WNS (Holdings) Limited

Good morning and welcome to the WNS Holdings Fiscal 2022 Third Quarter Earnings Conference Call. At this time, all participants are in 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 Investment Relations. David?

Thank you, and welcome to our fiscal 2022 third quarter earnings call. With me today on the call, I have WNS's CEO, Keshav Murugesh, WNS's 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 third quarter ended December 31, 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 20-F. This document is also available on the company website. During this call, management will reference certain non-GAAP financial measures which we believe provide useful information for investors. Reconciliations of these non-GAAP financial measures to GAAP results can be found in the press release issued earlier today. Some of the non-GAAP financial measures management will discuss are defined as follows. Net revenue is defined as revenue less repair payments. Adjusted operating margin is defined as operating margin excluding amortization of intangible assets, share-based compensation, 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 Murugesh. Keshav.

Thank you, David. And good morning, everyone. First of all, my sincere thanks to every one of our employees and their families, our clients, all other key stakeholders for their huge effort, their sacrifices, and their resilience during this ongoing pandemic, we sincerely appreciate it. In the fiscal third quarter, WNS continued to perform well and deliver solid financial results in an overall healthy BPM demand environment. Third quarter net revenue came in at $261.2 million, representing a year-over-year increase of 16.3% on a reported basis and 16.1% constant currency. Sequentially, net revenue increased by 2.6% on a reported basis and 3.4% constant currency. In the third quarter, the company added 11 new logos and expanded 26 existing relationships. WNS posted strong adjusted operating margin of 21.4%, and adjusted EPS grew 11.1% year-over-year. In addition, we have increased the midpoint of our full-year guidance to reflect constant currency revenue growth of 15% and EPS of $3.34. Sanjay will provide further details on our third quarter financial performance in his prepared remarks. This quarter, I wanted to highlight WNS's differentiation and solid momentum in our data and analytics practice. Specifically, I would like to discuss our strategic approach, new capabilities, the benefits we are delivering for our clients, and some key metrics for the business segment. WNS has already two decades of experience driving business outcomes through data and analytics for all our clients. Our analytics practice currently has over 4,000 domain data science and data engineering experts focused on servicing more than 120 clients, including leading brands across industries and geographies. We are focused on solving industry-specific problems by harnessing the power of data and analytics and co-creating data-driven transformational solutions with our clients. In fact, today we are seeing requirements for analytics as an integral part of every new digital BPO deal. Our data and analytics strategy has three key foundational pillars. in line with our overall corporate approach to BPM, the first key element is domain centricity. At WNS, we believe that a deep understanding of the client's specific business sector and subsector is critical to sourcing relevant data, developing and customizing algorithms, as well as AI learning models, and then translating the technical results into actionable insights for our clients. This approach also enables us to integrate and embed analytics into our broader industry-specific solutions, which address the end-to-end business requirements of our clients. Recently, we have helped a leading global retailer not only optimize their existing online advertising sales, but we have also created a completely new stream of revenue using AI-based personalizations. This unique solution was made possible by our core retail domain knowledge combined with our ability to develop personalization engines at scale. As a strategic partner, we are paid a percentage of all incremental revenues the solution is delivering. The second core component of our analytics strategy is technology-led innovation. WNS is focused on utilizing state-of-the-art cloud-based analytics and AI technology capabilities to enable data-driven business transformation for our clients. Now the importance of this pillar has rapidly increased over the past few years as customer expectations around creating differentiation and reducing cost have accelerated. To enable client transformation, WNS has invested significant resources to build a complete data engineering and management services ecosystem leveraging intelligent cloud. This capability enables us to help clients create their data strategies and data management frameworks, migrate data workloads to the cloud, and solve their data management problems. In addition, our analytics, Products and Platforms Group continues to combine WNS's vertical expertise, internally developed IP, and third-party partnerships to provide our clients with domain-centric, intelligent platforms. One platform I would like to highlight for you today is called UAP, our Unified Analytics Platform. UAP is a comprehensive analytics platform deployed across industries, including insurance, banking and financial services, and manufacturing as well as retail. The platform is cloud-based, provides end-to-end integration from data to actionable insights, and is modular in nature. It can be easily embedded into the client's existing infrastructure as a plug-and-play system or deployed in an as-a-service model. For one of the world's largest insurance companies, WNS developed highly specialized AI and ML models, including fraud, NPS, indemnity, and subrogation to manage the end-to-end claims process from first notification of loss to claim closure. These models have now become a part of our UAP platform, which is helping save the client millions of dollars in claims, as well as indemnity costs. A second analytics platform, which we have mentioned on a previous call, is Scents, our cognitive data capture and processing platform. Powered by AI and ML, Scents imports both structured as well as unstructured data, applies proprietary algorithms to generate contextualized information, and then summarizes the data to deliver actionable business insights. This proprietary platform has the unique ability to combine, cleanse, and analyze large, disparate, and complex company data sets at an enterprise level. Scents is cloud-based, has been certified on Microsoft Azure, and is now in the process of being certified on AWS. This platform has been recently deployed for 12 of our clients across verticals, including three clients in the airlines industry. Scents is enabling these global airlines to process in excess of 12 million scanned pages of airway bills while increasing accuracy and reducing the amount of manual effort and service cost by 50 to 70%. More importantly, This platform is allowing the airlines to collect tens of millions of dollars in monthly revenue which have been held up in conflict due to incorrect airway bills, thereby improving the client's revenue as well as cash flow. The third pillar of our analytics strategy is our COE, or Center of Excellence Model, which is focused on creating analytics teams dedicated to highly specialized functional requirements. The COE model leverages the domain capabilities and technology assets developed in our first two pillars to deliver unique tailored solutions and provide clients with scalable capacity which serves as an extension of their own organization. These long-term engagements are strategic in nature and establish a high-value beachhead for relationship expansion. Today, we have developed a COE model with one of the world's leading beverage companies to provide customized analytics services for new product introduction and launch. The COE has delivered significant benefits to the client, including a 25% increase in emerging market sales volumes through revised media spend a 10% reduction in television advertising expenditures and over 40% reduction in primary research cost and early visibility to emerging competition. Overall, we are pleased with the progress in the area of data and analytics and we believe our approach and capabilities are really resonating well in the market. As a result, WNS has been able to grow our combined standalone and embedded analytics revenue above the company rate, with this segment of the business now representing approximately 20% of total company revenue. In addition, because of the value-add associated with our offerings, WNS's data and analytics practice is delivering margins well above company average. Looking forward, we are excited about the healthy growth opportunities for WNS despite the potential for ongoing pandemic-related volatility and the pressure associated with tight global labor markets. Our clients and prospects are aggressively looking for strategic partners to help create new revenue streams, reduce their cost, increase operating efficiency, and improve the customer experience by digitally transforming their businesses. We believe WNS now remains well positioned to deliver these benefits by combining our deep domain expertise and culture of co-creation with state-of-the-art technology, advanced analytics, and business process knowledge. The company remains focused on delivering long-term sustainable value for all key stakeholders including our clients, employees, shareholders, as well as global communities. I would now like to turn the call over to our CFO, Sanjay Puria, to discuss further our results as well as our outlook. Sanjay?

