Q2 2021 WNS (Holdings) Ltd Earnings Call
After managements prepared remarks, we will conduct a question answer session.
And instructions for how to ask a question will follow at that time.
As a reminder, that this call is being recorded for replay purposes.
Now I would like to turn the call over to David Mackey Didier.
The U.N.S. executive Vice President of Finance and head of Investor Relations David.
Thank you and welcome to our fiscal 2021 second quarter earnings call.
With me today on the call I have W.N.S. as CEO, Keshav Murugesh W and <unk> CFO, Sanjay Puria and our COO golfing bright.
A press release detailing our financial results was issued earlier today. This release is also available on the Investor Relations section of our website at Www Dot W.N.S. Dot com.
Today's remarks will focus on the results for the fiscal second quarter ended September Thirtyth 2020, some of the.
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 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 are 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 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.
I would now like to turn the call over to W. enough the CEO Keshav Murugesh keshav.
Thank you David.
Good morning, everyone.
We hope you and your families are safe and well.
Don't munis is pleased with our second quarter financial performance and our ability to adapt drug delivery and cost structure in this rapidly changing and London.
Net revenue for second for Q2 came in at $214.4 million.
[noise] represents a year over year, a decrease of three person on both a reported and constant currency basis.
Sequentially net revenue increased by $13 million or 6% on a reported basis and 4% constant currency.
During the quarter, our delivery capabilities continue to improve with supply averaging 98% of supply and demand.
In Q2 as compared to Q1 revenue increased after.
Attrition extender, Richard and the.
And the company proactively managed components of our cost structure, including a onetime change to our cost lift leap policy.
As a result, adjusted operating margins improved by almost 600 basis points sequentially to 23.4%.
Well, we continue to see good religion volume challenges with clients you know fuel funky once you close.
Our overall visibility has improved to the point, where we are now comfortable resuming annual guidance.
Although our ability to service lines requirements, that's strategic progress for the past few quarters we.
We still remain heavily reliant on servicing our global clients in a work from home model.
To date.
Documentary 15 force them to offload work is being performed in W and its facilities with the remaining 85% delivered remotely.
As we have mentioned before two minutes.
To minimize has risks to our employees and potential disruptions to our lives.
Company is not planning to move large numbers of employees back into our offices until the pandemic is behind us.
In the interim we remain focused on enhancing our remote cyber security protocols.
Fine jewelry on a longer term hybrid model solution that will allow us to seamlessly move deliberately between office and home.
Looking forward the business environment still remains somewhat volatile and rich.
Rich clients behaviors reading by industry and by country.
From a demand perspective, we had a.
We are expecting modest revenue pressure in the second half of the year in the travel insurance and utilities verticals based on projections provided to us by our clients.
These four cost reductions primarily for customer interaction services are being driven by the potential for lower activity levels and loan that ramp downs.
We expect these headwinds will be partially mitigated by volume strength into healthcare and banking and financial services verticals.
Well overall the pipeline continues to be extremely healthy in terms of new additions or.
Ongoing activity levels and deal signings.
We continue to see an increase in the number of deals closed with the average deal size somewhat smaller than in previous years.
In the fiscal second quarter, we closed eight new logos and expanded 17 existing relationships while.
Why is the pipeline side deal flow and contract signings odd robust weve.
We've seen some delays and the conversion of large sized deals into revenue.
This is not unexpected in the current environment and it is important to note that while some of these deals are taking longer to ramp them.
They have not been camps.
One thing that has become abundantly clear over the past two quarters is that the global pandemic is accelerating demand for technology enabled process transformation.
Oh hyper automation.
Both new and existing clients are increasingly looking for WMS can help innovate and lead the transition of that business models to ideally enabled them to reduce costs.
Increased operating flexibility navigate through the impact of the pandemic and drive sustainable competitive advantage.
In short the Golden for BPM partnerships is shifting from managing disruption to creating disruption.
This trend is better aligned ridiculousness is strategic.
Restaurant programs, which you remain focused on enhancing our capabilities in the areas of domain expertise technology and automation.
Advanced analytics, some sales due to business transformation and the re skilling up our global workforce.
Our investment approach has enabled us to create unique digital accelerators platforms and fireworks.
I apologize frameworks design done about hyper automation blinds require.
In the past few quarters, we have rolled out three new digital capabilities, which I would like to highlight on todays call.
The first offering installed expedias, which is our digital customer experience solutions.
Expedias integrates humanists is to design and W.N.S. domain expertise with <unk> device, driven omni channel compositional insights and consulting that customer experience strategies.
This solution enables brands to have an FX driven intelligent interactions with that end customers, which helps accelerate speed to market improves customer satisfaction and enhances brand loyalty.
