WNS (Holdings) Ltd (WNS) 2012 Q4 法說會逐字稿

Good morning and welcome to the WNS Holdings fiscal fourth-quarter and full-year 2012 conference call. (Operator Instructions). Now I would like to turn the call over to David Mackey, WNS's Senior Vice President of Finance and head of Investor Relations.

Thank you and welcome to our 2012 fourth-quarter and full-year earnings call. Here with me today I have Keshav Murugesh, (technical difficulty) WNS Group CEO, and Alok Misra, the Group CFO.

A press release detailing our financial 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 of the fiscal fourth quarter and full year ended March 31, 2012. 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 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 in January of 2012. 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 to 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 payment. Adjusted net income for ANI is defined as profit excluding amortization of intangible assets and share-based compensation. These terms will be used throughout the call.

I would now like to turn the call over to Keshav Murugesh, WNS's Group CEO. Keshav?

Thank you, David. WNS continued to demonstrate both financial and operational progress in the fourth quarter of fiscal 2012. Net revenues expanded 5.9% on a year-over-year basis and 2.7% sequentially, coming in at $99.8 million for the quarter. On a constant currency basis, net revenue was up 7.3% versus the fourth quarter of last year and 3% sequentially. Revenue growth was driven by seasonal volume improvements in the travel business, strength in the healthcare and utilities verticals, and the ramp-up of our large new insurance client. We are currently transitioning 17 mission-critical processes and expect this first wave of work to reach steady-state during the fiscal third quarter. As we migrate and stabilize these processes, during the year we hope to begin transition of several new work streams.

During the fourth quarter, our adjusted operating margins expanded for the third consecutive time, coming in at 17.5%. The 80 basis point sequential improvement in the quarter was achieved in spite of appreciation in the Indian rupee and margin pressure created by higher headcount and other transition-related costs associated with ramping our new large client. While we continue to invest in our business, the Company's operating margins remain among the best in the BPO space.

WNS was also successful in strengthening our balance sheet during fiscal Q4. The Company reduced the gross debt position by almost $20 million versus the end of Q3 and refinanced short-term debt obligations. The net result of the refinancing is an average debt maturity beyond two and a half years and a lower average interest rate. WNS completed a primary and secondary stock offering in February, which raised approximately $45 million in cash to help fund our strategic growth initiatives. Proceeds from this offering will focus on expanding our global delivery footprint, technology enabling our solutions and creating new capabilities and service offerings.

With respect to new business levels in the fourth quarter, WNS added a total of five new clients, expanded two existing relationships and renewed or extended another 16. Total headcount at the end of the fourth quarter was 23,874, which represented an increase of 1177 FTEs from the previous quarter. Fourth-quarter attrition rates rose to 39%, up from the 35% reported in the third quarter. The increase was driven by higher attrition for voice-based work, predominantly in the Philippines.

On the year-over-year basis, attrition is now down from the 45% reported in the fourth quarter of last year.

I would now like to take a minute to recap WNS's accomplishments during the past year before turning our attention to fiscal 2013.

From a financial perspective, the Company stabilized and accelerating our topline with net revenue growing 6.9%. This is in sharp contrast to the 5.4% revenue reduction posted in fiscal 2011.

In addition to the overall topline growth in the business, WNS was able to improve the quality of revenue generated in fiscal 2012. Vertical revenue growth was broad-based with insurance, consulting and professional services, healthcare and utilities all growing over 10%.

From a services perspective, topline improvement was driven by our higher value offerings with finance and accounting growing 23%, research and analytics growing 15% and industry-specific BPO growing 7%. These three offerings now represent 67% of revenue, while contact center has reduced to 21% of our portfolio.

From an engagement model perspective, we ended 2012 with 61% of our work performed on an FTE basis, 26% on a transaction basis and 13% on outcome based and other models. For the full year, the Company added 17 new clients, expanded 30 existing relationships and renewed or extended another 60.

Other 2012 financial highlights include a healthy and industry competitive margin profile, a significantly improved balance sheet and assigning in November of one of the largest contracts in the Company's history, adding a potential top five client to our blue-chip customer base.

Operationally the Company made significant progress towards our key strategic objectives in 2012. Investments during the year were focused on improving the size and composition of the salesforce, enhancing our vertical capabilities and approach, technologically enabling our solutions, expanding our global delivery footprint and building out special economic zone infrastructures in India. As a result of these efforts, we were able to increase the size of the salesforce by 45%, build a robust new business pipeline, vertically organize the company end-to-end, enhance our strategic partnerships and service offerings to create a South African delivery capability and increase the total number of built seats by 16%.

Looking forward, we believe the BPO marketplace as a whole remains relatively immature and underpenetrated with several waves of demand yet to materialize. As clients continue to focus on their core competencies, the scope of work that can be outsourced will continue to expand.

In addition to deeper penetration with existing clients, we expect the emergence of new verticals, geographies and services will help drive BPO industry growth long into the future.

As the BPO industry evolves, clients will expect increased alignment and business does your from their partners. Cost reduction and process expertise will become table stakes with differentiation driven by industry-specific knowledge and solutions, output and outcome-based service models, multi-location global sourcing and alignment of business objectives.

