Q2 2023 WNS (Holdings) Ltd Earnings Call
Okay.
Okay.
Yeah.
Good morning, and welcome to the WNS Holdings fiscal 2023 second 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 as a reminder, this call's being recorded for replay purposes now I'd like to turn the call over to David Mackey, Wns's Executive Vice President of Finance and head of Investor Relations David.
Thank you and welcome to our fiscal 2023 second quarter earnings call.
With me today on the call I have wns's, CEO ketchup, or I guess, Wns's CFO , Sanjay Puria and our C O O.
Yeah.
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 second quarter ended September 32.
Turning to.
Some of the matters that will be discussed on today's call are forward looking.
Keep in mind that these forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.
Such risks and uncertainties include but are not limited to those factors set forth in the company's form 20-F.
Package 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 it sort of follows net.
Net revenue is defined as revenue less repair payments adjusted.
Adjusted operating margin is defined as operating margin, excluding amortization of intangible assets share based compensation and goodwill impairment adjust.
Adjusted net income or Eni is defined as profit excluding amortization of intangible assets share based compensation goodwill impairment and all associated taxes.
These terms will be used throughout the call.
I would now like to turn the call over to Wns's CEO <unk> <unk>.
Hey, Thank you David.
And good morning, everyone.
WNS fiscal second quarter financial results.
Continued to demonstrate the strength and resiliency of our business despite the challenging macro environment.
Net revenue for Q2.
Came in at 289 $3 million.
Representing a year over year increase of 13, 7%.
On a reported basis.
And drink be one 4%.
Constant currency.
Sequentially.
Net revenue increased by five 3%.
On a reported basis.
Eight 2%.
On a constant currency basis after adjusting for foreign exchange.
Our acquisition of <unk> contributed approximately 3% to growth.
Both year over year.
As well as sequentially.
Integration plans remain on track.
In the second quarter WNS added nine new logos and expanded 21 existing relationships.
Sanjay will provide further details on our second quarter financial performance in his prepared remarks.
Today, I would like to share a few illustrative examples.
The positive impact WNS is digital transformations.
For our clients.
Last year, one of our larger insurance clients came to us with the requirement to re imagine several mission critical business processes in order to help them improve their customer focus as well as market positioning.
Key challenges for the cloud.
Elongated claims.
Meaning the lifecycle rounded no customer experience scores quad.
Quality and scalability problems stemming from a heavy reliance on manual effort.
The need for an improved digital transformation roadmap.
Critical processes in scope.
Cadence management from our customers first notification of loss.
Through recoveries and settlements.
Policy administration underwriting sales and service and.
And the overall customer experience.
Working closely and collaboratively collaboratively with the client WNS was able to co create an end to end.
Digital transformation program designed to meet and exceed their key business objectives.
The final solution was developed using design thinking workshops.
From our onshore as well as on site integration centers that we have spoken about in the past.
The re imagine key processes.
This is a consulting to understand their requirements Intel.
Intelligent automation to reduce manual activity.
And enable faster processing with lower risk.
Predictive analytics to optimize business performance.
<unk> delivery to drive collaborative cross functional execution with declines stakeholders.
We deployed a combination of both proprietary as well as third party platforms and digital tools.
Bridging artificial intelligence RPM machine learning cognitive intelligent automation as well as gamification.
As a result, WNS was able to deliver a 15% reduction in cost.
An increase of approximately 20% in digital customer self servicing.
A decrease of almost.
30% in claims processing time.
And an improvement in customer satisfaction scores from six eight to nine out of 10.
This shift to digital has driven an increased scope of services with the Sky and has jumpstarted discussions while the addition of more complex and higher value opportunities.
Similarly for.
For a large U K utilities client.
Thats, what <unk> asked to help with multiple business challenges, which resulted from Brexit.
Pandemic and more recently the impact on gas and electric costs.
The Ukraine, Russia complex.
These disruptions resulted in spiking customer call volumes long wait times and more first call resolution rates.
In turn resulted in a very broad customer satisfaction scores.
The WNS solution, which leverages, our proprietary experienced digital platform as well as the main centric and sauces was implemented to address our clients' needs across seven customer experience channels, including voice E Mail chat.
Social media messaging.
And mobility.
In a period of approximately 12 months WNS was able to help redesign the guidance every quarter.
Difficultly enhanced their self service model.
Analytics to improve interactions optimize capacity and revenues and customer effort as a result.
WNS experienced digital solutions drove an increase of over 50% in digital channel adoption.
