WNS (Holdings) Ltd (WNS) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, welcome to the third quarter 2008 WNS Holdings Ltd earnings conference call. My name is Lacey and I'll be your coordinator for today. At this time all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to our host for today's call, Mr. Jay Venkateswaran. Please proceed, sir.

Thank you, Lacey. Good morning, ladies and gentlemen, and good evening to those of you joining us from Asia. Welcome to WNS's fiscal 2008 third quarter conference call. I am Jay Venkateswaran, Senior Vice President of Investor Relations at WNS. With me are Neeraj Bhargava, our Chief Executive Officer. We also have with us Anup Gupta, Chief Operating Officer, and [Reva Dotter], Executive Vice President and Controller. Today's remarks will focus on our recently announced results for the fiscal third quarter ended December 31, 2007.

Some of the matters we will discuss on this call are forward-looking and you should 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 our Form 6-K filed with the SEC today. During this call we will reference certain non-GAAP financial measures which we believe provide useful information for investors. You can find reconciliations of these non-GAAP measures to GAAP measures in our Press release issued on February 7. I will now turn the call over to Neeraj.

Thank you, Jay and thank you all for joining Today's call.

In Today's discussion, I would like to cover four key topics. First, I will summarize the results for this quarter. Second, I will discuss key strategic issues we face in today's business environment. Third, I will discuss our operational performance. And last, I will catch up on organizational development and other key strategic initiatives, including the appointment of our new CFO. And then we'll discuss our financial performance in detail, including our increase in net income guidance for fiscal 2008. After our prepared remarks, Anup, and I will respond to your questions.

Let me start by summarizing the financial results achieved for the third fiscal quarter. Revenue less repair payments grew by 29.5% from December 2006 as we put last quarter's mortgage losses behind us. Gross margins, excluding share-based compensation were stable at 32. 9% while SG&A costs declined. As a consequence, operating margin, excluding share base compensation, related fringe benefit taxes and amortization of intangible assets increased to 10.4% from 9.6% in the second quarter of fiscal 2008.

Overall, our numbers exceeded our expectations for the quarter. This has been a field of continued recovery after the reduction in mortgage revenues. We feel good about how things have shaped up and are confident enough to raise net income guidance by $1 million for fiscal 2008. Let me move on to my second topic, a discussion on key transitions. I want to highlight six key items that are sharply focused in our current business environment.

First, over 90% of WNS's revenue stream is made up of annuity based long term contracts. We process mission critical transactions between our clients and the business partners or their end customers. Spending on offshore BPO services is not dependant on our client annual budget as we manage ongoing operations and not one-time projects. Offshore BPO programs typically delivered cost savings within 6 to 12 months and that makes our value proposition very attractive to clients in the recessionary environment. Our revenue stream is also more sticky and less susceptible to budget cuts.

Second, offshore BPO still remains a large, untapped market with the potential to grow rapidly for a long period of time. Research reports such as the recent [Everett Maps Com] study expect the market to grow as much as fivefold over the next five years, and broadly, we see no slowdown in client interest and committment to offshore BPO. During the last quarter, we added four new clients, three in the consumer product industry and one, a broad based services company. We also find 11 expansions with existing clients, and to discuss two examples, our consumer products line who we serve in the the U.S recently added a UK operation they awarded to us. Another client of ours in the [EP] industry who we serve in the [market area] also outsourced their S&A function to us.

Third, in sectors like insurance, manufacturing, utilities, logistics, and consumer products, our pipelines are at their strongest, better than this time last year. The current economic uncertainties present WNS a good opportunity to accelerate the penetration of these sectors, as they face growth challenges and marketing pressure. Fourth, we have low exposure to mortgage and banking sector, among the lowest in our industry. Only about 5% of our revenue less repair payment comes from the mortgage and banking space. Fifth, we believe our travel business is well positioned to grow even in a recessionary year. In response to queries from investors and analysts, we studied our travel revenue sensitivity while volume productions could affect some of our existing processes, we believe we have enough strength in our existing and new client pipelines to more than counter any potential volume loss.

Sixth, we have made a remarkable recovery or rather, progress in our analytics business, especially [Marketics] which has now become an integral part of our Knowledge Services Business. As planned, revenue and profit growth from this business has picked up substantially over the last quarter. Given its current momentum, we expect WNS Knowledge Services Business to contribute about 15% of our overall revenue less repair payment. This business is expected to be a significant growth area for WNS in fiscal 2009.

Moving on to the third topic, I would like to highlight two key aspects of our operational performance over the last quarter. First, attrition increased from 36% in the second quarter to 39% in the third quarter on a comparable basis. This excludes about 6% in annualized attrition from our mortgage related reductions, including our placement of people who could not be redeployed internally. Including this, our attrition increased to 45% for the third quarter. We continue to work toward keeping attrition below the 40% level in the near term and this remains a top organizational priority.

