Q3 2023 WNS (Holdings) Ltd Earnings Call
Good morning, and welcome to the WNS Holdings fiscal 2023 third quarter earnings Conference call. At this time, all participants are in listen only mode.
After managements prepared remarks, we will conduct a question and answer session and instructions for how to ask a question will follow at that time.
A reminder, this call's being recorded for replay purposes, now I will 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 third quarter earnings call.
With me today on the call I have Wns's CEO <unk> <unk>.
The CFO , Sanjay Puria and our COO Gautam barite.
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 results for the fiscal third quarter ended December 31 2022.
Some of the matters that will be discussed on today's call are forward looking.
Please keep in mind that these forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.
Such risks and uncertainties include but are not limited to those factors set forth in the Companys form 20-F.
This document is also available on the company website.
During this call management will reference certain non-GAAP financial measures, which we believe provide useful information for investors.
Reconciliations of these non-GAAP financial measures to GAAP results can be found in the press release issued earlier today.
Some of the non-GAAP financial measures management will discuss are defined as follows net revenue is defined as revenue less repair payments.
Adjusted operating margin is defined as operating margin, excluding amortization of intangible assets share based compensation acquisition related expenses or benefits and goodwill impairment.
Adjusted net income or Eni is defined as profit excluding amortization of intangible assets share based compensation acquisition acquisition related expenses or benefits goodwill impairment and all associated taxes. These terms will be used throughout the call.
I'd now like to turn the call over to Wns's CEO <unk> <unk>.
Hey, Thank you David and good morning, everyone.
In the fiscal third quarter WNS continued to invest for the future while executing well.
And delivering solid financial results.
Overall, our business continues to show strength.
And resilience, despite the challenging macro environment.
Net revenue for Q3 came in at 292 $9 million.
Representing a year over year increase of 12, 2% on a reported basis and <unk>.
19% on constant currency.
Sequentially net revenue increased by one 3% on a reported basis.
And two 3%.
On a constant currency basis after adjusting for foreign exchange.
Our acquisitions added approximately three 6% to growth year over year and 0.7% sequentially.
In the third quarter WNS added 11, new logos and expanded 24 existing relationships.
Sanjay will provide further details on our third quarter financial performance.
During his prepared remarks.
As many of you are aware in mid December WNS announced the acquisition of two tuck in strategic efforts.
In line with our strategic criteria.
M&A, we believe that these companies fill gaps in our capabilities.
Our strong cultural fits.
Meet or exceed our financial objectives.
We're fairly valued.
At a high level the.
The additions of <unk> and.
And the smart Q elevate wns's offerings in digital solutions procurement supply chain.
And advanced analytics, while helping expand our European footprint.
These all represent identified areas of strategic focus for the company.
Yeah.
Based in Poland and founded in 2010.
<unk> helps companies leveraged the worlds leading <unk>.
Digital procurement and supply chain platforms by providing consulting.
Alimentation.
And integration solutions.
Deploy third party technologies, including high value.
Jack.
Online.
<unk> was able to deliver significant benefits to clients across the procurement value chain include.
Including cost reduction improved cash management.
And streamlined supply chain performance.
The company's focus on designing and building optimize digital processes is the perfect complement to <unk> existing expertise in running procurement functions.
In addition off Dubai brings front end digital strategy and consulting services to the <unk> portfolio.
It helps expand our geographic procurement footprint.
The whole of Continental Europe .
The smart Q is a platform led analytics firm focused on procurement supply chain and commercial sales and marketing.
We have a unique on demand digital market intelligence platform.
Called amplify pro that helps generate actionable insights.
And improved decision making.
This technology accelerator combines artificial intelligence with human intelligence <unk>.
<unk> the competitive landscape.
<unk> costs.
Asia Kpis.
Centrify trends and manage risks for clients.
In addition, the <unk>.
<unk> has a seasoned team of approximately 600 research and analytics experts, including more than 400 with masters degrees.
Yeah.
These resources possess deep domain expertise in procurement and supply chain and technical skills, including data engineering data visualization artificial intelligence as well as machine learning.
For procurement and supply chain.
Mark you've delivered analytical analytical market intelligence across category management.
<unk> management and supplier risks, including expertise in ESG sourcing.
In commercial sales and marketing.
Helped drive revenue growth management.
Consumer and market insights and pharmaceutical marketing effectiveness.
Both op Dubai and the smart you bring strong domain leadership highly specialized teams and program track Records.
Farmers across revenue growth operating margins.
And customer satisfaction.
They also sell blue chip client roster that present significant cross sell and upsell opportunities.
While these firms have niche areas of vertical expertise.
<unk> retail CPG and health care.
WNS views both assets as horizontal in nature.
Allowing us to easily take their offerings across our verticals as well as geographies.
These services are highly complementary with our existing offerings and with each other and will enable WNS to provide differentiated end to end solutions to our global clients.