<unk> customer wait times by more than 50% increase customer satisfaction by double digits and reduced total cost by 7%.
In addition, WNS has been able to successfully leverage the success of the solution to drive contract wins with both new and existing clients across multiple verticals.
We believe that these two case studies are representative of the meaningful business improvements W.
This is now generating for all our clients with our digitally focused and transformational solutions.
I would also like to provide you today with a brief update on our ESG initiatives.
WNS continues to make strides in second formal ESG goals.
Driving improved performance.
Our progress in integrating ESG into our strategic objectives.
Recently, WNS joined the United Nations Global compact in support of achieving the 2030 sustainable development goals.
The U N G fees, social initiatives that environmental objectives are closely aligned with our company's values and the priorities highlighted in our most recent osprey materiality assessment.
In addition, the company expects to sign our commitment letter with SB Ti are science based targets initiative this quarter, which will include formal plans.
Our net zero standard.
From an operational perspective, we continue to focus on reducing our carbon footprint wherever possible.
The past year WNS has now shifted our facilities to bring electrical energy in the Indian state of Maharashtra as well as Karnataka.
As a result.
The 1% of our overall power consumption in India is now green arc renewable.
Plans are already in place to expand this initiative.
Remaining locations in India, as well as other countries, where WNS has operations.
We are also focusing on continuous improvement in our human capital management efforts, especially in the areas of training and employee development.
We believe these investments are critical to the long term health of our business.
Providing a nurturing and healthy work environment and preparing our workforce for the future will enable WNS to continue to attract and retain top level talent and meet the changing needs of our clients.
In fiscal 'twenty to 'twenty two the company provided over 4 million hours of training to our people globally or an average of 86 hours or every WNS employee.
In support of these efforts the company has spent more than $14 million on learning and professional development.
From a reporting perspective last month, we released our second annual corporate sustainability report and launched a dedicated online ESG microsite.
These sauces now include additional important ESG information and help make the company's policies data and strategy.
These year to access.
As we look into the second half of this fiscal year, we continue to see strong broad based demand for BPM solutions.
Clients aggressively look to leverage technology and automation.
To improve their competitive positioning and reduce cost.
This trend, we believe will remain largely independent of the macro environment.
WNS is very well positioned to capitalize on these trends by leveraging our differentiated capabilities.
And ongoing investments in domain technology as well as analytics.
The company.
To focus on superior execution.
GAAP financial performance.
And delivering long term value for all of our key stakeholders, including clients employees investors suppliers as well as the communities that we delivered.
I would now like to turn the call over to our CFO Sanjay Puria to discuss further our results and outlook Sanjay.
Thank you Keisha.
In the fiscal second quarter WNS net revenue came in at $289 3 billion up 30.
Kevin.
$254 $4 million, while still in the same quarter of last year.
And up 24% on fostered better EBIT.
Sequentially net revenue increased by five 3% on a reported basis and eight 2% on a constant currency basis.
Our acquisition of growth contributed just under 3% both year over year and quarter over quarter revenue growth.
Our sequential revenue growth was driven by broad based momentum with both new and existing line and an increase in short term revenue.
This benefit was partially offset by currency depreciation against the U S dollar and reduced benefit from hedging.
In the second quarter WNS recorded $2 4 billion of short term revenue.
Adjusted operating margin in quarter, two was 24% as compared to 21, 8% reported in the third quarter of fiscal 2022 and 21 one last.
Last quarter.
Year over year, adjusted operating margin decreased as a result of wage increases and return to office costs.
These headwinds more than offset operating leverage on higher volumes.
Broad productivity and favorable currency movements net of hedging.
Sequentially margin decreased as a result of VA.
Increases in the back office costs and higher SG&A.
And by investments differed from Barbara, one marketing and professional fees and bonus and incentive provision builds on improved copper.
This headwind was partially offset by higher volumes.
Productivity and currency movement net of hedging.
The company's net other income expense was.
One 9 million.
Of net expense in the second quarter.
<unk> reported.
The same as reported in quarter two of the skirt really really too and down versus <unk>.
$2 million of net income lafleur.
The other one year increased net income driven by higher industry, while offset by interest expense associated with our long term debt exiting Parker.
Sequentially. The unfavorable variance is the result of reduced interest income on lower average cash balances developed by our <unk> acquisition and share repurchases and higher interest expense driven by the new long term debt position.
Nevertheless, effective tax rate for quarter. Two gave me next 20% down from 21% last year and down from 21, 1% last quarter.
