WNS (Holdings) Ltd (WNS) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2010 WNS Holdings Ltd. Earnings Conference Call. My name is Heather and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer question towards the end of today's conference. (Operator Instructions).

As a reminder, this conference is being recorded for replay purposes. Now I will turn the presentation over to your host for today's conference Mr. Alan Katz, VP 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 2010 first-quarter earnings call. With me today I have Neeraj Bhargava, WNS's group CEO; Alok Misra, our group CFO, and Anup Gupta, our group COO.

By now, all of you would have seen our press release detailing our quarterly results. This release is available on the Investor Relations section of our Website, www.WNS.com.

Following this call we will post slides on our Website summarizing the presentation. If you have any trouble finding this information please e-mail us at ir@WNSGS.com and we will e-mail it to you.

Today's remarks will focus on our recently announced fiscal -- on recently announced results for the fiscal first quarter ended June 30, 2009. Some of the matters that we will discuss on the 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 set forth in our Form 20-S which was filed with the SEC in May of 2009 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 earlier today. Some of the non-GAAP measures, we will discuss are defined as follows -- net revenues are defined as revenues less repair payments and adjusted net income is defined as net income excluding amortization of intangible assets, share-based compensation, related fringe benefit taxes and minority interest. These terms will be used throughout the call.

I will now turn the call over to Neeraj.

Thank you, Alan, and thank you all for joining today's call. Before I begin our prepared remarks, I will quickly outline the agenda. I will start by providing a brief update on WNS's financial performance during the past quarter. I will then comment on our guidance for fiscal 2010.

Finally I will talk about some recent client additions and expansions and the current state of the market. Following my remarks, Anup will discuss our pipeline and some of our key operational achievements during the quarter. Anup will then provide additional details on our financial performance, our balance sheet and our outlook for fiscal 2010.

We will then take your questions.

To start, we had a very strong quarter and our team continued to show solid execution. In terms of our financial performance this quarter, we grew our net revenues by 19.8% to $98.5 million compared to the first quarter of fiscal 2009. At the same time, our adjusted net income grew by 53% to $12.6 million.

Let me elaborate on our revenues.

Sequentially we grew about 3.1%. Since last year, the British pound has come down from an average rate of 1.97 in Q1 fiscal 2009 to 1.55 in the past quarter. However the British pound was on average up 7.8% compared with Q4 fiscal 2009.

On a constant currency basis our sequential growth was 1.1%. On the revenue front, first of all, our sales are very much on track. We are also pleased to see some revenue tailwinds come from positive movement in the British pound. Given the volatility of the currency market and the fact that only one quarter has passed, we believe that it is prudent not to revise our revenue guidance at this time.

I would say that given the current operating environment and where the pound is, if the sales and currency environment continue to hold at the current level we would be well-positioned to beat our revenue guidance.

On the profit front, we still expect to see adjusted net income in the range of $50 million to $52 million for the fiscal year ended March 2010. This represents a 7 to 12% growth rate compared to fiscal 2009. We have a good shot at reaching the top end of this range, given our recent performance and the current operating environment. When we gave this A&I guidance as it was based on an Indian rupee to US dollar exchange rate of 49 to 50.

The rupee has strengthened since our last earnings call and is now trading closer to 48. Despite this movement, we still believe that we can give the top end of this range.

As we demonstrated in the results which came out this morning, our operating business is strong. We are on track to seek organic constant currency growth this year.

Moving on to the current state of the market, I will start by discussing the sales pipeline. We are experiencing an uptick in sales in the US and the situation is looking better than it did three to six months ago. This was reflected in our bookings and the development of our pipeline in this past quarter.

While we are also seeing a fair amount of activity in Europe and the UK, these geographies are several months behind the US in terms of economic cycles with a sales cycle that is historically longer. So we expect to see [global] pickup in this region only in the back half of this fiscal year.

Addressing some of the challenges that we highlighted on the last earnings call in our travel and insurance businesses, the first-quarter performance was modestly better than before (inaudible). We are cautiously optimistic that if the current trends hold, the effects will not be as severe as we initially forecast.

In our [autoclaves] business, volumes have come down slightly, but some of the slowing is seasonal in nature. We also see some softness in our research and analytics, or R&A business, although some early state sales interest from new logos is strengthening.

Some of our clients have slowed their spending in this area. Currently our R&A only accounts are approximately 9% of our business. These pressures were offset last quarter by new client ramp ups and expansions with current clients that we signed in the last fiscal year. Specifically we experienced rapid growth in our [F&A] business. We also had expansions at the large utilities company and in the insurance industry.

Overall, we had a very strong quarter and grew even in this difficult environment. I remain bullish about our current pipeline, particularly in the US, and the opportunities that I see in the market. Our renewal rates with existing clients give us a solid base of recurring revenues to build upon.

As we sign new logos in an improving business environment, WNS will be well-positioned to take advantage of the growth trajectory.

I would now turn the call over to Anup to talk about our pipeline and performance in more detail.

Thank you, Neeraj. Let me start by talking about our sales pipeline. We continued to grow our roster of top tier clients in the last quarter when we added eight new clients and expanded four relationships. Including clients in the CPG financial services and insurance sectors.

