Analyzing...
Sameer Shashikant Chavan
2025.05.22 19:00:37 +05'30'
“IKS Health Q4 FY25 Earnings Conference Call” MANAGEMENT: MR. SACHINGUPTA–FOUNDERANDCHIEFEXECUTIVE OFFICER MS. NITHYABALASUBRAMANIAN– CHIEFFINANCIALOFFICER MR. SARANSHMUNDRA– AVP INVESTORRELATIONS MODERATOR: MS. RUCHIMUKHIJA– ICICI SECURITIESLIMITED Page1of23
Ladies and gentlemen, good morning and welcome to the IKS Health Q4 FY25 Earnings ConferenceCallhostedbyICICISecuritiesLimited.Thisconferencecallmaycontainforward looking statements about the company, which are based on the beliefs, opinions and expectationsofthecompanyasofthedateofthiscall.Thesestatementsdonotguaranteethe futureperformanceofthecompanyanditmayinvolveriskanduncertaintiesthataredifficult to predict. As a reminder, all participant lines willremaininthelisten-onlymodeandtherewillbean opportunity for you to ask questions after the presentation concludes. Should you need assistanceduringtheconferencecall,pleasesignaltheoperatorbypressingstarthenzeroon your touchtone telephone. Please note that this conference is being recorded. InowhandtheconferenceovertoMs.RuchiMukhijafromICICISecuritiesLimited.Thank you and over to you. RuchiMukhija: Goodmorning,ladiesandgentlemen.ThankyouforjoiningustodayontheQ4FY25earnings call of IKS Health. On behalfofICICISecurities,Iwouldliketothankthemanagementof IKSHealthforgivingustheopportunitytohostthiscall.TodaywehavewithusMr.Sachin Gupta,founderandCEO,Ms.NithyaBalasubramanian,CFOandMr.SaranshMundra,AVP Investor Relations. I will turn over to Saransh for safe harbor and to take the proceedings forward. Thank you and over to you, Saransh. SaranshMundra: Hi, everyone. Welcome to our second earnings call at the public company. I wouldliketo beginwithasafeharborstatementbeforeIhandovertoSachinandNithyafortheirremarks. AspartofthepreparedstatementsandduringQ&A,wemaymakecertainstatementswhich areforward-lookingandmayinvolvesignificantuncertainty.Wedonottakeanyresponsibility to update such forward-looking statements and your discretion is advised by making any investment decisions. Over to you, Sachin. Hi.Thankyou,Saransh.Goodmorning,goodevening,everyone,dependingonwhereyouare. Excited to discuss our performance for Q4 fiscal 25 as well as the full year fiscal 25. On today's call,Ihavewithme,ofcourse,inadditiontoSaransh,wholeadsInvestorRelations, Nithya Balasubramanian to get the name right, our CFO and I will kick it off with some remarksthatIhaveontheoverallhealthofthebusinessandtheperformanceatahighlevel, thefinancialperformanceandthenIwillinviteNithyatodiveintothefinancialperformance in a little bit more detail, after which we will open it up for some questions. So,withthatIwantedtostartoffagainattheriskofalittlebitofrepetition,witharecapof ourbusiness.It'sonlyoursecondearningscall.Someofyoumightstillbenewshareholders. So,I'lljustgiveaquickrecapofthebusinessandourstrategyandthentalkthroughhowwe're executingonthatstrategyandtheresultingfinancialperformancefromthatstrategy.So,justto – and given, obviously, we're a niche business, I think that'll be best for everyone. So,justasyouknow,we'reoperatingintheU.S.healthcareprovidermarketandspecifically given its cost, quality and access challenges, one of the things that we have seen that is Page2of23
happening is this transformation from reactive, hospital-centric medicine to physician-led, patient-centricandproactivemedicine.Andso,webelievethatthephysiciansettingbecomes a new fulcrum of care delivery as a result of that. ThatphysiciansettingintheU.S.,asyouwillrememberisabouta$1.5trillionmarketandthat hasundergoneatremendousamountofconsolidationovertheyearsandhenceithascreated thisenterprise-scalemarketsegmentthatIKSoperatesin.Ourfundamentalthesisisthatwhen acottageindustryliketheoriginalphysicianmarketwasitwashighlyfragmentedintheU.S. with 900 thousand physicians, most of which existed in groups of five or less. When a market like that consolidates into enterprise-scale and needs to become the new fulcrum of care delivery, they go through some fundamental transformations and one such transformationiswhatwecallthistransformationfromwheretheyrediscovertheircoreversus chore equation within their task continuum and the smart enterprises figure out that they shouldfocusalltheirenergiesonthefewcoretaskswheretheycreatethemostdifferentiated valueandthenalotofthechoresthatareimportanttorunthebusiness,butmightnotbewhere theycreatedifferentiatedvalue,typicallygetdelegatedtosomeplatformorentitythatcando these chores better, cheaper, faster at scale. Now, obviously, given the size of the U.S. healthcare market and specifically the physician market itselfbeing$1.5trillion,thechores thatwehaveidentified,whichcutacrosstheentirespectrumfromtheexamroomwherethe physician sees the patient all the way to the back office, those chores are almost 15%. The cost is almost 15% of their revenue, which makes for a $225 billion dam justforthe choresthatwehaveidentifiedandwhatwesawoverthelast15yearswiththebusinessisthat thisphenomenonofconsolidationandhencethedelegationofchoresreallystartedtopayout and hence about 35 billion of that 225 billion has already beendelegatedandsothis$225 billion-odd dam isactuallygrowingatnearly8%,buttheoutsourcedTAM,whichisaround $35 billion right now is growing at 12% and that's really that outsourced TAM or the concentrated or the consolidated segment of that outsourced TAM is really what we are addressing. One other point, obviously, to remember is our right to win. Now, inamarket whichisaslargeas$225billiongrowingat8%or34billiongrowingat12%,obviouslyalot of players come in because they want to share that pie. Now,what'shappened,though,unfortunatelyisbecausethesizeofthedamissolarge,alotof playersthathavecomeinarereallypointsolutionvendors,asIcallthem.Sothey'vedecided tofocusononeortwoormaybe,insomecases,fourorfiveofthesechoresandourthinking wasthatasthemarketmatures,buyerswillrealizethattheycan'tbeinthebusinessofbuying 10, 12, 14 point solutions, integrating them. And so our vision was we will create a platform that has the full breadth of these16-odd chores and eventually buyingbehaviorwillgraduatemoreandmoretothatplatformbuying behavior, andsohavingsaidthatbecausethatbuyingbehaviorisasortofgraduationcurve, today,wehavetoliveinthedualityofcertainbuyersthatstillarebuyingmorepointsolution and then early innovators that are starting todemonstratetheplatformbuyingbehaviorand that becomes a very important strategic execution predicament for us. Page3of23
