Inventurus Knowledge Solutions Ltd (NSE: IKS) Q3 2025 Earnings Call dated Feb. 06, 2025
Corporate Participants:
Saransh Mundra — Associate Vice President, EVP Investor Relations
Sachin Gupta — Whole-time Director and Chief Executive Officer
Nithya Balasubramanian — Chief Financial Officer
Analysts:
Ruchi Mukija — Analyst
Seema Nayak — Analyst
Abhishek Kumar — Analyst
Srivathsan Ramachandran — Analyst
Gaurav — Analyst
Sagar Dhawan — Analyst
Nilesh Jain — Analyst
Siddharth Misra — Analyst
Chirag Kachhadiya — Analyst
Hemendra Kumar — Analyst
Presentation:
Operator
Ladies and gentlemen, good morning and welcome to the IKS Health Q3FY25 earnings conference call hosted by ICICI Securities. As a reminder, all participant lines will remain in the listen only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call. Please signal the operator by pressing Star then zero on your touchstone telephone. Please note that this conference is being recorded. I now hand the conference over to Ms. Ruchi Mukija from ICICI Securities. Thank you. And over to you.
Ruchi Mukija — Analyst
Thank you, Ryan. Good morning ladies and gentlemen. Thank you for joining us today for Q3FY25 earnings call of ICASE Health. On behalf of ICICI Securities, I would like to thank management of IKS Health for giving us this opportunity to host this earning call. Today we have with us Mr. Sachin Gupta, Founder and CEO. Ms. Nitya Subramanian, Chief Financial Officer. Mr. Saaransh Mundra, ABP Investor Relations. I will hand over to Saaransh for the safe harbor statement and to take the proceedings forward. Thank you. And over to you, Saaransh.
Saransh Mundra — Associate Vice President, EVP Investor Relations
Thank you, Ruchy. Good morning everyone. Welcome to our first ever earnings call for the quarter ended 31st December 2024. I’m Saranj Kunda. I head Investor Relations at IKS. We hope you have had an opportunity to review the earnings release and the presentations that we that we issued last night. Before I hand over to Sachin Nitya for the views on the result. Let me just begin with the safe harbor statement. As part of our remarks and during Q and A we May make certain statements which are forward looking and may involve significant uncertainty. ICAS doesn’t take any responsibility to update such forward looking statements and your discretion is warranted while making any investment decisions. Over to you, Sachin
Sachin Gupta — Whole-time Director and Chief Executive Officer
Hi, good morning and good evening everyone, depending on where you are. Thank you so much for joining our first earnings call as a public company for the fiscal quarter three and for the fiscal year fiscal year 2025. Today I wanted to start off with a few remarks and a little recap about our business model because this is our first call and perhaps the last time I spoke with many of you was on the road show. So we’ll start with a quick recap of the business model, then I’ll remark a little bit about the key themes that the business is strategically executing on and then I’ll dive into some key themes that we’re specifically focused on in fiscal 25 and from there I will dovetail into a high level summary of our Q3 Fiscal 25 results, after which I will turn it over to Nitya to talk through the details of the financials for you and then we can dive into Q and A so as you all would recall, IKS is a care enablement platform that operates in the physician segment of the US healthcare market. That physician segment consists of about 900,000 odd physicians driving $1.5 trillion of revenue in what is a nearly $5 trillion US healthcare market. That physician segment of the US healthcare market we think is the fulcrum and the most important point of care delivery within the continuum of care. Simply because as the US Healthcare system tries to achieve sustainability by solving for the cost, quality and access challenges that they are straddled with, we believe the only way to really do that is through the transformation of care delivery from a reactive hospital centric care delivery system to a proactive physician led and patient centric care delivery system in which physicians reassume their role as being quarterbacks of care, fully configuring care attached to patients value system. And so given that this physician market is becoming the new fulcrum of care delivery, what we saw when we started our business and started building this care enablement platform is that the physician market would rapidly consolidate as people would realize that it is the new fulcrum of care delivery and along with that consolidation would come a maturity that would lead them to actually rediscover what we call their core versus chore equation and start to really focus on the core tasks around patient care and patient experience and identify all of these chores that are Are taking them away from the core task of patient care and then start to delegate or outsource these chores to some entity or platform that could do these chores better, cheaper, faster, at scale. Remember, the most important entity in care delivery, the physician, was traditionally spending as much as 50% of their time on non patient care, non value add, non discretionary tasks. And through the deployment of our platform, not only are they able to direct a lot of that 50% of their time back to patient care, which then improves cost of care and quality of care, but also then fundamentally changes their economics from a revenue and cost perspective. Just to put in perspective, physicians are spending nearly 15% of their revenue on these chore tasks, which is about $225 billion. And the physician market is growing at about 8%. And so we’re talking about a $225 billion TAM growing at 8%, which is nearly the size of the IT services industry in India today, that $225 billion. And what’s interesting is that only 30 odd billion of that $225 billion has been outsourced to date to platforms like us. And that outsourced TAM now recognizing the value that this outsource can create, is actually growing at 12%. So while the industry is growing at 8%, the outsourced stamp within that $225 billion, which is at about $30 billion, is really growing at about 12%. And within that ecosystem, what IKS has done is has created a tech led human in the loop care enablement platform. And really the only platform in the world that truly delegates all of these chore tasks that have been discovered so far through the right combination of the proprietary technology that we built and the global human capital that we have developed over these last 18 odd years. And I say the only platform because given that these chores, there’s about 16 odd chores that one has identified across the continuum of the physician setting. What we’ve discovered really is that a lot of companies have been built over the years that are focused on 1, 2, 3, maybe 5 of these 16t. But buyers are starting to discover in the physician enterprise world that they should not be in the business of buying individual point solutions and then trying to integrate them. Imagine buyers having to buy 10, 12, 14, 15 point solutions, then integrating them and holding the bag on consolidating and creating value from those point solutions. And so I think buyers are discovering that the value of the whole is much greater than the sum of the individual parts. And as they discover that and buying behavior shifts from sort of best in class point solutions to the overall platform. I think IKS continues to be perhaps the only company in the world. That truly provides them that alternative. Over these last 18 years, IKS has built a business model where 95% plus of our revenue is reckoning in nature. We have very loyal clients. It’s a sticky business model. Our top 10 clients and our top five clients are all having average vintages of five plus years. We’ve grown to a workforce of about 13,150 employees as of December 31, 2024, of which nearly 500 employees are technologists that are building our proprietary technology and nearly 2,500 employees of those 13,100 are clinically trained. And it’s through the combination