Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in conjunction with our unaudited consolidated financial statements and the related notes included elsewhere in this report. We urge you to carefully review and consider the various disclosures made by us in this report and in our other SEC filings, including our annual report on Form 20-F for our fiscal year ended March 31, 2024. Some of the statements in the following discussion are forward-looking statements. See “Special note regarding forward-looking statements.”
Overview
We are a leading provider of global digital-led Business Process Management (BPM) solutions, offering comprehensive data, voice, analytical and business transformation services with a blended onshore, near shore and offshore delivery model. We transfer the business processes of our clients to our delivery centers which are located in Canada, China, Costa Rica, India, Malaysia, the Philippines, Poland, Romania, South Africa, Sri Lanka, Turkey, the UK, and the US, with a view to offer cost savings, operational flexibility, improved quality and actionable insights to our clients. We seek to help our clients “transform” their businesses by identifying business and process optimization opportunities through technology-enabled solutions, improvements to their processes, global delivery capabilities, analytics and an understanding of their business.
We win outsourcing engagements from our clients based on our domain knowledge of their business, our experience in managing the specific processes they seek to outsource and our customer-centric approach. Our portfolio of services includes specific processes that are tailored to address our clients’ specific business and industry practices. In addition, we offer a set of shared services that are common across multiple industries, including finance and accounting, customer experience services, research and analytics, technology services, legal services, and human resources outsourcing.
Although we typically enter into long-term contractual arrangements with our clients, these contracts can usually be terminated with or without cause by our clients and often with short notice periods. Nevertheless, our client relationships tend to be long-term in nature given the scale and complexity of the services we provide coupled with risks and costs associated with switching processes in-house or to other service providers. We structure each contract to meet our clients’ specific business requirements and our target rate of return over the life of the contract. In addition, since the sales cycle for offshore BPM is long and complex, it is often difficult to predict the timing of new client engagements. As a result, we may experience fluctuations in growth rates and profitability from quarter to quarter, depending on the timing and nature of new contracts. Our operating results may also differ significantly from quarter to quarter due to seasonal changes in the operations of our clients. For example, our clients in the TSLU segment typically experience seasonal changes in their operations in connection with the US summer holiday season, as well as episodic factors such as adverse weather conditions. Our focus, however, is on deepening our client relationships and maximizing shareholder value over the life of a client’s relationship with us.
The following table represents our revenue (a GAAP financial measure) for the periods indicated:
Revenue
1
Our revenue is generated primarily from providing BPM services. We have four reportable segments for financial statement reporting purposes — BFSI, TSLU, MRHP and HCLS. In our BFSI segment, we provide “repair services”. For “repair services”, we provide claims handling and repair management services, where we arrange for automobile repairs through a network of third party repair centers. In our repair management services, where we act as the principal in our dealings with the third party repair centers and our clients, the amounts which we invoice to our clients for payments made by us to third party repair centers are reported as revenue. Where we are not the principal in providing the services, we record revenue from repair services net of repair cost. See Note 2(r) to our consolidated financial statements included elsewhere in this report. Since we wholly subcontract the repairs to the repair centers, we evaluate the financial performance of our BFSI segment based on revenue less repair payments to third party repair centers, which is a non-GAAP financial measure. We believe that revenue less repair payments (a non-GAAP financial measure) for “repair services” reflects more accurately the value addition of the BPM services that we directly provide to our clients. Management believes that revenue less repair payments (non-GAAP) may be useful to investors as a more accurate reflection of our performance and operational results.
Revenue less repair payments is a non-GAAP financial measure which is calculated as (a) revenue less (b) in our BFSI segment, payments to repair centers for “repair services” where we act as the principal in our dealings with the third party repair centers and our clients. This non-GAAP financial information is not meant to be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Our revenue less repair payments (non-GAAP) may not be comparable to similarly titled measures reported by other companies due to potential differences in the method of calculation.
The following table reconciles our revenue (a GAAP financial measure) to revenue less repair payments (a non-GAAP financial measure) for the periods indicated:
Less: Payments to repair centers(1)
Revenue less repair payments (non-GAAP)
Note:
Consists of payments to repair centers in our BFSI segment for “repair services” where we act as the principal in our dealings with the third party repair centers and our clients.
2
The following table sets forth our constant currency revenue less repair payments (a non-GAAP financial measure) for the periods indicated. Constant currency revenue less repair payments is a non-GAAP financial measure. We present constant currency revenue less repair payments (non-GAAP) so that revenue less repair payments (non-GAAP) 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 (non-GAAP) is presented by recalculating prior period’s revenue less repair payments (non-GAAP) 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 revenue includes, but is not limited to, revenue denominated in pound sterling, the Australian dollar, the Euro and the South African rand. Management believes constant currency revenue less repair payments (non-GAAP) may be useful to investors in evaluating the underlying operating performance of our company. This non-GAAP financial information is not meant to be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Our constant currency revenue less repair payments (non-GAAP) may not be comparable to similarly titled measures reported by other companies due to potential differences in the method of calculation.
Exchange rate impact
Constant currency revenue less repair payments (non-GAAP)
Global Economic Conditions
As we have operations in 13 countries and service clients across multiple geographic regions, our business, financial performance and results of operations depend significantly on worldwide macroeconomic and geo-political conditions. Recent economic conditions and geo-political developments have been and continue to be challenging for global economies and could materially and adversely affect our business and financial performance.
Economic factors, such as recessionary economic cycles, inflation, rising interest rates, fluctuations in foreign exchange rates, monetary tightening and volatility in the financial markets, have impacted, and may continue to impact, our business, financial condition and results of operations. The current global economic uncertainty and the possibility of continued turbulence or uncertainty in the European, US, Asian and international financial markets and economies have adversely affected, and may continue to adversely affect, our and our clients’ liquidity and financial condition. High levels of inflation in the various geographies where we operate have resulted in increased supply costs, which in turn have impacted pricing and consumer demand. Rising interest rates, coupled with illiquid credit markets and wider credit spreads, may increase our cost of borrowing and cause credit to become more limited, which could have a material adverse effect on not only on our financial condition, liquidity and cash flows, but also on our clients’ ability to use credit to purchase our services or to make timely payments to us. In addition, as a result of high debt levels, a number of countries have required and may continue to require additional financial support, sovereign credit ratings have declined and may continue to decline, and there may be default on the sovereign debt obligations of certain countries. Uncertainties remain regarding future central bank and other economic policies in the US and EU. Such adverse macroeconomic conditions economic conditions may further lead to increased volatility in the currency and financial markets globally. For example, the recent appreciation of the pound sterling may have an unpredictable impact on our company in a number of ways, including the conversion of our operating results into our reporting currency, the US dollar. For further information, see “Part I — Item 3. Key Information — D. Risk Factors — Risks Related to Our Business — Currency fluctuations among the Indian rupee, the pound sterling, the US dollar, the Australian dollar, the Euro, the South African rand and the Philippine peso could have a material adverse effect on our results of operations” of our annual report on Form 20-F for our fiscal year ended March 31, 2024. In addition, volatility in the financial markets could have a material impact on our share price. We cannot predict the trajectory of the recent economic slowdown or any subsequent economic recovery. If adverse macroeconomic conditions continue for a prolonged period of time or even worsen, our business, financial condition and results of operations will be adversely affected.
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Government policies or objectives pursued by countries in which we do business could potentially impact the demand for our services in certain countries. Changes in trade policies, increases in tariffs, the imposition of retaliatory tariffs, including those implemented by the United States, China and Europe and legislation requiring greater oversight of supply chains, may have a material adverse effect on global economic conditions and the stability of global financial markets and may reduce international trade.
Geopolitical crises, such as war, political instability and terrorist attacks, could disrupt our operations. The conflict between Russia and Ukraine and the conflict in Israel have led and could lead to significant market and other disruptions, including significant volatility in commodity prices, supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increase in cyberattacks and espionage. In particular, we have operations in Poland and Romania, which border Ukraine and have been materially and adversely affected by inflation, particularly increases in energy and food prices, resulting from disrupted supplies from Russia and Ukraine. In addition, as a result of the ongoing military conflict, there has been a growing number of migrants in Poland and Romania. Such an influx of migrants could further exacerbate inflation in these two countries, thereby resulting in an upward pressure on wages, which could have a material adverse effect on our operations in these two countries. The length, impact and outcome of the ongoing military conflict in Ukraine are highly unpredictable. If the conflict continues or extends beyond Ukraine, it would continue to have a significant impact on the global economy and our operations in Poland and Romania.
