WNS - Q2 2024
October 19, 2023
Transcript
Operator (participant)
Good morning, ladies and gentlemen, and welcome to the WNS Holdings Fiscal 2024 Second Quarter Earnings Conference Call. At this time, all participants are on a listen-only mode. After management's prepared remarks, we will conduct a question-and-answer session, and instructions for how to ask a question will follow at that time. As a reminder, this call is being recorded for replay purposes. Now, I would like to turn the call over to David Mackey, WNS Executive Vice President of Finance and Head of Investor Relations. David?
David Mackey (EVP of Finance and Head of Investor Relations)
Thank you, and welcome to our Fiscal 2024 Second Quarter Earnings Call. With me today on the call, I have WNS's CEO, Keshav Murugesh, and WNS's CFO, Sanjay Puria. A 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 second quarter, ended September 30th, 2023. 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's website. During today's 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 goodwill impairment. Adjusted Net Income, or ANI, is defined as profit, excluding amortization of intangible assets, share-based compensation, acquisition-related expenses or benefits, goodwill impairment, and all associated taxes. These terms will be used throughout the call. I would now like to turn the call over to WNS's CEO, Keshav Murugesh. Keshav?
Keshav Murugesh (CEO)
Thank you, David. Good morning, everyone. In the second quarter, WNS delivered healthy financial results in the face of a challenging macro environment and continued to make progress on our AI and generative AI initiatives. The company posted Q2 net revenue of $325 million, representing a year-over-year increase of 12.3% on a reported basis and 11% constant currency. Sequentially, net revenue increased by 2.4% on a reported basis and 2.1% on a constant currency basis after adjusting for FX. In the quarter, WNS added seven new logos and expanded 27 existing relationships. The company also posted adjusted operating margins of more than 22% and delivered year-over-year growth in adjusted EPS of 16%.
While second quarter results were solid, we do expect increasing revenue pressure in the second half of fiscal 2024, driven by further reductions in volume commitments from certain clients, slowing demand for project-based work, and delays in the ramp of our large insurance captive. Overall, Q2 volumes remained fairly resilient. However, we did see some erosion in September and have received additional reductions in volume commitments for Q3 and Q4 from certain clients. These reductions are most evident in the travel vertical and are driven by both macro trends and some client-specific dynamics. We've also seen a modest deterioration in demand for certain types of projects. This is impacting our analytics and procurement businesses, including a deceleration in growth for our newly acquired entities. Additionally, second-half visibility has also been reduced to reflect client delays in the ramp of our large insurance carve-out.
This revenue, which is contractually committed over the life of the contract, is now expected to show meaningful ramps in both 2025 and fiscal 2026. Despite these short-term macro challenges, demand for our services remains strong, and the demand to long-term outlook is excellent. Our new business pipeline continues to be extremely healthy, driven by clients' need to digitize and automate their processes, as well as reduce cost. The pipeline now includes more large deal opportunities than ever, which are spread across verticals, services, as well as geographies. We also continue to see solid deal flow and client decision-making, with both new client additions and existing client expansions remaining robust.... I would also like to reiterate that the pressure we are facing is entirely related to macro challenges and client-specific issues, and not impacts from AI or generative AI.
We currently anticipate that the outsized revenue headwinds of 18% that we are facing in fiscal 2024, including the ramp down of a large healthcare process, the transition of a top procurement client from on-site to offshore, and slowdowns in both volume and discretionary projects, should present an accelerated growth opportunity for WNS in fiscal 2025. I would now like to provide you with an update on our progress with AI as well as generative AI. First, let me begin by saying that we have seen nothing to date which changes our belief that AI and GenAI are tools that are most impactful when integrated as part of a broader end-to-end digital solution. Every use case WNS is developing requires deep domain expertise, process knowledge, analytics capabilities, and human intelligence to leverage these technologies and deliver business outcomes.
In addition, co-creation remains foundational to how we collaborate with our clients to identify opportunities, build, and then deploy these solutions. Since last quarter, we have formalized strategic partnerships with industry leaders, including Microsoft Azure, OpenAI, AWS, and Google, and are working closely with other partners like Appian, Imagia, BlackLine, and NICE, who are building GenAI into their products. We have also rolled out company-wide AI and GenAI training programs, which today include 25 unique courses across four tracks designed to promote awareness, evangelism, expertise, and leadership. WNS has partnered with industry leaders such as Google, MindMap Consulting, KPMG, LinkedIn Learning, and Oxford University to create these programs.
As a result of our focused efforts, we have now expanded the number of use cases to more than 90, with approximately 20 currently built and ready for deployment, and an additional seven of our proprietary digital assets, which now have GenAI embedded. Our active client conversations have doubled to more than 40, with over 10 of these in advanced discussions and three already committed to GenAI implementation with us. And while we continue to make solid progress across the pipeline of activities, it is important to note that we are seeing many clients wanting to proceed carefully on GenAI initiatives as they move towards the implementation phase. This is the result of a wide range of issues and risks, including build and run costs, data privacy concerns, legal and regulatory issues, and the inherent potential for poor data quality and false results.
With that being said, we now have two examples of in-production solutions we would like to share with you today. In August, The Smart Cube launched a new release of Amplifi PRO, the company's on-demand digital procurement intelligence platform. The latest version is powered by GenAI and a custom natural language query framework to provide enhanced search capabilities, expanded category coverage, and improved user experience. The upgraded platform leverages GPT-3.5 models, which have been specifically trained for procurement professionals based on proprietary content curated by The Smart Cube's category and commodity specialists. The model also provides traceability of answers to source data, an area where many current GPT models often fall short. The enhanced capabilities are currently being used by more than 80 clients who subscribe to Amplifi PRO's unlimited paid tier model.
And clearly, feedback in the early days has been extremely positive. We expect these new enhancements, along with future upgrades to the platform, will now help drive increases in paid subscription revenue. In addition, WNS has also recently implemented a new Recovery-as-a-Service solution for a large client in the insurance vertical. This proprietary offering combines AI models and a team of claims specialists with deep insurance expertise to identify and recover property claims costs, which should have been paid by third parties. WNS has engineered, cleansed, and structured the client's historical data, built and trained the models, integrated them into the client's cloud technology environment, and started delivering immediate results. This solution was identified by the WNS digital consulting team using our co-creation approach, and represents a completely new offering for the industry, for the insurance industry and our clients.
Claims recoveries are a key area of focus for P&C Insurance clients, and the WNS solution is able to meaningfully reduce cost leakage when compared to current approaches. The offering has been priced in an outcome-based model, where WNS receives a percentage of the amounts recovered for the client. This results-oriented approach ensures that we are rewarded for performance, and that both WNS and the client share in the value delivered. In summary, while the macroeconomic environment is creating some challenges for WNS in the back half of this year, the company continues to expect double-digit revenue growth and industry-leading stable margins. We also remain optimistic that the company's healthy pipeline, strong underlying business momentum, and reducing headwinds set the company up for accelerated growth in fiscal 2025.
