Analyzing...
Sameer Shashikant Chavan
2025.02.12 21:49:00 +05'30'
“IKS Health Q3 FY ’25 Earnings Conference Call” MANAGEMENT: MR. SACHIN GUPTA – FOUNDER AND CHIEF EXECUTIVE OFFICER MS. NITHYABALASUBRAMANIAN– CHIEFFINANCIALOFFICER MR. SARANSH MUNDRA – ASSISTANT VICE PRESIDENT, INVESTORRELATIONS MODERATOR: MS. RUCHIMUKHIJA–ICICI SECURITIES Page1of20
Ladies and gentlemen, good morning, and welcome to theIKSHealthQ3FY'25Earnings Conference Call, hosted by ICICI Securities. Asareminder,allparticipantlineswillremaininthelisten-onlymode.Andtherewillbean opportunity for you to ask questions after the presentation concludes. Should you need assistance during theconferencecall,pleasesignaltheoperatorbypressing"*",then"0"on your touch tone telephone. Please note that this conference is being recorded. InowhandtheconferenceovertoMs.RuchiMukhijafromICICISecurities.ThankYouand over to you. Thankyou,Ryan.Goodmorning,ladiesandgentlemen.Thankyouforjoiningustodayforthe Q3FY'25earningscallofIKSHealth.OnbehalfofICICISecurities,Iwouldliketothankthe management of IKS Health for giving us this opportunity to host this earnings call. Today,wehavewithusMr.SachinGupta–FounderandCEO;Ms.NithyaBalasubramanian– Chief Financial Officer; Mr. Saransh Mundra – AVP (Investor Relations). IwillhandovertoSaranshfortheSafeHarborstatementandtotaketheproceedingsforward. Thank you and over to you, Saransh. SaranshMundra: Thankyou,Ruchi.Goodmorning,everyone.WelcometoourFirstEverEarningsCallforthe quarter ended 31stDecember2024.IamSaranshMundra,IheadInvestorRelationsatIKS. Wehopeyouhavehadanopportunitytoreviewthe“EarningsReleaseandthePresentations” that we have issued last night. BeforeIhandovertoSachinandNithyafortheirviewsontheresult,letmejustbeginwiththe Safe Harbor statement. As part of our remarks and during Q&A, we make certain statements which are forward-looking and may involve significant uncertainties. IKS does not take any responsibility to update such forward-looking statements and your discretion is warranted while making any investment decisions. Over to you, Sachin. Hi, good morning and good evening, everyone,dependingonwhereyouare.Thankyouso much for joining ourfirstearningscallasapubliccompanyforthequarterthreefiscalyear 2025. Today, I wanted to start offwithafewremarksandalittlerecapaboutourbusinessmodel, because this is our first callandperhapsthelasttimeIspokewithmanyofyouwasonthe roadshow.So,wewillstartwithaquickrecapofthebusinessmodel,thenIwillremarkalittle bit about thekeythemesthatthebusinessisstrategicallyexecutingon.AndthenIwilldive intosomekeythemesthatwearespecificallyfocusedoninFiscal‘25.Andfromthere,Iwill dovetailintoahigh-levelsummaryofourQ3Fiscal‘25Results,afterwhichIwillturnitover to Nithya to talk through the details of the financials for you. And then we can dive into Q&A. So,asyouallwouldrecall,IKSisaCareEnablementPlatformthatoperatesinthephysician segmentoftheUShealthcaremarket.Thatphysiciansegmentconsistsofabout900,000-odd physiciansdriving$1.5trillionofrevenueinwhatisanearly$5trillionUShealthcaremarket. That physician segment of the US healthcare market we think is the fulcrumandthemost important point of care delivery within the continuum of care, simply because as the US healthcare system tries to achieve sustainability by solving for the cost, quality andaccess challengesthattheyarestruggledwith,webelievetheonlywaytoreallydothatisthroughthe transformation of care delivery from a reactive hospital-centric care delivery system to a Page2of20
proactivephysician-ledandpatient-centriccaredeliverysystem,inwhichphysiciansreassume their role as being quarterbacks of care truly configuring care attached to patients' value system. Andso,giventhatthisphysicianmarketisbecomingthenewfulcrumofcaredelivery,what we saw when westartedourbusinessandstartedbuildingthisCareEnablementPlatformis thatthephysicianmarketwouldrapidlyconsolidateaspeoplewouldrealizethatitisthenew fulcrumofcaredelivery.Andalongwiththatconsolidationwouldcomeamaturitythatwould lead them to actually rediscover whatwecalltheircoreversuschoresequation,andstartto really focus onthecoretasksaroundpatientcareandpatientexperience.Andidentifyallof these chores that are taking them awayfromthecoretaskofpatientcare.Andthenstartto delegateoroutsourcethesechorestosomeentityorplatformthatcoulddothesechoresbetter, cheaper, faster at scale. Remember, the most important entity in care delivery, the physician, was traditionally spendingasmuchas50%oftheirtimeonnon-patientcarenonvalueadd,non-discretionary tasks.Andthroughthedeploymentofourplatform,notonlyaretheyabletodirectalotofthat 50%oftheirtimebacktopatientcarewhichthenimprovescostofcareandqualityofcare,but alsothenfundamentallychangestheireconomicsfromarevenueandcostperspective.Justto putinperspective,physiciansarespendingnearly15%oftheirrevenueonthesechoretasks, which is about $225 billion. And the physician market is growing at about 8%. Andsowearetalkingabout$225billionTAMgrowingat8%,whichisnearlythesizeofthe IT services industry in India today, that $225 billion. And what's interesting is that only $30-oddbillionofthat$225billionhasbeenoutsourcedtodatetoplatformslikeus.Andthat outsourcedTAMnowrecognizingthevaluethatthisoutsourcecancreateisactuallygrowing at12%.So,whiletheindustryisgrowingat8%,theoutsourcedTAMwithinthat$225billion, which is at about $30 billion, is really growing at about 12%. And within that ecosystem what IKS has done is,hascreatedatech-ledhumanintheloop CareEnablementPlatform.Andreallytheonlyplatformintheworldthattrulydelegatesallof these chore tasks that have been discovered so far through the right combination of the proprietarytechnologythatwehavebuiltandtheglobalhumancapitalthatwehavedeveloped over these last 18-odd years. AndIsaytheonlyplatformbecausegiventhatthesechores,there'sabout16-oddchoresthat one has identified across the continuum of the physician setting, what we havediscovered really isthatalotofcompanieshavebeenbuiltovertheyearsthatarefocusedonone,two, three, maybe five of these 16 tasks. But buyers are starting to discover in the physician enterprise world that they shouldnotbeinthebusinessofbuyingindividualpointsolutions andthentryingtointegratethem.Imaginebuyershavingtobuy10,12,14,15pointsolutions, thenintegratingthemandholdingthebagonconsolidatingandcreatingvaluefromthosepoint solutions. AndsoIthinkbuyersarediscoveringthatthevalueofthewholeismuchgreaterthansomeof theindividualparts.Andastheydiscoverthatandbuyingbehaviorshiftsfromsortofbestin class point solutions to the overall platform, I think, IKS continues to be perhapstheonly company in the world that truly provides them that alternative. Page3of20
