WNS (Holdings) Ltd (WNS) 2009 Q1 法說會逐字稿

Good morning, and welcome to the WNS Holdings first-quarter conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, we will conduct a question-and-answer session and instructions for how to ask a question will follow at that time. Now I would like to turn the call over to Alan Katz, WNS's Vice President of Investor Relations. Please proceed.

Thank you. Good morning, ladies and gentlemen. And good afternoon and good evening to those of you joining us from Europe and Asia. Welcome to WNS's fiscal 2009 first-quarter conference call. With me I have Neeraj Bhargava, WNS's CEO, and Alok Misra, our Group CFO. Anup Gupta, our Group COO, will also join us for the Q&A portion of the call. By now, all of you would have seen our press release detailing our quarterly results. This release is available on the Investor Relations sections of our website, www.wnsgs.com. Following this call, we will post slides on our website summarizing the presentation. If you have any trouble finding this information, please email us at ir@wnsgs.com and we will send it to you. Today's remarks will focus on our recently announced results for the fiscal first quarter ended June 30th, 2008.

Some of the matters that we will discuss in 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 from such statements. Such risks and uncertainties include but are not limited to those factors set forth in our Form 20F which was filed with the SEC earlier this month and is also available on our website. 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 August 13th. I will now turn call over to Neeraj.

Thank you, Alan, and thank you all for joining today's call. Before I begin our prepared remarks, I would like to outline the agenda for today's call. First, I will quickly describe the key developments of our business and our financial performance in this quarter, both in the context of the broader BPO market, as well as our guidance for the year. Second, I will summarize the progress we have made on the integration of Aviva Global Services, or AGS, our most recent acquisition. Finally, I will describe our key operational achievements. After my remarks, Alok provide additional detail of our financial performance and our outlook for the remainder of fiscal 2009. He will also make brief comments of our next fiscal quarter, the first one in which we will incorporate the AGS numbers. Overall, we continue to see a strong market demand across most of industry sectors that we target in both North America and Europe.

The BPO market remains underpenetrated and we see growth opportunities within both existing clients and potential clients as we seek to rationalize our cost structures and enhance our operating performance. To that end, we made a solid start in the last quarter, resulting in $82.2 million in revenue less repair payments and $8.2 million in adjusted net income, or net income excluding share based compensation, related fringe benefit taxes, and amortization of intangible assets. We grew revenues by 18% this quarter compared with Q1 of fiscal 2008. That quarter was also the last quarter in which we had the benefit of First Magnus and Aviva Sri Lanka revenue. The progress we made in new sales, combined with the strategic acquisition of Call 24/7, has altered the (inaudible) of both revenues and driven growth in this quarter. This momentum provides with us with a strong base which we can build on in the next three quarters. Much of the sequential growth of this quarter has come from our Auto Claims business, both from new client acquisitions and additional revenue from the Call 24/7 acquisition we announced in April. We expect this business to continue to grow (inaudible) and increase its market share in the next three quarters of the fiscal year and beyond.

Based on developments in the last quarter and how we see business trends and challenges going forward, we are comfortable reaffirming the guidance that we gave on July 10th. I want to first talk about the three key challenges we are dealing with and then we will then describe the opportunities we are targeting which will enable us to double up and grow our business. The first challenge was with our banking and financial services, or BFS clients. These clients continue to be under pressure, and we currently see a limited amount of new account activity and a small level of volume production in existing BFS accounts. However, BFS is an area where our total exposure is less than 5% of revenue less repair payments. We believe that any growth or reduction will have little net impact on overall business or on our guidance. The second challenge is around the travel and leisure business. This business grew during the last quarter on a year-over-year bases and was slightly ahead of our budgeted targets. Currently, volumes are stable and we continue to develop good opportunities in our pipeline; however, we have (inaudible) factored in some volume reductions in our guidance, a scenario that is possible in today's difficult economic environment.

