WNS (Holdings) Limited (WNS) (NYSE: WNS), a leading provider of
global business process outsourcing (BPO) services, today announced
results for the fiscal third quarter 2011 ended December 31,
2010.
Fiscal Third Quarter 2011 Financial Highlights
Revenue for the fiscal third quarter 2011 increased by 4.7
percent to $152.7 million, compared to $145.8 million in the
corresponding quarter in the prior fiscal year, and decreased by
1.0 percent sequentially from $154.2 million in the fiscal second
quarter of 2011. Revenue less repair payments* for the fiscal third
quarter 2011 declined 3.7 percent to $92.7 million, compared to
$96.3 million in the corresponding quarter in the prior fiscal
year, and declined 0.5 percent sequentially from $93.1 million in
the fiscal second quarter of 2011. Revenue less repair payments
declined, as compared with the corresponding quarter in the prior
fiscal year, largely as a result of the change in pricing terms
with a large travel client, the weaker British Pound compared with
the third quarter of fiscal 2010 and lower volumes in the insurance
and travel businesses. These headwinds were partially offset by the
positive impact of improved pricing with a large insurance client
and ramp ups of business with existing clients. The sequential
decline in revenue less repair payments was a result of lower
volumes in the travel business due to seasonal headwinds.
Gross margin, as a percent of revenues, was 20.4 percent in the
fiscal third quarter 2011, compared to 24.1 percent in the
corresponding quarter in the prior fiscal year and 21.5 percent in
the fiscal second quarter of 2011. WNS’s adjusted gross margin
excluding share based compensation expense*, as a percent of
revenue less repair payments, was 33.9 percent in the fiscal third
quarter 2011, compared to 37.2 percent in the corresponding quarter
in the prior fiscal year, and 35.9 percent in the fiscal second
quarter of 2011. The decline compared with the corresponding
quarter in the prior fiscal year was primarily due to the impact of
wage inflation, a stronger Indian Rupee and the change in pricing
terms with a large travel client. The sequential decline in
adjusted gross margin excluding share based compensation* was
primarily due to the lower volumes in the travel business due to
seasonal headwinds, as mentioned above, and a stronger Indian
Rupee.
Selling, General and Administrative (SG&A) expenses, as a
percentage of revenues, were 13.2 percent in the fiscal third
quarter 2011, compared to 14.1 percent in the corresponding quarter
in the prior fiscal year and 12.7 percent in the fiscal second
quarter of 2011. Adjusted Selling, General and Administrative
(SG&A) expenses excluding share based compensation expense*, as
a percentage of revenue less repair payments, were 20.8 percent in
the fiscal third quarter 2011, compared to 18.9 percent in the
corresponding quarter in the prior fiscal year and 20.3 percent in
the fiscal second quarter of 2011.
Operating income, as a percentage of revenues, was 2.0 percent
in the fiscal third quarter 2011, compared to 4.4 percent in the
corresponding quarter in the prior fiscal year and 3.6 percent in
the fiscal second quarter of 2011. Adjusted operating income
excluding amortization of intangible assets and share based
compensation*, as a percentage of revenue less repair payments, was
13.0 percent in the fiscal third quarter 2011, compared to 18.3
percent in the corresponding quarter in the prior fiscal year and
15.6 percent in the fiscal second quarter of 2011. Operating
margins during the fiscal third quarter were negatively impacted,
as compared with the corresponding quarter in the prior fiscal
year, by a change in pricing terms with a larger travel client,
wage inflation and a stronger Indian Rupee. Operating margins
declined sequentially as a result of the lower volumes in the
travel business, the stronger Indian Rupee and increased investment
in the sales and marketing function. This decline was partially
offset by LEAN initiatives which have led to operational
improvements.
Net income attributable to WNS shareholders for the fiscal third
quarter 2011 was $5.8 million or $0.13 diluted income per ADS,
compared to net income attributable to WNS shareholders of $0.3
million or $0.01 diluted income per ADS in the corresponding
quarter in the prior fiscal year and net income attributable to WNS
shareholders of $4.9 million or $0.11 diluted income per ADS in the
fiscal second quarter of 2011. Adjusted net income* for the fiscal
third quarter 2011 was $14.7 million or $0.33 adjusted diluted
income per ADS, compared to $11.1 million or $0.25 adjusted diluted
income per ADS in the corresponding quarter in the prior fiscal
year and adjusted net income of $13.8 million or $0.31 adjusted
diluted income per ADS in the fiscal second quarter of 2011.
Adjusted net income increased compared with the fiscal third
quarter of 2010 and sequentially as a result of cost management
initiatives and profits from WNS’s hedging program.
