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WNS (Holdings) Limited (WNS)
Q2Â 2021 Earnings Call
Oct 15, 2020, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning and welcome to the WNS (Holdings) Fiscal 2021 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will conduct a question-and-answer session and instructions for how to ask the 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 -- Executive Vice President, Finance & Head of Investor Relations
Thank you. And welcome to our fiscal 2021 second quarter earnings call. With me today on the call, I have WNS' CEO, Keshav Murugesh; WNS' CFO, Sanjay Puria; and our COO, Gautam Barai.
The 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 30, 2020. Some of the matters that will be discussed on today's call are forward-looking. Please keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to those factors set forth in the company's Form 20-F. This document is also available on the company website.
During this call, management will reference certain non-GAAP financial measures, which we believe provide useful information for investors. Reconciliations of these non-GAAP financial measures to GAAP results can be found in the press release issued earlier today. Some of the non-GAAP financial measures management will discuss are defined as follows. Net revenue is defined as revenue less repair payments, adjusted operating margin is defined as operating margin, excluding amortization of intangible assets, share-based compensation and goodwill impairment; adjusted net income or ENI is defined as profit excluding amortization of intangible assets, share-based compensation, 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' CEO, Keshav Murugesh. Keshav?
Keshav Murugesh -- Group Chief Executive Officer
Thank you, David and good morning everyone. We hope you and your families are safe and well. WNS is pleased with our second quarter financial performance, and our ability to adapt our delivery and cost structure in this rapidly changing environment. Net revenue for second -- for Q2 came in at $214.4 billion [Phonetic], which represents a year-over-year decrease of 3% on both a reported and constant currency basis. Sequentially, net revenue increased by $13 million or 6% on a reported basis and 4% constant currency. During the quarter our delivery capability continue to improve with supply averaging 98% of client demand.
In Q2 as compared to Q1, revenue increased, attrition accelerated, and the company proactively manage components of our cost structure, including a one-time change to our corporate leave policy. As a result, adjusted operating margins improved by almost 600 basis points sequentially to 23.4%. While we continue to see COVID related volume challenges with clients in a few of our key verticals, our overall visibility has improved to the point where we are now comfortable resuming annual guidance.
Although our ability to service clients requirements has steadily progressed over the past few quarters, we still remain heavily reliant on servicing our global clients in a work from home model. Today approximately 15% of our work is being performed in WNS facilities, with the remaining 85% delivered remotely. As we have mentioned before to minimize health risks to our employees and potential disruptions to our clients, the company is not planning to move large numbers of employees back into our offices until the pandemic is behind us. In the interim, we remain focused on enhancing our remote cyber security protocols and fine tuning a longer-term hybrid model solution that will allow us to seamlessly move delivery between office and home. Looking forward, the business environment still remains somewhat volatile, with client behaviors varying by industry and by country.
From a demand perspective, we are expecting modest revenue pressure in the second half of this year in the travel, insurance, and utilities verticals based on projections provided to us by our clients. These forecasted reductions primary for customer interaction services are being driven by the potential for lower activity levels and known ramp downs [Phonetic]. We expect these headwinds will be partially mitigated by volume strength in the healthcare and banking and financial services verticals. Overall, the pipeline continues to be extremely healthy in terms of new additions, ongoing activity levels and deal signings. We continue to see an increase in the number of deals closed with the average deal size somewhat smaller than in previous years.
In the fiscal second quarter, we closed eight new logos and expanded 17 existing relationships, while the pipeline sides deal flow and contract signings are robust. We have seen some delays in the conversion of large-sized deals into revenue. This is not unexpected in the current environment and it is important to note that while some of these deals are taking longer to ramp, they are not being cancelled.
One thing that has become abundantly clear over the past two quarters is that the global pandemic is accelerating demand for technology enabled process transformation or hyperautomation. Both new and existing clients are increasingly looking for WNS to help innovate and lead the transition of their business models to enable them to reduce cost, increase operating flexibility, navigate through the impact of the pandemic, and drive sustainable competitive advantage.
In short, the goal for BPM partnerships is shifting from managing disruption to creating disruption. This trend is well aligned with WNS' strategic investment programs, which remain focused on enhancing our capabilities in the areas of domain expertise, technology and automation, advanced analytics, consultative business transformation, and the reskilling of our global workforce. Our investment approach has enabled us to create unique digital accelerators, platforms, and fireworks, I apologize, frameworks designed to deliver the hyperautomation clients require.
In the past few quarters, we have rolled out three new digital capabilities, which I would like to highlight on today's call. The first offering is called EXPIRIUS, which is our digital customer experience solution. EXPIRIUS integrates human assisted design and WNS domain expertise with AI driven omnichannel compositional insights and consulting led customer experience strategies. This solution enables brands to have analytics-driven intelligent interactions with their end customers, which helps accelerate speed to market, improves customer satisfaction, and enhances brand loyalty.