Finally, some of our analytic clients are controlling their discretionary spending, which puts pressure on all the services business. However, as we deal with these challenges, we also see significant growth opportunities for our overall business. First, in the last quarter, we added eight new clients and expanded 11 relationships, some key ones being the U.K. subsidiary of a global telecom company, an insurance company and an airline, as well as four deals with our Auto Claims business, all of which will contribute to revenue growth in the future. We also began the ramp up of two new significant client accounts last quarter; as a result of contracts, we closed during the last two quarters of fiscal 2008. These ramp-ups are gaining momentum and will begin delivering revenue and profit growth starting the second quarter of fiscal 2009. Furthermore, we begin two additional (inaudible) accomplishments in the current July-September quarter, which will begin contributing revenues from October onward.

We are currently in advanced discussion with 14 new growth opportunities, primarily across three key industry segments: The first being insurance; there will be growth opportunities for both our global BPO and our Auto Claims businesses. The second being utilities, where we have two market accounts and seven strong opportunities in the pipeline. And finally, in CPG and media where we serve 20 clients and have several growth opportunities. The majority of this growth we expect to realize from this segment will be in industry-specific processing and financial accounting, areas in which WNS is particularly strong. In fact, our (inaudible) business saw almost 60% growth in revenues compared with the last -- with the first quarter of last year. This momentum gives us confidence to maintain our revenue guidance while being conservative on sectors that are currently under pressure. We will also see a positive impact toward margins as a group of employees who have been in training for past two quarters become productive. Alok will go into more detail about our financial performance and guidance later on this call.

Moving on to my second topic, I am pleased to announce that we have completed the acquisition of Aviva Global Services, or AGS. We acquired the capital operations from Aviva immediately on July 11th and transferred the 24/7 Chennai BPO operations to WNS on July 21st, ahead of schedule. We completed the transfer of EXL (inaudible) BOT on the 11th August, which was also on schedule. As we discussed on our July 10th call announcing this acquisition, we see insurance as a high potential industry segment with significant opportunity for growth. In fact, two of the four ramp-ups that I mentioned earlier are insurance industry related. Our sales pipeline will see an immediate benefit from the AGS acquisition and we'll be leveraging this relationship as evidence of our strong capabilities in this industry. In terms of AGS integration, we are progressing as planned and are encouraged with what we have seen thus far in terms of the business opportunities.

As we indicated earlier, the AGS provides immediate (inaudible) change in our revenue stream with the addition of approximately [dollar hundred million] of annualized revenue for the next one to two quarters; its profit margins, even after (inaudible) payments and restructuring costs, will exceed our current margins. We expect the economics of the deal to start making a positive impact as quickly as the second quarter of this fiscal year. Now I would like to spend a few minutes talking about some of our operational achievements during the first quarter. As you are aware, the June quarter is the one where we bear the impact of annual salary increases. Compared to the last sequential quarter, our margins are down; however, with operating margins of 12% in what typically is our least profitable quarter, we are pleased with our progress in meeting our annual guidance. Alok will elaborate on impact of our policy in hedging and in (inaudible), both of which have a bearing on our bottom line. In terms of our continued focus to strengthen our management team, Steve Reynolds, who joined WNS last year, took on a new role of as Managing Director of North America, where he will focus on driving sales and revenue growth in that market. He has spent over 20 years in the BPO industry in companies including companies [ACS] and [GRX], and I'm very pleased to have Steve as part of my senior team.

Last year at this time, our attrition was 43%. I am pleased to announce that we have made significant improvements with attrition, down to approximately 37% for quarter one of fiscal 2008. This also represents a sequential improvement of one percentage point over the last quarter. My management team and I remain focused on reducing attrition, and we have successfully implemented initiatives to support this effort. Operationally, (inaudible) was 2.1 shifts per used seat and 1.7 shifts for total seats. We are (inaudible) industry leaders in this regard and remain focused on utilization. Our headcount at this quarter end was 18,053, up from 16,709 at the same time last year. Let me now hand over the call to Alok, who will take us through our financial performance in detail.

