Q3 2022 WNS (Holdings) Ltd Earnings Call
Good morning, and welcome to the WNS Holdings fiscal 2022 third quarter earnings Conference call. At this time, all participants are in a listen only mode.
After managements prepared remarks, we will conduct a question and answer session and instructions for how to ask a question will follow at that time.
This call is being recorded for replay purposes, now I would like to turn the call over to David Mackey, Wns's Executive Vice President Finance and head of Investor Relations David.
Thank you and welcome to our fiscal 2022 third quarter earnings call.
With me today on the call I have wns's CEO , <unk>, <unk>, Wns's, CFO , Sanjay Puria and our COO golf abroad.
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 WNS Dot com.
Today's remarks will focus on the results for the fiscal third quarter ended December 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.
Risks and uncertainties include but are not limited to those factors set forth in the company's form 20-F.
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 AI is defined as profit excluding amortization of intangible assets share based compensation goodwill impairment and all associated taxes.
These items will be these terms will be used throughout the call I would now like to turn the call over to WNS CEO <unk> <unk> Asia.
Thank you David.
And good morning, everyone.
First of all.
My sincere thanks to every one of our employees and their families.
Our clients.
All other key stakeholders.
Well there are a huge effort.
<unk> prices and the resilience during this ongoing pandemic, we sincerely appreciate it.
In the fiscal third quarter WNS continued to perform grow and.
<unk> delivered solid financial results.
Overall healthy BPM demand environment.
Third quarter net revenue came in at $261 2 million.
Representing a year over year increase of 16, 3% on a reported basis.
And 16, 1% constant currency.
Sequentially net revenue increased by two 6% on a reported basis and three 4% constant currency.
In the third quarter. The company added 11, new logos and expanded 26 existing relationships.
WNS posted strong adjusted operating margin.
21, 4%.
And adjusted EPS grew 11, 1% year over year.
In addition, we have increased the midpoint of our full year guidance to reflect constant currency revenue growth of 15% and EPS of $3 and 34.
Sanjay will provide further details on our third quarter financial performance in his prepared remarks.
This quarter I wanted to highlight WNS is differentiation.
And solid momentum in our data and analytics practice.
Specifically I would like to discuss our strategic approach new capabilities. The benefits, we are delivering for our clients and some key metrics for the business segment.
WNS is already two decades of experience driving business outcomes through data analytics for all our clients.
Our analytics practice currently has over 4000 domain.
Data science and data engineering experts focused on servicing more than 120 declines, including leading brands across industries and geographies.
We are focused on solving industry specific problems by harnessing the power of data and analytics and co, creating PHR driven transformational solutions with our clients.
In fact today.
We are seeing requirements for analytics as an integral part of every new digital GPO deal.
Our data and analytics strategy has three key foundational pillars.
In line with our overall corporate approach to BPM. The first key element is the main centricity.
At WNS, we believe that a deep understanding of the client specific business sector and the sub sector is.
The sourcing relevant data.
Developing a customizing algorithms as well as AI learning models, and then translating the technical results into actionable insights for our clients.
This approach also enables us to integrate and embed analytics into our broader industry specific solutions.
Address the end to end business requirements of our clients.
Recently, we have helped a leading global retailer not only optimize that existing online advertising sales, but we have also created a completely new stream of revenue using AI based personalization.
This unique solution was made possible by our core retail domain knowledge combined with our ability to develop personalization engines at scale.
As a strategic partner, we are paid a percentage of all incremental revenues the solution is delivery.
The second core component of our analytics strategy is technology led innovation.
WNS is focused on utilizing state of the art cloud based analytics and AI technology capabilities to enable data driven business transformation for our clients.
The importance of this pillar has rapidly increased over the past few years as customer expectations around creating differentiation and reducing cost have accelerated.
To enable client transformation WNS has invested significant resources to build a complete data engineering and management services ecosystem leveraging intelligent cloud.
This capability enables us to help clients create the data strategies and data management frameworks.
Data workloads to the cloud and solve their data management problems.
In addition, our analytics products and platforms group continues to combine WNS is vertical expertise internally developed IP and third party partnerships to provide our clients with domain centric intelligent platforms.
One platform I would like to highlight for you today.
Paul you AP, our unified analytics platform.
USB is a comprehensive analytics platform.
Floyd across industries, including insurance banking and financial services and manufacturing as well as retail.
The platform is cloud based provides end to end integration from data to actionable insights and is modular in nature.
It can be easily embedded into the client's existing infrastructure.
A plug and play system.
Deployed in an as a service model.
But one of the world's largest insurance companies.