Operational Highlights
“I am pleased that, despite the seasonal challenges in the
travel business, we were able to improve our bottom line
performance again this quarter. Our cost optimization and
operational efficiency programs should have a positive impact
moving forward as well," said Group Chief Executive Officer Keshav
Murugesh.
“We also won a significant expansion with a top tier insurance
client this quarter, clearly demonstrating that our farming program
is gaining traction. We are very well positioned with a number of
new client situations currently. Our hiring at the business
leadership level is complete and we continue to add sales feet on
the ground. Overall, the reaction to our new go-to-market strategy
from both clients and prospects has been extremely positive. We
expect this to lead to top line expansion in the next fiscal year,”
continued Murugesh.
Fiscal 2011 Guidance
WNS updated its revenue less repair payments guidance and its
adjusted net income guidance for the fiscal year ending March 31,
2011 as follows:
- Revenue less repair payments is now
expected to be between $367 million and $370 million. This assumes
an average GBP to USD exchange rate of 1.54 for the 2011 fiscal
year.
- Adjusted net income is expected to
range between $44 million and $47 million. This assumes an average
USD to INR exchange rate of 45.5 for the 2011 fiscal year.
“Our profitability growth remained on track this past quarter.
Our operational improvements, which have led to a reduction in
costs, and our long-term hedging strategy has provided protection
to our bottom line from currency fluctuations,” said Alok Misra,
Group Chief Financial Officer.
“While we had sequential declines in our gross and operating
margins stemming from currency movement, the gains realized through
our hedging program more than compensated for these movements. This
allowed us to increase our ANI guidance for fiscal 2011, despite
movement in foreign exchange rates,” concluded Misra.
Conference Call
WNS will host a conference call on January 18, 2011 at 8:00 a.m.
(EST) to discuss the company's quarterly results.
To participate in the call, please use the following details:
+1-866-783-2142; international dial-in +1-857-350-1601; participant
passcode 16431136. A replay will be available for one week
following the call at +1-888-286-8010; international dial-in
+1-617-801-6888; passcode 89230942, as well as on the WNS website,
www.wns.com, beginning two hours after the end of the call.
About WNS
WNS (Holdings) Limited (NYSE: WNS) is a leading global business
process outsourcing company. WNS offers business value to 200+
global clients by combining operational excellence with deep domain
expertise in key industry verticals including Travel, Insurance,
Banking & Financial Services, Manufacturing, Retail &
Consumer Packaged Goods, Shipping & Logistics and Healthcare
& Utilities. WNS delivers a broad spectrum of business process
outsourcing services such as finance and accounting, customer care,
technology solutions, research and analytics and industry specific
back office and front office processes. WNS has over 21,000
professionals across 21 delivery centers worldwide including Costa
Rica, India, Philippines, Romania, Sri Lanka and United Kingdom.
For more information, visit www.wns.com.
About Non-GAAP Financial
Measures
For financial statement reporting purposes, WNS has two
reportable segments: WNS Global BPO and WNS Auto Claims BPO. In the
auto claims segment, which includes WNS Assistance and Chang
Limited, WNS provides claims-handling and accident-management
services, in which it arranges for automobile repairs through a
network of third-party repair centers. In its accident-management
services, WNS acts as the principal in dealings with the
third-party repair centers and clients.
In order to provide accident-management services, WNS arranges
for the repair through a network of repair centers. Repair costs
are invoiced to customers. Amounts invoiced to customers for repair
costs paid to the automobile repair centers are recognized as
revenue. WNS uses revenue less repair payments for “fault” repairs
as a primary measure to allocate resources and measure segment
performance. Revenue less repair payments is a non-GAAP measure
which is calculated as revenue less payments to repair centers. For
“non fault repairs,” revenue including repair payments is used as a
primary measure. As WNS provides a consolidated suite of accident
management services including credit hire and credit repair for its
“Non fault” repairs business, WNS believes that measurement of that
line of business has to be on a basis that includes repair payments
in revenue.
WNS believes that the presentation of this non-GAAP measure in
the segmental information provides useful information for investors
regarding the segment’s financial performance. The presentation of
this non-GAAP information is not meant to be considered in
isolation or as a substitute for WNS’s financial results prepared
in accordance with US GAAP.
WNS presents Adjusted Net Income (ANI) and the 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.