Thank you, Neeraj. Good morning, and welcome again to our first-quarter earnings call. I will now detail out our financial performance in the quarter. Revenue less repair payments grew by 17.8% to $82.2 million in the first quarter of fiscal 2009. Our gross margins, excluding share-based compensation, stood at 30.7%, SG&A costs, excluding share-based compensation and related fringe benefit taxes for the first quarter of fiscal 2009, stood at 18.9% of revenue less repair payments, approximately 80 basis points lower than the same quarter last year. First-quarter fiscal 2009 operating margins, excluding share-based compensation, related fringe benefit taxes and amortization of intangible assets, stood at 11.8% against 13% in the first quarter of the prior year. While our operational improvements were enhanced by the depreciation of the Indian rupee against both the U.S. dollar and the British pound, as we have previously discussed, we saw hedging losses from this depreciation. We have updated our hedging strategy and are currently hedged out for 100% for fiscal 2009 and approximately 30% for fiscal 2010. These hedges include a combination of options and forward contracts.

Our first quarter of fiscal 2009 adjusted net income, or net income excluding share-based compensation, related fringe benefit taxes and amortization of intangible assets, was $8.2 million compared with $10.7 million in the first quarter of fiscal 2008. As I discussed, foreign exchange had a significant negative impact in this quarter on this number. If not for the $2.5 million hedging loss that we had in the quarter, we would have seen flat adjusted net income for the quarter on a year-over-year basis. When I introduced myself on the fourth-quarter call in May, I talked about some of my team's priorities for this fiscal year. I would like to now update you on some of the progress we have made. We continued to improve our financial processes with increasing use of technology. We have begun providing both financial metric sheets and conference call slides for our quarterly earnings calls in an effort to increase disclosure to the investment community. I also talked about the increased focus on balance sheet metrics, such as improving our DSOs, tightening our working capital management and enhancing the efficiency of our capital expenditures.

We remain focused on managing our working capital and enhancing Cap Ex. We see opportunities for Cap Ex improvements in the recent acquisitions we have made, and we continue to look for ways to improve our Cap Ex spend in our core business as well. As part of this strategy, we have taken a joint venture approach in the Philippines, where we are able to use the excess capacity of our partners as needed without [the Cap Ex outlet]. Finally, as you are aware, we revised and updated our guidance for fiscal 2009 on the conference call announcing our acquisition of AGS. As we indicated on our call, we remain extremely excited about the growth opportunities in our industry, and continue to see the same trends that we saw last month. We are, therefore, reiterating our guidance from our July 10th conference call. We expect revenue less repair payments to be in the range of $425 million to $435 million for the fiscal year.

Our fiscal 2009 adjusted net income is expected to range between $46 million and $49 million. This implies an adjusted EPS of between $1.05 and $1.11 on a diluted share count of 44 million shares. As I mentioned earlier, we anticipate seeing FX losses in the year; however, these will primarily be offset by gains in the operating margins. These will also trend lower as some of our options mature. Furthermore, a recent event I would like to discuss is the decline of the British pound against the U.S. dollar. Our exposure in the current core business, excluding the AGS business, is currently hedged. We have also begun progressively hedging the AGS revenues and profits. In the light of that, we continue to maintain our overall guidance.

I would like to now spend a few minutes providing some color on the outlook for the rest of fiscal 2009. Including our Auto Claims business, we continued to see growth in our core business in the second quarter. Additional revenues from Aviva will contribute for approximately 80 days of the quarter at an annualized run rate of approximately $100 million in the second quarter. We believe that these revenues will have a profit contribution after interest at about the same rate as our existing margins. As Neeraj mentioned earlier, on both a revenue and adjusted net income basis, the addition of the Aviva revenues represents a step change in our business. We are positive about the AGS acquisition and the growth opportunities that we see in this client relationship. This concludes our prepared remarks for today. We would now like to open the call for questions

Thank you. (OPERATOR INSTRUCTIONS). And your first question will come from the line of Tim Fox from Deutsche Bank.