In addition, we have seen nothing that changes our belief that AI and GenAI represent more opportunity than risk for our business. By actively embracing this technology shift, WNS remains well-positioned to deliver meaningful business outcomes and help our clients create value. I would now like to turn the call over to our CFO, Sanjay Puria, to further discuss our results as well as the outlook. Sanjay?
Sanjay Puria (CFO)
Thank you, Keshav. In the fiscal second quarter, WNS net revenue came in at $325 million, up 12.3% from $289.3 million posted in the same quarter of last year and up 11% on a constant currency basis. Sequentially, net revenue increased by 2.4% on a reported basis and 2.1% on a constant currency basis. Our sequential revenue growth was driven by broad-based momentum with both new and existing clients and favorable currency movement. This benefit was partially offset by volume reductions with certain clients, primarily in travel. In the second quarter, WNS recorded $500,000 of high-margin, short-term revenue.
Adjusted operating margin in quarter two was 22.4%, as compared to 20.6% reported in the same quarter of fiscal 2023, and 21% last quarter. Year-over-year, adjusted operating margin improvement was a result of operating leverage on higher volumes, improved productivity, lower SG&A expenses driven by provision reversals for performance incentives and bad debt, and favorable currency movements. This benefits more than offset headwinds from annual wage increases and increased return-to-office costs. Sequentially, margin increased as a result of higher volumes, improved productivity, and lower SG&A costs. This benefit was partially offset by wage increases and higher return-to-office costs.
The company's net other income expense was $3.6 million of net expense in the second quarter, as compared to $0.7 million of net expense reported in quarter two of fiscal 2023, and $2 million of net expense last quarter. Year-over-year, net interest expense increased due to higher debt levels and lower cash balances, driven by our acquisitions and share repurchases. Sequentially, the unfavorable variance was a result of higher debt levels and lower average cash balances, and $0.8 million of interest income on tax refunds received in quarter one. In quarter two, the company also reversed $21.9 million provision for contingent consideration relating to our acquisition of Vuram. The reversal is based on current growth expectations, which remain healthy but below targeted levels. This benefit has been excluded from our Adjusted Net Income.
WNS effective tax rate for quarter two came in at 22%, up from 19.8% last year and up from 21.8% last quarter. Both year-over-year and sequentially, changes in our effective tax rate are largely the result of shifts in our geographical profit mix and changes to the mix of work delivered from tax incentive facilities. The company's Adjusted Net Income for quarter two was $54.1 million, compared with $47.2 million in the same quarter of fiscal 2023, and $50.6 million last quarter. Adjusted diluted earnings were $1.09 per share in quarter two, up 16% versus $0.94 in the second quarter of last year and up 8% from $1.01 last quarter...
As of September 30, 2023, WNS balances in cash and investments totaled $248.1 million, and the company had $164.1 million in debt. In quarter two, WNS generated $68.5 million of cash from operating activities, incurred $15.7 million in capital expenditures, and made debt repayments of $38 million. DSO in the second quarter came in at 35 days as compared to 30 days reported in quarter two of last year and 34 days last quarter. In September, at our annual general meeting, WNS shareholders approved a 3.3 million share repurchase proposal. Our board of directors had also approved a new repurchase program, and the company expects to begin buying back shares during fiscal quarter three.
With respect to our key operating metrics, total headcount at the end of quarter was 59,873, and our attrition rate in the second quarter was 30%, as compared to 41% reported in quarter two of last year and 32% in the previous quarter. We expect attrition to average in the mid-30%, but the rate could remain volatile quarter-to-quarter in the current labor environment. Billed seat capacity at the end of the quarter two increased to 39,775, and WNS continued our progress towards in-person operations, averaging 69% work from office during the quarter. In our press release issued earlier today, WNS provided our revised full year guidance for fiscal 2024.
Based on the company's current visibility levels, we expect net revenue to be in the range of $1.254 billion-$1.3 billion, representing year-over-year growth of 8%-12% on a both reported and constant currency basis. Top-line projection assumes an average British pound to U.S. dollar exchange rate of 1.23 for the remainder of the fiscal year, and we currently have 97% visibility to the midpoint of the range. As Keshav mentioned, our revised revenue guidance includes additional headwind from reduced volume projection from certain clients, lower project revenue expectations, and delays in the ramp of our large insurance captive.
As was the case last quarter, it is important to note that some of the volume reductions are based on client commitment, which could prove to be conservative based on the forecasting process. We have incorporated this lower estimate into our guidance, consistent with the company's visibility-based approach. Full-year Adjusted Net Income for fiscal 2024 is expected to be in the range of $201 million-$211 million, based on an INR 83 to $1 exchange rate for the remainder of fiscal 2024. This implies Adjusted EPS of $4.04-$4.24, assuming a diluted share count of approximately 49.8 million shares. With respect to capital expenditures, WNS currently expects our requirement for fiscal 2024 to be up to $60 million.
We'll now open the call for questions. Operator?
Operator (participant)
Certainly. Ladies and gentlemen, if you wish to ask a question at this time, please press star one one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press star one one again. In the interest of time and to enable everyone on the call to participate, please limit your questions to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question coming from the line of Bryan Bergin with TD Cowen, your line is open.
Bryan Bergin (Managing Director)
Hi. Thank you. I wanted to start here with one around kind of client behavior. So I'm trying to understand what appears to be a hurry up and wait behavior from a lot of enterprises. So you have clients with an urgency for cost reduction, pipeline commentary is all positive, and we all see solid deal signings across the services sector associated with productivity and reductions, but then these ramps seem to move more slowly. And maybe the insurance captive is a company specific situation, but can you share your perspective on what seems to be causing this disconnect? Are there common threads that are not leading to more normal or faster ramps to achieve faster cost savings across these clients?
David Mackey (EVP of Finance and Head of Investor Relations)
Sure. Let me take that, Bryan, and Keshav and Sanjay can chime in as well. But I think when you look at our business for this year, the top line engine is really working well, right? I mean, we're as Sanjay mentioned in his prepared remarks, you know, we're facing an 18% headwind in terms of lost revenues for this year, which is a combination of, you know, ramp downs in volume, project-related issues, you know, the productivity commitments that we give to clients, the fact that we walked into the year with unusual headwinds from a large healthcare client and from an internet client moving work offshore. So, you know, these were all kind of.
Headwinds to the business, the 10% that we have guided to at the midpoint is, you know, it actually shows a gross growth number of 28% for the year. So we believe that when you look at deal signings, deal closures, deal flow, especially as it relates to the cost reduction types of initiatives, we're not seeing slowdowns. I think the issue with the insurance captive is a completely separate one, and it is highly company specific, and it's structural in nature based on priorities within the organization. But again, with that initiative, the goal was to drive cost savings, right? So, I think we're not seeing significant delays in cost reduction-based activities.
Where we've seen the delays and where we've seen the impact to this guidance versus last quarter is more on the volumes that are being pumped through the processes we own already and the discretionary projects or the shorter-term projects as they relate to the acquisitions that we've done and procurement business.
