WNS (Holdings) Ltd (WNS) 2013 Q1 法說會逐字稿

Good morning and welcome to the WNS Holdings first-quarter fiscal 2013 conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, we will conduct a question-and-answer session and instructions about 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. David?

Thank you, and welcome to our 2013 first-quarter earnings call. With me today, I have Keshav Murugesh, WNS's Group CEO, and Alok Misra, the Group's 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 for the fiscal first quarter ended June 30, 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 2012. This document is 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 revenue less repayor 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 would now like to turn the call over to Keshav Murugesh, the Company's CEO. Keshav?

Thank you, David.

As many of you saw on our press release earlier today, Alok Misra, WNS' CFO for the past four years, has decided to leave the Company in order to return with his family to Bangalore. Alok has been a key member of our management team and I want to personally thank him for his significant contributions in helping bring WNS to where we are today. Alok will be with the Company in his current role until August 16, 2012, after which he will continue to assist us on a consulting basis to help ensure a smooth transition.

Kumar Subramaniam, who has been with the Company for the past six years and is currently WNS' Corporate Senior Vice President of Finance, will assume the role of Interim CFO. The Company has initiated a search for a new CFO.

Turning our attention to the first-quarter operating and financial results, WNS was able to make steady progress towards our strategic business initiatives. First-quarter net revenue came in at $102.6 million, grew 4.9% year-over-year, and 2.8% sequentially. This was despite client-specific headwinds in the auto claims and travel verticals, which we have discussed on our previous conference calls.

On a constant currency basis, net revenue was up 7% year-over-year and 2.4% sequentially. Revenue growth in the first quarter was broad-based across verticals with the insurance, healthcare, and utilities verticals driving quarterly revenue improvement. In fact, excluding our Auto Claims segment, WNS' core BPO offerings grew 3.9% sequentially.

Contact center was strong this quarter versus Q4, growing 9.5% based on client specific demand in travel and our Fusion acquisition. We are also pleased to report that our higher value service offerings continued to grow faster than the corporate average with finance and accounting growing 4.9% and research and analytics growing 6.8%.

Adjusted operating margins for the first quarter were 13.2%, representing a seasonal drop versus fourth-quarter levels as the Company rolled out our annual rate increases. Increases this year were in the range of 8% to 9%, which is similar to 2012 levels.

Operating margin in Q1 was also negatively impacted by diligence and transaction costs associated with our acquisition of Fusion Outsourcing. Debt position in the Indian rupee net of hedging losses helped to partially offset these incremental costs.

With respect to new business opportunities, while the macro environment remains somewhat volatile and uncertain, we are pleased to report that, from a WNS perspective, demand for BPO services remains relatively stable and healthy. We must remain vigilant, however, as further erosion in the global economy has the potential to impact business volumes and more particularly the timing of client decisions.

From a sales perspective, the Company continues to make progress in bringing the expanded sales team up to speed. During the first quarter, WNS added three new clients, expanded 10 existing relationships, and renewed or extended another 14. The Company also added 12 new clients with the Fusion acquisition. The new business pipeline remains robust and these are continuing to move along at a slow, steady pace.

With respect to the large deals in play for the first half of fiscal 2013, which we discussed last quarter, I'm pleased to report that we have signed an MSA with one new logo in the travel vertical. We are currently working to finalize detailed statements of work and would expect to see revenues begin to ramp in late Q2 or early Q3. While this relationship will start slowly, we believe it has significant long-term potential and plays into one of our core areas of expertise. We are also comfortable that WNS is well-positioned for at least two additional contracts this quarter, and we'll keep you posted as discussions progress. For one of the aforementioned large deals, WNS declined to accept certain risks associated with potential legacy pacts and employed-related liabilities and, as a result, the engagement was awarded to another provider.

With respect to our large new insurance client, I am happy to say that the transition phase of our engagement continues to progress well. We are on target to have the initial 17 processes migrated and stabilized during the fiscal third quarter, and we hope to begin transitioning new work streams sooner rather than later.

When WNS raised primary capital of $45 million back in February, we discussed using the proceeds to fund our strategic growth initiatives, including expanding our global delivery footprint, creating new service capabilities, and driving nonlinear growth.