Second, our teams continue to deliver high quality work to our clients on a daily basis. In recognition of our operation capabilities, we have received eight recognitions and awards over the last four months , including recognition of our leadership position as a global BPO provider, as a leader of finance and accounting services and high quality provider of auto [inaudible]services in the UK . We were also recognized for our excellence in innovation for management and Six Sigma applications. Most importantly, two of our clients received the prestigious Zabar and JD Power awards for customer satisfaction where WNS Services are substantial components of service delivery.

Let me now move on to organizational development and other strategic initiatives, the last topic of my prepared remarks. As announced earlier, we appointed Alok Misra as Chief Financial Officer. We are delighted to have Alok join our senior management team. He is an accomplished finance professional with 18 years of public company experience and a strong track record in the BPO industry. We see Alok playing a critical role in our continuing growth as a leading global BPO Company. Alok joins Deborah Nestosser, holding the Group CFO position at MphasiS, an EDS Company, where he has been a key member of the leadership team. We expect Alok to join the Company in the third week of February.

Moving on to our other organizational matters, our total headcount was 17,812 as of December 31. This represents a net increase of 722 people during the third quarter and the last two quarters, we have added a net headcount of 1100 people despite reductions by mortgage clients. In January, we relaunched our [obedience] facility and are now working with two key clients to leverage this capability. Offering European language services, Romania keep expanding our global footprint. In summary, in this quarter we have put the [inaudible] mortgage loss behind us, our profitability is getting back on track and we continue to delight our customers and be recognized for our operational excellence and help our clients get more recognition. We attracted a seasoned professional like Alok as our new CFO and we have continued to grow in spite of our mortgage losses. Our pipeline is better than ever before and we are focused on growing even in a [inaudible] business environment. And with this, let me hand the call over to Reva, who will take us through financial performance and

Thank you, Neeraj. Good morning and welcome again to our third quarter earnings call.

In my prepared remarks I would like to discuss our financial performance in detail, including our guidance for fiscal 2008. Starting with our financial performance in the third fiscal quarter. Revenue less repair payments grew by 29.5% to a $74.1 million despite reductions from mortgage clients during the quarter. Gross margins excluding share based compensation decline marginally from 33.3% in the previous quarter to 32.9% primarily due to the impact of exchange rates. SG&A costs, excluding share based compensation, and related fringe benefit taxes have decreased from $17 million in the second quarter to $16.7 million in the third quarter. This represents a decrease from 23.7% to 22.5% of revenue less repair payments for the respective quarters. SG&A costs decreased as we had provided for bad debt related to First Magnus in the second quarter.

We also had the benefit of scale leverage. Despite our continued reduction in SG&A, excluding share based compensation as a percentage of revenue less repair payments we continue to expand our sales and marketing expenses in line with revenue growth. Amortization of intangible assets increased from $0.5 million in the second quarter to $0.9 million in the third quarter, due to the reclassification of a software asset from fixed to intangible assets. You can expect amortization to continue at approximately $0.65 million per quarter. Operating margins, excluding share based compensation, the related fringe benefit taxes and amortization of intangible assets were higher at 10.4% for the quarter, up from 9.6% in the previous quarter.

Now, let's go on to our review of guidance for fiscal 2008. We reiterate our guidance for revenue less repair payments of between $290 million and $295 million. This represents a growth of between 32% and 34%, despite the reduction in business by mortgage clients and the recent depreciation of the pound sterling against the U.S. dollar. We are raising our net income guidance excluding share based compensation related to fringe benefit taxes, amortization and impairment of goodwill and intangible assets. This is now expected to be $34 million to $36 million, up from $33 million to $35 million. To conclude, I would like to reiterate that we're optimistic about our guidance for the year. At the same time, we continue to invest in growth initiative s to capture long term opportunities.

With this, we have concluded our prepared remarks. We will now take any questions you may have. Operator?

(OPERATOR INSTRUCTIONS). Our first question will come from the line of Bryan Keane with Credit Suisse. Please proceed.

Yes, hi. I guess I was just looking for an update, I don't know if you mentioned it on but total seat capacity and kind of used seats?

Sure, I'll take that. Our capacity on used seats stayed flat at 2.1 in the last quarter and we did add a new facility last quarter with 1359 seats in Mumbai because of which our capacity on total seats dropped from 1. 8 to 1.7.

Okay and I guess what should we model in for seat capacity and new seats going forward? What the does the trajectory look like?

I think looking through next years plans we will continue to ensure that we plan for new increases in line with the business that we are seeing right with it this year.

This is Neeraj. What I would adhere is that in general, you might have also seen announcements that we made on taking capacity in two special economic growths to increase our tax efficiency for the the tax benefits from April 2009 and we have booked a lot of capacity but we have let the flexibility come to when we actually build it out depending on how it happens in the world.