4
Additionally, major political events, including the UK’s withdrawal from the EU in January 2020, commonly referred to as “Brexit,” has also created uncertainty for businesses such as ours that operate in these markets. While the UK and the EU have ratified a trade and cooperation agreement to govern their relationship after Brexit, the agreement merely sets forth a framework in many respects and requires additional bilateral negotiations between the UK and the EU as both parties continue to work on the rules for implementation. Significant political and economic uncertainty remains about how the precise terms of the relationship between the parties will differ from the terms before withdrawal. Such terms could adversely affect the economic conditions in affected markets as well as the stability of the global financial markets, which in turn have had and may continue to have a material adverse effect on global economic conditions and financial markets, and may significantly reduce global market liquidity, restrict the ability of key market participants to operate in certain financial markets or restrict our access to capital. 26.8% of our revenues and 24.0% of our revenue less repair payments (non-GAAP) in the nine months ended December 31 30, 2024 and 24.2% of our revenues and 21.9% of our revenue less repair payments (non-GAAP) in fiscal 2024 were denominated in pound sterling. The extent and duration of the decline in the value of the pound sterling to the US dollar and other currencies is unknown at this time. A long-term reduction in the value of the pound sterling as a result of Brexit or otherwise could adversely impact our earnings growth rate and profitability. Although we believe that our hedging program is effective, there is no assurance that it will protect us against fluctuations in foreign currency exchange rates.
In addition to the pound sterling, a weakening of the rate of exchange for the US dollar or, to a lesser extent, the Australian dollar or the Euro (in which our revenue is principally denominated) against the Indian rupee, or to a lesser extent, the Philippine peso or the South African rand (in which a significant portion of our costs are denominated) would also adversely affect our results.
Fluctuations between the Indian rupee, the Philippine peso, the pound sterling, the South African rand, the Euro, or the Australian dollar, on the one hand, and the US dollar, on the other hand, also expose us to translation risk when transactions denominated in these currencies are translated into US dollars, our reporting currency. The exchange rates between each of the Indian rupee, the Philippine peso, the pound sterling, the South African rand, the Euro, and the Australian dollar, on the one hand, and the US dollar, on the other hand, have changed substantially in recent years and may fluctuate substantially in the future.
For example, the Indian rupee depreciated against the US dollar by an average of 1.4%, the Euro depreciated against the US dollar by an average of 0.9% and the Philippine peso depreciated against the US dollar by an average of 3.9% for the three months ended December 31, 2024 as compared to the average exchange rates for the three months ended December 31, 2023, while the pound sterling appreciated against the US dollar by an average of 3.3% and the Australian dollar appreciated against the US dollar by an average of 0.3% for the three months ended December 31, 2024 as compared to the average exchange rates for the three months ended December 31, 2023.
The depreciation of the Indian rupee and the appreciation of the pound sterling and the Australian dollar against the US dollar, for the three months ended December 31, 2024 as compared to the average exchange rates for the three months ended December 31, 2023, positively impacted our results of operations during that period.
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Our revenue is categorized by client, industry, service type, geographic and contract type diversity, as the analysis below indicates.
Revenue by Top Clients
For the three months ended December 31, 2024 and 2023, the percentage of revenue and revenue less repair payments (non-GAAP) that we derived from our largest clients were in the proportions set forth in the following table:
Top client
Top five clients
Top ten clients
Top twenty clients
For the nine months ended December 31, 2024 and 2023, the percentage of revenue and revenue less repair payments (non-GAAP) that we derived from our largest clients were in the proportions set forth in the following table:
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Revenue by SBUs
For the three months ended December 31, 2024 and 2023, the percentage of revenue and revenue less repair payments (non-GAAP) that we derived from our SBUs were in the proportions set forth in the following table:
BFSI
TSLU
MRHP
HCLS
Reconciling item (1)
Total
Revenue under reconciling items includes inter and intra segment eliminations and impact of foreign exchange fluctuations.
For the nine months ended December 31, 2024 and 2023, the percentage of revenue and revenue less repair payments (non-GAAP) that we derived from our SBUs were in the proportions set forth in the following table:
7
Certain services that we provide to our clients are subject to the seasonality of our clients’ business. Accordingly, we typically see an increase in transaction related services within the TSLU segment during holiday seasons, such as during the US summer holidays (our fiscal second quarter); an increase in insurance-related business in the BFSI segment during the beginning and end of the fiscal year (our fiscal first and last quarters) and during the US peak winter season (our fiscal third quarter); and an increase in consumer product business in the MRHP segment during the US festive season towards the end of the calendar year when new product launches and campaigns typically happen (our fiscal third quarter).
Revenue by Service Type
For the three months ended December 31, 2024 and 2023, our revenue and revenue less repair payments (non-GAAP) were diversified across service types in the proportions set forth in the following table:
Industry-specific
Finance and accounting
Customer experience services
Research and analytics
Others (1)
Notes:
Others includes revenue from technology services, legal services, and human resource outsourcing services.
For the nine months ended December 31, 2024 and 2023, our revenue and revenue less repair payments (non-GAAP) were diversified across service types in the proportions set forth in the following table:
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Revenue by Geography
For the three months ended December 31, 2024 and 2023, our revenue and revenue less repair payments (non-GAAP) were derived from the following geographies (based on the location of our clients) in the proportions set forth below in the following table:
North America (primarily the US)
UK
Australia
Europe (excluding the UK)
South Africa
Rest of world
For the nine months ended December 31, 2024 and 2023, our revenue and revenue less repair payments (non-GAAP) were derived from the following geographies (based on the location of our clients) in the proportions set forth below in the following table:
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Our Contracts
We provide our services under contracts with our clients, which typically range from three to five years, with some being rolling contracts with no end dates. Typically, these contracts can be terminated by our clients with or without cause and with short notice periods. However, we tend to have long-term relationships with our clients given the complex and comprehensive nature of the business processes executed by us, coupled with the switching costs and risks associated with relocating these processes in-house or to other service providers.
Each client contract has different terms and conditions based on the scope of services to be delivered and the requirements of that client. Occasionally, we may incur significant costs on certain contracts in the early stages of implementation, with the expectation that these costs will be recouped over the life of the contract to achieve our targeted returns. Each client contract has corresponding service level agreements that define certain operational metrics based on which our performance is measured. Some of our contracts specify penalties or damages payable by us in the event of failure to meet certain key service level standards within an agreed upon time frame.
When we are engaged by a client, we typically transfer that client’s processes to our delivery centers over a nine-month period. This transfer process is subject to a number of potential delays. Therefore, we may not recognize significant revenue until several months after commencing a client engagement.
We charge for our services based on the following pricing models:
per full-time-equivalent arrangements, which typically involve billings based on the number of full-time employees (or equivalent) deployed on the execution of the business process outsourced;
per transaction arrangements, which typically involve billings based on the number of transactions processed (such as the number of e-mail responses, or airline coupons or insurance claims processed);
subscription arrangements, which typically involve billings based on per member per month, based on contractually agreed rates;
fixed-price arrangements, which typically involve billings based on achievements of pre-defined deliverables or milestones;
outcome-based arrangements, which typically involve billings based on the business result achieved by our clients through our service efforts (such as measured based on a reduction in days sales outstanding, an improvement in working capital, an increase in collections or a reduction in operating expenses); or
other pricing arrangements, including cost-plus arrangements, which typically involve billing the contractually agreed direct and indirect costs and a fee based on the number of employees deployed under the arrangement.
Apart from the above-mentioned pricing methods, a small portion of our revenue is comprised of reimbursements of out-of-pocket expenses incurred by us in providing services to our clients.
Outcome-based arrangements are examples of non-linear pricing models where revenues from platforms and solutions and the services we provide are linked to usage or savings by clients rather than the efforts deployed to provide these services. We intend to focus on increasing our service offerings that are based on non-linear pricing models that allow us to price our services based on the value we deliver to our clients rather than the headcount deployed to deliver the services to them. We believe that non-linear pricing models help us to grow our revenue without increasing our headcount. Accordingly, we expect increased use of non-linear pricing models to result in higher revenue per employee and improved margins. Non-linear revenues may be subject to short-term pressure on margins, however, as initiatives in developing the products and services take time to deliver. Moreover, in outcome-based arrangements, we bear the risk of failure to achieve clients’ business objectives in connection with these projects. For more information, see “Part I — Item 3. Key Information — D. Risk Factors — Risks Related to Our Business — If our pricing structures do not accurately anticipate the cost and complexity of performing our work, our profitability may be negatively affected.” of our annual report on Form 20-F for our fiscal year ended March 31, 2024.
