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spk01: the WNS Holdings Fiscal 2022 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's 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 of Finance, and Head of Investor Relations. David?
spk12: Thank you, and welcome to our fiscal 2022 second quarter earnings call. With me today on the call, I have WNS' CEO, Keshav Muragesh, WNS' CFO, Sanjay Puriya, and our COO, Gautam Burai. A press release detailing our financial results was issued earlier today. This release is also available on the Investor Relations section of our website at www.wns.com. Today's remarks will focus on the results for the fiscal second quarter ended September 30, 2021. Some of the matters that will be discussed on today's call are forward-looking. Please keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, those factors set forth in the company's Form 20F. This document is also available on the company website. During this call, management will reference certain non-GAAP financial measures which we believe provide useful information for investors. Reconciliations of these non-GAAP financial measures to GAAP results can be found in the press release issued earlier today. Some of the non-GAAP financial measures management will discuss are defined as follows. Net revenue is defined as revenue less repair payments. Adjusted operating margin is defined as operating margin excluding amortization of intangible assets, share-based compensation, and goodwill impairment. Adjusted net income, or ANI, is defined as profit excluding amortization of intangible assets, share-based compensation, goodwill impairment, and all associated taxes. These terms will be used throughout the call. I would now like to turn the call over to WNS's CEO, Keshav Muragesh. Keshav?
spk10: Thank you, David. Good morning, everyone. Our fiscal second quarter results continue to highlight our differentiated positioning in the BPM marketplace and our solid execution. Net revenue for Q2 came in at $254.4 million, representing a year-over-year increase of 18.7% on a reported basis, and 16.2% on constant currency. Sequentially, net revenue increased by $18.1 million or 7.7% on a reported basis and 8.5% constant currency. In the second quarter, the company added eight new logos and expanded 32 existing relationships. Hiring was once again strong in support of these contracts with the company adding more than 2,500 employees during this quarter. WNS posted strong adjusted operating margins of 21.8% and adjusted EPS grew 17.8% year over year. Sanjay will provide further details on our second quarter financial performance in his prepared remarks. This quarter, I wanted to take some time to discuss digital transformation in the BPM industry and how WNS has positioned itself to help clients leverage digital capabilities to better compete. Last month, we released the results of a joint survey conducted with Corinium, which polled 101 executives across industries to assess the state of the digital transformation journeys they were going through. The result clearly highlights that the COVID-19 pandemic has accelerated digital transformation trends across the front, middle, and back office processes. Today, executives are looking to deploy the latest digital technologies to drive enhanced customer experience streamline operations, and improve decision-making through data and analytics. However, while 97% of the survey respondents claim they have started working on their digital transformation strategies, most acknowledge that they are still early in this process and that in many cases, they lack the needed data governance and cybersecurity foundations to properly leverage, technology, and automation. In addition, they also note that many of the technology capabilities required to accomplish their end goals, like intelligent automation, are still works in progress. The survey reinforces precisely what WNS is seeing in our business today, that the pace of adoption for digital process transformation is accelerating. and there is a massive opportunity in the coming years to help both new and existing clients with their transformation agendas. As you are aware, WNS has been investing in digital transformation to continue building our portfolio of solutions to meet this trend. Key investments include our co-creation and innovation labs, specialized centers of excellence, industry-specific digital offerings, and perhaps most importantly, the ongoing shift towards digital in our global workforce. We are excited to announce that WNS has recently opened two new state-of-the-art co-creation and innovation labs in London and New York. These centers help us engage directly with our clients via collaborative, leading-edge, digitally-focused workshops. The labs, which are being used virtually during the pandemic, enable WNS to better understand our clients' key challenges, opportunities, threats, and future requirements so that we can co-create tailored solutions designed to solve critical business problems and also meet their digital transformation needs. In addition to the innovation labs, WNS is also building function-specific centers of excellence, or what we call COEs, which combine our industry expertise and best practices, the latest digital technologies, and dedicated subject matter experts to create specialist teams that design and implement digital transformation solutions for our clients. To date, we have rolled out nine of these knowledge hubs, including insurance claims, retail banking, healthcare medical bill review, supply chain, cargo, and collections, and we plan to add an additional seven centers in the next 12 months. The combination of our COEs, innovation labs, and differentiated vertical structure is enhancing our ability to create industry-specific programs digital accelerators and solutions. These very unique