Earnings Call Transcript - XNSE:IRIS 2026-11-06

Operator

Ladies and gentlemen, good day and welcome to Iris RegTech Solutions Ltd. Q2 and H1 FY27 Earnings Conference Call. As a reminder, all participants' line will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Asha Gupta from E&Y LLP Investor Relations. Thank you, and over to you, ma'am.

Asha Gupta, Head of Investor Relations

Thank you, Sra. Good evening to all of you. Welcome to Q2 and H1FY27 Earnings Call of IRIS Rectech Solutions Limited. The results and presentations have already been mailed to you, and you can view it on our company's website. In case anyone does not have the copy of press release or presentation or you are not marked in the mail, please do write to us and we will be happy to send you the same. To take us through the results today and to answer your questions, we have the top management of Iris FrecTech Solutions Limited, represented by Mr. K. Balachandran, co-founder, whole-time director and CEO, Ms. Bhikta Rangarajan, co-founder and whole-time director, along with other management team members. We will start the call with a brief overview of the quarter and half year gone by, which will be then followed by the Q&A session. Before we proceed, I would like to remind you that the discussion may contain certain forward-looking statements that may involve known or unknown risk or uncertainties and other factors. It may be viewed in conjunction with our business risk that could cause future results, performance, or achievements to differ significantly from what we have expressed or implied by such forward-looking statements. Having said that, I will now hand over the call to Mr. K. Bagachandran. Over to you, sir.

K. Balachandran, CEO

Thank you, Asha. Good afternoon. Happy Danterers, and welcome to the IRIS first half earnings call. A good number of people have turned up to attend this call on this Givali weekend, and we are grateful for the time you are spending with us. Apart from me, I have Deepta, Vineet Kandori, our CFO, and Raul Damme, who is our consulting, attending this call. As Asha mentioned, we have uploaded in this presentation on the Exchange website yesterday, along with our own website as well, and we hope that many of you have the opportunity to see this as well. Our commentary on the business and financial performance would largely be on a six-month basis, given that we are meeting after a gap of six months. Let me dive into the business performance of Iris. We have pleased to report that over the past six months, we have sustained our growth momentum with revenues growing at over 30% on a value-of-a-way basis in both the first and second quarters of this financial year. We're also pleased that we have been able to grow at a good clip amidst the increasing economic uncertainty in the global economy. Our performance was especially buoyed up by the traction that we are recording in our enterprise SaaS business, particularly the ice carbon, the discussion element offering that we have rolled out in the previous financial year. We have now more than 50 clients using our DM platform, and the feedback is helping us to further improve the product as well. The annual recurring revenue, ARR of ice carbon, jumped 52% from the number as of March 31, 2026. We also did make a large enterprise deal that contributed to the sharp uptick in the ARR of ice carbon. Well, actually, I emphasize earlier as well. Our focus on the enterprise SaaS business is undoubtedly to grow the annual revenue where there is a concomitant requirement to expand the trade and marketing activities and spend as well. We have talked about growing our SaaS revenues at about 35% on an annual basis in the foreseeable future. While we have surpassed our target halfway through this year at this point of time, we do have more work to do in terms of building the iris carbon brand, especially in the U.S. market, as well as strengthening the product and building our partnership networks. I should add that in the SaaS world, companies typically spend well more than a rupees or a dollar in sales and marketing spend per rupees of net annual recurring revenue. But I am happy to say that in the first six months of this year, we have spent a little less than a rupee per net ARR, and that is not factoring in the large enterprise deal ARR. We have been quite efficient in that respect. Having said that, it is maybe not that easy to say that this trend could continue. We have to wait and see. Coming to our BFSI automated regulatory reporting solution, IRIS-IDL, we are now pitching for end-to-end automated reporting, which leads to higher deal sizes and is both an access and a new client opportunity. We have successfully completed such an implementation in India recently and are now pursuing similar business in countries such as Mauritius and Qatar, apart from India. Sales cycles in the business are long, but we do have a few interesting discussions developing at this point of time. Let me now look at the subject business briefing. The global economic uncertainty, especially that in the Middle East, has had an impact on the new order intake that we had anticipated in this segment. However, we are in the play with a few AFPs, and I expect the second half of the year to be better. In addition, I should say that we have been successful in mining our existing customers for additional work during this period. We expanded our product suite to offer more end-to-end features for the regulatory customers, which includes this very supervision, licensing, and a few other modules as well. The idea is to expand the product suite so that we are, again, one-stop-stop as far as regulatory reporting requirements are concerned for any financial regulator and even department, the government departments, who undertake supervision from a financial and operational perspective. Now, coming to our financial performance, we have seen that as far as past performance is concerned, our second-off revenues and profitability are normally better than in the first half of the year. In this year, for example, higher ARR of our electric business should lead to higher revenues as the third quarter unfolds. We also mentioned before that our endeavor is to partially balance our customer acquisition expenses in the SaaS business with profits emanating from the sub-tech and ideal business so that our EBITDA numbers are carefully managed. Our cash question is quite comfortable, and we do plan a higher outlay on our SaaS sales and marketing expenses going forward. Let me close by saying that we are well-coached to grow both our REC tech and subtype businesses. We recognize that we have a long way to go, but we are pleased with the early results as we continue to work hard on the engine of space growth across our businesses. Hopefully, conditions should improve in the global economy, which could also play a role in faster conversion in certain pipelines that we are at play. Thank you so much.