As I mentioned earlier procurement supply chain analytics, our strategic areas of investment for WNS.
The global procurement space is rapidly growing and evolving as clients shift their attention from transactional processing, the tactical buying to strategic objectives, including risk and compliance.
Sourcing category management as well as sourcing innovation.
Driven by digitally led solutions with integrated analytics and deep domain expertise clients are looking for their BPM partners to help reduce supply hazards increased agility drive sustainability streamlined capital and improve cash flows for them.
Since our acquisition of Denali in March of 2017, WNS has consistently been recognized by the industry analysts as a leader in procurement PPO.
Over this time period, our procurement revenues have grown by more than 25% compounded.
And now represent approximately 10% of total company revenue.
And while we are happy with the progress we have made.
We believe our new acquisitions will help accelerate wns's leadership position.
Business momentum by enabling WNS to better compete for large global multi toddler transformational deals.
Looking forward, we remain excited about the current demand environment for BPM and Wns's differentiated positioning in the market.
We continue to invest both organically as well as inorganically in creating solutions, which combines state of the technology with best in class talent.
Despite the weak macro our new business pipeline has never been healthier and the company is delivering solid topline growth, while maintaining industry leading margins.
Additionally, we are making steady progress on our key ESG and corporate sustainability goals.
This past quarter WNS was named to the Forbes 2022 lists of was best employers.
Our success in <unk>.
Creating a globally collaborator inclusive and rewarded organization.
In addition, the company signed a commitment letter with the science based targets initiative or <unk> to <unk>.
Reduce our emissions in line with the latest climate science.
Combined with our financial and operational performance, we believe our ESG initial initiatives allowed WNS to deliver maximum value to our customers our employees shareholders and the communities we work in.
I'd now like to turn the call over to our CFO Sanjay Puria to further discuss our results as well as the outlook Sanjay.
Thank you Keisha.
In the fiscal third quarter WNS net revenue came in at $292 9 million.
Up 12, 2% from $261 2 million.
Posted in the same quarter of last year and up 19% on a constant currency basis.
Sequentially net revenue increased by one 3% on a reported basis.
Two 3% on a constant currency basis.
Acquisitions contributed <unk>, 6%.
Year over year revenue growth and 7% quarter over quarter.
Our sequential revenue growth was driven by broad based momentum with both new and existing clients and the half month impact of our acquisition of <unk> and the smartphone.
This benefit was partially offset by currency depreciation against the U S dollar hedging losses travel seasonality and a reduction in short term revenue.
In the third quarter WNS recorded $7 million of short term revenue.
Adjusted operating margin in quarter, three was 21, 9% as compared to 21, 4% reported in the same quarter of fiscal 2022 and 26% last.
Last quarter.
Yes.
Adjusted operating margin increased as a result of operating leverage on higher volumes.
Improved productivity.
Productivity and favorable currency movements net of hedging.
This benefit more than offset the impact of annual wage increases and costs associated with our return to office.
Sequentially margins increased as a result of higher volumes and improved productivity.
These benefits more than offset increased wages and return to office costs.
The company's net other income expense was $1 2 million of net expense in the third quarter.
Don from zero million reported in quarter, three of fiscal 2022 and down versus <unk> 7 million of net expense last quarter.
Year over year benefit from higher interest rate, but more than offset by lower cash balances, resulting from share repurchases and acquisitions and increased interest expense associated with long term debt taken in quarter, two and Coty.
Sequentially reduced interest income on lower average cash balances and higher interest expense driven by long term debt more than offset by $3 million.
Non recurring benefit from a settlement of an insurance claim.
WNS effective tax rate for quarter three came in at 19, 8% down from 26% last year and the same percentage as last quarter.
Both the <unk> and sequentially changes in our effective tax rate are largely the result of ships.
Geographical profit mix and changes to the mix.
Was delivered from tax incentive facilities.
WNS also received a one time benefit of $3 million in quarter three.
As of a liquid mutual fund investments shifted from short to long term stages.
The company's adjusted net income for quarter, three was $50 6 million.
Compared with $44 4 million in the same quarter of fiscal 2022.
And $47 2 million last quarter.
Adjusted diluted earnings were $1.01 per share in quarter three.
It is 88%.
In the third quarter of last year, and <unk> 94 last quarter.
As of December 31, 2020 to WNS balances in cash and investments totaled $249 8 million.
And the company had $179 4 billion dollar index.
In the third quarter, WNS generated $73 million of cash from operating activities.
Incurred $11 $4 billion in capital expenditure and took out a $109 million.
Dr Malone.
Acquisition of this molecule.
In addition, the company paid net $168 $7 million towards our two acquisition as well as new captive commvault with a large north American insurance company.
DSO in the third quarter came in at 34 days as compared to 30 days reported in quarter three of last year and 30 days last quarter.
With respect to other key operating metrics.
Headcount at the end of the quarter was 57994 and our attrition rate in the third quarter was 28% <unk>.
