WNS (Holdings) Ltd (WNS) 2010 Q3 法說會逐字稿

Good morning, and welcome to the WNS Holdings fiscal 2010 third-quarter earnings 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, sir.

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 third-quarter earnings call.

With me today, I have Neeraj Bhargava, our 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. The 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@WNS.com, and we will e-mail it to you.

Today's remarks will focus on our recently announced results for the fiscal third quarter ended December 31, 2009. Some of the matters that we will discuss on this call are forward-looking, and you should keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, those factors set forth in our Form 20-F, which was filed with the SEC in May 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 today. Some of these non-GAAP measures we will discuss are defined as follows -- net revenues are defined as revenues less repair payments; and adjusted net income, or ANI, is defined as net income excluding amortization of intangible assets, share-based compensation, related fringe benefit taxes and non-controlling interest. These terms will be used throughout the call.

I will now turn the call over to Neeraj.

Thank you, Alan. I will quickly outline the agenda of our prepared remarks. I will start by providing a brief update on WNS's performance during the past quarter. Then, I'll talk about industry trends as well as the long-term outlook for both WNS and the global BPO market. Following my remarks, Anup will discuss our results, our client wins and expansion, as well as the current state of our pipeline. Alok will then provide additional details on our financial performance and our balance sheet. He will also provide details on our guidance. Afterwards, we will take your questions. After the Q&A session, I will make some closing remarks.

To start, while we had challenges in the past quarter, some of which we flagged on our last earnings call, our longer-term growth prospects look strong, and we have reaffirmed that we will beat the top end of our original guidance for the fiscal 2010 on both net revenue and ANI.

In terms of our overall financial performance, we saw a decline in our net revenue of 2.8% to $96.8 million compared to the third quarter of fiscal 2009. Sequentially, net revenues declined by 3.4%. This sequential decline was a result of two factors.

First, as predicted earlier, we faced seasonal volume decline in our travel business, which had been factored into our guidance. Second, our insurance business has experienced some pressure due to global economic conditions, and the second-year pricing of the Aviva Global Services, or ADS contracts; volumes, primarily the life insurance industry, were down this quarter.

Our adjusted net income, or ANI, declined 13.5% compared with the third quarter of fiscal 2009 to $11.1 million. Sequentially, ANI declined by 18.7%. This decline was partially driven by the $1 million charge for the unwinding of interest-rate swaps, which resulted from the $15 million prepayment on our term loan. This cost accounted for 54% of the decline on a year-on-year basis and 37% of the decline on a sequential basis. We will more than make up for this charge through interest savings over the life of the loan.

The reduction in ANI also resulted from the volume pressures in our travel and insurance business that I mentioned previously and the cost to ramp up 13 new accounts that we won in the first half of the fiscal year. At the same time, the rupee has appreciated on a year-on-year and quarter-on-quarter basis, impacting our cost line.

As our new accounts ramp, we expect to return to a growth trajectory on our top- and bottom-line numbers in the fourth quarter. We expect net revenues of more than $390 million for the fiscal year end. And adjusted net income, excluding any costs from the unwinding of swaps, is expected to be more than $52 million for the fiscal year.

Looking at some BPO industry trends, 65% of industry advisors polled by EquaTerra in its most recent poll survey believe that market and economic conditions were driving more output. As the global economy recovers, clients will look for ways to cut off by expanding their BPO programs. We can continue to expect this trend. As businesses become more competitive by adopting outsourcing, we expect their peers to follow suit, increasing the size of the market.

On the past few earnings calls, we had talked about new client growth offsetting volume declines from existing clients. These volume declines are not going down while our new client additions are continuing.

Our base pipeline is building steadily, and recent opportunities have been larger in scale, scope, and complexity. This strength in our pipeline positions us well for growth.

I will now turn the call over to Anup to give you specifics about our client wins and sales pipeline and also our financial and operating performance.

Thank you. Last quarter's top-line results were primarily driven by fluctuations in our clients' business volumes and the second-year ADS pricing. Despite this, we have reaffirmed that we will beat our original net revenue guidance for the year.

On our November earnings call, we had advised that our top-line results in the third quarter will be lower than the fiscal second quarter. However, we have also indicated that the net revenue in the fiscal fourth quarter would improve.