With respect to our global delivery expansion, WNS was able to announce two new onshore delivery locations during the first quarter of fiscal 2013. Providing our clients with a mix of onshore, nearshore, and offshore capabilities is becoming increasingly important to building long-term partnerships. Clients today are looking for multi-location global sourcing to provide them with the proper balance of cultural alignment, cost reduction, access to talent, and risk mitigation.

In May, WNS announced the opening of a new delivery center in Columbia, South Carolina, the Company's first in the United States. This facility will allow us to service our US clients with high value onshore services and solutions, including finance and accounting, research and analytics, and industry-specific BPO. Additionally, we are expecting that the US center will help the Company to expand our presence in the healthcare, capital markets, and shipping export industries.

WNS has also recently announced the acquisition of Fusion Outsourcing in South Africa, which had been our local partner for servicing one of WNS' largest UK-based clients. This acquisition allows us -- provides us with premium English-wise capability for -- in a cost effective location. We believe that we can leverage this location across our existing customer base and expand services delivered from this location into the areas of finance and accounting and insurance processes.

The decision to add delivery capability in the US and South Africa was based on visible demand from both existing and prospective clients, regional talent, and capabilities, and the potential for servicing the geography as an end market. Going forward, WNS will continue to evaluate additional global delivery capabilities, including expansion in Eastern Europe, the Far East, Latin America, and tier 2 and tier 3 cities in India.

In addition to geographic expansion, WNS is also working to enhance our service capabilities and domain expertise and to drive technology enabled solutions. Investments in these areas will be made through a combination of internal research and development efforts, strategic partnerships, and tuck-in acquisitions. These actions are critical to maintain and create differentiated positioning in the market and are aligned with the long-term direction of the BPO industries.

Toward these goals, WNS recently announced strategic partnerships with Ariba and GT Nexus. The Ariba partnership will allow WNS to combine our service and process optimization capabilities with Ariba's cloud-based business commerce solutions, creating an end-to-end source to pay solution. The exclusive relationship with GT Nexus will provide for a platform-based BPO solution which integrates GT Nexus' cloud-based supply chain solution with WNS' domain and process expertise. Together, we are initially targeting this offering to the shipping and logistics industry.

The Company's efforts towards leveraging domain expertise and creating higher value service offerings are also becoming increasingly recognized by industry analysts as well as clients. During the first quarter, WNS was pleased to receive notable awards and recognition from key industry analysts and publications. In June, WNS was named a leader in the finance and accounting services in the most recent Gartner Magic Quadrant. The Company was also named a major player in business analytics BPO by IDC MarketScape. These awards helped validate our leadership position in higher value service offerings and our ability to help clients solve complex business problems.

We firmly believe that WNS is well positioned in a relatively immature growth industry and that our strategic investments align the Company's long-term business objectives with those of our clients. WNS continues to make progress in enhancing our competitive positioning and accelerating profitable growth, as is evidenced by our first-quarter financial and operational performance and updated guidance.

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

Thank you, Keshav.

First off, let me thank Keshav and the rest of the WNS team for a great four-plus years with the Company. When I originally joined WNS in February 2008, I relocated my family to Mumbai from Bangalore and we would now like to move back. I firmly believe that we have built a company which is well-positioned for success in the BPO industry and I am confident the team will continue to move the Company forward. I look forward to working closely with Keshav to help WNS ensure an orderly transition in the coming months.

With respect to the first-quarter numbers, our net revenues increased to $102.6 million from $97.8 million in the same quarter last year, representing an increase of 4.9%. On a constant currency basis year-over-year, net revenues grew 7%, which is reflective of a 2.8% depreciation in the British pound. Sequentially, net revenues increased 2.8% driven by strength in the insurance, healthcare, and utilities verticals.

The Company also recorded a revenue of $0.4 million associated with the Fusion acquisition. Client specific headwinds in auto claims and travel sequentially reduced our revenues in Q1 by approximately $1.7 million, and the Company currently anticipates a final further drop in Q2 of approximately $0.8 million on this account.

