WNS (Holdings) Ltd (WNS) 2013 Q2 法說會逐字稿

Good morning and welcome to the WNS Holdings second quarter fiscal 2013 conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, we will conduct a question-and-answer session, and instructions for how to ask a questions will follow at that time. Now I would like to turn the call over to David Mackey, WNS's Corporate Senior Vice President of Finance and head of Investor Relations. David, you may proceed.

Thank you and welcome to our 2013 second-quarter earnings call. With me today, I have Keshav Murugesh, group CEO; and Kumar Subramaniam, WNS's Interim 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 from the fiscal second quarter, ended September 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 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 repair payments. ANI, or adjusted net income, is defined as profit excluding amortization of intangible assets and share-based compensation. These terms will be used throughout the call.

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

Thank you, David and good morning, everyone. During the second quarter, WNS sequentially expanded revenues and margins while continuing to aggressively invest in the long-term success of our business. Second-quarter net revenue was $107.3 million, growing 7.1% on a year-over-year basis and 4.5% versus the previous quarter. The head winds discussed on our past few earnings calls relating to client-specific ramp-downs in the auto claims and travel verticals were $0.5 million this quarter and are now behind us. As a point of reference, the year-over-year impact of these reductions was $1.8 million. During the second quarter, WNS also received one full quarter's worth of revenue from our Fusion South Africa acquisition.

Revenue growth in the second quarter was broad-based with the retail, CPG, travel and insurance verticals driving the improvement versus the previous quarter. From a services perspective, Q2 growth was paced by premium voice work added by the Fusion acquisition.

Adjusted operating margin for the second quarter was 13.7%, increasing 50 basis points from the first quarter. Sequential margin improvement was driven by operating leverage, productivity and currency favorability. These benefits were partially offset by integration costs associated with the Fusion acquisition and a reduction in seat utilization resulting from our global infrastructure expansion.

Ensuring we have a high-performance sales organization remains the Company's top where it. We have invested heavily in this area, expanding the size of the team, broadening our geographic presence and changing the mix of skills. As a result, we firmly believe we are tracking to accelerate top-line growth based on the overall breadth, depth and progression of our pipeline. While small deals are continuing to move through the pipeline at a healthy pace, client decisions on final contract award for some of the larger and more transformational engagements are progressing at a slower rate.

These delays are largely a function of the size, complexity and disruptive nature of the engagements. In fact, we are currently seeing strategic deals of this nature requiring not only CXO-level sponsorship, but also board-level approval. That being said, we continue to believe that WNS remains in a leadership position for at least two of the awards we have discussed over the past few quarters and hope to have an update for you soon. In short, we are optimistic that the question remains when, not if.

During the second quarter, WNS added three new clients, expanded level existing relationships and renewed or extended 11 contracts. The three clients include a new logo in South Africa and an actuarial analytics project for a US property and casualty insurer. As we have mentioned on our past few calls, expanding our geographic delivery footprint is critical to success in today's environment. Clients are looking for true multi-sourcing from their BPO partner, including onshore, nearshore and offshore capabilities. This allows the client to achieve the proper mix of domain expertise, language capability, cost savings and risk mitigation.

Last quarter, WNS just launched new delivery centers in South Africa and the United States. This quarter, we have opened a new facility in Gdynia in Poland, which is backed by a signed contract for financial accounting services with an existing client. This new center will provide WNS with German, Polish, Nordic and Russian language capabilities which were not readily available in our global delivery portfolio. Today, approximately 40% of European requirement are for German language skills.

Also in the second quarter, WNS has opened a new delivery center in Vizag, in India. This city, which boasts a highly educated population, will provide WNS with lower cost of operations and business continuity alternatives. In addition to these new locations, WNS has also added an additional facility in Cape Town, South Africa, based on firm demand and a strong pipeline from both existing and prospective clients.

In total, the Company has added over 1100 seats of capacity in the second quarter alone, and over 2500 seats in the first half of fiscal 2013. Going forward, we plan to explore opportunities in Latin America and the Asia-Pacific region, including China.

Our second key area of investment for WNS has been in the area of technology enablement and nonlinear models. Under the direction of our capability creation group, which was created in January 2012, WNS continues to internally develop intellectual property, strike new relationships with strategic partners and evaluate tuck-in acquisitions. The capability group has been actively working to develop WNS-owned IP around risk offerings, domain-led analytics, social media solutions and technology platforms. Our investment in this group is significant, but we believe that these are absolutely necessary to drive high-value revenue growth in the future.

Earlier this quarter, we announced a new relationship with Concur to deliver an integrated BPaaS, or business-process-as-a-service solution for travel and entertainment with our partner, Concur. Using Concur's platform and adding WNS's project management skills and processing capabilities, we were able to win a significant engagement with a global electronics player. We have been working towards leveraging similar relationships to address market opportunities in procure-to-pay and order-to-cash, cutting across the shipping And logistics, Banking and Financial Services and the utilities verticals. Partners such as Ariba, GT Nexus, coAction, See Infobiz and Profisee will help us deliver these solutions.