offerings, which are resonating well with both existing clients as well as new prospects, allow companies to fast track their shift to digital with a ready-to-go solution. To date, we have created capabilities in key areas, including patient care management, insurance underwriting, customer experience, and data management. Many of these new offerings apply our disruptive domain-driven hyper-automation strategy that accelerates the adoption and scaling of real end-to-end digital transformation to deliver a step change in business performance. This advanced and future-ready solution brings together our industry, operations, and agile expertise with a flexible and leading-edge digital orchestration platform. The overall solution harnesses the power of intelligent data processing, artificial intelligence, machine learning, robotics, and APIs to deliver digital transformations for our clients, which in turn drive meaningful improvements in customer experience and business outcomes. One final area of digital transformation investment I would like to discuss is our global workforce as evidenced by the expansion of both our strategic hiring and talent management programs. Over the past few quarters, we have continued to add both depth and breadth to our digital transformation teams. We have created an experienced onshore digital transformation consulting team and advisory team in all of our key markets, including North America, Europe, and Asia Pacific. Client demand for these consultative capabilities is very high, and these teams are directly leading to new logo additions and relationship expansions. WNS will continue to build this team over the next several quarters in order to meet the growing transformation opportunity and further strengthen our strategic client alignment and relationships. We are also hiring key resources for our global digital transformation teams with a mix of highly specialized skills, including human-based design, user experience, organizational change management, agile methodologies, cognitive or AI, intelligent automation, computer vision, and data-driven transformation. The WNS transformation teams now cover all our verticals and horizontal units, and we have experienced leaders in place working directly with clients to assess, solution, develop, and drive this digital transformation. We are also investing in the reskilling and upskilling our global workforce for the digital world The WNS Education Learning Academy offers our employees the opportunity to become certified digital BPM professionals via both in-person as well as virtual classroom formats designed to broaden the capabilities of our people and create a digital-ready workforce. We have also created a digital futures training program designed to help middle-level and senior leaders build their digital acumen. This program is helping to improve discussions with clients regarding their strategic risks, opportunities and requirements. Through our strategic investments in people, solutions and technology, we are proactively shifting the overall profile of WNS. These investments will continue to expand in order to help our clients transform and manage their businesses to compete in a digital world. The good news is that our investments in digital transformation are resonating extremely well in this marketplace and are driving an expanded pipeline, healthy new logo addition, and differentiated value for our existing and current clients. Today, WNS has more than 40 digital transformations underway, with these clients, including 80% of our top 20 relationships. These transformation initiatives are across all our key verticals, geographies, and service offerings. Looking forward, we see an accelerating and expanding opportunity in the BPM space, driven by clients' need to leverage technology, analytics, and industry-specific expertise to transform their own business models and compete in their respective industries. While WNS is extremely well positioned to capitalize on this trend, we must continue to innovate, co-create, invest, and execute in order to deliver the business outcomes our clients require. We believe this approach has enabled WNS to generate industry-leading financial performance over the past several years and create sustainable value for all 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 our outlook. Sanjay.
spk11: Thank you, Keshav. In the fiscal second quarter, WNS net revenue came in at $254.4 million, up 18.7%, from $214.4 million posted in the same quarter of last year and up 16.2% on a constant currency basis. Sequentially, net revenue increased by 7.7% on a reported basis and 8.5% on constant currency. Sequential revenue improvement was broad-based across verticals, services, and geographies and driven by new logos, the expansion of existing relationships, and increased travel volumes. In addition, the company recorded $2.2 million of high-margin short-term revenue during the quarter. Existed operating margin in Q2 was 21.8% as compared to 23.4% reported in the same quarter of fiscal 2021 and 20.8% last quarter. Year over year, adjusted operating margin decreased as a result of employee wage increases, the reinstatement of our corporate leave policy, and increased facility-related and business continuity costs. This headwinds more than offset increased operating leverage on higher volumes and favorable currency movements net of hedging. Sequentially, margins improved as a result of operating leverage on increased volumes, high-margin short-term revenue, and favorable currency movements net of hedging. These benefits more than offset incremental wage increases provided in quarter 2. The company's net other income expense was $0.9 million of net expense in the second quarter as compared to $0.7 million of net expense reported in quarter 2 of fiscal 2021 and $5 million of net income last quarter. Year