Thank you, Keshav. In the fiscal third quarter, WNS net revenue came in at $261.2 million, which up 16.3% from $224.5 million posted in the same quarter of last year and up 16.1% on a constant currency basis. Sequentially, net revenue increased by 2.6% on a reported basis and 3.4% on a constant currency basis. Sequential revenue improvement was broad-based across most verticals services, and geographies, and driven by new logos, the expansion of existing relationships, and increased travel volumes. In addition, WNS recorded $2.6 million short-term revenue during the quarter at company average margin. Adjusted operating margin in quarter 3 was 21.4% as compared to 24% reported in the same quarter of fiscal 2021 and 21.8% last quarter. Year-over-year, adjusted operating margins decreased as a result of employee wage increases, increased facility-related and travel costs, and a large amount of high-margin short-term revenue recorded in quarter three of last year. This headwinds more than offset increased operating leverage on higher volumes and favorable currency movements net of hedging. Sequentially, margin reductions were the incremental wage pressure in quarter 3 and additional facility related and travel expenses which more than offset benefits from productivity and operating leverage on increased volumes. The company's net other income and expense was eligible was negligible in the third quarter as compared to $1 million of net expense reported in Q3 of fiscal 2021 and $0.9 million of net expense last quarter. Year over year, the favorable variance is attributable to increased interest income driven by higher cash balances, other income including write-back and asset sale, and lower interest expense relating to operating leases. Sequentially, the favorable variance is the result of interest income on higher cash balances and other income from write-backs and asset sales. WNS effective tax rate for Q3 came in at 20.6%, down from 22.5% last year and down from 21% last quarter. Both year over year and sequentially, The reduction in our effective tax rate is the result of geographical profit mix and the mix of work delivered from tax incentive facilities. The company's adjusted net income for Q3 was $44.4 million compared with $41 million in the same quarter of fiscal 2021 and $43.1 million last quarter. Adjusted diluted earnings were $0.88 per share in Q3 versus $0.79 in the third quarter of last year and $0.86 last quarter. As of December 31, 2021, WNS balances in cash and investments totaled $372.1 million and the company had $8.4 million of debt. WNS generated $56.9 million of cash from operating activities this quarter and incurred $6.1 million in capital expenditures. DSO in the third quarter came in at 30 days as compared to 34 days last year and 31 days last quarter. With respect to other key operating metrics, total headcount at the end of the quarter was 49,610 and our attrition rate in the third quarter increased to 36% up from 23% reported in Q3 of last year and up from 34% in the previous quarter. We believe the attrition rate should stabilize in the 35% range for the next few quarters. Build seat capacity at the end of the third quarter decreased slightly to 34,474 seats. The seat utilization metrics which the company typically provides as a measure of infrastructure productivity are not meaningful given the company operated at 79% work from home globally in quarter three. 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 $1.8 billion to $1.22 billion, representing year-over-year growth of 16% to 18% on a reported basis and 14% to 16% on a constant currency basis. Revenue Guidance assumes an average British pound to US dollar exchange rate of 1.35 for the remainder of fiscal 2022. Consistent with our guidance approach in previous years, we currently have more than 99% visibility to the midpoint of the range and our projections do not include any uncommitted short-term revenue or improvement in travel volumes beyond Q3 levels. Full year adjusted net income for fiscal 2022 is expected to be in the range of $169 to $173 million based on a 75 rupee to US dollar exchange rate for the remainder of fiscal 2022. This implies adjusted EPS of $3.30 to $3.38 assuming a diluted share count of approximately 51.2 million shares. With respect to capital expenditures, WNS currently expects our requirement for fiscal 2022 to be up to $30 million. We'll now open the call for questions. Operator?

