IRIS RegTech Solutions (NSE:IRIS) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to IRIS RegTech Solutions Limited Q2 and H1 FY 'twenty seven Earnings Conference Call. As a reminder, all participant line will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Ms. Asha Gupta from P and Y LLP Investor Relations. Thank you, and over to you, ma'am. Thank you, Uzra. Good evening to all of you. Welcome to Q2 and H1 FY 'twenty seven earnings call of IRIS RegTech Solutions Limited.

0:48 The results and presentation have already been made 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're 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 RegTech Solutions Limited, represented by Mr. K. Balachandran, Co Founder, Full Time Director and CEO Ms. Gupta Ranganathan, Co Founder and Full Time Director, along with other management team members. We will start the call with a brief overview of the quarter and half year comp, right, which will be then followed by the Q and 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 risks or uncertainties and other factors.

1:43 It may be viewed in conjunction with our business risks 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. Balachandran. Over to you, sir. Thank you, Asha. Good afternoon. Happy and prayers, and welcome to the IRIS first half earnings call. A good number of people have turned up starting this call on this Diwali weekend, and we are grateful for the time you are spending with us. Apart from me, I have Deepa, Vineet Kandori, our CFO and Rahul Dammay, who heads our consulting, attending this call. As Asa mentioned, we have uploaded investor 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.

2:41 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 are pleased to report that over the past six months, we have sustained our growth momentum with revenues growing at over 30% on a Y o Y 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 IRIS Carbon, the discussion that I'm offering that we have rolled out in the previous financial year.

3:26 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 IRIS Carbon jumped 52% from the number as of 03/31/2026. We also did lag a large enterprise deal that contributed to the sharp uptick in the IRR of IRIS carbon. So as we emphasized earlier as well, our focus on the enterprise SaaS business is undoubtedly to grow the annual recurring revenue where there is a concomitant requirement to expand the sales and marketing activities and spend as well. We have talked about growing our SaaS revenues at about 35% on annual basis in the foreseeable future.

4:14 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 INR10 or a dollar in sales and marketing spend per rupees of net annual recurring revenue. But I'm happy to say that in the first six months of this year, we have spent little less than rupee per net ARR earned and that do not factoring in the large enterprise deal ARR. So we have been quite efficient in that respect. Having said that, it is maybe not that easy to say that this trend could continue.

5:06 We are just waiting to 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 upsell 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 subcut business briefly. The global economic uncertainty, especially in The Middle East has had an impact on the new order intake that we had anticipated in this segment.

5:52 However, we are in the play with a few RFPs and 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 on the regulatory for the regulatory customers, which includes this based supervision, licensing and a few other modules as well. The idea is to expand the product suite so that we are like a one stop stop as far as regulatory reporting requirements are concerned for any financial regulator and even department, the government department 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 half revenues and profitability are normally better than in the first half of the year.

6:45 In this year, for example, higher ARR of our RegTech business should lead to higher revenues in the 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 position 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 positioned to grow both our RegTech and SubTech 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 sales growth across our businesses. Hopefully, conditions will improve in the global economy, which could also play a role in faster conversion in certain pipelines that we are at play.

7:39 Thank you so much. Sir, shall we begin with the question and answer session? We could. Okay. We will now begin with the question and answer session. The first question is from the line of Sarendra Singh from My Equity Sherpa. Please go ahead. Hi, sir. Good evening, and happy to call you to all of you. Thank you. Sir, I was thinking about our this IRIS carbon disclosure management platform, and it seems it is a very, very sticky platform.

8:31 So I'm just wondering that what approach you take to acquire new clients who already might be using such a platform on your site. Right? So I would love to hear your views around it. So are you asking if someone is using some other platform, how do you convert? I fully understand the question. Right? Can you Right. Right. Deepa, you want to say something like to do client acquisition when it's the replacement market? Sure. Hi, this is Deepa. So I think when a client is already using some another disclosure management platform, we typically try to engage with them on our on the overall offering. So it's a combination of our the various modules in the product, the support that we offer, the quality of our kind of structured reporting XBRL.

9:29 And of course, at that point in time, when we are engaging with the 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 we 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 as efficiently, if not more efficiently than what they're currently using. I just want to add a couple of things more in this particular area. One is that we are able to onboard our customers quite fast compared to some other competitors, that is considered to be something which people really appreciate because they can switch over fairly fast.

10:22 Otherwise, it takes a long process to move from one discussion management platform to another. Now, the thing that we have seen is that since we are in Office 365 and that is something people really appreciate because their existing processes before the discussion starts, mostly people do work on the Office, Microsoft Office Suite. And since we are in Office 365, all process is quite seamless. So these are the two other points I want to mention. Yeah. 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 start implementing it in your approach around it. So do 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 how we can help them better in in this current tool, which they are using compared to that our tool.

11:30 Yes. So in a few cases, we do do POCs or, you know, some kind of, like, limited dry down. So they're able to evaluate and get a hands on feel. In some cases, we do limited workshops, you know, kind of 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, you know, the client and the situation or the prospect and the situation, we do offer things like this as well. Okay. And and... Go ahead, please. No. We were not seeing anything from here. Please please get it. Alright. Okay. Another question I have is, like, in in the recent investor presentations, you have shown this AI agent as a separate topic.

12:18 So is it like a 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? Are rolling these out to our existing customers, whether it is our customers on the supervisory side or on the enterprise side. And typically, this is so it is it's bundled in the solutions itself and depending on what customers so it's a little bit like we're not offering this as a separate solution, a standalone solution by itself at this point in time. But yes, we're rolling this out to our existing customer base It's embedded and in the products such as IRIS 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 intelligence using AI.