I also want to highlight in particular our success in the CPG industry where we were [rewriting] global [F&A] services from multiple delivery locations across the globe for two new clients. These wins give credence to our strategy of global expansion.

I also want to highlight two major successes in the financial services sector where we are seeing some early signs of resurgence. We will be delivering a large customer care program for a financial services company and have also won a major expansion with an existing client for whom we will be ramping up in the Philippines.

On the last call, we spoke about renewals of nine of our top 10 clients. I'm pleased to announce that the we have finalized the [10] renewals this last quarter as well with the leading consumables and audible.

Now all of our top 10 clients, which accounted for about 61% of our net revenues this quarter, are renewed until the end of 2010 calendar year and contracts with clients are presenting to be 8% of our net revenues go out until at least 2012.

Our pipeline continues to remain very active. As you see from the number of [new sites] this quarter we are experiencing good traction in terms of sales closures. In terms of Aviva business our operating performance is on target. We have seen some pressure on business volumes, but at the same time are successfully expanding the relationship.

We launched two pilots with Aviva in areas where we had not had relationships, both of which have growth potential. We also went into the second stage of the ramp-up for Aviva's Irish Hibernian subsidiary -- sorry for Aviva's Irish subsidiary, Hibernia. We are on schedule and should complete the second stage by end of this calendar year, and will begin the third stage of migration in the next calendar year.

We also see opportunities for growth with Aviva in new geographies and functions.

In terms of pricing for this quarter, we continue to see a rational pricing environment. We have seen a few distinct clients ask for temporary price reductions to offset their reduced revenues. In most cases in an effort to maintain strong relationships, we have agreed to short-term price reductions often in exchange for expanded scope.

This will help us establish a foothold in additional areas of our client organizations which will bode well for us as volumes pick up.

I will now turn to our margins for this quarter. Our gross margins before share-based compensation continued to remain very strong this quarter at over 38%. This compares to 35% in the fourth quarter of last year. This increase was mainly due to the strong cost management and impact of the movement of the British pound.

Operating margins, excluding share-based compensation, amortization and [related] fringe benefit taxes were also very strong at over 30%. This is slightly higher than the operating margin in the fourth quarter of last year. Again the increase was a result of deficiencies that we realized from our acquisitions and the [sending] of the British pound.

Our margins this quarter demonstrate our emphasis on tight operational management. I'm very pleased with the progress that we made on this front over the last year. Since we completed the Aviva acquisition, we have maintained operating margins of between 18 and 21%. This is impressive particularly in this environment.

SG&A costs, excluding share-based compensation and related fringe benefit taxes, for the first quarter of fiscal 2010 were 18.5% of net revenue compared with 15.6% in the fourth quarter of last fiscal and 18.9% in the same quarter last year. This reflects our strategy to continue investing in our business, specifically in our sales and marketing functions.

Our operations outside India continue to grow and we now have close to a total of 1600 employees in our overseas locations. The Philippines is the fastest growing of all geographies where we now have nearly 700 employees.

This past quarter, we also made progress on further expansion of our global footprint. We recently set up a Latin America subsidiary and are in final stages of negotiation with a Prudential client to take over a small Latin American shared services center.

We expect to have an update on this negotiation in the next several months. We see this expansion as an important relation to our global footprint, which we have defined as an important aspect of our growth strategy.

I will now discuss some highlights of our operating metrics for last quarter. First, our attrition number this quarter was 23%. This compared with 22% from the last quarter and 37% from Q1 of fiscal 2009. I'm very proud of our continued progress on this front.

As we indicated in our last call, rate inflation remains benign and in terms of headcount we ended up -- ended the quarter at 21,494 up from 21,356 in the previous quarter.

In summary, given the trajectory of our sales closures in the last quarter, the way our operations continue to improve we see growth and position and positive bottom-line impact in the next fiscal year.

Let me now turn over the call to Alok who will take us through our financial performance in detail.

As you have already heard on this call, our financial performance this quarter was strong. Our net revenues grew by 19.8% to $98.5 million this quarter. Sequentially our revenue growth was 3.1% while our growth on an organic constant currency basis compared with the same quarter last year was 10.5%.

Gross margins, excluding share-based compensation, were 38.6%, an increase of 800 basis points compared to the same quarter last year. This increase was mainly due to the cost management measures and synergies that we have realized through our acquisitions as well as the positive impact of FX.

First quarter fiscal 2010 operating margins excluding share-based compensation, related fringe benefit taxes, and amortization of intangible assets were 20.2% compared with 11.8% in the first quarter of the prior year. This significant improvement was due to the weakening of the Indian rupee as well as the operational efficiencies that we achieved over the past year as I had mentioned earlier.

Our first quarter fiscal 2010 adjusted net income was $12.6 million, compared with $8.2 million in the first quarter of fiscal 2009 -- a growth of over 50%. Although the Indian rupee strengthened this past quarter, it was still weaker as compared to Q1 of fiscal 2009. This continued to benefit the cost side of our business.