of our proprietary technology and our human capital that we are being able to delegate these tasks to better, cheaper, faster at scale. Let me just comment quickly on the key themes by which we are executing on this business through which we intend to continue to retain and consolidate our leadership position as the care enablement platform of choice. In this space, the first theme really is continue to further enhance our journey from where we were human led and tech in the loop for certain of these chores to now becoming more and more tech led and human in the loop. That affects both the scalability of our tasks as well as obviously the pricing and the profitability at which we’re able to deliver these. Second, the idea to, you know, because the buying behavior is still in transition from point solution, best in class buying to now starting to buy more and more of the platform manifest one of our execution predicaments, strategic execution predicaments, continues to be that we need to be number one, two or three in each of the features, each of the 16 features of the platform, even as we’re the only company in the world that has the full breadth of the platform and number three, obviously continue to proliferate the full breadth of the platform into our captive customer base, which as you imagine, as you know now, our captive customer base went from about 50 or large enterprise scale customers, which has traditionally been our area of focus at iks, because we believe in a market that’s consolidating, you want to work with the large consolidators versus the ones getting consolidated. So traditionally we had 50 odd large enterprise scale customers. But through the acquisition of Acuity Inc. We expanded that customer base to north of 850 odd customers, of which really 500 odd tend to be that enterprise scale consolidator customers. And so across these 500 odd enterprise scale customers that we intend to really focus on going forward, there’s nearly 150,000 physicians that are employed by them, which As you can imagine, is nearly 18% of the overall physician market in the US and at the full manifest of the platform being cross sold to that entire installed base of 150,000 physicians, it makes for a massive growth Runway over the next couple of decades. And that’s really the journey that we’re on. So those are the three big execution themes at a strategic level. And then specifically from an FY25 perspective, just to remind everybody, the themes that we’ve been executing on is first effectively integrate the Acuity acquisition into making IKS one integrated platform as a part of that. One of our key themes is that because our traditional focus has been and will continue to be on large enterprise scale customers that are consolidators with the addition of Acuity, we have grown to about 850 plus customers together. And we will actually, through FY25 and perhaps the early part of FY26, continue to cut some of that tail and really consolidate into 500 odd large customers. One of the big themes of FY25 was to really start to cut that tail and bring the customer base to those large customers that we want to focus on. The second big theme that we’ve been executing on is, as you know, Acuity traditionally did not have too much proprietary technology, nor were they using the global human capital model that effectively. And so our second big execution theme for FY25 really was to transform the Acuity operating model with the IKS operating model and in that process take our blended margins that have dropped from 24% pro forma after Acuity’s consolidation into IKS back towards that early to mid-30s, which we think is where the steady state business should settle down at. So that was our second big theme for FY25. And our third big theme was to really activate the most strategic aspect of the acquisition, which is the cross sell, where we will be able to cross sell the full breadth of our platform across these large 450 plus enterprise scale acuity customers that have come to us through this acquisition. So Those are the three big themes that we’ve been executing on through FY25. With that, I’ll now actually dive a little bit and provide a high level intro to our Q3FY25 results. Very happy to note that actually we’ve been able to execute better than we had imagined across all of the three teams for FY25, as I mentioned earlier, because we are cutting the tail for some of the smaller customers as well as because we are transforming the Acuity delivery model by deploying the IKS technology technology and global human capital that has a dampening effect on our revenue growth in FY25 one because of course We’re reducing our customer base, which as you can see, has gone from 850 plus customers to now about 750 customers by December 31, 2024. That has a revenue dampening effect. And the second, because we’re giving the traditional legacy acuity customers incentives in terms of discounts to transform their delivery model, leveraging the IKS technology, that has a little bit of a dampening effect on the revenue. So as we’ve been going around, we’ve been mentioning that FY25 will be somewhat muted from a revenue growth perspective, of course, over a period of time. We believe that our growth will continue to be well north of that 12% that the outsourced stand is growing at. Happy to note that in fiscal 25Q3, in spite of the dampening effect of those two strategic endeavors, we’ve actually been able to grow the business 16% year on year from FY24Q3. And in constant currency terms, that’s about 12% year on year growth. So in spite of a dampening effect that was very deliberate in our FY25 revenues, we’ve been able to grow 16% year on year in revenue terms to a revenue of about 657.2 crores. Second, we’ve actually been able to accelerate our earnings significantly faster than we’d imagined. As we were going around in our old shows, we’d mentioned that we believe we’ll get to the early to mid-30s consolidated EBITDA margins perhaps over the next 18 to 24 months. Very happy to report that we’ve actually clocked nearly a 31% EBITDA for the quarter ending December 31, 2024, which is for us, well ahead of the glide path that we had in mind to get to the sort of early to mid-30s, which is where we’ll stabilize. That reflects a 24% year on year growth in EBITDA margins and a 28% growth in PAT margins between Q3 fiscal 24 and Q3 fiscal 25. Obviously, a lot of this has been achieved by actually instead of increasing headcount, decreasing headcount. So we’ve actually taken headcount from Q3 fiscal 24, which is about 13,250 people, to 13,150 by Q3 fiscal 25, which means for a 16% year on year growth, we’ve actually reduced headcount by about 100 people instead of growing headcount in spite of actually increasing SGNA headcount. Because we continue to invest significantly in sales and marketing to activate the cross sell motion as well as in RD to continue to drive more and more transformation from human led tech in the loop to tech led human in the loop. So that continued sort of non linearity between revenue growth and people growth continues to be exhibited in the actual headcount and then of course in the margins themselves that are exceeding Our expectations. And one other thing that I want to mention is that because we were able to activate some of the cross sell faster than we had imagined, we’re still being able to demonstrate faster than the tam growth of 12% to 16% year on year growth in revenue in spite of the damping effect. So we feel like we’ve been able to activate the cross sell relatively faster than we had imagined, which is leading to this revenue growth and keeping it relatively robust. That’s a broad summary of sort of what our fiscal performance has been. Nitya will obviously dive into the details of some of this financial performance as we get along here. One thing that I’ll mention is even as we are publishing year on year growth and quarter on quarter growth, it’s really important to note that in our business, year on year is really what is relevant because there is significant seasonality that happens from one quarter