Xelpmoc Design and Tech Limited (XELPMOC) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Xelpmoc Design and Tech Limited Q4 and FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ravi Udeshi from Ernst & Young. Thank you, and over to you, sir.

Thank you, Zico. Good evening to all of you, and welcome you to the Q4 and FY '24 Earnings Conference Call of Xelpmoc Design and Tech Limited. We have sent you the press release and the investor presentation, and the same has also been uploaded to the Xelpmoc website as well as on the stock exchange. In case anyone does not have a copy of the same, please do write to us. To discuss the results and the outlook for the future going forward, we have with us today the top management of Xelpmoc represented by Mr. Sandipan Chattopadhyay, Managing Director and CEO; Mr. Srinivas Koora, Whole-Time Director and CFO; and Mr. Jaison Jose, Whole-Time Director. Before we start the call, I would just like to remind you that the safe harbor clause applies. With that said, I now hand over the call to Mr. Srinivas Koora. Over to you, sir.

Good evening, everyone, and welcome to Xelpmoc's earnings call for Q4 and FY '24. I hope you and your family are doing well. We continue to see challenges in the startup arena due to the slowdown in funding with the emerging technology sector. Hence, as stated in our previous call, we are continuing to focus on the corporate segment. I will dwell into the details of the strategy shift in the later part of my speech. Our operating revenue for the quarter, it was recorded INR 2.1 million (sic) [ INR 9.1 million ] for Q4 FY '24 as compared to INR 33.2 million in Q4 FY '23 and INR 11.3 million in Q3 FY '24. The revenue decrease is on account of [ transaction ] from the start-up segment to the corporate segment and also on account of discontinuation of government business. We are seeing interest from corporates for our services. However, the conversion is expected to take some time. We expect our revenue to gradually start getting traction over the next few quarters. Operating EBITDA adjusted for the quarter was negative INR 49.2 million as compared to negative INR 23.5 million in Q4 FY '23 and negative INR 35.4 million Q3 FY '24. I would like to give some context to the increase in EBITDA loss in Q4 FY '24 as compared to Q4 FY '23. Though operating expenses have reduced, however, the decrease in revenue has led to this said losses. We expect our operating cost to be stable from here on. Net loss for the quarter was INR 60.4 million partially due to INR 1.9 million of ESOP expenditures and exceptional items. The exceptional items are due to recognition of impairment of -- largely arising on account of goodwill pertaining to a step down subsidiary written off. This is comparison to a net loss of about INR 32.6 million in Q4 FY '23 and net profit or INR 5.1 million in Q3 FY '24. Regarding the change in revenue, we would like to state that our revenue was diversified within startups, corporate, government, forming 32%, 64%, and 4%, respectively, for our FY '24 revenues. We expect to focus on corporate segment going forward, more focus on data science. Data science will enable us to sustain the increase in the revenue. Our team size is about 83, including employees, interns, consultants [ as compared to ] 97 in Q3 FY '24. Till date, we have served 62 clients, and our sustained interaction with clients are the foundation for this performance. The fair value of our investment in portfolio companies stood approximately INR 582.9 million as on 31st March 2024 as compared to INR 351.9 million on 31st March 2023. On a full year basis, revenue from operations was INR 67.7 million compared to INR 147.4 million in FY '23. Operating EBITDA for the year was negative INR 149.1 million as compared to INR 85.2 million in FY '23. The change in revenue and EBITDA is for the reasons I discussed earlier. Net loss for the year was INR 138.9 million compared to INR 160.4 million in FY '23. There has been an overall slowdown in fundraising activity in the new economy segment. Some of our portfolio companies who are in fundraising stage for their growth plans, the slowdown affected them, leading them to curtail the plans. Hence, now they are operating in a very significant reduced scale or exploring other options, including strategic M&A. I will discuss some of this in detail now. Fortigo. As the follow up to our previous call, the Board of Directors have approved the sale/disposal of Fortigo for a total consideration of INR 1.3 crores in May 2024. This is beyond our cost of acquisition of INR  11,000. MiHup. MiHup is a convergent AI platform providing real assistance and analytics on customer-agent interaction to accelerate revenue, CX, and business