WNS (Holdings) Limited (WNS) Earnings Call Transcript & Summary

Good morning, and welcome to the WNS Holdings Fiscal 2025 Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] 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 2025 fourth quarter and full year earnings call. With me today on the call, I have WNS' CEO, Keshav Murugesh; and WNS' CFO, Arijit Sen. 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 fourth quarter and full year-ended March 31, 2025. 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-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 impairment of goodwill and intangible assets. We are also excluding costs related to our ADS program termination and costs associated with the transition to voluntarily reporting on U.S. domestic issuer reforms. Adjusted net income, or ANI, is defined as profit, excluding amortization of intangible assets, share-based compensation, acquisition-related expenses or benefits, goodwill and intangible asset impairment, ADS program termination costs, the transition to voluntarily reporting on U.S. domestic issuer reforms and all associated taxes. These terms will be used throughout today's call. I would now like to turn the call over to WNS' CEO, Keshav Murugesh. Keshav?

Thank you, David. Good morning, everyone. I'm delighted with this quarter's results. In the fiscal fourth quarter, WNS financial results were highlighted by solid sequential revenue growth, operating margin expansion and strong free cash flow. The company posted net revenue of $323.3 million, representing a sequential increase of 1.3% on a reported basis and 2.6% on a constant currency basis. During the quarter, healthy demand for digitally led business transformation and cost reduction initiatives more than offset the impact of unfavorable currency movements. In Q4, WNS added 9 new logos and expanded 50 existing relationships. In addition, we are excited to report that during the quarter, the company closed 2 large transformational deals, one each in the banking and financial services area as well as another in the travel vertical. We expect these engagements to begin generating revenue in the first half of fiscal 2026. On March 11, we announced the acquisition of Kipi.ai, a leading provider of data management services focused on the Snowflake platform. Kipi brings to WNS strategy, execution and managed service capabilities across data engineering, advanced analytics, AI as well as data science. Their more than 600 global employees represent one of the world's largest Snowflake-certified talent pools and will significantly enhance WNS' positioning in the rapidly growing and mission-critical data management space. Kipi has built more than 250 accelerators, enablers and solutions that allow clients to quickly leverage their data to improve decision-making and drive business outcomes at scale. Their capabilities are highly complementary to WNS' existing offerings, and we believe Kipi's seasoned leadership team, talented resources and strong delivery approach represents an excellent cultural fit for us. Together, we will combine domain, digital, data and AI to create new services and solutions, add new clients and expand the scope of our existing relationships. During WNS' 25-plus year history, the company has developed intimate knowledge of industry-specific operations, processes, workflows and systems. This foundational business understanding is at the core of everything we do and puts WNS in a unique position to help clients harness and analyze data and leverage state-of-the-art technologies, including AI, generative AI and agentic AI. Our organic and inorganic investments over the past several years have been focused on strengthening and combining our capabilities across these 3 pillars for long-term success. Just under a year ago, we hired a Chief Business Officer to oversee WNS Next, our umbrella organization covering AI, data and analytics and technology and automation. We have also now added a new Chief AI Research Officer, a Chief Product and Design Officer and an EVP of Digital Strategy. These experts are leading their respective teams and helping WNS navigate the rapidly evolving technology and services landscape. In addition, our tuck-in M&A strategy has increased the breadth and depth of our technology and AI-led capabilities with the acquisitions of Vuram, The