Operator
Ladies and gentlemen, good day. Welcome to MasTech Limited Q2 FY27 Earnings Call. We'll begin today's session with a presentation from the MasTech Management Team, followed by a Q&A segment. I'll now hand the conference over to Mr. Nooraj Kemka. Over to you, Mr. Nooraj.
Thank you, Melissa. Hello, everyone. Welcome to MasTech Limited's Q2 FY27 Earnings Call. In the call today, we have with us Mr. Umang Nata, CEO, and Mr. Deepak Kadia, CFO. In the course of this call, we'll make certain statements which are forward-looking and may involve a number of risk and uncertainties. All forward-looking statements made herein are based on information presently available to the management, and the company does not undertake to update any forward-looking statement that may be made in the course of this call. In this regard, there is a full disclosure which has been included in the investor presentation and the press release. We consider that as read. With this, I'll hand over the call to Umang.
Good morning, everyone. Thank you, Neeraj. First of all, very good morning, everyone, and appreciate you all joining the call early in the morning today. So looking forward to a healthy interaction with all of you over the next one hour. Our quarter two performance has been a pretty healthy performance and very close to expectations in terms of most of the parameters. From a revenue standpoint, we had a very healthy growth of 2.4% quarter-on-quarter in constant currency terms. The revenue numbers landed at 107.3 million for quarter two. The EBITDA performance landed at 14.4%, which was around 96 basis points below quarter one, largely all account of salary hike, and we will discuss the details later in the call. Our order backlog, 12-month order backlog, grew by 2.2% year-on-year. There was some softness in the order book, and we'll talk about that also as we go forward in the call. Overall, from a performance standpoint, I'll initially describe the performance from a Jio standpoint. We'll then really spend time talking about how are we transforming MassTech into an AI-native organization and some of the really interesting stuff that is going on there. And we'll later pass the call to Deepak to explain more the financial performance in detail. As far as our geographical performance is concerned, from a UK standpoint, quarter two was a very robust quarter. We actually delivered a 4.1% revenue growth in the quarter. Financial services continues to be a very strong subsector within the UK business. Our financial services grew by more than 16% in the quarter, and we continue to see good, healthy momentum in that sector. Public sector, which is our biggest sector in the UK-Europe geography, continues to be stable. We saw a decent growth in public sector, both supported by some growth momentum as well as higher working days in last quarter. Healthcare and life sciences, which was a key driver and continues to be a key road driver for us, still is lagging behind in the quarter performance, primarily due to some ride-shifting in project starts as well as some order book. Although, having said that, I would be happy to report that some of these orders that were right-shifted have been concluded post the close of the quarter, and we expect the numbers to start improving as we go forward in H2. The other important development from a UK-Europe point of view is opening up of a new front, which is around energy and utilities. I'm happy to report that we've landed three new frameworks in energy and utilities, and also started landing new contracts within these frameworks. This is primarily aligned to our strategy of going after sectors which buy like public sector, but operate like a private sector or privately held organization. And that has allowed us to open new front in energy and utility also. We continue to focus with our same strategy of going after arm's length bodies who buy like public sector kind of organizations. As we go forward in the year, we'll report progress on how is the energy and utility sector really building up as we go forward. Last and not the least, the UK also saw a change in Prime Minister, you know, last quarter. As the, you know, new ministers take over, there is a, you know, we are expecting and we're, you know, watching the change of policy or any direction, if any, from them. It currently seems that while healthcare will continue to be a focus, social care might be another area of important focus for the government, and we are trying to make sure that we align back to the policies. The budgets for the new government are going to be announced anytime this week, and we are closely observing the developments there. Till some of these These activities happened, a few of the contracts that were to be decided have been put on hold or canceled and would be, these are the pipeline, the orders in pipeline, and would be hopefully launched back after the budgets have been finalized, which resulted in a softer quarter from an order book standpoint for our UK business in Q2. Moving forward to North America, our North America business continues to see a very strong deal momentum. And we, again, this quarter had a very positive order book. In fact, our total order backlog for the geography, if you do a year on year comparison, has grown by more than 50%. And these order bookings are both in terms of, you know, focus on key verticals, which is around healthcare, life sciences, retail and manufacturing, but a lot of AI native transformation deals are also happening in the geography. And we'll talk about some of them in the following slides as I go forward. On APAC and Middle East point of view specifically, as you all know, the uncertainty in the market continues. In fact, it is getting more stringer as we go forward. While in Q2, we had some of the, you know, old standing contracts being signed, and therefore a decent bounce back in revenue there. However, the overall outlook for Middle East continues to be uncertain, and we are closely observing the situation, especially the situation that is unfolding in Saudi Arabia, and making the right and judicious calls as we go forward. As I move forward and explain our business from the most important forward-looking lens, which is the lens of how is MassTech transforming itself to become an AI-lative organization? Like I mentioned, our vision is to focus on transformative business and make master a leader in AI transformation in our select focused verticals