Q4 2021 WNS (Holdings) Ltd Earnings Call
Good morning, and welcome to the WNS Holdings fiscal 2021, and fourth quarter and full year earnings Conference call.
At this time all participants are in a listen only mode.
Management's 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 what I'd like to turn the call over to David Mackey, WNS Executive Vice President of Finance and head of Investor Relations and David.
Thank you and welcome to our fiscal 2021 and fourth quarter and full year earnings call.
With me today on the call I have Wns's CEO ketchup, Marrakech, Wns's, CFO, Sanjay Gloria and our C O O Gotham barite.
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 WNS dotcom.
Today's remarks will focus on the results for the fiscal fourth quarter and full year ended March 31 2021.
Some of the matters that will be discussed on today's 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 and the forms company's form 20-F.
The 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 other non-GAAP financial measures management will discuss are defined as follows.
Net revenue is defined as revenue less repair payments and.
Adjusted operating margin is defined as operating margin, excluding amortization of intangible assets share based compensation and goodwill impairment and.
Adjusted net income or a and I 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 Wns's CEO case of murder guess.
Acacia.
Yes.
Thank you David.
And good morning, everyone.
We are pleased with our financial and operational performance and the fiscal fourth quarter and.
The resiliency and our business has shown over the past year in the midst of a global pandemic.
Net revenue for Q4 came in at 228, four and $3 million net.
Presenting a year over year decrease of three two per cent on a reported basis and a 6% constant currency reduction.
Sequentially net revenue increased by $4 million or one 7% on a reported basis and 0.3% constant currency.
All of our delivery capability and move closer to full capacity during the quarter rich.
Britain supply averaging over 99% of client demand.
In Q4, WNS sales efforts continue to be the foundation for future growth with the addition of nine new logos and expansion of 27 existing relationships.
Hiring accelerated and support of these opportunities as the company added 1167 global employees during the quarter.
WNS also posted strong adjusted operating margins of 28.8 per cent.
And generated free cash of $70 million.
So I'm, Dave and provide further details on our fourth quarter and full year financial performance in his prepared remarks.
I would like to take a few minutes do day to review the box, Cisco, which proved to be volatile and challenging but also transform me too and inspiring.
In March of 'twenty, and 'twenty, WNS encountered significant operational and financial headwinds as the global pandemic impacted our clients employees and business model.
Lockdowns impeded our ability to service clients and declining transaction volumes in verticals like travel and auto claims created further top line pressure.
In response to the delivery challenges.
And that's a rapidly shifted more than 40000 employees in 12 countries to a work from home model, which had never been tested on a character in the BPM industry.
The difficulty and complexity of this effort cannot be overstated.
WNS supports unique processes for over 375 clients in eight different verticals and spread across front middle and back office operations.
The company worked closely with each of our clients to address their specific challenges and co create new remote solutions, including customized hardware and software connectivity and security configurations.
And we've been able to quickly innovate and execute as delivery and ramped to 95% of demand by the end of June and.
Tabling WNS to maintain and support of our clients' core mission critical processes.
From a demand perspective.
<unk> reduced volumes and some verticals quickly rebound or.
Other hard hit industries, such as travel have yet to fully recover.
In Q4, all travel business remained more than 25% below pre pandemic levels and.
We expect that as the global vaccinations programs progress.
And our traveling volumes will return.
In fact, we are happy to report that over the past few months WNS clients have begun and forecasting modest improvements in activity levels.
While supply challenges and reduced volumes created revenue headwinds early in the year.
We continue to see both new and existing clients willing to move forward with the vs.
And the initiatives despite the impact of the pandemic.
In fiscal 2021 WNS added 33, new logos and expanded 71 existing relationships.
Presenting year over year increases of 14% and 51% respectively.
As a result as the fiscal year progressed, our revenues grew headcount aligned with volumes and margins improved.
We closed full year fiscal 2021 down only 3% and constant currency revenue and delivered full year adjusted operating margins of 21, 5%.
While COVID-19 created significant business challenges in fiscal 2021 and.
I want to highlight four positive takeaways from this past year.
First wns's ability to operationally and financially manage depend and mixed impact on our business highlights the strategic nature of our solutions and the resiliency of the BPM model.
This was evidenced by the stability of our client relationships and revenues margins and cash flow in the face of a generational crisis.
And second clients now more than ever and recognize they must digitally transform their business models in order to enhance the customer experience and drive operating efficiencies.
Improve decision, making and compete in their respective markets.
This explains why both pipeline and activity levels and deal signings.
Main healthy over the past year.
And third that WNS is nimble and innovative and collaborative culture is an increasingly important differentiator.
The company's ability to quickly and safely pivot our business model to manage and unforeseen and unprecedented global crisis, demonstrating to clients and our commitment to ensure their success.
This has increased confidence and our capabilities and further strengthen our strategic relationships.
As a result over the past year WNS has leveraged our active discussions with clients to extend key contracts, some wording and update anniversary dates.
These renewals and give us added revenue visibility in the coming years and provides clients with the benefits of increased productivity and business transformation.
In the past few quarters WNS has renewed nine of our top 25 relationships income.
Moving our two largest clients.
This represents 25% of total company revenue, which has been extended.
And the weighted average term of five years.
And finally, the past year has reinforced my belief that WNS is 40000, plus employees are really and truly our greatest asset.
I'm amazed and grateful for their dedication and sacrifice and teamwork, which has enabled WNS and our clients to navigate the impacts of the pandemic and position our businesses for future success.
As we enter fiscal 2022, we are excited about the opportunities in front of us.