Sanjay Puria (CFO)
I'll just add, you know, to what Dave said, you know. This client volume forecast, you know, still we believe is conservative, because since quarter two, what we have seen that those volumes, you know, in fact, have not, reduced. Only in September, very specific to some clients in travel, what we saw some reduction, but broadly, in place. And this reduction is also to be just consistent with our visibility base, right? We right now have 97% visibility against 92% visibility last quarter, what we mentioned, and still this does not include, the short-term revenue where we don't have visibility. So, and this is also with a net-net of, of a growth of 1% what we, what we saw in quarter two.
So, I think what, you know, what the impact, what Dave was trying to allude to, is definitely very client specific and, you know, you know, some conservatism in the client forecast.
Bryan Bergin (Managing Director)
Okay. Just a quick follow-up on the 18%. What is kind of transitory within that that gives you the confidence for the 25 recovery? And then just my follow-up: As we think about the second half headwinds on the top line that you talked about, do you take an immediate reduction in 3Q and have the ability to build off of that? Or should we think about the second half, you know, the 3Q, 4Q being more level in revenue?
David Mackey (EVP of Finance and Head of Investor Relations)
Sure. So let me, let's take a stab at that, Bryan. I think when you look at the, at this point, if we don't make assumptions about volume and projects as we head into next year, right? If we assume that it's status quo, right? And obviously we know that those numbers could get, you know, could get slightly better, could get slightly worse. But we're looking at at least a 4% headwind to the business in that 18% that is transitory. We typically see in a given year, anywhere between a 10%-11% headwind to our business, which is 3%-4% on the productivity side, you know, 1%-2% on the project side, and then we typically have 4%-5% of the business that are known ramp downs.
The transitory stuff really relates to the large healthcare process, which obviously is gonna anniversary here in Q4 this year, and having a large internet-based client that we do procurement work for that has transitioned the solution from on-site centric to offshore centric. So these are really kind of the two unusual ones. Obviously, the hope is that volumes stabilize or pick back up and that the project-based work starts to settle in here as well. But you know, the reality is, in that ramp down, we're looking at least a 4% improvement on a year-over-year basis, on top of the fact that our insurance captive, which Sanjay mentioned, has committed revenues will have to ramp next year, fiscal 2026, in order for them to meet their five-year commitment targets.
So, you know, we feel pretty good about the opportunity as we head into next year, both in terms of the abatement of the headwinds, as well as the acceleration in some of the things that are creating challenges right now. And-
Sanjay Puria (CFO)
And, and-
David Mackey (EVP of Finance and Head of Investor Relations)
I'm sorry. Go ahead, Sanjay.
Sanjay Puria (CFO)
Yeah. And, you know, as we're just talking about quarter three, Dave, you know, so your specific question, then definitely, you know, the quarter three, we believe and we expect that, you know, it's going to be 3.5%-4% lower as compared to quarter two. Right now, you know, it's impact, 1% almost coming from NFX, because, you know, quarter two was almost at 1.27 from a pound perspective, and now what we have assumed is 1.23 for the balance half. As well as, you know, what Dave was talking about, a large internet client from an offshoring perspective, you know, that impacted quarter two as well as it's going to impact quarter three. By that phase, it will just complete its entire offshoring.
But, you know, it also gives us a large opportunity from a growth perspective because the client is intact, the relationship is there, as well as we have renewed, you know, signed this contract for a much longer term, as well as it helps to drive our margin. Also, I just wanted to remind that quarter three is usually our travel seasonality, and that impacts, you know, the quarter three revenue. But as we move forward, we believe that, you know, we should come back, you know, from quarter four onward as compared to margin.
David Mackey (EVP of Finance and Head of Investor Relations)
Yeah.
Keshav Murugesh (CEO)
Yeah, this is Kishen. Just want to add one last bit here, and that is that first and foremost, in terms of just the quality of discussions we are having with clients and prospects, they're at a level that we have not seen before. So I just want to give the confidence that there's a lot of activity taking place around both the transformation agenda as well as the cost saving agenda. And I think a lot of clients focused a lot on the transformation agenda earlier, but are now doubling down on the cost saving agenda, but you know, while it's moving ahead, I think the potential for some of it to accelerate, you know, sometime later is much higher. I think a lot of them are taking a conservative view because of the disruption involved in their, you know, kind of programs to do it.
The second thing I wanna mention is pricing has been extremely stable from our point of view, so I think that's a very, very good sign. And overall, the large deal progress, the pipeline, the interaction with customers, you know, the travel between customers and our people, you know, up and down across sites continues to be very, very strong. And the conversations around all the new trends again, continues to be strong. So I think it's a very unusual headwind that we are seeing in fiscal 2024, as Dave and Sanjay explained, and we are still, you know, quite confident that 2025 will be quite different.
Bryan Bergin (Managing Director)
Okay, those are all great details. Thank you very much.
Keshav Murugesh (CEO)
Thanks, Brian.
Operator (participant)
Thank you. Our next question coming from the line of Mayank Tandon with Needham & Company.
Mayank Tandon (Managing Director)
Thank you. Keshav, thank you for sharing those examples on the GenAI opportunities. I wanted to focus in on that for a second. As you look to take advantage of the opportunities down the road, do you have to overhaul your sales engine? Do you have to revamp it? Do you have to retool and reskill your workforce? What are the investments you have to make to truly be positioned to take advantage of the opportunities down the road?
Keshav Murugesh (CEO)
Yeah, that's an excellent question, Mayank, and I would say all of the above. You know, whatever you, you know, asked about, I think what we are doing is really focusing on making sure that, first of all, the capability engines inside the company are, you know, well taken care of and invested in, like I, you know, spoke about in my prepared remarks. We are building relationships outside of WNS also, beyond just the traditional partner network, but also with universities, you know, in the U.S., U.K. and other places, in order to, you know, just ensure that we have direct access to research, as well as have our people interacting with the researchers there, to be useful to our clients, as a second.
The third is, accelerated kind of, learning programs that we are, you know, using with, our salespeople in order to bring them up to speed in terms of what, you know, what we have inside, how we are changing some of those offerings, and to actually have, you know, intelligent and, you know, penetrative co-conversations with our clients. I think the most wonderful thing that we're seeing as a result of these investments being made, the excitement being created, as well as the fact that, you know, AI and GenAI is obviously something that is top of, you know, top of the attention in all boardrooms, is that WNS salespeople and leaders across technology, across domains, are actually having far better and more conversations with clients and prospects that than we have ever seen before, right?
So I just want to mention that we are investing in every one of those areas, but at the same time, we're also seeing the quality of conversations has increased. We recently had, you know, our advisor, you know, day in the U.S., and we had the highest ever attendance of both clients as well as the advisors at that event. Because, you know, clearly where we showcased a lot of examples of things that were being, you know, created at WNS, and we had clients actually talk about how they were impacted by some of these ideas.