that we operate in. In account of that focus, we have taken two really important new steps, new offerings that we have been working on for the last few months and which have launched in this quarter. First is around healthcare and life sciences, where we have signed a very strategic partnership with a company called InnoVacer. InnoVacer is a market leader in providing contextual data in healthcare and life sciences domain. And we will be partnering with InnoVacer as one of their largest partners globally to help transform healthcare life sciences businesses on the back of the contextual data platform that InnoVacer provides. We believe this partnership will be very strategic in positioning Mastec and Innovasor as one of the leading providers of AI transformation services in healthcare and life sciences globally. The partnership has immediately started ramping up also, including development of good pipe in the first quarter of its signature itself. The second important part was around service as a software. Again, this is one area that MassTech has been working on in the backgrounds. With our experience in enterprise applications, especially around Oracle and Salesforce, as well as our strong engineering and data domain, we have now been able to combine all the three into a new offering, which we're calling as It's a service as a software. It primarily has two angles. It is more about process transformation, but it can also do a lot of replacement of traditional SaaS softwares with new service as a software solution. In fact, MassTech internally, we have switched our CRM software, we have switched our procurement software, we have switched our recruitment system, as well as our accounts payable and expenses systems on the same model, delivering not just good savings in our subscription cost, but also tremendous upliftment in terms of the way AI native solutions are being used and improving business outcomes and quality of performance. As we launch these learnings into the market, we've already closed our first few deals on services or software, and we are seeing good momentum as we go forward. The last part of the area, again, which we call as AI Foundation, which includes governance and security, roadmapping, et cetera, is the third part of the business, which is also taking care well. Cyber was an important component that we thought we should add to our AI foundation, and we've been working on it over the last few months with some investments within our public sector market. And again, I'm very happy to report that the investments have started bearing results. And this quarter, again, we saw our first few significant wins in the cyber for AI space in our public sector deals. And I'll talk about some of these deals in the next slide. Overall, our AI momentum continues to be very strong. More than 40% of our deals, even in this quarter, are AI deals. And these deals are really helping shape Mastec towards the future of becoming an AI data and AI organization, which we are doing not just for our customers, but we are also internally shifting Mastec, as I had explained earlier. I'll now share some experiences of what kind of deals that we are seeing and some of the references that we are creating so that investors can better understand the kind of work that is happening. The first example here is a senior care skilled nursing facility. This is a service as a software deal out of North America, a multimillion dollar transaction, where we are replacing the core SaaS platform of a skilled nursing facility and helping them develop AI native SaaS platform, which will have contextual data alignment and aims at delivering a significant business outcome for our client. The second deal is a life sciences company, again, in dental technologies. This is, again, America's deal, where we've used AI-led productivity improvements to replace an incumbent, and it's a 10 million plus transaction, another large deal for North America in this quarter, where we are delivering AI-led productivity solutions to the client. To help them improve their cost of IT services and while delivering more value to that particular organization. The third deal that you see here is the UK central government deal. Now, this is a cybersecurity deal that I was talking about where we are delivering cyber solutions and cyber assurance for public sector customer in the UK. Again, it's a multi-year contract, multi-million dollar in setup. And allows us to deliver cyber assurance, specifically cyber assurance, even covering, you know, beyond the regular kind of cyber activities to our client. Similarly, the fourth deal is a process transformation deal, again, on the Oracle platform for a police department in UK. And where we are delivering a lot of the AI-agentic solutions that Oracle has to offer in terms of delivering process transformation for a police department in the UK. Also, the methodology that we use for these fixed-bit projects is called AdoptAI, which is our platform for delivering fixed-bit projects from a process transformation standpoint. There are a couple of other deals. Again, this is a managed services deal. The next one, again, AI productivity, where we've been able to replace an incumbent with an aggressive AI productivity offering, again, using our adopt AI platform, delivering a significant outcome-based managed services contract to the client. The last deal is in APAC and Middle East, which is, again, delivering healthcare and life sciences process transformation for a strategic healthcare partner in the region, where we are helping them modernize their legacy application to an AI-native solution going forward. As you can see, the nature of these deals span across AI productivity, AI for transformation, services as software, and a few around AI foundation, which is from cyber to governance, et cetera. All of these deals give us good confidence that the three core pillars of our AI offering, from AI transformation to AI foundation and then AI productivity, are all gaining good traction. And they're not only, you know, in some cases helping us win NetNew, but also in many cases helping us deliver outcome-based business contracts to our clients. The direction of travel in general we feel is very positive, and we're moving actively towards transforming MassTech into an AI-native organization. With that, I'll pass over the call to Deepak to share more details around the financial performance for the quarter.