The second solution is Quote-to-Sustain or QtS, which helps companies to accelerate the shift to a digital finance function. QtS enable CFOs to release working capital, minimize revenue loss, reduce total cost of ownership, and improve customer retention by first expanding the scope of the cash collections cycle, and then automating the entire process. The QtS solution integrates data, analytics, and intelligent automation to create an end-to-end digital solution for the finance function.
The final offering I want to discuss is called Skense. Skense is a data extraction and contextualization platform powered by AI and machine learning that extracts, categorizes and combines structured and unstructured data to deliver real time cognitive insights. It is platform agnostic, customizable, and scalable. We've currently deployed Skense for some of our retail, healthcare, and insurance clients. And this platform is now delivering clear business benefits, including reduced costs, enhanced data accuracy, reduced risk, and increased ROI for our clients.
All three of the solutions I have mentioned are powered by a combination of WNS proprietary technology, strategic third-party relationships and best-in-class process knowledge designed to align our capabilities with the future of BPM. They also leverage WNS' deepening expertise in disruptive digital models, including our experience servicing some of the world's leading Internet brands. Our footprint with these innovative firms continues to grow. And I'm happy to report that in fiscal 2020, 17% of our revenue came from Internet based companies, up from 14% reported in fiscal 2019. This represented year-over-year growth of 38%. For the first half of fiscal 2021, Internet based revenues continue to contribute 17% of continuing revenue -- of company revenue that is.
In summary, we expect some ongoing volatility. Given the current business environment and must remain cautious regarding the potential for additional COVID-19 waves, further economic impacts and changing client requirements. Despite these challenges, WNS is extremely confident in our financial strength, differentiated capabilities, solid underlying business momentum and proven capability to execute. The company is properly positioned to help clients meet the need for domain led hyperautomation and will continue to invest in our business given the long-term BPM opportunity. While in the short term, COVID has created volume pressure and business volatility, our belief remains strong that the pandemic will serve as a catalyst for accelerating the adoption of BPM and the shift toward higher-end digital solutions and agile engagement models. WNS remains focused on driving long-term sustainable value for all of our key stakeholders, including our employees, clients, and shareholders.
I would now like to turn the call over to our CFO, Sanjay Puria to discuss further our results and the outlook. Sanjay?
Sanjay Puria -- Chief Financial Officer
Thank you Keshav. In the fiscal second quarter, WNS net revenue came in at $214.4 million, down 2.9% from $220.7 million posted in the same quarter of last year and down 2.8% on a constant currency basis. Sequentially, net revenue increased by 6.4% on a reported basis and 4.2% on a constant currency basis. WNS estimates that in quarter two, pandemic related demand reductions impacted revenue by approximately 9% and supply constraints reduced revenue by approximately 2% from our pre-COVID run rate. Demand reductions from pre-COVID levels have been most significant in the travel, insurance, and utilities verticals.
In the second quarter, WNS recorded $4.1 million of short-term non-recurring revenue which was booked at margins above company average. This one-time amounts were driven by business continuity pass-through charges, fees associated with client ramp downs, and short-term project work. Adjusted operating margin in quarter two was 23.4% as compared to 23.5% reported in the same quarter of fiscal 2020 and 17.5% last quarter. Year-over-year, adjusted operating margin was pressured by COVID related revenue impacts, including lower demand and supply constraints. The cost of carrying excess headcount and additional expenses associated with business continuity. This headwinds were offset by the one-time reversal of our leave provision, which increased margin by $4 million, proactive management of discretionary spending, lower travel and facility related costs, and favorable currency movements net off hedging. Sequentially, margins improved due to increased revenue, reduced headcount levels, lower business continuity costs and the one-time benefit from the reversal of our leave provision. These benefits more than offset the adverse impact of currency movements and hedging.
The company's net other income expense was $0.7 [Phonetic] million of net expense in the second quarter as compared to $1.1 million of net expense reported in quarter of fiscal 2020 and $0.5 million of net expense last quarter. Year-over-year the favorable variance is attributable to lower interest expense resulting from scheduled debt repayments and reduced IFRS lease interest costs, which more than offset reduced interest income, resulting from lower rates. Sequentially, the increase in net expense is due to reduced interest income, driven by lower interest rates.
WNS effective tax rate for quarter two came in at 23.5%, up from 20.2% last year and down from 25.1% last quarter. Changes in the quarterly tax rate are primarily due to the mix of profits between geographies and the mix of work delivered from tax incentive facilities. The company's existing net income for quarter two was $37.9 million compared with $40.6 million in the same quarter of fiscal 2020 and $26.1 million last quarter.
Adjusted diluted earnings was $0.73 per share in quarter two versus $0.79 in the second quarter of last year and $0.50 last quarter. As of September 30, 2020 WNS balances in cash and investments totaled $366.5 million and the company had $25.1 million of debt. WNS generated $56.7 million of cash from operating activities this quarter and incurred $6.5 million in capital expenditures.
In quarter two, WNS also made scheduled debt payments of $8.4 million. DSO in the second quarter came in at 34 days as compared to 29 days last year and 39 days last quarter. The year-over-year increase in DSO is the result of temporary payment term concessions provided to several clients and some collection delays.