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Revenue by Contract Type
For the three months ended December 31, 2024 and 2023, our revenue and revenue less repair payments (non-GAAP) were diversified by contract type in the proportions set forth in the following table:
Full-time-equivalent
Transaction
Fixed price
Subscription
Others(1)
Others includes revenue from “outcome-based arrangements”, which typically involve billings based on the business result achieved by our clients through our services (such as reduction in days sales outstanding, an improvement in working capital, an increase in collections and a reduction in operating expenses).
For the nine months ended December 31, 2024 and 2023, our revenue and revenue less repair payments (non-GAAP) were diversified by contract type in the proportions set forth in the following table:
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Expenses
The majority of our expenses consist of cost of revenue and operating expenses. The key components of our cost of revenue are employee costs, payments to repair centers, facilities costs, depreciation, legal and professional costs, and travel expenses. Our operating expenses include selling and marketing expenses, general and administrative expenses, foreign exchange gains and losses and amortization of intangible assets. Our non-operating expenses include finance expenses as well as other expenses recorded under “other income, net.”
Cost of Revenue
Employee costs represent the largest component of cost of revenue. In addition to employee salaries, employee costs include costs related to recruitment, training and retention, and share-based compensation expense. Historically, our employee costs have increased primarily due to increases in the number of employees to support our growth and, to a lesser extent, to recruit, train and retain employees. Salary levels in India and our ability to efficiently manage and retain our employees significantly influence our cost of revenue. See “[Part I — Item 4. Information on the Company — B. Business Overview — Human Capital]” of our annual report on Form 20-F for our fiscal year ended March 31, 2024. Regulatory developments may, however, result in wage increases in India and increase our cost of revenue.
Our facilities costs comprise lease rentals, utilities cost, facilities management and telecommunication network cost. Most of our leases for our facilities are long-term agreements and have escalation clauses which provide for increases in rent at periodic intervals. Most of these agreements have clauses that have fixed escalation of lease rentals.
We create capacity in our operational infrastructure ahead of anticipated demand as it takes six to nine months to build up a new site. Hence, our cost of revenue as a percentage of revenue may be higher during periods in which we carry such additional capacity.
Once we are engaged by a client in a new contract, we normally have a transition period to transfer the client’s processes to our delivery centers and accordingly incur costs related to such transfer.
Selling and Marketing Expenses
Our selling and marketing expenses comprise of primarily employee costs for sales and marketing personnel, share-based compensation expense, brand building expenses, legal and professional fees, travel expenses, and other general expenses relating to selling and marketing.
General and Administrative Expenses
Our general and administrative expenses comprise of primarily employee costs for senior management and other support personnel, share-based compensation expense, legal and professional fees, travel expenses, and other general expenses not related to cost of revenue and selling and marketing. It includes acquisition related expenses and benefits, including transaction costs, integration expenses and employment-linked earn-out as part of deferred consideration. It also includes costs related to our transition to US GAAP reporting and to voluntarily filing on US domestic issuer forms with SEC.
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Foreign Exchange Loss / (Gain), Net
Foreign exchange loss / (gain), net include:
marked to market gains or losses on derivative instruments that do not qualify for “hedge” accounting and are deemed ineffective;
realized foreign currency exchange gains or losses on settlement of transactions in foreign currency and derivative instruments; and
unrealized foreign currency exchange gains or losses on revaluation of other assets and liabilities.
Amortization of Intangible Assets
Amortization of intangible assets is primarily associated with our acquisitions of Denali Sourcing Services Inc. (“Denali”) in January 2017, MTS HealthHelp Inc. and its subsidiaries (“HealthHelp”) in March 2017, Vuram in July 2022, The Smart Cube in December 2022, OptiBuy in December 2022 and amortization of intangible assets associated with the business transfer of a large insurance company in October 2022. It also includes amortization of software acquired in the normal course of business and developed in-house.
Other Income, Net
Other income, net comprises interest income, income from investments, income from acquisition related contingent consideration, gain or loss on sale of assets, amortization of actuarial (gain)/loss on defined benefit obligations and other miscellaneous income and expenses.
Finance Expense
Finance expense primarily relates to interest charges payable on our term loans and short-term borrowings, transaction costs, interest expense on defined benefit obligations and changes in the fair value of contingent consideration relating to our acquisitions.
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Operating Data
Our profit margin is largely a function of our asset utilization and the rates we are able to recover for our services. One of the most significant components of our asset utilization is our headcount and our built up seats. Generally, an increase in our headcount and built up seats will increase our costs.
The following table presents certain operating data as at the dates indicated:
Total head count
Built up seats(1)
“Built up seats” refers to the total number of production seats (excluding support functions like finance, human resources, administration and seats dedicated for business continuity planning) that are set up in any premises.
The service delivery capacities of our remote-working employees may not be equivalent to their normal capacities when working in our delivery centers. We are averaging 71% “work from office” during the three months ended December 31, 2024.
Our built up seats increased by 7.1% from 40,658 as at December 31, 2023 to 43,550 as at December 31, 2024 due to expansion of our facilities in Gurgaon and Hyderabad in India, the Philippines, Malaysia and South Africa, partially offset by the surrender of our facilities in Romania, Poland and Noida in India. Our total headcount increased by 4.5% from 60,652 as at December 31, 2023 to 63,390 as at December 31, 2024.
Critical Accounting Policies and Estimates
For a description of our critical accounting policies and estimates, refer to “Note 2. Summary of significant accounting policies” of our unaudited consolidated financial statements in Part I of this report.
For further details on our segment reporting, refer to “Note 20 –Segment reporting” of our unaudited consolidated financial statements in Part I of this report.
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Results of Operations
The following table sets forth certain financial information as a percentage of revenue and revenue less repair payments (non-GAAP) for the periods indicated:
Cost of revenue
Gross profit
Operating expenses:
Selling and marketing expenses
General and administrative expenses
Foreign exchange loss/(gain), net
Impairment of intangible assets
Amortization of intangible assets
Operating profit
Other income, net
Finance expense
Income tax expense
Profit after tax
The following table reconciles revenue (a GAAP financial measure) to revenue less repair payments (a non-GAAP financial measure) and sets forth payments to repair centers and revenue less repair payments (non-GAAP) as a percentage of revenue for the periods indicated:
Less: Payments to repair centers
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The following table presents our results of operations for the periods indicated:
Profit before income taxes
Results for the three months ended December 31, 2024 compared to the three months ended December 31, 2023
The following table sets forth our revenue and percentage change in revenue for the periods indicated:
The increase in revenue of $6.8 million was primarily attributable to revenue from new clients of $24.5 million, lower hedging loss on our revenue by $0.9 million (loss of $0.2 million in the three months ended December 31, 2024 as compared to a loss of $1.1 million in the three months ended December 31, 2023, an appreciation of the pound sterling, the Australian dollar and the South African rand by an average of 3.3%, 0.3% and 4.5% respectively, against the US dollar for the three months ended December 31, 2024 as compared to the respective average exchange rates for the three months ended December 31, 2023 and an expansion of existing relationships. The increase was partially offset by the loss of a large Healthcare client, lower volumes in the online travel segment and reductions in discretionary project work, resulting in a decrease in revenue from existing clients of $18.6 million and a depreciation the Euro by an average of 0.9% against the US dollar for the three months ended December 31, 2024 as compared to the respective average exchange rates for the three months ended December 31, 2023). The increase in revenue was primarily attributable to higher revenues in our BFSI and MRHP segments, partially offset by lower revenues in our HCLS and TSLU segments.
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The following table sets forth the composition of our revenue based on the location of our clients in our key geographies for the periods indicated:
The decrease in revenue in the North America (primarily the US) region was primarily attributable to lower revenues in our HCLS and TSLU segments, partially offset by higher revenues in our BFSI and MRHP segments.
The increase in revenue from the UK region was primarily attributable to higher revenues in our TSLU, HCLS and MRHP segments and an appreciation of the pound sterling against the US dollar by an average of 3.3% for the three months ended December 31, 2024 as compared to the average exchange rate for the three months ended December 31, 2023, partially offset by lower revenues from our BFSI segment.
The increase in revenue from the Australia region was primarily attributable to higher revenues in our BFSI, HCLS and TSLU segments and an appreciation of the Australian dollar against the US dollar by an average of 0.3% for the three months ended December 31, 2024 as compared to the average exchange rate for the three months ended December 31, 2023, partially offset by lower revenues in our MRHP segment.
The decrease in revenue from the Europe (excluding the UK) region was primarily attributable to lower revenues in our TSLU and MRHP segments and a depreciation of the Euro against the US dollar by an average of 0.9% for the three months ended December 31, 2024 as compared to the average exchange rate for the three months ended December 31, 2023. The decrease was partially offset by higher revenues in our BFSI and HCLS segments.
