WNS (Holdings) Ltd (WNS) 2012 Q3 法說會逐字稿

Good morning and welcome to the WNS (Holdings) third-quarter fiscal 2012 conference call. At this time all participants are in listen-only mode. After managements' 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 David Mackey, WNS' Senior Vice President of Finance and Head of Investor Relations.

Thank you and welcome to our third-quarter earnings call. With me today I have Keshav Murugesh, WNS' Group CEO, and Alok Misra, the Group's CFO. A press release detailing WNS' third-quarter results was issued earlier today. This release is also available on the Investor Relations section of our website at www.WNS.com.

Today's remarks will focus on the results for the fiscal third quarter ended December 31, 2011. Some of the matters that will be discussed on today's call are forward-looking. Please 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 20f which was filed with the SEC in April 2011 and the Company's Form 6k which was most recently filed with the SEC on October 19, 2011. Both of 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. Reconciliations of these non-GAAP financial measures to GAAP results can be found in the press release issued earlier today. Some of the non-GAAP financial measures management will discuss are defined as follows -- net revenues are defined as revenues less repair payments; adjusted net income, or ANI, is defined as 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, David. During the third quarter we continued to make progress on our key investment programs, designed to enhance our competitive positioning and long-term revenue growth potential. From a financial perspective overall revenue performance was in line with earlier indications while profitability improved as a result of depreciation in the Indian rupee.

Operationally WNS was able to establish new strategic relationships on the client, service platform and delivery center price. As anticipated and discussed on our previous call, revenue less repair payments fell sequentially as depreciation in the British pound and seasonal volume reductions in the travel vertical created top-line headwinds.

The global business environment has created challenges for some of WNS' clients and as a result we are seeing some near-term behavior changes. In the travel vertical competition, M&A and bankruptcy are in fact impacting business volumes and revenue visibility. In the UK, regulatory changes and reduced auto traffic are having a negative effect on our auto claims business at least in the short-term.

Additionally, we have begun to see a drop in revenue with our largest client who is forecasting lower same service outsourcing volumes going forward. [Hence] our requirements are reducing as both WNS and this client have focused on driving improved efficiency. The client has also made a strategic decision to bring certain front-end voice functions back in house which is affecting our volume.

That being said, the relationship remains extremely positive and the client is very happy with the quality of service they are receiving from WNS. We are currently working together to identify new areas of opportunity including new geographies and higher value services that should bear fruit in the medium term.

These reductions were partially offset by a new contract win with the large insurance prospect we have been discussing over the past few quarters. The client has signed a 10-year master services agreement with WNS and transition activities are currently underway. We are optimistic that this new strategic client will be a top-five contributor to our overall corporate revenues in the next few years.

According to the client WNS' deep domain expertise and industry specific solutions convinced them of our capabilities, while our flexible customer centric approach assured them that we were the right business partner. We believe that this milestone win validates our vertical go-to-market approach and competitive positioning.

WNS remains focused on growing our revenues by taking advantage of both hunting and farming opportunities. We have built strong and lasting relationships with our existing clients and must leverage our positioning to introduce them to our broader range of capabilities.

During the third quarter we added a total of three new clients; we expanded nine existing relationships and renewed or extended another 10. The new business pipeline continues to be strong, visits to offshore delivery centers are increasing, and we have several high value brand name opportunities in play.

We are currently seeing particular strength in the insurance, utilities and healthcare verticals and healthy demand for research and analytics and industry specific BPO services. We are also hearing from clients that having an expanding global delivery footprint is increasingly important.

Many clients are seeking the advantages of on-site and near shore centers for strategic functions and processes, language capabilities and geopolitical de-risking. WNS is looking to address these requirements by adding delivery center locations in areas such as Africa, Asia, Latin America and the United States.

These centers will allow us to provide additional delivery capability to our global clients, take wallet share from other local vendors servicing clients in these locations and ensure over time that we are well positioned to tap revenue opportunities in new, exciting and growing markets. This was both a capability creation as well as a de-risking strategy for WNS.