Both the audio Antiquate Judy the reduction in our effective tax rate is largely the result of shift in our geographical profit mix and changes to the mix of both delivered from tax incentive facilities.
The company's adjusted net income for quarter, two was $46 6 million.
Compared with 43 $1 million in the same quarter of fiscal 2022.
$45 $9 million last part.
Adjusted diluted earnings were <unk> 90 to <unk> plus share in order to was at 86 days in the second quarter of last year and 90 last quarter.
As of September 30, when you're ready to WNS balances in cash and investments totaled $265 3 million.
And the company had $79 $5 million in debt.
In the second quarter WNS generated 30.
$4 $5 million of cash from operating activities and incurred $7 9 million in capital expenditure.
In addition, the company paid net $144 2 million.
Toward load acquisition awkward repaid 30, $172 of short term debt and took out an $80 billion download or general opex levels.
WNS also repurchased 358000 shares of stock at an average price of $77 78.
Which impacted order to cash by $34 million.
DSO in the second quarter of gaming.
As compared with 31 days reported in quarter two of last year and 29 days last quarter.
With respect to other key operating metrics.
Total head count at the end of the barbell loss 57500 <unk>.
And our attrition rate in the second quarter was 41%.
As compared to 31 34 water reported in quarter two of last year.
And 49% in the previous quarter.
The elevated attrition rates remain concentrated at the junior most level of the organization and focused on Weiss with DSW in the Philippine resulting from the return to office mandate.
As in prior quarter, we do not believe that the current appreciate is currently impacting our ability to service line or accelerated growth.
The company expect attrition to continue trending downward over the next several quarters.
Greenfield capacity at the end of the second quarter increased to 36401, including both organic growth and the addition of group's infrastructure.
In order to WNS continue our progress toward imported operation, averaging 2% bulk drug office during the quarter.
In our press release issued earlier today WNS provided our revised full year guidance for fiscal 2023.
He is on the companies.
Current visibility level, we expect net revenue to be in the range of $1 billion and $110 million.
$1 billion $150 million, representing your audience growth off airport, there to growth on a reported basis and 14% to 18% on a constant currency basis.
The acquisition of <unk> is expected to contribute 2% inorganic growth from fiscal 2023, and our topline projection assumes an average British pound to Euro dollar exchange rate of 112 for the remainder of fiscal 2023.
Consistent with our guidance approach in previous year, we currently have 98% visibility to the mid part of the range, which does not include any uncommitted short term revenue or improvement in travel volumes beyond quarter to level.
I also wanted to go along that our guidance includes the ramp down of a large health care process in Brazil auto pool.
Full year, adjusted net income or <unk> 23.
<unk> is expected to be in the range of 186 million.
$296 billion.
It is on an Indian rupee to U S.
Dollar exchange rate for the remainder of fiscal 2020.
This implies adjusted EPS of $3 68 to.
So $3 at 87 day, assuming a diluted share count of approximately $15 6 million share.
With respect to capital expenditures WNS currently expects our requirement for fiscal 2023 to be up to $40 million.
We'll now open up the ballpark budget.
Brita.
Thank you, ladies and gentlemen, if you wish to ask questions. At this time. Please press Star then one one on you touched on the telephone.
And the interest of time and since April everyone on the call to participate please limit your query to one question and one follow up.
Okay.
And our first question comes from Bryan Bergin with Cowen Your line is open.
Hi, guys. Good afternoon and morning. Thank you.
I wanted to just start with with client contract mechanic behavior can you talk about sales cycles and pipeline conversion and have you seen any notable change in activity over the last three months or has it been consistent and can you also comment specifically on what youre seeing in the U K and Europe client activity too.
Hi, this is gautam and from.
From the first part of the question what we're seeing is the contract cycles are starting to reduce at the moment in terms of closure rates. What we're seeing is the pipeline continues to be exceptionally healthy across most of our verticals.
Second what we are seeing is the clients are reducing the time in terms of decision, making and thirdly. They want to go down the path of aggressive at the moment and this is across the board whether it's the U S or the U K the increased demand continues.
Okay. That's good to hear and then just on margin can you break down in the second quarter kind of underlying margin change versus FX, driven and as you think about the second half how are you projecting gross margin levels.
And I guess really again, the underlying margin change versus FX and did you have any change in that full year target.
Sure, let me take that Brian .
When you look at the.
<unk>.
The impacts to the quarter.
And I would assume youre looking at this sequentially for Q2.