Ladies and gentlemen, if you wish to ask a question at this time, please press star then 1 or your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please 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 the line of Brian Burgin with Cowen. Your line is open.

Brian Burgin Hi. Thank you. Question on demand. I'm curious if you saw any change in client decision-making or project ramps as a result of the recent Omicron spikes and or has it been more consistent with last quarter? And can you talk about that in the context of industries, including travel?

Sure. Let me take that, Brian. I think the short answer, and Gotham can chime in here as well, but I think the short answer is no. We didn't see any change in behavior as a result of the recent spike from Omicron. We did see an increase in volumes in the second half of December and the first half of January here in the travel vertical associated with delays, cancellations, rebookings on the travel side, kind of similar to what we saw very early in the pandemic. But as a result, we did get some volume benefit in the travel vertical this quarter. But overall, in terms of decision-making, in terms of demand, in terms of The lead times, no changes whatsoever from a client behavior perspective.

Yes, and as David mentioned, besides the travel vertical, I think the growth has been broad-based and the demand continues to be extremely resilient across almost all our verticals.

Okay, that's good to hear. And then on the data and analytics practice, is this a business unit that's serving as something you're increasingly leading with as you go to market to win new BPM engagements or more so a cross-sell motion into the existing base? Maybe talk about how that's evolved and any additional detail you can provide on the relative growth or margin levels there.

Absolutely. So from the research and analytics practice, this has always been a unit that has functioned across all verticals And this continues to service across some of our key verticals, banking and financial services, insurance, manufacturing, and retail. And we continue to see consistent demand increase in this particular area. What we have seen is as we continue to drive this as our domain-based agenda, the need for embedded analytics as a part of the digital and transformation requirements that the clients are driving is consistently increasing. So besides being a standalone growth unit, the enabling portion in terms of our verticals continues to rise. So what you've seen is an above-industry average growth rate within this particular area, north of 30% this year, and margins that are well above the corporate standards that we publish.

I think the only other color I'd like to add to Gautam's commentary there, Brian, is the fact that I think we are seeing – an increased ability within WNS to lead with analytics as an arrowhead. We've always been focused on embedding analytics into everything that we do to help make the processes more efficient, more insightful. We've always had capabilities in terms of creating functional analytics that allow us to replace the analytics capacity within a client's environment. But I think some of the newer offerings that we've been developing, especially around AI and ML, are allowing us to kind of lead with analytics offerings and then cross-sell more of the end-to-end solutions. So, you know, the short answer is both. The reason we're in analytics is not only to lead with it and to differentiate with it, but also to make sure that we embed it in everything that we do. I do think, though, there has been increased ability for WNS to lead with analytics over the last year, year and a half.

Okay, thank you very much.

Thank you. Our next question comes from Ashwin Shervaker with Citi. Your line is open.

