Q3 2025 WNS (Holdings) Ltd Earnings Call
Good morning, and welcome to the WNS Holdings fiscal 2025 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'd like to turn the call over to David Mackey, Wns's Executive Vice President of Finance and head of Investor Relations David.
Speaker Change: Thank you and welcome to our fiscal 2025 third quarter earnings call with me today on the call I have wns's CEO, <unk>, <unk> and Wns's CFO, Alright, just said.
Speaker Change: Press release detailing our financial results was issued earlier today. The release is also available on the Investor Relations section of our website at Www Dot WNS Dot com.
Speaker Change: Today's remarks will focus on our results for the fiscal third quarter ended December 31 2024.
Speaker Change: Some of the matters that will be discussed on today's call are forward looking.
Speaker Change: 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.
Speaker Change: Acumen is also available on the company website.
Speaker Change: During this call management will reference certain non-GAAP financial measures, which we believe provide useful information for investors.
Speaker Change: Reconciliations of these non-GAAP financial measures to GAAP results can be found in the press release issued earlier today.
Speaker Change: Some of the non-GAAP financial measures management will discuss are defined as follows.
Speaker Change: 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 impairment of goodwill and intangible assets. We are also excluding <unk>.
Speaker Change: Costs related to our ABS program termination and costs associated with the transition to voluntarily reporting in U S domestic issuer for us.
Speaker Change: Adjusted net income or a ni is defined as profit excluding amortization of intangible assets share based compensation acquisition related expenses or benefits goodwill and intangible asset impairment.
Speaker Change: S program termination costs, the transition to voluntary reporting on U S domestic issuer forms and all associated taxes.
Speaker Change: In terms will be used throughout today's call I would now like to turn the call over to Wns's CEO <unk> <unk>.
Speaker Change: Thank you David.
Speaker Change: Good morning, everyone.
Speaker Change: In fiscal Q3, WNS was able to reaccelerate sequential revenue growth.
Speaker Change: Expanding adjusted operating margin.
Speaker Change: And generate strong cash flow.
Speaker Change: The company posted net revenue of 319 $1 billion.
Speaker Change: Presenting a year over year increase.
Speaker Change: 1% on a reported basis and flat on a constant currency basis after adjusting for foreign currency.
Speaker Change: Versus the prior quarter net revenue increased by two 7%.
Reported basis.
Speaker Change: And three 2% on a constant currency basis.
Speaker Change: Sequentially broad based demand for digitally led business transformation as well as cost reduction initiatives in Q3 more than offset.
Thank you very much.
Speaker Change: In the third quarter, WNS added seven new logos and expanded 52 existing relationships.
Speaker Change: From a pipeline perspective, demand for traditional process management deals remains stable as well as healthy.
Speaker Change: This pipeline is broad-based across verticals as well as service offerings, growing at a healthy rate, and includes both new client additions and expansions of existing relationships.
Speaker Change: We are also encouraged that over the past few quarters, we have not only seen any material changes in client.
Speaker Change: decision-making or sales cycles for these traditional deals resulting from macro volatility, the US election or AI and Gen AI.
Steady conversion of these opportunities combined with no unusual headwinds.
Speaker Change: should enable WNS to return to high-single to low-double-digit revenue growth in fiscal 26.
Thank you. Thank you.
In addition, our large deal pipeline remains both robust
Speaker Change: and healthy and we continue to be excited about the potential for these transformational opportunities to help accelerate company growth.
Thank you.
Speaker Change: The Large Deal Pipeline includes several strategic initiatives with captive carve-outs as part of the solution, which have the ability to expand WNS's vertical, horizontal and geographic capabilities.
and to ramp revenue much faster than traditional means.
Speaker Change: Currently, the large deal pipeline remains healthy, with opportunities spread across all of our key verticals.
Speaker Change: We continue to work closely with client CEOs, CFOs and in many cases board members to ensure their transformational requirements are met.
Speaker Change: WNS is making good progress moving these deals through the pipeline and remain confident that we are well positioned for long-term success.
Speaker Change: As mentioned last quarter, given the strategic complex and disruptive nature of some of these engagements, the timing of deal signings, as well as associated revenue contribution remains uncertain.
Speaker Change: As a result, we continue to exclude any large deal revenue contribution from our guidance until signed.
Speaker Change: Today, clients and prospects are increasingly looking for partners to deliver the right combination of specialized domain expertise, data management skills, advanced analytics, and digital solutions to address their business requirements.
Speaker Change: This includes AI and Gen AI, where we continue to expand our capabilities and move our innovative solutions into production.
