Wipro Limited (NYSE:WIT) Q3 2024 Earnings Call Transcript
Wipro Limited (NYSE:WIT) Q3 2024 Earnings Call Transcript January 12, 2024
Wipro Limited misses on earnings expectations. Reported EPS is $0.06 EPS, expectations were $0.07. WIT isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, good day, and welcome to Wipro Limited Q3 FY '24 Earnings Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Dipak Bohra, Senior Vice President, Corporate Treasurer and Investor Relations. Thank you, and over to you, sir.
Dipak Bohra: Thank you, Yashashri. Warm welcome to our quarter three FY '24 earnings call. We will begin the call with the business highlights and overview by Thierry Delaporte, our Chief Executive Officer and Managing Director; followed by updates on operations and delivery by Amit Choudhary, our Chief Operating Officer; and finally, financial overview by our CFO, Aparna Iyer. Afterwards, the operator will open the bridge for Q&A with our management team. Before Thierry starts, let me draw your attention to the fact that during the call, we may make certain forward-looking statements within the meaning of Private Securities Litigation Reform Act 1995. These statements are based on management's current expectations and are associated with uncertainties and risks, which may cause the actual results to differ materially from those expected.
The uncertainties and risk factors are explained in our detailed filings with the SEC. Wipro does not undertake any obligation to update the forward-looking statement to reflect events and circumstances after the date of filing. The conference call will be archived, and a transcript will be available on our website. Over to you, Thierry. Thank you.
Thierry Delaporte: Dipak, thank you. Hello, everyone. Thank you for joining us today. Team, very glad to have you here, and of course, here to wish you a great year 2024. So, I'll begin today's earning call with, as always, an overview of our third quarter results, details of our sectoral performance, the demand environment, of course, and then, direction for the coming quarter. Earlier today, we reported our numbers to the market and our Board, and I'm pleased to share with you that we're starting to see some healthy indicators for growth. One, our IT Services revenue for the quarter is at the top-end of the guidance. Our revenue stands at $2.66 billion in reported currency. We've continued to book deals at a healthy pace, although Q3 is typically a shorter quarter due to the year-end holidays.
Order booking, total contract value terms, stand at $3.8 billion. From that, our large deals TCV for the quarter was just over $900 million. On a year-to-date basis, it actually shows a 20% growth. We booked 14 deals this quarter in the greater than $30 million TCV range. By comparison, we had 11 of such deals in the third quarter of last year. Next point is on net income for the quarter that where we've expanded margin by 1.8% sequentially. On operating margin, we stood at 16% despite, I would say, seasonal furloughs and the annual salary increases for our employees. On a year-to-date basis, our margin have actually improved by more than 60 basis points. As you know, we have consistently invested in our people, in our processes and organizational efficiencies over the last several quarters.
These investments are paying off. We are seeing it every day. Our results demonstrate at a fundamental level, Wipro is increasingly, I would say, more streamlined, proactive and efficient. This has boosted our clients' trust in our teams. This has improved our win rate. And this has -- and the type of deals we are winning, this is visible in that way. That is more of a complex transformation deals is what we are seeing. Wipro is not only benefiting from vendor consolidation, but we're also adding new logos, while we are continuing to grow our business with existing clients, of course. In fact, our clients tell me that they are seeing a more confident and united effort from us, One Wipro. We're leveraging the depths and the breadths of expertise and diversity inside Wipro.
Contributions from our acquired firms such as Capco, Rizing, Designit, you know them, are more prominent and well received. Looking at the demand environment, I'd say, the demand environment overall remains cautious. Clients are still making conservative investments. They are looking for efficiency. They are more focusing on returns on investment and looking for better optimization, I would say, of existing investments. But we are seeing some indicators for growth. If you remember, we had called out a possible slowdown in the economy as growth in our consulting business slowed. We know that when the market turns, consulting will be the first area to bounce back. With that in mind, I'm pleased to share good performance from our consulting business with Capco reporting a double-digit sequential growth in order bookings, the highest in the last few quarters.
Turning to our strategic market units. Looking at Americas 1 first. We recorded a strong quarter for this unit where we booked half of our 14 large deals this quarter. Revenue in this market grew 2% sequentially, led by healthcare, which grew actually 9% sequentially. In our Americas 2 market unit, we continue to see some softness. This is -- let's keep in mind, this unit is primarily a BFSI or BFSI and energy and utilities being the large part of these units. They are seeing still some softness and resulting in a 1.3% drop in revenue Q-on-Q. That said, there's strong momentum in order bookings, which in total contract value terms increased 46% sequentially. In Europe, we won four large deals in the third quarter despite the continuing economic weakness.