During the third quarter WNS was able to partner with a local BPO provider and signed a contracting agreement which allows us to immediately provide services from South Africa to our global clients. The first WNS client for the center has already been contracted and the transition of processes is currently underway.

We are also aggressively working to finalize plans for a new delivery center in the United States to support both existing and prospective requirements. In concert with the investments we have made in our US sales force we are optimistic that we can accelerate our growth in the US and North American region.

I would now like to provide you with a brief update on the key initiatives we have underway at WNS. These include -- verticalization of the Company, expanding and upgrading the sales and marketing team and moving up the value chain with clients.

The transition from a horizontally led organization to a vertically led organization is complete. While we still continue to add domain expertise and to expand the breadth and depth of our industry BPO solutions, we are already beginning to see the benefits of this transformation.

Clients now see WNS as a thought leader and industry expert which allows us to approach them with a broader range of services and solutions. This is in sharp contrast to a horizontally led approach which restricts the relationship from growing beyond the original process scope. As I've indicated before, we are already seeing the positives of this transformation in our sales efforts and are excited about the potential going forward.

With respect to the sales and marketing organization, the overall team size is largely set. On the December 31, 2011 the sales and account management group has 70 members with the team composition slightly skewed towards hunting versus farming [providers].

Since quarter end the Company has added a new head of sales for North America. The entire WNS organization is focused on enabling and supporting the sales team to accelerate productivity which should translate into continued pipeline expansion and improved deal closure rates.

Our third strategic initiative is developing highly valued differentiated solutions and approaches to allow WNS to move up the value chain with clients. Recently I decided to form a dedicated group within the Company that would be responsible for the development of transformational technology enabled solutions.

The newly created capability creation and global transformation practice is reporting directly to me and will work closely with the vertical business units, horizontal practice leads, software solution partners and directly with new and prospective clients to create these differentiated offerings.

While examples of technology enabled solutions currently exist in pockets throughout WNS, the capability creation and transformation practice will also help facilitate our ability to leverage these unique capabilities across new processes, clients as well as verticals.

As we have mentioned on previous calls, these new services are critical for several reasons -- for clients they 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 while creating a path towards nonlinear growth.

Nonlinear models where revenue becomes delinked from headcount allows a company to rapidly improve productivity and expand margins. While some of the technology required to drive these offerings will be developed internally or acquired, others will be integrated into our offerings with help from strategic partnerships and alliances.

In the past three months WNS has struck agreements with three software and service providers in the areas of operational business intelligence, business collaboration and e-Fulfillment to help deliver leading edge solutions around data to decision and order to cash. As a result of our focused efforts and strong market demand we expect technology and transformation dollars to grow as a percentage of our revenues in the coming years.

Total headcount at the end of the third quarter was 22,697 which increased more than 1,100 FTEs from 21,565 in the previous quarter. Much of this hiring was at the training level to fuel future growth with additional resources brought on to handle the future ramp up on new insurance clients and others.

We would expect fourth-quarter net headcount to reduce with those Q3 levels as the impact of attrition and reduced volumes with our large insurance client are expected to impact fourth-quarter hiring requirements.

From an employee retention perspective our overall turnover rate continues to decline and we are starting to factor this progress into our future hiring plans. The talent management programs we have implemented combined with an improving excitement level and energy within the Company are helping to drive our attrition levels down.

For the third consecutive quarter the attrition rate has declined coming in at 35% this past quarter. This is in contrast to the 43% attrition rate we reported nine months ago. While we are pleased with our progress continuing to reduce employee turnover remains a high priority for the entire WNS management team.

Although the global economic environment remains volatile and uncertain with some (inaudible) clients being impacted in the short-term, overall demand for BPO services remains relatively stable and healthy. Sales cycles continue to be long and initial product rants slow especially for new clients and larger transformational deals.

