Categories Concall Highlights, Earnings, Technology

HCL Technologies Limited Q3 FY24 Earnings Conference Call Insights

Key highlights from HCL Technologies Limited (HCLTECH) Q3 FY24 Earnings Concall

  • Revenue Growth and Margins
    • Revenue grew 6% sequentially and 4.3% YonY in constant currency, the highest growth since Q3 2021.
    • Services revenue grew 3.1% sequentially despite being a seasonally weak quarter.
    • Software revenue grew 5% YonY in constant currency due to growth in subscription and support revenue.
    • Operating margins were 19.8%, up 126 bps sequentially and 16 bps YonY, after accounting for the impacts of wage hikes and furloughs.
  • Business Highlights
    • 5 of 7 verticals grew this quarter, with telecom and media up 25.9% and manufacturing up 7.6% sequentially.
    • Europe delivered 5% sequential growth including the ASAP acquisition.
    • Added 3 $100 million plus clients and 4 $50 million plus clients on a YonY basis.
    • Bookings were lower than last quarter but YTD bookings are up 10% versus last year.
    • LTM attrition currently at 12.8%, a QonQ decline of 1.4%; lowest since 1Q21.
  • GenAI Momentum and Outlook
    • 30 GenAI deal wins, including with a US healthcare provider and financial services firm.
    • Use cases include clinical search, risk management, anomaly detection, and sustainability analytics.
    • Huge potential but near-term deployments will be small.
    • Focus on laying foundations like cloud, data, security to scale GenAI.
  • Macroeconomic outlook
    • 2024 presents opportunities and challenges for enterprises.
    • Cost improvements and low code capabilities will be prioritized.
    • While overall discretionary spending flat, some areas like cloud, data, and security remain resilient.
  • Guidance
    • Total revenue growth expected 5-5.5% in FY24, services towards higher end.
    • Operating margins expected 18-19%.
    • Healthy medium-term outlook based on business mix, people and innovation focus.
    • Services expected to see good growth in Q4, typical seasonality in Software.
    • Expect services to grow towards higher end of 5-5.5% FY24 guidance range.
  • Financial highlights
    • Revenue $3.4 billion, up 4.3% YoY in constant currency, including 100 bps from acquisition.
    • Net income grew 5.2% YoY to $522.7 million.
    • Operating margins at 19.8%, up 126 bps QoQ and 16 bps YoY.
    • Annual recurring revenue $1.06 billion, up 2.9% YoY in constant currency.
    • EBIT margin improved 126 bps QoQ to 19.8%.
    • LTM ROIC improved to 32.8% at company level, 40.1% for Services.
  • Software R&D Spend
    • Remained steady as revenue grows.
    • R&D capacity has expanded by leveraging right locations.
    • Allows more investment in product modernization and embedding GenAI.
    • Strategy to convert perpetual to subscription licenses is working.
    • Seeing good traction for Unica and Commerce with cloud and GenAI.
  • Demand Environment
    • No change in discretionary IT services spending, still soft.
    • Seeing green shoots of growth in Engineering Services.
    • Confident of strong exit momentum in FY24 with bookings and pipeline.
    • Partnering on Gen AI centers of excellence and advisory services.
  • Hiring Strategy
    • Had hiring this quarter in line with growth experienced.
    • Headcount leading indicator aligned to guidance.
    • Had some declines in prior quarters but positive YoY increase.
    • Maintaining transparency on ask rates for next quarter.

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