Q1 2021 WNS (Holdings) Ltd Earnings Call
Good morning, and welcome to the W. And that's holding fiscal 2021 first quarter earnings conference call. At this time all participants are in listen only mode. After managements prepared remarks, we will conduct a question and answer session and instructions for how to ask a question will follow at that time as a reminder, this call is being recorded for replay purposes.
Now I would like to turn the call over to David Mackie, WSS Executive Vice President Finance and head of Investor Relations David.
Thank you and welcome to our fiscal 2021 first quarter earnings call with me today on the call I FW and that's a CEO keshav Murugesh W. And that's the CFO Sungy Korea, and our COO got the bright.
A press release detailing our financial results was issued earlier today. This release is also a barrel available on the Investor Relations section of our website at Www Dot W.N.S. dotcom.
Today's remarks, we'll focus on the results for the fiscal first quarter ended June Thirtyth 2020.
Some of 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 the 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 payments.
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 taxes. These terms will be used throughout the call.
I would now like to turn the call over to W. enough the CEO Keshav Murugesh geisha.
Thank you David.
Good morning, everyone.
We hope you have your family office.
I got from actual results show Golden 19 hasn't materially affect on our business in the fiscal first quarter two energy drink you want.
Net revenue for Q1.
$201.4 million with Jefferies.
Or your degree all 5% on reported basis and of course, there reduction cost trends.
Sequentially net revenue was down $34 million or 15% on a quarter basis.
38% constant currency.
Q1 revenue.
Fourth quarter, Oh, religare supply and demand facts, but there's just two weeks, although in the previous quarter.
We currently estimate [laughter], mostly in factor driving your mom by approximately 70% from accretion <unk> run rate.
The majority of the remaining revenue pressure coming from supply constraints.
Despite the challenging environment.
Oh, yes was able to Delaware adjusted operating margins all 17.
Thank you Wow.
[laughter] positive free cash flow.
Working with clients WMS has transformed our delivery model will actually be doing work from home approach.
All are generally capability.
Improved throughout the quarter and on average the economy was able to supply 92% off your mom during the first quarter.
After that.
This is now servicing 95%.
Our clients requirements, which represents the current maximum deliveries capability he didn't work from home market.
Further.
Improving supply beyond this level when required to relax long gone restrictions I'm trying to cover a lot authorized.
Good for phone that remaining process work remotely due to sensitive nature.
We are [laughter] slowly and cautiously we enjoy back into our facilities and then when local authorities alone.
This is prescribed social distancing and safety practices.
At this time, we are planning to move large numbers of employees back to the offices onto the fact that make is behind us.
This set of limited approach will help mitigate risk associated with potential wire surges and associates disruptions to our operations.
In addition to increasing our delivery capacity over the fourth quarter. We have also further in the house on work from home cyber security in the area so remote access.
At the point that you ought to be anthrax intelligence and monitor.
We have created.
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Unique solution is approved by our clients.
We delivered information and cyber security.
Similar to our field office capabilities.
WMS is also in the process of implementing a new futuristic hybrid model that will allow us to see seamlessly move delivery between office anvil.
We continue to place a healthy.
And 65 global workforce, our long range and show them the ability to securely service all are flying as our stock priorities.
That's right feeding back we have received regarding WSS approach to the fact that make it has been extremely positive.
Our partnership approach executive level communication.
[laughter] to support and make a service.
We've been working closely with clients to manage said in near term challenges. They go lower volumes and business uncertainty. While also beginning to help them prepare for the fourth quarter environment.
For some clients, we have extended concessions on minimum volume commitments as well as payment to us.
At the same time, many clients have seemed that business is still alive.
In June and July and I'm increasingly willing to do stuff and move forward with relationship expansions glass.
These conversations have largely focused on three areas.
Improved confidence that positioning reducing costs.
To accelerating digital transformation.
Three improving operational flexibility by adjusting engagement models.
Perhaps even more encouraging we're also seeing new clients really need to move forward with auto finance audit fees.
Contract negotiations and deal signings.
In the fiscal first quarter, we close seven new logos, despite the difficult environment.
Dig a little relationships, rather than having new relationships in the insurance healthcare consumable products banking and professional services verticals.
Our clients include a from outsourcing for the first time and then maybe from a competitor who was unable to provide adequate service during the forward laptops.
In addition, one of the new ways is a strategic relationship in the U.S. property and casualty insurance space, which has the potential to be highly impactful in the claims management marketplace and a large account for WMS.
We're also happy to report.
Okay, just seemed clients and new prospects are increasingly willing to forgo traditional in Boston transition plans for virtual our remote transitions in order to help expedite business benefits.
While it may take some time for new deals to convert into meaningful revenue.
These are clearly positive sites.
Overall, our pipeline remains very strong and all those opportunities have been delayed to date, we have not seen project cancellations.
Why don't you Doug.
The new business momentum is starting to pick up the company will remain cautious regarding the potential for additional covert nitin waves.
Further economic impacts.
Overall business volatility.
In the fiscal first quarter W and actively manage discretionary spending but did not make significant exchanges to global headcount levels.
In the second quarter, the company really proactive about addressing not only discretionary expenses, but also adjusting our compensation costs and the mix of resources across skills and geographies.
