Latent View Analytics Limited analyst Q&A

Thank you so much. We will now begin the question -and-answer session. The first question is from the line of Mohit Jain from Anand Rathi. Please go ahead.

Sir, first is on pricing trends. Do you see an uptick in pricing given that growth is back for us, at least for the last two quarters? That was one. The related thing is, what is the headcount requirement we're looking at, say, the next two quarters?

Raj, do you want to take the pricing question? I can comment on the headcounts.

Hi, Mohit. Thanks for the question. In terms of pricing, I would say at this point, we are getting into that season where we will be renewing a lot of the book of work that we execute. Almost 80% of the clients that we work with follow the January -December budgeting cycle, we will be at this point in time initiating pricing conversations as well. We are quite hopeful, that at least in a few of our key accounts, we will be able to get pricing in the next couple of years. We have not had raised prices, but then again, it is again a function of how the macroeconomic environment looks. There is no, pressure on pricing at this point in time where clients have come back and requested for either pricing cuts or initiated any downward revision in prices. So that is not a trend that we are seeing, but we will be pushing for price hikes in upcoming fiscal.

Thanks Raj. I will take the question on the increases. So Mohit, a lot of the hiring is going to continue to be on the campus front. So last year we had made close to 400 offers on campus. And after taking into account acceptances and some of the natural attrition bet ween offer date and date of joining, we are expecting that a total of 300 plus people will join us. So at this point in time, we have completed onboarding about one -third of them. It is likely to get to about a 40%-45% mark by the middle of November, which means that we will have another 50% of that 300 number to onboard between mid-November and likely the January-February time, depending on how the demand scenario unfolds for us in Q3 and Q4. In addition to that, the current campus hiring season, that is underway, this is for people who are passing out in May, June, July of 2024. We are going ahead with the hiring season, and we will be making about 200-250 offers. Broadly, that's the indication in terms of the number. Attrition has come down substantially in comparison to the previous quarters. Of course, as the demand scenario picks up, one could also expect that there will be more opportunities available for people so like to see how that plays out. And at this point of time, we are confident of having the people required, trained and ready for the opportunities that are currently in the pipeline. We will supplement this with some quantum of lateral hiring, depending on specific skill sets and any urgency for initiatives that get underway.

Right. And, sir, one follow -up on this. So if I get it right, you guys are waiting for flattish kind of margins over in the second half. But, if our pricing environment is steady and as you said in the opening remark of the speech, that most of the investments are behind. Shouldn't we expect some uptick in margins as we move forward?

So, Mohit, the answer to that is, yes, if the current growth trajectory continues, right, and we are hopeful that at least Q3 we will continue to see growth which will be incremental, we should see marginal expansion in the EBITDA margins. However, what remains to be seen is, how will on a full year basis the renewals pan out, and what is the book of work that we have for the beginning of the next calendar year. I think that will be very critical for us from a full-year standpoint. At this point in time, we do believe that, if we continue with the same growth trajectory which is, 4% to 5% or slightly higher than that, we should see benefit of that on the EBITDA margins on a full year basis. But it may not be that to the historically levels of 25% plus, I think that will take some time for us because even at this point in time, some of the investments that we've made on the SG&A side, right, are for a much higher level of sales, the visibility of which is at this point in time a little low.

Got it, sir. Sir, gross margin is holding up, right?

Yes, on the gross margin front, both from a pricing standpoint as well as from a delivery efficiency standpoint. We are continuing to do well. So, the gross margins are definitely holding up. The one thing, though, that even from a gross margin standpoint, what we have noted in the last couple of quarters is, there's a marginal shift in the work that we deliver. There is a slight uptick or increase in the onsite work that we have been executing, especially for some of our current clients, where there's a request for resources to be based onsite and that. I would say, having a marginal impact on gross margin, which is, of course, being offset by the better efficiency that we've been able to bring in through better utilization. So, utilization for this current quarter is almost at about 85% in comparison to 81% for the previous quarter. So, the increase in onsite was compensated by better utilization for this quarter.

I'll just add, Mohit, that the reason for the onsite uptick is because of the nature of the initiatives. When you have larger substantial initiatives, there's opportunity for more leverage. But when you're doing smaller initiatives, typically the intent is let's have the people close by and get it monitored closely. So, as bigger initiatives unfold, the leverage should get back.

