Q2 2020 Earnings Call
Second quarter earnings Conference call.
At this time all participants are in listen only mode. After managements prepared remarks, we will conduct a question answer session and instructions for how to ask the question will follow at that time.
As a reminder, just Coliseum recorded for replay purposes, now I would like to turn the call over to David Mackie, W., NSS Executive Vice President Finance and head of Investor Relations David.
Thank you and welcome to our fiscal 2022nd quarter earnings call.
With me today on the call I have w. announces CEO catch up Murgatroyd W are not the CFO subject Oreo and our COO golfing abroad.
That's really detailing our financial results was issued earlier today.
This release is also available on the Investor Relations section of our website www Dot w. enough dotcom.
Today's remarks, we'll focus on the results for the fiscal second quarter ended September Thirtyth 2019.
The matters that will be discussed on todays call are forward looking.
Please keep in mind that these forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.
Such risks and uncertainties include but are not limited to those factors set forth in the company's form 20-F.
This document is also available on the company website.
During this call management will reference certain non-GAAP financial measures, which we believe provide useful information for investors.
Reconciliations of these non-GAAP financial measures to GAAP results can be found in the press release issued earlier today.
Some of the non-GAAP financial measures management will discuss our defined as follows.
Net revenue is defined as revenue less repair payment.
Adjusted operating margin is defined as operating margin, excluding amortization of intangible assets share based compensation and goodwill impairment.
Adjusted net income or a eni is defined as profit excluding amortization of intangible assets share based compensation goodwill impairment and all associated tax.
These terms will be used throughout the call.
I would now like to turn the call over to W. And that's the CEO Keshav Murugesh they show.
Thank you David.
Good morning, everyone.
No business continued to deliver solid financial results into fiscal second quarter.
Net revenue for the quarter came in that $220.7 million Richard represents a year over year increase.
13% on both reported and constant currency basis.
In the second quarter I'll be honest added six new crimes expanded nine existing relationships and renewed 15 contracts.
Our revenue growth continues to be driven by healthy broader based business momentum across our key verticals and service offerings.
Q2, adjusted operating margin came in at 23.5%.
And adjusted diluted EPS grew 22%.
Since the second quarter last year coming in at 79 cents per share.
So do you ever discussed the details of our second quarter financial performance.
His prepared remarks.
On this quarter school I wanted to spend a little time discussing the global procurement space and I'll be honest is differentiated positioning in this market.
Introduced hyper corporate <unk> business environment.
I'm, sorry, recognizing this strategic importance, often effective sourcing and procurement function.
So as I understand the procurement has four times more leverage them sense in terms of bottom line contribution or to put it another way. It takes a 4% increase in sales to generate the same increase in profit.
The 1% decrease in cost.
As a result on.
The road or the procurement function is rapidly moving away from Dr. go.
The strategic in nature.
Good day.
Yes. It is at the forefront, obviously evolving and increasingly impactful procurement management market.
Well in large part due on acquisition of Denali sourcing services in January of 2017.
We've been able to successfully integrate denali sourced to contract capabilities ripped I'll be honest is procure to pay offerings and creative solutions and platforms to manage the end to end procurement cycle.
We are helping clients transform their procurement operations across the entire so stupid value chain, which includes strategic sourcing and category management contract in supply management spend analytics transaction out procurement and accounts payable.
Increasingly WSS procurement solutions are being delivered in the coke enhanced with advanced analytics, and now committed but technology, a neighbor tools and platforms leveraging ought be machine learning and artificial intelligence.
These solutions are enabling seep CPR was M.C. are forced to achieve this strategic business goals, which include reducing both direct and indirect spending enhancing the end use that expedience, increasing capacity and improving strategic decision, making by driving this.
This insights into spending patterns and supply markets.
As a result, WMS has established a leadership position in the procurement space today. The company manages over $75 billion in materials and services spend for more than 65 times across industries and geographies.
Your next has helped our clients lower their cost by 12% to 14% for spend under management through sourcing.
He was entered routes on payments by 25% to 30%.
Through our proprietary operating model, we've been able to remove bottlenecks in the procurement process and increasing throughput or capacity by reducing sourcing and contracting cycle times by two to three X.