The decrease in revenue from the South Africa region was primarily attributable to lower revenues in our TSLU, BFSI and MRHP segments, partially offset by an appreciation of the South African rand against the US dollar by an average of 4.5% for the three months ended December 31, 2024 as compared to the average exchange rate for the three months ended December 31, 2023.
The increase in revenue from the rest of world region was primarily attributable to higher revenues in our TSLU and BFSI segments, partially offset by lower revenues from our HCLS and MRHP segments.
Revenue Less Repair Payments (non-GAAP)
The following table sets forth our revenue less repair payments (non-GAAP) and percentage change in revenue less repair payments (non-GAAP) for the periods indicated:
The increase in revenue less repair payments (non-GAAP) of $3.2 million was primarily attributable to revenue less repair payments (non-GAAP) from new clients of $24.5 million, lower hedging loss on our revenue less repair payments (non-GAAP) of $0.9 million (loss of $0.2 million in the three months ended December 31, 2024 as compared to a loss of $1.1 million in the three months ended December 31, 2023, an appreciation of the pound sterling, the Australian dollar and the South African rand by an average of 3.3%, 0.3% and 4.5% respectively, against the US dollar for the three months ended December 31, 2024 as compared to the respective average exchange rates for the three months ended December 31, 2023 and an expansion of existing relationships. The increase was partially offset by the loss of a large Healthcare client, lower volumes in the online travel segment and reductions in discretionary project work, resulting in a decrease in revenue less repair payments (non-GAAP) from existing clients of $22.2 million and a depreciation the Euro by an average of 0.9% against the US dollar for the three months ended December 31, 2024 as compared to the respective average exchange rates for the three months ended December 31, 2023). The increase in revenue less repair payments (non-GAAP) was primarily attributable to higher revenue less repair payments (non-GAAP) in our BFSI and MRHP segments, partially offset by lower revenue less repair payments (non-GAAP) in our HCLS and TSLU segments.
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Revenue Less Repair Payments (non-GAAP) by Geography
The following table sets forth the composition of our revenue less repair payments (non-GAAP) based on the location of our clients in our key geographies for the periods indicated:
The decrease in revenue less repair payments (non-GAAP) in the North America (primarily the US) region was primarily attributable to lower revenue less repair payments (non-GAAP) in our HCLS and TSLU segments, partially offset by higher revenue less repair payments (non-GAAP) in our BFSI and MRHP segments.
The increase in revenue less repair payments (non-GAAP) from the UK region was primarily attributable to higher revenue less repair payments (non-GAAP) in our TSLU, MRHP and HCLS segments and an appreciation of the pound sterling against the US dollar by an average of 3.3% for the three months ended December 31, 2024 as compared to the average exchange rate for the three months ended December 31, 2023, partially offset by lower revenue less repair payments (non-GAAP) from our BFSI segment.
The increase in revenue less repair payments (non-GAAP) from the Australia region was primarily attributable to higher revenue less repair payments (non-GAAP) in our BFSI, HCLS and TSLU segments and an appreciation of the Australian dollar against the US dollar by an average of 0.3% for the three months ended December 31, 2024 as compared to the average exchange rate for the three months ended December 31, 2023, partially offset by lower revenue less repair payments (non-GAAP) in our MRHP segment.
The decrease in revenue less repair payments (non-GAAP) from the Europe (excluding the UK) region was primarily attributable to lower revenue less repair payments (non-GAAP) in our TSLU and MRHP segments and a depreciation of the Euro against the US dollar by an average of 0.9% for the three months ended December 31, 2024 as compared to the average exchange rate for the three months ended December 31, 2023. The decrease was partially offset by higher revenue less repair payments (non-GAAP) in our BFSI and HCLS segments.
The decrease in revenue less repair payments (non-GAAP) from the South Africa region was primarily attributable to lower revenue less repair payments (non-GAAP) in our TSLU, BFSI and MRHP segments, partially offset by an appreciation of the South African rand against the US dollar by an average of 4.5% for the three months ended December 31, 2024 as compared to the average exchange rate for the three months ended December 31, 2023.
The increase in revenue less repair payments (non-GAAP) from the rest of world region was primarily attributable to higher revenue less repair payments (non-GAAP) in our TSLU and BFSI segments, partially offset by lower revenue less repair payments (non-GAAP) from our HCLS and MRHP segments.
18
The following table sets forth the composition of our cost of revenue for the periods indicated:
Employee costs
Repair payments
Facilities costs
Depreciation
Legal and professional costs
Travel costs
Other costs
Total cost of revenue
As a percentage of revenue
As a percentage of revenue less repair payments (non-GAAP)
The increase in cost of revenue was primarily due to higher repair payments, higher facilities running costs due to capacity expansion and an increase in facilities utilization (as the number of employees working in the office increased), higher depreciation cost due to higher fixed assets, higher employee cost in line with headcount growth and an appreciation of the South Africa rand against the US dollar by an average of 4.5% for the three months ended December 31, 2024 as compared to the average exchange rate for the three months ended December 31, 2023, which increased our cost of revenue by approximately $0.8 million. The increase was partially offset by a depreciation of the Indian rupees and the Philippine peso against the US dollar by an average of 1.4% and 3.9% respectively for the three months ended December 31, 2024 as compared to the average exchange rate for the three months ended December 31, 2023, which decreased our cost of revenue by approximately $2.5 million.
Gross Profit
The following table sets forth our gross profit for the periods indicated:
Gross profit as a percentage of revenue was marginally lower for three months ended December 31, 2024 as compared to three months ended December 31, 2023, primarily due to higher cost of revenue as a percentage of revenue as discussed above.
Gross profit as a percentage of revenue less repair payments (non-GAAP) was higher for three months ended December 31, 2024 as compared to three months ended December 31, 2023 primarily due to lower cost of revenue as a percentage of revenue less repair payments (non-GAAP).
For further information, see note (1) to the table presenting certain operating data in “— Operating Data” above.
19
The following table sets forth the composition of our selling and marketing expenses for the periods indicated:
Total selling and marketing expenses
The decrease in our selling and marketing expenses was primarily attributable to a decrease in employee cost primarily due to lower share-based compensation. The decrease was partially offset by an appreciation of the pound sterling against the US dollar by an average of 3.3% for the three months ended December 31, 2024 as compared to the average exchange rate for the three months ended December 31, 2023, which increased our selling and marketing expenses by approximately $0.2 million.
The following table sets forth the composition of our general and administrative expenses for the periods indicated:
Total general and administrative expenses
The decrease in general and administrative expenses was primarily attributable to lower share-based compensation and a depreciation of the Indian rupee by 1.4% against the US dollar for the three months ended December 31, 2024 as compared to the average exchange rate for the three months ended December 31, 2023, which reduced our general and administrative expenses by approximately $0.2 million. The increase was partially offset by higher other costs due to higher legal and professional fees.
Foreign Exchange Gain, Net
The following table sets forth our foreign exchange gain, net for the periods indicated:
Foreign exchange loss / (gain), net
We recorded foreign exchange gain of $0.3 million in the three months ended December 31, 2024, primarily on account of a revaluation gain of $0.3 million as compared to a foreign exchange loss of $0.5 million in the three months ended December 31, 2023, primarily on account of a revaluation loss of $0.5 million.
20
The following table sets forth our amortization of intangible assets for the periods indicated:
The decrease in amortization of intangible assets was primarily attributable lower amortization of intangibles as we had booked an impairment charge to the customer relationship intangible related to our large HCLS client termination in fiscal 2024 and lower amortization of intangible assets associated with our acquisition of Vuram, The Smart Cube and OptiBuy.
Operating Profit
The following table sets forth our operating profit for the periods indicated:
Operating profit as a percentage of revenue for the three months ended December 31, 2024 was higher due to higher revenues, lower general and administrative expenses, selling and marketing expenses and amortization of intangible assets each as a percentage of revenue as explained earlier, partially offset by higher cost of revenue as a percentage of revenue.
Operating profit as a percentage of revenue less repair payments (non-GAAP) for the three months ended December 31, 2024 was higher due to higher revenue less repair payments (non-GAAP), lower cost of revenue, general and administrative expenses, selling and marketing expenses and amortization of intangible assets each as a percentage of revenue less repair payments (non-GAAP) as explained earlier.
The following table sets forth our other income, net for the periods indicated:
Other income, net was higher primarily due to the write back of the contingent consideration related to our acquisition of The Smart Cube, which we acquired in December 2022, in the three months ended December 31, 2024.
