Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- MPS Ltd (BOM:532440, Financial) reported robust revenue growth of 36.3% year-over-year, reaching INR180 crores on an FX adjusted basis.
- The company's top 10 customers now contribute to less than 45% of total revenue, indicating reduced customer concentration.
- Revenue from the Content Solutions business grew by 32% in Q1 FY25 compared to the previous year.
- The Platforms business, including the acquisition of AJE, saw an 80% increase in revenue year-over-year.
- The company is optimistic about the positive impact of its new operating model, which embraces gig workers, on future margins and growth.
Negative Points
- Despite revenue growth, there was a decline in profit before tax (PBT) in the last quarter.
- Margins in the Content Solutions business were suppressed to 28.66%, largely due to the acquisition of AJE, which was initially a loss-making asset.
- The e-Learning business experienced slower-than-expected growth, with FX adjusted revenues growing by only 6% in Q1 FY25.
- The transition to a new operating model in the e-Learning business led to suppressed margins in Q1.
- Employee costs increased by 55% year-over-year, despite only a 10% increase in headcount, primarily due to the acquisition of AJE and Liberate.
Q & A Highlights
Q: What explains the tepid growth and weaker operating margin in e-Learning? And what are white spaces in e-Learning segment as of today?
A: Rahul Arora, CEO: The margin hit is due to transitioning to a gig worker model, which will stabilize and improve from Q2. Growth has been slower in India due to customer concentration but is expected to reach 12% by FY25. White spaces include managed services, platform configuration for corporate learning, and training delivery.
Q: How will you leverage AI sustainably in your solutions?
A: Rahul Arora, CEO: MPS Labs focuses on AI for operational efficiency in Content Solutions, e-Learning, and Platforms. The goal is to move beyond efficiency to create AI as a revenue stream, with deep commitments expected in the next 12-18 months.
Q: Why has employee cost increased by 55% despite only a 10% increase in headcount?
A: Rahul Arora, CEO: The increase is due to the acquisition of AJE and Liberate, which have higher dollar costs. Over $5 million in annualized costs have been eliminated, and this will reflect from Q2 onwards.
Q: Can you clarify the growth prospects for AJE and its impact on margins?
A: Rahul Arora, CEO: AJE is trending between $1.7 million and $1.9 million per month. B2B growth opportunities are expected to materialize in the second half of the year. By FY25, AJE's margins should align with MPS's overall Content and Platform margins.
Q: What is the outlook for the education vertical and its cyclicality?
A: Rahul Arora, CEO: The education segment is entering a pre-cycle phase, with significant spending expected post-US elections. Higher education is also seeing a push towards digital, and MPS is winning new proposals and RFPs.
Q: What is the expected split between research, education, and corporate markets in the future?
A: Rahul Arora, CEO: Currently, the split is 60% research, 30% education, and 10% corporate. Over the next five years, it is expected to balance out to approximately 50% research, 25% education, and 25% corporate.
Q: Are you on track to complete another acquisition by the end of FY25?
A: Rahul Arora, CEO: Yes, we are actively working on an acquisition similar in revenue size to AJE, expected to be completed by the end of FY25.
Q: What is the percentage of AJE-related revenue from non-Springer customers?
A: Rahul Arora, CEO: Approximately 20-25% of AJE's revenue is related to Springer Nature. The rest comes from other customers, and cross-selling efforts are ongoing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