to the other. For example, Q3 and Q4 are traditionally weaker quarters than Q1 and Q2 because of the seasonality that sets in patient volumes due to the holiday season in Q3 and due to the severe winter weather in Q4. And so I would encourage everybody to think of our business much more on year on year terms so that we are doing a little bit of a like or like comparison versus a Q1Q terms even though we’re publishing the Q1Q numbers for your benefit itself. So that’s some high level remarks on the financials. Moving on, some of our revenue momentum is actually being driven by certainly some of the cross sell that we’ve been able to activate in customers like Louisiana Children’s Medical center and several others. But I think the revenue momentum is also being driven by the fact that we are actually being able to execute on our strategic thesis of driving more and more of the full platform penetration. And so really happy to report that there have been three very significant customer wins. These are new Customer wins over Q3. First, a billion dollar health system called Palomar Health, as you must have seen in the press releases, has committed to the full platform manifest of IKs for their employed physician group in a 15 year path breaking deal for which they’ve committed to our platform. In this deal, Palomar will deploy the full breadth of IKS platform across our feature clusters of revenue optimization, clinical support and value based care in their entire physician installed base. And from that deployment we are expecting some very significant upsides. The other thing that makes this deal unique is we’ve actually based on our own modeling of what upsides we will create. We have actually guaranteed and upfronted a significant amount of Those upsides, about 16 and a half million dollars to Palomar in this process and in a unique arrangement. The way this will happen is as those upsides start accruing now that Gone live at Palomar up to the first $16.5 million will accrue directly to IKS and then even beyond that $16.5 million over the years there’s a significant gain share arrangement that IKS will have with Palomar which will continue to add non linearity to our margins and yet create significant value for Palomar. Similarly, we’re very proud to announce a deal with Radiology Partners which is the largest consolidation of Radiology physicians across the US. They are 10x the size of any other consolidated entity in radiology in the radiology market in the U.S. nearly three and a half billion dollars in revenue and 3,000 plus radiologists partnering with them. We are creating a very unique virtual Radiology assistant model that through a combination of technology and global human capital has the potential to improve radiologist productivity on the same fixed cost by as much as 25 to 30%. So imagine the impact of a fully manifested VRA model on a 3000 radiologist group like Radiology Partners. With $3.5 billion in revenue, the numbers start to get very very significant at north of $600 $700 million a year in value creation. And the way we’ve created this model with Radiology Partners is once the model is manifested at a significant scale, this will turn into a JV where Radiology Partners and IKS will together then take this unique radiology enablement platform to the market to the entire radiology market based on the credibility and the learnings and the IP that we would have developed through that relationship with Radiology partners. Last but not the least, I’d like to comment a little bit on Western Washington Medical Group, which is one of the largest independent medical groups in the Pacific Northwest. While the initial relationship that we’ve struck with them is on the revenue cycle side, that relationship is rapidly maturing into other manifests of the IKS platform. So strong deal momentum both on new customer acquisition, but faster than anticipated momentum on the Acuity Legacy installed base cross sell. With that, I’d like to just turn attention to a couple of product related exciting launches as well. Super excited to announce the launch of Scribble now, which is our fully autonomous Gen AI and NLP enabled offering for clinical documentation. Ambient Clinical Documentation with Scribble Now Today, IKS is now the most comprehensive suite of clinical documentation offering to the US healthcare industry. By that I mean that depending on different care delivery settings and different types of specialties, there is a need for different type of clinical documentation solutions in US Healthcare all the way from Settings like radiology and pathology where there is no conversation between the physician and the patient. You know, there you still need technology enabled transcription type solution which we enable through our Scribble Transcribe product to Live virtual scribing for which we have our Scribble Live product to Scribble Pro which is really important for complex encounters that often primary care type physicians have where there are multiple paths of diagnoses. There we have our Genai enabled and clinician supervised Scribble Pro product and then we also have our Scribble Swift product where the gen AI is supervised by a human to eliminate any hallucination. So through this breadth of clinical documentation offering, which I think is unique in the world, we are now able to meet the various physicians and their settings where they are in their journey of clinical documentation needs. And I think this should turn out to be a very significant competitive advantage for us over a period of time. And then, you know, given that we’re living in this world of so much hype and attention to gen AI, I thought I’ll spend just a couple of moments talking at a high level about our AI strategy. So our approach to automation enabled by technology really began sort of in 2017 18. First with RPA, non cognitive RPA and then with cognitive RPA. As you must have seen in the presentation that was shared. And not to oversimplify, but if you really think about rpa, what it does is technology that sort of follows specific instructions and commands through some rule based automation. Over the last couple of years we graduated that use of cognitive RPA to really intelligent gen AI embedded Automation. We have 7 or 8 use cases just like Scribble now across the 16 features of IKS where we are actually embedding Gen AI in those features. And as you can imagine, the value from gen AI really is that it helps create complex content based on prompt engineering that really leads to significant enhancement in productivity and efficiency. So one way to think about is while cognitive RPA maybe leads to 5 to 15% automation, Gen AI could lead to 20 to 35% automation and in some cases like clinical documentation, even 70 to 85% automation. And really, as we are now starting to see the benefits of Gen AI, we’re excited to launch our journey towards agentic AI where the actual agentic AI agents understand the goal of the task and are autonomously able to determine and execute the next steps to achieve those tasks. So we’re super excited to sort of have embarked on this journey, empowered by the success of the automation that we’ve seen that is reflected both in our scalability and our continued margin Improvement. In fact, happy to note that based on all the success we’ve seen, we are actually launching a Genai center of Excellence in the US that will be working across all of the use cases that we’ve developed over these years and that have the potential to not only leverage Gen AI but now move towards the agentic AI world. So with that I’ll quickly summarize our performance for Q3 again solid execution across all our macro business themes as well as the specific themes for FY25 ahead of Glide path execution on margins, relatively rapid activation of the cross sell into the acuity install base and appropriate optimization of the customer base so that we can really focus on on growing the customers that will create value over a period of time. With that I will turn it over to you Nitya to dive into some details of the financials.