FX for us was actually a little bit of a tailwind on a net basis. Obviously, what we saw was most currencies depreciated against the U S dollar.
I think as most of our analysts and investors know we have more exposure on the cost side of our business to foreign exchange than we do on the revenue side. So obviously, even though we saw significant depreciation in the British pound.
Our exposure on the rupee and the Philippine peso is much higher so as a result, we had about 50 basis points sequentially of tailwind on the FX side. If you look at the real drivers for the margin pressure sequentially, it's the higher SG&A costs and as Sanjay mentioned in the <unk>.
It relates to the deferrals and investments from Q1, which we discussed last quarter and as Sanjay mentioned.
The ongoing wage increases that we see and.
The recovery from Covid as we shift our business to.
Increasingly back to work from office when you look at the back half of the year and the implied guidance in margin what Youll see is that sequentially. Both on a gross and on an operating basis margin expansion right. So when you kind of break this down in terms of the first half of the year versus second half of the year, we do see some.
Some of that pressure abating and when you look at the first half of the year. We've averaged just under I believe 21% on an adjusted operating margin basis. The implied guidance that we have for the full year is for the second half to average closer to 22.
And maybe just to add that from an FX perspective in the quarter too.
<unk> is going to be neutral because.
Van hedged problem athlete.
Okay, great. Thank you.
Thanks, Brian .
Our next question comes from Maggie Nolan with William Blair. Your line is open.
Hi, This is actually Jesse on for Maggie.
I had a similar question on the clients you guys have talked about the Internet based clients segment before.
How have those conversations changed in the last few months.
Yes.
We have not seen any material changes in terms of the conversations with these clients the committed ramps that we have been.
<unk> forecasting have gone smoothly transition up a lot of the work that we were taking it has been going smoothly, so where do we see as the demand continues to be strong even within this sector because when we played in within the sector is specialized skill sets and specialized processes.
Yes.
Yes.
I just wanted to add that you know.
I know, there's a lot of noise out there about the upcoming recession and.
And the fact that it could affect a number of business as a result.
But the reality that we are seeing a Gulf I mentioned is first and foremost.
Especially in the making.
Terms of clients and prospects both for new processes.
As well as in terms of new business, where as opposed to following the traditional long sales cycle, we were actually surprised to see clients taking decisions faster.
And so we're hoping that trend will continue as client probably prepared for it.
Especially I mean, the longer term, but thats one.
One thing that we are very enthused about is that the investments that we have made over the past many quarters actually.
Extremely rather into a weak macro of a potential recession.
Therefore, we actually paying the opportunities for our business are much greater than the risks and I think a lot of it is being borne out by the kind of conversations we're having with our existing clients who are now.
Sampling to get more processes through the door quickly.
As well as new prospects, who are saying can you help me.
Mig this transition faster than ever so I think the weak macro customers almost as a real driver for accelerated adoption of BPM, we believe.
We believe that digital demand is not <unk>.
Discretionary in nature and in fact, the cost elements David.
Cost saving element is now going to start playing a bigger impact and therefore for prospects and clients to interact with companies like US who are actually investing in the backend in all of these things is actually very positive from us.
Theres been a debt point of view.
As well as we also realize there'll be switching costs.
It's very very high water any time, and therefore their ability to actually grow with us and their need to grow with us is actually higher so stability of services also is very.
Very very hard so that we can figure out despite the date, while we may all be talking off those secured efficient right. The reality is.
It's all working extremely well for WNS.
Yes, and just just to add a little bit of color to <unk> comments earlier Jesse.
When you look at the Internet based clients I, certainly think we might have a different philosophy. What we were doing for these customers was primarily on the CX or customer support side, but when you look at the types of work that we've been doing for Internet based customers, whether it's procurement based whether it's finance and accounting whether its core operations we do.
Don't see that same level of volatility. So we believe that not only are our service offerings, playing extremely well into the needs of these businesses, whether they're growing or not growing.
But also that we have very limited volume volatility with respect to these clients.
I appreciate that very comprehensive answer there.
Had one follow up on talent.
What would you attribute the decline in attrition to do you think it.
Function of employees staying put.
These days do you think it's from the wage increases what's what's going on there and informing your expectations over the next few quarters.
Yes in terms of the decrease in attrition over the last over the last few months.
We definitely expect that trend to continue we do expect a little bit of volatility in certain job families. But overall, we do expect to start seeing that had using trend.
One of the bigger reason is the increasing talent pool at normalized we just in the lower end of those skill sets is what's helping drive that area. The second one is the P&L that assertion as geisha was mentioning earlier, it's also making sure that people stay put in their jobs and thirdly in terms of the ores thirdly.