over year, the unfavorable variance is attributable to reduced interest income driven by lower rates, which was partially offset by lower interest expense resulting from scheduled debt repayments. Sequentially, the unfavorable variance is largely the result of $1.2 million of non-recurring interest income on tax refunds recorded in Q1. Dublin's effective tax rate for Q2 came in at 21%, down from 23.5% last year and down from 21.5% last quarter. Year over year, the reduction in our effective tax rate is the result of geographical profit mix driven by COVID impacts last year. Sequentially, favorability in the mix of profits between geographies and the mix of work delivered from tax incentive facilities more than offset the one-time tax benefit of $0.8 million recorded in Q1 relating to the tax treatment of our liquid mutual funds. The company's adjusted net income for Q2 was $43.1 million compared with $37.9 million in the same quarter of fiscal 2021 and $39 million last quarter. Existing diluted earnings were $0.86 per share in Q2 versus $0.73 in the second quarter of last year and $0.76 last quarter. As of September 30, 2021, WNS balances in cash and investments totaled $332.2 million and the company had $8.4 million of debt. WNS generated $47.3 million of cash from operating activities this quarter and incurred $7.1 million in capital expenditures. During the quarter, the company also made scheduled debt payments of $8.4 million. DSO in the second quarter came in at 31 days as compared to 34 days last year and 32 days last quarter. With respect to other key operating metrics, total headcount at the end of the quarter was 49,511 and our attrition rate in the second quarter increased to 34%, up from 24% reported in quarter 2 of last year and up from 32% in the previous quarter. Hiring in the quarter continued in support of new business ramps and volume increases in travel, which helped drive our sequential revenue growth. Built seat capacity at the end of the second quarter increased slightly to 35,134. The seat utilization metrics, which the company typically provides as a measure of infrastructure productivity, are not meaningful, given we are currently operating at 83% work-from-home globally. In our press release issued earlier today, WNS provided our revised full-year guidance for fiscal 2022. Based on the company's current visibility levels, we expect net revenue to be in the range of $984 million to $1 billion and $16 million, representing year-over-year growth of 13% to 17% on a reported basis and 11% to 15% constant currency. Revenue guidance assumes an average British pound to US dollar exchange rate of 1.36 for the remainder of fiscal 2022. Consistent with our guidance approach in previous years, we currently have 98% visibility to the midpoint of the range. and our projections do not include any uncommitted short-term revenue or improvement in travel volumes beyond Q2 levels. Full-year adjusted net income for fiscal 2022 is expected to be in the range of $163 to $171 million based on a 75 rupee to US dollar exchange rate for the remainder of fiscal 2022. This implies adjusted EPS of $3.18 to $3.34, assuming a diluted share count of approximately 51.2 million shares. With respect to capital expenditures, WNS currently expects our requirements for fiscal 2022 to be up to $35 million. We'll now open the call for questions. Operator?
spk01: Ladies and gentlemen, if you wish to ask a question at this time, press star, then the one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, press the pound key. In the interest of time and to enable everyone on the call to participate, please limit your queries to one question and one follow-up. Our first question comes from Brian Bergen with Cowan. Your line is open.
spk08: Hi, thank you. I wanted to dig in a little bit around travel. So can you just comment on where committed volume levels stand across travel clients today versus the depths of COVID or versus pre-pandemic levels? And then any notable change in just travel client forecasts, particularly as Transatlantic is reopened?
spk09: Yes. In line with our earlier philosophy, our forecasts take into account the committed Q2 volumes as provided by our clients. The committed Q2 volumes have predominantly been serviced through the OTA clients and especially related to domestic travel. what we do anticipate is as the lockdowns ease in different regions of the world and international leisure and international business travel starts picking up momentum and as airlines expand on their capacity, we do expect to see these volumes start increasing. But again, that's directly related in terms of the way the lockdowns start getting dealt with across different parts of the globe.
spk12: And just to add a little color to that, Brian, we ran about $40 million in revenue in the travel vertical during Q2, which means we're still running roughly 7% below the pre-pandemic levels. However, I think it's important to understand that part of the growth in travel is related to not only the recovery of volumes, but also new logos that have been added during the past year, year and a half, So when we look at travel today, we still think that we're probably somewhere around $5 million to $7 million a quarter that's left to recover in terms of lost volume. And as Gotham mentioned, that's primarily going to be in international travel and airlines-related revenues.
spk08: Okay. Thank you. That's helpful. And then, Keisha, just digging in around this onshore digital transformation consulting practice, can you give us a sense of the scale of that team? And is this an area you expect to accelerate through M&A? Are you primarily planning for organic development? And then you mentioned proactively shifting the profile WS. Does that imply the commercial structure or maybe an impact on margin may look a bit different as you grow this?
