Ramco Systems Ltd Q1 FY2024 Concall Summary

Key Takeaways

• Revenue up 11% QoQ, order book steady: Total revenue reached \$17.08 mn, driven by a fourth consecutive quarter of order bookings above \$20 mn and a stable unexecuted order book of ~\$196 mn.
• Recurring revenue engine building: Recurring revenue added \$1.2 mn per quarter YoY, a 15% increase, as the shift to cloud orders (now 60% of the mix) steadily converts the backlog into annuity-style consumption.
• Provisions are a deliberate, time-bound cleanup: The company is taking ~\$2 mn per quarter in write-offs to correct COVID-era implementation quality issues, a process expected to run for up to four quarters from its start.
• Cost base reset is nearly complete: Employee costs are down \$4.5 mn toward a \$6 mn target, attrition has halved to 18–20%, and the company is "very near" its breakeven revenue level of \$1.85 crore per quarter excluding provisions.
• What to watch next quarter: Whether the promised new implementation toolkits launch and accelerate order-book conversion, and whether provisioning begins to taper as the four-quarter cleanup window closes.

Revenue & Order Book Dynamics

• Order book provides visibility: Out of \$17 mn total revenue, \$16 mn came from the unexecuted order book, with management estimating 25–30% annual consumption, implying a 3–4 year runway from the existing backlog alone.
• Recurring revenue compounding: The shift from on-premise to cloud has increased recurring revenue, which now adds \$1.2 mn per quarter compared to the same quarter last year, a 15% YoY growth rate.
• Order booking consistency: Four consecutive quarters of \$20 mn+ order bookings, including four "million plus" orders signed in Q1, underpin management's confidence that future revenue should be in a better position.
• Europe showing early promise: A relatively new market for Ramco, Europe contributed positively to the quarter's performance.
• Growth fully aligned to strategy: The quarter's growth came from the defined business segments and geographies the company has chosen to focus on, rather than scattered wins.

Management: "We are looking for good-to-moderate growth internally to, say we are successfully achieving that. That is the internal targets we have, just give us couple of quarters before we come out and clearly put forth what we are looking for in coming years."

The Provisioning Cleanup

• Origin of the problem: During COVID, the inability to place people onsite degraded implementation quality, and some customers subsequently did not want to move forward with projects.
• Current provisioning run-rate: The company is taking approximately \$2 mn per quarter in provisions, described as a conservative amount rather than a worst-case scenario, with each quarter reviewed as it comes.
• Expected duration: Provisions are expected to continue for up to four quarters from the start of the process, after which management hopes to curtail them and move forward.
• Corrective actions in place: Automated implementation cycles, governance mechanisms, and order assessment processes have been instituted to prevent recurrence.
• Unbilled revenue also shrinking: Unbilled revenue has fallen from a high of \$50 mn three years ago to \$23 mn currently, though full liquidation will take more time because the license portion is period-driven.

COO: "We have put in place identified areas we have taken actions."

Cost Structure & Path to Breakeven

• Employee cost reduction on track: The company has cut \$4.5 mn in employee costs toward a \$6 mn target for the fiscal year, with no current pressure on employee costs.
• Attrition stabilizing: Attrition has declined from a peak of 32–34% last year to 18–20% currently, described as steady, reducing retention-related cost pressure.
• Automation driving headcount efficiency: Investments in automation are making more people capable of independent delivery, reducing the headcount required per implementation.
• Breakeven proximity: Excluding provisions, the breakeven revenue level is around \$1.85 crore per quarter, and management states the company is "very near" that level.
• EBITDA positive this fiscal: Management is on track to achieve EBITDA positive during the current fiscal year, though it is too early to comment definitively.

Segment & Product Performance

• New customer acquisition broad-based: New customers were added across industries in AAD, Global Payroll, and ERP during the quarter.
• Partnerships extending reach: The company has teamed up with partners in countries where it does not directly serve, providing complementary services that helped in recent wins.

Management: "There are no vendors primarily in the HRP market, where you have the payroll and regulations of 65 countries on a single platform – that is also helping."

Technology & Implementation Investments

• Investment cycle nearing completion: The product investment cycle is coming to an end, with focus now shifting to upgrading technology to ease the implementation process for customers.
• New toolkits imminent: The company is in an advanced stage of creating toolkits that can ease implementation, accelerate it, and improve payroll processing time, expected to launch in the next one or two quarters.
• Cloud shift largely accomplished: 60% of orders today are on cloud, a significant growth from moving off on-premise over the last three years.
• Automation improving delivery: Continued investment in automation is making delivery more people-independent, with actions taken to automate implementations and improve delivery capabilities.

CEO: "I think in many of the products that we are in the investment cycle is kind of coming to an end. Right now, what we are looking at is primarily upgrading the technology, so that it can ease the implementation process for the customers."

Guidance & Commitments

Key Metrics