As we look at the opportunity for WNS in fiscal 2013, the demand environment for BPO remains relatively stable and healthy. While business volatility and uncertainty can impact the short-term plans of some clients, we see significant opportunity for growth with most of our existing client base. For us to successfully build on our 2012 progress and accelerate momentum, we must continue to invest in our business and drive improved execution. With this in mind, WNS's key focus areas for 2013 are geared toward driving sales force productivity, increasing our geographic reach, adding new service capabilities and enabling nonlinear revenue growth.

First and foremost, in order to accelerate our topline growth in the coming year, we must ensure that our sales and account management teams perform well. As we have mentioned, the overall team size is largely set as we finish the fourth quarter with 68 dedicated resources. The new business pipeline has developed nicely over the past year, and we currently have several large deals in play with decisions expected in the next one to two quarters.

For hunting activities, our Global Head of Sales and recently hired North American Head of Sales are spearheading the new business efforts. The client partners and account managers are responsible for driving farming activities within our existing customer base.

Both of these activities, however, are supported by the entire WNS organization, including myself, the vertical heads, practice leads and our newly created capability creation group. Together we are focused on continuing to fill the funnel with new opportunities, move deals expeditiously along the pipeline and maximize our closure rates.

From a delivery center perspective, WNS expects to continue expanding our on-site and nearshore delivery capabilities in fiscal 2013, along with our SEZ infrastructure in India. We have partnered with a local BPO firm to deliver services from South Africa and have already begun performing work for one of our existing clients.

In addition, we have visible demand from current clients and several prospects for this new center. The Company also hopes to announce the opening of our first US-based delivery center during the first quarter of 2013.

Combined with the investments made in our US-based salesforce, we are optimistic that we can accelerate our growth in North America.

We are also looking at potential centers in Latin and South America, Eastern Europe and Asia Pacific. Our center strategy will be driven by regional capabilities, visible client demand and the potential for servicing the area as an end client market. Additionally we must continue to increase our service capabilities during the course of this year. Adding industry specific offerings, technology-enabled platforms and custom-developed solutions will enable us to enhance our positioning as a high-value premium provider. We will look to a combination of in-house development, tuck-in acquisitions and strategic partnerships to create these differentiated offerings.

WNS presently has several initiatives underway along these lines, and we will keep you posted as plans firm up. The combination of higher value services, technology-enabled solutions and output of outcome-based engagement models will enable WNS to drive nonlinear revenue growth in the coming years. Our ability to grow revenue at a faster rate than headcount is critical to our success. WNS firmly believes this approach best aligns our objectives with those of the client, and it offers them increased flexibility and business value and provides WNS with recurring revenue and margin expansion opportunities.

We are confident that these initiatives will help us fortify our key differentiators, including deep domain expertise and end-to-end vertical alignment, high-value transformational and technology-enabled solutions and a client-centric approach, which includes output and outcome-based engagement models and multi-location global sourcing capability.

While we have come a long way in a short period of time, we still have much work to do. The initiatives we put in place in 2012 have helped position the Company for both short-term and longer-term success. However, we must focus our successful execution of our strategic plans and continue to invest in our business to drive sustainable and profitable growth. While 2012 marked a return to growth, 2013 is focused on accelerating our momentum with the objective of growing our business at or above industry rates quickly.

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

Thank you, Keshav. In the fourth quarter, our net revenues increased to $99.8 million from $94.3 million in the same quarter last year, representing an increase of 5.9%. On a constant currency basis, year-over-year net revenue grew 7.3%, which is reflective of a 2.1% depreciation in the British pound.

Sequentially net revenues increased by 2.7% driven by favorable seasonality in our travel business, strength in the utilities and healthcare verticals, and the ramping of our new large insurance client. These increases more than offset volume reductions with our largest client and reducing volumes, which are impacting our local claims business. These impacts are expected to continue into the fiscal first quarter of 2013, along with a M&A related volume reduction in the travel vertical, which was previously expected to happen in Q4.

On a constant currency basis, net revenues were up 3% sequentially. Gross margins, excluding share-based compensation, were 35.5% in Q4 as compared to the 36.1% reported in the same quarter of fiscal 2011 and 36.3% last quarter. The sequential margin decrease of 80 basis points was the result of additional hiring and other costs associated with transitioning our large new client and a 1.1% sequential appreciation in the Indian rupee.

Fourth-quarter 2012 operating margins, excluding share-based compensation and amortization of intangible assets, was 17.5% as compared to 19.4% reported in the same quarter of last year and 16.7% last quarter. Sequentially our operating margins improved 80 basis points as the unfavorable exchange impacts on gross margin and SG&A levels were more than offset by a $0.9 million quarter to quarter reduction in exchange losses.

Interest expense this quarter was $0.9 million against $1.2 million in the same quarter last year and $1 million in the previous quarter. We expect that these costs will decline in fiscal 2013 based on reducing debt levels and a lower average interest rate associated with our recent debt refinancing.

The Company's ANI for Q4 was $13.2 million compared with $18.2 million for the same quarter last year and $12.1 million last quarter. On a year-over-year basis, the ANI reduction is largely the result of a $0.6 million year over year variance in foreign exchange gains, an additional $3.8 million of hedging gains reported under IFRS in Q4 of 2011, and a $3.7 million higher tax charge resulting from the expiry of STPI tax holiday in India.