spk10: Sure, Brian, that's a great question. And yes, I think what we are doing at this point in time is to make sure that we are ahead of the curve in terms of the demand for some of these kinds of processes and some of these journeys that clients are looking to undertake over the next few years. So what we have started with is making sure that over the past few years we've been investing significantly in terms of the labs we spoke about, new practices, new offerings, as well as bringing customers really high-quality people into each of these offices. Intent, therefore, really is first and foremost to make sure that we are front and center in front of our clients in terms of leading them in terms of their digital journeys. The second would obviously be also to position ourselves as a smart company that will use this to expand our portfolio of clients and move existing clients down these kinds of journeys. Now, in terms of your other question, all options are really open. Obviously, we will invest organically in this area significantly, but at the same time, we are all the time looking very actively for any tuck-in kind of assets or any other M&A kind of assets that can be brought in that can enhance our capability here. So all options are open at this point in time.
spk08: Okay, thank you.
spk01: Thank you. Our next question comes from Mayank Tandon with Needham. Your line is open.
spk02: Thank you. Congrats on the quarter. Keisha, you did touch on some of the supply side issues in terms of retention and hiring, but I'm just curious, given that we're hearing this in the market from the IT services companies around digital talent, how are you addressing the ability to, one, recruit, retain, and then, of course, the subsequent wage pressures, how is that impacting your ability to grow? And does that present a gating factor to growth in the out-quarters if the resource-constrained environment continues to impact the industry?
spk10: Yeah, again, great question, Mike. And first and foremost, let me unequivocally say that there is no impact in terms of our potential to grow from this issue that a lot of our peers are talking about a lot. Now, first and foremost, I think the first thing I want to mention is there is definitely a great difference between the traditional IT players and the BPM players in all areas. For us, the attrition is really not in every issue. And of course, in the areas where we have overlap with them, we also have the same issues. But because of the fact that our business is so diversified across verticals, geographies, and processes, our focus really in terms of attrition really is on the high demand areas, finance and accounting, digital, tech, a few of those things. And I can tell you as a smart company, we have done lots of very interesting things within the company. First and foremost, to position ourselves as a company where which is a talent magnet, first and foremost. I mean, everyone wants to join a company that is growing faster than the market and is creating huge opportunities for them. That's one. The second, beyond that, is a company where they can experience new things and participate in the long-term growth story of this company. And the third is, you know, from a hygiene point of view, we are continuously taking a number of steps to ensure that, you know, we're able to attract customers deploy and retain this talent. And for us, it's very important to keep retaining this talent essentially because as you hire new people, you end up paying, you know, you end up with inflation in terms of those salaries. And I think our experience till now has been solid based on all the proactive measures that we have brought to play.
spk11: And maybe, you know, I might just add over there that, you know, there is no challenge from a supply-side perspective. You will see from the last two quarters, we have almost added more than 5,500 talent in the organization. And I think what Keshav was alluding is more around some of the new skills. And, again, you know, no challenge from supply, but, yes, they are just becoming a little expensive at this stage.
spk02: That's very helpful. And as a quick follow-up, and sorry if I missed this, In terms of the trajectory on revenue and margins in the back half of the year, should we expect a pretty even trajectory over the third and fourth quarters, or will it be skewed towards one quarter in terms of growth and margins to hit your full year number?
spk11: So, you know, from the back half perspective at this stage, based on the visibility of what we have, and specifically it is at a 98%, which is very consistent, You know, it's right now, you know, two flat quarters at this stage. And primarily, you know, we have not factored any uncommitted revenue, which are the short-term revenue generally we see as we progress during the quarter, as well as also not factored any growth or the travel volumes beyond quarter two, what we have. because clients still are very conservative from giving any forecast, because in earlier quarters, if you remember, we mentioned that once they give their forecast, 90% they are committed to it. So they are very conservative at this stage. And also, there were some known ramp downs in the second half, which was already baked in our guidance earlier, based on some of the committed productivity on the contract renewals what we had earlier. As well as we took a business decision for one of our clients in South Africa, not to pursue further because it was more a commoditized process. And so we just walked away from that. So based on that, it seems to be a flat quarter at this stage, but there is a potential of an upside over there as we get better visibility. On the margin front, right now at this stage, backup is in the range of 21% to 22%. Again, you know, because of the increased employee cost, which Keshav, you know, spoke about, you know, no short-term revenue, some of the increase in the facility cost as well as, you know, some of the business continuity cost as people and the talent may come back to the office. Currently, we are at 17%, you know, and that we anticipate and assume that, you know, that will increase and acceleration of our digital investment program. So, you know, that will be around 21 to 22%.