Okay, and then just looking at the adjusted operating margins going into the fourth quarter if you kind of back into the guidance, it looks like it's flattish to down a little. Would there be, is there any reason why I guess the margins might be flattish to down going into the fourth quarter or what's in those assumptions?

We're actually not expecting the margins to be down in the fourth quarter. I mean, we met the range of revenue and the range of margin there, so things have to play out on multiple fronts and how the british pound behaves and fuel per client but that aside, I think we are quite optimistic that we will either maintain or grow margins in the next quarter.

Okay, good. And then I guess just finally, any comments on tax rate for the fourth quarter and going forward in 2009?

Yeah, we aren't giving individual guidance quarter wise, but we would expect that to be in the region of 16 to 19%. This quarter has been high because of profit from the Auto Claims segment is higher as a proportion but we would expect it to go back to our normal rate next quarter and thereafter.

Okay, great. Thanks a lot.

Our next question will come from the line of Joseph Vafi with Jefferies & Company. Please proceed.

Hi, everyone, good morning and good results. I was wondering if you had any comments on your 6-K that you put out the other day on the Viva call option and some changes to those terms?

Right, so the Aviva call option, two changes to terms, primarily first was the earliest we could transfer back the operation would be May 1 which essentially gives us a one month extension beyond the April 1 date that we communicated earlier, and secondly, they could, while they haven't given us notice but they could give us notice with one month deadline as opposed to a three-month deadline which was our previous agreement so that's the essential change we've had in our discussion with them and which came from a formal note to us.

Okay, has that business in the BOT entity, has that volume remained flat or what has it been doing over the last say few quarters?

I think the volume has remained flat as you're aware that we have two operations, one in Sri Lanka which we transferred back in June of last year and the other in Brunei which is the one we are currently running, and the volume is consistent within a certain rage. It's not gone up too much, it's not gone down too much.

Okay, so just I guess is there any other commentary that you'd like to provide on the call option other than what was put in the 6-K?

No, not at this stage. We have a strong relationship with Aviva. We're in the process of figuring out what they want. At this stage, we have a non-disclosure with them so we aren't prepared to talk about anything further than that.

Okay fair enough. I was wondering if you could talk a little bit about pace and tempo of RFP activity right now and from other BPO vendors that the RFP activity is quite high and if you could maybe talk a little bit about sales cycles, if they're staying the same or if they're lengthening or shortening?

Well, the RFP activity is quite high. As I mentioned earlier in my remarks, our pipeline has got better and it's still looking really good, and that's a reflection of the RFP activity. Not with any improvement or decline in the nature of the sales cycle, it is pretty much the same. Our clients are issuing RFPs, visiting us and ising longer discussions about a variety of things and it's pretty much business as usual.

Okay. And then maybe just one more question on the supply side, on the labor front. It didn't seem like, I mean obviously your model is kind of more of a just in time hiring model on the headcount side. What are you seeing on the labor front as we enter calendar '08 from a competitive point of view from captives and other maybe areas where would see competition for employees?

Well what we're seeing is that hiring especially for data-oriented skills has become a lot easier and the labor market is hotter and therefore, we are likely to see a wage inflation lower in the coming year. Trends are pretty much similar to last year in terms of the demand supply, but broadly, we see softening of the labor market which has given some optimism for keeping wage inflation lower.

Is that softening in the labor market just a function of slackening demand or do you think that captives are being less aggressive at this point in their hiring?

Well, anecdotally we believe captives are growing much lower than they did and that the is one cause. Second thing is that mid tier BPO companies are hurting a lot more and I also see it slowing down in terms of hiring and if you put all of that together it presents a pretty good picture to us.

Very good. Thank you for your comments.

Our next question will come from the line of of Mark Marostica with Piper Jaffrey.

Yes, good morning. First question actually relates to travel business and just to follow-up on the last question, I was wondering if you could give us more specifics around your pipeline and travel and maybe compare it to the health of the pipeline overall in your other businesses.

Well, first of all, our travel business for this current fiscal 07, 08 is right on target. They're going to meet their numbers and might even slightly exceed their numbers so they've done a very good job this year and expectation. Secondly, this traditionally has been, given our history also, this has been a very strong team, and therefore, they've done a very good job of getting expansions with existing clients, with one of our key clients they also managed to get a price increase and they also have recently added to the sales team to very strong competition from the industry so if I add that all up together, both from existing clients and new clients, our pipeline at this time is better than what it was last year.

We did take into consideration some feedback that we got from many investors and analysts that what if in the recessionary environment that could be hitting us, travel volumes were to slowdown so we have looked at that and we have run sensitivity and there is a possibility some of our existing processes might see some decline in volumes. We have got no indication of that; however what we also see as we look deeper into our pipeline is that with the same client there's expansion of new processes going on and also there are enough new clients in the pipeline and if you add that all together, we are still bullish on the travel business and expecting it to expand next year.

