WNS (Holdings) Ltd

NYSE:WNS

Earnings Call Transcript 2021-Q2

[Operator]

[00:00:00] Good morning and welcome to the WNS Holdings fiscal 2021 second quarter earnings conference call. At this time, all participants on a listen only mode. After the managements prepared remarks, we will conduct a question and answer session and instructions for how to ask. The 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 Mack, the executive vice president of finance and head of Investor Relations. David.

[David Mackey, EVP, Finance & Head of Investor Relations]

[00:00:34] Thank you and welcome to our fiscal 2021 second quarter earnings call. With me today on the call, I have witnessed the CEO of WNS Keshav Murugesh, CFO Sanjay Puria, and our CFO, Gautam Barai. A press release detailing our financial results was issued earlier today. This release is also available on the investor relations section of our Web site at www.wns.com. Today's remarks will focus on the results for the fiscal second quarter ended September 30th, 2020, 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-gap financial measures, which we believe provide useful information for investors. Reconciliation's of these non-gap financial measures to gap results can be found in the press release issued earlier today. Some of the non-exempt financial measure’s 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 an eye 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 the CEO of Keshav Murugesh.

[Keshav Murugesh, Group CEO]

[00:02:39] Thank you, David, and good morning, everyone. We hope you and your families are safe and well. Company is pleased with our second quarter financial performance and our ability to adapt our delivery and cost structure in this rapidly changing environment. Net revenue for second for Q2 came in at two hundred and fourteen point four dollars billion, which represents a year over year decrease of three percent on both reported and constant currency basis. Sequentially, net revenue increased by 13 million dollars or six percent on a reported basis and four percent constant currency. During the quarter hour, delivery capability continued to improve, with supply averaging 98 percent of clients’ demand. In Q2, as compared to Q1, revenue increased, attrition accelerated, and the company proactively managed components of our cost structure, including a onetime change to our corporate policy. As a result, adjusted operating margins improved by almost 600 basis points sequentially to twenty-three-point four percent. While we continue to see covid related volume challenges with clients in a few of our key verticals. Our overall visibility has improved to the point where we are now comfortable resuming annual guidance. Although our ability to service client requirements has steadily progressed over the past few quarters, we still remain heavily reliant on servicing our global clients in a work from home model. Today, approximately 15 percent of our work is being performed in facilities, with the remaining 85 percent delivered remotely. As we have mentioned before, to minimize health risks to our employees and potential disruptions to our clients, the company is not planning to move large numbers of employees back into our offices until the pandemic is behind us.

[00:05:08] In the interim, we remain focused on enhancing our remote cyber security protocols and fine tuning a longer-term hybrid model solution that will allow us to seamlessly move delivery between office and home. Looking forward, the business environment still remains somewhat volatile with client behaviours’ varying by industry and by country. From a demand perspective, we are expecting modest revenue pressure in the second half of the year in the travel, insurance and utilities verticals based on projections provided to us by our clients. These forecasted reductions, primarily for customer interaction services, are being driven by the potential for lower activity levels, and we expect these headwinds will be partially mitigated by volume strength in the healthcare and banking and financial services verticals. Overall, the pipeline continues to be extremely healthy in terms of new additions, ongoing activity levels and deal signings. We continue to see an increase in the number of deals closed with the average deal size somewhat smaller than in previous years. In the second quarter, we closed eight new logos and expanded 17 existing relationships, while the pipeline sites deal flow and contract signings are robust. We've seen some delays in the conversion of large sized deals into revenue. This is not unexpected in the current environment, and it is important to note that while some of these deals are taking longer to run, they are not being canceled.

[00:07:09] One thing that has become abundantly clear over the past two quarters is that the global pandemic is accelerating demand for technology enabled process transformation or hyper automation. Both new and existing clients are increasingly looking for ways to help innovate and lead the transition of their business models to enable them to reduce costs, increase operating flexibility, navigate to the impacts of the pandemic, and drive sustainable competitive advantage. In short, the goal for BP partnerships is shifting from managing disruption to creating disruption. This trend is well aligned with Nunez's strategic investment programs, which remain focused on enhancing our capabilities in the areas of domain expertise, technology and automation, advanced analytics, consultative business transformation and reskilling of our global workforce. Our investment approach has enabled us to create unique digital accelerator's platforms and fireworks. I apologize frameworks designed to deliver the hyper automation lines require. In the past few quarters, we have rolled out three new digital capabilities, which I would like to highlight on today's call. The first offering is called Experience, which is our digital customer experience solution. Experience integrates human assisted design and domain expertise with a device driven omnichannel compositional insights and consulting that customer experience strategies. This solution enables brands to have another fix driven, intelligent interactions with their customers, which helps accelerate speed to market, improves customer satisfaction and enhances brand loyalty.