Hi, thank you. Good evening. My first question is around the conservatism you have built into some of your outlook. Can you just talk a little bit about the financial services segment and the fact it is less than 5% of your business at this point? But where is the risk there, if any, that there is increased softening? And do you see think light at the end of the tunnel there as far as new customer engagements, maybe later in this year, early '09.

Okay. This is Neeraj, Tim. I am going to take this one. Right now if you take a break up of the -- of BFS business, just about 1% or so comes from mortgage, and remaining 4% comes from both retail banks, as well as asset management companies. And as far as we can see, this business continues to be stable. There isn't any sign of any further weakness at this point in time. As far as our plan is concerned, there are, I would say, three or four active views now; but just looking at the pace at which things have moved on some of these situation, including the complication of some of the management changes that are happening at the end of our prospective clients, we are not factoring in any new business coming from this segment during the course of this fiscal year.

Okay, great. That's helpful. And second question is just, we have been familiar, of course, with your level of visibility as WNS standalone. Can you talk a little bit about how the AGS business being rolled into your business increases, decreases or maintains your visibility into your revenues for the year, thinking about it from the perspective of the beginning of the year and as you progress throughout the year?

Well, I think at this point in time, the AGS business, as Alok indicated, there are no surprises here. It is pretty much on track with what we've assumed in our preacquisition model. And there are some grounds to be optimistic, but, you know, there's still work to be done in terms of getting new business. So I think what I would characterize that part is it is on track. As far as the rest of the WNS business is concerned, we have strong visibility on the second and third quarter of this fiscal. I would say we are on track. As far as the fourth quarter is concerned, there is -- you know, some work to be done in terms of perhaps a few contract closures, but I that is why I think we've built enough conservatism in our guidance that -- even some of them were (inaudible) were not to happen. We feel quite comfortable with where we are. If you also assume that in some of our businesses, there could be some volume reductions with existing clients, and that has also been factored into our guidance.

Okay. Great. And lastly, you provided your utilization rates -- and again, as a combined Company next quarter, one would presume that those C utilization is going to go down a bit, given AGS's slightly lower utilization rates. Have you forecasted at this point where your overall utilization might be for the Company and can you get it back to, you know, the two-plus level some time in '09?

I think you've hit the nail on the head there. We have dramatically (inaudible) utilization is below one. On used seats -- I am sorry, on the total seats. And, therefore, also there is an additional factor here that some of these space utilizations within the existing sites, the number of square footage for feet is exceedingly high, and we have already begun making plans for increasing the number of feet in the existing infrastructure. So I think that from that perspective, this has a very positive bearing on our Cap Ex plans for the next two years. It is going to take us about 18 months to rationalize this fully and get these feet utilizations overall for the combined Company at levels we want. But I think the good news is that there is a lot of capacity to use now, which we will start fitting into our plans very, very quickly. So my sense of that is it is only by the later half of the next fiscal year where we will start getting close to our overall number. But that is also good news, because that has some bearing on our Cap Ex plan.

Understood. Okay, thank you both.

Your next question will come from the line of Joseph Foresi from Janney Montgomery Scott.

Hello. Just going back to your discussions about guidance. Just for perspective purposes, would you categorize it as conservative or realistic, or what is the best way to think about present guidance?

If -- if a lot of things go wrong, it is realistic. If a few things go on it is conservative. That is the best way I can put it right now.

So essentially it's -- there is a touch of conservatism in there?

I believe there is a touch of conservatism; but having said that, look, I think a lot of people would characterize the environment as something they understand, but the reality is that, you know, our clients are all going through a lot of turmoil. Okay? So from that perspective, what we are telling you, things we have visibility on -- you can also take the example of travel (inaudible) -- someone will have questions on that. We had actually a pretty decent April to June quarter and were ahead of budget. We also are seeing stable volumes in the current quarter. But it will be silly not to expect, you know, some volume reductions coming in the second half of this fiscal. So as far as we are concerned, we have no indication of that happening. On the contrary, things have been better than we expected, but we have built in some conservatism in those forecasts.

So the assumptions are based on what you expect to happen, not what present visibility tells you?