On a constant currency basis, revenue increased 2.4% versus the previous quarter. Gross margins, excluding share-based compensation, were 33.9% in Q1 as compared to 31.3% reported in the same quarter of fiscal 2012 and 35.5% last quarter. On a year-over-year basis, gross margins improved 260 basis points, primarily due to a 20.6% depreciation in the Indian rupee and improved margin leverage. These benefits more than offset the costs associated with the annual rate increases and higher facility costs. The sequential gross margin decrease of 160 basis points was driven primarily by our annual rate increase with the impact being partially offset by a 7.3% depreciation in the Indian rupee.

First-quarter 2013 operating margins, excluding share-based compensation and a multi-addition of intangible assets, was 13.2% as compared to 14% reported in the same quarter of last year and 17.5% last quarter. Year-over-year operating margins were down 80 basis points. While currency was net favorable in the operating margin line, losses in our hedging positions offset some of the benefits flowing through gross margin and SG&A.

The impact of our annual rate increase and Fusion acquisition costs reduced our operating margins against Q1 of last year. As Keshav discussed, our sequential operating margins reduced 430 basis points, in line with our seasonal pattern.

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 expect interest costs will decline in fiscal 2013, based on reducing debt levels. The Company's other income increased to $1 million in Q1, up from $0.2 million in the prior year and $0.2 million expense last quarter. The increased income is the result of higher balances in cash and marketable securities.

WNS' effective tax rate in the first quarter was 17.7%, down from 21.5% last year and 19% in the previous quarter. This is the result of the continued expansion of our operations into specialty (technical difficulty) zones in India and we continue to expect our average tax rate to be in the range of 18% to 19% for fiscal 2013, as we had indicated earlier.

The Company's E&I for Q1 was $11.1 million compared with $10 million in the same quarter last year and $13.2 million last quarter. Adjusted diluted earnings were $0.22 per share in Q1, the same as reported last year, and down from $0.37 per share last quarter. Earnings per share in the first quarter were reduced sequentially and year-over-year as a result of the primary stock offering completed with the Company in February.

Our first-quarter diluted share count was 51.5 million shares. As of June 30, 2012, our cash balance was $52.2 million with an additional $12.8 million in bank deposits and marketable securities. The Company generated $6.2 million in cash from operating activities this quarter and free cash flow of $1.8 million. Our gross debt position stood at $87.2 million at the end of Q1, with net debt at $22.2 million. After the close of the quarter, on July 11, 2012, WNS made the final installment payment of $24 million on our original term loan taken in July 2008 to fund the acquisition of the Ariba back office.

Our cash generation this quarter is higher than it traditionally has been for the first quarter of earlier fiscal years, which is encouraging. As we have elaborated before, the cash flow for the first quarter is always affected by the annual bonus and insurance premium payouts.

DSO in the first quarter came in at 33 days as compared to 39 days in Q1 of last year and 35 days last quarter. Our CapEx spend for the quarter was $4.4 million and we paid approximately $8 million in the first tranche associated with the Fusion acquisition. This acquisition will cost the Company GBP10 or between $15 million and $16 million plus adjustments for working capital. We expect Fusion to contribute between $9 million and $10 million in revenue for fiscal 2013, which represents approximately $13 million annualized. The acquisition is expected to be neutral to adjusted earnings per share this fiscal year when taking into consideration the transaction and integration related costs, as we will have the benefit of only nine months of revenue. WNS however anticipates that Fusion's contribution will be accretive in fiscal 2014.

With respect to other key operating metrics, our total headcount at the end of the first quarter was 25,939 people, including the addition of 1409 employees from Fusion. Attrition rates in Q1 dropped to 36%, down from 39% in the fourth quarter of the previous fiscal, and 41% reported in the first quarter of last year.

(inaudible) seat capacity was 20,314 at the end of the quarter, which represented an increase of 1386 seats, largely attributable to Fusion's Johannesburg and Cape Town facilities. Average (inaudible) utilization in Q1 was maintained at 1.3, the same as reported last quarter.

In our press release issued earlier today, WNS updated its guidance for fiscal 2013. Based on current visibility levels, we expect net revenues in the range of $420 million to $440 million, assuming an average of British pound to US dollars rate of 1.55 for the remainder of the fiscal year. And an ANI of $50 million to $54 million based on a 56 rupee to US dollar exchange rate for the remainder of the fiscal year. This ANI implied an adjusted EPS of $0.97 to $1.05 on a diluted share count of approximately 52 million shares. We currently have over 95% visibility to the midpoint of our revenue guidance range, and we expect to update this guidance as we progress through the year.