We are pleased to announce that the company's Annual General meeting held on September 24, 2020 WNS shareholders approved a new share repurchase program authorizing the company to buyback up to 3.3 million shares or [Indecipherable] beginning April 1, 2021. This is in addition to the 1.1 million shares remaining on the prior authorization expiring on March 31, 2021.
With respect to other key operating metrics. Total headcount at the end of the quarter was 41,466. And our attrition rate in the second quarter was 24%, down from 32% reported in quarter one of last year and up from 11% in the previous quarter. The lower year-over-year attrition rate reflects the impact of COVID-19 on global labor markets. Build seat capacity at the end of the second quarter remained steady at 34,610 seats. The seat utilization metric, which the company typically provides as a measure of infrastructure productivity are not meaningful given the current work from home environment.
As Keshav mentioned earlier, in our press release issued earlier today, WNS reinstated annual guidance. Based on the company's current visibility levels, we expect net revenue to be in the range of $830 million to $854 million, representing a year-over-year revenue decline of 7% to 5%. Revenue guidance assumes an average British pound to US dollar exchange rate of 1.29 for the remainder of fiscal 2021. Excluding exchange rate impacts, revenue guidance represent constant currency revenue reduction of 7% to 4%. We currently have 98% visibility to the midpoint of the range and guidance does not include any short-term non-recurring revenue for the second half of the year. We also must expect some ongoing business volatility over the next few quarters, positive or negative, which should impact client volumes supply capability, contract concession and new project ramps.
Full year adjusted net income is expected to be in the range of $121 million to $129 million, based on a INR73.5 to US dollar exchange rate for the remainder of fiscal 2021. This implies adjusted EPS of $2.33 to $2.48, assuming a diluted share count of approximately 52 million shares. For fiscal 2021, we expect capital expenditures to reach up to $31 million.
We will now open the call for questions, operator.
Questions and Answers:
Operator
Yes, thank you. [Operator Instructions] Our first question comes from the line of Korey Marcello from Deutsche Bank. Please proceed.
Korey Marcello -- Deutsche Bank -- Analyst
Hey guys, thanks for taking my questions. I just wanted to start out on the guidance. Obviously, it looks like the guidance implies revenue growth, get worse in the back half before it gets better. Can you just clarify the expectations on third quarter versus kind of the exit rate assumed in the guidance? And then maybe give some more clarification on some of the delays in the forecasted reductions you guys talked about?
Sanjay Puria -- Chief Financial Officer
So the guidance is based on our visibility what we have at this point of time, it is at 98% visibility to the midpoint of the guidance. And couple of things, which I like to highlight, which doesn't factor the short-term revenue because if you don't have visibility we don't include that. It doesn't factor any further supply improvement beyond 98%. So this quarter we had a 98% of our supply, so it doesn't factor any further improvement. And it's also doesn't factor some of the rebound in volumes because we depend on the client giving us the projections for the volumes in the second half. And client at this stage, has been, you know, conservative based on the visibility what they have based on the uncertainty out there. And you know also want to like to highlight that there is incentive for to be conservative for the client given a large percentage of rolling forecast once the client project committed. And accordingly we have been conservative at this stage. From quarter three perspective, we expect the quarter three to be slightly lower as compared to quarter two, but if you add the non-recurring revenue which was there in quarter two, which is not there in quarter three factored. So there is going to be a gradual growth as compared to quarter two.
Korey Marcello -- Deutsche Bank -- Analyst
Got it. And then I guess looking at the headcount moderation, have WNS kind of fully right-sized the headcount at this point or given some of that -- those demand headwinds, the forecasted demand headwinds in travel and insurance and stuff like that you mentioned, do you think there is some more headcount reductions and compensation reductions to come? Just trying to think about the margins and the cadence there. Thanks guys.
Gautam Barai -- Chief Operating Officer
So where we see at the moment is attrition is almost normalized at about the 23% to the 25% range, which is what we forecast for the next couple of quarters. We do continue -- we will continue to carry some amount of excess headcount over the next few quarters. And depending on the volumes that we experienced we will start taking the requisite calls.
Keshav Murugesh -- Group Chief Executive Officer
And I could like to add there, you know from a margin perspective, though the attrition has normalized, has Gautam mentioned, but at the same time we may have to start hiring the -- from a revenue growth perspective because of the mismatch in the geography and the location as well as the skills and timing perspective.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
Just to clarify Korey, yeah we do -- we do and are carrying excess resource right now. The plan is to do that through the balance of the year. If you look at the expectations for margins in the back half of the year, they're kind of in that 19%, 19.5% range. And to be very honest, the only difference between that projection and kind of the 20% plus where we typically run is the fact that we are carrying excess resource relative to the roughly 250 million a quarter that we've got baked into the back half of the year.
Korey Marcello -- Deutsche Bank -- Analyst
Got it. All right, thanks guys.
Operator
Our next question will come from the line of Maggie Nolan from William Blair. You may begin.