As compared to 36% reported in quarter three of last year.
And 41% in the previous quarter.
In the quarter accretion reduced across most deal levels and geographies, including significant reductions in voice based CX services in the Philippines and entry level walk in India.
The company expect accretion will normalize overtime in the low 30 percentage range.
<unk> continue to be volatile quarter to quarter in the current labor environment.
We have a seat capacity at the end of the third quarter increased to 30 day 1611.
Including organic growth and the addition of infrastructure robustly buy and the smartphone.
In quarter, three WNS continue our progress towards important operation, averaging 60, plus their work from office during the quarter.
In our press release issued earlier today WNS provided our revised full year guidance for fiscal 2023.
Based on the company's current visibility levels, we expect net revenue to be in the range of $1 billion and $146 million.
$1 billion and $158 million, if presently YOD audience growth of 12%.
So 13% on a reported basis.
And 17% from 19% on a constant currency basis.
Our three acquisitions are expected to contribute approximately <unk>.
3% inorganic growth to fiscal 2023.
Our top line projections.
<unk>, an average British pound to Euro dollar exchange rate of one to one for the remainder of fiscal 2023.
Consistent with our guidance approach in previous year.
Currently have over 99% visibility to the midpoint of the range.
It does not include any uncommitted short term revenue or improvement in travel volumes beyond quarterly levels.
I also wanted to once again call out that our guidance includes the ramp down of a large health care process in fiscal quarter four.
Full year adjusted net income for fiscal 2023 is expected to be in the range of $193 million to $197 million based on.
82, five rupee to US dollar exchange rate for the remainder of fiscal 2023.
This implies adjusted EPS of $3 82 to.
The $3 90, 819, assuming a diluted share count of approximately $50 6 million shares.
As noted in our press release acquisition related expenses have been excluded from our Eni definition effective quarter two of this year.
With respect to capital expenditures WNS currently expects our requirement for fiscal 2023 to be up to $42 million.
We'll now open the call for questions.
Operator.
Thank you, ladies and gentlemen, if you wish to ask a question at this time. Please press star one one on your Touchtone telephone and the interest of time and to enable everyone on the call to participate please limit your query to one question and one follow up.
Our first question comes from Bryan Bergin with Cowen Your line is open.
Hi, guys. Good morning, good afternoon. Thank you.
I wanted to just start with a high level demand question it sounds healthy, but would you say.
Man is broadly consistent with what <unk> been communicating over the last couple of quarters anything to call out there or any changes in decision, making or areas that you're seeing clients lean into more or less.
Yes, Brian So I'll take that yes, it's more or less consistent with what we have been <unk>.
Communicating.
What are the positives we're starting to also see is that as.
A number of clients as well as prospects.
Keep.
Hearing all the messaging around a looming recession and things like that.
We're starting to see them get a little more aggressive I think about looking at their options taking decisions a little faster and looking at potentially how WNS can help them. So in fact, I would say that it's starting to look a little healthier from our point of view at this point in time.
More salutary in terms of how they're responding and reacting and that also includes.
They're starting to.
Phil.
Fill their stores around whether they should take any decisions on that captives.
They are holding so it's also potentially a stage, where we're starting to see some more conversations now on captisol.
We think that this whole recessionary trough as well as the potential demand contraction that everyone is talking about is actually playing very well to the sector are definitely gws.
Okay, that's good to hear.
Follow up on the client cohorts. So just looking at the growth performance between top 10 versus your non top 10, it looks pretty solid with growth being driven in that non top 10, which is good but the top 10 of our market a little bit slower can you talk about your expectations and your opportunity among that larger client base. So as you think out over the next year.
Sure. Let me, let me take that Bryan Nf Gotham or Sanjay want to chime in.
Happy to hear their comments as well, but I think this is not to be and this is not unexpected when you look at our top 10.
We do have a handful of clients there that are extremely mature that have been.
With WNS for a while that had been aggressively pursuing transformation and automation agendas, which pressures their ability to grow now we have been able to continuously nudge. The revenue that we get from these clients forward, but obviously when we manage multiple processes with them.
In that environment, it's difficult to grow right. The good news is I think we still have significant opportunity for growth with the vast majority of our top 10 clients, but we should consistently see in our business that the growth in those next tiers of clients given the opportunity to expand the scope.
Of what we do for them is much much greater we should continue to see that the growth with those clients accelerates that are at a more rapid rate.
And maybe I'll just add that.
Other than the top dead the based on the new clients, what we have been continuously adding it gives a much larger opportunity for us because you know after their initial.
Ramp up.
Transition to forming the upsell or cross sell opportunity is much much larger with that as we go on what that is.
What is particularly the FC <unk> and.
And that's why we're excited about.
Okay. Okay I appreciate the added color on our procurement revenue. Thank you.
Brian .
Okay.
Yes.
Our next question comes from Maggie Nolan with William Blair. Your line is open.