Smart Cube, OptiBuy and now Kipi.ai. Together, these investments are helping us accelerate the creation and deployment of WNS proprietary technology assets, including products, platforms, tools, enablers and accelerators that are reusable and customizable. These digital assets, which now embed AI, Gen AI and agentic AI are being combined with WNS' global talent to deliver productized services for our clients. By creating solutions at the intersection of domain expertise, data and technology, WNS is now able to understand industry problems well, create transformational AI-led solutions and deliver differentiated outcomes. I would now like to provide you with a brief recap of the past year before turning our attention to fiscal '26. From a financial perspective, fiscal 2025 was a challenging year for WNS, driven by customer-specific revenue headwinds, including a large health care client loss, the delivery transition from on-site to offshore for an Internet-based procurement relationship and volume-based ramp downs in the online travel space. Full year net revenue came in at $1.266 billion, down 1.5% on a reported basis and down 1.7% on a constant currency basis. The revenue decline resulted in lower expense coverage, which adversely impacted our adjusted operating margin. Despite this pressure, WNS continued to invest in accelerating capabilities and building organizational depth, including a 16% increase in our sales force during the fiscal year. From a profitability standpoint, WNS was able to offset the revenue and margin pressure with nonrecurring benefits from the reversal of a tax liability in the second quarter and the sale of a facility in India in the fourth quarter. Together, these 2 items contributed approximately $21 million to adjusted net income and $0.46 to adjusted EPS. In fiscal 2025, WNS generated strong free cash flow and deployed our capital in a balanced, disciplined manner, including aggressive share repurchases, capability-based tuck-in M&A and scheduled debt repayments. Other highlights from this past year include our transition from IFRS to U.S. GAAP reporting and WNS' inclusion in the Russell 2000 as well as the MSCI US Small Cap indices, which helped improve access to capital, trading liquidity and company visibility. As we enter fiscal 2026, we are excited about the company's solid business momentum, healthy pipeline, differentiated capabilities and expanding market opportunity. In fiscal 2025, we added 33 new logos and expanded 179 existing relationships, representing healthy increases over the previous year. We also completed our acquisition of Kipi in the high-growth data management space, and we have closed 2 large deals in the fourth quarter alone. WNS has now posted 2 consecutive quarters of sequential top line growth and the 3 customer-specific revenue headwinds mentioned earlier are now largely behind us. To date, demand for services that deliver business transformation and cost reduction remains stable and healthy despite the volatile macro environment. Our pipeline is broad-based across verticals and services and maintains a healthy balance between traditional deals and large transformational opportunities. Clients continue to move forward with decisions as evidenced by our recent large deal signings and now the new logo additions as well. And while we must be vigilant for potential changes in client behavior in the coming months as well as quarters, we are encouraged by the fact that our business model remains fundamentally defensive and recurring in nature. WNS begins fiscal 2026 with 90% visibility to the midpoint of our revenue guidance, which represents 9% growth on both a reported as well as constant currency basis. The guidance midpoint for ANI assumes stable year-over-year adjusted operating margins despite increased investments and growth in adjusted EPS of more than 11%, excluding onetime benefits in fiscal '25. In summary, by using our industry-focused operational knowledge to unlock the power of data and state-of-the-art technologies like AI, Gen AI and agentic AI, WNS is well positioned to meet our clients' rapidly evolving requirements, deliver impactful business outcomes and drive long-term sustainable shareholder value. I would now like to turn the call over to our CFO, Arijit Sen, to discuss further our results as well as outlook. Arijit?