Speaker Change: To date, WNS has created more than 30 Gen-AI use cases, which are tested and customer ready.
Speaker Change: In addition, we have built 13 unique digital assets leveraging GenAI, which are reusable and configurable across clients.
Speaker Change: Examples include an automated freight management platform, which leverages Gen-AI to improve the accuracy of extracting, reading, as well as processing shipping documents.
Speaker Change: and a Gen-AI powered knowledge processing engine which enables WNS to access, query and analyze massive amounts of dispersed data.
Speaker Change: to provide instant, tailored customer responses across horizontals as well as verticals.
Speaker Change: We currently have 13 clients with Gen-AI solutions in production, with another 20 either underway or committed.
Speaker Change: This includes a new U.S. insurance client, which is projected to become a top 10 customer for WNS in fiscal 26.
Speaker Change: For this client, we have integrated three of our Gen-AI digital assets into an end-to-end solution to help improve compliance, accuracy, and productivity in their policy administration and broker-agent support processes.
Speaker Change: WNS also continues to invest in the training and upskilling of our employees on AI as well as Gen AI.
Speaker Change: Our role-specific programs combine internal training with external learning programs in partnership with organizations like Carnegie Mellon University, KPMG, LinkedIn Learning, and Oxford University.
Speaker Change: So far, we have now trained over 22,000 individual employees with more than 51,000 total training courses completed.
Speaker Change: WNS is able to deliver impactful business outcomes for our clients by reducing cost, generating actionable insights to improve decision-making, enhancing customer experience, reducing business risk.
and Enabling Innovation and Competitive Differentiation.
Speaker Change: With respect to fiscal 2025 guidance, we continue to expect healthy sequential revenue growth and operating margin expansion for the second consecutive quarter in the fourth quarter.
Speaker Change: Sustaining this revenue momentum into fiscal 2026 should enable WNS to reach high single to low double-digit revenue growth with any large deal signings providing enhanced visibility and incremental opportunity.
Thank you very much.
Speaker Change: The company also remains committed to continuing our investments in domain expertise.
Data and Analytics
Speaker Change: and technology-enabled offerings leveraging AI and Gen-AI to ensure our ability to deliver long-term profitable growth as well as sustainable stakeholder value.
Speaker Change: I would now like to turn the call over to our CFO, Arjit Seng, to further discuss our results as well as outlook. Arjit.
Thank you, Keshav.
Speaker Change: In the fiscal third quarter, WSS's net revenue came in at $319.1 million, up 1% from $315.9 million posted in the same quarter of last year, and flat on a constant currency basis.
Speaker Change: Sequentially, net revenue increased by 2.7% on a reported basis and 3.2% constant currency.
In Q3, WNF recorded $0.2 billion of short-term high-margin revenue.
Speaker Change: Adjusted operating margin in Q3 was 19.3% as compared to 19.7% last year and 18.6% last quarter.
Speaker Change: Year over year, adjusted operating margins decreased as a result of lower employee utilization and increased investments in infrastructure and sales.
These headwinds were partially offset by favourable currently movements.
Speaker Change: Sequentially, margin improvement was driven by operating leverage on higher volumes and favorable currency movements.
Speaker Change: The company's net other expense was $0.9 billion in the third quarter, as compared to $0.6 billion of net income in Q3 of fiscal 2024 and $1.4 billion of net expense last quarter.
Speaker Change: Year over year, the unpayable wages is the result of higher debt levels and lower cash balances driven primarily by our share repurchase.
Speaker Change: Sequentially, the payroll variance is the result of reduced interest expense driven by debt payments, which more than offset lower interest income on decreased cash balances.
and Sanjay Puri. Thank you.
Speaker Change: Governor's effective tax rate for Q3 came in at 22.8% as compared to 6.7% last quarter and 8.5% in the prior quarter.
Thank you for watching.
Speaker Change: Both year-over-year and sequentially, the higher tax rate is primarily the result of non-recurring tax benefits of $9.5 billion in Q3 of last year and $8.6 billion last quarter, associated with the reversal of deferred tax liabilities or intangibles.
Speaker Change: Other changes in the effective tax rate were driven by a job-difficult profit mix and the percentage of work delivered from a tax incentive facility.
Speaker Change: The company's adjusted net income for Q3 was $47 billion, compared with $58.5 billion in the same quarter of fiscal 2024 and $51.5 billion last quarter.
Speaker Change: Adjusted Delivered Earnings were $1.04 per share in Q3, down from $1.19 in the third quarter of last year and from $1.13 last quarter.
Thank you. Thank you.
