Aeries Technology, Inc Q3 FY2024 earnings call

• Sudhir noted Q3 revenue of $18.9 million exceeded outlook, adjusted EBITDA $2.4 million was in line. YTD revenue $52.8 million, up 39% due to new clients and existing spend. - Opened new center of excellence in Mexico and two in Bangalore. - Daniel discussed new client deployments: partnership in Bangalore with investment management solutions provider, Mexico with global tech company. Expected 40%-54% revenue growth in 2024, driven by word of mouth and private equity expansion. Aeries evaluating acquisitions. - Rajeev detailed Q3 financials: revenue $18.9M, 49% Y/Y; 9 months $52.8M, 39% Y/Y. Gross margin up to 32% from shift to high-margin services. SG&A up due to legal, professional services, and customer receivable charge. Adjusted EBITDA Q3 $2.4M in line.

For the third fiscal quarter, revenues were $18.9 million, representing 49% growth year over year. North America remained the strongest market, representing approximately 77% of revenue in the quarter and fiscal year-to-date. For the first three quarters of the fiscal year, revenue 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 in revenue mix towards digital transformation, AI, and analytics services.

• Expect 2024 total revenue between $95 million and $105 million. - Expect adjusted EBITDA between $16 million and $20 million. - 2023 revenue grew 35% vs peer 5%, expect 40%-54% growth in 2024, highest peer ~17%.

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: Yes. To give you a broad overview of this before I hand it over to Daniel to describe in detail. The transformation of our services engagement is moving quite according to plan in terms of additional transformation over a fundamental base of services offering under the unique engagement model that we have. So that is one. The second is the private equity stakeholders that we are working with that are around 10 of them right now, all of them marquee names. Each of them have started expanding us into their existing portfolio companies, which are much larger in size as compared to the ones we have been working with in the past. And that gives us a good deal of confidence with respect to the velocity and acceleration. Daniel, over to you to explain this further.

Q: It was just -- so I don't know if you can give the mix of business in the third quarter or maybe in calendar ‘23 digital versus BPM and how much you anticipate that shifting in calendar ‘24?

A: So I was going to say that, Jeff, we don't typically provide a breakdown of the exact amounts, but we are clearly seeing a shift towards the digital transformation offerings, which we are offering to our existing clients. To give you a flavor, there are four customers, existing customers, where we have started supporting them on their own generative AI and natural language processing, which is AI and robotic process automation efforts. So we are clearly seeing the shift and which is also reflected in the higher gross margins, which we reported in Q3.

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: Very broadly, Jeff, we view AI internally as from a customer perspective, as a productivity tool and also as a business enhancement tool. And we do believe that at the end of the day, in certain functions reduce the need for resources. But on the higher end paying areas like technology, analytics, the AI engine evolution, and evolving practical solutions around AI, the opportunities keep on expanding and that is a direction we are very clearly taking with respect to each and every of the customers, all of them, that are partnering with us in this, have very clear strategies with respect to adoption of AI within their system. And we believe that, that will accelerate our own revenue mix transformation over the future quarters. Rajeev, you want to elaborate anything more on this?

Q: And then I wanted to dive in on the availability of talent. You know, 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: Yeah, so retention has been trending positively. So I think overall, we had in our investor presentation about 8%. It's now down to about 4%. And so we're seeing that, you know, that on its own is well ahead of kind of where the industry is. And so we're seeing our differentiated model play through on there. And we're also just seeing, you know, in trends in the industry that overall, that the market is getting easier for talent. We think there was a significant kind of need for talent when there was a lot of venture capitals, venture dollars going into new startups with, you know, that became a time where that was, you know, more difficult to get very good software development talent. But now we've seen that kind of, that go away and a lot more talent in the pool. And so we've been able to scale up quickly for a handful of our customers building out centers of excellence, building out large teams in a quick amount of time. And so we think that, that we're going to a period right now where it's relative to, two years ago, much easier to get the talent and to get them at the right price and to retain them.

Q: Last one for me is on the sales investment side. I believe you've made some investments in the recent past. What's your plan for this year in terms of adding additional sales resources and what's the longer term strategy? I know, there's some other things [indiscernible] A: I'll give a broad overview. So far, as we have publicly put across in our multiple presentations and discussions over the period of time, past decade or so, we have grown with very little sales effort through what we call as a network effect. It's basically relationships, connections, referrals, and so on and so forth of people who have worked with us from the customer side and from the private equity side, who have reaped the benefits of working with us in this unique engagement model. That has led us to this fast clip of growth over the years. As of today, we have a very good base of referenceable clients, and leveraging that. As we speak today, we have set up a pretty strong sales and marketing team with focus on two streams. One, which is focusing on accelerating our private equity relationships and getting into their portfolio company ecosystem. And the second is, leveraging our unique engagement model and the benefits that has brought to multiple businesses who have worked with us to take that as a disruptive force to midsize U.S. companies. These two elements have been put in place in terms of sales marketing team. Organically, that's the strategy we adopted to accelerate our growth. In terms of progress and the path forward, Daniel, I hand it over to you.

Q: Great. I think that answers the questions. Well, thank you, guys.

A: Thank you for joining, and I think we can end the call there. Thank you.