Mayank Tandon (Managing Director)
Got it. Very helpful. Then I have to ask you a follow-up on that. What do you see in terms of the impact on the model? When do we actually see the effects on revenue or margins, or for that matter, you know, also want to get a sense, are the size and scope of these engagements going to be larger or smaller as you think about it longer term? Just from a financial standpoint, how should we view it?
Keshav Murugesh (CEO)
Yeah, I think I'll take a stab at that first and then have Dave and Sanjay talk a little more on the financial models. But, you know, I think right now some of these topics are front and center and, you know, receiving a lot of attention at the top of the house. I think most clients at this point in time, you know, as the hype is settling down to more business-oriented kind of discussions, are just getting much more comfortable with who are the partners that can actually help them navigate, you know, some of these new technologies, and whom, whom they can trust, who understand their businesses first and foremost, their business domains, and, and who can help them, you know, take them, you know, through these changes, right?
I think in that journey, WNS has made all the investments, is having lots of conversations, is building, you know, a lot of, you know, a lot of confidence with our clients that we are the right partner, you know, to work with, you know, for the long term. That is, that is one. At the same time, we are also seeing that a few clients are wanting to post the early conversations, willing to actually take the risk of dipping their toes and, in the model, and actually taking, you know, adding on more disruption to what they're already seeing from a macro point of view or from their own business point of view. We gave examples of a few clients and where this is already being experimented with.
But my own, you know, my own commitment with my internal teams is to start pushing for more, you know, commitments from clients, you know, during this year, somewhere along this fiscal, but driving much more of it next year. So I would expect that this whole year will be all about building commitment, getting clients to actually get comfortable, and then over a period of time, as they get, you know, more comfortable about willing to add on more disruption to their models, you know, walk with their feet, so to speak, in terms of, you know, getting on board with some of these models.
And the clients who are, you know, experimenting are already seeing the change in productivity, the kind of impact that we're able to give them in, you know, even those, you know, minor processes in terms of their cost management programs. And now they're able to get a sense of how they can size it and scale some of these projects, even into areas that they may not have, you know, outsourced or handed over before. So I think the potential is high, but we will have to wait and watch because we have to build, you know, confidence, and we have to get the clients to actually be willing to take the risk of doing some of these things.
David Mackey (EVP of Finance and Head of Investor Relations)
Yeah, I would just add to that, Mayank, from a financial perspective, you know, we've seen nothing to date that changes our philosophy, that for clients to really take advantage of what AI and GenAI can do, it does require that the process be completely reengineered. And as a result, we continue to see that the opportunity for the financial model going forward is to move away from FTE-based types of pricing schemes and more toward transaction outcome, subscription-based models, where the clients pay for results instead of for bodies. You know, when you look at logically how these engagements are gonna have to work, there's gonna be a lot of effort on the front end to clean data, to build models, right?
Unless those costs are amortized over the life of the project, it's gonna be very difficult for a client to justify. So when we look at these types of initiatives, we see a clear catalyst with AI and GenAI as clients get more comfortable with these types of engagements, as Keshav said, moving us away from FTE-based models. And obviously, as we've shown over the last seven-eight years, we believe that as we move away from FTE-based models, our opportunities for margin expansion to improve.
Mayank Tandon (Managing Director)
That's helpful. Thank you so much.
Sanjay Puria (CFO)
Thank you, Mayank.
Operator (participant)
Thank you. Our next question coming from the line of Ashwin Shirvaikar with Citi. Your line is open.
Ashwin Shirvaikar (Managing Director)
Thank you. Good day, good day, guys. I guess this is a mathematical question. If I look at 97% of the new range versus 92% of the prior range, so just basically the visibility metric times the midpoint, right? The number, the dollar, the actual dollar number you have visibility to seems to have gone up by about $20 million, so gone up, right? So my question is: What needs to happen for you to call something visible? And I guess it's the flip side of the question is: When did you learn of some of these changes that are causing your actual overall range to go down, but your visibility to go up? That make sense?
Sanjay Puria (CFO)
Yeah, I know, Ashwin, you're absolutely, you know, right. And, you know, the visibility goes up specifically when, you know, we have a committed signed contract from the client perspective. Whether it's a volume commitment, whether it's a new logo, the expansion, it's all about the client commitment. So you're right. When $20 million goes up, you know, from a visibility base, it's all about those, you know, those contracts being executed at this particular stage. And, you know, as we keep on moving forward in a discussion, you know, from a visibility perspective, it is all about, you know, the conservative, what we kept on saying, you know, what we mentioned, that, you know, clients, when they give the volume, they commit it, we take it.
Because we have no other means from the client end perspective that, you know, how their volumes from a future perspective are going to be, because, you know, we have a better understanding of that particular business at this stage.
David Mackey (EVP of Finance and Head of Investor Relations)
Yeah, and just to add to the second part of your question, Ashwin, I think a lot of the this deterioration that we've seen, as Keshav mentioned in his prepared remarks, from a volume perspective, we started seeing some erosion in the travel vertical in September. You'll see that when you look at our second quarter financials. In addition to seeing the volume erosion show up in September, we also got forecasts in September that showed lower commitment levels going forward, right? So some of this was really a function of what happened in September. Similarly, with the delays in our captives, you know, those discussions were ongoing throughout the quarter, but it really wasn't until later in the quarter that we had acknowledged that the client was gonna be pushing out phase two of this relationship.
So, you know, I think a lot of this was clearly not visible to us in July when we provided guidance. Some of this is related to a deterioration in the macro, right? I think some of that is showing up in the travel vertical on the volume side. Some of it is showing up in the lack of accelerated growth in the project side of our business, where when you look at our visibility... Remember, when we came into the year, we actually came into the year with 2% lower visibility than we typically did, right? We started with 88 instead of 90, and the reason was because we had added 6% of revenue through our acquisitions that were growing at a much faster clip than the company.
So we had comfort in those assets being able to bridge that gap. And obviously, given what's gone on with the macro here, while those assets continue to grow at a healthy clip, they're growing below our expectation, and as a result, our ability to bridge that gap has dropped. But at the end of the day, I think a lot of what you're seeing here, you're right. We've gotten new commitments from clients. We've been able to add revenue to the top line, the erosion, the stuff that's fallen out of the bottom.
Ashwin Shirvaikar (Managing Director)
Understood. And then with regards to the expected inorganic contribution, I think it was supposed to be 300 basis points before, but I do believe Vuram lapped, it lapped in the quarter. What's the new expected inorganic contribution? And just given some of the commentary that you had with how these acquisitions are doing. I mean, Vuram, for example, the low-code intelligent automation services company, I would imagine that's that's exactly the kind of work that clients are demanding now. So why the suggested weakness? And it may not be associated with specifically Vuram, so I know there there there may be other factors, but but could you kinda provide some color on that?