These four new transformative deals add up to nearly $300 million in bookings. These deals underscore the success of our strategy in this market. Having said that, revenue from Europe decreased 4.3% sequentially in Q3. Across the board, but more specifically in our APMEA strategic market unit, we have worked on -- and we've reported on that regularly, we have worked on reducing low-margin accounts, while slowly moving towards higher-value transformation projects. So, in APMEA, revenues declined 5.4% quarter-on-quarter. However, the strategy of pivoting towards higher-value business reflects in the margins we delivered in the region. Margins rose 240 basis points sequentially to 13.8% this quarter. That's the highest in the last six quarters.
And once again, we are seeing consulting, especially Capco and Rizing, play a big role in the complex deals we're winning in this market. To continue this rigor, we made some changes to our Growth Office recently, you know that. With the foundational pillars for sales excellence set out by the Growth Office over the last two quarters -- the last two years actually, we moved some of the Growth Office functions inside the strategic market units, thus creating an even tighter integration with the SMUs. With this, we reinforced how we nurture large deals in each geography, and we will respond faster to changing market needs. Simultaneously, we continued to streamline our operations as per plan. We'll continue to leverage artificial intelligence and automation for efficiency across all functions and business areas.
We'll continue to add to that the learning and development and reskilling of our existing talent base and besides optimizing our talent pyramid to better serve clients' needs. Multiple initiatives are in place. I request Amit to share highlights of some of those programs with you today. What I can say with confidence is that Wipro is a better partner for our clients today. We are more agile, one that is responding to and evolving with our clients and their needs. Amit, by the way, will also share with you highlights of the work done around account delivery and service excellence. This really is the centerpiece of our efficiency play and increased agility. We continue to invest in areas that we know are going to remain, I would say, fundamental for our long-term success.
And let's start with that. People, our most valuable assets. We awarded our colleagues their performance-based annual salary increases recently, as you know. The promotion cycle just closed, and we'll be making the announcement soon. We continue to stress on and offer training and development options and growth opportunities to our employees. This is critical to why people continue to choose to work with and give the best to Wipro. Of course, returning to work more regularly after a few years of fully remote work has absolutely helped energize the culture and the atmosphere in our offices. Then there's AI. We'd be amiss to not share how we are using AI ourself as an organization and for our clients. AI is now moving from the curiosity and experimentation stage to becoming vital -- I was going to say viral as well, to business strategy.
In fact, we can confidently say that every long-term large deal now has an AI component. The substantial portion of our clients are looking for us to develop use cases tied to their business goals. They want us to use AI models to drive tangible results. AI is now embedded across most of our existing solutions and offerings. In addition, every business line is working to launch new offerings that use AI. That's the way it is at the moment. For example, in our FullStride Cloud business, an area that's particularly hot when it comes to the use of GenAI is digital workplace services. Leveraging GenAI to lighten the load on service desk, deliver faster and better client services is now part of every RFP in this space. One of our largest deals in Europe this quarter is to transform digital workplace services of a multinational telecommunications company.
This will help improve client satisfaction and reduce operating expenses. We will actually build an AI-powered platform for them that provides service desk, onsite, and remote support services for 100,000 users and 80,000 managed devices across 240 locations worldwide. Now, in engineering, we are seeing strong interest for AI in the automotive and manufacturing industries in particular. Clients in these industries want AI to increase productivity and the R&D process and accelerate new product development. With Wipro Enterprise Futuring, we are helping clients accelerate adoption. We are leveraging Wipro's GenAI framework and studio to develop key assets at all level of the AI stack, including models, platforms, solutions. We will help clients with model development, performance, privacy and, of course, compliance.
We're also building governance frameworks around responsible, sustainable, and ethical AI development. In fact, we are working with a global healthcare insurer right now to develop a GenAI-powered knowledge research solution to transform their contact center. The goal here is to improve patient expense and operational efficiency by cutting the time it takes to analyze healthcare plan documents and response time. We've also developed a GenAI-powered assistant for a Fortune 500 investments and insurance firm. This assistant improves quality and reduces the time spent in crafting personalized e-mail campaigns. Earlier results show very tangible growth in click-through conversion rate. Additionally to those example, I would say that expanding our relationship with strategic partner is a critical part of our ai360 strategy.
During the past quarter, we collaborated with NVIDIA to help healthcare companies build AI-driven strategies, products, and services. Partnership with NVIDIA is a great differentiator for us, given our domain expertise in the healthcare sector. We're also expanding our partnership with IBM to invest in next -- in new joint solutions built on IBM watsonx that makes it easier to deploy reliable, responsible, and sustainable AI solutions. To do all this in a consistent, in an innovative and scalable fashion, we are preparing our workforce. We have now 200,000 -- 210,000 Wiproites who have been trained on AI 101 skills. We have now rolled out personnel-based learning pathways for different roles and functions. Our goal is to actually ensure that everyone at Wipro has the skills to fully leverage AI in their everyday work and for AI-related client projects.