performance. MiHup as phenomenon-based voice-to-text engine for industry-leading accuracy. Its pre-built AI model. [Audio Gap] finds usage in multiple industries. It's a hybrid architecture-enabled secure and real-time data process. MiHup's annual recurring revenue is close to USD 1 million. MiHup's AVA is a smart, customized virtual assistant benefited by AI with multilingual support. MiHup AVA was deployed in close to 33,000 cars in Q4 FY '23/'24. Woovly. Woovly is an e-commerce platform driven by social commerce. Woovly's platform currently has 54,000-plus influencers. The video views on the platform stands at 3 million per month. Current annual GMV run rate is approximately around INR 200 crores. Snaphunt. Snaphunt is a remote talent marketplace that matches employers with the best talent across geographies. Its platform currently has more than 5.4 million resumes. The total employee -- employers have gone up by 25% in Q4 FY '24 compared to Q3 FY '24. InQube. InQube is a technology, IoT and analytical platform solutions for rural India. GreenQube, its farm and technology platform, visualizes supply chain and provides end-to-end agriculture enterprise resource planning to the farm sector. The InQube app has user interface capability supports 11 languages. It has connected 7.2 million farmers and delivered 5 million soil cards. Farmers using this app have seen their income double in past 5 years, has also seen faster settlement of their farm insurance claims. GreenQube, the flagship product of the InQube, has received innovation Zero Award 2024 for Best Digital MRV, that's measurement, reporting, and verification solution, at a ceremony held in London in April 2024. The other portfolio company is Pencil. Pencil app provides a platform for book writing and reading. It also provides a mobile application for reading books. Till date, there has been more than 42,000 sign-ups on platform and has witnessed 2,000-plus published titles respectively. It has recorded steady publishing volumes at around 3 to 4 books a day. It has sold 13 stories to leading media platform, like Disney+, Rajkumar Hirani, Rakesh Mehta Productions, Balaji MX player and more till date. The Star in Me. It's a learning as a service platform to drive organizational excellence. TSM provides Fortune 500 companies learning as a service platform to drive organizational excellence for both genders. Key focus area is cohort-based leadership learning solution in process of building a product suite to help accelerate sales and effectiveness of the learning experience. It has conducted 5,000-plus sessions (sic) [ 500-plus sessions ] till date for training more than 30,000 professionals. It is exploring international business and non-tech sector for faster ramp-up and greater scope. The other portfolio company is Kids Stop Press, which we call it KSP. It's a discovery platform for parents through every milestone in their parenting journey from conception to age 16 years of the child. Xelpmoc has [ helped ] for the KSP machine learning platform to understand over 100 [ data points ] to all the users. KSP's target segment is first-time parents in 25 to 34 age bracket. This segment formes 75% of its website traffic. KSP has a very strong digital presence with 20 million YouTube followers and of about 175,000 on Instagram. The company monetizes its content with brand partnerships and subscription revenue. The monetization [ has improved ] with the higher long-term brand partnerships, and covering greater national footprint, including tier 2 cities. As you all know, that Xelpmoc enters in to startups mostly at an incorporation stage or at pre-seed rounding stage or at a pre-revenue stage. Majority of our start-ups have just started revenue generation and are still burning cash. Few of our startups, like MiHup and Woovly, are doing well. The rest of them are yet to close their next round of funds. And they are focused on revenue increase and conservative in terms of their cost structure. As of now, the startup ecosystem is still seeing significant pain, and we are looking at scaling up Xelp's own products and services. We are focusing more on revenue generation from corporate, focusing on data science, artificial intelligence and machine learning. We are not looking at onboarding start-up at this point, at this moment. We are working towards becoming EBITDA profitable at the earliest. It will take some quarters for tech profitability to materialize, looking at the market conditions, both on the start-up side and also on the other side. With this, now I request to open the floor for questions and answers.

[Operator Instructions] The first question is from the line of [ Wayne Fernandez ], who is an investor.

Am I audible?

Yes, sir. Please go ahead.