Fight COVID-19, the BPM industry remains healthy and the addressable market continues to expand driven by client needs for digital transformation and cost reduction.
WNS begins the fiscal year with good momentum from last year's deal signings and and healthy broad based pipeline of both new logos and existing clients requirements.
That being said, we must remain vigilant and flexible.
And our services and delivery models.
Clients changing business requirements and to any pandemic related volatility.
In fiscal 2020 to WNS will continue to invest in core areas, such as digital solutions hyper automation and our dwell.
<unk> and analytics and domain expertise.
These investments will include internal R&D efforts and strategic partnerships specialized hiring and employee training.
Our investment approach and we'll also look to leverage our strong balance sheet, while capability beyond tuck in acquisitions and.
We expect to do this while maintaining our disciplined approach to M&A.
And somebody.
And this remains confident that our strategic vision and differentiated capabilities solid business momentum and proven ability to execute.
We continue to drive long time long term sustainable value for all of our key stakeholders.
I would now like to turn the call over to our CFO Sanjay Puria to further discuss our results as well as outlook Sanjay.
Thank you Michelle and Debbie.
Fiscal fourth quarter and stuff.
Net revenue came in at $228 $3 million.
Three two per cent from $235.8 million posted in the same quarter of last year and down six months and on a constant currency basis.
Oh actually net revenue increased by one seven per se on a reported basis.
And zero point people, saying on a constant currency basis.
Rugby sequential revenue improvement and throttle verticals services and geographies was partially offset by a reduction in short term revenue.
In the fourth quarter WNS recorded.
And on short term revenue because book at company average margins.
And adjusted operating margin and quite a hole was 28 per cent.
Compared to 22 per cent.
Our reported in the same quarter of.
2020 and 24% last quarter.
The other one you adjusted operating margin reduced as a result of COVID-19 related impacts, including lower volumes delivery constraints and business continuity cost.
Margin was also pressured by an $8 million and reduction in high margin shocked and revenue as compared to quarter four of last year.
This headwind was partially offset by proactive management of discretionary spending low.
And what travel and facility related costs and favorable currency movements net of hedging.
Sequentially margin decline as a result of reduced high margin shocked and revenue increased cost associated with vessel utilization and business enabled me.
And you just don't compensation cost, including hiding and and one off revenue and and flight and emotions and accelerating digital investments.
And this headwind was partially offset by operating leverage on higher volume and favorable currency movements net of hedging.
The company's net other income expense.
Zero point $2 million of net expense in the fourth quarter and some back to less than zero point $1 million of net expense.
Ported and QUADRA for all fiscal 'twenty, and 'twenty and $1 million of net expense last quarter.
Yellow and the.
Unfavorable variance is attributable to reduced interest income driven by lower rates, which more than offset zero point $8 million of non recurring interest income on a tax reform and lower interest expense, resulting from scheduled debt repayments.
Sequentially. The decrease in net expense is due to the non recurring interest income on a tax refund.
WNS.
WNS effective tax free quadrupole game, and that's 22, 6% up from $18 three per se.
And I eat from 22, 5% last quarter.
Changes in the quarterly tax rate, primarily due to the mix of profits between geographies and the mix of was delivered from tax incentive facilities.
The company's adjusted net income per quarter, four was $36 $7 million compared with $42.4 million and the same quarter of fiscal 2020 and $41 million last quarter.
Adjusted diluted earnings most 71 cents per share and quite a full what is 82 sales in the fourth quarter of last year, and 17 90 day last quarter.
As of March 31, 2021, WNS balances in cash and investments totaled $395 $2 million and the company has $16 $7 million of debt.
WNS generally day $75 $6 million of cash from operating activities this quarter.
Scheduled debt payments of $8 $4 million and equal $5 $6 million and capital expenditures.
During the quarter the company repurchased 694716 share of stock and then.
Average price of $73 and 61 thing.
Our preferred cash by $59 million.
DSO in the fourth quarter gave me I put it.
And compared to 31 days last year, and 34 days last quarter.
With respect to other key operating metrics and what's that.
And the end of the quarter was 43997 and know what attrition rate in the fourth quarter increased to 30% up from 28 months and reported in quarter four of last year and up from 23% in the previous quarter.
This new capacity and the end of the fourth quarter remained relatively steady.
34365.
And the seat utilization and makes me, which is the company typically per wise as a measure of infrastructure productivity and not meaningful even the southern work from home and widening.
And would now like to provide you with a brief financial somebody off fiscal 2021 before discussing our outlook for the coming year.
Net revenue in fiscal 2021 gave me and I E $868 $7 million down three 1% on a reported basis and three 3% on a constant currency basis.
Full year revenue was adversely impacted by the COVID-19, pandemic, which create day supply challenges during the first half of the year and resulting in lower transaction volumes log deal flow.
Because such as travel and other teams.
This headwind was partially offset by healthy growth in both new logo signings and expansions of existing relationships.
The company's fiscal 2021 adjusted operating margin gaming and 21, 5% down from 22 per se, but at $2 seven per se reported in fiscal 2020.
And then maybe related margin headwinds associated with lower revenue business continuity and getting cost of excess resources was partially offset by reduced expenditures or travel facilities and other discretionary items.
Margins also benefited from favorable currency movements net of hedging.
And the effective tax rate for the year, whilst the net viewpoint people at site.
From 19, 8% last year as a result of a change in the midst of profit by geography.
This profit shift was primarily driven by the pandemic related costs of getting access to the source and business continuity and lower tax geographies, including India and the Philippines.