Hi, Thanks, it's Jesse on for Maggie Congrats on the good results again, so our first I had a question on guidance you previously set expectations for a sequential decline in revenue in the next quarter, but <unk> also updated guidance as well so how would you say.
The implied decline compares to your previous expectations.
So <unk>.
When we last time provided the guidance specifically.
Just spoke about.
Im Don from one off.
Gliding to help get our process in accordingly.
Sequentially down, but now we have updated based on <unk> one.
Organic growth of almost a one plus thanks to our guidance.
The two acquisitions, what we have done that has further contributed to another one third of all by then from your perspective.
Yes, So I think Jesse the good news is when you look at what's really happened. We obviously had stronger growth in Q3, we expect better growth organically in Q4, and we've added the acquisitions as Sanjay mentioned of Smart cube.
Yep.
Opt to buy which are now included in our in our guidance. So it's a combination of both organic and inorganic improvement from where we were a quarter ago.
Got it that's that's good to hear I had a clarification question. So one is that health care process expected to finish ramping down I believe that for a single process for a single client correct.
Yes, there are.
Amazon has been completed.
As of December 31.
Okay. So got it yes, the new baseline run rate for revenue should be set here in Q4.
The ramp down was like you said one client one process and it was effective January one so we will see the full impact of that in fiscal Q4.
Okay.
And then my last question.
It was more about demand so our.
Are you able to provide a sense of.
How larger comprehensive the new the new deals are.
Any processes jumping out to you.
Yes, let me take that question and Im sure Theyre Gulf.
And Sanjay and Dave May want to add that remote.
First and foremost I would like to say that broadly we are seeing more and more clients want to jump on the bandwagon with us I think that's the core.
Their transformation agenda attribute driven those who are bystanders over the past year or two have actually now bundling more aggressive fearing that theyre going to miss something and.
If there is a full blown recession, but they are not actually embarked on their projects. So that's the first thing.
The second is we are seeing with a lot of existing clients the more from <unk>.
Transformation to one of also resilience, so which means we are also seeing a lot of them add more to that.
The table in terms of cost reductions more efficiency gains.
Is that the traditional model has always stood for in addition to that we are starting to see a number of new prospects who are excited by the new offerings that we have created some of the new acquisitions that we have brought to the table as well as the fact that some of the clients that are now.
Through this acquisition is already starting to interact with us in terms of the broad base of offerings that WNS can bring to all of them. So I think a combination of this means that people are looking.
Not only for their transformation agenda, but also the resilience and add to that the fact.
In fact that people running captives are also starting to say that is that this is the right strategy for me should I not be focused on my core business and maybe WNS is a better company to manage some of that the combination of all of that means the pipeline looks healthy and we think we'll get healthier.
Just to add to what Kishore mentioned, both in the U S and UK Slush Europe , we continue to see that both these countries face labor shortages and along with that what we're seeing is clients requiring more distill intervention, we are able to sell cross sell quite effectively.
And newer clients the decision, making is shortened significantly so that ability to ramp up the requirements to ramp up is increasing more and more so all of this bodes quite well for us as our demand pipeline continues to increase.
Understood. Thank you for taking our question.
Thanks Jesse.
Our next question comes from My Inc. <unk> Tandon with Needham <unk> Company. Your line is open.
Thank you congrats on the quarter, maybe Acacia just given your comments around the healthy demand climate and the faster decision, making is this the time then to more aggressively ramp up your sales engineer or just given the uncertainty you might want to hold back just any thoughts around your <unk>.
Salesforce investments going forward.
Yes, Thanks, Mike actually a good question. So I'll tell you actually we have never stopped investing in the.
In our sales force. So I just wanted to mention once again that I think we have one of the most.
Our experienced sales force.
Despite the time, we have kept making sure that we are right sizing, adding better where required and most importantly, focusing a lot on driving the productivity of the sales force right rather than just increasing numbers I'm delighted to Julien.
While we will not step back in terms of our sales investments as well as marketing investments we will also.
Position, the new people coming in through some of these acquisitions to broad base WNS is positioning our footprint in the market place. So I just wanted to say that at this point in time, we think that we must continue to invest in the area, but that does not mean halved.
Having to pick up numbers, we are looking at each one of our businesses carefully looking at each area of demand carefully and where it is needed we will keep investing that could be in the form of.
More sales feet on the ground or it could be in terms of more.
Training it could be in terms of.
Other things as well about <unk>.
Not necessarily just taking numbers up.
Yes, and just just to add a little bit of color to <unk> comments Mike.
We closed December with a 142 salespeople in the organization, which is up almost 20% from where we ended fiscal 'twenty. Two we ended fiscal 'twenty two with a 121.
So we have built the sales force out in this case you have mentioned that the combination of WNS hires as well as the three acquisitions that we've done but essentially when you look at a 20% increase in the sales force and.