Safe Harbor Statement under the
provisions of the United States Private Securities Litigation
Reform Act of 1995
This release contains forward-looking statements, as defined in
the safe harbor provisions of the US Private Securities Litigation
Reform Act of 1995. These forward-looking statements are based on
our current expectations, assumptions, estimates and projections
about our Company and our industry. The forward-looking statements
are subject to various risks and uncertainties. Generally, these
forward-looking statements can be identified by the use of
forward-looking terminology such as “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “will,” “project,” “seek,” “should”
and similar expressions. Those statements include, among other
things, the discussions of our business strategy, industry growth
potential, expansion opportunities, expectations concerning our
future financial performance and growth potential, including our
fiscal 2011 guidance and future profitability, relevant foreign
currency exchange rates, and our future operations. We caution you
that reliance on any forward-looking statement involves risks and
uncertainties, and that although we believe that the assumptions on
which our forward-looking statements are based are reasonable, any
of those assumptions could prove to be inaccurate, and, as a
result, the forward-looking statements based on those assumptions
could be materially incorrect. These factors include but are not
limited to worldwide economic and business conditions; political or
economic instability in the jurisdictions where we have operations;
regulatory, legislative and judicial developments; our ability to
attract and retain clients; technological innovation;
telecommunications or technology disruptions; future regulatory
actions and conditions in our operating areas; our dependence on a
limited number of clients in a limited number of industries; the
implications of the accounting changes and restatement of our
financial statements as detailed in our annual report on Form 20-F
for the fiscal year ended March 31, 2010 filed with the U.S.
Securities and Exchange Commission (SEC), and any adverse
developments in existing legal proceedings or the initiation of new
legal proceedings; our ability to expand our business or
effectively manage growth; our ability to hire and retain enough
sufficiently trained employees to support our operations; negative
public reaction in the US or the UK to offshore outsourcing;
increasing competition in the BPO industry; our ability to
successfully grow our revenue, expand our service offerings and
market share and achieve accretive benefits from our acquisition of
Aviva Global Services Singapore Pte. Ltd. (which we have renamed as
WNS Customer Solutions (Singapore) Private Limited following our
acquisition), and our master services agreement with Aviva Global
Services (Management Services) Private Limited; our ability to
successfully consummate strategic acquisitions; and volatility of
WNS’s ADS price. These and other factors are more fully discussed
in our annual report on Form 20-F for the fiscal year ended March
31, 2010 filed with the SEC which is available at www.sec.gov. In
light of these and other uncertainties, you should not conclude
that we will necessarily achieve any plans, objectives or projected
financial results referred to in any of the forward-looking
statements. Except as required by law, we do not undertake to
release revisions of any of these forward-looking statements to
reflect future events or circumstances.
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.
1 Net income attributable to WNS shareholders.
2 Revenue less repair payments only applies to the Auto Claims
business. For all other businesses, revenues less repair payments
are the same as revenues.
3 Net income attributable to WNS shareholders excluding
amortization of intangible assets, share-based compensation
expense, and net loss attributable to redeemable non-controlling
interest.
* This is a non-GAAP measure. Reconciliations of non-GAAP
financial measures to GAAP operating results are included at the
end of this release. See also “About Non-GAAP Financial
Measures.”
Growth of revenue (GAAP) and revenue
less repair payments (non-GAAP)
Quarter ended
Quarter ended Dec 31,
2010compared to
Dec 31,2010
Dec 31,2009
Sep 30,2010
Dec 31,2009
Sep 30,2010
(US dollars in millions) (% growth) Revenue (GAAP) $
152.7 $ 145.8 $
154.2
4.7 % (1.0 )% Less: Payments to repair centers 60.0 49.6 61.1 21.0
% (1.8 )% Revenue less repair payments (Non-GAAP) $ 92.7 $ 96.3 $
93.1 (3.7 )% (0.5 )%
Reconciliation of cost of revenue (GAAP
to non-GAAP)
Three months ended
Dec 31,2010
