WNS (Holdings) Ltd (WNS) 2012 Q2 法說會逐字稿

Good morning and welcome to the WNS Holdings second-quarter fiscal 2012 conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, we will conduct a question-and-answer session and instructions on how to ask a question will follow at that time.

Now I will turn the call over to David Mackey, WNS's Senior Vice President of Finance and 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, WNS's Group CEO and Alok Misra, the Group CFO. A press release detailing WNS's second-quarter results was issued earlier today. This release is also available on the Investor Relations section of our website at www.WNS.com.

If you have any trouble finding this information, please contact the company at IR@WNS.com.

Today's remarks will focus on the results for the fiscal second quarter ended September 30, 2011. Some of the matters that will be discussed on today's 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 the Company's Form 20-F, which was filed with the SEC in April of 2011 and the company's Form 6-K, which was filed with the SEC on July 14, 2011. Both of that these documents are also available on the company website.

During this call, management 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 the press release issued earlier today.

Some of the non-GAAP measures management will discuss are defined as follows -- net revenues are defined as revenue less repair payments. Adjusted net income, or ANI, is defined is profit excluding amortization of intangible assets and share-based compensation. These terms will be used throughout the call.

I will now turn the call over to Keshav. Keshav?

Thank you, Dave. Our second fiscal quarter 2012 financial results highlight the progress we continue to make to strengthen WNS and position the company for future success. Over the past few quarters, we have begun to see the results of the strategic investments we have made in the business and are encouraged by the progress our team has made thus far. Overall, we saw top-line growth again this quarter with revenue less repair payments improving despite currency headwinds. This growth, coupled with a weaker Indian rupee, enabled the company to sequentially expand our adjusted gross margin, operating margin, and profit this quarter.

Second-quarter net revenue grew sequentially for the third consecutive quarter, crossing the $100 million mark for the first time in the past three years. On a constant currency basis, our revenue has now grown at an accelerated rate each of the past three quarters. The company added three new clients in the quarter, expanded 10 existing relationships and renewed or extended another 19.

We are pleased that revenue growth has been broad-based across key geographies, verticals, service offerings, and clients. In fact, customer concentration levels were reduced at each of our top one, five, 10, and 20 clients.

The new business pipeline continues to be robust and is expanding with high-quality, high-value projects. The whole outturn of discussions with prospects is improving and the number of visits to our delivery centers is growing.

On our last call, I spoke about a potential large insurance client with whom we were in the final contract stages. Progress continues to be made on this opportunity, and we believe that a decision will be forthcoming within the next few weeks.

Similar to our revenue growth, the composition of the pipeline is broad based. We are seeing not only an increase in the number of deals in the pipeline, but also an increase in the average deal size.

We are also pleased to see better traction in the health care and financial services verticals with two large brand-name opportunities currently in play. Many of these clients are looking for the combination of value-added services and customer centricity that WNS provides.

Because of the larger deal sizes we are seeing, we anticipate that clients' decision-making will go through multiple approval levels. Closure on these types of opportunities will be important for fueling our growth next year.

In North America, we are seeing several deals where prospects want us to provide them an on-site solution for strategic functions, while performing the heavy lifting roles at our existing near-shore or offshore delivery locations. We are looking at creating such an on-site center that will support not only an existing WNS client, but also give us the flexibility to leverage the facility across multiple clients.

From a macroeconomic perspective, the BPO environment remains relatively stable and healthy. End-to-end sales cycles are still long, but work appears to be moving well through the pipeline.

Projects are ramping slower than we would like. However, we believe transition time will reduce as clients' comfort improves and as they look to accelerate cost reduction and business efficiency. While Q3 is traditionally a slow quarter for the travel vertical, we are enthused by the discussions being had inside the vertical with prospects in travel and logistics, as well as in insurance, retail and the banking verticals.

Finance and accounting and analytics are areas that are attractive from a client's point of view, and our focus is to penetrate and radiate into other areas with clients where we have started with analytics or finance and accounting recently.

Our auto claims business has also made progress with new logos this past quarter. As highlighted in our previous call, we have expanded our auto claims business into the home insurance claims and repair area as well. We are pleased to inform you that our [HomeFlow] platform is now ready, and we have begun our first pilot with a client in this space out of our [Mansfield] center in the UK.

Over the past few quarters, we have spoken in detail about several key initiatives underway at WNS. These include verticalization of our go-to-market approach, expanding and updating the sales and marketing teams and moving up the value chain with clients.

The clear feedback we are receiving from both existing and prospective clients is that the changes at WNS are on target. Clients are seeing the benefits of improved attention, top leadership, and innovation.