[00:09:21] The second solution is, quote, to sustain our cuts, which helps companies to accelerate the shift to a digital finance function. GPS enabled CFOs to release working capital, minimize revenue loss, reduce total cost of ownership, and improve customer retention by first expanding the scope of the cash collections cycle and then automating the entire process. The cutest solution integrates data analytics and intelligent automation to create an end to end digital solution for the finance function. The final offering, I want to discuss is called sense. Is a data extraction and contextualisation platform powered by the AI and machine learning that extract? Categorises and Combine's structured and unstructured data to deliver real time cognitive insights. It is platform agnostic, customizable and scalable. We've currently deployed scans for some of our retail health care and insurance lines, and this platform is now delivering their business benefits, including reduced cost, enhanced data accuracy, reduced risk and increased OTTAVI for our clients. All three of the solutions I have mentioned are followed by a combination of W.A. proprietary technology, strategic third-party relationships and best interests process knowledge designed to align US capabilities with the future of BBM. They also leverage witnesses, deepening expertise in disruptive digital models, including our experience servicing some of the world's leading Internet brands. Our footprint with these innovative firms continues to grow, and I'm happy to report that in fiscal 2020, 17 percent of our revenue came from Internet based companies, up from 14 percent reported in fiscal 2000 19.

[00:11:46] This represented a year over year growth of 38 percent for the first half of fiscal 2021, Internet based revenues continue to contribute 17 percent of continuing revenue. Of company revenue, that is in summary, we expect some ongoing volatility, given the current business environment and must remain cautious regarding the potential for additional covid-19 waves, further economic impacts and changing client requirements. Despite these challenges, doubleness is extremely confident in our financial strength, differentiated capabilities, solid underlying business momentum and proven capability to execute. The company is properly positioned to help clients meet the need for domain led hyper automation and will continue to invest in our business given the long-term BPM opportunity. While in the short term, covid has created volume, pressure and business volatility, as belief remains strong that the pandemic will serve as a catalyst for accelerating the adoption of BPM and the shift towards higher end digital solutions and agile engagement models. The V.A. remains focused on driving long term sustainable value for all of our key stakeholders, including our employees, clients and shareholders. I would now like to turn the call over to our CFO, Sanjay Puria, to discuss further our results and the outlook Sanjay.

[Sanjay Puria, Chief Financial Officer]

[00:13:41] Thank you. Issue in the second quarter, revenue came in at two hundred and fourteen point four million dollars, down 2.8 percent from two hundred and twenty point seven million dollars posted in the third quarter of last year and 2.8 percent on a constant currency basis. Sequentially, net revenue increased by six-point four percent on a reported basis and 4.0 percent on a constant currency basis. The estimate estimates that in order to an African demand, reductions impacted revenue by approximately nine percent and supply sharply reduced revenue by approximately two percent. From our brief originally demanded answers from people whose lives have been most significant in the traveler's insurance and utilities were declines in the second quarter as recorded, four point one million dollars of shot don't normally see any revenue which was bought at modest amount company average. This one amount was driven by the community, but through charges fees associated with lying around and shot down. Project projectable existing operating margin in Colorado was 23-point four percent has gone back to the point. Five percent reported in the same quarter of fiscal twenty seventeen-point five percent last quarter. You're all your adjusted operating margin was pressured by revenue. In fact, including lower demand and supply constraints, the cost of getting access has gone and additional expenses associated with the discontinuity. This has really been offset by the one-day reversal of our provision. We see increased margin by four million dollars Proactiv management of this industry spending, lower travel and facility related costs and favorable naficy sequentially margins improved due to increased revenue.

[00:15:58] The U.S. was lower energy costs and the ones that benefit from the reversal of our lead provision did benefit more than offset the most impact of currency movement and hedging the government is now expense was by seven million dollars of net in the second quarter and got back to one point one million dollars of net expense reported in a quarter of the year 2020 and half a million dollars of that expense last quarter. Year over year. The firebolt that is attributable to law is an expense resulting from scheduled prepayment and reduce IFRS interest costs, which more than offset reduced interest income resulting from lower sequentially. The increase in expense is due to reduce inverse bingo. They will pay lower interest rates. The effective tax rate for new gaming equity three-point five percent from twenty point two percent last year and down from twenty five point one percent last quarter. Used in the quarter this afternoon is primarily due to a mix of profits between geographies and the mix of well delivered from tax incentive facilities. The companies at a different angle it all while thirty-seven point nine million dollars compared to twenty point six million dollars in the first quarter of the year 2020 and twenty six point one million dollars last quarter. Earnings were 73 cents per share in quarter to was seventy nine cents in the second quarter of last year and this end last quarter as of September 30th, 2020, doubling balance is in cash and investments total three hundred and sixty six point five million dollars, and the company has twenty five point one million dollars of debt that generated fifty six point seven million dollars of cash from operating activities this quarter and in good six point five billion dollars in capital expenditures.