The softness against the US dollar helps to offset some of the hedging losses that we have from the rupee hedges that we had taken in fiscal 2008 and the early part of fiscal 2009. Our hedging losses were reduced again this past quarter and will continue to come down through the rest of the fiscal.

We are currently fully hedged for the rest of this fiscal year and are hedged over 50% into fiscal 2011.

We continue to employ a strategy of using both options and forwards. We have been asked a number of times about our hedging program and would like to take this opportunity to clarify how we manage this.

We maintain hedges primarily on the British pound to the rupee and the US dollar to the rupee as this is a way that cash flows in our business. We have also put in place some small hedges to mitigate our exposure to the euro and also have interest rate swaps on our debt, which is US dollar-denominated.

The total FX losses for the quarter were $3.3 million. We had approximately $2.6 million of hedging losses, including the [cost] of options, and a $700,000 loss arising from the revaluation of nonfunctional currency balances. We continue to focus on our balance sheet and have access to capital and have demonstrated our comfort with our liquidity position by prepaying on our debt twice in the past few months.

I will now review the metrics that we have highlighted in our last few earnings calls.

As of 30th June, our cash balance was $50.3 million. We generated $7.4 million in cash this quarter from operating activities. We paid both bonuses, we paid out both bonuses for the prior fiscal year as also our annual insurance premium in this quarter which results in lower cash generation.. Notably our cash generation in the month of April was $6.5 million.

Our current monthly operating cash flow remains [about] $6 million. This is approximately the monthly cash generation that we anticipate going forward. We also anticipate that our free cash flow will be approximately $5 million per month prior to debt repayment moving forward.

During this quarter, we generated a total free cash of $7.2 million. As we have previously discussed our business is somewhat lumpy by quarter and we see cash flows as skewed slightly towards the back half of the year.

Working capital management remains a point of focus for us. We maintain what we believe are industrial-leading DSO levels this [first] quarter at 48 days. Some payments slipped into the first week of July, but we believe our DSOs will continue to be around the 45 day mark moving forward.

We have paid all of our quarterly interest costs and continue to reduce our leverage through our cash flow generation. We remain within all of our debt covenants.

I am pleased that at the end of the first year after acquiring AGS, we have paid $30 million, i.e., 50% more on our loan than we were obligated to pay. In April and July, we pre-paid $5 million each of our debt and we made our initial scheduled payment of $20 million in July.

In terms of working capital, we have a line of credit available to provide us with additional flexibility and protection. We also have some short-term debt outstanding in the Call 24/7 business that we acquired last year to provide working capital.

Part of this loan for which the debt is at a very favorable rate has been paid off. And once again, we are comfortable with our balance sheet and liquidity profile.

In terms of CapEx, we continue to see opportunities from the integration of recent acquisitions to lower our capital expenditure. Our quarterly CapEx was $3.8 million and our annual CapEx is expected to be approximately $15 million during fiscal 2010 as we had indicated earlier.

Finally, as we discussed we are reiterating our revenue and adjusted net income guidance. We are pleased to see some revenue tailwinds coming from positive movement in the British pound. However, given the volatility in the currency markets that we have seen in the past and the fact that only one quarter has passed, we believe that it was prudent not to revise our revenue guidance at this time. I will say that, given the operating environment and where the pound is, as the sales and currency environments continue to hold to their current levels we would be well-positioned to beat our revenue guidance.

Again our guidance of $50 million to $52 million implies an adjusted EPS of between $1.14 and $1.18 on a diluted checkout of approximately 44 million shares.

In summary we had a very strong quarter. While we naturally see some challenges in some segments of our business we remain focused on growing our client business. As we indicated, we expect to continue to see our profitability improve even further into the back half of fiscal 2010 as a result of our operating focus, the contracts we have signed recently, and the positive trend in the currency environments.

This concludes our prepared remarks for today and we would now like to open the call for questions. Over to the operator.

(Operator Instructions). Dave Koning with Baird.

Hello. Great job. I guess, first of all, just wondering a little bit on the revenue guidance. It looks like even -- I guess if you just held constant here from the Q1 revenue level and have that level of revenue throughout the year, you would beat the top end of the revenue guidance range.

I know there is a little currency component you are trying to bake a little conservatism on the currency site, but is there any reason that core revenue would increase throughout the year? Maybe you could talk a little bit about how you see on a constant currency basis, how you see revenue play out through the year?

There are two -- this is Neeraj -- there are two factors playing in here. One obviously where what the British pound to dollar rates would be. And I think we are fortunate to see things moving in the right direction for us, but given the 10 to 20% volatility you've seen, even on a quarterly basis, we don't want to -- at the end of only one quarter -- kind of make a claim about where our revenue could be. Because things could very easily, as we have seen in the past, move in the other direction.

So that is one factor. I think the second factor really is that as we talk to our clients constantly about their forecast for the volumes of their -- volumes they see, there was a fair bit of conservatism that they built around their forecast for the year. And correspondingly we built that conservatism in our guidance which we gave in May this year.

We are seeing things modestly better than where they are. You know particularly in the travel in the US we have seen some trends which are better than what both our clients and we anticipated. But at the same time, I think that where we are taking it is that one quarter doesn't make a year.

