Q3 2024 WNS (Holdings) Ltd Earnings Call
[music].
Okay.
Yes.
Good morning, and welcome to the WNS Holdings fiscal 2024 third quarter earnings Conference call.
At this time all participants are in a listen only mode.
After managements prepared remarks, we will conduct a question and answer session and instructions for how to ask a question will follow at that time as a reminder, this call is being recorded for replay purposes now I would like to turn the call over to David Mackey Wns's Executive Vice President.
Finance and head of Investor Relations. Please go ahead.
Thank you and welcome to our fiscal 2024 third quarter earnings call with me today on the call I have wns's, CEO, <unk>, <unk> and Wns's CFO Sanjay Puria.
A press release detailing our financial results was issued earlier today.
<unk> is also available on the Investor Relations section of our website.
W. W. W N.
Today's remarks will focus on our results for the fiscal third quarter ended December 31st 2023.
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.
Could cause actual results to differ materially from those expressed or implied by such statements such risks and uncertainties include but are not limited to those factors set forth in the company's form 20-F.
This document is also available on the company website.
During today's 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 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>.
Sure.
Thank you David and good morning, everyone.
In the third quarter.
And actual results.
Largely in line with our expectations.
The company posted third quarter net revenue.
$315.9 billion.
Representing a euro or what your increase.
Seven 8% on a reported basis.
And five 9%.
Constant currency.
Sequentially net revenue decreased by two 8% on a reported basis and two 3%.
On a constant currency basis after adjusting for foreign exchange.
As discussed last quarter.
The reduction was largely the result of deliberate transition.
The large internet based procurement declined from onsite to offshore.
Lower travel volumes and softness in our project based revenues.
Overall from a demand and booked revenue perspective.
There were no major changes or surprises.
Got it.
Travel volumes reduced during the quarter, particularly for domestic online travel.
While some of this is a function of normal seasonality.
We also saw volume reductions in our high end business to business customer experience portfolio.
This we believe is attributable to both corporate travel spending.
And client specific issues in.
In addition.
Demand for Wns's project based work.
Judy hyper automation procurement and another big projects.
A slight sequential decline.
In Q3 and remains below the levels expected in a healthy macro environment.
While certain volumes and project work have reduced.
For our quote process management industry.
Initiatives continues to be healthy driven by clients' requirements for process automation and cost reduction.
Our new business pipeline is robust.
But moving forward strategic initiatives.
The third quarter.
<unk> added eight new logos and expanded 32 existing relationships.
I'm also excited to announce that we have not received a commitment from our large insurance captive relationship to proceed with a portion of the phase II plant.
This new process is expected to begin ramping later this quarter.
Today I would like to provide you with a brief update on <unk> as.
As well as January.
Yes.
We continue to build design implement solutions for our clients leveraging these technologies.
The pipeline of Jimmy I use cases continues to expand across on what it goes as well as service offerings and we are making steady progress moving these initiatives forward.
Today, we have secured client commitments for Jimmy I implementations.
Which spanned verticals, including insurance retail and CPG, drybulk shipping and logistics as well as banking and financial services and represented Horizontals, such as procurement operations and customer experience.
In some of these examples the journey solution has been a catalyst for new business, including customer additions and expansions of existing relationships.
Are there.
Helping transform the existing book of business and drive improvements.
Previous solutions.
Enable Delaware.
At WNS, our approach continues to focus on combining our deep industry expertise.
Jenny I to deliver enhanced levels of performance accuracy and business strategy, which is differentiated and superior to <unk>.
Jimmy I applications.
For example, <unk>.
Currently have an existing client implementation.
Bridging a powerful new WNS proprietary Jimmy <unk> decision support energy.
Which enables our agents to quickly access relevant information from large numbers of complex lengthy documents and then sympathize and summarize the result to meet the customer's requirements.
The solution, which combines the power of human intelligence as well as artificial intelligence is positively impacting most key business metrics, including reduced handling times improve accuracy.
And higher first call resolution rates.
For our clients. This is improving end user satisfaction.
Increasing revenue retention.
WNS the solution is revenue neutral margin.
And resulting in additional process management opportunities.
We are also excited to highlight that this journey, especially in engine is scalable both organically as well as vertically.
WNS.
We're also pleased to announce that we are now updating backup our intelligent automation platform for the shipping and logistics industry.
Jimmy I capabilities.
The updated version now called outcome AI.
Designed to revolutionize the way incoming data sources, including emails chats messaging headquarters and Edr unprocessed.
And routing of data <unk>.
Specific workflows within our clients organizations.
As well as <unk>, which in turn either fully automating. These workflows are flagged them, but human validation and completion.
Needed.
Malcolm AI now demonstrates wns's capability.