21
The following table sets forth our finance expense for the periods indicated:
Finance expense increased primarily due to interest on long-term loan taken for general corporate purpose.
Income Tax Expense
The following table sets forth our income tax expense for the periods indicated:
The increase in income tax expense was primarily due to a one-time reversal of deferred tax liability of $9.5 million on intangibles in three months ended December 31, 2023 and higher taxable profits in jurisdictions with higher tax rates for the three months ended December 31, 2024.
Profit After Tax
The following table sets forth our profit after tax for the periods indicated:
The increase in profit after tax as a percentage of revenue as well as a percentage of revenue less repair payments (non-GAAP) was primarily on account of higher operating profit as a percentage of revenue as well as a percentage of revenue less repair payments (non-GAAP) as explained earlier, higher other income, net. The increase was offset by higher finance expense and income tax expense.
22
Results for the nine months ended December 31, 2024 compared to the nine months ended December 31, 2023
The decrease in revenue of $7.9 million was primarily attributable to the loss of a large Healthcare client, lower volumes in the online travel segment, the offshore delivery transition of a large internet customer and reductions in discretionary project work, resulting in a decrease in revenue from existing clients of $44.7 million. The decrease was partially offset by an appreciation of the pound sterling, the Australian dollar and the South African rand by an average of 2.3%, 0.3% and 2.8% respectively, against the US dollar for the nine months ended December 31, 2024 as compared to the respective average exchange rates for the nine months ended December 31, 2023, lower hedging loss on our revenue of $2.4 million for the nine months ended December 31, 2024 as compared to a loss of $4.2 million for the nine months ended December 31, 2023 and revenue from new clients of $35.0 million. The decrease in revenue was primarily attributable to lower revenues in our HCLS, TSLU and MRHP segments, partially offset by higher revenue in our BFSI segment.
23
The decrease in revenue in the North America (primarily the US) region was primarily attributable to lower revenues in our TSLU, HCLS and MRHP segments, partially offset by higher revenues in our BFSI segment.
The increase in revenue from the UK region was primarily attributable to higher revenues in TSLU, MRHP and HCLS segments and an appreciation of the pound sterling against the US dollar by an average of 2.3% for the nine months ended December 31, 2024 as compared to the average exchange rate for the nine months ended December 31, 2023, partially offset by lower revenues in our BFSI segment.
The increase in revenue from the Australia region was primarily attributable to higher revenues in our BFSI, TSLU and HCLS segments and an appreciation of the Australian dollar against the US dollar by an average of 0.3% for the nine months ended December 31, 2024 as compared to the average exchange rate for the nine months ended December 31, 2023, partially offset by lower revenues in our MRHP segment.
The decrease in revenue from the Europe (excluding the UK) region was primarily attributable to lower revenues in our TSLU and MRHP segments and a depreciation of the Euro against the US dollar by an average of 0.3% for the nine months ended December 31, 2024 as compared to the average exchange rate for the nine months ended December 31, 2023, partially offset by higher revenue in our HCLS and BFSI segments.
The decrease in revenue from the South Africa region was primarily attributable to lower revenues in our TSLU and BFSI segments, partially offset by an appreciation of the South African rand against the US dollar by an average of 2.8% for the nine months ended December 31, 2024 as compared to the average exchange rate for the nine months ended December 31, 2023 and higher revenue in our MRHP segment.
The increase in revenue from the rest of world region was primarily attributable to higher revenues in our BFSI and TSLU segments, partially offset by lower revenues from our HCLS and MRHP segments.
The decrease in revenue less repair payments (non-GAAP) of $16.1 million was primarily attributable to the loss of a large Healthcare client, lower volumes in the online travel segment, the offshore delivery transition of a large internet customer and reductions in discretionary project work, resulting in a decrease in revenue from existing clients of $52.9 million. The decrease was partially offset by an appreciation of the pound sterling, the Australian dollar and the South African rand by an average of 2.3%, 0.3% and 2.8% respectively, against the US dollar for the nine months ended December 31, 2024 as compared to the respective average exchange rates for the nine months ended December 31, 2023, lower hedging loss on our revenue less repair payments (non-GAAP) of $2.4 million for the nine months ended December 31, 2024 as compared to a loss of $4.2 million for the nine months ended December 31, 2023 and revenue less repair payments (non-GAAP) from new clients of $35.0 million. The decrease in revenue less repair payments (non-GAAP) was primarily attributable to lower revenue less repair payments (non-GAAP) in our HCLS, TSLU and MRHP segments, partially offset by higher revenue less repair payments (non-GAAP) in our BFSI segment.
24
The decrease in revenue less repair payments (non-GAAP) in the North America (primarily the US) region was primarily attributable to lower revenue less repair payments (non-GAAP) in our TSLU, HCLS and MRHP segments, partially offset by higher revenue less repair payments (non-GAAP) in our BFSI segment.
The increase in revenue less repair payments (non-GAAP) from the UK region was primarily attributable to higher revenue less repair payments (non-GAAP) in TSLU, MRHP and HCLS segments and an appreciation of the pound sterling against the US dollar by an average of 2.3% for the nine months ended December 31, 2024 as compared to the average exchange rate for the nine months ended December 31, 2023, partially offset by lower revenue less repair payments (non-GAAP) in our BFSI segment.
The increase in revenue less repair payments (non-GAAP) from the Australia region was primarily attributable to higher revenue less repair payments (non-GAAP) in our BFSI, TSLU and HCLS segments and an appreciation of the Australian dollar against the US dollar by an average of 0.3% for the nine months ended December 31, 2024 as compared to the average exchange rate for the nine months ended December 31, 2023, partially offset by lower revenue less repair payments (non-GAAP) in our MRHP segment.
The decrease in revenue less repair payments (non-GAAP) from the Europe (excluding the UK) region was primarily attributable to lower revenue less repair payments (non-GAAP) in our TSLU and MRHP segments and a depreciation of the Euro against the US dollar by an average of 0.3% for the nine months ended December 31, 2024 as compared to the average exchange rate for the nine months ended December 31, 2023, partially offset by higher revenue less repair payments (non-GAAP) in our HCLS and BFSI segments.
The decrease in revenue less repair payments (non-GAAP) from the South Africa region was primarily attributable to lower revenue less repair payments (non-GAAP) in our TSLU and BFSI segments, partially offset by an appreciation of the South African rand against the US dollar by an average of 2.8% for the nine months ended December 31, 2024 as compared to the average exchange rate for the nine months ended December 31, 2023 and higher revenue less repair payments (non-GAAP) in our MRHP segment.
The increase in revenue less repair payments (non-GAAP) from the rest of world region was primarily attributable to higher revenue less repair payments (non-GAAP) in our BFSI and TSLU segments, partially offset by lower revenue less repair payments (non-GAAP) from our HCLS and MRHP segments.
25
The decrease in cost of revenue was primarily due to lower share-based compensation and lower employee costs on account of change in revenue mix, lower legal and professional costs and a depreciation of the Indian rupees and the Philippine peso against the US dollar by an average of 1.4% and 3.4% respectively for the nine months ended December 31, 2024 as compared to the average exchange rate for the nine months ended December 31, 2023, which decreased our cost of revenue by approximately $7.1 million. The decrease was partially offset by increase in repair payments, higher facilities running costs due to capacity expansion and an increase in facilities utilization (as the number of employees working in the office increased), higher depreciation cost due to higher fixed assets and additional facilities and higher travel costs.
Gross profit as a percentage of revenue was higher for nine months ended December 31, 2024 as compared to nine months ended December 31, 2023, primarily due to lower cost of revenue as a percentage of revenue as discussed above.
Gross profit as a percentage of revenue less repair payments (non-GAAP) was higher for nine months ended December 31, 2024 as compared to nine months ended December 31, 2023, primarily due to lower cost of revenue as a percentage of revenue less repair payments (non-GAAP).
26
The increase in our selling and marketing expenses was primarily attributable to an increase in employee cost primarily due to increase in the number of sales personnel and an appreciation of the pound sterling against the US dollar by an average of 2.3% for the nine months ended December 31, 2024 as compared to the average exchange rate for the nine months ended December 31, 2023, which increased our selling and marketing expenses by approximately $0.4 million. The increase was partially offset by lower share-based based compensation.
The decrease in general and administrative expenses was primarily attributable to lower share-based compensation and lower employment-linked earn-out as part of deferred consideration related to our acquisitions and a depreciation of the Indian rupee by 1.4% against the US dollar for the nine months ended December 31, 2024 as compared to the average exchange rate for the nine months ended December 31, 2023, which reduced our general and administrative expenses by approximately $0.8 million. The increase was partially offset by higher other costs due to higher legal and professional fees and higher travel cost.