Speaker Change: As of December 31, 2024, WSS balances in cash investments totaled $231.5 billion and the company had $199.6 billion in debt.
Speaker Change: In the third quarter, Tamil Nadu generated $88.7 billion of cash from operating activities, incurred $12.1 billion in capital expenditures, and made debt repayments of $58.4 billion.
Speaker Change: TSO in the third quarter came in at 34 days as compared to 35 days in Q3 of last year and 38 days last quarter.
with respect to other key operating metrics.
Speaker Change: Total headcount at the end of 3rd quarter was 63,319 and alteration rate was 32% as compared to 29% reported in Q3 of last year and 34% in the previous quarter.
Speaker Change: We expect attrition to average in the low to mid 30% range, but the rate could remain volatile quarter to quarter.
Speaker Change: Build speed capacity at the end of Q3 increased to 43,550 and WMS averaged 71% work from office within the quarter.
Jain Bergin, Surinder Thind,
in our press release issued earlier today.
WNET provided a revised polio guidance for fiscal year 2025.
Thank you very much.
based on the company's current visibility levels.
Speaker Change: We expect net revenue to be in the range of 1 billion and 255 billion dollars.
Speaker Change: to $1,271,000,000 representing a year-over-year range of minus 2% to minus 1% on a reported basis.
Speaker Change: On a constant currency basis, the guidance ranges from minus 3% to minus 1%.
Speaker Change: Our fiscal 2025 guidance assumes no remedy contribution from the large-scale pipeline, continued reductions in online travel volumes, and no improvement in discretionary project spend.
Speaker Change: and Sanjay Puri. Copyright © 2020, New Thinking Allowed Foundation All rights reserved. No part of this recording may be reproduced
Speaker Change: Top-line projections assume an average British Pound to US Dollar rate of 1.25 per Qp
Speaker Change: Four-year Adjustment Income for Fiscal 2025 is expected to be in the range of $205 million to $209 million based on a Rs 85.5 to US Dollar exchange rate of Q4.
Speaker Change: Our A&I guidance includes the one-time benefit of $12.2 million in the fourth quarter, dating to a facility asset sale in India.
Speaker Change: Based on a dividend share count of approximately 45.9 million shares, adjusted EPS is expected to be in the range of $4.46 to $4.55.
Speaker Change: With respect to capital expenditures, WS currently expects our requirements for fiscal 2025 to be up to $60 billion.
We will now open the call for questions, operator.
Ltd. Ltd. Ltd
Speaker Change: Ladies and gentlemen, if you wish to ask a question at this time, please press star 1-1 on your telephone and wait for your name to be announced.
Speaker Change: If your question has been answered or you wish to remove yourself from the queue, please press star 11 again. In the interest of time and to enable everyone on the call to participate, please limit your queries to one question and one follow-up. Please stand by while we compile the Q&A roster.
and Sanjay Puri. Thank you. Thank you.
Speaker Change: Our first question comes from the line of Nate Svensson with DB. Your line is open.
Nate Svensson: Hi guys, thanks for the question. Good results and nice to hear about the expected revenue acceleration next year.
Nate Svensson: So, I know it's early, but I was hoping for a little more color on that fiscal 26 outlook for...
Heising with a low double-digit growth.
I think on prior calls you've talked about something like
Nate Svensson: 10 to 11% in headwinds every time you enter a normal year. And that's a combination of productivity commitments, projects, known ramp downs, etc. So I guess given all the moving pieces that have impacted the business, I was hoping you could give an early read on how each of those headwinds are shaping up for next fiscal year versus maybe a normal year.
Nate Svensson: comprised of not only the productivity commitments that we give back to clients, but also the fall off in project revenue, which is cyclical in nature, as well as the fact that we typically expect some client revenue loss on a year over year basis.
from things like.
Bankruptcy or consolidation or M&A
Thank you.
Speaker Change: If you look at currently where we sit relative to fiscal 26, the only unusual headwinds at this point in time that we have walking into the year
Nate Svensson: are 1% related to the health care client, which will anniversary in the fiscal first quarter of next year.
Nate Svensson: and about a 1% year-over-year impact from the annualized effects of the online travel reductions during fiscal 25. So, at this point in time, in terms of unusual headwinds walking into next year,
Nate Svensson: We're probably looking at about 2%, which obviously is significantly below the headwinds that we've seen in both fiscal 24 and 25.
Nate Svensson: And then just to add, if you look at our Q3 growth, we were at 3.2% constant currency.
