RateGain Travel Technologies Limited (RATEGAIN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the RateGain Travel Technologies' Q4 and FY '24 earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantee of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Bhanu Chopra, Chairman and Managing Director of RateGain. Thank you, and over to you, sir.

Thank you, ma'am. Very good afternoon to everyone, and thank you very much for joining the earnings call for RateGain Travel Technologies Limited for the fourth quarter and fiscal year 2024. It's great to connect to you, connect again with all of you, and I'm excited to share some key updates on the quarter. Joining me on the call are Mr. Tanmaya Das, our CFO; and Mr. Divik Anand, our Head for Investor Relations. We announced our fourth quarter and year-end results for the financial year '24 earlier today, and I hope you've had a chance to go through our financial results, press release and investor presentation that are available on the stock exchanges and on our company's website. I am proud and truly heartened by the performance of the company in the year gone by and the collective efforts of our global teams, that continue to drive value for our customers and made this possible. FY '24 has been a transformative year for RateGain as the company continues to build and capture the opportunity across with travel and hospitality industry. While performance across some of the business verticals has been particularly strong as RateGain continues to capture growing share of the wallet across key customers, one of the key standouts in the past year has been the performance of Adara, which has been a great outcome of our focused M&A strategy. This will continue to be a key growth driver for us, as we continue to see interesting opportunities become available in line with our vision to build an integrated tech stack focused on maximizing revenue for our customers. As we set aside on bigger goals, our culture of innovation, collaboration and focus on operational excellence will be critical to drive the next leg of growth and driving value for our customers, people and other key stakeholders. With that, I would like to capture some of the key operating and financial metrics from the past quarter and year gone. Our new contract win more than doubled in the past year to INR 285 crores as we continue to cross-sell and upsell across our enterprise client base and add new clients. Our expansive portfolio of products allows us to do more with clients and deepen our relationship with them. And with our continued investments in key geographies, we are starting to see some traction. Our annual recurring revenue ARR now stands at INR 1,023 crores, and we continue to see healthy traction across our 3 segments with a healthy pipeline of over INR 486 crores, and we look to drive value for our customers. Revenues for the full year grew by 69% to INR 957 crores compared to the same period last year. Strong revenue growth was complemented by improved operational performance with our margins coming in at 19.8% for the full year 2024 and 21.2% in Q4. It's a validation of this SaaS-based business model and execution excellence across the organization. We continue to see improvement across some key operating and financial metrics. Our LTV to CAC stands at an industry-leading number of 14.1 and the revenue per employee now is at INR 1.3 crores, improving 22% year-on-year, capturing improved productivity and ability to scale up in a sustainable manner. Generative AI and its adoption by travel brands continues to be at the forefront to improve customer experience, provide personalized experiences and optimize revenue. Our expertise in providing aggregate intelligence at scale and driving ROI for large brands is helping drive incremental revenue from existing relationships and new client acquisition. The investments related to developing the right solutions are underway, and we continue to be beneficiaries of the same. We've also adopted certain use cases of utilizing AI for more efficient data analysis to be able to handle more volumes. And within our brand engagement offering, leveraging the vast repository of social media data to drive better outcomes for our customers and do it efficiently. To generate more targeted travel intent audiences for running more effective performance marketing campaign. And in our new investments, we launched Navigator product, our pricing intelligence tools for hotels, which leverages Google BigQuery platform to provide advanced analytical capabilities. On the state of industry, global travel industry continues to see healthy demand buoyed by easing macro commissions and people's growing inclination towards travel and having new experiences continues to be a priority. Recent surveys, including one by leading global consultancy represents a healthy increase in consumers' wallet share towards recreation and leisure travel over the previous year. Skift travel index continues to hold steady despite some seasonal softness in March with Asia Pacific and other key countries showing healthy traction. Overall outlook for the rest of the 2024 appears to be on track with signs of continued growth and stabilization across different regions and sectors. The shifting industry dynamics include data privacy laws and evolving consumer behavior