The second submission is cool to sustain our Q2, yes, which helps companies to accelerate the shift to a ditch to finance function.
Yes enables cfos to release working capital minimize revenue loss did you still can cost of ownership and improved customer retention by first expanding the scope of the cash collection cycle.
And then ultimately the entire process.
The Q <unk> solution integrates data.
Analytics.
And intelligent automation to create an end to end digital solution for the finance function.
The final offering I want to discuss installed base.
Skin is that data extraction, and contextualization platform powered by AI and machine learning extract.
Exactly.
Categorizes and combines structured and unstructured data to deliver real time cognitive insights.
It is platform agnostic customizable.
And skin of.
Weve currently deployed skins for some of our retail healthcare and insurance lines and this platform is now delivering.
New York business benefits, including reduced costs enhanced data accuracy reduced risk and increased auto why what our clients all.
All three of the solutions I've mentioned.
Followed by a combination of W and its proprietary technology.
Strategic third party relationships and.
And best in class process knowledge designed to align our capabilities with the future of BPM.
They also leverage W.N.S. is deepening expertise in disruptive digital models.
Including our experience servicing some of the world's leading internet brands.
Our footprint with these you know what your funds continues to grow.
And I'm happy to report that in fiscal 2020, 17% of our revenue came from Internet based companies up from 14% reported in fiscal 2019.
This represented yoda over your growth of 38%.
The first half of fiscal Twentytwenty one into.
Internet based revenues continue to contribute 17 per cent of continuing revenue.
Oh, the company revenue basis.
In summary, we expect some ongoing volatility given the current business environment.
And must remain cautious regarding the potential for additional COVID-19 waves.
Well, the economic impacts and changing client requirements.
Despite these challenges.
I'll be honest is extremely confident in our financial strength.
Differentiated capabilities.
Solid underlying business momentum and proven capability to execute.
The company is properly positioned to help clients meet the need for domain led hyper automation I'm going to continue to invest in our business given the long term BPM opportunities.
While in the short term corporate has created volume pressure and business volatility.
Our belief remains strong, but the pandemic would serve as a catalyst for accelerating the adoption of BPM and the shift towards higher and digital solutions and a dime engagement models.
The munis remains focused on driving long term sustainable value for all of our key stakeholders, including our employees clients and shareholders I would now like to turn the call over to our CFO Sanjay Puria to discuss further our subs and.
The outlook Sanjay.
[noise]. Thank you Michelle.
In the fiscal second quarter.
That's actually my new gaming.
Harvard and $14.4 million dollar 2.94 cents from $215.7 million posted in the same quarter last year.
Oh 2.8, plus sales on a constant currency basis.
Great [laughter] net revenues increased by 6.4% on a reported basis.
4.24 sales on a constant currency basis.
[laughter].
Yes in fact revenue by approximately nine for sales and supply constraints reduced revenue by approximately 2% from all our people in Germany.
He might shift from vertical we've never had been more significant in the <unk>.
Dangerous.
[laughter] in the second quarter definitely gardening.
Point $1 million of shock don't normally coating revenue.
[laughter] margins above company average this.
This one name homologous what do you want to buy because that's going to be de bottle charges.
Oh theater has been flying around Dallas, and Chicago project well.
Adjusted operating margin in quarter, two was 23.4 plus thing going back to 23.54 to say [laughter] ordered in the same quarter Oh, that's good 2027.
I wouldn't even 0.5, let's say last quarter.
Yeah.
Adjusted operating margin was pressured by going to <unk>.
Many factors, including lower demand and supply constraints.
Oh, getting [laughter] call [laughter] continuity.
But offset by the one time reversal on the provision.
Oh goodness margins by $4 million.
Management offices, they say.
Ending loans.
[laughter] costs and favorable currency movements natural hedging.
Sequentially margins improved due to increased revenue.
It was very strong levels.
That's going to be unique off I know.
Why did they benefit from the reversal on any provision.
Benefit more than offset that cost him back.
Currency movement and hedging.
The company's net other income expense was $27 million off net sales in the second quarter and going back to $1.1 million off net expense reported in quarter off, especially trendy [laughter] Oh million dollars off that expense last quarter.
Yeah, what you don't feel but it wasn't asking actually we're doing well.
It would be well below what [laughter] Fas.
From New York.
[laughter] reviews, I thought at least in this call.
More than offset any new England.
Deserving a strong oneq sequentially the Ain't good answer [laughter], they wouldn't buy it at all what industries.
No in fact.
Fourth quarter, two gaming, there 23.54, saying Oh from 30.2% last year.
No from 25.1% last quarter.
She is in the Q3, primarily due to a mix of profits between geographies.
