Persistent Systems Ltd (NSE: PERSISTENT) Q2 2025 Earnings Call dated Oct. 22, 2024
Corporate Participants:
Saurabh Dwivedi — Head, Corporate Development & Investor Relations
Sandeep Kalra — Chief Executive Officer
Vinit Teredesai — Chief Financial Officer
Analysts:
Bhavik Mehta — Analyst
Nitin Padmanabhan — Analyst
Ravi Menon — Analyst
Chirag Kachhadiya — Analyst
Sandeep Shah — Analyst
Kireet Atluri — Analyst
Vibhor Singhal — Analyst
Varun Gandhi — Analyst
Abhishek Kumar — Analyst
Abhishek Bhandari — Analyst
Sumit Jain — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Persistent Systems Earning Conference Call for the Second Quarter of FY ’25 ended September 30, 2024. We have with us today on the call Dr. Anand Deshpande, Chairman and Managing Director; Mr. Sandeep Kalra, Executive Director and Chief Executive Officer; Mr. Vinit Teredesai, Chief Financial Officer; and Mr. Saurabh Dwivedi, Head of Investor Relations. Please note all participants’ line will be in listen-only mode and there will be an opportunity for you to ask questions after management’s opening remarks. [Operator Instructions] While asking questions, request you to please identify yourself and your company name. Please note this conference is being recorded.
I now hand over the conference to Mr. Saurabh Dwivedi. Thank you and over to you, sir.
Saurabh Dwivedi — Head, Corporate Development & Investor Relations
Thank you, Vandir. Good evening and good morning to everyone on this call. We are grateful for your participation and for spending time with us today. We hope you have had the opportunity to review the results that we published a few hours ago. Let me quickly outline the agenda for today’s call. Sandeep will begin with an overview of our results and commentary on business. Vinit will take you through the financial details and some of the key operational metrics for this quarter. I will then provide an overview of our key deal wins and awards and recognitions in the second quarter of FY ’25. Post that, with Sandeep’s closing comments and summary of prepared remarks, we will open the conference for questions. Let me also remind you that as part of our prepared remarks and during Q&A, we may make certain statements which are forward-looking and may involve significant uncertainty. Persistent does not take any responsibility to update such forward-looking statements and your discretion is warranted while making any investment decisions.
With this, let me hand over to Sandeep for his prepared remarks.
Sandeep Kalra — Chief Executive Officer
Thank you, Saurabh, and greetings to everyone joining us on the call today. With this, let me now start with a quick financial summary. We achieved a healthy revenue growth of 18.4% year-on-year and 5.3% quarter-on-quarter to reach $345.5 million in Q2 of fiscal 2025. This marks our 18th sequential quarter of quarter-on-quarter growth. In rupee terms, the growth for the quarter came in at 20.1% year-on-year and 5.8% quarter-on-quarter. The EBIT margin for the quarter came in at 14%. In rupee terms, this translates into an EBIT of INR4,062.3 million, an increase of 22.8% year-on-year. The profit after tax for the quarter was at 11.2%. Vinit will provide detailed color on the financials and margin movement later in this call.
Now coming to the order book for the quarter. The total contract value for the quarter came in at $529 million with TCV of new bookings being $389.8 million. The annual contract value component of this TCV is at $348.3 million, of which ACV from new bookings contributed to $218.6 million. As always, these TCV/ACV numbers include all bookings, renewals as well as new bookings, across existing and new customers. Please note that our revenue conversion on a quarterly basis is a function of annual contract value bookings done in previous quarters as well as conversion from multi-year deals that we have booked in previous years, which are included in our reported TCV bookings. Now moving to the client engagement services. Let me give you some color on our client movement across various reporting categories.
We witnessed healthy year-on-year growth among our client buckets with our Top 5 customer revenue up by 31.5%, Top 10 up by 24.6%, Top 20 up by 22.1%, and Top 50 up by 20.9%. As you would notice, this is a secular growth across all customer segments, whether it’s Top 1 or Top 50. The contribution from Top 10 customers is at 41.5% in this quarter, an increase from 39.5% same quarter last year. In this quarter, we reported 184 customers with TTM revenues over $1 million compared to 178 in the same quarter last year. All our top client buckets have shown good growth this quarter. On a year-on-year basis, the number of customers in the $1 million to $5 million bucket increased by five while those in the $10 million to $20 million bucket increased by four. This is a clear demonstration of our ability to scale customer relationships significantly over a period of time.
Coming to the details on our geographic performance. In terms of year-on-year growth in USD terms; North America grew by a healthy 21.6%, India grew by 11.7% while Europe revenue declined by 1.3% year-on-year. However, on a sequential quarter-on-quarter basis, Europe grew by 6.6%. Rest of the World grew 19.2% year-on-year albeit on a very low base. Now let me give you this quarter’s performance from an industry segment perspective. This quarter’s growth was led by H&LS and BFSI industry verticals, which grew by 71.2% and 15.3% respectively on a year-on-year basis. Software, hi-tech, and emerging verticals marginally degrew 0.5% year-on-year. Now moving from operational metrics to certain strategic highlights for the quarter. Launching our T100 program. Recently we brought together 250 of our senior leaders and customer-facing team members for strategic offsite initiatives.
During this event, we launched the T100 program and initially focused on our Top 100 clients. This program is designed to drive enhanced customer value, deepen customer intimacy, and unlock the next wave of opportunities for both our clients and for us. The T100 program is centered on four key pillars. Talent amplification: herein we are developing a high caliber workforce to deliver premium services and expand mind share with our clients. Value maximization: this focuses on leveraging our core strengths and we are committed to enhance client ROI and foster long-term strategic partnerships. Focusing on AI-driven innovation wherein we deploy advanced AI and platform based solutions to create differentiated high impact services based on the latest innovations in GenAI and others.
