WNS (Holdings) Ltd (WNS) 2011 Q2 法說會逐字稿

Good morning, and welcome to the WNS Holdings fiscal 2011 second quarter conference call. (Operator instructions).

Now I would like to turn the call over to Alan Katz, WNS' head of Investor Relations.

Thank you. Good morning, ladies and gentlemen, and good afternoon or good evening to those of you joining us from Europe and Asia. With me today I have Keshav Murugesh, our Group CEO, and Alok Misra, our Group CFO.

A press release detailing our quarterly results was issued earlier this morning. This release is also 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 contact us at IR@wns.com.

Today's remarks will focus on our results for the fiscal second quarter ended September 30, 2010. Some of the matters that we will discuss in this call are forward looking and you should keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause the 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 20F which was filed with the SEC in June 2010 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 our 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'll 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 and non-controlling interest. These terms will be used throughout the call today.

I will now turn the call over to Keshav.

Keshav?

Thank you, Alan.

The quarterly results we reported today are a first small yet constructive step in the turnaround of WNS. The substantial sequential improvement in our gross and operating margins reported is evidence of progress on one of our key paths, improved profitability. I am mindful that our primary focus, to be among the fastest growing BPO companies, will take more time and that there are no silver bullets. But before providing some color on the quarter, I'd like to describe the significant progress we have made towards that goal.

We have taken strong steps to put in place and organize resources that will fuel top-line growth. We have completed the reorganization of our client- and prospect-facing resources into hunting and farming, that is sales and client engagement teams. We are also progressing the transition to new sales leadership. As of today, we have approximately 20 new client-facing leaders. More important than the number of leaders is the quality of talent that we are attracting.

Our new sales heads have held senior roles at industry-leading companies. They come with vast industry experience, both in IT and BPO, deep domain knowledge, and bring with them [stellar practices] from some of the most respected organizations in the industry. We have 49 salespeople, client partners and engagement managers, 21 of whom have come onboard to WNS since February 2010. We plan to make further additions to the sales force over the coming months.

We have brought on a head of the Americas and a head of sales in Europe and are finalizing a candidate for head of sales in North America. Our global head of sales, who will lead the entire sales organization, is expected to join by the end of the quarter at the latest. We have also hired new BU leaders, including heads of our shipping and logistics, utilities and healthcare, retail, CPG and manufacturing business units. We have onboard a new head of our F&A practice.

We have moved three of our top performers to key strategic roles. One will head sales in the Asia-Pac and the Middle East markets. The second will lead WNS' foray into the domestic Indian market. And the third will lead our focused offering in the customer service space. These top-quality leaders joined WNS because they believe in our new strategy and opportunity it presents. Every one of them was selected after reviewing a very impressive set of candidates for each role. The caliber of people we are attracting also says volumes about the strong brand name that WNS has in the marketplace.

We've also been making additional investment in talent throughout our ranks. We are now providing clear path to senior positions for our top-performing employees and are moving those people into stretch roles. We are building a talent pipeline to sustain and capitalize WNS' growth well into the future. We are moving to a more performance-based compensation structure that will distinguish among and appropriately reward top performers.

We have completed our reorganization into a vertical-led company and are focusing each of these verticals on establishing the right offerings for the market. We've also continued to invest in our transformation group. Transformation is not a new offering by any means, but our focus on our consulting capabilities has intensified. We are better leveraging our people and technology resources in this group and are carving out dedicated offerings product lines.

We're also looking at expanding globally and are evaluating opportunities to establish an onshore presence in the US and to increase our onshore presence in the UK. We're looking at various models for establishing a presence in China and growing our presence in Continental Europe. And, while we're mindful that there is no free lunch, such investments come at a cost, and to fund these investments we've targeted waste elimination and reducing expenses that neither affect our top line nor our clients' experiences. We have implemented operational improvements using lean methodologies and have achieved reduction in overhead expenses. We have also begun to shift decisions on delivery locations to better capitalize on local market conditions and tax incentives.

Our SG&A spend this past quarter and our CapEx guidance, which Alok will discuss shortly, reflect this reinvestment philosophy. We will continue to invest in the business to support our sales team and achieve the long-term growth metrics that we have set for ourselves.