Nate Svensson: If you look at even our Q2 numbers, if you pair out the impact of the SKF line and the OTS line, we again grew about 3% sequentially in Q2 as well.
Nate Svensson: And if you look at our guidance, our guidance assumes a 2% sequential growth. So, you know, the good part is the run rate sequential growth also puts us in a very good place to be enter 526.
Nate Svensson: So that's the other additional comfort that we can provide. And I think that's consistent with the message that we've been carrying, right? That if you strip out the idiosyncratic challenges that the business has had over the last couple of years, what you'll see is that true underlying growth rate, and this is coming obviously from just the traditional.
Nate Svensson: you know, $1, $3, $5 million types of deals, not the large-scale pipeline, that that run rate really is sitting at high, single, low, double-digit rates.
and Keshav Murugesh.
Speaker Change: That's super helpful, Collar. I appreciate the answer. So, for the follow-up, I wanted to ask about...
Speaker Change: operating margins. So, you know, margins up sequentially down a little bit year over year. I think on the call last quarter, you had pointed to sort of low 20s adjusted operating margins in 4Q. So, I wanted to see, one, if that still holds.
Speaker Change: And then two, maybe more importantly, can you talk about, you know, how you see the cadence of margins evolving as we move into 26?
Speaker Change: particularly in light of this expected revenue recovery. Again, really nice to take care of the high, single, low, double-digit, but just wondering about new over-year margin expansion on a full-year basis and how that cadence looks like moving into next year. Thanks.
sequentially.
Speaker Change: in capacity, and that continues as is. So, if you ask me, Q4, we are country to world of guidance, we should get closer. We should be in the 20% range in Q4.
Speaker Change: And going forward, if you look at it from a running perspective, we should average on the higher 19s to 20 ranges going forward.
Speaker Change: last quarter's guidance, sorry, north of 19% for the full year, which implies that we will probably do closer to 21% in the fiscal fourth quarter.
Speaker Change: With respect to the cadence next year, we do expect to see some operating margin leverage across the full year.
Speaker Change: But remember, similar to what we've talked about in prior years, there should be a quarterly cadence where we will see a sequential reduction from Q4 to Q1.
Speaker Change: that relates to our annual wage increases and relates to the productivity commitments that we give to clients and that that margin profile should build as we move across the last three quarters of the year.
Great. I appreciate that. Thanks, guys.
Thanks, Nate.
Speaker Change: Thank you. Our next question comes from Brian Bergen with TD Cowan. Your line is open.
Thank you very much.
Brian Bergen: Hi, guys. Thank you. I'll ask on the large deal, can you just talk about the progress there that you called out as far as pipeline or progressions for the pipeline of the large deals to any visibility to near-term closures and any learnings for you as they do progress through the pipeline?
Brian Bergen: Sure. So, thanks for that question. So, first and foremost, headline news is, you know, we are super positive about the momentum that we're seeing on the large-scale pipeline.
Brian Bergen: And as I mentioned in my prepared remarks, they come across different areas.
Brian Bergen: But I think what is critical and important for us to appreciate is the fact that as a company We have got position in a different Stratosphere, I believe in terms of the interest
Brian Bergen: that a number of companies are taking in us in terms of our
Brian Bergen: core strategic message around, you know, helping them with their differentiation.
their revenue accretion
and many more. Thank you.
Speaker Change: their cost leadership programs that they want to achieve and more importantly, their long-term differentiation that they want to bring to the marketplace and the fact that WNS understands the business domains so well and has invested in so many programs across technology and horizontals is resonating very well.
Speaker Change: More importantly, sometimes these messages have to be delivered at the highest levels on the other side.
Speaker Change: And this is where the uncertainty of timing takes place. So I must mention that, you know, we are delighted with the progress that we have been making on many of these deals.
Speaker Change: In fact, at this point in time, we probably have more than 20 of these large deals that are qualified and are moving through the pipeline.
Speaker Change: The uncertainty is around the fact that because of these deals being
and so disruptive in nature.
for the client.
Speaker Change: Very often, not only is the key stakeholder the CEO and the CFO, but also their risk committees, their board members, and they have to go through some hoops in terms of getting comfort internally before they actually take a final decision.
sometimes they need to bring in an advisor from outside.
Speaker Change: to help them navigate the entire potential of the deal and the contract and things like that. So that's where we are as far as this is concerned.
Speaker Change: in terms of potential filings, we are confident that over the next, you know, one or two quarters, you know, we are in a pole position to probably close something, right? But again, I want to just lay that out there and also say that when we actually close we will update.
Okay, okay, good. Appreciate all that detail.