And in general I think if this trend doesn't continue, then I think there's a good shot we have of our beating our revenue guidance numbers. But I think you will appreciate that in this market it's important to be conservative there.

So we are considering the same conservatism in the volume forecast. And if things continue to look better than what they are forecasted, then I think we can take another look at the guidance next quarter.

Great and then, just a couple of quick ones. One is that it looks like in your metrics presentation that only two clients now are over $20 million of revenue run rate. Maybe you could address that.

And then the other income line showed us I think a $4 million loss. Maybe you could talk just a little bit about what that was.

Yes, the income line I will take that first. That's really what I explained earlier. The large chunk of that is the FX gain loss that goes into -- that last $3.3 million was the FX gain loss. $2.6 million is the hedging loss and the option premium cost and about $700,000 is the restatement or reevaluation loss, rising out of restatement of the repeat balances -- sorry. The dollar balances in rupee balance sheets. Essentially because the rupee moved from $0.51 to the $1 as of the 31st March to about $0.48 to the dollar as expected in June.

So that was the main shift.

On the number of clients, it's mainly again FX because these are clients where we own money in pounds and because of FX sometimes there is a movement between one bucket and another. These are two clients in the UK where it has moved.

But it doesn't sound like there's any -- on the course like if there was X currency, they maybe wouldn't have dropped out of that $20 million plus funding?

No no. We have not seen any dramatic movements in the level of volumes with those clients.

Great. Thank you.

Joseph Foresi with Janney Montgomery Scott.

I wonder if you could talk a little bit about the Aviva disclosures in the press release today. It looks like the volume commitment has gone up a little bit and then is going to go back down and then, what is the purpose of the GBP payment?

And maybe, you also talked about volumes being down in the beginning of your comments. Maybe you could talk about that as well.

I will answer the first one, the first part and Alok will take the second part of this. Overall we have seen some movement of work from other [windows] to us and as a consequence of that Aviva has agreed to up the minimum revenue of our (inaudible). So that is positive news for us.

In parallel there was also a settlement of some old [liabilities] which I think Alok will update you on.

We had a one-year period within which we had to finish all the net asset values segments if you remember. This originally when we took this over, there were some parts that Aviva itself was running, and a couple of parts that other people were running.

So around -- at the anniversary of the deal which happened the first week of July, we've actually sectored all those transactions and closed it. And net net, we are to pay another GBP3.2 million, because of some of the old liabilities that were still lying in the books.

Just help me reconcile the comments about volumes coming down versus you gaining more business from competitors.

Is that an Aviva-specific question or a general question?

I guess you could make it general if you like, but I was speaking just to Aviva.

I think we highlighted that earlier this year that our insurance lines which include Aviva, we were seeing some trending down of volumes there and that was baked into our guidance. I think what we are highlighting today is that while it comes over to the month, we didn't -- first of all we did modestly better on volumes than what was forecast. So that is point number one.

Secondly, we are still fairly conservative in our guidance about how volumes for the rest of the year will go on the existing business we have. And our guidance includes favorite of conservatism on that as well. We hope we do better, but at this point in time, we think it prudent to be driven by the forecast that we get from our clients.

I think the last point, really, is that we also saw some success in getting some islands with a couple of new entities that we don't do work with at Aviva and I think that's a fairly important step for us to grow our relationship. Overall we believe that as one year has passed, we are meeting if not beating the numbers that we had in our business case. The relationship continues to be strong and we are continuing to plug away and get more from the relationship.

So just real quickly, so it was a trade-off and maybe an increase in business for a decrease in volume on the Aviva contract. Are you getting more business but doing less work? Or -- I'm just trying to understand why volumes would be going down if you're getting more business.

Well, I think there's -- it is a big company and there're different parts of the business. So when we've talked about volumes, we've intentionally, historically about our insurance business talked about the life insurance area. This new work is coming in on other area.

So I think the volumes are driven more by what is happening in their business amongst what's happening in the economic environment and automation and all those kinds of situations. This is a new activity that's come to us largely from their initiative [loss], centralizing more work around centers of excellence that we created for them.

And it's a good reflection of the fact that we are delivering value to them. And they trust us to do more business with them.

I'm going to sneak one more in. I wonder if you could talk about the pricing environment and, particularly, the competitors in IT services and then also maybe what you're seeing in the travel vertical. Thanks.

I can take that. In terms of pricing, as I said in my prepared remarks, overall, I would say it continues to be (inaudible) so there are situations when there is some irrational behavior. But I think -- I wouldn't -- I think I wouldn't call it is a trend at the moment. As far as travel is concerned as Neeraj mentioned, we actually, we had -- and we talked about this when we gave out guidance last quarter, we had factored in declines.

We are actually seeing -- we are not seeing declines to the same degree that we had factored in. So we are I would say cautiously optimistic about that business as it stands today.

And then just travel?

Yes. I'm talking about travel specifically.

Great. Thanks.

Tim Fox with Deutsche Bank.