Thank you. Happy New Year, folks. Good top line trends here. My question is on margins. I get the qualitative explanation for the margin trend. Would it be possible to size the pieces because, for example, I think the wage increase obviously longer-term base impact facility stuff seems more intermediate and short-term revenue impact is obviously short-term. So would it be good to get a forward margin view and also quantification of the pieces?

So, Ashwin, you know, I think absolutely right that, you know, going forward, even though we have seen wage increases, you know, because of the, you know, replacement of some of the high resources with the higher compensation, but there are enough levers as we move forward to really offset some of this impact, whether it's a short-term or whether it's a directional impact. And, you know, all those levers, whether, you know, it can be driving our digital agenda, whether it's, you know, flattening the pyramid or whether doing or shifting the work in a different geography. So we believe that, you know, directionally we'll be able to really maintain the margin, you know, what we have delivered over here, you know, with continuation of our investment program, you know, whether it's around digital or capability additions.

And I think just to add to Sanjay's comments, Ashwin, when you look at this year's margin performance on an adjusted operating margin basis, we're looking at the full year coming in extremely similar to where we were a year ago, right? And that's despite having incremental wage pressure this year. That's despite having incremental pressure coming from you know, some of the reduced impacts of COVID, right? So our facility expenses have gone up on a year-over-year basis. Our travel costs have gone up on a year-over-year basis. Despite those two headwinds, if you will, to margins, we've been able to offset that with productivity and to a much lesser expense, FX. I mean, FX has given us about a 70, 80 basis point tailwind this fiscal year. But the bottom line is we've been able to offset those incremental employee costs, wage costs, attrition costs, and the incremental costs associated with COVID by becoming more productive, which I think is what Sanjay was alluding to earlier, the fact that there are multiple levers in our business that enable us to have the capability to offset increases from things like wages. And a lot of that has to do with the ability to automate and digitize client functions to drive the kinds of productivity that they're looking for.

Got it. Got it. Understood. And, you know, something that has been a trend for you the last few quarters here, you're adding a lot of new clients per quarter, but you're also expanding a lot of existing relationships, and it's going to just make the differentiation not just renewing but expanding, right? And as I try to frame the forward revenue growth impact of that, could you maybe talk through the various pieces of how you guys are thinking of it from a planning perspective?

Sure. Hey, Ashwin, this is Keshav. I'll take that. I'll take that. And, you know, first of all, a happy New Year to you as well. You know, I think that's a great question. The first thing I want to mention is just look at the quarterly results we just announced. This is the highest, you know, growth in a quarter in the history of this company. I really want everyone to take note of that, the fact that this has happened right in the middle of probably the biggest crisis, the biggest pandemic, and all this excitement that we just spoke about just before this. In addition, look at what we have just guided the market towards in terms of full year. With a 99% visibility, we're talking about, you know, 15% constant currency, you know, growth at the midpoint of the range. At the same time, our pipeline for business has never been healthier. You know, whether it is new business, whether it is completely new prospects, whether it is coming from, you know, broad-based across every one of our verticals, whether it is around all our core geographies, and whether it is coming from completely new age kind of clients that we have always wanted to bring into WNS, I think the health of the pipeline and the excitement that we are seeing in that pipeline is absolutely stunning. I must say that. In addition to that, I must say that every one of our existing clients are actually transforming their businesses and their business models and are reaching out to WNS to help them with not just the adoption, but also in terms of the model shift that they're going through. We've spoken about a lot of these words in the past. We've spoken about how we lead through digital, this, that, and the other. But as Dave also mentioned earlier, research and analytics is leading the charge. Our digital offering is leading the charge. Our vertical offering is leading the charge. The fact that we understand technology so well and have some great relationships across the spectrum of test providers and disruptors is again very much appreciated. So what I will say at this point in time is all this is resulting in a very solid pipeline. I would like to say that the business opportunity continues to be very, very robust. obviously there is all the time going to be some volatility that we expect but i think this company has learned to manage this volatility extremely well and i mean look at the green shoots uh some of our sectors you know are still not operating at normalcy you know we spoke about travel and and airlines but the reality is if as we interact with our clients even in those sectors all of them are looking for transformational models to come back quickly And even today's announcement that was made in the UK around, you know, going back to normalcy, again, is a bullish sign about how countries want to come back. Now, obviously, in terms of modeling this and, you know, and deciding how this will lead to next year's numbers, we will come back with, you know, specifics around April. But I just want to leave you with this theme that it has never been better for WNSP.