That being said, these programs are in various stages of evolution. Verticalization of the company is in place and the go-to-market approach has been integrated with our horizontal offerings, client partner programs and sales and marketing teams. We will continue to add domain experts and expand the breadth and depth of our vertical service offerings.

From a sales and marketing perspective, the overall team size is largely set, although some additions will be necessary in new target geographies. Today, we have a sales and account management team of 72, which is split almost evenly between hunters and farmers. We are focused on ensuring that sales productivity accelerates and translates into continued pipeline expansion and improved deal closure rates.

The third initiative, moving up the value chain with clients, will receive a significant amount of organizational attention over the next several quarters. At the heart of this is a technology-based transformational approach to solutions. As we have discussed, we currently provide high-value technology-enabled services to airline accounting and auto claims and have added complements to our finance and accounting services. Recent client additions in the auto claims business and the new Home Pro pilot highlights our progress. Almost every new process in the finance and accounting space today has a technology component from a simple OCR and case tracking tools to complex vendor portals and AP workbench solutions.

We have also built a customized account origination platform for a banking client and an e-mail-based CRM solution for a telecom company. In addition to leveraging these unique capabilities across new processes, clients and verticals, we must also continue to roll out new offerings to further serve these markets.

Our technology and transformation group is working closely with our client-facing teams and directly with existing and prospective clients to create new technology-based service platforms. As a result, we have several exciting launches which are planned in the coming quarters, and we fully expect technology and transformational dollars to grow as a percentage of WNS revenue.

These new services are critical for several reasons for clients that provide high-value, differentiated solutions, designed to optimize business efficiencies and improve their competitive positioning. For WNS, they provide an opportunity to open new accounts and expand existing relationships, which creates a path towards a nonlinear growth model and the ability to rapidly improve productivity and expand margins.

In terms of what all this means for WNS today, we believe that these three initiatives are already helping to drive expansion in our new business pipeline, but at this point in time, they're only playing a supportive role in our revenue momentum. This bodes extremely well for the future as the majority of these changes are relatively new. We are excited by the knowledge that the full benefits from these investments are yet to come.

Total headcount at the end of the fiscal second quarter was 21,565, which was down from 21,808 in the previous quarter. During the second quarter, the company improved productivity and right sized our workforce in the travel vertical in anticipation of the seasonally lower volumes in Q3. This has helped drive improved gross margins and a higher revenue realization per employee.

We are, however, continuing to build out our infrastructure in India, including special economic zone centers in Mumbai, Pune and Chennai, and also new facilities to service the domestic India business in Pune and Gurgaon.

From an employee retention perspective, we have now implemented several programs aimed at reducing attrition at critical levels within the company, and we are beginning to see the results of those efforts.

For the second consecutive quarter, our attrition rate declines coming in at 39% in Q2. In spite of this improvement, reducing employee attrition remains a top priority for me and the entire WNS team. And we continue to aggressively work towards minimizing this issue in the long term.

I would now like to briefly address the shelf registration filing submitted to the SEC on 12 October this year.

The shelf filing registered shares with the SEC for potential sale and simply allows for optimal flexibility in approaching the market when timing and conditions are right. The S-3 filing is for [up to] $50 million worth of primary shares of WNS and 21.4 million secondary shares representing [robust increases], current holdings in WNS.

The shelf filing is subject to review by the SEC and is available for takedown only once declared effective by them.

We have conducted an investor perception survey in which some of you would have participated. One of the key issues highlighted in that survey was the low liquidity in our stock, which we are looking to address in the near future. [Wabash] share registration signals their desire for an orderly exit over time, which would provide WNS shares with much-needed liquidity and an opportunity for the expansion of our trading multiples.

The reason for the primary offering is to allow WNS to raise capital as and when needed to fund growth plans and other strategic objectives.

As we have discussed, WNS fully expects to continue our aggressive investment plans over the next few years. These plans include expanding our geographic delivery capabilities as well as infrastructure in India; strengthening technology-enabled and vertical solutions; and improving our overall customer reach.

We will look for niche tuck-in acquisitions to enhance the technology capabilities and offerings we currently have and will pursue partnerships to expand global footprint in new geographies such as Africa, East Asia, and South America. The shelf filing provides us with the flexibility to quickly and efficiently raise money if desired to allow WNS to further capitalize on these and other prospects for profitable growth.

Overall, the WNS team is pleased with the operational and financial progress we have made and believe our recent results demonstrate that our transformational efforts are beginning to bear fruit. Our increased visibility has allowed us to update our guidance which we view as a positive sign, especially in light of macroeconomic volatility and uncertainty.