Thank you. First question was around -- for Alok, around the comment you made around organic growth. Did you say that -- or constant currency organic growth was up 10.5% year-over-year? Did I get that right?

That's right.

And being that fairly strong performance there, what is actually baked into your guidance for the full year if we think of it from an organic and constant currency basis?

Really if you see it in the last quarter where year-over-year you won't have the effect of Aviva. So same quarter last year. For the remaining three quarters if the year-on-year comparison is purely organic, there is no inorganic element in that.

And we I think indicated earlier itself that for the year we had looked at this 7 to 8% constant currency organic growth.

Got it. So that remains the same.

Yes.

And we've heard from some of your competitors that your sales cycles are still fairly extended and maybe some of the larger transformational deals are getting pushed out from a ramp-up perspective. I wonder if you could give your perspective on what you're seeing out there from a sales cycle and client ramp-up perspective?

First of all, on the same cycle we are seeing US speeding up a little bit where I think there are more transactions and the cycle times are actually becoming closer to what they were pre-recession. As far as the UK and Europe are concerned, it is more closer to where the US was last year where things are slow, things are not closing fast enough. Perhaps the effect of the summer and maybe things will pick up in September, but clearly we don't see much change there and things are decidedly slow there.

I think in terms of ramp-up times, we are now beginning to see things return more to normal activity. I think the more recent bookings we have had, the ramp-ups are proceeding.

Anup, you want to add some color to that?

No, I think in general it's fair to say we definitely are not seeing the environment [deteriorate] or last quarter to this quarter. As Neeraj said maybe some more early signs that it is stabilizing and I wouldn't call it an uptick at the moment. But definitely the base of the deterioriation has slowed down for sure.

And lastly, just following up on the positive commentary around the Americas. You mentioned travel seems to be a bit better than expectations. Any other verticals that you are getting either new logos or increased penetration with existing customers in the Americas?

Yes. In the consumer-centric industries we hired -- we talk about eight new client wins of which we highlighted four or rather eight new client wins and two, four of the new are for expansions. Of which we highlighted four of them as [important].

The two client wins we've had in what we call consumer-centric industries largely CPG have been in particular very good for us. That sector we talked consistently over the last few quarters as being one which was sort of a late entry into the offshore outsourcing area, but now has picked up a lot of momentum.

And we see ourselves very well placed particularly for F&A work in those areas.

I think the other sector which we heard some positive commentary on this from some IP services company as well is financial services where we've had one new win, which was significant in our context. And I think also one important expansion with an existing client.

Thank you. Nice execution.

Brandon Dobell with William Blair.

Wonder if you could talk a little bit about the Latin American opportunity from two perspectives? One, do you think it's -- you are better positioned to serve the US market from Latin America? Or is this going to be domestic business and other particular verticals that you think in Latin America are going to make more sense for you than others would?

If you look at what we have been saying over the last, I would say, four or six quarters, clearly expanding our global footprint is a driver of our growth trajectory. And what we have been -- we have been embarked on a fairly disciplined program of doing this at the right pace and making appropriate and mentioned doing that. So you saw us going to the Philippines and Romania.

We are at a point now where we feel we are ready to add a Latin American presence. We have been looking at what is the best way to doing that and doing our own research on which geographies make sense for us.

So where we are right now is talking to a client to pick up a small facility from them. And if that works out it will give us a good base to build on.

Our focus at this point of time will be to use this to serve the Americas. I would say again we view it as a global delivery location from that standpoint and then based on what by planet trajectory we see from there we are going to look at how we build that location and other locations in Latin America geography.

Then turning to attrition for a second. I would say a nice year-on-year improvement there. Two questions related to attrition. First do those two metrics -- how does it look if you take out Aviva from those 23 versus 37% last year.

Is there any color you can provide on what the margin benefit has been from the improvement in the attrition? Either from a gross margin perspective or operating margin perspective. Thanks.

So I think we haven't seen any specific trends in Aviva per se as far as attrition is concerned. So I think on our [bridge] we have seen a decline across the business and again keep in mind that even last year we had some portion of Aviva with us. And that was embedded into our numbers last year.

So I would say overall it has been across-the-board improvement.

As far as the impact -- direct impact on margins is concerned, again, that is a very complicated area to model as you would know and there are many many kind of puts and takes there. So hard that I think hard for us to put a specific number at what that means.

Fair enough. Thanks a lot.

[Gene Effingswang] with JPMorgan.

I was just wondering if there is a way to somewhat size for us the new wins that you had over the last several quarters, what that might contribute to the top line in fiscal '10?

I think in our business -- typically, the business you win in the course of that financial year has very little bearing on the top line of that year. I mean what we have historically always guided to is March, which is the end of the previous fiscal year, we have 87 to 88 or sometimes as high as even 90% visibility on our revenue for the coming year.

So it's only about 10 to 12% that you get from new wins or expansions. So but the real story is that what you would do this year in terms of new wins and expansion, that has a very good bearing on how your growth looks in the subsequent years.

So as far as we are concerned, I think what is happening right now, what happened in the April and June quarter and what will happen through I guess, in October this year, is that all the wins we will have will especially help us round up any gaps we have in our third and fourth quarter in terms of our revenue. But they are largely going to contribute to growth in the future.

