SAGILITY LIMITED (SAGILITY) Q1 2027 Earnings Call Transcript

Good evening, everyone, and welcome to the Quarter 1 FI27 Earnings Webinar of Sagility Limited. This is Siddharth Rangnekar from CDR India, and I shall be your host for today. As a reminder, all lines will be in the lesson-only mode, and there shall be an opportunity for you to ask questions after the presentation concludes. Please note that this webinar is being recorded. To introduce the management, we have with us today Mr. Ramesh Bopalan, Managing Director and Group CEO. Mr. Srinivas Matapali, Executive Vice President and Group Chief Financial Officer. Before we begin, I would like to state that some of the statements made on today's call could be forward-looking in nature and may involve certain risks and uncertainties. A detailed statement in this regard is available in the Quarter 1 FI27 results presentation that has been uploaded to the exchanges. I would now like to hand over the forum to Mr. Ramesh to begin the proceedings of this webinar. Over to you.

Thank you, Siddharth. Good evening, everyone, and thank you for joining us for our Q1 FI27 earnings call. We are pleased to report a strong start to FI27. Our Q1 performance reflects the continued relevance of our healthcare-focused operating model, the depth of our client relationships, and the disciplined executions of our teams across geographies. Before I get into the quarter performance in more detail, let me briefly comment on the market context. U.S. healthcare organizations continue to operate in an environment where margin protection, cost discipline, and medical utilization management remain critical priorities. While select payers have reported slightly improved or lower medical utilization, the broader market continues to see pressure from rising utilization-led medical costs, increasing regulatory complexity, and membership volatility. In this context, leading payers are prioritizing margin recovery, clinical and care management effectiveness, STARS performance, and focused administrative cost reduction initiatives. Against this backdrop, Demand continues to favor partners that combine deep healthcare domain expertise with operational scale, technology, analytics, AI, and a demonstrated ability to deliver measurable outcomes. And this aligns very well with our strategic direction. Of moving beyond fragmented process-led models towards more integrated, outcome-driven operating frameworks that bring together domain expertise, technology, and AI, operational execution, and accountability for results. And we are starting to see traction with clients for managed service deal constructs, where we take operational ownership of and accountability for a large part of the value chain and deliver committed outcomes at a much lower cost. We are also making inroads with Sagility Synchrony, our AI-led orchestration platform, connecting fragmented workflows across claims and adjustments, enabling faster decisions, greater operational visibility, and improved outcomes. Our other strategic priorities are increasing our capabilities in the healthcare value chain and expanding in the mid and small market segments. Our cash seed acquisition helps us on both these fronts. Strengthening our capabilities in the quality area, especially for Medicare Advantage plans, and giving us 26 additional clients in the mid and small segment. I'll cover CARSEED in detail in the subsequent slides. So with that, let's quickly jump into specifics for Q1. We entered FY27 following a successful open enrollment season, during which our teams delivered consistently across key payer programs in one of the most operationally demanding periods for our clients. As seasonal volumes normalized, we carried that momentum into Q1. The growth during the quarter was led by expansion within existing client relationships, with FY26 client additions beginning to scale and contribute more meaningfully. Supported by sustained demand across higher-value service lines. Cigurity delivered a strong start to FY27. Revenue for the quarter was 19,635 million rupees, or 207.8 million US dollars, representing 27.6% year-on-year growth and 15.2% growth in constant currency. Organic growth, excluding care seed acquisition, was strong at 27.3% in INR terms and 14.9% in constant currency. Sequentially reported revenue declined versus Q4, reflecting the seasonal impact of open enrollment and AAP volumes that we support in Q3 and Q4. Excluding the seasonality, steady-state organic revenue grew 5.1% quarter-on-quarter. From $197.3 million to $207.3 million. Importantly, these seasonal revenues are recurring, and we expect the usual uptick again in Q3 and Q4 of FI27. On the profitability front, Q1 adjusted EBITDA was $4,716 million INR, or $49.9 million, growing 27.9% year-on-year with a margin of 24%. Adjusted PAT increased to 2,697 million rupees, or 28.6 million U.S. dollars, up 35.1% year-on-year, with a margin of 13.7%. This margin performance was delivered while implementing our annual salary increases effective April 2026 and absorbing the impact of an increase in statutory minimum wage in Karnataka and Telangana. The increase in minimum wages in Karnataka was pretty significant, and so absorbing this reflects the strength and flexibility of our operating model, and MR will cover more details about this minimum wage impact in this section. Turning to new events, our commercial momentum remained healthy, with $35.3 million of steady-state ACV signed during the quarter across 18 existing clients and one