Speaker Change: Sure, let me take that Brian. With respect to the travel, I would say that the overall volumes in Q3 and the guidance into Q4 remains consistent with what we talked about last quarter, but that does include
Sanjay Puria: Sanjay Puria, Keshav Murugesh, Sanjay Puria, Keshav Murugesh, Sanjay Puria, Keshav Murugesh,
Sanjay Puria: Sanjay Puria, Keshav Murugesh, Sanjay Puria, Keshav Murugesh, Sanjay Puria, Keshav Murugesh,
Sanjay Puria: advanced digitized solutions towards AI and Gen AI as opposed to traditional bots and traditional type types of...
Keshav Murugesh: solutions, we should be in a very good position to help them with that journey. On the insurance side, good, healthy acceleration in two of our insurance relationships, including one of the large U.S. clients that Keshav spoke about in his prepared remarks.
Keshav Murugesh: in terms of their policy administration journey and a digital policy administration journey leveraging Gen-AI.
Speaker Change: But nothing in either the Q3 actuals or the Q4 guidance related to the large insurance capital. So this is actually coming from a completely different client.
Okay, okay. Thank you.
Speaker Change: Thank you. Our next question comes from Surrender Thin with Jeffries. Your line is open.
Surrender Thin: Thank you. I'd like to start with the commentary around just the sales cycle and the idea that there hasn't been any real material change. Can you perhaps characterize what your view of the sales cycle is on the normal deals at this point?
Surrender Thin: It sounds like it's healthy, but just maybe historical context and how you think you see that evolving over the next quarter or two.
Surrender Thin: So I'll take that and, you know, I'll have this and I'll just add more color.
Surrender Thin: I think the first thing is that in terms of sales cycle itself for the normal deals, there are two things happening. I think the normal deals, you have to assume that sales cycle is normally six to nine months.
Surrender Thin: Right? And particularly with first-time outsourcers, it also means, you know, the prospect getting a lot of comfort around the fact that the partner that they're looking to work with
Surrender Thin: actually understand the business domains very well and more importantly understand the sub-domains.
Surrender Thin: One of the things that is starting to help accelerate some of the momentum on these deals is the fact that a lot of new clients in particular, or people who have not dipped their toes in this model.
are also concerned
that they may be left out.
Surrender Thin: in terms of some of the changes that are happening in terms of the macro changes around...
Surrender Thin: technology and disruption that the whole world is talking about whether it's AI, Gen AI or whatever.
Surrender Thin: and for people who have not yet dipped their toes in digital and transformation and cost leadership programs, for them to attempt the AI and Gen-AI journey becomes difficult unless they do the first.
So that actually is adding momentum.
to our, you know, to our sales funnel.
and is actually helping many more deals.
and many others who have come through the pipeline.
Surrender Thin: that with all the changes taking place, you know, in the world outside around the macroeconomics as well as, you know, the
Surrender Thin: The desire to be seen as the smartest companies in the space from a digital as well as a gen AI model point of view. Domain specialism.
Surrender Thin: continues to be the most important reason for customers wanting to align with a partner, first and foremost.
Surrender Thin: And in that area, WNS scores probably the highest from an industry point of view. You know that for years together, we've invested very strongly in end-to-end domain specialism.
Thank you.
The second thing that we're seeing is that
Surrender Thin: The use of technology and platforms, as well as data analytics, has now become...
Surrender Thin: power for the cause, that is something that WNS has been investing very, very strongly, is a leader in the space and that gives a lot of comfort to some of these people who are in the pipeline.
and most importantly
Surrender Thin: in this era of uncertainty, all of them want to work with trusted partners.
who know their business.
and can guide them.
around new models.
Surrender Thin: You know a partner that is actually investing in new disruption models
Surrender Thin: And I can tell you that this is where WNS scores all the time and that's where, you know, the pipeline That's how the pipeline is being built in a very healthy manner and across all core horizontals, verticals, and jobs
Surrender Thin: And I think, Surinder, if you just kind of look at the history of this space and WNS's track record, you know, when the macro was healthy and, you know, obviously companies were doing extremely well prior to the pandemic, what we saw was a good, healthy acceleration
Surrender Thin: in growth rate, right? So our ability to close the traditional one, three, $5 million deals, our ability to expand existing relationships was healthy even in a positive macro environment, which means it wasn't all about cost reduction. It was about customers.
challenges that have happened over the last couple of years
Surrender Thin: peel under the covers and get past the idiosyncratic issues that we've had, what you'd see is that our ability to close those deals and move them through the pipeline and
Surrender Thin: you know those sales cycles haven't fundamentally changed and in fact if you look at
Surrender Thin: through the first three quarters of this year, we've signed more new logos and we've expanded more relationships than we did last year. So there's actually been positive traction to Keshav's point in our ability to close deals despite some of the macro challenges in the political environment.