Just a little more clarity on the point on volume, what percentage of your travel business is actually volume related or correlated with volume?

Travel business has three broad components to it. First of all, we do a very wide range of finance and accounting work, some of it is on a transactional nature and some of it is corporate finance and accounting. Second, we are doing a range of work related to the reservations and Customer Service part of it and third is we support a range of operations for travel companies as well. In the category one and category three, first of all we have lots of small processes, also resources tend to be lumpy, in other words there's a 20% slowdown in volume it doesn't mean you can cut resources at 20% and actually there have to be lots more and the sensitivity is largely in the areas that are linked to customer demand which is reservations and customer service related activities.

If you look at even those areas and the fact that we have a lot of fragmentation in our processes and our clients, we believe about 20% of our overall travel business is sensitive to volumes and so that's the business where we took a very critical look and listened to what our clients are telling us and as well as if there was a scenario where there's a 10 or 20% decline in travel activity worldwide, how does that affect us? Having taken all of that into consideration and looked at what are those clients looking at expanding with us as well as our new client activity, our conclusion is that even in a difficult environment, we could be expanding in this sector.

Okay, great. And I just want to follow-up on the attrition uptick in the quarter. Is there anything specific you can point to there and then what are you doing to try to control attrition into keeping it under the 40% level? Thanks.

Sure. This is Anup here. Yes, we had a 3% increase in attrition, in our quarter attrition we went up to 39% in the last quarter. We are still below the 40% mark, which is our target and if we exclude the impact of Markets related to reductions. In the last quarter we have 6% annualized attrition from a market leader business and this was mainly because while we had a big internal redeployment program for some people who did not have the roles we had to replace them and as you can imagine that does have some of a background on the organization as well, which is why our low attrition number went up. And additionally, it continues to be a top priority for our Management team and we are addressing it, like we have shared with you earlier that the main levers we are working on across the organization, one relates to sourcing of candidates.

We have a program under way where we have increased the number of candidates we sourced directly and also launched some effort programs and we are also sourcing from a lot more cities now Especially smaller cities and having people come in and work in our facilities. We have a big initiative under way with our supervisors which is the first level of Management and make sure that those people get coaching to manage their people better. We have a leadership and a career development part program under way and lastly, just making sure that we are increasing the batch points toward our business, so that people are reassured this is a place they can build their careers on and on many of these, on most of these areas we made a lot of progress and we continue to track closely.

And what are your specific goals on the attrition metric the next few quarters?

So our overall goal is to get attrition to the 35% mark, and we're beginning to flourish with that by being in the 35- 45% range, we've been think for two quarters and this continues to be a tough market in terms of retention, as with the economy at least in the last one or one and a half years we've presented people with many opportunities but we are making progress on all of the fronts in terms of how we recruit. The last part of attrition is also about recruiting right and making a lot of progress on that by expanding our improvement network, and there's the team doing a fine job of running retention programs and we've seen uptick in those numbers as well and we're hopeful that over the next two or three quarters we'll be consistently at the 35% number or at least below 40%.

Thank you.

Our next question will come from the line of Ashwin Shirvaikar from Citigroup. Please proceed.

Hi, thanks. Congratulations on the quick recovery from First Magnus and that's pretty good work there. The question is now how long could it take you to get back to the 14 to 16% operating margin? You've done it in past quarters and I know it's a slightly different environment, but could you comment on that?

Yes, thanks, Ashwin. I think I want to go back a little bit into where we were before the beginning of this fiscal year. We were clearly at the 40-50 only, slightly higher point and that was consistent with the guidance we gave at the time of our IPO where we were close to 40% and we said that we will increase margins by 50-100 basis points every year. Since then, big change in our environment has been the way that [AMOPF] is depreciated and I think people on this call are aware of the sensitivity that adds in terms of how our cost structure changes in response to that the. We have done a very good job in terms of managing our cost structure and keeping our margins at a fairly even level in spite of that, and if you look at where we expect to be going, we believe that getting to the 12% operating margin mark is not something difficult at current currency levels. Following that, assuming the currency remains stable, or has very marginal changes, we believe that we will then be back through taking them and the margins up by 50-100% basis points on an annual basis, so the 15% mark getting to that very quickly. We don't see that as feasible but we see us getting to the mark quickly and making progressive improvements off that.

Got it, and what kind of hedging assumptions do you make for to get there?

Well, I think our approach to hedging historically was that we hedged two to three quarters. We have been more aggressive now for fiscal '09 particularly with all of the changing trends with the very strong and recent times so we have hedged very significantly until March '09 and that gives us comfort that it's part of currency changes. We will be able to maintain or enhance our margins.