Understood. Perfect, sir, and good quarter. Thank you.

Thanks, Mohit.

Thank you. The next question is from the line of Hitesh Malla from Steenberg India Advisors. Please go ahead.

Yes, hi Raj, hi Rajan. Nice to hear from you guys again and congrats on a good quarter. A couple of questions from my side. The first one is on the technology vertical, right? You guys have shown a really good quarter in terms of how that book has grown. So, just curious in terms of how the nature of work for those clients has changed because your peers in the industry seem to have very divergent sort of guidance and performance basis, the nature of work. If it's kind of like marketing analytics, they're seeing like a lot of pressure in those verticals versus if it is more like health tech or something on those lines, they seem to be getting a lot of traction on those contracts. So, I just wanted to know ge t a sense of, what is driving this technology vertical and any changes on that side?

Thanks for the wishes. I wouldn't say that there has been any substantial departure in terms of the nature of the work. A lot of the work still continues to be at the front end of the value chain, customer and marketing analytics. I think one of the things that we see is given the spectrum of clients that we work with, most of these organisation have some pockets of their business which is growing very well and is seem to have good demand. We have also pivoted over the last two quarters to opening more doors within these accounts, which are focused on the businesses that are performing well. So, if you take technology companies across the board, it's not uniform performance across their busin esses. There are pockets which are doing well. There are some pockets where they are also looking some dips given that the interest rates have gone up and companies are reluctant to kick off substantially in big projects. So, that is having an impact on which parts of the business are going. So, we have been looking at helping businesses where there is an uptick from a customer marketing analytics perspective. Another area that is finding some traction is on the devices side. We have seen that as some of the supply chain challenges that were there two years back during the pandemic, as they are starting to subside, there is also a need for greater visibility acr oss the device supply chain. And we are starting to see some traction for our connected view value proposition on that front. So, that is also driving some of the interest and the action. But otherwise, a lot of the new initiatives that we have gone into are related to work that we have performed for them earlier. And on the back of the impact that those initiatives are delivering, we have seen additions to those teams where they said, okay, we have solved these problems. Let's actually go a little deeper and then tackle some more nuanced understanding of customer behaviour, whether it is on the B2B or on the D2B side. B2B in particular is seeing some good, interesting action. I talked about one of the value propositions around the B2B growth engine. How do you address the long tail of account and how do you mine that? So, that is receiving some good traction and we are having conversations on that front also.

Understood. And on a related note, Europe, you guys still seem to be very confident on achieving those 5% to 8% of revenues by the end of the year, while it is still at 1.5%, less than 1.5% today. But you have been making very significant addition in terms of the sales force and had couple of big hire in that region. So, can we expect like a big deal closure or do you have some visibility on like some of these big logos converting in Europe that gives you that confidence?

Yes, what is encouraging for us is the nature of the conversations and the accounts that we are engaging with. Much of our Europe go -to-market strategy is predicated on our advisor network and the connects that we are able to get through them. Europe is a tough market otherwise, very relationship driven. But the good news is that the advisor that they are engaging with, they are able to get us introduced at very senior levels and also with some of the top brands within Europe. All of these are Fortune 500 companies and conversations are starting at the CXO and Senior Vice President level. Given just the general economic environment, there is obviously reluctance to kick off any substantially large initiatives and even for the initiatives for which they already have budgets and they want to go forward. While the introduction is helping us get into the door, they still want to do some pilots to begin with before they substantially expand their relationship with us. So, that's where we are at this time. As Raj mentioned, while we didn't have closures in quarter two itself, we have already seen some closures in October on the back of these conversations. And there are at least a dozen very interesting conversations that are happening at this point in time. So, we will have more closures through the remainder of this quarter. However, I expect that these closures will probably be in the 250K range in terms of the size of the initiatives that get underway. For us to start seeing $1 million - $2 million-plus relationships, it will probably take a little bit more time. One hopes that the economic climate also changes to aid us on that front. What will also be critical is that the initial initiatives that we are picking up, that they are executed really well for us to get the confidence of the stakeholders that we are engaging with. What I can say now with a good deal of confidence is that right logos, right senior stakeholders, and the right type of work as well. That is what is giving us the promise is there on the back of all of that.