In terms of hedges, WNS is fully, that is more than 90% hedged for fiscal 2013, and 65% hedged for fiscal 2014, using a combination of options and forward contracts. The Company still expects CapEx levels to be in the range of $20 million to $22 million in fiscal 2013.

With that, we will now open up the call for questions. Over to the operator.

(Operator Instructions). Bryan Keane, Deutsche Bank.

This is actually [Matt Diamond] for Bryan. Excellent results for this quarter. I just want to get some more color on the pipeline. We've heard some different puts and takes from your offshore competitors and I know it was mentioned that the offshore BPO market remains stable, but given that the new salesforce is -- it's reaching about a year at its tenure at the Company, what do you see in terms of potential deals coming down the pipeline and a potential for the rest of this year?

Thank you, Matt. As we've already said earlier, we see the overall BPO demand really being stable and healthy. We don't see decisions cycles and project ramps impacted by the macro fundamentals that are out there in the market at this point in time. The team is completely focused on some of those large deals that I spoke about earlier where we see to be making great progress, as well as really pushing more deals into the pipeline, pushing deals that are already in the pipeline to decision stages, and really taking them across the lines from a win point of view.

As far as the verticals are concerned, as I mentioned earlier, healthcare, the insurance space, travel, all of these are actually having some good traction. Finance and accounting and (inaudible) space also has good traction. The salesforce, I'm extremely comfortable with have now settled down well. They are pounding the streets. They are now making sure that the WNS brand is available in every engagement that is out there in the marketplace. And so it's not just in the UK and Europe where we were traditionally seen as strong that we are present. We are seeing more deals now come into the pipeline in North America. We are seeing deals emerging in Africa, in the Middle East, and the Asia-Pac markets, and I'm delighted to say that the guys are making progress. Obviously, from my point of view, I'd like to see some of the results come through faster, but you know what it is like in the market out there. But I'm pretty comfortable with the fact that my team is doing all that they can to propel the Company forward.

Let me just add to that quickly, Matt. When you look at the Company's guidance for the year and our comfort and confidence in terms of taking the numbers up and increasing the visibility and increasing the visibility to a significant higher number, obviously we have some puts and takes with the Fusion acquisition and with the currency headwind from the pound-to-dollar. But at the end of the day, in terms of where the pipeline is, in terms of how things are moving through the pipeline, progressing, the Company felt comfortable enough relative to where we stand today to be able to take up that guidance and to show some pretty healthy, organic constant currency growth from where we were even three months ago. So I think, in short, things continue to progress well.

Okay. Excellent. We know that there is a little bit of a headwind with the UK auto claims business. Do you see any effects to that from the Summer Olympics this quarter?

Certainly, one of the interesting dynamics with the Olympics in the UK and how that business works for us is we would expect to see a lot more traffic in the UK. Now, certainly, our guidance and our planning does not anticipate pickups in volume within that business, but that business for us is entirely based on number of accidents. So we do have a number of puts and takes that we can look at, but we don't expect or anticipate a significant impact one way or another from the Olympics.

And remember, the Olympics are in London, not all over the UK.

But there are a few things in Manchester and [Scotburg]. It's concentrated in London (inaudible) last year of public transport.

Excellent. Thanks very much, guys.

Bhavan Suri, William Blair & Co.

Hey, guys. Thanks for taking my question. It's actually Rahul Bhangare in for Bhavan. Good quarter. Just wanted to ask Alok, could you walk through the operating margin a little bit and maybe break out the different effects for each of those factors on operating margin in the quarter?

So, I think we explained it in our prepared remarks. There is a positive impact of the rupee depreciating. There is a negative impact of the pound depreciating. There is a negative impact of the wages going up. And there is a negative impact from hedging losses, which kind of offset the rupee depreciation. So net-net, those are the kind of four large moving parts that affect the operating margin.

Okay. Thanks. And then we saw a nice downward tick in attrition during the quarter and obviously part of that is seasonal. But where do you expect attrition to play out to over the next four quarters or so and where is the Company comfortable at?