Leverage deep industry expertise and process knowledge in the application of journey II and other cutting edge technologies.
We continue to see Jenny.
A long term catalyst for our business.
Our investments in this as well as other new technologies.
So combined these powerful tools domain people and process is generating increased.
Interest from both existing clients as well as new prospects.
These tools are enabling WNS to improve both the quantity and quality of client discussions with the focus increasingly shifting towards innovation competitive positioning as well as value creation.
In addition, we are seeing strong willingness from these clients to share in the financial and operational benefits all power Gen AI solutions.
So for WNS. This includes the ability to capture new revenue streams shifts the commercials from FTE based models to stickier higher value managed services.
Outcome based models as well as improved margins.
I would also like to share with you some activities in progress.
To help improve.
Our ability to compete for capital.
In our press release issued earlier today.
The amount that we have formally transitioned our.
Our company to three global headquarter locations in New York, London, as well as Mumbai.
This change supports the company's decentralization.
Senior leadership as well as decision making.
By organizational structure change announced in April 2023.
These headquarter additions also reflect the company's financial and operational evolution.
For the past 25 years, including the geographic diversification of our revenue mix as well as delivery footprint.
In addition.
Earlier this week Wns's board of directors granted approval for the company to move forward with plans to convert our Ads's two ordinary shares.
The company intends to complete this exercise prior to the end of fiscal first quarter 2025.
Dws Board has also granted approval and the company intends to voluntarily shift from foreign private issuer status.
Voting on the <unk>.
Mystic Filer status report under U S GAAP.
This change is expected to be implemented prior to the end of fiscal second quarter directly frankly five.
The company believes these actions are in the long term best interest of all WNS stakeholders.
Key objectives include improved access to capital through the ability to participate in the U S indexes.
And Additionally, active investment funds, great news to share price volatility.
Enhanced governance.
In summary, despite the challenging macro environment and certain nonrecurring items in fiscal 'twenty 'twenty four W.
WNS now entered fourth quarter with more than 99% visibility to double digit full year revenue growth.
Continuing this do you expect industry, leading stable margins for fiscal 'twenty four.
We also remain optimistic that our growing pipeline for our core automation as well as cost reduction based services.
Reducing integrity.
Second the company up for accelerated growth in fiscal 2025.
WNS continues to invest in technology analytics and domain to ensure a competitive differentiation remains intact, enabling the company to deliver long term sustainable value for every one of our key stakeholders.
I would now like to turn the call over to our CFO Sanjay Puria to further discuss our results as well as outlook Sunday.
Sanjay.
Yeah.
Thank you.
In the fiscal third quarter net revenue came in at.
$315 $9 million.
Up seven 8%.
$292 $9 million.
<unk> in the same quarter of last year and up five 9% on an Austin balanced debate.
Sequentially net revenue decreased by two 8% on a reported basis and two 3% on a constant currency basis.
The sequential revenue.
It was driven by the offshore delivery transition a large internet to calm.
Volume reduction with certain clients, primarily in Taiwan, and Vietnam and discretionary project based revenues.
The headwinds were partially offset by strong client demand for our cost reduction focus initiatives.
And a third party alternate recorded $4 million.
Our short term revenue.
The average margin.
Adjusted operating margin in quarter three.
$26.
The comparison for.
So any one 9% reported.
We reported in the same quarter of fiscal.
223, and 22, 4% last quarter.
Yes.
Adjusted operating margin was pressured by annual wage increases and return to office costs.
These headwinds were partially offset by improved productivity and favorable currency movements.
Sequentially margins decreased as a result of wage increases.
Higher SG&A expenses, driven by moderate to provision reversals for performance incentives and Bagger Dave.
And lower energy.
The company's net other income expense was 218 million of net expense in the third quarter.
As compared to $1 2 million of net expense reported in quantity of fiscal 'twenty three.
$3 6 million of net expense last quarter.
Yes.
Net interest expense increased due to higher debt levels and lower cash balances.
By our acquisitions and share repurchases.
Sequentially the favorable.
What was the result of interest income on tax refunds.
Sale of assets.
Slightly lower interest expense.
Yes. It is.
Effective tax rate for quarter three came in at six 6% as compared to 19, 8% last year.
22% last quarter.
In the fiscal third bucket.
A one time tax benefit.
And then a half million dollars.
Resulting from the reversal of a.
Before tax liability on intangibles.
Both year over year and sequentially other changes in our effective tax rate.
Our shift in our geographical profit mix.
Changes to the mix of work delivered from tax incentive facilities.
The company's adjusted net income for quarter, three was $58 2 million.
With $56 million in the same quarter of fiscal 2023, and 54 1 million last quarter.
Adjusted diluted Ani, but one one.
Our share in quarter three.
Up 18% versus $1 and one third in the third quarter of last year and up 9%.
