IDA announced the Q2 Results, I attended part of the Investor call today (dropped off at 6.10).
Results were disappointing, but we can not look at product companies like we do for service companies, revenues will be lumpy. However one major concern is the margin drop, and reduced margin guidance over the last few quarters, need to watch this carefully. Arun does tend to be a bit of an optimist, but he would not have built this product and business if he were a pessimist or even a realist !
Arun started with acknowledging that investors would be disappointed by the quarterly results, but he underscored that IDA has consistently talked about looking at a longer timeframe, and the right lens is LTM trend which is encouraging.
Revenue Shortfall was about $6 Mn, costs were inline. There was a Deal worth $2.9 Mn, but it is a Platform deal so only 100K was reflected and in subsequent quarters also it will be similar, so . Another 3.1 was from a deal that closed, but not contracted by sept 30, hence not reflecting in the results.
Macro Cost pressure- Decision making is slowing down, Cost structure remains high, Tax rate increasing from 16 to 25 %.
Unbilled revenue related analyst report- Clarified again, milestones based revenue recognition happens, due to this there is Unbilled revenue.
Revenues & Margins
- Revenue Growth expectation is still 20 %, this quarter was an aberration. More platform deals will lead to lower optical revenue growth. Typically 20 with variation of 5 % is quite likely.
- EBITDA margin expect 20 % + for the full year, cant commit to 24 % which was the historical margin. This is the second reduction, earlier they had moved form 30 % to a 25 % estimate, now it is 20 %. Need to watch this.
- Cost base is now normalized- People, travel and infra are done. There will be additional hiring costs2-3 Mn / qtr for senior sales/marketing people.
- R&D $ 20 Mn/qtr( Rs 150 Cr), capitalize 25 %, and expense the rest.
- Target of $ 100Mn runrate in 8-12 quarters, no projection on margins due to market volatility, but expect it to be better in future.
Products & Platforms
- Wide Window Moment-Exciting revenue growth with these products in phases led by GTB then 2nd wave GCB and 3rd wave Intellect AI (SEEK+Wealth Mgmt)
- ESG win against American and European companies - No revenue for this quarter, but is lead indicator of future prospects.
- Core Banking- Now credibly competing with Temenos, ThoughtMachines etc on high value Destiny deals, and have left OFSS, Infy-Finacle, TCS-Bancs, Finastra behind esp in Europe market.
- GTB- Consumerization of Corporate banking with Business one one side and End consumers on another eg Uber and Drivers
- Implementation cycle time going down with iTurmeric, this reduces implementation revenue, but accelerates cross sell. Lic:imp was 45:55 now is 70:30 , and Lic is a higher margin business compared to implementation. Earlier implementation time was about 6 months, now is 2-4 months.
- GCB and GTB both have big opportunities ahead based on the TAM. Startups are burning investors money, IDA is still going for organic growth. Data Opportunity is big for the platform business.
Investor PPT : https://www.intellectdesign.com/investor/presentations/Intellect-Q2-FY-23-Investor-Deck.pdf
Disc: Invested since a long time and adding on dips at reasonable valuations. IDA has definitely out-executed OFSS and Nucleus, both of which I hold in small amounts and track as peers to IDA.
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