Okay and my last question is on the, given what or where you are with the SEC usage, what the kind of range might we expect for tax rate beyond March of next year?

So what we have guided with people in the past has been that it's a broad range of 15-20%. We expect it to be more likely around 70% going forward, and we think that's a rate we can successfully maintain or perhaps for 2009.

Sorry I missed it, 17% you said?

Yeah, we think we'll be close to 17%, yes.

Got it, okay. That's great. See you next week, thank you.

Thanks.

Our next question will come from the line of Julie Santoriello with Morgan Stanley. Please proceed.

Thanks, hello. Neeraj, I found that the your comments in the beginning very helpful with the several points that you made and you're the first one being that 90% of your revenue is annuity based or more than 90% so in the current economic environment, assuming that things get worse for any of the companies, any of your customers in any verticals, where could you potentially be surprised to the negative?

Well, I think the negative surprises, there's always an issue with something dramatically wrong with the [flagget] so we're hoping that lightning doesn't strike more than one for us , but obviously, I would not include something like that in my comments. I think the negative surprise comes to a small extent in travel which we discussed before, but we believe that the there are other offsets to that. There are some other areas with work and Financial Services related work we do in our analytics business and that may have some surprises; however even in those areas we see our clients, including some of the banks looking at increasing volumes with us so I would single out those two areas as places where there could be some challenges but at the same time, we see the counter effect of some of our clients looking to increase work as

And the risk of an a lit beings business is because it tends to be more project based?

Yes, it seems to be it's not just, I don't think it's so much that it tends to be project based, but if you look at the fixed income area, for example, there has been situations where our clients are reducing their own workforce , so what has happened is that some team members, again very small numbers, we've found that they got other areas that opened up so if it's at a client level in terms of some of their operations shrinking that's where you have some

Okay, I see. What about things like clients ramping up more showily than expected, in stalling some of that the process or even canceling contracts, can you just comment on the likelihood of those events?

We've seen no evidence of contracts being canceled, that's where our blocking and tackling business anyway when we are ramping up with clients, all the time there are challenges that the come along the way in terms of how quickly you can ramp up so it is pretty much the same, there's nothing different and some clients may grow faster than expected and others may grow slower and that's part in terms of how we manage our business and our guidance.

Okay, and can you comment on the up front investment requirements that a customer has to make typically? I believe those aren't large by any means but can you give us a feel for what the up front investment is for a customer typically?

So a customer typically tends to invest anywhere between half a million dollars to two or three million dollars as a part of the program, but what tends to happen as I mentioned earlier in my remarks that they don't start coming within 6- 12 months so the payback is actually very short time. It's what makes offshore BPO really attractive in Today's time. Yeah, I think something I would like to adhere is that in our business, the payback is almost guaranteed, unlike some projects which one would undertake because if you're moving to offshore, the label on the couch is guaranteed so the 6- 12 month payback is almost certain as you remarked on.

Great. Those are important points. Just lastly can you comment on the competitive environment and pricing environment? I believe you set you're getting price increases in travel but are you talking about the price environment more broadly and if you see any changes on the competitive front from either pure play off shore, BPO provider or multi-nationals?

Well the market is obviously competitive and it's the same that you've seen before, some global BPO companies from IP services with BPO on pure plays. I think we just continue to see the same level of competitive intensity. As far as the pricing is concerned, we've had increases from three of our top 20 clients, some at the time of renewals and some otherwise and we are at the fourth one which is looking very likely and even some of our smaller clients have been successful in getting them increased so as far as we see pricing in general has settled into a reasonable range and as our work that we do get more complex, we are able to make that case to our customers and in each of the cases that we're talking about, the fact that we're actually doing more work than we did when we started allowed us to see the price increase and getting the success.

Great, thank you.

Our next question will come from the line of Holly Gosh with Merrill Lynch. Please proceed.

Yes, thanks and congratulations on strong execution this quarter. I wanted to follow-up on some of the comments that you have made. On prices, if you just continue from there, could you comment on the kind of price increases that you are seeing in some of the recent ones that you mentioned? And also, if you are seeing changes in terms of pricing contracts, building in renegotiation of the 4 X appreciates or depreciates in a significant manner?

Okay, the first question on the quantum of price increases, typical price increases have been in the 4-5% range, however, there have been some very old contracts of ours where it's a very different environment and also, with work that was less complex, the increases have been significantly higher than that, sometimes higher than 10%, so I will say on the average, 5-6% is a reasonable number to look at in terms of quantum of price increases. I think could you repeat the second question again, please?

Yeah, I was just trying to understand if there are any changes in the way the pricing contract was structured. Like with respect to significant changes in the 4 X situation or are there any sort of gain and share kinds to be put into help pricing contract structuring may have progressed?

What we have seen happen is that we agree on the range of the current band with which our price is valid and then it allows us enough to sit down with a reasonable number again and that's usually what the we are pushing.