Sequentially ANI improved by $1 million or 70 basis points with higher revenue, reduced exchange losses and a lower effective tax rate helping increase our Q4 ANI.

As of March 31, 2012, our cash balance was $46.7 million with an additional $26.4 million in bank deposits and marketable securities. The Company generated $16.3 million in cash from operating activities this quarter and free cash flow of $13.8 million.

WNS also raised approximately $45 million net of underwriting fees and issue-related expenses as a result of our primary stock offering, which was completed in February of 2012.

From a debt perspective, we made our scheduled installment payment of [$30] million on 9th of January, 2012. The total debt outstanding on our original term loan is now $24 million with this amount being the final payment due on July 2012.

As Keshav mentioned, we also refinanced our short-term debt obligations and moved the average maturity beyond two and a half years, while reducing our average interest rate. As a result of our fourth-quarter actions, gross debt came down $19.7 million during the quarter to $86.7 million, and net debt was reduced by $58 million and the interest for 2012 at $13.6 million.

DSO in the fourth quarter came in at 35 days as compared to 44 days in Q4 of last year and 36 days last quarter. Our CapEx spend for the quarter was $2.5 million and for the full year came in at $20.2 million. I would now like to provide you with some full-year 2012 financial highlights before turning our attention to fiscal 2013.

Net revenue for 2012 came in at $395.1 million, a 6.9% increase over the $369.4 million posted interest for 2011. On a constant currency basis, annual net revenue grew 5.3%, reflecting a 2.5% appreciation in the British pound.

From a vertical perspective, revenue growth in our BPO business was broad-based during the year and was paced by increases in insurance of 15%, consulting and professional services by 13%, healthcare by 13% and utilities by 10%. From a services perspective, growth was driven by our higher value offerings, including finance and accounting at 23% and research and analytics at 15%. Adjusted gross margins for the year were 34%, SG&A levels were at 18.6%, adjusted operating margins came in at 15.9% and ANI was 12% of net revenue.

Our effective tax rate in 2012 was 19.5% of pretax ANI.

I would now like to provide you with some key operational metrics for the full year. In fiscal 2012 WNS added headcount of 2351 employees or 11% on an average annual attrition rate of 38% down from 43% in 2011 and increased our built seats by 2650 or 16%. Average built seat utilization dropped 5% to 1.3 in fiscal 2012 from 1.35 in 2011 as we continue to invest in our India SEZ infrastructure to drive long-term tax benefits.

Turning our attention to the current year, WNS provided initial guidance for fiscal 2013 in the press release issued earlier today. Based on our current visibility levels, we expect net revenues in the range of $410 million to $430 million based on an average British pound to US dollar rate of $1.60, and an ANI of $49 million to $53 million based on an exchange rate of INR50 to $1.00.

This ANI implies an adjusted EPS of $0.96 to $1.04 on a valued at share count of approximately 51 million shares. We currently have 91% visibility to the midpoint of our revenue guidance range. We expect to update this guidance as we progress through the year. In terms of hedges, WNS is currently hedged approximately 86% for fiscal 2013 and 42% for fiscal 2014. Using a combination of options and forward contracts, the Company expects CapEx levels to be in the range of $20 million to $22 million interest through 2013 as well.

That concludes our prepared remarks, and we will now open up the call for questions. Over to the operator.

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

My first question here is maybe we can get an update on how you look at this pipeline cutting into this year versus last year, how sales cycles are trending, and do you feel like you have optimized the salesforce and the salesforce additions at this point?

I think from a WNS perspective, we feel much more confident about how our salesforce is actually performing in the marketplace, the impact that they are creating in terms of just positioning the WNS brand and the logo with the kind of prospects or clients that we would like to have and, more importantly, with the way our farming community is actually taking the end-to-end vertical model along with all the horizontal offerings that we now present to each one of our clients.

So if you ask me, we believe that our message of end-to-end vertical with horizontals following is now resonating extremely well inside both our existing client base, as well as our prospect base. And in terms of just the kinds of deals we are now playing and compared to maybe this time last year, I think the complexity, the size and the scale of deals is looking much better. I think the overall deal pipeline remains much more solid if you ask me. And, more importantly, we are actually seeing deals moving through the pipeline at a slightly healthier rate.

Now from a closure point of view, obviously that ultimately remains in the hands of the client or the prospect. And I think what we are focused on is doing all the right things, sending out the right messages, presenting the right kind of story to prospects and clients, and making sure that we are available across all channels that clients normally use.

Okay. Maybe you can talk a little bit about the guidance for this year. What is built-in to the assumptions on the lower end or the top end? In other, what gets you to the top end of the guidance? What would put you at the low-end? I know that you have given some visibility around that.

So, Joe, if we look at the top end of the guidance, we are looking at about 9% growth. When we were on the road a couple of months ago, we did speak a little bit about a few of the headwinds that we were facing. I think some of those were mitigated this quarter. Some of them have got pushed out by a quarter, especially we referred in our prepared remarks to the ones related to some M&A activities in the travel industry. So we have baked all of that into the guidance, and we right now have more than a 90% visibility -- 91% to be precise -- on the midpoint of our guidance range, which is at $420 million.