Yes, from our point of view, what we are doing is really focused on delivering this message both to the Street and to our internal employees that this is a great company to work in, to grow, and to get (inaudible). So at this point in time, all of that is resonating well because of reduced attrition to 36%. And the target, next target for my leadership team really is to try and get it down by 3 or 4 percentage points and then keep moving it from there further down.

Great. Thanks.

Kunal Tayal, Bank of America.

Joe Foresi, Janney Montgomery Scott.

Thanks for taking my questions. This is Jeff Rossetti in for Joe. Nice quarter. Just wanted to see, on your organic guidance raise from $5 million to $6 million, do you attribute that to the deal you signed in the travel vertical or is that just overall reflecting your confidence in the pipeline?

I think, Jeff, it's a combination of things. I think we certainly feel good about the pipeline and that gives us a little bit more confidence to get closer to the high end and certainly to raise the high end of guidance from $430 million to $440 million, which we've done this time. I think the reality of why we have that comfort level, it's a combination of things, including our business volumes with our existing clients, the overall health of the pipeline, both the hunting and the farming activities within the Company. But we do feel good as well about the four or five large deals that we had discussed and the progress where we are making there as well. So our ability to get to that high end of guidance or to beat that high end of guidance for this year is going to be predicated on all of these factors, not any one in isolation. But the one deal that we've won we feel optimistic about. As Keshav mentioned, we expect it to ramp relatively slowly, so it's not going to be a meaningful contributor, but certainly should help us to get to where we want to be this year.

Okay. Great. And the two outstanding decisions, I assume they are in healthcare and insurance?

The two outstanding, one is in insurance and one is actually in the retail sector.

Okay. Great. A final question. Any kind of impact overall just in pricing, whether it's related to your contact center work or F&A or research analytics. Is there any kind of change in the environment that you're seeing out there?

You know, pricing has been relatively stable from a WNS point of view. I think our salespeople and our client partners' ability to bring out the message that we deliver value and not just a rate card is resonating quite well in the marketplace. So for each of the offerings that you spoke about, the fact that this Company is sending out the strong message of nonlinear growth models of being able to accommodate interesting pricing models for clients as a result of which they are able to focus on outcomes and we are able to focus on delivering an excellent product at the same time earning a little bit more is also resonating extremely well for us. So both the analytics side as well as even the contact center side where, as opposed to the traditional call center kind of business, we are completely focused on enabling our clients convert their customers and -- because of which we are able to embed analytics; we are able to embed other high-value offerings and therefore charge better pricing. So for us, it's been very, very stable.

Thank you, and best of luck Alok.

Dave Koning, Baird.

Yes, hey, guys. Great job again. I guess my first question, when we look at the number of seats -- the total seats, it's been accelerating nicely over the last -- I'm looking here -- it looks like about five quarters in a row it's accelerated. And granted, Fusion added some seats this quarter. Even ex-Fusion, I think seat growth about 17% year-over-year, so you've got really nice and growth there. Utilized seats, it seems like it tends to lag. It also has accelerated nicely. It's just not yet to the same level. And I'm just wondering if the seat growth that you've seen, more in the mid teens, if that's a good leading indicator of both utilization and then revenue growth and if that's kind of what we're starting to see is, a few quarters out, is that mid-teens growth like your seat growth.

I think that's clearly the plan for the Company, but I think there's also an additional dynamic that's going on there, David. I think the reality is that if you look at the expansion of our geographic footprint, the fact that we are opening new centers in new locations, by definition it's going to mean that some of these facilities are going to be underutilized until we get then ramped up and going. Similarly, if you look at the SEZ expansion plans that we have, especially in tier 2 and tier 3 cities within India, you are going to see a similar dynamic.

So some of this is about investing for future growth in the business, which clearly is directionally where we are going and we think we're starting to see that ramp in terms of both the headcount numbers and the revenue numbers. But some of it is also a function of our expansion plans into diversification of our business. So, whether that's geographic diversification; whether that's diversification between the old STPI tax holiday facilities in India and the SEZ facilities or whether it's in the existing large locations within India versus the tier 2, tier 3 locations that we're going to use to diversify and to look at domestic business, these are all going to contribute to part of the reason that our utilization on the seats is running lower than we would like to be optimally. When we get to a steady state where we're expanding not only in the right numbers, but also in the right locations commensurate with our business, you should start to see those numbers moving more in concert and you should see the Company with an ability to improve the seat utilization and to drive some margin expansion. But in the short run here, we don't see that happening.