Got it. I appreciate that. And one last thing before I get back into the queue. We've previously put a lot of attention on the data engineering work that we've been doing. And that pack or that layer in the stack doing really well in this context. So, just curious on in terms of like what portion of your revenues today is still data engineering and how are you seeing that demand going forward?

Yes, that is intact. That trend is intact. Today, I would say, it's probably in the 20% to 23% mark. As I said in earlier calls, I expect that to actually go past the 25%, maybe even touch the 30% mark. Complex initiatives will require complex data engineering work to be done as well. And when we look at organizations across the path, there is still a lot of data silos. There are a lot of challenges in terms of bringing it all together. It's a good thing that even the hyperscalers are building capabilities that will help organizations. It's one thing to move the cloud, but if you just do a lift and shift, you will just inherit a lot of the silos and other challenges that might have been there in your on- prem and legacy systems. The good news is that Microsoft, for example, with their Fabric, they are really pushing the envelope in terms of how you can bring it all together into one platform in a more easy, seamless fashion. And companies like Snowflake, Databricks, they are also leading on that front. Google Cloud, again, a lot of investment happening on that area. So all of that will mean that there will be quite a bit of work that will need to be done on the data engineering front. And therefore, the 25%, 30% part of revenues coming from there, I would say that trend is still intact.

Got it. Thanks a lot, Raj. I'll get back in the queue now.

The next question is from the line of Vimal Gohil from Alchemy Capital Management. Please go ahead.

Yes, thank you for the opportunity. So my question is regarding margins. Now, over the last few quarters, we have seen almost a 10% point decline in our operating margins. Now, if I were to look at our revenue growth performance, apart from one, probably Q4, I think, of FY'23, where we had a decline sequentially, our sequential quarter -on-quarter performance has been quite decent. And if I were to believe that H2 is going to be better than H1 in terms of sequential growth, we should land up anywhere between 15% to 17% growth for the year. And 15% to 17% growth, per se, is really not that bad, given the scenario. But what worries me is despite that growth, we are looking at a flattish kind of a margin. I understand that we've made such investments, but could we have done better in terms of, guarding our margins for this year? And what gives us the confidence? And what is the kind of growth rates do we need to get back to that 28%, 29% kind of EBITDA margins? Thanks a lot.

Yes, thanks for the question. Let me get the business growth part of it, Raj, and then I'll hand it to you. Yes, so the investments that were made were with an expectation of a 30% kind of a growth trajectory, right? And this is what we committed to, a year back, for example. Actually, even in February of '22, when we had gotten together internally to discuss what is the trajectory we were looking for the next three years, we wanted to be in that kind of trajectory. Of course, at that time, we weren't witnessing the kind of challenges that we see currently in the environment. So we committed to a certain strategy and an approach at that time, and we have continued to stay the path, right? So a 30% -35% kind of growth trajectory is what will get us back into the 25%,-28% EBITDA range. But obviously, the growth has been sluggish in comparison to that. Now, one might ask the question in that case, why don't you scale back on the investments and improve on the EBITDA? Our experience, at least from a recent past, even during the pandemic times, is that these investments are important to make right now. And if we cut back on that, then emerging from the current economic climate, it might then prove a little bit of a catch -up game. So, we are okay at this point in time to continue with the general investment philosophy that we have. We're starting to see some traction. It is also helping us maintain the incremental growth that you commented on, right. Which is, while it is not great, it's not bad either, I mean, given the overall economic environment. So we're going to continue to persist with this, and we will make some calibrated adjustments to this. And we are okay with waiting a little bit longer, okay, for the EBITDA profile to return to our 25% kind of range. I'll pass it to Raj to add in any other nuances.