Thank you, Keshav. In the fiscal fourth quarter, WNS net revenue came in at $323.3 million, down 0.8% on a reported basis from $325.9 million last year and up 0.1% on a constant currency basis. Year-over-year, revenue was adversely impacted by a loss of a large health care client in Q2 of 2025, reductions in travel volumes and unfavorable currency movements. Sequentially, net revenue increased by 1.3% on a reported basis and 2.6% constant currency. The quarter-over-quarter revenue growth was driven by broad-based demand for AI-led transformation, automation and cost reduction solutions, which more than offset reduced revenue with large utilities clients resulting from the Q3 completion of a platform migration project and unfavorable currency movements. In Q4, WNS recorded $1.3 million of short-term high-margin revenue. Adjusted operating margin in Q4 was 21.4% as compared to 20.9% last year and 19.3% last quarter. Year-over-year adjusted operating margin improvements were driven by favorable currency movements and were partially offset by increased investments in infrastructure and sales. Sequentially, margin improvement was driven by operating leverage and higher volumes, improved productivity and favorable currency movements. The company's net other income/expense was $16.9 million of net income in the fourth quarter as compared to $0.8 million of net income in Q4 of fiscal 2024 and $0.9 million of net expense last quarter. Year-over-year, the favorable variance is a result of $16.7 million from the sale of a facility in India. Sequentially, the favorable variance is a result of the facility sale, reduced interest expense driven by debt repayments and increased interest income on higher cash balances. WNS effective tax rate for Q4 came in at 23.2% as compared to 21.7% last year and 22.8% in the prior quarter. Both year-over-year and sequentially, the tax rate increase was driven by changes in our geographical profit mix and the percentage of work delivered from tax incentive facilities. The company's adjusted net income for Q4 was $66.2 million compared with $53.9 million in the same quarter of fiscal '24 and $47 million last quarter. Adjusted diluted earnings were $1.45 per share in Q4, up from $1.12 in the fourth quarter of last year and up from $1.04 last quarter. As of March 31, 2025, WNS's balances in cash and investments totaled $267.4 million, and the company had $243.5 million in debt. In the fourth quarter, we generated $53.4 million of cash from operating activities, paid $63.4 million for an acquisition of Kipi, incurred $18.6 million in capital expenditures and made debt repayments of $33 million. DSO in the fourth quarter came in at 34 days as compared to 33 days reported in Q4 of last year and 34 days last quarter. With respect to other key operating metrics, WNS's total head count at the end of fourth quarter was 64,505 and our attrition rate was 39% as compared to 33% reported in Q4 of last year and 32% in the previous quarter. We expect attrition to average in the low to mid-30% range, but the rates could remain volatile quarter-over-quarter. Billed seat capacity at the end of Q4 was 42,494 and WNS averaged 32% work from office during the quarter. I would like to provide you with a brief financial summary for fiscal 2025 before discussing our outlook for the coming year. Net revenue for fiscal year came in at $1.266 billion, down 1.5% on a reported basis and down 1.7% on constant currency. Revenue growth during the year was driven by healthy new logo additions and existing client expansion that was overshadowed by the 3 client-specific revenue headwinds Keshav mentioned earlier. The company's fiscal 2025 adjusted operating margin was 19.5%, down 110 basis points versus fiscal 2024. Margin favorability from currency movements and improved productivity was more than offset by increased investments and reduced operating leverage on lower revenue. Net interest income expense for the year improved by $11.7 million and was driven by our India facility sale of $16.7 million in Q4. This benefit was partially offset by reduced interest income on lower average cash balances and increased interest expense on higher average debt levels. The company's effective tax rate was 19.9%, up from 18.3% last year, but below normalized levels due to an $8.6 million nonrecurring tax benefit in Q2. Full year adjusted net income came in at $208.7 million, down 4% year-on-year, while adjusted EPS came in at $4.55, representing an increase of 3%. WNS' average share count reduced by 7% as a result of our aggressive share repurchase in the first half of the year. Our fiscal 2025 profitability was favorably impacted by $21 million or $0.46 per share as a result of nonrecurring benefits, including a tax liability reversal in Q2 and our facility sales in India in Q4. In fiscal 2025, WNS generated $207.2 million in cash from operations, spent $54.1 million on capital expenditures, made debt repayments of $174 million and incurred $63.4 million for acquisitions. The company also repurchased 2.8 million shares of stock at a total cost of $1.97 billion or $53.46 per share. Our disciplined balanced approach to capital allocation resulted in WNS ending the year with a net cash balance of $24 million. The company's global attrition rate for the year was 35% and work from office increased to 72% as compared to 68% last year. In our press release issued earlier today, WNS provided our initial full year guidance for fiscal 2026. Based on the company's current visibility levels, we expect net revenue to be in the range of $1.352 billion to $1.40 billion, representing year-over-year growth of 7% to 11% on both reported and constant currency basis. We currently have 90% visibility to the midpoint of the range, which assumes an average British pound to U.S. dollar exchange rate of $1.29 for the full year. Guidance includes our acquisition of Kipi.ai, which is expected to contribute approximately 2% revenue and be neutral to adjusted EPS. Fiscal 2026 revenue projections assume a year-over-year headwind of approximately 2% related to fiscal 2025 ramp downs with the health care client and online travel volumes and do not include any revenue contribution from unsigned large deals or improvements in discretionary project spending. WNS' full year adjusted net income for fiscal 2026 is expected to be in the range of $199 million to $211 million based on an INR 87 to a U.S. dollar exchange. This implies adjusted EPS of $4.43 to $4.70 based on a diluted share count of approximately 44.9 million shares. As Keshav mentioned, excluding the $0.49 of onetime benefits in fiscal 2025, the midpoint of guidance represents an increase of more than 11% in adjusted EPS. With respect to capital expenditures, WNS currently expects our requirements for fiscal 2026 to be up to $65 million. We will now open the call for questions. Operator?