Got you. Okay. That makes sense.

Secondly, cash flow this quarter, it was at about I think $5 million of free cash flow. The last few quarters, you were back at kind of that $15 million-ish quarterly cash flow run rate that you talked about several years ago, that that was kind of the target, and you nicely got there. This quarter, down a little bit. Is that just a temporary working capital related shortfall, and do you fully expect that to come back the rest of the year?

Absolutely. And I think I've explained this in earlier calls as well. So in the first quarter of early fiscal, you will see a dip in our free cash ambition, and that's largely because we pay out our annual bonuses and we have large insurance premium payouts in the first quarter. Under Indian law, you cannot -- all insurance premiums need to be paid in advance, so we have large payouts in the first quarter, especially around employee medical insurance and some of our liability insurance policies. So, because of these large outflows in the first quarter, the first-quarter cash addition is usually lower than the other quarters, but immediately in the second and third quarter it starts picking up again. That's sort of slightly good behavior; that's been there every fiscal year. And if you compare year over year, our cash addition this quarter has been much better than last year same first quarter on a like-for-like business. Beyond that, of course, there was a $8 million payout this quarter for Fusion as well. So that needs to be factored in also.

Got you. Yes, that makes sense. That's good. And then I guess the last thing you mentioned a couple of new contracts coming into the pipeline. Is some of that in the guidance? You talked about 95% visibility. Are any new contract signings really in guidance or is it mostly just what you actually -- clients that you've already signed?

So, I think fundamentally the guidance is based on what we've already signed. The reason for the range being maintained at, well, it is still only the first quarter of the fiscal. And as some of these deals move through the pipeline, we will look to narrow that range.

Got you. Great. Thanks so much.

Manish Hemrajani, Oppenheimer.

Hi, thanks for taking my call. Longer-term, can you talk about the auto claims business? We've obviously seen revenue growth lagging, overall growth in that business, for the past couple of years. It's now down to just about 7% of net revenue. And I believe the contract is up for renewal next year. What is your longer-term view and thinking on that business?

Yes, as far as auto claims is concerned, it's not really a traditional BPO kind of -- the traditional BPO offering that the offshore players play in, and it is very much dependent on a number of factors, including the weather, driving habits, accidents taking place, what's happening in terms of legislation and stuff like that. At this point in time, as we've been guiding over the last I think quarter or two, there is expectation for some serious legislation change to happen in this area, as a result of which we've been talking about reasonably flat growth rates for this business. We expect this to (inaudible) to take place at some stage and whether it is in the short-term, it is likely to cause an impact of flattishness for the business.

In the medium to long-term, assuming that happens, it is actually likely to help accelerate the auto claims part of our business because it means that intermediaries today are actually our clients get taken out of the business and the insurance companies come directly to people like us who have networks and who therefore can interact with the repairers and the others. So that's how we see that business at this point in time.

Having said that, we also mentioned that the Office of Fair Trade had started some kind of a discussion on this particular matter. They have now referred it to another committee and we expect, therefore, as a result of that, there could be some delays in decision-making there. And that, again, could, in the interim, until the decision gets taken, take the industry back to the old ways of functioning, which means in a probably acceleration of revenue.

So we feel good about where this business is likely to be over the next few quarters, one or two quarters, but we have to wait and watch and see what happens with legislation first. Having said that, this business also has a technology platform and a very robust process. And this platform had recently been upgraded. We are now looking to take that platform into new areas of business, including householders claims. I'm delighted to say that, at this point in time, we actually have signed up our first client and we're actually using that experience to leverage that platform and that business in two more areas.

I think the other thing, too, relative to the auto claims business, Manish, is as Keshav mentioned, we've certainly seen volumes drop and have seen pressure from some of the regulatory changes and those impacts on our customer base. The other issue we've been dealing with is the fact that business volumes in this sector have been dropping just because there have been fewer cars on the road, lower accident volumes, lower claims. So one of the things that we are optimistic about is, as these issues resolve as things longer-term start to improve, we should see business volumes for multiple reasons picking up in this space. And as Keshav mentioned, this is a technology-based business, so when we do see that revenue start to tick back up, we see a more than proportional drop to the bottom line in terms of margins and profits.