Yeah, and just to add one thing to that, Ash, you're spot on when you talk about kind of the early signs of growth, right? Certainly the new additions and the expansions are kind of what drives our growth. The new additions will drive growth over a three-, four-, five-year time horizon, but the expansions are really the ones that drive the short-term revenue acceleration for us. And when you look at the new additions, we're at 26 additions through the first three quarters of this fiscal year. We're tracking to be at or above the number of new client additions that we were at last year, which was a record level. In terms of expansions, we've now expanded 75 relationships year-to-date, which exceeds the total year number from last year. So what you see is an acceleration in those metrics. When you translate that to what you're seeing on the top line, Again, Keshav talked about having a great Q3 and having 15% organic constant currency growth at the midpoint right now, which is the highest ever in the company's history. But what he didn't tell you is that implied in that midpoint is 17% constant currency growth in Q4. So not only are you seeing the early metric signs in terms of additions and expansions helping drive this, But when you look at our quarter-to-quarter performance on a year-over-year basis, what you're seeing is accelerating momentum in our top line. And we're really excited to see that we've been able to build that momentum and, you know, carry that momentum hopefully into fiscal 23, assuming we don't have something falling out of the bottom.

Got it. Thank you all.

Thanks, Ashwin. Thanks, Ashwin.

Thank you. Our next question comes from the line of Mike Handen with Needham. Your line is open. Thank you.

Thank you. Congrats on the quarter. Given the favorable demand climate, Keshav and Dave, can you comment on any pricing power that you've seen really come into play, maybe help negate some of the margin headwinds that you've called out? And then sort of related to that would be, are you seeing maybe a different impact from productivity improvements that you typically see in any given year from your clients?

Spot on. I'll take a first cut at that, and then I think both Gautam and Keshav can kind of chime in as well. But you're spot on. You know, look, the bottom line is the first thing that's most important is that we bifurcate pricing from total cost of ownership, right? Given the current environment, given that, you know, employees, especially specialized skills, are getting more expensive, there is clearly an ability to increase pricing, if you will, on a unit basis. but let's not mistake that for where our clients stand in terms of total cost of ownership. Our clients will not pay more for the same service on a quarter-to-quarter or a year-over-year basis. So in terms of our ability to pass through increases to cover some of these costs, yes, there is some of that ability, but our clients fully expect that we're going to be able to offset those increasing rates with fewer resources or less cost, right? So this is where the ability to leverage technology and automation to make the total cost of ownership more affordable to clients becomes critical, because the clients at the end of the day, Mike, will not pay more to deliver the same type of work. So, you know, yes, there's some ability for us to manage wage increases and manage some of these costs, But the bottom line is the onus is on us to be able to deliver the productivity to make sure that that doesn't filter through to the client.

That's helpful, Dave. Thanks for that. And then just as a follow-up on the supply side, we did see hiring slow a bit here. Did we read much into that? And then I think Sanjay mentioned about attrition. You know, how do you sort of manage that? Does that in any way compromise growth going forward if it does start to continue to increase from here? Thanks.

Yeah. You know, so, you know, definitely maybe during this quarter what you would have seen that, you know, there is not an addition from a hiring from a net perspective. But if you recall, you know, we did mention about one of our South Africa client ramp down, you know, which itself was, you know, almost more than, you know, 1,000 FT reduction. So, in fact, we added over there as well as, you know, if you would have observed during the first half, we hired more than 5,000 people. So, you know, that was ahead of the curve, and that has helped to drive some of the revenue, you know, the growth what we are seeing. So as we move forward and based on the visibility, that will continue. But even during the quarter, there was, you know, gross hiring, which was getting upset by the South Africa client ramp down.

And then on the attrition, it should be – Could you just maybe walk through a few of the efforts to keep attrition at these levels, and does that in any way compromise growth going forward if it continues to increase from these levels? Thank you.

So let me take that, Mayank. So first and foremost, let me categorically mention that we have all the programs in place to attract and retain talent. You know, we will have attrition here. not in the areas where we want it. So, you know, there are certain specific areas which are high value areas and where the attrition is very much within acceptable levels. In some other areas, attrition could be higher, but our model provides for it. So, first of all, let me give you the comfort. The second thing that we, you know, state that it is not at all impacting our ability to deliver business, to sign on new business, and in fact to grow business even faster. Talent in certain areas is going to get expensive and we're seeing that. But at the same time, every single day, I'm personally interviewing and adding so many new senior leaders into WNS as well. And it shows very clearly that WNS has become a talent magnet. So not only are we able to retain the right talent that we want, we have the models in place to ensure that the engine of growth is continuously supplied. But more importantly, in some of the high-growth areas, we are pulling a lot of high-quality talent into the company. So very, very confident about our talent management programs. And if you look at the overall attrition numbers, it hasn't changed very much in spite of the fact that it's such a hot market, Mike.