Ecosystem leadership: within this, we are positioning Persistent as a key orchestrator of choice in the partner ecosystem to bring disruptive value to our customers not just based on our solutions, but based on the power of the entire partner ecosystem that we bring to them. This program underscores our ongoing commitment to innovation and customer value creation and will lay the foundation for our $2 billion goal and beyond. Moving on to our strategic investments and updates on AI. Our comprehensive AI strategy continues to be built on two key vectors: AI for Technology and AI for Business. This dual approach has been driving our innovation and growth and I would like to elaborate on how we have advanced in the past quarter on each of these areas. First, coming to AI for Technology. As most of you know, SASVA is our flagship AI-driven platform designed to enhance software engineering services across the product development lifecycle.
With the launch of SASVA 2.0, we have made substantial progress in our journey of platform driven software engineering. You may have seen the press release in this regard. Let me now highlight some key impact areas of SASVA 2.0. Starting from a comprehensive assessment wherein SASVA evaluates a product engineering project or a product holistically providing insights on the product, people, process maturity, security, posture, and technology depth. Coming to the efficiency and value maximization, SASVA identifies high impact areas for productivity gains, accelerated time to market, and cost reduction based on the current status and wherein AI could be applied in this platform. Intelligent backlog management and roadmap planning, SASVA leverages historical data and market trends to create prioritized context driven near and long-term roadmaps and release plans aligned with team strengths and capacity.
This can be very effective not just for engineering, but for product managers who are leading the entire product efforts. Context awareness release planning: herein SASVA prioritizes tasks, estimates effort, recommends optimal frameworks and technology stacks aligning with the team strengths and capacity while intelligently distributing tasks between human developers and AI agents. It also supports integration of external development tools for seamless experience. SASVA also plays a critical role in customer support and professional services activities complementing the engineering activities and product development or application development wherein SASVA provides real-time and context awareness insights into projects, issue history, client specific knowledge, best practices continuously synced with project management tools, service tickets, and [Indecipherable].
Let me share two case studies that demonstrate the real world impact of these investments. Persistent was elected by a leading provider of full stack observability platform to partner with them on their product engineering as well as data engineering for their core application, performance monitoring and observability platforms. Our advanced delivery frameworks leveraging SASVA and other accelerators and the depth of our university’s learning and development platform were key differentiators for us in winning this engagement. The benefit to the customer includes accelerated roadmap and establishment of a core R&D team in India for them to continue their leadership positioning in the observability domain. Persistent was selected by a leading financial analytics firm based in North America to accelerate the roadmap of its flagship products in the domain of pricing and profitability management solutions.
SASVA platform’s identification of the accumulated technical depth with clear actionable roadmap items was instrumental in Persistent winning this engagement. The benefit to the customer here includes acceleration of the go-to-market for faster releases, upgradation of latest technology stack, and optimized delivery model powered by SASVA. These case studies highlight how SASVA 2.0 is driving tangible improvements in efficiency, cost effectiveness, time to market across different industries, and making us win more in competitive bids. Now let me talk about our AI for Business vector. We’ve seen rapid adoption and expansion of our GenAI Hub and iAURA platforms across various industries. We have expanded our GenAI Hub library of pre-built AI models and use cases by over 50% since Q1 FY ’25. Also, our iAURA platform has been upgraded with advanced data quality assessment tools and automated data pipeline generation tools.
The impact of these developments can be seen in key customer case studies, which I will highlight now. We are helping one of the largest global pharma companies to accelerate their drug discovery process by integrating complex biomedical databases into our GenAI enabled knowledge graphs. Our iAURA solution has reduced query response times, in this case by 60% for a global clinical research provider, a CRO, which makes tracking patients’ health and status of trials extremely efficient. For one of the leading construction companies out of Europe and Australia, we are building a data lake ATL pipeline and GenAI model to use historical construction data including design, material, labor, site condition, and schedule to enable better decision making for their in-flight and upcoming projects.
Moving on to our acquisitions and partnerships. As you would have noticed, we recently-announced our plan to acquire Arrka, a Pune based company focused on data privacy management. Arrka Solutions will enhance Persistent’s offerings by helping customers manage data privacy risks and comply with various legal and regulatory requirements globally. This acquisition will also significantly bolster our AI governance and cybersecurity capabilities. Among other initiatives, we are integrating Arrka’s expertise with our SASVA and iAURA platforms to provide enhanced data privacy features in SASVA’s security assessments, improved AI governance mechanisms in iAURA’s data management processes, and comprehensive cybersecurity measures across both platforms to give you a few examples.
Arrka’s capabilities will complement our existing AI offerings and platforms and in meeting the growing demand for comprehensive digital solutions that are both trustworthy and ethical. It aligns perfectly with our commitment to be responsible to develop responsible AI and positions us to better serve clients in an increasingly complex regulatory environment. Second, following our Q1 announcement, we have fully integrated Starfish. We are enhancing our contacts in the portfolio with AI-enabled administration and workflow assistance and we expect to report by the end of next quarter some early deal wins from this portfolio. We have had strong collaboration with all hyperscalers and are jointly developing missions with their teams. This includes development of connectors and integrators and integrations for GenAI offerings of hyperscalers as well as taking their solutions into different horizontal use cases such as contact center AI and document processing and so on.