We remain cautiously optimistic about the health and stability of the overall BPO environment and will remain focused on executing on our key initiatives. We understand that our clients are looking for partners, not vendors. As such, we must be able to help them reduce costs, understand their business is better and identify new revenue streams and market opportunities. We believe that WNS is increasingly well-positioned to accomplish this.

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

Thank you, Keshav. In the second quarter, our net revenues increased to $100.2 million from $93.1 million in the same quarter last year, representing an increase of 7.6%. This improvement was driven by solid growth in most verticals, paced by consulting and professional services, utilities, insurance, travel, and health care.

On a constant currency basis, year-over-year revenues grew 5.3%, which is reflective of a 3.8% depreciation in the British pound. Sequentially, net revenues increased by 2.4% with the consulting and professional services, utilities and travel verticals accounting for the majority of the improvement.

On a constant currency basis, revenues grew 3.1% sequentially as depreciation in the British pound created a headwind to growth in the second quarter.

Gross margins, excluding share-based compensation, were 32.8% in Q2. Compared with the same quarter in fiscal 2011, this represented a reduction of 360 basis points as a result of annual wage increases and appreciation in the Indian rupee. However, our second-quarter gross margins increased by 150 basis points when compared with the first quarter as higher revenue improved our operating leverage and the Indian rupee depreciated by 2.4%.

Second-quarter 2012 operating margins, excluding share-based compensation and amortization of intangible assets, were 15.4%, representing a 240 basis point reduction from the 17.9% reported in the same quarter of last year. The reduction was driven by a 360 basis points of gross margin decline, as mentioned before, which was partially offset by improved cost optimization and revenue-generated operating leverage on the SG&A line.

As compared to Q1 of fiscal 2012, operating margins expanded 150 basis points. The sequential improvement included gross margin favorability discussed earlier, which was offset by slightly higher SG&A as a percentage of revenue.

The increase in SG&A spending is reflective of our ongoing investments in sales and marketing. Interest expense this quarter was $0.9 million against $1.5 million in the same quarter last year and $1.2 million in the previous quarter.

We expect interest costs to continue to decline from these levels as we pay down our debt. The total outstanding debt today for our original term loan is $54 million. We made our annual installment payment of $20 million on 11 July, 2011.

Our next scheduled payment of $30 million was due on 10, January 2012 with the final payment of $24 million due in July of 2012.

To a certain degree, we were able to mitigate the impact of extremely volatile currency markets on our bottom line through our hedging program. In terms of hedges, at the present time, we are about 90% hedged for the 2012 fiscal, 70% hedged for fiscal 2013, and are hedged 13% for fiscal 2014, using a combination of options and forwards.

Net FX gains for the quarter were $1.8 million. The FX gains were primarily due to a gain in the revaluation of nonfunctional currency balances, partially offset by hedging losses. The hedging losses consisted of losses on our rupee hedges and gains on our pound hedges.

Our ANI for Q2 was $12 million compared with $14.5 million for the same quarter last year and $10 million last quarter. The 360 basis points year-on-year reduction is the result of rate increases, rupee appreciation and higher tax charge resulting from the expiry of the STPI tax holiday in India.

Sequentially, ANI improved $2 million or 118 basis points due to the new growth, modest rupee depreciation and a lower effective tax rate during the quarter.

The WNS balance sheet remains healthy. We have access to capital. And as of September 30, our cash balance was approximately $16.1 million. We generated $21.7 million in cash this quarter from operating activities, which is a significant improvement from the $2.3 million posted in the first quarter. DSO's continued to decline with the second quarter coming in at 35 days, compared to 41 days in Q2 of last year and 39 days last quarter. The improvement continues to be driven by improved collections in the Global BPO business, as well as improvement in a large client in the auto claims business.

Our CapEx spread for the quarter was $6.2 million, and year to date, it stands at $13 million. We still see our total capital expenditure for the 2012 fiscal at approximately $20 million, although the actual cash flow in this account may be slightly higher as some items from fiscal 2011 will fall into this year.

The capital expenditure will be used for the expansion of our infrastructure in special economic zone locations in India and expansions in our capacity in Costa Rica, the Philippines and Romania.

It will also be used for the establishment of onshore centers and to set up smaller low-cost centers for our domestic India BPO business.

WNS generated free cash flows of $15.5 million during the quarter, which is in line with the $5 million of monthly cash generation that we have consistently spoken about. In our earnings that we have issued today, we updated our fiscal 2012 guidance to reflect net revenues of $388 million to $404 million based on an average British pound to US dollar rate of 1.55 for the second half of the fiscal year. This implies the growth of 5% to 9% over last year despite the top-line currency headwinds which have cropped up since our previous guidance.

