IRIS Regtech Solutions LtdQ1 FY23IT - Software

IRIS Regtech Solutions Ltd

Q1 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 2

Margin

Category 3

Fundraise

Yes

Order

Yes

Capex

Yes

3 of 5 growth signals are positive.

Revenue guidance

Category 2

→The company expects sales growth to be significantly different from the last 2-3 years, with the potential for a new, higher growth trajectory.
→Growth opportunities exist across all segments and geographies, including GST business, compliance filing, banking, and funding.
→Each business segment is seen as capable of becoming billion-dollar businesses in the future.
→The Collect segment is returning to growth with a 15% revenue increase and important overseas contracts.
→Revenue recognition in Collect is milestone-based, suggesting annual rather than quarterly growth comparisons are more appropriate.
→India revenues have dipped recently, but other geographies are growing strongly.
→The company aims to reduce customer concentration by growing the number of smaller ticket customers in the Create segment.
→Fundraising is anticipated soon to fuel higher growth beyond the current 15-20% annual increase.

Category 3

→The company is confident about entering a much better growth path now that it is financially strong and out of crisis mode (Page 19).
→Revenue growth is expected to accelerate beyond the current 15%-20% annual growth if capital is raised for marketing and brand building (Page 17).
→EBITDA and profitability have shown operational leverage, with EBITDA growing 38% against 21% revenue growth, indicating potential for higher profit growth with increasing scale (Page 3).
→The shift in business segments from large-ticket Collect to smaller, more numerous Create customers reduces concentration risk, supporting sustainable growth (Page 19).
→New initiatives like IRP and XBRL implementation in India are anticipated to unlock valuable growth opportunities over the next 12-36 months (Pages 11, 19).
→The company plans to raise capital soon to fund accelerated growth, expecting improved investor appreciation and easier capital raising (Page 19).

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Yes

→No concrete update on fundraising at this point in time.
→The company has not completely abandoned the rights issue, but decisions rest with the Board.
→There are options for raising capital currently being discussed internally.
→The company acknowledges the need to raise money sooner rather than later to achieve a higher growth trajectory.
→Financial strength and positive cash flow improve the ability to raise capital and support marketing efforts.
→Previously, raising money was avoided due to costs and lower business appreciation.
→The management is optimistic that increasing recognition of the business value will help in fundraising going forward.

Yes

→The company reported a much more robust order book compared to previous numbers, mainly due to a couple of important wins in the Collect segment late in the financial year.
→There are ongoing discussions about contract sizes and revenue recognition, especially regarding major deals like Bhutan and South African contracts.
→The typical contract size example cited was around $1 to $1.5 million in implementation, such as in Bhutan, often spread over multiple years (e.g., 4 years).
→The South African Reserve Bank (SARB) contract is attractive but scope and work division, particularly with local partners, are still being finalized, making precise revenue estimates difficult currently.
→Overall, revenues from large contracts are expected to be evenly spread over 3 to 4 years, indicating a steady inflow rather than one-time large recognition.
→The company aims to execute well on these pending orders to enter a new growth trajectory.

Yes

→The company acknowledges the need to raise capital to fund higher growth and marketing efforts, given competitors have deep pockets. Raising capital was deferred earlier due to cost and lesser business appreciation at that time.
→Currently financially strong and out of crisis mode, IRIS is confident about easier capital raising to support a better growth path.
→Options for fundraising include a potential rights issue, though no definitive update on the timing or approach is available yet; the Board will decide.
→Marketing and brand building are priorities, supported by cash generation; capital raising is crucial for scaling growth beyond the current 15-20% annual growth.
→Focus on strategic investments includes expanding presence in new market segments such as U.S. state governments and municipalities (XBRL, IRP mandates) and investing in enhanced product offerings like disclosure management modules.
→Capital allocation to maximize returns is an ongoing management focus.

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