half year over half year performance. We closed at revenue of INR 1,176.5 crores or $126.4 million for H1, which is a 30.1% increase year-over-year. And then adjusted EBITDA number of INR 236.4 crores or $25.4 million at 20.1% of EBITDA percentage, resulting in a 51% growth year-over-year. The adjusted net profit correspondingly was at INR 138.7 crores or $14.9 million, or 11.8% of adjusted net profit, a year-over-year increase of 54.4%. And EPS of INR 11.7, which is a corresponding increase of 54.3%. As the number shows, we have gone from in H1 '25 from INR 904 crores to INR 1,176.5 crores, with 20.1% EBITDA margin. Moving on. Looking at Slide #6, the margin and EPS analysis. Just to make the comparison side by side. This is a quarter-on-quarter number. We closed the quarter at INR 601.7 crores compared to the same quarter last year of INR 462 crores, which is a 30.2% increase in revenue. The corresponding number for Q1 was INR 574.8 crores, which is a 4.7% increase quarter-over-quarter. The corresponding EBITDA stands at INR 120.7 crores, which compares to INR 79.7 crores in the same quarter last year, which is a 51.4% increase in adjusted EBITDA compared to INR 115.7 crores in previous quarter, which is a 4.4% increase in adjusted EBITDA. So from a percentage basis, we've gone from 17.3% to 20.1%, which is a 281 basis points increase or a 6 basis points increase on a quarter-on-quarter basis. The adjusted net profit stood at INR 62.9 crores compared to INR 46.4 crores in the same quarter last year, or a 35.4% increase compared to INR 75.8 crores in Q1, which is a decrease of 17.1%. If you refer to the notes below, this is largely due to a one-time benefit of currency hedging policy change that we implemented in Q1 and got a significant benefit out of that. Correspondingly, the net profit percentage moved from 10.1% to 10.5% on a year-over-year basis but a 13.2% to 10.5% on a quarter-on-quarter basis, thus showing a decline, which was a one-time impact of the currency hedging benefit that we realized in Q1, which was to the tune of INR 18 crores. Looking at similar analysis on a half yearly basis on Slide 7. H1 '26 revenues stood at INR 1,176.5 crores compared to INR 904.5 crores in H1 '25, which is 30.1% increase. Corresponding EBITDA number at INR 236.4 crores compared to INR 156.6 crores, which is a 51% increase or 279 basis points improvement over previous half year -- as in the same half year last year, H1 last year. Adjusted net profit of INR 138.7 crores versus INR 89.8 crores, which is a 54.4% jump. And on a profit percentage basis, 11.8% versus 9.9%, which is a 186 bps increase from H1 last year. Coming to now operating metrics on Slide #8. Revenue by geographies, a slight uptick in Americas, so going from 69.3% to 71.5% of total revenues. A slight decrease in APAC due to some of the larger projects that we were running in the last quarter that came to an end coming to 15.3%. Europe remains largely in the same range of 9.7%, and Middle East and Africa remaining on a similar range of 3.6%. Our client concentration has shown a positive uptick, both on the top client and the top 10 clients basis, where top client contributes now 6% instead of 5.8%, top 10 clients leading to 24.4% instead of 24%. So, while we do not have a significant client concentration risk, the continued efforts on mining and growing existing accounts continued to create recurring revenues and deepening our pockets within large existing clients. Utilization percentage has slightly ticked up to reach 80.5% to 81%, which -- this is our standard and accepted band of between 80% to 81%, which is where we want to operate. This also shows that post our investments in our AI initiatives and deliberately making those bench investments over the last 2 or 3 quarters, we are beginning to sweat those assets and investments towards revenue-generating activities. DSO remains largely in the band, with billed DSO staying at about 55, 56 days and billed plus unbilled coming to about 75 days, which is very much in line or better than the industry averages. Talking about some key wins on Slide #9, we are very proud that this quarter, we not only saw our AI accelerated wins taking a larger share of all the wins that we had, but we also had a few decently large size deals that fueled the overall TCV win as well as the revenue numbers that will build up and we have seen that impact come in, in Q2 as well. So, first one is a leading global telecom player where we have been chosen to leverage advanced analytics, data science and other intelligent solutions to create actionable business insights. It is a strategic initiative from the client to enable them for smarter decision-making, optimizing operations and accelerating growth in a highly competitive market space that they operate in. The second one is a strategic win to enable a small business lender, a large financial institution, which is into lending for small businesses for whom we'll be creating a center of excellence sort of a GCC in India, which will be responsible for product engineering, software engineering, digital operations and fuel the AI-powered lending innovation to create enhanced operational efficiency for this client. The third one is a large leading global insurance and financial services provider who's partnered with us to advance their high-net-worth clients initiative to reimagine the AI-powered offering for those platforms, offering AI-powered quality engineering and accelerating the testing enhancements of the quality and release cycles related work. We will be enabling faster innovation cycles, greater reliability, a superior digital experience for their customers. The fourth one is, again, another large global financial services organization who has businesses in providing market access and exchanges, who have -- who partnered with us to create a retail transformation. So, this is a CRM and customer experience related engagement, leveraging Microsoft Dynamics 365, integrating with omnichannel platforms and modernizing the entire life cycle from customer acquisition to engagement to onboarding, service operations and delivering seamless data-driven customer experience across global markets. And last but not the least, a leading AdTech company with an extremely complex ad distribution business have asked us to modernize their core platform on which they manage and operate ad agencies and distribution of advertisements, to modernize it completely using AI without any disruption to their existing clients and everyday operations of ad spend and making it a more reliable, faster and scalable environment with a superlative user experience. As you would have noted, all of these wins indicate a very AI-first stance and our capability and ability to solution using AI and AI methodologies has been a great differentiator in making these wins happen. Coming to Slide #10, reporting the trailing 12-month ACV bookings. In Q2, we recorded $82.9 million of ACV bookings compared to $82.3 million in Q1. This on a trailing 12-month basis continues to show that we continue to win newer engagements or deeper engagements, both from our hunting and mining efforts and increase the size of the deals as well as more in terms of the deeper engagements with not just the top clients, but also the kind of pipeline that we are developing and generating. At this point, I'd like to hand over to Nand for a detailed financial performance readout and then I'll take over for closing comments.