new logo. Before we move ahead, I want to take a moment to highlight the external recognition we earned during the quarter, an endorsement of our talent proposition, as well as our differentiated market positioning. On the workplace front, Great Place to Work India ranks Agility 11th amongst the country's 100 best companies to work for in 2026, and this was the first year of enrolling in the survey. ETH recognized us among the best organizations for women. On the market front, industry analysts continue to affirm our competitive positioning. We were named a major contender in both the Healthcare CXM and Revenue Cycle Management Intelligent Operations Peak Matrix assessments for 2026, and Avasant recognized us as a leader in clinical and care management business process transformation in his 2026 radar view. Next slide, please. So this is the KPI slide. In Q1 FY27, payers contributed 89.6% of revenues, while providers contributed 10.4%. Our employee strength was 47,307 at the end of Q1, while quarterly voluntary attrition improved significantly to 28.6% from 38.1% in Q4 FY26, but was marginally higher than Q1 FY26. On the annual KPIs, following the cash seed acquisition, we now have 109 active client groups, including 26 clients added through the transaction. Each of these 26 clients currently generates less than $1 million in revenue. With that, let's move to the cash seed section. So, quick introduction to CareSeed. We closed this acquisition in June this year. This is a company founded in 2012, headquartered in Kansas City. CareSeed delivers on Hedis reporting and has two platforms, Forecast, which provides Hedis reporting and quality analytics, and Harvest, which delivers cloud-based medical record review and chart abstraction. So, you see the numbers, 5.1 million was CY25 revenue with a 95% recurring revenue and the 31.4% EBITDA margin. 30 small and mid-payer clients with 26 additional clients as far as we are concerned, with a 14-member strong team. So, the core acquisition hypothesis was along the four pillars. On the capability front, It strengthens our position in quality, especially for Medicare Advantage plans, across HEDIS, CMS STARS, quality reporting, and care gap orchestration. Technology, like I said, two modules, forecast and harvest. And we will talk about the synergies and how this technology will help us to offer a more integrated quality operation. Cross-sell opportunities, 26 new clients. Hedis as a service itself is a cross-sell opportunity because CareSeat today is a technology platform, and we can sell the abstraction services on the CareSeat platform. But more importantly, there's a broader care operations. That we can deliver using the Kersi platform. And from a talent perspective, we get people with capabilities across quality, technology, and client management. And they have very established relationships across these 30 clients. If you move to the next slide. So this is the value proposition, right? So while CARSEED does heaters reporting, the combination of CARSEED and sagility can deliver an end-to-end quality operations continuum. So it just not only provides technology to report on heaters, but like I said, at the minimum, we can do the chart abstraction that is required to complete the heaters reporting. But more importantly, we can create the chase list, we can integrate the forecast and harvest with our population health AIP platform, which provides the workflow for care coaches and care managers. And from a functionality perspective, it's just not identifying care gaps, but taking it further to care gap closure. So the member outreach, behavioral change using our whole person approach, all of this is possible, thereby delivering an end-to-end quality program for our clients. What this means is health plans can move beyond Hades reporting to member-level orchestration while unlocking star improvement and revenue uplift. Uplift. So the synergy potential between what CARESID offers... Through our technology platform, Sagility's strong clinical practice helps us deliver this end-to-end value in quality. Moving to the next section, what we also did in the last quarter is we engaged Everest Group to conduct focused research on the payer market trends and factors influencing partnership across 50 key decision makers across payer organizations. And these were the key findings, right? So payers face mounting costs, workforce, and regulatory pressures. And 70% of them claimed to have adopted AI, but only 10% of them reported measurable improvement. What that really means is people who are doing AI implementation on a piecemeal basis aren't seeing the returns that they expected. So redesigning large part of the workflows end-to-end is very critical before you embark on an agentic implementation of AI. And 70% of the decision makers identify domain-led intelligent operations as a priority, where healthcare expertise remains the vital foundation, right? So what that means is the deep domain knowledge that we consistently keep talking about is required for this workflow design and for AI implementation. And payers are also increasingly looking towards more strategic partners. And so our willingness to take accountability for end-to-end workflows coming to outcomes is something that is resonating well with payers. And this is more increasingly going to become the key criteria in partnership decisions. With that, I'll come back for closing comments, but let me hand it over to Ammar to walk you through the financial section. Over to you, Ammar.