Ted -- William Blair & Co. -- Analyst
Hey, this is Ted [Phonetic] on for Maggie. Real quickly. Wanted to ask about the Financial Services segments. I know you said you're at 98% supply -- delivering around 98% of supply. Where do you stand in terms of the overall backlog of the Financial Services work? I think last quarter you said you have 5% of demand you weren't able to tap into, how much of that has been included in guidance? And kind of where we at with that?
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
So let me take that Ted. Our current supply is 98%, that's where we averaged in the second quarter as well. That is our expectation for the back half of the year. So if you look at the portion of our business overall that we are estimating at this point in time that we're not going to be able to service because we're in a work from home model, it is the 2% that is the gap between where we are today and where we could be, if we were able to service everything. So as opposed to kind of that 95% or the 5% that we thought was kind of that high value couldn't do in a remote world, we've been able to address about 3% of that since the end of last quarter.
Ted -- William Blair & Co. -- Analyst
Okay. Thanks, that's helpful. As a follow-up, I just wanted to see, where do you see the most opportunity I guess to expand the number of processes you're performing for clients? And what industries or service offerings are you particularly bullish on?
Keshav Murugesh -- Group Chief Executive Officer
The verticals that we are absolutely feel bullish on of course is the healthcare verticals in terms of our Life Sciences side of the practice, the banking and financial services market space. And also our consulting and professional services business. These are the four verticals that we are absolutely bullish.
Ted -- William Blair & Co. -- Analyst
And just as a quick follow-up, what's giving you that sentiment and outlook?
Keshav Murugesh -- Group Chief Executive Officer
In terms of our existing clients, in terms of the demand that they are placing before us. And secondly, in terms of our pipeline that we are seeing the deals that are flowing through the hopper, both of those gives us the confidence.
Ted -- William Blair & Co. -- Analyst
All right. Thank you very much.
Keshav Murugesh -- Group Chief Executive Officer
Thanks Ted.
Operator
Thank you. Our next question comes from the line of Bryan Bergin from Cowen. You may begin.
Bryan Bergin -- Cowen & Co. -- Analyst
Hi guys. Thank you. Wanted to follow up on the outlook, around the deal ramp delays, can you talk about what type of duration you're seeing those clients choose with the slower deal ramps? Are they putting the work off to 2021, is it an indefinite period or just somewhat shorter? I'm curious if you're seeing a potential wave of conversion here forming that may be released or if it's more a short-term and distributed?
Gautam Barai -- Chief Operating Officer
Yes. This is Gautam, I'll take that. In terms of the pipeline, of course there is an extremely healthy pipeline. We haven't seen it as strong as this over the last -- compared to the last few years. In terms of any outsourcing program, the impact of change is the maximum when you're starting to see the transition. So what we are seeing at the moment is previously most medium to large size deals were transitioned over a two days to three days period. But what we are seeing now is about five day period. Suppliers are taking smaller bike [Phonetic] sized chunks in terms of transitioning. So that's the only difference between pre-COVID and post-COVID.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
Yeah, it's more -- it's more Bryan around the fact that the deals are moving forward, right. They're not, but they've been pushed out for six months or 12 months. They are moving forward, but they're moving forward at a slower pace and they're moving forward with more measured components of process.
Bryan Bergin -- Cowen & Co. -- Analyst
Okay. And then follow-up on margin here, can you talk about sustainable cost actions versus short-term benefits, excluding the $4 million benefit you had here in 2Q still solid level. So I'm curious on the levers you used that are structural for you for longer-term versus some of the shorter-term actions? Just really to help to give us a sense for the potential ranges you expect here in the second half.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
Sure. Let me take that Bryan. So if you look at the margin in the second quarter, right and obviously it was extremely healthy, almost 200 basis points of that improvement came from one-time leave reversal. That was really one of the things that we did as an organization to enable us to carry excess resource, but by changing the policy it necessitated taking a one-time accounting hit to the books, which was $4 million. That piece is clearly non-recurring going forward. So that 200 basis points of improvement will come off immediately. The other things when you look at what happened in the quarter, obviously from an improvement perspective the mismatch between revenue and headcount improved dramatically because revenue increased and headcount decreased and that piece should be structural. What I was referring to a little bit earlier, when I spoke about the fact that we still have excess resource, excess capacity is the fact that margins aren't quite where they should be yet because of that mismatch. And again the hope is one of two ways to address that over the next six months to 12 months is to not only increase the revenue, but also make sure we're rightsizing the headcount in terms of not just total numbers, but also skill sets required to deliver where the growth is. So the only major issue in Q2 that's really non-recurring in nature would be the $4 million from the leave reversal.
Bryan Bergin -- Cowen & Co. -- Analyst
Okay. Thank you.
Operator
Thank you. Our next question will come from the line of Mayank Tandon from Needham. You may begin.
Mayank Tandon -- Needham & Company -- Analyst
Thank you. Congrats on the quarter. You know Keshav talked about the growth of Internet companies. I was just curious if you could talk a little bit more about the impact of automation, the RPA in general, how that's impacting your pipeline conversion of deal flow, sort of longer term implications of that, more so now post sort of this COVID issue? And then just generally more around digital transformation, how that's also playing into your growth long-term?