Right, and secondly, on the travel vertical, you give us some data points there. Just wanted to understand it. Some of the new processes and new clients that you spoke of in the pipeline, is there any trend there in terms of what if other processes are being outsourced or maybe some sub segment that you're targeting now?

Well, actually, if you look at our clients, some of our larger ones, there's the metrics about which geographies they operate in and which process they outsource or what? Are you trying to fill in those boxes, what you'll find is the same work hasn't been given to us in some geography and in the cases where we have some process for other clients we aren't doing that process for them, so just a degree of penetration we have even with some of our more mature clients like British Airways is very very far from the true potential. We have account Managers with these companies especially our larger clients or high potential clients and it's a constant education process of telling them what the we're doing for somebody else and plugging away, so our sense today is that even if you take a very mature process like revenue accounting, if you look at the U.S. Today, and take a look at the top 8 or 10 airlines, I would say not the more than two or maybe three are outsourcing that process to India. If you look at some work we do in say larger program management and again I would say that not more than 20 or 30% of the top 10 or 15 airlines are offshoring their work today. So if you look at just the sheer fact that penetration within the client across-the-board that the when you have account managers, you'll have the the opportunity to expand and at this point in time clients are getting concerned and they're listening to what they can do and expansion with existing clients is obviously more easy and the least costly process to grow your business so that's something we're quite bullish about.

Thanks, that's very helpful and just my last question on, you discussed some time back that there was a large increase in your sort of $1 million plus kind of accounts and that is generally considered an inflection point. Is there any update in terms of maybe how many such clients you have and how that has changed in the last quarter or over the last year?

Well, we typically provide a breakup in our annual number s which we will in May this year, but in general, this year we've seen two trends. One is that there have been more clients that have crossed into the 1 to $2 million bracket and more importantly, there have been more clients that have crossed into the 2 to 5 or 5 to $10 million bracket and these are clients when you start a small base their growth rate is much faster also, and that clearly bodes very well for our business going forward.

Okay, thank you.

Our next question will come from the line of Tim Fox with Deutsche Bank. Please proceed.

Hi, thank you. My first question is around the relative strength in your expansions in the quarter. I believe you stated you did 11. Can you talk a little bit about the expansions as it relates to any particular vertical areas and just to clarify, are these typically based on renewal activity or are they a combination of renewals and just natural expansion with your customers?

Tim so I'll answer the second part first. All these expansions we're talking about are not about renewals. These are about new businesses or new processes that we've got with existing clients but this is all the new work, not renewals. If I were to look at expansion, if I had a list of 11 in front of me, the first four are from the travel area and three of the four are our top five clients in the travel sector and we have two expansions, including one very promising one from our assistant business in the UK. We have four expansions in our analytics business, and we have interestingly two expansions in our banking and Financial Services business as well. So that makes a list of 11.

Okay, great. That's helpful, and regarding renewals, do you have any major renewals of any 10% plus customers coming up in the calendar 08 time frame?

No, I don't think so.

Okay, and then just lastly, I'm not sure if you have this in front of you but looking at the growth in some of your areas like analytics, how can we think about the next year from an exposure from a vertical perspective, overall percentage of business I think suggested that the BFSI is still under 5% but can you just broadly point us to from a vertical perspective what your overall revenue exposure is going to be over the next say four quarters?

Right. So as we look at the our business today and consistent what we have at the end of last fiscal, the challenges is about 35% and clearly from a proportion at declining because of some of our emerging businesses as we report to them previously are growing a lot faster, probably at a rate of 1.5 to two times our normal growth rate so there's a clear sector of expansion happening in our business. So the travel number I expect it to be somewhere in the 32 to 35% zone this year, but clearly we see faster growth in the other sectors. It's important for us to break up BFSI to the banking and Financial Services area and is down to about 5% of our business.

While we did see some paralysis in performance customers not making decisions, we're finding that in the last month especially since the beginning of January, we see them opening up a little bit more in terms of more expansion with the same factor, this is not the something we've included in the December tradition numbers and we have been selected in one diversified Financial Services situation in January to be a partner of choice and this promises to be a very large situation for us, so we're beginning to see a positive trend in the BFS area as well. Insurance is really a very active market right now. We see that this is the best pipeline we've had in the last three years and we're very very excited about the prospects we see there and therefore, if I were to just put that together, I would say that BFSI sector in spite of its problems would be roughly about 31% of our business even next year.

The real story for us is growth in other areas. We've had dramatic growth in our utility area. We see growth in logistics as well, manufacturing clients are now getting at it as well, and especially with the addition of market, our consumer centric industry like CPG and pharma, that's accelerated considerably, so overall, I still think that travel and BFS to be a big segment, but the real story for us was the strengthening of other verticals which are going to be a lot more promising in the years to come.