Thank you, Keshav. Congrats on the quarter.

Thank you very much.

Our next question comes from Maggie Nolan with William Blair. Your line is open.

Thanks and congrats. To kind of build on that last question there, can you talk a little bit about your hiring goals over the next several quarters and kind of the dynamic of, you know, how much you've hired in advance versus what you're kind of expecting to support future growth?

Sure. Look, I think there's two things that we know, Maggie. One, we're going to have to hire here in Q4 to deliver the accelerated revenue versus Q3. Now, that should be significant hiring, but I think the biggest wild card for us, honestly, is twofold. One is when do our travel clients make commitments to volume increases that enable us to go out and hire and prepare to train those people? And then the second is what new business do we sign here in Q4 that's going to require hiring into the tail end of Q4 and into Q1, right? So we don't typically hire significantly in advance of resources, right? This is not a build it and they will come business model. So a lot of the hiring that we plan here in Q4 will be a function of what happens with demand, what happens with new wins here in Q4, and what happens with the travel vertical. You saw some of that in Q1 when we hired, I believe, 2,500 people, and the vast majority of those resources didn't generate revenue in Q1 because they were for the committed increases in the travel vertical that took place in Q2. So, you know, very difficult for us to say at this point how many people we're going to be hiring here in Q4, But the bottom line is we do expect, just based on the guide where it sits today, which, again, doesn't include short-term revenue and doesn't include a travel increase, just based on that guide, we do know that we need the net add here in Q4.

Thanks. And then on a different topic here, can you talk through some of the nuances and pricing engagements for analytics work, particularly in the context of, How much of this work is embedded analytics versus project-based work?

Yes, this is Gautam. So in terms of different models of pricing, we work predominantly either on a fixed price model, which is based in terms of repetitive programs or projects that the client keeps sending in terms of different areas of advanced analytics that need to be delivered as projects. The second area that we consistently work, especially in our embedded analytics side of the business, is as a UTP-based model or a gain share model, which then delivers the outcome that the client is looking for that adds further in terms of the profitability, actually, of the analytics function. And the third area is standard FTE model. where we are seeing a bigger uptick at the moment is through our gainshare models, which actually drive the revenue or the profitability of the client.

Yeah, and just to further what Gautam said, it's a great question, Maggie, because I think it really goes to the W&S strategy as it relates to analytics. You know, we report roughly 11% of company revenue on a standalone basis. This is where what we're doing in the analytics area is completely separate from other things that we're doing for that client, right? So the functional analytics that Keisha talked about where we're managing centers of excellence, that falls into that analytics bucket. The project-specific work that we're doing would fall into that analytics bucket. But the vast majority and another 9% of overall company revenue and the difference between the 11% standalone and the 20% total is is embedded into our industry-specific work. It's embedded into some of our customer experience work. It's also embedded into some of our finance and accounting work. So that's where the analytics work that we're doing really can't be separated or pulled apart from the value that we're delivering to that client. The good news, I think, from a business model perspective is if you really dig into the WNS analytics business, what you'll find is that less than 2% or 3% of company revenue is really project-based work. The majority of the analytics work that we do for clients is recurring in nature, and it's either embedded into what we do for that client or it's functional on a long-term contract.

Great detail. Thank you all.

Thanks, Maggie. Thanks, Maggie.

Our next question comes from the line of Moshi Khatri with Wedbush Securities. Your line is open.

Thanks. Great numbers. Happy New Year, everyone. Two things. I wanted to dig a bit deeper into the travel vertical. Can you maybe walk us through just to kind of get a feel on how this vertical kind of changed or evolved now that we're about two years into this pandemic? Are you changing in terms of how you go to market? It seems that you've been able to replenish some of the pipeline. Anything that's of note, and then I'll have a follow-up. Thanks.

Sure. Happy to hear to you too, Moshe. So from a travel vertical perspective, just as a background, the volume increases over the last number of quarters has been predominantly driven through the U.S. domestic travel market space. And we've got legards in terms of the hotel industry, some of the other regions of the world, Now in terms of, and most of the volume has been driven through the OTA industry, but where we are seeing a shift in dimension is more and more of the traffic is moving directly to the B2C side of the channel with hotels, airlines, et cetera, providing a greater thrust into this industry. So from where we see, and that's the area where we have consistently been quite good at in terms of delivering the end outcomes, and where it is reflected is the number of significant new client wins that we have had over the last 12 months, including benefiting from some of the industry consolidation that has happened over here So, again, the volumes continue to be driven through new clients, existing clients expanding their wallet share. And thirdly, in terms of as the international volumes start increasing and the demand starts increasing, we do anticipate that this area will further see growth.