is driving change along with adoption of new technologies and attracting new investments into the industry, which is further unlocking new opportunities for players like RateGain to consolidate their position through product innovation and acquisitions and to have a larger share of a thriving market as the industry looks at adopting technology more effectively engaged with travelers. With that, I will now briefly touch upon the performance across each of our business units. The DaaS business contributed to 32.9% of the total revenue for fiscal year '24. This unit grew at a strong pace on the back of healthy traction with key enterprise accounts in addition of new logos across airlines, OTAs, car rentals and cruise liners. As you might have seen from recent press releases, we've added some great logos in our air segment, and it continues to be a key growth driver within our DaaS vertical. We continue to make inroads with key clients across both OTA and car segments, deepening relationships with large enterprise brands. As I mentioned, we launched a unified rate insight platform for hotel navigators. And with this, we have in place a more wholesome offering for commercial teams at hotels to maximize their RevPAR and for us to make inroads within this space. Given our ability to deliver large volumes of data, we continue to see incremental volume demand coming from our existing enterprise customers driven by strong travel demand and product innovation. We expect this trend to continue to drive growth for our DaaS segment in the near term. Our Distribution segment accounted for 22.1% of our total revenue, we were recognized as an elite connectivity partner by Expedia for the second year in a row, which is a validation of the high-quality product and customer service we provide to our hotel partners. Along with this, we also established key partnerships with HotelKey and Oracle Marketplace that will further expand our footprint. We continue to see further opportunity with large hotel chains as they undertake digital transformation projects to modernize their distribution ecosystem and optimize their presence across channels. We witnessed good traction for our Revmax platform with midsize change in the APAC and Middle East and continue to focus on scaling this up in the coming quarters. We continue to add further features to create best-in-class product. Our MarTech business contributed to 45% of our total revenues for fiscal year '24 backed by healthy growth in the paid digital marketing segment and continued traction in our social media management segment with some leading hospitality brands in the North America geography. This is focused efforts from the team, we carry forward the sales momentum with key closures and healthy pipeline growth. As there is an increased focus from owners and C-suite on driving direct ROI, our paid digital media offering continues to see increased traction with hotel chains across Europe and APAC region. Also with recent changes to Digital Markets Act and Google changing settings and campaign management, there's an opportunity for our products around performance marketing and how we can help drive more traffic for our hotel partners. As we move towards having an integrated paid digital media offering, the value we are driving for large travel brands, based on the strength of the travel intent data is really allowing us to drive market share within the DMO segment and across large enterprise brands across airlines, car rentals, entertainment, parks and hotels, making RateGain the partner of choice. Adara recently also won an ETSY award for the best emerging technology integration for our innovative digital marketing solution for our DMO client within St. Pete/Clearwater. We continue to make investments towards our product, including the recently launched measurement capability that helps differentiate our offering and further strengthen our unique value proposition for our DMO clients. We strengthened our senior leadership team in the past year as we look to drive the next leg of growth for the company. I have announced several hires in the past few calls. And recently, we've hired Hari Palapati as the Senior VP Technology at Adara. Hari is a seasoned technology leader with over 2 decades of experience driving innovation across diverse industry. With a proven track record of success working with and consulting for leading organizations like IBM, the World Bank, Cisco, Big Basket.com and Azira. As we complete another quarter with remarkable achievements, I'm thrilled to share our outstanding milestones of the People's Fund. We continue to see improved attrition rates, which now stands at a new low of 11.6%, reflecting our strong commitment to retaining and nurturing top talent. Our focus remains to nurture talent, promote from within and creating a diverse, inclusive and equitable culture that propels us forward. We're building a future-ready workplace with a new age HR information system and bringing innovation in all areas. My heartfelt gratitude goes to our dedicated employees for their unwavering commitment and hard work, which continues to drive RateGain success. We look forward to an exciting future and the journey ahead. With that, I'd like to now ask our CFO, Mr. Tanmaya Das, to take you through the performance of Q4 and the fiscal year.