We are accelerating GenAI adoption internally as well by integrating the technology across our entire portfolio of platform. This is resulting in quality and productivity improvements across HR, marketing, sales, operations, finance, as well as software development and quality engineering and testing. Our investments in our ai360 ecosystem, combined with the strategic value our consulting business brings to clients, is the reason we are increasingly the preferred partner for our clients. So, we are confident that we have the right vision, we have the right strategy, and the right leadership to continue to grow and keep us competitive, resilient and ambitious. Onto our guidance now for the next quarter. We're guiding for a sequential growth of minus 1.5% to plus 0.5% in constant currency terms.
We expect margins to stay range-bound like in the last few quarters. Now, as the market starts to turn around at the back of our transformation and efficiency play, we expect to see improvements in the coming quarters. With that, I'll turn it over to you, Amit, for your comments.
Amit Choudhary: Thank you, Thierry. Hello, everyone. I will cover some key areas of business transformation and focus programs that have helped us maintain margins despite the current demand environment. On the delivery excellence front, our top priority is to deliver best-in-class solutions for our clients. We now consistently leverage our four global business line model to create the best possible ecosystem to build talent and deliver innovative solutions to our clients. This is being supplemented by strong delivery governance through investing in a better program management, by building the delivery leadership cadre, through focused training interventions, AI-based assessments, and skilling for emerging technology trends.
We have a dedicated AI delivery council to identify opportunities to infuse AI into our delivery activities. Our account delivery executives are absolutely core to the client experience. We are enabling and empowering these delivery leaders to make decisions with a client-centric mindset. They are driving initiatives and solution offerings with an AI-first and a One Wipro approach. Another area of work has been the restructuring of our low-margin businesses. Thierry talked about it briefly, especially in the context of our improved performance in APMEA. Low-margin businesses are being reduced steadily through a multi-pronged action plan. Moving on to the operational excellence side, Thierry has spoken of how skill is our biggest currency. We are working on an end-to-end process to provide the right skill at the right time, at the right cost, in the right place.
We are doing this through an improved forecasting process, proactive skilling through account academies, pyramid optimization, improving our talent supply chain through an AI-powered talent marketplace, effort optimization, automation, and strong change management. We are reducing operating costs and optimizing our organizational design across all units and geographies, which is building an agile Wipro better suited in this dynamic market. We are heading towards more and more AI-based automation internally, resulting in more productivity and better efficiency. Thierry talked about how we are taking AI-led solutions to our clients. We have a similar rigor for internal-facing AI-applications, like the AI-powered talent marketplace, persona-based learning pathways for sales and business teams, developers, engineers and architects.
We are using AI for simplification of employee user experience as well. We are aligning our operational structure, skilling academies, and GenAI capabilities to market demand, client expectations, and also to the evolving process landscape inside Wipro. We are the one of the biggest customers of our ai360 ecosystem. These transformation programs and margin expansion initiatives are delivering results. Our goals remain profitable growth, delivery excellence, and internal capability development, all leading towards sustainable success. Now, I will hand it over to Aparna.
Aparna Iyer: Good evening, everybody. Wish you all a very Happy New Year. Let me highlight to you our financial performance for the quarter ended December 31, 2023. Following a quarter of strong execution, our revenue is at the top end of the guidance range. In constant currency terms, revenue declined 1.7% sequentially. In terms of margins, as we had called out last quarter, we had steep challenges on the backdrop of a weak demand environment, seasonal furloughs, as well as salary increases for our employees effective 1st December. I'm pleased to share with you that our margins have remained resilient as we executed on three counts. One, maximizing our revenue performance; two, realizing savings from structural improvements of pyramids and fixed price productivity; and three, reducing discretionary spends.
On a year-to-date basis, we've improved by -- our margins by over 60 basis points. We worked on rationalizing all aspects of working capital. As a result, in Q3, we have delivered an operating cash flows of $576 million. This is 177% of our net income and highest in the last five quarters. Our gross cash was at $4.6 billion and net cash was at $2.7 billion, both increased year-on-year despite having completed our largest buyback in July. Speaking of capital allocation, our Board of Directors have declared an interim dividend of INR1 per equity share. Our net income for the quarter is at INR26.9 billion, which is an increase of 1.8% quarter-on-quarter. Our EPS has increased by 2% on quarter-on-quarter basis. Despite a weak demand environment, it is heartening to note that on a year-to-date basis, our EPS has improved by 2.2%.
Our EPS for Q3 and year-to-date includes a charge that we have taken in our P&L on account of restructuring exercise that we had undergone during the year. I'd like to confirm that we have completed the restructuring that we wanted to do and do not anticipate such charges henceforth. In terms other important matrices, our ETR is at 24%, which is in-line with what we delivered in Q2. Our hedges continue to be in-line with our policy and was at $3.4 billion. Finally, I would like to summarize the guidance for Q4. As stated by Thierry, we expect revenue from our IT Services business segment to be in the range of $2.615 billion to $2.669 billion. This translates to a sequential guidance of minus 1.5% to a plus 0.5% in constant currency terms. With that, we'll be happy to take questions.
Operator: Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Moshe Katri from Wedbush Securities. Please go ahead.
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