Dec 31,2009
Sep 30,2010
(US dollars in millions) Cost of revenue (GAAP) $ 121.5 $
110.7 $ 121.0 Less: Payments to repair centers 60.0 49.6 61.1 Less:
Share-based compensation expense 0.2 0.7 0.3 Adjusted cost of
revenue (excluding payment to repair centers and share-based
compensation expense) (Non-GAAP) $ 61.3 $ 60.5 $ 59.6
Reconciliation of gross margin (GAAP to
non-GAAP)
Three months ended
Dec 31,2010
Dec 31,2009
Sep 30,2010
(US dollars in millions) Gross margin (GAAP) $ 31.1 $ 35.1 $
33.2 Add: Share-based compensation expense 0.2 0.7 0.3 Adjusted
gross margin (excluding share-based compensation expense)
(Non-GAAP) $ 31.4 $ 35.8 $ 33.5
Three months ended
Dec 31,2010
Dec 31,2009
Sep 30,2010
Gross margin as a percentage of revenue (GAAP) 20.4 % 24.1 % 21.5 %
Adjusted gross margin (excluding share-based compensation expense)
as a percentage of revenue less repair payments (Non-GAAP) 33.9 %
37.2 % 35.9 %
Reconciliation of selling, general and
administrative expense (GAAP to non-GAAP)
Three months ended
Dec 31,2010
Dec 31,2009
Sep 30,2010
(US dollars in millions) Selling, general and administrative
expenses (GAAP) $ 20.2 $ 20.6 $ 19.7 Less: Share-based compensation
expense 0.9 2.4 0.7 Adjusted Selling, general and administrative
expenses (excluding share-based compensation expense) (Non-GAAP) $
19.3 $ 18.2 $ 18.9
Three months ended
Dec 31,2010
Dec 31,2009
Sep 30,2010
Selling, general and administrative expenses as a percentage of
revenue (GAAP) 13.2 % 14.1 % 12.7 % Adjusted Selling, general and
administrative expenses (excluding share-based compensation
expense) as a percentage of revenue less repair payments (Non-GAAP)
20.8 % 18.9 % 20.3 %
Reconciliation of operating income
(GAAP to non-GAAP)
Three months ended
Dec 31,2010
Dec 31,2009
Sep 30,2010
(US dollars in millions) Operating income (GAAP) $ 3.0 $ 6.4
$ 5.6 Add: Amortization of intangible assets 8.0 8.1 $ 7.9 Add:
Share-based compensation expense 1.1 3.1 1.0 Adjusted operating
income (excluding amortization of intangible assets and share-based
compensation expense) (Non-GAAP) $ 12.1 $ 17.6 $ 14.5
Three months ended
Dec 31,2010
Dec 31,2009
Sep 30,2010
Operating income as a percentage of revenue (GAAP) 2.0 % 4.4 % 3.6
% Adjusted operating income (excluding amortization of intangible
assets and share-based compensation expense) as a percentage of
revenue less repair payments (Non-GAAP) 13.0 % 18.3 % 15.6 %
Reconciliation of net income
attributable to WNS shareholders (GAAP to non-GAAP)
Three months ended
Dec 31,2010
Dec 31,2009
Sep 30,2010
(US dollars in millions) Net income attributable to WNS
(Holdings) Limited shareholders (GAAP) $ 5.8 $ 0.3 $ 4.9 Add:
Amortization of intangible assets 8.0 8.1 $ 7.9 Add: Share-based
compensation expense 1.1 3.1 1.0 Less: Net loss attributable to
redeemable non-controlling interest 0.1 0.4 0.1 Adjusted net income
(excluding amortization of intangible assets, share-based
compensation expense and net loss attributable to redeemable
non-controlling interest) (Non-GAAP) $ 14.7 $ 11.1 $ 13.8
Three months ended
Dec 31,2010
Dec 31,2009
Sep 30,2010
Net income as a percentage of revenue (GAAP) 3.8 % 0.2 % 3.2 %
Adjusted net income (excluding amortization of intangible assets,
share-based compensation expense and net loss attributable to
redeemable non-controlling interest) as a percentage of revenue
less repair payments (Non-GAAP) 15.9 % 11.5 % 14.8 %
Reconciliation of basic income per ADS
(GAAP to non-GAAP)
Three months ended
Dec 31,2010
Dec 31,2009
Sep 30,2010
Basic income per ADS (GAAP) $ 0.13 $ 0.01 $ 0.11 Add: Adjustments
for amortization of intangible assets, share-based compensation
expense, net loss attributable to redeemable non-controlling
interest and impact from changes in carrying amount of redeemable
non-controlling interest. 0.20 0.25 0.20 Basic
adjusted net income per ADS (excluding amortization of intangible
assets, share-based compensation expense and net loss attributable
to redeemable non-controlling interest) (Non-GAAP) $ 0.33 $ 0.26 $
0.31
Reconciliation of diluted income per
ADS (GAAP to non-GAAP)
Three months ended
Dec 31,2010
Dec 31,2009
Sep 30,2010
Diluted income per ADS (GAAP) $ 0.13 $ 0.01 $ 0.11 Add: Adjustments
for amortization of intangible assets, share-based compensation
expense, net loss attributable to redeemable non-controlling
interest and impact from changes in carrying amount of redeemable
non-controlling interest. 0.20 0.24 0.20
Diluted adjusted net income per ADS (excluding amortization of
intangible assets, share-based compensation expense and net loss
attributable to redeemable non-controlling interest) (Non-GAAP) $
0.33 $ 0.25 $ 0.31
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