<unk> has developed highly specialized AI and ml models, including fraud.
NPS indemnity and subrogation to manage the end to end claims process.
First notification of loss.
Claim closure.
These models have now become a part of our UAV platform, which is helping save declined millions of dollars in claims as well as indemnity costs.
Our second analytics platform, which we have mentioned on our previous call.
Ken.
Our cognitive data capture and processing platform.
Powered by AI and ml.
Imports, both structured as well as unstructured data applies proprietary algorithms to generic.
Contextualize information and then summarizes the data deliver actionable business insights.
This proprietary platform has the unique ability to combine cleanse and analyze large disparate and company comp.
Flex company data sets at an enterprise level.
It's cloud based has been certified on Microsoft Azure and is now in the process of being certified on AWS.
This platform has been recently deployed for 12 of our clients across verticals, including three clients in the airline industry.
<unk> is enabling these global airlines to processed in excess of 12 million Scotland.
Scan stages of airway bills, while increasing accuracy and reducing the amount of manual effort and service cost by 50% to 70%.
More importantly, this platform is allowing the airlines to collect tens of millions of dollars in monthly revenue, which have been held up in conflict.
To incorrect airway bills, thereby improving the client's revenue as well as cash flow.
The third pillar of our analytic strategy is our Coa Our center of excellence model, which is focused on creating analytics teams dedicated to highly specialized functional requirements.
The CLEC model Leverages, the domain capabilities and technology assets developed in our first two pillars.
<unk> unique tailored solutions and provide clients with scalable capacity.
Which serves as an extension of their own organization.
These long term engagements are strategic in nature and establish if high value beachhead.
<unk> relationship expansion.
To date, we have developed a CRE model with one of the worlds, leading beverage companies to provide customized analytics services for new product introduction and launch.
The Coa has delivered significant benefits to the client <unk>.
Adding a 25% increase in emerging market sales.
Sales volume emerging markets sales volumes pardon me through revised media spend it.
Personal introduction in TV advertising expenditures and over 40% reduction in primary research costs and early visibility to emerging competition.
Overall, we are pleased with the progress in the area of data and analytics and we believe our approach and capabilities are really resonating well in the market.
As a result, WNS has been able to grow our combined standalone.
Embedded analytics revenue above the company right.
With this segment of the business now representing approximately 20% of total company revenue.
In addition, because of the value add associated without offerings WNS is data and analytics practice is delivering margins well above company average.
Looking forward, we are excited about the healthy growth opportunities for WNS.
<unk> the potential for ongoing pandemic related volatility volatility and the pressure associated with tight global labor markets.
Our clients and prospects are aggressively looking for strategic partners to help create new revenue streams reduce their cost.
Greece operating efficiency and improve the customer experience.
Digitally transforming their business their businesses.
Believe WNS now remains well positioned to deliver these benefits by combining our deep domain expertise and culture of co creation with state of the art technology advanced analytics and business process knowledge.
Anthony remains focused on delivering long term sustainable value for all our key stakeholders, including our clients employees shareholders as well as global communities.
I would now like to turn the call over to our CFO Sanjay Puria to discuss further our results as well as our outlook.
Jay.
Application.
In the fiscal third quarter WNS net revenue came in at $261 2 million up.
Up 16, 3% from $224 5 billion posted in the same quarter of last year and up 16, 1% on a constant currency basis.
Sequentially net revenue increased by $2 six per se on a reported basis and three 4% on a constant currency basis.
Sequential revenue improvement was broad based across most verticals services and geographies and driven by new logos.
Sanchez of existing relationships and increased travel volumes.
In addition, WNS recorded $2 6 million short term revenue during the quarter at company average market.
Adjusted operating margin in quarter, three was 21, 4% as compared to 24% reported in the same quarter of fiscal 2021, and 21, 8% last quarter.
The other one.
Adjusted operating margin decreased as a result of employee wage increases.
Increased facility related and travel costs and a large amount of high margin short term revenue recorded in quarter three of last year.
This headwind more than offset increased operating leverage on higher volumes and favorable currency movements net of hedging.
Sequentially margin reduction was the incremental wage pressure in quarter three.
This new facility related and travel expenses, which more than offset benefits from productivity and operating leverage on increased volumes.
The company's net other income and expense was eligible.
Was negligible in the third quarter as compared to $1 billion of net expense reported in quarter three.
2021, and <unk> 9 million of.
Net expense last quarter.
Yes.
The favorable.
Is attributable to increased interest income.
Driven by higher cash balances other income, including write that asset sale.
And lower interest expense relating to operating leases.
Sequentially the favorable weather that is the result of interest income on higher cash balances and other income from write backs and ASIC team.