Nithya Balasubramanian — Chief Financial Officer
Thank you Sachin. Good morning and good afternoon to everyone on the call. This is obviously very special call not just because this is our first earnings call but also because not too long ago I used to be on the other side of the call. So diving into the numbers. If you’re following the slide deck, I’m on slide 10. Our revenues we reported 657.2 crores in Q3 FY25 which was a very very healthy 16% year on year growth. Looking at EBITDA again we’re very happy to report significant margin expansion. Some of you will Remember that in FY24 our pro forma EBITDA which is 12 months of equity and IKS combined came in at 24% and from there we have been able to achieve a significant significant 650bps expansion to a 30.5 or 31% almost EBITDA in Q3 FY25 we continue to believe that as we continue to transform equity delivery model these numbers will keep inching up in the future as well. So the growth in EBITDA came in at 24% year on year. Looking at profit after tax again a very healthy 20% is what we were able to report in Q3FY25 which is again a significant expansion. Even if you look at quarter on quarter we have been able to expand these numbers by more than 200 bits and you will note that PAD growth actually came in at 28%. Sachin mentioned this before, the growth in PAD is actually higher than the growth in EBITDA because our interest expense has come down which has been enabled by the strong cash generation and therefore our ability to pay down the debt that we had assumed when we acquired equity. Looking at adjusted pact, where we are adjusting out amortization of intangible assets which we had recognized. During the acquisition which as you appreciate is a non cash expense. Looking at adjusted pat it came in at 22% in Q3 FY25 and we saw a growth adjusted PAT of 31% year on year. Moving on to other operating metrics again EPS came in at a very healthy almost 8 rupees per share in Q3FY25 and ROI continues to be on a healthy expansion trend. Of course prior to the acquisition our ROI metrics in FY24 if you look at the full year we were at 36%. Our current numbers continue to see a healthy expansion as we are able to achieve the equity transformation. So ROE in the quarter was at 33.2%. I did mention healthy cash generation before. As you can see on the slide deck in slide number 12 you will see that our operating cash flow came in at 154 crores. Our free cash flow at 109.5 crores. And looking at net debt, had it been business as usual our net debt position would have actually landed would have actually landed at 503 crores. I’ll just take a moment to explain this, explain these numbers. So if you remember in FY24 our net debt position was 850 crores. Through very healthy cash generation we were able to pare it down to 553 crores by the first half and business as usual. This cash generation that we had done would have brought down an added position to 503 crores. There are two exceptional items in the quarter, one of which is almost 25 crore IPO related expense which was advanced by the company on behalf of the selling shareholders and this has already been recovered from them in the January month. So this is a one off non recurring item and the other item is the 139crores or the $16.5 million that we have advanced to Palomar which is an upfront guarantee of the net economic value add we will be able to deliver to them through our platform. This again Sachin explained in detail during his remarks. So our net debt position, had it been business as usual would have been 503 crores. And what you will see going forward is this number continue to inch down as we continue to generate cash in the business. Looking at our summary financials I’ll just call out some additional items which we have which I haven’t covered in the previous slides. So revenue came in at 657 crores. Our other income which include excluding interest income which was non operating, the rest was all operating other income came in at an additional 20 crores. Our adjusted EBITDA, where I’m adjusting ESOP cost adjusted EBITDA came in at 207 crores, which transferred Translates into a margin of about 31.5 crores including ESOP cost. Our EBITDA was 201 crores and EBITDA margin was a 30.5 crores. Our finance cost I already mentioned that we have been already able to pare down our debt fairly significantly, which is why you see that number is coming down and it will continue to come down in the future as well. Our finance cost was about 20 crores in the quarter. Our tax expense was about 30 crores expected. Our ETR in the quarter was about 19% and therefore the profit for the period or PAT came in at 130 crores or a PAT margin of about 20 crores. Adjusted profit adjusting for amortization came in at 145 crores and a margin of 22%. With that I’ll conclude my remarks we are of course very very excited by the strong and healthy trends that we are seeing across the board. Thank you for your attention and we’ll now open the floor for questions.
Questions and Answers:
Operator
Thank you Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Seema Nayak from ICICI Securities. Please go ahead.
Seema Nayak
Hello. Yeah, congratulations on the first quarter after listing and thanks for taking my question. My first question is out of your service offerings such as rcm coding, scribble, etc. Which one is getting the maximum traction and what is the revenue breakup of service offering? And my second question is regarding equity. What kind of cross selling traction are we seeing with the newly acquired large set of clients?
Sachin Gupta
Yes, thank you for the question Seema. I appreciate it. So as it relates to your question around which of the 16 features are seeing the most traction, I’m happy to note that actually we’ve sort of stratified these 16 features into three feature clusters, revenue Optimization, Clinical Support and value based Care based on the type of value they create for the customer and at this point I can tell you that we are seeing a pretty secular growth trend across those features. Also, given that our go to market now is really not feature wise but is really much more platform, I mentioned earlier that our go to market now has pivoted from you can buy certain features to either you buy the clinical bundle or you buy the Administrative bundle and the clinical bundle consists of about nine of the 16 features and the administrative bundle consists of about seven of those 16 features. And so given that we’re going to market in that manner where either the customer buys the entire clinical bundle and then they can pick and choose from the administrative bundle or they buy the entire administrative bundle and they can pick and choose from the clinical bundle. We don’t really report numbers based on individual features, but I am happy to note that the growth is secular across the three feature clusters or the two bundles, depending on how you look at it. Your second question was really around the acuity cross sell look. Like I mentioned earlier, we actually had anticipated that the cross sell will take a little longer to actually put into motion because we had to create an overlay consultative sales engine that would take some of the more transactional point solution based relationships that acuity traditionally had and elevate them to a platform sale. So we actually created that overlay cross sell engine the first six months of the fiscal. But happy to Note that in Q3 itself we were able to start to see traction in the cross sell motion. There are several deals that we were able to consummate in Q3. The one that I am able to publicly announce is the Louisiana Children’s Medical center, which is a very significant health system in the New Orleans area. But there are several other marquee systems that are already starting to consume other manifests of the IKS platform beyond what they traditionally had in the acuity relationship. So that’s one of the reasons why we’ve been able to deliver a 16% year on year growth for Q3 in spite of the muted effects of cutting the acuity customer tail as well as offering customer discounts and incentives in order to allow us to transform their operating model that is now then showing up on the bottom line.