We currently have 98% visibility to the midpoint of our guidance range, and we expect to further tighten the guidance range as we move forward in the year. It is important to note that as we look forward into the third quarter, WNS anticipates revenues in Q3 may decline below Q2 levels, while they will still be better than the Q3 of last fiscal.

Depreciation in the British pound based on an exchange rate of 1.55 will result in a sequential revenue reduction of approximately $2 million in the third quarter. Additionally, the fiscal third quarter of each year is seasonally soft for our channel vertical. As holiday plans are typically made well in advance, business volumes in Q3 reduce. We fully expect revenue growth to return in the fiscal fourth quarter of 2012, which is included in our full-year revenue guidance.

Our ANI guidance of $44 million to $47 million is based on a rate of 48.5 rupees to the dollar for the second half of fiscal 2012. This implies an adjusted EPS of $0.96 to $1.02 on a diluted share count of approximately 46 million shares.

With that, we have concluded our prepared remarks and will now open up the call for questions. Over to the operator.

(Operator Instructions). Joseph Foresi, Janney Montgomery Scott.

My first question is just on the macro environment. We've seen a lot of headwinds. I know you talked about stability, but I wonder if you could just give us some context. Have you seen any cancellations or delays in? Any changes? And how's your relative pipeline versus maybe where we were last year at this time?

Hi, Joe. I'll take that. From our perspective, what we're seeing is the overall deal pipeline continues to remain very solid. We are seeing growth in terms of the quantity, the quality and the size of deals. We are also seeing deals moving through the pipeline at quite a healthy rate. So from our perspective, what we said last quarter is exactly what we continue to see even at this point in time.

We're seeing that the closure rates have also remained quite solid for us. We have been signing letters of intent, letters of engagement, signed contracts that are required.

Deals are definitely closing, and from our perspective, deals have not been lost.

We're also seeing that our sales team is playing in a lot more deals and getting prequalified in a lot more deals. So that's really, from our perspective, the positive side of the story.

On the other hand, what we're also seeing is the ramping of some of these awarded engagements actually slowing a little bit in the process. And that is essentially because of some of the macroeconomic fundamentals that you probably are alluding to.

Remember that a lot of these people coming into WNS at this stage are outsourcing first time. The economic uncertainty is playing in a little bit there the whole area of Europe. And what's happening with Europe is to some extent causing delays in terms of ramp in that market. So whereas we have won a number of deals, the ability to actually ramp in some of these geographies in those deals is pushed out a little bit.

Other than that, we continue to see solid deal flow. And most importantly, we're continuing to see deal flows of larger sizes for WNS.

And I wonder if you could give a little color. I know you said that the constant currency was up I think 3% this quarter. Could we get the last maybe two or three quarters in constant currency growth? And maybe you could just talk about the timing of the realization of a lot of the changes that you talked about in your prepared remarks?

Sorry, Joe, what was the second part of your question?

I wanted to just get some sense of the timing of the realization of some of the changes that you guys had talked about in your remarks, when you expect it to sort of start to make its way through. I know it's already started, but maybe just some internal thoughts on that.

Yes, so let me answer that question first. If you know, most of the people that we have taken on board and the changes we have made to the sales team, whether it is hunting or farming, most of the changes came about in the January to April timeframe. So these people have -- are on average been in the company about 6 to 7 months.

And given our sales cycle that's typically six to nine months, so really now that they are starting to get into the final stages of some of the deals that they have got into the pipeline. So I would expect that they will take probably another three to six months before we see the real impact of the work that they're doing.

As far as the constant currency increases are concerned, like we mentioned in our prepared remarks, for each of the three quarters now, it's been at an increasing rate. I can get back to you with the exact numbers. They'll be there on the thing otherwise. David, do you have the exact numbers?

Sure. If you looked at the fourth quarter of last year, the constant currency revenue growth on a sequential basis was 1%. In the first quarter of this year, it was 2.8%. And on a constant currency basis, this quarter, it was 3.1%. So we had seen that improvement. And as Alok said, we do see deals moving through the pipeline at a more rapid rate.

I think when you look at the productivity of the sales force, we started to see the early signs of this. And as deals close and they begin to ramp, it will provide the real fuel for growth into 2013. So we do believe that there is a lot of opportunity, not only in converting what's currently in the pipeline, but in terms of, as we make the sales force more productive, continuing to expand the pipeline on the front end.