Thank you, Bhanu, and a very warm welcome to everyone on this call. I'm delighted to report that the company has delivered another quarter of strong performance with robust revenue growth, coupled with strong margin expansion, clearly demonstrating the value we are delivering to our customers. The resilience of our business model with strong execution from the team has seen significant improvement -- has seen significant improvement across 3 operating metrics, including customer retention, revenue diversification and improving free cash flow. With focused execution, we witnessed doubling of our contract wins in the past year powered by healthy growth from key markets and a strong demand for our products on the emerging markets, positioning us well for future growth opportunities. As Bhanu mentioned earlier, a clear standout for us in the past year has been the exceptional performance of Adara, which has been a great complementary addition to the RateGain ecosystem. The turnaround and the synergies from this acquisition is the validation of our M&A playbook and focused in organic growth strategy. To further consolidate our leading position within the travel tech space and drive value for our customers. Some of the key financial and operating highlights from the past fiscal year are below. At the start of the year, we have given a guidance of 55% growth, happy to say that a company reported a record revenue of INR 957 crores with a year-over-year growth of 69.3%. This was on the back of strong growth across our DaaS and MarTech verticals growing at 94% and 106%, respectively. Our distribution vertical witnessed a lower growth at 9% on the back of certain onetime season integration that was booked last year and volume pressure on the certain demand partners, with recent monetization of large contract win and distribution underway and a healthy order book and pipeline, we expect those to pick up going into FY '25. Again, at the start of the year, we have given a guidance of 17.5% EBITDA margin delighted to state that EBITDA grew by 120% -- 124% to INR 189.7 crores for FY '24 with margins coming at 19.8% as against 15% recorded last year. The significant improvement in EBITDA margins is on the back of high growth in our high-margin DaaS business and strong performance in Adara and its operating leverage playing out as we scale up in a sustainable manner. Our total operating expenses grew by 59.7% in the past year compared to over 69% revenue growth and our total headcount increased by only 8%. Our PAT more than doubled to INR 145.4 crores compared to INR 68.4 crores in the previous year. For the fourth quarter 2024, the company reported a revenue of INR 255.8 crores with a year-over-year growth of 40%. EBITDA grew by 68.5% to INR 54.3 crores in the quarter as compared to INR 32.2 crores in the same period last year. EBITDA expansion continues at a healthy pace to 21.2% margin in this past quarter compared to 17.6% last year and 20.3% in the prior quarter. Our PAT grew by 48.1% to INR 50 crores compared to INR 33.8 crores in Q4 FY '23. The company continues to have strong customer relationships with low churn and focus to expand existing relationships to build sustainable and reliable revenue streams. Our gross revenue retention stood at 90%, and our net revenue retention improved to 113%, representing us further deepening our relationship with existing customer base. Our customer base expanded in the past year to 3,279 customers. We closely track and strive to outperform on key operating SaaS metrics and for FY '24, our revenue per employee stood at INR 1.33 crores, growing at 22.3% over last year. With continued traction across key customer segments and sharpened focus from our teams, our current pipeline stands at INR 486.2 crores. We also improved the quality of revenue and further diversified our revenue base with top 10 customers contributing to 28.3% total revenue, down from 32.2% in the previous year, and subscription-based revenue improving to 60.7% of total revenue. Our cash flow generation has improved significantly compared to last year. The cash flow from operations stood at INR 151.8 crores for FY '24, up 2.9x compared to the INR 52 crores generated in the previous year. Our DSO improved from 100 days in last year and 78 days in last quarter to 73 days at the end of this year. We continue to have a strong balance sheet with our network of over 2x to INR 1,450 crores compared to last year on the back, increased profitability and recent capital raise of INR 600 crores. Our cash and cash equivalent balance as at quarter end stood at INR 1,082 crores. In terms of guidance for FY '25, at a larger base now, we expect to grow 40% in FY '25 and improve our EBITDA margins by 100 to 200 basis points. Our M&A playbook plays a significant strategy -- is one of the significant strategies, and we will hope to add further through M&A for revenue growth. With that, I would like to conclude my update, and we are happy to open the floor for questions.