These actions are necessary to bring our costs more in line with todays revenue.
Position, our business what growth opportunities.
Finally, the ongoing investments.
WMS does not planned to change our commitment to enable appropriation and we'll continue to invest in domain expertise technology and automation advanced analytics business transformation and the refilling our global workforce.
In summary.
Despite the current and walk environment WMS remain confident in our financial stability.
Differentiated capabilities.
Solid underlying business momentum.
Grower ability to execute.
The company is strongly position to help clients navigate through covert challenges and transform their businesses for both Scorebig success.
We have seen nothing in the last few months that changes our belief that Hispanic has the potential to so as a catalyst for accelerating the adoption of BPM.
And the shift towards Hyatt and digital solutions and a giant engagement models in the meantime, the must remain vigilant to ensure our employees remain safe.
And the rapidly changing needs of our clients our mix.
I would now like to turn the call over to our CFO Sanjay Puria to further discuss our results and outlook Sanjay.
Thank you issue.
End of fiscal first quarter doubling this next revenue gaming AG $201.4 million.
Down 4.8, let's say from $211.6 million posted in the same quarter off last year.
Any down 1.9, close then on a constant currency basis.
Sequentially net revenues decreased by 14.6% on reported basis, and 12.5, plus there on a constant currency basis.
Dublin lease net in quarter one.
Well, we diluted Dimont reductions impacted revenue by approximately 7% and supply constraints reduced revenue by approximately 8% from our equally run rate.
Well, we've been limited demand reductions what largest index level interest utility bill verticals.
While supply challenges pressured on verticals.
Revenue book you are what are your sequentially, let's also adversely impacted by currency movements nickel hedging.
In the fourth quarter doubling its recorded six an awfully dollars off shocked.
Non recurring revenue, which was booked at margins above company average.
This one time amount what do you underlying business opportunity bought through charges.
Meanwhile, clients signed off on for performance.
Fees associated with clients ramp downs and stock Shopko project look.
Adjusted operating margin in quarter, one was 17 in hopper sick as compared to 22.84 side reported in the same quarter office, good 2020, and 22% last quarter.
Both you know what are your quarter will talk to the adjusted operating margin reduction is the result of gold related revenue impacts, including lower demand and supply constraints the cost of getting access headcount at each other expenses associated with.
But let's continue.
This headwind, but partially offset by favorable currency movements natural hedging.
Proactive management of discretionary spending and lower but I will end facility related costs.
Margin for the quarter was significantly about Brad expectations as the incremental revenue generated in quarter, one given with very little additional cost.
The company had net other income expense was hobbling dollar off net expense in the first quarter.
As compared to $2.8 million off net expense reported in quarter, one office, good granite ready and less than 100000 dollar net expense last quarter.
Yes.
The favorable when I ask is attributable to lower interest expense, resulting from share Newark debt repayment and reviews I am on at least interest costs.
More than offset reduced interest income, resulting from lower rates.
Sequentially, the increasing net expense is due to reduced interest income.
By lower interest rates, which more than offset lower interest expenses from debt repayment and reduced IRS audits leasing costs.
Dublin net effective tax rate for quarter, one gaming that.
25.1%.
From 20.7% last year and from 18.3% last quarter.
Changes in the quarterly vaccinate are primarily due to the mix of profits between geographies and the mix of other delivered from debt incentive facilities.
The Companys adjusted net income for quarter, one was $26.1 million.
Aggregated $37.6 million in the same quarter of fiscal 220 and $42.4 billion last quarter.
Adjusted diluted earnings were 50 cents, but share in quarter one.
Versus 72 cents in the fourth quarter of last year, and 82 days last quarter.
As of June Thirtyth, great Randy doubling its balances in cash and investments totaled $321.1 million and the company had 33 and a half billion dollar update.
Doubling that generated $25.1 million off cash from operating activities this quarter and incurred $6.4 billion in capital expenditures.
Fish $2 million water for purchases of desktops and laptops related took over 90 work from home delivery.
Dsos in the fourth quarter gaming at 39 of these.
Going back to 30 days last year, and 31 days last quarter.
The increase in India. So is the reserve of temporary being made on concessions provided to several clients and some collection delays.
From a cash flow perspective, this impact was largely offset by improved management of accounts payable.
With respect to other key operating metrics total headcount at the end of the quarter was 43400 and quickly do annual Additionally, in the first quarter was 11%.
Down from 34% reported in quarter, one off last year.
From 30% in the previous quarter.
The lower accretion rate reflects the impact of Floyd 19 on global labor market during the product.
Bill capacity today of the first quarter remains steady at 34779.
The seat utilization metrics, which the company typically for light as a measure of infrastructure productivity are not meaningful do you understand what promo environment.
In our press release issued earlier today, Dublin is provided guidance for the fiscal second quarter and continued the temporary suspension of annual guidance.
Fourth quarter, two based on the Companys current visibility levels, we expect net revenue to be let angel hundred 98 million to $280 million, assuming an average British pound to U.S dollar exchange rate of 1.25 for the quarter.
We currently have over 98% visibility to the midpoint alteration and guidance does not include any short term nonrecurring revenue.