WNS effective tax rate for quarter, three game units at 26% down from 22, 5% last year and down from 21% last quarter.
Both year over year.
Actually the reduction in our effective tax rate is the result of geographical profit mix and the mix of work delivered from tax incentive facilities.
The company's adjusted net income for quarter, three was $44 4 million.
Tom.
$1 million in the third quarter of fiscal 2021, and $43 1 million last quarter.
Adjusted diluted earnings per.
<unk> share in quarter three.
79 in the third quarter of last year, and 86 last quarter.
As of December 31, 2021, WNS balances in cash and investments totaled $372 $1 million and the company had $8 $4 million of debt.
WNS generated $56 $9 million of cash from operating activities this quarter and incurred.
$6 1 million in capital expenditures.
DSO in the third quarter came in at 30 days as compared to 34 days last year and 31 days last quarter.
With respect to other key operating metrics.
Total head count at the end of the quarter was 46 9610.
Attrition rate in the third quarter increased to 36% up from 23% reported in quarter three of last year and up from 34% in the previous quarter.
We believe the accretion rate should stabilize in the 35% range for the next few quarters.
Bill seat capacity at the end.
Of the third quarter decreased slightly to 34470 <unk> 40.
The seat utilization metric, which the company typically provide as a measure of infrastructure productivity are not meaningful given the company operated at 79% work from home globally in quarter three.
In our press release issued earlier today WNS provided our revised full year guidance for fiscal 2022.
Based on the company's current visibility levels we.
Net revenue to be in the range of $1 billion and $8 million.
Two $1.024 billion.
Representing year over year growth of 16%.
To 18% on a reported basis and 14% to 16% on a constant currency basis.
Revenue guidance assumes an average British pound to Euro dollar exchange rate of 1.35 for the remainder of fiscal 2022.
Consistent with our guidance approach in previous year, we currently have more than 99% visibility to the midpoint of the range and our projections do not include any uncommitted short term revenue.
<unk> in travel volumes beyond currently levels.
Full year adjusted net income for fiscal 2022.
<unk> to be in the range of $169 million to $173 million.
Based on our 75 rupee to US dollar exchange rate for the remainder of fiscal 2022.
This implies adjusted EPS of $3 <unk>.
The $3 <unk>, assuming a diluted share count of approximately $51 2 million shares.
With respect to capital expenditures WNS currently expects our requirement for fiscal 2022 to be up to $30 million.
Open the call for questions operator.
Ladies and gentlemen, if you wish to ask a question at this time. Please press Star then one.
You touched on the telephone.
If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
In the interest of time and to enable everyone on the call to participate please limit your queries to one question and one follow up.
Our first question comes from the line of Bryan Bergin with Cowen Your line is open.
Hi, Thank you.
Question on demand I'm curious if you saw any change in client decision, making more project ramps as a result of the recent omicron spikes and.
Or has it been more consistent with last quarter and can you talk about that in the context of industries, including travel.
Sure. Let me, let me take that Brian I think the short answer and Gotham can chime in here as well, but I think the short answer is no. We didn't see any change in behavior as a result of the recent spike.
From <unk>.
We did see.
An increase in volumes in the second half of December and the first half of January here and.
In the travel vertical associated with delays cancellations re bookings on the travel side kind of similar to what we saw very early in the pandemic.
But as a result, we did get some volume benefit in the travel vertical this quarter, but overall in terms of decision, making in terms of demand in terms of.
The lead times, no changes whatsoever from a client behavior perspective.
Yes.
David mentioned, besides the travel vertical I think the.
Growth has been broad based and the demand continues to be extremely resilient across almost all of our verticals.
Okay. That's good to hear and then on the data and analytics practice is this a business unit that's serving as something you are increasingly leading with as you go to market to win new BPM engagements or more so our cross sell motion into the existing base, maybe you talk about how that's evolved and any additional detail you can provide on.
Relative growth margin levels there.
Absolutely so from an audit from the research and analytics practice. This has always been a unit that has functioned across all verticals and this continues to service across all of our key verticals banking and financial services insurance manufacturing and retail.
And we continue to see consistent demand increase in all in this particular area.
Do you see this as we continue to drive basis that was the main based agenda the need for embedded analytics as a part of the digital transformation requirement that the clients are driving consistently increasing so besides being a standalone group unit.
Enabling portion in terms of a political continues to rise. So what you've seen is an above industry average growth rate within this particular area north of 30% this year and margins that are well above the corporate standards.
We publish.
I think the only other color I'd like to add to Gotham got some commentary there Bryan is the fact that.