Thank you.
Surrender Thin: Sengupta, David Mackey, Sanjay Puria, Keshav Murugesh, Sanjay Puria, Keshav Murugesh, Sanjay
Speaker Change: That's helpful. And then just following up in terms of just the build out of new solutions, new capabilities. So when we think about, I think you mentioned maybe 13 unique digital gen AI assets.
Speaker Change: Any additional color you can provide there in the sense of, are these primarily like proprietary models that you guys are building that you can leverage, or is it some combination of?
Speaker Change: solutions where you've integrated with maybe some of the large partners whether it's an open AI or with Gemini or LLAMA for that matter or something like that how should we think about that part of
the positioning and strategy.
Speaker Change: Yeah, I think it's a combination, Surendra. At the end of the day, we have developed, the digital assets are proprietary, but there can certainly be components of third-party technology that are part of those integrated solutions, right? So, the bottom line is what we're doing is we're using best-in-class, and whether it's something that we've created or whether it's something that we've partnered, what we've been able to do is
take those capabilities, enhance them, put domain specialization in them.
and Andrew.
create an asset that is
Speaker Change: not only reusable across multiple clients but customizable for those clients. So, you know, it's not like we're trying to create an asset that we can then go and sell as a standalone asset. We know that these things need to be modified to a specific customer's requirement.
Speaker Change: And we have that flexibility in these assets that we've created to be able to do that. So, you know, if you were to look at the 13 digital assets, you would see that they cut across both horizontals and verticals.
Speaker Change: and combine both WNS proprietary technology as well as state-of-the-art third-party brand names like some of the ones that you've mentioned.
Thank you.
Speaker Change: Alok Bhatt, Nityanand Desai, B.S.S. Prof. at University of California, Manoj P.D. Copyright © 2020, New Thinking Allowed Foundation All rights reserved.
Thank you.
Speaker Change: Thank you. Our next question comes from Maggie Nolan with William Blair. Your line is open.
[inaudible]
Hi, thank you.
Speaker Change: So I wanted to ask about your expansion of client relationships. I mean, obviously there are some idiosyncratic things that you referenced, but overall, it seems like the majority of the client base is healthy and the number of expansions in the quarter was a bit of an uptick.
Speaker Change: Can you share any detail on the nature of these expansions or has anything changed in the business that you think is enabling a higher level of engagement with clients?
Thank you. Thank you. Thank you.
Speaker Change: Maggie, that's a great question. I think the first is philosophically, you know, we went through a perfect storm last year.
Speaker Change: Right, and therefore, I think it's important for us to recognize that and the fact that management of this company actually has spent a lot of time in terms of
You know working on
Speaker Change: you know, models and relationship kind of metrics that we want to track and we want to go after to make sure that every one of our clients first and foremost gets all the required attention that we don't see, you know, any surprises at any point in time. We've implemented a lot of that and I think as a result of that
Speaker Change: very, very strong and enhanced engagement across every one of our clients.
and a detailed increase in pipeline.
Speaker Change: growth in, you know, the existing, you know, processes, but more importantly
Speaker Change: allowing WNS people to actually interact across the length and breadth of each of our clients which over a period of time will lead to new kind of interesting programs.
Speaker Change: So that is the benefit that we, I think, actually are starting to see.
Speaker Change: Right? And I think as a result of that, you know, our confidence is strong about how it will, you know, result in great outcomes for us even next year.
Speaker Change: I think the other thing that's important, Maggie, is, you know, we've always kind of talked about a land and expand model, that, you know, the goal is to get in there, demonstrate our capability, and then move into other areas. And certainly, you know, obviously, the narrative that we've been dealing with.
Speaker Change: We've dealt with it with RPA, we've been dealing with it here with AI and GenAI. It is that productivity commitment that we have to give back to clients because we're automating things that traditionally have been done with labor.
Speaker Change: And I think that's part of what you're seeing here is that while we've got some of that downward pressure, as we automate existing pieces of business, clients are willing to give us new pieces of business, additional pieces of business that allow us to automate and enable them to do things differently that they wouldn't have considered previously.
Speaker Change: And I think that's part of what you're seeing as you look at that expansion number is that clients are increasingly willing to let us manage things that previously they wouldn't because our technology capabilities and our approach is fundamentally different.
Thank you.