I would like to say that what we have continued to do, as we have done every year, is to present a very consistent basis this year as well. So we want to make sure that consistency is followed in terms of our guidance methodology. So we have a solid visibility of 91% of the midpoint of the range. The method used to come up with this range is a consistent philosophy that we have used across the years, and we will see how things move along and how these move to the pipeline so that we have an opportunity to update as an amenity is acquired.

Okay and one last question on my end. As you look at the margin profile of the business, with all the investments that you made in SG&A, is the bias on the margin front to the upside now that you have got a secure cost basis there? How should we think about margins over the long term?

So I think the margin expansion opportunities for us are come along with the revenue growth. At the top end of the guidance, you will see that if the revenue grows 9%, our margins were actually -- our profits will actually grow more than 12%. So the margin expansion opportunities are more the higher end of the guidance range.

The sources of these margin expansions are similar to what we have spoken about before. A large part of it is around the expansion opportunities from the higher operating leverage, mainly of our SG&A, which is the investment that we have been making, especially on the sales and marketing side, and, therefore, getting a bit of leverage out of that, and better leverage by better utilization of our facilities, our seats. And we have talked about this. We have moved our seat utilization up during the year, but I think we have still got scope to improve that because we are making a shift from STPI to SEZ-based infrastructure. And, as the newer business comes in and the SEZ facilities get better occupied and better utilized, that will lead to margin expansion.

And, of course, we are also looking at a I would say maybe 100 basis point improvement in our effective tax rate. So this year we had originally anticipated somewhere between a 20% to 21% effective tax rate. We were able to bring it down to about 19.5% for the full year. Next year I would add anticipate about an 18.5% effective tax rate. So these are the kind of things that we can look at, but, as I said, most of these will come at the top half of our guidance range. So obviously sales growth is critical for us to be able to expand margins.

Bryan Keane, Deutsche Bank.

Congratulations on the solid execution. We are hearing a lot of different things between positives and negatives in the marketplace in terms of the environment. Maybe you can just give us your thoughts on some of the differences between the IT environment and the BPO environment and some of the pluses and minuses you are seeing over the last three to six months.

Right. Okay. So let me have a go at that first. But I think what really is happening out there is that, as prospects and clients understand that the macroeconomic fundamentals are not going to change in a hurry as opposed to being frozen in terms of decision-making, I think that we have gotten much more active in terms of introducing new deals to the table. A lot of new prospects and a lot of first-time adopters have actually started making visits, started interacting with providers like us and also started working closely with people who understand their business, who understand their specific company well, and were willing to some start small and then grow in terms of relationships. I think that is where WNS is seeing a lot more activity.

So, in our case, not only is it the fact that the environment itself continues to be tough at a little which a lot of clients or prospects are actually looking for value to be delivered from a good strategic vendor like us. On the other hand, because of our changed go-to-market strategy with the end-to-end vertical model, we are finding that our ability to enter each one of our existing clients' environments and also penetrate and radiate using our new message, as well as using our more technology-enabled kind of solutions, is also resonating well.

As I have always said in the past, when you look at the difference between IT and BPO, I think most often from an IT point of view the decision-maker is most often the CIO who has a budget. In our case we are really interacting with the CEO, the CFO or people who run operations who really don't have budgets, but who have to drive outcomes. And as long as we are able to deliver the right message to them, I think they are able to take those decisions and move along.

So I think that is the big difference really between IT and BPO. Obviously we keep hearing about the kind of messages coming out of some of the IT companies at least, but we believe that on the BPO side there is huge potential. Client timing in terms of decision taking is obviously going to be key and critical. CEO tenure, on the other side, is also important because there's obviously two ways of reducing your cost or building efficiency. One way is to actually sign up with a strategic partner like WNS, live through something for a short while, and then drive long-term benefits for the Company.

But, on the other hand, if your tenure as a CEO on the other side is too short, quite often you get tempted to just taking the shortcut, which is reduce a few hundred people and you achieve your P&L. So, again, it is a combination of all of this. So some verticals are more stressed. The CEOs have a slightly more difficult problem in terms of aligning timing with results, and some are much more strategic and longer-term, and that is where really our challenge is. It is more a question of when and not if in terms of decision-making.

No, that is helpful. And then the new business pipeline, I think you guys have suggested there are large deals that you would expect decisions on over the first couple of quarters. I guess maybe can you help quantify are we talking about one or two deals? Just the large deal pipeline in general, not only over the next couple of quarters, but in the next -- I know the BPO cycle can be even a year out -- how does the visibility look for larger deals?

So let me take that (multiple speakers). I'm sorry, go ahead Keshav.

Go ahead, Dave.

Okay. I think, as we talked about, there are two to three large deals right now that are in play for fiscal Q1 and fiscal Q2. Those deals signings, signing in a timely manner are going to be critical for us to get us past the midpoint and towards the higher end or beyond the higher end of our revenue guidance for the year. But in macrolevel the good news is the pipeline continues to expand. We are seeing more and more large deals enter the pipeline. Obviously at this stage when new projects start to enter, we are looking at late fiscal 2013, early 2014 discussions. So we don't expect to see much of any benefit from new deals entering the pipeline.