I think we are seeing an increased ability within WNS to lead with analytics as an arrowhead.
We've always been focused on embedding analytics into everything that we do to help make the processes more efficient more insightful.
We've always had capabilities in terms of creating.
Functional analytics that allow us to replace the analytics capacity within a client's environment, but I think some of the newer offerings that we've been developing especially around AI and ml are allowing us to kind of lead with analytics offerings and then cross sell more at the end to end solution. So.
The short answer is both the reason we're in analytics is not only to lead with it and to differentiate with it but also to make sure that we embedded in everything that we do I do think though there has been increased ability for WNS to lead with analytics over the last year year and a half.
Okay. Thank you very much.
Thank you. Our next question comes the line of Ashwin <unk> with Citi. Your line is open.
Thank you.
Happy new year folks.
Good good top line trends here Mike.
My question is on margins I get the qualitative explanation for the margin trend would it be possible to size. The pieces. Because for example, I think the rate increase obviously longer term base impact facility stuff seems more intermediate.
Intermediate than short term revenue impact is obviously short term so it would be good to get the forward margin view and.
Quantification of the pieces.
So are trending up.
I think absolutely right that.
Going forward you Wouldnt Dolby, we have seen wage increases.
But because of the.
The replacement of some of the hydro.
Also with the higher compensation, but there are enough levers as we move forward to really offset some of this impact whether it's a shorter or whether it's a directional and all of those levers whether it can be.
Driving our digital agenda, whether it's flattening the pyramid.
Theyre doing a shifting to walk into a different geography. So we believe that directionally will be able to really maintain the margin.
What we have delivered over the year.
This continuation of our investment program, whether its around digital capability addition.
And I think just to add to Jay's comments ashwin.
When you look at this year's margin performance on an adjusted operating margin basis, we're looking at the full year coming in extremely similar to where we were a year ago and and that's despite having incremental wage pressure this year, despite having incremental pressure coming from.
The reduced impact of Covid right. So our facility expenses have gone up on a year over year basis, our travel costs have gone up on a year over year basis.
Despite those two headwinds if you will to margins, we've been able to offset that with productivity and to a much lesser extent FX I mean, FX has given us about a 70 to 80 basis point tailwind this fiscal year, but the bottom line is we've been able to offset those incremental employee cost wage costs attrition cause.
And the incremental costs associated with with Covid by becoming more productive, which I think is what Sanjay was alluding to earlier. The fact that there are multiple levers in our business that enable us to have the capability to offset increases from things like wages and.
A lot of that has to do with the ability to automate and digitize employee.
Functions to drive the kinds of productivity that they're looking for.
Got it got it understood and.
Something that has been a trend for you than that.
Few quarters here.
You are adding.
A lot of new clients per quarter, but you're also expanding existing relationships and it's going to.
Yes.
The differentiation not just renewing but expanding.
And is that right.
To frame the forward revenue growth impact of that could you maybe.
Talk through the various pieces of how you guys are thinking of it from a planning perspective.
Sure.
<unk> I'll take that.
I'll take that and first of all happy new year to you as well.
I think thats a good question. The first thing I want to mention is just look at the quarterly results. We just announced this is the highest.
Growth quarter in the history of this company.
I really want everyone to take note of the fact that this has happened right in the middle of the biggest places the biggest spend in making all this excitement that we just spoke about just before this.
In addition look at what we have just guided the markets towards in terms of full year with a 99% visibility we're talking about.
15% constant currency growth at the midpoint of the range.
At the same time, our pipeline toward business has never been healthier whether it is new business, whether it is completely new prospects, whether it is coming from broad based across every one of our verticals whether it is around all our core geographies and revenue that's coming from completely new.
New age kind of clients that we have always wanted to bring into WNS.
I think the health of the pipeline and the excitement that we're seeing in the pipeline is absolutely stunning.
In addition to that I must say that every one of our existing lines.
Actually transforming their businesses and their business models.
Reaching out for WNS to help them with not just the adoption, but also in terms of the model shift that they are going through.
We've spoken about a lot of these worked in the past we have spoken about how we lead through digital does that or the other but as David also mentioned earlier.
Research and analytics is leading the charge.
Digital offering is leading that charge.
Vertical offering is leading that charge. The fact that we understand technology, so well and have some great relationships.
Ross the spectrum of that.
Providers and Disruptors is again very much appreciated so what I would say at this point in time as you know.
All business, resulting in a very solid pipeline.
I would like to say that the business opportunity continues to be very very robust. Obviously, there is all the time going to be some volatility that we expect but I think this company has learned to manage this volatility extremely well.