[Operator Instructions] Our first question comes from the line of Bryan Bergin of TD Cowen.

I want to start on client demand. So first off, good to hear the 2 large deals that were signed in the fourth quarter. I know those have been a long time coming for you. But aside from those, can you just talk about just broader client sentiment, what you've been seeing around signing, engagement ramps and spending behavior, just particularly since the end of March?

Yes, Bryan, so thanks for that question. Interestingly, while there is a bit of uncertainty in the minds of a number of clients essentially around where the macros are, what are the kind of pronouncements and announcements coming on tariff wars as well as reactions of different countries, which could impact each of these companies' supply chains or different elements of their business; what we are seeing is a consistent theme coming to the fore, which is nobody wants to wait now anymore in terms of their digital transformation kind of journeys. But more importantly, everyone is quite clear about the fact that their cost reduction and cost leadership programs must anyway happen along with it. So, as you can see, we've actually been able to accelerate closures. In fact, some of the closures, we were able to finish earlier than what we had anticipated before. Some of the large deals that we announced during this quarter, we originally thought would actually take a little longer to close. And the advantage of this now means that we actually get full year's revenue coming in on some of these deals, both large as well as small. So actually, what we see is enhanced activity from clients, clients being cautiously optimistic, taking calls in terms of cost reduction and digital kind of disruption. And from our perspective, as long as there is no paralysis, that augurs very well for our business model for the long term.

And I think just to Keshav's point, Bryan, when you look at the roughly 90% of our business that is transformation, automation, cost reduction, where we're actually managing operations for our clients. The reality is that's a strategic decision on the part. And if they've made that decision that they need to find a partner to accelerate that journey, the fact that we save them money at the same time is never going to be an issue in a weak environment. And certainly, wouldn't go as far as to say that our business is countercyclical, but the reality is that 90% of our business is and does continue to have a very low macro correlation. Where we have to watch for potential volatility would be on the 10% of our business that's project-based, which at this point remains fairly stable and to see if there are any potential impacts down the road.

Okay. Makes sense. That's clear. And then if we kind of dissect the '26 growth outlook, so 7% to 11% reported in constant currency with like 2 points in organic. Can you give us a sense just on the other puts and takes as it relates to things like productivity commitments, client ramp downs, towards your assumption, just kind of the buildup to that, the kind of the gross versus net growth dynamic?

Sure. I think overall, Bryan, we're kind of back to a more normalized environment. So, I think the headwinds that we're looking at for the year relative to client ramp downs, productivity improvements and projects - the projects that are rolling off, right, we're still looking in that 10%, 11% range for that piece of the business. The other piece that Arijit had called out in his prepared remarks is we do have a 2% annualized impact from the large health care ramp down and from the ramp down that occurred throughout the year in the OTA space. So those 2 items will create an additional 2% headwind in fiscal '26. But our growth algorithm in the 9% at the midpoint is inclusive of roughly a 13% overall in the business.

Our next question comes from the line of Mayank Tandon of Needham.

Dave, maybe just to extend Bryan's question there. Could you talk about the cadence of growth through the fiscal '26 in terms of the organic trends versus the M&A contribution, would that be pretty evenly split? And then also same question on the margin front, how we should think about the cadence of margins as the year progresses?

Yes. Look, I think we're kind of back from a cadence perspective, mine, to normal numbers, right? The reality is the acquisition took place about mid-month in March. So, we should have a full quarter's worth of contribution in fiscal Q1. In terms of the cadence of the business, I think both Keshav and Arijit just talked about the fact that excluding the health care ramp down, which was in fiscal Q2 of '25, we've now put up 3 quarters in a row of 3% sequential growth in the business on a constant currency basis. So, we entered the fiscal year with good momentum. Obviously, as you're all aware, Q1 is typically seasonally soft for us on the revenue side. So, because we give our productivity improvements in Q1, the expectation walking into the year similar as always, is that we're going to be flat to slightly up in Q1 but it's always kind of a softer quarter because of that 3% to 4% productivity headwind that we have embedded in that. Similarly, from the margin perspective, Q1 is going to be soft for us because we get the productivity headwinds in Q1 on the revenue side. We give the wage increases on the cost side. And we're also going to have the ramp of these 2 large deals that are going to be hitting us in Q1 and into Q2. So, our expectation at this point is that we're going to be somewhere in the 17% to 17.5% operating margin for Q1, but to see that number sequentially improve as we move throughout the year. And as both Arijit and Keshav mentioned, looking at this point in time with our aggressive investments, flattish operating margin at that 19.5% level for the full year.