Justinacoupleofminutes,I'lllayoutfivekeystrategicexecutionpillarsforourselves.Oneof those pillars, as a result of this dynamic of buying behavior, where some arebuyingpoint solutionsandexpanding,whereasothersarenowstartingtobuyplatform,wehavetoexecute in a way where weareleadersineachofthefeaturesoftheplatform,sowecanwininthe point solution buying behavioraswellasweare,ofcourse,theonlycompanyintheworld, perhaps, today, that has the full breadth of the platform. So,ifyoucangobacktothepreviousslide,that'sahigh-leveloverviewofthemarketplace. Letmenowtalkalittlebitaboutthefivekeystrategicpillarswithwhichweareexecutingin thisbusiness.AndsothefirstandforemostpillaristhatwearemovingtoanAI-led,AI-native manifest of this platform. AndsoI'vealwaysspokeninthepastaboutwestartedinahuman-led,tech-in-the-loopmodel and we've gone from human-led, tech-in-the-loop, now starting to go to tech-led, human-in-the-loop, but with the pragmatic use of GenAI, we now have another set of evolution happening rapidly, which is going from tech-led and human-in-the-loop to fully autonomous technology for certain features. So, that's going from human-led, tech-in-the-loop, in some cases to tech-led, human-in-the-loop, but in many cases to fully autonomous GenAI and the execution of featuresisoneofthemostimportantstrategicexecutionpillarsforourstrategygoingforward. That's number one. Number two, as many of you will remember, we acquired a significant-sized business called AQuity inthethirdquarterofFY24andwhenweacquired AQuity, we had to execute on that acquisition in four key dimensions. One,ofcourse,giventhesizeoftheirbusiness,whichisalmostsimilartoourbusinessatthat time,wehadtointegratethisintoonecoreorganizationthatcameacrossasaplatforminthe market. So, that, I'm happy to note, we executedreallywellonthat,mostlythroughFY25. That was one of the big focus areas of FY25. Thesecondpiecewas,asyouremember,AQuitywasaveryhuman-led,US-basedheadcount executionmodelandhenceitpresentedahugemarginoptimizationopportunityandoneofour key vectors of execution within the AQuity acquisition was getting their margin. If you remember,ourproformamarginsinFY24whenweacquiredAQuityhadgonetoabout24% and the idea was that as we transform AQuity's operating model, we'll be able to get our blended margins to the early 30s over a period of time. So,thatwassomethingthatwewouldexecuteonthroughmostofFY25andthen,ofcourse, from going into FY26 as well. The third key vector was AQuity's 450-plus large enterprise-scale clients. There was a bigopportunitytocross-sellthevariousfeaturesofthe IKS platform into the AQuity install base. Remember, we had 16 features in our platform AQuity barely had about three. So,itcreatedawholecross-sellopportunityandthatobviously,thatexecutionhadtobestarted late FY25 andreallywouldstartmanifestingmostofFY26onwards.Andthen,last,butnot Page4of23
the least another important vector was in addition to 450 clientsthatAQuityhad,theyhad another nearly 250 clients that were not those consolidated,enterprise-scaleclients.Andas youknow,thecostofservicingsmallclientsisalmostasmuchasservicinglargeclientsand they don't yield as good margins. So, the idea was through FY25 and FY26, we would cut a lot of that scale of AQuity customers,whichI'mhappytoreportalsoissomethingthatwe'veexecutedfairlywellonin FY25.Fromthetimeofouracquisition,wherewehad850-pluscustomers,nowwearedown to,asofMarch31st,2025,about700-oddcustomers,stillsomewaystogoinFY26,butthat's a vector that we have executed well on in FY25. So, that's the strategic pillar number two. Pillar number one, take the platform from human-led to autonomous in some cases and tech-ledinsomecases.Pillartwo,getalltheelementsoftheAQuityacquisitioncorrect.Pillar three, execute onthisthesisofbeingnumberoneortwoorthreeineachofour16features, evenasweareexecutingonbuildingtheplatform.Thatrequiresustoestablishleadershipin each of the features and prove that leadership through analyst rankings. We are typically focused on KLAS, and Black Book, Everest. And so,Ithinkwe'vemade significant progress along those lines in FY25 andIwilltalktothatthirdpillar.Thefourth pillar,obviously,isthegrowthstrategy.Onthegrowthstrategy,Ijustwanttoclarify,thereare essentially three market segments that we are operating in. Large health systems, mid-size health systems and independent physician groups that could be private equity-owned or sometimes they are public companies as well. Andinthosethree,wehaveadifferentiatedgrowthmarketstrategy. Largehealthsystems,the buying nature is still very, very rigid, on-point solutions. So, there are strategies we will continuetoorchestrate,alandandexpandstrategy.Wewillestablishleadershipinourfeatures andsellthosefeaturesasapointofentrytothoselargehealthsystemsandthenexpandfrom there. In mid-size health systems, I think we're already starting to see a graduation from point solution buying to platform buying. So, there ourstrategywillbe,themarketwillbemuch moreplatform-oriented.Andthen,veryinterestingly,inthePE-ledplatformsorevenpublicly tradedplatforms,we'restartingtoseemoreandmoreappetitefortheplatformbuying.So,just keepthisinmind,twoofthethreemarketsegments,mid-sizehealthsystemsandindependent position groups, we will see more and more of a platform driven growth market. In large health systems, we'll still have amorelandandexpandtypeofstrategy.That'sour fourth key strategicpillar,whichisourgrowthstrategy.Andthefifthoneisthatslowly,but surely,wewillcontinuetomovemoreandmoretoanoutcomecompany.Now,thisisareally importantareabecausemostofthehealthcareITecosystemthatexistsintheU.S.hasbeenin theworldof,wewillprovideyouapieceoftechnologyandleaveyouwiththechallengeof figuring out how to deliver economic or clinical value for it. Webelievethatoneofourgoalsgoingforward,basedonthehistoryofourcompanyoverthe last18yearsandthegeneticsthatwehavebuilt,withalittlebitoffine-tuning,wewillbetobe Page5of23
inthebusinessoftakingmoreandmoreaccountabilityfordrivingoutcomesforourplatform, ratherthanjustprovidingthemthewidgets.Andthatisagenepoolthatwearenowstartingto hone and build. And that becomes the fifth key strategic pillar of our execution approach. AndsowhatIwantedtolaythisoutforyouall,becauseeveryearningscall,Iwillnowrefer tothesefivepillarsofexecution,sothatwecanrelatetothemandunderstandwhatisworking init.Andifwehavetopivotonanyofthem,wewilltalkaboutthat.Sowiththatsaid,letme justquicklytalkaboutourexecutionacrossthesefivepillarsandputinthecontextofnumbers very quickly. First, ofcourse,let'sjustgotoourfeatureclusterplatformview.AndI'mhappytonotethat we've actually made significant progress in that transformation from both human-led to tech-led,butinsomecases,tech-led,autonomous,GenAIenabled.Ifyoulookatthechartthat Saransh is flashing, you'llseeScribbleisnow,wehaveavariantofScribblecalledScribble Now,whichisafullyautonomous,ambient,listeningScribbletechnologybuiltonGPT-4and in the market now. With Scribble Now, we now have the most comprehensive rangeofclinicaldocumentation solutions for physicians in the U.S., meeting physicians where they are in their journeyof using clinical documentation, all the way fromtranscription,dictation-orientedtranscription solutions to fully autonomous ambient listening technology. We've also made significant GenAI enabled progress in our coding feature, which is a very large feature in our platform. We already have the autonomous coding piece figured out for at least twoverysignificant medical specialties and we'll continue to progress that rapidly, having figuredouthowthat technology works andhavingtheaccesstomaturethattechnologybasedonallthedataand our involvement. So, significant progress towards autonomy in coding, massive progress towards autonomy and another veryimportantfeature,whichispatientcredentialclearance, which is essentially built around prior authorization. Many of you must have heard prior authorization for care that patients need is a very big challenge in the U.S. Often, lack of prior authorization leads to carenotbeingallowedfor patients,criticalcarenotbeingallowedinsomecasesforpatients.Andso,it'sahugeburden forphysicianstoprovethatthecarethattheyareabouttoprovidetothepatientorrecommend to the patients is actually needed for their condition. So, we've actually built a very exciting autonomous technology with EVE that actually addresses that problem. And then, there's been a whole bunch of progress from a GenAI perspectiveinseveralfeaturesofourrevenuecyclefeatureclusterwithinourplatform,where a lot of progress has been made in the denialpredictionandpreventiondimensionbecause revenue cycle is garbage in, garbage out. Themoreyoupreventatthefrontend,thelessworkyouhavetodoatthebackend.Andour denialpreventionstrategiesareavery,veryimportantpartofthat.Andthen,ofcourse,we've alsobeenabletomakesomeprogressfromourtechnologyperspectiveandGenAIperspective Page6of23