Got it. Switching gears here, can you talk a bit more about your pipeline in terms of growth and deal sizes? You've had industry experts over the past few weeks come out and say that they're seeing a trend towards smaller deal size. Is that what you are seeing out there? And how would you characterize your sweet spot in terms of deal size?

Yes, so actually, from our perspective, we come from a position of great humility, so whereas we have traditionally seen smaller deal sizes in the past, I'm delighted to say that, thanks to the very strongly differentiated positioning that we've been able to call out into the marketplace today, our vertical end-to-end offering on our technology-based to BPO as well as our unique client partner program is resonating well -- because of which our salespeople are able to position WNS in every key deal that is available in the marketplace. So whereas we are obviously playing in a number of the smaller sized deals that you referred to, I'm also happy to say that we are also playing in at least a few larger sized deals. And, for me, the larger sized deals would traditionally be something in the region of $5 million to $10 million ACB. Right?

And again, I feel very confident about the way the sales team has positioned WNS. I believe that people who have not seen the brand name and the differentiated positioning in the marketplace earlier are seeing it. And, more importantly, the pipeline is broad-based. It is much more complex as compared to what we've seen in the past, and it is coming across the geographies that we operate in. So again, delighted with the progress.

Okay. Got it. And then the deal that you walked away from, what sector was that in?

That was actually in the media space.

Okay. Last one for Alok. Alok, Mumbai is not that bad a city for you to move from Mumbai to Bangalore. Are there any other reasons apart from family?

Sorry?

Any other reasons apart from -- moving to Bangalore?

No. That's the only reason. When I moved here, the deal was for three years, when I moved to Bombay. I think overstayed my welcome by a year and a half, so it's got to a point that you've got to get back to Bangalore.

Okay. Got it. And, Keshav, do you already have some candidates lined up, and how long do you expect the search to take?

Yes, Manish, I think the first thing I want to say is WNS' business pipeline is solid and they are operating extremely well. We do have strong people under Alok that are very capable of handling each one of areas within the Company. At the same time, we felt that we should actually bring in a CFO from outside at this point in time. So, yes, we will -- we are starting the search right away. We will have a number of candidates. And I think that's the other great thing that happened at WNS. There is tremendous interest of good people across areas who want to join WNS. So, I'm pretty certain that, within the next one to two quarters, we will have a new CFO, although we will miss Alok.

Okay. Good luck, Alok.

Richard Eskelsen, Wells Fargo.

Thanks for taking my question. The first question is just in terms of whether you're seeing any impacts in the US from the November elections, whether that's having any impact on client decision-making just ahead of that due to political risk.

Not at all. So, from our perspective, we've not seen any kind of a specific action from any clients around that one. The other advantage that we've been able to position with every one of our clients is our new South Carolina center, actually. So, a combination of the fact that we now have a local center, we are seen as a company driving tremendous value for them, and the fact that we can also deliver the heavy lifting from any other location globally is actually working quite well.

Okay. Thanks. And then just a few quick cleanup questions. Given where the rupee is now and currency in general, what's the FX loss you're expecting now for this year?

So, I would expect the effects FX loss for the year to be close to $9 million -- $8 million to $9 million.

Great. Thanks a lot.

(Operator Instructions). Kunal Tayal, Bank of America.

Hi. Thanks. First, I want to wish good luck to Alok for his relocation back to Bangalore.

Thanks.

Just moving on to the [aside] 2013 revenue guidance, Keshav, if you could help us understand main two or three reasons which are helping you raise guidance so early in the year? And is it better than faster transition in your insurance deal or is it better volumes in travel? So any color there would be useful.

Yes, great question. First is the fact that we feel confident that we've been able to manage the speed bumps that we spoke about earlier. I think we've been being able to manage the impact of our large insurance client -- existing large insurance client -- well. In fact, we've been able to actually work very strategically with them and more than compensate for the loss of revenue because of certain roles going back into the UK by bringing in new processes, higher impact processes and (inaudible) processes into the game and that's worked well.

