NIIT Learning Systems Ltd (NIITMTS) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day, and welcome to the NIIT Learning Systems Limited Q2 FY '27 Earnings Conference Call. As a reminder, all participant lines 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 the 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 Mr. Vijay Thadani, Vice Chairman and Managing Director. Thank you, and over to you, sir.
Vijay Thadani (NIIT Learning Systems Ltd): Thank you. Good evening, good evening everyone. Thank you very much for joining the NIIT Learning Systems quarter two FY27 earnings call. I want to start by thanking you for your continued interest in the company, as well as the fact that you decided to spend this time with us in this busy earning season. So, we truly appreciate that and are looking forward to your questions and comments, which are extremely educative for us and do point us, and help us do point us in the right direction, and help us sharpen our strategy. The agenda for today's call is to discuss the quarter to financial year 27 financial and operating performance in this turbulent environment. Second is to review this quarter's order wins, which are very significant, including one of the, perhaps, very large contracts in our history and our record revenue visibility that we will share with you. While the quarter's numbers are materially below our own expectations, the significant progress on order wins as well as the strategy set that we are seeing getting validated is a strong indicator of our market position and growth aspiration. The next item will be a report on our AI-led transform and operate strategy. Some of you did participate in the investor conference that we held in Mumbai in September, but I think overall a progress on that is something that we'll discuss. Today, we also announced the acquisition of another company, Bluewater Learning, which was announced this afternoon and we will be talking about that as well today. And then obviously, the path forward and our outlook as it appears right now. Of course, there'll be sufficient time for Q&A. Before we begin, a brief note, some comments may be forward-looking and subject to risks and uncertainties. Actual results may differ materially, and that's just caution I wanted you to note of. With that, I'll now hand over to Sapnesh, our CEO.
Sapnesh Lalla (NIIT Learning Systems Ltd): Good afternoon, everyone, and thank you for joining the call. I want to address our results directly. As Vijay pointed out, they were significantly below our expectations. But I would say the second quarter was two very different stories. Our revenue and margin fell short of the guidance we gave you in July, and we're not satisfied with that. At the same time, we signed what's probably going to be among our largest clients in the next couple of years with now a record visibility at about $510 million. I will take you through both, starting with first where we we fell short. Our revenue in Q2 was 5,286 million. It was up 11% year-on-year in rupee terms and down 6% quarter-on-quarter. In constant currency terms, we grew 2.3% year-on-year against our guidance of 9% to 11% growth. This is a shortfall of approximately $4.5 million compared to where we expected to be. As a reminder, Q2 FY26 was the last quarter with revenue from the large North American real estate training contract that we concluded last year. Normalizing for that, constant currency growth in Q2 FY27 was about 6.6% year-on-year and 16% in INR terms. There was no contribution from this contract after Q2 of last year. Three factors were mostly responsible for the shortfall against our plan. While July and August were mostly in line, September, we expected to be significantly higher than July and August, given that July and August tend to be vacation months, predominantly in Europe and to some extent in the United States. While September was higher, significantly higher than July and August, but it was short compared to our expectations, and we saw the lower performance in September on account of compression in a number of industrial clients.
Sapnesh Lalla (NIIT Learning Systems Ltd): across, or a couple of industrial clients across Europe special- specifically in the Dach region. We also saw volatility in spends across a couple of our large professional service services and GSI clients. We also had a client pause their spend with us owing to M&A related restructuring and therefore a pause in spending. A common thread however, that we saw is the environment our clients are operating in frequent restructuring, cost take-outs, and pressure on headcount at an all-time high. We also heard the same theme at our Confluence event in London earlier in October. L&D budgets remain tight and discretionary and project spend has been hit first. We are however starting to see opportunities specifically in the extended enterprise space where organizations are investing in training to improve their market position. Our annual guidance, while it allowed for some of this volatility, but the scale of the cuts in Q2 went beyond our expectations. The same pressure is also pushing enterprises to outsource and transform their learning functions, which I will come back to when I discuss our order wins. In terms of our profitability, Q2 was in Q2 EBITDA was at 874 million. It was down 10% year-on-year, a margin of 16.5%. Below the margin of about 18% that we had guided for the quarter. The margin decline reflects lower temporary revenue on fixed delivery and capability base during the vacation quarter. Annual wage increments which went into effect in July, and continued invested investments in consulting, AI, and go-to-market capabilities. The continuing investments are adding to our capability and reach and contributed directly to large deals we signed this quarter, and we chose not to cut them to protect one quarter's margin. Depreciation and amortization was at 224 million INR versus 215 million INR in previous quarter. Net other income was at 139 million. The treasury income, as you might have expected, was down significantly quarter-on-quarter to 54 million as compared to 154 million in the previous quarter. The net finance cost was at 101 million, including 42 million of fair value adjustments and future acquisition liabilities with respect to SweetRush and St Charles, 32 million of interest on acquisition loans, 8 million