Over these last 18 years IKS has built a business modelwhere95%plusofourrevenueis recurringinnature.Wehaveverylowclientattrition,it'sastickybusinessmodel.Ourtopten clients and our top five clients are all having average vintages offiveplusyears.Wehave growntoaworkforceofabout13,150employeesasofDecember31st,2024.Ofwhichnearly 500employeesaretechnologiststhatarebuildingourproprietarytechnology,andnearly2,500 employees of those 13,150 are clinically trained. And it's through the combination of our proprietarytechnologyandourhumancapitalthatwearebeingabletodelegatethesetasksto them better, cheaper, faster and at scale. Letmejustcommentquicklyonthekeythemesbywhichweareexecutingonthisbusiness through which we intendtocontinuetoretainandconsolidateourleadershippositionasthe Care Enablement Platform of choice in this space: ● Thefirstthemereallyistocontinuetofurtherenhanceourjourneyfromwherewe were human-led and techintheloopforcertainofthesechores,tonowbecoming more andmoretech-ledandhumanintheloop.Thataffectsboththescalabilityof ourtasksaswellasobviouslythepricingandtheprofitabilityatwhichweareable to deliver these. ● Second, the idea, because the buying behavior is still in transition from point solution,bestinclassbuyingtonowstartingtobuymoreandmoreoftheplatform manifest,oneofourstrategicexecutionpredicamentscontinuestobethatweneedto be number one, twoorthreeineachofthefeatures,eachofthe16featuresinthe platform,evenaswearetheonlycompanyintheworldthathasthefullbreadthof the platform. ● Andnumberthree,obviously,continuetoproliferatethefullbreadthoftheplatform intoourcaptivecustomerbase.Whichasyouimagine,asyouknownow,ourcaptive customer basewentfromabout50-oddlargeenterprisescalecustomers,whichhas traditionally been our area of focus at IKS. Becausewebelieveinamarketthat's consolidatingyouwanttoworkwiththelargeconsolidatorsversustheonesgetting consolidated. So, traditionallywehad50-oddlargeenterprisescalecustomers.But throughtheacquisitionofAQuityInc.,weexpandedthatcustomerbasetonorthof 850-odd customers, of which really 500-odd tend to be that enterprise scale consolidator customers. And so, across these 500-odd enterprise scale customers that we intend to really focus on going forward, there's nearly 150,000physiciansthatareemployedbythem.Which,asyou canimagine,isnearly18%oftheoverallphysicianmarketintheUS.Andthefullmanifestof theplatformbeingcrosssoldtothatentireinstalledbaseof150,000physicians,itmakesfora massivegrowthrunwayoverthenextcoupleofdecades.Andthat'sreallythejourneythatwe are on. So,thosearethethreebigexecutionthemesatastrategiclevel.Andthenspecificallyfroman FY '25 perspective, just to remind everybody the themes that we have been executing on is: ● First, effectively integrate the AQuity acquisition into making IKS oneintegrated platform. As a part of that, one of our key themesisthat,becauseourtraditional focus has beenandwillcontinuetobeonlargeenterprisescalecustomersthatare consolidators, with the additional AQuity we have grown to about 850-plus Page4of20
customerstogether.AndwewillactuallythroughFY'25andperhapstheearlypart ofFY'26,continuetocutsomeofthattailandreallyconsolidateinto500-oddlarge customers.Andso,oneofthebigthemesofFY'25wastoreallystarttocutthattail and bring the customer base to those large customers that we want to focus on. ● The second big theme that we have been executing on is, as you know, AQuity traditionallydidnothavetoomuchproprietarytechnology,norweretheyusingthe globalhumancapitalmodelthateffectively.Andsooursecondbigexecutiontheme for FY '25 really was to transform the AQuity operating model with the IKS operating model. And in that process, take our blended marginsthathaddropped from24%proformaafterAQuity'sconsolidationintoIKSbacktowardsthatearlyto mid-30swhichwethinkiswherethesteadystatebusinessshouldsettledownat.So, that was our second big theme for FY '25. ● And our third big theme was to really activate the most strategic aspect of the acquisition, which is the cross sell, where we will be able to cross sell the full breadth of our platform across these large 450-plus enterprise scale AQuity customers that have come to us through this acquisition. So, those are the three big themes that we have been executing on through FY '25. Withthat,Iwillnowactuallydivealittlebitandprovideahighlevelintrotoour“Q3FY'25 Results”: I am very happy to note that actually we have been able to execute better than we had imaginedacrossallofthethreethemesforFY'25.AsIhadmentionedearlier,becauseweare cuttingthetailforsomeofthesmallercustomers,aswellasbecausewearetransformingthe AQuitydeliverymodelbydeployingtheIKStechnologyandglobalhumancapital,thathasa dampening effect on our revenue growth in FY '25. ● One, because of course we are reducing our customer base whichasyouseehas gonefrom850-plustonowabout750customersbyDecember31st,2024,thathasa revenue dampening effect. And the second, because we are giving the traditional legacyAQuitycustomersincentivesintermsofdiscountstotransformtheirdelivery model leveragingtheIKStechnology,thathasalittlebitofadampeningeffecton the revenue. So, as we have beengoingaround,wehavebeenmentioningthatFY'25willbesomewhat mutedfromarevenuegrowthperspective.Ofcourse,overaperiodoftime,webelievethatour growth will continue to be well north of that 12% that the outsourced TAM is growing at. Happy to note that in Fiscal ‘25 Q3,inspiteofthedampeningeffectofthosetwostrategic endeavors,wehaveactuallybeenabletogrowthebusiness16%year-on-yearfromFY'24Q3. And in constant currency terms, that's about 12% year-on-year growth. So, in spite of the dampeningeffect,thatwasverydeliberateinourFY'25revenues,wehavebeenabletogrow 16% year-on-year in revenue terms to a revenue of about Rs. 657.2 crores. Second,wehaveactuallybeenabletoaccelerateourearningssignificantlyfasterthanwehad imagined.Asweweregoingaroundinourroadshows,wehadmentionedthatwebelievewe willgettotheearlytomid-30sconsolidatedEBITDAmarginsperhapsoverthenext18to24 months. Very happy to report that we have actually clockednearlya31%EBITDAforthe quarterendingDecember31st,2024,whichisforuswellaheadoftheglidepaththatwehad Page5of20
inmindtogettothesortofearlytomid-30s,whichiswherewewillstabilize.Thatreflectsa 24%year-on-yeargrowthinEBITDAmarginsanda28%growthinPATmarginsbetweenQ3 Fiscal ‘24 and Q3 Fiscal ‘25. Obviously, a lot of this has been achieved by actually instead of increasing headcount, decreasing headcount. So, we have actually taken headcount from Q3 Fiscal ‘24, which is about13,250peopleto13,150byQ3Fiscal‘25.Whichmeansfora16%year-on-yeargrowth, wehaveactuallyreducedheadcountbyabout100peopleinsteadofgrowingheadcount.And this is in spite of actually increasing SG&A headcount, because we continue to invest significantly in sales and marketing to activate the cross sell motion as well asinR&Dto continue todrivemoreandmoretransformationfromhuman-ledtechinthelooptotech-led humanintheloop.So,thatcontinuedsortofnon-linearitybetweenrevenuegrowthandpeople growthcontinuestobeexhibitedintheactualheadcount.Andthen,ofcourse,inthemargins themselves that are exceeding our expectations. AndoneotherthingthatIwanttomentionisthat,becausewewereabletoactivatesomeof thecrosssellfasterthanwehadimagined,wearestillbeingabletodemonstratefasterthanthe TAMgrowthof12%to16%year-on-yeargrowthinrevenue,inspiteofthedampingeffect. So, we feel like we have been able to activate the cross sell relatively faster than we had imagined, which is leading to this revenue growth and keeping it relatively robust. That'sabroadsummaryofsortofwhatourfiscalperformancehasbeen.Nithyawillobviously dive into the details of some of this financial performance as we get along