Thank you, Omung. A very warm welcome to everyone on the call, and thank you for taking the time to attend Masatex's earning call so early in the morning. I'll start with quarter's update before providing updates on other matrices and some key changes on investor data sheet. In Q2, we reported revenue of $107.3 million, sequentially up by 2.4%, and an operating EBITDA of 14.4%. On a constant currency basis, revenue had a robust sequential growth of 2.4%. In rupee terms, we crossed four digits for the first time and reported a revenue of $1,018.7 crore, a sequential growth of 3.4%, and a Y&Y growth of 8.3%. We reported PAD of 105.7 crore, or 10.3% of the total income. We closed the quarter with a 12-month backlog of $286.2 million, a sequential decline of 7.7%, and Y&Y growth of 2.3% in USD and 10.4% in INR terms. Sequential decline is because of deferred start and slower consumption of new projects. We reported a basic EPS of Rs. 34.1, up 8.3% compared to last year, and a diluted EPS of 33.9, up 8.4% compared to last year. EBITDA was down 100 BIPs sequentially, led by increments and SOP, which had 190 BIPs impact, which was partially offset by AI-led productivity efficiency and additional working days. In Q2, the margin was on expected lines. Our endeavor will be to improve by at least 160 bibs in medium term. However, the velocity of improvement will be to some extent dependent upon macro and geopolitical factors. There were certain exceptional items during the quarter. We completed the sale of property in Chennai, resulting in profit, which is reflected in exceptional items. The profit was offset by workforce restructuring cost due to AI-led efficiencies and write-off of old receivables in the book. This is one time in nature. Now I'll move on to the cash position of the company. During Q2, we had another good collection quarter, wherein we collected $120 million procs from our customers, resulting in DSO of 74, a decrease of one day. A DSO of 74 days is one of the best in the industry, reflecting our current cash management and aggressive collection initiative. This also provides us with greater flexibility towards strategic decisions. The closing cash and investment balance net of debt is 582.7 crore. During the quarter, we paid dividend of Rs. 50 crore plus loan repayment of around 55 crore. Despite that, we were able to add almost 36 crore to our net cash and investments. Now, I'll move on to geography performance and industry-specific performance. All three geo-greaves sequentially in Q1. UK continues to maintain healthy EBIT of 18%. North America closed yet another quarter of healthy order book, as mentioned by Umang earlier, improving their total backlog position by 7.8% sequentially and 47.9% Y-on-Y. As mentioned by Umang, our AI momentum continues, and in this quarter, we closed 53 orders, In terms of industry, public sector business continues to show its strength by growing 6.1% sequentially, and private sector, namely financial services, growing by 15.3% sequentially. Utilization, including trainees, were down by 0.8% sequentially because of the investment we are making in domain resources. Now I'll talk about some other business parameters. During the quarter, we added 18 new customers, which was 13 in the previous quarter. Total closing headcount is 4810, a reduction of 87 due to workforce restructuring and change in on-site offshore lakes. Our last 12-month attrition rate is down for second consecutive quarter by 1.2%. Sorry for the interruption. Our last 12-month attrition rate is down for second consecutive quarter by 1.2%, from 16.4% to 15.2%. Lastly, I would like to call out some specific changes we have made in Factsheet to better represent our performance. We have made few changes in client data to provide more meaningful representation of the business. This includes active clients during preceding 12 months, active clients during the quarter, Forbes 1000 clients, top five and top 10 clients, repeat business, and then we have made some changes in employee metrics by segment and employee metrics by time. With that, now I'll hand over the call to the operator who can open up for Q&A. Thank you so much.
Operator
Thank you very much. We will now begin the question and answer segment. To ask a question, please click the raise hand button at the bottom of Save your Zoom interface to enter the queue. Once announced, kindly unmute yourself, state your name and organization, and proceed with your question. If your query is addressed before your turn, you may press the lower hand button to exit the queue. If you have joined by phone, press star 9 to raise your hand and enter the queue. When it's your turn, Press star six to unmute yourself, state your name and organization, and ask your question. Press star nine again to lower your hand if needed. We will now pause briefly to allow the team to assemble the list of participants. As a reminder to attendees, to ask a question, please click on the raise hand button at the bottom of your Zoom interface to enter the queue. Once announced, kindly unmute yourself, state your name and organisation, and proceed with your question. If you have joined by phone, press star 9 on your dial pad to raise your hand and enter the queue. When it is your turn, press star 6 to unmute yourself, state your name and organisation, and ask your question. And our first question comes from Amit Chandra from HDFC Securities. Amit, please proceed with your question. Amit?
Yes, Amit. Yeah. Yes, sir. Thanks for the opportunity. So my first question is on the order book. Obviously, you mentioned that we have been winning deals, mostly EI led. But, and also we have been, you know, showing strong traction in terms of daily wins in the U.S. geography. So, the weakness in the, you know, order book is mostly led by, you know, slower execution in terms of the deals that we have won, you know, earlier. Or is it some, you know, kind of pressure we are seeing in the, you know, some kind of pressure we are seeing in the U.K., you know, early geography.