Operator

Sir, shall we begin with the question and answer session?

K. Balachandran, CEO

We could.

Operator

We will now begin with a question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Surendar Singh from My Equity Sherpa. Please go ahead.

Speaker 3

Hi, sir. Good evening, and happy to call you to all of you. Thank you. Sir, I was thinking about this Iris Carbon Disclosure Management Platform, and it seems it is a very, very sticky platform. So I'm just wondering that what approach you take to acquire new clients who already might be using such a platform on the other side, right? So I would love to hear your views around it.

K. Balachandran, CEO

So, are you asking if someone is using some other platform, how do you convert? I fully understand the question, right?

Speaker 3

All right, all right.

K. Balachandran, CEO

Okay. Did you want to say something related to client acquisition when it's the replacement market?

Deepta, Analyst — Management Team Member

Hi, this is Deepta. So, I think, you know, when a client is already using another disclosure management platform, we typically try to engage with them on the overall offering. So, it's a combination of the various modules in the product, the support that we offer, the quality of our kind of structured reporting XDRL. And, of course, at that point in time, when we're engaging with a customer, we have to wait until they get out of contract. So, typically, either they start looking at alternate options or we are already engaging with them and keeping them warm. And at the time when it comes to contract renewal or prior to that is when they evaluate alternatives. We, of course, also have AI functionalities and features bundled as a part of our product. So, we try to demonstrate to them how our product will help address their needs. Thank you. You know, as...

K. Balachandran, CEO

I just want to add a couple of things more in this particular area. One is that we are able to onboard our customers. And that is considered to be something, you know, which people really appreciate because they can switch over fairly fast. Otherwise, you know, it takes a long process to move from one discussion management platform to another. The other thing that we have seen is that since we are in Office 365, and that is, you know, something people really, you know, really appreciate because there are existing processes, you know, before the discussion management starts. Mostly, you know, people do work on the office, Microsoft Office suite, and since we are in Office 365, the whole process is quite seamless. So these are the two other points I want to mention.

Speaker 3

Yeah, sure, sure. That helps. So, sir and ma'am, I was just thinking about it. You might comment on it whether you are following this approach or not, or if you feel it is a good one, you may. I'll start implementing it in your approach around it. So do we take up like some kind of proof of concept where we do kind of a benchmarking with whatever they are using till date and then we provide that kind of a free of cost validation to them stating that that's how we can help them better in this current tool which they are using compared to that our tool.

Deepta, Analyst — Management Team Member

Yes, in a few cases, we do POCs or some kind of limited drive-on, so they're able to evaluate and get a hands-on feel. In some cases, we do limited workshops where we set up their own document for them, and they're able to play with our solution and make an assessment and see that they're comfortable and hands-on. So depending on the client and the situation or the prospect and the situation, we do offer things like this as well.

Speaker 3

Oh, okay. And... Go ahead, please.

Deepta, Analyst — Management Team Member

No, we were not seeing anything from here. Please get it.

Speaker 3

All right. Okay. Another question I have is, like, in the recent investor presentations, you have shown this AI agent as a separate topic. So, is it like an add-on to the existing platform, which makes it easier for our existing clients to use our existing platforms, or is it like a new line of business we are starting, which will have its own profit and loss statement?