From a services perspective demand is strong in the areas of finance and accounting, research analytics and industry specific solutions. Also clients are increasingly looking for higher value engagement models including transaction-based and outcome-based pricing.

Given the overall market opportunity in the BPO space, WNS expects to continue our aggressive investment plans over the next few years and deliver on organic growth opportunities. These plans include expanding our geographic delivery capabilities, strengthening technology enabled and vertical solutions and improving our overall customer reach through enhanced branding and marketing.

We will drive these initiatives through a combination of capital expenditures, niche tuck-in acquisitions and strategic partnerships. At the same time WNS will continue to improve our internal (technical difficulty) and eliminate waste, improve receivable collections and cash management while ensuring payment of all our debt obligations.

In summary, we remain confident with respect to the long-term growth opportunities for the global BPO market and cautiously optimistic about the health and stability for these services in the short-term. Overall the WNS team is pleased with the operational and financial progress we have made so far and believe that our transformational efforts are on track and beginning to bear fruit.

It is clear from the feedback that we are receiving that clients are seeing the benefits from these changes in the form of improved retention, top leadership, domain expertise and innovation. We must remain focused on superior execution in all phases of our business and helping our clients to compete in increasingly complex and rapidly changing environments.

Let me now and the call over to Alok to walk through the financials. Alok?

Thank you, Keshav. In the third quarter our net revenues increased to $97.2 million from $92.7 million in the same quarter last year representing an increase of 4.9%. This improvement was driven by solid growth in most verticals paced by travel, insurance, consulting and professional services, healthcare and the diversified business unit.

On a constant currency basis year-over-year revenues grew 5.2% which is reflective of a 0.5% depreciation in the British pound. Sequentially net revenues decreased by 3% based on depreciation of the British pound, travel seasonality and volume reductions with our largest client.

On a constant currency basis revenues were off 1.7% sequentially. From a vertical perspective the travel and insurance verticals accounted for the majority of the sequential decline. Gross margins, excluding share-based compensation, were 36.3% in Q3.

Compared with the same quarter in fiscal 2011 this represented an improvement of 210 basis points as higher revenue, improved operating leverage and the Indian rupee depreciated over 38%. These factors more than offset the impact of the annual wage increases and incremental hiring.

Third-quarter gross margins increased by 360 basis points when compared with the previous quarter. Despite slightly lower volumes and additional hiring, improved productivity and an 11% sequential depreciation in the Indian rupee helped drive gross margin favorably.

Third-quarter 2012 operating margins, excluding share-based compensation and amortization of intangible assets, were 16.7% representing a 350 basis point reduction from the 20.2% reported in the same quarter of last year.

Exchange rate favorability was instrumental in driving up gross margins and reducing SG&A levels. However, this favorability was more than offset by a $5.1 million year-over-year variance in foreign exchange gains and an additional $2.1 million of hedging gains reported under IFRS in the third quarter of fiscal 2011.

In terms of hedges, WNS is approximately 90% hedged for fiscal 2012, 80% for fiscal 2013 and 25% hedged for fiscal 2014 using a combination of options and forward contracts. As compared to Q2 of fiscal 2012 operating margins expanded 120 basis points sequentially. On a net basis rupee depreciation helped improve operating margins by 200 basis points. Lower revenue and additional hiring during the quarter were drags on the operating margin line.

Interest expense this quarter was $1 million against $1.2 million in the same quarter last year and $0.9 million in the previous quarter. We expected this cost to continue to decline from these levels as we pay down our debt.

The Company's ANI for Q3 was $12.1 million compared with $18 million in the same quarter last year and $12 million last quarter. The 690 basis point year-over-year reduction is a result of operating margin reduction discussed earlier and the higher tax charge resulting from the expiry of the STPI tax holiday in India.

Sequentially ANI improved $100,000 or 50 basis points with rupee depreciation, improving operating margins and a higher effective tax rate reducing ANI. As of December 31, 2011 our cash balance was $23.3 million with an additional $11.4 million in bank deposits and marketable securities. The Company generated $16.9 million in cash this quarter from operating activities and a free cash flow of $12.2 million.