Thank you, Ramesh. Good evening, everyone, and thank you for joining us today. Sagility had a very strong financial performance in Q1 and FI27. Revenue for the quarter was $19,635 million, which represented a growth, year-on-year growth of 27.6% or 15.2% in constant currency. Excluding care seed, revenue grew 27.3% year-on-year or 14.9% in constant After normalizing for open enrollment revenues in Q4, FI26, sequential organic growth in constant currency terms was 5.1%. Adjusted EBITDA grew 27.9% year-on-year to $4,716 million with a margin of 24%. Adjusted PAT grew 35% year-on-year to $2,697 million with a margin of 13.7%. Operating cash flow remained strong with cash generation at $3,161 million, translating into an EBITDA to cash conversion of approximately 70%. Collections improved with DSO reducing to 80 days from 87 days in Kodafo FI27, comprising of 52 days of receivables and 28 days of unbilled revenue. Overall, the quarter reflects the resilience of our business with strong growth, healthy profitability, strong cash generation, and improved working effort performance. On this slide, let me provide you some context on the quarter-on-quarter revenue movement. Our business follows a predictable seasonal pattern driven by the U.S. open enrollment cycle. As a result, revenue strengthens in the second half of the year and then normalizes in Q1 as open enrollment volumes taper off. Quarter 4, FI26 included approximately 24.8 million of open enrollment revenues, which did not reoccur in quarter 1. Therefore, the sequential revenue decline should be viewed in the context of this expected seasonality and not as change in underlying demand. The steady state revenue trajectory remained healthy. Q1 FI27 included $0.4 million from KCID, which became effective 11 June 2026. After adjusting for the open enrollment revenue in Kodafo, the underlying sequential growth was 5.1% as discussed earlier. Let me also briefly walk you through the bridge from our quarter 4 FI26 adjusted EBITDA margin to Q1 FI27. We exited Q4 FI26 with an adjusted EBITDA of 24.9%. During quarter 1, margins were impacted by approximately 40 basis points from statutory minimum wage revisions and around 50 basis points from annual salary increases. We also saw approximately 100-point reduction in operating leverage as seasonal open enrollment volumes normalized during the quarter. These headwinds were largely offset by favorable foreign exchange movements, which contributed more than 100 basis points during this period. As a result, adjusted EBITDA margin for Q1-FI27 was 24%, again reflecting the resilience of our operating model, despite absorbing both annual compensation increases and initial impact of the minimum wage revisions. The key takeaway from this slide is that while quarterly performance is affected by seasonality, the underlying fundamentals of the business remain strong. Importantly, we were able to maintain healthy margins despite these headwinds. In this slide, I want to give an update on our Q1 performance in the context of our long-term performance trajectory. Over the last three years, we have consistently scaled both revenue and profitability. Our revenue has grown from $47,536 million in FI24 to $76,174 on a trailing 12-month June 26 basis, While adjusted EBITDA increased from $11,436 million in FI24 to $19,228 million on a trailing 12 months June 26 basis. Most notably, adjusted PAT has more than doubled from $5,896 million in FI24 to $12,006 million on a trailing 12 months June 26 basis, supported by strong operational execution and a lower finance cost base. This momentum has continued in Q1 FI27 with a healthy growth and resilient profitability, reinforcing our focus on delivering sustainable and profitable growth. Turning to some of the other financial indicators, adjusted EPS continues to grow faster than revenues, reflecting strong path growth. Adjusted RSE remained above 50%, reflecting efficient capital deployment and the strength of our business model. Cash conversion at 70%, improved versus FI26, supported by healthy operating cash flows and an improved DSO performance, partially offset by earn-out payments relating to previous acquisition. Our balance sheet continues to strengthen with net debt reducing to $1,110 million and net debt to adjusted EBIT at 0.06x. While this is a busy slide, this summarizes our quarterly financial performance. The quarter included two impacts from the statutory wage revisions. First, as I called it earlier, the in-quarter impact of the minimum wage revisions for $70 million reflected above adjusted EBITDA. Based on the current notification, we estimate an impact of approximately 120 basis points for FI27 on adjusted EBITDA. Second, a one-time pass service cost item of $151 million related to gratuity and compensated absences arising from the statutory minimum wage revisions in Karnataka and Talangana. This has been reported as an exceptional item below EBITDA. These estimates are based on the minimum wages notification current in effect, and any revisions to the same could result in a change to the estimated impact. Moving on to the next slide. This slide represents The bridge from reported EBITO and reported PAT to adjusted EBITO and adjusted PAT. Adjusted EBITO excludes M&A, earn-out, stock acquisition rights, other income and forex gains in losses. Adjusted PATA further excludes intangible amortization and exceptional items. For Q1, FI27, it also excludes the one-time impact of the minimum wage division recognized during this quarter. These adjustments are consistent with the way we represent underlying operating performance And are intended to help investors access the performance on a comparable basis. Moving on. This slide represents our forward-looking position of debt repayments, share price payment awards, M&A earnouts, and intangible amortization. We remain on track to fully repay our outstanding debt during FI27. This will further strengthen our balance sheet and reduce finance costs. The changes in FI27 are primarily driven by the KRC requisition, debt repayment, and foreign exchange movements. Moving on, our balance sheet continues to remain very strong. At the end of Q1, FI27, we had 9,674 million cash and cash equivalents, providing significant flexibility to invest in strategic priorities and initiatives. We will continue to follow a prudent capital allocation approach, balancing growth and investment and balance sheet flexibility. This slide summarizes our cash flow performance. We generated 3,161 million of operating cash flow during the quarter, and our free cash flow was 2,416 million after fixed asset additions of 745 million. During the quarter, we paid cash for M&A of about 1,360 million. Net cash used in financing activities for 566 million, primarily reflecting repayment of borrowings and lease liabilities. We remain confident in our ability to sustain healthy cash generation while continuing to invest in growth. With that, I conclude my remarks. Thank you for your time, and I'll now hand over, call back to Ramesh for his closing comments.