Sanjay Puria (CFO)
Yeah. So, you know, Ashwin, you know, still, three percent is the impact from an acquisitions perspective, you know, what we guided earlier. In fact, you know, Vuram, and, you know, the other acquisitions have been growing more, north of 20%, you know, much better than the company levels growth. I think the reversal, what, you know, what we have spoken about is based on the business plan or the target revenue, what was given based on the valuation, which was discussed with them. So accordingly, it was much higher expectation from a growth perspective, and accordingly, that visibility, of, of those growth is, is not there, and according those reversals.
But in fact, you know, the growth is much healthier, much better discussion what we are having, you know, including the top line, as well as driving the productivity internally as well as for the client.
David Mackey (EVP of Finance and Head of Investor Relations)
Yeah. The demand for the acquisitions remains healthy, Ashwin. You know, like, like Sanjay said, they are still growing all three of the assets faster than the company average by a significant margin. The only issue is that they're growing below what we had hoped or anticipated and below what they've grown historically. So, you know, there's clearly been a slowdown, and that's why the word we used in the prepared remarks was a deceleration in their growth. But make no mistake, these are still really good assets that are growing at really healthy rates. We're just seeing some of that top end get removed here.
Ashwin Shirvaikar (Managing Director)
Okay. Can I throw in a clarification question with regards to the buyback? It was re-upped. I think it was relatively late in the quarter. Is that why we haven't seen an impact in the quarter? And should we expect you to continue to maybe, you know, stock indicated down, would you be willing to step up and defend and so on? If you can comment on that.
Sanjay Puria (CFO)
So, Ashwin, no, we didn't see any, you know, any share repurchase during the quarter because, we got, you know, completed with our share repurchase approval, what we had from a shareholder's perspective. And, you know, as the AGM was there in, September, we got that, you know, new approval for 3.3 million shares from our shareholders. And as in my prepared remarks, you know, I mentioned that the board have already approved, you know, to start the new program for the share repurchases. And accordingly, we expect to start the share repurchases in quarter three as we move forward.
Ashwin Shirvaikar (Managing Director)
Understood. So no limitations there. Thank you.
Sanjay Puria (CFO)
Yes.
Operator (participant)
Thank you. And our next question coming from the line of Maggie Nolan with William Blair. Your line is open.
Maggie Nolan (Partner and Equity Research Analyst)
Hi, thank you. You mentioned the expectation for continued industry-leading margin profile. Given some of the headwinds on the revenue side, can you talk about some of the puts and takes on the margins and the trajectory for the remainder of this year?
David Mackey (EVP of Finance and Head of Investor Relations)
Sure. Let me take that, Maggie. You're right. Obviously, we had a really good quarter here in terms of margin in Q2. Some of that was what I would call non-recurring in nature, especially as it relates to the SG&A benefits that we had during the quarter. You know, to Sanjay's point, when you look at a reduction in Q3 on the top line of in the 3.5%-4% range sequentially, I think the margin profile is also gonna be down. So I think what we get back to for Q3, Q4 in terms of margins is a more normal cadence.
So, you know, something in the range of 21%+ in Q3 and 22%+ in Q4, which when you average out over the full year, will bring us, again, somewhere slightly north of the midpoint between 21%-22% for the full year. Yeah, the big issue obviously in terms of Q3 margins is coverage of expenses given the revenue drop.
Maggie Nolan (Partner and Equity Research Analyst)
Sure. Thank you. And then on the client that shifted from onshore to offshore, how long do you expect that shift will take? Or is it already complete? And then are there other parts of the portfolio where you're evaluating, you know, the potential for them to do similar things throughout the remainder of the year? And what do you expect the, you know, impact to be and the timing of the impact on the margins from this shift?
Sanjay Puria (CFO)
So, you know, the procurement line, which began its journey from an offshoring perspective, in fact, it started in quarter two, and, you know, that's going to take at least a couple of more quarters, which is going to be, you know, we expect it to get completed by year-end. And accordingly, when we will step in in FY 2025, you know, from a next year onward perspective, that is where we'll start seeing some of the improvement from a margin perspective. Also, you know, as we will be done with that entire offshoring, we expect the growth also to be, you know, rapid as we move forward, you know, because of our long-term relationship.
Maggie Nolan (Partner and Equity Research Analyst)
Thank you very much.
Operator (participant)
Thank you. Our next question coming from the line of David Koning with Baird. Your line is now open.
David Mackey (EVP of Finance and Head of Investor Relations)
Hey, Dave, are you on the call?
Operator (participant)
Please check your mute button. All right, would you like me to go to the next person in queue?
David Mackey (EVP of Finance and Head of Investor Relations)
Yeah, let's, let's do that, and we can get Dave back into the queue.
Operator (participant)
Sure. Our next question coming from the line of Nate Svensson with Deutsche Bank. Your line is open.
Nate Svensson (Director and Senior Equity Research Analyst)
Hi, guys. Thanks for the question. So I wanted to ask about your outlook for headcount growth going forward. So I think headcount grew 8% last year, and just looking sequentially in Q1 and Q2 was pretty flat. So just wondering what your thoughts on headcount additions, sort of in the current macro environment and in light of your revised revenue expectations for the year. And I guess the related question there is, you've had this talk about shifting projects from FTE-based to outcome-based, and you called out the P&C insurance project in your prepared remarks as one example of that. So maybe what percent of projects today are outcome-based versus FTE-based, and kind of where do you see that going over time?
Sanjay Puria (CFO)
Maybe I'll start from a headcount perspective, and then, you know, Dave can add further. You know, we expect headcount to come down at least in quarter three, based on what we are seeing from a revenue reduction perspective, based on certain reasons, like offshoring and other stuff, what we spoke about. But as we head in quarter four, we expect the headcount to go up because, you know, we'll start hiring for some of the revenue growth, which is going to be there in FY 2025 and beginning from quarter one. And including, you know, depending upon how soon the ramp from the insurance captive, what we spoke about starts, we may have to start hiring because there is always a training period which are required.
So, you know, if those things are well intact, we believe that, you know, we may be having either a flat or a little higher headcount, you know, as compared to today.
David Mackey (EVP of Finance and Head of Investor Relations)
Yeah. And just to add to Sanjay's comment, and to kind of get to the rest of your question here. The expectation, you know, while headcount should be flattish here and then hopefully tick up here again in Q4, the expectation is that similar to what we've been able to deliver over the last three to four years, we do expect revenue per employee to increase in that 3%-4% range, which again, I think gives us that long-term margin leverage and really demonstrates the shift towards the, you know, the nonlinear models. When you look at revenue by contract type, we're still in that kind of 70/30 mix between FTE and non-FTE.
I will tell you guys, though, that that true mix has been masked by the large healthcare client that we... The process that we lost, which was entirely subscription-based. So I think had we not had that headwind from a revenue perspective and that headwind from the non-FTE perspective, you would have seen the mix starting to move here. So part of what you're seeing is a function of kind of client behavior, but part of what you're seeing here in terms of the mix between FTE and non-FTE, it's also client specific and specific to the WNS portfolio.
Keshav Murugesh (CEO)
Yeah, I just want to-
Nate Svensson (Director and Senior Equity Research Analyst)
Very helpful.
