Aeries Technology - Earnings Call - Q3 2025

Executive Summary

• Q3 FY2025 delivered mixed results: total revenue $17.61M (-6.8% YoY; +4.3% QoQ) with gross margin ~23%, while net income was $2.05M driven by non-operating fair value gains; Core Adjusted EBITDA improved to $1.50M from $(0.02)M YoY, signaling progress in focusing on North American GCC clients.
• Management reiterated FY25 guidance (revenue $71–$73M; Core Adj. EBITDA $6–$7M) and introduced FY26 outlook (revenue $74–$80M; Adj. EBITDA $6–$8M), underscoring confidence in cost actions and a core-North America strategy; FY26 will exclude Core Adj. EBITDA as non-core credit losses should be fully addressed in FY25.
• North America revenue rose 13.1% YoY to $16.43M and now exceeds 93% of mix, reflecting exit of non-core Middle East work and repositioning toward recurring, long-tenure GCC relationships.
• Potential stock reaction catalysts: reiterated FY25 guidance and new FY26 outlook, leadership changes (new CEO and CFO), core profitability traction (Core Adj. EBITDA positive), and AI wins demonstrating tangible client ROI (e.g., 90% churn prediction accuracy; 40% reduction in IT support human intervention).

What Went Well and What Went Wrong

What Went Well

• Core profitability inflected: Core Adjusted EBITDA reached $1.50M vs $(0.02)M YoY, as the company emphasized exiting non-core and focusing on core North American GCC relationships.
• North America growth and mix: NA revenue rose 13.1% YoY to $16.43M and represented >93% of total, supporting a more predictable revenue base with multi-year engagement characteristics.
• Strategic clarity and AI traction: Management highlighted AI-driven projects with measurable outcomes (e.g., 90% accuracy in churn prediction for a telecom client; 40% reduction in human intervention for IT support in healthcare) that differentiate Aeries and may support improved margins over time.

What Went Wrong

• Top-line and margins under pressure YoY: Revenue declined 6.8% YoY to $17.61M and gross profit fell to $4.04M (gross margin ~23%) due to project timing/mix and the deliberate shift away from non-core markets.
• Operating leverage deteriorated: Income from operations was $(5.16)M vs $0.73M YoY as SG&A rose, with management indicating ongoing cost optimization expected to benefit upcoming quarters.
• Adjusted EBITDA remained negative: Adjusted EBITDA of $(2.04)M vs $2.36M YoY reflects both revenue/mix headwinds and elevated costs; net income turned positive primarily due to fair value gains, not core operations.

Transcript

Operator (participant)

Good morning. Welcome to Aeries Technology's third fiscal quarter 2025 business update call. Joining us today are Aeries Chief Executive Officer Ajay Khare, and Chief Financial Officer Daniel Webb. This call will review the results of the quarter ended December 31st, 2024, and discuss strategic priorities moving forward. Before we begin, please note that today's discussion contains forward-looking statements, including Aeries' expectations regarding future performance and market opportunities. Actual results may differ materially. Please refer to the SEC filings and the earnings press release for a full discussion of risks and uncertainties. Additionally, this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most direct comparable GAAP measures is available on our earnings release and on our website. With that, I will now turn the call over to Ajay.

Ajay Khare (CEO)

Thank you, and good morning, everyone. I'm Ajay Khare, the newly appointed CEO of Aeries Technology. Many of you know me from my previous role as Chief Operating and Revenue Officer for the past 10 years here at Aeries. I'm honored to step into this role and lead the company into a new phase of transformation and growth. I would like to take this opportunity to appreciate our outgoing CEO, Sudhir Panikassery's leadership, which has set a strong foundation for our growth. I'm also pleased to announce that Daniel Webb has been appointed as our Chief Financial Officer in addition to continuing his role as Chief Investment Officer. Daniel brings extensive experience in public market and investment banking. We believe his strategic insight will be instrumental in strengthening our financial discipline and ensuring that we deploy resources effectively to achieve our long-term objectives.