[00:18:18] In order to also make sure that the amount of eight point four million dollars you saw in the second quarter gave me thirty-four days has gone back to twenty nine. It is last year and I nine last quarter. The order you increase in the year or. Is the result of an agreement on concessions provided there is life and some delays. We are pleased to announce that the company's annual general meeting held on September 24, 2020, the shareholders approved a new share repurchase program authorizing the company to buy back up to three point three million shares or 36 months, meaning everyone 2021. This is in addition to the one point one million shares remaining on. The prior authorization expires on March 31, 2021. With respect to other key operating metrics, gold at the end of the quarter by forty one thousand four hundred and sixty six and I was recently in the second quarter was 24 percent down from the original post reported in the quarter of last year and from 11 percent in the previous quarter. The also the organization they reflect the impact of orientating on global labor markets, business capacity at the end of the second quarter remained steady at thirty four thousand six hundred 4636. The Visualisations and Macris, with the company for while as a measure of infrastructure productivity are not meaningful given the current problem environment, as you mentioned earlier in the year issued should today dominate the institutional guidance based on the company's current visibility levels.

[00:20:20] We expect revenue to be that age of eight hundred and fifty million dollars, hundred and fifty four million dollars, representing a year over year revenue decline of their own to five percent revenue guidance assumes. And how do you respond to U.S. dollar exchange rate of one point to name for the remainder of the year 2021? Excluding in that, revenue, guidance represents constant currency revenue reduction of seven percent to four percent. We currently have ninety eight percent visibility to the point of the release and guidance does not include any short term non-recurring revenue of the second half of the year. We also must expect the ongoing business volatility over the next few quarters. Positive or negative. We should have a balanced supply, humility, conversation and a new project that we are just visiting on is expected to be that age of hundred and twenty one, two hundred and twenty nine million dollars based on a seventy three point five that will be used for the remainder of the first year. Anyone. This is life adjusted EPS of dollars and produce anything to dollars. And what the U.S. assuming a double digit growth of approximately 15 million shares for 2021, we expect capital expenditures to reach up to twenty one million dollars. We will open the mall for question. Operator.

[Operator]

[00:22:04] Yes, thank you ladies and gentlemen, if you quit, if you wish to ask a question at this time, please press star, then one on 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 to enable everyone on the call to participate. Please give me your queries to one question and one follow up. Our first question comes from the line of Korey Marcelo from Deutsche Bank. Please proceed.

[Korey Marcello, Deutsche Bank]

[00:22:39] Hey, guys, thanks for taking my questions. I just wanted to start out on the guidance, obviously, it looks like the guidance implies revenue growth gets worse in the back half before it gets better. Can you just clarify the expectations on third quarter versus kind of the exit rate assumed in the guidance and then maybe give some more clarification on some of the delays in the forecasted reductions you guys talked about?

[Keshav Murugesh, Group CEO]

[00:23:06] So we hope the guidance, you know, is based on our visibility, what we have at this point of time, it is 98 percent visibility to the midpoint of the guidance and goal of things which I like to highlight. That just doesn't factor the short term revenue, because if you don't ever really we don't, you know, include that it doesn't factor any further supply improvement beyond 98 percent. So this quarter we had a 98 percent of our supply. So due to the fact that any further improvement and it's all sort of in fact, some of the rebound in volumes because of, you know, we depends on the client giving us the projections for the volumes in the second half. And flying at this stage has been minimized on the visibility, what they have based on the uncertainty out there. And you know, what we like to highlight that is, you know, incentive for them to be ready for the line, given a large percentage of the forecast was applying for a White House committee. And accordingly, they have already at this stage, you know, from three perspective, we expect the policy to be slightly lower as compared to quarters. Do you know, like if you add on the revenue, which was that in order to be just not there and of the factor. So there's going to be a gradual growth as compared to.

[Korey Marcello, Deutsche Bank]

[00:24:38] Got it. And then I guess, you know, looking at the headcount moderation, you know, has this kind of fully rightsized that kind of at this point or given some of that those demand headwinds, you know, the forecasted demand headwinds and travel and insurance and stuff like that. You mentioned, do you think there's some more headcount reductions and compensation reductions to come? Just trying to think about the margins in the case there. Thanks, guys.

[Keshav Murugesh, Group CEO]

[00:25:07] So very busy at the moment is it's almost normal in about the 20 to 25 percent range, which is what we forecast for the next couple of quarters. We do continue to be looking at getting some amount of excess headcount over the next few quarters. And depending on the volume that we experience, even something that it was goes and I the idea that there, you know, from a margin perspective and also that we should have known what it is, not to mention, but at the same time, we have to start hiring the guy, you know, from a revenue growth perspective because of the mismatch in the geography and the location as well as the skills and timing perspective.

[Sanjay Puria, Chief Financial Officer]

[00:25:51] So just to clarify, Corey. Yeah, we do. We do. And are carrying excess resources right now. The plan is to do that through the balance of the year. If you look at the expectations for margins in the back half of the year, they're kind of in that 1999 and a half percent range. And to be very honest, the only difference between that projection and kind of the 20 percent plus where we typically run is the fact that we are carrying excess reserves relative to the roughly 250 million a quarter that we've got baked into the back half of the year.