From $1 90 last quarter.
As of December 31, 2023, WNS balances in cash and investments totaled.
$264 million.
And the company had $177 $4 million in debt.
In the third quarter, WNS generated $77 million of cash from operating activities.
We incurred $10 3 million in capital expenditures and made debt repayments of $22 million.
The company also reported 1 million shares of stock.
Average price of $58 14.
Quarter, three cash by $58 1 million.
Our revised full year guidance assumes <unk> will continue with our share repurchase program in the upcoming fiscal fourth quarter.
DSO in the third partner came in at 35.
As compared to 34 days reported in quarter three of last year, and 75 days last quarter.
With respect to other key operating metrics.
Our headcount at the end of the quarter or 60600 enter Purdue.
And our attrition rate in the third quarter was 29%.
As compared to 28 footprint reported in quarter three of last year and 30% in the previous quarter.
We expect attrition to average in the low to mid 30% range.
But the rate will remain volatile quarter to quarter.
In my view.
We have a seat capacity at the end of this.
Quarter, three increased to 40658 and diluted average 69.
While from office during the quarter.
In our press release issued earlier today WNS.
Provided our revised full year guidance, but clearly we need to report.
Based on the company's current visibility levels, we expect net revenue to be in that April $1 billion and $270 million.
The $1 billion and $292 million.
Yes.
<unk> of 9% to 11% on both.
Reported and constant currency basis.
Topline projection assumes an average British ball for Euro dollar exchange rate of 127 for the remainder of the fiscal year.
And we currently have over 99% visibility to the midpoint of the range.
Full year adjusted net income for fiscal 2024.
Is expected to be in the range of $212 million.
Two $218 million bid on it.
Three.
To us dollar exchange rate for the remainder of fiscal 2024.
This implies adjusted EPS of $4 27.
So $4 and 39 days.
Assuming a diluted share count of approximately $49 6 million shares.
With respect to capital expenditures WNS currently expects our requirement for fiscal 2024 to.
It will be up to $60 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 on your telephone and wait for your name to be announced if your question has been answered or you wish to remove yourself from the queue. Please press star one again.
Andy interest at the time and to enable everyone on the call to participate please limit your queries to one question and one follow up please standby, while we compile the Q&A roster.
Our first question comes from surrender.
With Jefferies. Your line is now open.
Thank you.
Yeah.
I'd like to start with a question on just kind of.
Demand environment and more specifically just.
Volume aspect of the business.
Can you maybe talk a little bit about how client volumes have evolved relative to expectations, maybe six months ago. When we first started seeing signals of climate.
Clients wanting to slow down and then what are the current client conversations as we look forward maybe six months at this point.
Sure.
So I think if you look across the last couple of quarters, what we've seen and what we had included in our guidance was expectations from our clients' projections from our clients and for certain clients, especially in the travel space commitments from these clients to reducing volumes and historically when we've seen that.
It's kind of a trend from our customers.
Proven to be extremely conservative.
What we've seen over the last couple of quarters is that those numbers have come in much closer to their projections and commitment and what we've seen in the past. So as a result, we have not been able to recognize upside relative to volume in relative to forecast and guidance during that period.
So essentially at the end of the day the volume projections that they had provided us with proved to be accurate.
The good news and the upside is as we look forward into the fourth quarter, we are not seeing clients continuing to drop those forecast projection. So our hope at least at this point is that as the volumes have stabilized at these levels.
And then as we move across into fiscal 2025, we have upside if we see some macro some macro benefits out there.
And I'd just add that while.
Was a great explanation on the volumes of the current business.
The other fact to also mention here is that we continue to see a lot of interest in terms of existing clients as well as new prospects.
Continuing to have very positive discussions in terms of longer term strategic plans for both transformation cost savings as well as implementation.
Some of the generic pools.
That I spoke about earlier, so I think right now it's a mixed bag, but it does.
It looks exactly like what you said it was likely to be as of last quarter.
That's helpful.
And then as a follow up when we think about your AI strategy. The platforms. The tools the technologies that you want to build.
The question here is how truly differentiated can you build some of those products.
And how the spoke is that to kind of the client solutions that you build and maybe how much is reusable.
And then I guess overall do you have to accelerate spend too I guess when the arms race for AI here, how do we think about all of that dynamic.
Yeah I think.
I'll take a stab at that answer so first and foremost.
I think we are very clear that this is a movement that will only keep gaining traction and our job right now is to make sure that our clients see us as it is.
Barnstaple bought roto, leaving them in this charge there are many of them may not yet be completely ready.
I will get on the bandwagon because some of the.
Current stresses that we're seeing are more focused around profitability volume things like that.
So from our point of view.
Giving them the comfort that we are training our people they've got the nice partnerships in place.