But, as Keshav spoke about in his prepared remarks, it is encouraging to see how these deals have moved through the pipeline, how we have been down selected on several of these opportunities to where we are one of the final one or final two in play for these projects. We need to wait and see whether or not we can bring this to closure, but we do expect that to happen within the next couple of quarters here. So happy with where the pipeline sits, happy with how things have moved, just need to bring these deals home.

Okay. Super. Just two questions for Alok. I guess maybe just some thoughts on the first-quarter revenue growth or revenue and I know the M&A stuff was expected to come off in Q4, so I assume that comes off in the first quarter. So I don't know if that means more sequentially flat revenues quarter over quarter. Maybe you could just give us a little bit of color on that?

And then the second piece, just how much FX headwind is expected in fiscal year 2013 due obviously to the strength in the US dollar?

So here we don't usually give quarterly guidance, so I will pass on the first question. We have given you our annual guidance. I think it is fair to say that we should see some growth in the first quarter as well, but we don't really give out quarterly numbers.

On the second question, I don't really expect too much of FX headwinds. The rupee has been relatively weak in the last couple of weeks. We know actually the reserve back actually caught the local bank rates by 50 bps yesterday. That did not really have much of an impact on the exchange rate that we expected to appreciate. It has not, so we don't know if there will be a delayed reaction on that.

But, other than that, I would expect the pound has actually been pretty steady in a small band between [$]1.55 and [$]1.6. We are expecting it to be stable around [$]1.6 for the year, so that is the basis of our guidance for the coming year.

Activity rate, like I said, we are about [83%] hedged for next year. So basis that the rates at which we are hedged is well in our guidance other than the way we can create our ANI guidance.

Dave Koning, Robert W. Baird.

First of all, you have done clearly a nice job accelerating revenue through 2012. But I guess what I'm wondering, during all of the quarters of 2012, I think you grew 4% to 7% constant currency, and that is pretty close to what you are guiding to in 2013. I'm wondering, I guess, what is prohibiting the ability to get to that 10% to 15% industry average over this year? It seems clearly likes you expect to get there, but maybe you can talk a little bit about the timing and why 2013 is going to look more like 2012 than another year of more acceleration?

Sure. I will take that, David. There are a couple of things to remember. One is, it is important to understand that the Company is from a topline perspective a turnaround story. We did have a deceleration in revenue of 5% in fiscal 2011. We posted roughly 7% topline growth here this fiscal 2012. However, on a constant currency basis, our growth for fiscal 2012 was [5.3%]. So we did have a little bit of benefit because of the appreciation in the great British pound.

But when you look at the 5% growth and how that relates to our fiscal 2013 guidance, it is slightly below the low end of our guidance. So, if you look at where we are on a year-over-year basis, the worst-case scenario that we presented today is a 4% year-over-year growth, which is very slight deceleration. Obviously we don't expect to get there. We don't -- we are not shooting for that kind of a number. If you look at the high-end of our guidance today, it reflects a 9% year-over-year growth, and that is, by the way, on a constant currency basis. The average pound exchange rates for fiscal 2012 was $1.594. We have assumed $1.6 for 2013. So the numbers we have given for fiscal 2013 guidance are on a constant currency basis.

We have given based on visibility, we have given consistent with how we have done it in the past, which we think is critical to giving both you, the analyst community, and the investor community consistency in messaging and approach. We are certainly not shooting for this range, and obviously sitting here in April we are optimistic that as the year progresses, we can update this guidance and hopefully update it to the positive. But in terms of consistency from messaging, consistency and approach and where we sit today relative to where we were in fiscal 2012, this is where we felt the right place to be was for guidance.

Okay. Great. And is it fair to say on the margin side, it looks like guidance assumes roughly flat margins. I would imagine -- maybe you could talk a little bit about the puts and takes there, but I know you are investing more in sales and things like that, so there is probably some underlying margin improvement that you are spending away a little bit on the sales front. Is that a good way to look at that?

From a margin perspective, I think your assumption is correct. The operating margin assumption is relatively flat. As Alok mentioned, it is flat at the low end. There is a little bit of margin upside at the high-end. It is also important to remember that our 2012 operating margin came in probably a little bit higher than folks had expected at 15.9%. So real healthy on the margin side, especially relative to the peer group and the overall industry.

You are correct in assuming that we do have incremental investments that we will be making in the business in 2013. We are going to expand our global delivery footprint. We are going to continue to invest in the SEZ infrastructure in India. We are going to have the impact of our wage increases that will affect our operating margins effective in the first quarter here. So that is a cost that hits us on an annual basis, and it is something that everyone needs to be aware of.

We also have the challenges of transition costs associated with bringing two large projects online -- one the South African transition that is going on right now and the second is a transition of our large insurance client.

So from a margin headwind perspective, those are the kinds of things that we are looking at. Alok spoke to the opportunities about leveraging the SG&A levels, which should largely be set, and hopefully improving our seat utilization throughout the year.

There are also opportunities as we continue to change our portfolio of services and move towards higher value solutions like finance and accounting and research and analytics, and move towards nonlinear types of growth that we can expand those margins. But in terms of sitting here today in April, this is where we are comfortable from an operating margin perspective.

Yes, that sounds good. Thanks. Good job.

Bhavan Suri, William Blair.