[Operator Instructions] The first question is from the line of Sanidhya from Unicorn Assets.

Congratulations on great set of number. So a couple of questions. So firstly, on the LTV to CAC. So it has come down from 21 to 14. Like it was earlier in the same range 16 something. So how do we see that? Like what are the changes which brought this number to this?

I think the 22 was a little bit abnormal because I think in particular, that quarter, we had won a significantly high margin deal and a bulky deal, multimillion dollar deal, and that doesn't happen every quarter. So on an average, if you have seen our track record over the last 2, 3 years, LTV to CAC per year has been around 12 to 15x. So I think 14.1x is a normalized LTV to CAC.

Okay. So we see that going forward, this number should be in about 12 to 16 range only, right?

Right.

Yes, which is a good number. So I was surprised to see 21 suddenly and dropped to 14. That's why the question. Okay. Secondly, on the same slide, there's a subscription revenue, which was last year to be 75% now to 60%, right? So do we see this revenue declining since other revenues are pacing up?

No. I think -- so there's a decline from 75% to 60% is primarily because of Adara business or the combination of subscription and transaction-based revenue. So Adara midyear revenue is transaction based, whereas the data revenue is subscription based. But I believe now we have 1 year consolidated numbers. So I think 60% will be a steady state number.

So we are saying that 60% is the steady-state number going forward for Adara. We are not expecting that the transaction value would be much larger than the subscription model, right?

Yes, I mean, look, if it's a transaction. So I think it's the optimum balance, I think both because we are growing in all segments projected to grow in all segments in a similar manner. So I would say that 60% should be a steady state number.

Okay. And can I get the segment-wise proper PAT or percent -- gross margin percentage for MarTech and distribution and us?

We do not disclose segment-wise EBITDAs and all because competitors are watching and all. So maybe we can take that offline.

Okay. And just -- okay, so I'll not ask the numbers directly. Just -- I was just trying to get the hint. So like distribution businesses, we are expecting like some like 7%, 8% to 10% growth going forward as well, right? Where the other business, which is MarTech and DaaS are like a good business.

Sorry to interrupt you, sir. May I request you to rejoin the queue for your follow-up question?

Yes. No, just to get my question correctly. Just finishing.

I got your question. So look, my high margin, all of them are like DaaS distribution are both high-margin businesses. And it's not that distribution is going to grow in a single digit as it grew last year. The FY '25, as I in my transcript, I told that we have got good order book and pipeline. So distribution is slated to grow higher than what we experienced in FY '24. So both DaaS and distribution are high-margin business. So if you see good growth there, the margins will expand.

The next question is from the line of Ankit Kanojiya from Smart Synk Services.

And congratulations on good set of numbers. The CFO, as you also mentioned in your opening remarks has become 3x from INR 50 crores to INR 150 crores in FY '24. So do we see that sustainable or further increase from here? Or was there some one-off's in FY '24? And if you can give more color on that.

No. I think as I said, the DSO has decreased dramatically from 100 days to 73 days, and we have now a concentrated effort on decreasing the DSO and that is one of the major KPIs that we carry. So I think it's -- I think the -- so currently, it is around 80% to EBITDA I think anything 70% to 80% to EBITDA, our CFO is a good benchmark. And it should continue that way. Yes.

Got it. Got it. Sir, my next question is related to acquisition. So acquisition has been very important for our business growth in the past. So would you like to give some more color as to how we are placed on acquisitions currently? And how do you see FY '25 panning up from an acquisition angle?

Yes. So as you rightly said, we are actively, we run an active M&A program and we have a team that actively scouting for opportunities. And over the past 1 year, we have evaluated almost a dozen opportunities and we've become very, very close to them. But as you also know, we are very disciplined buyers. So because of the valuation mismatch, we haven't been able to consummate any deals yet, but as we speak today, we are, again, actively looking at 2, 3 deals. And also in terms of valuation expectations, the gap is very, very narrow now. So I feel very confident that in the coming quarter or the next 2 quarters, we should be able to do something.

Yes, that was very helpful. One follow-up related to that. So in all our acquisitions in the past, we have been very, very, very conservative on the valuation front. And in quest of growth, are we willing to maybe pay up a little for the valuation, if we don't get any deal at our price? If you can share some thoughts on that.

Yes. So we take a different dimension in terms of how we value the business. We look at both -- we basically build a model internally just like you investors do. We look at the cost synergies that we can get as well as the revenue synergies that we can get. And based on that, we build our own sort of projections for the business over the next 5 years, 5 to 10 years and then build an IRR model in a payback period. So our usual threshold is that the IRR should be north of 20%. And payback should be anywhere between 5 to 7 years, depending on the synergistic value and strategic value that the business has. Those are the dimensions with which we value the business, and we will continue to be very, very disciplined. So even though we raised the QIP money for M&A now over 6 months ago, but we'll continue to be patient to do the right deal. And I'm quite confident given we've had a history of doing 4 deals that we will get the right deal, given the high interest rates and sustained high interest rates in the Western market, which is where most of our acquisitions occur. I do feel that people who I hope have been holding back will come more forward and something should happen.

[Operator Instructions] The next question is from the line of Ranodeep S from MAS Capital.

I wanted to understand that we are now close...

May I request you to please use your handset.

Is it better now?

Yes, sir.