Great, thank you for that detail and congratulations on the quarter.

Our next question will come from the line of Matt McCormack with FBR Capital Markets. Please proceed.

Yeah, hi, good morning. My first question relates to the volume related revenue that you have. Is there anything structural in your long term contracts that the would protect you if you do in fact start to see lower volumes and for example, should we expect that the pricing per transaction to increase, to insulate you over the near term? Can you speak to that?

Yeah, typically what happens in our volume sensitive businesses is that the customers give us a forecast for three months and typically, they agree to adhere to our resource allocation in terms of how much build up we need to have in terms of capacity or for a three-month period and we get some notice on how much or what sort of volume declines we need to prepare for and given that we have growth we can move people around as well as attrition and it gives us enough flexibility from a cost side. So as far as we're concerned, in the volume sensitive areas we have seen any material trend of change at this point in time, and we see the volumes trending in the right direction.

Okay, and then in terms of your KPO offering which has now become a pretty large part of your overall revenue, could you break out what specifically the components of the service lines are so how much is data analytics and how much is financial analysis and if there's any difference in the expected growth rate of those specific KPO offerings?

Well, we believe we have the most diversified and the strongest KPO offering in our industry. We have a business and market research outsourcing which we've been doing for nearly five years now, and that's a key part of our offering. That's work we do mostly for market research companies and also for some companies in consumer centric industry so that's one category and the second category is the analytics or data mining which is basically we had a business in that area and the market added a lot to it and that business is essentially unlike market research with the data, that business deals with historical data and keep in mind customer data and find out pricing trends, ways of cross-selling and managing risk to our customer so that's under the category of business where the customers specifically tend to be consumer centric companies, CPG, pharma, we have clients in the high-tech industry as well so that's the second category and the third category is what we have as business research which is largely targeted toward professional service companies so we have recruiting companies, we have consulting companies and the fourth category is financial research where we do have Investment Banking and also some Information Services companies as our clients.

The fifth one is what the we do in the procurement area on largely expense analysis and the last category is a very small business but very high, something that's very high prospect, in the legal process outsourcing area. This is a fairly diversified business with and if you were to a sense client demand here there are many areas as to what may happen in financial resources, that the is a smaller portion of our business so we see the overall revenue stream here quite robust at this point in time.

Okay, and then my last question, you expanded into Romania recently. Could you talk about other areas for global delivery that you're looking at and in light of that, if the the current, I'm sorry, currency rate environment is altering any of your plans. Thanks.

Sure, I'll take that. We obviously are expanding our global footprint is a key strategic priority for us and the Romanian facility is the first step in that direction. We are looking at as you have announced previously we are looking at the Philippines very closely and finalizing our plans in that geography. We will make an announcement of that at the appropriate time but most importantly, we do not expect it to have that to have any material profit on us. Beyond that, we're looking at options in Latin America and those are at the early stage of evaluation right now and I'd say we will get it based on client demand or if you get some large inquiry in that the area.

Okay, thank you.

Our next question will come from the line of [Tim Wosh with Robert W. Baird.]

Hi, guys, nice quarter. Just a couple questions on the segment. It looks like profitability was very good in the Auto Claims BPO business. I'm certainly exceeded our expectation. Could you just kind of comment on where margins, we should look at going forward in both the large BPO business and your Auto Claims business?

Yes, so typically, our margins off our large global BPO business are twice in quantity of our Auto Claims business. This trend has been a bit different in the last two quarters because of two reasons. One reason is that we had a problem with our mortgage business that lead to our global BPO profit coming down. Second is that our Auto Claims business was also very strong , particularly, in the last quarter we had one client where there was some revenues that were previously recognized in the quarter as well, but what we are seeing is that from quarter four onward as the mortgage situation is behind us, we trend off the global business being twice the contributor of profits compared to Auto Claims business and we expect it to , we should be looking at the contribution of global business to be double to what we get from the quarter. These two quarters are not an anomaly. We expect that to settle down but the other important part is also that the foreign exchange given the strength of the British Pound in the last two quarters played also a very big role in the profitability of the Auto Claims business

That's very helpful and then just a couple housekeeping questions. What was organic growth in the quarter?

Sorry? Overall growth in the quarter?

Yeah, organic growth.

Well, all growth was organic and we grew at about 3.2% in the quarter. This is in spite of the mortgage situation.

Okay, and then what are your currency assumptions embedded in guidance?

Yeah, the currency assumptions embedded in guidance is 39.5 rupees to a dollar, and going forward, and also from a British Pound standpoint, it is $1.95 to a British Pound.

Very good. Thanks and nice quarter.

Our next question will come from the line Tien-Tsin Huang from JPMorgan. (OPERATOR INSTRUCTIONS).

Hi, thanks, a couple questions. First, SG&A down sequentially as expected. Didn't fully catch the bad debt comment. Is the Q3 rate a clean level or base that we should grow from?