Second quarter adjusted net income is expected to be at that age off 24 million $2 million to $3 million based on a 75 rupee to a euro dollar exchange rate.
This implies quarter to exit.
He is a 46 cents to 58 days.
Assuming our diluted share song of approximately 51.7 million shares.
For the full year current little will activity and a lack of visibility makes it difficult for us to provide a reasonable guidance range are set up assumptions.
We expect ongoing business volatility or the next few quarters, which could impact client volumes got connections this year's supply challenges and new project ramps.
Douglas will continue to monitor the coordinated situation and plans to resume annual guidance once visibility improves.
The company remains in a strong financial position with a solid balance sheet unused lines already low capex requirements and the ability to adjust operating costs to manage profitability and cash flow.
I'll now open the call for questions operator.
Ah.
But at this time, if you'd like to ask a question. Please press Star then one on your touched on telephone. If your question has been answered or you wish to remove yourself in the queue. Please press the pound key.
It's just the timing to enable everyone on the call to participate please limit your queries to one question one follow up question.
Our first question comes from the line and Maggie Nolan with William Blair. Your line is now open.
Hey, good actually on for Matt I.
Thanks for taking a question so wanted to ask what.
The guidance in terms of improving demand trends over the course of Q2.
Sure, let let me take that.
When when you look at the Q2 assumption from a demand perspective.
Really two pieces to what's embedded in the guidance at least in terms of at the midpoint.
We do expect some mild erosion in demand from Q1 to Q2 and this is predominantly because there was some work that was done in Q1 that was backlog or catch up related.
So so we do expect to see some of our clients, especially in the travel verticals have a little bit of erosion from Q1 Q2, but we also expect some of the deals that we signed in Q1 to be ramping throughout the quarter. So we've got a little bit of a mixed bag there.
From a demand perspective, obviously, the offset to that as we do expect supply to improve its case of mentioned in his prepared remarks with the current supply at 95%, we should be doing better quarter over quarter than the 92% that we averaged in Q1.
Okay. That's helpful.
On that point, you characterize the business those supply constraints I know you're talking about 95% of demand.
That's still in your mind to supply constraint or.
But the point where.
That's the primary factor.
Going forward, Yeah, I think the only thing that remains in supply constraint for for W. net as of today.
And if that 5% that were not delivering right obviously were 95%.
It's 5% that were unable to do the reason were unable to do that because the clients require us to be in the office to get that piece of work done. So I would actually tell you that were at full supply as of today, given the current locked down situation and that our ability to address that additional five proof.
That will be largely predicated on our ability to get back into the offices.
That's helpful. Thanks.
Thanks Ted.
Yes.
Thank you and the next question comes from Bryan Bergin with Cowen. Your line is now open.
Hi, Thank you just wonder if up there on the outlook can you give us a sense just across the verticals. There I heard the comment on travel there Dave are there any other verticals, where you think it could be a little bit softer before picks up again.
Yeah, I think obviously the other places we want to watch here in Q2 would be retail.
For us at our diversified vertical.
These are the areas, where we've seen our end customers, having the biggest challenges.
So I think it makes sense that neither is we have to what I would tell you that outside of the retail vertical and the travel vertical the majority of the issues that we've had have either been customer specific or supply related so.
These would be the two places that we would see as potential challenges from a demand perspective in Q2.
Okay, and then just on margin so the cost actions that TQ looks to be up a little bit what cost actions have been taken a one Q and then your comments on the two Q workforce.
Actions you may take what type of benefit do you expect from that can give us a sense of kind of the cadence there on what sustainable going forward.
[noise], so far I know Q2.
DARPA you know.
In quarter, one I'd like to work from home and it but it might react to it called business continued expenses, which you are on the release dated back to solve laptops or read all of connectivity on a competition and so on so we expect that to be.
A little lower as compared to quarter one in quarter two.
Also in quarter, one we had our nonrecurring revenue which was there.
Margin, we trust a ball company level.
So right on quarter do we have not factored any nonrecurring revenue or Dassault, that's going to be they back over there as well as you know you have heard from officials, we must perspective that we want to accelerate our investments into their digital journey technology.
We were doing and we continue to do a novel onto escalate because clients expectation now in every discussion is around how youre going to have a better solution from a digital perspective so.
We want to really embark on Dec anti journey.
At the same time.
We'll continue to have our.
Composition Xyrem in excess headcount for spending corresponding to revenue, but as we move forward, we keep on renal a proactive.
Cost management really.
Not really matters.
Some of the factors right now for quarter two.
Okay say, yes. The net the net result of that Brian is that the midpoint of guidance what were essentially assuming that our operating margins are going to be flat. We've got the benefit that Jim mentioned, but we've also got some incremental costs. So.
I think the good news is where it would certainly ahead of where we expected to be a quarter ago on margin.
But once you get beyond Q2, the driver for margin improvement really needs to be that re acceleration on the top line.
That just to clarify that's flat quarter on quarter right correct, obviously assumes no nonrecurring, which will come at a higher proceed margin.
Correct again, depending on what the nonrecurring revenue is yes, it could drive higher margins again, though we need to kind of watch and see but at the midpoint of guidance. The expectation is that our adjusted operating.
Simply flat.
Q1 did okay.
Okay. Thank you very much.