Now moving US currently has over 2800 procurement exports globally, including more than 150 client facing onshore category experts.
Our in house procurement capabilities haven't neighbors successful cross selling of services into legacy if I'm doing this and ollie's relationships allow the company to use strategic sourcing as a differentiator lead offering for signing new climbs and helping both the companys overall positioning.
In the end is space.
Since the acquisition Denali revenues have more than doubled and we have been able to add 10, new fortune 500 logos to our clients gross stuff.
Our unique capabilities were recently recognized by CP, All innovation, who presented WMS with the best in advanced procurement practices a warrant.
Our smart procurement and their 2019 technology supply chain conference.
Why do we are pleased with our progress in this important area.
I understand that the company must continue to invest to stay ahead of the rapidly changing industry trends as a result, we have created a dedicated sourcing center of excellence at training Academy.
To service bought WMS employees, and our enterprise and the state of the OCC procurement innovation lab do I need to incubate, new digital and technology enabled procurement solutions.
We're also excited to announce that WMS would be rolling out several exciting new technology tools and offerings in the coming months to support the CPR was digital transformation journey.
Steve skewed for further details on these unique solutions.
As we reach the midpoint of our fiscal year WMS remains excited about the overall health of the BPM demand environment.
The expanding market of opportunity is driven by technology and disruption.
Differentiated positioning.
Our unique but to go structure continues to receive accolades from industry analysts and advisors and most importantly to resonate with aren't climbs WSS ability to combine this domain centric approach with expertise in analytics technology transformation and.
Bruce This is the key to our success.
As an organization we remain focused on investing ahead of the crew and executing on all our strategic objectives with a long term goal of driving enhanced value for our clients shareholders employees and the communities that we live and work it out.
I would now like to turn the call or the Sunday booty up our CFO to further discuss our reserves and of course guidance Sanjay.
Thank you can show.
In the fiscal second quarter WMS next revenue came in AG $220.7 million up 12.9% from 19.1 $95.5 million bolstered in the same quarter off last year and up 12.8% on a constant currency basis.
I wanted to go and revenue growth was broad based with the healthcare travel insurance and consulting and professional services, each growing 15% or more yona ovadia.
With respect all or service offerings and revenue growth versus the prior year was driven by strength in finance and accounting and industry specific BPM, which board grew more than 20 plus I.
Sequentially net revenue increased by 4.3% on a reported abuses and 4.8 was then on a constant currency basis.
Border order quarter revenue performance was driven by solid growth with both new and existing clients, which more than offset headwinds from currency movements net of hedging.
In the second quarter Bubbling US recorded approximately $2 million off shocked them nonrecurring revenue, which was booked at close to 100% margin.
Adjusted operating margin in quarter, two was 23.5% as compared to 21% reported in the same quarter, all fiscal 2019, and 22.8% last quarter.
So what are your adjusted operating margin increased as a result increased productivity, including the high margin short term revenue the impact Paul I have fought a 16 music accounting.
Operating leverage on higher volumes and hedging gains net cost I don't see more mix.
This benefit more than offset the impact or annual wage increases.
Glenn Chile, adjusted operating margin increased as a result of increased productivity hedging gains net of currency movements.
Operating leverage on higher volumes.
Based on our margin performance in the first half of fiscal 2000 Frente anchored visibility. We now expect full year adjusted operating margin given that in July 20% to 23% up from the 20, 122% zoomed in last quarter's guidance.
The company's net other income expense was 1.1 million dollar next expensed in the second quarter.
As compared to $4.2 million off net income reported in quarter, who all fiscal 2019.
And point $8 million off net expense last quarter.
Yodle what are your a 3.7 million dollar impact from I have bought US 16 music on being on interest expense more than offset higher interest income on largest cash balances and lower interest expense, resulting from the scheduled debt payments.
Sequentially. They increasing net expense is due to reduced interest income driven by lower cash balances and lower interest rates.
Doubling its the effective tax rate fourth quarter, two gaming that 20.2% down from 21.8% last year and down from 20.7% last quarter.
Changes in the quarterly tax rate, primarily due to the mix, so well delivered from tax incentive facilities and the mix of profits between geographies.
