WNS (Holdings) Limited

Good morning, ladies and gentlemen, and welcome to the WNS Holdings Fiscal 2024 Second Quarter Earnings Conference Call. At this time, all participants are on 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 Executive Vice President of Finance and Head of Investor Relations. David?

Thank you, and welcome to our fiscal 2024 second quarter earnings call. With me today on the call, I have WNS's CEO, Keshav Murugesh, and WNS's CFO, Sanjay Puria. 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 30th, 2023. Some of the matters that will be discussed on today's call are forward-looking. Please keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties 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's website. During today's call, management will reference certain non-GAAP financial measures which we believe provide useful information for investors. Reconciliations of these non-GAAP financial measures to GAAP results can be found in the press release issued earlier today. Some of the non-GAAP financial measures management will discuss are defined as follows. Net revenue is defined as revenue less repair payments. Adjusted operating margin is defined as operating margin excluding amortization of intangible assets, share-based compensation, acquisition-related expenses or benefits, and goodwill impairment. Adjusted net income, or ANI, is defined as profit excluding amortization of intangible assets, share-based compensation, acquisition-related expenses or benefits, goodwill impairment, and all associated taxes. These terms will be used throughout the call. I would now like to turn the call over to WNS CEO, Keshav Murugan. Keshav.

Thank you, David. Good morning, everyone. In the second quarter, WNS delivered healthy financial results in the face of a challenging macro environment and continued to make progress on our AI and generative AI initiatives. The company posted Q2 net revenue of $325 million, representing a year-over-year increase of 12.3% on a reported basis and 11% constant currency. Sequentially, net revenue increased by 2.4% on a reported basis, and 2.1% on a constant currency basis after adjusting for FX. In the quarter, WNS added seven new logos and expanded 27 existing relationships. The company also posted adjusted operating margins of more than 22% and delivered year-over-year growth in adjusted EPS of 16%. While second quarter results were solid, we do expect increasing revenue pressure in the second half of fiscal 2024, driven by further reductions in volume commitments from certain clients, slowing demand for product-based work, and delays in the ramp of our large insurance captive. Overall, Q2 volumes remained fairly resilient However, we did see some erosion in September and have received additional reductions in volume commitments for Q3 and Q4 from certain clients. These reductions are most evident in the travel vertical and are driven by both macro trends and some client-specific dynamics. We've also seen a modest deterioration in demand for certain types of projects. This is impacting our analytics and procurement businesses, including a deceleration in growth for our newly acquired entities. Additionally, second half visibility has also been reduced to reflect client delays in the ramp of our large insurance carve-out. This revenue, which is contractually committed over the life of the contract, is now expected to show meaningful ramps in both 2025 and fiscal 26. Despite these short-term macro challenges, demand for our services remains strong and the demand to long-term outlook is excellent. Our new business pipeline continues to be extremely healthy. driven by clients' need to digitize and automate their processes, as well as reduce cost. The pipeline now includes more large deal opportunities than ever, which are spread across verticals, services, as well as geographies. We also continue to see solid deal flow and client decision making, with both new client additions and existing client expansions remaining robust. I would also like to reiterate that the pressure we are facing is entirely related to macro challenges and client specific issues and not impacts from AI or generative AI. We currently anticipate that the outsized revenue headwinds of 18% that we are facing in fiscal 2024, including the ramp down of a large healthcare process The transition of a top procurement client from on-site to offshore and slowdowns in both volume and discretionary projects should present an accelerated growth opportunity for WNS in fiscal 2025. I would now like to provide you with an update on our progress with AI as well as generative AI. First, let me begin by saying that we have seen nothing to date which changes our belief that AI and Gen AI are tools that are most impactful when integrated as part of a broader end-to-end digital solution. Every use case WNS is developing requires deep domain expertise, process knowledge, analytics capabilities, and human intelligence. to leverage these technologies and deliver business outcomes. In addition, co-creation remains foundational to how we collaborate with our clients to identify opportunities, build and then deploy these solutions. Since last quarter, we have formalized strategic partnerships with industry leaders, including Microsoft Azure, OpenAI, AWS, and Google, and are working closely with other partners like Appian, Imagia, Blackline, and Nice, who are building GenAI into their products. We have also rolled out company-wide AI and GenAI training programs, which today include 25 unique courses across four tracks designed to promote awareness, evangelism, expertise, and leadership. WNS has partnered with industry leaders such as Google, Mindmap Consulting, KPMG, LinkedIn Learning, and Oxford University to create these programs. As a result of our focused efforts, we have now expanded the number of use cases to more than 90, with approximately 20 currently built and ready for deployment, and an additional seven of our proprietary digital assets, which now have GenAI embedded. Our active client conversations have doubled to more than 40, with over 10 of these in advanced discussions and three already committed to GenAI implementation with us. And while we continue to make solid progress across the pipeline of activities, It is important to note that we are seeing many clients wanting to proceed carefully on Gen AI initiatives as they move towards the implementation phase. This is the result of a wide range of issues and risks, including build and run costs, data privacy concerns, legal and regulatory issues, and the inherent potential for poor data quality and false results. With that being said, we now have two examples of in-production solutions which we would like to share with you today. In August, the Smart Cube launched a new release of Amplify Pro, the company's on-demand digital procurement intelligence platform. The latest version is powered by GenAI and a custom natural language query framework to provide enhanced search capabilities, expanded category coverage, and improved user experience. The upgraded platform leverages GPT 3.5 models, which have been specifically trained for procurement professionals based on proprietary content curated by the SmartCube's category and commodity specialists. The model also provides traceability of answers to source data, an area where many current GPT models often fall short. The enhanced capabilities are currently being used by more than 80 clients who subscribe to Amplify Pro's unlimited paid tier model. And clearly, feedback in the early days has been extremely positive. We expect these new enhancements, along with future upgrades to the platform, will now help drive increases in paid subscription revenue. In addition, WNS has also recently implemented a new recovery as a service solution for a large client in the insurance vertical. This proprietary offering combines AI models and a team of claims specialists with deep insurance expertise to identify and recover property claims costs, which should have been paid by third parties. WNS has engineered, cleansed and structured the client's historical data, built and trained the models, integrated them into the client's cloud technology environment and started delivering immediate results. This solution was identified by the WNS digital consulting team using our co-creation approach and represents a completely new offering for the insurance industry and our clients. Claims recoveries are a key area of focus for PNC insurance clients. and the WNS solution is able to meaningfully reduce cost leakage when compared to current approaches. The offering has been priced in an outcome-based model where WNS receives a percentage of the amounts recovered for the client. This results-oriented approach ensures that we are rewarded for performance and that both WNS and the client share in the value delivered. In summary, While the macroeconomic environment is creating some challenges for W&S in the back half of this year, the company continues to expect double-digit revenue growth and industry-leading stable margins. We also remain optimistic that the company's healthy pipeline, strong underlying business momentum, and reducing headwinds set the company up for accelerated growth in fiscal 2025. In addition, we have seen nothing that changes our belief that AI and Gen AI represent more opportunity than risk for our business. By actively embracing this technology shift, WNS remains well positioned to deliver meaningful business outcomes and help our clients create value. I would now like to turn the call over to our CFO, Sanjay Puria, to further discuss our results as well as the outlook. Sanjay?