Thank you, Nitesh. Good morning to all. Thank you, everybody, for attending the call. The presentation gives detail of quarter 2 performance. Those referring to slide, -- investor presentation, it last but 1 page. Revenue for the quarter was INR 601.7 crores or $63.6 million as against INR 574.8 crores or $62.8 million last quarter and INR 462 crores that is $54 million in the same quarter last year. This is year-on-year growth of 30.2%. This is on account of volume growth as supported by rupee depreciation and Novigo 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 39.2% compared to 36% last quarter, and the same 36% in the previous year quarter. Our quarterly margin has improved on the back of higher billable days, rupee depreciation and improved utilization. SG&A expenses have increased by INR 23.8 crores from INR 91.4 crores in last quarter to INR 115.3 crores this quarter. This is mainly due to higher sales and marketing spend. Also last quarter, we had one-time AI reversals. The adjusted EBITDA was 20.1% compared to same last quarter and 17.3% in the same quarter last year. The company has been able to report robust margin percent through operational leverages, improved revenue mix and favorable exchange rates. The RSU cost under management incentive plan is INR 6.2 crores compared to INR 6.4 crores last quarter. EBITDA, net of RSU expense is 19%, almost same as last quarter. Getting down to depreciation, amortization, the total expense was INR 22 crores compared to INR 21.5 crores last quarter. This includes INR 10.6 crores for intangible capitalized on account of past acquisition. Non-recurring expenses are on account of severance payment for certain redundant positions. Interest expense is INR 9.5 crores compared to INR 9.6 crores last quarter. Other income was negative INR 87 lakhs compared to income of INR 13.1 crores last quarter. During quarter 1 '26, the company adopted hedge accounting for its forward covers. Consequent to this adoption, a fair value loss of INR 18.04 crores was recognized in other comprehensive income. The loss primarily arose due to the significant depreciation of Indian rupee against the U.S. dollar, with the closing exchange rate increasing from INR 89.88 per U.S. dollar as at December 31, 2025 to INR 94.84 per USD as on March 31, 2026, resulting in a higher mark-to-market loss on outstanding forward covers. During quarter 2, this quarter, there was no significant movement in the quarter-end exchange rate, which remained largely stable at INR 94.84 per USD as at March 31, 2026 compared to INR 94.66 per USD as of June 30. However, exchange rate experienced volatility during the quarter, ranging approximately between INR 92.6 and INR 96.5 per USD. The movement led to a partial reversal of M2M loss on forward contracts. In addition, certain forward contracts matured during the quarter, resulting in the reclassification of previously accumulated losses from OCI to the statement of profit and loss account in accordance with hedge accounting requirements. Further, the company recognized a realized loss of INR 9 crores on the settlement of forward contracts during the quarter, which resulted in decline in other income for quarter 2. Overall, we had an exchange loss of INR 2.1 crores compared to INR 11.3 crores last quarter. Further, the other income comprised of interest income of INR 78 lakhs this quarter compared to INR 60 lakhs last quarter. As at quarter end, we have total forward cover of $43.32 million with average rate of $93.27. Our income tax expense was INR 24.94 crores this quarter as against INR 24.2 crores last quarter. Our effective tax rate is around 31%. This is higher due to non-deductibility of amortization on intangible acquired through acquisition. Last quarter, we had certain true-ups. Our normalized effective tax rate is between 28% to 29%. Net profit after tax was INR 55.6 crores or $5.9 million compared to INR 65.4 crores or $7.2 million last quarter. Basic EPS for the quarter was INR 4.69 compared to INR 5.52 last quarter. Adjusted EPS for the quarter is INR 5.3 as compared to INR 6.4 last quarter. This is mainly due to decline in profit due to investment in sales and marketing and exchange loss in Q2 as against a gain in quarter 1. In last quarter due to adoption of hedge accounting, the cumulative exchange loss was recorded under OCI. I think with that, I'll hand over to Nitesh for his summing up.