As a part of these initiatives, we recently co-hosted the Google Gemini Summit in Pune featuring top leadership from Google platform and Persistent. Throughout Gemini Week, our teams engage in comprehensive training, initiatives, emphasizing certifications, and hands-on experiences to harness the full power of Gemini. As a premier Google Cloud partner, we are uniquely positioned to help businesses across industries innovate, scale, and achieve their digital transformation goals. As we move forward, AI remains integral to both Persistent’s operations and our clients’ digital transformation journeys. Our platform-led services approach exemplified by SASVA, GenAI Hub, and iAURA position us to enhance productivity and fuel our growth, capturing a decent market share in these initiatives at our customers. In summary, we are pleased with our performance in Q2 FY ’25.
I would now like to invite Vinit to give a detailed color on the quarterly financials and related matters. After which, Saurabh will provide an overview of our key deal wins and awards and recognitions. I’ll come back after Saurabh’s comments to summarize our prepared remarks before opening the call for Q&A. Over to you, Vinit.
Vinit Teredesai — Chief Financial Officer
Thank you, Sandeep. Good evening and good day to all. Thank you for taking time out to join us today. Let me now take you through the financial highlights for the quarter gone by. Q2 FY ’25 revenue stood at $345.5 million registering a year-on-year growth of 18.4%. In rupee terms, it translates to INR28,971.5 million, growth of 20.1% year-on-year. This quarter effective July 2024, we awarded regular pay hikes to all eligible employees. I’m glad to announce that despite this, we have delivered an EBIT margin of 14%, a 30 basis point improvement year-on-year. In rupee terms, EBIT for this quarter was INR4,062.3 million translating to a growth of 22.8% year-on-year. Now let me provide some commentary on the quarter-on-quarter margin walk. Let me first start with the headwinds. Wage hikes this quarter have impacted our margins by 210 basis points.
As I had called out in the previous quarter, we had taken some policy rationalization initiatives, the benefit of which was visible last quarter. In the current quarter, the absence of that benefit has impacted our margins by 130 basis point. There was a fresh issuance of ESOPs in the latter half of Q1, the impact of which was only partly visible last quarter. In the current quarter, there was an incremental impact of 60 basis point. This quarter we also had a lower earn-out credit as compared to the previous quarter. This has resulted in a headwind of 60 basis point. Coming to tailwinds for the quarter. Last quarter I spoke about our revenue growth and cost optimization programs that are in action for the fiscal year 2025 and beyond. I’m happy to share that the benefit of these programs are reflecting in the current quarter and we expect them to continue in subsequent quarters.
While our revenue has grown by 5.3% quarter-on-quarter, it is important to note that this has come on the back of reduced headcount of 282. This has led to an improvement in utilization from 82.1% in Q1 to 84.8% in Q2, which has helped our margins by 120 basis point. Additionally, reduction in subcontractor cost resulted in the benefit of 70 basis point, lower resale business helped by 50 basis point, and balance 130 basis point benefit came on account of combination of factors like pricing and right shoring. Favorable currency movement has helped our margins by 30 basis points this quarter and absence of H1B visa cost this quarter has given an additional tailwind of 60 basis point. In a nutshell, all the tailwinds stated above helped nullify the effect of headwinds enabling us to maintain our EBIT margin at 14%.
With the growth and cost programs that we are running at Persistent, we are well placed to continue our journey of margin improvement in the subsequent quarters. Please note that going forward in our investor presentation, we will be merging the CSR spends with general and administration expenses and doubtful debt provisions with the sales and marketing expenses. Other income stood at INR176.9 million as against INR172.5 million last quarter. We had a one-time gain of INR80 million on account of pre-closure of some of our lease premises in Pune and Indore which were underutilized and have additionally invested in newer facilities in Chennai and Hyderabad. Overall treasury income was lower than last quarter owing to payouts for acquisition and payment of final dividend for FY ’24 during this quarter. There was a foreign exchange gain of INR106 million against a loss of INR7.3 million in Q1.
Effective tax rate for the quarter came in at 25.2% compared to 23.5% in Q1. This increase is due to higher profits in high tax geographies. We expect our overall ETR for the year to remain in the range of 23.5% to 24.5%. Profit after tax was INR3,250 million, a growth of 23.4% year-on-year. This translates into a margin of 11.2%. Earnings per share stood at INR21.20 per share compared to INR17.90 per share same quarter last fiscal, a growth of 18.3% year-on-year. Return on capital employed for the quarter came in at 38.1% versus 37% in Q2 of last year. Total cash and investment stood at INR17,916.2 million as on 30th September 2024. Forward contracts outstanding as on 30th September were $270 million at an average rate of INR84.80 per $1. Operating cash flow to PAT for Q2 FY ’25 stood at 108.3% compared to 49.3% in the previous quarter. Our overall DSO has remained flat this quarter with billed DSO at 68 days and unbilled DSO at 24 days.
Now let me give you key operational updates. At the end of Q2, our total headcount stood at 23,237, an increase of 395 from Q2 of previous fiscal year and a decline of 282 quarter-over-quarter. As highlighted earlier, the blended utilization has improved from 80.6% in Q2 of FY ’24 to 84.8% this quarter. In the foreseeable future, our endeavor is to maintain this in the band of 83% to 85%. Trailing 12 months attrition this quarter came in at 12% compared to 13.5% in Q2 of 2024. Coming to ESG updates for the quarter. We are delighted to announce that we have achieved carbon neutrality for Scope 1 and Scope 2 emissions ahead of schedule. This significant milestone reflects our unwavering dedication to sustainability. Our renewable energy consumption, which includes our extensive rooftop solar installations and windmills, now account for an impressive 39% of our total energy usage across our global operations.
We are also proactively working towards achieving net zero carbon emissions well ahead of the Science Based Targets Initiative goal of 2050. In terms of our ESG performance, we are thrilled to report that our S&P Dow Jones Sustainability Index ESG rating has risen to 85, up from 61 while our SES ESG rating has improved to 77 from 72. Additionally, we have made commendable progress in our MSCI ESG rating advancing from BB to BBB. We are also proud to be recognized among India’s Top 50 Most Sustainable Companies for 2024 by BW BusinessWorld, a leading business publication in the country. On the social front, we are excited to highlight the launch of our women leadership program Aspire 3.0. This initiative underscores our commitment to fostering diversity and empowering women within our organization.