And some of the other ancillary industries the demand for similar.
<unk> has started to reduce so overall all these factors put together, we definitely see attrition over the next few quarters to start reducing yes, I'll just add one quick.
Add one thing I think.
Employees in the labor market really.
There are smart people.
When when economists everyone stopped talking about recession.
Assuming.
A problem for the rest of the world. They also realized which businesses are insulated from all of this and it's very clear from their point of view our business, even as opposed to the traditional IV services business is actually far more insulated and I think a lot of these people are therefore, working now to stay on.
With companies like us.
Where they have a much longer potential the state and at the same time.
Some of the expectations that they have around wages around carrier around progression around growth around that.
All of that is being extremely well matched to the investment that will abate.
I think it's a lot to do with that.
And just to add one other piece of color to more to <unk> comment.
Remember that part of the driver for the high Spike in the in the attrition rate was the return to office mandate in the Philippines, and as we've got north of 90% in office in the Philippines and over the last two to three quarters as we hired people into the company with the knowledge that they would be worth.
<unk> from office, we've seen that attrition rates start to come down. So that's also clearly part of the story.
That's helpful. Thank you for all your responses.
Thanks Jesse.
Our next question.
Comes from tandem with Needham <unk> Company. Your line is open.
Thank you congrats on the impressive quarter.
I wanted to start with.
A question around the sales organization I think from time to time, you guys have shared some metrics around that so maybe if you could just speak to how big is the sales organization today.
Now how fast you expect it to grow, especially given that based on your guidance. It sounds like growth is running above trend.
I look at the midpoint of the guide for the year at 16% constant currency I think in the past you Bryan maybe closer to low double digits low teens. So we just like to understand how are you thinking about the sales organization and expectations to grow that to.
To meet the demand.
And let me let me start have you finished your question.
Yes, sorry about that very long winded I apologize.
That's a very interesting and good question. So let me start by first of all thank.
Thank you for.
Your congratulatory message, but I must tell you our sales team is very very busy environment right I think.
That really gives us a lot of comfort and confidence first of all we've got a very stable.
The team at the leadership level and across.
At the globe.
The team that we brought in over a period of time is delivering exceedingly well.
Everyone is super busy in terms of running.
<unk> of deals many of which are.
Very well bracketed in the large deal segment.
I think this whole talk about recession and the forthcoming tumors.
Doom and gloom.
Youre talking about is actually playing an exceedingly exceedingly vote to our business model.
So that's the first thing I'll say and I think at this point in time.
We're very well positioned in terms of the number of people that we have and.
The acquisition that we did recently.
It actually.
More depth and firepower.
And the potential for collaboration between <unk> and the traditional WNS team also is very excited I'll stop there, but I'll ask be able to talk a little bit more about some of the numbers of the metrics that you asked.
Sure sure. So I think we talked a little bit I believe it was a couple of quarters ago, Mike about acceleration and the investment in the sales force. We ended the second quarter with 131 salespeople in the organization.
To your point about growth if you look at the size of the sales force. It is now is 16% higher than it was three quarters ago.
So you've kind of have seen is that as that team matured and became fully productive. We have made the next step function in the investment into the sales force and now the focus will be making these people that we brought on over the last couple of quarters productive in delivering that accelerating growth going forward. So youre spot on we have made those <unk>.
<unk>, we do see the growth opportunity.
And we are preparing for that going forward.
That's very helpful. Thank you so much for the color and just have a quick follow up in terms of the client wins that you had nine new logos. This quarter could you provide any insights into the size scale verticals any.
Details around that would be helpful. Thank you.
Sure. So I can take that Mike obviously, it's both Acacia and Gotham alluded to we're pretty excited about the fact that what we've seen is deal sizes, expanding right, where we're seeing more and more clients looking to.
Move the needle in terms of digital transformation and kind of end to end services and solutions again kind of similar to what we've seen in the past good diversification across verticals and geographies in terms of where it's coming from.
So this last quarter, we've got representation in terms of new logos from high Tech and professional services from insurance from travel from healthcare for manufacturing and retail so again kind of similar to what Youll see when you look at the revenue momentum in the business. When you look at the overall pipeline of the business extremely strong.
An extremely broad based.
Thank you so much Dave.
Thanks, Mike.
Our next question comes from Ashwin <unk> with Citi. Your line is open.
Thank you.
Good to hear from your good results.