As a result of the reduced revenue and margin levels and a higher effective tax rate full year adjusted net income and adjusted diluted earnings per share decline well per se in fiscal 2021 company coming in at 141 $7 million and $2.
And 70% respectively.
The company generated $213 $7 million and cash from operations and $187 $2 million and free cash.
During the WNS repurchased one 1 million shares of stock.
And the cost of $78 $6 million or $71.42 a share.
And $26 5 million on capital expenditures and may schedule debt payments of $16 $8 million.
And then the year with a net cash balance of $378 $4 million or approximately $7.26 per diluted share.
You know the press release issued earlier today WNS provided our initial full year guidance for fiscal 2020 two.
Based on the company's current visibility levels, we expect net revenue to be and the range of $945 million to $997 million, representing a year, what he and growth up 9% to 15% on a reported basis or 7% and 13% on a.
Constant currency basis.
Revenue guidance assumes and average British bone to US dollar exchange rate of 128 wells per school.
2022.
Consistent with our guidance approach in previous years, we currently have 90% visibility to the midpoint of the range and.
Other projections do not include any uncommitted shocked and revenue.
Guidance assumes a top line headwind of approximately nine per se, which sectors in automotive.
The other productivity commitments non project ramp downs and the impact of the early contract renewals.
Full year adjusted net income for fiscal 2020 two.
<unk> to be in the range of 152.
<unk> hundred $64 million based on a 74 rupee to US dollar exchange rate for fiscal 2020 two.
This implies adjusted EPS of $2 and 98 to.
So $2 and 'twenty, one and assuming a diluted share count of approximately 51.1 million Chin.
With respect to capital expenditures WNS currently expects our requirement for fiscal 2020 two to be up to $35 billion.
And I'll open up the call for questions operator.
Ladies and gentlemen, if you wish to ask a question at this time. Please press Star then one and you touched upon it and telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Chris This time and day enables every one other call to participate please limit your questions to one question and one follow up.
Our first question comes from the line and to Moshe <unk> Wedbush. Please go ahead.
Hey, Thanks, Good morning, Thanks for taking my question.
Two questions here first.
Pretty wide range for top line growth for the fiscal year.
Is it all.
And what happens on the and the travel vertical and if so maybe you can talk a bit about.
You know some other factors that you're tracking and obviously some of the and all the airlines and we're talking about improving bookings.
I'm, assuming this is a positive proxy for that business, maybe some more things that you're kind of tracking there and then the follow up is more margin.
What sort of a non-GAAP EBIT margins are weak and the factoring and the balance of physical plants and that's a lot.
Sure. So maybe I'll make a I'll take the first part of that question. This is geisha.
As far as guidance is concerned and all that we are doing is following a very consistent philosophy that we have followed across the years and we are delighted that you know after the GAAP of last year, we have now.
After they've gone back to our traditional way of delivering.
Our revenue guidance.
And so it's our visibility based.
Guidance that we provide so all that youre seeing there is just going back to a consistent team.
Nothing really to low specifically with travel as an industry. However, since you asked about travel.
Quest got him and Dave to talk a little bit about what we are seeing that as well.
Thanks, Cassia and with regards to the travel industry application and also alluded in his prepared remarks earlier, we are starting to see and increased forecast in terms of volume demand from our clients as domestic travel stops.
Improving some of these volumes have been adjusted against the reduction and cancellations and refunds, but overall the growth forecast have been included into our guidance figures.
Yeah, and let me just add a little bit of color on that Moshe I think you know when you. When you look at the guidance as cases as mentioned the philosophy remains completely unchanged. So we start the year similar to we were we had been and the path, which is 90% visibility to the midpoint of the range. There is no short term revenues and as Gautam mentioned.
The only travel recovery that we have projected is where our clients have forecasted and committed to those increases. So you know what while there is a little bit of a travel recovery built into these numbers. There is by no means a a complete recovery of the work business over the past year year and a half built into these numbers if that has.
And it certainly gives us opportunity for upside as does the opportunity to have short term revenue, which we typically see some amount of every quarter. The second part of your question was around the margins and and I think when you when you do the math to the EPS guidance range that we've given what you'll see is that the operating margin assumption for this year.
And between 'twenty, one and 22%, which is at the higher end of that 20% to 22% that we've historically kind of guided people to and consistent with where we were last fiscal so we feel we feel pretty good overall about the approach being consistent and you know the fac.
We've got some some sizeable opportunity here if things line up well for us that they have a really good year.
Thanks.
Your next question comes from the line is ready and burden of Cowen. Please go ahead.
Hi, Thank you.
Just a follow up on the on growth here for fiscal 'twenty. Two can you just digging a little bit more on some of the underlying factors. How are you thinking about industry attribution in that full year range and can you give us just a sense of how the growth cadence expectations play out within the fiscal year.
Yeah look I think that thing. Thanks for the question, Brian I think the good news about our business is when you look at the expectations for fiscal 'twenty two.
We're really expecting with the exception of the utilities vertical we are expecting good healthy broad based growth similar to what we've seen free COVID-19.
We believe that we'll see a little bit of a rebound here based on what I've traveled clients are telling us.
Also important to remember that a lot of the headwinds that we saw in fiscal 'twenty, one where supply related and the first half of the year. So you know, we obviously took a step down but what <unk> seen is that nice healthy sequential progression and our business over the last two to three quarters and.
And we see no reason given the the new logos that we've added and the expansions that we've signed.
Including the early read.
And so some of our larger contract.