Oh really work from incentive facilities.
The company's expectation actually can go for quarter, two was $37.9 million compared with $40.6 million in the sales quarter on what's good for anybody and $26.1 million last quarter.
[laughter] did you did or at least what 73 cents per share in the quarter due within 79 sales into second quarter of last year and shouldn't be saying last quarter.
As of September 30.
2020, Dublin balances in cash and investments totaled.
$366.5 million.
Company had $25.1 million uptick.
Generally $56.7 million off cash from ops, maybe it would do this quarter.
Good morning.
$25 million in capital expenditures.
No no no no. It's also made sure Jordan actually match off $8.4 million.
Yes, so in the second quarter came in at 34 days.
Back to Brady night, it last year, and 39 days last quarter.
Now what are your increased India. So is that is there and probably be amazed on concessions for why didn't you several sites and some collection delays.
We are pleased to announce that the companies I know John Mccain hang on September 24, 20 community.
When a shareholder approval.
New share repurchase program authorizing the company to buy back up to 3.3 million shares or 36 months really really want 22 anyway.
This is in addition to the 1.1 million shares remaining on the prior authorization expiring on March 31, [laughter] 2020 Watt.
With respect to other key operating metrics.
Hi, Scott.
The quarter plus 41466 an hour.
Additionally, in the second block.
And the second quarter was 24.6.
Down from 32% reported in quarter one of last year.
Oh from let's say in the previous quarter.
Now, let us do you what do you actually generate flat they backed off point 19 on global labor markets.
Big fish capacity every day.
The second quarter remains journey.
1600 and Tennessee.
The seat utilization metric.
The company typically for white as a measure of infrastructure productivity I've not meaningful given the walk from home and Wyoming.
[laughter] Kishore mentioned earlier in our press release issued earlier today.
Reinstated annual guidance.
He is on the Darwinian current visibility levels.
We expect net revenue to be that Angel 810 to 15 million to $854 million, but at present.
What your revenue decline of 7.25%.
Revenue guidance assumes an average British pound to Euro dollar exchange rate of 1.29, but that he made it off this quarter 2020 watt.
Excluding exchange rate impacts revenue guidance for their constant currency revenue reduction of 7% to four plus there.
We currently have 98% visibility because a big part of their age and Guy.
And guidance does not include any shock those non recurring revenue for the second half of the.
We also expect some ongoing business while activity over the next few quarters, but aren't your Dave we shouldn't even back light volumes supply humility contract transition and new project wraps.
Full year adjusted net income is expected to be about angel.
The $129 million based on a 73.5 rupee to US dollar exchange rate for the remainder of fiscal 2021.
It seems like it doesn't it is off to $1.13 anything [laughter] at all in fact year to date.
Our diluted share count approximately 52 million shares.
For fiscal 2021, we expect GAAP.
Thank you Tony.
Upto $31 million.
We will now open the call for questions operator.
Yes. Thank you.
Ladies and gentlemen, if he quit if you wish to ask a question at this time. This press Star then one on your Touchtone telephone.
If your question has been answered or you wish stream movies. So from the queue. Please press the pound key.
In the interest of time to enable everyone on the call.
To participate please limit your.
Queries to one question and one follow up.
Our first question will come from the line of Korey Marcello from Deutsche Bank. Please proceed.
Hey, guys. Thanks for taking my questions.
Just wanted to start out on the guidance, obviously it looks like the guidance implies revenue growth gets worse in the back half before it gets better can you just clarify the expectations on third quarter versus kind of the exit rate assumed in the guidance and then maybe give some more clarification on some of the delays in the forecasted reductions you guys talked about.
[laughter] soap and the Guy.
The guidance is based on.
Yes based on our Uh huh.
Similar to what we have at this point of time, it is 90% visibility to the midpoint of the guidance and couple of things, which I like to highlight there just doesn't factor or the short term revenue because if you don't have as everybody. We don't include that.
And that does in fact.
Doesn't factor any further supply improvement.
Beyond the 90, plus and so this quarter, we had a 98% of our supply so doesn't factor in any further improvement.
Also doesn't factor some of the rebound in volumes because.
No I mean depends on the client even though the projections for the volumes in the second half and client at this stage.
Has been condominium is dawn don't visibility walk they have been.
Based on the uncertainty out there.
So what I'd like to highlight that you know that is.
In the same quarter, we can not only for the line you won a large percentage of rolling forecasts wasn't line for lightest committed and accordingly.
Liberty at this stage.
From quarter, three plus decades.
We expect the bottom three to be slightly lower as compared to a quarter do you know.
You know up but if you add the nonrecurring revenue, which was that in order to be just knocked down in Florida do you factor so there's going to be a gradual.