of interest on long-term leases, and 19 million of bank and supply chain finance charges. The foreign exchange loss was 52 million, exceptional expenses of 34 million relating to M&A transactions that we will discuss transaction that we will discuss in a minute. Other miscellaneous expenses were at 7 million. The profit before tax was 510 million, it was down 26% year-on-year. Tax was at 137 million with an effective tax rate of 26.8%. PAT was 300 373 million was down 21% year-on-year with EPS of 2 rupees and 70 paise per share. Let's now discuss the order wins that Vijay talked about. Q2 was a break-through quarter for order wins. The same environment that is squeezing discretionary spends is pushing large enterprises into re-thinking how they learn run learning, and more of them are choosing to outsource it to us. Our wins this quarter fall into two groups. The first, outsourcing driven by economic uncertainty as enterprises look to lower cost and gain flexibility in their cost structure and on how they would like to learn run learning. We signed a large, significant and significant contract this quarter. That a leading global enterprise software company has decided to trust operations of its entire customer education function to NIIT Learning under a five-year managed learning services contract. This has the potential to be
Sapnesh Lalla (NIIT Learning Systems Ltd): largest client over the next couple of years. In total, we signed four long-term annuity contracts during the quarter, taking our long-term annuity client count to 116 from 104 a year ago. Alongside the significant deal wins, these the the other deals that we won include an engagement with a large consumer products company, a five-year annuity contract with a global mining and resources company and a three-year engagement with one of the large conglomerates out of United States. The second transformation the second flywheel that we see where we are winning is transformation opportunities where enterprises are turning to us to help transform their learning and development organization as AI starts to reshape their workforce as well as how they expect to run their L&D. We expanded a relationship on this count with a leading apex professional association in finance and accounting in the United States. This which was contracted to us which who has contracted us to create onboarding programs in accounting, tax and audit for newly certified CPAs built on our synthetic work platform. Synthetic work creates experiences where learners practice on realistic simulated client engagements, practice technical and behavioral skills in real life work settings and build judgment before they work with real clients. We see wide applicability of this model across professions with structured entry pathways. We're also engaged at this time in eight transformation projects with global enterprises, helping them build AI-enabled learning enterprises. Each of these is a potential entry point into a larger form and operate relationship. In several of these wins, we competed against and beat large global system integrators as well as large consulting firms and other L&D providers. For the quarter, as mentioned earlier, we added four new long-term annuity clients, renewed annuity contracts with three clients, and expanded scope with two engagements two existing engagements. The revenue visibility rose to a record $510 million, up 25% year year-on-year and up 11% quarter-on-quarter. As I've said in a number of our meetings, including the investor meeting we had in Mumbai in the previous quarter, the future of work is changing and AI is accelerating the pace of that change. At the same time, market volatility is driving frequent restructuring, cost take-outs, and sustained pressure on headcount. This creates two tailwinds for us that I mentioned earlier. First, the cost pressure is pushing enterprises to outsource learning functions they have traditionally run in-house as our customer education wins this quarter show. We expect this tail tailwind to continue. Second, enterprises need to transform their L&D for a workforce shaped by AI, and they're turning to us to lead that transformation. Our view of what clients need is clear. Content is abundant, capability is our job. Adoption of AI is broad, but transformation is thin. Practice and proof beat completions. As AI absorbs procedural work, the human edge lies in judgment and relationships, and that is what learning must build. AI-enabled learning is also significantly expanding our market opportunity. In the face of the unprecedented scale of the reskilling challenge, the lack of advanced in-house AI capability in L&D is becoming a strategic bottleneck for enterprises, leading to a higher propensity to outsource, and we're starting to see some of that show up both in our pipeline and in our closures. AI-powered learning is key to capability building and often critical to the success of strategic initiatives. This is bringing in new executive sponsors, new buyers, and new budgets
Sapnesh Lalla (NIIT Learning Systems Ltd): An example of this is the significant proliferation of forward deployed engineers across a number of technology companies. Even in organizations without a centralized L&D function, we are gaining entry by offering our point solutions such as everyday leadership, synthetic work, FDE training, AI led compliance monitoring tools, etc. to individual business units. These are entirely new growth vectors adding to the traditional drivers we have long benefited from in a large, underpenetrated market for managed learning services and an ever increasing need for efficiency. Not every opportunity we win today is an AI deal, but our AI capabilities have been and will continue to be a decisive differentiator across this as we look ahead. AI enabled services contributed about 17% of our revenue in Q2. This includes solutions where AI components are embedded into the offering we provide to our clients, including subscription elements and engagements where our AI studio and tools materially contribute to the creation or delivery of training. In terms of our balance sheet and cash flow, trade receivable days improved to 55 days from 62 in the previous quarter and 66 a year ago. Overall DSO, including unbilled revenue, improved to 74 days from 81 in the previous quarter and 79 days in the same quarter a year ago. Cash and