Nice job there. A couple of quick questions from me. The first just continuing on the margin profile, could you give us some sense, say if you had on average a percent of work moved from FTE based to outcome based, what that does for operating margin or gross margin?

Let me take that. I think it is something that would be almost impossible to quantify. It would depend on the type of work, the margin profile of the FTE-based work, and where you are in the client and the lifecycle of the project. So a lot of variables associated with that. But, needless to say, if you move to at some point a pure outcome-based solution, the real value in driving margin comes from sales.

So it is one of these things that is a little bit difficult to do. If you can technology-enable those solutions, it changes the profile. But what typically will happen in an outcome-based solution where the amount we get paid is directly linked to the benefit that the client receives, a lot of that has to do with how much volume you put through that specific process. Because there is going to be a fixed amount of cost to identify those opportunities and the value that the client receives and benefit will be a function of how much volume you are moving. So some difficulties, I guess, in explaining the direct link between those two.

And I think that is fair, but maybe an example or some sense of a client that has transitioned and even directionally sort of what that has done to margin or the contribution margin for that client for WNS would be helpful.

I think it is fair to say that when you look at the overall margin profile of the Company and you look at -- just looking at a gross margin perspective, for example, if the Company is running at a 34% gross margin, I don't think it is unreasonable to expect that your outcome-based solutions run north of 40%.

That is helpful. That is great. And then just turning to the sales hires, it seems like that has ramped nicely. Any sense of what the current productivity is, or I guess, more importantly, what that productivity improvement as a percentage could be over the next 12 to 24 months?

Yes. So I think that the good message here is the fact that these people are really pounding the streets, making sure that the WNS story and the WNS brand are now available with every one of the prospects that are looking at doing some of these deals that we are aware of. That is one.

The second is the fact that the kind of pipeline that we are seeing is broad-based across geographies, across horizontals, across verticals is, again, very, very positive from our point of view. It is not really concentrated on a specific geography or a horizontal or a vertical, but it is broad-based, which means that people are giving up us a fair chance in each one of these locations or deals.

The third I would say is that these people are able actually pushing some of the deals faster through the pipeline and getting decisions a little quicker. So I think, from our perspective, that is a positive kind of story. More importantly, they are making sure that the influencer community, the analyst community, as well as the advisor community, also understand very clearly the WNS story inside each vertical or horizontal and are ensuring that every time there is a deal out in the market, these people are inviting us to those deals.

So, from my perspective, I would say that obviously for us the focus really is productivity of the sales group. As I mentioned in my prepared remarks, we have now brought in a new North America Head of Sales who has just come in and is settling down, just like we have another leader running Europe sales now. Now these people are very closely monitoring all the activities that the vertical sales leads produce, and based on that, they obviously will ensure that more and more deals are pushed through the pipeline.

I am happy to say that activity as far as deals are concerned is high. Obviously you cannot win every one of them, but I am glad to say that, no, we actually are in deals that we are winning. We are not really losing deals at this point in time.

Now in terms of decision cycles, that obviously continues to be a challenge and, as I explained earlier, that is more a function of when a client can actually take a decision as opposed to our salesperson activity. I am quite happy with the traction that this team has now created and the traction that they will create over the next 12 to 24 months.

That is helpful, and then another one if I may. You have talked about sort of new clients coming in and new accounts that may not have looked at BPO before coming to talk to you and looking at how to improve their own economic situation. Could you give us any sense of whether second generation customers, customers who had outsourced to maybe IBM or EDS or someone, as those contracts come up for renewal, are you seeing and are you being invited to the table for those, and sort of the incumbents being pushed out of the table? How are those looking?

Yes, absolutely. So I will give you both a positive message and somewhat of a negative message there as well. First and foremost, I think we are being invited to a lot of those deals as clients actually understand that the value that we now deliver with this news story is as good or better than any one of these names that you spoke about. So the fact that we are now playing every deal with these kind of companies and winning against them is very important.

On the other hand, what we are also seeing is, as we make progress on some of these models, clients also use this opportunity in a few cases to actually create deals or put some of the deals out on rebid sometimes not to change their vendor but to beat them up on price. (multiple speakers) From our perspective, even if we lose one or two deals in such a situation and we go into the deal upfront knowing it is quite unlikely that a client is actually going to make a change, I'm quite happy that my competition actually walks off from the table unhealthier than earlier.

Great. That is helpful. Thanks, Keshav, and good luck, guys.

Ashwin Shirvaikar, Citi.

Thanks and good results. Not to beat a dead horse, but I wanted to go back to your revenue guidance. If I take the midpoint of the revenue guidance and apply the 91% visibility to it, I get a quarterly run-rate of $96 million, which is a bit lower than what you just delivered. I know from my own analysis, there has been some share shift towards your guidance, and you guys have been signing some decent-sized deals. So can you help me understand the timing of when some of those deals come in, and is it going to be perhaps a little bit of a backend-loaded year from that perspective and, in the early part of the year, what you still see is the runoff that you expected plus the effect of currency? Is that how I should think of it?

This is David. I think that there are a couple of things going on. One is, when you look at the visibility and how we have defined that revenue to the midpoint, obviously there are volume fluctuations. There are opportunities for both expansion and reduction against that volume. So it really is based from a midpoint perspective on what we have visibility to today. So and to the extent that client volumes could be ramping up or ramping down, that can affect what we show for visibility beyond what we know today.