Keshav Murugesh (CEO)
I just want to underline one more thing, one more point here, and that is, you know, we've added almost 830 new seats in this quarter. And we're also looking at, you know, we are also bringing on stream some more facilities that will add more seats over the next, you know, few months. So on the one hand, you know, while we're seeing all these headwinds at this point in time for H2, we're also confident that based on the conversations we're having, the fact that some of these revenues that we're talking about will actually get deferred and move into the, you know, outer, the rest of the year or, you know, go beyond. And we will actually have, you know, much more coming into 2025.
We're already preparing for the ramp, you know, for 2025. I must mention that as well.
David Mackey (EVP of Finance and Head of Investor Relations)
Yep. And we need to continue to de-link that growth in revenue from that growth in headcount.
Nate Svensson (Director and Senior Equity Research Analyst)
All, all very helpful. I appreciate the detailed answers there. So my, my follow-up question, I was hoping you could compare and contrast some of the demand trends that you're seeing across regions. I know you've called out the travel vertical before, but just kind of looking at your results in North America and the U.K. specifically. So it looks like you're seeing a bit of a deceleration in North America, whereas the U.K. has had a couple of quarters of sequential acceleration, which is nice to see, sort of given the macro headlines that you see around that country. So maybe you could compare and contrast what you're seeing across your different geographies, how much that's tied into what you're seeing in, say, travel. Just give more color, that would be very helpful. Thank you.
David Mackey (EVP of Finance and Head of Investor Relations)
Sure. Let me take that. I think when you look at our business and you kind of look at Keshav's commentary about the pipeline and demand for both digitization, automation, as well as cost reduction, what you'll see is that across services, across geographies, across verticals, our demand is really healthy, right? Where you see gaps, whether they're in a vertical or in a geography or in a service offering, they're more about the client-specific issues that we've been talking to you about, right? So obviously, you're gonna see healthcare is weak because of the healthcare process that we lost, right? That's also gonna show up as a headwind to the U.S. revenues. It's also gonna show up as a headwind to the non-FTE revenues.
When you look at the large procurement client that's transitioning from on-site to offshore, that's gonna show up as a headwind to our manufacturing retail. It's gonna show up as a headwind to finance and accounting, and it's also gonna show up as a headwind to our U.S.-based revenues. So the reason you see U.S. soft isn't because U.S. demand is soft. The reason you're seeing U.S. it's, it being soft is because of the healthcare client, the large internet-based client, and the softness in travel. So, you know, a lot of what you see. You know, what I'm trying to get at here is that the optics on these are not really what I would call macro trends, but more about the specific company issues that we have within our portfolio.
Nate Svensson (Director and Senior Equity Research Analyst)
Thanks, Dave. I appreciate it.
David Mackey (EVP of Finance and Head of Investor Relations)
Thank you.
Operator (participant)
Thank you. Our next question coming from the line of Puneet Jain with JPMorgan. Your line is open.
Puneet Jain (Associate-Equity Research)
Hi, thanks for taking my question. Sanjay or David, like, if you can break down the revenue guidance cut of $40 million-$50 million in annual revenue into various components like the insurance clients, travel volume, project delays, and I believe currency should also have impact of around $10 million incremental related to prior guide.
Sanjay Puria (CFO)
Yeah. So, you know, so you're talking about the reduction in the guidance, the component of that, specifically, Puneet?
Puneet Jain (Associate-Equity Research)
Yes.
Sanjay Puria (CFO)
Yeah. So I think you know, 1% is coming from effects itself, as I mentioned earlier. You know, 2% is coming from a large insurance captive are referral. That there is a 1% from client volume forecast from a conservative perspective, and another 1% is some slowdown in decision-making from project-based on some of the acquisitions what we spoke about. And this is getting net off with the 1% growth what we had in quarter two specifically. So net-net, if you'll see, it shows like 4% on a reported currency and 3% on a constant currency basis.
Puneet Jain (Associate-Equity Research)
Got it. And I also wanted to ask... Sorry, go ahead.
Sanjay Puria (CFO)
No, Puneet, go ahead.
Puneet Jain (Associate-Equity Research)
Okay. And I also wanted to ask about, like, the lower growth expectations from Vuram. We thought, like, their services would be more relevant in the current environment as clients looking to cut cost. Could you share more details on what drove the weaknesses?
Sanjay Puria (CFO)
You know, just, so, Puneet, again, you know, it's not the weakness from a growth perspective. Vuram has been growing more than 20% year-over-year, as expected. This is all about the contingent consideration, what was agreed with them for a much higher growth, you know, from a valuation perspective. And accordingly, that particular number is not there or is not expected at this stage, and accordingly, that reversal. But having said that, you know, it's much relevant, you know, it's providing a much healthier growth as we discuss with our clients, as well as the pipeline is very, very, you know, healthy, you know, across all the verticals, wherever we are discussing with our existing clients or the new logos.
David Mackey (EVP of Finance and Head of Investor Relations)
Yeah. And, Puneet, I think at the end of the day, whether it's the services from Vuram or whether it's what we're seeing in, you know, procurement projects or what we're seeing in certain instances on the analytics side, right? I think it's more about client prioritization, and if the type of service that you're selling requires the client to pay upfront for something that they need to get the benefit of over time, these are the kinds of things that clients are having to make hard decisions on, right? The bulk of our business doesn't involve an upfront payment from the client, right? Our core mission-critical process outsourcing work does not require the client to make an upfront investment, right?
Whereas even though projects like what Vuram does in terms of low-code, no-code automation drives cost reduction over time, the reality is the client has to pay for that service upfront. So in this environment, I think clients are thinking about what they wanna do first, how they wanna prioritize, right? And, and we, we believe that these, these projects will all get done, right? Clients need to do this, right? The question is: In this environment, is it now, is it next quarter, is it in 2025? But to Sanjay's point, Vuram's business remains extremely healthy. It's growing at a very nice clip. It's growing well above company average. You said over, over 20%. The issue is it's not growing at the expected level that we had had.
Puneet Jain (Associate-Equity Research)
Got it. No, that makes sense. Thanks for the clarification.
Keshav Murugesh (CEO)
Thanks, Puneet.
Operator (participant)
Thank you. Our next question coming from the line of Moshe Katri with Wedbush. Your line is open.
Moshe Katri (Managing Director)
Hey, thanks. Just some clarification. You spoke about the travel vertical, where you're seeing some weak volumes. I guess the last time we really spoke about the travel vertical, that's being a headwind here was during the pandemic. Maybe you can talk a bit about some of those weaker volumes. What's really kind of driving that, and what sort of visibility do you have into this vertical for the next few quarters? That's my first question. Thanks.
