Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Quick Heal Technologies Ltd (BOM:539678, Financial) reported a 37% year-on-year growth for Q1 FY '25.
- The company successfully prevented 128 million attacks, including over 400,000 ransomware attacks in Q1.
- Launch of new products like on-premises EDR and Horizon two products (XDR, zero-trust) has generated good customer traction.
- The company has a strong balance sheet and remains a cash-positive entity.
- Attrition rates are on a steady decline, indicating improved employee retention.
Negative Points
- There was a 12% decline in revenues on a quarter-on-quarter basis due to Q1 being a sluggish quarter and deferment of government deals.
- R&D expenses are high, constituting 49% of revenue, which may impact short-term profitability.
- The company faces cyclicality in revenue, with Q1 traditionally being the weakest quarter.
- Despite the growth in enterprise business, the company still faces strong competition from established global cybersecurity companies.
- The implementation of the DPDP Act in India may require significant adjustments and investments from the company.
Q & A Highlights
Q: With the new DPDP Act upcoming, how many firms will have to update their cybersecurity systems, and what will be the scale of the implementation? How do you see it translating into numbers?
A: The DPDP Act aims to make businesses accountable for maintaining the privacy and cybersecurity of personal identifiable information. Similar regulations in other parts of the world have led to a 4-5% increase in cybersecurity spending. We expect a similar trend in India, with corporates enhancing their data protection measures.
Q: How are partnerships with companies like H Group and R Technologies translating into revenues? Why are these middleman companies needed in the enterprise segment?
A: Partnerships with global and local distributors and channel partners are crucial for increasing reach and coverage. These partnerships are strategic and essential for executing our growth strategy. While it's early days, we are positive that these partnerships will yield significant revenue growth in the future.
Q: Why is there cyclicality in revenue, with Q1 being the weakest quarter?
A: Cyclicality in revenue is due to end consumer preferences and market demand inertia, particularly in the Indian market. This is a common phenomenon in our industry, and while some factors are controllable, others are market-driven.
Q: Can you provide details on the large deal wins during the quarter and the current pipeline?
A: While we don't disclose specific customer details, we have seen significant traction with our new products like EDR and XDR. Our pipeline is strong, and we are confident in our ability to convert opportunities into revenue. Investments in R&D and new product development are ongoing, and we expense all R&D investments through the P&L.
Q: What is the broader picture for margins given the need for continuous investment in technology?
A: We aim to balance investment and profitability. While we invest in innovation and new products, we also focus on cost optimization and productivity improvements. As our revenues grow, we expect the gap between revenue and cost to widen, leading to better EBITDA margins.
Q: What is the relevance of the Gartner rating of 4.6 out of 5 for your security solution?
A: The Gartner Peer Review rating is a third-party validation of our product quality, based on feedback from our customers. It underscores the effectiveness and reliability of our security solutions.
Q: How will the DPDP Act impact spending on cybersecurity? Are companies not already spending on data protection?
A: While some companies are already investing in data protection, the DPDP Act will enforce stricter compliance and accountability, leading to increased spending on privacy and cybersecurity measures. This is similar to the impact seen with GDPR in Europe.
Q: What is the current mix of Horizon One and Horizon Two products in your revenue, and how do you see it evolving?
A: Currently, Horizon One products form the majority of our enterprise revenue. However, Horizon Two products like EDR and XDR are gaining traction and we expect their contribution to grow significantly over the next few years.
Q: Can you provide a broad estimate of the total addressable market (TAM) with the implementation of the DPDP Act?
A: Our serviceable addressable market (SAM) is expected to grow from around 300 crores in FY25 to 4,000 crores by FY27, including the impact of the DPDP Act. This growth will be driven by new solutions and increased adoption of cybersecurity measures.
Q: What kind of revenue growth is needed to improve EBITDA margins over the next two to three years?
A: While we don't disclose specific projections, our business plan includes strategies to balance top-line growth and profitability. As our new products mature and gain market traction, we expect significant revenue growth, which will positively impact EBITDA margins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