Our adjusted net income declined in the third to $11.1 million. Again, this decline was due to the charge from unwinding of interest-rate swaps, the volume fluctuations we mentioned earlier and investments we made to ramp up our new clients. While these costs put pressure on our bottom line in the past quarter, the net result should be a strong improvement in both profitability and cash flow.

Our sales teams continue to close new deals and expand our pipeline this quarter, positioning us well for growth.

As we discussed, sales activity has continued to pick up both in the US and the UK. In the US, the pipeline remains strong, and we can see opportunities in the travel, insurance, healthcare, retail, and logistics industries. Last quarter, we discussed seeing early signs of activity in the Europe and UK. We expect to see closures in these geographies in the next few quarters.

In the travel segment, we experienced normal seasonal dip this past quarter, which we had anticipated based on our client forecasts. Our travel clients are now forecasting stability in their businesses for the fiscal fourth quarter and beyond.

In our insurance businesses, our clients experienced volume declines specifically in their life and [E&T] businesses. We are now seeing an uptick in this segment. We also engaged in some significant but early-stage discussions in the sector that could close in the next fiscal year. As we mentioned earlier, from the fourth quarter, the minimum commitment from Aviva will also increase.

We grew our last 12 clients in the last quarter, adding two new clients while expanding four relationships. We will be delivering an affinity program for our global technology company and we will start working with a major Asian airline. We also expanded our relationships in the insurance, travel, and financial services industries. We renewed four contracts, including one with a top five global client, Sabre Holdings.

Globalization has been a clinical element of building our pipeline. More and more of our opportunities are multi-geographic in nature. To support our globalization, we've also established a sales office in Singapore and are adding clients in the Asia Pacific region.

From an operational perspective, we now have over 2,100 employees in our non-India locations. The Philippines remains the fastest growing of all our geographies, where we now have over 1,100 employees. We opened a new occasion in the Philippines last week and have commitments from clients for their additional capacity.

We established our Latin American subsidiary and now have a facility in Costa Rica. As we announced this past quarter, we are serving Chiquita Brands out of this center and are in discussions with several clients about moving new work into this location.

I will now turn to our margins for this quarter. Our gross margins before share-based compensation remained strong this quarter at 37.1%. This was down compared to gross margin of 38% in the last quarter. The decline was a result of the cost of ramping up new clients and the strengthening rupee.

Our G&A costs, excluding share-based compensation and related fringe benefit taxes for the third quarter of fiscal 2010 were 18.8% of net revenues, up slightly compared with the second quarter of this fiscal. We continue to invest in the business, particularly in our sales teams.

Operating margins excluding share-based compensation, amortization, and related fringe benefit taxes, were also heavy this quarter at 18.3%. This was 90 basis points lower than the operating margin in the second quarter of this year due to reasons I mentioned earlier.

In terms of headcount, we ended the quarter at 21,392, up from 21,243 in the previous quarter. The employment market in India has strengthened compared with the end of last fiscal year. In Asia, signs are that rate inflation is expected to be higher than last year. We will provide greater detail on this on the April call.

In summary, our operational metrics remain healthy this quarter. Our sales efforts and 100% success rate in renewals has given us a solid base on which to build upon. Let me now hand over the call to Alok, who will take us through our financial performance in detail.

Thank you, Anup. As we have already discussed on this call, our net revenues were $96.8 million this quarter, a decline of 2.8% compared to the same quarter last year, due primarily to the headwinds that we faced in our travel and insurance segments.

Gross margins, excluding share-based compensation, were 37.1%, a decrease of 90 basis points compared to the same quarter last year. This decrease was a result of the second year of Aviva pricing and the strengthening of the rupee. I would like to remind you that the Aviva pricing will increase again next year.

Third-quarter fiscal 2010 operating margins, excluding share-based compensation, related fringe benefit taxes and amortization of intangible assets, were 18.3% compared with 21.8% in the third quarter of the prior year. This decline was primarily due to the reasons I just mentioned and the costs associated with the unwinding of swaps from the prepayment of the loan.