Growth has come back to court hurdle.
Got it.
And then I guess I'm looking at the headcount moderation has WMS kinda fully rightsize the head count at this point or or given some of that there's demand head.
There's demand headwinds the forecasted demand headwinds in travel and insurance and stuff like that you mentioned do you think there is some more head count reductions in compensation reductions to come.
Just trying to think about the margins in the in the cadence there. Thanks guys.
So they see at the moment.
So almost normalized EBITDA for the 20% to 25% range, which is what the forecast for the next couple of quarters. We do continue beyond if people continue to getting some amount of excess headcount over the next few quarters.
Depending on the volumes that can be expedient, even stopped doing that [laughter] goals.
Okay.
You know from a margin perspective, and although they appreciate as not what I would have thought them make sure everybody at the same time, we may have to start hiring.
Hey, you know from a revenue growth perspective, because of the mismatch in the geography, and the location as well as the skill and timing perspective.
So just to clarify Corey Yeah, we do we do in our carrying excess resource right now.
Plan is to do that through the balance of the year. If you look at the expectations for margins in the back half of the year, they're kind of in that 19, 19.5% range and to be very honest the only difference between that projection in kind of the 20% plus where we typically run is the fact that we are carrying excess resource relative.
To the roughly 250 million a quarter that we've got baked into the back half of the year.
All right. Thanks, guys.
Our next question comes line of Maggi Nolan from William Blair You may begin.
Hey, this is Ted on for Matt. He real quickly wanted to wanted to ask about the financial services segments. I know you said, you're a 98% supply gloomier I, 98% of supply where do you stand in terms of the overall backlog into financial services work I think last quarter. You said your 5% of demand you weren't able to tap.
Q how much of that has been included in guidance and kind of where are we out with that.
So let me let me take that said our current supply is 98%, that's where we averaged in the second quarter as well.
That is our expectation for the back half of the year. So so if you look at the portion of our business overall that we're estimating at this point in time that we're not going to be able to service because we're in a work from home model. It is the 2% or that is the gap between where we are today and where we could be if we were able to service.
Everything so.
You know as opposed to kind of that 95% or the 5% that we thought was kind of that high value couldn't do in a remote world we've been able to address about 3% of that since the end of last quarter.
Okay. Thanks, that's helpful. As a follow up I, just wanted to see where where do you see the most opportunity I guess to thanks.
Bandhan number processes, you're performing for clients and what industries are service offerings.
Uh huh.
[noise] di di but it goes.
Absolutely bullish on of course is the health care vertical.
So far in life Sciences side of the practice, the banking and financial services sub market space and also our consulting and professional services business due to the full when it goes that absolutely bullish.
And just as a quick follow up what's giving you that that sentiment and outlook.
In terms of our existing clients in terms of the demands of their fleets and good for us and secondly in terms of our isolated if you're seeing that deals that relate to the offer.
Just give us the confidence.
All right. Thank you very much.
Thanks, Ted Thank you.
Our next question from flying Bryan Bergin from Cowen you may begin.
Hi, guys. Thank you I wanted to follow up on the.
Wanted to follow up on the outlook around the deal ramp delays you talk about what type of duration, you're seeing those clients choose with the slower deal ramps are they putting to work off to 2021 is it an indefinite period are just so much shorter I'm curious if you're seeing potential wave of conversion here, forming that may be released or if it's more short term and distributed.
Yes, it's got some I'll take that up in terms of the pipeline of course, it's an extremely healthy pipeline. If you haven't seen it as strong as this over the last dollar compared to the last few years.
In terms of any opinion outsourcing program the impact of changes the maximum but you're starting to see the transition. So what we're seeing at the moment is DBS Cmos image medium to large sized deals were transitioned to what total TV media, but what we're seeing now is about a five medium [laughter].
In smaller bite sized bite size chunks.
In terms of trying to fish thing so that's the only difference.
[laughter] equal would enforce cobi data.
Yeah, it's more it's more Brian around the fact that the deals are moving forward right, they're not that they've been pushed out for six months or 12 months. They are moving forward, but they're moving forward at a slower pace than they're moving forward with more measured components of process.
Okay.
And then follow up on margin here can you talk about sustainable cost actions versus short term benefits. Excluding the 4 million million benefit you had here and into Q still solid levels of Im curious on the levers you used that are structural or for you for longer term versus some of the shorter term actions just really to help give us a sense for other potential ranges.
You expect here in the second half.
Sure Let me, let me take that Brian. So if you look at the margin in.
In the second quarter right and obviously it was extremely healthy almost 200 basis points of that improvement came from a onetime leave reversal.