13:25 Okay. Alright. Alright. Can I ask a few more questions which I have or should I come back to queue? 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. So I'm wondering that it might be due to your sales and marketing effort you are trying to do for our RegTech 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 a separate note to keep in our mind that, yes, this is not part of regular expenses, this is something we are investing for our coming times.

14:23 Yes, I think we can do that. You're asking that we show separately the sales and marketing expenses going forward. Is that what you are saying? Yes. Somewhere in the North, if you mentioned 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, is difficult to judge whether regular expenses have increased so much or is it because of the initiatives we are taking for growing our RegTech division that is leading to these expenses?

15:09 So this is Deepa again. So just one thing. The sales and marketing expenses obviously are all for the future business, 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 still sure. Yes. So I think, you're right, it's not explicitly mentioned in sales marketing in the presentation format. But I mentioned in this particular call, for example, that we have spent less than $1 in sales and marketing for $1 earned in ARR. And you can see that in the past six months, what is the ARR growth. And you can see we are well within that. And typically our contracts what we are seeing, therefore the 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.

16:04 I agree with your point, sir. The only thing is the operating margin, if we know the true operating margin of existing business And 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 RegTech side, right? That is what I was trying to make a judgment out of it by using numbers, which is not that prominent right now in disclosures. Okay. I get what you mean. We haven't disclosed very hardcore numbers in sales and marketing, but we'll keep on giving a good indication of how we are behaving. Sure, sir. That would help. And another thing is in segment results, I'm seeing unallocated expense is one of the category.

16:55 And I would like to know what is the nature of this actually because we are not putting it under either of the divisions which we are operating, right? So if you can just throw some light on it. It's essentially corporate expenses. Oh, okay. Yeah. And there's multiple aspects to it. Salary, so that will go there. Okay. Okay, sir. I'm I'm good, and congratulations on on good results as well as RegTech. I am seeing that you folks are doing excellent job. Keep it up, and wish you all all the best for coming quarters. Thank you so much. I really appreciate. Thanks. Thank you. The next question is from the line of Ritu Shah from JMSPL.

17:52 Please go ahead. Am I audible? Yes. You are. Please proceed. 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 SocTech and IRIS carbon and ideal or separate ARR. There's a difference of around 3 crores in h one and around 5 crores in h two FY twenty six. What does that go into? So we do have another, you know, 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 them, and that has been there for a long time.

18:49 Okay. Okay. Got it. Thank you. And it's part of the, you know, our, you know, other other business. And this is our longest, you know, business of IRIS. I see. Okay. Happy Diwali in advance. Thank you. Thank you so much. Happy Diwali. Thank you. The next question is from the line of Anirudh Bhandari from sixteenth Street Capital. Please go ahead. Yeah. Hi, management team. Congratulations on strong top... Top line. I have few questions. If I look at the segmented revenue and consolidated margins, which you have given for segments. Right? So first, if I look at RegTech, you have given that the good revenues from RegTech was 158,000,000 and segment margins came in at 35,500,000.

19:42 So if I deduct that, your allocated expense for RegTech comes to minus $123,000,000, which is lower than previous quarter. So as per my understanding, you are going to spend aggressively on RegTech. Right? And if I compare the same with StupTech, there has been an increase in allocated expense quarter on quarter from 132,000,000 to 163,000,000. So wanted to know why there is an increase in allocated expense for StupTech and slight decrease or flattish allocated expense on the fixed segment? Yes. In Suptec, we had payments to partners coming in, which was in the previous quarter. There is a corresponding revenue for that.

20:31 There is a revenue which has gone up as well. So the partner expenses has increased components in the Substack business. Like that small drop that you are mentioning is because we better travel less in the second quarter. So there's a vacation period in the sub tumor markets. Understood. Understood. And second thing is if I look at quarter on quarter incremental revenue, which you have reported from $115,000,000 to $158,000,000 in RegTech, So addition of $43,000,000 this is highest ever if look at the history, right? So could you help us understand in terms of new customer acquisitions?

21:21 And should this run rate continue or even improve going forward, given historically Q1 had been the smallest in terms of revenue and then it keeps on improving as quarter start by year on year. I mean, I'm not asking for short term outlook, but just want to understand whether the take off from here only keeps on improving. Anat, you need to answer that. Yes. You have seen that there is a decent uplift on the ARR side on the RegTech, which should translate to revenues going forward. But as Pallu 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 linear, but I think the trajectory would be on the up. That is what I would say.

22:18 Understood. And then investment should continue? Or do we see this EBITDA margins expand since this holiday season gets over? How should we look at EBITDA margins for RegTech? Yes, EBITDA margins for RegTech 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 want to keep the ratio fairly competitive around that $1 to $1.4 sales and marketing per $1 of net ARR earned. And I would say that beyond the threshold EBITDA margin start expanding. The other question is what's the threshold? So we run about 70% gross margin on IRIS cover, but we are spending on, let's say, marketing.

23:07 So you can make a calculation. My sense is we are little early to start meaningfully expanding the EBITDA margin, but we'll get there sooner than later. Got it. 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, is that confidence that able to go and execute our current business. Actually, in fact, we got some change requests from existing customers as well. But new orders, people are still waiting to give it out. So I would say it is operationally, it is okay.

23:54 But people are a little broader in terms of unloosening their purse strings or loosening the purse strings. That's what I would think. It should improve. Think it has improved compared to what it was, say, at the end of the first quarter. That's what I would think. Got it. Thank you. Thanks. I'll join back in the queue. Thank you so much. Thank you. 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. Okay. So once again, thank you for coming in good numbers for this conference call. We had a fairly short conference call. It is good, which means all of you are happy with the numbers and the answers that we have given.

24:53 So, you know, I'm very happy to all of you, and we hope to see you soon. And, you know, enjoy the holidays. Okay? Thank you. Thank you. On behalf of IRIS RegTech Solutions Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.