here. One thing that I will mention is, even as we are publishing year-on-year growth and quarter-on-quarter growth, it's really important to note that in our business year-on-year is reallywhatisrelevant,becausethereissignificantseasonalitythathappensfromonequarterto the other. For example, Q3 and Q4 are traditionally weaker quarters than Q1 and Q2 because ofthe seasonalitythatsetsinpatientvolumesduetotheholidayseasoninQ3andduetothesevere winter weather in Q4. And so, Iwouldencourageeverybodytothinkofourbusinessmuch moreonyear-on-yeartermssothatwearedoingalittlebitofalike-on-likecomparisonversus aQ-on-Qterms,eventhoughwearepublishingtheQ-on-Qnumbersforyourbenefitsitself. So, that's some high level remarks on the financials. Movingon,someofourrevenuemomentumisactuallybeingdrivenbycertainlysomeofthe cross sell that we have beenabletoactivateincustomerslikeLouisianaChildren'sMedical Centerandseveralothers.ButIthinktherevenuemomentumisalsobeingdrivenbythefact thatweareactuallybeingabletoexecuteonourstrategicthesisofdrivingmoreandmoreof the full platform penetration. So,reallyhappytoreportthattherehavebeenthreeverysignificantcustomerwins.Theseare newcustomerwinsoverQ3.First,$1billionhealthsystemcalledPalomarHealth,asyoumust have seen inthepressrelease,havecommittedtothefullplatformmanifestofIKSfortheir employedphysiciangroupina15yearpathbreakingdealforwhichtheyhavecommittedto our platform. In this deal, Palomar will deploy the fullbreadthofIKS'platformacrossour feature clusters of revenueoptimization,clinicalsupportandvaluebasedcareintheirentire physician installed base. And from that deployment weareexpectingsomeverysignificant upsides. Page6of20
Theotherthingthatmakesthisdealuniqueiswehaveactually,basedonourownmodelingof whatupsideswewillcreate,wehaveactuallyguaranteedanupfrontedasignificantamountof those upsides, about $16.5milliontoPalomarinthisprocess.Andinauniquearrangement, the way thiswillhappenis,asthoseupsidesstartaccruingnowthatwehavegonelivewith Palomar,uptothe$16.5millionwillaccruedirectlytoIKS.Andthenevenbeyondthat$16.5 million over the years, there's a significant gain share arrangement thatIKSwillhavewith Palomar which will continue to add non-linearity to our margins and yet createsignificant value for Palomar. Similarly,weareveryproudtoannounceadealwithRadiologyPartners,whichisthelargest consolidation of radiology physicians across the U.S. They are 10x the size of any other consolidated entity in the radiology market in the U.S., nearly $3.5 billion in revenue and 3,000-plusradiologists.Partneringwiththem,wearecreatingaveryuniquevirtualradiology assistant model that through a combination of technology andglobalhumancapitalhasthe potential to improve radiologists' productivityonthesamefixedcostbyasmuchas25%to 30%.So,imaginetheimpactofafullymanifestedVRAmodelona3,000radiologistsgroup like Radiology Partners with $3.5 billion in revenue, the numbers start to get very, very significant at north of $600 million, $700 million a year in value creation. And the way we have created this model with Radiology Partners is, once the model is manifested at a significant scale, thiswillturnintoaJVwhereRadiologyPartnersandIKS willtogetherthentakethisuniqueradiologyenablementplatformtothemarket,totheentire radiology market, based on the credibility and the learningsandtheIPthatwewouldhave developed through that relationship with Radiology Partners. Last but not the least, I would like to commentalittlebitonWesternWashingtonMedical Group,whichisoneofthelargestindependentmedicalgroupsinthePacificNorthwest.While the initial relationship that we have struck with them is on the revenue cycle side, that relationship is rapidly maturing into other manifests of the IKS platform. So, strong deal momentum, both onnewcustomeracquisition,butfaster-than-anticipatedmomentumonthe AQuity legacy installed base cross-sell. Withthat,Iwouldliketojustturnattentiontoacoupleofproduct-relatedexcitinglaunchesas well. Super excited toannouncethelaunchofScribbleNow,whichisourfullyautonomous GenAIandNLP-enabledofferingforclinicaldocumentation,ambientclinicaldocumentation. WithScribbleNow,today,IKSisnowthemostcomprehensivesuiteofclinicaldocumentation offering to the U.S. healthcare industry. By that I mean that depending on different care deliverysettingsanddifferenttypesofspecialties,thereisaneedfordifferenttypeofclinical documentation solutions in U.S. healthcare. All the way from settings like radiology and pathology, where there is no conversation between the physician and the patient, there you still need technology-enabled transcription-typesolution,whichweenablethroughourScribbleTranscribeproduct;tolive virtualscribingforwhichwehaveourScribbleLiveproduct;toScribbleProwhichisreally important for complex encounters thatoftenprimarycare-typephysicianshave,wherethere are multiple paths of diagnosis, there we have our GenAI-enabled andclinician-supervised ScribbleProproduct.AndthenwealsohaveourScribbleSwiftproduct,wheretheGenAIis supervised by a human to eliminate any hallucinations. Page7of20
So, through this breadth of clinical documentation offering, which I think is unique in the world, we are now able to meet thevariousphysiciansandtheirsettings,wheretheyarein their journey of clinical documentation needs. And Ithinkthisshouldturnouttobeavery significant competitive advantage for us over a period of time. And then, given that we are livinginthisworldofsomuchhypeandattentiontoGenAI,I thoughtIwillspendjustacoupleofmomentstalkingatahighlevelaboutourAIstrategy.So, ourapproachtoautomationenabledbytechnologyreallybegansortofin2017-'18,firstwith RPA, non-cognitive RPA, and then with cognitive RPA, as you must have seen in the presentationthatwasshared.Andnottooversimplify,butifyoureallythinkaboutRPA,what it does is it's a technology that follows specific instructions and commands through some rule-based automation. Over the last couple of years we graduated that use of cognitive RPA to really intelligent GenAI-embeddedautomation.Wehavesevenoreightusecases,justlikeScribbleNow,across the16featuresofIKS,whereweareactuallyembeddingGenAIinthosefeatures.Andasyou can imagine, the value from GenAI really is that it helps create complexcontentbasedon prompt engineering that really leads to significant enhancement in productivity and efficiency. So,onewaytothinkaboutitis,whilecognitiveRPAmaybeleadsto5%to15%automation, GenAIcouldleadto20%to35%automation;andinsomecases,likeclinicaldocumentation, even70%to85%automation.AndreallyaswearenowstartingtoseethebenefitsofGenAI, weareexcitedtolaunchourjourneytowardsAgenticAI,wheretheactualAgenticAIagents understandthegoalofthetaskandareautonomouslyabletodetermineandexecutethenext steps to achieve those tasks. So,wearesuperexcitedtosortofembarkonthisjourney,empoweredbythesuccessofthe automationthatwehaveseenthatisreflectedbothinourscalabilityandourcontinuedmargin improvement.Infact,happytonotethatbasedonallthesuccesswehaveseen,weareactually launchingaGenAIcenterofexcellenceintheU.S.Thatwillbeworkingacrossalloftheuse casesthatwehavedevelopedovertheseyearsandthathavethepotentialtonotonlyleverage GenAI, but now move towards the Agentic