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Latent View Analytics (LATENTVIEW) reported a revenue growth of 21% YoY and 4% QoQ in the 1QFY25, aligning broadly with expectations despite a challenging macroeconomic environment and sluggish deal signing. The management has adjusted its guidance down to 16-18% from the previous 18-20%, expressing confidence in meeting the lower end of the guidance for FY25. The company saw a 5% QoQ decline in EBITDA, with margins decreasing by ~200 bps QoQ. This decline was attributed to wage hikes, one-off visa fees, and advisory fees related to the acquisition of Decimal Point Analytics, which was completed on July 1, 2024. The integration of Decimal Point Analytics is ongoing, and combined results are expected in the next quarter. With this acquisition, an additional $11.2 million in revenue is anticipated for FY25, indicating a potential 30% increase in revenue. Despite short-term caution due to the uncertain macro environment, the long-term outlook for LATENTVIEW remains optimistic, with solid growth levers in place regarding skill set, hiring, and technology.

Management call Highlights:

Business Environment and Gen AI:

* Macro Environment: Challenging with a slower start to the quarter as some projects began in May/June instead of April. Sluggishness observed in industrial, consumer, and retail sectors, but slight traction seen in technology due to Generative AI (Gen AI).

* Gen AI Outlook: Positive outlook with Gen AI moving from pilot to production stages. A strong pipeline of $4 million (5% of FY24 revenue) worth of near-closure conversations.

* Client Acquisition: 8 new clients acquired, including 2 Fortune 500 companies. A few deals close to $0.5 million. Europe remains a tough market with 6 logos in the signing process, potentially contributing 3% to revenue.

* Decision Point Acquisition: Integration impact expected in 2QFY25, with significant synergies in consumer and industrial verticals. Beagle GPT generated $1 million revenue.

Financials:

* EBITDA Margins: Contracted due to wage hikes (1.2% of the contraction), one-off visa costs, and advisory fees (Rs 0.9-1 crore) due to the acquisition (0.9% of the contraction). These impacts should dissipate in subsequent quarters.

* Other Income: Increased by 10% QoQ due to losses recorded in 4QFY24 from intercompany loans to subsidiaries.

* PAT: Lower due to EBITDA impact and 10AA benefits for SEZ clients expiring. FY24 saw significant tax breaks from ESOP exercises; 80% benefits were booked last year, and 20% will be booked staggered. Effective Tax Rate (ETR) will be 20-25%.

* Cash Reserves: Rs 1,133 crore, with Rs 330 crore allocated for acquisition investments, Employee Headcount: 1,261 with 60+ new hires in the quarter. Net headcount lower than 4QFY24 due to typical 1Q attrition.

Guidance for FY25 and Strategy:

* Revenue Growth: Forecasted at 16-18%. Lower end of guidance is achievable despite macroeconomic risks. EBITDA margins expected to be around 23% by 3QFY25 due to reduced visa and professional costs.

* Order Pipeline: Current $45 million pipeline at various completion stages. Confirmed revenue (signed deals and highprobability extensions) amounts to 10-12%.

* Talent Strategy: Currently employing 250 people in data engineering, working across platforms like Snowflake, Databricks, and Microsoft Fabric. Focus on developing expertise in Databricks and Microsoft Fabric. Talent additions will include high-end architecture skills and certified professionals.

* Domain Expertise Focus: Financial services (banking and insurance), industrial (automotive), and retail. Aim to make retail and supply chain offerings more specific, similar to the CPG space. In CPG, focus on R&D and innovation (smart innovation solution), on-shelf availability (connected view solution), and revenue growth management (Decision Point acquisition).

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