Exactly.

Okay. And then on the margin side, it seems like in the press release and also when we talked about seat utilization moving up, it seems like the margins are probably -- or you're expecting them to at least trend up in the back half of the year. I guess my question is, what keeps you from potentially moving up your earnings outlook? Is it the fact that there is going to be some hedging losses that are still expected?

Well, I think the hedging losses in the next two quarters are definitely going to be there, because given where we were at this time last year, everyone was expecting rupee to be more like 37 or 38. So all this advice we got from experts suggested that we should be hedging aggressively, which we did. But as we into the fourth quarter of this fiscal -- and frankly, the first quarter of next fiscal, some of those hedges begin to unwind and we start -- our new hedges are at better rates. So it's more starting a little bit from the fourth quarter -- from the fourth quarter of this fiscal and first quarter of next fiscal that you will see some of this unwinding happening. But I think the conservative limit, if there is any, on margins has largely to due with potential volume fluctuations you might see in certain businesses and, you know, we've -- we have seen some delays in terms of how rapidly (inaudible). So when you factor in the fact that there is just some friction in the environment, that's why -- it prevents things from moving at the pace it was historically doing. We feel that it has got to be conservative on some of the operational dimensions as well.

Can you give us some idea of what we can expect for losses in other income from the hedging program going forward, and maybe what's on the balance sheet?

Well, it really depends on what the spot rates work out to. You see, it's a little difficult to predict what you are FX losses are going to be; but I would expect it to be in the similar range as this quarter for the next two quarters. Then as more of our options mature, hopefully we will be able to ride some of the upside.

And then just one last question on the Philippines. You mentioned it before it's a JV. Do you have the option to buy out that JV? How is it structured, and what are your plans for headcount growth? Thanks.

Yes, hi. This is Anup here, I'll take that. Actually, we have a pretty competent (inaudible) in that JV, and we are pretty good understanding with our joint venture partner on various scenarios. I think that the point in time, it's probably a bit premature to discuss what (inaudible) options could be. So I think we (inaudible) about it.

But I think -- to add to that -- we do have the option to buy out, but there are different scenarios in terms of level of business and where we are (inaudible) different points of time at which we can do it.

Okay. Thank you.

Your next question will come from the line of Tien-Tsin Huang from J.P. Morgan.

Hi, this is David Cohen for Tien-Tsin. I have a few questions. First, would you talk a little bit about what you are seeing in the Auto Claims business? Any macro impact there, and then sort of any secular trends that we should be thinking about?

Yes, on the Auto Claims business, there are a couple of facets to it. One, in terms of what is happening in that market in terms of transactions. I think the business is actually quite stable from the macroeconomic environment, and if you understand what we might have communicated about this business previously, a lot of this is about managing commercial fleet for clients or meeting with books of business of mid-sized insurers. In general, that activity hasn't slowed down and the direction will continue to be in line with our projections there. The second aspect really which we are particularly excited about is how we start to gain market share. We are already the largest third party claims demonstrator in that area in the UK.

With the Call 24/7 acquisition, our market share increases are -- we have taken in our competitor that is often bidding against us in the deals. We also have the potential of selling some new service for service line that they were into which we were not presented. We have the opportunity of putting in our technology platform, which is far more productive than what they do with their current operations, to offer a true platform BPO service. I think all dimensions from a market share and profit (inaudible) standpoint are very exciting. We do have a lot of work to do in terms of completing the integration and ensuring that the potential we see really bears fruit; but at this time, things are looking pretty good.

Okay. And then what are you seeing in terms of pricing for the new deals that you won recently or the deals that are -- you know, that you are pursuing? Any change in the pricing landscape? Are prices flat to where they were say a year ago? Any competitors that have been more aggressive or less aggressive on pricing?

