Newgen Software Technologies Limited Q1 FY23 Earnings Conference Call Insights

Key highlights from Newgen Software Technologies Limited (NEWGEN) Q1 FY23 Earnings Concall

Management Update:

• NEWGEN said it is increasingly seeing growth in cloud subscription business which grew by 33%. Cloud and subscription revenue put together have now reached 38% of total revenue. This shift, the company said, is expected to lower the seasonality and lead to more uniform revenues across the quarters.

Q&A Highlights:

• Akshat Agarwal of Jefferies asked why the company is seeing a steady decline in new logo additions over the past several quarters. Virender Jeet CEO replied that historically NEWGEN has been able to generate 50-60 logos a year. Also NEWGEN has deliberately moved away from channel based sales that used to generate larger momentum of logos.

• Akshat Agarwal of Jefferies also asked the company was expecting step-up in growth in the US markets, driven by partnerships with GSIs. Virender Jeet CEO replied that in last 6 quarters, NEWGEN had a one-time PPP revenue which was generally between INR5-8 crores in every quarter that was not sustainable and recoverable. Secondly, NEWGEN has completely shifted from license sales.  On the GSI side, the funnel is positive but the deal flows are not as expected.

• Sachin Jain with Carnelian asked about qualitative input on the GSI front as NEWGEN’s efforts towards US is not showing meaningful traction. Virender Jeet CEO replied that in US in the direct sale business, during COVID NEWGEN didn’t see long term potential in some of that account base. So there was a deliberate pivot of leaving a large part of that and going to slightly larger accounts.

• Sachin Jain with Carnelian also asked about the number of deals for GSI for this year. Virender Jeet CEO replied that the company is expecting around 15 deals coming from this channel.

• Girish Shetty of Banyan Tree asked about the average ticket size of the six logos acquired. Virender Jeet CEO replied that these are all larger logos, maybe around $400-500K would be the average ticket size.

• Girish Shetty of Banyan Tree asked about attrition for 1Q23 and the total number of employees. Virender Jeet CEO said the employees are around 3,350 and attrition is slightly better than last quarter, but not seeing a significant shift in attritions yet. The planned attrition for 2Q23 is showing a decline of 5-6%.

• Saurabh Sadhwani with Sahasrar Capital enquired if India business momentum will be sustained throughout the year. Virender Jeet CEO said that whatever business happens is now more sustainable as the base of the business has gone up and the jerkiness is going away. So the India growth achieved in 1Q23 NEWGEN should be able to maintain and grow on those numbers.

• Saurabh Sadhwani with Sahasrar Capital asked how many of the new logos are subscription based. Virender Jeet CEO clarified that one of them in India is licensed and rest is subscription.

• Saurabh Sadhwani with Sahasrar Capital enquired if the costs will stay flattish or going to increase for employee and travel expenses. Virender Jeet CEO said that it will be slightly more in 2Q23 and then declining in 3Q23 and 4Q23.

• Ankush Agrawal of Surge Capital asked that what kind of increase in the cost has been budgeted for FY23. Virender Jeet CEO clarified that overall the cost may increase in around 18-19%.

• Ankush Agrawal of Surge Capital also asked about the long term sustainable growth target. Virender Jeet CEO answered that it’s difficult to predict. But looking at historical data, NEWGEN has been able to grow at 20% of growth with much lower cost to growth of around 13-15%. In future, with every 10% revenue growth, NEWGEN can manage between 6% or 7% of cost.