Sanjay Puria -- Chief Financial Officer
I think the consistent investments that we have been making on the domain based verticalized strategy in terms of the digital and automation assets is actually playing quite favorably for us. What we are seeing is the need for upfront digitization and automation that is consistently increasing. And that tied up with the analytics engines that we spoke about is working toward our advantage. So we are able to drive a lot more of this automation effectively and what that is leading to is more business being discussed, more from an end-to-end processing capability.
Mayank Tandon -- Needham & Company -- Analyst
Got it, OK. Okay, also on that note I was --.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
I think it is just the echo, Mayank.
Mayank Tandon -- Needham & Company -- Analyst
Apologies. Okay, I was going to ask as a follow-up question around the sales process, how that's evolved in the last few months? Are you -- now are you starting to see a faster sort of deal conversion time? And then on that note, could you talk about the eight deals that you won this quarter? What were the different verticals that you won that across? And just Keshav mentioned the deal sizes are smaller right now, is that just a function of clients threading more carefully or is there something else more systemic to the fact that deals are smaller today than they were pre-COVID?
Sanjay Puria -- Chief Financial Officer
Sure. Deals are smaller at the moment is only because of the fact, as we mentioned earlier, in terms of clients actually spreading the waves of transmission over a longer period of time given the extent of change involved during these transitions. So that's one of the key factors in terms of the smaller-sized deals. In terms of the verticals, it's been reasonably broad based across our healthcare vertical, across our shipping and logistics vertical, across our insurance vertical.
Keshav Murugesh -- Group Chief Executive Officer
So Mayank, I'll just add a little bit here, this is Keshav. Actually, these are very interesting times. So while we speak about the second half and we speak about the guidance looking the way it is at this point in time, based on our depending so much on clients imports and obviously, they have been quite careful in terms of how they've given it, the reality is that the pipeline actually has never looked better. The quality of our pipeline across every vertical across all geographies has been the strongest that we've ever seen. And as we come out of this pandemic, what we are actually seeing is excellent conversations around the need to reduce cost, the need to transform their models digitally through trusted partners like us through the model of hyperautomations, so to speak. The fact that all of them are looking at models where physical kind of touchpoints are a reducing and they are more than willing to look at models where outcome based models are capable of being accepted. And at the same time, they are all far more comfortable with work from home. So these are some of the areas in the environment that we have now got comfortable with, they have also got comfortable with it, while we have been conservative. At the same time, you have to understand that while all of them are looking at coming back, they're seeing delays in some of their own plans. So for example, the airline industry started talking a little while ago about testing everybody before they got on a plane right, obviously that got a little bit delayed some airlines will go faster than others, but as soon as some of that starts happening, it means that the demand ramp may be much faster than we have baked in out here. And Gautam and the others will have to really get after hiring and stuff like that. So from our point of view, I must say that the model is still very exciting. There is conservatism built in by clients, which we have to depend on based on our visibility model. But at the same time there are many areas where potentially things could change if clients get a better handle on COVID itself.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
And I think just to add to that. Remember like we said, we've seen great new additions to the pipeline, we're seeing deals moving through it at a very healthy pace. We're seeing, obviously you look at, we've signed 15 new logos in the first half of this year that compares to 12 last year. So deal signings are ahead. Where we're seeing a little bit of that snag is to be honest with you, where the rubber hits the road, where it actually requires behavior change in action on the client end. So it's easy to sign a deal, it's easy to move to say we want to go. But when you start to actually sit down and then say, OK, well what does this mean for our people, what does this mean for our process, what does this mean for our business. Now all of a sudden it starts to run into some challenges. And net, net not unusual for our industry, but in this environment what we're seeing is that clients are proceeding a little bit more cautiously, especially as it relates to those very large deals that require end to end business transformation and a lot of the right upfront thoughts and planning to make sure that the engagement is going to be successful.
Mayank Tandon -- Needham & Company -- Analyst
That's very helpful perspective. Thanks guys.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
Thanks, Mayank.
Keshav Murugesh -- Group Chief Executive Officer
Thank you.
Operator
And our next question will come from the line of Ashwin Shirvaikar from Citigroup. You may begin.
Ashwin Shirvaikar -- Citi -- Analyst
Thanks. Hey, good to hear from you all. Thank you for the insight so far. My first question was with regards to work from home, it seems based on your commentary that clients might have transitioned from saying it's something they need to something they're comfortable with perhaps they want to incorporate more or less permanently a hybrid model. The question is, what are some of the new metrics that we can look at that you're perhaps incorporating into your terms and conditions in your contract when you sign these deals as it relates to the hybrid or work from home model?
Gautam Barai -- Chief Operating Officer
Yeah, this is, Gautam. What we are looking at is a set of two or three metrics, one is in terms of the productivity metrics, which is linked to the amount of -- because from a work from home perspective, there always going to be a bit of a lag compared to work from office. So those productivity metrics are being worked upon with the amount of people based on the BCP scenario, structure between work from home, and work from office and the interoperability across these two functions, that's the first one.