Let me now hand over to Saurabh for commentary on key deal wins and awards and recognitions that we have received during the quarter.
Saurabh Dwivedi — Head, Corporate Development & Investor Relations
Thank you, Vinit. I will now talk about key deal wins for Q2 by industry segments. Let me begin with software, hi-tech, and emerging industries; our largest vertical. Persistent was selected by a leading U.S.-based cybersecurity company to set up a global technology center for product engineering, customer support, professional services, and FedRAMP support services. Persistent was selected on account of its product engineering expertise in the cybersecurity domain. The benefit to the customer includes accelerated product roadmap and productivity enhancements across customer support and professional services. Persistent was selected by a global leader in food services and facilities management based out of Europe to build a data lake on the Azure platform and build an integration layer for exchange of data across different enterprise applications.
Persistent’s strength in data engineering and automation of key tasks using Persistent’s iAURA platform were critical in us winning this engagement. The benefit to the customer includes standardization of data handling across the organization leading to enhanced employee utilization, improved stock prediction, and reduction in food wastage. Coming to banking, financial services, and insurance. Persistent was selected by one of the largest U.S.-based fintech companies to modernize the user experience of its cloud-based accounting software platform and its report generation capabilities. The benefit to the customer includes improved user experience and enhanced business efficiency leading to increased revenues. Persistent was selected by a large financial institution with presence in Japan, APAC, Americas, and EMEA for modernization of its front office and regulatory technology to bring them under a common technology framework.
The benefit to the customer includes technical debt reduction, efficiency enhancement, and end user experience improvement. And finally, within our healthcare and life sciences vertical, Persistent was selected by a leading life sciences and scientific instrumentation company for establishing an AI-enabled software engineering capability hub and a scalable and modern cloud infrastructure. Persistent’s deep capabilities and experience in the scientific instrumentation and medical devices domain and the compelling value proposition in the private equity carve-out space were instrumental in us winning this engagement. The benefit to the customer includes standardized product management and engineering across all its product lines and setting up of its modern IT infrastructure to exit the current transition services arrangement with its erstwhile parent company.
Persistent was selected by a leading U.S.-based precision medicine and Omix analytics provider for transition of their core R&D center to India. Persistent’s 30 plus years of product engineering heritage combined with our strategic focus on clinical diagnostics, bioinformatics, and life sciences research along with the center of excellence we have built around user experience, cloud, and GenAI have been instrumental in us winning this engagement. The benefit to the customer includes accelerated risk-free and cost effective transition of their R&D center to India with no adverse impact on customer deliverable and revenues. Persistent was selected by a leading U.K. based medical device manufacturer that specializes in organ preservation and transplantation devices. The engagement involves development of core applications for customer onboarding, device management and monitoring, report management, and CRM integration.
The benefit to the customer includes systematic onboarding of customers, centralized monitoring of all devices for regulatory compliance, and potential for penetration into new geographical markets. Moving on to the awards and recognitions for the quarter from leading analyst firms. This quarter saw us get continued recognition from industry leading analyst firms and associations. To cite a few. Sandeep Kalra was named the Best CEO in the IT Services Emerging Companies category by Fortune India. Sandeep’s leadership in driving industry leading growth and shareholder value creation was critical in winning this award. Persistent upgraded to Version 3 of CMMI Maturity Level 5 certification that places us among the elite group in the industry. This top tier level of maturity signifies Persistent’s commitment to setting new benchmarks in quality and efficiency and being a pioneer in the adoption of advanced technologies.
Persistent was recognized as a challenger for the second year in a row in Gartner Magic Quadrant for Public Cloud IT Transformation Services 2024. This recognition highlights our strategic use of AI and automation stacks, deep business and domain expertise, and our ability to provide personalized client experiences. Persistent was named a leader in Everest Group’s BFSI-specific Software Product Engineering Services PEAK Matrix Assessment 2024. Persistent’s robust BFSI-specific intellectual property suite including underwriting, digital banking, payment automation, and claims processing was instrumental in winning this recognition. Persistent was named a leader for the second consecutive year in ISG Provider Lens for Google Cloud Ecosystem Partner 2024 Report. Persistent was recognized for its robust services portfolio and our expertise in implementing the Google Cloud ecosystem.
Persistent has been included in Constellation Shortlist 2024 for demonstrating expertise in services relating to public cloud transformation services, AI services, custom software development services, and customer experience operations services. Persistent was cited as the fastest growing Indian IT services brand by Brand Finance with 327% growth in brand value since 2020. Persistent’s people-centric culture, excellent service delivery, and alignment with client needs, and its adaptability to dynamic market needs are key factors that helped win this recognition. This completes the section on key wins and awards and recognitions.
With this, let me hand it back to Sandeep for his closing remarks.
Sandeep Kalra — Chief Executive Officer
Thank you, Saurabh. In summary, we are happy with our performance in this quarter. Before I conclude and open the conference for questions, I would like to share a professional milestone. Tomorrow, October 23, marks my fourth anniversary as the CEO of Persistent. It has been an incredibly satisfying journey and I sincerely thank all our employees, customers, partners, investors, and our Board for their unwavering support over these years. Leading our esteemed company with its world-class capabilities and a motivated team has been a privilege and I’m excited about the future as we continue to strive for an industry leading products.
With this, I would like to conclude the prepared comments and would like to request the operator to open the conference for questions. Operator, over to you.