And maybe I'll just add over there that – Over the last 18 months, we have seen the volume recovery after it got impacted from a pandemic perspective. But that still is not fully recovered, right? And those volumes, as we move forward, we believe that, you know, 2% to 3% of the company's revenue or like, you know, 6 million per quarter is still what we are expecting as we move forward to recover. Other than the bounce back, it is entire industry.

Yeah, and just to add one piece of color to that, Moshe, I think one of the interesting things that we've seen over the last couple of years is that while travel has obviously had its major challenges, I think one of the clear differences that we've seen in behavior is an increasing focus across the travel spectrum on customer experience and understanding that these clients need to change kind of how they operate, that they're going to have to re-earn the trust of travelers, whether it's on the OTA side or the airline side or the cruise side, and that the customer experience is going to be a huge part of that. So part of what we've seen in terms of our ability to add new clients in terms of expanding existing relationships has been the need for them to fundamentally change how they go to market and how they work with their customer base going forward. And we think it's created a huge opportunity for us We look at travel, and as Sanjay mentioned, we're certainly not fully recovered with several of our larger clients who are operating at levels that are still well below where they were pre-pandemic. But this is clearly a vertical that we believe we've got a unique capability, and it's a vertical from an investment perspective that we believe makes a lot of sense for us to double down on given the given our knowledge, given our capability, and given the opportunity going forward. So very, very excited about the travel opportunity over the next couple of years.

Thank you. Our next question comes from Puneet Jain with JPMorgan. Your line is open.

Hey, thanks for taking my question. Overall seat count during the quarter was down significantly, I think it was 600, 700 seats, and yet the facility-related expenses increased on a sequential basis. Was this cost increase driven by employees returning to offices sometime during the quarter? And more broadly, how do you see delivery model evolve over the medium term in terms of employees working from home versus from offices? Yes.

So, Puneet, you know, good point over there. Absolutely, you're right that the facility cost increased because of the employer returning to office, you know, from a work-from-office model perspective. So, last quarter we had 17% and this quarter we had 21% working from office. So, that was the one reason. And related to the reduction of the seed, you know, if you recall, we did mention about one of our South African clients ran down, and accordingly we did surrender the facility also. And also, one of the carve-out, what we did, and as part of our consolidation exercise, you know, we released another facility. So, you know, because that's how the synergy works, and, you know, that was the reason of reduction of the seed. But as we move forward, We are ready with all our models. It's a hybrid work from anywhere. All those models, we have invested into that. And as we move forward, we'll have to see how clients behave and how clients insist on that. And accordingly, we'll be ready with that. So I think we'll have to wait how things pan out as we move forward from here.

I think the good news is, Puneet, though, as we kind of move forward here, we know that there's going to be some percentage of our work that's either going to be structurally work-from-home or structurally hybrid. And what we believe this will allow us to do longer term is push the seat utilization numbers up for the organization and reduce the capital expenditure requirements as a percentage of revenue along the same lines. You know, those are two very positive trends, not just for W&S, but probably for the entire industry that we would expect to see as the dust settles on the pandemic and we get a better sense of, you know, what types of work clients want to be done in office versus remote.

Understood. And how are your sales cycles coming along? And how should we think about, like, the bookings? pipeline and the movement of deals within the pipeline as we think about next year or your medium-term growth rates?

As Keshav earlier alluded to a previous question, the pipeline couldn't be more robust in terms of size and the broadness in terms of across multiple verticals. So where we are seeing is decisions continuing to be taken by clients The conditions are starting off in multiple waves. North America continues to lead in terms of the deal pipeline. And, of course, what we're seeing is many more larger deals actually starting to flow into our pipeline, some of which could end up being amongst the top 10 very, very quickly.

And I think just to the pace, Puneet, to your question, look, I think Obviously, very large transformational kinds of deals require a lot of effort on the front end from a client perspective, right? I mean, without the proper road mapping, without the proper path being laid, I think you're going to have major challenges with any kind of a transformational initiative. So it's very difficult to hyper-accelerate an end-to-end business transformation initiative. But I think what you are seeing in terms of our ability to, for example, accelerate the number of expansions, is that once we have our foot in the door with a client, the ability to add additional processes is taking less time than it used to. So I do think you see an acceleration in the pace of expansions, but obviously the large transformational deals will continue to move at a pretty slow pace through the pipeline.

Understood. Thank you.

Thanks, Punit.