Australia very strongly in the tools and the.
The required technologies and some of the solutions that are used to seeing from WNS on all be enabled through <unk> and Jimmy I tools is something that has been very positive in this sector.
I think that's.
All being very positive positively is the.
Intent from WNS to look at our core business understand which are the areas that actually need faster implementation of some of these tools.
More partner like to our clients and even if it means cannibalization of short term revenue for us.
Understood the impact from a WNS point of view is to do that in order to build very strong long term sustainable relationships with them.
So if you look at the current stage. It is all about building out completely new.
Tools, creating these partnerships and enabling existing tools through journey.
In many cases, we use the best tool that is available and then create something which is bespoke for it but.
But most often we also have the ability to reuse quite a few of these full so when we are talking about some of these branded goods.
I spoke about earlier, our ability to use them across multiple clients.
While incurring a one time cost of the stock is high.
And therefore, our ability to have quite.
The relations relationships, our discussions with our clients in terms of auto share that cost or the opposite in the first case is also built on trust as opposed to just play an opportunity.
And I think just thank you.
To add to what cases.
At the end of the day clients are looking for digital transformation.
And the reality is the Gen AI as a tool is only one component of what Theyre looking at.
We continue to believe that our key differentiator.
All of that problem and efficacious point, certainly certain components of that solution has to be customized and proprietary so that specific client, but at the same time, we're also creating reusable components and we can bring across the entire portfolio. So I think the approach actually works well and play.
These into the strength of where this company has made our investments over the last 15 years.
Thank you that's very helpful.
Please standby for next question.
The next question comes from Bryan Bergin with PV Cowen. Your line is now open.
Hi, Good morning. Good evening. Thank you first of all I have just just as it relates to the share class conversion. The voluntary filer status ship are there any notable financial implications from these items to be aware of as you transition next year, just really anything to be aware of around maybe tax structure from an accounting change anything.
<unk> different versus potentially just the hedges.
<unk>.
So there are no financial obligations.
Specifically are moving from media to the common stockholders.
You went from a tax structuring.
<unk> remains the same.
Yes.
Access of the capital.
And to review the market.
Those are the brand marketers, but Emily.
Speaker Change: I know financially.
There will be changes to some of the financial metrics as we transitioned from <unk> to U S. GAAP based on exactly what you were referring to.
Ill.
Two different standards to treat certain types of transactions and certain types of cost, but the reality is to <unk> point, there should be no change from the conversion from from Ads's two ordinary shares.
Okay very good.
And then as it relates to the headquarter additions in the growing global diversification can you just kind of discuss the margin implications from these changes do you have any difference in view on the medium term potential and adjusted operating margin, they're already embedded in our structure.
There should be no change as a result of anything that we've discussed today relative to the approach to capital access.
Great. Thank you.
Thanks, Brian.
Please standby for the next question.
The next question comes from Spenser <unk> with Wedbush Securities. Your line is open.
Okay.
Hey, guys can you hear me.
Yes, we can hear you now.
It's Moshe <unk> from Wedbush.
The question can we get an update on the captive client specifically the delays or the pause that we heard about last week.
Speaker Change: And then I have another follow up thanks.
Speaker Change: Yes.
Speaker Change: As in.
Our remarks, what we mentioned.
Last quarter, there was a deal with them, but the good news is we all were.
We already got a commitment of proportion of that piece too.
From that line.
We will be starting.
Delivery from.
Speaker Change: From the later part of the quarter four.
And as we move forward the discussions are positive on the balanced portion of the phase two.
Maybe Dan and Colin.
The bottom line.
To reiterate.
Obviously, a lot of concern and consternation out there about the delay in.
The company had said last quarter, we still believe that was the question.
When not if we were going to get this piece of business.
All the indications from the client work that they were going to continue to move forward with this process position and it was nice to see that.
They are taking steps in that direction.
And just to remind you not gabe.
There is a part of the overall commitment from the client.
No.
As Dave mentioned, it's all about when it would need to happen during the tenure of the market.
Okay. That's good.
I'm, sorry, I just want to mention one thing that some of these.
General conversations.
Mostly about transformation as the less cost savings now based on how well prepared a client may be on some of these larger initiatives. They can only delay that much thereafter based on the macros based on the business need.
It's just mark.
Our customers to actually move ahead with these Jeremy So I just wanted to mention again that.
For the last four quarters. We've solved this unit. We are also quite confident that not only will they come back in terms of phase II of this thing out this particular transformation.
But the opportunity for WNS to go deeper into many more areas with this land is very high over the next few quarters.
Okay.
That's definitely a positive development.
There is a go ahead some of it some of the some of those.
Some of that revenue generation will be recognized towards the end of Q4 and then there is phase two that gets recognized in fiscal 'twenty five is that the right way of looking at it.