We recorded foreign exchange loss of $1.1 million in the nine months ended December 31, 2024, primarily on account of a revaluation loss of $0.8 million and de-designation of hedges of $0.3 million as compared to a foreign exchange gain of $0.4 million in the nine months ended December 31, 2023, primarily on account of a revaluation gain of $0.4 million.
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Operating profit as a percentage of revenue for the nine months ended December 31, 2024 was higher due to higher gross profit as a percentage of revenue, lower general and administrative expenses and amortization of intangibles assets each as a percentage of revenue, partially offset by higher selling and marketing expenses as a percentage of revenue as explained earlier.
Operating profit as a percentage of revenue less repair payments (non-GAAP) for the nine months ended December 31, 2024 was higher due to higher gross profit as a percentage of revenue less repair payments (non-GAAP), lower general and administrative expenses and amortization of intangibles assets each as a percentage of revenue less repair payments (non-GAAP), partially offset by higher selling and marketing expenses as a percentage of revenue less repair payments (non-GAAP).
Other income, net was lower primarily due to the write back of the contingent consideration related to our acquisition of Vuram, which we acquired in July 2022 in the nine months ended December 31, 2023. The decrease was partially offset by write back of the contingent consideration related to our acquisition of OptiBuy and The Smart Cube, which we acquired in December 2022 in the nine months ended December 31, 2024.
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The increase in income tax expense was primarily due to a one-time reversal of deferred tax liability of $9.5 million on intangibles in nine months ended December 31, 2023 and higher taxable profits in jurisdictions with higher tax rates for the nine months ended December 31, 2024 offset by a one-time tax benefit associated with the reversal of another deferred tax liability on intangibles in nine months ended December 31, 2024.
The decrease in profit after tax as a percentage of revenue as well as a percentage of revenue less repair payments (non-GAAP) was primarily on account lower other income, net, higher finance expense and higher income tax expense, partially offset by higher operating profit as a percentage of revenue as well as a percentage of revenue less repair payments (non-GAAP) as explained above.
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Liquidity and Capital Resources
Our capital requirements are principally for the establishment of operating facilities to support our growth and acquisitions, to fund our debt repayment obligations, to fund our acquisitions and to fund the repurchase of shares under our share repurchase programs, as described in further detail below, see “Part II. Other Information — Item 2. Unregistered Sales of Equity Securities and Use of Proceeds — Share Repurchase.” Our sources of liquidity include cash and cash equivalents and cash flow from operations, supplemented by equity and debt financing and bank credit lines, as required.
As at December 31, 2024, we had cash and cash equivalents of $231.5 million which were primarily held in Indian Rupee, South African rand, pound sterling, US dollars, Sri Lankan rupee and the Philippine pesos. We typically seek to invest our available cash on hand in bank deposits and money market instruments. Our investments include primarily bank deposits, marketable securities and mutual funds which totaled $166.6 million as at December 31, 2024.
As at December 31, 2024, we had $199.6 million debt outstanding, as discussed below.
In July 2022, WNS (Mauritius) Limited obtained a term loan facility of $80.0 million from The Hongkong and Shanghai Banking Corporation Limited, Hong Kong and Citibank N.A., Hong Kong Branch for general corporate purposes. The loan bears interest at a rate equivalent to the SOFR plus a margin of 1.20% per annum. WNS (Mauritius) Limited’s obligations under the term loan are guaranteed by WNS. The term loan is secured by a pledge of shares of WNS (Mauritius) Limited held by WNS. The facility agreement for the term loan contains certain covenants, including restrictive covenants relating to our indebtedness and financial covenants relating to our EBITDA to debt service ratio and total net borrowings to EBITDA ratio, each as defined in the facility agreement. The loan matures in July 2027 and the principal is repayable in 10 semi-annual installments of $8.0 million each. On January 9, 2023, July 11, 2023, January 11, 2024, July 11, 2024 and January 14, 2025, we made a scheduled repayment of $8.0 million each.
In June 2024, the Company obtained a term loan facility of $100,000 from The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch and JP Morgan Chase Bank N.A., Singapore Branch for general corporate purposes. The loan bears interest at a rate equivalent to the SOFR plus a margin of 1.15% per annum. WNS (Mauritius) Limited’s obligations under the term loan are guaranteed by WNS. The term loan is secured by a pledge of shares of WNS (Mauritius) Limited held by WNS. The facility agreement for the term loan contains certain covenants, including restrictive covenants relating to our indebtedness and financial covenants relating to our EBITDA to debt service ratio and total net borrowings to EBITDA ratio, each as defined in the facility agreement. The loan matures in June 2029 and the principal is repayable in 10 semi-annual installments of $10.0 million each. On December 9, 2024 the Company made a scheduled repayment of $10.0 million.
In December 2022, WNS UK obtained a term loan facility of £83.0 million ($103.9 million based on the exchange rate on December 31, 2024) from The Hongkong and Shanghai Banking Corporation Limited, Hong Kong and Citibank N.A., UK Branch to fund our acquisition of The Smart Cube. The loan bears interest at a rate equivalent to SONIA plus a margin of 1.25% per annum. WNS UK’s obligations under the term loan are guaranteed by WNS. The term loan is secured by a pledge of shares of WNS (Mauritius) Limited held by WNS. The facility agreement for the term loan contains certain covenants, including restrictive covenants relating to our indebtedness and financial covenants relating to our EBITDA to debt service ratio and total net borrowings to EBITDA ratio, each as defined in the facility agreement. The loan matures in December 2027 and the principal is repayable in 10 semi-annual installments of £8.3 million each. On June 16, 2023, December 18, 2023, June 18, 2024 and December 19, 2024, we made a scheduled repayment of £8.3 million each.
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As at December 31, 2024, we also had available lines of credit amounting to $137.1 million, and Nil drawn under these lines of credit, as discussed below. These limits can be utilized in accordance with the agreed terms and prevailing interest rates at the time of borrowing.
As at December 31, 2024, our Indian subsidiary, WNS Global, had an unsecured line of credit of ₹840 million ($9.8 million based on the exchange rate on December 31, 2024) from The Hongkong and Shanghai Banking Corporation Limited, ₹600 million ($7.0 million based on the exchange rate on December 31, 2024) from JP Morgan Chase Bank, N.A., ₹800 million ($9.3 million based on the exchange rate on December 31, 2024) from Citibank N.A., ₹750 million ($8.8 million based on the exchange rate on December 31, 2024) from Axis Bank, ₹600 million ($7.0 million based on the exchange rate on December 31, 2024) from DBS Bank, ₹600 million ($7.0 million based on the exchange rate on December 31, 2024) from HDFC Bank, ₹600 million ($7.0 million based on the exchange rate on December 31, 2024) from ICICI Bank and ₹600 million ($7.0 million based on the exchange rate on December 31, 2024) from Standard Chartered Bank for working capital purposes. Interest on these lines of credit would be determined on the date of the borrowing. These lines of credit generally can be withdrawn by the relevant lender at any time. As at December 31, 2024, there was no amount utilized from these lines of credit.
As at December 31, 2024 WNS UK had a working capital facility of £14.0 million ($17.5 million based on the exchange rate on December 31, 2024) from HSBC Bank plc. The working capital facility bears interest at Bank of England base rate plus a margin of 2.00% per annum. Interest is payable on a quarterly basis. The facility is subject to conditions to drawdown and can be withdrawn by the lender at any time by notice to the borrower. As at December 31, 2024, there was no outstanding amount under this facility.
31
As at December 31, 2024 our South African subsidiary, WNS Global Services SA (Pty) Ltd., had an unsecured line of credit of ZAR 30.0 million ($1.6 million based on the exchange rate on December 31, 2024) from The HSBC Bank plc. for working capital purposes. This facility bears interest at prime rate less a margin of 2.25% per annum. This line of credit can be withdrawn by the lender at any time. As at December 31, 2024, there was no outstanding amount under this facility.
As at December 31, 2024, WNS North America Inc., had an unsecured line of credit of $40.0 million from The HSBC Bank plc. for working capital purposes. This facility bears interest at prime rate or SOFR plus a margin of 1.65% per annum. This line of credit can be withdrawn by the lender at any time. As at December 31, 2024, there was no outstanding amount under this facility.
As at December 31, 2024, WNS Global Services Philippines Inc. had an unsecured line of credit of $15.0 million from The HSBC Bank plc. for working capital purposes. This line of credit can be withdrawn by the lender at any time. As at December 31, 2024, there was no outstanding amount under this facility.