We made our scheduled installment payment of $30 million on January 9, 2012. The total debt outstanding on our original term loan is now $24 million with a final payment due in July 2012.

DSOs were stable in the third quarter coming in at 36 days compared to 47 days in Q3 of last year and 35 days last quarter. Our CapEx spend for the quarter was $4.7 million and year to date stands at $17.6 million. We still expect our total capital expenditure for the 2012 fiscal year to be approximately $20 million.

The capital expenditure is being used for the build out of new SEC facilities in India, the set up of smaller low cost sectors for the domestic India BPO business, expansion of our existing capacity in Costa Rica, the Philippines and Romania and the establishment of a US based on-site center.

As announced previously, during the third quarter WNS acquired the remaining 35% stake in our Philippines joint venture from our partner Paxys. This makes WNS Philippines now a wholly owned part of the WNS Group.

In our earnings release issued today we updated our fiscal 2012 guidance to reflect net revenues of $391 million to $393 million based on an average British pound to US dollar rate of 1.55 for the fourth quarter of the fiscal year on an average annual rate of 1.59. We currently have more than 99% visibility to the midpoint of our guidance range.

Our ANI guidance of $45 million to $47 million is based on a rate of 52 rupees to the dollar for the fourth quarter of fiscal 2012, representing an average annual exchange rate of 48.4. This ANI implies an adjusted EPS of $0.98 to $1.02 on a diluted share count of approximately 46 million shares. We will now open the call for questions, so over to the operator.

(Operator Instructions). Edward Caso, Wells Fargo.

Can you talk a little bit about how your analytics business might overlap with Mu Sigma which has gotten a lot of press lately, where you're similar and where you're not?

Yes, what I'll do is focus more on our business because I don't think we're very qualified to talk about Mu Sigma's business. The reality is that's a high value add offering that we provide to our clients. As you're probably aware, over the years we did acquire one or two assets in that space and have built on the capability that we had in there.

This is an offering that we embed within our vertical offerings that we take to the market. And while we may use a vertical offering to get into a client, we then use analytics to really move the quality of the engagement to a completely different level.

I'm delighted to say that as I look at the numbers and I look at the growth of the analytics business for WNS year to date at the end of the same period last year, we're up by almost in excess of 20%. And that itself shows the impact that analytics is now having on our business.

Can you -- also on the employee turnover front, it appears, when you look at the IT focused firms, that they're also enjoying a steady improvement in their attrition numbers. I assume it's off the distorted period of '08 to '10. So how much of your benefit here is that the supply in India has just gotten much better and how much of it is specific actions? And maybe you can give an example or two of specific actions you've taken.

Yes, that's a very interesting question. And the way I would look at that is they are -- these are two completely different businesses from our perspective. The kind of people that we would traditionally hire on the IP side are extremely different, whereas on the BPO side of the business you have to assume that the kind of people that you hire quite often are not fungible across various horizontals, verticals or even geographies for that matter.

So there's very different kinds of skill sets. On the one side you're all the time looking at just engineers and you've got to probably train them on Java or whatever and then you can use them (inaudible) any business. Here it is very different; it's voice, its data, it's analytics, it's finance and accounting. So therefore completely different in terms of the nature of the beast.

We like to believe that the excitement that we're creating inside the Company, the kind of talent, management initiatives that we have unleashed across the Company over the last 18 months is what is now driving our reduced attrition rates.

Remember, in this business, irrespective of demand and supply, attrition on the voice side is always high because of the nature of that business, the timing that people have two work, the timing that people are to work and the kind of shifts they work it. So you always must expect a higher kind of attrition rate there.

But overall on a blended basis for us it has been reducing. And we believe it is because our employees see this as a company with great opportunity and a very exciting place to learn and to be with for the long-term.