Yes, My first question is.
From.
Modeling perspective can you kind of walk through TQ versus <unk> normally the sequential growth each quarter, but you mentioned a healthcare client ramp down.
I'm, sorry, if I didn't hear the.
Impact of that.
And then it's good to see new client adds and ramps, but could you also comment on what volume sensitivity you might have.
In in sort of the base of revenues that can be potentially affected by the longer term recession is.
As you mentioned.
So let me dig that you don't sequentially with U S.
For the <unk> quarter four specifically.
Yeah from an overall health care process. So.
Things impacting one of the largest in process as well as FX headwind.
Sandwiches.
Oral impacting but having said that right now.
No.
These are over 98% of the client visibility.
Those numbers are there and we have not factored short term revenue as well as our doubletree ability annually.
And does the range over there.
Opportunity from a site perspective.
So.
Overall, asking Kevin aggregate very healthy.
We are bringing multiple large digitally.
So those are also opportunities all of their volumes right now seem to be in that other than just one of their health care process.
In fact.
As bottom alluded client that in fact looking for much closure after closure of their need and in fact foster transition. So those are the most active is what we foresee.
And as we move forward, we keep an update about that.
Yes, let me just add a little bit of color to <unk> comments I think when we look at the seasonality.
The expectation right now for fiscal Q3 is that the revenues are going to be relatively flat versus fiscal Q2.
I think as Sanjay mentioned when you look at what's included in that guidance, obviously, 98% visibility. So it's largely locked at this point no short term revenue no pickup in travel assumed in there. So we should have opportunities, but in terms of the guidance right now the expectation is flat in Q3 and then.
The biggest thing that we have there in terms of the reason for that flatness, though as the optics around FX with respect to Q4, we do have a dip from Q3 to Q4 on the revenue line because of this health care process that we've lost.
Other than that the overall business momentum remains healthy. So I think it's important to understand that relative to the volume sensitivity I think as we've spoken about before the biggest place we're going to see that volatility is on the CX business on the customer support side, where there is there is a more direct one to one relationship.
Between volumes or activity levels, potentially and the client, but it's also important to understand that some of those volumes may or may not have direct implications with what's going on with the macro. So for example, if you look in the U K at our utilities business.
While while there may be challenges with the macro when you look at the U K. For example, we could actually see increased activity levels because of the price of gas and electricity because of <unk>.
Rolling blackouts things like that so activity levels in that vertical could actually go up as a result of a weak in macro.
Then we have other businesses like insurance, where there is very little correlation between macro and overall activity levels things like claims so.
I think the exposure that we're going to see is going to be in the in the <unk> business, which is 20% of our overall revenue, but more specifically in the <unk> business, where a weekend macro has a direct impact on the volumes that we see.
And that will limit I think some of that exposure.
So ashwin I just wanted to also I also want to mention that then I think.
Bottom.
They're very elegantly answered this whole thing, but I just want to spend a little more time on the overall long term macro event.
We actually believe that.
If this prediction actually comes through it could actually be positive for our business and obviously one part of our business is more sensitive.
We will we will work on that part the rest if you look at the way <unk> transition its business model over the last so many years.
We have far more resilient.
In terms of being able to manage all of it one second thing is influx.
First mark as well.
I understand which companies to bet on where.
They are facing this kind of uncertainty so I just want to add another element in fact received I mentioned earlier.
Our salespeople are extremely busy and I expect that to continue for the foreseeable future because among other things as clients and prospects look at potentially this so called recession, there are new potentials of revenue coming in including the takeout of chapters.
A number of them are also saying this is going to happen.
Maybe I should be focused on my board business as opposed to trying to run a captive in a business that maybe <unk> should be running better for me now those are the kind of additional compositions that are actually happening happening that we actually think we'll also be very very positive for us in addition to the.
The traditional impact that our salespeople are having on the ground.
Understood understood and then on the cost side as I sort of think longer term.
This year would you call this year more of a transition year, because you had multiple bad guys like wage inflation return to office costs.
A higher attrition and so on and longer term should.
Mix and productivity.
Contribute to higher margins get back to the 90% to 92% level.
Let me take that Ashwin I think we've been pretty consistent saying that in this overall environment, we're going to run a low <unk> operating margin business and if the stars line up we could be at 22, if they go against US we could be at 20.
And obviously, if you look at the operating margin guidance for this year what's assumed.
We're spot between 'twenty, one and 'twenty two so I think despite these pressures that you rightly called out in terms of return to office in terms of.