Yes. And just to add, c, if you look at it from an overall year perspective, they have mentioned, if you look at we are seeing margin expansion in H2, and of course, as our revenue visibility increases and we start tracking our projections, we also expect the overall margins to also improve in a similar manner that we told you this year when we had this year as well, you would have seen our margins expanded in Q4 as well. And we expect a similar trajectory to also happen. But as of right now, like Dave mentioned, we are looking at similar operating margins for fiscal '26 versus '25 due to the reasons Dave mentioned.

Got it. And then just to maybe delve into the 2 large deals. Are you able to quantify the impact and maybe discuss the type of services you're providing? And to that extent, are there more large deals in the pipeline that you could potentially close in fiscal '26?

Yes. Look, I think, Mayank, we've been consistent in our large deal definition, right, that these are at a minimum $10 million in annual contract value. We're still going through the process of kind of finalizing the ramp-up here, and we've been hopefully conservative in terms of their contribution relative to fiscal '26. We are actively ramping these deals at this point in time. Let's hope this is going to happen. But we're not going to be getting a full year's worth of revenue from either of these deals at this point. One, we expect to be fully ramped hopefully by Q2. The other should be ramping as we move through the first half of the year. So obviously, those deals will be a function of both the timing of the ramp and the overall size, which we have not disclosed. In terms of the type of work that's being done, as Keshav mentioned, one of the deals is in the banking and financial services space. It's worked for one of the world's largest payment platforms, and we're going to be doing risk operations, enhanced due diligence for them, user operations and technical payment processing. On the travel side, which is the second large deal, this is in the corporate travel management space, and it's going to be operations and fulfillment in addition to online bookings for them. So, both of these deals' kind of in core middle office for these companies and focused on things that are mission-critical for running their businesses.

Yes. And just to add to your second part of your question, look, the pipeline going forward is also very healthy. We had a similar pipeline last quarter as well, and the pipeline continues. We are seeing some fairly late-stage conversations in 3 or 4 clients. But as we mentioned in our remarks and a couple of quarters back, from a guidance perspective, we will only include deals just signed. So, while we are optimistic about getting some of these closed in a couple of quarters, once we sign them, we'll be in the guidance. But the pipeline is healthy. There are some active conversations and the conversations are at multiple levels, including some of them are as well.

Our next question comes from the line of Surinder Thind of Jefferies LLC.

Just following up on the large deals. Are there any characteristics that we should be aware of in terms of maybe the duration of the contracts, expectations around productivity improvement or just more broadly with the newer contracts that you're signing, just any color that you can provide there with clients' anticipation of your integration of AI and the productivity expectations?

Yes. I think that's a great question. So, I think the key is all of these large deal transactions help move us away from the traditional models that this industry normally operates in with clients and positions us significantly away in a higher value area away from traditional BPM. So that's the first thing I would like to say because now what's coming to the fore is not just our superior knowledge of business domains and sub domains, but also our great understanding of technology, analytics, digital transformation, our partnerships that we didn't speak about earlier but that we have now created across all the large players, whether it is around cloud, whether it's around technology, whether it's around agentic, whatever. All of this comes together, which means the quality of conversation with these clients now moves from a TCO; from just a simple cost-saving model to much more a TCO-oriented kind of a model where we're actually walking in, telling our clients that here's what they normally spend in a particular area. We take out large components of that area, keeping certain parts which are unique to them inside and then delivering all of that at a particular price point. And that allows the company, the client on the one hand, to save money, to be far more efficient and to see the impact of some of the technology tools that we bring to the fore. But from our point of view, it builds a very strong relationship with the client. It creates what I call a Black Box Approach with each of these clients. It allows us to work on models that can, over a period of time, dramatically change margin profile. And more importantly, we always start with one area, but these large deals always have a path towards new processes and new areas, like, for example, the travel company that we spoke about or the banking platform company that we spoke about, these are very large players globally. We may have started with one area, but we have already spoked out the next 2 or 3 areas that we will go after, which potentially over a couple of years, would position all of these clients as, I think, in the top 5, top 10 because of this unique approach. And this is the approach that we are taking to not just the large clients, but also other traditional bread and butter smaller clients where we believe the potential for creating a large deal is available.