Deepta, Analyst — Management Team Member

We're rolling these out to our existing customers, you know, whether it is our customers on the supervisory side or on the enterprise side. And, you know, typically this is – so it is, you know, it's bundled in the solutions itself and depending on what the customers – so it's a little bit like, you know, we're not offering this as a separate solution, a standalone solution by itself at this point in time. But, yeah, we're rolling this out to our existing customer base, and...

K. Balachandran, CEO

It's embedded in the products, such as ice carbon, at this point of time. Even for our regulatory customers, we are speaking to our existing customer base and saying that, can we add a layer in terms of, you know... Okay.

Speaker 3

All right. Can I ask a few more questions which I have or should I come back to you? I think you can ask, I think it's fine. All right, thank you. So another thing, sir, I noticed was that our sales have been really good. Congratulations for that. But when I see at other expenses, the pace of increase in other expenses is slightly higher, even on sequential basis also. So I'm wondering that it might be due to your sales and marketing of what you are trying to do for our reg check division, right? If that is the case, it will be really good in your disclosures if you can mention that how much amount went into such activities so that we have that kind of separate note to keep in our mind that, yes, this is not part of regular expenses and this is something we are investing for our coming times.

Vineet Kandori, CFO

Yeah, I think we can do that. You are asking that we show separately the sales and marketing expenses going forward. Is that what you are saying?

Speaker 3

Yeah, somewhere in the north, if you mention that, okay, these are for our upcoming future business building activities, we are doing additional expenses, right? Because when we see revenue growth and then we see expenses are growing faster than revenue growth and expenses come as single blanket right now. So for us, it is difficult to judge whether regular expenses have increased so much or is it because of the initiatives we are taking for growing our red tech division that is leading to these expenses.

Deepta, Analyst — Management Team Member

So this is Deepa again. So just one thing, you know, the sales and marketing expenses obviously are all for the future growth, right? I mean, that entire line item of sales and marketing across the businesses is all driving the future growth. So, it's... I'm not very sure.

K. Balachandran, CEO

Yeah, so I think, you know, you're right. It's not specifically mentioned in sales and marketing in the LODEA presentation format. But I mentioned in this particular call, for example, that we have spent less than a dollar in sales and marketing for a dollar earned in ARR. And you can see that, you know, the past six months, what is the ARR growth? And you can see, you know, we are well within that. Typically, our contracts, what we have seen, they're for a longer period, and we do get the benefits of the revenue and the margins for a much longer period than the initial expenses that we incur to acquire the customers.

Speaker 3

I agree with your point. The only thing is the operating margin. If we know the true operating margin of existing business, when we get to know that these additional expenses are kind of like our focused effort to ensure that we have a bigger funnel of our sales in Vectrex, that is what I was trying to make a judgment out of it by using numbers.

K. Balachandran, CEO

Okay, I get what you mean. We haven't disclosed very hardcore numbers in facial marketing, but we'll keep on giving a good indication of how we are behaving. Sure, sir. That would help.

Speaker 3

And another thing is in segment results, I am saying unallocated expenses is one of the categories. And I would like to know what is the nature of these, actually, because we are not putting it under either of the divisions which we are operating, right?

Speaker 4

So if you can just throw some light on it.

K. Balachandran, CEO

It's essentially corporate expenses, and it has multiple aspects to it, minimum salaries, all that will go there.

Speaker 3

Okay. Okay, sir, I am good, and congratulations on good results, as well as red tech, I am seeing that you folks are doing an excellent job. Keep it up, and wish you all the best for coming quarters. Thank you so much. We appreciate it. Thank you.

Operator

Thank you. A reminder to all the participants, if you wish to ask a question, you may press star and one now. The next question is from the line of Ritu Shah from JMSPL. Please go ahead.

Ritu Shah, Analyst — JMSPL

Am I audible?

Operator

Yes, you are. Please proceed.

Ritu Shah, Analyst — JMSPL

Congratulations on really good growth in ARR and RegTech. I just wanted to ask that in the presentation, the ARR amount given, it doesn't match with the sum of SovTech and Iris Carbon and Ideal separate ARRs. There's a difference of around 3 crores in H1 and around 5 crores in H2, FI26. What does that go into?

K. Balachandran, CEO

So we do have another service which has been there for a long time where we work with the Bank of India in terms of managing their content and website and similar areas. So that component is coming from there, and that has been there for a long time.