In terms of what that does when you look at the cadence for fiscal 'twenty to be expectation is similar to what we've seen in prior years that Q1 is relatively soft.
Sequentially, because we have productivity improvement because we had the annual contract renewals and because we also have the wage increases which are now coming back into play here and and in April for this fiscal year.
Q1 is going to be sequentially flattish to slightly up on the revenue line.
But we are expecting margin to be reduced versus Q4 levels in Q1, similar to the seasonality that we've seen in previous years.
Okay.
And then and.
And 9% year over year productivity headwind and that that seems high relative to the historical range.
And can you just dig in a bit more on the primary drivers there and is it predominantly because you've renewed some of these large engagements and that's the main driver just further color around that please.
Yeah look I think and and Sanjay can add some color here.
But we.
We've typically seen anywhere between six and 11% and.
And the productivity.
<unk> ramped down and project related work headwinds on a year over year basis, we're seeing nine this year and and the reason, it's a little bit larger than it's been in the previous years is exactly what you mentioned, Brian and it's because we have renewed.
And I've mentioned in his prepared remarks.
Nine of our top 25 clients several of them early prior to contract renewal exploration, which is a great thing longer term for us and.
We have baked and the productivity and transformation improvements that clients are required and so.
I think some of this is the fact that we've really just renewed these contracts early and as a result, when you renewed 25% of your business and in a given year, you're going to see a slightly higher headwind you know obviously with an average term of five years and most of our large contract the expectation would be and a normal year, we'd see a 20 <unk>.
And then 20% of our business being renewed this year, we've got a much larger percentage because of these early renewals.
Okay makes sense. Thank you.
Thanks, Brian.
Your next question comes from the line is my intend and isn't Needham Your line is open.
Thank you Ah congrats on the quarter I wanted to start with the pace of client signings I think you had what seems like a record year in terms of client a new logo wins and I wanted to just get a sense of it.
Either from a cash or Dave if you think that the ramp up times are changing and other words accelerating given theres more pressure on businesses to leverage BPM and could that ultimately translate into higher growth and you've seen historically, maybe not in fiscal 'twenty two it sounds like based on your guidance, but longer term.
Hey, Mike.
Thanks for that question and so I think the first thing I want to mention is that we are really excited about.
These renewals and the pipeline that we spoke about and really the potential for the industry now one other things I must mention is that.
While traditionally we have always led from the front in terms of the transformational agenda and the technology led agenda. What COVID-19 actually has done for US is it does actually separated.
The great performance per phone.
And those from the so-called also and I think that WNS has now got position very very strongly in the minds of existing clients as well as new prospects and as well as advisors as.
Company that actually manage the uncertainty extremely well so far.
First thing I would say is there's a lot of comfort in terms of how we manage the crisis and therefore with some of these new renewables that we looked at that not only do we have the hunting license to go off of the existing areas of business, but there's a lot of confidence that we can go off to a completely new unchartered areas.
In those client environments.
And as in terms of just what the advisers on the analysts have been recommending to the.
Prospect is all about the positive agenda that WNS has been driving with clients and again.
We are actually seeing that anyone who who has a growth agenda, a transformation agenda or who is not dipping their toes. In this model is now scurrying quickly to make sure that this model as part of their overall.
Mobile model I would say and again in that area WNS scores very revenue. The third thing I would say is normally expect that the pandemic has disappeared forever right I'm sure that even on the client side. There is an expectation that there will be volatility driven by the spend to make and again there.
A lot of comfort.
In terms of how WNS handled it in the past how and when we are prepared for the future and therefore, if there is volatility how we will manage it and I think that this is what Ceos on the client side are responsible for to make sure that they introduced uncertainty into their businesses and so from my point of view I will say.
And that we are excited about the future I actually think that BP and three point always now here I think the next decade as one off you know.
Accelerating growth, let's wait and watch we have to make the right investments and the right areas, but WNS is well prepared.
Yeah, and I think just the just applications comments, Mike you know look we're certainly very pleased with the the deal signings this past year and the acceleration and those signings and in the midst of a pandemic.
And as we always do our guidance is based on visibility.
Based on what our clients have committed to so certainly if we see the pace of acceleration pick up and clients move faster there is very clearly and opportunity and the next couple of years for the overall growth rate and the company to accelerate but that's completely predicated on the timelines the clients give us and how they move from the first wave.
The processes, there's a second wave of processes for example.
But yes, we're certainly pleased with the opportunity that we've created for ourselves based on our sales effort last year.
Thanks, that's helpful color just a very quick follow up around pricing again, I understand the impact of productivity improvements on the model, but is a pricing conversations now turning more favorable given demand seems to be back there would be some level of.
Call it normalcy relative to pre Covid ex travel and if that's something we should maybe consider and the model as well in terms of any pricing impact on new logo wins.
Yeah, and in terms of pricing impact and affected the reverse as clients are demanding more productivity benefits and digital infusion and for companies such as well.
We're able to provide those were actually starting to see a bit of a premium compared to the pre COVID-19 this being brought in.
Right I mean, I think it's always important to separate the concepts of pricing and discount.
And from transformation productivity and total cost of ownership right and so I mean, certainly clients and want to run better and they want things to run faster they want to improve the customer experience they want to make better decisions.
And those are really what are driving these initiatives, but at the end of the day. We also know they want to save money and.
And there are less concerned with unit pricing than they are with the deliverables that their partners are being able to deliver for them. So you know what while there certainly is always going to be and I on cost. If you will it's more about the benefits we can deliver in aggregates and it is unit cost.