Questions and Answers:
Operator
Thank you so much. We will now open the call for Q&A session. We will wait for a few minutes until the queue assembles. We request participants to restrict to two questions and then return to the queue for more questions. [Operator Instructions] The first question is from Mehta Bhavik.
Bhavik Mehta
Thank you. So a couple of questions. Firstly, Sandeep, obviously we have seen very strong growth over the last couple of quarters. But going into second half, which is typically a seasonally weak period as such due to furloughs and lower working days, how should we think about the growth trajectory from a sequential perspective over the next couple of quarters? And also if you can highlight how the demand environment has changed versus, let’s say, three months ago? I mean the second question is to when — incrementally from here on, we are targeting to expand margins in the second half. Incrementally, what levers do we have which can help drive margin expansion over the next couple of quarters? Thank you.
Sandeep Kalra
Good. So Bhavik, as far as the seasonality, etc., is concerned, second half is concerned. So those are events as regular. And if you look at it from our perspective; October, November, December; we see some furloughs in financial services some of the customers and a couple of customers in the hi-tech seg. That has traditionally been the things and this is something that we always plan for. If you look at our order book, order book has been pretty healthy for the last several quarters. We have a decent pipeline. Obviously as the quarter goes through, we’ll convert those as well. Overall, we are looking at a healthy growth and quarter-on-quarter, there may be a little bit fluctuation here or there, but we are relatively confident of continuing the healthy growth that we have.
As far as the demand environment is concerned, I think this is a moot question by now because there are many things happening in the world which are not in our control. But what we have done is we have mastered the art of figuring out the patterns. Within these markets, which are tough, there are always revenue pools and profit pools available and we have been pivoting per the market demands and that has been reflected in our 18 sequential quarters of growth. So we are relatively confident whatever the market conditions may be, we’ll pivot as a team and we’ll deliver. With that, I’ll hand over to Vinit. Vinit, if you can answer the margin.
Vinit Teredesai
Yeah. Bhavik, see a couple of things that are still in our — working in our favor. As I mentioned in my comments, we will continue to maintain our utilization in the 83% to 85% band. At this point of time, we do not see any — the labor market is soft and we do not see any urgency at this point of time to go and build up a bench or hire ahead of time. Secondly, if you look at our G&A as overall spend, it’s — we have made significant amount of investments in the last couple of quarters. Now we think going forward, the pace of investments into G&A will not be the same and we’ll be able to basically reap the benefits that we have out of the investments that have been made in the last couple of quarters. Again right shoring, pricing, and all of — and obviously the growth that we are — the growth momentum that we are seeing at this point of time and the flexibility that we have at this point of time on the growth will continue to help us in terms of maintaining and improving our margins going forward.
Bhavik Mehta
Okay. Thank you.
Operator
Thank you. The next question is from Nitin Padmanabhan.
Nitin Padmanabhan
A couple of questions. So one is a little philosophical one. So I think yesterday Microsoft spoke about how scaling laws are sort of doubling competing power every six months versus two years under Moore’s. So your thoughts on shouldn’t this ideally lead to higher business velocity, right? So, that’s one. Second is from a utilization perspective, you mentioned 83% to 84%. I remember pre-COVID you had sort of went into massive hiring, sort of had a good view on when demand will pick-up and so on and so forth. Looks like at this point in time you’re not seeing that. So just wanted your thoughts, is this a very near-term sort of view or is it a slightly longer view? Third thing is you had a view that margin will sort of expand by 200 basis points, 300 basis points over the next two years. Do you still stick to that or do you think that sort of takes some more time? I have a lot more, but I’ll just push in one more. Let’s say the technology vertical, what’s your view there? Do you think that’s sort of bottoming out or that sort of continues to be a pain point?
Sandeep Kalra
Perfect. So Nitin, good questions. I’ll take those. And from here on, I request to people asking questions is please limit them to two because we want to take questions from everyone and then we can always settle down. So quickly as far as the scaling is concerned. Look, if you look at it in the last several quarters, we have been saying that we want to be a platform-driven service system. So, we are using AI to develop platforms. And that also links to your second question about utilization, hiring, and so on. Our endeavor is as we become a platform-driven services company, our revenue per employee goes up because we bring something which is very differentiated, we are using AI platforms to deliver more value to the customers, and also partaking part of that. So our revenue per customer, profit per customer over a period of time as we deliver disproportionate value compared to the industry, that should help us and that should also mean that we need to hire lesser people to deliver higher revenues.
So, keep that in mind when you do any hypothesis philosophically. Now as far as the tech vertical is concerned, we do think it is bottoming out. Based on the pipeline, based on the deal wins, we do think coming in the next one to two quarters because some of these programs will take time to ramp-up. The complex programs, which we have won based on the platform-driven approach that we have taken, we are relatively confident all of our verticals will kick in. All of the verticals will have secular growth including the tech vertical. And please keep in mind, there may be cyclical things. There was a time when tech vertical was leading the growth, there was a time where healthcare is leading the growth. But overall as a company, we are confident all three will kick in, all three will be growth enablers and we are fairly confident of expanding the margins over the next two to three years based on whatever Vinit said and our approach of using platform, driving higher revenue, higher profitability per revenue.
Nitin Padmanabhan
Super. Thanks ton. I’ll jump back in the queue.
Operator
Thank you. The next question is from Ravi Menon.
Saurabh Dwivedi
Hi Ravi. Requesting you to unmute and ask the question.
Ravi Menon
Sorry about that. So now we have 375 million-plus customers. Is it fair to say there is one from each vertical now?
Sandeep Kalra
Yes, absolutely fair to say.
Ravi Menon
And would you still see headroom for growth even from here with at least some of these customers or should we think that this is where it kind of tops out or we are fairly close to topping out at some of these top customers at least?