[Korey Marcello, Deutsche Bank]

[00:26:28] All right, thanks, guys.

[Operator]

[00:26:32] Our next question comes from Maggie Nolin from William Blair. You may begin.

[Unidentified Analyst]

[00:26:38] Hey, this is Terrence for. Real quickly. I wanted to ask about the financial services segments. I know you said you're 98 percent surprised to hear that 98 percent of supply. Where do you stand in terms of the overall backlog of the financial services work? I think last quarter you said you're at five percent of demand. You weren't able to tap into how much of that has been included in guidance and kind of where we at with that.

[Keshav Murugesh, Group CEO]

[00:27:04] So let me take that to our current supply is 98 percent. That's where we averaged in the second quarter as well. That is our expectation for the back half of the year. So if you look at the portion of our business overall that we're estimating at this point in time that we're not going to be able to service because we're in a word from our model, it is the two percent that is the gap between where we are today and where we could be if we were able to service everything. So, you know, as opposed to kind of that 95 percent or the five percent that we thought was kind of that high value couldn't do in a remote world, we've been able to address about three percent of that since the end of last quarter.

[Unidentified Analyst:]

[00:27:49] Ok, thanks. That's helpful as a follow up, I just want to see where do you see the most opportunity, I guess, to expand the number of processes you're performing for clients and what industries or service offerings are all around?

[Sanjay Puria, Chief Financial Officer]

[00:28:06] The political strategy that I'm bullish on, of course, is the health care vertical in terms of our lifestyles, the state of the practice, the banking and financial services market space, and also our consulting and professional services business. These are the boards because we are absolutely bullish.

[Unidentified Analyst]

[00:28:28] And just a quick follow up, what's giving you that that sentiment and outlook?

[Sanjay Puria, Chief Financial Officer]

[00:28:35] In terms of our existing guidelines, in terms of the demand that they are placing before us, and secondly, it goes off our baseline that we are seeing the deals that are flowing through the hopper, both of those gives us the confidence.

[Unidentified Analyst]

[00:28:50] All right, thank you very much.

[Operator]

[00:28:55] Our next question comes from Bryan Bergin from Cowan, you may begin.

[Bryan Bergin, Cowen]

[00:29:01] Hi, guys, thank you, wanted to follow up on the outlook around the deal delays, you talk about what type of duration you're seeing those clients choose with the slower dealerships. Are they putting the work off to 20, 21? Is it an indefinite period or just somewhat shorter? I'm curious if you're seeing a potential wave of conversion here forming that may be released or if it's more short term and distributed?

[Keshav Murugesh, Group CEO]

[00:29:24] Deficit Gout multi-stop in terms of the pipeline, of course, is an extremely healthy pipeline. We haven't seen it as strong as this or the last of the last few years in terms of any of any outsourcing program. The impact of the masturbator, you're starting to see the transition. So what we're seeing at the moment is VBAC most medium to large sizes, but transition over to 2015. But what we're seeing now is about a five year period supply that is smaller by side by side in terms of transitioning.

[00:30:00] So that only difference people within Boscov that are you know,

[Sanjay Puria, Chief Financial Officer]

[00:30:04] It's more it's more, Brian, around the fact that, you know, the deals are moving forward. Right. They're not that they've been pushed out for six months or 12 months. They are moving forward, but they're moving forward at a slower pace and they're moving forward with more measured components of process.

[Bryan Bergin, Cowen]

[00:30:22] Ok, and then follow up on margin here. Can you talk about the sustainable cost actions versus short term benefits of excluding the four million benefit here in two still solid levels? I'm curious on the levers you used that are structural for you for longer term versus some of the shorter term actions, just really to help give us a sense for the potential ranges you expect here in the second half.

[Keshav Murugesh, Group CEO]

[00:30:49] Sure. Let me take that, Brian. So if you look at the margin in the second quarter, right, and obviously it was extremely healthy, almost 200 basis points of that improvement came from one time leave reversal. That was really one of the things that we did as an organization to enable us to carry excess resource. But by changing the policy, it necessitated taking a one time accounting get to the books, which was four million dollars. That piece is clearly non-recurring going forward. So that's 200, 200 basis points of improvement will come up immediately. You know, the other thing is when you look at what happened in the quarter, obviously from an improvement perspective, the mismatch between revenue and headcount improved dramatically because revenue increased in headcount decreased. And that should be structural. What I was referring to a little bit earlier when I spoke about the fact that we still have excess resource excess capacity, is the fact that margins aren't quite where they should be yet because of that mismatch. And again, the hope is one of two ways to address that, you know, over the next six to 12 months is to not only increase the revenue, but also make sure we're right sizing the headcount in terms of not just total numbers, but also skill sets required to deliver where the growth is. So, you know, the only major issue in Q2 that's really nonrecurring in nature would be the four million dollars from the lever versus. Thank you.