spk02: Got it. That's very helpful. Thank you so much for taking my questions. Congrats on the quarter. Thank you, Mike.
spk01: Thank you. Our next question comes from Moshi Katri with Wedbush Securities. Your line is open.
spk03: Hey, thanks. Very strong numbers. Congrats. Two questions. First, you spoke about wage comp increases during the quarter. Can you remind us how the cycle works at WNS? One, do you typically provide these wage comps during the year? Is there anything different in terms of wage comp increases this year versus what we've seen in the past? And then I don't know if I heard a lot about bookings in general, but is there a way to kind of break it down between renewals and new logos? Thanks.
spk09: Yeah. So in terms of our wage increase strategy, predominantly a large chunk of our associates have their wage increase happening around the month of April, but we follow a yearly cycle. So what ends up happening is the remainder of the folks who do not have their wage increases falling in the month of April, based on their anniversary cycle, they go through a quarterly kind of wage increase.
spk12: Just to add a little bit of color to that, Moshe, we have As Gotham said, we typically provide the bulk of our wage increases April 1st, which is why we've historically had very soft margins in the first quarter. What is unique at this point in time, and both Sanjay and Keisha have alluded to it, is the fact that we have provided for additional compensation increases as a result of the current environment that we're operating in. So there is some incremental wage pressure to kind of our normal cycles, if you will, in this given year, and that's really just a function of trying to manage attrition, trying to make sure that we've got key resources in the right places to service our clients. Like Keisha mentioned, we don't think we have a supply issue, but we do have a little bit of a cost issue, and that's part of the reason that we've got muted margin expectations for the second half of the year.
spk03: And the booking mix?
spk12: Yeah, look, I think we're obviously pretty happy with how we've progressed here. Again, you know, 15 new logos through the first half of the year, a significant acceleration in terms of the number of relationship expansions that we posted. I mean, this quarter we did 32. I believe in the first quarter we did 17, so 49 through the first half of the year, which is pretty solid for us. You know, Typically, Moshe, when we look at our business at the end of the day, we're going to end up with somewhere between 2% and 4% of our revenue in a given year coming from new logos. And I don't think this year is going to be any different than that kind of a profile.
spk03: And just, if I may, just a follow-up, another follow-up. You indicated a couple of quarters ago that while building your pipeline of new business, you got a couple of new logos from the travel and hospitality verticals. Can you kind of give us an update on how these have been proceeding in terms of ramping?
spk09: Yes, they have been ramping up. Both of them are strong OTAs, and they've been proceeding as per plan. That's where we had anticipated these ramp-ups to come in, and we had hired in advance during and they've gone live as per plans, and we expect that as volumes start recovering over the next couple of quarters, we should start getting a lot more ramp from these same clients.
spk12: And that's part of the reason, Moshe, when we spoke a little bit earlier about the travel vertical, when we look at the progress that we've made in terms of getting back to that $40 million a quarter level, Some of it is the recovery of volumes that were lost during COVID, but as Gautam mentioned, some of this are the new logos that have been brought on and are helping contribute to the solid sequential acceleration that we've seen in our travel revenues.
spk03: Great. Thanks for the call.
spk12: Thanks.
spk01: Our next question comes from Maggie Nolan with William Blair. Your line is open. Thank you.
spk05: I wanted to dig in on those 32 client relationships that you expanded. This does feel like a step up, and Dave, you alluded to how much it is compared to last quarter. Is there a reason behind that, why you saw such an acceleration in that expansion this quarter, or is there an inflection point here that we should be paying attention to?
spk12: Maggie, I never really kind of give a ton of credence to any one quarter, right? I mean, you know, we have some quarters where we had a dozen new logos and then some where we had two or three. I do believe, though, when you look at the first half of the year, and as I mentioned, the fact that we've added 49 new – we've expanded 49 relationships versus a total of 71 last year – it means that we're tracking for better expansions. And I think this is a function of the farming organization. I also think it's a function of digital transformation. The fact that we are able to help clients do things now that they weren't doing two years ago, three years ago, allows us to get into new areas. It allows us to do things within our existing customer base to help them become more competitive. So we talk a lot about digital transformation and how it creates certain headwinds from a productivity perspective. But the flip side to that is, and we've been speaking about it for a while, the flip side to that is it does expand our addressable market. What technology and transformation allows us to do is get into areas that previously clients weren't willing to look at outsourcing. And I think that's some of what you're seeing here in terms of the expansion profile.
