Release Date: February 06, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sonata Software Ltd (BOM:532221, Financial) has won eight large deals in the fiscal year to date, showcasing its ability to secure significant contracts.
- The company has added 16 new enterprise logos, indicating successful expansion and potential for future revenue growth.
- Sonata Software Ltd (BOM:532221) is making significant progress in AI, with a 58 million pipeline across 100+ clients, aiming for 20% of revenue from AI-enabled services in the next three years.
- The company has achieved AWS generative AI competency, positioning itself as a leader in AI-driven solutions.
- Sonata Software Ltd (BOM:532221) has increased its active headcount to over 7,000, reflecting growth and investment in talent.
Negative Points
- The company experienced a sudden ramp down and one-time discounts from a large high-tech client, impacting revenue and margins.
- Sonata Software Ltd (BOM:532221) expects a de-growth in Q4 due to the high-tech client ramp down and seasonal weakness.
- There was a 3.6% negative impact on EBITA due to the ramp down and one-time costs, affecting profitability.
- The retail and manufacturing sectors are under pressure, with no significant growth expected in the near term.
- Employee costs have increased due to one-time settlements and salary hikes, impacting overall margins.
Q & A Highlights
Q: Why is the revenue not down despite the client ramp down, and why is there only a margin impact?
A: The ramp down happened towards the end of the quarter, so the revenue impact will be fully realized in the next quarter. The margin impact was immediate due to the costs incurred for reducing the workforce, which will not recur in the upcoming quarter. - CFO
Q: How are you planning to mitigate future ramp downs, especially in the healthcare and high-tech verticals?
A: The healthcare client was a new client, and the high-tech client is one of our largest. These are isolated incidents, and we do not expect them to happen regularly. We are diversifying our client base to mitigate such risks. - CEO
Q: With high-tech clients investing heavily in AI, is there a risk of further cost rationalization impacting your business?
A: While there is a possibility of further rationalization, we believe this is a short-term effect. The industry is going through cyclical changes, and we expect to return to growth in the coming quarters. - CEO
Q: Can you quantify the one-time expenses incurred during the quarter, and provide guidance for the next quarter?
A: The total impact was a 3.6% margin decline, with 0.75% due to salary increases and the rest due to one-time settlements. We expect a revenue de-growth of 2.5% to 3.5% next quarter, but margins should recover as one-time costs are not expected to recur. - CFO
Q: How does the ramp down affect your $500 million revenue aspiration, and why would high-tech clients cut IT spending?
A: We expect a one or two-quarter delay in reaching our revenue target. High-tech clients are reallocating budgets to hardware investments for AI capabilities, which is a temporary shift. We anticipate a return to software spending in the near future. - CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.