Last question. I know you're very involved in the travel industry. Does any of it interact with the cruise ship industry and, if so, have you seen any impact in the last few days?

So we -- cruise lines is one area of business as well for us because, as you know, we started with airlines but we have expanded across the entire sector. And so that's one area that we work in. We haven't seen any impact as a result of any -- the situation that happened over the last few days.

Thank you very much.

Joseph Foresi, Janney Montgomery Scott.

I was wondering at first if you could just talk about the BPO environment. I know you talked about it in your opening remarks. How are sales cycles and decision-making? Maybe you could talk a little bit about the pipeline and anything that you're seeing company specific within your revenue base. I know you talked about your top clients.

Sure. The way we are experiencing the sales pipeline is interesting. I'm quite excited about the way the pipeline is building for the Company, again based on all the investments we've made, based on that kind of offerings and the transformation story that we are presenting, as well as some of the success stories that we have also presented to various clients.

But essentially in terms of number of deals, in terms of the size of the deals that we are now playing in, in terms of the scope of deals as well as the geographical spread I'm very positive. We're seeing a lot of activity on the finance and accounting and the research and analytic sides from a horizontal point of view. Obviously voice is always there. But other than that -- insurance, banking and financial services and healthcare are leading in terms of opportunity for us.

Again, the size of deals and the complexity is interesting because as we see a number of these deals we're seeing that the prospects really want quick outcomes. So there is on the one hand the sales cycle in our -- it was long.

And even with a large insurance line that we recently won we're seeing that once the deal was won and once the hygiene factors were out of the way in terms of contracts and things like that, the need to actually accelerate and move ahead and start getting the savings in is getting much more enhanced and therefore that's causing a lot of excitement from our perspective.

We're also seeing on the one hand clients want quick outcomes once they sign up. Some -- we're also seeing deals where because of the nature of the market and the specific experience that some prospects are having, they want us to take charge of some of their assets which they have priced to create as a shared service center earlier and they now realize that it really makes no strategic sense for them to run it whereas it makes a lot more effort to just be a client of people like us.

So that is, again, a very interesting new trend that we're seeing. A lot of discussion that we're having with people of that kind. And finally, we're also seeing that the ability for us to now get into transactions which involve our actually going in and taking over an entire technology platform area and then using that to drive BPO services including higher analytics is the third area where we are displaying in a number of these deals.

So overall I would say that we are extremely positive about the way the pipeline is building, the way clients are interacting, the number of businesses that we are having to our different centers as well as the kind of references some of our older clients are also providing to our new prospects is very positive.

Again, while the usual suspects, the UK and the US, are very positive for us, it's more the UK; US is building healthily. We've also made good investments in the Asia Pac markets particularly in Australia as well as the Middle East. And we believe that while we're playing a few deals in both these markets it will help de-risk our revenue stream.

Now coming back to the specific clients that we spoke about, again, I'm extremely positive about quality of the relationship, about the fact that we are actually being pointed towards a number of new deals even with this client. And in fact, when I talked about expansions earlier, one of those new expansions is actually with this client.

We understand that the client is going through some temporary issues in terms of messaging and in terms of handling particular aspects of their business that involves certain geographies and we're being very (inaudible) to them. And again, I must clarify that this client was also a great reference for us when we sold to the new insurance clients that we just [brought].

Okay. Keshav, you talked about target being of getting back to above industry growth rates for the business. Has the time frame on that target changed at all and when do you expect to fully reap the benefits of all the hard work?

Yes, so, Joe, the focus at WNS is really to target for the management team industry growth rates for the next year. So that's what is a good outcome that we would like to have. But having said that, we will update you in terms of next year's guidance and things like that at the right time at the end of next quarter.

Okay. And then just finally, I know that you guys narrowed the guidance range on the revenue side of things. Maybe you could tell us what's involved in the guidance now and give us an update on some of the commentary that you gave us about the largest client. Have you seen the bulk of any reductions that you're going to see from that client? Is it stable at this level and what part of that is built into the guidance?