Thanks, thanks, Amar. So in closing, we continue to execute on our long-term strategy of enhancing our service capabilities across the healthcare value chain, expanding into mid- and small-fair market, and investing in tech, analytics, and AI capabilities to deliver on the transformative managed service deals. Our strategy is bearing fruit as we continue to see steady growth in our top line against an industry backdrop of muted growth. While the operating environment remains dynamic.

You want to repeat the last statement?

Sorry? You got cut in the last two sentences. Okay, okay. Our strategy is bearing fruit as we continue to see steady growth in our top line against an industry backdrop of muted growth. While the operating environment remains dynamic and deal timing can be difficult to predict, we remain confident in our revenue outlook and reiterate our FY27 guidance of low double-digit organic growth in constant currency. On margins, we are maintaining our 24% to 25% guidance, despite absorbing 120 basis points incremental impact from minimum wage increases in Karnataka and Telungana. If the eventual outcome on minimum wages results in a lower impact, we could be at the upper end of that range or even higher. By the end of Q2, particularly as we enter the OE and AEP season, we expect greater visibility into the full-year outlook, and we'll provide you a better update in our next earnings call. With that, I'm happy to take questions and hand it over back to Siddharth.

Thank you. Participants who wish to ask questions, kindly click the raise hand icon at the bottom center of your screen. We will wait for a moment for the questions to assemble. We take the first question from Akshat Agarwal of Jefferies. Your line has been unmuted.

Hi, am I audible? Yes, please go ahead. Yeah, thanks. Thanks for giving me the opportunity. Hi, Ramesh and Srini. Impressive numbers, I must say. So please accept my compliments. I had three questions. Firstly, what is the proportion of our employees on statutory minimum wage that are residing in Karnataka and Telangana? I'm just trying to assert if other state governments increase statutory minimum wages, what is the kind of impact that is left for us to take? That's the first one. Secondly, I assume that the 120 basis points margin impact in FI27 is reckoning in nature. And if so, does the company have a way to recover this in the future, say in FI28 or subsequent years? And finally, what's driving the strong 5% sequential growth in the underlying revenues in 1Q? And if this trajectory is likely to sustain, why the low double-digit growth guidance despite the strong swing in 1Q? That's all from my side. Thanks a lot.

Thanks, thanks, Akshat. I'll answer some of them and MR can answer the others. So on the first question, as you know, our operations in India predominantly is centered in Karnataka and Bangalore. We also have exposure in Hyderabad, which also went through, Telangana also went through a minimum wage hike this quarter. And so the rest of the operations are across Tamil Nadu, and we just started operations in Indore, right? So, but much smaller, and we have some operations in Mumbai, so much, much smaller compared to Karnataka and Telungana. So that's the answer to the first question. Roughly from a percentage terms, I would think that less than 15% to 20% of our employees are in states outside of Karnataka and Telangana. Your second, I don't know if it's the second question, the 120 basis point impact, yes, of course, it's not an impact that we anticipated at the beginning of the year. And like you said, it's not something that you can easily mitigate within the year. But we've already started thinking about ways to mitigate this impact. Like I said, we are expanding in states outside of these states, and we'll continue to focus a lot more of our expansion in those states. Secondly, operational efficiency is something that we anyway work on year on year, right? So as I've explained in the past, our ability to retain margins is based on... generating better operational efficiency year on year. And so this gives us an additional impetus to work harder on those operational efficiencies. And that's part of the reason how we believe we can absorb the impact even in the same year. But the full impact in terms of mitigating that will probably take another 12 to 18 months for that to play out. The last question, look, the sequential growth, I wouldn't dig too much into it. The sequential growth between quarters, we're not saying we'll continue to be at the same levels. But having said that, we are continuing to see traction across all of the clients. As I've mentioned in the past, we continue to derive a large part of the growth from existing clients. And the fact that our existing client base has grown over the last two, three years gives us additional opportunities for growth. Also, like I mentioned in my remarks, the new clients that we added in FY26, we are starting to see growth in those clients as well. So overall, it's pretty broad-based growth across the client base, as well as in the high-value areas like clinical and so on. So that's what is driving growth. But yeah, but the 5% may not continue every quarter, but overall for the fiscal year, like I said, we're very confident of delivering double-digit growth. And towards the end of Q2, if the OE season pans out as we expect it should, we should be able to provide you much closer guidance.

So let me add a couple of items to what Ramesh has just said. One, you know, from an impact perspective, what it means is not only the folks who are on minimum wages get a hike to ensure that they are at that level, there's also cascading impact on people about to ensure peer parity across, right? So, it impacts a larger proportion of people than the base associates whose salary is directly impacted. And that is translating into this entire 120 basis points impact. As a proportion, about 65 to 70% of our headcount is in Bangalore and Hyderabad, which are impacted by this minimum wage revisions.

Thank you so much, sir. That's all from my side.

Thank you. We move on to the next question from the line of Pajic Sarkat. Your line has been unmuted.

Ramey Sweeney, Abhishek, hi, and congrats on a strong quarter to the entire team yet again. Very strong headline numbers in terms of your organic growth, why would it be possible to break this down into the volume growth across the new clients that you've on board? I see up from existing. If there's been a rising leader, if at all, in this quarter.

We couldn't hear you clearly, right? You got, it was very choppy. Could you repeat that question?

I think you were not clear. I request you to repeat your question.

Yeah, let me just try again with the question again. I was just trying to understand if you could, you know, break up the 15% growth into volume growth from existing clients and the volume growth from the clients you've onboarded in FR26, which you alluded to. I'm just trying to assess if the pipeline of the ramp up from our existing clients, you know, given the cost pressure that you spoke about, you know, I'm just trying to understand how strong the ramp up from there on has been because, you know, you seem to continue with your guidance of lower A double digit, which in the context of where the macros are, you know, might be conservative, which is okay. But I'm just trying to split this growth of 15% between the newer clients and the older clients. And if there was a pricing lever, if at all, that we exercised in this quarter.