Thank you, Nand. And referring to Slide 13 -- sorry, Slide 11. Summing up, basically, the quarter has continued to strengthen our position in the AI-led space. As some of you remember, we had launched our GCC service offerings 1.5 years ago. We were very proud to report that we were recognized as a Horizon 2 GCC Accelerator by HFS in their Horizons GCC Services 2026 report. It is a strong validation of our AI-first model. The global capability centers existing in India who continue to be challenged by their parent organizations to become innovation hubs and engines to lead AI-based and platform-based delivery have leveraged our services and we have successfully enabled a bunch of them with AI accelerators and establishing AI ecosystems within their GCC. Our portfolio of proprietary accelerators have been recognized as a key differentiator in enabling GCCs in this transformation. The agentic business operations side of service offerings has been seeing a lot of traction. This comes on the back of our deep domain understanding and investment in building agentic AI ecosystems. We have further continued to deepen our reach and approach in this segment and this, we believe, is going to continue to create more traction in the market. The modernization service offerings, leveraging AI to modernize, whether it is large code bases, meaning legacy technology platforms or large data estates using multitude of legacy data platforms or data stores is continuing to be a recurring theme across our wins in the market. The trends that continue to shape 2026, no significant change in terms of what we've been seeing that organizations are looking at cost of running AI as a very important factor and turning towards experts like R Systems to look at how do we architect AI-efficient ecosystems so that while they gain AI efficiencies due to leveraging it, they should not have a huge financial cost to incur for using that AI. Legacy modernization, like I said, continues to be a large TAM across legacy code bases, data estates and reporting landscapes. And our entire narrative on engineering velocity has been a key differentiator for -- between where AI delivers ROI versus where AI fails to deliver ROI, has been receiving very positive traction and is seen as a key differentiator again by our customers and analysts alike. With that, I would end up my presentation and open up for questions.

[Operator Instructions] We take the first question from the line of Anmol Garg from DAM Capital Advisors.

I have a couple of questions. Firstly, we have seen some uptick in our SG&A during the quarter, almost to the tune of INR 2 million on a quarterly level. So, can you indicate some puts and takes over here? Has there been any sort of additional hiring in sales done? Your take over here?

Yes, Anmol, is there any other question?

Yes. I have a couple of questions more.

Okay.

Secondly, I can ask them as well.

Yes. Please go ahead. I'll probably just be able to answer all together. Yes, go ahead.

Sure. Secondly, wanted to understand the outlook for the full year in terms of growth given that our deal wins have been decent. So, how are we looking at organic growth for the full year, if you can give some puts and takes over there? And thirdly is on our GCC business. So, that has been increasing. So currently, what is the total percentage of GCC revenues for us? And how is the margins in that particular side of business?