In terms of current clients, in the past quarter all clients up for renewal did in fact renew, a strong statement of the quality of WNS' services. We also signed an F&A contract with a US building material and solutions company and signed expansions with clients in the travel, insurance, retail and healthcare industries.

In terms of the pipeline, while it is too early for our investments to produce top-line growth, our early and middle-stage pipeline is encouraging. It will take time for these changes to produce financially tangible results. Our energy, our reception by clients and prospects and our momentum are all changing for the better. I am increasingly confident of our trajectory.

We are seeing positive signs of growth from current clients in our travel and CPG businesses. However, I will note that given the seasonality of the travel business volumes will come down a bit in the fiscal third quarter. This was expected and has been factored into our guidance.

We also have to address some headwinds. The sales cycle remained somewhat extended this quarter due to the volatility in the markets and the markets' concern over a couple of things. The positive news here is that the volatility in the market seems to have settled down, which should lead to an increase in decisionmaking. Pricing, while generally stable, could see some pressure as some of the larger global players are commanding less of a price premium. I am pleased to say that despite the lower pricing this continued to beat the large global services players on recent rents. Lastly, the strengthening of the rupee has led to cost increases this quarter. We can offset some of this by hedging, but it is our operational improvement and cost containment efforts that are going to be key to managing these costs over the longer term.

Despite these headwinds we achieved sequential revenue growth this quarter. I know that performance and credibility is built one quarter at a time, so a return to sequential top-line growth is important to me, even if such growth is below our long-term aspirations. The operating leverage we have gained combined with the favorable exchange rate on the pound has helped to push up our adjusted operating margins by over 700 basis points, indicating our commitment to profitable growth.

Frankly, I also look for us to generate significantly more cash and to address our (inaudible) attrition problems. To that end, the employment market in India remained strong in this past quarter, and attrition was primarily flat, at 42%. A portion of this attrition was non-voluntary. However, equally important is the fact that we hold our employees to the highest standard in the industry. As a result, we've seen underperformers voluntarily leave WNS prior to us having to take action. Attrition is very important to me, and we are putting the necessary resources towards bringing this number down. In terms of total headcount, we ended the quarter at 21,460, compared with 21,406 in the previous quarter.

In conclusion, I remain very positive on the business and our outlook moving forward over the medium term. We've made significant progress on our five-point plan, completely revamping and reenergizing our sales force, making solid headway on reorganizing into a vertical-led company, investing in our transformation group and talent and eliminating waste through lean initiatives. While we are not satisfied with our growth trajectory and financial metrics in the short term, I am comfortable that the steps we are taking have been well received and are positioning us for long-term growth.

Our pipeline is looking better in Europe, and the recent steps we have taken will have a positive impact on North America sales, as well. We are participating in more discussions and holding more client visits than we have in some time. These are all clear indications that an improvement in the growth trajectory is on its way. The changes that we have made over the past few quarters should position us well to achieve sustainable organic top- and bottom-line growth. Our leaders and every one of our employees is energized, motivated and working hard to deliver great results.

Let me now hand the ball over to Alok to walk through the financials.

Alok?

Thank you, Keshav.

This quarter our net revenues decreased to $93.1 million from $99.7 million in the same quarter last year. This reduction was primarily as a result of the change in pricing terms from a large travel client, the weaker pound and volume reductions in our insurance and travel businesses. Sequentially, however, net revenues increased by 4.3% as a result of the strengthening of the pound, the increase in business from existing clients and a price increase from a large insurance client. We also saw some signs of volume improvement in our insurance business compared with Q1.

We achieved gross margins, excluding share-based compensation, of 35.9% in Q2 compared with the same quarter in fiscal 2010. This represented a decline of over 230 basis points, primarily as a result of a change in pricing terms of a large travel client, as I have mentioned earlier, wage increases and the appreciation of the rupee. However, when compared with last quarter, gross margins improved by 580 basis points. This was comprised of a 280-basis-point margin gain from better FX, 170 basis points from improved productivity and a 130-basis-point impact from improved pricing and markup.