Seema Nayak
Thank you and all the best.
Operator
Thank you. The next question comes from the line of Abhishek Kumar from JM Financial. Please go ahead.
Abhishek Kumar
Hi, good morning Sachin. Always good to hear from you. Couple of questions from my side first, you know, as we look at 12% dollar revenue growth year over year this quarter, can we break this down between the growth in the heritage IKS business and in the equity? The reason I’m asking is, as you pointed out, you know there is some dampening impact of tail cutting and offshoring. So just wanted to appreciate the strength in the heritage IKS business from. From a year over year perspective.
Sachin Gupta
Great question, Abhishek. Thank you and good to hear from you. So look, obviously because the dampening effect of the revenue is largely in the acuity install base, obviously the IKS legacy business and install base is actually growing significantly faster than the 12%. While we don’t want to give specific numbers because we really are now operating like one company and one platform, I will tell you that the growth in the legacy IKS business has been robust. Also there’s been some tremendous new logo addition like I called out in deals like Palomar and Western Washington and Radiology partners which are all reflecting in the IKS numbers. And so yes, the IKS business is back to its historical growth rates which you have evidenced FY22 to 24. The legacy acuity business obviously is going through a dampening effect. But again, as the Acuity cross sell motion starts to truly get activated and kick in, we hope to be able to overcome that. And then obviously the blended growth rates will continue to be far superior than the 12% that the industry is going at.
Abhishek Kumar
Okay, maybe a related question. You know when I look at the standalone numbers, you know on a yoy basis they seem to have kind of remained flat or a slight decline actually. So I was wondering if that standalone number is a reflection of heritage IKS business or you know there are some, some subsidiary which are excluded and therefore, you know my reading is wrong.
Nithya Balasubramanian
Sachin, I can take that. So the standalone numbers are not reflective of legacy ITS business. There are other subsidiaries where we have other subsidiaries in the US where the remaining, the rest of the revenues are being good. I think you should refer to Sachin’s comment on the growth related to the legacy IKS business.
Abhishek Kumar
One last question from my side. You know Palomar deal we have mentioned that we paid upfront guarantee of 139 crores and Sachin, you indicated that it’s a 15 year deal. So I was first. I wanted to just understand the structure and does this 139 crores or 16 and a half million dollars represent the saving that we will do for them over the over the 15 years that the tenure of this deal is for any color on, you know, how we structure and then how you know overall what kind of ROI etc we make on this upfront investment. Thank you.
Sachin Gupta
Great question, Abhishek. Thank you. So the way the Palomar deal is structured is like I was saying, it’s a 15 year no out for consideration Deal. And what’s most unique about it is that they are committed to deploying the full 16 feature manifest of the IKS platform. From the get go. At the deployment of this full 16 feature platform, we actually anticipate that the value created, the net economic value that we will create for Palomar at the confluence of the costs that we will save for them and the revenue upsides that we will generate for them will be many multiples of that 16.5 million. I cannot reveal exactly how much, but it will be many multiples of the 16.5 million. And so hence we were comfortable advancing that 16.5 million to them. And the way the deal is structured is the first $16.5 million of the net economic value add that will be created will come to iks. After that, up to a certain threshold, the net economic value add is shared 50, 50 between IKs and Palomar. And then beyond that another certain threshold, a larger amount of the benefit accrues to Palomar. So a very unique deal structure, very exciting for us because traditionally our deals, even though our customer stickiness is longer, tend to be four to five year duration. This is 15 years, no out for convenience, full manifest to the platform. And based on our estimates of the value that will be created, which is many multiples of the 16 and a half million over the 15 years, not only will we expect to claw back the 16 and a half million relatively rapidly, but then start to add significant non linearity in our margins beyond the traditional gross margins that we expect from our platform.
Abhishek Kumar
Great, thank you and all the best.
Operator
Thank you. The next question comes from the line of Srivatsan from Avendus Park. Please go ahead.
Srivathsan Ramachandran
Yeah, hi, just quick two quick questions. One, does the last year same numbers factoring the full three quarters of equity, that’s one second. Just wanted to get your sense on this Palomar deal. Is this a first deal of this nature and is there any existing revenue from this client that’s sitting in the financials already? Thank you.
Sachin Gupta
So this is absolutely our first deal with this customer. And that makes it even more exciting that now large customers are trusting us with the full manifest of the platform in such a long term deal construct. So there is no other existing revenue from Palomar prior to this deal, which makes it even more exciting. As to your earlier question about the nine months. I’m sorry, I didn’t quite catch the question. Maybe Nitya, if you did you can answer it or if you can please repeat your question.
Nithya Balasubramanian
Yeah, I did. So to your question in the in Q3FY24. There is two months of activity.
Srivathsan Ramachandran
Okay, thank you.
Operator
Thank you. The next question comes from the line of Gaurav. And investor, please go ahead.
Gaurav
Yeah, thanks to the ITS team for this and congratulations on the phenomenal results. One of my questions is, as we talk about integration and amalgamation of Acuity into the IKEA structure, are we also looking at any other similar acquisitions now or in the near future?
Sachin Gupta
Thank you for the question, Gaurav. Look, I think the Acuity acquisition, as you know, was the first significant acquisition that IKS did after nearly 16 years of existence. And we did this through a combination of the cash we had on the balance sheet and a very conservative amount of debt as a multiple of our ebitda. Through this, as you know, we’ve created a massive customer base that we are actually trying to right size so that we could really focus on those 500 odd enterprise scale customers. And I think as I mentioned before, those 500 odd enterprise scale customers employ 150,000 odd physicians, which is 18% of the entire US physician market. If we were to be able to successfully cross sell our platform across those 500 odd customers, we are talking about a 90x growth opportunity from our current scale. So our preferred growth path from here is really going to be organic in nature. Given the massive customer base that we develop, our inorganic strategy will be much more focused on perhaps bleeding edge technology type acquisitions where we will be able to bring the power of our massive customer base and the access to data and context that we have by which we can mature that technology rapidly. So the inorganic strategy will be much more focused on tuck in tech acquisitions. As a gene pool. We are not a company that relies on acquisitions for growth. In fact, even before we did Acuity, as you know, we were growing at nearly 30% year on year. CAGR. So acuity was a unique strategic merger really that we embarked on. And I think we have a lot of good work to do ahead of us to capitalize on the benefits of that inorganic activity will be much more focused on technology to accelerate our journey from human LED tech in the loop to tech led human in the loop.