In terms of the timing across the year, as Alok mentioned, we do have in the first quarter a little bit of topline pressure, which would be the continued ramp down from some of the headwinds that we discussed last quarter, specifically the pushout from the M&A-related activities on the travel side, and the ramp down from the regulatory change on the auto claims business. So those will both be impacting us in the first quarter.

I would not necessarily say that we expect the growth to be heavily backend-loaded, but certainly skewed a little bit towards Q2 to Q4.

Okay. Apart from what you already said, with regards to client-specific volume specifically, I guess, in the travel sector, a little bit in the insurance sector, is there anything instrumental that should perhaps change my view on how client-specific existing client specific volumes should track?

I don't believe there are any other known client ramp downs.

I would say there are no additional headwinds other than what we had messaged earlier. But I would say that the activity between -- within the farming community and a lot of these prospects in terms of radiating and penetrating further is positive as well. So there are headwinds that we spoke about last quarter and some of which has got pushed out into the first quarter and maybe even beyond.

I think what is also positive is the fact that the vertical-aligned model is resonating well, and a lot of our clients are talking about new offerings in new areas to spend also.

Okay. Now can you comment specifically on your US investments that you plan -- the US delivery perhaps by sizing it, and is it already included in your CapEx?

Yes, it is included in our CapEx. In fact, the capital expenditure has already started. So that is included in our CapEx, I mean the plans for next year. We should have that up and running sometime during the first quarter, and to start with, it probably will be roughly a 300 seater.

Okay. Because the relative size is still very small? I should --

So outside of India and the Philippines, every center will relatively be small. That is just about scale of operations. This is actually more to leverage certain skill sets and certain specific opportunities where clients are not always comfortable with the data moving offshore.

Understood, understood. And the tax rate you mentioned, that also, I guess, is primarily affected by the steps you are taking in India, Philippines and the UK, right? It is not so much going to be in the future affected by growth in US and Latin America as I look forward?

Yes, so that will not be a large swing right away. That will still fundamentally be UK, US, as well a little bit. But not from the delivery perspective, but because contracts are US-based. So there is a certain amount of profit that needs to be kept in the US from a transfer pricing perspective. India, of course, from the STPI piece, and some of the other delivery locations like Philippines and Sri Lanka.

Right. So your assumption is correct. The largest driver for the effective tax rate is going to be the mix between STPI and SEZ within India.

Understood. My last question is on the analytics business, the BPOs that we speak with, talk a lot more than you guys do about your analytics -- about the analytics business, and that seems to be a pretty hard spot in terms of demand. Could you give us some more details about what you are doing? I know you have had an acquisition made in the past, and then you have sporadically talked about it, but any details?

Sure. Directionally it is a very exciting area for us as well and, as I have mentioned in my prepared remarks, that is an area of solid growth. Even this year, we have grown in excess of 15% this year as well. And what we do is we really use embedded analytics when we work with different clients. So it is now provided as a part of a service, and it is used to really help transform our clients in many areas.

So interestingly I did speak about some of the examples of work that we do in a number of areas across our verticals and horizontals on the analytics side during our roadshows and in our last quarter.

But the reality is that actually enables us to drive decision making for our clients. It helps us to move some of our programs away from a feeling kind of a model to a much more nonlinear kind of models with them. And based on outcomes that we provide there, it allows us also to move up the value chain.

So the reality is, I think from what you just said, it appears to be the best kept secret of WNS, and we will probably do a little more marketing on these calls around it. But the reality is it is one of our fastest growing areas. That is an area where we acquire capability to acquisitions in the past. And what we have now done is embed it inside each one of our verticals, while we have now given clear leadership space inside the capability creation group that I created last quarter for the analytics leader to actually come up with brand-new offerings that we can take to a number of our clients and prospects.

Understood. That is very useful. Thank you.

Tien-Tsin Huang, JPMorgan.

This is (inaudible) sitting in for Tien-Tsin. Nice quarter. Some of the recent IT services results indicated weakness in Americas and financial service protocols for them. I know BPO is a totally different business model, but are you also seeing any weakness in those areas in your business?

(multiple speakers) Let me take a go at it, and then, Dave, over to you.

I think from our perspective, I think what is interesting is the fact that we have a new strategy in place and a very new energized salesforce. And, therefore, at this point in time, we are actually not seeing the impact as of now. But, with that, I'm going to have Dave add on any other color that he would like to add on.

I think just from a WNS specific example and I will echo Keshav's comments that we are seeing actually from a pipeline perspective that Financial Services in North America is expanding for us. Some of that I believe is a result of some of the historical negligence in this area. In the case of -- although both spoke about the investments that we have made in the new North American head of sales and in terms of building out the salesforce in the US. But if you look at WNS's portfolio, we only have 36%, 37% of our revenue that comes from North America and only about 6% of our revenue that comes from Banking and Financial Services.

So while these are clearly focus areas and growth areas and areas of opportunity for us, in terms of seeing significant impact from potential challenges that the IT players are seeing, it is not something that we would have visibility to.

I would also say that I believe a lot of the challenges that are coming on the IT side are coming from the very large banks and very large investment houses that have historically been power users of those IT services. So some of that may have to do with maturity of the Financial Services industry as it relates to IT.

