Newgen Software Technologies: Q2-25 Earnings Call Highlights
Delivered a strong Q2 FY'25. Robust performance in key markets & increased traction in new segments. Strategic initiatives, innovation, and expanding reach to achieve growth
newgensoft.com | NSE: NEWGEN
1. Key Takeaways
1.1 TLDR
Overall, Newgen Software Technologies delivered a strong Q2 FY'25
Robust performance in key markets and increased traction in new segments.
Focused on strategic initiatives, driving innovation, and expanding its reach to achieve its long-term growth objectives.
1.2 Financial performance:
Revenue reached INR 361 crores, a 23% YoY growth.
Profit after tax was INR 70 crores, a 47% YoY growth.
EMEA region grew by 21% YoY, India by 19% and APAC by 53% YoY.
License sales increased by 52% YoY.
Annuity revenues reached INR 205 crores.
1.3 Growth drivers:
Continued momentum across key markets, particularly EMEA and India.
APAC showing strong growth for the second consecutive quarter.
APAC region has seen significant growth in the last two quarters, primarily driven by large license deals and new logo acquisitions.
So, what has happened, the APAC has grown this year on a base which was weaker last year. And predominantly in both the quarters, we have got substantial license deals out there.
Increased traction in insurance and government segments.
Newgen is actively expanding its presence in the insurance and government sectors, aiming to increase their contribution to 40% of the overall business.
The company is building dedicated solutions and pipelines for these segments across different markets.
"So, we are talking these as a broader strategies to really build sizable businesses in these areas."
Substantial increase in cross-selling within the existing customer base.
New logo additions and significant deals closed across various regions.
1.4 Strategic focus:
Expanding cross-selling opportunities.
Adding new logos.
Continuing to grow profitably.
Tapping into larger accounts in the US market.
Building competencies across product lines and teams.
1.5 Product & Technology Focus:
Continued traction across existing accelerator lines like customer onboarding, SME lending, supply chain finance, and trade finance.
Launched Islamic retail and SME financing tool for the Middle East market.
Released new versions of enterprise content management products (OmniDocs and OmniXtract) and enhanced video KYC.
Released NewgenONE Marvin APEX version with enhanced functionalities.
Strong interest from clients in AI and GenAI solutions, particularly LumYn.
2. Key Discussion Points:
Annuity Revenue Growth:
Annuity revenue growth has slowed down, primarily due to the shift towards larger accounts in the US market and longer execution cycles for large deals.
So, unless the momentum of logo acquisition starts in US, the annuity -- new logo acquisition on the annuity side will be softer because most of the other markets, the sales is happening still on the perpetual side.
Performance in the US Market:
The company acknowledges a slower pace of deal closures in the US market and classifies it as "work in progress."
They remain focused on tapping into larger accounts and expect to see results in the coming quarters.
But right now, I would classify it as work-in-progress rather than -- so right now the business is still relying heavily on our emerging markets.
Leveraging AI and GenAI:
The company has witnessed strong interest from clients in AI and GenAI solutions.
LumYn, a generative AI-powered product, is being positioned for cross-selling and upselling opportunities in various sectors.
Focus on Existing Customers:
Newgen emphasizes the importance of cross-selling and upselling within its existing customer base.
They aim to achieve 50% of their growth target for the next year from upselling to existing accounts.
So, if you look at our growth targets of next year, we almost rely on 50% of that growth coming from upsell to our existing accounts.
Challenges:
Slower deal closures in the US market.
Longer execution cycles impacting annuity revenue realization.
Need to scale insurance and government segments.
Opportunities:
Continued growth in emerging markets.
Increasing adoption of AI and GenAI solutions.
Significant potential for cross-selling and upselling to existing customers.
Expansion in the insurance and government segments.