Okay. Thanks, Anmol. First and foremost, on SG&A, especially sales and marketing side, we had always said that we are going to make conscious investments. And clearly, with bringing CRO on board and adding to the sales bandwidth has been one of the key areas that we've been doing. But also as we accelerate our AI-based sales, the engagement of both AI as well as domain experts in the sales process has been a necessary increase and something that we have been focusing on and we will continue to do. So, there is definitely a very deliberate focus and effort to increase sales and marketing in that area. And it's not only sales, there's also marketing expense because we launched our new brand identity, which you would obviously have seen on the website. I talked about it during last quarter. We launched EXIQO as our AI Studio, which has been getting a lot of traction. We have been -- we have been invited to several conferences, et cetera, where we participated and talked about EXIQO or the AI Studio and how it makes a difference. All of that is in the direction of both building the market, having more feet on the ground and being able to create more positive traction. So yes, you're right, deliberate increase in sales and marketing. And we continue to stay focused on making sure that the differentiation that we've built reaches the market as soon as possible and we are able to leverage it towards growth. Looking at the overall outlook, as you know, we do not provide guidance. But if our trailing 12 months numbers are an indication, then we are positively stepping into a zone where we feel comfortable that we will continue to create traction. What we see? As you also know that we have a lag effect in terms of revenue realization, our bookings of last half become revenues for this half. Our whole effort on sales and marketing is all setting up for creating ACV wins in this half, which will become revenues in the next half and so on, et cetera. So clearly, in a market which is dealing with a lot of uncertainty, we feel quite confident that we are doing the right things. We are being received positively, and we believe that, that should result in the right kind of momentum. And from a GCC perspective, the recognition I talked about is on the back of several GCC wins where we have managed to deliver and show significant impact of innovation and AI. We continue to grow in that space. While I do not think we have disclosed the percentage of revenue separately, but it continues to be a growth vector for us because it provides us both engagement with some of the larger organizations, which already have significant large GCC footprint, but more importantly, establish our differentiation through AI with those units.

Understood. Understood. Just Nitesh, one last thing. Just a follow-up on this is that over the last 1 to 2 years, have we seen any increase in our deal durations, particularly the type of deals that we were bidding on earlier? Has that changed in any sense? Have we started to sort of do more implementation sort of work, which gives us more annuity based of visibility in revenue? Just wanted to understand.

So, Anmol, our revenue mix has certainly changed quite positively over the last 1.5 to 2 years, both in terms of the kind of work that we do, which is far more data, AI and cloud related, which clearly is in the more strategic spend areas of the client rather than just fill-ups or things happening in their legacy environments. And clearly, that has also increased due to the increase of channel play for us because we are working more with private equities. We are working more with hyperscalers and channel partners. And alongside that, continuing to increase the AI component in our wins, which gives us more revenue per employee or more margin per employee. And we are beginning to see the green shoots of that. Of course, that mix will have to change quite significantly for it to show up as a line item on our overall results. But as we have started on that journey, we definitely see that uptick. It also creates a certain amount of stickiness. As to annuity revenues, we have started seeing some bit of annuity, but it is being primarily being an engineering service provider and working on new platforms or innovation or migrations, et cetera, that portion of revenue is still not very high. But we are working towards creating more sustainable offerings, and that's where when I talked about agentic business operations, that's one of the areas we're beginning to see traction. And hopefully, as we build our book of business over there, we might be able to have a reportable annuity revenue at some point of time.

We take the next question from the line of Ashis Dash from Systematix Group.

Nitesh, I have a question. If I look at since your joining, you have done a lot of changes within the organization and also you have done senior-level hires. You have introduced new incentive structure, also partnership led you were talking about. The quality of deals have improved. But despite that, what we see that organic growth remains very muted. And just wanted to understand your view why there is an impact on our overall performance? What is driving that growth? And when you can expect -- because you have done a lot of changes in the organization and you are saying also that we are doing the right things. So, when we can expect some revival in that growth?

So, Ashis, thanks for recognizing the changes that we've done, and they're all in the direction of catering to the changing market landscape and market needs, which are far more driven in the area of AI-led transformation and every company trying to figure out how they will remain more competitive or differentiated in their market space. But what you talk about as organic growth, we have consistently shown organic growth quarter-on-quarter over the last many quarters and so is the story in this quarter as well. We have grown positively organically. So, our wins continue to remain much higher than the number of project closures that happened because being a project-based business, a discretionary spend business, we have to anticipate that the projects that we start will obviously come to an end. And hence, we have to continue to win more than what closes in order to continue that growth trajectory. I think what I'm very pleased about is the fact that both our size of the wins as well as duration has continued to increase. And we have managed to provide almost 18% quarter-over-quarter growth despite or without any real headcount change, which also shows how the quality of the engagement and quality of revenues has continued to increase. We believe as the world is readying itself for more -- consumption of more AI and AI-based delivery, it will also allow us to take away more market share or wallet share from competition, which could then also provide us a slightly larger numbers in terms of organic growth. But I do not see it as a concern that this is in any way not going to accelerate.