My first question is regarding the financial numbers. So I just want to understand, why the consolidated revenue is lower than the standalone revenue?

So because there was some impairment of one of our step-down subsidiary. That's one of the reasons why you are seeing that.

Okay. So there's a reversal of revenue because of an impairment.

Yes.

Okay. And the second point is on the Agetech subsidiary. Can I understand, at what level that currently? Is it at any advanced stages for incorporating subsidiary? Or is it still some work in progress which will take some time?

This is work in progress. Still, it will take some time. Maybe we should come back to you by next quarter. That's after Q1.

Okay. And sorry for the last question. On Signal Analytics side, I do not see any update. So what is the market response because its maybe 6 months since the launch. So what has happened on that one?

Srini, can I take this one?

Yes, please go ahead.

Signal, we have launched the beta. Some focus group of parents and all have started using it. Some references have started. Parallelly, we have started looking at sort of expanding it through the schools and all networks. Exams have just got over, so we have got some attention from those parts as of now. Till that time, we have looked at the feedback that parents have given, fine tune the app. And it is now having more traction in terms of usage. Some paid conversions, which are minimal from that focus group, have happened. So we are looking at the conversion ratios and analyzing the pricing and all as of at this moment. But mostly, we are trying on direct-to-consumer mode as well as looking at through schools and collaborations with other people who are in the same market as a value added product. So all these three things are going on, on that front.

Okay. Generally, the feedback has been positive...

But again, the additional -- yes. Usage feedback has been positive. Right from the beginning, it was positive, but there was scope for improvement or some features were found to be complicated. We have taken those feedbacks and turned -- and tuned the product and it has got better and better reviews. Now we feel that we should not overengineer it and now we are looking at the collaborations to go to market directly.

And also on the revenue front, what you've seen was like, Xelpmoc provide the technology services to Signal for developing all the tech things. Signal is a 91% subsidiary of Xelpmoc, and that adjustment is there, because of which, you see a difference in revenue between stand-alone and consolidated.

[Operator Instructions] The next question is from the line of Abhishek Agrawal from Gemsquest Asset.

Yes. Am I audible?

Yes, sir, you are audible.

Yes, we can hear you.

My question is for Mr. Sandipan. Sir, I would just like to know, and I mean, your views and your comments on what are the kind of opportunities or what is the landscape in terms of the opportunities that we are looking at? And is there anything concrete as of now with respect to the steps that we are taking or something that you want to acquire or get into, or anything of that sort? I mean, that can help us analyze the company better in terms of getting to what kind of revenues that we'll look at in a few quarters from here on.

So see, the thing is, whatever was in our control, I think that, we have done steadfastly and pretty well. The austerity measures we had taken, the curtailing and focusing, letting go of projects no matter how much. Because anything which was not net positive, we have let go. No matter what the top numbers have shaken for that, we decided that way to profitability is much more important because we don't have that luxury at this point of time to take a long bet. So that part is happening. However, the kind of conversion that we are expecting, that has not happened at the pace we anticipated. So the SDKs and all, we have done a lot of POCs, some of them paid, in bits and pieces, some of them just on a trial basis. But the decision-taking process is longer. Two aspects are there for this. One is organizations are a bit sluggish about adopting new things for some time. I think that will take -- get over. The other aspect is there is a little bit of confusion as to where does our kind of AI work, which is model-based, come in contrast to all these popular things, like ChatGPT and all? There are some, I think, a little bit of over-expectation in terms of what magic they can do versus what we can do. And there is a bit of wait-and-watch policy happening in that part. And that has gathered more steam at a faster pace. I think that settle time -- settling time and all will take organization experience that these are not as effective as it sounds. I think both things are happening. We are seeing those changes. That will change. But it has taken more time than anticipated, and it was something that we didn't expect to have such a confusing time onto that part. On your third question on that part. We are always open right note and all those things to look at what are the possible adoptions or inclusions that we can do in terms of getting other technologies in inorganic fashions and all, that will always go on. But that has to happen at a fair matching of what is the attainable value that we are looking at, at a proportionate rate and parity. So we will wait for the right opportunities and of course do it, but that's nothing concrete on that fact is happening. We are having conversations for sure, everyone does, but nothing there. Moment that happens, of course, we have to notify it in the right way. But yes, there are, we may say endeavors that are continuously going on. But as of now, we don't see a right seat in terms of the kind of pricing and other things that are conducive to that part.