Fiscal 2020, we now expect our effective corporate exited to be approximately 21%.
The company's existent nagging gum fourth quarter, two was $40.6 million.
Compared with $33.7 million in the same quarter of fiscal 2019.
And $37.6 million last quarter.
Adjusted diluted earnings were 79 cents per share in quarter two.
Was 65 cents in the second quarter of last year, and 72 cents last quarter.
This represents growth areas of 21.7% you at all yet.
As of September 32019, Douglas balance in cash and investments totaled $223.8 million and the company had $47.5 million off back.
Now, let us generated $45.5 million off cash from operating activities this quarter.
And incurred $7.6 million in capital expenditures.
During the quarter the company reported 296478 shares of stock at an average prices all $58.95.
Which impacted quarter to cash by $15.7 million.
Fiscal year to date, we have repurchased 1.1 million shares at a total cost of $63.7 million.
The company also made sure do index payments in quarter, two or $14.1 million.
Dsos in the second quarter came in at that 29 days as compared to 35 days last year and 30 days last quarter.
With respect to other key operating metrics total headcount at the end of the quarter was 42600 to a sequential increase off more than 1500 people.
I would appreciate embodied in the second quarter was 32% the same as reported in quarter, two off last year and down from 34% in the previous quarter.
Global boosted capacity at the end of the second quarter was 34221 and average bird seed utilization improved to 1.23.
Infrastructure build out previously planned for quarter, two is not expected to impact the piano in quarter, three and partner for this fiscal year.
In our press release issued earlier today doubling this provided updated guidance for fiscal 2020.
Based on the company's gutter visibility levels, we expect net revenue within that range of $861 million to $892 million representing year over year revenue growth of 8% to 12%.
Revenue guidance assumes an average British pound to U.S. dollar exchange rate of 1.23 for the remainder of fiscal 2020.
Excluding exchange rate impact revenue guidance represents constant currency growth of 10% to 14% all of which is organic.
We currently have over 98% visibility to the midpoint of the revenue range consistent with off the one guidance in prior years.
Adjusted net income is expected to be in that range of $150 million to $260 million based on 71 rupee to U.S dollar exchange rate for the remainder of fiscal 2000 Brady.
This implies adjusted EPS off $2.93 to $3, an eight cents, assuming a diluted share count of approximately 51.9 million shares.
Full year EPS guidance includes a year over year negative impact of approximately six cents per share associated with their adoption or by a lot of 16.
With respect to capital expenditures.
Blueness continues to expect all requirement for fiscal 2022, we up to $37 million.
We'll now open the call for questions operator.
Ladies and gentlemen, if you wish to ask the question at this time. Please press Star then one are you touched on telephone. If your question has been answered all your wish move yourself from the Q. Please press the pound Keith.
And the interest of time into naval everyone on the call to participate please limit your queries to one question and one follow up.
First question comes from the line of Brian version with Cowen Your line is open.
Hi, Thank you.
I'll ask the macro questionnaire front, a it doesn't seem to be an issue for you, but just give us some comments here around client spending behavior and sentiment.
Particularly in Europe .
Yeah, So Brian good question.
I'll, just say that nothing has changed from our perspective pipeline look strong clients are behaving just as they were a few quarters ago and if nothing else. So I'd say that my salespeople as well as some of my transformation leaders have never been as busy as they have been.
In the last.
Few quarters, and I must say that you know this strength continues to be strong across the UK and Europe as well.
Okay.
And then.
We dig in to expand relationships and renewals can you talk about the nature and the scale of how expansions are occurring today relative to maybe a few years ago as far as that how to pace of expansions that are occurring the level of service line additions and bundling and then on renewals just talk about you're seeing and the expected productivity commitments.
Sure, let me take that Brian .
I think we're pretty pleased with patients that not only the overall health of the pipeline, but but the large deal signing a new client signing as well as the expansion of our existing relationships and I think as everyone knows at this point.
In our business the majority of the revenue growth in any given year, it's going to come from the expansion of those those existing relationships. So when you see us continually nudge up the revenue guidance for the full year, that's typically going to be based on the fact that were successfully expanding relationship at or above the kind of pace that we expect.
So when you look at not just the overall number of expansions that we're seeing but the fact that we spoke a few quarters ago about.