Adjusted net income was $11.1 million compared with $12.9 million in the third quarter of fiscal 2009, a decline of 13.5%. Again, the $1 million charge from the unwinding of the interest-rate swaps due to the prepayment on our term loan lead to 54% of this decline. We have already begun realizing the benefits from this prepayment in the form of low interest expenses effective this quarter. Our fiscal fourth-quarter ANI numbers will reflect this.

As a percentage of net revenues, ANI also declined to 11.5% this quarter, down from 12.9% in the same quarter last year. Again, we should see an uptick in ANI as a percentage of net revenues in the next quarter.

In terms of hedges, we are fully hedged for the rest of the fiscal year. We're hedged over 85% into fiscal 2011 and about 40% for fiscal 2012, using both options and forwards.

Total FX losses for the quarter were $2.3 million. Recently, the rupee and the pound have been volatile, with the pound weakening and the rupee strengthening. During this past quarter, the hedging gains and losses were flat as a result of gains around pre-hedges and marginal losses on our bound hedges, balancing each other out. We experienced losses in our P&L primarily from the revaluation of nonfunctional currency balances. We also realized some small gains on the mark to market of ineffective hedges.

In terms of our balance sheet, we have access to capital and are generating a good amount of cash. You will recall that last year we had made a commitment to you to continuously improve the speed and quality of information that we publish on a quarterly basis. With that said, we have expanded the contents of our disclosures based on feedback received from all of you. And we believe that we are industry-leading in this respect.

Tracking this quarter, we have also further reduced the reporting timeline by 15 days and intend to regularly report the results within three weeks of the quarter end going forward.

Let me now outline some of the other key performance indicators. As of 31 December 2009, our cash balance was approximately $60 million. We generated over $15 million in cash this quarter from operating activities. During this quarter, we generated a total free cash of $12.7 million. Year to date we have generated operating cash of $46.7 million and free cash of $37.8 million.

As I have previously discussed, quarterly cash flows may fluctuate depending on the business environment and seasonality. Regardless of these quarterly fluctuations, I am confident that we will exceed our target of $5 million of free cash flow per month on an average for the current fiscal year.

We maintained our track record of efficient working capital management this past quarter, improving our DSO levels further to 38 days. We have improved our DSO levels significantly over the past year, and while we believe that this number could increase slightly from the current levels, our DSOs should be less than 45 days on a sustained basis.

We have paid all of our quarterly interest costs and are reducing our leverage through our cash flow generation. On 11 January, we paid our second scheduled installment of the loan of $20 million and a third re-payment of $15 million. With this, we have paid down $65 million of our loan against the scheduled payment of $40 million. We are very comfortable that we will make our next scheduled installment payment of $20 million, which is due in July 2010.

We will also look at pre-paying our debt when the opportunity presents itself. We are well within all of our debt covenants and now have a very comfortable debt-to-EBITDA ratio.

Our year-to-date CapEx is $8.9 million, and we will be well within our $15 million target during this fiscal year.

Finally, we reiterated that we will cross $390 million in net revenues for the fiscal year, the top end of our original guidance range. We are also comfortable that we will beat the top end of our ANI guidance of $52 million, after adjusting for any interest-rate swap costs. This implies an adjusted EPS of at least $1.16 on a diluted share count of approximately 44.8 million shares. Again, as the fourth quarter builds, we expect to see volume increases from existing clients and the positive impact from the ramp-ups of new businesses we won in the first half of the year.

With that, I will turn the call back to Neeraj for some final remarks prior to the Q&A session.

Thank you, Alok. As we announced this morning, I will be stepping down as the CEO of WNS on January 31. Therefore, this is my last earnings call. I'm proud to have been a part of building WNS into what it is today, and I have enjoyed having the opportunity to work with each and every one of you.

Since this is the last time I will be talking to you in this capacity, let me talk about WNS's growth in more personal terms. I have been involved with WNS for the past 8.5 years, the last six years as a CEO. We have made enormous strides during this time. Our Company has grown by a factor of nearly 25 from approximately $15 million in net revenue in 2002 and is on track [going forward] $390 million in net revenues this year.