I would just add to Keshav's comments, Surinder, that both of these deals are 5-plus years in duration. So, kind of following that, when you're doing transformation, it's going to take a long time for the client to get comfortable. And as a result, these deals typically don't have 1-, 2-, 3-year kinds of life. So, both of these are 5-year-plus deals. The other thing that's interesting that we're seeing kind of across the portfolio is that the productivity commitments that we have to give to clients are a function of what they're ready to do and what they're willing to let us do on the front end. So, if a client is willing to let us deploy AI, Gen AI, agentic AI as part of the upfront solution, then the productivity commitments over a 5-, 6-year period tend to actually be a little bit less. If the client is moving forward with us in today's model with an understanding that over the next 4 to 5 years, we're going to be deploying more and better technology, then the productivity improvements tend to be going up a little bit. So overall, I would say when we look at the profile of the deals we're signing, it's mixed. But overall, the productivity commitments at the company level are very similar to where they've been.

That's actually quite helpful. And then in terms of just maybe following up on some earlier commentary in the prepared remarks. When we think about client behavior, I think it makes sense that you probably would not see a material change given the focus and the types of works that you guys do. But you also talked a little bit about assuming no improvement in discretionary spend. Now should you be assuming some degradation? Or is it just truly we're too early in this, what I would call, period of uncertainty for clients to actually be changing behavior or seeing for you to be seeing any change in behavior? Is it a timing issue at this point? Or is it clients truly just aren't changing behavior with respect to your line of work?

So, look, let me try that. Look, the core business that Dave mentioned earlier is basically the business technology business, right, which is mission-critical for clients. And of course, there, we don't expect to see any changes because we feel a lot of that business is actually mapping. So as demand for cost increases, we actually expect that sort of business to similar levels. But to your point on the discretionary expenditure, look, it's a difficult one. So, at this point in time, if you recall, we've said our ability to guide to 90% midpoint. And that is in historical precedence that you see where we sort of where we were typically at the Q1 of each year. So, at this point in time, we are not baking in any improvements or deteriorations. We are assuming that, that part of the business continues in line with our core business and given that with the acquisitions of Kipi and the [ TSK ] at Vuram, given the fact that our project-based revenue has increased in percentage from where we were historically, any improvement in the macros or the discretionary expenditure will actually help us improve our outlook.

Yes. I think to Arijit's point, we believe we've largely derisked this based on the visibility that we provided here. The reality is on top of that, Surinder, that if you look at the project work that we do, and obviously, it's discretionary in nature. The client has to write a check upfront and then get the benefits over time, right? But if you look at the primary driver for our discretionary projects, whether that's procurement, whether that's automation, whether that's analytics, these projects all have a cost reduction theme to them, right? The only difference is as opposed to getting the savings day 1, the client has to write a check first and then get the savings over time. So, while we do believe that these projects could get deprioritized because they do drive cost savings and they are critical to clients, we believe that they're not going to drop that far in the prioritization. And in fact, if you look at project-based revenues and the revenues that we've gotten from our acquisition, those numbers were relatively stable even in fiscal '25.

Got it. That's helpful. Thank you.

Our next question comes from the line of Puneet Jain of JPMorgan. Your line is now open.

Hi. Thanks for taking my question. So, there's been like some sensitivity to travel volume in the past with like the macro environment. So, with like how things where they are right now as it relates to macro-outlook; what does the guidance bake in for travel volume? How low some of those contracts are to possibly like the minimum level of commitments from those clients?

So let me start, actually, Puneet. It's a great question. And I fully understand where you're coming from as far as the question is concerned because of the macros. But I'll let you in on a little secret. One of the biggest pipelines that we have really now is in the travel and the shipping and logistics space, which is a little counterintuitive because you would expect with all that is being spoken about, those are likely to get impacted the most. But some of the wins that we have had in this last year, the pipeline that we have now built, the decisions that we are seeing are all, are very much focused on these areas, which means all of them are preparing for potential changes in their business model. So, everyone seems to be very focused now on the cost leadership mantra right, which actually plays in extremely well from our point of view because many of them also seem to be first-time outsourcers. And particularly in the corporate travel space, many of them have never actually done any of these programs. So, with that having been said, I'll ask Dave and Arijit to give you a little more color on the minimums and stuff.