Gaurav
Got it. Thank you, Sanjay.
Operator
Thank you. The next question comes from the line of Sagar Dhawan from ValueQuest. Please go ahead.
Sagar Dhawan
Yeah, thank you for the opportunity and congratulations on a good set of numbers. Just a question on the slide 14 that we have in the presentation. Revenue from top 10 customers which is their 272 crores. Does this include any customer which has gotten consolidated in this top 10 due to the acquisition of equity or these are only the top 10 customers of IKS X of equity.
Nithya Balasubramanian
If you’re referring to the Q3 FY25 number, this includes top 10 customers of the consolidated entity.
Sagar Dhawan
Okay.
Nithya Balasubramanian
But if you’re comparing it to Q3FY24, there was only two months of equity as I mentioned before.
Sagar Dhawan
Right. So could you please provide the revenue from the top 10 customers on a Yi basis? X of equity just for the top 10 customers of IKS X of equity.
Nithya Balasubramanian
We can take this offline. Somebody from our team will be rush.
Sagar Dhawan
Sure. And just another question on the cross sell opportunity. Just wanted to understand whether you know, basically what kind of revenue per client potential do we see in the equities customer base for the cross sell? You know, if you can just provide some guidance on that.
Sachin Gupta
So that’s a good question. Look, I think one way to think about that is that our opportunity set in a customer tends to be if they’re spending about 15% of their revenue on these tasks at the full manifest of our platform, they would probably end up paying us depending on their specialty mix payer mix, something in the range of 10 to 12% of revenue. Right. And so when you start to think about 18% of America’s physician market existing in these 500 odd large enterprise scale customers that we will want to retain and cross sell to, you can start to do the math. Typically the 500 odd customers that we are really going to focus on at the full manifest of IKS should all be able to generate nearly $100 million a year of TV revenue to ICA. And that’s the type of customer base that we are retaining. And that’s sort of the ECV potential at the full manifest of the platform. That’s also why the Palomar deal is so exciting for us because it starts to set an paradigm for embarking on journeys that apply the full manifest of the platform. So that’s sort of a high level way of thinking about what the ECB potential be is that we are really focused on retaining those 500 customers across the legacy IKS and legacy Acuity customer base that at full Manifest could be $100 million ACV customers.
Sagar Dhawan
Understood. Thank you and all the best. That’s it from my side.
Operator
Thank you. The next question comes from the line of Nilesh Jain from Astute Investment Management. Please go ahead.
Nilesh Jain
Hi. Congratulations on great set of numbers. Firstly, I had question on equity. You know, at the time of acquisition, when we had acquired it was a 9% margin. Where are we now in terms of, you know, journey to presently at what margins would be activity operating? That’s my first question and maybe I can take other questions.
Sachin Gupta
So, you know, thank you for the kind remarks. I will say that like I was saying earlier, we are now operating like one platform and so we really would not like to reveal individual margin profiles of acuity and IKs. But it will suffice to say that there’s obviously been significant margin transformation in the legacy acuity business. And our estimate of being able to get to sort of the mid-30s on a blended basis was based on that journey, except that we’ve been able to accelerate that journey significantly faster than we had thought. And so we’ve gotten to nearly a 31% EBITDA margin and a 32% adjusted EBITDA margin in this quarter itself. But I think you can safely assume that the equity margins are well on their way to transformation and there is still a significant Runway ahead of us. One of the math that I shared with many people in the roadshows was that for every human that we are able to transform or replace through a combination of our technology and some supervision, through a global human capital, we are able to create about give or take $20,000 a year of additional gross margin to every human that we replace. And when we started out, There was nearly 2,500 odd humans in the US so depending on what we are able to take that down to based on our customer agreements and customer comfort, that will eventually signal sort of the end of that Runway for acuity margin transformation. I will say that we’re probably not even at the halfway mark yet.
Nilesh Jain
All right, all right. My second question is, you know, you mentioned you have around 16 tasks. So just wanted to understand, you know, are there any other features or tasks when you know, you’re not present and which are not part of your offering and you know what will be those and if you are looking to, you know, add those as well.
Sachin Gupta
Absolutely. Great question. Thank you. So look, I think at any given point of time we have at least two or three new features or tasks that are in co development with customers that obviously continue to then increase the TAM further than what is available today. And so happy to note that we have at least two. 3 in core development right now. One such example, for example, would be several tasks within the value based care feature cluster of our platform. That value based care phenomenon, the US is going through a major shift. From initially a lot of the focus was on risk and quality optimization. That is now the focus is in total cost of care management. And so when you start to think of care coordination, transition of care management, risk stratification of populations, utilization management, at least the back office of the utilization management, those would all be new features. Also, there is some other features within the physician’s workflow that are applicable both in fee for service and value that are under development. For example of that. One example for that would be order entry, both synchronous and asynchronous order entry. So yes, constant development of new features. I would not be surprised if we would reveal three to four new features over the next 12 to 18 months.
Nilesh Jain
Good to hear. And my last question is, I mean we have seen that there’s been a lot of M and A activities recently, you know, by private equity. On the RCM side, where do you see, you know, competition on your revenue optimization side of offerings, which you have. How do you see then? How do you compete?