The average deal size for new clients, increasing we're also seeing that clients as they move along the journey are willing to take slightly larger bite in terms of how they expand existing relationships. So we're essentially saying I think across across the spectrum of clients. The fact that.
They are becoming more comfortable with broader scopes of work and looking at more end to end types of services as they move along the journey, so really excited about that.
Alright. Thank you. Thank you.
Thanks, Brian .
Our next question comes from the line of me intended with Needham and company. Your line is open.
Thank you good morning, I, just staying on the same team or maybe keshav and Dave can growth inflect, even higher overtime I think historically, you've been averaging very impressive 12% to 14% type constant currency organic growth, but I'm just wondering given the more mainstream adoption of BPM and the impact of digital and Nexgen technique.
Allergies is there may be an opportunity to grow to even a run at a higher level say a longer term.
Mayank again.
Good morning to you and your excellent question again I'm industry them all the first so positive and Thats why re exist.
We actually think this is the.
Big New phase of the transformation of the BPM business as I have continued to comment on over the past few years, maybe the few quarters and the reality is where digital becoming mainstream with new models. So Glenn go to market being seen.
The potential for US continues to be strong I think what is even more exciting is the fact that we still believe that the other businesses saw underpenetrated with constantly seeing new crimes new clients come on the table will be in existence for very long time, and who are now.
Celebrating the business all actually dipping that those in this model. So you don't want at this point in time, we are very positive about the potential for the business longer term as you've seen as we've kept executing.
No we have.
Growing revenues and this quarter, you're actually taken up the guidance as well.
We'll wait and see but I think if this in particular time, which has the potential for that growth that you're talking about I think this is the time as it's probably the early stage of the new fees for the industry.
That's very helpful. And then I guess in terms of sourcing talent I'm. Just wondering how is your strategy around recruiting and retention changed given the focus on more digital type for next Gen technology type projects that are now incorporated into your BPM processes.
Yes, without giving out too much I will say that yes, there has been a significant transformation inside the company as well.
In terms of you know the programs, we are running around talent and I would say one of the biggest investments WMS has made.
Very cleverly over the past three or four years is predicting this trend and the fact that this is our business.
The business model to the future will change and therefore re skilling upscaling you know people within the company, but more importantly, also creating strategic programs outside the company with universities as well as with other partners in order to make sure that the kind of talent, we bring into this company.
They are perfectly suited to the new ways of doing business.
So I'm pretty sure pretty pretty confident about the fact that we're making the right investments in that area and more importantly that WMS is probably one of a few companies that is extremely well positioned to help clients with their transformational journeys in terms of this new digital space that we are seeing.
Great. Thank you congrats on the results.
Yes.
Our next question comes from the line of Moshe Katri with Wedbush Securities. Your line is open.
Hey, Thanks, Congrats on strong numbers margins came in better than expected again, the beacon talk a bit about the puts and takes in terms of.
What drove that and then.
Is there any change in terms of your margin expectations for the year.
And then finally, maybe you can talk a bit about the pipeline of and the deal flow. Thanks a lot.
Yes. Thanks, it all up margin came better than expected anyway, as we spoke last time and ill be.
We guided to almost a flatten a little lower margin but.
There was two factors, primarily one was a nonrecurring revenue, which was not factored in our guidance. When we provided last time, so that does help.
From a better margin and in fact, a my prepared remarks I spoke about some of the infrastructure Bush what do you have.
Done for the later half of the year. Those two primary factors is held a no better margin expected in quarter, two as well as.
For the full year.
Second half is going to be little lower than the first up again, primarily because nonrecurring revenue as we don't have a visibility we have not factored into guidance for the second enough. So thats not dead as well as they infrastructure as I mentioned is going to would that into second half.
There is going to be time will seasonality in quarter Pete.
We do the usual, what we have including continuously our investments into the C is technology some of their programs. What gives you have mentioned.
Finally, getting offsetted by the productivity, so that's where.
You know the for the full year is gas so from a full year perspective.
Overall, we have updated.
Operating margin.
It was 100 basis points as an average.
You also had another question on the pipeline and let me just once again give comfort on the fact that the pipeline is solid in this last quarter again, we saw some more wins I think what is really interesting is the pipeline is solid.