So we have had a fairly good track record over the last three, four quarters especially of announcing two or three important wins every quarter. And I think largely things have gone quite well there.

There has been one situation. We want to highlight that where we announced a win I think a quarter or two ago. F&A worked with a telecom company that has got postponed because of some internal issues there. So we are hoping that that can come back on track.

But other than that I think the wins we've got are now placing us very well for growth next year.

Is it safe to say that the contribution to fiscal '11 from new wins would be greater than what you have seen in fiscal '10?

It's a mixed bag. If we look out, I think we appreciate that you need to take everything into contexts and model how next year looks like, but there are many things that contribute to that. Existing business volumes is one part and the new wins is the other part.

All we can say right now is that the new wins are pretty much on track and I would say that the US in particular is looking good. In terms of both what we want as well as what we see in the pipeline.

As far as the way we see our business is concerned that if the volumes with existing clients had been minimum stable or perhaps with an uptick in the economy start to improve, then I think our next year starts to look good. But you could also have a situation where they start to offset the benefits of the new wins.

So it's too early to say that but I think we can provide more color on that next quarter.

Okay. Then I guess the new signings are they -- is it biased one way in terms of FTE versus transaction-based?

Most of the new work is on SP. That is normally many of our contracts start like that. And over a period of time we can work them into a unit pricing model.

Yes I also want to highlight one very important thing which is that all the more important wins that we've talked about have a non-Indian component to them as well.

Which is -- I mean two of them have business going to Romania. Two of them have business going to the Philippines and this is a very, very important development from our perspective. We talk about our global footprint. We talk about our global strategy, our global operations strategy.

And I think the fact that we've got that going and we are now demonstrating that by booking clients that are typical multi-geography nature, I think, is a good testimony to the fact that we've got that strategy well in place.

Good. Last one for me. Auto claims business, how did that perform in the quarter relative to plan? Anything unusual there?

No so we had indicated earlier that this growth that is coming in that business is coming more what we call the [prioritized] sites. So that intrinsically has a little lower margin. So we had indicated in our last call that especially in this quarter and to an extent in the rest of the fiscal as well, we will see some model reduction in margins in that business.

But the rest of the business the margins would go up so that would compensate. I think the growth is there. There is some seasonality always. I tend to get it earlier. The volume of work in that business follows more weather patterns than economic patterns. So that effect is always there over quarters, but I think pretty much in terms of the overall business which is on track.

[Joseph Bathey] with Jefferies.

Thank you and good results here. I was wondering if we could drill down and get into the organic growth in the quarter. Obviously I think there are probably some puts and/or takes here. It would be helpful to get a little bit more color on, for example, revenue growth coming from new contract ramps and I guess that would offset that by potential volume declines in current contracts and the other would be in price concessions.

So maybe how many points of organic growth we saw in contract ramps and maybe what the headwinds were on volume and price in terms of points of revenue? Thanks.

I think if you compare it to year on year, you will have a modest single-digit decline on volume in terms of volume of activity with existing clients. So that is on the negative side.

Then in terms of new ramps as well as what has happened on pricing, I think good news was that we announced in the later part of last year that some of our contract renewals were on even -- if not slightly better -- prices.

But I think that on the pricing part, we tend sort of even. I think the offset that is coming in terms of what we are achieving in terms of offsetting the volume declines are largely coming from both the impact of new wins as well as expansion of existing clients.

For a look at the fact that year on year, our growth was organic. Constant currency growth was about 10, 10 (multiple speakers) percent. Yes. What you should assume is that there would be some (inaudible) percentage decline in volumes from existing clients. On existing work. And that has been made up by sort of or perhaps even split between new client activity as well as growth from existing clients.

That's helpful. Then I know you mentioned that some of the price concessions that you had with customers were maybe more short-term in nature. Maybe some more commentary on when maybe those price concessions could reverse and what that might mean for the business model?

Most of these price concessions will terminate by the end of this fiscal for us. Based on the discussions we have had. So starting next fiscal -- actually let me put some more color on that.

So for many of them, they will go back -- come back to us for end of next fiscal. For some of them, they will go a little bit longer, maybe six to nine months longer than (inaudible) once March next year starts.

So also let me retrace something we talked about earlier as well, in terms of our strategy on any discussions on pricing. First of all, we are seeing some feedback on clients -- existing that they want lower prices, but at the same time I would not highlight that as a top worry for us.

It's a small irritant, but it is not something that is going to be a bigger issue in our business today.

Second thing really is that the way we are approaching these discussions is that if there is a client that has been a longtime supporter of WNS, we do have some discussion on concessions which is done through largely through a (inaudible) letter for a short period of time to help them with their budgets, but in return for that what we seek is new work. Hopefully with the view that the new work from additional profits 10 point can offset the profit loss that we have from price reductions with existing work.

So the whole team have done a very good job in terms of how they negotiated some of these things. We do believe that these specials will continue at least for a quarter or two in terms of clients seeking that. But at the same time, we see that this is not as brutal as what we've heard the people in the IT services talk about where you are seeing very dramatic requests from clients.