AI world. So,withthat,IwillquicklysummarizeourperformanceforQ3again.Solidexecutionacross allourmacrobusinessthemes,aswellasthespecificthemesforFY'25.Aheadofglidepath execution on margins, relatively rapid activation of the cross-sell into the AQuity installed base. And appropriate optimization of the customer base so that we can really focus on growing the customers that will create value over a period of time. With that, I will turn it over to you, Nithya, to dive into some details of the financials. NithyaBalasubramanian: Thank you, Sachin. Good morning and good afternoon to everyone on the call. This is obviouslyaveryspecialcall,notjustbecausethisisourFirstEarningsCall,butalsobecause not too long ago I used to be on the other side of the call. So, diving into the numbers, if you're following the slide deck I am on Slide #10: Ourrevenues,wereportedRs.657.2croresinQ3FY'25,whichwasavery,veryhealthy16% year-on-year growth. Looking at EBITDA, again, we are very happy to report significant marginexpansion.SomeofyouwillrememberthatinFY'24ourproformaEBITDA,which is 12 monthsofAQuityandIKScombined,cameinat24%.Andfromthere,wehavebeen abletoachieveasignificant650bpsexpansionto30.5%or31%almostEBITDAinQ3FY Page8of20
'25. We continue to believethataswecontinuetotransformAQuity'sdeliverymodel,these numberswillkeepinchingupinthefutureaswell.So,thegrowthinEBITDAcameinat24% year-on-year. Lookingatprofitaftertax–againaveryhealthy20%iswhatwewereabletoreportinQ3FY '25,whichisagainasignificantexpansionevenifyoulookatquarter-on-quarter,wehavebeen able to expand these numbers by more than 200 bps. And you will note that PAT growth actually came inat28%.Sachinmentionedthisbefore,thegrowthinPATisactuallyhigher than the growth in EBITDA, because our interest expensehascomedown,whichhasbeen enabledbythestrongcashgenerationandthereforeourabilitytopaydownthedebtthatwe had assumed when we acquired AQuity. Looking at our adjusted PAT, where we are adjusting out amortization of intangible assets which we had recognized during the acquisition, which, as you appreciate, is a non-cash expense.LookingatadjustedPAT,itcameinat22%inQ3FY'25.Andwesawagrowthin adjusted PAT of 31% year-on-year. Moving on to other operating metrics: Again, EPS came in at a very healthy, almost Rs. 8 per share in Q3 FY '25. And ROE continues to be on a healthy expansion trend. Of course, prior to theacquisition,ourROE metricsinFY'23,ifyoulookatthefullyear,wewereat36%.Ourcurrentnumberscontinue toseeahealthyexpansionasweareabletoachievetheAQuitytransformation.So,ROEinthe quarter was at 33.2%. Ididmentionhealthycashgenerationbefore,asyoucanseeontheslidedeckinslidenumber 12,youwillseethatouroperatingcashflowcameinatRs.154crores,ourfreecashflowat Rs.109.5crores.Andlookingatnetdebt,haditbeenbusinessasusual,ournetdebtposition would have actually landed at Rs. 503 crores. I will just take a moment to explain these numbers. So,ifyouremember,inFY'24ournetdebtpositionwasRs.850crores.Throughveryhealthy cashgeneration,wewereabletopareitdowntoRs.553croresbythefirsthalf.Andbusiness asusual,thiscashgenerationthatwehaddonewouldhavebroughtdownournetdebtposition to Rs. 503 crores. There are two exceptional items in the quarter. One of which is almost Rs. 25 crores IPO-related expense, which was advanced by the company on behalf of the selling shareholders.AndthishasalreadybeenrecoveredfromthemintheJanuarymonth.So,thisis a one-off non-recurring item.AndtheotheritemistheRs.139crores,orthe$16.5million, that we have advancedtoPalomar,whichisanupfrontguaranteeoftheneteconomicvalue addwewillbeabletodelivertothemthroughourplatform.Thisagain,Sachinexplainedin detail during his remarks. So,ournetdebtposition,haditbeenbusinessasusual,wouldhavebeenRs.503crores.And what you will see going forward is this number continue to inch down as we continue to generate cash in the business. Looking at our Summary Financials: IwilljustcalloutsomeadditionalitemswhichIhavenotcoveredonthepreviousslides.So, revenue came in at Rs. 657 crores. Our other income, excluding interest income, which is non-operating, the rest is alloperatingotherincome,cameinatanadditionalRs.20crores. Page9of20
OuradjustedEBITDA,whereIamadjustingESOPcost,adjustedEBITDAcameinatRs.207 crores,whichtranslatesintoamarginofabout31.5%.IncludingESOPcost,ourEBITDAwas Rs. 201 crores and EBITDA margin was at 30.5%. Our financecost,Ialreadymentionedthatwehavebeenalreadyabletoparedownourdebt fairlysignificantly,whichiswhyyouseethatnumberiscomingdownanditwillcontinueto comedowninthefutureaswell.OurfinancecostwasaboutRs.20croresinthequarter.Our taxexpensewasaboutRs.30crores.OurETRinthequarterwasabout19%,andthereforethe profit for the period, or PAT, came in at Rs. 130 crores, or a PAT margin of about 20%. Adjusted profit, adjusting for amortization, came in at Rs. 145 crores and a margin of 22%. Withthat,Iwillconcludemyremarks.Weare,ofcourse,very,veryexcitedbythestrongand healthytrendsthatweareseeingacrosstheboard.Thankyouforyourattention,andwewill now open the floor for questions. Thank you. Ladies and gentlemen,wewillnowbeginthequestion-and-answersession.The first question comes from the line of Seema Nayak from ICICI Securities. Please go ahead. SeemaNayak: Hello.Yes,congratulationsonthefirstquarterafterlisting,andthanksfortakingmyquestion. Myfirstquestionis,outofyourserviceofferingssuchasRCM,coding,Scribble,etc.,which one is gettingthemaximumtraction?Andwhatistherevenuebreakupofserviceofferings? AndmysecondquestionisregardingAQuity,whatkindofcross-sellingtractionareweseeing with the newly acquired large set of clients? Thank you for the question, Seema.Iappreciateit.So,asitrelatestoyourquestionaround whichofthe16featuresareseeingthemosttraction,Iamhappytonotethatactuallywehave sort of stratified these 16 features into three feature clusters; revenue optimization,clinical support,andvalue-basedcare,basedonthetypeofvaluetheycreateforthecustomer.Andat this point I can tell you that we are seeing a pretty secular growth trend across those features. Also, given that our go-to-market now is really not feature-wise but is really much more platform, I had mentioned earlier that our go-to-market now haspivotedfromyoucanbuy certainfeaturestoeitheryoubuytheclinicalbundleoryoubuytheadministrativebundle.And the clinical bundle consists of about nine of the 16 features, and theadministrativebundle consists of about seven of those 16 features. Andso,giventhatwearegoingtomarketinthatmannerwhereeitherthecustomerbuysthe entire clinical bundle and then they can pickandchoosefromtheadministrativebundle,or they buy the entire administrative bundle and they can pick and choose from the clinical bundle,wedonotreallyreportnumbersbasedonindividualfeatures.ButIamhappytonote that the growth is secular acrossthethreefeatureclustersorthetwobundles,dependingon how you look at it. YoursecondquestionwasreallyaroundtheAQuitycross-sell.Look,likeIwouldmentioned earlier, we actually had anticipated thatthecross-sellwilltakealittlelongertoactuallyput into motion, because we had to create an overlay consultative salesenginethatwouldtake someofthemoretransactionalpointsolution-basedrelationshipsthatAQuitytraditionallyhad and elevatethemtoaplatformsale.So,weactuallycreatedthatoverlaycross-sellenginein thefirstsixmonthsofthefiscal.ButhappytonotethatinQ3itselfwewereabletostarttosee tractioninthecross-sellmotion.Thereareseveraldealsthatwewereabletoconsummatein Q3.TheonethatIamabletopubliclyannounceistheLouisianaChildren'sMedicalCenter, Page10of20