That was really one of the things that we did as an organization to enable us to carry excess resource but by.
But by changing the policy in necessitated taking a one time accounting get to them to the books, which was $4 million that piece is clearly nonrecurring going forward. So so that 200 200 basis points of improvement will come up immediately.
The other thing when you look at what happened in the quarter obviously.
From an improvement perspective, the mismatch between revenue and head count improve dramatically because.
Because revenue increased in head count decreased and that he's shouldn't be structural or what I was referring to a little bit earlier when I spoke about the fact that we still have excess resource excess capacity. It is the fact that margins are quite where they should be yet because of that mismatch and again. The hope is one of two ways to address that.
Over the next six to 12 month.
Six to 12 months is to not only increase the revenue, but also make sure. We're rightsizing the head count in terms of not just total numbers, but also skill sets required to deliver where the growth is so you know the only major issue in Q2 that really nonrecurring in nature would be the $4 million from the leap reversal.
Thank you.
Thank you. Our next question comes line of Mayank Tandon from Needham.
You may begin.
Thank you and congrats on the quarter.
Okay. So talk about the growth of Internet companies I was just curious if you could talk a little bit more about the impact of automation RFP in general how that's impacting your pipeline conversion of deal flow sort of longer term implications of that more so now as opposed to sort of the cobot issue and then just generally more around digital transformation you know how that.
That's also playing into your growth long term.
I think Scott did the consistent investment they've been making on that domain.
But life strategy in terms of the digital and automation process is actually quite favorably for us.
You're seeing if that need for Oh, sorry, vision and automation consistently increasing and that's tied up but.
[laughter] Dobie spoke about is working towards our advantage. So we're able to drive a lot more of these automation.
Effectively and what that is leading to more business being just more from an EBITDA weighted processing capability.
Got it okay, Oh, so okay on that note I was.
Sure Dave.
Right.
I think that's just an echo mine.
Oh.
Apologies, Okay, I was going to ask as a follow up question around the sales process. How that's evolved in the last few months. You know are you now starting to see a fab.
Faster sort of deal conversion time, and then on that note could you talk about the deals that you won this quarter what would the different verticals that you won that across and just because you had mentioned the deal sizes are smaller right. Now is that just a function of clients trading more carefully or is there something else more systemic to the fact that deals are smaller today than they were pre covance.
Yes, the deals are smaller Bowman.
If only because of the fact that we mentioned earlier in terms of pipeline fill.
I think they'll be able to transition over a longer period of time given good luck [laughter] change involved during these transition. So that's one of the key back to us in terms of the smallest size deals in terms of what goes it's been reasonably broad based.
Our healthcare vertical shipping ammonia.
Shipping and logistics verticals across our operation I just want to go.
So mayank I'll, just add a little bit here the decision of.
Actually these are very interesting times, so let me speak about the second half and we speak about the guidance looking the way. It is at this point in time. These dawn on dependent so much on climbs.
Climbs inputs and obviously they've been quite a careful in terms of how they're giving it the reality is that the.
The lifeline actually has never looked better quality of life pipeline across every vertical across all geographies has been the strongest that we've ever seen a and as we come out of the spend to make what we actually see is excellent.
Excellent conversations around the needs to reduce costs need to transform their models digitally through trusted partners like us through the model of hyper automation so to speak.
The fact that you know.
All of them are looking at models that man physical kind of touch points on reducing and they're more than willing to look at models man Uh huh.
Outcome based models all capable of being accepted.
The same time, then on far more comfortable with book from them. So these are some of the areas in the environment that we have no but comfortable with them once we got comfortable with it.
Okay.
At the same time help to understand that one all of them are looking at is coming back.
You know, they're seeing delays in some of their own plans. So for example, the airline industry started talking a little while ago about testing everybody before that got on a plane right. Obviously that got a little bit do you need some airlines when go faster than others, but as soon as some of that starts happening it means that.
You know the demand for them, maybe much faster than you know we have baked in out here and downtime and others will have to really get out there and hiding itself that so from our point of view I must say that.
The model is two very exciting.
Got it that is conservatism built in bytes lines, which you have to depend on news on our visibility model, but at the same time that had many 80 does that potentially things could change Uh huh.
Get a better handle on Google et cetera.
Yeah, and I think just to add to that remember, we like we said weve seen great new additions to the pipeline, we're seeing deals moving through it at a very healthy pace were seeing obviously you look at we signed 15, new logos in the first half of this year that compares to 12 last year. So deal signings are ahead.
Where we're seeing a little bit of that snag is to be honest with you where the rubber hits the road, where it actually requires behavior change in action and the client that so you know it's easy to sign a deal it's easy to move to say, we want to go but when you start to actually sit down and that's that's okay well what does this mean for our people what does this mean for our price.