Well, just for the bad debt we have taken the bad debt charge in the second quarter. And that was treated as a part of SG&A

Right.

So out of this quarter, that metric declined in this unit as well and besides that we also had our SG&A getting more efficient too.

The Q3 sounds like it is a clean level then. Does it grow from going forward?

Sorry?

I just wondered, it sounds like then the third quarter is a clean SG&A base that we can work from going forward. Am I correct?

Yes.

Okay.

Absolutely.

Terrific, thank you. The question on travel, I know a lot of questions about volume, we cover MasterCard, sounds like volume has been holding up pretty well. There's been a lot of talk about airline consolidation, and the ongoing conversation but just maybe if you can just comment on the risk of airline consolidation in your business, my sense is that it's a pretty low risk but just wanted to confirm?

Well we see our lines of consolidation as an opportunity particularly in the U.S. Because given the four airlines that have been mentioned as merger candidates, we work with only one of those four, and we are hoping that if there are mergers that happen, the other party can learn from the wonderful experience that our client has had with us and give us more business.

Okay, do you see that as an opportunity, just in the Mac, what are you assuming in your outlook for that client?

Well, in the Mac, has been a good client. We continue to work with them and very transfer in terms of how we interact and deal with them. Our exposure to them is about between 1-1.5% of revenue. Okay, got it. Thank you.

Our next question will come from the line of Joseph Foresi with Janney Montgomery Scott. Please proceed.

Hi. I was wondering if you could just first talk about the First Magnus relationship. I know it's already sort of done and away with, but have you completely reassure signed all of the people on that relationship and can we assume that any headcount growth going forward is going to be additions to the top line?

I think the answer to your secretary question is yes. We ramped two programs with people we have with First Magnus. One was an internal redeployment program and second was on [INAUDIBLE] program. And people chose to get redeployed within the Company and some of them were either the skill set or the intent was to work somewhere else, we ran a very supportive program for them. We are done with processes. There may be a handful of people left but those are people also that we have enough opportunities for them to find rules so you should assume that we have a clean slate now and it is a more Novel business and more normal financial statement you should see next quarter.

Okay and how is your thought process on hiring changed at all given a rise in the rupee? Is there more of a focus on utilization? Our business emphasis, we have significantly lower bench than what you might experience in IT businesses that someone described in the call earlier more just in time. Clearly, even within that context, utilization can be neutral and you're also improving attrition so I think we're very focused on the root cause which is insuring that attrition comes down so that the utilization or rather the bench we have to keep to support it clients in the event of attrition is made even lower. But benches typically in our businesses don't tend to be very large.

And just looking at the British Pound, maybe you can just run through again what the effect is on the top line and when maybe we should start thinking about how it affects your present guidance.

Yes, we have now actually hedged all the way for the next 12 months. We actively hedged the British Pound but other currency also , and of course, the dollar, and we use a combination of options, so we don't expect to see any significant fluctuations due to the 4 X fluctuation on our bottom line, and that will be the same for the next year as

Okay, and just lastly, I know we've talked a lot about demand, but are you seeing an increase in business due to cost savings and if you are, can you maybe quantify and clarify and give us some idea of what metric you're looking at that would tell you that and how long it typically takes these relationships to ramp?

Well, typically, the ramp up programs under our clients are between 6 to 9 months from the time that you start your program to getting the clients to a full ramp up situation. When a client has fully ramped up, and that means they have done away with some of the costs that they have during the ramp up, they start seeing savings ranging anywhere from 30% to 50%, and therefore, if you, and that becomes more like a new steady cost structure, so from that standpoint, incur something cost in the six to nine months to get more longer term benefit is very attractive value proposition for our clients and in spite of spending that money, typically, clients start to break even anywhere between 12 and 18 months.

And any color on maybe the metric that you guys use internally to track the demand side of things and how that sort of trended? Thank you.

Well, typically, we mentioned our pipelines and look at the activity across different stages of the pipeline right from the inquiry stage to things that are near closure and on all of those metrics right now we're tracking quite well. This quarter in particular, we made a very good start and we're hoping that the momentum continues and that allows us to be feeling good about next year.

All right, thank you.

This concludes the question and answer session. I would now like to turn the presentation back over to the CEO, Neeraj Bhargava for closing remarks. Please proceed.

Thank you all for taking the time to attend this call and supporting us in the last two quarters that we put the First Magnus loss behind us and just to summarize again, our profitability is back on track, our customers continue to be very confident about our capabilities and our operational excellence, and I'm pleased to have a seasoned professional, like Alok come in as our new CFO, and overall we're very excited about our pipeline and we believe that we can grow even in a time like this. Thank you very much.

Thank you for your participation in Today's conference. This concludes your presentation. You may now disconnect. Good day.