I just had a question at this time. Please press star then 1. Our next question comes from Dave Coning with Baird. Your line is open.

Yeah. Hey, guys. Congrats. Good job as usual. And I guess two questions. Yeah, sure. First question, just on margins, you made a lot of comments. But is it fair to say at a high level you're kind of saying – Don't worry too much about margins next year because even though you might have rising wages and costs of hiring with attrition, the offsets are efficiency, pricing, and labor mix. And you get the margins that probably aren't too different from this year.

Yes, you are absolutely right. That's why we go there are enough leavers. around it because wage pressure is going to be there for some while based on the demand-supply gap, what we are seeing into the industry, as well as as we return back to office, you know, those percentages, the cost of that definitely is going to be there. But, you know, as I mentioned earlier, there are enough levers, you know, because we are into the whole digital roadmap, technology automations roadmap, as well as, you know, in a different geography, you know, including the whole tier two strategy, you know, with that mix. So there are enough, enough levers to do that. So I think, you know, we expect the margin to be stable as we move forward.

And I just want to add that, you know, as, you know, with the kind of attention that the WNS brand is getting from prospects and clients and the way the hyper automation wave is progressing is, We will continue to make all the investments that we have traditionally made, and we'll accelerate those investments in every one of the areas that I spoke about earlier. So we are confident that we can make all those investments. We will accelerate those investments where it's required, and also have the levers to continue to maintain industry-leading margins. So I just want to give that comfort as well.

Yeah, great. Thanks. That's good. Second question, I guess, on tax rate, you made some comment about the mix of geos has created a little bit lower tax rate. And I think you guided last quarter, if I remember, maybe 23%, 24%, but it seems a little lower. Is that kind of a permanent thing? Like should we expect margins to be a little lower, you know, going into the next couple years too?

Yeah, you know, so I think, you know, there are various, you know, various combinations over there. Right earlier it went up to 23%, 24%. but it can be volatile quarter over quarter, but from a direction perspective, it again depends upon how the businesses come from in which geography, And accordingly, those couple of percentage movement will be there. As well as as we move forward, you know, there will be some sunset of our, you know, the tax exempted facility, whether it's a special economic zone or whether it's a PESA into the Philippines. So, you know, those impact will also be there. So I think, you know, it can be in the range of the 21 to 23 percent, depending upon the mix of the business and some of the sunset as we move forward.

I think the only other thing I'd like to add to that, Dave, is on a year-over-year basis, it's also important to note that last year, kind of in the height of the pandemic, we carried a significant number of excess resources, and we carried them in our high-profit geographies, right? So India, the Philippines is where we carried excess resource through the pandemic. As a result, the profitability in some of those lower-tax geographies was less. and that resulted in a higher effective tax rate for the company. So part of what you're seeing on a year-over-year basis is kind of the normalization of the amount of resource that we have relative to the amount of revenue that we have.

Gotcha. Makes sense. Well, thanks, guys.

Thanks, Dave.

Thank you.

Our next question comes from the line of Moshi Khatri with Wedwich Securities. Your line is open.

Hey, thanks. I had a follow-up, and I got disconnected before, so... The momentum continues to be very strong, as you suggested. We are getting closer to the end of the fiscal year. Can we assume that the mid-teens kind of growth and adjusted revenue is sustainable down the road?

Let me take that, Moshe. Look, I think obviously you look at the momentum coming out of the year, and we've now been consistently putting up kind of those mid-teens numbers, when you look at next year today, right, I think that the biggest question that we have is not really will we be able to continue to add at the same pace, but the question will be what, if anything, will be the headwinds to the year, right? And one of the things that we didn't talk about today is that, you know, despite the fact that we're putting up 15% organic constant currency growth, we've actually had an headwind this year that was a little bit outsized. So we've been able to grow, if you will, into a number that was larger than usual because, for example, we renewed a number of our large clients earlier on in the year. I think the biggest question for us next year isn't whether we're going to be able to put up, you know, 20% plus gross growth. The real question is for next year, is the headwind to the business going to be 5%? Is it going to be 7%? Is it going to be 9% like it was this fiscal year? So I think that's the one thing we've got to fix on. And then obviously when we guide, understanding that there will be a difference on a year-over-year basis just based on the fact that we will not include the short-term revenues into the guide for next fiscal year. So that always creates a headwind in terms of where we start the year from a guidance perspective versus the actual numbers that we put up the previous fiscal year.

Understood. Thanks for the call.

Thanks, Moshe.

Thank you. At this time we have no further questions in the queue. This will conclude today's conference call. Thank you for your participation. You may now disconnect.