And then look at the Green shoots.
Some of them are still not operating at northern Seas, we spoke about travel and airlines, but the reality is as we interact with our clients even in those sectors. All of them are looking for transformational models to come back quickly and even today's announcement that was made in the UK around.
Back to normalcy again is a bullish sign about how countries want to come back now obviously in terms of modeling this and.
And deciding how this will lead to next year's numbers, we will come back with specifics around April I, just want to leave you with this team.
It has never been better for WNS.
And just to add one thing to that Ashwin youre spot on when you talk about kind of the.
The early signs of growth rates, certainly the new additions in the expansions or kind of what drives our growth.
The new additions will drive growth over a 345 year time horizon, but the expansions are really the ones that drive the short term revenue acceleration for us and when you look at the new additions were at 26 additions through the first three quarters of this fiscal year, we're tracking to be at or above.
The number of new client additions that we were at last year, which was a record level in.
In terms of expansions, we've now expanded 75 relationships year to date, which exceeds the total year number from last year. So what you see is an acceleration in those metrics when you translate that to what youre seeing on the top line again in case, you have talked about having a great Q3, and having 15% organic constant currency.
At the midpoint right now, which is the highest ever in the company's history, but what he didn't tell you is that implied in that midpoint is 17% constant currency growth in Q4, so not only youre seeing the early metrics side in terms of additions and expansions helping drive this.
When you look at our quarter to quarter performance on a year over year basis, what youre seeing is accelerating momentum in our topline and we're really excited to see that we've been able to build that momentum.
Carry that momentum hopefully into fiscal 'twenty, three assuming we don't have something falling out of the bottle.
Got it thank you.
Thanks Ashwin.
Sure.
Thank you. Our next question comes from the line of Mai Tanden with Needham Your line is open.
Thank you congrats on the quarter, given the favorable demand climate Acacia.
And Dave can you comment on any pricing power that you've seen really come into play maybe help negate some of the margin headwinds that you've called out and then sort of related to that would be are you seeing maybe a different impact from productivity improvements that you typically see in any given year from your clients.
Spot spot on I'll take a first cut at that and then I think both Gotham and indications of can kind of chime in as well, but you're spot on.
Bottom line is the first thing that's most important is that we bifurcate pricing from total cost of ownership.
Given the current environment given that.
Employees, especially specialized skills are getting more expensive.
It's clearly an ability to increase pricing if you will on a unit basis, but let's not mistake that for where our clients stand in terms of total cost of ownership our clients will not pay more for the same service on a quarter to quarter or year over year basis. So in terms of our ability to pass through increases to cover some.
These costs, yes, there is some of that ability, but our clients fully expect that we're going to be able to offset those increasing rates.
With fewer resources are less cost right. So so this is where the ability to leverage technology and automation to make the total cost of ownership more affordable to clients becomes critical because the clients at the end of the day, Mike will not pay more to deliver the same type of work. So yes. There is some ability for us to manage.
Wage increases and manage some of these costs, but the bottom line is the onus is on us to be able to deliver the productivity to make sure that that doesn't filter through to the client.
So helpful. Dave Thanks for that and then just as a follow up on the supply side, we did see hiring slow a bit here should we read much into that and then I think Sanjay mentioned about attrition how do you sort of manage that does that in any way compromise growth going forward. If it does start to continue to increase from here.
Thanks.
Yes.
So yes definitely maybe during this quarter, what you would have seen that.
That is not in any shift from in hiring from a net perspective, but if you recall, we did mention about one of our South Africa.
Right.
We just said it was at almost more than thousand FTE reduction in factoring that will be added to what debt as well as if you were to have observed during the first half we have hired more than 5000 people.
That was ahead of that goal and that has helped to drive some of the revenue the growth. What we are seeing so as we move forward and based on the visibility that will continue but even during the quarter.
Dropped Heidi withdraw getting offset by the South Africa plant rundown.
And then on the attrition.
B.
Could you just maybe walk through a few of the efforts to keep attrition at these levels does that in any way compromise growth going forward. If it continues to.
Increase from these levels. Thank you.
So let me take that.
Mining, so first and foremost.
Lets me categorically mentioned that we have all the programs in place to attract and retain talent, we will have attrition.
Not in the areas, where we want it so.
Certain specific areas, which have high value areas.
The attrition is very much within acceptable levels and some other areas attrition could be higher but our model for widespread it. So first of all let me give you that comfort.
Second thing that state.
The state that it is not at all impacting our ability to deliver business, who sign on new business and in fact to global business even foster.
Talent in certain areas is going to get expensive and we're seeing that.