[Operator]

[00:32:28] Thank you. Our next question comes from line Mayank Tandon from Needham.

[Mayank Tandon, Needham]

[00:32:36] Thank you. Congrats on the quarter, you know, I've talked about the growth of Internet companies, I was just curious if you could talk a little bit more about the impact of automation in general, how that's impacting your pipeline, conversion of deal flow, sort of long term implications of that more so now post sort of this issue and then just generally more around digital transformation, how that's also playing into your growth long term.

[Keshav Murugesh, Group CEO]

[00:33:04] I think the consistent investments that they've been making on the domain based strategy in terms of the digital and automation assets is actually quite favorably for what we're seeing is the need for a fairer distribution. And automation is consistently increasing. And that's data analytics. Engines that we spoke about is working towards our advantage to be able to drive a lot more of this automation effectively. And what that is leading to is more business being discussed, more from an a disability.

[Mayank Tandon, Needham]

[00:33:45] Got it. OK. Also on that note, I was sort of. I think it's just an echo mine, I think, oh. Apologies, OK? I was going to ask as a follow up question around the sales process, how that's evolved in the last few months, you know, are you now starting to see a faster sort of deal conversion time? And on that note, could you talk about the deals that you've done this quarter? What were the different verticals that you won that across and just kind of mentioned? The deal sizes are smaller right now. Is that just a function of clients getting more carefully or is there something else more systemic to the fact that deals are smaller today than they were recovered?

[Sanjay Puria, Chief Financial Officer]

[00:34:28] Yes, the meals are smaller, and at the moment it's only because of the fact that, as we mentioned earlier, it was a plane crash setting the wheels on transition over a longer period of time, given the extent of genes involved during this. So that's one of the key factors in terms of the smaller sized deal, in terms of the way it goes. And it's been reasonably broad based across our health care, political, across the shipping and logistics vertical, across our insurance vertical.

[Keshav Murugesh, Group CEO]

[00:35:01] Sometimes I just add a little bit here, because Justicia actually these are very interesting times, so while we speak about the second half and we speak about, you know, the guidance looking the way it is at this point in time, based on our depending so much on, you know, clients inputs, and obviously they're being quite careful in terms of how they're given it. The reality is that, you know, the pipeline actually has never looked better. The quality of the pipeline across every vertical, across all geographies has been the strongest that we've ever seen. And as we come out of this pandemic, what we actually seeing is excellent conversations around the need to reduce cost, the need to transform their models digitally through trusted partners like us, through the model of hyper automation, so to speak. The fact that, you know, all of them are looking at models of, you know, physical kind of touch points reducing, and they are more than willing to look at models where, you know, outcome based models are capable of being accepted. And at the same time, they're all far more comfortable with the problem. So these are some of the areas in the environment that we have now got comfortable with their most comfortable. Why is being conservative at the same time? They have to understand that, well, all of them are looking at coming back. You know, they're seeing delays in some of their own plans. So, for example, the airline industry started talking a little while ago about testing everybody before they got on a plane. Right. Obviously, that got a little bit delayed. Some airlines will go faster than others. But as soon as some of that starts happening, it means that, you know, the demand ramp may be much faster than, you know. We have Bicton out here and, you know, Goutam and the others will have to really get out there hiding and stuff that. So from our point of view, I must say that the model is still very exciting. That is conservatism built in baselines, which we have to depend on based on our visibility model. But at the same time, there are many areas that potentially things could change if clients get a better handle on, Khubani says.

[Sanjay Puria, Chief Financial Officer]

[00:37:26] And I think just add to that, remember, you know, like we said, we've seen great new additions to the pipeline. We're seeing deals moving through it in a very healthy pace. We're seeing obviously, you look at we've signed 15 new logos in the first half of this year. That compares to 12 last year. So deal signings are ahead where we're seeing a little bit of that snag, to be honest with you, where the rubber hits the road, where it actually requires behavior change and action on the client end. So, you know, it's easy to sign a deal. It's easy to move to say we want to go. But when you start to actually sit down and assess, OK, well, what does this mean for our people? What does this mean for our process? What does this mean for our business? Now all of a sudden it starts to run into some challenges. And that's not unusual for our industry. But in this environment, what we're seeing is that clients are proceeding a little bit more cautiously, especially as it relates to those very large deals that require end and business transformation and a lot of the right up front thoughts and planning to make sure that the engagement is going to be successful.

[Mayank Tandon, Needham]

[00:38:34] That's a very helpful perspective. Thanks, guys. Thanks, Mike. Thank you.

[Operator]

[00:38:40] And our next question comes the line of Ashwin Shirvaikar from Citigroup.

[Ashwin Shirvaikar, Citi]

[00:38:46] We begin. Thanks. Good to hear from you all. Thank you for the insight so far. My first question was, you know, with regards to work from home, it seems based on your commentary that clients might have transitioned from saying it's something they need to something they're comfortable with. Perhaps they want to incorporate, you know, more or less permanently a hybrid model. The question is, what are some of the new metrics that we can look at that you're perhaps incorporating into your terms and conditions in your contract then when you sign these deals as it relates to hybrid or work from home?