So what does this mean for our business now all of a sudden it starts to run into some challenges in that and that's not unusual for our industry, but in this environment. What we're seeing is the clients are proceeding a little bit more cautiously, especially as it relates to those very large deals that require end to end business transformation and a lot of the write up.
From thoughts and planning to make sure that the the engagement is going to be successful.
That's very helpful perspective, thanks, guys.
Thanks, Mike.
Thank you.
And our next question comes the line of Ashwin Shirvaikar from Citigroup you may begin.
Thanks, Hey, good to hear from you all thank you for the insight so far.
My first question was with regards to work from home and it seems based on your commentary that clients might have transitioned from saying, it's something they need to some t., they're comfortable with perhaps they want to incorporate a more.
More or less prominently hybrid model.
The question is what are some of the new metrics that we can look at that you are perhaps incorporating into your terms and conditions in the contract then.
Van.
When you sign these deals as it relates to a hybrid go to work from home model.
Yeah. This is Scott.
What are you looking at to susceptible or keep stocks seem interesting one it it does help the productivity mattresses.
Thanks to the amount of thought because from a workable perspective, there's always going to be a pick up a lot compared to what some office so does productivity metrics.
Being booked a bottoming out of people based on the recent audio.
Well try and work from office and the interoperability [laughter] first one [laughter] DHMSM automation Association dysfunction.
I mentioned the plant or number of clients are looking at a large amount of I'm trying to decide they should add automation, so that we'd be able to transform that meets all supposed to start the second piece of putting it back.
Putting in that metric went offline.
One is for EBITDA.
Taking precedence at the end up today. So these three months just as we are talking a lot more.
Small and potentially some of those are going to make it into long term contracts.
Got it. Thank you for that and then you know.
I think in response to one of the questions.
Sure.
It might have been David mentioned that its only then you're signing deals but could spend your other hits the road.
The transition is a.
Yeah, a little bit slower right.
So you just technologically or process wise what.
What are some of things that you are doing or can do to make clients more comfortable.
Do you need to make investments to.
To to do to make that happen is that incorporated in your outlook.
Yes. It has been in terms of and even if you look at the last six months freshmen once you've seen us be a transition from old across new clients and existing pumps, which have actually gone down extremely relevant the ability for the model transition [laughter] drill system.
Process mapping all of that is going up so you keep both in terms of automation. All so it may be talk about automation hyper automation all the daunting investment audit can continue to make them.
No actually what is interesting if it got started in the last six months yes.
[laughter].
I have to tell you more to automation, except for all our clients and we've actually been able to achieve all of that for every single account.
Got it so I think that's going to fly so all of those investments continued to make MWD question Oh, yeah.
And I think that to my my comment a little bit earlier, Iceland, the the slowness the that the cautiousness that we're seeing from client isn't really a function of a remote transition or not having the skills and not having the capability I think it's just a function of the environment that the bottom line is the clients business is volatile.
The environment overall is volatile our in office out of office is volatile and as a result, I think you know for these things that are extremely important and extremely strategic clients are just proceeding slowly I don't think it's a capability issue or a technology issue.
I understood I have a tiny question that I want to squeeze in if you don't mind di di.
Dsos. They you made some progress decoding dsos towards a normalized level.
Do you think we might get towards more of that are you know 30 day type thing that you.
Do you have in the past.
Two.
So we definitely made a concern.
We definitely made a considerable progress because you know into quarter, one and Ben Let me start date that line approach for the conversation from up in window perspective, you are further delays say that collection [laughter] things are stabilizing or you know as compared to quarter one.
No no and that's where we don't we caught up 30 40 years back.
We believe that thought a couple of quarters to it's going to be in that range ballpark. Because these clients are approaching foam and I mean, when conversationalist back to you on that asking for more of the extension.
The lease on a day, so it's going to take some while it just couple of quarters more to the time, we get back to that 30 days Thomas.
Understood. Thank you.
Thanks, everyone. Thank you for sure.
And next question comes from the line of Puneet Jain from JP Morgan you may begin.
Hi, Thanks for taking my question.
So your implied margins for second half it seems like they are below.
A second quarter 11, even even if you exclude LIFO benefit into Q. Given you expect given you expect to continue to realign your head count with every new it was just of the yen Ching.
We expect margin improvement from two two levels and a related question did you disclose how much was non recurring benefit to second quarter revenue.
Gross.
Yeah. So so on the top line that the nonrecurring revenue was $4 million on the margin side. The nonrecurring benefit was also $4 million in terms of the the leave reversal.