Okay. And then just one last quick question -- on the headcount, obviously it pulled back and I think you said it was because of travel. would we expect that to rebound next quarter as you start to ramp on some of these deals? Or is there a focus on efficiency rather than headcount growth? How do we think about the headcount in relation to the growth aspirations?

So, Joe, we do expect that the headcount will increase in the back half of the year. I would hazard a guess and say it's about 500 to 600 people over the next six months that we would look to add. So we should end the year closer to 22,000 people.

Okay. Thank you.

Bhavan Suri, William Blair.

Thanks for taking my call. Just a quick question on the pipeline. Could you provide a little color about how it's split between hunting opportunities and mining opportunities?

Yes. On the hunting side, I think we are seeing a lot of opportunity. So if you look at each one of our verticals, I think what we're seeing is a huge effort in terms of positioning WNS in every one of the sub verticals that we operate in, in each one of the areas that we're looking at.

I think from a horizontal point of view, both finance and accounting and research and analytics, are the areas where we are seeing a lot of activity on the vertical side. We're seeing a lot of activity on banking, on insurance, on travel, retail, and even the logistics space.

And again, because we have such a new team and so much a focus on the hunting side, we're actually seeing a lot of activity well beyond what we have traditionally seen at the company in the recent past, and therefore, very enthused about it.

Our vertical strategy aligned with the horizontal collaboration is now causing every one of our existing client base also to look at new initiatives with WNS. And from our perspective, therefore, it means going into completely new areas, which to some extent, we also qualify as hunting inside of farming account, because the old way of dealing with these clients was around the process as opposed to the vertical. And beyond that, it also means we're looking at stealing wallet share from other partners. So overall I would say that the activity, both in hunting and farming has grown. And if there's any specific numbers, Dave, that you would like to add here, please go ahead.

I think what's important is that as the profile of the sales team has shifted to be more balance between hunting and farming, we've started to see that the pipeline is actually reflecting that.

What I think is different is while the pipeline may have a nice balance in terms of size and dollars between hunting and farming activities, the pull-through that we are seeing right now is definitely skewed towards the farming activities. And you can see that in terms of the fact that in the first quarter, we added six new logos. In the second quarter we added three new logos, but if you look at what happened to existing relationships, nine expansions, moving to 10 expansions in the second quarter, and 15 renewals and extensions moving to 19 renewals and extensions in the second quarter. So the activity levels and the pull-through in terms of speed to market, if you will, is definitely higher in the existing relationships.

Great, great. And then just any color on pricing that you have seen out there? Given TCS's comments, especially on the India business, any color on what you're seeing on pricing?

So actually, this quarter, which is the July to September quarter, we get a price increase from our largest client.

Sure.

That increase comes on 11 July, anniversary of the contract.

Right.

So that was actually a price increase. For all the other -- for all the renewals and expansions that we have seen, in no case was there a price reduction.

In some cases, it was the same price, but in many cases, we actually got price increases. So even in the new deals that we are active in, we have not seen irrational pricing. We've seen pricing relatively stable, so no concerns on the pricing front, to be honest.

Great. And then one quick one -- Keshav, you made a comment that the ramps are a little slower, but you think you could improve transition, so in my understanding, once you sign the client, you start ramping the workover and transitioning the workover. Could you just sort of clarify what those two -- why those two processes should be thought of as separately and how they kind of play with each other?

Yes. (inaudible). So what we are seeing, because of all the developments that we're having with either a first-time outsourcer or the developments taking place in Europe or some of the stressed geographies, are also because of significant structural or organizational changes that we are seeing inside new client environments.

What happens is a client signs up, makes a plan of wave one, wave two, and wave three. And quite often, wave one, wave two is pushed through quickly, and then the complexity of how quickly can we take this into say the European market. And with uncertainty there, there is sometimes a little bit of pushback. And that's what causes sometimes delays in terms of ramping that part.

Similarly, when an organizational change happens because of some of the things that we're seeing on the client side in say Europe or some of these other geographies, there's a new team coming in there so we have won the deal. We are -- the client is ready to move ahead but the client gets asked for a little more time so that the new team comes in, settles down and things like that.

So overall I would say that whereas it is positive, that we are seeing more of flow-through. We are seeing selection. We are seeing that wave one, wave two goes through faster. But then we're also waiting for the client to settle down on some of these stressed locations, so that we can then push through the rest of the program. And sometimes that part is what I was alluding to, causes a little bit of uncertainty in the short term. But we know that in the medium to long term, there are completely in the bag as far as the revenue is concerned.

Okay, great. Thanks, guys.

Dave Koning, Robert W. Baird.