Well, I think pricing in general is still stable. We have seen pricing at similar levels to what we've seen over the last six or twelve months. There are some customers who will occasionally ask us for reductions, and, you know, sometimes those requests are not about changing the long-term contract but perhaps giving them a discount, given they're (inaudible) a top client for the next 6 months or 12 months. And in many of those cases the major discussions which we have had and we have entered in those requests is that if we give this account for a 6 or 12-month period, you want to be compensated by greater volumes on new work. So I think these are very friendly discussions right now, and overall we are not sensing any pressure on the pricing side.

Okay. And then, I don't know if there is a way to think about the margins ex-Aviva. So fiscal '09 versus fiscal '08. If you were to just sort of put Aviva to the side and offer some of the currency related swings. What is the margin trend look like? And if you could help us understand some of the moving pieces in sort of the core business, if you will?

Yes, so I think if you look at the last fiscal year, we entered at between 12% and 13% -- this was after the impact of the hit we took on First Magnus bad debt and a few other things. So we ended up at that -- in that zone. If you look at the original guidance that we have given on margins as well, we were -- I think it was about 12% as well. And this was after factoring in some of the hits that we would take on hedging, given the different ways that the rupee behaved. So I think in general if you were to put the forest hedging aside, and see a situation where we operate at, say, $1 dollar rupee number (inaudible), then I think you will see margins which are north of 12%, in the 13% to 14% range is -- and I'm talking with margins and talking about adjusted net income. It's quite realistic to assume a range like that. But a lot of it depends on and we are, like many of the people in the world, very perplexed by the level of productivity you're seeing in the market. I think the good news right now is that if we are able to see the benefit of these currency rates continuing and progressively hedging at higher rates, then there is some improvement for margin improvement in our current business in the '09, '10 fiscal.

Okay. And then just last, housekeeping question on -- in the quarter -- and I am sorry if you gave this -- but with the hedging, can you give us the mix of cash versus noncash that hit the P&L?

The total FX loss that we had was about $2.5 million. And you are -- you are asking in terms of what is the translation loss versus the actual outflow?

Yes.

Yes, so the -- the cash loss was about $2.2 million. And the option premium that we paid was about half a million, and this was offset by a revaluation gain of around $200,000.

Thank you very much.

The next question will come from the line of Ashwin Shirvaikar from Citigroup.

Hi, Neeraj, hi, Alok.

Hi.

My first question is -- and I got on a just a little bit late, so I apologize if you already mentioned this -- but why were WNS Global segments down sequentially?

Yes. Ashwin, that is a good question. We had four different pieces of impact on our WNS global number. Number one, there was some loss of BSF revenue, including the IndyMac announcement that we made earlier as well, and which everybody would have observed. Number two, we had -- you know, similar to every single year that we have operated, the April to June quarter for the travel segment tends to be seasonally weak. So we had some sequential decline in travel revenue, which was, by the way, over our budgeted level.

Okay.

And also I want to mention that in terms of our revenue for the quarter, even for global BPO, we are at our budgeted level. Overall, they are not below. The third point I want to make is we had a modest decline in Centrica. And it wasn't very significant, but it was certainly something we have seen into this quarter. And the last point is that with some of our analytic clients, particularly one client in the BPG industry, they did cut down from the discretionary spending because they were having challenges on their own internal budget approval, but now those revenues have begun to come back. I also want to -- (inaudible) some of the impact they had because of some processes that we have gone either from live on or are about to go live on, were (inaudible) last quarter and how a couple of months of delay in those conditionals will have some bearing on us. So we've booked a substantial amount of business between November and March last year. Couple of those transitions were delayed by a couple months because of factors that were beyond our control -- things happening at our clients' end. So as a consequence of that, some of the growth that we might have anticipated in that did not happen. So if you add all these factors together, we had a decline. But the good news is that some of the revenue that was reduced, particularly with our BPG client in particular, that has started to come back. Also these transitions are beginning to (inaudible) and raise revenue rate in this quarter. So in many ways, what is we are guiding everyone is that we will make up for this loss in the current July to September quarter.

And just your comment on ramps, you mentioned a couple of times this call. And many of your peers in the industry also mentioned that ramps are -- are slow, although pretty much every BPO company says that it is -- you know that their particular ramps are slow because of client-specific issues and it is not an industry issue. Could you comment on that? I mean, if everyone has client-specific issues that slow ramps, how is that not an industry issue?