Second quarter 2011 operating margins, excluding share-based compensation and amortization of intangible assets, were 15.6%. This compares with 19.5% for Q2 of fiscal 2010. The decline was primarily due to the same reasons I just mentioned. Compared, however, with Q1 of this fiscal, we improved operating margins by over 700 basis points. In addition to the 580 basis points from gross margins mentioned earlier, operating leverage led to a 120-basis-point reduction on the SG&A line.

Our interest expense this quarter was $1.9 million as against $3.4 million in the same quarter last year and $8 million in the previous quarter, which also included some one-time costs associated with the refinancing of the earlier term loan. I had discussed the $6 million saving on our last earnings call. This translates to a 650-basis-point margin improvement. We expect interest costs to come down further from these levels as we continue to pay down our debt.

In terms of currency this quarter, the rupee strengthened compared with last year, while the pound was weaker. This negatively impacted both our top and bottom lines. However, the pound was stronger compared with last quarter, which helped us on our top line on a sequential basis. We were able to mitigate the impact on our bottom line to a certain degree through our hedging program.

In terms of hedges, we are about 90% hedged for the 2011 fiscal year, and we are hedged over 70% for fiscal 2012 and have even starting hedging into 2013 using both options and forwards. Net FX gains for the quarter were $1.3 million. Out of this, hedging gains net of option costs were $4.7 million, partially offset by a loss of the revaluation of nonfunctional currency balances to the extent of $3.4 million. The hedging gains consisted of profits on our rupee hedges as well as in some other currencies and small losses on our pound hedges. We still expect to see gains on the rupee hedges while we will have some losses on our pound hedges at the current rates for the 2011 fiscal.

Our adjusted net income, or ANI, for Q2 was $13.8 million, compared with $13.7 million for the same quarter last year and $2.2 million last quarter. This is a 1,240-basis-point sequential improvement. This came from the 700 basis points from operating margin improvement and the 650 basis points from the interest savings, which was offset to an extent by a 110-basis-point reduction in hedging-related gains. We believe that the ANI is sustainable at these levels, barring any significant movement in currency, and this puts us squarely on track for our ANI guidance for the fiscal year. Given this, we are making investments in expanding our sales team and delivery infrastructure, as Keshav just mentioned.

Moving on to our balance sheet, we have access to capital and are still generating free cash. As discussed on the last earnings call in July, we announced that we had made a scheduled repayment of $20 million on our earlier term loan and prepaid an additional $21 million of debt. The total debt outstanding today on our current term loan is $94 million, as against $135 million as of 30th June. As of 30th September, our cash balance was approximately $24.7 million.

We generated $4.5 million in cash this quarter from operating activities. Our cash generated from operations was low this quarter, primarily due to an increase in our working capital by about $11 million. This working capital increase was primarily the result of a large client in the auto claims business that has a higher credit period with us. You will recall from our last quarter's earnings call that when we restructured our debt portfolio we included a working capital facility in the UK. That facility was to fund this requirement. Excluding this working capital increase, the business has generated over $15 million of cash this quarter, which is the level of cash generation we have always spoken about.

The higher credit period for the auto claims client also led to an increase in our DSOs to 41 days this quarter. However, in our global BPO business, DSOs actually improved this quarter. We believe that this is the peak level for DSOs and we should see this come down over the next few quarters.

Due to the reasons I just mentioned, during the quarter we generated a total free cash of approximately $500,000. This is an aberration due to the higher working capital this quarter, and we should see this turn around in the coming quarters. We have access to capital through our credit facilities, and our next scheduled installment payment of $20 million is due in January 2011.

Our year-to-date capital expenditure is about $6.8 million, of which $4 million was in the September quarter. Based on our capacity planning and business requirements, we now expect capital expenditure for the year to be closer to $25 million, although the actual cash flow on this account may be slightly lower. The capital expenditure is loaded towards the back half of the year, and some of this cash flow will spill into the next fiscal. Most of the additional investment will be in (inaudible) facilities in India and for expansion in the Philippines and Eastern Europe.