equivalents were at 9,343 million compared to 9 954 million at the end of the first quarter. Net cash was at 6,000 943 million compared with 7,364 million at the end of the first quarter, after a dividend payout of about 449 million during the quarter. Operating cash flow for the quarter was 169 million, reflecting working capital timing mainly, quarter-on-quarter reduction in payables partly offset by stronger collections. On a trailing 12-months basis, our operating cash flow was Rs. 2,830 million, and EBITDA to operating cash flow conversion was 72%. The capital expenditure this quarter was 144 million. ROCE stands at 29%. Our employee head count was down 14 quarter-on-quarter and is at 2,482 at the end of quarter quarter 2. As I have often mentioned, we are continuing to invest in the capabilities and market access. Our AI learning platform consisting of AI Coach, Simulation Manager and Single Signal Engine is at the heart of our pivot to AI enabled learning. It is now being used by a number of our clients, with more in the pipeline. Beyond stand alone assignments, the platform lends itself to a subscription model that generates recurring revenue without matching costs, supports prof- supporting profitability. We have over 100 senior learning experts dedicated to this initiative. We're also investing in expanding our portfolio of point solutions, addressing specific L&D needs. These help us enter new accounts as well as deepen our engagements with existing ones, and open new revenue sources across our clients. In addition to building such new point solutions wherever we see white spaces, we are also investing in and in enhancing our existing solutions, both with our existing entities as well as by doing inorganic activity. We continue to expand our sales and marketing engine, adding business development and account management capacity, alongside our annual client summit in U.S., as I mentioned earlier, we hosted our first client summit in London Confluence EU, early in October. We continue to bring on board people with niche learning skills and consulting backgrounds to help us with more transformational opportunities. We will continue to make selective acquisitions to add to capabilities and market access to deepen our market presence. We typically say I'm sorry. I now want to
Sapnesh Lalla (NIIT Learning Systems Ltd): acquisition of Blue Water Learning. Our acquisitions have added capability and reach that are helping us bring more value to our clients. The acquisition of Blue Water will have meaningful impact on our new client wins as we show up stronger with our potential clients. The acquisition of Blue Water that we've announced today builds on the same theme, adding new capabilities and preparing us for an AI-led future. Blue Water Learning is a specialist firm specializing in human capital management, learning technology consulting and implementation. Founded in 2003, the company is headquartered in Dallas, Texas. The company has been acquired for a total consideration of up to $17.6 million, including a closing payment of $7.25 million and performance cash, or earnout payments, of up to $10.35 million over the next 5 years. Blue Water provides consulting, implementation and managed services across the learning technology life cycle. It has deep expertise in human capital management learning technology ecosystem, where it is a specialist learning partner for Cornerstone as well as Docebo. The company serves more than 100 active clients across sectors that matter to NIIT, including life sciences, technology, energy, professional services and aviation. Its trailing 12 months revenue is approximately $8.5 million. Blue Water strengthens our position in the human capital management learning technology ecosystem through its consulting and implementation business, which is a key transformation vector driving learning transformation. Combined with NIIT's global delivery capability and award-winning AI-powered managed learning services, it gives clients a single partner for end-to-end transformation. The combination also deepens and broadens our partnerships across leading learning and human capital management ecosystem, adding significant value for both partners as well as clients. More importantly, work in the human capital management layer connects us to workforce data that our AI platform, including the Signal Engine, the Simulation Manager and the AI Coach, needs to deliver personalized, or hyperpersonalized, outcome-led learning in line with our AI-first strategy. In terms of our outlook, as I mentioned upfront, Q2 fell short of what we committed to and we take responsibility for that. The contracts we signed this quarter, led by the large significant win that I talked about in detail, are expected to ramp up during the second half of this year. We expect the YoY acceleration to be back-ended with most of it visible in Q4. We remain watchful of the macro environment and the pace of client decision-making, which can influence timing of ramp-ups in the near term. Despite the Q2 setback, we continue to expect a high single-digit constant currency growth for the year, in line with our guidance for the year, with potential to reach double-digit growth, including the acquisition of Blue Water. We expect the EBITDA margin to be in the 18% range for the full year. Closing now, I would like to reassert that we have the strongest revenue visibility we've had in our history. The task is now to execute, to convert the visibility to revenue and margin. And the entire organization is focused on doing exactly that, as we continue to invest to transform, operate the learning and development organiza- for global clients. I will now give it back to operator for any questions you might have.
Moderator: Thank you, sir. We will now begin with a question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.
Moderator: Our first question comes from the line of Bharat Gulati with Dalal and Broacha, please go ahead.
Bharat Gulati (Dalal and Broacha): Yeah. Hi. Hope I'm audible. Thank you for the opportunity. Just, just wanted to data points of first, what would our organic CC growth be and what would our quarter on quarter CC growth be if that's possible to
Sapnesh Lalla (NIIT Learning Systems Ltd): Give us a moment. Our organic constant currency growth year on year would be
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