Revenue less repair payments* in the fiscal first quarter was $122.1 million, representing a 7.3% increase versus the first quarter of last year, and a 0.5% decrease from the previous quarter. Fiscal Q1 revenue was adversely impacted by the transition of a large online travel agency (OTA) client to another OTA pursuant to a strategic marketing agreement, and pricing and productivity headwinds from a proposed five plus year contract extension with a major client. Appreciation in the British Pound against the US dollar partially offset these headwinds on both a year-over-year and sequential basis. Excluding exchange rate impacts, constant currency revenue less repair payments* in the first quarter grew 3.4% versus Q1 of last year, and fell 2.8% sequentially.
Adjusted operating margin* for the quarter was 17.9%, as compared to 13.9% in Q1 of last year, and 19.1% reported in the fourth quarter. On a year-over-year basis, operating margin increased as a result of exchange rate favorability, improved productivity and operating leverage associated with higher revenue. Partially offsetting this favorability were pricing and productivity headwinds associated with the proposed major client contract extension, and the impact of our annual wage increases. The sequential reduction in adjusted operating margin* from Q4 to Q1 was driven by headwinds from the proposed major client contract extension and the impact of annual wage increases. These negative impacts were partially offset by exchange rate favorability, improved productivity and an increase in seat utilization.
Adjusted net income (ANI)* in the fiscal first quarter was $20.4 million, up $6.0 million as compared to Q1 of last year and down $0.6 million from the previous quarter. First quarter ANI* margin was 16.7%, as compared to 12.7% in Q1 of last year, and 17.1% reported last quarter.
From a balance sheet perspective, WNS ended the fiscal first quarter with $156.4 million in cash and investments and $83.0 million of gross debt. In the first quarter, the company generated $13.2 million in cash from operations, and had $3.9 million in capital expenditures. Days sales outstanding were 32 days, as compared to 31 days in Q1 of last year and 30 days reported in the previous quarter.
“We are encouraged by the start to our fiscal year. While revenue in the first quarter was adversely impacted by the online travel client ramp-down and headwinds from the proposed contract extension with a major client, we continued to make solid progress in our underlying business. WNS added 6 new clients and signed two new ‘large deals’ in Q1. In addition, adjusted operating margins and adjusted net income expanded versus the first quarter of last year, coming in at 17.9% and 16.7% respectively,” said Keshav Murugesh, WNS’s Chief Executive Officer.
“The pipeline remains strong for both hunting and farming opportunities, and we continue to target closure of at least 6 ‘large deals’ in fiscal 2015. We believe that our deep domain expertise, vertical approach and client-centric model are resonating well with both existing clients and new prospects, and the company remains focused on leveraging these capabilities to grow revenue and maintain profit margins at or above industry levels.”
WNS has updated guidance for the fiscal year ending March 31, 2015 as follows:
“The company has updated our forecast for fiscal 2015 based on current visibility levels and exchange rates. Our revised guidance for the year reflects top line growth of 6% to 12%, with 95% visibility to the midpoint of the range. This guidance represents 2% to 7% revenue growth on a constant currency* basis. WNS continues to expect profitability to expand faster than revenue, with our ANI* guidance reflecting 12% to 20% year-over-year improvement. Guidance excludes the potential impact from a change in taxability of our Fixed Maturity Plan investments proposed in last week’s India budget. If passed by both houses of Parliament in its current form, the budget proposal would result in WNS incurring incremental taxes of approximately $3.0 million in fiscal 2015,” said Sanjay Puria, WNS’s Chief Financial Officer.
References to “$” and “USD” refer to the United States dollars, the legal currency of the United States; references to “GBP” refer to the British pound, the legal currency of Britain; and references to “INR” refer to Indian Rupees, the legal currency of India. References to GAAP refers to International Financial Reporting Standards, as issued by the International Accounting Standards Board (IFRS).
* See “About Non-GAAP Financial Measures” and the reconciliations of the historical non-GAAP financial measures to our GAAP operating results at the end of this release.
The financial information in this release is focused on non-GAAP financial measures as we believe that they reflect more accurately our operating performance. Reconciliations of these non-GAAP financial measures to our GAAP operating results are included below. A discussion of our GAAP measures is contained in “Part I -Item 5. Operating and Financial Review and Prospects” in our annual report on Form 20-F filed with the SEC on May 14, 2014.
For financial statement reporting purposes, WNS has two reportable segments: WNS Global BPM and WNS Auto Claims BPM. Revenue less repair payments is a non-GAAP financial measure that is calculated as (a) revenue less (b) in the auto claims business, payments to repair centers for “fault” repair cases where WNS acts as the principal in its dealings with the third party repair centers and its clients. WNS believes that revenue less repair payments for “fault” repairs reflects more accurately the value addition of the business process management services that it directly provides to its clients. For more details, please see the discussion in “Part I – Item 5. Operating and Financial Review and Prospects – Overview” in our annual report on Form 20-F filed with the SEC on May 14, 2014.
Constant currency revenue less repair payments is a non-GAAP financial measure. We present constant currency revenue less repair payments so that revenue less repair payments may be viewed without the impact of foreign currency exchange rate fluctuations, thereby facilitating period-to-period comparisons of business performance. Constant currency revenue less repair payments is presented by recalculating prior period’s revenue less repair payments denominated in currencies other than in US dollars using the foreign exchange rate used for the latest period, without taking into account the impact of hedging gains/losses. Our non-US dollar denominated revenues include, but are not limited to, revenues denominated in pound sterling, South African rand, Australian dollar and euro.
WNS also presents (1) adjusted operating margin, which refers to adjusted operating profit (calculated as operating profit excluding amortization of intangible assets and share-based compensation expense) as a percentage of revenue less repair payments, and (2) ANI, which is calculated as profit excluding amortization of intangible assets and share-based compensation expense, and other non-GAAP measures included in this release as supplemental measures of its performance. WNS presents these non-GAAP measures because it believes they assist investors in comparing its performance across reporting periods on a consistent basis by excluding items that it does not believe are indicative of its core operating performance. In addition, it uses these non-GAAP measures (i) as a factor in evaluating management’s performance when determining incentive compensation and (ii) to evaluate the effectiveness of its business strategies. These non-GAAP measures are not meant to be considered in isolation or as a substitute for WNS’s financial results prepared in accordance with IFRS.
repair payments (Non-GAAP)