I also wanted to emphasize on the fact that the current level of sales and marketing investment that we have made, which is fully reflected in the current P&L, is for us to deliver almost a 25% to 30% growth, in fact, towards the higher end of the 30% grow th on a full-year basis. So that was the basis for us to invest heavily in both the front end, as well as the other thing that I think we didn't touch upon was the capability teams that we have been investing in. These are, of course, tea ms that are building on value proposition so that we go to market with much more sharper solutions that address specific client needs. Up until now, majority of the people who were in the solutions for product development teams have been unbilled. . One of the initiatives that we have as part of the driving operation efficiency concern is, one of the things that we have taken up is, we've also looking to see if some of the people in these capability teams can also be built on engagement. So that's s omething that we are actively reviewing which could also result in some level of margin unlock in the coming quarters. But that aside, the intent right now is to continue or not sort of take our foot off the pedal on the investments, even though growth is not commensurate or not in line with the current level of investments. We are fairly hopeful that once the demand comes back, which should happen in maybe one or two quarters, of course, the hope was that in H2 of the current year, we will see demand coming back. But it looks like , the overall sentiment still continues to be a little weak. Our hope is that in a couple of quarters, we will start seeing demand come back in and therefore, you should start seeing the margins inking up. We are not very unduly concerned about the margins being at the current levels. It's something that we can very easily control. But what we want to set ourselves up for is the right level of growth. We believe that at least a 30% growth is what we should achieve or deliver as a business on an organic basis and the inorganic will be on top of that. So we are trying to set ourselves up for that size of growth and we will continue to do so in the coming quarters as well.

Understood, sir. Thank you so much for the detailed answer. All the best.

Thank you. The next question is from the line of Chirag Kachadia from Ashikai Institutional Equities. Please go ahead.

Hi, I have a couple of questions. I just want to know what size of acquisitions are we looking forward to in terms of turnover and valuation wise? And second, with the help of these acquisitions which are in the pipeline or an advanced stage of discussion as you mentioned, what synergy are we looking forward in terms of growth, margin and from three to five years perspective?

From a size perspective, an ideal acquisition target will be anywhere in the 10 to 20 million revenue range. And if the margin profile is similar to ours, one could expect that it will be a multiple of four and a half, anywhere between three and a half to five and a half, okay, in terms of revenue multiple. So that will give you a size of the acquisition itself in terms of valuation. We are currently focused on specific domains and capabilities. So for example, BFSI and consumer packaged goods, these are areas that we are not very strong. We are behind the curve in terms of our representation within the space. So we are interested in t hose domains. From a capability standpoint, any new value proposition, it was a very value proposition based play in these spaces. So for example, in BFSI, it can be around risk and fraud, for example . In the consumer packaged goods, it could be around pricing analytics or revenue, for example . If there are particular solutions and value propositions that these companies bring to the table, then they will be more interesting for us to look at. Similarly, we'll be looking at capabilities around supply chain analytics, around data engineering. These are areas of focus as you have defined on the growth strategy. So combination of these would what make it an attractive target. If there are leverage opportunities in terms of if they have a dominant onsite model and then we can unlock more value by offshoring some of the work, or if there's a consultative layer and they're doing that work and there's a lot of follow -on work that we can further get in, or if it helps expand our wheelhouse in terms of an adjacency, like planning, budgeting, for example, these are all things that would be of interest. So the intent is that the synergies will not only come in terms of their value propositions and our value propositions, which we can cross sell into one another, but also that we are able to actually bring completely a new type of approach scale on the bac k of solutions and value propositions, to what might have been typically done through a services model. So that will help unlock even more synergies and non-linearity. That's really what we're looking at. Raj, go ahead and add in if there is something else.

I think from a synergy standpoint, we will be looking at some of the capabilities or solutions that we have built. I think our endeavour would be that we're able to cross sell and upsell some of the solutions that we are building into the client side of the target. The other big sort of synergy unlock that we will definitely look at it, using our go -to-market teams, because we have invested substantially in sales and business development teams in the U.S. as well as in the European region. The big synergy unlock would happen if we're able to effectively leverage our go-to-market teams in these regions and accelerate the rate of the growth of the target business. I think these would be the two big synergy unlocks that we would look at when we are looking at an acquisition.

Thank you so much.

Thank you. The next question is from the line of Hitesh Malla from Steinberg India Advisors. Please go ahead.

Yes, hi. Thanks for the follow-up. Rajan, this is more for you. On the M&A front, a couple of quarters ago, we did mention that we had a couple of opportunities which were on the verge of finalizing. I'm just curious in terms of why those deals didn't go through. W as it more of a valuation concern? And then again, the industry valuations have cooled off quite a bit in the last 12 months. I'm just curious as to why those deals didn't go through. Going forward, how can we expect some of these deals to come across and what are the key characteristics that you are looking at for some of these acquisitions?