in predicting patient behavior and differentially nudging patients, both to improve clinical outcomes and financial outcomes. So, that's been some of the progress on that key vectorofmovingfromhuman-ledtoboth tech-led and autonomous-enabled through GenAI. What does this do for us? It does three things. It fundamentally improves the scalability ofoursolution.Itimprovesthevelocityat which we would scale, because imagine a platform deal that we would do. In a pure human-oriented model, it might take us six months to implement the platform. InanAI-orientedmodel,wemightbeabletoimplementtheplatforminthreemonths,across allthefeatures.So,scalability,velocityandthen,ofcourse,marginscontinuetoimproveasa resultofmoreandmoretechdeployments.So,tremendousprogressinthatstrategicvector.I will talk about our progress in the other four strategic vectors more in the context of our financial numbers. So,letmeprovideahigh-leveloverviewofourfinancialperformanceforthefiscalquarter4, for fiscal year FY25.IhavetosaythatIthinkwe'vehadatremendousperformancequarter that gives us a lot of excitement going into the future. For fiscalquarter4,we'rehappyto reporta17%year-on-yeargrowthinrevenue,cominginataboutINR724crores.Inadditionto this performance, it's important to note that this 17% growthisinspiteoftheheadwindof cutting the AQuity customer base. Remember,we'vetakenthatfrom850totalcustomerstonow700odd.Also,itwithstandsthe loss in revenue per customer that happens if we transform the AQuity margins because, obviously,weincentivizecustomerstotransformthemodelfromapureUS-basedtechmodel toatech-led,insomecasesaGenAIautonomoustechmodelsupplementedbyoffshorehuman capital in India. So, in spite of those headwinds in revenue, wehave17%year-on-yearrevenuegrowthand absolutely tremendous execution of margins. Our EBITDA came at INR226 crores for Q4 fiscal 2025, whichrepresentsa68%year-on-yeargrowthfromQ4orFY24.So,tremendous execution on the margins. Iwillsay,andNithyawillperhapsprovideabitmoredetails--thereweresomeone-offsinthe FYQ4-24numbersthatweredeflatingthemargins.So,thathaspartlycontributedtothe68%, but irrespective of that, thereistremendousgrowth.Andthen,ofcourse,that'sresultedina massive PAT growth of about 133%. So,tremendousexecutionacrossthetoplineandthebottomlineinQ4,leadingtoasuccessful quarter.EBITDAmarginshavegonefromthe24%proformathatwehadinFY24tonowQ4 FY25hascomeinalittleoffof31%EBITDA.So,Ithinkthat'sbeenatremendousprogressin this quarter as well. Andwestayontrackforthemarginoptimizationendeavorsthatwehadspokenaboutwhen westartedintroducingthebusinesstoyou.So,thisstartstospeaktothatsecondvector,which Page7of23
istheAQuityacquisition,right?Thesecondstrategicvector.We'refullyintegratedaswetalk on AQuity. Themarginoptimizationisinfullflow,whichhasledtothis31%plusEBITDAinFY25-Q4. And of course, there's alittlebitmoretocomeinFY26.Iwilltalkaboutthecross-sell.I'm happy to report that we've been able to cross-sell features of the IKS platform to four significantly large health system customers in the AQuity install base. We're not atlibertytorevealtheirnames,butsuperexcitedtoseethatearlygreenshootsof cross-sell play out. And thenIalreadysaidtherightsizingoftheircustomershashappened fromtotalcustomerbaseof850to700.So,thatsecondstrategicvectorisexecutionstrongly reflected in our numbers. OneotherthingIwanttosayaboutourQ4numbersis,Isaidthisonourlastcallaswell,in our business,duetoquarterlyseasonalitytypicallyit'snotnecessarilyagoodideatolookat Q-on-Qboth.ButIrealizethatyouguysareusedtolookingatQ-on-Qgrowthinadditionto year-on-year growth. So, we put those numbers here as well, if you look at the graphs aroundquickly.Andthe Q-on-Qgrowthonaconstant,onacollectivequarterbasisforFY25is10%Q-on-Qrevenue, nearly13%Q-on-QEBITDA,and14%Q-on-QPATmargin.So,notonlyastrongquarterof execution from a year-on-year perspective, but a very strong order of execution from a consecutive quarter basis as well. All of this, if you look at the bottom line, is essentially being enabled with strong transformationofmarginsinthelegacyAQuitycustomerbase,butthenalsosometremendous customer additions that we've had, that we are happy to announce. And I'll put them in perspective of our market segments. The first one I'd like to talk about is SkyLakes.Thisfallsintothatmid-sizehealthsystem marketplace.WhenIspokeaboutourgrowthstrategypillar,Ispokeaboutthemarketsegment, andIsaidmid-sizehealthsystems.Mid-sizehealthsystemsareshowingmoreandmoreofa proclivity to the platform construct. And so, happy to report that Sky Lakes has actually committed to the entire IKS Care enablementplatformfortheiremployedphysicianbase.Superexciting.It'samid-sizesystem inthePacificNorthwest.Ourdefinitionofamid-sizehealthsystemisonethathasrevenues south of about a billion dollars. So, $250-$300 million to billion-dollar health system range is how we think about these mid-sizehealthsystems.What'salsoexcitingaboutSkyLakesis,ifyouremember,wehave16 features that enable the physician business. Butwewerealsobeingpulledbythehealthsystem,thehospitalownershipforthesephysician businessesinthemarketsegmentofthehealthsystem,saying,whydon'tyouapplythesame Page8of23
coreversustruedisciplinetoourhospitalbusinessaswell?Andwewerejustsortofdabbling in it. But,youknow,thewayIKStypicallyworksiswhenwewanttoreallylaunchinaparticular space,weliketotakeonownershipofthefunctionend-to-end.So,inSkyLakes,whatmakes it super exciting is they've also given us ownership of their entire hospital revenue cycle. Now,you'llseethatinthehospitalRCMspace,therearemanyvendorsthatdopointsolutions, evenwithinRCM,wherethey'lljustbedoingARfollow-uporpatientAR.WithSkyLakes, wehaveresponsibilityfortheirentirehospitalrevenuecycle,inadditiontothemanifesttothe full care enablement platform in their employed physician base. Important to note that if they're able to manifest and grow this business effectively in the hospitalRCMspace,thatactuallyexpandsthat$225billionTAMbyanothermaybe$50-odd billion, which is the hospital RCM TAM. So, super excited about Sky Lakes, reflects that strategy that we have around mid-size health systems for clarity to buy more and more platform use. Secondexcitingdeal,WesternWashingtonMedicalGroup,alreadyanRCM,customerofours, independentmedicalgroupinthePacificNorthwest,alsohasembracedthefullmanifestofthe IKS Care enablement platform. Again, right in sync with our strategy, two segments of the market, showing proclivity to platformconstructs,mid-sizehealthsystems,andindependentmedicalgroups.Theycouldbe private equity or they could be publicly traded. Western Washington, fine