Sandeep Kalra
There is enough headroom in these customers for us to grow. There are many of our competitors who are there. So, I’m pretty sure there is headroom. It’s upon us to deliver more value and grow and this also demonstrates. Philosophically if we look at our earnings call over the last several years, there has been a debate whether Persistent can have more than $100 million customers, more than $70 million customers. So if you look at our trajectory, we have proven we are worthy of our customers giving us more at scale compared to some of our Tier 1 competitors, peers, whatever. So, there is enough and more to come.
Ravi Menon
Thanks so much. Best of luck. I’ll come back in the queue.
Operator
Thank you. The next question is from Chirag Kachhadiya.
Chirag Kachhadiya
Congratulations to management for the solid numbers. I have one question that in H2 from a margin perspective, what headwinds are we looking? And second, the top — the target to reach to the $2 billion kind of topline, do you think that we will achieve that ahead of the time than our strategy guidance?
Sandeep Kalra
Yeah. As far as the $2 billion topline is concerned, we do believe we are on a decent trajectory and we will let the time pan out because there are things in our control, which we are performing; but let’s have the time go down. As far as the margins is concerned, Vinit, do you want to comment on the H2 margin headwinds?
Vinit Teredesai
Yeah. I think so as you know that typically there are seasonal furloughs that come up in the second half. That only is probably the — at this point of time, we do not anticipate there to be anything different than what we have seen in the last year. So, that’s the only probable potential headwind that we have at this point of time.
Chirag Kachhadiya
Thank you.
Operator
Thank you. The next question is from Sandeep Shah.
Sandeep Shah
Thanks for the opportunity. Just wanted to understand, Sandeep, in this quarter, if we look at new business to total TCV, it is close to 74%, one of the highest in any quarter. Is it fair to say the client decision-making on our discretionary projects have picked up? That’s question number one. Question number two is if I look at the first half reversal of amount has been close to 190 bps and if I’m not wrong, we called out it may continue in the second half as well. So Vinit, are you worried in the next year absence of this with wage inflation, it could be a big headwind to maintain margin in FY ’26? Thanks.
Sandeep Kalra
I’ll take the first question and I’ll have Vinit answer the second part. So as far as the new business is concerned, look, we have explained on many earnings calls. When people look at Persistent and say we are discretionary spend based or dependent on that, I don’t think we agree to that. Many of the deal wins that we have had are with various sectors, whether it is the healthcare life sciences or the tech segment and BFSI where we are working on platforms which are revenue bearing, whether it is like setting up large teams for some of these where we are even transitioning works from some of the incumbents, whether they be our bigger peers or it is new work being outsourced to us, which is revenue bearing and so on and so forth. So, bulk of the work that we do is critical to these companies and it’s not necessarily discretionary. I wouldn’t basically correlate our order books being healthy to discretionary spending coming back and so on and so forth. I would say it is basically our ability to deliver more value with respect to our competitors and even mine our customers more effectively. So that’s where I view it. And Vinit, earn-out reversals and tailwinds.
Vinit Teredesai
Now see, if you look at the cost optimization program that we are running within the organization, we are making structural changes to our cost base. And some of the expenses that we are today incurring as a result in order to support that cost optimization program will not be there in the next year. So we have couple of tailwinds also that will be coming into our health when we enter FY ’26 and as a result of that, we are pretty confident that our margin improvement trajectory that we have talked about will continue to happen.
Sandeep Shah
Okay. Thanks and all the best.
Operator
Thank you. The next question is from Kireet Atluri.
Kireet Atluri
Hi team. Thanks for taking my question. I had a couple of questions, please. So the first one is on ACV. Can you maybe help us understand how this will trend going-forward and how much of this ACV is AI driven? That was my first question. And then the second one is you spoke about SASVA and iAURA helping you win deals. Could you maybe talk about what the attach rate of those is in the deal wins and what is the ideal target? And just as a follow-on for that. Is the profitability of these deals i.e., the margin profile of SASVA and iAURA higher than the base business? Thanks. Those were my questions.
Sandeep Kalra
So, let me take that question. As far as the ACV is concerned, so ACV — look, we don’t give forward-looking guidance in terms of revenue or order book. So I would say look at our historic journey, ACVs have been pretty healthy. And this quarter for us; the October, November, December quarter for us; given the fact that 80% of our revenues come from the U.S. is a quarter where we have seasonally, if you look at last several years, a higher order book for renewals. Couple that with the newer wins, typically this is a quarter where you will see a little higher ACV, but we’ll let it pan out. The second part of it, you talked about how much of the ACV is AI driven, how much of the attach rates can we basically attribute to SASVA, iAURA, and so on.
Look, we don’t want to get into the business of defining how much is our AI revenue. We are trying to infuse AI into everything that we do and we do believe AI will become table stakes in terms of getting infused. How well you use it is where the differentiation will come. So that is as far as the attach rate question is concerned. In terms of profitability, yes, the profitability of these deals going ahead will be higher and that’s where to my earlier comment, the revenue per employee, the profit per employee over the next several years, that is where we are trying to disproportionately move and that will also help us in our goals of overall improving the company wins. Hopefully this answers your question.
Kireet Atluri
Sure. Got it. Thank you.
Operator
Thank you. The next question is from Vibhor Singhal.
Sandeep Kalra
Vibhor, we can’t hear you.
Vibhor Singhal
Can you hear me now?
Sandeep Kalra
Yes, please.
