Aeries Technology, Inc. Q3 FY2024 earnings call

Key Points - Q3 revenue of $18.9 million exceeded outlook, adjusted EBITDA of $2.4 million was in line with outlook. - North America accounts for ~77% of revenue. - Opened a new center of excellence in Mexico and two in Bangalore. - 2023 revenue grew 35% vs ~5% for public comparable peers; expecting 40%-54% growth in 2024. - SG&A expenses in Q3 were $5.3 million, up 162% YOY due to legal/professional services and customer receivable charge. - Gross margin improved to 32% in Q3 from 18% in 2023 due to shift to higher margin services.

For the third fiscal quarter, revenues were $18.9 million, representing 49% growth year over year. North America remains the strongest market, representing approximately 77% of revenue in the quarter and fiscal year-to-date. Total revenue for the first three quarters of the fiscal year was $52.8 million, a 39% increase over the prior year. Gross profit for the third quarter was $6 million, an increase of 161% year-over-year, resulting in a gross margin of approximately 32% versus 18% in the same period of 2023, driven by a shift towards digital transformation, AI, and analytics services.

Outlook - Calendar 2024 total revenue expected to be between $95 million and $105 million. - Calendar 2024 adjusted EBITDA expected to be between $16 million and $20 million. - Growth expected from word of mouth and expansion within current private equity customers, and evaluation of acquisition targets for inorganic growth.

Risks - Risks inherent to the business are detailed in the company's SEC filings and earnings press releases, as mentioned in the call.

Q: Wanted to touch on client additions during calendar 2023. How many clients did you bring on? How many new private equity firms are you now doing business with that you weren't doing 12 months ago? And then also, the mix of revenue of these clients that you brought on. Sounds like you're expecting a continued shift towards more digital and consulting in the next several quarters here.

A: Sudhir mentioned transformation of services engagement is on track, ~10 new clients in 2023 with private equity stakeholders, and shift towards digital transformation offerings is evident with higher gross margins. Daniel added 2024 expected more than 10 new clients with private equity firms.

Q: And then along those lines, what do you view AI as an opportunity, short-term, near-term, intermediate term, and maybe a threat longer-term, I mean, obviously, curious if you think AI ultimately displaces some of the processes that maybe you're doing today.

A: Sudhir viewed AI as a productivity and business enhancement tool, opportunities expand in technology, analytics, etc., and customers have strategies for AI adoption. Rajeev added customers turn to them for support in building large language models, leveraging efficient work in Bangalore/Mumbai.

Q: Wanted to dive in on the availability of talent. What's the labor market like today versus maybe a year or two years ago? Are you seeing wage inflation come down? And how has retention been trending?

A: Daniel said retention trended positively from 8% to 4%, market easier for talent now vs 2 years ago, able to scale up teams quickly for customers.

Q: Last one for me is on the sales investment side. What's your plan for this year in terms of adding additional sales resources and what's the longer term strategy?

A: Sudhir mentioned leveraging network effect, sales and marketing team focusing on accelerating private equity relationships and midsize U.S. companies. Rajeev added SG&A expenses increased due to investment in sales team, with plans to expand in U.S., Mexico, and Asia Pacific region