Over the past eight years, we have also grown through a number of acquisitions. In July 2008, we took on our largest one to date, AGS. This acquisition has been a great success, achieving better than expected profitability despite an unprecedented decline of the British pound since the time of the deal. Our team has achieved synergies well beyond our initial plan, and we still see more room for leverage in this business. As we pay down the debt associated with AGS, you should see additional contributions on WNS's bottom line.

Finally, we have become a truly global company with clients, service centers, in continental Europe, Latin America, the Philippines, and throughout India and with sales offices in North America, the UK, and Singapore.

On a more personal note, the last eight years have been the best of my professional life. Delivering good business results help, but I've also had a fantastic time working with truly world-class team, and I thank them and you for all the support. We will now take your questions.

(Operator Instructions). Dave Koning, Baird.

Thanks for all the color on the quarter. I guess my first question is, year over year, the BPO business is down a little bit. I think that's the first time on a constant currency basis that it's been down. And you did a nice job explaining the Aviva repricing and some volume issues with the both insurance and travel sectors. I'm just wondering, how soon can we expect year-over-year improvement again on a constant currency basis? Is that something by next year would you fully expect to get growth back again?

Yes, I think -- David, hi, Anup here. I think that would be accurate. If you look at our remarks, what we mentioned was we have many clients in late stage of ramp-up. That's also a good proxy of value that our net headcount increased we had despite volumes being low. So, yes, we do expect constant currency growth to return back by next year.

Good. And secondly, the Aviva pricing adjustment next year, do you have a number for how much that will help revenue growth? Is that something that might help by a couple percent to next year?

It's Alok here. The pricing increases in July. And we haven't given out a precise number yet, obviously because that's, competitive reasons, still information. But it's in the sort of mid-single digits.

Okay, mid single-digit benefit to just the Aviva contract or to the whole Company?

Just to the Aviva contract.

Okay. Oh, that's great. And then my final question is the trends within the auto claims business have been difficult for the last few quarters. But it feels like we're getting close to anniversary-ing the toughest trends. So is that something that by early fiscal '11, that that could be back in growth mode as well? Or do you expect that to continue to decline?

Well, fingers crossed, we hope to see some growth from this quarter itself. So what tends to happen is that it does get affected by weather a bit because if you have very serious snow like we had in the UK, this is a 100% UK-based business. So when you have very high snowfall, people drive less, so they have less accidents. It's a natural sort of correlation. But we hope to see growth coming back in that business from this quarter itself and then into next quarter as well.

Great. Well, thanks, and nice job signing all the new clients.

Joseph Foresi, Janney.

I wonder if you guys could talk a little bit about any maybe surprises that you might have had in the quarter. Was there anything that the order of magnitude was either a little bit stronger or a little bit less than what you were expecting heading into the quarter?

Not really. I think we had a (multiple speakers) of declines. Seasonal trends are pretty natural in our business, and we also flagged this up in our last call. So I would say it was on expected lines; no major surprises from that standpoint.

And you talked about 13 wins in the quarter or 13 new clients. Can you just give us some idea of where -- how that client breaks down by vertical?

So I think, Joseph, this is Neeraj. We talked about 13 wins in the first half of this fiscal year, which are getting transitioned now. So what Anup was trying to explain when he mentioned 13 wins was that all the wins we had all the way through September, they were mostly being transitioned in the October to December quarter, which will lead to revenue enhancement in the January to March quarter. So that is point one. Point two, we had two new wins in the current quarter, and Anup talked about that a little bit as well.

But just going back to the 13 wins, can you maybe just talk about the two new wins, what vertical are those in? And what were the 13 other wins in? Can we just get a refresher?

If you look at our wins this year, they've been -- finance and accounting has continued to be a growth engine for the business. And many of these views have been global views. As we said we have had them in the retail, in the CPG area. We've had some wins in the travel side, in the logistics area. So it's been across a mix of industries and a couple in the financial services area as well.

And then just lastly, maybe you can characterize what the pipeline looks like right now heading into next year versus prior years? And any effect on that particular pipeline from what's been going on in the economy?

Well, again, if I look at this fiscal, as you were just describing, we've had about $15 million total year to date across, in that portfolio of businesses we've had. That's obviously much higher than what we have seen during the previous period.