But at the same time every single day, I am personally interviewing and adding so many new senior leaders into WNS as well and it shows very clearly that.
<unk> has become a talent magnet.
So not only are we able.
Able to retain the right talent that we want we have the models in place to ensure that the engine of growth is continuing to supply, but more importantly in some of the high growth areas. We're pulling a lot of high quality talent into the company. So very very confident about our talent management.
Programs I think if you look at the.
Overall attrition numbers it hasn't changed very much in spite of in spite of the fact that it's such a hot market.
Thank you keisha congrats on the quarter.
Thank you very much.
Our next question comes from the line of Maggie Nolan with William Blair. Your line is open.
Thanks and congrats.
To build on that last question. There can you talk a little bit about your hiring goals over the next several quarters and kind of the dynamic.
How much you've hired in advance versus what youre kind of expecting to support future growth.
Sure look I think there's two things that we know Maggie Rae one we're going to have to hire here in Q4 to deliver accelerated revenue versus Q3, now that should be significant hiring but I think the biggest wildcard for us honestly is twofold. One is when do.
Our travel clients make commitments to volume increases and enable us to go out and hire and prepare to train those people and then the second is what new business do we sign here in Q4, that's going to require hiring into the.
The tail end of Q4 and into Q1 right. So we don't typically higher significantly in advance of resources right. This is not a build it and they will come business model. So a lot of the hiring that we plan here in Q4 will be a function of what happens with demand what happens with new wins here.
In Q4, and what happens with the travel vertical you saw some of that in Q1, when we hired I believe 2500 people.
And the vast majority of those resources didn't generate revenue in Q1, because they were for the committed increases in the travel vertical that took place in Q2, so very difficult for us to say at this point, how many people we're going to be hiring here in Q4.
The bottom line is we do expect just based on the guide where it sits today, which again doesn't include short term revenue and does include a travel increase.
Based on that guide, we do know that we need to net add here in Q4.
Thanks, and then on <unk>.
Topic here can you talk through some of the nuances and pricing engagements for analytics work, particularly in the context of how.
How much of this work is embedded analytics versus project based work.
Yes. This is Scott.
In terms of different models of pricing would you look to predominantly EBIT on a fixed price model.
Which is based in terms of strategic programs or projects that the clients keep sending them in terms of definitive yes, if advanced analytics that needs to be delivered to us at projects.
Second media that he consistently especially now.
Analytics side of the business is.
PPS model on a gain share model, which then delivers the outcomes of the client is looking for that.
In terms of the profitability actually of the analytics function and the port <unk>.
Substandard FTE model, where we are seeing a bigger uptake at the moment just to have a gain share model.
Jackie Jive.
All the profitability of decline.
Yes, and just to further what got them said, it's a great question, Maggie because I think it really goes to.
The WNS strategy as it relates to analytics.
We report roughly 11% of company revenue on a standalone basis. This is where what we're doing in the Atlantic analytics area is completely separate from other things that we're doing for that client right. So the functional analytics that case have talked about where we're managing centers of excellence that falls into.
To that analytics bucket.
Project specific work that we're doing would fall into that analytics bucket, but the vast majority and another 9% of overall company revenue in the difference between the 11% Standalone in the 20% total.
Is embedded into our industry specific work, it's embedded into some of our customer experience work. It's also embedded into some of our finance and accounting works. So that's where the analytics work that we're doing really can't be separated or pulled apart from the value that we're delivering to that client the good.
I think from a business model perspective is if you really dig into the WNS analytics business, what you'll find is it less than two or 3% of company revenue is really project based work. The majority of the analytics work that we do for clients is recurring in nature and it's either embedded into what we do for that client.
Or it's functional on a long term contract.
Great detail. Thank you all.
Thanks Maggie.
Our next question comes from the line of Moshe <unk> with Wedbush Securities. Your line is open.
Hey, Thanks, Great numbers happy new year, everyone.
Two things.
Wanted to dig a bit deeper into the travel vertical can.
Can you maybe walk us through.
Just to kind of get a feel on how this vertical kind of changed in your roof mode. Now that we're about two years into this pandemic.
Are you changing in terms of how you go to market. It seems that you've been able to replenish some of the pipeline.
Anything thats of.
Note and then I'll have a couple.
Follow up thanks.
Sure how can you do to Moshe so from a travel vertical perspective, just as a backdrop the volume in pieces over the last number of quarters has been predominantly driven through the U S domestic travel markets.
And you've got in regards in terms of the hotel investing some of the other regions of the world.
Except shop.
Now in terms of most of the volume has been driven through the <unk>.
<unk>.