Good job. I guess the first question is just on gross margin, the last couple years, you've been kind of in the mid-30s, kind of averaging around 35%. And this year it started a bit below that, but now with the rupee kind of moving in the right direction --and I know there's offsets below the operating line -- but for gross margin that the rupee is moving in the right direction; and are there other components too? Do you think you can get it back to 35% just on a rupee neutral basis with potential upside from the rupee? Or just how should we think about gross margin longer term?

So I think there is a good scope for operating leverage on the gross margin, and that's mainly as we will see the top line grow, the newer investments that we have made in facilities which will be able to leverage those facilities a lot better. So there is operating leverage not just on the CNA line that we've been talking about, but also on the gross margin among.

Remember that we are expanding into special economic zones. So it will always start with lower capacity utilization because those are brand-new facilities. And as newer work comes in -- (inaudible) new work there -- as newer work comes in, the capacity utilization there will be higher. And the fixed costs that we have at least from a rental and depreciation perspective, will not increase as we bring in the new revenues. And that operating leverage should give us better gross margins.

Okay. So do you think we should expect to get back to kind of that mid-30% range reasonably soon?

Yes, I won't go so far as to say that it will definitely happen by March, but it should happen in the next fiscal. This is kind of a transition period as we move from STPI facilities to S.E. (inaudible) facilities.

Okay, great. And one question just on the smaller segment, the auto claims segment -- I noticed revenue was down a bit sequentially again there. Should we think of that more as a stable business now, around $8 million of revs? And should margins just stay right around 10%? Or how should we think of that business longer term?

So that business actually has suffered the most from macroeconomic factors. There are, I would say, two things at a macroeconomic level that have really affected that business.

One is, of course, the higher fuel prices. And you know that that is a completely UK-centric business. So as fuel prices go up, the actual driven miles are lower. And if people drive less, it's but natural that there will be fewer accidents.

The other macroeconomic factor is that insurance premiums for people in the 19 to 25 age group have been increased tremendously, which makes it completely uneconomical for those people of that age group to drive. And the proportion of accidents by people in that age group is actually the highest. When we all remember years ago when we were 25 how many accidents we used to have.

So these two factors have actually reduced the number of accidents that take place.

The other factor of course, as we have mentioned before, is weather. And I think UK has had its hardest September in about 100 years. So if the weather is good, it's not good for our business.

So I think in the third quarter, it should pick up a little bit. But yes, from a structural perspective, I would look at that business as a high-growth business.

What we are doing to increase the growth is really expanding into newer service lines. Firstly is the HomeFlow business, or the home insurance piece. We opened a new office in Mansfield. We've got our platform up and running. We've got the first pilot. So hopefully that should start translating into better revenues before the fiscal year is out.

The second piece is what we call the SMR segment of the service, maintenance and repair, which is the non-accident maintenance and repair piece. But essentially we're leveraging our supply chain management and engineering skills to provide the same services of maintenance and repair.

Two fleet -- companies that have fleets, so whether they are car hire companies or there are organizations which have -- which own fleet of cars for their executives, but that's still a good executive perk in the UK.

Our sections or other service lines that we can expand into. The auto repair or the accident repair piece itself will not see a huge amount of growth.

Okay, great. And then just one quick one. It looked like built seats were up quite a bit sequentially -- it looked like maybe 8% I think from 16,600 up to 17,900, even though I think employees were down just a bit. Is that just preparing for growth, some of the CapEx that you did?

Built seats you're talking about. Yes, I just explained the [ATV]. So we actually built up [SUV]. We also spoke about pipeline, so we have to be ready when that business comes, so we've got that capacity in place.

And I think David, that also goes to Alok's comment a little bit earlier about the margin opportunity. To the extent that we've built seats and it's included in the cost structure today, as we improve the utilization of those seats going forward, we should have margin upside.

Yes, that sounds great.

Manish Hemrajani, Oppenheimer.

On the new deals and the expanded relationships, can you comment on the size of the relationships, if any of these are significant in size? And also, can you give us more generality on the pricing environment for new deals in the marketplace?

Yes, in the (inaudible) and new deals that we have signed up or the potential is definitely at least $3 million to $5 million in terms of ACV. But again, like I mentioned earlier, we're actually playing in a number of deals which are significantly larger, including the insurance deal that I alluded to, once again, in my prepared remarks.

So when we look at the pricing environment I mentioned earlier, we got a price increase, which is a contracted price increase on an annual (inaudible) of the contract from our largest client. And all our renewals and expansions have happened at the same or better prices. So no impact of any price declines.