example of that. Third, super exciting win, Platinum Derm, another private equity-owned dermatology platform, maybe the number two largest platform for dermatology inAmerica,alsowasan RCM customer initially,andnowthey'veembracedthefullbreadthoftheIKSplatformthat we implemented there. Anotherveryimportantwin,OrthoNY,thatreallystartstoputusintheorthopedicspecialty, which isalsogoingthroughmassiveconsolidation.Andthey'veembracedourrevenuecycle platform and are also doing some innovative things with us in thepatientengagementhub future of our platform. Andthenlastbutnottheleast,amassive,massivewinforuswithGIAlliance.Thisisa$2.5 billion-plus company that employs 1,000-plus digestive health physicians. Again, $2.5 billion-plus in revenue, the world's largest digestive health physician roll-up. They were recentlyacquiredbyCardinalHealth,whichisaFortune50company,foracashconsideration of maybe $3.9 billion. With thatacquisition,CardinalhasalsoannouncedthattheywillbeexpandingGIAlliance's capabilitiesintootherspecialtieslikeurology.Andtheideatherereallyisforustobecomethe de facto RCM execution platform for all of their endeavors across all of their specialties. Page9of23
Soareally,reallymarqueeandexcitingsetofwinsthat,again,talktothestrategythatwehave for growth, where mid-size systems and independent groups are showing more and more proclivity to buy platforms. Large healthsystemsstillcontinuetoshowmorepoint-solution behavior. Lastbutnottheleast,myremarksis,ifyouwouldgototheexecutionthatwe'rehavingaround beingaleaderineachofthefeaturesversusbuildingthewholeplatform,andthat–I'mreally happy to announce that Black Book has recognized us. Next graph slide. BlackBookhasrecognizedusasthenumberoneplayerinAI-drivenRCMSolutions,critical documentation, and medical coding. And then in addition to that, CLASP continues to recognize us as the number one player in transcription, but they've alsoindicatedthatthey would collapse, all of the variants of critical documentation into one category. Andiftheydidthat,Ithinkweemergenaturallyasoneoftheleadersinthatspace.Andthen, ofcourse,fromahygieneperspective,wecontinuetoadvancealloursecurity-relatedcontrols to the HITRUST r2 certification. Soallinall,avery,veryexcitingandsuccessfulexecutionorderthatIthinkencapsulatesall thehardworkthattheteamshavebeendoing.Ataveryhighlevel,aswetouchuponFY25, beforeIturnitovertoNithya,FY25–ifyougotothatgraphslideforFY25–ayearofstrong execution, 47% year-on-year growth in revenue that has led to nearly a 50% year-on-year growth in EBITDA. RevenuecameinatINR2,664crores,resultingina791-oddcroresEBITDAthatthencreated a INR486 crores PAT, whichwasanearly31.2%year-on-yeargrowthforFY25.Obviously, the PATgrowthismutedrelativetotheEBITDAgrowthbecauseoftworeasons.Oneisthe interest that came on the debts that we had taken on to acquire AQuity. AndsecondistheamortizationoftheintangibleassetsthatcamewiththeAQuitytransaction. So, again, to sum it up, a strong order of execution, FY24-FY25 Q4, resulting in a pretty strongyear,goodexecutionacrosseachofthosefivestrategicpillarsthatwewillkeeptalking about. With that, I will turn it over to Nithya. IhaveoneotherremarktomakeafterNithyafinishesrightattheend.Butwiththat,Nithya, over to you. NithyaBalasubramanian: Thankyou,Sachin.Saransh,ifwecanflashslide15.IthinkSachinhasprovidedyouenough color on revenue, so I'lltalkalittlebitabouttheexpenses.Ifyoulookatslide15–I'llstart with Q4 commentary and thengiveyouabitmorecolorontheyearaswell.Ifyoulookat employee benefit expenses, which tends to be our largest expense item, You will actually realize that we have been able to reduce that significantly both year-on-year as well as quarter-on-quarter. If you compare it to Q3, this number was 57.3% as a percentage of Page10of23
revenue.Fromthere,wehavebeenabletobringitdownto51.8%.Andifyoucompareitto Q4 of last year, that number was 60.8%. Wehaveactuallybeenabletogrowrevenuesdespitethereductioninheadcount.Headcount, youwillnotethatwewereat13,241attheendoflastyear.Fromthere,inQ4FY25,weended the year at 12,661. If you look at adjusted EBITDA, which excludes ESOP cost, that's still at 32.8% for the quarter.EBITDA,asSachinhadmentioned,stillat31.2%comparedto30.5%inQ3,a70bps marginexpansion.AsyoucompareittoQ4oflastyear,thatnumberwas21.7%.Sosignificant expansion compared to last year. It'sbeendrivenbytwo,threedifferentfactors.Onewas,ofcourse,therewasalittlebitofa one-off in the base, which was towards the integrationandacquisitioncostswhenwewere acquiringAQuitylastyear.Butevenexcludingthat,marginshaveexpandedverysignificantly driven by one realization of cost synergies in the administrative expenses. But more importantly, the transformation of AQuity's business model, wherewehavebeen abletodobothacombinationofdeploymentofIKS'stechaswellaschangingthemixfrom onshore to offshore. And of course, there's been a ramp-up of the new customers as well. Lookingatfinancecost,wehadaboutINR20croresoffinancecostinthequarter,andD&A wasatINR28crores.Year-on-year,you'llactuallyseeameaningfulreductioninfinancecost, andthathasbeendrivenbyourstrongcashgenerationandthereforeourabilitytopaydown debt. IfyoulookatETRforthequarter,itwasabout18%,butforthefullyear,itwasabout19%. ThistookbacktoINR148croresor20.4%intermsofmargins.TheETRforthefullyear,as wementionedbefore,was19%,butpleaseexpectETRforthenextyeartobearound21%to 22%, because we will be loosing some tax breaks on one of our SEZ units. Afewmorecommentaryonthefullyearnumbers.Thefullyearrevenuegrowth,asyouwill note,is46.5%,butdorememberthatthebaseFY24includesfivemonthsofAQuity.Weended theyearwithanEBITDAof29.7%,andyouwillnotethattheproformaEBITDAofIKSand AQuity combined for 12 months in FY24 was 24%. So a significant margin expansion compared to FY24.FinancecosthasincreasedtoINR89 croresforthefullyear,butthisisduetothefullyearimpactofthedebtthatwehadassumed whenweacquiredAQuity.ThefullyearPATwas18.2%,asagainstthe20.4%lastyear.Please notethattheproformaPATwasactually12%,soagain,comparinglike-to-like,PAThasalso expanded quite significantly. Saranshifyoucangotothecashflowslide.Soourcashflowremainsvery,veryhealthy.If youlookattheoperatingcashflow,weendedtheyearatINR434crores.Ifyoulookatfree cash flow, it ended at INR275 crores, both of which represent very, very strong growth Page11of23