No, the last part is simple to answer. There were no pricing levers that we exercised, right? And I've continued to say this in the past. Given the situation of our clients, the movement in prices is in the opposite direction, right? So there's more pricing pressure than any price increases that we would get. So there is no revenue growth because of price increases. To your other question, split of the growth from FY26 clients to others, I don't have those numbers handy. We can come back to you with those numbers. But broadly, if you look at it, even the deal wins that we've been quoting every quarter, the ACV number that we've been quoting, that comes from at least every quarter in the last three, four quarters that we've quoted. Those wins come across 15 to 20 clients at a minimum every quarter. The growth is pretty broad-based across clients. But if you can see the percentage of our top three, top five, they also continue to increase. So our top clients, to your question on clients under pressure, yes, they are continuing to look at additional opportunities. We are continuing to sell additional services to those clients. And it's just not the volumes of the same work that we do, but it's also additional services that we manage to sell into those clients. But specific numbers, Vaidhik, I don't have it handy, but we can come back to you.

Yeah, so just a quick follow-up on that, Ramesh. You've been alluding to cost pressures and claims ratios in the US for a while. I mean, that's public data. And the fact that most of our incremental work is ROI-based managed services, right, for which the off-take is pretty good. So in that context, a bit of a futuristic question, should one assume that the only constraint to your growth is your ability to kind of scale up your delivery? Because that's what the industry macros are suggesting, right? There's cost pressure, very, very little outsourcing. So what's the constraint? I know it's a bit of a pie in the sky question, but yeah.

Yeah, no, I mean, you made it so simplistic. No, but on the contrary, scaling up execution is the least of our concerns, right? So I'm not trying to be arrogant, but we've always executed well. And our ability to scale up execution is probably one of our strengths. And as we scale, we still continue to deliver the same level of quality, right? Some of these managed service conversations take time, right? So, for example, we are in active conversations on a number of such opportunities, and we've been in those conversations for three to six months, right? So, some of these deals do take time. So, timing is an issue. And to your other point, I wouldn't say that all deals that we are winning are managed services deals. That's the direction we'd like to move. There are active conversations on managed service deals that we are currently having, but it isn't that every client that we are talking to is talking of a managed service contract on an outcome basis and so on. We still continue to win specific process level work on an effort basis, be it FTEs or transaction rates. So that mix still continues to be there.

Right, and if I can just squeeze in one last question. I know you did allude to clarifying this after Q2, but the open enrollment season in Q3 and Q4 for us was, you know, I think slightly out of expectations. You know, given conversations that you might be having with your clients today, any indicative trend as to which way that number might be going? Because, you know, we're coming off a very strong base from last year.

Yeah, look, the proportion of seasonal revenue to total revenue, we believe will continue in the same way that we had last year, right? With the addition of Broadpath, you're right, our seasonal percentages have gone up, and those percentages will most likely hold for FY27 as well. But the specifics of what exactly those seasonal revenues will be, look, most plans would be finalizing their bids by this time. So we'll get to know specifics only by September. So that's why I said when we meet again in October, we'll have a much better sense of where those volumes will land depending on individual client requirement. But overall, the seasonal revenue proportion to the total revenue, we believe, will continue to be at the same levels as FY26.

Got it. And, you know, just heading into Q2, unless there is a dramatic, you know, client churn, is there any reason to believe that we will not continue with this level of organic growth on a YOY basis?

By the way, you're asking the same question multiple ways, right? So we are still guiding to low double-digit growth, right? So yes, we did 14.9% organic year-on-year growth. Will it be exactly that number, plus minus some number? But yes, definitely, we are reasonably confident of delivering the double-digit number.

Okay, thanks, Ramesh. Best wishes.

Thank you. We move to the next question from the line of Rohit Thorat from Access Capital. Your line has been unmuted, Rohit.

Yeah, I thank you for the opportunity and congratulations on a good set of numbers. My first question is on growth in top fourth and fifth client. If I look at TTM revenues in that cohort, revenues have remained relatively, like the growth has remained relatively soft, whereas every other cohort has done well. So any comments on that, why growth is a bit lower on? Specifically on top fourth and fifth client compared to Shadiqa.

Look, when we look at numbers, not every client grows every quarter. Specifically, to answer your question, one of the clients in that cohort, we are moving a large volume from delivering onshore to an offshore location. And I've mentioned this in the past, this is a very, what should I say, very recurring part of our business, where clients start some piece of work onshore, and over a period of time, they would like us to migrate that work to an offshore location. And that is actively happening in a large... Line of business for a specific client as we speak. And that's what is actually a reduction in revenue for the client, which is bringing that whole cohort down.

Okay, second question is on the margin part. So you have kept adjusted EBITDA margin unchanged at 24-25%. You have already, like you are already at 24% in Q1. Going forward, there aren't really any margin headwinds for you. So any reason why like you have kept, you have not increased basically lower end of guidance? Do you foresee any? Uh, potential margin headwinds, which might impact margin going forward for KP.

Let's see the... The first answer is the minimum wage impact for this quarter was only for a month and a few days, right? Because it was effective May 23rd in Karnataka, and we'll have a full quarter impact going forward from next quarter, right? That itself is almost double the, more than double the impact that we had this quarter, right? So it's not the same. Beyond that, like Emma mentioned, our hedges were also taken last year at a much lower value, right? Although it won't play out in the adjusted EBITDA, it will play out in the actual EBITDA and EPS. The full impact of minimum wage will be felt in Q2. And like I said, 24 to 25 is a broad range. We believe that at this point, we should do better than the lower end of the range. But we still wanted to see the impact of this minimum wage before we commit to a number. And we'll give you a more narrower guidance as we come to the end of Q2.