In terms of the clients whom we've had the expansions and renewals, one of them is a top five client, and there are another three in the top 10, with whom we have had expansions or renewals.

I think the encouraging thing, Manish, in light of what Alok just said, is to the extent that we are getting good expansions with our top clients, and we have pricing stability, we're also seeing a reduction in customer concentration levels. So it does say that we've got good, healthy growth, not only in terms of what we're doing to firm the existing relationships and maintain the pricing on the existing relationships, but grow our smaller relationships at a faster rate.

Got it. And with the current sales team number of 72, are you satisfied with that? Or you're looking to add some more bodies there?

Maybe two or three; not much more than that.

Yes, I think the focus now is really shifting from expansion of the sales force to really upgrading and monitoring productivity there. So we will probably add just a few more, but at the same time, we will keep a close watch on how they are performing, how they are impacting the WNS brand in terms of the market.

And obviously at some stage, we will look to make sure that we have absolutely the right people and the most hungry people in the company presenting our value proposition to clients.

Again, I must say -- I just want to add something here. The good thing is, we're actually seeing investments from our side also in offshore-based sales teams, so we actually have a team of people now sitting offshore in India doing the early level introductions to our sales force.

We're actually seeing our people present in many more conferences. We're seeing a lot more activity with the analysts and advisory community. And I think all of this is positive for us.

Got it. And last one for me, can you provide us with some fund rules, vis-a-vis FX and how it correlates to revenue and earnings, both on the British pound and Indian rupee?

Yes, so on the pound, a $0.01 movement in the pound exchange rate will affect our revenues by $1.3 million per annum, that is. So that's kind of the impact it has.

The impact on the bottom line, obviously, will vary based on the hedges that we have. So most of it, we try and we mitigate. The way our hedging works, we are protected 90% on the downside and we [ride] 50% of the upside.

And on the INR?

Both pound and the INR. So, the hedging affects the bottom line. It doesn't affect our top line.

And I think in terms of kind of a rule of thumb based on where we are today, Manish, on the cost structure being rupee denominated, about a 1% move in that currency today is going to affect our operating margins between 50 and 60 basis points.

Tien-Tsin Huang, JPMorgan.

Hi, this is Puneet sitting in for Tien-Tsin. Thanks for taking my question. So, in the past, you talked about winning at least two large contracts to drive next year's revenue growth. And it appears that you have already won two such contracts in fiscal 2012. I know it might be too early to comment on fiscal '13, but based on what you know today, do you think your recent contract wins could drive double-digit revenue growth next year?

That's absolutely the intention, that we will get back to double-digit kind of growth, or at least get to industry leading kind of growth rates for next year.

And where do you think industry growth will be for next year when you set that?

We expect it to be in the -- around 15% to 14% -- 15%, 16%, somewhere in that region.

And you expect [de minimis] growth to be higher than that next year based on the obviously recent pipeline?

I think what we would like to be on par with the leaders in terms of growth rates. We will give you further color in terms of where we will be when we update guidance at the end of the year.

I think that's great insight. Second, going back to your revenue guidance, top end obviously represents returns on the changes you have made in the business model. But are there any company-specific risk that could keep fiscal 2011 revenue in the lower half of the guidance range?

When you say companies, it means the clients that we have or something that's like dilution of business?

Yes, (multiple speakers) specific, like excluding macro. Obviously macro is uncertain and could change a lot of assumptions, but if you exclude macro, as you -- if you assume macro remains the same from here on, so are there any WNS-specific --?

Let me answer that. As we said earlier, at this point in time, we have a 98% visibility to the midpoint of the range of our guidance. And we do not see any specific issues with that which are company-specific that could impact this guidance at all.

I would just throw one caveat into that, Keshav, and that's the currency.

Yes, yes, of course. Yes, currency as well, yes.

And last one for me, Keshav, can you talk about the specific services you provide in your consulting and professional services business? Is it --

So that's a vertical. It's not our service line. We provide consulting and professional services to everybody, but because when we say as a vertical, we provide these services to consulting firms to desired people in technology research, market research, pharma research, those kind of firms. So when we talk consulting and professional services, it's a vertical.

Got you, got you. Thanks.. Thanks for taking my questions.

Ed Caso, Wells Fargo.

Hey, it's actually Rick Eskildsen on for Ed. Just one quick one for me. As you saw nice progress here on attrition, can you give just sort of your thoughts on attrition and where you think you could take it down to? And it seems like you are past the spike when it went up to 43. So just any expectations you have on attrition?

Yes, from our point of view, as we mentioned even earlier, the first thing we would like to do is take it down to somewhere around 35% levels, and then keep working at it, getting it lower and lower, so we have internal targets and we're focused on achieving those specific targets.