If you look at the the back half as compared to Q2, you're right you need there is implied margin pressure and margin pressure beyond beyond the $4 million that's related to the LIBOR versus the two items that I would say are the biggest components of that which which again present margin opportunities for us is one we've incurred.
No short term revenue in the back half of the year, which carries a higher margin profile and the second is we're assuming that we are not going to be able to continue to bill business continuity pass through costs to our clients in the back half of the year of the $4 million of short term revenues that we got in Q2.
A million and a half of that was business continuity passthrough charges.
That number was down significantly from Q1, where we had six and a half million dollars. The pass through of short term revenues of which three and a half million dollars was business continuity pass through so what we're seeing is that as we progress to your clients are going to be less and less willing to accept these one time or short term charges.
Keep their businesses the flow and as a result, our expectation in the back half of the year is that we're not going to be able to pass on business continuity cost to our clients.
I'm, just and maybe you know just wanted to if I may add to what Dan It all along we backed up a bit.
To have a hiding program continues because of some of the mismatch of the schools that Oh from a location perspective and.
We continue to have someone to getting a cost I thought that was an accretion but not too.
People continue to the you're right.
Understood.
And just a follow up to Oh, sorry questions. So you are signing new deals, but they are not ramping up as fast as they would have people there huh.
How do they didnt consign those comments that.
James visibility of 98%.
And then the guidance I'd expect a visibility levels to be Lewis is something that's Louis.
Because puneet when we provide our visibility it's based on what our clients have committed to so if a client has not committed to a transition and does not have a formal schedule a plan in place. We don't include it. This approach in terms of visibility based is extremely consistent with how we've done it in the past.
The thing that's changed is that whereas maybe a year ago. If a client had decided that phase one was going to be a million dollars. What we're seeing now is that phase one may only be $500000 and as a result, we're including that in the guidance, but we're including at the same visibility rate, but it is.
Lower dollar amount.
Got it got it alright. Thank.
Thank you. Thank you.
Thanks for me.
And our next question will come from there I know, Dave Koning from Baird you may begin.
Yeah, Hey, guys, great job and I guess first of all my question just on revenue.
I guess is there a certain level of revenue that you know is coming back right now and I guess, what I'm kind of going going with that is like travel for example is going to be down 40 million or so and as people travel and everything you'd assumed that would come back on top of that it seems like you have these implementations that are delayed they're going to come back.
At the same time as all the rest of your pipeline gets implemented at their normal pace and it seems like we're setting up for a couple of years of just kind of explosive growth is all three of those things kind of collective we happened at the same time.
Is it fair to think that you know this is clearly a transition year for probably everybody, but is it fair to think of it that way that you should have outsized growth at some point in the future as different parts. This I'll I'll come back.
Yeah, Dave I just was curious if that's an excellent question.
Ah you know personally.
As we discussed this inside the company, we actually think all of this is a pause just a delay.
And you know when when you just step back and look at how clients that this whole situation.
Everyone talks that Google could be managed in seven months eight months nine months or whatever and therefore people made plans are I think the key is that the business drivers you know three Cougar continued to remain in place and if if anything else has actually become far more intense some ob.
He has a differentiation that we brought to the table have actually become far more compelling far more attractive to the customer set across the globe and for US I think at this point in time clients are just taking a more conservative view of how they give US you know dead guidance.
As you said you know on the travel side right now if you weren't consuming nobody's going to fly I guess, but you know everyone is talking about new models to encourage people to fly and when that happens I think.
Things would go back to normal the same you will see EBITDA tells the same you'll see the cruise lines at some stage and the thing you will see with logistics or with the retail side as people move from essentially non essential services.
Ask people stopped traveling abroad, you'd see more insurance claims going up things like that so.
So from our perspective, I think what we have done in terms of guidance is just beacon. What we are hearing from clients and making sure that you have for why they get consistent model of visibility to the street.
But overall I will say that you know people have completely changed the way that you can get that businesses that business models. The way they will accept technology. The way they will accept for new business models. The weird they will react to discussions on transformation and I think with being set up for.
Very very healthy long term kind of a growth for the sector itself MW in us I think will lead.
Yeah, Great. That's helpful that that seems to make a lot of sense and I guess the second the second question just when we think of your massive cash balance and I mean, you had huge cash flow conversion this quarter just outstanding.
You know 10% of market caps cash now do you think are there acquisitions out there that can augment growth you know is that kind of the next you know the next like.
Yeah.
[laughter], So did I get an i. I stop and have some day finish off but you know we have been quite a a transparent about our our capital allocation program and yes. You know we will be opportunistic in terms of M&A, we have spoken in the past about buybacks and stuff, but in many ways.