And you look at the time it takes to close deals in the <unk> space. The reality is you have not seen the benefit in our revenue growth from the hires that we've made over the last six to nine months. So we have made that investment we've continued to make that investment and as <unk> mentioned now the real focus.
<unk> at this level is to make this next this last step function that we've done in sales more productive.
That's helpful to know thank you so much for that just one quick follow up in terms of pricing and more specifically around productivity benefits that you typically pass onto your clients I think historically, if I'm right, it's been somewhere in that 5% to 7% range given some of these market dynamics today any change.
Your expectations on that as we look forward, especially into the next fiscal year.
Yes, traditionally what we had was about 5% to 6% and what we're seeing is about a couple of percentage points increase requirement by the clients to drive the PCL benefits and again thats quite sustainable for us and especially this is helped by our recent acquisition of <unk> through which we are able to drive increased.
<unk> and transformations and increased productivity.
So just to be clear in other words are there are benefits or the impact to your P&L are going to be less or more I am sorry, I missed that going forward.
Let me, let me take that mindset. So essentially what's what's happened now is because of Digitization and automation the productivity headwinds that we give the clients are greater than they had been in the past and we talked about that walking into this year that we expected an additional 1% productivity hit for this fiscal year.
As a headwind.
Versus versus prior years, but from a P&L perspective, what you have to also understand is that the movement to leveraging technology and automation provides margin opportunity margin leverage rates. So while it may be pressuring the topline, it's creating better opportunity to expand margins and deliver on the bottom line.
Got it that's very helpful. Thank you so much congrats again, the other thing I want to make sure. We hit here is just to make sure that you understand that while the productivity on a given process.
May be higher the reality is in order to deliver the kinds of benefits the clients want in many cases, we have to expand the scope of what we're managing for that client in order to get to deliberate. So while same store sales. If you will or same processes may be facing a 1% bigger headwind than previously.
It is also doing is opening up opportunities for us to expand the scope of the relationship and add new processes for WNS to manage.
Our next question comes from Moshe Katherine with Wedbush. Your line is open.
Hey, Thanks, Let me add my congrats on very solid results and so I have two follow ups first.
As we continue to see this pivot in the pipeline towards I guess cost optimization and some people are talking about vendor consolidation as well.
How different is it going to be for WNS in terms of the economics of the new.
Maybe the new nature of the projects that are coming on board.
Is there any difference there and then.
We're in India early December we heard some conversation about captives, which is something that keeps on coming on and off.
During the past 15 years 20 years, maybe you can talk a bit more about the captive opportunity here for WNS, because again, that's kind of something that we haven't heard.
People talk about for a couple of years now thanks a lot.
Sure, maybe I'll start and have the others.
Add on but like I said the opportunity actually is continuing to sound very very positive.
And therefore.
Again, it will be different things for different people and different companies. So we are very very confident about the fact that the way we have invested in terms of first and foremost domain in terms of technology in terms of our transformation agenda in terms of our innovator.
Models engagement models with clients as well as the kind of people that they want to interact risks, we will definitely be the beneficiary of any exercise that is being undertaken by clients as well as prospects right now that's actually resulting in a larger pipeline and yes, we are actually seeing in some cases.
Yes.
Some players talk about consolidation, but as of now we have actually been benefiting from those trends because people really want to interact with companies that have all of these capabilities and can surely.
Take them in the path of resilience as well as transformation that is one.
The second is while all of this happens obviously companies on the other side are also looking at making sure that their transformation agenda is not disturbed. So they have to make the right size of the partner, but beyond that we're also looking to make sure that these companies can help them.
With their cost takeout challenges.
So that they can continue to be relevant and not create any negative impact with their end customers. So again I think companies like WNS are seeing the tailwind of that as well.
Now in terms of captives that are two trends that have been happening Moshe one is.
As.
With the successful management of.
Of COVID-19 by the sector generally and some countries in particular, there has been a move towards.
Many companies wanting to create certain captives in India and other countries right now that is one sign and diesel normally captives created in areas, which is very close to these customers and they don't want to really hand, it over to a third party.
A player but what we're also seeing very quickly is the smaller capex 100 to under 500.
Person kind of chapters that are being created.
Already are starting to face issues that go beyond just management of the cost the resilience. It becomes HR problems demand management of attrition you know things that we are extremely good at and that is causing new heartburn on new heartache for the people who actually own these captives and that is.
Again, driving this discussion at a new pace, while decisions may not have been taken yet all I can tell you is the quality of conversations that we're having has dramatically increased.
You would have seen that in one particular case, we actually helped.
A very large global insurance player.
The problem that they had and that's actually very large and very salutary to Wls and we think this trend will continue to progress.
Also just to add to what <unk> mentioned, besides the challenges that the captain <unk> one of the big advantages that we bring on the table as cross industry transformation and Digitization benefits, which most of the captive struggled with and that said we are seeing an increased level of conversations that we are being asked to come in to help drive digitized John .