Ritu Shah, Analyst — JMSPL

Okay, okay. Got it. Thank you.

K. Balachandran, CEO

And it's part of the other business. And this is our longest business of Irish.

Ritu Shah, Analyst — JMSPL

Thank you. Okay. Happy Diwali in advance. Thank you.

K. Balachandran, CEO

Thank you so much. Happy Diwali.

Operator

Thank you. The next question is from the line of Aniruddha Bhandari from 16th Street Capital. Please go ahead.

Speaker 3

Hi, management team. Congratulations on a strong top of life. I have a few questions. If I look at the segmental revenue and consolidated margins, which you have given for segments, right? So first, if I look at Rectech, you have given that the good revenues from Rectech was 158 million, and segmental margins came in at 35.5 million. So if I deduct that, your allocated expense for Rectech comes to minus $123 million, which is lower than previous quarter. So as per my understanding, you are going to spend aggressively on Rectech, right? And if I compare the same with ScoopTech, there has been an increase in allocated expense quarter and quarter from $132 million to $163 million. So, wanted to know why there is an increase in allocated expense for scope check and slight decrease of flattish allocated expense on the next segment.

K. Balachandran, CEO

In Suttek, we had payments to partners coming in, which was in the previous quarter.

Speaker 3

There is a corresponding revenue for that.

K. Balachandran, CEO

There is a revenue which has gone up as well. So the partner expenses has increased the component in the Suttek business. And respect the small drop that you are mentioning, is, you know, It's because we might have traveled less in the second quarter, because there's a vacation period in some of the markets.

Speaker 3

Understood. Understood. And second thing is, if I look at quarter-on-quarter incremental revenue, which you have reported from 115 million to 158 million in Rectech, So, addition of 43 million, this is the highest ever if I look at the history, right? So, could you help us understand in terms of new customer acquisitions and should this run rate continue or even improve going forward given historically Q1 has been the smallest in terms of revenue and then it keeps on improving as quarters pass by year on year? I mean, I'm not asking for a short-term outlook, but just want to understand whether the takeoff from here only keeps on improving.

Vineet Kandori, CFO

Yeah, you have seen that there is a decent uplift from the ARR side on the Rectech, which should translate to revenues going forward. But as Palu said, there was one enterprise deal as well, which helped to uplift the ARR in a meaningful way. I would not say that the growth could be lenient, but I think the trajectory would be on the up. That is what I would say.

Speaker 3

And an investment should continue, or do we see this EBITDA margins expand since the only season gets over? How should we look at EBITDA margins for RECTEK?

K. Balachandran, CEO

The EBITDA margins for RECTEK is a function of how much we spend on sales and marketing. So we need to grow at a very good clip, and we are going to spend in sales and marketing in developed markets, including in the U.S. So we ought to keep the ratio fairly, you know, fairly competitive at around that $1 to $1.4 sales in marketing per $1.0 of net AR earned. And I would say that during the threshold, you know, EBITDA margins start expanding. Because the question is, what's the threshold? So we run about 70% gross margin on Irish carbon, but you are spending on sales in marketing. So you can make a calculation. In my sense, we are a little, you know, really to start meaningfully expanding the bitter margins, but we'll get there sooner than later.

Speaker 3

Thank you. If I may add last one on commentary on Middle East, how are you seeing things on ground since, I mean, it's been very unstable. If you could help us give your understanding in the situation on Middle East, since that controversy.

K. Balachandran, CEO

We are able to go and execute our current business. In fact, we got some change requests from existing customers as well. But the new orders, people are, you know, still waiting to give it out. So I would say it is operationally, it is, you know, it is okay. But people are, you know, a little guarded in terms of, you know, unloosening their purse strings or losing their purse strings. That's what I would think. And it should improve. I think, you know, I think it has improved compared to what it was, say, at the end of the first quarter. That's what I would think.

Speaker 4

Thank you.

Operator

A reminder to all the participants, if you wish to ask a question, you may press star and 1 now. To ask a question, you may press star and 1 at this moment. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

K. Balachandran, CEO

Okay, so once again, thank you for coming in. Good numbers for this conference call. We had a fairly short conference call, which is good, which means all of you are happy with, you know, the numbers and the answers that we are given. So, you know, I'm very happy to give you all of you, and we hope to see you soon, and, you know, enjoy the holidays. Thank you.

Operator

Thank you. On behalf of Iris Lectech Solutions Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.