Thank you for your question, Amit. So, from the order backlog standpoint, there are two situations One, clearly, some of our, one of the large deals that we had won in North America last quarter with the federal government, the start of that deal has been currently delayed till post-midterm elections, and that has led to right-shifting of backlog, 12-month backlog numbers. And so that's caused some of the backlog to shift there. And similarly, there was also a deal in UK where, while we've already won the contract, but again, the consumption is slower than anticipated. We're hoping the consumption will pick up around Q4. And therefore, there also we've adjusted the 12-month backlog, looking at the slower consumption than anticipated. Having said that, we are still quite confident that we will be able to consume all of these orders. But the rate of consumption definitely is slower than expected. And like you said, that's one of the reasons why the 12-month backlog has seen a little softness in this quarter. On the second part of the equation, Amit, as far as our forecast or our judgment that FY27 is going to be better than FY26, we continue to be optimistic that Our H2 performance, there's no reason for it to be slower. We currently are positive that H2 should continue to do well. Having said that, some of the Middle East situation is definitely worrying and a little out of hand and out of control. And we've already seen a sizable dip in terms of Middle East performance to where we were hoping for. But currently, the UK and US are clearly managing that gap and therefore allowing us to deliver what we have to. So that's where the current situation is. So from where we are, we feel comfortable that FY27 will do better than FY26. But there are some of these Geopolitical uncertainties and that is a little out of control for us. On an overall basis, the AI native transformation is where we are also trying to adjust and pivot the organization to because those deals are consistently coming in and there is, you know, the demand cycle on those is much stronger and much higher as well as the execution is also much faster and better.
And some of the AI deals that we have won, is it coming from existing clients or is it more coming from net new clients? And also in terms of the size of these deals, where we see these size going on, because most of the deals that you mentioned are smaller, like project-based kind of deals. So when we can expect some large deal traction or some annuity kind of deals on the AI side and also in terms of the overall revenue mix, if you can give what is the overall revenue from AI and in terms of how the AI is growing, YOY versus the non-AI part, it will be helpful for us to understand the mix.
Sure. So, Amit, as far as the AI deal sizes are, let me first, so the AI deals are coming both from net new customers. And amongst the examples that I showed also today, at least two of those deals were net new deals, which would not have been there if not for AI. So, they are definitely net new additions. Some of them are also with our existing customers where we are working with them to transform or improve productivity within their businesses. So it is definitely active both in terms of net new as well as existing customer business. On the deal sizes of AI, I think we're currently running anywhere between a half a million to five million kind of deal size today in terms of AI. Some of the deals are even smaller, but those are like starting points. It could be entry point, could be smaller, but average half a million to five million is where we are currently seeing these deals. The AI transformative kind of deals, I believe initially would be small, but they'll be more evolving into larger deals instead of the customer signing one large deal at a go. We believe they'll sign transformation in pieces and you will keep evolving the business continuously. And that is our expectation from how these deals will move forward. So it might not land as one large order, but it will continue to evolve and grow into a stable, large, repeatable business within the same account and same project. As far as very large AI deals are concerned, the only area where we see them is if we are able to do an AI-led productivity takeout kind of work. And we are also pitching for those kinds of deals. We have quite a few of those deals in our pipeline today, but still to go out and execute and win some, you know, multimillion dollar transactions. I gave you one example of the life sciences deal that we closed, which was a 10 million plus transaction. Again, an AI productivity kind of deal that we were able to execute. So AI productivity, you know, kind of takeouts are large, but AI transformative deals will still be under the 5 million bucket that I said. As far as the AI revenue and the sequential and consistent performance of AI, you know, from a revenue standpoint is concerned, we'll be starting to outline and present those numbers starting next quarter and onwards. So you will get a clear view of where those numbers are. But from where we see them, they are already contributing a significant percentage of our overall revenue.
Okay. And my last question on the margins. Obviously, the margins have been slipping down. So if you can provide the breakdown in terms of what actually led to the margin drop in terms of what were the ESOP expenses, Plus, you know, the wage hike impact, and also you mentioned about 160 waves recovery in the medium term. So, if you can provide the bridge, like, you know, what is, you know, what we have to watch out in terms of the margin trajectory, and also in terms of the margins among the various geographies, is it, you know, that the margins in the UK geography, which we are operating at, At the higher end, in terms of high teens, is there a risk in terms of the margins of the UK also coming down because of the productivity benefits demand and also the margins trajectory for the US and the Middle East geography? Thank you.