<unk> form.
Yes, and just to further add to that Moshe I think.
Interestingly enough when you look at the questions that were asked earlier about ongoing productivity commitments and improvements I think one of the reasons that clients aggressively look at potentially getting rid of captive units is because if you can find a partner who will commit to productivity improvement why do you want to try and run this yourself and hope.
You can deliver productivity improvements, so I think that level of visibility certainty.
Being able to manage your cost structure going forward. It is something thats very appealing to clients. The big challenge. Obviously for these companies is determining what they believe is core and mission critical to their business and they need to keep in house and what they believe is less core or they're not good at that they are better at finding a path.
To help them manage and Thats something that every client is going to have a different opinion.
That's really helpful and just if I can just sneak in a last one here.
Clients continue to ask about the UK business UK has been resilient in the past few years, given what's going on in the U K.
Regulatory perspective.
Obviously, the economy has not been doing that great, but maybe some color on what youre seeing in the UK market. Thanks a lot.
Yes, what we're seeing is of course, what we are seeing is not much of a difference in terms of the client demand cost where we are seeing an advantage within the UK is as companies are preparing for.
Up up weaker macroeconomic scenario the increased demand for disposition for them to align the cost base in.
In line with the potential in terms of where the demand is going to come from is leading them to drive increased need for companies like us and Thats. What we are seeing our UK pipeline. In fact is as strong as ever and the decision making cycle impact in the UK for clients to take the decision in terms of Bob given the go ahead is much much more.
And at the same time the ramp up cycles are shorter.
I just wanted to add one one further aspect I think UK clients and prospects.
We engage with our sector and us in particular over the past few years have prepared to some extent for Brexit and the kind of impacts.
Impacts that go with it. So I think we have always realized for quite awhile and that they may not be able to get the talent that they will need from a tech point of view to transform their own agendas, and therefore that allows companies like us to lead them in terms of dramatically transforming how they go to the market.
While UK as a whole and we have a problem of not having the talent.
To take care of different services. The reality is we have helped ensure <unk> fintech companies and others to completely transform their business models through insurance in a box fintech in a box kind of solutions.
Which our solutions withdrawal unheard off in the past and therefore, we are actually help them prepare for tough times, but more importantly gain market share as a result of these new offerings.
And just to add a little bit of color to that from a financial perspective Moshe when you look at our numbers, obviously year to date. The U K is up about 4% year over year, which certainly doesn't looked at encouraging but it is important to remember that that 4% growth is with a 12% currency headwind. So what we have seen in our business.
Is healthy healthy growth on a year over year basis within the UK on an organic constant currency basis.
That's helpful. Thanks, guys.
Thanks Moshe.
Our next question comes from Ashwin <unk> with Citi. Your line is open.
Hey, guys.
Alright, thanks for doing this.
Start with the two part question just back to the economic environment.
First if you could remind on volume sensitivity should there be a slowdown or air pocket.
I just wanted to outline downside risk and then the second one is it seems that youre, saying digital transformation objectives that actually still intact for clients.
With our own checks, but any color on how the nature of digital initiatives might be changing.
Sure. So let me kind of take the first part of that and I'll, let Chris talk a little bit about about digital and kind of what we're seeing from a client perspective, but looking at the exposure if you will to our business.
There are really.
Four different pockets, where we could see pressure right and most importantly, I think what I want to highlight upfront is that we have not seen these to date right, but the reality is certainly we have the potential for volume pressures with certain clients certain vertical certain processes and obviously for everybody who follows the WNS story travel come.
To mind as something that's front and center, but we also do have the potential for volume exposure in certain verticals like shipping and logistics or financial services.
The second area, where we could see pressure would be what we've been discussing here, which is productivity pressure total cost of ownership pressure from clients and we've seen that steady and rational.
As we've moved across through through this year and across the years. The second would be the third would be where clients have structural or strategic changes to their business.
And this would fall into the category of what we've seen with this large healthcare process that we've lost in Q4, where the client has made a strategic decision to move in a different direction and the last would be delays and cancellations, where we have not seen any of that to date. So I think just to kind of highlight where we could potentially see.
The exposures that those would be the areas, but I think what's more important ashwin is that we understand that we believe in this weak weak macro environment the opportunities for our business as things get challenged more than outweigh. These risks. So we believe this is a great environment for BPL BPM.
And also higher Shannon this is gautam and just to add to your answer to your second part of the question, what we're seeing with clients.
Firstly in terms of the Digitization journey.
James the target operating model taking into account the end to end process and especially in the banking financial services insurance and healthcare clients look you or Steve.
Companies or industries, where clients are actually plagued with legacy systems and infrastructure the need for smart non invasive Bob workflow engines that can actually drive an end to end process. So what we're seeing is not just <unk>.
Discrete process efficiencies, but an end to end process efficiency that gets driven and.
That's being driven quite upfront rather than the later stages of the deal so thats, where the digitization journey, starting to impact more and more.