Yes, you are absolutely right youre going to be minimal revenue during this financial year.
As we as we transition it's Linda.
On a year of FY 'twenty.
But most of the revenue.
Thank goodness.
And I hope I'm, sorry in motion in the hope also.
They continue to give us the additional components of phase two as we move throughout fiscal 'twenty five that also contributes above and beyond what we've been awarded.
Okay.
Sorry, just to go back to the can you remind us what was the what is the potential run rate from the specific captive client.
Yes, we talked about last quarter the delay in pushing net revenue.
Fiscal 2000 and for financials costing the company almost 2% of revenue.
And that's been some of it is getting pushed out to fiscal 'twenty five.
In our last guidance all of it was pushed out the majority of it is still going to be pushed out because we're not recognizing anything until later in the fiscal fourth quarter, but the good news is because we're starting in the fiscal fourth quarter, we should have a higher run rate of revenue in fiscal 'twenty from this disorder.
Hi, Justin.
Help you with that and as Dave mentioned it was a 2% we've got impacted for this fiscal year.
There have.
Now.
It's completely awarded in which we'll be able to recognize in FY 'twenty five.
At the same time, the balance 35% still there is an opportunity.
Working which will help us.
Due to the next fiscal year.
Okay, Great final question.
Since may of last year again, some of them decided that WNS is exclusively going to get impacted by Gen AI right.
Any indication that any of those any of that kind of prophecy is materialized in terms of your revenue base cannibalization et cetera, just to be clear.
Not at all actually from Aqua W voluntarily like I said earlier.
We think our clients will benefit by embracing Ginnie, even if they're not ready we are going in having the congregations building deep connections with our clients and building our plans that will.
Help us grow net of the cannibalization at a level that they must.
To be very clear Moshe in terms of what we've seen to date and what we embedded into this guidance. There has been zero negative impact to our revenue program.
Thank you.
Please standby for the next question.
The next question comes from Maggie Nolan with William Blair. Your line is open.
Hi, Thank you and congratulations on all those developments.
Wanted to ask about the project based work and whether you have any changes in expectations over the next couple of quarters, just given that clients are starting to kind of finalize their budgets for calendar 'twenty four.
Sure I'll take that Maggie I think as we've talked about we did see that some of the software.
Was projected and committed from clients didn't materialize.
In the third quarter.
The good news again is that when you look at the fourth quarter numbers, we're not seeing a further decline.
In that expected project revenue does it doesn't mean that it couldnt happen, but at this point in time.
Belief that the project run rates have somewhat stabilized here.
To the extent that we don't take another leg down in the macro or we don't see a meaningful pickup in the macro this is probably going to be the sustainable level or project based work for us and you know maybe we'll have more color because you know.
January is a time, where even the client projects.
Targeting for them for the next fiscal.
Yes.
I know that some discussions have already started based on that so we'll be able to really have a benefit.
Speaker Change: When you provide updates on the next call.
Thank you.
And then you I mean, you have a great track record of posting strong margins and you continue to do so but there are a lot of moving parts with volumes and project based work and you mentioned this new product that's margin accretive.
Hoping you could maybe help us think through some of the puts and takes on margins even into fiscal 2025.
So.
Bill Youre right from those moving parts perspective, Mike.
Thanks, a lot.
Variable cost associated.
The volume keeps on moving upward non quarter over quarter and accordingly, we are able to manage those costs associated with that due to the variability.
Accordingly, we believe that as we keep on investing in.
Volatility in the module.
No.
About 30% margin.
Operating margin, what we have been consistent with delivery and we expect to get in the deck.
Yes.
I would just reiterate woods.
We do continue to believe that these marks.
Sample that there will continue to be puts and takes in terms of wage increases and the ability to improve margins as we continue to transition this business towards.
Transaction outcome subscription based models.
And and deliver higher value for our customers and those models. So.
The expectation on the company continues to be that in.
20% to 22% range for adjusted operating margin.
Perfect. Thank you.
Thank you please standby for the next question.
The next question comes from Nate Robinson with Deutsche Bank. Your line is open.
Hi, guys. Thanks for the question I wanted to touch base on something that came up in the prepared remarks about the potential for reacceleration in revenue growth in fiscal 'twenty five.
So I think a few of the questions earlier have kind of gotten at this point, whether it's the insurance captive wrapping next year or expectation for project based work, but I kind of just wanted to hear about your confidence or your visibility into that potential reacceleration next year, particularly given sort of volumes in short term work is stable to slightly down.
Environment. Thanks.
Yes, so I'll take that so I think the first thing is.
We continue to be positive about the potential for growth in our business and we think that the macros, while we're causing present at this point environment have cost pressure, probably this whole year.
And we will continue to be weak.