whichisaverysignificanthealthsystemintheNewOrleansarea.Butthereareseveralother marquee systems that are already starting to consume other manifests of the IKS platform beyond what they traditionally had in the AQuity relationship. So,that'soneofthereasonswhywehavebeenabletodelivera16%year-on-yeargrowthfor Q3 in spite of the muted effects of cutting the AQuity customer tail as well as offering customerdiscountsandincentivesinordertoallowustotransformtheiroperatingmodelthat is now then showing up on the bottom line. Seema Nayak: Thank you, and all the best. Thank you. The next question comes from thelineofAbhishekKumarfromJMFinancial. Please go ahead. Hi. Good morning, Sachin. Always good to hearfromyou.Acoupleofquestionsfrommy side.First,aswelookat12%dollarrevenuegrowthyear-over-yearthisquarter,canwebreak thisdownbetweenthegrowthintheheritageIKSbusinessandintheAQuity?ThereasonIam askingis,asyoupointedout,thereissomedampeningimpactoftailcuttingandoffshoring. So,justwantedtoappreciatethestrengthintheheritageIKSbusinessfromayear-over-year perspective. Great question, Abhishek. Thank you. And good to hear from you. So, look, obviously, becausethedampeningeffectoftherevenueislargelyintheAQuityinstalledbase,obviously the IKS legacy business and installed base is actually growing significantly faster thanthe 12%.Whilewedonotwanttogivespecificnumbersbecausewereallyarenowoperatinglike onecompanyandoneplatform,IwilltellyouthatthegrowthinthelegacyIKSbusinesshas beenrobust.Also,there'sbeensometremendousnewlogoaddition,likeIcalledoutindeals likePalomarandWesternWashingtonandRadiologyPartners,whichareallreflectinginthe IKS numbers. Andsoyes,theIKSbusinessisbacktoitshistoricalgrowthrates,whichyouhaveevidenced FY'22to'24.ThelegacyAQuitybusinessobviouslyisgoingthroughadampeningeffect.But again,astheAQuitycross-sellmotionstartstotrulygetactivatedandkickin,wehopetobe able to overcome that. And then obviously the blendedgrowthrateswillcontinuetobefar superior than the 12% that the industry is going at. Okay.Maybearelatedquestion.WhenIlookatthestandalonenumbers,onaY-o-Ybasisthey seem to have kind of remained flat or a slightdeclineactually.So,Iwaswonderingifthat standalone number is a reflection of heritage IKS business or there are some subsidiaries which are excluded and therefore my reading is wrong. NithyaBalasubramanian: Sachin,Icantakethat.So,thestandalonenumbersarenotreflectiveoflegacyIKSbusiness. WehaveothersubsidiariesintheU.S.wheretherestoftherevenueshavebeenbooked.So,I think you should refer to Sachin's comments on the growth related to the legacy IKS business. Okay. One last question from myside.Palomardeal,wehavementionedthatwehavepaid upfrontguaranteeofRs.139croresandSachin,youindicatedthatit'sa15-yeardeal.So,first, I wanted to just understand the structure and does this Rs. 139 crores, or $16.5 million, representthesavingthatwewilldoforthemoverthe15yearsthatthetenureofthisdealis for.AnycoloronhowwestructureandthenhowoverallwhatkindofROI,etc.,wemakeon this upfront investment? Thank you. Page11of20
Greatquestion,Abhishek.Thankyou.So,thewaythePalomardealisstructuredislikeIwas sayingit'sa15-yearnooutforconveniencedealandwhat'smostuniqueaboutitisthatthey arecommittedtodeployingthefull16-featuremanifestoftheIKSplatformfromtheget-go. At the deployment of this full 16-feature platform, we actually anticipate that the value created,theneteconomicvaluethatwewillcreateforPalomarattheconfluenceofthecosts thatwewillsaveforthemandtherevenueupsidesthatwewillgenerateforthemwillbemany multiples of that $16.5 million. I cannotrevealexactlyhowmuch,butitwillbemanymultiplesofthe$16.5millionandso hence we were comfortable advancing that $16.5 million to them, and the way the dealis structured is the first $16.5 million of the net economic value addthatwillbecreatedwill cometoIKS.Afterthat,uptoacertainthreshold,theneteconomicvalueaddisshared50-50 between IKSandPalomar,andthenanothercertainthreshold,alargeramountofthebenefit accrues to Palomar. So, a very unique deal structure. Very exciting for us,becausetraditionallyourdeals,even thoughourcustomerstickinessislonger,tendtobefourtofiveyear-duration,thisis15years, nooutforconvenience,fullmanifesttotheplatform.Andbasedonourestimatesofthevalue thatwillbecreatedwhichismanymultiplesofthe$16.5millionoverthe15years,notonly will we expect to claw back the $16.5 million relatively rapidly, but then start to add significant non-linearity in our margins beyond thetraditionalgrossmarginsthatweexpect from our platform. Abhishek Kumar: Great. Thank you, and all the best. Thankyou.ThenextquestioncomesfromthelineofSrivathsanfromAvendusSpark.Please SrivathsanRamachandran:Yes.Hi,justtwoquickquestions.One,doesthelastyearsalenumbersfactorinthefullthree quartersofAQuity?That'sone.Second,justwantedtogetyoursenseonthisPalomardeal,is thisafirstdealofthisnatureandisthereanyexistingrevenuefromthisclientthat'ssittingin the financials already? Thank you. So,thisisabsolutelyourfirstdealwiththiscustomerandthatmakesitevenmoreexcitingthat nowlargecustomersaretrustinguswiththefullmanifestoftheplatforminsuchalong-term deal construct. So, there isnootherexistingrevenuefromPalomarpriortothisdeal,which makesitevenmoreexciting.Astoyourearlierquestionabouttheninemonths,Iamsorry,I did not quite catch the question. Maybe Nithya,ifyoudid,youcanansweritorifyoucan please repeat your question. Nithya Balasubramanian: Yes, I did. So, to your question,in Q3 FY '24, there is two months of AQuity baked in. Srivathsan Ramachandran:Okay, thank you. Thank you. The next question comes fromthe line of Gaurav, an investor. Please go ahead. Gaurav: Yes. Thanks to theIKSteamforthisandcongratulationsonthephenomenalresults.Oneof my questions is, as we talk about integration and amalgamation of AQuity into the IKS structure, are we also looking at any other similar acquisitions now or in the near future? Thankyouforthequestion,Gaurav.Look,IthinktheAQuityacquisition,asyouknow,was thefirstsignificantacquisitionthatIKSdidafternearly16yearsofexistence.Andwedidthis throughacombinationofthecashwehadonthebalancesheetandaveryconservativeamount ofdebtasamultipleofourEBITDA.Throughthis,asyouknow,wehavecreatedamassive Page12of20