And just to be specific to add on the inside, our pipeline, we actually have some pretty solid deals that we are playing in on the Banking and Financial Services space at this point in time.

Good to know that. Then you talked about 91% visibility at the midpoint of the guidance, which is consistent with last year's. But given that your salesforce is more robust now, capabilities are much better than last year's. Do you think you can proportionately win more new business from existing and new clients this year than last year? I am talking about better naming 9% work in your guidance that is yet unsigned? Do you think you can win more of that business compared to last year?

I think it is fair to say that we are a lot more optimistic as that optimism is based on exactly the factor that you mentioned. But whether that you build that optimism is well placed or misplaced, time will tell.

(multiple speakers). I think our expectation is that we will win more business from new clients this year than we won from new clients last year. So that is the confidence that we have based on the pipeline and the energy inside our salesforce.

Absolutely. And just to echo those comments, when you look at the opportunity, if it is going to be new clients and they are going to occur throughout the year, the real benefit we will see from those new customers coming on board and ramping will be in fiscal 2014. The key driver for 2013 revenue growth is going to be the farming activities and clients that did business with us in fiscal 2012.

I think the other thing that is important to understand, we've talked a lot about sales force productivity here. As Keshav spoke about in his prepared remarks, we are very pleased with the activity levels and the behaviors that we are seeing from the salesforce as a whole, but the bottom line is productivity is wins. And until this pipeline starts to convert and translate into solid wins that are booked and starting to ramp, we are going to keep the jury out, if you will, on the productivity of the team. But everything is pointed in the right direction.

Okay. And then last question for me. Can you talk about the reasons for this increase in attrition rate, and what do you expect for the rest of the year in terms of attrition?

As I mentioned, attrition during this quarter spiked essentially because of specific voice-based attrition that we saw, particularly in the Philippines, which is not just a WNS issue, but I think it is really very much an industry issue there as the Philippines to some extent catches up with some of the trends that India had in voice three years ago both on the inflation side, both the wage inflation side, as well as the attrition side.

So from our perspective, that, along with the fact that this is also the quarter that we complete our appraisal cycle and, therefore, as a result of that some of our people who may not be the top performers, may have chosen to move out and, therefore, involuntary attrition is also playing a part here.

So from our perspective, obviously it is a huge focal area. We continue to focus very strongly in sending out a signal to every one of our employees that this is really the best place to learn, to work and to build a career in, and all our programs are driven in that direction.

Manish Hemrajani, Oppenheimer.

Good quarter, guys. A couple of questions if I may. Your attrition was up to 39% last year due to voice attrition in the Philippines. If you strip out voice, what would be your attrition rate? I think that will help us do a better peer comparison.

We don't normally provide details individually, but I can give you comfort around the fact that generally on the higher end processes and the higher-end kind of work that we do, the attrition actually was flat if not lower than the last quarter, and I think that is a good sign from our perspective.

I think it is also fair to say that the attrition that we see in non-voice-based processes is dramatically below the Company average.

Okay. And then what is your outlook for the sale over the next couple of quarters, especially post-wage increases in Q1?

Obviously from our point of view, we would like to target something in the low 30s or mid-30s at this point in time considering that it went up by 4% this quarter. And that is where the entire focus and effort of the Company and our HR and business unit teams is at this point in time.

That being said, we also need to realize that while the wage increases and some of the things that we are talking about here are things that the Company is working on, there are market dynamics out there that will affect the attrition rates and certainly, otherwise, are beyond our control.

So part of your question in terms of where attrition rates may go in fiscal 2013 may be a function of where demand lies and what market economics look like in those individual locations. So some of it obviously is a little bit of an unknown for us as well, but our objective is to manage it as low as possible and to continue to drive down that attrition rate going forward.

Got it. And then how much exposure do you have to the travel and leisure business in the UK, including BA and Virgin, and how much of that would be transaction-related work?

I don't think we are going to talk about the specific revenue breakdowns within a client. Suffice it to say that we do have a few UK-based clients in the travel industry. Our largest client is largely a voice-based relationship. But that being said, it is something that we have been doing for a long time now, and we are comfortable in our ability to manage going forward.

The reason why I asked it is you have unseasonal global event this year with the Olympics in London in July/August. What, if any, benefit do you see from the Olympics in the fall in the travel vertical, and how do you bake that into your guidance?

So I think the Olympics will affect all airlines because people from all over the world will travel. So just because it is in London, I don't think it will really benefit one or two airlines alone.

But you like -- (multiple speakers)

The Olympics in general will be increased travel and, therefore, I think the second quarter, which is really when the Olympics will take place in July, we may see some upticks on travel volumes. But I don't think it is going to make a huge difference to our annual numbers.

Yes, specific to guidance, we have not baked anything in for an increase relative to the Olympics per se.

And there are no further questions in the queue.

Thank you, everyone. WNS has made considerable progress in fiscal 2012 as we were able to re-accelerate topline growth and better position the Company for long-term success in the BPO industry.

As we enter fiscal 2013, we must continue investing to provide clients with true business value, impart leadership, and to focus internally on successful execution against our strategic plans. Thank you for joining us today, and we look forward to speaking with you again soon.

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