And we have not seen discounting or unit price reduction.
Become become an issue with either new logos or renewals of existing relationships.
Got it that's helpful. Thanks, so much.
Yeah.
Thanks, Mike Thanks, Mike.
Your next question comes from the ladies and Maggie Nolan is William Blair. Please go ahead.
Hi, Thank you.
I wanted to dig in on those renewals that you saw a little bit further are there any changes in terms of the nature of those contracts and determine if those contracts when you think about.
Things like delivery method, or just kind of it and nature of their relationship and how that ramps over time or any other areas of interest.
Yes, each of the renewal Maggie had been associated with increased transformation and Digitization. That's a common theme across every day, new and and the fact that most of US and you will have happened a few years ahead of the.
And speaks about the fact that we understand the domain.
We are able to manage the end to and processing capabilities, and then infuse digitization, which enabled them to actually gain more productivity benefits and that's got an unfair.
The same thing what that has done a sketchup alluded to a previous question opened up doors and uncharted territory, where we actually were not playing in the earlier.
Yeah, and if I may just add Maggie.
You know as <unk> said and I think the key change is the expectation of this digital transformation based on what we have seen with us across the years and the acceleration you saw around some of these themes and the last one year the whole hydro and automation kind of theme is something which is.
Critical to all of these clients and again lot of comfort from a WNS point of view.
And the other thing I would say is in the model work from home has also been established I think the comfort that the draw from us over the last one is something that they would like to have and the long term model as well.
And.
And increasingly the.
Ability for them to move towards much more transaction and outcome based pricing model and I think all of this.
Put together means the opportunity for us to actually do.
Drive a greater kind of wallet.
Wallet share with all of these clients is now much hot.
And I think at the end of the day to Maggie it's important to understand that these early renewals with very large client share their confidence and comfort and you know not only what we've been able to do for them and the past, but what they believe we can do for them and the future and and by going This route were able to avoid you know.
Competitive rfps, where we're able to sit down with the client and understand what they're trying to accomplish and help them chart out a path a roadmap for them to get there and they view us as a partner and not as a vendor and I think when you can change that kind of a dynamic youre going to be very well positioned to drive your relationship forward with that client.
Okay. Thanks, and then can build up on some of cash and comments do you think it's necessary post COVID-19 to go back to in person transactions, particularly for new clients and then what are your thoughts on this from a cost perspective as well.
Yeah from a transition perspective, Maggie and in fact, the last year, we've actually done multiple thousands of rules in terms of new clients and growth and work from existing clients, all and entirely virtually and.
And as a company what we do is track voice of transitions and the score with all our clients and in fact, the companies had amongst the highest voice of transition scores from our clients than in the past 10 years. So.
Transition model from a virtual perspective is here to say what the cost associated with transitioning have actually dropped significantly and now it is going to be based on client decline to comfort levels. Because we are confident that we can actually transitioned 90% of anywhere easily remotely.
Yeah, I think I think gazans last comment is the key one to focus on here Maggie that at the end of the day. The clients are going to drive whether those transitions are done remotely or in person based on what their comfort level is doing that and if it means we have to get on planes and go to the client site to do transition that that's what we're gonna do but certainly.
The model has been validated we've proven it can be done successfully and hopefully clients, who understand and appreciate that and increasingly like like all of us.
Get adapted to the new model.
Alright, Thank you and congrats on the nice guidance.
Thanks, Maggie Thank you Megan.
Your next question comes from the line is Ashwin and sort of a car of Citi. Please go ahead.
Thank you and good to hear from from you all.
Good quarter.
Mike.
Two part question one is I wanted to try and see if he can do it.
Examples of how digital transformation, and possibly increasing Tam and and in regards to that.
Two things I wanted to ask one is that our city and pace of ramp and the impact on that and then.
The strength of pipeline and whether you can give any color and made them sequentially or year over year. It keeps growing because I'm thinking from transformation.
Yeah, Hi.
Hi, Ashwin and got them yet.
Good questions. So the first one from our perspective, what we're seeing is customers are getting a lot more comfortable with virtual transitions and.
And a large part of this transition.
Dedicated involved and to end processing capabilities.
So what started off as a piecemeal approach with clients as they started getting a lot more comfortable what we're starting to see now is in terms of the size of transition to starting to increase significantly it's almost similar to the enforced and transition levels that we are starting to see.
So thats actually helping us quite significantly and also from a pipeline perspective, what we've seen is as Dave mentioned earlier, whilst the overall pipeline is broad based and extremely healthy there.
The differential between medium sized deals and the lot size deals was the planning around transition and transformation and what we're seeing now is a number of large size deals flowing through the pipeline quite healthily.
Got it got it and then on the on the supply side and this is feedback we seem to get it across the board is there and are.
Building supply challenges.
In terms of either tenant availability and attrition.
So with that as a backdrop and.
And he taught Sutton.
And specific things, you're doing to control and attrition and any commentary on specific hiring plans.
Does work from home actually helped in this whole process.
And he talked to me.
Sure Ashwin and I'll I'll take that and.
Other follow up.
But nobody right.
And the fact that you're asking this question and then.
And everyone is experiencing this.
And the space was hot again, I think that's the key.
Our message out there. The fact that demand is coming back and for the smarter companies like WNS and there is a strong pipeline. There is a need for the transformational agenda to deliver there is a need for the right kind of people.
Shows that demand is back now from our point of view I think the core is first and foremost.
And ensuring that our employees and the market generally sees us as the best brand to work for nothing beats.
And that model first and foremost second thing is rather than go out and keep hiring and.