David Mackey (EVP of Finance and Head of Investor Relations)
Sure. Let me take a crack at that, Moshe. So look, I think when you look at what's going on in travel, right, you can bifurcate it by geography, you can bifurcate it by sub-vertical, right? I mean, some of the behaviors that we're seeing in the OTA space, for example, the online travel space, are different than some of the behaviors that we're seeing in the airline space. We have certain clients where the volumes are higher than they were the prior quarter. We have other clients where the volumes are lower, right? So some of this is, you know, at a macro level, I think there's pressure, right? Some of this also, to Sanjay's comment earlier, is about client-specific issues, whether it's about changes in their business models, whether it's about market share gains and losses, right?
So there are volume issues within the travel industry that go beyond just kind of macro. You know, we, we did see some of that show up in September. When we look forward to the projections that we've gotten over the next couple of quarters, again, we, we hope they will prove to be conservative. We've historically seen that. And as we've discussed many times on these calls, we believe that the way these contracts are structured and the way the forecasting process works, incentivizes clients in this type of an environment to be conservative. So, you know, the hope certainly is that some of these reductions don't materialize, but to be completely transparent, we did see a little bit of a dip in September.
So I think hopefully what we've done is we've de-risked the forecast based on the volume commitments that clients have given us and what we've included in our visibility, which is now up to 97%. But again, we kind of have to watch and wait, and we're dealing with both, you know, potential macro issues as well as client-specific issues under that umbrella.
Moshe Katri (Managing Director)
Okay, so you brought down the mid-range by about 350 basis points in terms of constant currency revenue growth for the year from the last quarter. Which part of that came from that travel vertical specifically?
David Mackey (EVP of Finance and Head of Investor Relations)
So close to 1%, right? I mean, the bottom line is, you know, Sanjay kind of reconciled for you the 3.5%. And by the way, at the midpoint, constant currency revenue is only down 3%.
Moshe Katri (Managing Director)
Right. Yep, yep. Understood.
David Mackey (EVP of Finance and Head of Investor Relations)
Right.
Moshe Katri (Managing Director)
And then the last question-
David Mackey (EVP of Finance and Head of Investor Relations)
Yeah. Sorry.
Moshe Katri (Managing Director)
Sorry, go ahead, Dave.
David Mackey (EVP of Finance and Head of Investor Relations)
No, go ahead. I was gonna say, so, you know, the 1% that we've seen in client volume reductions that we've baked into the guidance is predominantly driven by the travel vertical.
Moshe Katri (Managing Director)
Okay. Okay. And then the last question here is, I guess, more about capital deployment and the amount of cash you have on the balance sheet. You know, clearly the market is not giving you guys any sort of credit for your ability to outgrow or actually to outperform in this market compared to your peers. I mean, what, what can we do internally to kind of offset that, given the multiple, given the valuation, given the free cash flow generation, on an annual basis?
Keshav Murugesh (CEO)
So I think I'll take that. I think from our point of view, you know, we continue to look at how our business overall is trending for the long term. We may have, you know, a short-term issue with H2 of this year, which we have spoken about at this call and during these results. But overall, we continue to be very confident about, you know, how our business is trending, the kind of conversations we are making, and the pivot the company is making around some of the new technology changes that are exciting clients, and therefore creating opportunities for WNS.
So from our point of view, in terms of capital allocation, first and foremost, we will continue to keep looking for those, you know, tuck-in M&A targets, you know, that we have spoken about, that can add more capability, so that things turn around, we can leverage that capability to become, you know, even more impactful with every one of our clients. There's a strong pipeline of candidates that we're constantly looking at, and if something, you know, makes sense for us and adds the right kind of impact from a capability point of view, we will, you know, pull the trigger there. Other than that, as Sanjay and Dave mentioned, we've also taken approvals for our buyback programs, right?
So we continue to be very, very positive about the overall, you know, health of the business, the momentum that we can create for the long term, and as and when we believe the opportunity is right, we will continue to, you know, accelerate our buyback programs like we did, you know, earlier this year.
Moshe Katri (Managing Director)
Thanks, Keshav.
David Mackey (EVP of Finance and Head of Investor Relations)
Thank you.
Operator (participant)
Thank you. And our next question coming from the line of David Koning with Baird. Your line is now open. David, your line is still open. Please check your mute button.
David Mackey (EVP of Finance and Head of Investor Relations)
Dave seems to be having a problem with the speaker.
Operator (participant)
Our next question coming from the line of Surinder Thind with Jefferies. Your line is open.
Surinder Thind (Equity Research Analyst)
Good morning. So I'd like to start with a question about just the commentary earlier about having more large deal opportunity than at any point in the past. And then you also mentioned something about potentially a mix of changes, ever-increasing focus on cost take-up projects versus the transformation projects. Can you provide a little bit of additional color there in terms of, is that a lot of the product of the current uncertain macro environment that we're seeing? What's kind of driving that? And if we should begin to see the macro or the economy normalize, how should we think about that opportunity and client decision-making at that point? Should we expect a step back, or what does the big picture look like from you guys' perspective?
Keshav Murugesh (CEO)
Yeah, maybe I'll take a stab at that. You know, first and foremost, I think you know, the pivoting of the model around some of the new technology changes as well as, you know, the requirements that customers are facing because of the stressed macros, also means that they are looking for partners who can actually engage with them at the highest levels, and can, you know, really help them in terms of navigating, you know, the current crisis and creating opportunity for the future. And that is actually resulting, first and foremost, in a number of CXO-level conversations for us, at a level that we have not seen before.
I think it's, you know, it's very exciting to see the kind of conversations we are having with prospects, as well as existing clients in terms of completely new programs that, you know, they may not have considered before, but are now being pushed to look at because they want to stay ahead of the game as far as AI, GenAI, and some of these new trends are concerned, and at the same time, also, you know, be smart in terms of cost leadership programs. So that is the excitement for WNS in terms of, you know, just the quality of conversations we are having, the size of some of the deals, you know, that we are, looking at.
Like we saw with the, you know, captive takeout, which may have deferred but is committed to providing us that, that revenue that we spoke about, you know, earlier. So that's the, the first aspect. Beyond that, you know, as we come out of the macro environment, I actually think because of the quality of conversations that are taking place and the new relationships being built by WNS with the, you know, client community, the prospect community, as well as the analyst and the advisor community, the ability for us to continue to lead them in terms of, you know, programs that they must do to stay relevant and ahead of their competition, is going to be front and center.
And that gives us a lot of, you know, confidence about the business momentum, you know, for WNS, as well as, I would say, for the sector for the long term.
David Mackey (EVP of Finance and Head of Investor Relations)
Yeah, and just to reiterate Keshav's comment, Surinder, I think when you look at, for example, the four years prior to the pandemic, when the macro was healthy, what you'll see is that our business was steadily accelerating. And, you know, to the extent that traditionally people looked at these businesses as cost reduction types of plays, the reality was, I think what you saw in a healthy macro, both in terms of clients' willingness to look at strategic outsourcing engagements, in terms of the types of clients that were looking at them, right? These were clients that weren't struggling. These were clients looking for competitive advantage, looking for digitization and automation, looking for excess capacity, right? The reasons clients were coming to us for the four years prior to the pandemic were not about cost reductions.