spk05: Okay, that makes sense. And then how's the acquisition pipeline looking? It looks like maybe you might have spent some cash on an asset this quarter as well based on the cash flow.
spk10: So let me start by saying that, you know, Dave was absolutely right. I think the adoption of the model for us has been extremely strong and digital transformation has is definitely making a huge difference for clients and prospects. We're also seeing the model shift and the validation of the work from home and the hybrid models now tested and proved, and therefore a lot of prospects now wanting to climb on the bandwagon. So all of this is actually resonating very well from a pipeline point of view. Now, from our point of view, therefore, it means how are we continuously investing in terms of, you know, ensuring and enabling those capabilities that clients are looking for or leading them with new capabilities. Now, some of this can actually be built in-house. A lot of it is being done. And some of it will actually have to work on this make versus build versus buy kind of decision. And that's where I must say that our M&A pipeline has been extremely strong. In fact, lots of very interesting discussions going across very key areas from our point of view. But having said that, you know, from our point of view, you know, we will do whatever we need to do at the right time based on, you know, our usual philosophy that I've explained before. And during this quarter, we did something very interesting, you know, which I'll ask Sanjay to talk a little bit about. But again, that expands capability for us, which we can now take across many other clients.
spk11: Yeah, so, you know, as Keshav mentioned, definitely the pipeline is pretty much healthy and and we are pursuing a lot of deals in various capabilities, what exactly we are looking for, which will help us to accelerate the growth, including some of the new processes from some of our existing clients, what we have done, which have accelerated the growth, and one of the things, what we did in shipping and logistics area, which has expanded the new processes, including adding almost more than 1,000 headcount over there, Because that adds the capability in the entire domain-specific shipping and logistics capability and area. And such kind of deals, as well as the more acquisition plan, what we are having. But as I said, it's a matter of the right asset at the right valuation and at the right time.
spk12: Just to clarify a little bit, just so you understand, that acquisition process, value that you saw in the cash flow statement and the just under $2 million that was showing up. That relates to what Sanjay was mentioning here, which was taking over a process from one of our large existing clients. This actually would fall more into the category of a captive carve-out than a real acquisition. We had kind of talked about the different ways we were looking at expanding our capabilities, and some of it was kind of the traditional M&A route, but some of it also was increased opportunities in the captive units of our existing clients who were looking for, you know, not only people to take it over, but to take it over, improve it, and help them provide the kind of transformation that they're looking for going forward. And that's exactly what this deal was.
spk05: Okay. Thank you.
spk01: Thank you. Our next question comes from Ashwin Shivakar with Citi. Your line is open.
spk07: Hey, thanks. Good quarter, guys. My question is with regards to comment that you had that 80% of your top clients you're already working with on digital pursuit and so on and so forth. And I wanted to delve into that a bit more to kind of figure out what are the others doing? Is it just a matter of time? Obviously, you've been pivoting towards more and more digital for some time, but from a sales perspective and relationship management perspective, do you have the full set of capabilities today? How is that evolving? Could you kind of give us an update?
spk09: Yes, great question, Ashwin. So from our perspective, as Keshav alluded, over the past few years, we've been consistently investing across our digital capabilities, whether it is the transformational experts, the domain-based transformational experts across our analytics expertise, AI, ML, and also people with strong API and low-code skills. All of that put together, along with the domain expertise and the number of the verticals that we have enabled us to deal with clients as they've started maturing and aggressively wanting to adopt digital transformation. So my view is it's not just the 16 of the top 20. The others also are going to start following suit quite quickly. It just depends in terms of where their industry is currently in terms of their impact due to COVID. And as they start emerging from that particular area, they're going to start adopting this more aggressively. what it has also enabled us to do is expand, as David alluded, our relationship and our strength of engagement with each one of these clients and grow them beyond where they used to be pre-COVID levels. So that's helping us strongly.