customerbasethatweareactuallytryingtorightsizesothatwecouldreallyfocusonthose 500-odd enterprise scale customers. And I think, as I mentioned before, those 500-odd enterprise scale customers employ 150,000-odd physicians, whichis18%oftheentireU.S. physician market. Ifweweretobeabletosuccessfullycross-sellourplatformacrossthose500-oddcustomers, wearetalkingabouta90xgrowthopportunityfromourcurrentscale.So,ourpreferredgrowth pathfromhereisreallygoingtobeorganicinnature,giventhemassivecustomerbasethatwe develop. Our inorganic strategy will be much more focused on perhaps bleeding-edge technology-type acquisitions, where we will be able to bring the power of our massive customerbaseandtheaccesstodataandcontextthatwehave,bywhichwecanmaturethat technology rapidly. So, the inorganic strategy will be much more focused on tuck-in tech acquisitions. As a gene pool, we are not a company that relies on acquisitionsforgrowth.Infact,even beforewedidAQuity,asyouknow,weweregrowingatnearly30%year-on-yearCAGR.So, AQuitywasauniquestrategicmerger,really,thatweembarkedon,andIthinkwehavealot ofgoodworktodoaheadofustocapitalizeonthebenefitsofthat.Inorganicactivitieswillbe muchmorefocusedontechnologytoaccelerateourjourneyfromhuman-ledtech-in-the-loop to tech-led human-in-the-loop. Gaurav: Got it. Thank you, Sachin. Thankyou.ThenextquestioncomesfromthelineofSagarDhawanfromValueQuest.Please Yes. Thank you for the opportunity, and congratulations on a good set of numbers. Just a question on the Slide 14 that we have in the presentation, revenue from top10customers, whichisthereRs.272crores.Doesthisincludeanycustomerwhichhasgottenconsolidatedin thistop10intotheacquisitionofAQuity,ortheseareonlythetop10customersoftheIKSex of AQuity? NithyaBalasubramanian: If you are referring to the Q3 FY '25 number, this includes top 10 customers of the consolidatedentity.ButifyouarecomparingittoQ3FY'24,therewasonlytwomonthsof AQuity, as I mentioned before. Right.So,couldyoupleaseprovidetherevenuefromthetop10customersonaY-o-Ybasis, ex of AQuity, just from the top 10 customers of IKS, ex of AQuity? Nithya Balasubramanian: We can take this offline.Somebody from our team will be in touch. Sure.Andthere'sjustanotherquestiononthecross-sellopportunity.Justwantedtounderstand whether,basicallywhatkindofrevenueperclientpotentialdoweseeintheAQuity'scustomer base for the cross-sell, if you can just provide some guidance on that. So,that'sagoodquestion.Look,Ithinkonewaytothinkaboutthatisthatouropportunityset inacustomertendstobe,iftheyarespendingabout15%oftheirrevenueonthesetasks,atthe fullmanifestofourplatform,theywillprobablyenduppayingus,dependingontheirspecialty mix, payermix,somethingintherangeof10%to12%ofrevenue,right?Andsowhenyou start to think about 18% of America's physician market existing in these 500-odd large enterprisescalecustomersthatwewillwanttoretainandcross-sellto,youcanstarttodothe math. Page13of20
Typically,the500-oddcustomersthatwearereallygoingtofocuson,atthefullmanifestof IKS,shouldallbeabletogeneratenearly$100millionayearofrevenuetoIKS.Andthat'sthe type of customer base that weareretaining.Andthat'ssortoftheACVpotentialatthefull manifest of the platform. That's also why the Palomar deal issoexcitingforus,becauseit startstosetaparadigmforcustomersembarkingonjourneysthatapplythefullmanifesttothe platform.So,that'ssortofahigh-levelwayofthinkingaboutwhattheACVpotentialwillbe is that we are really focused on retaining those 500 customers across the legacy IKS and legacy AQuity customer base that at full manifest could be $100 million ACV customers. Sagar Dhawan: Understood. Thank you and all the best.That's it from my side. Thank you. The next question comes from the line of Nilesh Jain from Astute Investment Management. Please go ahead. Hi,congratulationsonagreatsetofnumbers.Firstly,IhadaquestiononAQuity.Atthetime of acquisition, when we had acquired, it was a 9% margin. Wherearewenowintermsof journeytopresently,atwhatmarginswillbeAQuityoperating?That'smyfirstquestion.And maybe I can take other questions. So, thank you for the kind remarks. I will say that, like I was saying earlier, we are now operating like one platform. And so, we really would not like to reveal individual margin profiles of AQuity and IKS, but it'll suffice to say that there's obviously been significant margintransformationinthelegacyAQuitybusiness.Andourestimateofbeingabletogetto sort of the mid-30s onablendedbasiswasbasedonthatjourney,exceptthatwehavebeen abletoacceleratethatjourneysignificantlyfasterthanwehadthought.Andso,wehavegotten to nearly a 31% EBITDA margin and a 32-odd percent adjusted EBITDA margin in this quarteritself.ButIthinkyoucansafelyassumethattheAQuitymarginsarewellontheirway to transformation and there is still a significant runway ahead of us. One of the math that I would share withmanypeopleintheroadshowswasthat,forevery humanthatweareabletotransformorreplacethroughacombinationofourtechnologyand some supervision through a global human capital,weareabletocreateabout,giveortake, $20,000ayearofadditionalgrossmarginthrougheveryhumanthatwereplace.Andwhenwe startedout,therewasnearly2,500-oddhumansintheU.S.So,dependingonwhatweareable to take that down to, based on our customer agreements and customer comfort, that will eventuallysignalsortoftheendofthatrunwayforAQuitymargintransformation.Iwillsay that we are probably not even at the halfway mark yet. Allright.Allright.Mysecondquestionis,youmentionedyouhavearound16tasks.So,just wanted to understand, are there any other features or tasks where you are not present and which are not partofyouroffering.Andwhatwouldbethoseandifyouarelookingtoadd those as well? Absolutely.Greatquestion.Thankyou.So,look,Ithinkatanygivenpointoftime,wehaveat least two or three new features or tasks that are in co-development with customers that obviously continue to then increase the TAM further than what is available today. And so happy to note that we have at least two or three in co-development right now. One such example, for example, would be severaltaskswithinthevalue-basedcarefeature cluster of our platform. That value-based care phenomenon in the U.S. is going through a majorshift.Initiallyalotofthefocuswasonriskandqualityoptimization,whereasnowthe Page14of20
focusisintotalcostofcaremanagement.Andsowhenyoustarttothinkofcarecoordination, transition of care management, risk stratification of populations, utilizationmanagement,at least the back office of the utilization management, those would all be new features. Also,therearesomeotherfeatureswithinthephysician'sworkflowthatareapplicablebothin fee-for-service and value that are under development. For example, one example for that would be order entry, both synchronous and asynchronous order entry. So, yes, constant development of newfeatures.Iwouldnotbesurprisedifwewouldrevealthreetofournew features over the next 12 to 18 months. Goodtohear.Andthenlastquestionis,Imean,wehaveseenthatthere'sbeenalotofM&A activityrecentlybyprivateequityontheRCMside.So,wheredoyouseecompetitiononyour revenueoptimizingsideofofferings,whichyouhave?Howdoyouseethemandhowdoyou compete? It's a good question. Look, I think that's a very interesting market, andit'sreallychanging rapidly.Ifyouthinkaboutit,onewaytothinkaboutitis,traditionally,thereweresortoftwo genres of companies in the web cycle space, maybe three genres of companies. One, U.S.-basedcompaniesthatweredirectlycontractingwithhealthcareprovidersandleveraging a combination of their U.S.-based human capital, their U.S.