Hearing on the call.
For the next.
Youre waters will also push customers to want to now start taking decisions.
Speaker Change: That go beyond just the core business transformation agenda and go much motor to cost savings in order to.
In order to be smart about how that.
Running their businesses.
The second thing is our.
Our <unk>.
<unk> that we made in terms of our org structure has now been digested well has been understood well by the market and that is actually now starting to evoke much higher quality and even better conversations.
With a lot of prospects as well as our existing customers, we actually think OLED.
Over a period of time that will also have talked to your booking.
Higher benefits for the company.
The third thing I will say is that with other changes that we made around our sales focus farming focus.
As well as creating specific themes to go up for some of these things.
We are actually seeing.
Speaker Change: Higher quality congregations on larger size deals, which again, we believe may take time.
<unk> actually.
See decisions.
The number of deals in the pipeline the quality of the discussions we are having and the level of connection. We are now generating around these deals will actually deliver a very strong pipeline for growth longer term.
And therefore from my point of view I continue to see the business as being very positive.
Obviously your long term tailwind I continue to see the BPM industry being underpenetrated and huge potential for us to go after the white spaces that need penetration and with the change in our structure, our clients and prospects are interacting with us.
Superior ways that we saw even two years.
The other thing I would add to <unk> comments is remember that the biggest challenge that we have this year relative to growth or the unusual headwinds.
And to the extent that we've got 567%.
<unk> to our business that has nothing to do with macro that has nothing to do with the project that has nothing to do with volume right to.
To the extent that these are unusual type of thing.
As long as demand stays healthy for our core services the ability to accelerate growth clearly be there.
Okay.
Okay.
Great. That's super helpful color I really appreciate the detailed answer I guess for my follow up can you share what the inorganic impact was in the quarter, particularly.
Versus what your expectations had been the reason I ask because I know <unk> had been sort of highly tied to short term sort of discretionary project work and you had sort of a reversal of the contingent considerations last quarter. So I was just wondering if we get an update on how opt to buy and smart.
Had been performing thanks.
Yes, I mean overall, obviously they are performing below expectations relative to when we purchased these assets, but they do continue to perform above company average in terms of their contribution so.
You don't want to don't want to mislead from the standpoint of saying that these are healthy and well performing assets, but in terms of the contribution on a year over year basis from.
Revenue growth Youre looking at about two a little over 2% year over year.
Very helpful. I appreciate the answers.
Please standby for the next question.
Alright, great.
Thanks, guys how Peterson.
From my own.
Wanted to start off here.
On some of the takes of what you guys are seeing.
There's obviously been some macro challenges over the last couple of quarters, but you guys to help streamline operations.
Reduce costs. So I just wanted to see if you guys could walk through.
How some of those client conversations are going and whats the impact and focus on questions between some of the discretionary spend first cost savings and efficiency initiatives.
Sure.
I think overall and in case of alluded to it in his prepared remarks right. I mean, there is there kind of three components to the revenue portfolio.
What were seeing one is kind of those core cost production automation transformation requirements of the clients have the second are the discretionary projects where.
By by definition, it's got a fixed or fixed and then clients need to pay up.
For the benefit as opposed to.
Paying as they go for the benefits that they received and then the third is volume, which is essentially the number of transactions that are getting pushed through the processes that were already on.
And obviously as we've talked about some of the specific to certain verticals and some of the specific processes. We've seen pressure from both a discretionary spend perspective as well as from a volume perspective in certain verticals and sell through.
That being said the core business, which for us represents almost 90% of our total where what we're driving for the client is tangible business benefit whether that's cost reduction whether that's revenue generation, whether that's loss leakage prevention right.
That piece of our business remains extremely healthy that's really been the driver for the upside this year and again the reason that growth from this company is below normal it's more about the headwinds to our business than the demand for our services.
Great.
That's very helpful.
Speaker Change: And then just a follow up on the M&A pipeline.
Thank you guys made couple of acquisitions here in the last few years, but how are you guys thinking about.
Potential targets, how conversations are going and where valuations stance on this environment.
Yes, so I'll just mention that we continue to be.
Yes, we continue to look at assets.
Those are areas that we had anticipated.
We have said before.
For us, it's all about capability creation so.
Good around M&A. It is if there is some new capability that we can bring in that would be really our focus valuations we believe that.
Under control over the past.
Two years ago.
And therefore, our ability to be.
Productive aircraft factor would just say that it's higher.
Do constantly look at the number of.
Some of these assets starting from small.
The mid sized to sometime.
Larger sized assets also in order to make sure that our team is.
Scanning the market very carefully and giving us the insight.
To make a decision having said that we will.
Will not.
<unk>.
Anything that doesn't make businesses for us so the timing of it.