Sure. Let me take some of that, Puneet. Look, I think we've been very consistent in explaining to you guys that the challenges that we've had in the travel space have really been because in certain areas, we operate at the intersection of a volatile segment, right, in terms of travel, a volatile service offering in terms of CX and a volatile business model in terms of digital, right? So, where we've seen this impact in our business over the last couple of years and where there's been this pressure has primarily been in the OTA space. It has not been in airline operations. It has not been in hotels because what we're doing there is more middle or back office focused. If you look at the OTA space and you look at where we were in Q4, online travel was down to 3% of company revenue. We have not baked in improvements in those numbers in fiscal '26. Certainly, if we add new logos, that will help. Certainly, if we can help these clients move from traditional models to AI, agentic AI-led models, then that has upside for us. But at this point in time, we really feel that the online travel volumes for us are bumping along the bottom here. There really is very limited downside risk, especially because of the fact that, that 3% is spread over 7 or 8 different customers, right? We don't have a client concentration risk on top of the fact that we don't have a major business risk in this segment.

And just to add some further color, Keshav mentioned that our pipeline travel is very robust. If you look at some of the deals that we are talking about, a lot of those deals are actually in different areas like corporate travel management, et cetera, where which further sort of diversifies our portfolio from being OTA and airline historically to more OTA airline and corporate travel management. And we feel that will also help us derisk any macro sort of sensitivity around this business and gives us more depth and scale in the kind of work we do because each of these deals are large, they're complex, they are sort of, and they are really sort of integral to the client, right? So that's the way we start to derisk the macro impact on the portfolio.

Got it. Got it. Thanks for that. And for the utilities client, like where you had some headwind, can you talk more about like nature of that headwind, what drove that? And also, what percentage of your overall revenue stems from such platform-based services?

So overall, I mean, this is a platform migration, right? This would be part of what we report as technology services across the company. We don't do tons of this work. But certainly, if we've got clients that are looking for health care, we're happy to do that. We help this large client migrate their platform from an asset that they were using externally to one that they purchased. And then now we're continuing to manage that process on the new platform. So given our domain expertise, given our process expertise, we were the right partner for them to help do that platform migration. The challenge was that it created a little bit of a bump for us in revenue in fiscal Q2 and Q3. And once that platform migration was successfully completed, obviously, that revenue stream fell off. So, it remains a very healthy happy client for us and obviously, when you look at our segment reporting and you look at our business, right, you'll see this hit the utilities vertical. You'll see this hit the CX revenues. You'll see us hit the largest client in terms of customer concentration and you'll see us hit the U.K. revenue. So as that kind of through the segment, that's where you see the impact to the business in, from Q3 to Q4.

And Puneet, just some added commentary. I wouldn't call this a headwind, right? Dave mentioned why the revenues in Q2 and Q3 are up. But if you exclude those, you will see over the last 6 quarters, the numbers have been broadly stable. So, the volumes are there. Because we did some incremental work, it seems to be a headwind, but the underlying volume work continues, the client and we have great relationship with the client across the CXOs and the Board level. So, at this point, we have no cause of concern in terms of that.

Our next question comes from the line of Robby Bamberger of Baird.

So, employees were up 2% sequentially and then accelerated to 7% in fiscal Q4. Can you maybe talk about your hiring plans? And should we think of this as essentially a ramp before revenue acceleration in fiscal 2026? And then any color on geographies you're ramping in?

Yes, that's exactly right, Robby. I mean if you look at the head count additions in fiscal Q4, this is the ramp for these large deals that are ramping in Q1 and Q2. And obviously, part of the reason we've got that margin pressure in Q1 and bleeding into Q2 a little bit is because we've hired in advance of actually getting the full revenue contribution from the deals. So, you see that impact in Q1. But yes, a lot of what you've seen in terms of the reacceleration in hiring in Q4 is about, we kind of see through the excess capacity in the organization in Q2 and Q3 as revenue rebounded. Now we're hiring for future growth.