spk12: Look, I think, Ashwin, when you look at the consultative capabilities that we've added, you know, from a digital perspective, what we're actually doing is helping lead our clients, right? helping them understand, you know, not only kind of where they are today but where they should be going and leveraging not only that transformational consultative capability but also the knowledge that we have from having worked with several other clients in their respective verticals to understand and bring that understanding of kind of where the industry is headed as well. So, you know, I think what you see from a visibility perspective, obviously having 80% of the top 20 clients currently in some form of digital transformation journey makes a lot of sense, right? These are very large relationships where we do a lot of work for them. But it's also important that, you know, Keisha mentioned that we've got 40-plus of these underway at this point in time. So there's another 24 clients beyond the top 20 where we've got ongoing transformation activities going on with existing customers. The other thing that's important to understand is when you look at the pipeline and you look at the new opportunities that are out there, digital is pervasive in every single one of them. So you're not seeing labor arbitrage deals showing up in the pipeline anymore. Clients want to take that step to go from doing work in-house to being digitally transformed day one. They don't want to have to go through a traditional outsourcing process in between. So we're seeing this digital across everything.
spk10: Yeah, Ashwin, Keshav, I just got to finish up there because I'm quite excited with your question and all these answers. But I think WNS is no more just being seen as a company that will save money, not just a safe pair of hands, not just a cosplay, but frankly, a partner that has invested ahead of the curve and is now transforming how clients will do business in the future. Now, so we are very excited about the pipeline. We are very excited about the agenda of our clients and prospects. But I can tell you there are many of them who are still not ready for this, right? And with the kind of investments we have made, particularly the digital talent at the front end, the co-creation labs that have now been placed at their disposal for them to come and visit, as well as that actually involve, you know, digital transformation, the ability for us to now lead these clients in terms of how they should present themselves to their end customers in the future is the new magic that is happening. I think that's what's really exciting for us for the long term.
spk07: Got it. My next question might actually tie into that answer you already gave, Keshav. As I was looking through the metrics, I sort of noticed that U.S. dollar clients have, or U.S. dollar percentages have jumped almost towards kind of 50%. I'm kind of thinking, is that because U.S. clients are leading the recovery, or there's more of a travel component that's making a comeback, and we should then see the rest of the world follow, or Is that just some sort of timing quirk that we're seeing?
spk09: Yes, Ashwin, you're spot on. The U.S. is leading the recovery in terms of increased adoption of digital and moving down the path of outsourcing services. We're starting to see strong tractions emerge out of Europe, followed by the rest of the world. So I think it's just a matter of time while the rest of the regions start catching up. But yes, the U.S. is leading the way at the moment.
spk11: And maybe, Ashwin, I'll just add that also you're right. You know, it's also from a travel recovery perspective, specifically from the U.S., where, you know, Gautam did allude about one of the, you know, couple of the ODA clients in North America where the recovery is happening. So that is also leading towards the U.S. dollar increase.
spk12: Yeah. That being said, you know, while it's great to see and we see the percentages shifting, I think the other thing that's important to remember is that, you know, All the other geographies, with the exception of one, continue to grow, right? So obviously the U.S. is leading. You look at the U.S. in the quarter up 24% year over year, which is great, and it's clearly important, right? But Europe is up 13%. The U.K. is up 15%. So it's not just the U.S. It's just that the U.S. growth is somewhat outsized compared to the other geographies.
spk07: Thank you. Two questions and six answers. I should stop while I'm ahead. Thanks.
spk12: Thanks, Ashwin. Thank you, Ashwin.
spk01: Thank you. Our next question comes from Puneet Jain with J.P. Morgan. Your line is open.
spk00: Hey, thanks for taking my question and great quarter, guys. Thanks, Puneet. Keshav, are you actively looking at portfolio management and the services you provide to your clients? You talked about transformation, setting up offices in London, New York. getting out of South Africa-based client. And second, as you focus on providing those transformation services, what is it that WNS brings to table over traditional consulting firms that many of those clients might have been using for similar services in the past?
spk09: Thanks, Puneet. This is Gautam. So in terms of the strength that we bring in in comparison to a number of the consulting firms is our depth of domain in specific areas of the industry. So it's linked directly to the operational depth that exists. So where it comes to, to give you an example, you take claims in an insurance industry. We are one of the market leaders in terms of PNC claims across the board. What we are able to do is take the industry best practices use our domain expertise, our analytics knowledge, and our extensive benchmarking that we do to adopt what is best in breed and help lead the clients, which actually takes it beyond the traditional OPEX savings and leads to savings such as around cost ratios, which directly impact their balance sheet at the end of the day. You take an example, another example being on our healthcare side of the business, where with the changing regulations that are underway in the U.S. with regard to patient care management, including turnaround times, et cetera, our strong digital suite of products, what they end up doing is allow patient care to be done appropriately whilst at the same time meeting the regulatory requirements, which directly have an impact on the company's new sales additions of patients or members. So it's a domain that, along with what we've built over the last few years, that makes it extremely unique.