Yeah, hi, Amit. Deepak, this side, I'll take this question. So, I'll take the questions in parts, and if I miss out on anything, do let me know, and I'll be happy to cover that as well. See, the margin drop, there are three parts to the margin drop. I think a couple of them you already highlighted. One is increment, and one is SO. Both combined, we have a 190 BIPs impact. The second impact which we are seeing in the business is basically a mixed change, and what I mean by mixed change is there are some large or high margin project which is rammed down, which are replaced by low margin project, and the reason for low margin was primarily sovereignty, ask, and security, clear resource, ask, mainly in the UK territory, and we have seen a drop in the margin in that particular segment. The impact of that is around 200 BIPs. Now, we have been able to drive a lot of AI-led efficiencies internally as well, and you would see and I called out workforce restructuring cost as well because of that. That has given us an improvement of almost 200 BIPs points. So, we are back to like 150 to 160 BIPs point drop from where we were, which was 16% mark. So that's basically the primary leverage. In current quarter, we did not have a significant forex impact, which typically is the case. That's possibly like 20 bps tailwind, which we got. In terms of future direction, we will have to kind of go back to what we want to definitely go back to that 16% mark. Now, the velocity of how we can drive that will depend upon a lot of external factor. One factor which I said which basically has dropped the margin is the on-site mix, wherein the ask for local security resources is definitely going up, and localization is definitely going up, and we will have to deal with that, and that will require a systematic change internally for us to basically recover that. And so there are plans in place internally. We have identified a few areas which we are working on to basically improve the margin. Now, in the short term to medium term, as I said, the velocity will really depend upon how the macro factors move and if there are any changes in the current policies or the way the government is asking for security-related source. We all know that our 60% or 65% of business comes from UK, which is primarily TNM. So, we'll have to abide by the rules which is given by the new government in the UK. In terms of US and Middle East, we do definitely see an improvement in the margin space in both the geographies, starting Q3 itself. And that is definitely going to help us recover some of the margin which we have lost out in the UK because of the mixed change. I hope, Amit, I answered all your questions. If I missed any, please let me know.
No, no, it was helpful. And thank you and all the best.
Operator
Thank you. And our next question comes from Dipesh Mehta from MK Global.
Yeah, thanks for the opportunity. Just want to understand from the growth perspective, U.S., let's say even North America, if I look at it, it seems to be relatively muted. We were hopeful about growth to rebound in that geography. Can you help us understand which vertical is creating headwind in that business? Because BFSI seems to doing well, healthcare is where the weakness lies. If you can give some geographical angle to this vertical, how both market are playing out. Second thing is about the AI, some of the deals which you indicated about the momentum and other things. Can you give some sense about, let's say, whether you are observing size changing in some of those deals after the POC or maybe initial conversation and execution, whether you are seeing size growing subsequent deals perspective and what kind of gross margin you make generally in those deals subsequent execution perspective? Thank you.
Thank you, Dipesh. So as far as the North America business is concerned, like we've been saying over the last few quarters, the order book momentum clearly is moving in the right direction. And H2 is where we had predicted it will turn around, and we are sticking to that forecast that North America business will start seeing meaningful turnaround from H2 in terms of its growth momentum. So, all the buildup that we've done for the last year or so in terms of from our order book to the team structure to these AI offerings, et cetera, has helped us create a strong base. And we believe starting H2, you should see a meaningful turnaround in the North America from a growth standpoint. Health care and life sciences will continue to be our strongest vertical in North America, not just from a traditional business, but our AI focus, as I mentioned, is also very high on health care and life sciences, including the InnoVacer partnership, which is driving good positive momentum in terms of pipeline on AI transformation deals for health care and life sciences in the geography. So that's from North America's standpoint. As far as the AI deals are concerned, your observation is right. Especially the AI deals which start with POC or small use cases or transformation in one process area are leading into newer areas. So as we deliver the transformation in one process area, it is opening up use cases for other areas to deliver transformation. Also, the potential of solution to evolve is very, very high. And as the client sees benefit in the initial solution that we deliver to them, then there is an expanded scope of delivering similar kind of outcome or benefits in other areas of their business. So we are continuously seeing that once the AI engagement starts in an account, it is clearly evolving into a continuous engagement of delivering more and more solutions, and it's not like a one-time, one-project kind of situation. From a margin standpoint on AI businesses, the AI transformation or the AI foundation kind of deals are running with a good margin of 40 plus percent gross margin and sometimes even running north of 50 percent plus gross margin kind of businesses. The AI productivity kind of deals are much more price-aggressive, and we are clearly taking a very aggressive, forward-looking three-year bet in terms of delivering anywhere between 35% to 60%, 70% productivity on some of our traditional IT services. And there in those deals, the margins are actually compressed. And it will take time before, you know, while we have upfront margin compression, but over a period of time, we'll be able to improve margins on these kinds of deals. So, that's where the AI margin story is. And hence, the focus is to move towards more and more transformation kind of business, which is much more sweeter in terms of mass tech's capability than just compete on the AI productivity, which is clearly a red ocean.