I actually will contradict the others and say this is an industry issue. The real issue we have is that with our clients today, there is organizational change. There are people changes. And sometimes these budgets that have to be spent on making conditions happen are frozen or not there. So they go through their own challenges in terms of making resource available to make those conditions happen. So we've not seen this is (inaudible) situations -- we've seen this in market situations. And our remedy for dealing with this environment which has some friction here is to make sure that we have more and more clients that we final, because of our hypothesis on what is going to happen over the next 12 months also is that you will need to have business with more clients to have the same level of growth. You just have to do it that way. And therefore, we are preparing to do that, and in some ways we are pleased about this activity -- will allow us to do that, too. So I think this is a bit of an environmental issue; it is not isolated to one or two clients.

Great. And any comments on pricing?

I think my comments what I said earlier still hold. I think in general we are finding pricing to be stable compared to last year. If you recall, last year we mentioned that we were actually beginning to charge more in some of the working exchanges, which we have in terms of areas in which we were winning work which was more highly priced, were also positive. So I am still -- Anup, add it if there's something that I am missing here, but overall we're not sensing any difficulties in the pricing area.

Yes. No, that is correct. If you haven't seen the -- a lot of transaction activity in the market yet. So we feel pretty good about all the pricing (inaudible).

Okay. And pretty good improvement on the DSO. So is that -- do you have a DSO target? And sort of related question to that, a free cash flow target for the year?

Well, yes, we do have our own internal DSO targets, and actually our DSOs have declined this quarter mainly because of the addition of the Call 24/7 business where their DSOs are much higher. And that -- because of the change in the mix, our DSOs have actually declined or worsened this quarter. But overall, July onward you've seen the improvement in our collections, and we do have internal DSO targets.

Yes, I think that's what --

I was talking about DSO on the (inaudible) payments.

I think in general for the business we had excluding Call 24/7, our DSOs have improved quite a bit. I just want to give a little (inaudible) -- a loss credit for the aggressive in this environment in claiming the money. With Call 24/7, we have inherited a situation where the DSOs tend to be quite high; and therefore, if you do a weighted average of both, our DSOs have actually worsened. We are expecting to clean up that up in the next one two quarters.

So in the metrics that you have provided, there's a line for DSO and a line for DSO under Revenue Less Repair Payments. So you're saying I should look at the DSO line, not the other line?

That's right.

That's right.

All right, okay, thank you.

Your next question will come from the line of Mark Marostica from Piper Jaffray.

Yes, thank you. You mentioned that two of the four ramp-ups that you had were in the insurance area. Where were the other two coming from?

Right, so in terms of -- we mentioned four ramp-ups. Two have begun and two are about to begin. The one is in the telecom industry. And the fourth one -- there's one insurance, second insurance. Sorry. (Inaudible). Sorry, we made a mistake -- it's not two, it's three in the insurance area.

Okay, got it.

And one in the telecom area.

Okay, great. And then relative to your guidance, are you anticipating any new ramp-ups this year for the remainder of the year from travel?

We have got one new airline client in the travel area which we are ramping up. There are a few smaller relations of [work] from existing clients. We have five active deals in the pipeline, but we have not included this in the 14 deals we have mentioned which are in advanced stages, because in general the travel pipeline has been moving slower than some of our other segments, but there are other five other active deals in the pipeline.

Right. You also mention that you expect a positive impact on margins, I believe, from trainees becoming productive. And I got dropped off the call, so you may have answered this already, but could you give us a sense for how many trainees are, I guess, coming off the bench and will be productive and what specifically the margin impact of that will be?

Yes. I think on this one, we will try to get back with you on the right numbers, but we are looking at (inaudible) -- we have -- we were looking at about -- close to about somewhere in the range of 300 to 500 people that were on the bench that are coming off.