Yeah, thank you. Those were all the questions from my side. Thank you. We move to the next question from the line of Vamsi Krishna from Kota. Your line has been unmuted.

Hey, hi. Thanks for the opportunity, and congrats for a good set of numbers. So, Ramesh, so my first question was on M&A. So, with CareSaid, I think at the end of yesterday, you had alluded to two acquisitions in clinical services. I'm assuming both would be in care management. So, how close are we for the other acquisition that we had planned, and what are the... Typical valuations of these assets. And second is that between Broadpath and KFC, we have added over 55 mid-market clients. Now, where are we in terms of cross-sell? And can KFC acquisition help in acceleration of revenue growth in the top three and top five client cohort as well?

I got the second question, Ramshi. First question, I wasn't sure I got the full question. So you want to know what other acquisitions we are thinking of? Or what was the first question?

Yeah, we had an idea. So is it predominantly care management itself?

Yeah, yeah, yeah. Yeah, so, yeah. On that, Vamsi, it's a function of, yes, areas that we want to increase our capability and what's available in the market. Clinical is a space that we are, like I said, it's an area that's seeing tremendous growth, and it's an area in which we are already strong. But, for example, this is quality, but we are extending the quality, like you said, to closing care gaps in the care management space. So, other capabilities around these, we'd still be interested. Like I've also mentioned in the past, while we are always interested to add capabilities on the provider side, a lot of the RCM targets that came out didn't clearly add to our capabilities and the valuations were pretty high. But we continue to look for opportunities in the provider space, again, which can give us both capabilities that we don't have or increase the strength of our capabilities, as well as give us access to new clients. So those are two areas we're definitely interested. And anything specific to technology capabilities in the healthcare space, if we come across, we might be interested in more broader set of capabilities in the technology space. So those are the two, three areas that we will be looking at. Uh, what was your other question?

Uh, the second question was, uh, on the mid-market client applications.

Yeah. So, so good question, right? So, so I think, uh, you're right. We, we've added a significant number of, uh, mid-market and small clients, uh, through these two acquisitions, Broadpath and CashSafe. So it gives us a good platform for us to, to, to, to, to sell it to those clients. But these clients, I mean, for example, Broadpath, while we didn't discuss, We continue to see a lot of good traction in the cross-sell opportunities in Broadpath. We have six or seven opportunities in active conversations in the pipeline on Broadpath clients as we speak. Cash Seed also, we're very bullish in terms of starting the cross-sell, right? Our ability to take the Cash Seed capabilities to larger clients, I mean, that is something that is... Yet to be seen, because as you know, the technology platform that Care Seed currently delivers to is targeted towards the mid-market. Most of the large clients will already have established players for quality reporting. And so the platform play itself may not be the opportunity for larger clients. But the combined care seed plus services, if there is a way we can package it to deliver some of the care management programs, then that could be an opportunity with large clients. But the cross-sell opportunities in the mid-market is pretty high.

Got it. And I have just one more follow-up. Last year, I think, some of your large clients, there was aggressive enrollment during the second half because of which you had indicated some $3 million incremental higher revenues than you had planned for the seasonally strong volumes. So when you say the seasonal strength will be recurring, you're including these surprise, or is that not really included?

Uh, not to that level of specificity. Like, like I said, when our seasonal revenues were more like the 3% prior to Broadpath, and now it's almost double at close to 6%. That's what I meant that we would still have a that level of seasonality, even in FY27, right? In addition to Broadpath, we also got yes, we, we, we got additional seasonal opportunities in the clinical space, which we hadn't done before. Fi26, and that is likely to recur in Fi27 as well.

Good. Those are the questions. Thank you. Thank you. We move to the next caller from the line of Rishi Junjunwala of IIFL. Your line has been unmuted.

Yes, thanks for the opportunity. Damesh, firstly, some of your peers have been hinting towards some tightening of spending around some of the peers in the peer marketing US. Has it in any way affected us as well? I know you're reiterating your guidance on a full year basis, but is there any kind of spending pattern change that you have witnessed there?

On core operations, Rishi, I mean, It may be very client-specific, but we are not seeing any general slowdown. Like I said, cost pressures continue to mount, and clients continue to look for opportunities where they can take out costs, right? So if we have a good value proposition, we believe there is still opportunity out there. But in response to the question, like I said, sometimes when you bid on a larger outcome-based managed service deal, it takes time. But other than that, I don't see any general slowing down, or at least we are not seeing in the conversations that we are having.

Got it. The other thing is, you know, the other question is around, you know, penetration in top 10, you know, national insurers. Please correct me if I'm wrong, but we have reasonable exposure to six out of those 10. You know, just wanted to understand what do we need to do, either from a buy or build perspective to, you know, have reasonable exposure to all 10 of them.

Look, I've answered this question before, right? So the top 10 insurers also are the ones who have done outsourcing for the longest time, right? So it is in that we are actually in seven of the 10. It is in that the other three haven't outsourced. So all the traditional opportunities might have already been outsourced. So we are constantly trying to see what are some of the other areas where they haven't outsourced, where we can penetrate. Like I said, clinical is an area, payment integrity is another area. So these are areas that we are constantly having conversations with them on. And those will be, I mean, if we get in, it'll typically be in some of those areas where they haven't either traditionally outsourced or not outsourced to the same extent as probably claims and enrollment, right? So that's how we view entering other top clients where we are not present today.