I understand. And just on the vertical sense on the North America and UK market, if you can give some sense, BFSI particularly and healthcare, how those two markets played out in terms of growth trajectory?
So BFSI, as I pointed out, continues to be a strong vertical for us. The BFSI growth is largely orchestrated by our UK-Europe business, where we are seeing really good traction. A lot of the work that we're doing is very modern data kind of work, which I pointed out earlier a couple of quarters back, the kind of deals that we had won with Bank of England and Financial Conduct Authority and a few others. And that deal momentum continues to do well. We're delivering some really good business value to these customers and therefore continuing to grow the business in these accounts. The North America financial services market are also seeing good openings. We've opened a few interesting new logos in the geography. However, it needs still a lot of work to grow the financial services business in North America. We're still in the early stages. As far as healthcare and life sciences is concerned, on the other hand, we are very strong on our capability both in North America as well as UK, Europe, and even in Middle East and APAC. And that is one of our strongest verticals and has a lot of focus and attention in really becoming an AI transformative partner for healthcare and life sciences. A lot of the business that we are doing already in the vertical is AI transformative business, plus the InnoVisor partnership, some of the services or software business that we are delivering are all in that healthcare and life sciences vertical. And we are quite confident that the healthcare life sciences business overall, while it has been slow for the last two quarters, but we are very confident that it will bounce back and will continue to be one of our strongest growth engines as we go forward.
I don't know whether I missed it in your earlier comment, but your order book seems to be softer this quarter. Any comment whether we are seeing any delay in decision making which weighed on the quarterly order book kind of number? Or if you can comment about how to look at the order book going forward.
Yeah, I mean, so some obvious areas, for example, the Middle East market continues to have a softer, you know, performance as far as order book is concerned. Like I said, although we recovered some numbers in this quarter, but from an overall year point of view, we are running significantly behind plan. And, you know, we were still watching the market out in terms of how will it play. As far as North America is concerned, I'd mentioned this clearly, the order book performance continues to be strong. On the UK side, what we observed was, and again, this is still hard to determine a pattern, but some of the important orders got stalled during the quarter, which we were hoping to, you know, get them signed. Again, the change in prime minister has led to a change of cabinet, and then they are also re-evaluating their areas of policy and focus. And like I said, the budgets will also be announced later this week. So once we get more clarity, and I'm sure the departments also need more clarity on the areas of focus and budget, So we are sure that the order book should, or the momentum in terms of public sector order booking should get corrected as we go forward. The other important area that I wanted to bring up was, in general, the large deal pipeline that we are seeing in UK, Europe specifically, and also in North America continues to grow phenomenally. There is this trend of consolidating a business into larger deals, and we are seeing a very healthy pipe of, you know, 100 million plus kinds of deals sitting in our pipeline, which will be adjudicated over the next six to nine months, some of which we have already submitted, some which we are going to submit over the course of next three months. So that's another important factor which can change the order backlog in a single transaction And
Operator
our next question is from Sushawan Nayak from Anand Rathi.
I hope my voice is audible.
So just a quick thing on the horizontal split. The Oracle implementation revenues, I think they, you know, disclosing that and the data and the AI revenue as a percentage of total. Is that something that you can provide a view on or can that be disclosed at this point of time? That's one. And also the other thing which I just wanted to understand is if you could provide a little more color on the order book or the order backlog which you have provided by geography, how do we look at it in context of the fact that the numbers also, I mean, despite the order books increasing, the revenues are possibly not translating. Is that something if you could provide some color on these two aspects that will just be helpful?
Thanks. If you could repeat your first part of the question once again, so we understand it well.
The horizontal split, I think this is something which you used to disclose in the earlier quarters, where the Oracle implementation revenues and the data and the AI revenues as a percentage, I think that has not been disclosed this time around. If you could provide some color on that bit.
Yeah, so like I said earlier, from next quarter, we are re-looking at the way we should present our horizontal split, and we will definitely be providing a data AI kind of view on the organization. That's the direction of travel that we want to take our business to, and I'm sure it'll be important for us as well as all of our analysts and investors to understand the growth and movement in that side of the business. So we'll be providing that view going forward. So, in general, the Oracle business…
I just missed that initial part. Apology, I missed your initial part of the initial remarks. So, that's my bad. Sorry.