Finally, given the tailwinds that we have seen from the British pound, we have updated our guidance for fiscal 2011. In our earnings release issued today, we updated our net revenue guidance to $363 million to $378 million for the 2011 fiscal year, based on a British pound to US dollar rate of 1.55 for the second half of the fiscal year. However, the rupee has strengthened considerably of late. Despite this, we have reaffirmed our ANI guidance of $43 million to $46 million, now based on a rate of 45 rupees to the dollar for the second half of the fiscal year. This implies an adjusted EPS of $0.94 to $1.00 on a diluted share count of approximately 45.8 million shares.

Given the improvement in profitability and revenues this past quarter and the trajectory we see for the rest of the year, I feel confident in saying that we are on track to meet our plan. We see significant opportunities with both new and existing clients, and we now also have the team in place to leverage these opportunities and grow our business.

We will now take your questions.

(Operator instructions). And your first question will come from the line of Joseph Foresi, from Janney Montgomery Scott. Please proceed.

Hi, guys. My first question here is I think, Keshav, you talked about the demand environment and there still being delays on decisions on whether to go ahead with projects. Maybe you could just talk a little bit about why that delay is still taking place and maybe what segments you're seeing it in or if you're seeing it across the board and how long you expect that to continue. Do you expect it to continue to 2011?

Yes, so, as I mentioned, our pipeline overall is definitely looking much better, so I think the number of deals that we are now playing in, the number of clients that we're interacting in, in client geographies, as well as in the outputs in our different locations globally has increased dramatically. I think what's really happening with a number of prospects really is this uncertainty around the double dip and what a lot of the economists were talking about earlier. And I'm also seeing that now, with a little more certainty coming back in and with economists now beginning to make calls that a double dip may not happen we are actually seeing some of these people start to take some of these decisions.

So, if you ask me, I'm pretty comfortable that some of the deals that we are playing in will actually over the next few quarters result in decisions, and I think by the middle of next year the trajectory should be quite different in terms of decision taking itself, because I'm beginning to see more and more clients now getting comfortable that somewhere along the way that they need to be taking these decisions, that irrespective of double dip or not, they need to be reducing costs and building efficiencies in their business. And with the new message that WNS is giving them of focus as well as this new strategic organization that they are seeing, I think they're getting far more comfortable. So I would say that over the next three quarters or so one should start seeing some of this flow through in terms of decision taking and top line kind of momentum.

Okay. And then just in regards to the pipeline, maybe you could talk about is there any way to quantify that, maybe have some feel for when you might start to realize some of the work that you're doing right now, and any specific areas that are showing growth that maybe you weren't involved in before?

Yes, so I would say that some of the sectors that have continued to be under tremendous pressure -- for example, logistics, the area of -- the (inaudible) area, the travel area -- I think all -- and the insurance claims -- all of them are areas where we are actually seeing both existing clients as well as prospects actually get a little more aggressive in terms of looking for ways and means to reduce the cost or build higher efficiency. So we are also seeing that in a number of these cases we are actually sitting with clients, talking to them about either a new offering or a bunch of offerings or new ways in which we can actually impact their (inaudible) kind of exercises. And I think it's a new kind of engagement that they are actually seeing with WNS. So, if you ask me, all these areas, these four verticals I spoke about, actually have momentum.

Again, in addition to those I would say the retail space, where retailers are actually looking to reduce cost dramatically, based on the fact that they continue to be stressed, are, again, areas that have potential for the medium term. But the uncertainty really is when will prospects make those calls and actually decide to move ahead. I am also seeing that a lot of the deals, particularly on the horizontal offering sides, are now aggressively being led by the analyst community, which means, at least on many of those, closure should take place probably sooner than later. From a size point of view we are seeing that WNS is actually engaged in at least two or three deals which are significantly larger than what we have traditionally been used to.

So, again, in terms of timing, Joe, I think we'll have to wait to see when clients actually decide to make those calls. But from an overall perspective, I think we are comfortable with the fact that we are having the right discussions with all our clients.

Okay. And, just, lastly, maybe you can give us -- I'm sorry, go ahead. Just lastly I think maybe you could give us an update on just the travel and insurance sectors and what you're expecting there for 2011.

So, Joe, this is Alok here. I think on travel there is a fair amount of consolidation that is happening in the industry. So if you'll see in Europe, in the US, everywhere, even larger lines are looking to consolidate among themselves. And that always presents both an opportunity and a threat. But given our position in the travel industry and our, I would say, position of preeminence in the travel industry, we feel we are well placed to take advantage of some of the opportunities that will arise out of these consolidations. It does tend to cause a bit of decision paralysis sometimes. But we believe that our strengths will really play to our advantage here.