Okay. And then one last housekeeping item. Cap Ex you mentioned is a focus. What should we be modeling for fiscal '09 for Cap Ex?

On the last call, remember I had mentioned that we were looking at about $32 million of Cap Ex for this year. We are now looking at between $29 million and $30 million.

Okay. Thank you. I will turn it over.

(OPERATOR INSTRUCTIONS). Your next question will come from the line of David Koning from Robert W. Baird.

Yes. Hey guys, and thanks for filing that 10Q last night. A lot of good detail in there. First of all, you know, when we went through the 10Q and looked at some of the acquisition contribution, it looks like organic growth for the quarter on a year-over-year basis was in the ballpark of 3%. Now it sounds like you are expecting a little better going forward, but just want to understand some of the source of your confidence that it is going to get better kind of from here?

Well, I think the source of confidence is actually quite straightforward. We have these -- in the case of -- we mentioned two ramp-ups happening this quarter. One process got ramped up in June itself, towards the second half of June; and the ramp-up gets completed in October, but it's well under way, so we are continuing to fill up orders and we feel pretty good about that. The second one began in July. And, again, you know, based on the fact that we are already one month into it, we feel quite good about the situation. So as far as this quarter is concerned, the two ramp-ups there are clearly going to drive up the activity in terms of the (inaudible) Aviva business. We are quite comfortable with where we are.

Okay. Good. And secondly, just to understand, did you say that Aviva would contribute to 80 of the 90 or so days in Q2, meaning 22, 23 million or so in Q2?

Well, it is -- what we said -- that is right -- we said that given the fact that we inherited the revenue from July 11, that's roughly 80 or 90 days. Also keep in mind that as far as the profit contribution is concerned, that will be less than that because in the time that 24/7 and [EXL] continue to own those operations, the margins that they were earning would have been -- would also be going to them for that period. So beyond July 11th, you will have Call 24/7 getting the margin for ten extra days and EXL getting the margin for one additional month. So therefore, from a margin contribution, it is even less than 80 out of 90 days. And on your question on the quantifiable revenue -- (inaudible), do we have an answer?

Okay.

Just hold on for a second.

We can follow up.

I think, David, we will call you up and tell you about that.

Okay. And then just finally, in the Auto Claims business, you know, you had been running kind of 40%, 50% operating margins. This quarter was 22 or 23, something in that ballpark. Is Call 24/7 a lower margin business? About half of the revenue this quarter came from that acquisition. Maybe you can just kind of talk about what the core margins were compared to Call 24/7, or just talk a little bit about why the margins were a little bit lower.

Well, I think that the answer is correct. The Call 24/7 is a lower margin business at this point in time, but all the attractive things we saw are (inaudible) and the fact that it's in the same markets. There are a lot of synergies that we see there, and over time we expect to make margin improvements which should be available during the fourth of this year.

Okay, great, Thank you.

Your next question will come from the line of Ed Caso from Wachovia.

Hi, good morning. This is Christopher in for Ed Caso. I wanted to get a better sense on the pipeline. How many of the four are for analytics business and how many are for the core BPO offering?

Of the four we are mentioning of the current ramp-ups, all of them are core BPO offerings.

Okay. Great.

And in the pipeline -- in the 14 pipeline, we mentioned there are a couple of them in the analytics business.

Helpful. Okay. And then also what are your expectations for the tax rate in FY '09?

The same as we have guided earlier, in the range of around 17% to 17.5%.

Great, thank you.

Also while we are on this -- David, just to answer the question you asked earlier. Your number of about 22, what you said, is in the right range.

That does conclude today's question and answer section. I would now like to turn the call back over to Neeraj for closing comments.

Thank you, and thank you all for joining us today. Just to summarize very quickly: This quarter, we made a (inaudible) start of the fiscal year. Our AGS acquisition is on track; and as we mentioned earlier, this is a step change in our business and our economics. We see good opportunities for growth and we feel also well positioned to have the growth opportunities that we see offset the challenges that we face. And in summary, at this point in time we feel very comfortable in maintaining our guidance. Thank you again.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.