Got it got it.
And then on M&A, obviously done.
Couple of things here, but.
Still a good pipeline what should appetite.
<unk>.
In the current environment do you feel the need to maybe maintain a level of net cash on your balance sheet any thoughts in that direction.
So let me start I'm sure Sanjay will want to add a little bit more so first and foremost as.
As you know that we have.
For a long time.
Had this focus on constantly looking at assets that are capable of adding new capability.
While being accretive also for WNS.
Models overall over the past few years is that in the past few months, we've had the opportunity to actually complete.
Three deals, which are bringing very strong capability and playing an extremely rare with where the market is headed in terms of some of the new demand areas. So really delighted with what has happened that at the same time I want to again underline that our approach to M&A will continue to be disciplined focus.
Yes.
We will continue to look at assets.
Particularly capability.
Our lead asset in a very disciplined fashion and thats something that in our fixed above seven which makes sense to us.
As you know.
Coming in at the right valuation.
We will look to do it.
During the fact that we believe that in this kind of an economy.
As well as in the in terms of just how the markets are moving at the business is moving and the demand from clients.
We have a right of way in terms of leveraging all of these assets and creating these new capabilities in order to deliver.
Deliver.
But as well as the impact of our clients and growth prospects. So whatever we do will be around capability as well as it will be.
Peter.
In terms of the capital allocation.
So I'll just add from.
Yes, we do have.
Pipeline.
But the philosophy is unchanged from our.
A minute perspective is all going to be around tuck in capability acquisitions, and we'll be opportunistic to keep on adding those capabilities.
And including the captives opportunity what we keep on looking for a needle.
From a cash perspective, what you just mentioned I think it was.
15% of our revenue from all of our working capital perspective, we believe we have.
Stable healthy cash generation.
So that go to.
We'll be good enough from a pharma growth prospects there.
Got it I appreciate the insights good execution keep it going guys. Thank you.
Thanks and last one.
Our next question comes from Puneet Jain with Jpmorgan. Your line is open.
Yes, hi, thanks for taking my question.
Can you talk about sustainability of your attrition picked at these levels.
December is seasonally easier.
<unk> quarter, but.
Yes.
Jason.
Can it sustain at these levels on going forward basis.
Our Philippines fishers completely behind you now.
Hi, Puneet.
Continued reducing attrition over the past two quarters has been has been largely driven due to stabilization across most job families and especially over the last few months. This has been led by our customer services agent requirement in the Philippines, and a lot of the entry level requirement in India.
We do expect a little bit of volatility across certain niche job families, but by and large we expect this to be stabilizing around the early thirties as what I see.
So maybe I'll just add if you recall, we spoke about that.
The regulations got Tianjin Philippine.
Specifically from April one and where your employees were really.
<unk> also come to walk home office, 100% and.
And there is very bright and specifically around at the agent level.
You did mentioned that you are still that start impacting from our delivery perspective. So it looks a couple of quarters for us to stabilize and his start date.
Normalizing a distant but having said that it's too early to talk about it and we believe it will still take a certain time to normalize and maybe it will go back to those.
30 flows there, but I think it was more around the junior level as the middle management.
Pretty normal what we used to see regardless.
Got.
It seems like your answer to Ashwin question It seems like.
You are going to be more acquisitive near term focus on acquiring.
Second deals.
But on the other side like how should we think about your current portfolio.
Are there any businesses assets that Kurt.
We deemphasize or.
Or you could look for some alternatives.
Yes, So first let me clarify so at this point in time, we have.
Three acquisitions this year, so right now we're digesting right and we will focus on digesting these acquisitions welcoming welcoming.
All the people from these three companies as well as.
The capabilities in August .
Very excited manner taken across all of our client base and welcome many new prospects I just want to mention that we'll do that but at the same time. We will also be opportunistic in terms of continuing to look at Danone waters available out there and we need to do something that is smaller negative.
Look at it later.
I just want to set that expectation, we are not out there too.
Yes.
What our cash out to acquire that's not our approach it's always been our disciplined approach now in terms of.
Our businesses generally all the core businesses that we operate in continue to do extremely well right. All the horizontal offerings that we have gone to the market and we are positioned with you. We will continue to invest strongly in.
As we have mentioned in the past the.
The auto claims part of our business that we have historically kept deemphasizing continues to be on that journey.
And it is not an area of significant investment.
<unk> taken care of existing.
Customers, but every time, we look at our business. We are constantly evaluating the impact of that business the growth potential of the business as well as the ROI from the investments that we make in that business before.
Before we make progress I'm very comfortable with the businesses. We have at this point in time and the potential for the market.
Thank you no I was thinking about auto claims asphalt when asked that question. So thanks for the answers.
Yeah.
Thanks, a lot.
Our next question comes from Dave Koning with Baird. Your line is open.
Yeah, Hey, guys, just I guess, a couple of quick things the nice job too.