And we spoke about numbers and.
And the number of hires we made and the last quarter, but the reality is our focus has been to train and Upskill people within the company as a result of which they are continuously seeing job enrichment and therefore want to build a long term.
And our carrier for Us Doug.
And I can say is you know.
The models that we are focused on in terms of getting people comfortable with.
Work from office or work from home models now clearly everyone has been talking about work from home, but one of the key things that we've also been doing inside WNS is also focusing on work from the residents Martin and switches.
To understand that and many of the delivery geographies.
Working from home and not working from their actual homes, because some of them actually have come from tier two or tier three cities and towards tier one city to work and those are going to accomplish and those are not really that homes box with the changes that from an industry point of view and from a company point of view, we were able to influence with <unk>.
Governments, and India and other places, we're now able to actually move the model into People's agile residences, as well and again that creates stickiness and also will impact the attrition that positively. So overall I'd say that these are some other steps that we're doing and most importantly, ensuring.
And that this is a safe place to work and this is an exciting place to work in and.
And WNS.
It is seen as a as a company where they can build long term carriers with that is the secret sauce.
And and I think Ashwin and maybe you mentioned it it's just reflective of what's going on overall in the industry is healthy again growth has resumed and as a result, what you've seen is attrition picks up compensation increases start to flow promotion start again. So you know this is just the normalization of our business is going.
And to be added pressure for specialized roles and and niche types of skills, absolutely, but as always is the case and these industries. The best way to create those capabilities are from within as opposed to going out and having to pay two or three ex to find those skills externally.
And maybe I'll start and I was just idle there that you know during this pandemic.
You know we have been getting those resources we have been.
And blind then and that has gone really bad and that also helps you know really to attract talent because and <unk>.
I do want to work with such an organization, who has really taken care of them Didnt start times.
Understood.
Thank you all.
Thanks Ashwin.
Thanks Richard.
Your next.
Question comes from the line of Dave Koning of Baird. Please go ahead.
Yeah, Hey, guys, Thank you and <unk>.
Nice job I guess first of all.
Just a couple of questions I guess on verticals.
You know it looks like health care was kind of flattish sequentially I think the last five years I looked it was up 7% to 19% sequentially. So normally you've got some pretty big sequential ramp which didn't happen this year.
Maybe just comment I guess on that on that first and then and then you mentioned a little on travel too just how I know in dollar terms. It was the lowest quarter of the year, even as kind of volume has been ramping just in the U S. Just I guess, so those two kind of vertical questions.
Yeah. So on the healthcare vertical you know one of the reason from a sequential perspective, what you know buprenorphine is the only contract renewals and some other productivity and a digital transformation what needs to be there. So you don't one of the and one of the renewal was and the health care vertical. So that you don't that was one of them using all day.
And from a travel perspective.
In part per fleet, there was a non recurring revenue, which was that'd be just not because non during quarter four so that is the.
And of our production.
Production and having said that day.
And your share of a new day.
And that the volumes are coming back in the travel vertical.
Whatever the client task and we did have you already baked in this month of polar and guidance, but that's not like a full recovery because as we move forward.
And as the travel industry to Nikolas and there'll be ex <unk>.
Thanks, and Thats to come back.
And just to add a little color if the Sun Jay's comments Dave.
And the health care net not only did we have our largest client renew renew their contract with us, but we also do have a seasonality issue and the health care vertical with with the pharma space. So we do tend to see that sequentially Q3 to Q4.
It's a little bit of a slow growth quarter for us because of our footprint and the pharmaceutical space.
And why health care, while it was down 1% sequentially. Despite the renewals was actually up 16% year over year. So you do see the healthy growth and again it sounds you kind of alluded to on the travel side, you know important to understand that sequentially. We did have a lot of short term revenues and at last quarters that it created.
Tough comp for us this quarter and as Gautam mentioned earlier as we look forward, while we did see some pick up in new bookings in our fiscal fourth quarter. We also saw a drop in cancellations refund activity customer query activity.
Bit of a and up and down while we kind of chewed through.
Some of the some of the cancellation and some of the re bookings that were a little bit of abnormal but I think as we move through fiscal 'twenty, one and the expectation is that.
Travel cadence will start to look a little bit normal.
Gotcha. That's helpful. Thank you and and just a quick one on tax rate for fiscal 'twenty two.
Was kind of assuming pretty flattish like <unk> 23 per cent or so.
Do you have any comments on that.
Youre right its going to be flattish for the next year perspective.
And you know.
And the range of 22 to 24 per cent.
Okay, great. Thanks, guys nice job.
Thanks, Dave Thanks, Dave.
Next question is from the line of Puneet Jain with Jpmorgan. Please go ahead.
Hi, Thanks for taking my question.
Can you talk about there is margin puts and takes for fiscal 'twenty, two I'd imagine lower short term revenue assumed and initial guidance.
And that should be a headwind, but you will also likely to occur.
<unk> expenses as you would return to office. So can you talk about relative magnitude.
Various headwinds so it isn't a foot margins and.
Outlook.
Yeah.
Yes.
And so Sanjay yeah.
Some of the headwinds from a margin perspective and come back to this year.
And you know the B.
And you spoke about the beach comes back like a pre COVID-19 normal level. So that's going to be there and you're right and he said facility utilization and as work from office and make people and gradually improving.
So that's me.
Increase and if you recall and during this financial year, two support and you know.
And some of them like adding cost we did change our policy and you know and there wasn't a reversal and contract too so that will get to meet and stated back.