Sachin Gupta
That’s a good question. Look, I think that’s a very interesting market and it’s really changing rapidly if you think about it. One way to think about it is traditionally there were sort of two genres of companies in the rev cycle space. Maybe three genres of companies. One, US based companies that were directly contracting with healthcare providers and leveraging a combination of their US based human capital, the US based technology, and subcontracting a bunch of offshore labor to deliver the RCM outcomes to customers. So companies in that genre would be companies like R1RCM, which was formerly called Accretive or an Ensemble Health or Conifer. Those would be that type of RCM companies. The second type of RCM companies were the ones that grew up traditionally as Indian Task vendors. Those are the ones that I think have been a lot in the news in the Indian ecosystem. You heard of Access Healthcare and Gebbs and Omega. Their legacy was where they were subcontractors of task for us RCM companies. But they did such a good job of executing and got to so much scale that now they are actually going upstream and trying to acquire customers directly in order to be able to deliver those efficiencies to the customers. Might that create some channel conflict? Maybe. But you know, we have to give them credit for the type of scale they’ve driven and then the third genre, perhaps Is a company like us that was neither a US company nor an Indian company, but deliberately created a global execution model with proprietary technology and always had direct customers in the US where we took accountability for their outcomes. And so I think those would be the three genres of the companies. I feel like all those three genres today are converging into that globally enabled tech driven RCM solution. Some of us perhaps started like that, others are converging to that. So it’ll be very interesting to see sort of how the winners emerge in this space. But again, remember, our competitive positioning is that RCM is just one part of the overall value chain of chores that physicians are straddled with. And so our competitive positioning really and our right to win often has been that not only are we a best in class rcm, but we are actually able to drive a lot more improvement in the physician productivity through our clinical support solutions. And then also beyond the fee for service patient panels that are affected by rcm, we’re actually able to help physicians with their value based care patient panels with our BBC feature customer.
Nilesh Jain
Thank you for that detailed question. Just the last, you know, bookkeeping question. You generate around, you know, 500 to 600 crores of operating cash flow. By when do you think you know you will be paying off your entire debt or if you come debt free, that’s it. Thank you.
Sachin Gupta
So all things remaining equal, remember We’ve operated for 16 years with no debt and actually significant amount of cash. So all things remaining equal, we should be able to get debt free sometime next fiscal. But obviously there might be other uses of capital including tuck in tech acquisitions, more innovative arrangements with customers where we align the value that we create with their outcomes. And so depending on that there might be some detours to that. But all things remaining equal and us not embarking on any such endeavors, there’s no reason why we wouldn’t be debt free next year.
Nilesh Jain
Thank you and all the best.
Operator
Thank you. The next question comes from the line of Siddharth Mishra from Fidelity International. Please go ahead.
Siddharth Misra
Hi Sachin and Nitya, good to hear from you. I wanted to ask a couple of questions. One is, you know, firstly appreciate the very long term opportunity which is there and congrats on the progress which you’ve done in the equity acquisition. I just had a question on the deals which you won in the last quarter. What is the ramp timeline of these deals and when do they convert into revenues? And secondly Q4 will be, I think the quarter where you will have a base, where you have the full equity company in the base. So do you expect to grow as strong as we’ve seen in this quarter, even in Q4, considering the ramp up of the deals which you won in Q3? And secondly, this is a more of a philosophical question. So you are at 750 customers as of end of December 2024 and you want to get to that 500 customers with equity. So just wanted to understand, you know, how aggressive will you be in the cutting the equity clients versus you know, having also a good overall growth, top line growth? Will you kind of go in a pace which will still keep our overall growth, you know, good in, you know, in the double digit category? Or do you think you will first be very aggressive in cutting equity clients irrespective of what impact it might have on revenues? And then how will it impact your profitability growth as well? These are two questions.
Sachin Gupta
Great, thank you. Thank you, Siddharth. So look, first of all, just to sort of recap, our theme for FY25 was to cut the lowest hanging fruit of the tail that we definitely don’t want to play with going forward, which I think we’ve executed on for a large part and really get the blended margins of the business to the place that they need to be in. And so as you’ve seen, we’ve really been executing to that and I’m fairly confident that we will be able to continue to execute to those themes in Q4 and beyond. The one way to think about it is even in spite of all of the rationalization of customers as well as transformation of margin related discounts, we’ve delivered a 16% year on year growth. And this is before the cross sell has gotten activated. And this is before, like you noted, some of the ramp effect of the ICARE new customers and come into play. So I have maintained through the roadshows and I will still maintain that the opportunity that we have created for ourselves is to execute far faster than the 12% dam growth over the next 10, 15 years, not just over the next few quarters. So I have no reason to believe going into Q4 and well into next several years we have any reason to slow down that growth to any lower than much faster than the 12%. So that’s one. Yes, we will continue to optimize margins. We’ve been a little lucky in that we’ve been able to accelerate that faster than what we had originally thought. And I think as long as we stay on that path. Maybe we get to The steady state margins towards the mid-30s instead of the next two years within a year. So yes, I do believe that we will be able to deliver significantly faster than the 12% growth and continue to run towards that steady state EBITDA margin profile of getting to the mid-30s over the next year. As it relates to your specific question about when these deals will ramp, all of these three deals actually have gone live as we talk and they will ramp through Q4 of fiscal 25 and Q1 of fiscal 26. So the full effect will be felt over the next two quarters and that will continue to reflect in even faster year on year growth than perhaps we’ve been able to witness in Q3.
Siddharth Misra
Yeah, thanks for that. So just to clarify, you know, the 16% year on year growth which is shown in this quarter is over a base which had only two months of equity. Right. And in Q4 you are saying that even with the full impact of equity acquisition in in the last year, you still expect to grow very strongly. Is that the fair understanding?
Sachin Gupta
Well, I’m not. Well, I’m not giving formal guidance. I think that would be safe to assume.
Siddharth Misra
Okay, got it. Thanks. Thanks a lot.
Operator
Thank you. The next question comes from the line of Chirag Kacharya from Ashika Institutional Equities. Please go ahead.
Chirag Kachhadiya
Hi, am I audible?
Operator
Yes, please go ahead.
Chirag Kachhadiya
Yeah, so I have one question. So every year what average price increase took place in for the our 16 available features on platform for the existing legacy clients.
Sachin Gupta
So good question. Thank you. Look, first of all, let’s all recognize that we are operating in an environment where it’s significantly intensely competitive and customers are looking for more and more value from their partnerships. Having said that, I think a reflection of the strength of our platform has been that we have cost of living adjustment clauses in our contracts with most of our customers that are indexed to US inflation. And we are working hard towards not only retaining those clauses but then also creating further non linearity opportunity in our contracts through conservative but unique value sharing arrangements like we’ve done in the case of Palomar and several others. So generally we have COLA indexed to US inflation and beyond that we are coming up with value Sharing constructs that will give us further protection and enhancement of margins.