Thank you. Our next question comes from Mayank Tandon with Needham. Your line is now open.
Thank you well first big picture question, maybe for a case of or Dave I want to get a sense of.
The nature of conversations you're having today versus what you were having pre cobot sort of get a sense of what the market overall market may look like once we do contain this virus in other words I do we see growth that returned to normalized levels pre cobot or do you think growth will be markedly different given the increase desire to automate are the same time comes we'll be focused on.
On obviously driving operational efficiencies and just sort of a big picture.
The question how does the market look beyond the pandemic. Thanks.
Sure Mike that's an excellent question and let me start let me start by saying that.
I think for the box zero four months all clients has essentially been focused on only managing the pandemic adequate funding as best as a good to changing volumes on their site.
Managing their costs and at the same time, just making sure that Dan employees, what also space and I think that's is where W.
But not done extremely well and ensure that we were seen as a very strong partner to each one of them getting very difficult times.
Having said that I can tell you I have been having accommodations that every one of our clients across the past few weeks.
What is coming off clearly is that why some of what it goes continued to be challenged from a demand point of view.
For all the obvious reasons the reality of CEO speak on the client side is they know they cannot just be paralyzed and you have to.
Continue making decisions in order to make sure that their companies that their businesses Sunrise and grow at a healthy pace beyond the pandemic. So from our point of view, we're already see really good conversations around the need to reveal more costs from their point of view.
The need to accelerate digital models, and I guess, a physical handoffs and.
Dan hunger and that excitement to look at new operating models that helped create very differently variability in terms of their overall cost, but really as I've said in my prepared remarks, as well I actually think there.
Assuming this is an extended family both fundamental forecasts show for this business is significantly better than what it could walk is wall Street dynamic.
Great. That's very helpful. Acacia and if I can just follow with a question on guidance.
Obviously, you gave specific guidance for two Q, which is encouraging what would really take to be able to provide full year guidance. It sounded like you've seen some nice pick up in terms of deal activity I know, we're not back to pre coven levels would you want to get a better sense of what it would take our visibility standpoint to be able to provide a full year outlook. Once again. Thank you.
Sure I'll take that Mike.
I think for us to provide full year guidance, what we really need to do we see some more stability, particularly in terms of the new client behaviors and the new wins.
Like case of mentioned in his prepared remarks, we're very happy that we've been able to see deals moving through the pipeline that clients are willing to entertain conversations that we've added new logos than we've been successful in signing new pieces of business, but we also known as the company because we've seen this before there can be gaps between.
When a deal was signed and when that deal actually starts to generate revenue. We know the client has to do some things to be prepared for transitioned and to prepare for w. enough to come and help them and if the clients aren't ready to do that then the actual revenue generation for us can get delayed so I think.
One other thing we need to see over the next couple of months is that the deal signings in the new work that we've been able to move through the pipeline is actually translating into client, making making the kind of behavioral changes required for us to generate that revenue and if that happens I think you know we've largely thing.
Good out the supply side of this business at this point, we certainly could see some more volatility in demand and we have to watch out for that based on waves and what happens with the virus, but I think the biggest wildcard for US right now is seeing the new business ramps converting into revenue.
Great that's very helpful. Thanks, Dave.
Thanks.
Thank you in the next question comes a most catchy with Wedbush Securities. Your line is.
Hey, Thanks for taking my question I have two here assuming travel continues to be weak and obviously this is probably.
It probably will continue for the next 12 months.
Where do you feel the most I'm confident or where do you get the most confidence in terms of the verticals that can down the road kind of filling that gap that was created by the weakness volumes there.
Does it take 612 months to kind of get that yep. So.
And then what's your appetite on the M&A side of the business lots of conversations are you, having in which areas.
Are you currently focusing on thanks.
I'll take the first part of the question.
In terms of pickle families the strengthening of demand.
And again like [laughter] politically Bambi.
[laughter] demand.
The.
Secondly, I think it is our shipping and logistics second second vertical is over shipping and logistics vertical bed. We are starting to see steady to an increase in demand and currently our consulting and professional services vertical there's some odd.
Your clients are going to stop increasing their volumes with on [laughter] in in terms of the M&A question.
[laughter].
Yes, good to hear me Bob.
You know from our perspective at this point in time, what reviews Rethinking your very conservative view of Ah you know the M&A side, we continue to revisit and we will keep re evaluating opportunities.
Our approach to M&A remains unchanged I wanted to clarify that.
At the same time, we're also looking at.
After cosmos opportunities both coverage so there are opportunities honestly.
We are.
Being proactive in terms of looking at all of them, but in terms of priority I think we're right now.
Competing investment in some of the other areas from an operating point of view, where we can see results quickly and at the same time reserving the timeframe to do some ob M&A related activities.
For the longer term.
And just just add a little bit of color to the garlands comments, because I know the the response got a little bit garbled, there with the technology as you.
No I think when we look forward to where where demand can go and fill and although I think the thing that's really important people understand is.
We're not waiting at the company or the volume that we've lost to come back for us to drive revenue growth right, we've kind of taking a step back, especially in the travel verticals into a lesser extent retail because of cobot, but the driver for us to grow the business going forward isn't waiting for those volumes to return.