year-on-year.ThisisdespiteaINR139croresperformanceguaranteethatwehadextendedto Palomar Health, one of our marquee clients. Wehaddiscussedthiswithyouinthelastcall.Ifyoulookatournetdebtposition,again,we havebeenabletobearitdownquitesignificantly.IfyoulookatFY24,weendedtheyearat INR860 crores. From there, we have been able to bring it down to INR560crores.Again, despite the performance guarantee we had extended. If you can go back one slide up.So,EPSforthefullyearwasINR29andreturnonequity remainshealthyat27.2%.TheGAAPbetweenFY24andFY20is25,largelyexplainedbythe fact that some ofourstrategicinvestmentswererevaluedatahighernumber.Therefore,the equity expanded without any commensurate expansion in profits. Now I will stop my remarks here and hand it over to Sachin. Thank you, Nithya. I appreciate all the details. So, as you saw, a really strong quarter of execution and really a strong fiscal year ofexecutionthathasnowresultedinusbeingone platform that is ready to execute in this mission of creating, pretty much, what is a new market. AndSaranshyoucanmovetoslide5formylastsetofcomments.Iwanttoendbysayingthat it's really important to also recognize what'shappeninginthemarket.Inadditiontotalking throughthenumbers,myothertwoobjectivesfromthiscallwastolayoutthefivepillarsof our execution strategy for you. Sothatwecancontinuetorefertothosepillarsandbuildaconsistencyinourdialogue.And thesecondwasthiswholeconversationaroundmakingsurewecalibrateonwhat'shappening in our market from a competitive perspective. Justtoputitinperspective,there'sbeen$45 billion of equity investment from 2021 to 2024 in this larger healthcare IT landscape. This$222billionTAMandnowthe$275billionTAMwithAcuteRCMcomingin,aswellas the$35to$40billionTAMthat'salreadyoutsourcedthat'sgrowingat12%.Importanttonote, what are the key characteristics of this investment of $45 billion? MostofithasgonetowardswhatIcallpointsolutioncompanies.Alotofitspecificallywithin pointsolutions,revenuecyclepointsolutions.So,whetheryoulookatthebigboyR1thatwas takenprivatefrombeingpublicbyCD&RandTowerBrookforavaluationof$9billion,even when they were barely making any net income, $3 billion net income. Orwhenyoulookatsomeofthemarqueeprivateequityarms,Indianarmsofmarqueeglobal private equity firms investing in more India-based tasks, RCM vendors that are trying to graduate and go upstream in working directly with healthcare providers in the US. For example, the GeBBS, the Accesses and the Infinixes of the world or the AGSs ofthe world.OrthenyoustartlookingattheUS-basedventurecapitaltypeleadingplayerslikeyou starttothinkaboutthemoneyraisedbyanabridge,whichasyouknow,isactuallyoneofour strategic investments as well. Page12of23
And we had investedjustabout18monthsago,perhaps,atapre-moneyvaluationofnearly $100million.Andtheyjustraised$400millionatavaluationof$2.75billion.So,within18 months, the valuationhasgonefrom$100millionto$2.75billion.Ofcourse,theydon'tyet make money and they're predominantly a point solution when they're specifically in the ambient Gen-AI critical documentation space. Or Suki, for that matter, where Zoom made a strategic investment and they're alsoapoint solutionforcriticaldocumentation.Orforthatmatter,Innovaccer,wheretheyrecentlyraiseda bigchunkofcapitalatavaluationof$3.5billion.Allthistosaythatthere'salotofinvestment happening in this space. And in my mind, that investment signals three things. First,itisanimminentrecognitionofthemassiveopportunityinthisspace.So,thatisreally important. The type of players that are investing and the quantum of capital that is being invested is massive. Second, naturally,that'sgoingtocreatecompetitiveintensity.Andso,yes,weshouldexpect significant competitive intensity backedbylargepoolsofcapitalinthesespaces.Butwhat's exciting for us is really, if you think about it, most of these companies arestillverypoint solution oriented. Especiallyaftersomeofourwinsofthisquarterandlastquarter,wefeellikeourstrategyof wheretherewillberecognitionbythebuyersofthevalueofthewholebeinggreaterthanthe sumoftheindividualpartsandthegraduationtowardstheplatformapproach,Ithinkisgoing to be a very, very important cornerstone of our strategy. Andhopefully,ifwecantranslatethattoalsoreallymakingsurewedeliveroutcomesfromthe platform,itstartstocreateamodethatinspiteofallthiscapitalgoingintothesepointsolution companies. We will be able to withstand the competitive intensity that is coming our way without compromising margins. Andthenlastbutnottheleast,humbly,Iwantustothinkalittlebitaboutthecapitalefficiency withwhichwearebuildingthebusiness.Asyoucansee,somuchcapitalisgoingintoeachof these point solution companies. And here we are building the full breadth of theplatform, essentially through the internal accruals and the power of our own organic balance sheet. SoIwantedtobringthattoaconclusion.Inconclusionofmyremarks,again,astrongquarter ofexecution.Hopefullythroughthisdialogue,we'llcontinuetocalibratemoreandmoreonthe strategic execution pillars and continue to report our performance against them. One last remark, obviously, given that this is still a market that is being discovered atthe platformlevel,Idowanttohighlightthatwe'renotyetinourmarketatthelevelofmaturity where you can model out exactly what the growth curve will look like. And hence, I've humbly been saying, look, I believe we will grow faster than theTAMis growing. The TAM is growing, the outsourced TAM is growing at 12%. I do believe Page13of23
fundamentally,ifyoumodelusoutinthelongterm,wewillcontinuetogrowfasterthanthe 12% and our earnings growth will continue to be faster than the earlier growth. But it's impossible for me to provide any guidance as it relates to what will happen next quarterandnextquarterafterthat.SoIknowmanyofyouareanxiousforthat.Manyofyou arewonderingifitwasINR225croresofEBITDAandQ4FY'25,howmuchcanwelockin from that for FY '26? Ijustwanttohighlightthatit'snotamatureenoughmarketwhereIcangiveyouthattypeof guidance, which is why I will continue to refrain from giving guidance about future performance.Andifyoucouldpleasekeepthatinmindasyouaskquestions.Withthat,thank you for your time and attention. I will turn it back to the operator for questions. Thank you. The first question comes fromthelineofRuchiMukhijafromICICISecurities Limited. Please go ahead. Ruchi,ifyoucanpleaseunmuteyourlineandaskyourquestion. Sincethereisnoresponse,wemoveontoournextquestion,whichisfromthelineofSameer Shah from ValueQuest. Please go ahead. SameerShah: Yes, hi. Congrats, great numbers. First question is if you would like to address the UnitedHealthcarenewsflowandtheimpactthatitwouldhaveonourcompany.Andsecond, youknowtheselargedealsthatwehavesigned,typicallywhendothey,whendothey--what is the kind of ramp up time that they would take? All right. Thank you for the question and your compliments. Appreciate it. First, UnitedHealthcare. Look guys, it's obviously a difficult time for them. They have been hammered with three macro issues that have hit them sort of back to back, right? One of course is the HCCVersion28thatiscompressingtheirmarginsontheMedicareAdvantage contracts that they have, which is a big part of their business. Second,asyouknow,theCEOoftheirinsurancebusinessgotassassinatedjustafewmonths ago.Andthird,theyhavethisbigsecurityissuewithChangeHealthcare.SoIwilltellyouthat there are not manyothercompaniesintheworldthatcanwithstandthreesuchbacktoback events that come at them in such dramatic fashion. Havingsaidthat,theyarestilltheworld'slargestcommercialhealthinsurer.TheyIthinkhave something like 60 million American lives insured, just to put that in perspective. Andyou know,therealityisIKS'srelationshipwithUnitedHealthcareisthroughOptumHealth,which isabout$110billionsubsidiaryofUnitedHealthcare,whichemploys50,000plusphysicians, the world's largest physician employer. And we obviously are building our care enablement platform for OptumHealth. And remember, ourcareenablementplatformworksonthenon-discretionaryspend,ontheopex. And so our platform is all about creating more financial value from the opex that they're already incurring. Page14of23