These are requests from a few clients and I think we do believe that we have the relationship there to ward off situations that we have here.

Thank you very much.

Bryan Keane with Credit Suisse.

I just want to get an idea of how to model headcount growth. It looks like headcount was up a little bit slightly. I know you got obviously some new deals announced. Should headcount growth pickup and then an update on key build out as well would be great.

I will comment on headcount. Anup will talk about [seats]. I think as the way we see it out there are different factors there that are coming there. We -- first of all there is new work for which we are adding headcount. Secondly, there are contracts that are on unit transaction price where it is in our benefit to actually reduce headcount and perform the same transactions with a lower number of people.

We were with the last one (inaudible) and one and a half years in particular being quite aggressive on managing collectivity with those sort of contracts and actually want to raise the ante even more there. So from that standpoint, I think the fact that we are seeing modest uptick in our headcount over the last couple of quarters is a good sign that, overall, the business at least is beginning to show or is showing decent Q on Q growth in the current environment as far as the revenue is concerned.

We do believe we don't see any dramatic increases in the headcount over the next few quarters. But we do see that the twin effects of both our new business as well as existing clients, we expect modest growth in headcount as we go forward.

Yes and I think in terms of capacity so, clearly, as we have been talking to you about some of the benefits of Aviva, one of the big synergies effects was to rationalize capacity which we have been doing. And where we are right now is we have realized many of those phase 1 synergy benefits that I would call it and from now on you are going to look to do some modest capacity additions in the coming quarters.

And while we do that, we will also continue to work on improving the utilization of new assets as well. So we want you to expect to see some capacity addition during the rest of the year, based on the volume projections we have.

If you look at our CapEx now it is about 4% of revenue which is significantly lower than what it used to be for us -- closer to 8%. And that is a direct impact of the fact that we have been able to capture the synergy from the Aviva situation and able to rationalize our capacity expansion.

So we have still to be able to -- we have got favorable seats now that we have got to fill if you look at our utilization ratios. And that suggests that perhaps even for next year our actual CapEx is not going to increase very dramatically.

That's helpful. Then, Alok, you talked about the release that you expected the FX losses will start to roll off during the year. Is there any way to help us model what we should expect for that? Is it bigger next quarter and then it rolls by the fourth quarter, we don't see much at all or how we think about the hedges?

I think you will find reduction each quarter on the (inaudible) loss. The only part that is unpredictable is the restatement (inaudible) are lost because that depends purely on the rate on the date of the balance sheet. And that is what makes it a little unpredictable.

So that is why we separate that out when we talk about it. So I think this quarter we had a $2.6 million FX loss. I would expect that to keep coming down. I think by about 20% each quarter.

Okay and then just last one for me, it looks like STPI will be extended for another year. Is there any impact for you guys in your tax rate when we look at fiscal year 11?

So fiscal year 11, yes, there's obviously will be extension. Our taxes would come down significantly. But if you look at it this year we have indicated to the $2.5 million of tax and I think we have always said that we had rather look at it as an absolute amount because it's a net effect of the taxes in different jurisdictions, and how much profit we make in each of those. If you look at $2 million to $2.5 million tax in FY '10, in FY '11 I would expect our tax to be in the range of $3 million to $3.5 million.

All right. Thank you.

Ashwin Shirvaikar with Citigroup.

Good morning. I wanted to start off with a clarification on the short-term price reduction. Did you say that the tax deductions would be in effect until the end of [Canada] 2009 or 10? Because --

I said many of them will roll off starting by the end of this fiscal which is March 31 for 2010. There are a couple more which will go beyond that.

Okay, because you call it short-term so I thought maybe 2009.

One question I had going back to that tax, your comments, Alok, on tax. Is there any impact from the (inaudible) of the MIT?

There is only a cash flow impact of that. So we would end up paying about $1.7 million to $1.8 million more of cash in terms of every [motor] I make so that is the free cash flow for the year. We will get affected by that much, but I'm sure we can buck up our collections to our offset that.

So I think there is the $5 million free cash generation for a month. I don't know what our base issue would not get affected by it.

Is there a timing on that or does it not matter in the context of the year?

It is spread into four equal installments in the year. So it is payable every quarter. The last month of -- of course we paid on the 15th of June. We pay again 15th September, 15th December and 15th March.

Got it. And question just broadly -- as your balance sheet becomes less leveraged, does the prospect for new M&A increase? Or do you have an active pipeline? Are you looking? Can you comment on that?

I think at the moment we are focused on bringing down leverage. So I wouldn't say we are out there in the jungle hunting, but if something comes our way which is, I would say makes sense for us, we are opportunistic about it. That is the way I would summarize it.

I would -- the right expectation is that at least through the end of this calendar year we would be still very focused on generating cash, pay back our debts, presumably getting this -- the debt goes up to about 100 before we start really looking very actively. Alok's comments on being opportunistic are right.

But at this point in time we are not -- we have to be very focused on driving value from the acquisitions we made last year and -- as opposed to looking at new deals.