On the insurance side, as we mentioned in the remarks, as well, this quarter we have already seen a slight uptick in our insurance volumes. Also the fact that we have integrated the entire insurance business, both the rewrite and auto rewrite, to one, has resonated pretty well in the marketplace, and some of our, I would say, medium to even late-stage pipeline in the insurance sector is very, very encouraging, both sides of the pond, to be honest.

And I just add to those comments by saying that in both these verticals, which are the traditional old verticals from WNS, and in the focus of the new team in terms of creating more focused offerings and then using those offerings to go back to the client is also resonating well. So I think one of the big areas that we are driving here is to make sure that every one of the new business unit leaders that come in, as well as the existing leaders, are adding to the pipeline of offerings that we have in each one of our businesses, and I think clients are liking what they are seeing. Now, in terms of the journey, we still have some way to go, because a lot of these leaders have just come in. But I'm pretty excited with the fact that on the traditional businesses some of the new offerings that we are introducing and talking to clients about is actually resonating well.

Thank you.

Your next question will come from the line of Joseph Vafi, from Jefferies & Company.

Hi, gentlemen, and good evening. Just following up on that, on a previous question, maybe we could get a little bit more specific color on the outlook for the Aviva business. I know you mentioned both Aviva and the overall insurance business in some of your previous comments.

Right. I think the focus on the Aviva side is to really strengthen the relationship by providing a far more strategic kind of interventions to the client. So I think what has really happened over the last few months is that we have begun to take the relationship to a much higher level than before. The second initiative is to really drive our offerings program. And the third is to really (technical difficulty) to expand the relationship beyond the current scope, which actually extends to only just one or two geographies.

What we have done over the past few months is to introduce a very, very senior client partner [profile] into the Aviva account, and this is a global client partner who is actually engaging across the length and breadth of Aviva, mapping the account end to end, looking at opportunities at every stage, and then really positioning both Aviva and WNS at a strategic-level discussion as opposed to a practical level kind of discussion.

We are also identifying specific areas for both efficiency increase and cost reduction in a number of areas and are actually having very positive discussions with Aviva on those fronts. Independently, again, based on the integration of Aviva and (technical difficulty) as such, we are having very, very good discussions with insurance clients both in Europe as well as North America, so the pipeline there, again, is looking pretty strong both at an early and a middle kind of maturity level.

Okay, thanks. That's helpful. And then just secondly and just in the general marketplace, are you seeing any change amongst clients and their preference for pure-play BPO vendors versus more integrated vendors on the BPO side that also have strength on the IT side? Thanks very much.

I think that we position WNS as a company that is very nimble, flexible and attentive to clients, and I think clients like that, along with our new strategic orientation as well as our new menu card of services. And I think from my perspective and the team's perspective I think the ability and the future for the pure plays is very, very high. And we actually think, first of all, every one of our leading clients is completely underpenetrated, and there's a huge amount of work to be done there in just -- in terms of just having end-to-end account ownership and therefore further revenue potential there.

But separately I would say that with the way IT has taken off, I think a lot of our clients as well as prospects are also now and then telling us that they may not be getting the same level of attention from the IT players. And ultimately we'll have to see how that impacts our top line, so we'll wait and see.

Thank you.

Your next question will come from the line of Vincent Lin, from Goldman Sachs.

Great, thanks. My first question is for Alok. The 4% sequential growth, can you break down for us how much is from currency versus pricing and versus -- the pricing adjustments from the insurance client versus the -- just the ramp up on the rest of the clients?

So, I would break it up between the currency and the constant currency growth. So if you look at it out of the 4.3% sequential growth, 2.1% was a constant currency growth and 2.2% would be on account of the pound appreciation. The pound actually appreciated just under 4% sequentially.

Got it. Okay, that's helpful. And then, I think previously your outlook, you had talked about getting to, for the full year, about 12% to 14% in terms of adjusted operating margin. Is still -- is that still the assumptions that you are working with?