Soifyoulookatwhat'shappeningwithusoverthelast18months,wherethey'vebeenhitby these three dramatic events, I think our business with OptumHealth has grown at least 25%-30%ifnotmoreoverthatduration.Sowithoutgoingintoanyspeculativethinkingabout what might happen, the CEO has changed. Look, thebusinessisn'tgoinganywhere.It'stheworld'slargestcommercialhealthinsurer.It has too manyliveswhereanything'sgoingtogowrong.It'snotliketheydon'tmakemoney anymore.Theymakemoney,buttheymakelessmoneythantheyusedtobecauseofindustry headwindsthattheyarefacing.Andsothey'rehavingabigvaluationdecline.Andinacountry likeAmerica,bigvaluationdeclinemeansCEOshavetotakethehit.Andsothat'sreallywhat is happening. Ourrelationshiphasonlygrownoverthisperiod.Andwehavenoreasontobelieve,basedon the nature of our relationship, that these headwinds thattheyarefacingcreateanythingbut tailwinds for us. Now, again, I don't want to be speculative, but I will tell you that from everything I'm able to see rationally, taking the emotion out, the OptumHealthrelationship looks very, very strong for us going forward. The second question you have, Sameer, is as it relates to the ramp-upofthenewstrategic customer that we assigned. I will say, Sameer, typically what happens is full-platform executiontakessomewherebetween4to7months,giveortake,dependingonthesizeofthe customer.Andifitisonefeaturethatweareimplementing,typicallythatcancomethroughin about 3 to 4 months. So that is thewaytothinkabouthowtheseramp-upshappen.Andobviously,dependingon which feature it is,howmuchtechinterventionthereisornot,someofthistimelinecanbe accelerated or not. But generally, those are sort of good benchmarks to keep in mindasit relates to ramp times due to implementations. Sameer Shah: Super. Thanks. I'll rejoin the queue. Thankyou.ThenextquestioncomesfromthelineofSrivathsanRamachandranfromAvendus Spark. Please go ahead. S.Ramachandran: Hi. I wanted to get your thoughts ontwothings.Youmentionedaboutthechangesthatare happening in the industry with some of the private equity capital and changes, right?This coupled with AI, how do you see it?Becausethebiggestdifferencefromabusinessmodel point of view means the outcome-slash-output-based pricing model you had. Doyouseecustomersorcompetitionkindofchangingthis,offeringotheroptionswhichwere in the benefits of technology and technology improvements withinclients?Anybigmarket changes you've seen because of these two changes that's happening in the market. So,thankyouforyourquestion.Iappreciateit.Look,asIwassaying,whenthereisthismuch capitalbeingputbehindpointsolutionsandthereisademocratizationandaccelerationofthe development cycles due to something like AI, obviously at a point solution level, the Page15of23
competitiveintensityisgoingtogoup,whichiswhyifyourememberoneofourkeypillarsof ourstrategyisthatwewanttocontinuetostrivetobenumberoneortwoorthreeineachof our features, while we are the only company in the world building the full breadth of the platform. And I think that really is addressing that issue, right? The reality is that Gen AI is commoditizing the rapid advancement of these features is a reality. Our alphafromthatperspectiveisdeepcustomerrelationshipsthatgiveusaccessto data and context to mature the Gen AI faster thansomeofthesenewcompetitors,evenno matterhowmuchcapitaltheyhave.Thatcontinuestobeanadvantageforusisthedeep,like thinkaboutitrightnow,GIAlliance,it'stheworld'slargestinstallationofGIdoctorsbyalong way. Like this number two player is probably not morethan300or350doctors.Theseguysare morethan1000doctors.Nowthinkaboutourabilitytobuildthecareenablementplatformfor GI better than no matter anybody else that comes in with a large amount of capital, we naturally have an advantage, whether it's at a featurelevelforGIspecialtyorataplatform level. So I think, absolutely, we shouldexpectmorecompetitiveintensity,weshouldexpectmore players at a point solution level. Our strategy to win at the pointsolutionlevelisthedeep customer relationships we already have that allow us to mature the data.Andourstrategy, obviously larger strategy to win against point solution vendors is this whole graduation towards platform buying behavior. Having saidthat,Ithinkweliveinavery,verydisruptiveworld.Andsooneofourbiggest opportunities is to stay extremely alert from a competitive perspective and track the implications of competition in the marketplace day to day. S,Ramachandran: Sure, thanks. I just haveonequickquestion.TherunoffofrevenuesontheAquityrevenue, you're more or less done close to the bottom of it. I just wanted to get your thoughts. No,likeIsaid,whenIwasarticulatingthesubvectorsofthatAQuitystrategicpillar,that-- thattailcuttingwillcontinuetoFY'25andthelargerpartofFY'26.Andsoitisnotdoneyet. And we will see, because remember, I said that we went from 850 total customers to 700. Ourendobjectiveistobeendingupsomewherebetweenthe550to600range.Andsothere's stillsomeworktobedoneandthere'sstillsomecustomerslefttobetransformedfromaU.S. based headcount operating model to a tech-led offshoreheadcountenabledmodel.Sothose two things will continue to FY26. S. Ramachandran: Sure, thank you. I will come backlater. Thank you. The next question comes from the line of Nilesh Jain from Astute Investment Management. Please go ahead. Page16of23
Hi, thank you for the opportunity. Great set of numbers. My first question is, I wanted to understand your strategyonyourtop10clients.Soifyoulookatyourtop5clientstheydo average revenueofaround$15million.Youwanttounderstandthepotentialforthosetop5 clients. And what is our strategy to further cross sell or increase our wallet share there? Andthenonthenexttop5clients,whereinwedoaround$8millionaveragerevenue.Howdo we plan to grow these clients? Okay,great.Thankyouforyourquestion,Nilesh.Sothereality,Nilesh,ifyoutakeourtop5 clientsorourtop10clients,allofourtop10clientshaveawalletpossibilityofatleast$100 millionayearACVwithus.Sofornoneofourtop10clientstoday,wecansaythatweare anywhere close to the full wallet potential that they have. Our largest customer, the fullwalletpotentialisNorthof$300million.Sothesimplemath, whetheryoulookattop5ortop10istocontinuetomanifestthelandandexpandplaythatwe have with them. And the fact that the top 5 and the top 10 are growing is actually demonstrating the fact that that land and expand play is continuing to work out. Now,theotherthingthat'shappeninginthatmixiswearenowstartingbecausewearegetting midsize customerandindependentmedicalroomsthataremanifestingthefullplatform,that listoftop5ortop10israpidlychanging.Andthat'swhyyouseesomeofthosevintagesin thosecustomerschanginginthedeckisthattherearesomenewcustomerscominginwitha full platform manifest that day one become a top 10. AndsoIthinkthistop5,top10isstillalittlebitimmature.Thewaytothinkaboutitisweare nowhere close to full wallet share in any of our top 10 customers. Some we have more headroom,somewehavelesserheadroom,butthere'sheadroomacrossallandthenthetop5, top 10 list, hopefully, if we execute well onourstrategicvectorsisactuallylikelygoingto change over the next, say, two, three years. Becauseifwekeeplandingmoreandmoreplatformcustomers,theynaturallygraduatetothe top 10 faster than some of the other customers. Okay,givenit'sdynamic,ifyouacquire,youmightlikelastyearyouacquiredPalomartype deal.Sothatwouldchangethetop10clientsgiventhesohowshouldwelookatthegrowthon that side? Soyourtop10clientsandthenobviously,undertherestoftheclients,obviously, depending how you cross sell them? Nileshitisveryhardformetogiveyouawaytomodelthat,thewaywhatIwouldmodelis every year 80% plus of our growth willcomethroughexpansionofexistingcustomersand under20%willcometotheadditionofnewcustomersthatIcantellyou,butit'sveryhardfor me right now in this relatively immature marketplace, where there are so many dynamics graduation from one solution behavior to platform behavior in certain market segments. Page17of23