-based technology, and subcontracting a bunch of offshore labor to deliver the RCM outcomes to customers. So, companies in that genre would be companies like R1 RCM, which was formerly called Accretive, or Ensemble Health or Conifer. Those would be that type of RCM companies. The second type of RCM companies weretheonesthatgrewupandtraditionallyasIndian task vendors, those are the ones that I think have been a lot in the news in the Indian ecosystem.YouheardofAccessHealthcareandGeBBSandOmega.Theirlegacywaswhere they weresubcontractorsoftasksforU.S.RCMcompanies,buttheydidsuchagoodjobof executing and got to so muchscalethatnowtheyareactuallygoingupstreamandtryingto acquire customers directly in order to be abletodeliverthoseefficienciestothecustomers. Mightthatcreatesomechannelconflict?Maybe,butwehavetogivethemcreditforthetype of scale they've driven. AndthenthethirdgenreperhapsisacompanylikeusthatwasneitheraU.S.companynoran Indiancompany,butdeliberatelycreatedaglobalexecutionmodelwithproprietarytechnology andalwayshaddirectcustomersintheU.S.wherewetookaccountabilityfortheiroutcomes. And so I think those would be the threegenresofthecompanies.Ifeellikeallthosethree genrestodayareconvergingintothatgloballyenabledtech-drivenRCMsolution.Someofus perhaps started like that. Others areconvergingtothat.So,itwillbeveryinterestingtosee how the winners emerge in this space. But again,remember,ourcompetitivepositioningisthatRCMisjustonepartoftheoverall value chain ofchoresthatphysiciansarestraddledwith.Andsoourcompetitivepositioning reallyandourrighttowinoftenhasbeenthatnotonlyareweabest-in-classRCM,butweare actually able to drive a lot more improvement in the physician productivity through our clinical support solutions. And then also beyond the fee-for-service patient panels that are affected byRCM,weareactuallyabletohelpphysicianswiththeirvalue-basedcarepatient panel with our VBC feature cluster. Page15of20
Thank you for that detail. Just a last bookkeeping question. You generatedaroundRs.500 crorestoRs.600croresofoperatingcashflows.Bywhendoyouthinkyouwillbepayingoff your entire debt or you will become debt free? That's it. Thank you. So, all things remaining equal, remember, we have operated for 16 yearswithnodebtand actually significant amountofcash.So,allthingsremainingequal,weshouldbeabletoget debtfreesometimenextfiscal.Butobviously,theremightbeotherusesofcapital,including tuck-in tech acquisitions, more innovative arrangements with customerswherewealignthe value that we create with their outcomes. And so depending on that, there might be some dethrowstothat.Butallthingsremainingequalandusnotembarkingonanysuchendeavors, there's no reason why we wouldn't be debt free next year. Nilesh Jain: Thank you. And all the best. Thank you. The next question comes from the line of Siddharth Mishra from Fidelity International. Please go ahead. SiddharthMishra: Hi,SachinandNithya.Goodtohearfromyou.Iwantedtoaskacoupleofquestions.Oneis, firstly,Iappreciatetheverylong-termopportunitywhichisthereandcongratsontheprogress whichyouhavedoneintheAQuityacquisition.Ijusthadaquestiononthedealswhichyou won in the lastquarter.Whatistheramptimelinesofthesedealsandwhendotheyconvert into revenues? Andsecondly,Q4willbe,Ithink,thequarterwhereyouwillhaveabasewhereyouhavethe fullAQuitycompanyinthebase.So,doyouexpecttogrowasstrongaswehaveseeninthis quarter, even in Q4, considering the ramp-up of the deals which you won in Q3? Andsecondly,thisismoreofaphilosophicalquestion.So,youareat750customersasofend ofDecember2024andyouwanttogettothat500customerswithAQuity.So,justwantedto understand,howaggressivewillyoubeincuttingtheAQuityclientsversushavingalsoagood overall growth, top line growth? Willyoukindofgoinapacewhichwillstillkeepouroverallgrowthgoodinthedouble-digit category? Or do you think you will first be very aggressive in cutting AQuity clients irrespective of what impact it might have on revenues? And then how will it impact your profitability growth as well? So, these are two questions. Great.Thankyou.Thankyou,Siddharth.So,look,firstofall,justtosortofrecap,ourtheme forFY'25wastocutthelowesthangingfruitofthetailthatwedefinitelydonotwanttoplay with going forward,whichIthinkwehaveexecutedonforthelargepart,andreallygetthe blended margins of the business to the place that they need to be in. Andsoasyouhaveseen,wehavereallybeenexecutingtothat.AndIamfairlyconfidentthat wewillbeabletocontinuetoexecutetothosethemesinQ4andbeyond.Theonewaytothink aboutitis,eveninspiteofalloftherationalizationofcustomersaswellastransformationof margin-relateddiscounts,wehavedelivereda16%year-on-yeargrowth.Andthisisbeforethe cross-sellhasgottenactivated.Andthisisbefore,likeyounoted,someoftherampeffectof the IKS new customers come into play. So,Ihavemaintainedthroughtheroadshows,andIwillstillmaintainthattheopportunitythat wehavecreatedforourselvesistoexecutefarfasterthanthe12%TAMgrowthoverthenext 10,15years,notjustoverthenextfewquarters.So,IhavenoreasontobelievegoingintoQ4 Page16of20
and well into the next several years, we have any reason to slowdownthatgrowthtoany lower than much faster than the 12%. So, that's one. Yes,wewillcontinuetooptimizemargins.Wehavebeenalittleluckyinthatwehavebeen able toacceleratethatfasterthanwhatwehadoriginallythought.AndIthinkaslongaswe stayonthatpath,maybewegettothesteady-statemarginstowardsthemid-30sinsteadofthe nexttwoyearswithinayear.So,yes,Idobelievethatwewillbeabletodeliversignificantly faster than the 12% growth and continue to run towards that steady-state EBITDA margin profile of getting to the mid-30s over the next year. Asitrelatestoyourspecificquestionaboutwhenthesedealswillramp,allofthesethreedeals actually have gone live as we talk and they will ramp throughQ4ofFiscal‘25andQ1of Fiscal‘26.So,thefulleffectwillbefeltoverthenexttwoquartersandthatwillcontinueto reflect in even faster year-on-year growth than perhaps we have been able to witness in Q3. SiddharthMishra: Yes, thanks for that. So,justtoclarify,the16%year-on-yeargrowthwhichisshowninthis quarterisoverabasewhichhadonlytwomonthsofAQuity,right?AndinQ4,youaresaying thatevenwiththefullimpactofAQuityacquisitioninthelastyear,youstillexpecttogrow very strongly. Is that a fair understanding or -- While I am not giving formal guidance,I think that will be safe to assume. Siddharth Mishra: Okay. Got it. Thanks. Thanks a lot. Thank you. The next question comes from the line of Chirag Kachhadiya from Ashika Institutional Equities. Please go ahead. Chirag Kachhadiya: Hi, am I audible? Yes, please go ahead. ChiragKachhadiya: Yes.So,Ihaveonequestion.So,everyyear,whataveragepriceincreasetookplaceinforthe 16 available features on platform for the existing legacy clients? Yes. So,goodquestion.Thankyou.Look,firstofall,let'sallrecognizethatweareoperatinginan environmentwhereit'ssignificantlyintenselycompetitiveandcustomersarelookingformore andmorevaluefromtheirpartnerships.Havingsaidthat,Ithinkareflectionofthestrengthof ourplatformhasbeenthatwehavecostoflivingadjustmentclausesinourcontractswithmost of our customers that are indexed to U.S. inflation. And we are working hard towards not only retaining those clauses, but then also creating further non-linearity opportunity in our contracts through conservative, but unique value-sharingarrangementslikewehavedoneinthecaseofPalomarandseveralothers.So, generally,wehaveCOLAindexedtoU.S.inflationandbeyondthat,wearecomingupwith value-sharing constructs that will give us further protection and enhancement of margins. ChiragKachhadiya: Okay.Inadditiontomyquestion,sointhegrowthwhichweareanticipatingnorthof5%,that isindustrygrowth,whatisCOLAledandnetnewgrowthwillbethereonincrementalbasis? Yes. Yes, I think the bulk of thegrowthisactuallyincrementalgrowth,Iwouldjustsaythatthe bulkofthegrowthisactuallyincrementalgrowth,becauselegacyAQuityreallydidnothave much COLA in their contracts at all.AndsoIwouldsay,thebulkofthefutureanticipated growth should be attributed to real growth in existing customer volumes or new customer additions. Chirag Kachhadiya: Okay, thank you. Page17of20