Wanted to understand we are close to INR 1,000 crores revenue now. And if I have to marry this with the point of global tech travel industry is at $90 billion, what are our aspirations from a market share point of view in the near term?

So you're absolutely right. Overall, tech spend is about $90 billion. And the area of tech that we operate in, usually, there is front office, mid-office and back office, we operate in the front office arena. And the TAM for that is about $7.5 billion. So if you look at our size, it's still quite low compared to the $7.5 billion TAM that we are after. So I would say our penetration is quite low and the aspiration is to gain significantly more growth. And ultimately, the aspiration is to grow this company into $1 billion in revenue.

Okay. My next question was, I think, if I'm not wrong, between 2020 and 2023, you've seen 50 million talent exit from the hospitality traveling. Have you seen an impact positively for RateGain, given it has led to adoption of more tech in this industry?

Sorry, I missed the first part of your question.

I was mentioning, I think you've seen around 50 million talent exited travel hospitality industry, '20 and 2023. Has this trend positively impacted RateGain given the adoption of tech in travel has gone up?

If I heard you correctly, you said the travel tech spend has been significant over the last 3 years? And have you seen an impact of that?

No, Bhanu, there is a attrition in the travel tech industry.

Okay. Okay. I got it. So yes, we've been actually big beneficiaries of that because people want to rely less on labor and be more digitized. So if you look at all the solutions, whether it's around pricing, revenue management, digital marketing, creation of social content, all those areas, we enable digitization and be more tech-enabled. So we've been big beneficiaries of that trend. And as a result, you see it in our numbers as well.

And if I can just squeeze in one last question. Bhanu, I think you had mentioned some time back in 2023 one of the calls, we have access to 1.7 billion traveler profiles, which is definitely impacting our market business. Have you seen any incremental growth in that number?

The number has been constant, but what we've been able to do is enrich that data with other data partnerships that we have. So we have now a much more precise information on travel intent of those profiles that we are able to leverage to our customers and do more precision-based marketing for them.

The next question is from the line of Karan Uppal from PhillipCapital India.

Congratulations on a very strong FY '24. Coming to the quarter. Firstly, on employee cost. So Tanmaya, employee cost declined in absolute terms, while the number of employees increased on a quarter-on-quarter basis. So can you please clarify what happened there?

So one is that all -- so we have the bonus scheme, which is linked to company performance and especially revenues and EBITDAs. And it depends upon which segment the people falling in a particular segment, their KPI is dependent upon their revenues and EBITDA, right? So -- and we have been updating that bonus provisions quarter-over-quarter. So at the end of Q4, certain business units for example, like distribution business unit did not make that projected volume. So we have to reverse those bonuses payouts. So that's why we would see a true-up in Q4.

Okay. Okay. Got it. Second question is on the guidance. So you had mentioned, if I can ask it, this 14% growth guidance, right, for F '25?

20%?

20?

20% organic. And if we can do, say as Bhanu was saying any inorganic acquisitions during the year that will add further to that.

Okay. 20% organic growth guidance.

Our aspiration, as indicated in a few last calls is to take the revenue from about INR 1,000 crores to INR 2,000 crores in the next 3 years. So that's about 26% CAGR. So our aspiration is that this year also we meet or beat that number organically, we should do 20%. And then given the robust pipeline that we have the rest 6% should come inorganically.

Okay. Okay. Thanks for that clarification. So amongst the segments, DaaS distribution and Martech, which one do you think will lead the growth in this 26% CAGR which you are aspiring for?

I think all the segments will be more or less similar, some will be around say 22%, 23%, some will be like 18% to 19%. But more of them more or less all 3 segments would be around 20% range.

Okay. Okay. And if I can just squeeze in last question that's on Adara. So I believe that Q4 is seasonally weak for Adara. So what was the contribution in terms of revenue? And can we expect a bounce back in Q1 and Q2?

Absolutely. So yes, you are right. I think I had in the last call also I have given a hint that Adara has a seasonally look soft quarter in Q4. And yes, Q1 looks pretty strong. The numbers that you are seeing, and it's like that, the seasonality in Adara Q1 is stronger than Q4 and Q3 is stronger than Q2. So you are right. And that is also one of the reason of the first question you had because it's seasonally low revenue for Q4, the commissions on sales was also low. So that's why the salary costs were also both from bonus and commission, the salary cost was lower than Q3. So yes.

The next question is from the line of Shobit Singhal from Anand Rathi.