And what we are seeing right now is the early stage of the pipeline is healthy. We are counting more consistent opportunities, which, again, many of them are global in nature in the US. We also have seen some early-stage opportunities in the UK and Europe. But that is still -- I would say it's still probably a couple of quarters away from real closure. So in general, definitely better than where we were similar time last year. And we feel positive about the coming year from that standpoint.

Joe, I'll also add the point here that we mentioned this in the remarks as well, that we've had a decent track record of wins in the early part of this year. The challenge was always that the volumes of existing clients were under pressure. And one of the things we're beginning to notice is that those volumes actually had the minimum stabilizing. And that allows us to get some confidence about growth next year.

And I imagine the volumes -- are you talking about volumes stabilizing within travel or within travel and insurance?

It's definitely in travel. If you look at the most common [preview bottoms] from our slides and also if you look at some industry stats, there is definitely I think people are not anticipating declines; at least most of the clients have told us that they are not anticipating large declines going forward. So I think that's the good news.

I think on insurance as well, we see some signs that we are seeing stabilization and maybe a little bit of [pickup] as well. But early days yet.

Okay. Thank you.

The insurance pipelines also look stronger.

Thank you.

Ed Caso, Wells Fargo Securities.

Hi, good morning. This is Chris Bookman for Ed. Can you comment on the headcount expectations for the Philippines versus the India? And it looks like Philippines is growing whereas India is not. And maybe profitability of work that's going to the Philippines -- what type of work is going there? If you could just expand on that, please.

So in terms of the kind of work, Philippines, again, we are doing pretty much a comprehensive portfolio. There is a high proportion of customer service center activities being done there. But we also have back office programs, and we are also beginning -- just in the late stages of initiating on a [clinic] program as well. So it is a complete suite from that standpoint.

In terms of growth, we've seen some new accounts, especially in the customer service area, begin in the Philippines. But we've also seen growth in the India-based businesses, [Sezkaline and Chennai]. One of the reasons why you don't see that naturally reflect in our world account numbers is because the seasonal volume declines are -- some of the volume declines we've seen over the quarter and the year have had an impact on headcounts in terms of businesses as well. So it's netted out on extended growth we've seen. In terms of profitability, Alok, do you want to take that, in terms of growing Philippines and India?

So I think we have less SG&A leverage in Philippines right now. But because we only have about 1100 people there. But, overall, from a pricing perspective, the profitability is pretty -- it's the same between India and Philippines. There's no real difference.

Hi, it's Ed here. So I had a question for Neeraj. And thank you for the time you spent and all the best going forward.

TPI, the advisor mentioned that the F&A and HR deals were -- there were less of them. But more on the global scale, in that in addition, IBM said that they were seeing deals that are smaller, sort of below $5 million. So it sounds like though the big deals aren't happening. The sort of end $5 million and below kind of F&A deals continue. And I was wondering if that actually is helping WNS here sort of in your core market? Or has it brought the bigger global players into your market space?

So that's a great question and a couple of points on that. First of all, we have mentioned several times in the past that lack of global footprint was a deficiency which we were correcting. And the fact that we have now got global operations that allows us to bid for many deals we were excluded from before is a very big plus we have in F&A deals in particular. And we've done now quite a few implementations or even new bids that are multi-geography. So that's point number one.

Point number two is I think you are spot on. The observation on deals being between $2 million and $5 million a year is pretty much the case. People are -- a lot more companies trying to outsource F&A, but they want to start small. They want to test and learn. And in many ways, that plays to our strengths because if you look at a lot of history we have in F&A, we typically close deals that are $2 million or $3 million in size to start with and then we fund the accounts and grow them.

So that trend is clearly in our favor. And given our track record of doing multiple deals of that nature and now us being increasingly global, we certainly feel very bullish about our prospects in that market.

Thank you.

Robert Riggs, William Blair.

Thanks for taking the question. You guys have done a great job in terms of free cash generation and paying down the debt, so that's really improved your financial flexibility of late. And I just wanted to first touch on if you have an increasing willingness to take a look at acquisitions again, and the types of deals that you are looking at?