Future M&A after review of software that can comment, but I can only if it is that we have been very good and just I would just add over there.
There are multiple of those.
Public equity shares what we are focused in talking about our immediate tejas.
Discussion at this stage.
It would be fine from a dilution perspective in fact, even the earliest advantages.
As you acknowledged as comfortable.
There is nimble levels.
And that's what we have been as of August.
<unk> of the target regenerative restricting charges.
That being said the approach from the company remains the same.
We're going to be opportunistic we're going to find assets that have the right capability that are the right cultural fit and that are at the right price.
Opportunities aren't available in the market, we're not we're not going to do acquisitions.
Got it great.
Great color thanks, guys.
Please standby for the next question.
The next question comes from Mena Murphy with J P. Morgan Your line is open.
Hi, This is neena on for Puneet Jain.
Two quick questions on <unk>. The first is that you mentioned that Jenny is kind of drawing in new clients as well as extending your market share of existing are these new clients first time outsourcing the competitive takeaways and are these projects still more in the discovery stage or getting into implementation.
Yes, I think thats a good question because.
One of the things that we are seeing is.
Existing ore.
Portfolio.
Having lots of conversations that ability to get into this model upfront is much higher.
And Thats, where we are having we're quite excited about the fact that while we're implementing and experimenting with a lot of good solutions with our existing clients.
<unk> to take them into some of these new conversation and lead with generics and also very high and I can tell you that at this point in time the pipeline of.
Sales is very strong, but some of its first time outsourcers and many of them. It is Jamie.
<unk> solutions and some of the platform based solutions that I spoke about where the core of the discussion is happening at all.
Great. Thank you. My other question was just that you guys have stated you have as you expect a structurally higher margin profile you guys are shifting more towards outsourcing and have also mentioned that these jenny I projects are coming in at higher margin how much higher our the Johnny I projected is it significant enough to also structure.
I got checked your margin profile.
At this point in time, when you look at the quantum of work that's been shifted to Gen X.
Extremely extremely small.
Talks about a handful of very small projects that we've implemented and parts of the processes that we've leveraged these tools on for existing clients at this point in time. So this is this is going to be an evolution like everything else I think the opportunity.
Tools like Gen AI presents.
The need for digital transformation presents is the ability to shift clients from FTE models are non FTE models, and we know that when we're able to move to either a transaction or an outcome or a subscription based model the margin levers that we as a company have at our disposal or cigna.
So what we wanted to do is we want to lock in that customer we want to take ownership and accountability for results, we want to move to a model, where we take ownership and accountability for those result, and therefore make relationship stickier, but at the same time give us multiple margin levers to be able to.
<unk>.
<unk> and what we see in our current portfolio is that the margins on the non FTE component of our business are meaningfully higher than the FTE component.
That's really where the opportunity for margin expansion in that space.
This is the evolution to higher value services and the higher value models to deliver the service and Jen AI is just one component of that but we do believe it has the potential to help serve as a catalyst for that vote.
Got it thank you.
Thank you.
Standby for the next question.
Yes.
The next question comes from Ashwin <unk> with Citi. Your line is now open.
Thank you.
Start with saying happy new year for the first time speaking with you guys. This year.
Sure.
Congratulations on a good quarter in the.
Michigan.
With the client.
Let me just ask about the adcs to dental chairs condition.
And.
And.
Apologies if I misinterpreted this but have you sized the impact of things like that.
<unk>.
The ability to now be on an index once you complete the process.
A number of incremental investors, who can now look at WNS.
That didn't used to be able to before.
Yes.
Might have been what you meant by access to capital but.
In terms of Investor notes.
I kind of feel like it can be.
Very significant levels of buying but have you done that analysis.
Sure let me take that Ashwin, obviously, we've done several assessments of what the potential opportunities are across.
The entire both institutional and index.
Capabilities for us.
And youre right the opportunities meaning.
The reality is we know there are no hard and fast rules that we need to.
To demonstrate the rate.
Structure are the right metrics the rate.
The right approach to be able to access those funds. So at this point in time.
To be able to say definitively no that.
Speaker Change: Certain things are given I don't think we can do that I think what we can say with certainty is that what we're doing here certainly positions. The company much much better to have access to those to those funds and obviously if you look at our shareholder portfolio today sitting here with 2% of.
Our shares held an index fund this has been a major deficiency from the company over the past several years. So ashwin I think I would just like to take a higher level stab at this question to answer this question.
If you look I mean, notwithstanding where the macros are and.
Demand is playing out at this point in time.
Step back.
Maybe a year or two you will see that we have taken the view that the tailwind for this business continue to be very very high for.
For the sector itself.
In particular, there is the ability for us to continue to lead our ROA robust driven industry.