Enough deals in the which are going across all ranges, including large deals.
I am just size scale and complexity that truly global in nature, they're coming across all geographies and some of our horizontal offerings are also leading the way in terms of some of the new initiatives and recent wins that we have seen so very pleased with the strength of the pipeline the activities.
The pipeline and the fact that up WMS has got position in every geography and in every quarter what to go that we operate in as a must have brand for any prospect.
Up to in terms of bad strategic thinking for that business.
[noise].
Thank you. Our next question comes from the line of Nagging Nolan with William Blair. Your line is open.
Thank you.
I wanted to build up on headcount question. There was obviously a large increasing headcount in the first half a year and digital is clearly a focus area are there any other noteworthy focus areas like particular vertical to horizontal wells that you were hiring for.
Sure.
I think obviously megi when you look at the hiring in the head count it's going to be a function of where we have.
Not only the existing fraction, but also the visibility to demand I mean, we don't tend to run the business that has high bench levels, where we hire far in advance but.
But that being said I think you're going to see.
Hiring continue to track them, a vertical perspective, with where we've seen strength in our business, which has been on the health care side on the insurance side more recently in the travel side of the business and shipping and logistics. So these have been the growth drivers for us from a percentage perspective, and the hiring profile tend to track with that.
Also just to add to what Dave mentioned, we're seeing a significant addition in our actuarial analytics and financing finance and accounting professionals.
Thank you and then you highlighted procurement this quarter other specific areas, where you think you'd like to maybe acquire to round out that procurement strategy or are there other focus areas for your M&A strategy going forward.
Yeah, I think that.
Actually.
Without specifically, calling out or any specific data it within procurement as an industry area. Let me say that our M&A pipeline is very robust and in fact, we're continuously having interactions with the number of prospects.
And our interest at this point in time continues to be adding and building more capability led acquisitions and.
So we continue to make good progress there.
And like I've said on previous calls you know, we will do an acquisition at the right place right time and for the right valuation and I'm pretty certain that at this point in time, we're making extremely good progress across different areas that traditional verticals that I've spoken about earlier as well as solve the horizontal areas.
That will drive growth for this company procurement included.
Yes.
Thanks, Hi next.
Our next question comes from the line of Joseph Foresi with Cantor Fitzgerald. Your line is open.
Hi, This is drew coming on for Joe you touched on a little on the last question, but just curious on the vertical side, which verticals you see as potential for the strongest growth moving forward and then maybe if you could touch on how the Martin margin cadence looks for the rest this year. Thank you.
Sure. So let me take that through.
I think when you look at the vertical strength I mean, I don't think we expect to see in the back half of this year anything dramatically different in terms of where the drivers going to come from if you look at year to date, where we've had success. It's been in the traditional verticals in the area, where we've been able to establish a differentiated capability.
By healthcare travel insurance.
And the shipping and logistics areas. So these are clearly differentiated capabilities for w. enough in the marketplace.
And we don't we don't anticipate that that acceleration in that momentum is going to change through the back half of the year.
The second part of your question with respect to the margin cadence as we move throughout fiscal 2020.
Thank you mentioned, we've upped our guidance for the full year to where we now expect total margin to be between 22, and 23%, which is up 100 basis points from where we were a quarter ago. If you look at where we are today in terms of year to date.
We're right around 23%, so what that implies the back half while there is pressure it's on Jay mentioned from infrastructure build from the lack of short term revenues in that number from the investments we need to make that pressure that we're looking at is only about 100 basis points in total.
Thank you.
Thanks.
Our next question comes from the line of Edward Caso with Wells Fargo. Your line is open.
Thank you congratulations here on the good numbers.
Yes, if you're seeing any new competitors move into the space and I'm thinking, particularly around the deep past model. Thanks.
Yeah. Thanks, Ed.
Actually seemed assemble competitors at the moment across all our deals and given the advances that we have made in our offerings.
We don't see any new competitors emerging.
And my other question this around a repurchase activity should we just assume a steady pace or is it really dictated by the level skin in the level of your stock price.
Yes.
So.
We are still 1.1 million authorization left from our repurchase perspective.
