WNS Holdings’ Profit Slide on Foreign Exchange Headwinds

Revenue growth driven by addition of new clients andexpansion of existing relationships

Source: Company's Website
Source: Company’s Website

WNS (Holdings) Limited (NYSE: WNS), a leading global business process management (BPM) company, announced its Q1 FY17 financial results on July 14th, 2016. WNS Holdings offers BPM services to over 200 global clients and has domain expertise in key industry verticals including Travel, Insurance, Banking and Financial Services, Manufacturing, Shipping and Logistics, Retail, Healthcare, and Utilities. The Company delivers BPM services such as finance and accounting, customer interaction services, technology solutions, research and analytics and industry specific back office and front office processes. As of June 30th, 2016, WNS Holdings had 32,448 professionals working across 42 delivery centers worldwide including China, Costa Rica, India, Philippines, Poland, Romania, South Africa, Sri Lanka, the U.K., and the U.S. Read more about WNS’s financial results below.

Q1 FY17 financial highlights

During Q1 FY17, revenues grew by a solid 10.3% to $148.0 million, as compared to the year-ago quarter and by 3.7% on a sequential quarter basis. Revenue less repair payments in Q1 FY17 increased 11.3% to $140.8 million as compared to the year-ago quarter and by 4.0% on a sequential quarter basis. Excluding exchange rate impacts, revenue less repair payments on a constant currency basis grew 16.7% in Q1 FY17 versus the year-ago quarter and 3.7% on a sequential quarter basis.

During Q1 FY17, WNS Holdings continued to face foreign exchange headwinds from global currency softness against the U.S. dollar. On the brighter side, these impacts were more than offset by revenue growth from new client acquisitions and the expansion of existing contracts. Revenue growth was also driven by the Healthcare, Retail, Shipping and Logistics, and Travel verticals during the quarter under review.

During Q1 FY17, WNS Holdings’ operating margin fell to 9.8%, as compared to 11.5% in the year-ago quarter and 13.2% in Q4 FY16. Adjusted operating margin during Q1 FY17 was 18.6% versus 20.0% in the year-ago quarter and 22.0% in Q4 FY16. On a Y-o-Y basis, these margins were negatively impacted by higher annual wages, balance sheet adjustments due to a depreciating pound, and higher compensation associated with payment of bonuses to its Indian employees. In addition, GAAP operating margins were adversely impacted by higher share-based compensation. However, these costs were partially offset by greater operating leverage from higher volumes. On a sequential basis, margins fell as a result of wage increases and currency movements net of hedging, which were more than offset by benefits from productivity improvements and higher volumes.

Hurt by higher expenses and foreign exchange headwinds, WNS Holdings’ profits slid to $12.2 million in Q1 FY17 as compared to $12.8 million in the year-ago quarter and $15.9 million in Q4 FY16. During Q1 FY17, adjusted net income increased by $1.2 million to $23.9 million, as compared to the year-ago quarter, and down $3.0 million as compared to Q4 FY16.

WNS Holdings ended Q1 FY17 with $146.6 million in cash and investments, and no debt. The Company generated $17.7 million in cash from operations, and incurred $5.2 million in capital expenditures. The Company’s days sales outstanding were 29 days as compared to 28 days in the year-ago period and 28 days in Q4 FY16.

Non-GAAP financial highlights

WNS Holdings’ non-GAAP Q1 FY17 revenue less repair payments jumped 11.3% to $140.8 million, from $126.5 million in the year-ago quarter and by 4.0% from $135.3 million in Q4 FY16. Adjusted net income increased to $23.9 million compared to $22.6 million in the year-ago quarter and $26.9 million in Q4 FY16. WNS Holdings reported adjusted diluted earnings per ADS of $0.45 compared to $0.42 in the year-ago quarter and $0.50 in Q4 FY16.

Other highlights

During the quarter under review, WNS Holdings added six new clients, expanded six existing contracts, and renewed 21 contracts. The Company also completed its acquisition of Value Edge, a leading provider of commercial research and analytic services to the pharmaceutical industry. With this acquisition, WNS Holdings emerged as the leader in the high-growth pharma BPM space, enabling it to pursue opportunities in new client acquisition, cross-selling of services, and leveraging of technology assets.

Share repurchase

During Q1 FY17, WNS Holdings repurchased 750,000 ADS’s at an average price of $30.49 per ADS, totaling $22.9 million.

Guidance for FY17

WNS Holdings is updating its guidance for FY17 based on current visibility levels and exchange rates. Revenue less repair payments for FY17 is expected to be between $541 million and $569 million, up from $531.0 million in FY16, assuming an average GBP to USD exchange rate of 1.30 for the remainder of FY17. Adjusted net income is expected to range between $94 million and $100 million versus $103.0 million in FY16, assuming an average USD to INR exchange rate of 67.5 for the remainder of FY17. Based on a diluted share count of 53 million shares, the Company expects adjusted diluted earnings per ADS to be in the range of$1.78 to $1.89.

Stock Performance

W2WNS Holdings’ stock stood at $26.34, falling 1.13%, at the close on Friday, July 15th, 2016, having vacillated between an intraday high of $26.89 and a low of $26.29 during the session. The stock’s trading volume was at 314,447 for the day, which was higher than its 3 months average volume of 201,600 shares. The Company’s market cap was at $1.40 billion as of Friday’s close.

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