Aeries Technology (AERT) Q2 2027 earnings review
Aeries Technology pays down debt, but its operating profit falls
Aeries Technology, which builds and runs back-office and artificial-intelligence hubs in India and Mexico, slowed sharply once a one-time contract buyout passed. Second-quarter revenue edged up 5% to $18 million, while higher service-delivery costs cut operating profit in half. Chief executive Ajay Khare kept the full-year outlook unchanged, which by our math requires sales growth to rebound to 12% in the second half.
| Revenue | $18.1M +4.5% from a year ago |
|---|---|
| Gross profit margin | 22.4% 28.9% a year ago |
| Adjusted EBITDA | $2.1M -18% from a year ago |
| Full-year outlook | Unchanged middle of the range: $82M sales, $11M Adjusted EBITDA |
⚖️ Verdict: 🔴 Bearish
The story got worse because core profit margins and cash generation dropped once the first quarter's $2.7 million client buyout rolled off. Gross margin fell nearly 7 percentage points from a year ago, and by our math the business burned cash in the second quarter after four straight quarters of generating it. One positive: the company used its earlier cash influx to pay down a third of its debt and nearly half of its share-buyback liability.
The question now is whether the second-quarter slowdown reflects lost monthly billings from the client that bought out its contract or broader cost pressure across its delivery centers. If new client setups replace that lost billing, revenue and margins will rebound toward the second-half plan; if delivery costs stay elevated, profit will stall near the lower current rate. Next quarter's gross margin and revenue growth will tell.
🐂 Bull Case
Debt and Put-Option Paydowns Cut Balance-Sheet Liabilities
Aeries Technology, which sets up and runs artificial-intelligence and back-office hubs in India and Mexico for corporate clients, used its first-half cash to clean up its balance sheet. Chief executive Ajay Khare said the team remains focused on "maintaining financial discipline, and positioning the business for sustainable growth". Across the first six months of the fiscal year, the outsourcing group spent $5.3 million on financing activities to pay down short-term loans and settle derivative contracts from its public listing.
- Total debt: $3.5 million in September, down 32.8% from $5.2 million in March by our math
- Forward purchase agreement put-option liability, a contract obligating Aeries to buy back shares from early investors: $2.4 million, down 44.8% from $4.3 million in March
- Total liabilities: $38.8 million, down from $44.5 million six months earlier
Paying down these obligations matters because high interest and contract-settlement costs previously drained cash and created quarterly swings in net income. Second-quarter interest expense dropped to $79 thousand from $94 thousand a year ago, and the company recorded a $38 thousand gain on settling a portion of the put-option liability.
What to watch: the remaining $2.4 million put-option liability and $2.7 million in short-term borrowings on next quarter's balance sheet. Another reduction without new borrowing would show the business can clear its leftover listing obligations out of operating cash.
Share Buybacks Shrunk the Share Count by Nearly 9%
Alongside debt reduction, the operations specialist continued buying back its own stock. During the first half of fiscal 2027, Aeries increased the shares held in its treasury from 375 thousand to 691 thousand, spending nearly $1.2 million by our math. That reduced the number of Class A ordinary shares outstanding by 8.8% over six months, down to 5.53 million shares by the end of September.
The company also bought out minority partners in its subsidiaries, which reduced the profit slice going to outside holders to $72 thousand this quarter from $401 thousand a year ago. Because both the share count and outside ownership shrank, net income belonging to Aeries shareholders rose more than fivefold to $1.28 million.
What to watch: treasury stock additions in the third quarter. With cash down to $3.8 million at the end of September, a slower buyback pace would show that preserving working capital now takes priority over shrinking the share count.
🐻 Bear Case
Higher Service Delivery Costs Cut Operating Profit in Half
Khare highlighted "improved net income" as proof of progress on operating priorities. Net income did double from a year ago to $1.3 million, but that gain did not come from daily operations. It came from $766 thousand in miscellaneous non-operating income and a lower tax bill, whereas core operating profit fell by more than half.
- Cost of revenue, the direct expense of paying engineers and running delivery centers: 77.6% of sales, up 6.6 percentage points from a year ago
- Gross margin: 22.4%, down from 28.9% a year ago and 29.1% in the first quarter
- Operating income: $0.9 million, down from $2.0 million a year ago
- Adjusted EBITDA, which is profit before interest, taxes, depreciation, stock pay and derivative swings: $2.1 million, down 17.7% from $2.6 million a year ago
Selling, general and administrative overhead stayed flat at 17.4% of revenue, so the entire margin drop happened inside service delivery. Without the one-time customer buyout that lifted first-quarter profit, running the delivery centers cost Aeries a much larger share of every sales dollar.
What to watch: gross margin in the third quarter. A second reading near 22% would show that wage inflation or pricing pressure in India and Mexico has permanently raised delivery costs.