[Keshav Murugesh, Group CEO]

[00:39:34] Yes, this is what we're looking at, a set of George Zimmerman, this one in terms of the productivity mattresses, there's a limit to the amount of because from a local perspective, there's always going to be a bit of a lag compared to work from office. So those productivity measures that are being looked upon with the amount of people based on the BPP scenario structure between work from home and work from office and the interoperability are going to function that the first one. The second one is the automation associated with these functions. As you mentioned that more and more number of clients are looking at the large amount of unproductive digitization and automation. So they will be able to transform that particular piece of the process. That's the second piece that we are putting in that top line. And the third one is more end to end processes that they invested in at the end of the day. So these three metrics has been attracting a lot more at this moment, and potentially some of those are going to make it into a longer term contract.

[Ashwin Shirvaikar, Citi]

[00:40:40] But thank you for that and then, you know, I think in response to one of the questions earlier, it might have been David mentioned that it's only when you're signing deals, but it's when the rubber hits the road. The condition is a little bit slower. Right. So either technologically or process wise, what are some of the things that you are doing or can do to make clients more comfortable? Do you need to make investments to make that happen? Is that incorporated in your outlook?

[Keshav Murugesh, Group CEO]

[00:41:25] Yes, it has been, and so if and even if we look at the last six months, I mean, what we have seen this transition, hundreds of roads across new clients and existing land, which are actually going down extremely well. So the ability for the mode transition, the remote control system, I think all of that is going absolutely smooth in terms of automation. Also, when we talk about automation and automation, all the tools and investments in to continue to make them. And you've been able to see, well, what is interesting in this state in the last six months, I have a of productivity that we have to deliver to. Automation is central to all our clients. And we've actually been able to achieve all of that and for every single account that we have forecasted. So I think that's going to balance all of the investments you continue to make in the basketball.

[Sanjay Puria, Chief Financial Officer]

[00:42:14] And I think that to my comment a little bit earlier, when the slowness, the cautiousness that we're seeing from client isn't really a function of a remote transition or not having the skills or not having the capability, I think it's just a function of the environment. The bottom line is the client's business is volatile. The environment overall is volatile, are in office, out of office, as volatile. And as a result, I think, you know, these things that are extremely important and extremely strategic clients are just proceeding slowly. I don't think a capability issue or a technology issue.

[Ashwin Shirvaikar, Citi]

[00:42:51] I understood how a tiny question that I want to squeeze in, if you don't mind the details, you made some progress in recovering vessels towards a normalized level. Do you think we might get towards more of that, you know, 30 days, that thing that you achieved in the past quarter to.

[Keshav Murugesh, Group CEO]

[00:43:17] So we definitely made a considerable progress because you don't need to go through one when the whole pandemic started declining approval for the conversation from a parent perspective or for the delays, the coalition things destabilizing. You know, I've back of one or one, you know, now. And that's where we know we've got 30, 40 years back where we believe that the couple of Gardasil is going to be in that ballpark because these guys are approaching from an American perspective. You are they're asking for water, for extensions and some delays out of there. So it's going to do some while it's a couple of hours more of the time we get back to the. There's no.

[Ashwin Shirvaikar, Citi]

[00:44:02] Understood. Thank you. Thanks, everyone.

[Operator]

[00:44:08] And our next question comes from line, Puneet Jain from JP Morgan.

[Puneet Jain, JPMorgan]

[00:44:16] Hey, thanks for taking my question. So your implied margins for second half. It seems like they are below a second quarter level, even if you exclude early benefits and took you given you expect given you expect to continue to realign your headcount with revenues rest of the year. Shouldn't they expect margin improvement from total levels? And related question. They did disclose how much was non-recurring benefit to second quarter revenue was.

[Keshav Murugesh, Group CEO]

[00:44:55] Yeah, so on the top line that the non-recurring revenue was four million dollars on the margin side, the non-recurring benefit was also four million dollars. In terms of the leave reversal, if you look at the back half as compared to Q2, you're right, Puneet. There is implied margin pressure and margin pressure beyond the four million dollars that's related to the LIBOR versus the two items that I would say are the biggest components of that which, again, present margin opportunities for us is one. We've included no short term revenue in the back half of the year, which carries a higher margin profile. And the second is we're assuming that we are not going to be able to continue to build business continuity, pass through costs to our clients in the back half of the year. Of the four million dollars of short term revenues that we got in Q2, a million and a half of that was business continuity pass through charges. That number was down significantly from Q1, where we had six and a half million dollars to pass through of short term revenues, of which three and a half million dollars was business continuity passed through. So what we're seeing is that as we progress here, clients are going to be less and less willing to accept these one time or short term charges to keep their businesses afloat. And as a result, our expectation in the back half of the year is that we're not going to be able to pass on business continuity costs to our clients.