Our continuous program on the evolution of our digital investments, that's going to be that and with some of the deal which is going to be around.
<unk> improvements some.
Some of the volume growth from the new logos as well as some other initiatives like.
That's going to be there and so having said that between the tailwind and the headwind.
Expect as Dave mentioned.
But when you when you do and that's to be around 21%, 22% upon and operating margin which is low.
Moving to meet the pre pandemic level.
Yeah, and and just to reiterate what Sanjay said on the lead policy and then to give a little bit of color there.
If you remember we took about a $4 million reversal and our legal accruals and the fiscal second quarter of 2020, which helped offset some of the cost of carrying excess resources Sanjay mentioned.
So when we move forward to this year not only do we not have that reversal of $4 million, but we actually have to go ahead and our crew for leave policies for fiscal 'twenty, one and so it's actually almost a doubling and and as a result, we've got almost 100 basis point headwind just from the lead the change and the lead policy on a year over year basis.
So we're pretty we're pretty pleased that we can sit here at the beginning of the year with all of these margin headwinds that we've discussed and and talk about a situation, where we expect margins to be relatively flat and still at the high end of the range for you know.
And what are what are our outlook is for a company margin.
Understood and and then just on higher visibility and digital transformation and digital book on piece and you lose but are these typically initiated by clients.
Proactive steps.
Taken by the goodness and.
And also does a higher digital will represent incremental volume.
And just changes the nature of deliveries.
Pretty good.
Yes.
And number of these discussions were initiated by WNS.
Actually to be honest and.
And on the theme of co creation at the end of the day in terms of building the right digital transformation and solution at the end of the day and what that is actually enabling us as you mentioned earlier the confidence with which we are implementing these digital transformation that permitting the clients to open a number of other doors for us so increasing our wallet share with.
Each one of these clients.
I mean, there's other class a classic example, who need and such.
I must mention.
Dave I, just I'll just finish off with just mentioned.
When a client is able to move quickly on these kind of decisions.
Yeah.
Based on something that has been softer from our and it clearly shows confidence in the partnership the resiliency of the relationship and more importantly, how do we have.
<unk> grown each of these relationships even in the last one year and I think I want to point about this whole vocation team that <unk> got.
<unk> spoke about is something that is impacting every one of our key clients and a positive manner and I think the confidence comes now from the fact that not only do they want us to help with these themes across existing books of accounts, but some of the areas that they were trying to handle by day.
So and as in the past.
And ill open it up for WNS to play and right and I think therefore that is where the exciting opportunities for the long term and I think from our point of view I think all of that is really positive for 'twenty breakthrough.
And then and I think just to reiterate what both cases and Gotham and said you know the reality is puneet that if you're trying to drive digital transformation and the organization what what you were.
Wanted to do is include the most processes as possible to make sure that they are all working in harmony with each other and if you try and transform one part of the organization and leave the other part out you're not going to get that debt benefits.
Really looking for it so the best way to drive.
Benefits to a client is to have a digital transformation initiative that goes into and across the organization and from front front office to back office and and the reality is when you sit down and have these conversations by by definition, what's going to happen is increasing pieces of the business will come into scope and and that's what we're seeing.
Understood. Thank you.
Yeah.
Thank you.
Thanks, Tony.
Your next question comes from the line and some England isn't there and group. Please go ahead.
Hi, guys. Thanks for taking the questions. The first one was just to follow up on the health care and practical and I was just wondering what impact do you think and then it can have on the pace of BPL expansion and in the health care and basketball longer time and I certainly.
Linked to that and how you're thinking about the environment for health care growth, because we had access to fiscal 2020 two.
Yes, we can.
Continue to be bullish with regard to the health care vertical Sam and in fact, what we are starting to see is whilst there is definitely an increased spend in terms of the BPM activities with the life Sciences companies, we had equally seeing.
Growth from the per side of the business and to some degree also the provider space and we do expect to continue to see this momentum and.
At least the next couple of years is what our anticipation is as more and more of these companies look to innovate and digitize, whilst reducing the cost of care provided to the customers.
Yeah, I think it's always important to remember, saying that despite the healthy growth that we've seen and the activity levels that have picked up through the pandemic.
It's still a very immature underpenetrated vertical and and as a result, the opportunities are pretty significant across the four key elements.
The health care space.
Here the provider the pharma and the devices side. So so we really are.
And it's got the mentioned bullish and and see the huge opportunity here for us to really create value for our clients.
Great. Thanks, and then the follow up I was just wondering if you've seen any renewed disruption because that is deliberate and I agree.
And Jacob and that's rising cases being reported either that or do you think now you and a better place to deal with it and then you want to start of the pandemic because some of the planning and you've done ex the last year.
Yeah.
Absolutely and terms of VC minimal disruption and despite the rise in cases of COVID-19 across some of the delivery locations.
Also because the learnings from the earlier phase. This has helped us be better prepared to manage that eventuality and now so we see.
And again to reiterate minimal disruption.
I think I think you are going to see waves of the pandemic hit and we've seen this over the last three or four months.
So it's a meaningful swings in terms of the number of people that we have and office.
But very small swings in terms of our ability to service and deliver for clients. So.
To give you a great example, Sam we averaged a little bit over 99% of delivery and the fourth quarter, we're still today delivering a little over 99%. So it's been consistent but the work from office peaked at about 23% and the fourth quarter and and today, we're at 17% So as those case counts in India.
And the Philippines and picked up what we have had to do is move more people to work from home model, but we have not seen that impact our ability to deliver for our clients.
Yeah.
Alright, Thank you very much.