Sure, yes. And just one more question. The products that we were looking to launch, I mean, are we moving ahead with them? And do we see any conversions of those? Any client that they're adding...

Yes. Those are the ones I was referring to, that POCs and all are being done. We have delivered some projects, but the next phases, they are not happening as fast as we thought it would happen because people are taking a little bit of breathing space. Also getting used to the new way of working, that also is there for some of the projects. But in most cases, it's a bit of wait and watch game that is happening all over. And unfortunately, it's not working at the pace that we thought it would have.

And sir, anything new or exciting that we are looking at or we want to do something on that front?

Nothing new. We are consolidating what we are doing and trying to do it. We actually want to refrain from that thing. Like Srini said, we have not onboarded any start-ups. There have been a lot of interest, incoming interest and all. We have held on to it, but not doing it, because at this point of time, we don't think we can afford to do that without looking at a clear path to profitability and accountability on those parts on a unit basis.

More importantly...

Sorry, yes.

Sorry, Srini. You got a bit muffled up.

Yes. Yes. And more importantly, in case, if you look at start-up investments in last 10 years, '23/'24 was the lowest. That's also one of the reasons, even though in case if you onboard earlier, about say 4, 5 years back, there was a lot of gaps in the market. Those gaps have reduced. And we also want to focus on profitability. That's one of the reasons why we are not going and onboarding any start-ups.

[Operator Instructions] The next question is from the line of Jayakrishnan J. from KMCT Medical College.

Am I audible?

Yes, we can hear you.

My question is what steps have been taken to improve sales services this quarter? And also regarding MiHup and Woovly, do you...

Can you repeat? You got a bit muffled up there.

Yes. What steps you have taken to improve sales from services this quarter?

Sorry to interrupt you, sir. May I request that to use your handset, sir? There's a lot of disturbance coming from your line.

Okay. Am I audible now? Is it better?

Yes, sir, please go ahead.

Yes, better.

What steps you have taken to improve sales from services this quarter? And do you see MiHup and Woovly as long-term bets? Or do you have any plans of cashing out at some point of time in the future?

See, the thing is, obviously, there's a price for every opportunity and all. But we -- as of this moment of time, we look at it as long-term bets on that part. And we obviously have our favorites. We also have a long-term part of it. So there are strategic parts. As of now, both of these are long-term bets that we do. About your first question, let me come to that. So we have increased our way of reaching out to companies, trying to expand on the depth of existing customers and also looking at getting into areas where we feel similar industry requirements are there. So what we have done for a particular industry segment, we are trying to approach each of the other industry segments to get -- kind of thing. And we have succeeded to some extent. But as I said, they are more or less in a kind of a slow decision-making zone, and it has gone to progress of POC and all, we have performed as satisfactory and all. Two, three of them have matured, but they are not at the scale that we want. We want at least 8, 9 of them to mature and go in a steady way on a regular basis with significant part. That, we have not been able to achieve what we thought, we would achieve at least 4, 5 by now, it has not happened. Probably 2, 3 are the ones that are happening. So the trials are on, but it has not borne the kind of results we thought it would be. Does that answer your question?

Sir, you're not audible.

I am not audible?

Yes, thank you.

[Operator Instructions] The next question is from the line of Punit, who is an investor.

Am I audible?

Yes, we can hear you.

Sir, last con call, you had mentioned that we have 10 months of runway available, so what is the status on that?

So right now, in case if you look at as of 31st of March, we had cash and cash equivalent put together close to about INR 8 crores. So even right now, it stands there about another 10 to 12 months runway we have.

Okay. And sir, also in the last annual report, you had mentioned that the services to corporate will be put on steroids. So when can we expect that to materialize?