Newgen Software Technologies Limited Q2 FY'25 Earnings Call FAQ
1. What were the key highlights of Newgen's performance in Q2 FY'25?
Newgen Software Technologies experienced substantial growth in Q2 FY'25, with a 23% year-over-year increase in revenue, reaching INR361 crores. The growth was propelled by robust performance across key markets, including a 21% rise in EMEA, 19% in India, and a notable 53% surge in APAC. License sales were particularly strong, exhibiting a 52% year-over-year growth. Profitability also saw significant improvement, with profit after tax expanding by 47% year-over-year to INR 70 crores.
2. What factors contributed to the impressive growth in the APAC region?
The remarkable growth in APAC was primarily attributed to significant license deals secured in the region, coupled with new logo acquisitions. The current financial year is witnessing growth on a base that was comparatively weaker in the previous year. Furthermore, the projects secured have long execution cycles, spanning over 18 months, which will contribute to a sustained revenue stream.
3. Why did the growth of annuity-based revenue slow down in Q2 FY'25?
The moderation in annuity-based revenue growth can be attributed to two primary factors. Firstly, the strategic shift in the US market towards targeting larger accounts resulted in the closure of numerous smaller accounts, which were key contributors to the SaaS business. This transition impacted the rate of new logo acquisition on the annuity side. Secondly, the realization of ATS revenues was delayed due to the extended execution cycles of large deals secured in previous quarters. The management anticipates a recovery in annuity growth in the coming quarters.
4. What is Newgen's strategy for winning large clients in the US market?
Newgen is actively restructuring its approach in the US market by focusing on securing larger accounts. While the company has successfully acquired some large clients, the overall deal velocity remains relatively muted. Efforts are underway to accelerate the pace of logo acquisition in the second half of the fiscal year, with a focus on the insurance, health, and banking sectors.
5. How is Newgen leveraging AI and GenAI to enhance its product offerings?
Newgen recognizes the growing importance of AI and GenAI in digital transformation initiatives. The company has launched LumYn, a product that utilizes traditional machine learning and exposes it through a generative UI interface, enabling interactive discussions with business systems. LumYn is being positioned for use cases such as customer segmentation for cross-selling and upselling opportunities. While AI and GenAI are generating significant interest, their full business potential is still unfolding.
6. What is a typical contract structure for Newgen, particularly in the BFSI space?
In the BFSI sector, Newgen's typical contract size ranges from $700,000 to $2 million. The initial contract structure usually comprises around 60% for license fees and 40% for implementation services. Furthermore, there is a 20% annuity fee for ongoing maintenance, support, and upgrades. This model results in a compounding effect on annuity revenue, as every new sale contributes to a recurring revenue stream.
7. What initiatives is Newgen undertaking to enhance its sales pipeline and increase deal sizes?
Newgen is pursuing a two-pronged approach to bolster its sales pipeline and secure larger deals. Firstly, the company is expanding its product offerings within existing verticals, enabling cross-selling and upselling opportunities to existing clients. Secondly, Newgen is investing significantly in sales and marketing efforts to broaden its market reach and penetrate new customer segments. These efforts include leveraging digital channels for lead generation, actively participating in industry events, and seeking prominent analyst coverage.
8. How does Newgen ensure customer retention and encourage repeat business?
Newgen focuses on delivering high-quality products and services to ensure customer satisfaction and drive repeat business. The company boasts high retention rates, particularly for clients with substantial recurring revenue. Newgen's approach involves fostering strong customer relationships, providing excellent support, and continuously innovating its product portfolio to meet evolving customer needs. The company's success in upselling and cross-selling to existing clients underscores its ability to cultivate long-term partnerships and provide value beyond initial engagements.Newgen focuses on delivering high-quality products and services to ensure customer satisfaction and drive repeat business. The company boasts high retention rates, particularly for clients with substantial recurring revenue. Newgen's approach involves fostering strong customer relationships, providing excellent support, and continuously innovating its product portfolio to meet evolving customer needs. The company's success in upselling and cross-selling to existing clients underscores its ability to cultivate long-term partnerships and provide value beyond initial engagements.
Source: Link to Earning Call Transcript
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