Vibhor Singhal
Sorry for that. Yeah, hi. Thanks for taking my questions and congrats on solid execution once again. Sandeep, just — I mean most questions I think you already answered. Just quick take on basically post the interest rate cut that we have seen in U.S., is there any change in conversations specifically in the BFSI segment or let’s say in more of leverage segments in which clients might be talking about maybe higher tech spend if not today, tomorrow, day after tomorrow? Anything on that that has changed? And leading to that, any early conversations regarding how the furloughs would be this year as compared to last year and of course how the tech budgets for next year could be? I know it’s too early for that, but I guess if any color on that would also be helpful. Then I have just one follow-up question for Vinit.
Sandeep Kalra
Sure. So as far as the furloughs are concerned, as Vinit articulated, we are expecting them to be in the same range as the last year for us. So we are not expecting it to be anything different based on what we see today. But typically these decisions get crystallized towards November and December, December mid. That is the time when these things finally come together and there is always a discussion between us and the customer on how to tackle it. So that is as far as that is concerned. Now interest rates and things around that, I think it’s too early to say about interest rates impact right now because there’s other dynamics like the elections, etc., that are there in the U.S. so I think it is too early to call one way or the other. So we’ll let it pan out and that will also impact the third part of your question, which is the technology budgets and so on. But look, having said all of this, today as a company, we are in a position where we have performed in good times or bad; whether it was COVID, whether it was post-COVID, whether it is whatever happened over the last seven months. So our endeavor would be even in a difficult time, we will try to be in the best performing quartile for the sector. So, that’s where I give it. Any follow-on questions?
Vibhor Singhal
Got it. Sandeep, thanks a lot. Vinit, just one quick clarification. The earn-out reversal has contributed to almost if I get my math right around 230 basis points in the last quarter, around 150 basis points in this quarter. What more of this reversal is left to be captured and will it be captured only in FY ’25 or will it spill over into FY ’26 also?
Vinit Teredesai
So whatever is pertaining to the acquisitions that we have done in the last couple of years, we can anticipate the balance reversals to happen in this current financial year itself. The recent acquisitions that we have done, obviously they are in the early stages. So they will — if there is anything pertaining to that, that will be coming up only in the next year and we’ll see at that point of time.
Sandeep Kalra
Just to answer your question slightly differently in addition to what Vinit has said. Look, and this is to others as well who wonder about these earn-out reversals. Why is an earn-out not paid? An earn-out is not paid because the hypothesis of the revenue growth of the profitability for an acquisition did not pan out in line with whatever it was officially [Phonetic]. We have done seven acquisitions or more in the last five years in the time that I have been here and within that, some have panned out very, very well. So there are smaller acquisitions which have been fourfold and we have paid them even an upside. When an acquisition does not deliver to the performance, doesn’t mean that Persistent does not deliver to the performance.
Persistent as we invest in sales and marketing, invest in additional efforts, still delivers the industry-leading growth and that comes at a cost and that cost is offset by the reversals that we do. So, please look at both sides of the coin. If we are delivering industry-leading growth, last four years we have delivered 24% CAGR and this is a 16% relative outperformance to the sector if you compare the Indian IT services sector. If we have delivered that outperformance and we have done these puts and takes knowing fairly well if something is not going to perform; we have stepped up, invested, still delivered the performance. So to be fair, you should have the puts and takes like a debit and credit and look at the holistic picture. That’s my request to you and the other analysts and investors on this call.
Vibhor Singhal
Fair point, Sandeep. Thanks a lot for taking my questions and that detailed explanation. Wish you all the best.
Operator
Thank you. The next question is from Varun Gandhi.
Varun Gandhi
Hi, Sandeep. Many congratulations on your professional milestone. Just a disclaimer, I’m not a techy so my — please correct me if my understanding is wrong. My view is that right now the value is in building models, analytical models like SASVA. But later on in near future when the value shifts from building to inferencing, what kind of value can we unlock or can Persistent unlock from clients?
Sandeep Kalra
Sounds good. First of all, thank you. Now if you look at it, SASVA is not a model. SASVA is actually a platform that leverages multiple models underneath. So it leverages a combination of large language models, which are open source customized by us in a secure manner and combined with some small language models, etc., etc. So, SASVA is not a model building exercise. We are too small to build newer models, which are large language models and invest in all them. All we are trying to do is leverage the technology that is being available made available by these larger companies; some of it is open source, some of it is like Open AIs through Microsoft, and so on and so forth. And we are doing engineering, inferencing in loosely held terms based on that, and taking actions. So, we are on the second step of it and that’s where the value is.
Varun Gandhi
Right, right. I see. Thank you for explaining it simply.
Operator
Thank you. The next question is from Abhishek Kumar.
Abhishek Kumar
Yeah, hi. Good evening. Thanks for taking my question. Two questions. One, I heard in couple of the deals that we have won this quarter, there was an element of us setting up centers for our clients. So is this phenomena relatively new where we are helping them setup a GCC or something of that kind? And are these kind of slightly longer in tenure and therefore it impacts ACV versus TCV kind of calculation? That’s my first question. Then I have a follow-up.
Sandeep Kalra
So when we talk about setting up centers, these are offshore development centers, [Indecipherable], global technology centers and so on. These are basically things where we are scaling teams in our parlance, even managing the end deliverable out of that in conjunction, which is co-engineering that we do on behalf of our customers. We are an extended team to them and that’s where it is. The GCC definition can vary. A GCC can be where you are doing it for someone else in their premises, etc. We participate in that as well. But most of our deals that we are talking about are offshore development centers, extended engineering or IT arms to our customers, longer-term relationships and that’s where the ACV to TCV ratios are different. These are three to five-year engagements, which are if you can simply put, look at them as capacity, which is a hardcore engineering capacity that delivers value on an ongoing basis in a grand manner for our customers. So, that’s where it is..
Abhishek Kumar
My second question is the onsite effort share has gone up, looks like some of the deals — large deals that we won last year were ramping up. Now as we talk about right shoring, that can have a deflationary impact on the revenues. So how does that pan out in the second half on top of furloughs and other headwinds that we have?