Outsized wage increases given the demand environment and given the access to talent challenges.
Yes, theres some pressure here, but when we look forward I think the real opportunity for for the sector as a whole is this ongoing shift towards Digitization I think its the ongoing shift towards non FTE models and if we do see margin lift in our business and we believe that certainly a possibility.
It will be as a result of clients willing to move to these kind of higher end higher value transformational business model and away from the traditional FTE led type of business model. So we know if we can move our clients to a model, where we're getting getting paid based on outcomes.
We deliver and we have the ability to change and transform how that process runs. It's typically margin accretive to us the real challenge is getting clients comfortable enough with outsourcing things that are core and mission critical to them that they are willing to give up control of those processes and I think as the industry evolves and matures.
And clients become more comfortable with our ability to deliver that youre going to see that that transition, but in terms of our ability to drive that we don't have that right. So I do think if we were to look out five years I wouldn't be surprised if we were talking about this business as a mid teens margin business versus a load I'm sorry, mid Twenty's margin Bill.
<unk> versus the low Twenty's margin business. The same way we used to talk about this business as a high teens margin business and now we talk about it as a low twenties.
Understood So mix remains an opportunity.
Yes.
Longer term and very limited control on our part, but yes, I think directionally, that's where the industry is headed.
Okay. Thank.
Thank you guys.
Thanks Ashwin. Thank you.
Okay.
Our next question comes from Nate <unk> with Deutsche Bank. Your line is open.
Yes.
Hey, guys. Congrats on the results today first question I just wanted to ask on how the integration is going to date versus your prior expectations. So what are you seeing from a project standpoint, what cross sell opportunities are you seeing just any color you can provide would be great and then just clarifying so <unk> added three points to.
Growth this quarter, but in the guidance Youre still only assuming two point contribution to top line. So just wondering the difference between those two numbers or anything you would get would be great.
Hi.
Volume perspective.
The acquisition is going better than planned as what I would state at the moment.
The <unk> acquisition has given us the capability to actually drive deep in terms of our ability to manage better productivity for our clients, which is where the demand comes in big about.
Greater digital interventions to our clients' needs. So the best that they have provided to us, allowing us to effectively not just cross sell within our existing clients, but to drive it.
<unk> digital solutions visit other prospects also so that's one of the core reasons over the last quarter also we have seen the accelerated pipeline and closure rates that we see that certainly the team is very similar to the to the WNS way of working which is co create with our client led solution. So that's another area, where we've seen a big plus.
And financially the acquisition has been accretive to the WNS brokerage and the margin levels and maybe I'll just add to that.
Sure.
Overall growth perspective.
Let's say, what we have not spoken from a guidance perspective.
Seeds, and heartworm was talking about our cross selling opportunities.
This will drive the organic growth up on the company, including some of the I know the productivity, what we can drive with our existing line.
Despite these ratios than the accretion what we spoke about some of the things that have been used for biomarker.
Yes, and just to your question about the percentages.
We.
Took over them effectively July one so when you look Q2, I'm sorry fiscal Q1 to fiscal Q2, you have a full quarter of impact which is 3%.
When you look year over year. Obviously, we also have that same 3%, which is what youll see in Q3 and Q4 as well. The reason the full year impact is only 2% is because you only have three quarters of the year.
Got it very very helpful.
And then just my follow up so obviously travel and leisure growth still looking very strong despite the comp getting a little tougher this quarter. So maybe you can talk a little bit about how business travel, it's trending and sort of how far away from pre pandemic levels.
Travel is and if there's still upside to numbers I think previously you had talked about 2% upside to revenues or travel returned to historical levels. So just wondering where we're at versus pre pandemic and if that upside still stands.
I think we're still up slightly short to the pre pandemic levels, especially on the business side of the channel.
And what we're starting to see some Watson Q2, we had few clients increased their commitments to us which has been forecasted over the next few quarters for us the exciting part within the travel sector is the group that we have had is not just across existing clients in terms of volumes, but the new clients that we've added are across multiple.
Sectors I E Airport management cargo as well as hospitality and what's even more exciting is we have been able to win business across the higher end of our delivery ecosystem across finance and accounting core operations and the <unk>.
He was excited the business. So maybe he has been extremely extremely enthused.
With the growth of our travel business and we have continued to be extremely optimistic that this will be on a put strategy.
Yes, and just to give a little more color to that Nate we had previously talked about about a 2% recovery opportunity, which was about $5 million a quarter we.