We know could be prolonged in some cases the way we're going to drive that growth is the same way, we've driven our growth historically, which is by adding new logos and adding the number of processes that we manage for those clients. So you look at the travel vertical for example, yes, we know what's been structural impact that yes, we know it's going to be a multiyear recovery.
But the reality of those businesses need our help now more than ever so so for us to drive growth, it's not waiting for the number of passengers to come back or the number of flight to the number of routes to come back, it's helping them reduce cost and helping them automate what they do adding to process you get we managed for them to hedge.
Them reduce costs and these are the things that you know our normal businesses, we don't normally grow our business based on higher volumes with with the same clients, it's not a same store business.
So I think to the extent that we've taken a step down and this is the new baseline level for us hopefully at this point now the question really becomes how do we layer growth on top of that.
<unk>.
Understood. Thanks for the color.
Thanks.
Thanks Moshe.
Thank you and our next question comes from Ashwin Shirvaikar with Citi. Your line is open.
Locally in China.
Yep can hear you know.
Sorry about that.
Well first of all good to see it all doing well.
HM.
My My first question was.
Regards to the context that you signed in the quarter and the that kind of vacation days would these eight closing out of the process that started in five quarters or was it all either quarter.
That's leading to it if you could talk a little bit about how the sales process as they've all been changed.
And do these contracts to stand out either in terms of size or the pace at least clients at asking it ramped up.
Sure. So let me stop and I'm sure.
I'm sure the others would like to add on beyond that.
But ashwin I think one of the.
Very interesting changes that WMS is driving in terms of the sales process itself is something that we have started prior to covert but we have put through you know very aggressively during forward, So first and foremost.
Imagine the entire sales process for US is now being done virtually you know obviously is a function of how we have created automation bricks and platforms and I love prospects to go through the entire process, Oh presale interacting with our sales folks.
Look at you know a solution anyway, and also look at a transition plan and to some extent also see how dare offices from rich work will be delivered ultimately we look from a virtual point of view. Although this has been put together on.
You know platform and I must say there is resonating extremely well, where it's a prospect as a result of which some of the deals that we spoke about would have soccer primarily abandoned make some of them actually stopped during the prime to make and move to very quickly and seamlessly right.
That is very very exciting from our point of view because it means that drives now I appreciate and understand that you don't need to physically actually travel into delivery centers to meet people or things like that to a case mix. The first decision obviously longer term.
You need to do all of that but the fact that all of this has worked we have given us comfort to them around the risk models, the operational risk the cyber security risks as well as the potential outcomes is working very relevant I would expect to see.
Foster acceleration off this model and therefore, you know better sales performance around this as well because from my perspective.
And my interactions with clients and prospects across the globe. We're seeing this as you know the whole covert pandemic as nothing more than it really ought to fall at this point in time clients are very clear that they need to keep getting things done they cannot.
You know keep talking about the pandemic to be paralyzed in terms of decision, making and the quality of conversations with clients and prospects for W. has has actually improved even more we're now talking to them about new area beyond the traditional areas that we generally service.
And that is exciting for the long term.
That's a that's that's great to hear the and then with regards to see the.
Other part of it question, which was you know what these these are process is then I assume based on your response and that it kinda doesn't matter whether they.
They are good before or during the quarter because you are now fully capable of.
Doing things work today as far as this is process is concerned that fair assumption then.
Let me take that so yes, we are fully capable and we're comfortable in our ability to do remote transitions for both existing as well as new clients. Because you know we've now seen that it will work.
The real question is from appliance perspective, how comfortable are there and that's the one wild card that we have to watch going forward is.
While we know we can do it you know two clients want away. If they believe this is a one month through a six month issue do they want to wait six months for the Kinder gentler handheld model or do they want to have those savings known business benefit.
Quicker and have them today, so I think you're going to see across the board very very different behaviors client by client based on the pressures based on the culture and based on their experience with with process management.
Understood and then the clarification I had is your Twoq you outlook does leave open the possibility of sequentially.
Lower performance for revenue and profitability metrics, but none of your comments seem to imply that that's a that's likely to.
Hey, this just basically it and Oh, what abundance of caution leading you. There can you can you talk about that.
Sure. So I think if you look at the low end of guidance that when you know for us to end up closer to the 198 range. For example, as opposed to the mid point, which is two of three where we at 98% visibility. Yes. We would have to have further demand erosion, we would have to provide.
Our clients with session. We would have to have another wave of potential lockdowns or supply issues and we would have to have some kind of paralysis in the timing of ramp.
These are all certainly possibilities in this environment, but yes, we would have to do certain things go wrong for us to end up at the low end of guide and similarly breast end up at the high end of guidance things would have to happen that we don't have visibility do today, but certainly could happen as well.
Understood that's great to know and yes.
[music].
Thank you everyone neutral thank you.
Thank you. Our next question comes in Dave Koning with Baird. Your line is now open.
Yeah, Hey, guys, great job [laughter] thing so thanks, yeah.
Yeah, and so I guess I just had a question I guess around margins. It's kinda two part I guess.
I guess first of all what level of revenue would you have to be at to get back to kind of that you know the 22% or some margin that you've been putting up kind of last year and then the second part.