Sandeep Kalra
So to your point, look, we have won over the last five years at least 35 plus large deals and large deals are all relative terms what ACV/TCV depending on the government sites. We are seeing multiple cycles where we are winning newer deals, which have more onsite centering because we may be doing value transition, initially even taking over the third-party vendors related people, and then offshoring. So these are cycles. So as we are winning newer deals, we are offshoring so the deflationary impact of that is already being addressed by the newer deals that we win. So that is not a concern and we have been managing this for the last five years and layering our revenues based on the larger deals, longer-term deals that we’ve been winning over the period. I wouldn’t be worried about that.
Vinit Teredesai
I’ll just add to this. I did mention it is right shoring and not offshoring. The right shoring means not necessarily everything coming to offshore, it also means something from offshore also going and becoming onshore.
Abhishek Kumar
Great. Very clear. Thank you so much.
Operator
Thank you. The next question is from Abhishek Bhandari.
Abhishek Bhandari
Thank you. Thank you for the chance. Sandeep. If I look at your sales and BD headcount, it has dropped by around 18 people or call it 4% quarter-on-quarter and this is the first drop since the last 12 quarters. So if you could explain what is happening on your sales and BDT? Is there the downsizing more happening on the sales part? And is also a reflection that the sales efforts are normalizing because if I remember you saying consistently for last few quarters, the sales efforts are taking almost 2x of normal times.
Sandeep Kalra
Yeah. So if you look at it, Abhishek, FY ’23 we ended with 414 people in sales and marketing [Phonetic]. FY ’24, we moved from 414 at the end of FY ’23 to 484 at the end of FY ’24 and in the last quarter we were at 510. And as we had been saying all through, we have overinvested in sales and marketing because we need it. We are comfortable at this point in time with where the numbers are and there’s no downsizing that is happening. You do performance management. If something is not yielding results, you take money out of there and deploy it wherever you need to where you have better ROI as a company. So I won’t be worried. And as Vinit said, look, this should actually give us a leverage. Even with this investment and a little bit more, this — the percentage for SG&A should decrease over a period of time as we grow the revenues and win more deals. So from our perspective, we are very comfortable and confident this is the right trajectory. We’ll keep adding as we go.
Abhishek Bhandari
Got it. Thanks, Sandeep. And my last question is some of your very recent senior hires like your Chief Strategy Officer, they have quit very quickly. So, is it a broad-based trend amongst your recent hire that the attrition numbers have been higher or is it one-off? And I don’t want to know the reason behind one candidate, but is it like a more widespread thing what you’re seeing?
Sandeep Kalra
Yeah. So as you rightly said, one candidate does not make a trend. So that’s where I will leave it. Look, people will join and they also have aspirations, they also have their own path, and we also have expectations. And I wouldn’t say that it was any case of anything going wrong. People have choices to make as to where they want to take their own career and their own personal conditions in life and which I don’t want dive into. So overall, I don’t think it reflects on the candidate or it reflects on Persistent. Both are good. And we have a company to run. We’ll keep hiring more people with the right aspirations and we’ll keep scaling.
Abhishek Bhandari
Thanks, Sandeep, and wish you Happy Diwali.
Operator
Thank you. The next question is from Sumit Jain.
Sumit Jain
Hi, am I audible?
Sandeep Kalra
Yeah, please.
Sumit Jain
Yeah. Thanks for the opportunity. So just Sandeep, first want to understand you mentioned that you don’t have very high discretionary demand exposure and there is a general consensus that next year with the U.S. Fed rate cuts, the discretionary demand will revive. So will it actually help your business and if yes, then in which key verticals?
Sandeep Kalra
There’s someone on the call who needs to be muted. So Sumit, from our perspective, if you look at it this way. When the discretionary demand is not that high or the discretionary spend is not that high, we have delivered good revenue growth. In our segments, healthcare and life sciences I would tend to believe is much more non-related to the discretionary spend, whatever needs within healthcare. There are some pockets which are related, but usually you will see that is a more resilient sector. BFSI in the middle. Tech suffers when discretionary spend doesn’t happen because ultimately when newer projects are not happening and people are conserving their cost, they are spending lesser on their technology procurement in terms of software licenses, etc. and that impacts. So we are hoping that with the things easing out, that will also have an impact on some of these things, but that is not what we are banking on. We are banking on our effort to see the trends, to see where the revenue pools, profit pools are available, go structurally after that, use technology like our AI driven and the platform driven strategies that we have, and our 18 quarters of sequential growth should give you enough confidence. So not worried. If it opens up, it will be only good for us.
Sumit Jain
Right. That’s helpful. And secondly, since you’re involved with hyperscalers on building their GenAI platforms and connectors, once the GenAI opportunity scales up for the industry with wider system integration projects, will it actually help you more than your peers?
Sandeep Kalra
It should and we’ll let the things pan out. We are not giving any forward-looking guidance. We are at it. We have delivered industry-leading growth and, as I said, we have delivered disproportionately with respect to the industry and we expect that our efforts should continue in that direction.
Sumit Jain
And lastly, for the $2 billion target, have you given any sort of timelines or is it like a long-term outlook?
Sandeep Kalra
Yeah. We have said by FY ’27 end, which basically is March ’27 end, is what we have said is our aspiration. Balance we’ll let the time pan out.
With that, I think we should stop the call. We are sharp at 8 o’clock. Moderator?
Operator
Thank you. Thank you very much to Persistent’s management team. Ladies and gentlemen, on behalf of Persistent Systems Limited, that concludes today’s conference. Thank you for joining us and you may now disconnect your lines and exit the webinar. Thank you.