There are a couple of deals where we felt quite positive about. One of them didn't materialize on account of two reasons. One was that there was a difference in the valuation expectations between us and between the current promoters. Also, a second reason was that the promoters were also debating between growth capital versus a complete sell -out or a majority stake sale. And given the valuation differences, they took a call that they will insert a growth capital and then move forward and get their business to a better level before they potentially explore this again. The other one, interestingly, that company did go ahead and complete the transaction. I mean, they got acquired by another organization. We were led to believe that they had actually shelved the plans and they're going to get back to the market around the December timeframe. But they were running a process in the background, and it looked like that process fructified. This is something that we were not completely clued in because with us, the engagement was very strong, indicating that they had temporarily shelved the process and they're now talking to potential suitors and that they found us as somebody who they really liked in terms of the synergy and the culture fit and all that. But then they decided to move forward with the process that they had already initiated some time back, which they had kept in abeyance. So those two didn't pan out for these reasons. , Every such instance also provides additional knowledge and learning for us and experience for us. So we are taking all of this into account. There is one opportunity which is quite advanced at this time, and then there are another half a dozen-plus which are in various stages of evaluation. Obviously, we will be factoring in all of this understanding. We don't want to go crazy though with the valuation. I mean, if the demand comes back and there is a general economic sentiment improvement, that will also get factored into the valuation expectations that organizations have. So we want to make sure that that is in line with what we believe makes sense for us, the synergy benefits that are possible and how we can unlock value. All of that will be taken into account in terms of how we value the business and what we are prepared to pay for it. I'll say that the one where we are a bit more advanced. We have actually ticked many of those boxes and we seem to be moving in the right direction.

Got it. And a quick follow -up on the employee side. This quarter we have seen, in fact, for the past couple of quarters, we have seen quite an aggressive addition on the PG hiring side. So is it fair to assume that your strategy is shifting more towards be ing a consulting partner for your clients and is that where the industry is heading and is that where you are hoping to garner more revenues, more margins?

Yes, in a sense that is correct. This whole shift from being an execution partner to being a consulting partner is an agenda that we've been driving for the last couple of years. Of course, it's a long road, but we realize that some of that can be accelerated by hiring people, not just a postgraduate degree, but also the experience that they have between their undergrad and postgrad. We've also been looking at increasing the quantum of hiring from business schools and IIMs, campuses, people who have done a consulting stint or work of that nature. I think that is important. It dovetails well with the value proposition and solution -led strategy that we are taking where we need to be able to articulate the problems and opportunities in the domain really well. We are seeing some good traction for that approach. So today I would say that most of our conversations that we initiate, whether it is through our demand generation channels or our reach-outs or one-on-ones, they are all predicated on the particular soluti ons and value propositions. We just organized the 16th LatentView Analytics Roundtable event in the Bay Area and it happened just a week back. I just got back from California last Sunday and in some sense it was the most attended analytics roundtable event that we had ever conducted. We had almost 150-plus participants. It was in the Menlo Park area and extremely well attended and we got very good feedback for that event. And a significant feature of that was that it was all around the value propositions and the solutions and that's what we showcased given the demos. Of course, this is not part of the last quarter's update, but given that it has happened recently, I'm able to share this with you. So the traction for the so lution value proposition consulting-led approach is strong and we believe that therefore we will continue to hire people with the kind of caliber and experience that will support that approach.

Understood. Thanks, Raj. I appreciate a lot of it and all the best going forward as well.

Yes, thanks, Hitesh.

Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.

The question is from the line of Hasmukh from SUD Life. Please go ahead.

Thanks for the opportunity. one question on the client concentration front. So if I look at our total revenue from top 20 clients, that is almost at 92%. And that has, let's say, increased from 86% to 92% in last five quarters, six quarters. So any thought s around this number? Why so high client concentration? And though I consider in these difficult times, probably you might not be able to get your client, but still what's your view on this from three years perspective also?