His has anything fundamentally change in the business, whether it's more work from home, whether it's just less yeah physical infrastructure needs that could actually raised the long term margin profile relative to what you thought before.
So let me let me take a cut at that and Sanjay engage again can add in as well you know I think when you. When you look at the margin profile, what what it would take for us to get back to margin you know at or above 20% or at this point in time, it would probably take us getting back to a similar revenue run rate to wear.
We were in Q3 Q4 of last fiscal year. So I think for us to get back north of 20% on the margin line you got to be looking at revenues that are back in the 225 to 35 kind of a range.
So so a lot of that now is predicated on getting that top line moving again.
You know we want to continue doing that and as a result, you know we don't want to make short term decisions here to the pull a margin lever in the second quarter that could impact how we interact with our clients how we interact with our employees and certainly how we continue to drive the business forward itself. So I think that from a show.
Your term perspective will be the key to getting margins up longer term you know we have to kind of wait and see what what some of these changes to the model means we certainly believe that if.
Work from home becomes a structural part of the delivery model there will be lower cost to deliver but the reality is we would also like that in that those kinds of cases clients will understand that they want lower pricing for those types of work so not sure that that would necessarily drive a higher margin for us what would potentially.
Provide margin lift for us going forward is if we do have more client willing to move to transaction and outcome based model, where we have control over delivery and we have the ability to drive those margins up by having inputs into the levers.
That I think would be a bigger driver for us going forward. Then then something like work from home.
Okay, Yeah, that's really helpful.
And then and then just the one other question just looking through some of that slide you send over.
Yeah. That's subscription revenue has actually been up quite a bit and then there's no other line to it in your contract type and I'm. Just wondering what exactly is that subscription why is that growing so well relative I think that might have been up 20% or something like that even despite the tough environment is that something that you're just shifting more work to.
Yeah.
Oh, you want to go etcetera.
Yeah, so build up a the prescription revenue primarily you know if you recall.
So more to round up exactly should what we need to the healthcare space and there has been in all up not impacting lifestyle from a four week in this environment perspective that has been pretty steadily growing you want to fill up so from a north America perspective, we'd old from a dollar for split in North America has not been impacted primarily because off.
Some of the growth what you're seeing in that so that's a good news.
Yeah. So some of the subscription base is largely in our in our healthcare payer business and we've seen not only that they're stable in this cold environment, but we've also seen healthy growth in that vertical in that segment of the vertical over the last year, which is part of what are what you're alluding to the other thing is when you look at the outcome based revenues right.
The reality is because their performance base, there's less volatility with things like volumes right. This is more about how we're performing on what we own versus the number of transaction processing. So from that perspective, I think we do have a little bit more control over how weve.
Generate revenue in that area than for example in a transaction based model, where we're completely at the at the.
Disposal of what the claims volumes are doing.
Gotcha, Yeah, thanks for great job guys.
Thanks, Dave.
Thank you.
Thank you. Our next question comes from Vincent Colicchio with Barrington Research. Your line is now open.
Yes.
Nice quarter guys. I was curious you had mentioned that you picked up some business from a competitor or the more opportunities like that out there is there sort of a pipeline of that.
Sure I'll take that yes, we do know during the quarter, we we did.
You know take some business and helped a prospect who we were working with earlier.
In terms of some business that they're one of that existing.
Vendors couldn't manage because of a dependable and I mean, you got to do that in order to make sure that the industry is healthy and a that you know the value is being seen so thats one.
The same time.
As I talked to clients across the globe I think there is a very clear feedback coming to WMS that do we have managed this friend to make up the way we have kept the lights on for them and be boxer like approach that we have showed them all through in terms of not just keeping a lifestyle but.
Also in terms of just being very popular like.
Our contracts not off payment terms things like that has been appreciate doing very very much by each and every one of them and that is going to actually result, I believe in much more traction in the longer term in terms of new opportunities that traditionally they may have.
Got it was sourced themselves or may have hired or some other partner who didn't respond as well so that's something that.
I think will benefit us and all I still a very positive about the fact that there are no.
No reasons why be modeling post panamax is going to be very positive for the industry and for us because the reality of life is any client I'm speaking to is not expecting volumes to permanently be read the encore you know in terms of their business wondering if they expected to come back.
At some stage and they're looking for Infinity help at this point in time, but overall that need to save cost their need for digital acceleration there need to get on to manage volatility through new models that excitement about being able to blended the work from home model into their existing business.
As one of the fact that the pre school you know kind of drivers continue to remain in place means the potential longer term for the industry is positive.
And with degree of confidence do you have that a financial concessions are largely behind the company [noise].
I think it's something we obviously have to watch the reality is if you look at the concessions that we provided they've been temporary and to the extent that there are prolong challenges. We may have to help clients over several months potentially even several quarters with concession, but again part of what we've been.
Doing with these conversations is to look at ways for us to help them further to reduce costs right. So the clients are going to be most impact that are also going to be the ones that are most likely to give us additional process work because they need to save more money and you know as opposed to getting a 5% discount on what they already do without.
The bigger opportunities to say, 30% to 40% with what they haven't done yet so that's part of it. The other thing that we've done that we did not talk a lot about on this call. It in exchange for some of the concessions that we provided we've also added contract years to the term. So one of the things that we've tried to do with they you know where we're giving you concessions.