An important area that we're continuously looking at U.S., calling the market at this point in time I can tell you that we have actually done a few do due diligence on those wells and you know we are in some cases, we have walked away from deals because we did not feel this.
He said the purpose for us, but from our point of view I can tell you that we are very actively looking at this area across various verticals and horizontal sales as well as some digitally ideas that can help us accelerate it.
What we will do things at the lifetime Nice list and the nice valuation.
[noise] animation to actual.
Got a capital allocation perspective, it all through the quarter you still have all our balance 1.1 million shares.
Repurchase program by nature, and we expect it to a you know initiated during the second half of the year.
Yeah, I think the other thing that's interesting Dave and take these are kind of talked about were the M&A pipeline extremely healthy and that we are in active conversations active discussion.
Similar to what we've said in the past. We also are seeing that there are some pretty healthy opportunities not only in the traditional M&A route, but but also in the captive Carbout route which is exciting for us.
Great guys. Thanks, good job.
Thanks, Dave Thanks, Dave.
And our next question will come from the line of Sam England from there Andrew Bamberg.
You may begin.
Hi, guys. So the first one just on the new digital capabilities I was just wondering if that based on proprietary software or was there a mix of fed policy and proprietary software and can how a differentiated from what pace or offering I in the same area.
Yeah. It does not stop your first question, it's a mix of both from Brightree.
The ships that we are putting together, our hyper automation and digital strategy.
In terms of the depreciation discussion at the domain associated with each one of those offerings that make the biggest difference.
For example, if you're trying to get it done [laughter] exactly it's all yours.
[laughter] logistics, what does that actually tries hyper automation using the domain sales shipping and logistics stuff [laughter] schanzer for us in the marketplace.
Yeah, I mean, the bottom line is that when you look at the digital solutions and the approach to digital transformation. That's out there you're going to see a lot of companies that have capabilities and analytics and capabilities and technology and automation and process expertise and global delivery, but the real question is how well do you understand.
And the specific verticals sub vertical that your client operates in and what's your capability to bring all of these components together to help solve the business problem and create the kind of market differentiation that they're looking for and I think that's one of the areas that W and that there's always excelled you know essentially.
Third party partnerships third party tools, our own proprietary tool or just kind of more components of what we're going to be able to deliver in terms of how we're able to execute on these types of initiatives. So you know it's really at the end of the day, how you bring all this stuff together to solve the problem.
Okay, great. Thanks, and then the next one I was just wondering if you've seen any evidence that any of your competitors dropping the ball during the pandemic in times of client service and delivery and whether that's created any opportunities for you over the past six months on out it's something I think you mentioned back at Q1.
Yeah [laughter] the up it's just that some of our competitors has faced over the last six months that you would actually get clients bad he's putting into monkeys.
What it ought to be opinion do sluggish.
Obligation almost from feedback from different vendors and.
Oh, So I was hoping you won't do you feel confident or.
So I'll.
I feel more confident or southern coast deal.
Yeah like we said then when you look at the number of new logos that we've added when you look at the client number of plant expansion. The numbers are great. They're extremely healthy. The one challenge that we have seen is that things are just moving a little slower and a little smaller than they have historically, but you know it.
As Dave mentioned earlier I think this really bodes well for the future because the bottom line is as long as they do continue on a path for the next three to five years at some point these are going to become larger and larger deals larger and larger engagements.
Great. Thanks very much.
Thank you. Thank you and our next question your line of Vincent Colicchio from Barrington Research you may begin.
Yeah, I'm I'm curious in the travel vertical do you expect to make any progress in terms of adding processes to help offset the.
With existing clients to help offset some of the volume pressure.
Yes, what you're seeing is lucky holds we are seeing an increased amount of activity that up in the finance and accounting and the travel vertical.
It's about a book.
One more comment on consolidation in the same space that we see at the end of the day.
The end of the day from a timing perspective.
Let me focus on an end to end domain capability and B seven sales.
But these airlines for the OTI.
And Oh, what is true.
What is driving the sequential trends in the UK is that simply the utilities vertical and.
Is this a trend that should continue.
Yeah for for the second Oh, I'm, sorry go ahead.
Sanjay.
Yeah actually look from the second quarter specific to initially I think one of the major driver was it all up in the first quarter. If you Savi I doubt and I need to let's say, there's an average from a supply perspective at any quarter. Two we achieved a 98% from a supply. So that was one of those specifically that added up Oh. It also.
Oh, probably you are going to do that as well because people are more lots of it all is you'll get a site that has helped.
I've been drilled.
Okay. Thank you nice quarter guys.
Thanks Alan.
These wins.
Thank you.
And at this time, we have no further questions in the queue. This one.
Today's conference call. Thank you for your participation you may now disconnect.
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