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.