So short answer to that question is yes. We have the cash. Where there are opportunities for inorganic growth, we will definitely look at them. And if that opportunity presents itself, we would have the cash that we are generating to make those acquisitions. In terms of which space we're looking at it, I would rather not play that card now, [for] I have an inbox full of proposals.

Okay, great. And then you did mention that the deal scope and the complexity of deals is increasing. But with the conversations you are having with clients in the pipeline now, any other change in the types of contracts that are looking for? Are people looking to get deals started more quickly and ramp up more quickly?

No, I think the main aspect is what we discussed, which is the global nature of the deals and with that footprint, how it is playing to our strengths now with the core F&A knowledge we always had. So I think that's still needed, and we would like to help it.

Okay, thanks.

Tim Fox.

Thank you. One question on renewals. You obviously had some renewal activity in this past quarter. I'm just wondering the trajectory there on pricing and volumes. How has that shaped up? And secondarily, on renewals, looking out into the calendar year, are there any larger renewals that you expect to be coming in this year?

I think the largest one we've done, which was with Sabre, and we've been talking with for a while. And I think one thing which you would have noted is that we've had 100% success with renewals, which speaks volumes about the kind of value we add to our clients' businesses and the quality of relationships we have. So what a compliment that we've been doing that.

In terms of pricing, I would say no expected trend there. There have been some which have seen -- there have been some which have seen some marginal declines because those contracts were done in a different day and age. And the nature of the world has changed and our [retail] work has changed as well. Some others, there has been a marginal uptick. So overall, no major -- I don't think there's anything out of call over there from that standpoint.

And as you look out into 2010, any major renewals in the pipeline?

If we look at our top clients, I think there's just one renewal that is due towards the end of the calendar year. But that's not -- it's not even in the top 10.

Got it. Okay. And then any commentary around potential expansion within Aviva? You've talked about other geographies, maybe some of the other operations. How are those conversations progressing at this point? And do you expect any incremental business in the next fiscal year?

Well, we've completed 18 months of the -- from the date of the AGS acquisition; relationship is very strong. We weathered the possibly the most difficult period in the economy and the pressure that it put on the insurance industry in general and come out looking pretty good.

So where we are right now is that there clearly is opportunity to expand in other geographies in Europe and the United States, expand the lines of business we work with them; possibly look at some other subsidiaries of Aviva where we have less exposure to. So we are quite optimistic in terms of both the nature of deals, as well as our potential to close some of them in the coming year.

Great. Thank you and good luck in the future, Neeraj.

Thank you very much.

Bryan Keane, Credit Suisse.

I got on the call a little bit late, but just wanted to get an idea of some of the operating metrics on revenue per seat. How should we think about that? And then seat utilization -- I know that's dropped a little bit. Does that ramp back up as we get some of these contracts ramping?

Are you asking from the data or are you asking for directionally which way is it headed?

Yes, the outlook. I have the data.

Yes, so revenue per employee will definitely increase. If you've seen net-net this quarter, our revenue was down a bit, but headcount was up, so naturally that will bring down the average. We should see that move up in the fourth quarter.

Seat utilization -- I think we've consistently maintained our seat utilization that's probably best in industry. And as we get -- start ramping up into some of our newer facilities, you will see that seat utilization also improve.

Okay. And then just looking at a longer-term outlook, do you guys have any thoughts on how fast you can grow organically in coming out of the recession in the longer term?

I guess when we come out with our guidance in April, that question will get answered.

Okay. No hints, huh?

It's not easy to sucker me into an answer I don't want to give.

Okay. And then just last question, Neeraj, I know you are leaving here on January 31. I guess I'm just a little surprised that there hasn't been an announcement of the new CEO. Has the new CEO been already chosen? And what's the reason for the hold-off of the announcement?

Well, the Board is working very hard to identify good candidates, working with a very, very small short list. And we're very hopeful that there will be an outcome very soon, but at this point of time, we cannot talk about it. I also want to mention that I'm still available as an advisor. And Anup; Alok; Eric Herr, our new Chairman; Ramesh, our Vice Chairman; and the rest of the team -- I think the Company is in very good hands in the interim period till we have the announcement.

Okay. Thanks a lot.

Ashwin Shirvaikar, Citi.

Thanks. Let me start out by saying all the best in your future endeavors. I hope our paths cross again.