No worries. What I was saying is, I have a little sore throat. Let's become closer. So, what I was saying is, as I mentioned, our focus is on transforming and moving into an AI native direction. And therefore, we will be providing a split of segment specifically on data and AI portion of our business. So we are reorganizing our horizontal, you know, the overall performance in terms of horizontal. And we'll be starting to share that again from next quarter from a data and AI lens as you go forward, both in terms of we've been giving the order book numbers, but we will start sharing revenue and other details also starting next quarter. As far as the Oracle business is concerned, in general, the Oracle business continues to do well. In fact, we have a very healthy net new traction with Oracle, specifically in North America, as well as in UK and Europe. And therefore, the Oracle net new traction continues to be strong. We are also seeing some good traction with Oracle, not only in terms of delivering implementation services, which was always good, but also in winning net new managed services, which are more AI-led. We have an AI-led offering of delivering productivity on Oracle managed services, and that is also attracting a good pipe. This is the last part of the question.
Can you remind So, I think we've also provided this time the order book by geography, the executable order book by geography. How do we look at it in context of the revenue growth and the next 12-month executable order book? Like, how do we basically look at these numbers by geography? That is what I just wanted to understand.
Yeah, Sushman, our intent is to present those numbers in terms of how our current position looks like. Having said that, see the 12-month order backlog is a judgment based on the orders that we've got and the current understanding from our client in terms of executable over the next 12 months. The variability in which is what has been causing the backlog not to Convert into revenue with speed is how fast does the client really consume? In some cases, the clients differ, or there's a slowness in consumption on their side. And therefore, the 12-month backlog moves up or down based on their consumption pattern. And, you know, a case in point will be the $25 million deal that we had closed last quarter with the federal department in North America. And we were hoping to really ramp it up fast. And that was all the indications that we had from the client. But given where their internal movement was, as far as, you know, the elections, etc., they've decided to hold back the start of the project till the midterm elections. And that was not anticipated. And that led to adjustment of our 12-month backlog, because the start is now delayed, and we had to adjust the 12-month backlog numbers. So the 12-month backlog number is an indicator of where we see the business moving as on date when we share that number. But there are moving factors specifically in terms of the speed at which the client may consume some of this, which changes that indicator, or which differs it from the plan that we had put forward in terms of the 12-month rate at which it should have been consumed.
Understood. Just one follow-up on that is, is it possible to get a view on what would be the exact tenure of these deals by geography? Let's say you've given the order book of North America, UK, as well as EMEA. Is it possible to get like what would be the average tenure of these orders by geography or would that be?
We might not have exact details on the call right now, but what happens is there are quite a few variety of deals. There are some businesses which are pretty tenured. For example, a lot of our business in UK, Europe are tenured, three-year, plus two-year, five-year kind of deals. A lot of the public sector, as well as healthcare, even the financial services. So they are, you know, so we look at a three-year tenure in terms of order book there. As far as North America is concerned, you know, average tenure would be around 18 months to 24 months in terms of tenure of these deals. Again, the project businesses sometimes could be shorter, but I'm giving you like an average ballpark number.
Understood. And I believe when it comes to the project businesses, as a percentage of total revenues, I believe earlier it was close to 40%. Is that something that you're seeing change in the mix, more towards the managed services, lesser towards the project? Is that something that you can provide some color on?
It is improving. So it is growing, but not at a rate that would change something significantly. So it has definitely improved from 40. It has gone up to 44, 45-ish now. And we are closely observing. We definitely are positioning more and more outcome-based as well as fixed-price contracts to our client wherever possible. Having said that, a lot of our business is UK public sector and UK healthcare, where the government still buys on rate cards. And therefore, the number doesn't shift meaningfully just from there. But if we have moved the number from 40 to 45, in spite of the UK business, which means a lot of our other businesses are seeing a move towards fixed bid, outcome based kind of contracting.
Okay. Sorry, Umang, on this, I was referring more to the project-based businesses, so the shorter tenure ones. So you're saying effectively the fixed bid and project can be construed the same or am I missing something?
No, not necessarily the same, but a lot of our project business is definitely fixed bid, high majority of it. Some of the, you know, managed services or long-term contracts also have a fixed bid nature. But, yeah, large percentage of the project business is fixed bid.
Operator
Thank you. And our next question comes from Pulkit Chawla from 360 One Capital Market.
Yeah, hi. Thanks for taking my question. Umang, my first question is on the healthcare vertical. If I do look over the last year, this vertical has been down more than 25%. One, is it due to a specific geography that you're seeing this particular softness? And usually due to some of the orders getting closed post the quarter. So do you foresee that, you know, by Q3, we should get back to the sequential path? My second question is on your foray into the energy-driven utilities vertical. What really prompted this foray? I mean, you were earlier talking about being slightly focused on a few verticals. So why get into a new vertical now? And what is sort of your strategy looking to expand into this vertical? Third, could you talk a bit about your top five, top 10 cohort? I believe it's been slightly on the weaker side for the last few quarters now. So is there any specific reason or some specific clients that are slightly soft? And fourth, for Deepak, Deepak, I think subcon costs have been decently high at this point Do you think it's more of a structural issue? And where do you really think it probably lands up finally?
So as far as, I just missed the first question again.
Yeah, healthcare, 25% in the last few years.