Today, I would want to focus on three key areas. Number one, strategic focus on profitable growth. We have realigned our business model to concentrate on high-value, long-term engagements with our core North American clientele, accounts that represent over 93% of our revenue. By exiting non-core segments such as the Middle East, we are sharpening our focus on transformation-led partnerships. This approach is designed to not only enhance our service quality but also support our strategy of achieving profitable growth on both cash flow and Adjusted EBITDA basis. Number two, robust cost discipline and financial health. Our recent cost optimization efforts have already delivered significant benefits. This quarter, we further eliminated significant SG&A costs and annual expenses, a saving that is expected to positively impact our bottom line starting next quarter.

Combined with our disciplined approach to resource allocation, these measures are designed to put us on a clear path to being cash flow positive for our foreseeable future. Lastly, innovation and AI-driven transformation. The industry is evolving from legacy cost-saving models towards transformation-led engagements. Our Global Capability Center, GCC model, remains central to our growth strategy. In parallel, we have observed that our AI practice is gaining traction. We now offer a complimentary AI assessment to help clients analyze optimal areas for AI automation to drive process optimization and operational efficiency. Some recent examples of AI projects we have done include helping a telecom client achieve 90% accuracy in churn prediction. In the healthcare space, our automation solution for IT support has reduced human intervention by 40%. We believe these initiatives not only differentiate us in the marketplace but also create tangible value for our clients.

In summary, with a strong leadership in place, a focused strategy on high-value engagements, and disciplined cost management, we believe Aeries is well-positioned to drive sustainable, profitable growth. We remain committed to excellence and delivering value to our stakeholders as we navigate an evolving market landscape. Now, I will turn the call over to Daniel to discuss our financial performance and outlook in greater detail.

Daniel Webb (CFO and CIO)

Good morning, everyone, and thank you for joining us today. As mentioned earlier, I'm Daniel Webb, newly appointed as CFO while continuing in my role as Chief Investment Officer. I'm excited to share our financial highlights and strategic outlook for fiscal years 2025 and 2026. For the third fiscal quarter of 2025, our key financial metrics are as follows: Revenues: North American revenue of $16.4 million, representing 13.1% year-over-year growth. Total revenues reached $17.6 million, down 6.8% year-over-year. Importantly, North American revenue now represents over 93% of our business. Gross profit and margins: Our gross profit for the quarter was $4.0 million, resulting in a gross margin of 23.0%. Income from operations: Income from operations for the third fiscal quarter of 2025 was negative $5.2 million, compared to $0.7 million for the third fiscal quarter of 2024.

Net income: Net income was $2.0 million, compared to negative $16.3 million for the third fiscal quarter of 2024. Adjusted EBITDA: Adjusted EBITDA for the quarter was negative $2 million. While we experienced some headwinds in this period, our ongoing cost optimization efforts, including significant SG&A expense reductions, are expected to generate meaningful benefits in the upcoming quarters. Core Adjusted EBITDA: Core Adjusted EBITDA for the third fiscal quarter of 2025 was $1.5 million, compared to negative $0.02 million for the third fiscal quarter of 2024. Balance sheet: At December 31st, 2024, we had $2.4 million in cash and cash equivalents, with a total long-term debt at $1.5 million. Looking ahead, the company is reiterating its stated guidance for the fiscal year 2025: Revenue between $71 million and $73 million, core adjusted EBITDA between $6 million and $7 million.

In addition, we are introducing our fiscal year 2026 outlook, with expected revenues between $74 million and $80 million, and adjusted EBITDA between $6 million-$8 million. Fiscal 2026 reporting and guidance will not include core adjusted EBITDA, as we anticipate that all expected credit losses from prior non-core markets will have been fully addressed this fiscal year. We believe our renewed focus on profitable growth, backed by robust cash flow expectations and stringent cost controls, enhances Aeries ability to achieve sustainable success. We are committed to maintaining a clear strategic focus and leveraging our capabilities in AI, automation, and GCC operations to drive value for our clients and shareholders. Thank you for joining the call.

Operator (participant)

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.