Okay. On the second question on that part only. So on the ACV, basically last quarter, you mentioned that the growth in ACV was primarily organic, and there is no addition from the Novigo acquisition. During this quarter also, if I see the TTM TCVs remains broadly similar to the previous quarter. And so how is the order win trajectory at Novigo? So any color on that part?

Well, our ACV wins or the growth itself is not influenced by the acquisition or inorganic addition. What that simply means is that both the organic component and inorganic component continues to play in tandem. Both organizations are continuing to play in the same manner. Novigo, of course, has an ongoing geopolitical challenge that they're dealing with, which is due to the geopolitical situation in the Middle East. But despite that, they continue to show strong deal wins all across the markets, including in the Middle East. And hence, we are being able to operate in that zone and continue to increase our market traction.

Okay. And my last question on the margin side. So, when we are going to take the wage hike and how -- because we have already seen a lot of improvement on the margin over the last 2 to 3 years? So, what is the near-term to medium margin outlook?

I'm sorry. I lost the first part of your question. When are we going to get wage hike?

Wage hikes.

Wage hikes? So, you mean wage hikes within the organization. Okay. So, we have implemented a wage hike in this quarter. We carry out a biannual wage hike cycle. So, our first cycle has already taken place and the impact of that has already come in, in this quarterly results. The margin uptick that you see is an outcome of essentially 2 or 3 factors. One, of course, is, like I said, revenue mix change where we are getting more. What I was saying earlier, 18% increase year-on-year in revenue without any uptick in headcount basically shows that our revenue per employee has gone up. And that number may not be by itself sufficient to account for the entire margin increase because quite a large portion of it also comes from the ForEx exchange rate or rupee depreciation, which we cannot take for granted. It's beyond our control. So, we'll take benefit of it while it happens. But from a margin perspective, like I've guided in the past also, we continue to stay focused to stay in that 18, 18 point x-percent adjusted EBITDA on a sustainable basis beyond, which we will obviously continue to invest in our AI initiatives, sales and marketing efforts and continue to build for the future in terms of capturing the whole AI-led growth.

We take the next question from the line of Sandeep Shah from Equirus Securities.

Nitesh sir, in terms of question again on the ACV on TTM basis. So last quarter, it has shown a handsome increase in the first quarter. 2Q has been almost flattish. So, is there a delay in decision-making? Or is it more to do with macro where clients are not spending much on a discretionary side or a project side?

In fact, Sandeep, neither of the 2. While the delay in decision making and all are on a continuous basis where clients are uncertain, they will take some time, but that's an averaging out factor and we consider it as a standard factor. The trailing 12 months wins, in fact, if you look at -- continues to show that we are at least winning as much as we were winning in the past or slightly more on a quarter-on-quarter basis. And if you look back at 4 quarters ago, we had -- last year, we've had a few large deal wins in Q2. This year, again, we have had a few large deal wins in Q2, which has effectively filled up for what would have been an ACV -- significant ACV uptick Q2 last year. And those deal sizes are quite promising. And hence, we stay quite optimistic about the whole deal win and organic growth scenario.

Okay. Okay. Any qualitative outlook on the growth about ACV in the second half of this calendar year?

I wish. That's a question I obviously keep asking myself. That's a million-dollar question. More than even being able to -- whether I provide any forward-looking numbers or not, it's a very difficult question. The only thing, Sandeep, that is certain is that we have -- the quality of pipeline is better, meaning average deal sizes is better, the kind of work that the customer is asking us to do is better. What we are focused on is turning pipeline into revenue and how much more we can turn pipeline into revenue is finally going to show up in this chart. But overall, positioning-wise, market recognition-wise, the reflection of that into pipeline is quite good, and that's something that we continue to work towards.

Okay. And just related question. You said the wins of the earlier half will form into revenues of the following half. So, that can lead to a slightly better revenue traction in the second half because first half ACV has been good versus the last year as a whole.

That is the revenue realization. That is how we look at it, that these wins should translate into more revenue realization and that we should be able to capture more real dollars out of the wins that we've made. So yes, I mean, that's what the entire organization is focused towards that we have had these wins. We continue to deepen the engagement and increase the revenue realization from each of these clients.

Okay. And just a last question. Data, AI and cloud as a percentage of revenue, can you share some numbers how big it is for R Systems?