Thanks.

My first question is, can you talk about sort of quantifying maybe the annualized revenue impact of contracts you already signed in the last 12 months?

Sorry, Ashwin, you're looking at saying what percentage of our revenues are contracted in terms of all the sign-ups and renewals, or annualized impact of new clients that we [contracted]?

Just the new clients that you have signed. If you annualize the revenue impact, what kind of an annualized (multiple speakers)?

We haven't really given out that level of detail before in terms of the realized impact of individual clients or clients signing. But like, again, I said, we will give you our guidance in April for next year. We've already stated this year we will do more than what we had started out saying we would do. So when we do that, the answer will be pretty obvious in terms of how much we are generating.

Okay.

I will add one more thing here. Neeraj -- that we've also indicated that the fourth-quarter revenue will be higher based on the fact that we're reporting our guidance. So that's another point, Alok.

And in terms of deal sizes, I think two questions ago we indicated the kind of deal sizes that we are doing. And that's also as much a market phenomenon as what's happening specifically to us. So that should give you an idea of the size of these deals.

Okay. That certainly helps. One more sort of quantification question. On the volume declines that you have seen -- and clearly you managed to practically offset most of those volume declines. But is it possible to sort of quantify the impact of those? And as those volumes -- [they grow], like you said over the next 12 months, is that confidence sort of based on what clients are telling you, or is it just basically a hope?

The volume declines and the fluctuations we see sometimes is purely seasonal. So the third quarter, I think over the last two or three months, we have been telling everybody about this like all the -- the October to December period is typically a seasonal low, both for the insurance, especially auto claims and the travel industries.

In terms of where we see the uptick coming from, coming from the client forecasts. Our clients give us forecasts of volumes so that we can plan our staffing accordingly. So this is not just hope; this is based on what clients are telling us. It's based on what we are seeing over the last three weeks post the holiday period, or in terms of the stability of the uptick in the volumes.

Yes, and I'll also add here that typically whether it's travel or, for that matter, activities in insurance, such as the two segments in focus here, given that we are involved in a lot of processes there, we get reasonably good intelligence based on what we see happening on a month by month basis on the transaction besides the forecast we get from clients.

So I think we've clearly seen stabilization. We've seen some modest trends of uptick, but not, at this point of time, not confident enough to say that the uptick will be a trend. But the fact that there is a stabilization, we've said, is quite reassuring.

Okay. That's good. On tax rate, Alok, cash and accrual tax rate going forward, any comments there?

From a growth perspective, this year, we should end the year less than $1.5 million. That will go up maybe to twice that amount next year.

But cash taxes are higher. That's more because of the minimum alternate tax that we need to pay. So we pay roughly $4 million of minimum alternate tax every year.

And that's --

That's the balance sheet -- that goes through the balance sheet.

Okay. Okay. And my last question really is on the short cycle analytics business, which my sort of informal checks show me that it's doing quite well. And any comment today on maybe how we've managed to grow that and the profitability of that?

If I look at the trend, Ashwin, we are definitely seeing some early signs, and I would use the word early, that there is an uptick in that segment. As the economy is settling down, I think people are now wanting to buy more information services or analytics products, so we're seeing that.

In terms of profitability, actually, we, our team, have done a good job over the last 12 to 18 months in getting our cost structure right as the volumes went down a little bit. So again, I think we flex down to that and were able to maintain our profitability. And as the market picks up, we'll obviously make sure that we maintain that or even improve that when we feel better.

Okay, that's great. Thank you, guys.

Tien-Tsin Huang, JPMorgan.

Thanks a lot. I wanted to ask about travel volume, just as a follow-up to Ashwin's question. Just, I guess I was under the impression that macro bookings or transactions have been pretty stable to maybe even up a little bit and that bad weather would also help you. So I'm a little bit surprised by the commentary around travel volumes. Can you elaborate a little bit more?

So what happens, I think the short end of it will be -- Anup can add his expertise since he used to run the travel business in a past life. What happens clearly in the October to December quarter, a lot of the travel is holiday related, especially around Thanksgiving and Christmas. It's more vacation travel and less business travel. Typically, vacation travel tends to be booked at least six months in advance. You'll relate through your own personal experience, you don't wait till the last minute to make your holiday booking. So those volumes have already got registered earlier.