But where we are seeing a shift in dimension is more and more of the traffic is moving directly to the BTC side of the channel that hotels airlines et cetera, providing a greater thrust into this industry. So from the <unk> the <unk>.
We have consistently been quite good at in terms of delivering to end outcomes and benefits reflected in the number of significant new client wins that you've had over the last 12 months, including benefiting from some of the industry consolidation that has happened over here.
So again the volumes continued to be driven through new clients existing clients expanding their.
One of the chip.
And thirdly in terms of.
Dean.
As the international volume stock, increasing and the demand starts increasing we do anticipate that this 88 will further grow.
And maybe I'll just add to that.
What was the last 18 months, we have seen the volume recovery upgrade got impacted from <unk>.
That makes perspective, but that is not political and those volumes as we move forward, we believe that 2% to 3% of the companies that are like.
$6 million per quarter is still what we're expecting as we move forward to recover other than the bounce back.
Industry.
Yes.
And one piece of color to that Moshe I think one of the interesting things that we've seen over the last couple of years is that while travel is obviously had major challenges I think one of the clear differences that we've seen in behavior is an increasing focus across the travel spectrum on customer experience.
Understanding that.
These clients need to change kind of how they operate that theyre going to have to re earn the trust of travelers, whether it's on the OTA side or the airline side or the crude side.
The customer experience is going to be a huge part of it so part of what we've seen in terms of our ability to add new clients in terms of expanding existing relationships.
Ben the need for them to fundamentally change how they go to market and how they work with their customer base going forward and we think it's created a huge opportunity for us.
Look at travel and as Sanjay mentioned, we're certainly not fully recovered with several of our larger clients who are operating it.
Level that are still well below where they were pre pandemic, but this is clearly a vertical that we believe we've got a unique capability and it's a vertical from an investment perspective that we believe makes a lot of sense for us to double down on given given our knowledge given our capability and given the.
Soon to be going forward, so very very excited about the travel opportunity over the next couple of years.
Thank you. Our next question comes from Puneet Jain with Jpmorgan. Your line is open.
Hey, Thanks for taking my question.
So overall.
During the quarter was down significantly I think it was 600 700 seat and facility related expenses increased on a sequential basis.
<unk> cost increased driven by employees returning to offices sometime during the quarter.
And more broadly how do you see delivery models evolve over the medium term in terms of employees working from home versus from offices.
So puneet.
A good part of that absolutely you are right that the facility cost increase because of the broad returning to office.
From a work from office model perspective, so last quarter, we had 70% and this quarter, we had 21% walking from office. So that wasn't one reason and related to the reduction of the seed.
If you recall, we did mention about one of our South African.
<unk> done and accordingly, we did southern under the facility also and also one of the calls what we would do that as part of our consolidation exercise.
Other facility, so I know it because that's how the synergy look and that was the reason our production of the seat, but as we move forward.
We are ready.
With all of our models.
It's a hybrid work from anywhere all those models, we have invested into that and as we move forward, we'll have to see how clients.
Behave and how glad to insist on that and accordingly.
We will be ready with that so I think a little bit how things panned out as we move forward from here.
I think the good news is puneet, though as we kind of move forward here, we know that there's going to be some percentage of our work that's either going to be structurally work from home or structurally hybrid and what we believe this will allow us to do longer term has pushed the seat utilization numbers up for the organization and reduce the cap.
<unk> expenditure requirements as a percentage of revenue along the same lines. So those are two very positive trends not just for WNS, but probably for the entire industry that we would expect to see.
Settles.
On the pandemic and we get a better sense of what types of work clients want to be done in office versus remote.
Understood.
And how have you seen cycles coming along.
How should we think about like the bookings pipeline and the movement of deals within.
The pipeline is good.
Think about <unk>.
Next year.
<unk> growth rates.
Execution earlier that you did to a previous question.
<unk> couldn't be more robust in terms of sites and the broadness in terms of across multiple vertical.
So then we have seen this decision continues to be taken.
<unk> clients.
Transitions are starting off in multiple waves North America continues to lead in terms of the deal pipeline and of course, what Youre seeing is many more larger deals actually starting to flow into our pipeline some of which could end up being amongst the top 10 very very quickly.
And I think just the.
The pace putting to your question look I think obviously very large transformational kinds of deals require a lot of effort on the front end from a client perspective, right I mean without the proper road mapping without the proper.
Pat being laid.
Youre going to have major challenges with any kind of a transformational initiatives.
Very difficult hyper accelerate an end to end business transformation initiative, but I think what you are seeing in terms of our ability to for example, accelerate the number of expansion is that once we have our foot in the door with the client the ability to to add additional processes is taking less time than it used to do so.