Got it. And last question is on margins. I think you've maintained the margin guidance for the year, whereas the 120 bps, you know, the minimum wage impact is an incremental headwind that has come through. A large part of that is getting offset due to currency or do you think that, you know, the underlying operating margins are also surprising, are surprisingly better than what you were anticipating at the beginning of the year?

Both, right? Currency has played a part and helped us to retain the guidance. And as all of you know, that currency has depreciated quite a bit in the last three to six months. So that's definitely an impact. But even otherwise, even in the underlying forecast, we had some efficiency initiatives planned. And we are continuing to execute on those and we'll increase our focus in some of those initiatives. It's a combination of both. It's both the exchange rate movement as well as some of the efficiencies we are trying to generate.

Got it. And last question, Lamesh, is, you know, just in terms of M&A and the pipeline around it, you've done two now in the last five quarters. You know, what are you looking at from an M&A perspective going forward? Do you believe some of the client acquisitions can be driven through M&A, not being able to pass through? And as a result, you have targets in mind? Or do you believe there could be some capabilities by buys that you can potentially look at?

It's very, yeah, at least in the space we are in, it's very difficult to... to do an M&A because somebody is in a specific client, right? So it's mostly around capabilities. And like I answered the previous question, clinical areas, provider, the provider side, some technology capabilities, these are broadly the areas where we're looking at acquisitions currently. Okay. Thank you so much. All the best, Ramesh.

Thanks. Thank you. We move to the next participant, taking the question from the line of Seema Nayak of ICSA Securities. The line has been unmuted, Seema.

Hi, am I audible?

Yes, please.

Yeah, thanks for the opportunity. My question is regarding client addition. Q&Q client addition is at 27 and 30 new clients have been added from Careseed. So does that mean active clients have reduced for the core business? And are these like large clients or smaller clients?

No, so Sima, the question, like, we clarified, right? KFC had 30 clients, but out of the 30 clients, there were some common clients, right? So 26 client groups, rather new additions to us.

Okay, got it. And can you mention the Broadpath revenue contribution?

Amar, do you have the specific numbers? See, I mean, Broadpath has been fully integrated into the business, right? So go forward, the numbers we can give you, the clients that came in as Broadpath clients, their revenue share we can give. But today, any new sale that we're making, any new logo that we are winning, it's very difficult to say is it a Broadpath client or a Sagility client, right? So it's a combined team now. But, Emma, do you have the revenue number for...

Yeah, I think it's difficult to split, but we will come back to you on that. Should be...

Sure. So, you had earlier mentioned that the expectation for AI-led deflation is up to 2%. So, where does that number stand for you now?

That's, yeah, that's more of a range, Sima. So we don't measure it on a quarter-on-quarter basis. Like I said, for us, the deflationary things are around two, three areas. One is the question on the cohorts that someone asked. When volumes move from an onshore geography to offshore geographies, there is obviously revenue deflation. So that's one thing. I mean, technology, not just AI, even when we did other kinds of automation, we could reduce the manual effort and some part of the savings go back to the client. And now with AI, that's the third factor. So all of this put together is what I historically said, even before we had 100 to 150 bps, and that could increase to 200 bps over the near future and maybe even go higher in the future. But specifically, we don't have a means to track that on a quarter-on-quarter basis, but we can give you a broader sense of that in the next quarter.

Just to add, Seema, that number was approximately 13.5, 13.6 million for Parpat in quarter three, quarter one, sorry.

Got it. Thank you and all the best.

Thank you. We move to the next caller. The question is from the line of Samir Padikal from Ilara Capital. The line is unmuted. So maybe your line has been unmuted. Stamir, your line has been unmuted. Am I audible now?

Sir, is it possible to give a breakup of seasonal revenue for last year, maybe quarter three and quarter four of last year F525? Sorry, what was the question? I was asking whether it's possible to give us seasonal revenue that we have given for this year, quarter 3, FI27, quarter 4, FI26. Is it possible to give for last year, quarter 3 of FI25 and quarter 4 of FI25?

Yeah, I mean, we had, as I think Ramesh said, the proportion was much lower. We did about 20 million in quarter 3 and quarter 4 of FI25 combined. That number increased 50 million last year.

Sorry, I missed that. So you said a 20 million combined of quarter chain, quarter flow, right?

In FI 25, I mean, which was about 3 odd percent of our revenues that increased about 6 percent of our revenues and about almost $50 million. Yeah.

And when you mentioned that, you know, the senality that will be decided. Intensity will be known only in the quarter two of this year. So what basically drives this from maybe 10-15 million a quarter to 25 million a quarter, the difference of incremental 10 million. So what is basically driving that?

Look, the two factors, right? Last year, the increase was two reasons. One, the addition of Broadpath. Broadpath does a lot more seasonal business because they help clients with Medicare sales and enrollment. So that's a seasonal business. And so that increased the proportion. And like I said, we also got a seasonal clinical work from one of our clients. What drives, I mean, and we could see an increase because most of the times the way it works is when clients prepare themselves for open and rolling season, things that we've done in the past, clients traditionally come back to us and ask us to support them. There may be clients who, when they sit down to look at what the projections are, if they feel that they don't have enough capacity to handle that in-house, they may give us additional work for that period, right? So that's the part that we wouldn't know until closer to end of September. But typically, the work that clients have relied on us for open enrollment season, they will come back to us this year as well for that work.