For an additional quarter, we want to add another year to our contract so as opposed to an expiring in 2023, it'll expire now in 2024.
Thanks for that trial again.
My point here.
I think you know you by now you must realize if it's a very disciplined team. So even in these areas. The team is very disciplined one other things that we have also focused on during this time to make is we've also looked out indata client base very carefully and clients that didn't have potential.
For the long term directory also exhibitor, so I wanted to mention that as well.
Thank you gentlemen.
Thanks Ben.
Thank you. Our next question comes from Sam Anglo with Harenburg. Your line is how often.
Hi, guys. Just couple of made sense, when I say ground concessions point, yeah salaries were up quite a bit year over year and sequentially do you have any concerns around collections going forwards and if anything you're doing to tighten up collections and it's nice is that increased d. I started number driven by any particular basket was you know these are the ones, who don't expect them to be.
Like travel unlike retail that you mentioned.
So in other diesel is our tickets does not do any particular word nickel or you know just a more broad based and you know as you know Dave I was talking about some concessions what we need to do and just concession also included Philippine Wyndham perspective, and in all but during the quarter. One are there was.
Delays from some of that lives.
Due to the challenges what they have.
So we don't this condition may continue but it'll be elaborate just a watch.
How things progress. This Ah so that was the only reason for two years, so but they don't got cash receivable collections are stable and at this stage, if you're not seeing any outcome central and east line as of today.
Okay, Great. Thanks, and then next from you mentioned earlier on the cool around the investment you've had to pay in and I'd hate to shift I did to terminate working model I was just wondering longer time, whether the pandemic has made you realize is any areas at the only T infrastructure, you need to invest more heavily in going forwards.
Yes from our perspective was that has been an increased investments predominantly in terms of the laptops and divide desktops to enable the work from home ups and adios.
I don't anticipate larger continued investments around that particular area. It's just a normal course of business is stopping to see and we continue to make they live in investments on the technology and the transmission side of the business read that as an increase in continued demand.
Right I think I don't think yeah, the only thing I'd like to add to that Sam as you know in addition to the laptop and desktop one of the places where we have invested and it's more on the software side is the cyber security, which case it mentioned, so making sure that we firmed up our remote access making sure that.
Connectivity is healthy making sure that we've got threat monitoring and Brett intelligence. So that we can not only work from home, but work from home in in a solution model that gives our clients the comfort and confidence that their their businesses that stable unsecure as it is in our in our facilities.
Great. Thanks very much.
Thanks, Dan.
Thank you. Our next question comes from Preneed Jain with JP Morgan Your line is now.
Hi, Thanks for taking my question.
Okay, sure, but love to see is and mature transitions try hyatt outsourcing longer term as they reduce cost and time to quite into steps.
Yes so.
I mean, it's a great question. So the reality is.
I think for most clients and for prospects. It has to be business as usual. We were not finished four month of the pandemic and be a you know expert speak out there is.
This probably something we have to assume will last for the next 12 to 18 months do a vaccine is out there. So if you bake that into your thinking and if you ought to client and you are looking to stay in business and continue with your strategic programs. You are quite clear that you don't want to wait till the end.
It will depend to make and to stop making those decisions because you want to participate in the old model.
I think what we'll see his clients now getting comfortable with the fact that this is something that is around we have to know live with it and we have to take the decisions and therefore, when we come out with a model of this guy named to them. It actually help some day decisions quickly and I can tell you.
Even for from the Mic.
As opposed to prospects trying across the board meeting 10 potential partners and then choosing one or two I actually think many of them may actually little girl.
Interacting with five or six potential partner in this format and then after a you know frying across a bumper just meet with Wow. So the reality is that.
With technology with the majority with the understanding of the work from home model. We haven't led in terms of creating a completely new thinking new models for prospects and clients too you know can do that journey with us.
If you ask me I think the fact that we.
Deliver saw during some difficult times will actually hold us in good stead for the long term, that's more clients and prospects are indicating to me.
And maybe just to add I do know golf ball from on what your transition. It's just not necessarily means just a reduction of the cost, but it's all about adding more value.
Right.
Right understood.
And you travel vertical was down but no there as much as the industry capacity appears to be.
So is that because of high level of looking cancellations.
ER, which would also didn't data transaction for you.
And what do you expect food traveling second quotas.
Yes.
Absolutely they last quarter.
In terms of the travel vertical we have seen the demand has been actually got centered around the bookings cancellations the funds and the changes associated with the hospitality and the airline in the OTA industry. We continue to see some of these changes so cancellations or refunds of bookings and including hasn't second is going to.
You bet a de.
Lockdown system could be he's an increase in some of the bookings happening. So that's where some of the volumes even in Q2 and a few people continue to be at it.
Right and I think just just to add to that the need it's always important to understand that when you look at for example, our travel vertical not everything that we do in that vertical is variable with volume we have services that we provide the several of our OTI, a and our airline clients that are.
Variable with either customer interaction activity levels or even operations for example, finance and accounting may not have any kind of the variability to it. So I think the rewrite it you've seen our travel less impacted than for example, when you look at the numbers that the OTI A's were down 80% than the airlines were down.
