Aeries Technology: Driving Digital Transformation Through Global Capability Centers

Overview Aeries Technology is a global provider of professional and management services, specializing in establishing and managing “Global Capability Centers” (GCCs) for private equity firms and mid-market enterprises. Aeries’ engagement models are designed to deliver deep vertical expertise, functional know-how, and digital solutions to help clients scale, optimize, and transform their business operations. By leveraging AI, implementing process improvements, and recruiting talent in cost-effective locations, Aeries aims to drive significant cost savings for its clients.

Aeries supports its clients’ global growth by providing professional advisory services and operations management to build and manage GCCs in suitable locations. These GCCs act as seamless extensions of the client organization, providing access to top-tier resources and enabling clients to remain competitive, achieve cost efficiencies, and drive operational excellence. A key focus for Aeries is digital transformation, as the company leverages cutting-edge technologies to enhance decision-making, automate processes, and deliver business value.

Aeries manages various functions for its clients, including software development, IT, data analytics, cybersecurity, finance, HR, and customer service. The company hires and deploys talent on its payroll, fostering career progression and higher employee satisfaction to reduce attrition. Aeries’ purpose-built business model aims to create a flexible and cost-effective talent pool for clients while insulating them from regulatory and tax issues.

Recent Developments In 2023, Aeries completed a business combination transaction, which provided the company with approximately $8.7 million in cash. Aeries also entered into forward purchase agreements (FPAs) with certain investors, which could require the company to make a cash payment or issue additional shares at the end of the one-year contract period, depending on the performance of Aeries’ stock price.

In April 2024, Aeries raised an additional $4.68 million through a private placement of newly issued shares. The company is also in ongoing negotiations to potentially restructure certain liabilities into equity or long-term debt.

Key Factors Affecting Performance Aeries’ performance is influenced by several factors, including the market opportunity, private equity market dynamics, macroeconomic conditions, customer retention, and tax considerations.

Market Opportunity: Aeries is focused on the private equity ecosystem and mid-market enterprises, which are seeking service providers with the experience and expertise to deliver the right-sized solutions and lead them through digital transformation.

Private Markets: As the private equity landscape evolves, Aeries’ service offerings will adapt to align with the shifting dynamics of potential investors and portfolio companies.

Macroeconomic Headwinds: Aeries’ operations are impacted by prevailing economic conditions, including inflation, global growth concerns, and currency fluctuations.

Customer Retention: Maintaining long-term customer relationships is crucial, as a significant portion of Aeries’ revenue is derived from these contracts. The company focuses on delivering high-quality service and diversifying its offerings to mitigate the risk of customer terminations.

Income Taxes: Aeries’ effective tax rate varies based on the geographical sources of its earnings, tax rates in different jurisdictions, and tax planning strategies.

Financing Costs: Aeries utilizes short-term and long-term debt to finance its operations and investments. Changes in interest rates and the company’s credit facility terms can affect its financing costs.

Results of Operations Revenue and Profitability Aeries’ revenue for the year ended March 31, 2024, was $72.5 million, a 37% increase compared to the prior year. This growth was driven by the addition of new clients and the ramp-up of existing clients. Cost of revenue increased by 29% to $50.9 million, primarily due to higher compensation and external consultant expenses.

Gross profit for the year ended March 31, 2024, was $21.6 million, a 58% increase compared to the prior year. Gross profit margin improved from 26% to 30%, mainly due to higher margins from the project-based consulting business.

Selling, general, and administrative expenses increased by 65% to $18.7 million, primarily due to higher legal, professional, and operations costs, partially offset by a reduction in ESOP-related expenses.

Total other income, net, was $16.1 million, a significant increase compared to $0.4 million in the prior year, primarily driven by a $16.2 million gain from the change in fair value of derivative liabilities.

Net income attributable to Aeries’ shareholders was $15.7 million, a substantial increase from $1.4 million in the prior year.

Non-GAAP Measures Aeries uses non-GAAP financial measures, such as Adjusted EBITDA and Adjusted EBITDA margin, to provide additional insight and transparency into its performance.

Adjusted EBITDA for the year ended March 31, 2024, was $9.2 million, with an Adjusted EBITDA margin of 12.7%. These non-GAAP measures exclude the impact of interest, taxes, depreciation, amortization, stock-based compensation, business combination-related costs, and changes in the fair value of derivative liabilities.

Liquidity and Capital Resources As of March 31, 2024, Aeries had $2.1 million in cash and cash equivalents. The company generated negative cash flow from operations of $4.3 million, primarily due to an increase in accounts receivable.

Aeries has access to a revolving credit facility with a total borrowing capacity of $3.8 million and an outstanding unsecured loan from a director of $0.8 million. The company also has a four-year vehicle loan of $0.1 million.

While Aeries had a shareholders’ equity deficit of $1.9 million as of March 31, 2024, the company believes it has sufficient cash, cash reserves, and debt capacity to fund its operations and growth plans for the next 12 months and the foreseeable future. The company may also seek to raise additional funds through public or private financing, as well as potentially restructure certain liabilities.

Outlook Aeries is well-positioned to capitalize on the growing demand for its services, as companies seek partners with the expertise and capabilities to drive digital transformation and operational efficiency. The company’s focus on establishing and managing GCCs, leveraging cutting-edge technologies, and providing a flexible and cost-effective talent pool aligns with the evolving needs of its target markets.

However, Aeries faces several risks and challenges, including the potential impact of macroeconomic conditions, the ability to retain and replace key customers, and the successful integration and execution of its growth strategies. The company’s financial performance and liquidity position will be critical in navigating these challenges and delivering long-term value for its shareholders.

Overall, Aeries’ unique business model, strong market positioning, and recent developments position the company for continued growth and success in the dynamic global services and consulting landscape.