So on the travel vertical it looked like revenue was down a bit sequentially I know adult choppy, it's still growing a lot year over year, but anything to that just a little bit of sequential decline.
Hi, Dave.
Q3s decline that you see has historically been led you to a softer one.
During this time of the which is generally driven due to reduced leisure bookings and also just to draw your attention nearly 50% of our revenue comes in from the Otas, especially driven by proved to be a bit to see leisure travel.
So thats, what we have seen that's where the sequential drop has been for this quarter, but we are for Q4, we had already see moderately increased volumes cost you said.
Due to the recent weather events and also with increased bookings, but these numbers have still not been factored into our forecast that we've provided.
So Dave let me just mentioned one thing.
When we talk about recession, when we talk about all the impacts that essentially we will have I think a lot of people.
Working with their feet in terms of their holidays and travel programs and Gaslog law and therefore, we also see therefore customers of ours on the other side go softer in terms of that protection. So I think some of this is also a factor of that but.
As of now as we look at how the sector is actually behaving we're continuing to see slightly.
Slightly more bullish.
Our positioning as opposed to the kind of numbers that they have given us in the past.
Let's hope that people.
Fifth and travel.
Having a nice holiday.
Visiting offices across the globe and potentially the revenge tourism and it comes back and it will benefit us and I'll just add that.
The bigger opportunity for us still right that the volume must be lauded a pre COVID-19 level and thats the opportunity from.
From a forward looking perspective is that we could sell result.
<unk> level volume was still below almost like a one 6% of the barcode revenue that is the opportunity still lies ahead.
Gotcha, Thanks for all that that's good.
And I guess, the one just follow up.
<unk> had remarkably consistent margins I think this year, you're trying to I think 21, 5% or so the last two years, we're right about 'twenty, one and 5% which is impressive given rupee movements.
Revenue volatility I'll, just all the different things so.
I guess I'm wondering is there anything one off in this year that we should just think about as we kind of think about next year or is this a pretty normalized here.
The beauty of normalized margin at this stage.
There has been no one.
A one off right now.
We expect.
Continue with this margin as we move forward.
And I think as it relates to FX, David it's important to remember that we've now seen 10, 10, 10, plus years, where our hedging strategy has been extremely effective in protecting our margins and smoothing the impacts of currency over over a two to three year.
Period so.
Not only does the hedging strategy gives us the stability in the margins, but it also gives us the visibility to allow us to guide you guys properly.
I also want to just add one thing Dave and Douglas.
Give full credit to.
Our teams across the globe, our operating teams who have created.
This new WNS as I call. It in terms of creating all of these new innovative solutions that new digital interventions.
The new platforms that we've created and the new offerings such as the result of which in spite of all the uncertainties out outside WNS is able to drive those efficiencies in order to maintain those margins and that study has.
It's not an easy task.
Thanks to make those investments manage all of those kind.
Cut off.
Yes.
Problems that are out there yet delivered cost number that I think it comes from our superior execution, but most importantly also the new offerings that we have created over the last few years.
Yes, certainly kudos to all of them and yes. Thanks, Thanks for the answers guys.
Thanks, Dave.
Our next question comes from Vincent Vincent Colicchio with Barrington Research. Your line is open.
Yes.
Another question on travel.
Curious with the awful airline issues recently.
In terms of on the operating side is that opening opportunities for the company.
Yes, absolutely.
But some of the problems that the airlines and airports have been facing over the past year or so that has led to an increased demand across all our lines of services, whether it does or industry specific offerings or our baggage handling offering.
And at the same time, our reservations on change management offerings. So it drives volumes across all these areas and I would also say that as airlines, some actually increased capacity by introducing new aircrafts over the next.
Number of months, we do see the volumes also stop increasing from there.
And I must mention that.
Risks all the stock of recession in the kind of stress people are facing in their markets.
We're also seeing the airports also stock moves.
Moving our.
Our discussions on potentially decisions on.
Transformation and the cost.
Gender as well so I actually think that all of this is going to be very positive for WNS and the short order, yes really important to remember that over the last couple of years, Vince while we have had.
Some recovery of the travel volumes, we lost during Covid. When you really look at what's driven the health of our travel vertical it's been the expansion of our existing relationships and new logos coming to the table looking for.
Looking for transformation automation digitization to be able to better compete so.
I think the more difficult things things consistently become for the airlines the more they're going to look externally for help to change their operating our operating models to be able to compete better.
And then what.
One more.
And any large clients facing financial challenges.
Retail comes to mind, and if I remember correctly I think your exposure to.
Traditional retail is pretty low.
Yes, I think thats safe to say our exposure to to pure retail is extremely low Vince.
I don't think looking at our customer roster today I don't think we have any significant clients that we believe our financial risk, but obviously this in this environment things can change quickly.
Thanks, Dave.
Nice job guys. Thanks, Thank you Eric.
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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