Speaker Change: Okay, thank you. That's helpful. And then, if you think about the year ahead, calendar or fiscal, how are you thinking about your M&A strategy and putting some of that cash to work? Thank you.
Thank you.
Speaker Change: So look, I think we have, from a MNA perspective, we've always been very clear that we will acquire for capability.
Speaker Change: So that philosophy continues. There are certain identified areas that we have internally sort of agreed on, and we are evaluating multiple opportunities in those areas. Of course, from a timing perspective, we will, of course, let you know once we have something conclusive.
Speaker Change: But in a sense that activity is continuing and that's in line with our overall capital philosophy where Tuck-in acquisitions is one of our Is one of our strategic goals or imperatives that we've outlined in the company
Speaker Change: And that continues. So, yeah, so that's where we are. But I think that just to add to what Arjit said, you know, the approach has also been that if it's not the right asset at the right price at the right fit, we're not going to do it.
Speaker Change: I think, you know, we want to be impactful, we want to find assets that help improve our capabilities and plug holes in our offerings, but at the end of the day, if it's not the right fit, we're not going to force it. And that remains consistent in terms of philosophy with the company.
Thank you. Thank you.
And I'll just mention one thing here, which is that...
Speaker Change: I think all the acquisitions that we have done in the recent past have all been in the higher value-add areas that have helped the company take the, you know, the messaging to our clients to a different level.
Speaker Change: We have not wasted the crisis of last year inside the company and we have done a lot of work inside you know in order to make sure that first and foremost our core offerings are seen as
Speaker Change: We have added new offerings that have been created organically. Our M&A targets that we acquired over the last few years have all delivered very strongly in this last few quarters. And, like Harijit said, we will do whatever is right.
Speaker Change: Essentially, to add more capability, but really move up the value chain consistently around the whole data, analytics, AI, Gen-AI, and potentially one or two very carefully chosen verticals.
Thank you.
Thank you very much.
Thank you.
Thanks, Maggie.
Thank you.
Speaker Change: Thank you. Our next question comes from Puneet Jain with J.P. Morgan. Your line is open.
and many more. Thank you. Thank you.
Speaker Change: and many more. Thank you. Thank you. Thank you. Thank you.
Speaker Change: Hey, thanks for taking my question. Keshav, like over the last three months, we've been hearing a lot about agentic AI as the next step in evolution of generative AI and AI overall.
Speaker Change: What does increasing adoption of agentic AI mean for companies like yourselves and where clients are in the adoption cycle?
Absolutely. So, actually, again, like some of these other...
Speaker Change: technologies and movements that this company has been used to navigating.
across many years.
Speaker Change: Longer term, all of this will be opportunity because these are areas that we are constantly investing in, in order to make sure that we become far more efficient as a company.
Speaker Change: In short term, they will also be a threat as a result of.
Speaker Change: you know agentic AI. But the reality is we know all of that and we are investing behind it and you know as we talk numbers.
Speaker Change: to you on the street, we, you know, bake in some impacts from all of this in our productivity in terms of, you know, some of the, you know, opportunity losses and then grow beyond that.
Speaker Change: Long term, I will say that at this point in time, it is still a term being spoken about a lot.
Speaker Change: I can tell you that inside the company there's a lot of activity and lots of effort being made in order to test the model and try and bring this model into some of our core operations.
It is not that clients have adopted
Speaker Change: in an aggressive manner at this point in time because there are still lots of
Speaker Change: You know hallucinations and other things that have to be navigated. I would expect that over the next three years
Speaker Change: This is an area that will create tailwind for the industry and for WNS.
and therefore that's how we are working with it.
Speaker Change: creating offerings inside the company, building the right relationships with external partners to introduce agentic AI, and, you know, constantly using all of this, you know, in order to drive our topic.
Speaker Change: Sengupta, David Mackey, Sanjay Puria, Keshav Murugesh, Sanjay Puria, Keshav Murugesh, Sanjay
Speaker Change: And then second, given all the investments required to get there, to be a meaningful participant in this new wave, as well as your transition to GAP reporting, how should we think about new normals for margins for WNS?
Speaker Change: So, I think we covered that, you know, I think we mentioned earlier as well. From a margin perspective, I think we are very comfortable in the high 19-20% ranges on an unpaid basis.
Speaker Change: If you see where we are in Q3, you know we are at 19.3
Speaker Change: They mentioned the Q4 guidance implies an acceleration of margins driven primarily due to operating leverage as you get growth back.
Speaker Change: But if you ask us from a run rate perspective, it will continue to be in the 19.5-20% rates going forward. And that also bakes in significant investments around capability, including our ability to lead the market from the agentic AI perspective.