If you look at our constant currency growth rates year on year for this quarter, I believe it's around 5.2%. And implied growth rates based on probably the midpoint of that range at this point in time, even for the next year, actually is a healthy 5% year on year even for the fourth quarter.

So the reality is we're quite positive about the growth that we are experiencing and the opportunity that we are seeing. And at this point in time we believe that one or two of the clients that I alluded to will have a decline even in the fourth quarter and we have baked that into these numbers.

Okay, thank you.

Vincent Lin, Goldman Sachs.

Great, just to follow up on Joe's question in terms of the volume reduction from your large insurance clients, should we expect the transition and also the volume reductions kind of on a company basis as we exit fiscal 2012? Or should we expect some more residual impact in early fiscal 2013 as well?

This is Alok here. I really don't want to comment on 2013 at this stage. As Keshav mentioned, whatever we're looking at in Q4 we have factored into our guidance and when the time comes to give the guidance for next year we'll provide a lot more color about what we're expecting from some of our larger clients for next year.

Okay. And then just in terms of some of the moving parts that you described for the travel vertical, can you maybe just comment on in terms of going through the next couple of quarters in terms of seasonality and kind of macro impacts that you are seeing right now, what should we expect in terms of the interest or sequential volume expectations for the next couple of quarters for the travel vertical?

Sure, I'll take that, Vincent, this is Dave. If you look at what happened in the fiscal third quarter, as we had alluded to previously, we have a sequential seasonal drop in the third quarter based on the fact that travel bookings are down. We do and expect at a macro level that our travel vertical will have a positive movement in the fourth quarter coming up here.

That being said, as Keshav talked about in his script, we do have some client specific challenges that we're dealing with within the travel vertical. Whether they're related to competitive situations, whether they're related to M&A related situations or related to bankruptcy, these are all things that we have to watch going forward.

But we do believe, based on our positioning, based on our knowledge of the space, that we do have significant opportunities for growth as we head into fiscal 2013 in the travel vertical as a whole.

Okay, great. And maybe the less question -- can you discuss the pricing environment? Is it still pretty stable or is there anything changing on the margin whether from a client behavior perspective or from a competitive standpoint? Thanks.

So right now pricing in terms of the environment for the newer deals that we're getting into, our pricing environment is completely stable. We don't see any irrational behavior from any of our competitors, nor do we see any unrealistic expectations from deals that we are working on in the pipeline in terms of what the clients are expecting. So we don't see any change in the status as far as pricing is concerned.

Great, thanks.

Manish Hemrajani, Oppenheimer.

Your auto claims business showed some sequential growth this quarter, but not as much as one would have expected especially in the winter months. Any color you can divide on that and what are your initiatives to drive growth in the auto claims business?

Yes, so there is obviously a currency impact in there as well. So if you see, the auto claims is completely a (inaudible) based business. So despite the currency headwind we still grew that business sequentially. So I think quarter three and quarter four seasonally are usually a little higher. But again, those are somewhat weather dependent.

In general the auto claims industry is affected by some macroeconomic factors, principally the cost of fuel and the cost of insurance premiums and that's been a systematic impact that we have seen in that business. I've think it's a positive trend this quarter but -- and Q4 also should see similar levels. But beyond that it was -- I would say this is the kind of growth rates that we should expect in that business. So sequentially I think we grew 8% despite currency headwinds.

And how much was currency impact on that?

The currency impact would be about 1 point -- well, actually no. For them the currency impact would be roughly about 3%. So it would have -- the growth would have been probably about 11%. This is completely a (multiple speakers) based business.

Got it. On the attrition side you had secured great progress with levels having come down to 35%. Where would you put that versus the industry average? And what level are you targeting internally over the next couple of quarters?

Well, over the next couple of quarters we probably would expect it go down a little bit from here, not vary significantly. But as you would expect, in India at least the January to March quarter is the quarter where people wait for their increments and their bonuses. I would expect attrition to spike in that particular quarter, so if at all it should reduce further.