Yeah.
Sam.
Your next question comes from the ladies and Vincent Colicchio from Barrington Research. Please go ahead.
Yes, nice quarter, guys could you provide and update on the pace of large new deal ramps.
Sure I'll take I'll take the I'll take that.
No no real change I think you know for the very large transformational kinds of deals.
Clients still are moving.
Slowly.
So I think theres been a little bit of a sign here that things may be picking up.
But certainly the approach that clients are taking for things that are so disruptive to their organizations and so transformational to the organization. They want to plan well they want to understand exactly how this is going to impact them and and they want to move slowly.
We are seeing good healthy acceleration in terms of the expansion opportunities with existing clients and the smaller new logos.
But no no real change in terms of the pace on the very large transformational deals.
And.
In terms of the nine new clients added in the quarter could you provide some more color on that.
Where any of these takeaways.
Do you think any of these could become large strategic clients.
I can take that you know the good news again is kind of similar to what we've seen before the nine new clients were spread across multiple geographies, reflecting the broad based health and the growth and the broad based nature of the pipeline, we added new logos and insurance and banking and health care and shipping and logistics.
And utilities and retail so.
Several several of our verticals were represented.
These new logos I would say there are one or two that represents.
Pretty sizable potential for us over the next couple of years.
Thanks for the color.
Thanks, nice quarter guys. Thanks.
Thanks, Vince Thanks, Vince.
Your next question comes from Korey Marcello They should bank. Please go ahead.
Hey, guys. Thanks for taking my question.
I was just curious just given the size of deals are smaller, but you know the number of deals.
And of accelerated is there some kind of apples to apples kind of comparison, you can give us maybe like total HCV side on a year over year basis, and then you've talked a lot about those deals kind of expanding through the year any sense of.
How how large kind of some of those deals could become or are you starting to see people start to move towards that just any kind of sense of that.
Sure I'll take that Corey you know look I think we're pretty pleased as I said with with what we've seen in terms of the new logos signing and.
In terms of E. C V T C V and metrics certainly because we've signed more of both.
Existing logos and new logos, there's going to be more HCV and there, albeit some of those larger deals and as we've talked about a little bit smaller to start with so I do think there is some upside to both H E B and T. C V from from historic level.
But what is really exciting as you know other of these several large transformational opportunities have been and that had been signed this year.
And when you look at what their intention is over the next three or four years.
There is potential for these to be top 10 customers. So.
If they continue to move down and the path and they continue to do what they say they want to do in terms of transforming the organization and continuing to run them with WNS and we see sizable opportunity for changes and the names and our top 10.
Got it.
And I think I think I think the second part of Dave's answer is really exciting for the industry and for the company because you know when.
And when you look at all the traditional verticals that WNS operates in.
We may have seen muted activity during the pandemic and.
During COVID-19 itself and in fact, if you look at each one of them.
The Green shoots we are seeing at this point and time is clients now actually starting to place bets in terms of going back to some kind of normalcy and therefore going after new areas of transformation that they may not have attempted last year. So for example, we spoke a lot about healthcare earlier.
But the reality is when you look at the <unk>.
News outside and the activity outside you will see that across the globe people have been focused a lot on just managing COVID-19 itself and and managing vaccine creation and many people actually have reported ignoring.
Traditional regular and metrics right, so I actually think that with confidence coming back about that.
And the vaccine starting to work and some of these geographies.
And the traditional areas are all starting to come back and client and so therefore, placing their bets in those areas and same thing we are seeing with the insurance side, where we're starting to see and interesting activity in new areas same thing that we're seeing and the retail and CPG side.
For almost a year people focused completely on essential services now they are taking their pets and therefore, a lot of these deals while they may start small and I think what we like to focus on is the logos the kind of brands.
The global nature of those companies and the fact that they have huge potential for the long term.
Got it thanks for that and then I just wanted to follow up on traveling and I guess you guys have spoken a lot about that and the quarter and if I recall, you know on the way down and some of those forecast we're pretty conservative.
Is there like a way that you can help us understand how those forecasts are made and and how conservative those might be and then just as a quick clarification question and you kind of color you can give us and sort of the FX expectations with the hedge gains and things like that thanks guys.
Okay.
Yes, sure so let me.
You Wanna go ahead Gautam.
Yes in terms of the forecast of the travel companies make at the moment is of course, they are quite conservative given the number of Lockdowns and the changing volume Something's got COVID-19 scenario is from country to country basis.
So the way we have started.
I'll start and extrapolating at the moment is basis of countries and the domestic travel that they have to undertake the secondary average actually benefits from a forecasting perspective has also been the consolidations that a number of these vendors have done and done some number of these clients have done across vendors that is also lending towards the positivity in terms of the forecasts.
Mccann isn't with us so broadly conservative, but yes, we continue to see increased momentum in terms of the forecast.
And in reality all we've included in the guidance at this point is what our clients have committed to so.
During the pandemic, what we would originally get as a forecast that show declining volumes over a period of time that they had the ability to kind of ratchet up as they've got close closer and closer to the actual execution date. What we're seeing now is that those forecasts are much closer to flat or static with the opportunity to ratchet up and in the case that volume exceed what they are.
So so we've clearly seen that behavior change and as a result, that's part of the reason that we have incorporated a little bit of an uptick and travel into our fiscal 2020 one guidance 'twenty two guidance sorry.
That's very helpful.
At this time and he has no further questions in the queue you.
And this will conclude today's conference call. Thank you for your participation you may now disconnect.
Yeah.
Yeah.
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