Okay, so logically, the incremental, say from 10 million to 25 million is incrementally coming for Broadpath only. So logically, the organic number, or we can say the number should be around 10-15. I mean, I'm not asking for a number as such, but this number might see some decline, not exactly 24 million will be coming up for this year. Is it the right assumption?

Why would you say that? Broadpath is now part of Sagility, right? Why would that change? That's exactly what we are saying, right? We are saying it was 6% in FY26. We expect it to be as a similar percentage for FY27 as well.

Yeah, because for this year, the YY growth has been quite on the lower side because the base now is up because of the quarter of three and quarter of four numbers. So just to understand what will drive to... So we go back to the strong high teen kind of a number from here on. The number for Kodathian and Kodathian has to be a similar number. That is what my context is. And second was, basically, you mentioned 120 basis point of wage hike includes the incremental impact of the Karnataka and Telangana wage increase. Is it the right assumption?

The 120 bps impact is the minimum wage increase across Karnataka and Telangana. Wage hikes are separate, and we are not giving you the percentage of that because that was factored into our planning.

So incremental wage hike impact will be recouped by what we are trying to do here. Amar, you want to take that?

Yeah, it's going to be a combination of obviously operational efficiency and some impact from our gains from FX as we go forward. If you remember the last time we did talk about the 24 to 25 and being on the upper end of that number as FX continues to remain at those ranges. And since it has remained at those, we are now confident of our ability to observe that 120 BIPs and still be in that range of 24 to 25% margins. Sure, sure. So thank you, sir.

Thank you for the opportunity. Thank you. We move on to the next question from the line of Rishabh Mehra of Demeter Advisors. Your line has been unmuted. Rishabh, your line has been unmuted.

Hi, am I audible? Yes, please. Hi, I just wanted to get some perspective around your thoughts on one, do you all expect your clients to see any more insourcing and stuff as they're getting tighter margins in the environment they're in? And secondly, have there been any conversations with them around trying to deflate revenue due to AI, perceived AI gains? Those are the two main questions I have.

The first question, I'm not sure, I mean, the basis for your question, right? I see probably know by now we handle core operations for our clients, right? And in sourcing this work, especially if it's not done in the US, if it's done in a different geography, will only increase the cost to the clients. So when they are under cost pressure. That's not the direction that they are likely to go. So insourcing it from an offshore location to their own sites is only going to increase the cost. So that's unlikely to happen. Your second question, yes. I mean, obviously the expectation. Of every client is, can AI be used as a lever to reduce operating costs, right? And like I showed you in the research done by Everest, most of them have reported only very marginal improvements. They have not got the benefits that they promised, that they anticipated. So our value proposition to the clients is, look, if you are able to give us a significant part of the workflow, then we will be able to redesign those workflows and introduce agentic workflows and commit to a cost takeout, right? So that's our value proposition to the client, which is aligned to their objective of cost takeout in operations, right? But the broad answer to your question is yes, that's exactly what the clients want. But they've not been very successful in seeing those gains so far.

Got it. Thank you. My second query was just around this new ESOP pool that you already announced, which is supposed to be around 3% of your equity. Has there any impact on bottom line been decided on that? We'd say that we'll revert after the board meeting.

No, I mean, we are still going through the various approval processes. We still haven't reached the stage of grants and so on. But once that happens, we will, in the subsequent earnings call, we will report that.

And the 3% is obviously not for one year. It's over a period of time for which the grants will be applicable. Okay, thanks.

And my last query was just around a couple of your line items. In your investor day, someone had mentioned that you will see a large change in your internal efficiencies because you are pushing a lot of AI internally as well. How would you see your IT investments in your other cost and your headcount growth grow or change over the next year or two years?

See, I'll ask Kaba to take the investment question on the impact, right? So the impact is… Look, the work that we do for our clients is what will impact headcount, right? So if I'm, let's say, doing a process for a client with 100 folks, and if the client allows me to use AI or implement AI and other transformation technologies, I may not require 100 people, but may require 80 people, right? The internal transformation that we are doing is more around all of the support functions. Can I hire more efficiently using AI? Can I train people more efficiently using AI? That's not really going to reduce your headcount, but it's only going to, for example, reduce the speed to proficiency in my training. Today, if I'm taking six weeks to get somebody proficient, can I take the help of AI and reduce the training timeline to four weeks? Right? So those are the kind of efficiency initiatives that we are working on in internal transformation.

Got it. Got it. Thank you. That's it from my side. Thanks for the opportunity.

Thank you. We take the next question from the line of Arvind Arora from A2 Advisors. Your line has been unmuted.

Hello. Am I audible?

Yes.

So most of the questions are being answered, sir. It's just one clarification as you are saying the shift from onshore to offshore. So it's a margin accretive for us, correct?

In the general sense, yes, it should.

Okay. Understood. Okay. Thank you, sir.

That was the last question for the day. We thank the members of the management for their time and the participants as well. This concludes the call for the day and you may log off this event. Thank you.