But I think that the core focus of the Company is to constantly focus our people on the fact that this is an environment where they are learning, where they're having multiple experiences, where they have opportunity for (inaudible) and as the result of which I think our people are actually seeing this as a very interesting place to be.

And so we will keep setting targets as we move ahead for the future. But as the CEO of the Company I would like to first breach at 30% and then next at 25%. And we'll keep visiting that milestone.

And on your delivery side, I noticed that your delivery mix shifted a bit towards the UK from India. Can you provide some additional color on that, what caused that shift?

That's primarily because of the growth in the auto claims business whereas the BPO business showed an overall decline sequentially. So as the mix changes that was a consequence of that. Because the auto claims is completely onshore UK-based delivery.

One last question from my side. On the largest (inaudible) reducing (technical difficulty), is it just a factor of the client lowering their overall budget or is that business going to another vendor?

No, it's not going to any other vendor. And it is not really reducing their own budget, it is more managing an internal situation and also managing fallout of some changes that they had with one or two of their geographies. So we've been quite partner-like in that situation.

And it's not that it's gone to another vendor, nor is it to actually reduce the budgets. As I said before, the relationship is extremely solid. And as we look even into the next year the pipeline of opportunity with them on new areas is also filling in quite nicely.

Got it, thank you.

Kunal Sangoi, Bank of America-Merrill Lynch.

Just continuing on the discussion on the pipeline, Keshav, if you could give any comments on the two large deals that you had in your pipeline as of last quarter. How would things -- how would discussions have progressed there and what would be your expectation in terms of closure?

As I mentioned, we have closed the large insurance deal that we have been speaking about and transition activities going on at this point in time. We are very excited about the opportunity with this client. And as I mentioned in my prepared remarks, we expect it to be among the top five clients over the next three years or so. So huge opportunity, very high impact area and lots of high-end kind of work that is starting there and we're hoping will ramp up quickly.

In terms of other deals, there are a number of deals that we are playing in. But there is definitely one more which is -- on which we're expecting a decision to progress across the next quarter -- across this quarter. And we will keep you updated in terms of the time line as and when we close out finally.

Right. And any sense you could give us in terms of how does your pipeline look at the start of this year in comparison with maybe at the start of 2011?

You mean the calendar year?

Calendar year, yes, calendar 2012 versus '11.

well, you know, I actually am far more positive on the health of our pipeline now than this time last year, essentially because across the whole of last year we -- remember we built that sales team. (Inaudible) at this point in time.

We have an outstanding sales team, we have the numbers, we have the quality, we have the cadence and the rigor and we have people now knocking on the doors of prospects and driving the kind of outcome that I would like to see going into the next year. So I'm pretty confident that all this investment and effort that we made in that area is starting to bear fruit.

Got it. One last question just from a modeling perspective. The deal win in insurance, when should this start contributing to revenues and when could it reach steady state margins?

(Inaudible) has already started from the previous quarter, that's from Q3 and it will continue to ramp up. We're hoping it will actually never reach steady-state in the sense that it will continue to ramp.

Yes, I think that's a great comment from Alok, because I think one of the key things that we're doing is while we're focused a lot on growing some of these older relationships because we still believe some of them are under penetrated, we also realize that some of them are pretty well penetrated as well. And therefore our need to constantly bring in the new (inaudible) to model for WNS is high and that's the excitement around this year as well as potentially some of the deals that we're also playing in for the future.

And I think from a macro perspective it's also important to understand that the de-risking that we're looking at as a company is not just client de-risking. It's across clients, it's across delivery locations, it's across the verticals and it's across the service offerings.

So we are very conscious of the fact that when we talk about expanding our global delivery footprint that provides us not only delivery capability but also access to a new set of clients. And it's going to be increasingly important for us as we go forward to make sure that we continue to diversify to be able to accelerate the growth.