Chirag Kachhadiya
Okay, in addition to my question, so in the growth which were anticipating north of 5%, that is industry growth, what is COLA led and net new growth will be there on incremental basis? Yeah,
Sachin Gupta
Yeah. I think the bulk of the growth is actual incremental growth. Because I would just say that the bulk of the growth is actually incremental growth. Because Legacy Acuity really didn’t have much COLA in their contracts at all. And so I would say the bulk of the future anticipated growth should be attributed to real growth in existing customer volumes or new customer additions.
Chirag Kachhadiya
Okay, thank you.
Operator
Thank you. The next question comes from the line of Luci Mukhija from ICICI Securities. Please go ahead.
Ruchi Mukija
Hi, I have two questions. We have announced three large deal wins. Sushant, can you define for us what constitutes large deals for ik?
Sachin Gupta
Yeah. You know that benchmark continues to change, Ruchi, over a period of time. But I will say that in today’s world, a large deal for iks still is one that is able to contribute north of $10 million in annual contract value per year.
Ruchi Mukija
Got it.
Sachin Gupta
Now, many of these deals will take some time to ramp to that. But as long as they have that type of a commitment and potential embedded in them, they would qualify for large deal.
Ruchi Mukija
Noted. Secondly, we have given aging of our top 10 and top 5 clients. The aging reported for 3/4 shows or implies that there has been churn in our top 5 and 10 account. Is that right? Understanding. And the reason for that? The second part of this question is what business attribute you as a management team look to track? When you are looking at a client agent, is the client vintage which stress the deep client relationship? In that case, this number should show consistent and gradual increase. Or is it a churn which has been the characteristic of this matrix? When you look the past history.
Nithya Balasubramanian
Hi, let me take that. Ruchi, thank you for the question. So what you see on the slide in terms of vintage of top 5 and top 10, the numbers are not really comparable. If you look at IK’s legacy, our vintage has only improved. There are some clients after equity acquisition who got into our top 10 and top five who had slightly lower vintage. So that’s the reason you’ve seen Let’s say if you’re looking at Q3FY24 top five client vintage, the numbers might look like it’s come down from six to five. It’s only because the mix changed with equity acquisition.
Ruchi Mukija
So going forward what I’m trying to understand is the churn is a constant feature of this metric or we should expect that the large blind stay in this top position and this vintage keep on increasing.
Nithya Balasubramanian
This vintage will keep on increasing. I think at the outset Sachin had mentioned that 95% of our revenues are from repeat clients and I can share that amongst the even. Even amongst the equity clients. Since their acquisition, we have not really lost any top clients that we’re focusing on. And of course IKS clients as well remain steady with us.
Ruchi Mukija
Got it. Thank you and all the best.
Operator
Thank you. The next question comes from the line of Divesh Mehta from Preeti Investment managers. Please go ahead ladies and gentlemen, Divesh has left the question queue. We move on to our next question which is from the line of Hemendra Kumar and investor. Please go ahead.
Hemendra Kumar
Good morning. Thanks for the opportunity. I really appreciate the business the model, what IK operates. My question is as you’re in the you have a platform helping admin jobs and taking care of physicians etc. What is the company’s perspective on continuum of care to patients? Maybe I’m not aware of US policies about patient care and are you doing anything in that aspect where you have. You can devise a model where you can give a dietary management or lifestyle management, cardiovascular management etc all this lifestyle diseases where you can focus because you have a very large human capital and maybe you can operate on this model also. But again as a pilot project can you do this pain for patients in India so that as a pilot batch you can generate the same across yours. Thank you.
Sachin Gupta
So Nitya, do you want to take that? I had trouble following the question.
Nithya Balasubramanian
I did too. I’m sorry, if you don’t mind repeating the question.
Hemendra Kumar
Yeah. My question was basically on continuum of care to patients where basically you’re operating a model which is a physician taking care of admin tasks, physicians, et cetera, joining the hospital and exiting the hospital, et cetera. But is there any model from your side of continuum of care to patients who are leaving the hospital and leading a life Having lifestyle diseases, conditions and are we doing anything to manage such people? Is there a policy in US where you can contact patients and give continuum of care because you have a large human capital and can you do the same in India also?
Sachin Gupta
So great question actually two questions there. So yes, like as I was referencing when the question was asked around some, some of the new features we are creating, our entire offering that enables total cost of care management in fully delegated risk contracts actually involves exactly that. Where we are building care coordination, transition of care management models, enabling effective home based care for patients, community based care enablement, all of that is really aimed at managing the patient across their journey within the continuum of care, including their home. And so yes, our total cost of care offering will actually start to take baby steps in the realm that you’re talking about because the reality is that outside of end of life care, as much as 60 to 70% of all cost of care is driven by chronic lifestyle disease. And to manage those patients one needs to sort of follow them and meet them wherever they are in their care journey. So yes, we will start to see significant expansion into managing customers across our customers customers which is our patients customers patients across the continuum of care as it relates to India. You know, we feel right now we’re still focused in the us The Indian market to us seems a little immature. For example, a lot of the ambulatory physician office based care isn’t even covered by insurance. So as the Indian market matures a little bit, I’m sure there’ll be learnings from our journey in the US that we will be able to bring to India. But that’s not an immediate term focus.
Hemendra Kumar
Yeah, thanks for that answer. But I just want to update you that from 2008 or 9 onwards, Merck Shop Dome, a US based company has invested in continuum of care for the diabetes management molecule in India. And I was a part of that program which was successful and I have seen reduction in HbA1c, cardiovascular management, patient satisfaction, etc. Family dietary management. It was a wonderful, wonderful program. So you can take feedback from such companies and implement and maybe guide your team on management practices, etc. Thank you.
Operator
Thank you for the suggestion. Thank you. Ladies and gentlemen, as there are no further questions, I now hand the conference over to Mr. Saransh Mundra For his closing comments.
Saransh Mundra
Hi. Thank you everyone for joining. Joining. Our first running call, it was really insightful session. I think many more participants came in than we expected. For any further questions, please feel free to reach out to me or anyone in the company will be very happy to answer you. Thank you everyone.
Sachin Gupta
Thank you. And again, I will just end by saying that we are literally at the start of this, what I think is a multi decadal, secular journey to drive sustainability in the US Healthcare market. And we’re super excited to have you on this journey with us.
Operator
Thank you. On behalf of ICICI securities. That concludes this conference. Thank you for joining us. And you may now disconnect your lines.