As at December 31, 2024, bank guarantees amounting to $1.8 million were provided on behalf of certain of our subsidiaries to regulatory authorities and other third parties.
Based on our current level of operations, we expect that our anticipated cash generated from operating activities, cash and cash equivalents on hand, and use of existing credit facilities will be sufficient to fund our estimated capital expenditures, share repurchases and working capital needs for the next 12 months. However, if our lines of credit were to become unavailable for any reason, we would require additional financing to fund our capital expenditures, share repurchases and working capital needs. We currently expect our capital expenditures needs in fiscal 2025 to be approximately $60.0 million. The geographical distribution, timing and volume of our capital expenditures in the future will depend on new client contracts we may enter or the expansion of our business under our existing client contracts. Our capital expenditure in the nine months ended December 31, 2024 amounted to $11.1 million and our capital commitments (net of capital advances) as at December 31, 2024 were $8.4 million.
Further, under the current uncertain economic and business conditions as discussed under “— Global Economic Conditions” above, there can be no assurance that our business activity would be maintained at the expected level to generate the anticipated cash flows from operations. If the current market conditions deteriorate, we may experience a decrease in demand for our services, resulting in our cash flows from operations to be lower than anticipated. If our cash flows from operations are lower than anticipated, including as a result of the ongoing uncertainty in the market conditions or otherwise, we may need to obtain additional financing to meet our debt repayment obligations and pursue certain of our expansion plans. Further, we may in the future make further acquisitions. If we have significant growth through acquisitions or require additional operating facilities beyond those currently planned to service new client contracts, we may also need to obtain additional financing. We believe in maintaining maximum flexibility when it comes to financing our business. We regularly evaluate our current and future financing needs. Depending on market conditions, we may access the capital markets to strengthen our capital position and provide us with additional liquidity for general corporate purposes, which may include capital expenditures, acquisitions, refinancing of indebtedness and working capital. If current market conditions deteriorate, we may not be able to obtain additional financing on favorable terms or at all. An inability to pursue additional opportunities will have a material adverse effect on our ability to maintain our desired level of revenue growth in future periods.
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The following table shows our cash flows for the nine months ended December 31, 2024 and December 31, 2023:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Cash Flows from Operating Activities
Net cash provided by operating activities increased to $153.8 million for the nine months ended December 31, 2024 from $139.6 million for the nine months ended December 31, 2023. The increase in net cash provided by operating activities was attributable to a decrease in cash outflow towards working capital requirements by 21.4 million; partially offset by profit as adjusted for non-cash and other items by $7.3 million;.
Profit after tax as adjusted for non-cash and other items primarily comprised the following: (i) profit after tax of $119.3 million for the nine months ended December 31, 2024 as compared to $132.9 million for the nine months ended December 31, 2023; (ii) share-based compensation expense of $28.1 million for the nine months ended December 31, 2024 as compared to $42.7 million for the nine months ended December 31, 2023; (iii) depreciation and amortization expense of $42.0 million for the nine months ended December 31, 2024 as compared to $44.1 million for the nine months ended December 31, 2023; (iv) reduction in the carrying amount of operating lease right-of-use assets of $21.8 million for the nine months ended December 31, 2024 as compared to $22.3 million for the nine months ended December 31, 2023; (v) income from mutual funds of $7.9 million for the nine months ended December 31, 2024 as compared to $7.6 million for the nine months ended December 31, 2023; (vi) unrealized exchange gain of $1.3 million for the nine months ended December 31, 2024 as compared to unrealized exchange gain of $1.4 million for the nine months ended December 31, 2023; (vii) allowances for expected credit losses of $1.0 million for the nine months ended December 31, 2024 as compared to $0.0 for the nine months ended December 31, 2023; (viii) unrealized loss on derivative instruments of $1.6 million for the nine months ended December 31, 2024 as compared to unrealized gain on derivative instruments $1.8 million for the nine months ended December 31, 2023; (ix) fair-value changes on contingent consideration of $18.1 million for the nine months ended December 31, 2024 as compared to $21.9 million for the nine months ended December 31, 2023 and (x) income tax benefit (deferred tax) of $7.3 million for the nine months ended December 31, 2024 as compared to $22.6 million for the nine months ended December 31, 2023.
Cash outflow on account of working capital changes amounted to $25.7 million for the nine months ended December 31, 2024 as compared to $47.1 million for the nine months ended December 31, 2023. This was primarily on account of a decrease in cash outflow from accounts receivables and unbilled revenue by $24.7 million, an increase in cash inflow from contract liabilities by $9.8 million, a decrease in cash outflow towards current liabilities by $7.0 million; a decrease in cash outflow from accounts payable by $1.5 million partially offset by a decrease in cash inflow towards income tax payable by $12.7 million, an increase in cash outflow from other assets by $8.1 million, and an increase in cash outflow towards operating lease liabilities by $0.8 million.
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Cash Flows from Investing Activities
Net cash used in investing activities was $3.2 million for the nine months ended December 31, 2024 as compared to net cash used in investing activities of $25.3 million for the nine months ended December 31, 2023. This was primarily on account of a net cash inflow (maturity of fixed deposits, net of placements) from our fixed deposit investments of $6.9 million for the nine months ended December 31, 2024 as compared to net cash outflow (placement of fixed deposits, net of maturities) towards our fixed deposit investments of $3.6 million for the nine months ended December 31, 2023; a cash outflow of $35.5 million towards purchase of property, plant and equipment (comprising leasehold improvements, furniture and fixtures, office equipment and information technology equipment) and intangible assets (comprising computer software) for the nine months ended December 31, 2024 as compared to $43.8 million for the nine months ended December 31, 2023 and a net cash inflow of proceeds from redemption of investment in mutual funds of $25.2 million for the nine months ended December 31, 2024 as compared to proceeds from redemption of investment in mutual funds of $20.8 million for the nine months ended December 31, 2023.
Cash Flows from Financing Activities
Net cash used in financing activities decreased to $131.7 million for the nine months ended December 31, 2024 as compared to $145.2 million for the nine months ended December 31, 2023. This was primarily on account of a cash inflow due to proceeds from long term debt (net of repayment of $39 million) of $61.0 million for the nine months ended December 31, 2024 as compared to a cash outflow due to repayment of long term debt of $29.1 million for the nine months ended December 31, 2023; partially offset by a net cash outflow towards repayment of short term line of credit of $40.0 million (net of availment of $62.0 million) for the nine months ended December 31, 2024 as compared to availment of short term line of credit of $29.9 million (net of repayment of $39.7 million) for the nine months ended December 31, 2023, a cash outflow of $149.7 million towards share repurchases for the nine months ended December 31, 2024 as compared to $143.8 million for the nine months ended December 31, 2023, a cash outflow of $2.6 towards contingent consideration paid towards acquisitions for the nine months ended December 31, 2024 as compared to $2.2 million for the nine months ended December 31, 2023 and a cash outflow due to payment of debt issuance cost of $0.4 million for the nine months ended December 31, 2024 as compared to $nil for the nine months ended December 31, 2023.
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Tax Assessment Orders
Transfer pricing regulations to which we are subject require that any international transaction among the WNS group enterprises be on arm’s-length terms. We believe that the international transactions among the WNS group enterprises are on arm’s-length terms. If, however, the applicable tax authorities determine that the transactions among the WNS group enterprises do not meet arm’s-length criteria, we may incur increased tax liability, including accrued interest and penalties. This would cause our tax expense to increase, possibly materially, thereby reducing our profitability and cash flows. We have signed an advance pricing agreement with the Government of India providing for the agreement on transfer pricing matters over certain transactions covered thereunder for a period of five years starting from April 2018. We have filed an application with the Government of India for the renewal of the advance pricing agreement on similar terms for another five years starting from April 2023. The applicable tax authorities may also disallow deductions or tax holiday benefits claimed by us and assess additional taxable income on us in connection with their review of our tax returns.
From time to time, we receive orders of assessment from the Indian tax authorities assessing additional taxable income on us and/or our subsidiaries in connection with their review of our tax returns. We currently have orders of assessment for fiscal 2003 through fiscal 2021 pending before various appellate authorities. These orders assess additional taxable income that could in the aggregate give rise to an estimated ₹302.6 million ($3.5 million based on the exchange rate on December 31, 2024) in additional taxes, including interest of ₹51.9 million ($0.6 million based on the exchange rate on December 31, 2024).