Thank you. ThenextquestioncomesfromthelineofRuchiMukhijafromICICISecurities. Please go ahead. Hi.Ihavetwoquestions.Wehaveannouncedthreelargedealwins.Sachin,canyoudefinefor us what constitutes large deal for IKS? Yes,thatbenchmarkcontinuestochange,Ruchi,overaperiodoftime.ButIwillsaythatin today'sworld,alargedealforIKSstillisonethatisabletocontributenorthof$10millionin annual contract value per year. Ruchi Mukhija: Got it. Now,manyofthesedealswilltakesometimetoramptothat.Butaslongastheyhavethat type of a commitment and potential embedded in them, they will qualify for the large deal. Noted.Secondly,wehavegivenagingofourtop10andtopfiveclients.Theagingreported forthreequartersimpliesthattheyhavebeenshowninourtopfiveand10accounts.Isthatthe right understanding? And the reason for that? The second part of this question is, what businessattributebyyou,asamanagementteam, looktotrackwhenyouarelookingataclientaging?Istheclientvintage,whichstressesthe deep client relationship? In that case, this number should show consistent and gradual increase?Orisitachurn,whichhasbeenthecharacteristicofthismetricwhenyoulookatthe past history? NithyaBalasubramanian: Hi.Letmetakethat,Ruchi.Thankyouforthequestion.So,whatdoyouseeontheslidein termsofvintageoftopfiveandtop10,thenumbersarenotreallycomparable.Ifyoulookat IKS legacy, our vintage has onlyimproved.TherearesomeclientsafterAQuityacquisition who got into our top10andtop5whohadslightlylowervintage.So,that'sthereasonyou haveseen,let'ssay,ifyouarelookingatQ3FY'24,ourtopfiveclientvintage,thenumbers mightlooklikeit'scomedownfromsixtofive,it'sonlybecausethemixchangedwithAQuity acquisition. So, going forward, what I am trying to understand isthechurnisaconstantfeatureofthis metric,orshouldweexpectthatthelargeclientstayinthistoppositionandthisvintagekeep on increasing? NithyaBalasubramanian: No.Thisvintagewillkeeponincreasing.Ithinkattheoutset,Sachinhadmentionedthat95% ofourrevenuesarefromrepeatclients.AndIcansharethatevenamongsttheAQuityclients, sinceouracquisition,wehavenotreallylostanytopclientsthatwearefocusingon.Andof course, IKS clients as well remain steady with us. Ruchi Mukhija: Got it. Thank you and all the best. Thank you. ThenextquestioncomesfromthelineofDeveshMehtafromPreetiInvestment Managers. Please go ahead. Ladies and gentlemen, Devesh hasleftthequestionqueue.We moveontoournextquestion,whichisfromthelineofHemendraKumar,aninvestor.Please Goodmorning.Thanksfortheopportunity.Ireallyappreciatethebusiness,themodelofwhat IKS operates. Myquestionis,asyouhaveaplatformhelpingadminjobsandtakingcareof physicians' tasks, etc., what is the company's perspective on continuumofcaretopatients? Maybe I am not aware of U.S. policies about patient care. Andareyoudoinganythinginthataspectwhereyoucandeviseamodelwhereyoucangivea dietary management or lifestyle management, cardiovascular management, etc., all such Page18of20
lifestyle diseases where you can focus? Because you have a very large human capital and maybeyoucanoperateonthismodelalso.Butagain,asapilotproject,canyoudothesame forpatientsinIndiasothatasapilotbatch,youcangeneratethesameacrosstheU.S.?Thank you. So, Nithya, do you want to take that?I had trouble following the question. Nithya Balasubramanian: I did too. I am sorry. Ifyou do not mind repeating the question. Yes. My question was basically on continuum of care to patients where typically you are operatingamodelwhichisofphysicianstakingcareofadmintasks,physicians,etc.,joining thehospitalandexitingthehospital,etc..Butisthereanymodelfromyoursideofcontinuum of care to patients who are leaving the hospital and leading a life where they are having lifestyle diseases, chronic conditions, and arewedoinganythingtomanagesuchpeople?Is thereapolicyintheU.S.whereyoucancontactpatientsandgivecontinuumofcarebecause you have a large human capital? And can you do the same in India also? It'sagreatquestion.Actuallytwoquestionsthere.So,yes,likeasIwasreferencingwhenthe questionwasaskedaroundsomeofthenewfeatureswearecreating,ourentireofferingthat enables total cost of care management in fully delegated risk contracts actually involves exactlythat,wherewearebuildingcarecoordination,transitionofcaremanagementmodels, enablingeffectivehome-basedcareforpatients,community-basedcareenablement,allofthat is really aimed at managing the patient across their journey within the continuum of care, including their home. Andsoyes,fromourtotalcostofcareoffering,sir,wewillactuallystarttotakebabystepsin the realm thatyouaretalkingaboutbecausetherealityisthatoutsideofend-of-lifecare,as muchas60%to70%ofallcostofcareisdrivenbychroniclifestyledisease.Andtomanage thosepatients,oneneedstosortoffollowthemandmeetthemwherevertheyareintheircare journey. So, yes, we will start to see significant expansion intomanagingourcustomers'customers, which is our customers'patientsacrossthecontinuumofcare.AsitrelatestoIndia,wefeel rightnowwearestillfocusedintheU.S.TheIndianmarkettousseemsalittleimmature.For example, a lot of the ambulatory physician office-based care isn't even covered by insurance. So,astheIndianmarketmaturesalittlebit,Iamsuretherewillbelearningsfromourjourney in the U.S. that we will be able to bring to India, but that's not an immediate-term focus. Yes.Thanksforthatanswer,butIjustwanttoupdateyouthatfrom2008or'09onwards,the workshop domeofaU.S.-basedcompanyhasinvestedincontinuingofcareforthediabetes management molecule in IndiaandIwasapartofthatprogramwhichwassuccessfulandI have seen reduction inHbA1c,cardiovascularmanagement,patientsatisfaction,etc.,dietary management. It was a wonderful, wonderfulprogram.So,youcantakefeedbackfromsuch companies andimplementandmaybeguideyourteamonmanagementpractices,etc.Thank you. Thank you for the suggestion. Thankyou.Ladiesandgentlemen,astherearenofurtherquestions,Inowhandtheconference over to Mr. Saransh Mundra for his closing comments. SaranshMundra: Hi.Thankyou,everyone,forjoiningourfirstearningscall.Itwasareallyinsightfulsession.I thinkmanymoreparticipantscameinthanweexpected.Foranyfurtherquestions,pleasefeel Page19of20
freetoreachouttomeoranyoneinthecompany.Wewillbeveryhappytoansweryou.Thank you, everyone. Thank you. Andagain,Iwilljustendbysayingthatweareliterallyatthestartofthis,whatIthinkisa multi-decadalsecularjourneytodrivesustainabilityintheU.S.healthcaremarketandweare super excited to have you on this journey with us. Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Please note that this transcript has been edited for readability. Page20of20