Do think you'll see an acceleration in the pace of expansions.
But obviously the large transformational deals we'll continue to move at a pretty slow pace through the pipeline.
Understood. Thank you.
Thanks Puneet.
Thanks for the reminder to ask a question at this time. Please press Star then one our next question comes from Dave Koning with Baird. Your line is open.
Hey, guys.
Congrats good job as usual.
And I guess, thanks for the question Yeah, Yeah sure first first question.
Just on margins you made a lot of comments, but does it is it fair to say at a high level as you kind of saying don't worry too much about margins next year, because even though you might have rising wages and costs of hiring with attrition the offsets our efficiency pricing and labor mix.
You get the margins up to different from this year.
Yes, you are absolutely right.
That's why because there are enough levers around it because this pressure is going to be therefore, some while.
Based on the demand supply gap, what we are seeing in the industry as well as as we return back to office.
Those percentages the cost of debt that really is going to be dead.
As I mentioned earlier, there are enough levers because we are into the whole digital roadmap of technology automation roadmap as well.
In a different geography, including the whole.
<unk> strategy.
That makes so there are enough levers to do that so I think we expect the margin to be stable as we move forward.
And I'd just also add that you know.
As.
With the kind of attention that the WNS brand is getting from prospects and clients.
And the way the hyper automation we are progressing.
We will continue to make all the investments that we have traditionally and will accelerate those investments in every one of the areas that I spoke about earlier.
So we will we are confident that we can make all those investments we will exit those investments metals acquired and also have the levers to continue to maintain industry, leading margins. So I just wanted to give that comfort as well.
Yeah, great. Thanks.
Thats. Good second question I guess on tax rate you made some comment about the mix of Geos has created a little bit lower tax rate and I think you've guided last quarter, if I remember, maybe $23, 24%, but it seems a little lower is that kind of a permanent thing like should we expect margins to be a little lower going into the next couple of years too.
Yes, so I think there are various.
It's a combination of debt alright earlier, it went up to 23, 24%, but it can be volatile.
Volatile quarter over quarter.
But from a direction.
David again, it depends upon how the business has come from Ingrid geography, and accordingly, those couple of percentage movement or will be there as.
As well as as we move forward there will be some context.
The tax exempted facility, where there is a special economic zone already.
And to the Philippines.
So those impact will also be there. So I think it can be in the range of that for any 1% to 23% depending upon the mix of the business.
And some of the content as we move forward.
The other thing I would like to add to that Dave is on a year over year basis. It's also important to note that last year kind of in the height of the pandemic, we carried a significant number of excess resources and we carry them in our high profit geographies right, So India the Philippines.
Where we carried excess resource through the pandemic as a result, the profitability in some of those lower tax geographies was less and that resulted in a higher effective tax rate for the company. So part of what Youre seeing on a year over year basis is kind of the normalization of the amount of resource that we have relative to the amount of <unk>.
Revenue that we have.
Got you that makes sense thanks, guys.
Thank you.
Our next question comes from the line of Moshe <unk> with Wedbush Securities. Your line is open.
Hey, Thanks, I just wanted I had a follow up I got disconnected before so.
The momentum.
Very strong as you suggested.
We are getting closer to the end of the fiscal year.
Can we assume that the mid teens kind of growth.
Adjusted revenues is sustainable down the road.
Yes, let me take that Moshe look I think obviously you look at the momentum coming out of the year and we've now been consistently putting up kind of those mid teens numbers.
You look at next year today right I think the biggest question that we have is not really what we'd be able to continue to add at the same pace, but the question will be what if anything will be the headwinds through the year.
One of the things that we didn't talk about today is that despite despite the fact that we're putting up 15% organic constant currency growth. We've actually had a headwind. This year that was a little bit outside so we've been able to grow if you will into a number that was larger than usual because for example, we we renewed.
A number of our large clients earlier on in the year.
The biggest question for US next year isn't whether we're going to be able to put up 20% plus gross growth. The real question is for next year as the headwinds of the business is going to be 5% is it going to be 7% is it going to be 9% like it was this fiscal year. So I think that's the one thing we've got a fix on and then obviously.
When we guide understanding that there will be a difference on a year over year basis.
Just based on the fact that we will not include the short term revenue into the guide for next fiscal year. So.
That always creates a headwind in terms of where we start the year from a guidance perspective versus the actual numbers that we put up the previous fiscal year.
Understood. Thanks for the color.
Thanks Moshe.
Thank you at this time, we have no further questions in the queue. This will conclude today's conference call. Thank you for your participation you may now disconnect.
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