Fulladoptionoffeaturesbylargehealthsystemsthatwetraditionallynotseen,it'sveryhard for me togiveyouhowtomodelourtop5,top10.Iwilljustsay80%oftheretailgrowth, 80% plus from existing customer expansion and under 20% from new customer acquisition. Okay,mysecondquestioniswehaveseenagoodamountofreductioninyouremployeecount byalmost450employeesfromthepreviousquarter.Sowhatisdrivingthisefficiencyandhow do we see the employee count grow for the next FY26? SoNileshthewaytothinkaboutisNithyahasthisstatistic,I'llaskhertotellthespecificsofit where for FY20 to 24, our revenue grew significantly faster than our headcount. That non-linearity demonstrates the power of our technology led disruption. And there are two vectors in our technology led disruption, where we go human led to tech led, which is incremental reduction of headcount for the same solution. And then there's human led to fully autonomous, where the disruption of headcount is significant. And that is also being manifested predominantly in the AQuity customer base wherewe'vedramaticallytransformedtheAQuitymarginsfromwhereweacquiredthem.So that's the way to think about it, we will continue to drive non-linearity. We have remember now I think about 460 odd technologists that are writing a lot of this proprietary technology. WehaveaGenAIcenterofexcellencethatisproducingalotofthis technology. And so that trend is going to continue after Nithya if you have that statistic. NithyaBalasubramanian: So theemployeecountreductionyou'reseeinginNileshispredominantlydrivenbythefact that we have been able to deploy both IKS astechnologyaswellasthetransitionbetween onshoreandoffshore.IfyoulookatlegacyIKS,whatwehavebeenabletodemonstrateinthe pastisnon-linearitybetweenrevenueandemployeecountgrowth.Ifyougobackandlookat FY20 through 24, our revenues grewabout25%andinthesametimeframe,ouremployee count grew only 10%. SoasthetechmaturesandIthinkSachinhasmentionedseveraltimesbefore,itremainsavery high priorityforusandwecontinueinvestingthereandthereforewehopetodoasmuchor betterintermsofourabilitytodrivefasterrevenuegrowthwithloweremployeecountgrowth in the future as well. Allright.Justalastquestionorbroaderquestionontheindustry.Likeyoumentioned,majority oftheprivateequityplayershavebeenacquiringpointsolutionbasedcompaniesandfocusing on theRCMside.Soandthesecompanieshavenotbeenabletomakeaprofitasyouknow IKS has been able to generate. So what do you think why these companies have been able to - - have been facing such challengesgivenyouaretheleadermakingtop30%marginsandtheyhavebeennotableto evenmakedoubledigit.Whatdoyouthinkisthechallengetheyarefacingandwhatweare not facing? Page18of23
SoNilesh,Iwilltrytorefrainfromcommentingonwhattheyarenotdoingright.Icantellyou whatwearetryingtodoandwhatwearetryingtodois--IKSbuiltabusinessmodelwhere ourpricingwasoutcomebased.Wegetpaidasapercentageofthecustomer'srevenueandso that's when you combine that with our ability demonstrated ability to constantly drive non-linearitybyreducingtheheadcountrequiredforaparticulartaskattheunittasklevelthat naturally creates a margin accretive business model in which the customer certainly wins becauseweareactuallycollectingmoreandmoreforthemandwewinbecauseweareableto collect that at a lower cost and since your question was RCM only I am focusing on that. Soit'sbasedontheinherentstructureofthebusinessmodelthatwebuiltfromtheget-gothat perhapsweareabletodrivemarginsuperiorityandthatisalsooneoftheotherreasonswhyI said that we willcontinuetomakethatoutcomesorientationoneofthefivestrategicpillars thatwewillexecuteonnownotjustforRCM,butfortheentireplatformbecauseIactually fundamentally believe when I talk to buyers across the country. I'mfindingthatthereisafatigueemerginginbuyersofbuyingthenextbestAIpointsolution and then figuring out whether it delivers value or not and if they find models where their outcomes are aligned tothevendoroutcomesIthinkthere'sadifferentlevelofproclivityto that construct. So again I've been refraining from commenting on sort of what they are not doing right because I'm sure they'reverysmartcompaniesandthey'llfigureitout,butmybestguessis that the fundamental structure of our business model and our execution drivenarounditis what has driven our margin superiority. Nilesh Jain: Okay. Thank you so much and all the best.I'll join back in the queue. Thank you. Thank you. The next question comes from the line of Seema NayakfromICICISecurities Limited. Please go ahead. SeemaNayak: Thanksfortakingmyquestion.Myquestionismoretowardsthesector.Sowhatpercentageof ourrevenueisfromMedicaidandhowdoesthereductionintheMedicaidspendingimpactthe provider ecosystem? Great question. Thank you. So please understand that our customers tend to have a fairly healthy payer mix depending on specialty. Some of them have no Medicaid at all and depending on specialty they do have Medicaid and so I don'tknowthatIcangiveyouthe Medicaid percentage of our revenue across our entire customer base. IfIweretohazardaguessit'sprobablylessthan10%acrossourentirecustomerbase.Having said that again I keepreiteratingthislookweareinthenon-discretionaryopexbusiness,so when reimbursement per unit of care is cut which could be first of all to understand the Medicaidpolicytheyarenotcuttingthelet'ssaythattodaythegovernmentreimburses$100 per unit of care for Medicaid. That $100 grows every year based on a certain rate of inflation. Page19of23
Whatthegovernmentissayingisifitwasgrowingat4%ayear,they'regoingtoreducethat growthfrom4%to2%.Sofirstofallonanabsolutebasisthereimbursementperunitofcare isstillgoingtogrow.Thegrowthwillcontractandsecondwhenthereimbursementperunitof careisnotgrowingasfastandtheircostsarestillgrowingdramaticallyitactuallyputsmore pressure on the customers to adopt our model further. So from my perspective I don't look at the Medicaid growth contraction not Medicaid contraction.ButtheMedicaidgrowthcontraction,Idon'tlookatitasaheadwindforusandof course it's a small percentageofouroverallpayermixbutnevertheless,tomorrowthesame phenomena is being faced in Medicare physician fee schedules as well, andinmyopinion that's an imminent tailwind. SeemaNayak: Yes, thanks and one more question recently there is a news that Aetna is leaving the US healthcare space so does that affect us in any way? I'm sorry, I couldn't catch that questionma'am. Can you can you repeat that slowly sorry? Seema Nayak: So, Aetna is going to leave the US healthcareinsurance space so does that affect us? No not really. Seema Nayak: Okay, thanks. I'll get back in the queue. Thankyou.ThenextquestioncomesfromthelineofChetanShahfromJeetCapital.Pleasego ahead. ChetanShah: Hi, thank you Sachin and team and congratulations for a greatsetofperformanceoverthe years. Just two quick questions in your opening remark you mentioned about intensifying competitivescenario,andalsoinoneofthequestions,yousaidthatitisstillastillapremature stage,becausethecompetitionisinainaninvestmentmodeandtheyarenotexactlyproviding the full-fledged service the way what we are doing the business. Somyquestionishowdoyouseethis,thisthingevolvingoveraperiodoftimeandinterms of business model and margin, how will this impact us? That is the first part of question. Andsecondpartofquestionisthekindofcashflowwhatwegeneratedowehaveanyplan apart from reducing our debtfromthebooksandintermsofanykindofinorganicsmallor large opportunities something what we did in last 6 to8quarters?Thesearethetwobroad questions. Thank you so much and once again congratulations. Thankyouforyourkindremarksandthankyouforthequestion.Seelookintermsofwhatthe futuremightholdintermsofgrowthofrevenueandmargins,likeIwassayingearlierbecause oftherelativeimmaturityofthismarketrememberonly$35-oddbillionofnowoverthe$270 billion TAM is outsourced so far so it's highly immature it's very fragmented competitive intensity is increasing. Page20of23