Having said that, and let's also mention that the way we run our business is -- assumes that attrition levels are around these levels, and we have not seen any impact to any of our client-related SLAs. So that's the positive part of this particular discussion.

And I guess just one follow-up -- what are you seeing in terms of ability to get staff? And have you seen -- it seems like attrition has been coming down across the industry. So what are you seeing in the ability to get staff?

So it's the same set of sources. Obviously, campus programs and tie-ups that we have with various campuses and colleges provide some of those resources.

For us, a huge program that we use to drive -- that we're driving inside the company is around our reform programs, which have seen a huge spike over the past 18 months or so. We believe that a good, solid employee working within the company, understanding the values of this company, as well as the kind of offerings that we bring to the marketplace, are the best people to recommend other people either out of college or people that they know working in other companies who can be absorbed better at WNS. And we have actually seen a huge spike in those numbers for us. And to some extent, that is also helping us with our attrition. And beyond that, it is working with the outside consultants as well.

So I just want to say that within the company there's a huge, huge focus on this area in terms of making sure that we have the right profile of people coming in; the right screening and education programs inside the company; the right access to the vertical or horizontal universities that we have inside the company; and more importantly, creating the very strong ownership with these employees that this is the most interesting place to work in -- the place where they get their highest recognition and where they get stretch opportunities. And I think all of that is [working] extremely well with this employee base.

Great. Thank you very much.

Mitali Ghosh, Bank of America Merrill Lynch.

This is Kunal sitting in for Mitali. Just one question -- Keshav, you mentioned earlier that some of the large deals have been going through multiple rounds of decision-making internally. So in terms of the two large deals sitting in your pipeline, how have the decision-making or discussions on these deals progressed? Has it more or less been in line with your expectations?

Yes, on the specific deal that we spoke about in the last quarter as well as this quarter, we actually have already received the essential basic kind of decisions and (inaudible) for those deals, so that has already now started getting baked into our pipeline and our guidance.

When I spoke about the other large deals, I was talking about deals beyond those deals, where I'm really excited to say that WNS is playing a number of other deals which can have solid revenue potential for them next year. Maybe starting Q4 and going into the next year. And because of the size, scale of the deals and the complexity of these deals, I was actually mentioning that we would expect to see multiple levels of decision-making within the client side or the prospect side. But I'm happy to say that WNS has gone through some prequalification stages and has actually got selected and is now moving up that selection ladder as well. So these are for deals beyond what I think we have baked into guidance.

Got it. Just one follow-up -- in terms of the delays and ramps that you may have seen in certain cases, is there a way to understand what proportion of the business this is impacting?

Actually all of that is already baked into our guidance. And all we can say at this point in time is because we expected some of these deals in those delays, we have all taken that into our guidance and we have just assumed that the decision-making will happen later than sooner in those cases. But those numbers are all baked into the guidance as of now.

And just to kind of further on that, I think what it says is that the combination of the delays that we've seen on a couple of these opportunities, in addition to the currency headwinds that Alok spoke about, that's really what's kept the top line of our guidance from expanding in the last quarter.

Got it. That's helpful. Thanks.

And I just want to add one more point here. In some of these cases, because of what is being seen with Europe and some of these other geographies, a client that has planned a particular program in one of those geographies, because of the new stress that they are seeing, whereas they may be delaying the decision a little more, we actually think in some cases it could actually mean a larger deal for us because they're now looking at more aggressive, longer-term deals, but waiting for their new people to come and settle down and things like that.

So it's not that the deal size also doesn't mean the same. It could actually be bigger for us in the medium to long term.

Sure. And you think this is driven more by the complexity or the nature of the program rather than the macroeconomic situation?

Yes, it's a combination of both if you ask me.

Got it. Thank you.

Manish Hemrajani, Oppenheimer.

Hi, just one follow-up on the attrition rate -- can you give us some more granularity on the attrition rate on the customer care side versus the transaction side?

Actually we haven't shared that kind of granularity before.

Okay. So --

We don't normally get into those details.

On the non-customer care side, would you say your attrition rate is on par with the industry average?

Yes, I would say that. Yes, absolutely.

Okay, thank you. That's all I had.

And at this time there no other questions. I will now turn your call back to Keshav Murugesh for closing remarks.

Thank you, everyone, for joining this call and for your continued support over the last 18 months as we have rebuilt this company. We are pleased with the progress we have made, but realize that we have promises to keep and miles to go before we sleep. Have a great day.

Ladies and gentlemen, this concludes your presentation. You may now disconnect. Good day.