Getting ready for production kind of development there. And for doing the beta work, there is a recontracting that has to happen on these orders. And it's a timing gap between the alpha and discovery work getting over and the recontract for the beta work that happens on these accounts. Some of these timing gap has taken longer than we anticipated it would take, you know, in terms of getting them, and this is more from the government to, you know, from the timing point of view to organize these bills. And that's been one of the reasons. Two, we also saw ramp down in one of our traditional healthcare offshore accounts in the UK, which has also led to some of these slowness in the healthcare business from a UK context. Overall, however, having said that, like I said, most of these beta contracts have now been, some of them have already been bid for them, and we're expecting or awaiting results in Q3 or latest early Q4, and that's when we expect them to start ramping back up with high speed as we go forward. Having said that, like I said, the healthcare life sciences business globally is also ramping up pretty well. The order book that we have in North America has a high portion of healthcare and life sciences and will continue to see good traction. A lot of the AI transformation deals that I mentioned earlier are also in the healthcare and life sciences space. And therefore, our overall belief is healthcare life sciences will come back to not only meet its previous number, but outperform the rest of the verticals from a mass tech context. So, we are quite optimistic that healthcare life sciences, the tip that we are seeing is temporary in nature, and we will be able to recover and grow it faster. As far as the ENU vertical is concerned, see our focus was to go after organizations that buy like public sector, which is through frameworks and the RFP process of buying and use the same credentials and criteria, and of course operate like arm's length bodies or private sector. That's the same method with which we got financial services customers last year, and we continue bidding on that same format. The strong RFP and public sector framework muscle that we have in UK can be easily used to go after these areas, and it's the fruit of that business that we are really seeing in these new areas. So that is the reason why we went after these energy and utility frameworks and clearly have landed three of those frameworks over the last 90 to 120 days and also starting to land contracts under these frameworks. Now that we have landed in this area and we've been able to make good initial openings, we are going to continuously focus and expand these specific accounts where we have made some strong initial inroads. On the top five, top 10 customer situation, Pulkit, again, some of the top five, top 10 also had these healthcare customers into the mix, and that's the reason why you see the balance. But in general, the relationship, the business overall strength in these accounts continues to be very positive.
Pulkit, I'll take the last question which you asked around the subcon cost. Traditionally, our sub-coin cost has been around 18 to 20 percent of our revenue, and that is exactly where it is even now. I don't see these numbers going up significantly. However, I should basically give you more color around what's happening in the UK in line with Omong said earlier. There is definitely a big ask in the UK in the current cabinet or the minister, wherein they're asking for more localization and security-clear resources. So, any resource which requires special or specific skill set and security cleared in certain durations, we might see a need to hire sub-con in the short term to be replaced by FTEs eventually. So, given that particular ask, sub-con cost may move up and down by one percentage point or so. However, in the long run, I don't see the sub-con cost going extravagantly higher than what we have today, which is 20%.
Perfect. Thank you so much, Amangdipa.
Operator
And our next question comes from Hitendra Pradhan from Maximal Capital.
Yeah. Hi. So, am I audible?
Yeah, thanks for the opportunity. Just need one clarification. So, you talked about the UK NHS renewal and, you know, the new data transformation sort of project last quarter. So, just wanted to understand if, you know, I understand it is lagged, but, you know, is it part of the Audible that you mentioned now or it's going to be, you know, an H2 event?
If you can give us any color in terms of the renewal and because we are doing new data transfer sort of project and you are just waiting for that beta phase to start. So in terms of TCV, will it be higher than the previous contract or it would be in the similar line?
So, what we've got right now is a bridge contract between now and whenever the large deal gets confirmed. So, this bridge contract is, like I said, covering us for the shorter term, next six months approximately. Ultimately, but the large contract that we are currently bidding for and competing for is, you know, north of 100 million pound deal.
Okay, that would be in addition to our current ACV, if we mean that? Yes, yes, absolutely. Okay, thank you.
Operator
Thank you, everyone. Ladies and gentlemen, that brings our Q&A session to a close. I will now hand the conference over to management for closing comments. Over to you.
Thank you. Thank you, everyone, for joining in the call and then sharing all your insightful questions. Like I said, it's an interesting time to do business. A lot of things are shifting from traditional IT services to a lot of modern AI native solutioning and transformation. It is not only leading to change of solutioning, but also the change of approach to doing business, a lot of new offerings and creativity, a lot of new kinds of partnerships that we are evaluating. Our endeavor and vision is to transform MassTech into a leader in AI transformation in our focus verticals, and we are moving significantly in that direction. We continue to be positive about our performance as we go forward. And we're really bullish that over the next few quarters, we would have transformed MassTech into a leader into the market of the future. So with that, I'll thank you once again, everybody, and looking forward to connecting with you next quarter. Thank you, everyone.