So, Punit, that's -- I don't know if you heard some of the answers I was giving. We have been trying, but the conversion was not happening at the right rate that we anticipated. There has been a kind of missed expectation on our part. It has not gone at the level that we want. And I think there is a mindset shift, which I anticipate will change in another 2, 3 months. But it has been slower than what we thought, of what we expected probably, when we will achieve 25%, 30% of our expectations.

[Operator Instructions] The next question is from the line of Abhishek Agrawal from Gemsquest Asset.

One more question is, are we developing anything new in terms of technology or product that we want to enhance and then go to market with that? Or anything on the horizon that we can expect?

No new sectors, Abhishek. But of course, from the market feedback and all that we have got on the existing ones like text, we are seeing analysis of data in terms of video speeds, et cetera, et cetera. We have had enhancements done to cater to new requests and all. We have worked on some more enhanced reporting modules on those same things. But no new product lines or anything of that sort.

[Operator Instructions] The next question is from the line of Tushar Vasuja from Yogya Capital.

Am I audible?

Yes, sir. Please go ahead.

Sir, I am actually a bit new to your company. So can you just talk a bit about your growth drivers? And what can go wrong? Sort of what are the risks?

Yes. As of now, the growth drivers, like we have been saying, we are focusing on the corporate sector with services offering in mainly data science, which includes the buzzwords of AI, NLP, LLM, and all those things. And mostly, as of now, the risks that we are seeing is we have not had a product competency or technical inefficiency as an issue as of now. But the market reach, being able to find the right customers, the marketing depth, those seems to be the main risk for us at this point of time.

Okay, sir. And sir, what are your long-term ambitions in terms of revenue and margins and profitability?

So long term, obviously, we want to go back to our core competency, which is developing for taking a stake, a lot of start-up products. I think as soon as we get into a kind of a green zone in terms of the services part, being able to generate cash, we would want to go back to that part. Our core competency lies in data science and all, so we are foregoing of opportunities which is noncore. Like we used to do a lot of ad-hoc and add-on web services and all those things. Those, we have clearly steered out of because they were not really being effective in being able to focus us completely. Maybe once we have the critical mass of data science and these are needed aspects, to make sure the clients expect it, we'll restart doing that aspects.

Okay, sir. And one last thing, at the start of your presentation, you mentioned revenue distribution between start-up, MNCs and government. I think I missed that. So can you please repeat it?

I think Srini can do that one.

You want the breakup between the startups -- 32%, 64%, and 4% between startups, corporates and government. 32% coming from startups. 64% coming from corporates and 4% coming from...

This is the current mix. Historically, we have been completely lopsided towards start-ups and government. That's exactly the change we are doing now.

[Operator Instructions] The next question is from the line of Punit, who is an investor.

So we had INR 1.2 crores of revenues from Pencil. However, that has been converted to equity. May I know if that is by choice? Or was that a forced conversion?

So basically, this was done somewhere in the month of November. This was somewhere in the month of November. And since Pencil was trying to raise funds, et cetera, we thought that, in meanwhile, let us convert it into equity, there could be upside based on the performance of the company. That's one of the reasons we discussed, debated. And then accordingly, the call has been taken. Yes, to a certain extent, you can say that it was a forced charge which we have taken.

[Operator Instructions] The next question is from the line of Tushar Vasuja from Yogya Capital.

You talked about your most -- the biggest hurdle that you'll get is finding new customers. So can you just speak a bit more about that on how you plan on finding more customers and increasing your business?

Yes. I just covered it briefly, but let me go into detail. One is we have some existing customers or customers which we have done business in the past. The ones where they are an ongoing business, we are trying to go and talk to them about more things we can do with them and those are more or less converting. But typically, our past process has been that we have taken interesting projects, taken them to a fusion of delivery, delivered and not been in the AMC game. So we have lost touch with them. So that, we are rejuvenating to see if there is more scope of work there. That's the first part of existing and down services customer where we have reached out and tried to do it. Then there are many talks in progress, some POCs in progress and all, and that has been not too bad. The other part is where we have looked at the industry segments and types of solutions we have done and reached out to people who have never been our customers but are in the similar segment where we feel our solutions can be up there. There, it has been slow, but there are also some POCs that are ongoing and all those things. These are not exactly off-the-shelf products. These are SDKs which go and weave into the solution of the customers' requirement and data sources. So these things are never an outright sale. You first do a proof of concept, you prove the viability and do it. And though we thought the conversion would be higher based on some success criteria and all, we have seen some kind of delay happening on some sort of a pause happening between the POC and getting further clarification. Or sometimes, the POCs are being extended to have some other parts. And I think people are also trying out alternative systems, so that has gone slow. So that has been the real state of affairs as to how we have seen it.