And Neeraj, any update on the status of your transition, timing or anything like that?

So and the rest of everyone else on the call situations like this the Board is working very actively on getting a new person on board. We don't have closure yet but in the meantime I think everyone should take on fact (technical difficulty).

Alok and the rest of the senior team is doing a splendid job in terms of delivering the numbers and as a founder I am deeply committed to making sure that whatever the transition happens, it happens well and so very good to see someone new come onboard, but in the meantime you should all be rest assured that the Company is in good hands.

My last question was on risk management, generally speaking. And the reason I bring that up is because you mentioned that the two verticals that are doing especially well -- travel and consumer. Now obviously you started out in the travel vertical and know it well, but travel and consumer, obviously, are among the worst affected in terms of current trends. And so I just wanted to get some comfort that from a risk management perspective, as you sign new contracts in these areas those are -- what that will be -- what are some of the things you do to make sure that these contracts have the right terms and conditions and so on?

And the reason I ask is because as I think back to early 2007 at that time you guys were obviously signing a lot of mortgage pricing contract. And obviously things have changed, but in that context if you could comment?

I understand, sure. So, Ashwin, one clarification is that the new sign ups we announced have been in consumer goods and financial choices, not necessarily in travels. But in general we have a fairly disciplined process of when we intend to renew a contract. What are the terms and conditions under which we would take it? And I think they're obviously there's a lot of focus on what liabilities and [realities] that contract comes up with.

So we have certain guidelines we adhere to and make sure that it is kind of discussed to leave with a client. And I would say we've gotten better at it as we have been doing it for a long period now.

Obviously, I think going back to the first reference you made, that was more I would say a question of a client going bankrupt. I think for a long time now, our risk [exploit] on these contracts is fairly well-managed and our legal team, our local team and our operating teams have done a great job at working in close partnership with our clients to get us to the right balance.

Actually what I would also add -- this is Neeraj -- is that I would say two other important aspects of our recent client sign-ups. First of all, almost all the sign-ups we have are brand name Fortune 500, Fortune 1000 companies. They are very well-known companies in good financial standing. And therefore we feel very good about the new roster of clients we are developing, which gives us a lot of upside as the economy recovers for us to do diversified business with them and grow.

I think the second part is that over the last 18 or 24 months, I think Alok has strengthened the risk management team considerably. The level of work we are doing on an enterprise wide risk management on a very wide variety of issues including looking at if there are any credit issues about clients and situations that are developing.

There are clients we have actually disengaged with, because we felt uncomfortable about their financial position. So I think there's a lot of rigor that is in this process right now on just ensuring that we work with people in good standing. I think that is something that you should take some comfort in.

Thank you.

Ed Caso with Wells Fargo Securities.

This is [Chris Wicklund] for Ed Caso.

Could you clarify some comments earlier in regards to volume expectations? Have the volume expectations and minimum commitments from your clients across the portfolio -- have they increased since you provided initial guidance in May?

I think the two answers to that, Ed, one is as far as volume expectations are concerned, we are -- most of our clients are sticking to the forecast, conservative forecast they made which we -- based on which we developed our guidance. And that is also the reason we want to be conservative for the rest of the year because the clients have been conservative.

I think the other important point is that if you look at actual business between April and June this year, we have done modestly better than what the forecasts were. Which gives us, as Anup worded very correctly, some reasons for cautious optimism.

So I think it's still early days in terms of this year for us as well as what our clients are going through. And hopefully a recovering economy and we will be able to offer more color on this next quarter. But so far the signs are good and we feel good about where we are today.

Thanks. And then also with regards to the Latin American opportunity, I know it's kind of stay tuned right now, but would there be any asset sales involved?

Yes. There might be, but again I want to reiterate the phrase I used, it is going to be small. So one should not expect any material impact from it for this fiscal.

Great. Thank you.

[Archana Nadig] with Morgan Stanley.

Congratulations. Now I have two questions. First question is I was [thinking] in these compositions some IT builds, considering a lot of IT builds, I'm seeing (inaudible) space. And my second question is, what has your win rate been in this quarter? Also if you could just give some color on the last two quarters?

Yes, thanks. In terms of our level of competition, I think things are pretty much the same. There are some large global companies, global outsources that are in (inaudible) place in the market. There are some IT service companies who had successful BPO diversification. And there are some pure play players.

But as far as we are concerned, I think there are -- our clients appreciate our [domain] expertise. They appreciate the fact that we are very experienced there in the market. Competition varies by deal, but in general I think we feel the level of competition is pretty much the same and we continue to hold our own in the market.

As far as win rates are concerned, I think in the deals we pursue actively, we end up winning depending on the sector somewhere between 25 and 50% of the deals.

And this is (inaudible)?

We have been on a very good streak as far as the US is concerned in the recent past. I am hoping that the trend but it is too early to call it that way. But I think I'm very pleased with the progress our sales team is making in both the geographies and hopefully we will be able to improve on this going forward.

Thanks.

Ladies and gentlemen, this concludes today's presentation. The replay of this information will be available in the press release and the Webcast is available on the Company Website. Thank you very much for your participation and have a good day.