In the new dispensation and the new chain of things inside that client, actually they now see us as a global partner and, therefore, we expect that to help us in terms of our growth trajectory. That's one. So across three -- all speed bumps that we talked about, I think I managed better one.

The second is in terms of just transitioning some of the new processes, much more confidence in terms of how it has gone on the street with which we have managed to do that. And the third is the kind of success we have seen and the confidence we have around how our pipeline is beginning to shape up and the ability for us to convert and bring some of that in. So I think a combination of all of this is actually enabling us to, now, increase that guidance early in the year.

That obviously (multiple speakers) in combination with the fact that when you look at how our visibility has improved relative to committed signed business at this point in time, obviously a lot of comfort there as well. So it's not just about the opportunities that we have going forward, but it's also about the progress in the signed business that we've been able to put into the books between April and today.

Yes. That's a good point, Dave.

Sure. Sure. Got that. And I know it's a little early to talk about FY '14, but if the Company was to get to about 10% organic revenue growth for FY '14, what would it take in terms of number of (inaudible) and based on what you have in the pipeline currently, how well placed do you think you are to get there?

Yes, so again, I wouldn't want to make any kind of statements around throwing out a number or our guidance for next year, but all I can tell you is we've publicly stated this, that our focus really is to try and drive double-digit kind of growth rates at some point this year. And based on how the pipeline develops and how quickly we are able to convert some of this into revenue, and based on the studies we have done and the experience we have of how the first year's revenue actually converts into the second year and the third year from a farming point of view, our expectation is, over the next two years or so, we should be in the mid teens in terms of growth rates. And really our aspirational goal is to lead the industry in terms of organic growth rates. So, that's where we are. And therefore, it's a step function of getting to that number from the guidance number that you have at this point in time.

And I think, just to add to that, I think one of the other things we have to do every year is take a look at our existing customer base, the ability to farm those relationships and have to have very frank, very honest discussions about what we expect them to do relative to growth opportunity. So, we talked a lot about walking into this year about some of the headwinds in our business relative to our largest insurance client, relative to the auto claims business, how those existing clients are performing and what the expansion opportunities within those clients has a significant amount to do with how we are able to expand and grow our business year-over-year as well.

So certainly we know we need to keep adding new, large clients with growth opportunities to fuel the long-term growth of the Company, but in any given one- to two-year period, you certainly have to understand the dynamics within the existing customer base because, in a typical year, 95% plus of your revenue is going to come from clients that were with you in the prior year.

Sure. Finally, this quarter, the top six to ten client bucket seems to have done well. So anything particular to note there?

I think even the top five would have grown. So if you see -- and that's one of the things also that's playing to our optimism is when we spoke at our last earnings call, we had alluded to a few speed bumps, fundamentally, with our biggest client, with our -- a couple of clients in our travel vertical, which were going through certain M&A activity and things like that.

I think it's safe to say that we've been probably slightly more, whether it's lucky or competent, you can decide which way, our ability to offset some of those headwinds have been pretty good. So we've been able to bring in business that offsets some of those impacts we were having, which has led to some of the optimism and, therefore, increase in our guidance levels.

And I would actually like to also give -- share the credit for this with our sales team and our client partners. This is a clear indication that WNS' client partner program is working well. We have seeded every one of these accounts with senior people who can now lead the customer as opposed to just stand there looking for an order. That is working well. The fact that they are able to now talk about the technology-enabled offerings, our differentiation, and bring in the entire power of the WNS system to penetrate and radiate across the account is now starting to resonate well. So I would actually say that this is well-planned and good execution of what I think is -- are two of our key differentiators in the marketplace.

That's interesting. All right, thank you.

There are no further questions. I'd now like to turn the call back over to management for closing remarks.

We are pleased with the progress we have made over the past few quarters. We believe our business is fundamentally solid and remain focused on driving long-term sustainable value for all of WNS' key stakeholders. Thank you again for joining us today and we look forward to speaking with you again soon.

Before we sign off -- this is Alok here. This is the last earnings call I am doing as the WNS CFO. I just wanted to say thank you to all of you for all your support over the last 4.5 years and hopefully I'll continue to be in touch with you.

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