We did have about $1 million of pickup in fiscal Q2 from from travel volumes. So we still look at that recovery opportunity as being about $4 million a quarter or just under 2%. So yes, we did get some back which is great to see but it does remain a travel recovery opportunity going forward.
Great. Thanks for the color guys.
Thanks Nate.
Our next question comes from David Koning with Baird. Your line is open.
Yes, hey, guys. Thanks, so much nice job and maybe my first question research and analytics I know, it's not very big 10% of revenue. It was down 11% sequentially. After five quarters of sequential growth and just wondering anything to that specifically I mean, maybe thats, a little more macro sensitive than the other pieces of the business.
Yes, So you go from.
Our research and analytics perspective.
No deduction from our healthcare line, specifically on the life Sciences side and this was again a very disciplined approach, we're not going to live with the low margin are gone and that not only impacted from a research analytics book you would see from a metrics perspective.
And then on R&D.
Around that having said that if you go the non branded down and was part of our guidance why did.
Yes.
Got you so thats that was the yes, the health care client.
Hit that segment.
What does that been up sequentially without that headwind in the quarter.
Yes, yes.
Okay. Okay, and then just the follow up question anything with interest income or expense going forward just given all the moves in rates and everything or is the rate that we saw this quarter I think $4 million and 4 million of expense 3 million of income is that pretty sustainable going forward.
Yes at this stage differently.
Having all of that element of the main theme is pretty sustainable and Thats already factors.
On the debt what we are thinking about dental Barker purpose, which is going to have an impact of almost.
4% is an average.
Already had been biggest in spite of the interesting things.
Yes.
Exactly Dave we expect interest income will run around $3 million per quarter for the back half of the year and interest expense, probably close to $4 million per quarter.
Great well, thanks, guys great job.
Thanks, Dave.
Thank you Dave.
As a reminder.
To ask a question. Please press star one one.
Our next question comes from Vincent Colicchio with Barrington Research. Your line is open.
Yes, nice quarter guys.
Acacia Im curious how do you feel about your ability to add scope to your top five and top 10, as an offset to potential volume weakness, if we get into a recession.
So great question.
First and foremost I actually think that potential weakness that you are talking about is positive for WNS.
Based on all the conversations we are having with prospects. We're already seeing people just assuming that something will happen and therefore, it's helping us because they are starting to take decisions are Gordon said in some cases faster than what we expected that's one.
Same preserves all good for our existing clients as well right because none of them want to be caught unprepared.
The type of thing happens nobody really realizes more special order, what's happening amok, but at the same time. This time, everyone is working on the basis of something is going to happen and.
The street knows more about this potential recession, and therefore all of them are actually having.
Elevated conversations with us again.
I think a lot of it is also with who they are having good Scott.
At this point in time.
I think a lot of these clients.
Our focus on working.
Great.
<unk> with partners, who have made the investments over the years in areas that make sense to them.
Therefore, our helping them in terms of taking some of the fixed costs out making it more variable.
Preparing them for a new environment, where they could depend on us.
For managing this new environment, so actually we feel very very positive about it.
I just want to clarify that even on the.
Sure.
Even in the case that there's a change in the overall macros, we actually think is positive for our sector and portable units in particular.
And.
As far as a follow up.
If I remember correctly, you have a very high percentage of Cola adjustments in your contracts for those where you don't have those adjustments I'm curious has there been any pushback on pricing.
So from a student behalf. This fall I just mentioned with the contract.
Thanks.
Just on that one.
Yes.
From a overall rising patient I don't think there is any pricing pressure into discussions generally mostly happened from a total cost of ownership reduction.
Rather than the FTE reads on the pricing.
It.
When we calculate the solution that's always driven to the.
The activity of the automation on the transformation as well as you know.
The recent acquisition of the room.
I think this is going to help to drive.
Gross lines proposed cost reduction.
Yes, yes.
Yes, it's very rare.
Yeah.
Rice's discussions with our clients now there's this constant pressure and it's baked into our business every year. There's this constant pressure for productivity right. That's part of what we sell to clients is our ability to manage their processes better and certainly what's driving a client.
Who want to reduce costs.
It is.
The macro environment then in those cases, what we can do is we can always have a conversation with the client about how to leverage technology automation and process expertise to be able to deliver those benefits, but to have a conversation about hey, youre charging US 10 Bucks an hour for someone we want you to charge nine that's not a conversation that we're having.
Thanks, again and congrats on the quarter.
Thanks Vince.
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.
Everyone have a great day.
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Okay.
Yes.
Yes.