The second one is in terms of the automation associated with these functions. As I mentioned that more and more number of clients are looking at a large amount of upfront the digitization and automation. So the way we are able to transform that particular piece of the process, that's the second piece that we are putting in that metric with our client. And the third one is more end-to-end processes that's taking precedence at the end of the day. So these three metrics we are tracking a lot more at this moment and potentially some of those are going to make it into longer-term contracts.
Ashwin Shirvaikar -- Citi -- Analyst
Got it, thank you for that. And then I think in response to one of the questions earlier, it might have been David, mentioned that it's only when you're signing deals, but it's when rubber hits the road, the transition is a little bit slower right. So either technologically or process wise, what are some of the things that you are doing or can do to make clients more comfortable? Do you need to make investments to do -- to make that happen? Is that incorporated in your outlook?
Sanjay Puria -- Chief Financial Officer
Yes, it has been in terms of -- and even if we look at the last six months Ashwin, what we've seen is we have transitioned hundreds of roles across new clients and existing ramp ups, which have actually gone extremely well. So the ability for remote transition, remote process mapping all of that is going absolutely smooth. In terms of automation also, when we talk about automation or hyperautomation, all the tools and investments are in play as we continue to make them and we've been able to actually -- what is interesting is in this time in the last six months, we have tied up the contractual productivity that we have to deliver through automation etc. to all our clients. And we've actually been able to achieve all of that for every single account that we are forecasted. So I think that's going to plan. So all of those investments we continue to make and they have been budgeted in both.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
Yeah, and I think that, to my comment a little bit earlier Ashwin, the slowness the cautiousness that we're seeing from client isn't really a function of a remote transitions or not having the skills or not having the capability. I think it's just a function of the environment. The bottom line is the client's business is volatile, the environment overall is volatile, our in-office out of office is volatile. And as a result I think for these things that are extremely important and extremely strategic, clients are just proceeding slowly. I don't think it's a capability issue or a technology issue.
Ashwin Shirvaikar -- Citi -- Analyst
I understood. I have a tiny question that I wanted to squeeze in if you don't mind. The DSOs, you made some progress kind of recovering DSOs toward a normalized level, do you think we might get toward more of that 30-day type of thing that you achieved in the past just in the quarter or two?
Gautam Barai -- Chief Operating Officer
So [Indecipherable] we definitely made a considerable progress because you in the quarter one, when the whole pandemic started the client approached for the concessions from a payment term perspective or for the delays in collection. Things are stabilizing as compared to quarter one now and that's where you know we got 34 days back, but we believe that for the couple of quarters still, it's going to be in that range ballpark because still clients are approaching for payment concession perspective or they're asking for more of extensions and some delays are there. So it is going to take some while, at least a couple of quarters more till that time we hit back to the 30 days normal.
Ashwin Shirvaikar -- Citi -- Analyst
Understood. Thank you.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
Thanks Ashwin.
Keshav Murugesh -- Group Chief Executive Officer
Thank you Ashwin.
Operator
And our next question comes from the line Puneet Jain from J.P. Morgan. You may begin.
Puneet Jain -- J.P. Morgan -- Analyst
Hi, thanks for taking my question. So your implied margins for second half, it seems like they are below second quarter level, even if you exclude leave benefits in 2Q. Given you expect -- given you expect to continue to realign your headcount with revenues rest of the year, shouldn't we expect margin improvement from 2Q levels? And related question, did you disclose how much was non-recurring benefit to second quarter revenue?
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
Yeah, so on the topline that the non-recurring revenue was $4 million. On the margin side, the non-recurring benefit was also $4 million in terms of the leave reversal. If you look at the back half as compared to Q2, you are right Puneet, there is implied margin pressure and margin pressure beyond the $4 million that's related to the leave reversal. The two items that I would say are the biggest components of that, which again present margin opportunities for us is one we've included no short-term revenue in the back half of the year, which carries a higher margin profile and the second is, we are assuming that we are not going to be able to continue to bill business continuity pass through costs to our clients in the back half of the year. Of the $4 million of short-term revenues that we got in Q2, a $1.5 million of the half of that was business continuity pass through charges. That number was down significantly from Q1, where we had $6.5 million of pass through of short-term revenues of which $3.5 million was business continuity pass through. So what we're seeing is that as we progress, your clients are going to be less and less willing to accept these one-time or short-term charges to keep their businesses afloat. And as a result, our expectation in the back half of the year is that we're not going to be able to pass on business continuity costs to our clients.
Gautam Barai -- Chief Operating Officer
And maybe, you know just Puneet, if I might add over there. You know along with that we have to have a hiring program continue because of some of the mismatch of the skills and -- from a location perspective and we will continue to have some of the carrying costs. Though there is an attrition, but still we expect it to continue to the year-end.
