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.