And, sorry, an additional commentary there as well. The Q4 head count also includes the impact of the acquisition of Kipi, where we had about 600 folks join us in March. So that's why the numbers might look a little skewed. But like Dave said, the bulk of this is towards hiring for the planned ramps and the revenue growth starting Q1.

And I think the headline news as both the gentlemen have said is that growth is back. We are hiring. We are getting people ready to deliver on our priorities. But at the same time, I also want to mention that in terms of quality, we're also hiring people, lots more people onshore in our client-facing locations, salespeople, more digital kind of people, more technology people, all of whom, and more leaders who are actually facing off with end clients because we actually think that the next year is going to be super exciting for us. So, it's not just a case of hiring people who are delivering to these processes, but it's also hiring high-quality resources who are now facing off with clients and leading these conversations around domain, digital, technology, transformation and analytics.

Yes. Very helpful. And then maybe just turning to Gen AI. Any way to put color on how many clients are currently using Gen AI with you? And are you able to leverage those Gen AI assets across multiple different clients? And then maybe thinking about the mix shift of contracts, should they move more towards fixed base or transaction-based contracts as Gen AI comes on?

Let me take that, Robby. I think to date; we've deployed Gen AI solutions at around 20 of our clients. Most of the work that we've done there is, and Keshav spoke a little bit about this in his prepared remarks, reusable components that we've created and packaging those reusable components that feature Gen AI as part of product type services, right? So, we create a technology asset, a digital asset. It leverages AI, Gen AI, Agentic AI. And then what we do is we wrap services around that product, around that platform so that we can create differentiated experiences for our customers. So, we've actually been successful in deploying these assets with about 20 customers at this point in time. And we do see good demand for these assets. I think we will continue to see that progress as we move throughout fiscal '26. And the expectation is that the contribution in revenue as we move throughout the year from AI, Gen AI, Agentic AI will continue to increase.

And that's the reason why earlier, I also spoke about the fact that we have built very strong partnerships now with some of the technology providers on the other side, particularly around Agentic AI and some of these specific areas that will help us continue to be a very smart company. So, 31 use cases across 20 clients that they spoke about, 13 digital assets fully developed at this point in time, strong partnerships created, but more importantly, sending out a very strong signal to prospects and clients that we are ready to help them when they are.

Our next question comes from the line of Vincent Colicchio of Barrington Research.

Yes. Another question on AI. Keshav, I think last year, you come up with a number for what portion of revenue will be tied to AI. Would you like to take a stab at that kind of a number for '26?

That's a great question. At this point in time, it is about 5%, close to 5% of our revenue from these models. I think what we will expect is it will increase; it will inch upwards. But at this point in time, we are not in a position to give you a specific number. But I think this is a question that we can keep asking across the quarters.

And to what extent is access to skilled labor on the AI side limiting your growth there?

Not at all. Like I mentioned earlier, all the new leadership positions are actually based out of the markets, right? And around them, our ability, look, we don't need large armies of people to do this. We need focused small teams who can come in and help us manage. So, if you look at it, some of it is coming in through our organic growth and acquisition of talent onshore as well as offshore. Some of it is coming through acquisitions, smart acquisitions like Kipi, that we just did. I mean 600 people coming in just from that one acquisition is how we are managing it. So, at this point in time, while we are very well set and well prepared in terms of meeting our customers down this path, we also think there will be a time frame for clients, particularly the traditional clients to move away from the old model that they used to some of these new models to leverage these areas. And therefore, we will have enough access to talent. We will have enough opportunity to upskill, reskill existing talent, and we will have enough opportunity to lead in terms of some of these areas.

And just one more. What caused the spike in attrition? Is there anything meaningful to see there?

Nothing specific, Vince. I mean all the attrition is once again focused at the entry level in the organization. We've got strong ability to manage that. Actually, there's a certain amount of attrition at that level healthy to running our business and maintaining our cost structure. So, nothing that we're concerned about, nothing that we believe is trend. That number just tends to jump around quarter-to-quarter.

I think at a high level, I'd also say that when growth is back at an industry level, one should also expect some of these things to happen.

Absolutely.

At this time, we have no further questions in the queue. This will conclude today's conference call. Thank you for your participation. You may now disconnect.