That is correct. I mean, if you look at our adjusted operating margins this quarter, they were about 15.6%. So that's the level that we are looking to sustain. Essentially, what we have been saying is that we will need to invest in our sales efforts. I think one point to note here is that this quarter our SG&A is probably the lowest that it's going to be for this fiscal, because a lot of the new people who have come on, that cost is not fully factored into this quarter's SG&A. But we're hoping that the leverage of that SG&A, and you can see some of that leverage already coming in -- we had a 120-basis-point expansion just from the operating leverage, that as we grow the top line that leverage will come through. So in percentage of sales terms we should still keep getting that leverage.

Got it. And then maybe just for both Keshav and Alok, in terms of headcount growth, I understand, I believe, that you have been focusing on building your sales force and some of the deal leaders and client partners, etc., and now it seems like the work, at least on the front end, is mostly done. Overall head count, just wondering when we should see the pace picking up a little bit, just given the kind of sales pipeline and the tractions that -- early tractions you are seeing from clients.

Well, I'll say one thing. I think the first thing is we really need to have our new leaders as well as our new global sales head come in and start delivering quickly in terms of expanding the pipeline, making sure that WNS is positioned in every one of the deals that we want to be in, and quickly converting them into sales. So that's the first priority. The second priority from my perspective really is to keep moving the Company up from the low-end kind of businesses to higher end kind of processes, more data-oriented processes, as well as higher end operating. So that's another big focal area of the Company.

And, strictly speaking, I am not -- my team and I are not very, very concerned about headcount growth overall. We are much more focused on driving value, driving top line, driving the top-line momentum and really taking the game to a different level. So I think the focus really is I would be extremely happy if I could deliver the same revenue with a significantly lower headcount. And you will see that during this quarter, as well, we've been able to get higher revenue with probably flat headcount. So I think the focus at the Company has been to drive higher revenue, higher revenue per employee, try and get profit per employee higher, and that's what we're going to continue, to keep drilling deep into each one of our employees.

Got it. And then maybe just lastly, Keshav, you highlighted pricing in your prepared remarks in terms of the pressure from your competitors being a little bit more, I think, acute. Just wondering if there's anything changing on the margin, and maybe you can offer additional details in terms of the kind of behaviors that you are seeing in the marketplace. Thanks.

Yes, actually, what -- when I said that, what I alluded to the fact was that some of -- some players do come in and try and position the deal based on price. I think what we've done is continue to position ourselves based on value, based on the fact that we provide a customized relationship, a very customized kind of offering to each one of our clients. And we are seeing that clients actually like that level of attention. Again, with the IT/BPO players, so to speak, quite often we see that clients tell us that they see the BPO part of these companies more positioned as a horizontal as opposed to a very focused kind of an offering. And so at least the clients that we deal with would like to have a different level of attention.

So from our perspective we're seeing that in spite of the fact that sometimes we are seeing some players come in and offer deep kind of discounting, end of the day the client is being driven by value and by the quality of the relationship, and that's where WNS actually stands out. So our focus really is to keep choosing the kind of clients who want us, who want this kind of a relationship, because we know that there are only that many clients that we can service, and we would like to build (inaudible) stability both with clients as well as with our employees, really. So that's the kind of behavior I'm seeing. And as IT continues to grow in terms of demand, we actually expect to see the [pure play] probably get much more attention from clients who want to have their hands held and taken over the top.

Thanks for the color. That's it for me.

Thanks.

Your next question will come from the line of Dave Koning, from Baird.

Yes, hey, guys, nice improvement. I guess my first question, just in the auto claims business, the margins got a lot better in the last few quarters, even with revenues continuing to decline, and I'm just wondering, is that level, that high 20-digit or high 20% or so margin level, is that pretty sustainable long term? And how do you see revenue trends? Are they going to recover pretty soon here?

So, I think we had alluded to this a couple of calls earlier, saying that over a period of time we were looking to make some fundamental shifts in that business on the credit services side, where we will focus less and less on the higher volume but lower margin credit hire business and focus more on the credit repair business, which has lower volumes but higher margins. And what we've seen is what that does is it may keep our top line a little flat, but it helps us generate a lot more in terms of profitability.