I would add geography also to that, because some of the clients we're now talking to or in advanced stages of discussion with are not necessarily from the usual geographies that you would expect to see. And these are therefore geographies where the -- something I would say that the overall impact of the macroeconomic fundamentals have not yet reached and these are very progressive companies now looking to just stay ahead of the curve and therefore the quality of (inaudible) extremely different with us.

Thank you.

Timothy Wojs, Robert Baird.

Just on the sales and marketing investments, can you give us an update as of just where we are in terms of the progress there, how far we are along that investment in sales and marketing? And maybe just a little bit of color on how much you think those investments can represent as a proportion of revenue going forward?

Let me address the first part of that question and I'll wait for Dave and Alok to fill in the rest. But essentially the whole sales and marketing area really is one of the key focus areas for us and it has been like that for almost four or five quarters now. The entire -- the focus has been grow the impact of our sales team in Europe first.

Remember we had a pretty decent team earlier, but we said we must right size the team, put -- make sure the right experience is available, domain align people there and then grow the number of people there. That's what we did.

We then made sure that in North America we actually filled out a number of rows, brought in a number of leaders, got in a global sales head, very recently brought in a North America head. But again, vertically aligned and horizontally aligned sales people on the ground there.

We then expanded our footprint in locations like Australia, the Middle East and as well as in India. So I would say at this point in time -- like I said earlier, we have close to 70 people across hunting and farming at this point in time, we're pretty satisfied with the number. We're pretty satisfied with the quality of people; we're pretty satisfied with the kind of outcomes they're starting to drive.

Obviously I would never be happy with sales performance until I get to a minimum of market rate growth. But I think we are well set to get to those levels over a period of time. Now in terms of investments, over to you, Dave and Alok.

So let me take a shot at it, then Dave can add. In terms of the sales force, I think we're pretty much there. The only key addition we have made after the quarter end has been the head of sales in North America. I think in the next year our investment, if any, will be more towards the marketing and prime building site. I think the sales investment is pretty much baked into our run rate.

Yes, I agree. I think the focused shift to, as Alok mentioned, marketing and branding and improving the awareness of WNS in the marketplace and obviously, as Keshav mentioned, making sure that the investment we've made in the sales force becomes more productive.

I do believe that if we can accelerate the top-line at a healthy rate there are mid- to long-term leverage opportunities based on the SG&A levels. Obviously if you look at the amount we've spend and the investment that we've made in sales and marketing at this point in time, it's certainly not commensurate with the results that we've seen in terms of top-line growth.

So if we can improve the productivity of the 70 plus people we have in the sales and marketing team and accelerate the top-line, we do believe that there are longer-term opportunities for us to improve operating margins.

Great, yes, that's very helpful. And then just maybe on wage inflation. I know that the Indian economy has pulled back a little bit and with the rupee where it is, maybe -- what are you guys looking at maybe for wage inflation this year and compare that maybe with what it was last year?

At this point in time we'll probably have to wait until we actually provide guidance. At this point in time I don't expect wage inflation to be very different from the current year. But having said that, let me assure you to get the best guy in each area they never come cheap. So we'll discuss (inaudible) right at the end of next quarter. But overall for the general mass I would not expect to see too much of a wage inflation increase over last year.

Okay. And then last one for me. Just, Alok, on FX losses, what do you expect with the currency where it is right now? What the FX loss could be in Q4?

For Q4 we're actually expecting it to be relatively flat in the sense that we're not expecting a large FX loss or gain in the fourth quarter. So effectively for the year we should kind of square off our gains and losses.

All right, thanks, guys.

And there are no more questions at this time. You may proceed with your closing remarks.

Thank you, everyone, for joining this call and for your continued support as we continue to strengthen the Company and position WNS for the future. We are pleased with the progress we have made and realize that transformational change does not come over night.

That being said, we remain focused on the long-term business opportunity and driving sustainable value for our key stakeholders including clients, employees, investors and the communities in which we live and work. Have a great day.

Thanks, everyone.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.