Q1 2025 Earnings Summary
- The company is experiencing a growing pipeline of large potential deal opportunities across geographies and verticals, driven by enhanced capabilities from the GalaxE acquisition and incremental interest from its presence in India, which underpins confidence in sequential growth in the second half.
- Increasing numbers of Gen AI projects are progressing into production, indicating growing client adoption of the company's AI capabilities. Additionally, the company is engaging in larger, longer-term core modernization projects using AI and accelerator-enabled approaches, expected to be faster, more cost-effective, and not margin-dilutive, suggesting potential for future revenue growth and strong financial performance.
- Adjusted PBT margins are expected to improve in the second half, particularly in Q4, as the integration with GalaxE is completed and investments abate, leading to margins moving up to 13%-14% and exiting the fiscal year on a much improved run rate outlook.
- Extended client decision-making cycles and elongated project approval times, especially for larger core modernization projects, may delay revenue recognition and impact short-term growth. The company notes that clients are taking longer to approve large transformative projects, with budgets being set and "elongated decision-making makes judgments on pipeline conversion more challenging". ,
- A slowdown with a major media client due to M&A activity is expected to impact revenue in Q2 and the remainder of the fiscal year, suggesting potential revenue headwinds from key accounts. The company mentioned that one of its media clients will "ramp down quite quickly, so that will impact Q2 and the balance of the year."
- Adjusted PBT margins are currently pressured due to integration costs from the GalaxE acquisition, with improvements not expected until Q4 when integration activities abate. The company states that "there's still heavy investment going on in the integration activities in Q2 and Q3", with adjusted PBT margins expected to improve in Q4.
-
Revenue Growth Outlook
Q: What drives your confidence in revenue growth acceleration?
A: Management expects sequential revenue growth acceleration in the back half of the fiscal year, driven by large transformative programs that are underway and set to ramp up over the next eight months. The growing pipeline, balanced across geographies and verticals, along with enhanced capabilities from the GalaxE acquisition, underpins this confidence. -
Adjusted PBT Margin Improvement
Q: How will adjusted PBT margins trend this fiscal year?
A: Adjusted PBT margins are expected to remain in line with Q1 during Q2, then improve in the second half, reaching 13%–14% in Q4 as integration activities with GalaxE conclude and investments decrease. The company anticipates exiting the fiscal year with a much-improved run rate outlook. -
Top Client Stability
Q: What's the outlook for key client performance?
A: The largest client, from the GalaxE acquisition, is expected to remain stable. The next top clients in the payments space also show stability, with potential growth in one during the second half. A slowdown is anticipated with a media client due to an M&A transaction, impacting Q2 and the rest of the year, but overall, the rest of the client base looks stable and may grow nicely. -
Impact of AI and Core Modernization
Q: How are AI and core modernization projects affecting the business?
A: The shift towards larger, longer-term projects focused on AI and core modernization is leading to longer conversion times but is not expected to impact margin profiles. By using AI to deepen understanding and speed up processes, the company anticipates similar dynamics to past digital transformation efforts without margin reductions. -
Acquisition Contribution
Q: What is the impact of acquisitions on revenue?
A: The contribution from the GalaxE acquisition is expected to be 13% of reported revenue for Q2, the same as in Q1. The proportion of M&A contribution for the full year remains unchanged from previous guidance. -
Pricing Environment
Q: How is the pricing environment affecting contracts?
A: Overall pricing remains stable despite competitive pressures and budget constraints, with no meaningful price erosion. AI is embedded in most solutions offered, but the company doesn't segment revenue by AI components since AI is present to varying degrees in their offerings. -
Hiring and Headcount Growth
Q: What are the plans for hiring and headcount additions?
A: Due to elongated client decision-making and cautious pipeline conversion assumptions, the company doesn't anticipate significant headcount ramp-up until beyond Q3. They are recruiting in high-demand areas like data, AI, and cloud to support current work but are adopting a cautious approach to headcount growth. -
Competition for Large Projects
Q: How is competition affecting large project wins?
A: While larger projects sometimes see higher levels of competition, the company still often wins business through traditional approaches without extensive RFP processes. The impact is mixed, with some large programs experiencing more competition but not exclusively. -
Visibility into Future Pipeline
Q: Has visibility into future pipeline improved?
A: Extended client decision-making processes make judgments on pipeline conversion more challenging. As clients set budgets towards the turn of the calendar year, the company is exerting caution in pipeline conversion assumptions, impacting visibility beyond the current forecast horizon. -
Gen AI Projects Progression
Q: Are more Gen AI projects moving into production?
A: There's a steady increase in Gen AI projects progressing into production from a small base. Contracts remain on a time-and-materials basis currently, with expectations to move towards outcome-based pricing over the next 2–3 years as understanding improves and use cases become more standardized.