Speaker Change: Essentially, no change. I think we can make those investments within the construct of how we run the business. To your point, which is correct, the big difference you see in the margin profile from what people have historically seen, which is kind of that low 20s.
Speaker Change: is the roughly 120 basis point impact of the transition from IFRS to US GAAP.
Manish: Got it. Got it. Appreciate it. Thank you and congrats for GAAP reporting. Thanks, Manish.
Thank you.
Speaker Change: Thank you. And our next question comes from David Koning with Baird. Your line is open.
and many more. Thank you. Thank you.
Speaker Change: Oh yeah, hey guys, thanks and nice job. I guess my first question...
Speaker Change: It looks like the way you're guiding the rest of the year, that fiscal Q4 sequential growth is actually pretty normal. I kind of look back, it looks like you usually average kind of 3-4% sequentially. That's kind of what you're going to grow, maybe even a little better than that in Q4 sequentially. Is it, are you just back to kind of normalize now that some of these?
Speaker Change: Headwinds are in the past and there's really not anything affecting sequential, is that kind of the way to think about it?
Speaker Change: Yeah, I think so Dave. I mean, I think what you're seeing is on a sequential basis from Q2 to Q3
Speaker Change: and from Q3 to Q4, you don't have any of these idiosyncratic issues, so...
Speaker Change: whether it's the majority of the online travel issue, whether it's the healthcare client, whether it's the migration of the large internet client from on-site to offshore, these challenges from a sequential basis are behind us. And for the most part, as I mentioned earlier, when we talked about kind of the unusual headwinds walking into the ocean.
Speaker Change: the next year, which are about 2%, they're behind us on a year over year basis. So I think as you move into fiscal Q1, for example, of 26, what you should start to see is not only that good healthy sequential number showing up, but you're gonna start to see that year over year number showing up as well.
Speaker Change: Yeah, no, that's great. And I guess two questions kind of around the U.S. GAAP accounting.
Speaker Change: One is, was that any of the reason? I mean, cash flow was super strong in Q3.
Speaker Change: was maybe there's something different about conversion from US GAAP. And then the other one is, were there any kind of non-recurring type expenses in fiscal 25 that actually helped margin expansion in 26, given the cost of all that switching you did in 25?
Speaker Change: Yeah, no, I don't think so, Dave. I think, you know, in fiscal Q3, you know, we were under US GAAP for the first two quarters of this year.
Speaker Change: So, you know, there's nothing in the numbers this quarter that are unique from a cash perspective. If you want to look at what really drove the healthy cash generation in the quarter, it was the reduction in the DSOs.
Speaker Change: So good growth on the top line, reduction in the DSOs really helped us drive healthy cash. I think that sequentially we've always had improving cash as we move throughout the year.
Speaker Change: similar to what we've talked about with the margin profile, right? As revenue accelerates, as margins expand, as DSOs come down, those all are helping us drive a healthy cash amount.
Speaker Change: with respect to kind of the non-recurring issues on the margin side. I think the only non-recurring issue that we had, if you look at what's really dragged margins this year, it will be the SG&A coverage in the first half of the year. We've run roughly 18% SG&A in the first half of the year. We typically run
Speaker Change: Sanjay Puria, Keshav Murugesh, Sanjay Puria, Keshav Murugesh, Sanjay Puria, Keshav Murugesh,
Speaker Change: coming back, but you also have expense coverage coming back, which is what Arjit spoke about.
Speaker Change: related to next year we should not have those kinds of challenges so you know we should be kind of more to a normal cadence and a normal margin profile.
Speaker Change: across the year, but on a year-over-year basis that should allow us to hopefully show some some margin improvement in addition to accelerating top-line growth.
Speaker Change: And I just want to add, you know, while we're excited about all of this, we are more excited about the revenue momentum, the pipeline for growth.
Speaker Change: the needs of our customers and as a result of that our need to keep investing in areas around sales.
branding and marketing, technology.
Speaker Change: the whole digital stack, analytics, and we're not gonna hold back as far as these investments are concerned. So I just want to mention that we have brought in lots of very new, interesting talent into each of these areas.
while we expect it will not create a disturbance.
in terms of margin.
Speaker Change: because we are saving in other areas to, you know, invest in the data.
These are the areas that we will invest in.
Speaker Change: in order to demonstrate a much higher quality of revenue and profit momentum for the company long-term.
Great. Thanks, guys.
Thank you, Dave.
Thank you.
and others. Thank you.
Speaker Change: [music].