Puneet Jain -- J.P. Morgan -- Analyst
Understood. And just a follow-up to prior questions. So you are signing new deals, but they are not ramping up as fast as they would have pre-COVID, how do we reconcile those comments with unchanged visibility of 98% assumed in the guidance? I'd expect visibility levels to be lower if ramp rates are lower.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
Because Puneet when we provide our visibility it is based on what our clients have committed to. So if a client has not committed to a transition and does not have a formal schedule or plan in place, we don't include it. This approach in terms of visibility based is extremely consistent with how we've done it in the past. The thing that's changed is that whereas maybe a year ago, if a client had decided that Phase one was going to be a $1 million. What we're seeing now is that Phase one may only be $500,000. And as a result we are including that in the guidance, but we're including at the same visibility rate, but at a lower dollar amount.
Puneet Jain -- J.P. Morgan -- Analyst
Got it, got it. All right, thank you.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
Thank you.
Keshav Murugesh -- Group Chief Executive Officer
Thanks Puneet.
Operator
Our next question will come from the line of Dave Koning from Baird. You may begin.
David Koning -- Baird -- Analyst
Yeah, hey guys, great job. And I guess, first of all, my question just on revenue, it -- I guess is there a certain level of revenue that you know is coming back right now. I guess where I'm kind of going with that is like travel for example is going to be down $40 million or so and as people travel and everything, you know you'd assume that would come back. On top of that it seems like you have these implementations that are delayed, they're going to come back at the same time as the rest of your pipeline gets implemented at their normal pace and it seems like we're setting up for a couple of years of just kind of explosive growth as all three of those things kind of collectively happen at the same time. Is it fair to think that, this is clearly a transition year for probably everybody, but is it fair to think of it that way that you should have outsized growth at some point in the future [Indecipherable] as all come back.
Keshav Murugesh -- Group Chief Executive Officer
Yeah Dave, this is Keshav. That's an excellent question. Personally, as we discuss this inside the company, we actually think all of this is a pause just a delay. And when you just step back and look at how clients look at this whole situation everyone talks that COVID could be managed in seven months, eight months, nine months or whatever and therefore people made plans. I think the key is that the business drivers, pre-COVID continue to remain in place if anything else has actually become far more intense. Some of the areas of differentiation that we brought to the table have actually become far more compelling, far more attractive to the customer set across the globe. And for us I think at this point in time clients are just taking a more conservative view of how they give us their guidance. As you said, you know on the travel side, right now everyone is assuming nobody is going to fly I guess, but everyone is talking about new models to encourage people to fly and when that happens, things will go back to normal. The same you will see with hotel, the same you will see with cruise lines at some stage, and the same you will see with logistics or with the retail side, as people move from essential to non-essential services, as people start traveling on the roads, you will see more insurance claims going up, things like that. So from our perspective I think what we have done in terms of guidance is just bake in what we are hearing from clients and making sure that we are providing a consistent model of visibility to the Street. But overall I will say that you know people have completely changed the way they are looking at their businesses, their business models, the way they will accept technology, the way they will accept new business models, the way they will react to discussions on transformation. And I think we are being set up for a very, very healthy long-term kind of growth for the sector itself and WNS I think will lead.
David Koning -- Baird -- Analyst
Yeah, great, that's helpful. That seems to make a lot of sense. And I guess the second question, just when we think of your massive cash balance, I mean you have huge cash flow conversion this quarter, just outstanding. You know 10% of market caps cash now, do you think are there acquisitions out there that could augment growth? Is that kind of the next -- the next leg?
Keshav Murugesh -- Group Chief Executive Officer
So Dave, again I'll start and have Sanjay finish off, but we've been quite transparent about our capital allocation program. And yes, we will be opportunistic in terms of M&A. We have spoken in the past about buybacks and stuff like that, but M&A is an important area that we're continuously looking at. We are scouring the market at this point in time. I can tell you that we have actually done a few due diligence as well. And we -- in some cases we have walked away from deals because we did not feel they serve the purpose for us. But from our point of view, I can tell you that we are very actively looking at this area across various verticals and horizontals as well as some digital areas that can help us accelerate. But we will do things at the right time, right place, and the right valuation.
Sanjay Puria -- Chief Financial Officer
And to add from capital allocation perspective. You know, if you recall, we still have our balance 1.1 million shares repurchase program pending and we expect it to initiate that in the second half of the year.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
I think the other thing that's interesting Dave and Keshav kind of talked about where that the M&A pipeline is extremely healthy and that we are in active conversations, active discussion. Similar to what we've said in the past, we also are seeing that there are some pretty healthy opportunities not only in the traditional M&A route, but also in the captive carve-out route, which is exciting for us.
David Koning -- Baird -- Analyst
Great, guys. Well, thanks, good job.
Keshav Murugesh -- Group Chief Executive Officer
Thanks, Dave.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
Thanks, Dave.
Operator
And next question will come from the line of Sam England from Berenberg. You may begin.