Also what we've done is entered into some really strategic deals. I alluded to one of those clients in my remarks, where what we are doing with these clients is they are similar companies but they focus on the higher market. So they take -- we give them all our hires and we take all their repairs. So we focus on our core competence, which is the repair piece.

Okay. Yes, that makes a lot of sense. And then I guess the one other question, Aviva, the revenues in the supplement, it looks like they were up about 10% sequentially. And I realize, I would imagine at least most of this is price, and I guess that's really the question. Was that full 10% sequential move price? And then, is this new kind of step-up level, is this sustainable and maybe even further growth from here over the next few quarters?

So, there are three components to that. So, there is a price increase, and we have mentioned earlier that we get, I would say, low single-digit price increases in the first -- in the second, third, fourth and so on at the contract anniversary, which is the 11th of July. And the second component is FX, so our exchange rates this quarter are better than last quarter, so that has a positive impact on the top line. And the third is there is definitely a small improvement in the volumes. Over the last -- the previous couple of quarters you would have seen a decline in volumes, and what's encouraging is that decline has got arrested and we actually turned it around, and we are now -- we've seen a small increase in the volumes. Hopefully that will sustain going into the rest of the year.

Great. That's helpful. Thank you.

Your next question will come from the line of Robert Riggs, from William Blair & Company.

Hi. Thanks for taking my question. When you reference the higher value-add transformation offerings, how much revenue are you generating from those types of engagements now, and where does that trend over time?

So, from a transformation point, I think transformation really, the focus, the focal area at the Company, I think the whole idea with transformation is to really drive to introduce technology components on our processing capability and to really use this capability to drive productivity, to really generate higher revenues and higher profits using fewer people. So at this stage I think that the whole focus is how do we do some of these things and get clients to sign up for some of these opportunities? And over a period of time I think using this as a focal area, what we want to do is to really change the mix of our revenues across every one of our businesses.

So, I think, Rob, sorry, just to add to that, I think you are probably trying to reference some other players in the industry who split out their revenues between BPO and transformation. To us, transformation needs to be embedded into every deal. It's not something you do separately.

Okay. So it sounds like just adding on to your existing clients, getting more value.

That's the basis of a value proposition. I mean, the days of (inaudible) are over.

Okay, great. Thank you.

Your next question will come from the line of Bryan Keane from Credit Suisse.

Hi, this is Ashish calling on behalf of Bryan Keane. I had a follow-up question on the pricing, which was asked [earlier], and I was wondering if you could add some more color on the pricing pressure that you might be facing by different verticals or by different service areas and by restructuring, or renewals versus new contracts.

So, I mean, Ashish, I don't think we have gone into that level of detail of how we are seeing pricing by various industries and vertical, and typically knowing -- I mean, going by the list of people on this call don't really want to open all our cards, knowing who all are listening in. But, suffice to say that what we mentioned earlier when we're looking at the newer deals that we are seeing, the pricing premium that some of the bigger players were commanding is going away. They are kind of dropping their prices to compete.

But what we are seeing is that because BPO services are to the fundamental operations of a client, price is usually not the key or the only factor. You don't win or lose a deal only because of price. If you've got a good value proposition, you are adding value to the client, you know your business, you know the domain, you are able to work with them, you understand what they need and what they want, I don't think there is a pricing alone that knocks you out of that deal. And I also believe that the days of saying that you have to get a premium for quality, those days are gone. If you want to be a winner in the market, you have to be both best quality as well as lowest price. It's (inaudible).

I'll just add to that that from a [sub-units] perspective as the Board has previously also, we've actually renewed with our top 10 clients, and with all of them we did not see any price reductions, actually. We actually did quite well. So what I was alluding to was what some of the other players might be trying to introduce as their differentiator, but we've been able to counter that with higher values.

Okay. And a follow-up question in terms of competition, who do you usually see competing on these projects? Have you seen any trends where a lot more ITO players are trying to expand [than] BPO space, or has it been -- have you seen any change in the competition lately?

Well, it's the usual suspects that you normally see in these deals, Ashish. No great change there.

And there are no further questions in the queue.

I would now like to turn the call back over to Keshav for closing comments.

Thank you very much for joining the call. We now look forward to meeting all of you next quarter.

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