Newgen Software Technologies Limited Q3 FY24 Earnings Conference Call Insights

Key highlights from Newgen Software Technologies Limited (NEWGEN) Q3 FY24 Earnings Concall

• Financial Performance
  • Revenue at INR 324 crores, up 27% year-over-year.
  • Profit after tax at INR 68 crores, up 45%.
  • Healthy growth across geographies like India, EMEA, APAC, Americas.
  • Annuity revenues comprise 59% of total at INR 191 crores.
  • Growth from ATS/AMC compounding and shift of licenses to subscription.
  • Annuitized licenses expected to continue growing faster than company.
• New Product Innovations
  • Launched NewgenONE Marvin powered by generative AI to enable faster, smarter application development.
  • Received positive response from customers globally.
• Growth Drivers
  • Added 11 new logos in Q3, 38 year-to-date.
  • Expanding partnerships, like recent one with Duck Creek.
  • Continued investments in R&D; 10% of revenue, and sales and marketing; 21% of revenue.
  • Strong cash flow from operations at INR 193 crores.
• Order Book Growth and Revenue Outlook
  • Order book has grown around 20% in the first 9 months of FY’24, which will drive revenue growth over the next 2-3 quarters.
  • Growth will be driven by larger deal sizes and multi-year contracts.
  • Q3 and Q4 are significant growth quarters, so expect strong Q4 based on high Q3 growth.
  • Growth momentum expected to continue based on deal velocity in India, Middle East and USA.
• Subscription Revenue Growth Drivers
  • Subscription revenue grew 33% year-on-year.
  • Larger subscription revenue base in USA, but adding new logos in other geographies for subscription deals.
  • Overall subscription growth driven by total company revenue across geographies.
• New AI Capabilities
  • Launched NewgenONE Marvin using generative AI to enhance product capabilities.
  • Horizontal capabilities added across products to make them more competitive.
  • Not a separate revenue stream, but bundled into overall product capabilities.
  • New deals will include Marvin capabilities by default or as a priced component.
• Growth Outlook and Seasonality
  • Faster growth creates challenge of even higher growth next quarter.
  • Annuity revenue and long-term relationships provide compounding effect.
  • Hard work ahead but no constraints seen on growth currently.
• US Market Performance
  • Grew 25% YTD but below company average and own expectations.
  • Initiatives like GSI partnerships, larger banks, insurance in progress.
  • Significant opportunity for higher growth in large U.S. market.
• Product Partnerships
  • Partnerships with platforms like Duck Creek & Guidewire in insurance.
  • Integrations allow Newgen to tap into partner ecosystems.
  • Early stage but opens up insurance use cases and joint go-to-market.
  • Banking integrations with core platforms already established.
• License and Implementation Revenue
  • Implementation revenue growing faster recently, driven by larger deal sizes changing license vs implementation mix.
  • Short term spike but expect balance as deal velocity increases.
  • Annuity revenues expected to grow faster over mid-long term.
• Logo Addition Strategy
  • Conscious pivot towards larger deals and customers, affecting logo rate.
  • Aim to increase logo rate to 60-70 per year from current about 50.
  • No concentration risk with 500+ customers and <3% revenue per customer.
  • Diversifying markets and verticals should help increase logos.