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The following sets forth the details of these orders of assessment:
Entity
WNS Global Services Private Limited
WNS Business Consulting Services Private Limited
Permanent establishment of WNS North America Inc and WNS Global Services UK Limited in India
Based on the exchange rate as at December 31, 2024.
The aforementioned orders of assessment allege that the transfer prices we applied to certain of the international transactions between WNS Global or WNS BCS (each of which is one of our Indian subsidiaries), as the case may be, and our other wholly-owned subsidiaries named above were not on arm’s-length terms, disallow a tax holiday benefit claimed by us, deny the set off of brought forward business losses and unabsorbed depreciation, disallow certain expenses and payments claimed as tax deductible by WNS Global or WNS BCS, as the case may be. As at December 31, 2024, we have provided a tax reserve of ₹774.3 million ($9.0 million based on the exchange rate on December 31, 2024) primarily on account of the Indian tax authorities’ denying the set-off of brought forward business losses and unabsorbed depreciation. We have appealed against these orders of assessment before higher appellate authorities.
In addition, we currently have orders of assessment pertaining to similar issues that have been decided in our favor by appellate authorities, vacating tax demands of ₹6,644.5 million ($77.6 million based on the exchange rate on December 31, 2024) in additional taxes, including interest of ₹2,320.0 million ($27.1 million based on the exchange rate on December 31, 2024). The income tax authorities have filed or may file appeals against these orders at higher appellate authorities.
In case of disputes, the Indian tax authorities may require us to deposit with them all or a portion of the disputed amounts pending resolution of the matters on appeal. Any amount paid by us as deposits will be refunded to us with interest if we succeed in our appeals. We have deposited ₹904.1 million ($10.6 million based on the exchange rate on December 31, 2024) of the disputed amount with the tax authorities and may be required to deposit the remaining portion of the disputed amount with the tax authorities pending final resolution of the respective matters.
As at December 31, 2024, corporate tax returns for fiscal year 2022 and thereafter remain subject to examination by tax authorities in India.
After consultation with our Indian tax advisors and based on the facts of these cases, legal opinions from counsel on certain matters, the nature of the tax authorities’ disallowances and the orders from appellate authorities deciding similar issues in our favor in respect of assessment orders for earlier fiscal years, we believe these orders are unlikely to be sustained at the higher appellate authorities and we intend to vigorously dispute the orders of assessment.
In addition, we currently have orders of assessment outstanding for various years pertaining to pre-acquisition period of Smart Cube India Private Limited acquired in fiscal 2023, which assess additional taxable income that could in the aggregate give rise to an estimated ₹77.8 million ($0.9 million based on the exchange rate on December 31, 2024) in additional taxes, including interest of ₹45.8 million ($0.5 million based on the exchange rate on December 31, 2024). These orders of assessment disallow tax holiday benefit claimed by these acquired entities. These acquired entities have appealed against these orders of assessment before higher appellate authorities.
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We have received orders of assessment from the value-added tax (“VAT”), service tax and goods and services tax (“GST”) authorities, demanding payment of ₹1,022.0 million ($11.9 million based on the exchange rate on December 31, 2024) towards VAT, service tax and GST for the period April 1, 2014 to March 31, 2023. The tax authorities have rejected input tax credit on certain types of input services. Based on consultations with our tax advisors, we believe these orders of assessments will more likely than not be vacated by the higher appellate authorities and we intend to dispute the orders of assessments.
In 2016, we also received an assessment order from the Sri Lankan Tax Authority, demanding payment of LKR 25.2 million ($0.1 million based on the exchange rate on December 31, 2024) in connection with the review of our tax return for fiscal year 2012. The assessment order challenges the tax exemption that we have claimed for export business. We have filed an appeal against the assessment order with the Sri Lankan Supreme Court in this regard. Based on consultations with our tax advisors, we believe this order of assessment will more likely than not be vacated.
No assurance can be given, however, that we will prevail in our tax disputes. If we do not prevail, payment of additional taxes, interest and penalties may adversely affect our results of operations, financial condition and cash flows. There can also be no assurance that we will not receive similar or additional orders of assessment in the future.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
General
Market risk is attributable to all market sensitive financial instruments including foreign currency receivables and payables. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market risk sensitive instruments.
Our exposure to market risk is primarily a function of our revenue generating activities and any future borrowings in foreign currency. The objective of market risk management is to avoid excessive exposure of our earnings to losses. Most of our exposure to market risk arises from our revenue and expenses that are denominated in different currencies.
The following risk management discussion and the estimated amounts generated from analytical techniques are forward-looking statements of market risk assuming certain market conditions. Our actual results in the future may differ materially from these projected results due to actual developments in the global financial markets.
Risk Management Procedures
We manage market risk through our treasury operations. Our senior management and our Board of Directors approve our treasury operations’ objectives and policies. The activities of our treasury operations include management of cash resources, implementation of hedging strategies for foreign currency exposures, implementation of borrowing strategies and monitoring compliance with market risk limits and policies. Our Foreign Exchange Committee, comprising the Director of the Board, our Group Chief Executive Officer and our Group Chief Financial Officer, is the approving authority for all our hedging transactions.
Components of Market Risk
Exchange Rate Risk
Our exposure to market risk arises principally from exchange rate risk. Although substantially all of our revenue less repair payments (non-GAAP) is denominated in pound sterling and US dollars, approximately 47.7% of our expenses (net of payments to repair centers made as part of our BFSI segment) for the nine months ended December 31, 2024, were incurred and paid in Indian rupees. The exchange rates between each of the pound sterling, the Indian rupee, the Australian dollar, the South African rand and the Philippine peso, on the one hand, and the US dollar, on the other hand, have changed substantially in recent years and may fluctuate substantially in the future.
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Our exchange rate risk primarily arises from our foreign currency-denominated receivables. Based upon our level of operations for the nine months ended December 31, 2024, a sensitivity analysis shows that a 10% appreciation or depreciation in the pound sterling against the US dollar would have increased or decreased revenue by approximately $26.5 million and increased or decreased revenue less repair payments (non-GAAP) by approximately $22.9 million for the nine months ended December 31, 2024, a 10% appreciation or depreciation in the Australian dollar against the US dollar would have increased or decreased revenue and revenue less repair payments (non-GAAP) by approximately $7.1 million for the nine months ended December 31, 2024, and a 10% appreciation or depreciation in the South African rand against the US dollar would have increased or decreased revenue and revenue less repair payments (non-GAAP) by approximately $0.8 million for the nine months ended December 31, 2024. Similarly, a 10% appreciation or depreciation in the Indian rupee against the US dollar would have increased or decreased our expenses incurred and paid in Indian rupee for the nine months ended December 31, 2024 by approximately $40.5 million, a 10% appreciation or depreciation in the South African rand against the US dollar would have increased or decreased our expenses incurred and paid in South African rand for the nine months ended December 31, 2024 by approximately $6.0 million and a 10% appreciation or depreciation in the Philippine peso against the US dollar would have increased or decreased our expenses incurred and paid in Philippine peso for the nine months ended December 31, 2024 by approximately $8.6 million.
To protect against foreign exchange gains or losses on forecasted revenue and inter-company revenue, we have instituted a foreign currency cash flow hedging program. We hedge a part of our forecasted revenue and inter-company revenue denominated in foreign currencies with forward contracts and options.
Interest Rate Risk
Our exposure to interest rate risk arises from our borrowings that have a floating rate of interest, which is linked to various benchmark interest rates, including SOFR and SONIA. We manage this risk by maintaining an appropriate mix of fixed and floating rate borrowings and through the use of interest rate swap contracts. The costs of floating rate borrowings may be affected by fluctuations in the interest rates. As at December 31, 2024, we had not entered into any interest rate swap contract.
We monitor our positions and do not anticipate non-performance by the counterparties. We intend to selectively use interest rate swaps, options and other derivative instruments to manage our exposure to interest rate movements. These exposures are reviewed by appropriate levels of management on a periodic basis. We do not enter into hedging agreements for speculative purposes.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required under the Exchange Act, management evaluated, with the participation of our Group Chief Executive Officer and Group Chief Financial Officer, the effectiveness of our disclosure controls and procedures as at the end of the period covered by this quarterly report. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Group Chief Executive Officer and Group Chief Financial Officer, as appropriate to allow timely decisions regarding our required disclosure.
Based on the foregoing, our Group Chief Executive Officer and Group Chief Financial Officer concluded that, as at the end of the period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
Management has evaluated, with the participation of our Group Chief Executive Officer and Group Chief Financial Officer, whether any changes in our internal control over financial reporting that occurred during the period covered by this quarterly report have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on the evaluation we conducted, management has concluded that there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarterly period ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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