And at that time, since most people are on vacation there's not that much of business travel. So, the volumes during the quarter, while people are traveling, the volumes that affect our business are not taking place in the quarter. Whereas January, once people come back from the holidays, there is definitely an uptick in business travel.

And if you look at the flights over the last two or three weeks, you will see there is definitely an increase in the occupancy in the front of the cabin. So that's typically what tends to happen.

Okay. That's helpful to know. And I guess just a follow-up, just a bad weather impact, I know you handle a lot of the customer care and inbound calls there. How much of a swing factor can that have on volumes as a percentage of the total?

I think there is definitely some impact, and we saw that as well. But I won't call it a material impact per se yet. The volumes will go up on the customer care side as you mentioned. But there are some other negatives which might come as well on the bookings side or some other things. So on the whole, it is I would say a net positive, but a small net positive.

Got it. Okay. So the key is we need to watch current bookings as a better predictor?

That is -- yes.

Okay, perfect. My last question is just around the ramp-up of some of the new clients you talked about in the first half. How should we consider the impact on margins in the next quarter, two, three quarters? So impact of client ramps on margins. Thanks.

So I think you would start seeing the margins improving because most of the costs are already booked in. The headcount is already there; they're already under training; going into production; going live. So the cost is already there -- once the revenue starts coming, the bulk of your margin expansion.

And also some very simple math in our guidance here. We're talking about meeting our guidance and looking at where we've ended up in the three quarters. If you do the math there, you'll see that we are predicting --

Our fourth-quarter margins are going to be higher.

Yes. Will be higher.

Okay, good. So we'll step into sequentially higher margins beyond the implied guidance in the fourth quarter?

That's right.

Okay. Terrific. Thanks a lot.

Sachin Jain, Jefferies.

Hi, this is Sachin Jain for Joe Vafi. My first question is we have seen an uptick in attrition rates in the last two quarters. So what are your expectations relative to the supply side dynamics moving forward?

Right. So clearly the [year] economy, as I mentioned in my prepared remarks, has improved and improved considerably. And that is putting some pressure on the supply side. I don't think it's anywhere close to what we have seen at peaks. So we feel there are two aspects to this. Definitely the [range hikes] that one would look at in the next fiscal -- will be higher than what we did last fiscal, and we're factoring that into our thinking for next year.

But in terms of availability and recruitment of talent, we don't see any challenge of that at this point per se.

Fair enough. And then some offshore players have talked about their investments in developing their platform-based BPO capabilities. So what kind of investments is WNS making in this area?

Again, if you kind of followed our Company and looked at some of our materials, we have platforms in many of our business segments. On the insurance side, actually, auto claims business is pretty much a platform-based business. And we continue to enhance that platform, which is end to end, on how it handles an auto claim. Like on the travel side, we have some platforms. We have some in the financial services area as well.

And, obviously, last but not least on the finance and accounting side, through the acquisition of BizAps, we got access to some [improved results]. So this is an area we are continuing to build on and strength, and something which is a core part of our business right now.

I think the other thing I would say is at this -- we continue to make investments on this side, so that is what's embedded into our numbers for now. And once you continue doing that, I would not expect any dramatic change on that per se.

Yes, and I think you could just, if you look at UTP-based revenue, unit transaction price-based revenue as a proxy for how much of the revenue comes on the platform base, ours is probably the highest in the industry. We're over 35% almost of our revenues comes on the UTP pricing. Typically this tends to be on a platform base. So I think we are already ahead of most others.

Okay. And also from offshore, I think there has been scale in BPO by acquiring captive units. So do you see competition intensifying moving forward, or --?

I think we started the process materially asking, obviously, in July last year. We're the ones who started it all. We acquired the captive from AGS, which was 5,000 plus people.

Correct. Thanks for taking my questions and good luck to Neeraj on his future endeavors. Thanks.

Thank you very much.

So with that, we're going to close out this call. And, once again, I want to thank you for the support. And please continue to back these guys. They work very hard and they'll do a very good job in making sure that your guidance and support is worthwhile. Thanks.

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