We believe that the market penetration levels or video revenue to be low and therefore, some of the changes taking place in the world around us, including <unk> and some of the other conversations we've been having over the last few quarters.
We are predicting for small companies to lead is very high.
Speaker Change: <unk> is one of the smartphone.
Sure.
And while we're doing all of this you will see that we in order to prepare for all of this we have made significant changes we made an organization.
<unk>.
Order to be even more nimble flexible right sized on the order.
Sure.
That organization change has also driven growth.
We have absorbed a number of.
Speaker Change: Leaders across the company added a number of new leaders that have come in and got very comfortable with this our customer base prospect base is very aligned around this view.
The implementations that we have done our own technology as well as AI journey.
A lot of things.
Good afternoon.
Although like Dave said at this point in time the revenue impact.
All of this is minimal, but we believe it will keep guys.
As a result of all of this the collaborations that are now starting to the prospects.
<unk> got much I'll, just cite as compositions larger size deals that we think over the next few quarters will emerge.
Proper run rate for this company.
And when we do all of this we therefore pig.
Shoulder for this company to access capital manage our capital allocation program appropriately as well.
This alone.
Speaker Change: The investor base to participate in this growth story.
In a constructive way.
It has to be done and Thats one of the reasons why we've done all of this now in terms of sizing of the opportunity I cannot tell you.
We've said, 2% of our equity is all baked into this and you know when you look at the peer set have you looked at others.
Significantly larger block of their holding actually our indices. So we actually believe that some of these funds as well as other stakeholder.
Who.
Dennis.
And as management, we are and what they want.
This required behind the scenes to reinsure that.
And as.
Long term growth success joins so thats really where this composition.
And maybe I'm not sure.
I'll just add to that.
I don't know if youll see the evolution from a vendor.
Speaker Change: Specific perspective right.
Unfortunately the.
The timing right.
Time.
It was not.
And this whole diversification.
From a revenue perspective, whether it was from the market.
Maybe on the North America.
The structure and location spoke up hard to support that growth.
It has been evolving over the year and that is where we believe that the buy side or.
For the company.
Please go ahead with some of this extra steps.
That's very complete thank you all.
And I'll leave it there.
Thank you Rick.
Rick: Thanks Edward.
Please standby for the next question Shannon.
The last question comes from David Koning with Baird. Your line is now open.
Yeah, Good morning, guys great job.
Thanks, Nick Yeah.
Yes, and just a couple quick ones. So first of all the health business.
Obviously still declining with the transition, but we've had four quarters now of a pretty similar decline, which implies Q4 hits a dramatically easier comp and I guess the real.
So question here is how fast is that growing ex the transition.
Really so we can kind of get an understanding of how fast Q4 could could grow.
And going forward.
Yes, let me take that Dave.
Obviously, we know in fiscal Q4 of last year.
We took a significant step down and we lost a large health care process with one of our clients.
Rick: If you look at the challenge for example in the health care vertical this past quarter. It was actually on the analytics project work.
So part of what we've seen here in the last quarter or two is some softness relative to the project work and the analytics work.
Net political in sub vertical and for us specifically in the pharmaceutical space.
But you're right I think we're getting to the point now where those headwinds anniversary and.
The extent that we've got stability on the project side, we should see Q4 sequentially step up and we should start to see a reacceleration of that year over year growth.
Okay, Great that's exactly what I was looking for good and then the second thing just employees grew over 1% sequentially. The last couple of quarters were flat.
It seems like a pretty good sign up in stocks start going up when when employees grow.
Maybe whats behind that I mean is there a lot of confidence that you need to start building the employee base again, just to keep up with accelerating growth.
Sure.
Let me take that one Dave.
Lee.
Fully expected. This question given the fact that our head count went up in the quarter, while revenue went down.
The reality is when you look at what we see going forward when you look at ethane over 99% visibility to Hell.
These sequential growth from Q3 to Q4, but we didn't want to do is get a situation, where we were letting people go and then rehiring them a quarter quarter and a half later.
Part of the reason margins were a little soft this quarter is because we carried excess resource when you look at revenue per employee in the quarter was weak and the reality is we were willing to do that and willing to absorb that in terms of the overall margins for the full year maintaining at this 21 five kind of range absolutely.
Willing to do that given the visibility that we have to grow going forward and also just to add anybody we spoke about.
The large insurance side you can also have a multiple perspective.
Two.
Other transmission losses stock so its preparedness for some of those also as well as some of the visibility and the growth.
What we have mentioned.
And just if I could.
A matter of timing.
And also the mix changes because the fields are different for our different business perspective, and accordingly, just balanced.
Okay.
Yes.
Well good job thanks, guys.
Thanks, David.
At this time, we have no further questions in the queue.
This will conclude today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Okay.
Okay.
[music].
Okay.
Yes.
[music].