[Sanjay Puria, Chief Financial Officer]

[00:46:25] And we just wanted to give my man one day, you know, along with that, we have to have a hiding program continue because of some of the mismatch of the skills and from location perspective. And we need to have some of that getting lost, though there is an attrition. But what do we expect it to continue to be around.

[Puneet Jain, JPMorgan]

[00:46:48] No, sir, I'm just a follow up to that question, so you are finding new deals, but they are not ramping up as fast as they would have quick. How do we reconcile those comments with unchanged visibility of ninety eight percent assumed in the guidance, I expect of visibility levels to be lower rates as low as.

[Keshav Murugesh, Group CEO]

[00:47:19] Because tonight, when we provide our visibility, it's based on what our clients have committed to. So if a client has not committed to a transition and does not have a formal schedule or plan in place, we don't include it. This approach in terms of visibility based is extremely consistent with how we've done it in the past. The thing that's changed is that whereas maybe a year ago, if a client had decided that Phase one was going to be a million dollars, what we're seeing now is that phase one may only be five hundred thousand dollars. And as a result, we're including that in the guidance, but we're including at the same visibility rate, but at a lower dollar amount.

[Puneet Jain, JPMorgan]

[00:48:02] Got it, got it. All right. Thank you. Thank you. Thanks to Nick.

[Operator]

[00:48:10] And our next question comes from Dave Koning from Baird, maybe.

[Dave Koning, Baird]

[00:48:16] Yeah, hey, guys, great job. And I guess, first of all, my question just on revenue, it I guess, is there a certain level of revenue that, you know, is coming back right now? And I guess we're kind of going with that is like travel, for example, is going to be down 40 million or so. And as people travel and everything, you know, you'd assume that would come back. On top of that, it seems like you have these implementations that are delayed. They're going to come back at the same time as all the rest of your pipeline gets implemented at their normal pace. And it seems like we're setting up for a couple of years of just kind of explosive growth as all three of those things kind of collectively happen at the same time. Is it fair to think that, you know, this is clearly a transition year for probably everybody, but is it fair to think of it that way, that you should have outsized growth at some point in the future as different parts of this all? I'll come back.

[Keshav Murugesh, Group CEO]

[00:49:09] Know, Dave, this is a case that's an excellent question, you know, personally, as we discuss this inside the company, we actually think all of this is a pause, just a delay. And, you know, when you step back and look at how clients look at this whole situation, everyone talks that covid could be managed in seven months, eight months, nine months or whatever, and therefore people make plans. I think the key is that the business drivers, you know, three covid continue to remain in place if anything else has actually become far more intense. Some of the areas of differentiation that we brought to the table have actually become far more compelling, far more attractive to the customer set across the globe. And for us, I think at this point in time, clients are just taking a more conservative view of how they give us, you know, their guidance. As you said on the travel side right now, you're assuming nobody is going to fly, I guess. But, you know, everyone is talking about new models to encourage people to fly. And when that happens, things will go back to normal. The same you will see this hotel the same. You'll see the cruise lines at some stage and the same you will see with logistics or with the retail side. As people move from essential to non-essential services, as people start traveling on the road, you'll see more insurance claims going up, things like that. So from our perspective, I think what we have done in terms of guidance is just beginning what we are hearing from planes and making sure that we're providing a consistent model of visibility to the street. But overall, I will say that, you know, people have completely changed the way they looking at their businesses, that business models, the way they will accept technology, the way they will accept new business models, the way they will react to discussions on transformation. And I think we're being set up for a very, very healthy long term kind of growth for the sector itself. And I think we need.

[Dave Koning, Baird]

[00:51:23] Yeah, great, that that's helpful, that that seems to make a lot of sense, and I guess the second the second question, just when we think of your massive cash balance and I mean, you have huge cash flow conversion this quarter, just outstanding. You know, 10 percent of market caps, cash. Now, do you think are there acquisitions out there that could augment growth? Know, is that kind of the next you know, the next like.

[Keshav Murugesh, Group CEO]

[00:51:48] So, again, I stop and have some guys finish up, but, you know, we've been quite transparent about, you know, our capital allocation program and yes, you know, we will be opportunistic in terms of M&A. We have spoken in the past about, you know, buybacks and stuff. But M&A is an important area that we're continuously looking at. We are scouring the markets at this point in time. I can tell you that we have actually done a few due diligence as well. And, you know, we in some cases, we have walked away from deals because we did not feel they served the purpose for us. But from our point of view, I can tell you that we are very actively looking at this area across various verticals and horizontals, as well as some digital areas that can help us accelerate what we will do, things at the right time, right place and the right valuation.

[Sanjay Puria, Chief Financial Officer]

[00:52:44] And the actual governing allocation perspective, you know, if you're going to have our balance, one point one million shares repurchase program BENEPE, and we expect it to, you know, ensure that in the second half of the year.