Revenue Growth Slowed After the First-Quarter Customer Buyout
First-half sales rose 23% from a year ago to $40.1 million, but that headline includes a $2.7 million fee from a client that bought out its contract in the first quarter. Stripping out that one-off buyout by our math, first-half sales grew 14.3%. In the second quarter, with no buyout fee, revenue grew 4.5% from a year ago to $18.1 million.
Measured against the first quarter, underlying sales shrank. Even after removing the $2.7 million buyout from the first-quarter figure, second-quarter revenue dropped 5.6% from the prior three months by our math, falling from $19.2 million to $18.1 million. When a client buys out its contract and takes those workers in-house, Aeries collects a one-time payment but loses the ongoing monthly billing from that account.
That slowdown makes the full-year outlook harder to reach. By our math, hitting the middle of the $80 million to $84 million annual target requires $41.9 million of revenue in the second half, or 12.3% growth from a year ago. Aeries has to nearly triple its second-quarter growth rate over the next six months to make its plan.
What to watch: third-quarter revenue, and whether it rebounds above $20 million. A reading near $18 million would leave the full-year revenue target out of reach without another contract buyout.
Second-Quarter Operations Burned Cash Despite the First-Half Gain
The press release emphasizes "healthy cash generation during the first half of fiscal 2027", pointing to $4.74 million in six-month operating cash flow. However, Aeries already reported $4.82 million of operating cash flow in the first quarter alone. Subtracting the first quarter from the six-month total shows that operations used $84 thousand of cash in the second quarter by our math, ending a four-quarter run of positive cash generation.
Because the company also spent cash on debt and share buybacks, its cash balance fell from $6.07 million in June to $3.84 million in September. Meanwhile, current liabilities of $26.6 million still exceed current assets of $21.6 million, leaving a $4.9 million working-capital deficit by our math.
What to watch: nine-month operating cash flow in next quarter's release. If the total does not rise well above $4.7 million, the company will face tight liquidity while paying its short-term liabilities.
👓 Other Themes
Aeries Launched Its AxAI Software for Enterprise Clients
Aeries noted "the introduction of AxAI, its agentic AI solution offering, in September 2026" alongside AeriesOne, its platform for managing offshore business hubs. Agentic AI refers to software that can complete multi-step business tasks on its own, which the company builds "to support evolving client requirements". The release gave no customer counts or contract values for the new software yet.
Cross-Border Operations Face Currency and Trade Risks
Because Aeries bills mostly North American clients while running delivery centers in India and Mexico, cross-border swings affect its costs. In the first half, currency exchange rates reduced cash by $61 thousand, double the $30 thousand impact a year ago, and the company flagged "increased volatility in foreign currency exchange rates" and potential tariffs among its operating risks.
💲 Other KPIs
Uncollected customer bills fell from $12.4 million in June and $12.7 million in March as Aeries collected first-quarter billings. At the same time, the allowance for doubtful accounts — money set aside for bills customers may never pay — rose to $1.63 million, or 12.7% of total billed receivables by our math, up from $1.34 million in March.
Total liabilities still exceed total assets, leaving a negative net worth on the balance sheet. However, positive first-half net income narrowed the deficit from -$2.63 million in June and -$3.03 million in March, even after subtracting $1.18 million for shares bought back into treasury across the first six months.
🔮 Guidance
Unchanged. The technology services group kept its full-year target calling for 17.1% growth at the middle of the range. By our math, that leaves $41.9 million for the second half, or 12.3% growth from a year ago — nearly triple the second quarter's 4.5% pace. Reaching it requires replacing the $2.7 million first-quarter buyout with recurring client work.
Unchanged. The plan still calls for profit before interest, taxes, depreciation, stock pay and derivative swings to rise 32.4% at the middle of the range. Because the first-quarter buyout lifted first-half Adjusted EBITDA to $6.17 million, the full-year midpoint leaves $4.83 million for the second half by our math. That represents an 11.5% margin, matching the second quarter's 11.6%.
❓ Key Questions
What drove the 6.6-point drop in gross margin?
Cost of revenue rose from 71.1% of sales a year ago to 77.6% this quarter. Management did not say whether higher engineer wages in India and Mexico, unbilled bench staff, or lower client pricing caused the squeeze.
What was the $766 thousand in other income?
Non-operating other income jumped from $69 thousand a year ago to $766 thousand, providing more than half of the quarter's pre-tax profit. The release did not state where that money came from or whether it will repeat.
How much ongoing revenue did the Q1 buyout remove?
A client paid $2.7 million to buy out its contract in the first quarter, and underlying sales fell 5.6% in the second quarter by our math. Investors need to know the quarterly billing lost from that departed client.
Why did bad-debt reserves rise while receivables fell?
Net accounts receivable dropped by $1.5 million over the first half, yet the allowance for unpaid customer bills increased by $295 thousand to $1.63 million. That divergence raises the question of whether specific clients are struggling to pay.