From a three year perspective, it should definitely get better. But as you yourself pointed out, the growth in the last few quarters has been of an incremental nature. Working with current stakeholders and an expansion of their initiatives and small additional initiatives that they have launched. Even if we have one account in the CPG or in financial services or in industrial, for example, the new initiatives have not been of the type of size and scale that you typically see. So it's been a bit muted on the front. And therefore, the contribution to revenue from these new accounts that we add has also been minimal. So that has continued to impact the concentration point that you bring out. In some sense, the concentration in this environment, right, is something that we're not worried about. I mean, it actually goes to show that the work that we are doing for some of the larger accounts that we work with is very important and critical to the m. And not only are they retaining for all of that work, they're also growing with us. So that gives us confidence that we are doing the right things with them. I think the concentration will come down as a little bit of that economic environment sentiment changes and you start seeing more substantial spends from the new accounts that we have acquired in the recent times.

Understood. But let's say, if one would want to take a view of three years, then where does number for a size of, we should land at from three years perspective?

Hard to put a number right now, Hasmukh. it's going to be definitely lower than what it is. From our perspective, top 5 accounts, if it comes down to the 60% mark, then that is good. I mean, because it means that we are also growing substantially with many of the other new accounts that we are bringing in. Typically in the past, three years, four years back, if you win an account at 250k, it was really good. And we were looking at a trajectory of growth from 250k to 2 million over 18 months, 24 months kind of a timeframe. More recently, two years back, when we were evaluating scenarios, we said that now we should get in at least at a 0.5 million mark, and we should get to the 2 million mark in a much shorter timeframe, in a 12-month timeframe itself. We are expecting that w e will revert to that kind of a scenario as the economic environment improves. And if that happens, then the kind of percentage that I indicated should be possible within a three-year timeframe.

Okay, understood. Thank you very much for that.

A few closing remarks, I would say that in the current economic environment, our performance in quarter 2 continues to give us a good deal of confidence. The number of opportunities that we have in our pipeline has gone up significantly in comparison to where we were at the same time last year. We have a 100-plus open conversations amounting to over $45 million in terms of opportunities. That is like an increase of almost 3.5x in terms of the number of conversations, almost 200% in terms of the value of the opportunities that we had at the same t ime last year. The timeframe for closure is much, much longer than what we had experienced before. These opportunities continue to move very slowly through the pipeline because of the current economic environment, and that is what we are expecting, that things will change as some of the uncertainty is lifted. But all this has been possible on the back of several things I talked about earlier. All the investments that we have made into the sales and the business development front, the advisors that we have onboarded, the focus on capability building and value propositions, all of that. And also, as it was pointed out, the investments that we are making in bringing senior post-graduates and higher- caliber people right into the organization. All of that is contributing to this. I think we are poised well. We do need to see the unlock happening, through the conversions in the remaining quarters. So we will continue to look at this very carefully and further calibrate in terms of what we do. The very recent analytics roundtable event that we had was a huge success in terms of attendance and appreciation and all that. Obviously, we will want to see traction in terms of closures also on the back of that. So that gives us a great deal of confidence, but we are also mindful of the current economic environment and the uncertainty, and therefore, we will be watchful in terms of how we respond to all of this stuff, both from an investment and from a cost contro l, margin expansion, and all of those perspectives. At this point in time, I would say that we are encouraged by what we have seen in recent times, and we will continue to stay focused on the growth and profitability. So with that, I will pass it on to Raj for any concluding remarks that he has.

Thank you, Rajan. I don't have anything further or substantial to add to what you already mentioned. I think the point that I already mentioned in the opening remarks around the fact that while our growth rates and margin profile, both are, I would say, a little more muted or I would say depressed compared to where we would like them to be. The fact is that the economic environment and the overall sentiment continues to be a little sluggish. We are mindful of the fact that the investment that we are making at this point in time are disproportionate to the current level of business or the grow th that we are demonstrating. However, we remain committed to deliver growth which is industry-leading, in fact, better than the industry by 5% to 8 percentage points. So we remain committed to delivering growth that is exceeding the industry benchmark. We will not take our eye off the ball in terms of where the business is trending. We continue to closely monitor all the operational and operational KPIs as well as salesforce productivity. And we will take suitable actions whenever they are necessary. But at this point in time, we do believe that there are positive signs as much as there are, I would say, negative sentiments. There are enough positive signs in terms of the demand for some of our value propositions as well as growth in the European region. And so we remain positive that we will be able to get back to the historical growth trajectory in a couple of quarters. With that, I would like to close this call and hand it back to Asha and the operator.

Thank you. On behalf of LatentView Analytics Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.