So,it'sveryhardformetohazardaguessbywhichyoucanmodel,butIunderstandyouguys havetomodelsowhichiswhyI'vealwaysmaintainedlookiftheoutsourceTAMisgrowing at 12% mypointisifI'mgrowingfasterthan12%I'mgainingmarketshare,ifI'mgrowing slowerthan12%I'mlosingmarketshareallI'mabletosayisiftheoutsourceTAMisgrowing at12%IthinkwewillgrowfasterthanthatoutsourcethatoutsourceTAM,nowthatgrowth accelerates to 15% and we gain market share it will be faster than 15%. Ifthatgrowthde-accelerateswhichIdon'tseede-acceleratingitmightbelowerandthenthe otherthingI'mabletotellyouisbasedoneverythingIamseeing,Ihaveconfidencethatfor the next several years our margin growth will be faster than that revenue growth that I'm talking about. Soourfocusisongainingmarketshareversustryingtopredicttheexacttrajectoryofgrowth andourfocusisoncontinuingtoprovethesuperiorityofourmodelbyhavingindustryleading marginsthatcontinuetogrowfasterthantherevenuegrowth,sowe'retryingtotellyou that its very hard to tell you what the revenue growth and profit growth willexactlylooklike. That's number one. On cash flows a great questionlookIthink,ifyouseeour18yearsofhistorywearenota natural acquirer type ofcompanyweareveryorganicgrowthbasedcompanywedidavery significant acquisition in Aquity we have taken a good 18 months todigestintegratethat's we've laid out the fourkeyvectorswithinacuitythatweareexecutingon,wehaveperhaps complete execution on two of the four vectors, two are still ongoing. Ithinkourstatedstrategyisnottoacquireourstatedstrategyistogroworganically.Wemight havesomeusesofcapitalperiodicallyinthesetypeofuniqueoutcomeorientationdealswhere we might be able to participate in the outcomes that we create for our customers thereby demonstrating skills again and driving that type of platform behavior. Sothosemightbesmallerusesofcashthanatypicallylargeacquisition.Alsojustgenetically ourleadershipteamisnotverycomfortablewithdebteventodayourdebtisIdon'tknow0.6x somethinglikethatEBITDAandwewouldliketooperateconservativelyinamannerwhere eventually there is little to no leverage in the business. So stated strategy not acquisition oriented never say never but there might besomeusesofcapitalinoutcomeorienteddeals with customers. Chetan Shah: Thank you so much Sachin for this, I'll come back in the queue. Thank you so much. Thank you. The next question is from the line on Nilesh Jain from Astute Investment Management. Please go ahead. So, like last year we did Palomar typeofdealwhereinwepaidanupfrontamount.Arewe looking for any such more type of deals for FY '26 or in FY '27 as well? It was a great question, thankyouforthequestion.SeeifyouthinkaboutthePalomardeal shortly after the Palomar deal we did another deal that I just announced called Sky Lakes Page21of23
which is in that mid-size health system segment, and that Palomar deal by upfronting the incentivewecreatedaprecedentofalargemid-sizehealthsystemembracingthefullplatform which has already paid dividends not only in Palomar but now paying dividends in the construct of Sky Lakes, as well because they got the confidence that another peer health system was able to you know embrace the full platform successfully. And of course in Sky Lakes we did not havetoincentivizethemwithanysortofoutcome orientation. So, Nilesh, Ithinktheshortanswerisineachofthesemarketsegmentssmartly andstrategicallywemightdooneortwoexampledealsthatmightplayoutoverFY'26and FY '27. But it is not the way we are going to continue to operate. So,yesit'spossiblethattheremightbetwothreemoredealsfordifferentmarketsegmentsthat mightemergeoverthenext12to18months,butwefeelveryconfidentaboutourstrategyand theotherthingIwanttolayoutisweareverydisciplinedabouttrackingourreturnoncapital inscenarioslikethatandsonotonlywillthosedealsobviouslycreatetraditionalmarginsby the full manifest of our platform. But weareveryclearthattotheextenttherehasbeencapitaldeployedtheretoincentivised thosedeals,orthecreationofthosedeals,wewillbereligiouslytrackingourreturnoncapital onthataswell.Sointheendoursimplethesisiseitherweproducesuperiorreturnoncapital for our shareholders or we give them the capital back. NileshJain Allright.JustabookkeepingquestionforNithya,inthebalancesheettheotherfinancialasset has gone up from INR21 crores to almost INR111 crores what exactly would be that? NithyaBalasubramanian: Other financial assets the Palomar upfront guarantee thatwehadpaidoutthatisbookedin other financial assets. Nilesh Jain: Okay, sure. Thank you. Thank you. We have the next question from the line of Siddharth Misra from Fidelity International. Please go ahead. SiddharthMisra: Yes.HiIhadjustonequestion.Couldyoutalkaboutyourpipelineandthedetailsaroundthe pipeline? Can you hear us Siddharth? Siddharth Misra: Yes I can hear you. Can you hearme? Yes. thank you for the question. Traditionallywehaven'tpublishedourpipelineorthedetailsbutIcansayconfidentlythatwhenwelookatallofthesethree marketsegmentsthatwearefocusedonthemid-sizehealthsystems,thelargehealthsystems andtheindependentmedicalgroupsthatmightbesinglespecialtyormulti-specialtymightbe publicly traded or private equity owned. Page22of23
Weareobviouslytrackingpipelinebyeachofthosemarketsegmentsandthepipelineseemsto suggestthatweareatanall-timehighintermsofwherethepipelinestands.NowIwillsay that the buying cycles are still a little immature, so I'm not in a position to predict the conversion rate. ThereasonI'mnotpublishingthepipeline.Siddharth,isbecauseIseesomuchimmaturitystill inthebuyingbehaviourintheconversioncyclesandsoaswestarttogetdatathatIthinkstarts to make a little bit more sense thatcanallowyoutomodelconversiontimelinesanddates, we'llbeabletotalkalittlebitmoreaboutit.ButIwillsaythatactivityforusrightnowisatan absolute all time high. Siddharth Misra: Okay thank you. Thank you. Ladies and gentlemen withthatweconcludethequestionandanswersession.I now hand the conference over to Saransh Mundra AVP Investor Relations. Please go ahead. SaranshMundra: Thank you everyone. Thank youforjoiningthecall.Incaseofanyfurtherquestionsplease feel free to reachouttous.MyemailidandtheInvestorRelationsemailidarethereinthe press release and the link for the call. Thank you. Thankyou.OnbehalfofICICISecuritiesLimitedthatconcludesthisconference.Thankyou for joining us, and you may now disconnect your lines. Please note that this transcript has been edited for readability. Page23of23