And you know as we as we have indicated earlier that usually it's a 1.1 million during the year specifically from.
To offset the impact from a dilution perspective.
But you know as the stock price.
It is a water, Thailand, maybe an opportunity because we sell still left and 1.1 man at the authorization also done lifetime and based on the board approved.
You don't expect.
I'll be back audio to do that because that is an opportunity.
Thank you.
Thanks Anthony.
Our next question comes from the line of Ash.
Maker with Citi. Your line is open.
Hi, Thank you.
Guys another solid quarter David Congratulations.
Thank you my first question is.
Going to margins.
Margins have been up without the non to cutting that you mentioned I think some of the other questions that off so I think seeking complain to figure it out.
And then.
Fundamental underlying changes with digital automation and not outcome based contract so on that lead to more attractive revenues and hence the better margin profile longer term.
So are you dosh wind up.
Differently nonrecurring.
He is healthy profit beyond bag, a as we had been always talking about at all or revenue.
It's been growing faster than the headcount and those are all based on the nonlinear Marvel.
The RFP that technologies, the digital journey, what we had been driving which is resonating well we talked line absolutely that is helping us to win.
No more clients more business and at a healthy a margin.
You know, Bob which helps us to continues to keep on investing into this journey.
From a from a national spot.
Yeah, and I think you know ashwin when you look at the impact of.
Where the industry is headed right the impact of digital and the impact of leveraging technology into our existing services. When you look at the mix shift that has the potential to drive margin improvement moving away from headcount led models towards transaction and outcome based model. These are journey. These are not things that are going to.
Change in a quarter and they're probably not going to change materially in the year. These are things that hopefully surveys tailwinds to our business over the next five to 10 years.
But we know how clients behave we know how clients move and even though we've talked a lot about accelerated fraction and the adoption of digital and seeing more large transformational deal. The reality is for every one of those large transformational deals. We see we have clients who are behaving in a traditional manner and that are moving around a much more.
Slow steady predictable kind of the path so.
I do think Theres opportunity I do think we're excited about where the industry's headed but we also need to temper that was the fact that this business does not turn quickly it's something that moved very slowly and clients. When they take these decisions take them very in a very measured badger.
Understood, that's that's very well understood.
The second question that catch them I appreciate the comments on procurement.
I guess is they wait to quantify.
How well you have done Denali and how it's going on maybe a penetration comment.
We know when can you take this next.
Yeah, that's a great question Ashwin I wish I had some better.
Metrics are onset to give you, but all I can say is since denali came in and more importantly, our very highly qualified highly qualified in a talented team came in.
Done businesses ability to work with all their traditional appliance has dramatically increased more importantly, Dublin assist ability to go after the entire high tech sector, which is such a fast growing area. At this point in time has dramatically being a kind of.
Uh huh influenced and.
Even as we speak with digital kicking off in such a manager in the board rooms of every company I think Denali is definitely for US one I'll be you know core resources that allows us access into each of these boardrooms the stock. These discussions so this.
Point in time, I will say that this capability that we have brought in.
He is actually.
Helping every popped up on business to become much much stronger and it's a it's a wonderful win win read the traditional Dublin us offerings has been enhanced and at the same time Denali as a company also has been significantly enhanced by the strength and power of W. NSS balance sheet.
And the rest of one debentures brings to the table. Because remember then you are interacting with clients I'll desk scale and size that then alia traditionally interacted with.
They are much more relieved when they're now seeing that they're interacting off the balance sheet. The for much much larger competition now so that's how I'd just wondering time I will answer that question.
Oh, that's quite useful. Thank you. Thank you for that and congratulations again.
Thank you.
Our next question comes from the line of Dave Koning with Baird. Your line is open.
Yeah, Hey, guys. Thanks, nice job and I guess my first question just when we think about the year, we've been talking a lot about margins, but just EBIT dollars, you're gonna grow revenue, let's say 80 million or somewhere around there you're gonna grow EBIT somewhere in the ballpark of $35 million, which is massive incremental margins and I know.
I think $11 million of that if I remember right. It's just the accounting shift, but still even if you exclude that the incremental margins are really big and I'm. Just wondering if there's any like structural shift too.
To stop that's coming on now this is very high incremental margin.