[Keshav Murugesh, Group CEO]

[00:53:00] Yeah, I think the other thing that's interesting, David, is just kind of talked about, you know, we're at the M&A pipeline extremely healthy and that we are in active conversations, active discussion, similar to what we've said in the past. We also are seeing that there are some pretty healthy opportunities, not only in the traditional M&A route, but also in the captive carve room, which is exciting for us.

[Dave Koning, Baird]

[00:53:24] Great, guys. Well, thanks. Good job.

[Operator]

[00:53:30] And our next question comes from the line of Sam England from Bernburg, you may begin.

[Sam England, Berenberg]

[00:53:38] I guess the first one just on the new digital capabilities, I was just wondering if that, based on proprietary software, is a mix of DOCKERTY and proprietary software and how they differentiated from what peers are offering in the same area.

[Keshav Murugesh, Group CEO]

[00:53:54] Yeah, it does of your first question, it's a mix of both it's proprietary and it's the partnerships that we are putting together in our hyper automation and digital strategy in terms of the compensation that comes into the domain associated with each one of those offerings that make the biggest difference. For example, if you're driving and in terms of interest expense, for example, it's our micro solutions that we have implemented for the shipping and logistics vertical that actually drives hyper automation using the domain and the strength of shipping and logistics industry that the differentiator for us in the market.

[Sanjay Puria, Chief Financial Officer]

[00:54:30] Yeah, I mean, the bottom line is when you look at the digital solutions and the approach to digital transformation that's out there, you're going to see a lot of companies that have capabilities and analytics and capabilities in technology and automation and brought the expertise and global delivery. The real question is, how well do you understand the specific vertical or vertical that your client operates in? And what's your capability to bring all of these components together to help solve a business problem and create the kind of market differentiation that they're looking for? And I think that's one of the areas that the businesses always excel. You know, essentially third party partnership, third party tools. Our own proprietary tools are just kind of more components of what we're going to be able to deliver in terms of how we're able to execute on these types of initiatives. So, you know, it's really at the end of the day how you bring all the stuff together to solve the problem.

[Sam England, Berenberg]

[00:55:28] Ok, great, thanks. And then the next one, I was just wondering if you've seen any evidence that any of your competitors are dropping the ball during a pandemic in terms of client service and delivery and whether that's created any opportunities for you over the past six months. I know it's something I think you mentioned back you want.

[Keshav Murugesh, Group CEO]

[00:55:47] Yeah, and be happy to recipients of some of the issues that some of our competitors have faced over the last six months, and you'll actually engage in Gleitzman responding into multi-manager scenario, which included us, we have been able to consolidate more work from the team, from different vendors, and also have some opportunities that we have gotten more of the inability of our competitors to start associating with them.

[Sanjay Puria, Chief Financial Officer]

[00:56:15] When you look at the number of new logos that we've added, when you look at the number of planned expansion, the numbers are great. They're extremely healthy. The one challenge that we've seen is that things are just moving a little slower and a little smaller than they have historically. But, you know, Dave mentioned earlier, I think this really bodes well for the future, because the bottom line is, as long as they do continue on a path for the next, you know, three to five years, at some point, these are going to become larger and larger deals, larger and larger engagement.

[Sam England, Berenberg]

[00:56:46] Great. Thanks very much. Thank you.

[Operator]

[00:56:49] Thank you. And our next question will be the line of Vincent Colicchio, from Barrington Research. You may begin.

[Vincent Colicchio, Barrington Research]

[00:56:58] Yeah, I'm curious, in the travel vertical, do you expect to make any progress in terms of adding processes to help offset with existing clients to help offset some of the volume pressure?

[Keshav Murugesh, Group CEO]

[00:57:13] Yes, what you're seeing is we are seeing an increased amount of activity that is the finance and accounting to probably and increase the amount of wealth that we're seeing on board for vendor consolidation in the CIA space that we saw at the end of the day. From a travel perspective, people generally focus on domestic mobility and at the end of the spectrum will be there for the old.

[Vincent Colicchio, Barrington Research]

[00:57:41] And what is driving this sequential strength in the U.K. is that simply the utilities vertical and, you know, is this a trend that should continue?

[Keshav Murugesh, Group CEO]

[00:57:53] Yes, for a second. All right, Sanjay.

[Sanjay Puria, Chief Financial Officer]

[00:57:57] I do know from the second quarter sequentially, I think of the major driver was, you know, in the first quarter, if you saw me go down 92 percent as an average from a supply perspective, and in Goddard, we achieved 90 percent from supply. So this was one of the specific reasons of it all because of, you know, from a utility as a result, because we were more of our traffic on the side that has helped provide that road.

[Vincent Colicchio, Barrington Research]

[00:58:29] Ok, thank you, nice quarter, guys. Thanks.

[Operator]

[00:58:35] Thank you. And at this time, we have no further questions in the queue, so conclude today's conference call. Thank you for your participation. You may now disconnect.