Sam England -- Berenberg Capital Markets -- Analyst
Hi guys. The first one just on the new digital capabilities. So I was just wondering if that is based on proprietary software or is it a mix of third-party and proprietary software? And how are they differentiated from what peers are offering in the same area?
Gautam Barai -- Chief Operating Officer
Yeah, in terms of your first question, it's a mix of both, its proprietary and two partnerships that we are putting together our hyperautomation and digital strategy. In terms of the differentiation that comes in at the domain depth [Phonetic] associated with each one of those offerings that make the biggest difference. For example, if you're driving in terms of an industry specific example is our Malkom solution that we have implemented in the shipping and logistics vertical that actually drives hyperautomation using the domain depth and the strength of shipping and logistics industry that's the differentiator for us in the market space.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
Yeah, I mean the bottom line is Sam, when you look at the digital solutions and the approach to digital transformation that's out there, you're going to see a lot of companies that have capabilities and analytics and capabilities in technology and automation and process expertise and global delivery. The real question is, how well do you understand the specific vertical or sub vertical that your client operates in and what's your capability to bring all of these components together to help solve the business problem and create the kind of market differentiation that they're looking for. And I think that's one of the areas that WNS has always excelled. Essentially third-party partnerships third-party tools, our own proprietary tools, are just kind of more components of what we're going to be able to deliver in terms of how we're able to execute on these types of initiatives. So it's really at the end of the day, how you bring all this stuff together to solve the problem.
Sam England -- Berenberg Capital Markets -- Analyst
Okay, great. Thanks. And then the next one, I was just wondering if you've seen any evidence of any of your competitors of dropping the ball during the pandemic, in terms of client service and delivery and whether that's created any opportunities for you over the past six months? I know it's something I think if you mentioned back at Q1.
Sanjay Puria -- Chief Financial Officer
Yeah, we have been recipients of some the issues that some of our competitors have faced over the last six months and we have actually aid [Phonetic] in clients where -- which were engaged in a multi-vendor scenario, which included us. We have been able to consolidating more work from the same -- from different vendors and also as some of the new deals that we have brought on board, we have been recipient of some of -- the inability of our competitors to service those deals.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
Like we said Sam, when you look at the number of new logos that we've added, when you look at the client -- number of client expansions, the numbers are great. They're extremely healthy. The one challenge that we've seen is the things are just moving a little slower and a little smaller than they have historically, but as Dave mentioned earlier, I think this really bodes well for the future because the bottom line is as long as they do continue on a path for the next three years to five years, at some point these are going to become larger and larger deals, larger and larger engagements.
Sam England -- Berenberg Capital Markets -- Analyst
Great. Thanks very much.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
Thank you.
Operator
Thank you. And our next question will be line of Vincent Colicchio from Barrington Research. You may begin.
Vincent Colicchio -- Barrington Research -- Analyst
Yeah, I'm curious in the travel vertical, do you expect to make any progress in terms of adding processes to help offset with existing clients to help offset some of the volume pressure.
Sanjay Puria -- Chief Financial Officer
Yes. What we are seeing is two or three [Indecipherable] we are seeing an increased amount of activity that in the finance and accounting space within the travel vertical and increased amount of work that we are taking on board through vendor consolidation in the [Indecipherable] space that we see. So at the end of the day, from a travel perspective you generally focused on an end-to-end domain capability and we service the end-to-end spectrum with these airlines or the OTA.
Vincent Colicchio -- Barrington Research -- Analyst
And what is driving the sequential strength in the UK, is that simply the utilities vertical? And is this a trend that should continue?
Keshav Murugesh -- Group Chief Executive Officer
Yeah, for the second -- I'm sorry, go ahead Sanjay.
Sanjay Puria -- Chief Financial Officer
Yeah, as you know from the second quarter, specifically, sequentially [Phonetic], I think one of the major driver was in the first quarter, if you saw we had 92% as an average from a supply perspective and in quarter two, we achieved 98% from our supplies. So that was one of the specific reason, and it also from a utility as well as vertical which were more competent [Phonetic] on the UK side that has helped to drive that growth.
Vincent Colicchio -- Barrington Research -- Analyst
Okay, thank you. Nice quarter guys.
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
Thanks Vince.
Keshav Murugesh -- Group Chief Executive Officer
Thanks Vince.
Operator
[Operator Closing Remarks]
Duration: 59 minutes
Call participants:
David Mackey -- Executive Vice President, Finance & Head of Investor Relations
Keshav Murugesh -- Group Chief Executive Officer
Sanjay Puria -- Chief Financial Officer
Gautam Barai -- Chief Operating Officer
Korey Marcello -- Deutsche Bank -- Analyst
Ted -- William Blair & Co. -- Analyst
Bryan Bergin -- Cowen & Co. -- Analyst
Mayank Tandon -- Needham & Company -- Analyst
Ashwin Shirvaikar -- Citi -- Analyst
Puneet Jain -- J.P. Morgan -- Analyst
David Koning -- Baird -- Analyst
Sam England -- Berenberg Capital Markets -- Analyst
Vincent Colicchio -- Barrington Research -- Analyst