Yes, So let me take that Dave I mean, I think obviously, what we're really pleased about and what we really feel reflect the pulse of our businesses that adjusted operating margin number and you're right up a portion of that that we've called out which is about 120 basis points relates to IMF are at 16 and kind of how that's been but if we take a step back in.
We look at where this company was two or three years ago, we were talking about sustainable margin in the high teens, and then kind of walking into the last year, we had up that number 20%.
And now where we hours were really driving 20, 122% adjusted operating margin. This year is going to be higher already spoken about with 100 basis points, so that coming from I've already but that's really reflect the health and the pulse of our business.
Difference for W. on at between the adjusted operating margin numbers and the EBIT or EBITDA numbers are not going to train are not going to fluctuate relative to the adjusted operating margin other than the changes as a result of IR 60. So I think if you're really kind of looking at where this business is headed you want to focus on the adjusted operating margin.
The rest is really going to be an accounting, we'd love to take credit for you know and over 400 basis point increase in our jobs in our adjusted EBITDA number but the reality is we can't do that because it's really just when accounting change so.
Continue to focus on the adjusted operating margin line, that's what we focus internally and making sure that we continued to drive healthy sustainable margins industry, leading margins, which continue to be significantly above the appears that and to look for opportunities moving forward as the industry evolves.
Okay. That's great. Thanks, and I guess, just one other one travel and leisure up I think 20% or so one of the strongest really in two to three years. It looks like I guess, maybe what's driving that and then in than anything on on Thomas Cook I don't know how big of a have a client that was.
Yes in terms of the travel and leisure drop vertical what do you have seen is the successful execution of couple of the large deals that we mentioned over the last few quarters that I've been jumping up to plan.
An expansion across most of our large logos within the travel ecosystem. That's added two significant growth across the board and pending with regard to Thomas Cook.
Even in the last quarter as such we had alluded to it's quite relevant we've taken the numbers into context. It did not have any material impact it's quite the white the non material client for us.
Just to add to that you know for the balance of the you know thats not factored into our guidance.
What we have provided from up almost what's been perspective, as Glenn mentioned it wasn't a material client.
From a little nimble perspective.
And from ER and from ER and from a risk perspective, just just so everyone knows there is no. There is no financial risk that all bad debts scenario that been accounted for.
Great. Thanks, guys good job.
Thanks, Dave Thank you.
Our next question comes from the line Jain with Jpmorgan. Your line is open.
Hey, nice quarter guys.
How should we think about it's closer to client business, while in the UK I mean, yet or.
Huh.
And any impact favorable or adverse.
From the upcoming Brexit deadline on your volume based business.
No you mentioned that client behavior has been change, but was there or could it be an impact from changes in business falling.
Well, let me let me take that we need I think we in general feel very comfortable about.
Not only the types of services that we we provide to our clients in the UK.
But but also the fact that when you look at the work that we're doing not a lot of it has exposure to the volume obviously people are aware the fact that WMS at its core that that's been up from British Airways and certainly if there were changes to their volume it could have a slight impact, but the British Airways today is not a significant client.
If you went out if you looked at who are larger clients are in the UK. Most of those businesses are not cyclical in nature. So as a result, we don't expect to have significant exposure to volume fluctuations in the types of work that we do so I'm kind of similar to the messages that we provide back in 2000.
Seen around Brexit exposure, we continue to feel pretty comfortable not about not only about the opportunities going forward, but also the fact that our existing book of business should be extremely stable.
Got it no that's helpful.
Who do compete moved in procurement space and how much of the work that you do is solution based versus people be.
Good how much of the was is industry specific let's say is a horizontal list that can be offered across multiple industries.
Also you know Bob the data are the usual call, but it does what we have you know on one side is all around the exciting shows and no infosys, but on the other side. It's on the GP as some of the few competitors to NIM about what do you usually see in computing the procurement species.
You know it's more around the United States. You also mentioned, it's around the world because our positioning what we do because each of the horizontal versus vertical is going to be very important from a domain perspective.
And according to approach is more towards the solution based I mean should also just a body. We don't we don't go I will read that approach in any of our business.