They were about needing to automate in order to remain competitive. The fact that we're in this environment now, where automation, digitization, and now the potential impacts for AI and GenAI are front and center, right? That digitization theme is not going away. The only question is: Does cost reduction layer an additional catalyst on top of it or not? But again, I think back to my comment earlier, when you look at our top line growth, when you look at the growth engine in our business, extremely healthy right now in this environment. It's the lost business, it's the volume, it's the projects, it's the healthcare client that is creating the challenge for us this year.
Surinder Thind (Equity Research Analyst)
Understood. And then as a follow-up, just a commentary on how important it is to kind of continue increasing the number of employees that are working from the office. Is that being driven by client requirements here? And maybe how does that impact your margin profile in terms of just the optimization of global delivery?
Sanjay Puria (CFO)
Yeah, you know, so the work from office, basically, you know, depending upon various factors. One, definitely as you mentioned, you know, it's based on the client requirement. It can be regulatory because of the data privacy and some of those other, you know, requirements. Third, it can be also from a, you know, geography specific, and specifically in the Tier 2, because of the infrastructure, right? Whether it's because in Tier 2 cities, you have power outages, you have, you know, bandwidth challenges. So, you know, employees are required to be working from office. So these are various factors which get considered return to office.
We believe at this stage, you know, by the year-end, as an average, 70% is a good number from a work from office, and it will depend as we move forward. You know, just to remind, even from a country like India, you know, where it is a temporary, you know, concession, what has been given by the government to work from office, work from home at this stage, and we have to wait and watch how those things move as we move forward. But having said that, if those things continue, we believe 70%-75% is a good ratio to to have work from office as a mix, because this is a new. This hybrid model is a new way of, from a BCP perspective, as we move forward, because, you know, clients want to be much prepared for that.
David Mackey (EVP of Finance and Head of Investor Relations)
Yeah, and I think from a margin perspective, Surinder, what that means is that we should have easing headwinds, right? I mean, this has been a pretty significant headwind for us over the last year and a half, as we got back into the office here. But, you know, we moved from 65% last quarter to 69% now. What you should see over the next several quarters is if we're targeting 75%, for example, as an end state here, that the quarter-to-quarter and the year-over-year headwinds that we see should start to abate from a margin perspective.
Surinder Thind (Equity Research Analyst)
Got it. Thank you.
Operator (participant)
Thank you. Our next question coming from the line of Vincent Colicchio with Barrington Research. Your line is open.
Vincent Colicchio (Managing Director and Senior Equity Analyst)
Yes, curious, if we look at the travel volume decline, how much, in order of magnitude is company related versus the macro?
David Mackey (EVP of Finance and Head of Investor Relations)
Yeah, good question, Vince. I think if you look at—again, it's hard to tell. Sometimes it's very difficult, you know, in working with a client to decipher, you know, if the volume is down, is it because the macro has dropped for their services and their geography, or for the type of services that they're providing, versus they're losing market share to another player, or they've got internal challenges that they're dealing with, or they've got other, you know, other structural issues? You know, I would, if just putting a cocktail napkin on this, I would say that, you know, 2/3 of this is company specific, and 1/3 of this is macro.
Vincent Colicchio (Managing Director and Senior Equity Analyst)
Okay. My follow-up is, if we look at the customer interactive business, and we weigh opportunities and threats over, say, a three-five year time horizon, you know, from generative AI, so what is your current thinking?
David Mackey (EVP of Finance and Head of Investor Relations)
I think we look at it as an opportunity, Vince. I mean, certainly there will be productivity pressure, but, you know, some of that is standard to our business as it is. Our contracts typically include 3%-4% headwinds on a year-over-year basis structurally today. What we've seen in the use cases and the client conversations that we've had to date, and remember, WNS is not operating at the entry level on CX work, right? We're not doing low-end, level one help desk work. The stuff that we're doing is domain centric, it's specialized, and that's the reason why clients are using us and not a pure contact center or a pure call center, right?
But when we look at the opportunities that we're seeing in CX moving forward, especially as they relate to our customer base, it's more about improving quality of service. It's more about improving retention of end customers or end customer satisfaction or hyper-personalization of these interactions than it is about removing costs from the system. So, as Keshav said in his prepared remarks, almost everything that we're looking at here involves a human in the loop. When we look at these types of activities and, and benefits that we're going to be able to deliver for clients, I think they're not thinking about this as how do I take 10%, 20%, 30% out of my cost? I think they're thinking about this, saying: How do I improve the quality of my service so that I can drive top line?
Keshav Murugesh (CEO)
Yeah. I just want to add here that, you know, our dependence on pure contact center work is minimal, really. What we do is much more, you know, digital CX kind of work, where, you know, we're doing a lot of technology-oriented work and the human is interacting much more to deliver an outcome for our clients. So the need for both to work together is critical. I think clients understand that WNS is constantly adding new technology, including GenAI models, to possibly cannibalize some part of our own digital CX revenue in order to stay very relevant and become far more sticky in terms of the client relationship. And that's where the trust, you know, gets built out, you know, significantly.
We are also seeing a trend where, you know, where, you know, clients have moved completely to automated models. Customers, their end customers, are now pushing back, saying that's not the model they want, particularly in a premier kind of processes, where ultimately an end customer very quickly wants a solution, wants to have an interaction sometimes with a high quality individual as well. And that's the space that, you know, we are taking, that we are, you know, spending a lot of time on, which is, you know, high growth, if you ask me, has potential for the long term as well as has, you know, high margin profile as well.
Whatever we have discussed as of now on this call till now has been more around H2 related issues and more around specific, you know, customer related issues, around volumes, project-based work, you know, the delay that we spoke about in the large insurance, you know, captive ramp, and most importantly, around conservative, you know, client outlooks that have been provided to us, you know, at this point in time. But if you look at the macro, you know, kind of interactions that WNS is having, we are actually having really top quality interactions with prospects on the other side. Our existing customers, beyond the three or four areas that, you know, three or four clients that we spoke about, are actually having great conversations with us.
All our acquired entities are, you know, looking at, you know, growing even faster through new conversations we're having on an integrated basis with our, you know, client partner teams. And finally, we believe that with the investments we have made in AI and Gen AI and the pilots that we are now driving, sooner rather than later, you know, boards of companies where our clients reside will also be asking them about how quickly are they going to take the benefits of some of the solutions that people like WNS are providing for them. So I think the pressure will also be on the clients to start moving with their feet, you know, over the next few quarters.
I think at that point in time, we will see a lot more opportunity and revenue streams as well as margin uptake coming from some of those opportunities. Quite bullish about the long-term future, based on, you know, how we're seeing our business momentum.
Vincent Colicchio (Managing Director and Senior Equity Analyst)
Thanks for all the color.
David Mackey (EVP of Finance and Head of Investor Relations)
Thanks, Vincent.
Operator (participant)
Thank you, ladies and gentlemen. At this time, we have no further questions in the Q&A queue. This will conclude today's conference call. Thank you for your participation. You may now disconnect.