spk10: And, Puneet, I think the core difference between the traditional consulting firms and us is we don't just tell, we deliver. We actually execute and deliver ROI to our clients. I think that's a huge difference, and clients are lapping it up.
spk12: And to the first part of your question, Puneet, which was on kind of the portfolio management side, Two different things embedded in there. One is when you look at transformation capabilities and services and look at the potential for M&A and strategy down those levels and the other areas of investment, these are clearly about capabilities, about making sure that we've got the right services and solutions to support not only where our clients are today but where our clients are headed. The conversation about the South African client that we've decided not to pursue moving forward is a completely different decision. And that was more a business decision around a specific piece of business with a specific client and the client's view as to, you know, how that business needed to proceed. So, you know, clearly we were misaligned in terms of our objectives with their objectives on this one piece of work. The good news is we continue to maintain that client as a client. We continue to do high-value work for them. So it was just something that seemed to work well for both of us that, you know, they wanted to go in a different direction for that one piece of work, and we didn't want to provide the work in that type of a model.
spk00: Got you. Makes sense. And did you size the impact you expect on second half from South Africa-based client? And also if you can comment on pricing environment. Thank you.
spk11: Yeah, so, you know, from a South Africa-based client specifically, I think the second half impact, you know, will be around, you know, maybe $7 to $8 million at this stage, you know, because as we said that we, you know, we decided for the commoditized process, we are not going to go ahead. But at the same time, you know, we are continuing with the high value, you know, the services for that client. So the client is still there, and that's where our focus is.
spk00: And can you comment on overall pricing environment for your services?
spk12: Yeah, I think overall the pricing environment remains stable and healthy. You know, all of our clients are looking for transformation. They're looking for things to be more productive. They're looking for things to better position. But from a pricing perspective, no change.
spk00: Got you. Thank you.
spk01: Thank you. Our next question comes from Vincent Colicchio with Barrington Research. Your line is open.
spk06: Yes. So are you experiencing a faster ramp of large contracts? Any change there?
spk09: No. No change from that perspective. We continue to have all transitions starting off as per the predetermined dates that we have agreed upon. In a number of the clients, we are seeing the transition happening in multiple ways, and the pace of which is starting to increase over the last couple of months.
spk12: The reality is, Vince, even for these very large transformational kinds of deals, it's still going to be done in a phased approach. It needs to be done that way from a risk mitigation perspective. So the reality is, even if the scope of a deal is to move 60 processes over the next three, four years, you're going to see five to ten move in phase one, and once they've been transitioned and stabilized, we'll move to phase two. So, you know, that's not going to change. You know, our business can't be done in parallel from that perspective. It needs to be done serially.
spk06: On the travel and leisure side, it sounds like the demand is broad-based, but I'm curious, are some of your larger clients largely driving the improvement?
spk12: Yeah, I think as Gautam mentioned, it's been driven largely by our U.S.-based OTA clients that have driven the bulk of the recovery, right, which makes perfect sense in terms of the alignment with what the travel industry has seen. You know, for us, the airlines, the European OTAs, the agencies, these businesses have not fully recovered. You know, and this is what presents the opportunity over the next two, three, four quarters for us as their business firms up because we have not included a pickup in those businesses and for those specific clients either in the back half of this year or going forward. But, you know, we certainly believe that will happen over time as, you know, the country-specific kind of rules and regulations, if you will, about COVID and entry requirements start to ease. So, you know, as long as the pandemic continues to ease globally, we're going to see this business start to pick up and come back, and this certainly presents an opportunity for us going forward.
spk06: And what verticals should grow fastest in the second half sequentially?
spk12: I think you're going to continue to see strength in travel. I think you're going to continue to see strength in shipping and logistics. These would be the two focus areas that I would look at They're also the businesses that are least exposed to some of the known ramp downs that we've discussed as well.
spk06: Thanks for answering my questions.
spk12: Thanks, Vince.
spk01: Thank you. And I'm showing no further questions at this time. This will conclude today's conference call. Thank you for participating. You may now disconnect.
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