[Operator Instructions] The next question is from the line of Punit, who is an investor.

Sir, a lot of shareholders are worried about Xelp's survival. So how do you allay those fears?

We can share with you what we are doing. We also want to remind you that probably we are equally worried or should be equally worried given the fact that we hold, combined, more of the shares on all those things. And of course, that's not an option in our mind. So that is the only thing we can say. I personally believe that we have taken calls which are honest. Our initial hypothesis faced some headwinds which we have averted, looking at our size and our capability in having the cash reserves. We just need to foster that, eroded a bit. And there will be some time taken, but I do also believe that the kind of credibility and kind of skill sets we have in terms of technical competence and all, those will be needed and they are needed, we just have to get the right market for it. It's a new field. We have taken a call of getting into areas which are uncharted waters, also not in the best of times in terms of all the conclusion and slowness that is there inherently on that front. We have to weather it out, but in my mind at least, survival is not an issue. Yes, stepping -- or getting a little more back to the roots, probably going a bit slower, rising again from the fundamental blocks, that may happen.

[Operator Instructions] The next question is from the line of Om Prakash Sah from MIT Investments.

Sir, I want to know, when will the ESOP will end or it will continue? Till when?

Srini, can you answer that one?

So as far as the ESOPs are concerned, majority of the options are being exercised and has been recorded. It would be done -- I think it should be done by this financial year, even in case of anything bad happens.

And I don't think much is left. It's not just about this financial year, that's a calendar event. I don't think significant parts are left now. We have adjusted for whatever we have not -- we have reserved...

More or less, [indiscernible]. Yes.

[Operator Instructions] The next question is from the line of [ Rajendra Redkar ], who is an investor.

Sandipan, I want to ask, is there any near-future possibility of listing of our start-ups today, Kids Stop Press, Woovly, MiHup, et cetera?

Sorry to interrupt. Sir, your audio is breaking up. Sir, may I request that you use your handset, please?

I want to ask...

Yes. I got a part of your question. Is there any plan for any of our start-ups to go on an IPO? Is that what you said? And after this...

Yes, yes, yes. Near-future listing of our start-ups, like Kids Stop Press, Woovly, MiHup, Catalyst, et cetera.

See, we are not aware of any such plans with the startups. They have not yet spoken to us on any such plans. But I guess everyone would look at the opportunity and all. But given the fact that it is a time-taking process, I don't think in the immediate future, we see any of those happening through normal means. Like Srini said, there may be other ways by which they can look at it, like strategic takeover and mergers and all those things. But other than that, ab initio, I don't think anyone has that level of readiness right now or has started the paperwork necessary of the due diligence time to do it in the immediate future.

Basically, in case, if you look at most -- basically, if you look at most of our start-up, still either they just started generating their revenue. Or most of the start-ups, they have not even reached to a Series A or Series B level of raise. So unless and until those action comes, their revenue starts clicking, then only they can think on those lines. But right now, as for our knowledge is concerned, they are not looking anything as of now. They do have discussions with a couple of companies in case if any M&As, but nothing has concretely materialized, and those discussions are going on for the last few years.

[Operator Instructions] As there are no further questions, I would like to hand the conference over to the management for closing comments.

Thank you, everyone, for joining us for today's earnings call. Please do write to us in case if you have any further questions or further queries. We will be happy to respond to your questions. Thank you, everyone, and that's it from our side.

Thank you.

Thank you. On behalf of Xelpmoc Design and Tech Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.