Yes, well danger I don't see someone's award because what we are already present and thats, what the whole approach and is resonating well with all our clients even deployments space, yeah, and similar to how we talk.
Similar to how we speak about our the other parts of our business.
When you look at how we deliver these solutions yesterday labor component to it but we also have proprietary technology that we're we're deploying including technologies and analytic and also using partners to deliver somebody services companies like a rebound Cooper so.
We have a similar approach to procurement that we have and all areas of our business.
Got it thank you.
Our next question comes from the line of Vincent Colicchio was down to research. Your line is open.
Yeah. Thank you.
Nice quarter gentlemen.
Question on the the F T E.
Portion of the mix on the contract revenue side is the increase.
It's it's up again this quarter in is it was last quarter is that that is the right to assume that this tied to finance and accounting and new client activity I'm just wondering if there's anything else there.
Yeah, I think you're absolutely correct, Vince we typically see new clients engage on an FDIC basis.
It's not surprising that you know clients also start their journeys either with customer interaction services or finance and accounting types of services. So yes, we view both strength in M&A, it's Randy Frank than Ft, and oftentimes, where new clients will start their journey with WMS.
And then.
Since your Dave.
I missed the size of the onetime revenue in the quarter and should we expect to more onetime revenue in the current quarter.
So far the gotten caught.
The non recurring revenue was 2 million dollar.
All right now we have not factored into guidance.
Non recurring revenue for the second half, but yeah, you know about we don't have the grid visibility. So we can't comment whether it's going to be dead on northern Nevada, condom. So we'll ever just wait and watch a you know once we enter into the quarter.
I think because they have to assuming safe to assume that we would we would expect something up but again, that's on just point no visibility and volatility.
And then just contact center revenue in the midst that dropped a bit.
Is that related to automation or anything to read into that.
I don't think there's anything to read into it I mean, when you look at the CIO business it kind of ebbs and flows. So we've had strength in some years we've had.
Less growth than others and again remember we also have from both an M&A in a C.I.S. perspective.
Bundling that takes place as clients move along the journey. So it's not uncommon for works to come out of C.I.S. and come out of that the Nate and move into the industry specific bucket as clients add services and bundle.
Got it thank you guys.
Thank you and things and.
Once again they show many of you wish to ask question at this time. Please press Star then one are you touched on telephone. Our next question comes from Sam England with Berenberg. Your line is open.
Hi, guys. A couple from me that's one day insurance right can you sort of DC pick up in Q2 I was just wondering if there's any specific drivers for that and when do you expect it to continue accelerating and HD.
Yeah. The key reasons for that Sam is based on the on the successful again implementation of the deals that you spoke about during our last quarter and at the same time, a broad based growth across multiple of our insurance clients across all areas of services, but then its industry specific finance and accounting or analysts.
It's an actuarial.
Continued to see a healthy momentum for the rest so after year too.
Great. Thanks, and then just the second one around operating margins, you've obviously talked at all about the margins to age JV income for this year longer time.
Hi is how much improvement you've seen that each one are you thinking chronologies could go beyond where previously.
Will you see a natural cap on operating margin.
For the future.
So directionally up from one future perspective, you know as we believe it can be in the range of 20% to 22% and you know very are coming from is you know it can go as low as a 20% to 20% is specifically from some of the you know increase investment into the whole digital transformation technologies.
That's what we've been talking about as well as it can go as high as to any duplicity, specifically you know based on some of the nonrecurring revenue and the productivity that I was what we had been working towards.
Yeah.
Let me add did well we're talking numbers. Here then you know Sunday gave some kind of guidance in terms of walk operating margins could be like a I think what is really exciting from an overall business point of view is that WMS has never leveraged technology analytics.
And different pricing models with declines as we are experiencing and experimenting with at this point in time and I think a lot of this also is driving both up do you know.
The quality of sticky their videos, but also.
The potential for margin, so, we'll wait and see what margins ultimately stabilized, but they exciting area yet is that.
We are operating in a completely new environment based on investments we have made over the last few years, rather I think a allows us to position ourselves ahead or anyone else from industry at this point in time.
Okay, great. Thanks very much.
Thanks to them.
At this time, we have no further questions in the Q. This will conclude today's conference call. Thank for your participation you may now disconnect.
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