90% you you haven't seen a corresponding reduction in our revenue.
Got it contract on the other things I want to mention one other things I want to mention riches reach a hopefully should give some comfort and confidence is why you know for the current year. One should expect to see you know just kind of impact on the travel vertical what I'm hearing.
From our clients or is that bookings for 2021.
Our already at pre covered.
Levels, which is very interesting annex speaks a lot about you know the human spirit people want to fly people want to get back to travel people want to big cruises visits hotels. So at this point in time, it's very interesting that wireless, but we're not seeing that level of commitment in terms of volumes.
Right now for drinking tricky one in many cases volumes not only are equal with levels for many of our clients.
No, but also just to add another point to what Keshav mentioned is earliest had mentioned in [laughter] a wider.
At this also enable some of the Cline structurally consolidate vendors that we ended up being taught the consolidation across vendors. So that's also shored up our volumes.
That's right.
Well if that makes sense thanks for the explanation.
Thanks, Tony.
Thank you and our next question comes from Edward Caso.
Your line is now open.
Hi, Good morning, Good evening I was curious about any market share gains that you believe you're getting both from.
Headed or maybe smaller ones that don't.
Weren't quite as a able to switch to work from home as well as any potential.
You know benefit from clients, who have undersized sort of captive operations. Thanks.
Yeah, Let me, let me take that Ed I think you know we've definitely seen examples where competitors have struggled to service our either our client or our relationship.
In this environment I don't know that I would see this is a short term driver for market share, but certainly I think when you look out over the next five years.
Jack that clients increasingly want a partner who can provide answer but does that he ended service is really where the value and digital transformation is driven.
The niche providers are going to struggle in this environment and our customers are looking for somebody to hold accountable for result, not not the supply pieces or parts of their business. So I think it makes logical sense that overtime, you're going to see consolidation in this industry consolidation to wear.
They are those providers that can provide and capabilities, especially in a domain centric model are gonna be the ones that are that are winning the business and become net acquirers in some cases of these niche tuck in type of thing you know I with respect to captive Carveout kinship mentioned a little bit earlier we.
We see opportunities there it's been very clear that several large global organizations that have captive unit.
Ruggles badly with the transition to work from home and I think as a result of that they may be re evaluating whether or not they want to have captive units. As a result, they will either be looking to get rid of them are looking at a partner who can absorb them.
We certainly see that there's an opportunity for the end to end domains centric player like W and at the Gainshare over the next several years in an industry that hopefully has accelerated growth.
Oh My other question is around that 5% that you're unable to two because of risk client restrictions where did that work go to the client pull it back in house and then.
Where are you in the process of sort of being able to capture that work, particularly now that Oh. My understanding is India is at least bangalore's going into another round of thought locked down.
Yeah, So I'll take that had a in the Gulf of CAD and asked them all the color to that.
Obviously when you when you look at the 5% that were unable to address it.
Because of the sensitivity of the work that clients don't want it done remote you know we have been able to address some of our clients requirements, but but the reality is if you look at what they're doing with that work today. It's a combination of thing some have decided to bring some of that work back in house, because they've got excess capacity that got people said.
In around without a lot to do which has been part of it some of it has been backlog for Q. So that when we get into the offices, we can start to address that backlog and some of it has just gone depending on the type of work. So it's really a mix of thing.
But there's definitely some opportunity when we can get back into the office to address that in terms of getting back into the offices I think it's going to be a combination of fits and starts we've got to be very careful with gauge of mentioned about not moving too quickly and not moving too many people into the offices and constantly running fire drills, where we're moving RMP.
Lloyds back and forth from from office to home.
That being said, even when we can get into the offices. We realize there are challenges with transportation there correct challenges with employees comfort in working from from an office in this environment. So you know there's a number of things that need to happen for us to be able to address that one of the things. We're also working honest trying to get clients more and more come.
Double in our work from home Cyber security protocol, so that they may enable us to attack that 5% without having to get back into the office, whether or not they are willing to do that over the next several months, it's something we're going to have to watch, but it's clearly one of our one of our key focus is over the next quarter due to try and manage what we can control.
To try and get at that 5%.
Great. Thank you [noise] also just to add what David mentioned, a precise declined having an excess capacity, which Chuck enabled it to process. Some of the world [laughter] nature appropriately commenced dumped off the security at Infosys measures associated with what from.
Can I ask the clients and shut allowing be along within that same kind of security systems are in place you'll start seeing a lot more except energy they got to even to fight for the what being a neighbor from book.
I just want to mention one thing, which is if one step back and look at the clients feeling about all of this.
My conversations with all of them clearly bring out the fact that.
They're also having the thing we should have gotten back at home. So if they become something back there also operating from home and frankly, it's not a model that didn't want to work infant themselves. So not only what they like to see this coming back to us and you know just a matter of time.
After which it will come back to us, but they're also evaluating a number or other processes that will not outsourced earlier, which they are forced to operate from home at this point in time themselves, which I think we'll also be bought off.
Our long term game plan, so I could thing it's a good positive during the short term going to wait and see where do we get back to the office.
Thank you.
Yes.
At this time, we have no further questions in the Q. This concludes today's conference call. Thank you for your participation you may now disconnect.
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