Both our internal development plans and strategic partnerships are designed to create and maintain differentiated positioning in the market and are aligned with the long-term direction of the BPO industry.

I would now like to provide you with an update on our search for a new CFO. We were excited to see the quantity and the quality of the candidates for this position and have been rapidly moving through a formal search, evaluation and interview process. As you are aware, notice periods in India for executive candidates can be a tricky business. As such, we will formally announce a new CFO only at the time he or she joins the Company. We want to provide you comfort, however, that significant progress has been made towards filling this key strategic role.

Looking forward, the global economic environment remains volatile and uncertain. While final decisions for larger strategic projects are experiencing some delays, we believe these are temporary in nature. On the other hand, overall demand and decision making for less transformational BPO initiatives remains relatively stable and healthy. This includes higher-value service offerings such as finance and accounting, outsourcing and research and analytics work. Additionally, business and transaction volumes for processes which we currently manage on behalf of our clients are also stable.

In summary, during the fiscal second quarter, WNS continued to make the key strategic investments necessary to drive increased business value for our clients. At the same time, we were able to grow top-line and post industry-competitive margins. We believe that these investments when fully leveraged will allow WNS to grow at or above an industry rate and expand our profit margins.

Let me now hand the call over to Kumar Subramaniam, WNS's Interim CFO, to walk through the financials. Kumar?

Thank you, Keshav. With respect to the second-quarter numbers, our net revenues increased to $107.3 million from $100.2 million in the same quarter last year, representing an increase of 7.1%. On a constant currency basis, year-over-year, net revenues grew 8.7%, reflecting a 1.8% depreciation in the British pound. Sequentially, net revenues increased 4.5%, including approximately $2.6 million from our Fusion acquisition and expense in the travel, insurance and retail CPG verticals.

Client-specific head winds in auto claims and travel sequentially reduced our Q2 revenues by $0.5 million, and the drag associated with these clients is now behind us. On a constant currency basis, revenue increased 4.8% versus the previous quarter.

Our acquisition of Fusion in South Africa remains on track. While this asset will be ANI-neutral in fiscal 2013, we expect Fusion to be solidly profitable in fiscal 2014. Revenue traction has already started and profits will expand as we introduce our global clients and drive higher-value offerings, such as actuarial services from the same location.

Gross margins, excluding share-based compensation, were at 35.5% in Q2 as compared to the 32.8% reported in the same quarter of fiscal 2012 and 33.9% last quarter. On a year-over-year basis, gross margin improved 270 basis points, primarily due to a 20.5% depreciation in the Indian rupee and margin leverage from higher revenue. These benefits more than offset the cost associated with the annual wage increase, Fusion integration costs and our investment in global infrastructure expansion. The sequential gross margin improvement of 160 basis points was driven by productivity improvements and a 2.3% depreciation in the Indian rupee, which was partially offset by higher facility costs.

Second quarter 2013 operating margins, excluding share-based compensation and amortization of intangible assets, were at 13.7% as compared to 15.4% reported in the same quarter of last year and 13.2% last quarter. Year-over-year, the 270-basis-point improvement in gross margin discussed earlier was more than offset by higher SG&A expenses and hedging losses on the FX line. The SG&A increase was associated with delivery center lower net costs, the establishment of our capability creation group and Fusion SG&A.

On a sequential basis, gross margin favorability of 160 basis points was largely offset by higher SG&A levels associated with delivery center overall costs and Fusion SG&A. Interest expense this quarter was $0.9 million, the same as reported in Q2 of last year, slightly better than the $1 million in the previous quarter. We expect interest cost to decline in fiscal 2013 based on our reducing debt levels.

The Company's other income was $1 million in Q2, the same as reported last quarter and up versus a $0.1 million expense last year. The year-over-year increase in other income is the result of higher balances in cash and marketable securities.

WNS's effective tax rate in the second quarter was 17.2%, up slightly from 16.6% last year and down from 17.7% in the previous quarter. We currently expect our average effective tax rate to be in the range of 17% to 18% for fiscal 2013. The Company's ANI for Q2 was $12.2 million compared with $12 million in the same quarter last year and $11.1 million last quarter. Adjusted diluted earnings were $0.24 per share in Q2, down from $0.26 per share last year and up from $0.22 per share last quarter. Earnings per share in the second quarter were reduced when compared to Q2 of last year as a result of the primary stock offering completed by the Company in February. Our second-quarter diluted share count was 51.6 million shares.

As of September 13, 2012, our cash balance was $32.8 million with an additional $27.4 million in bank deposits and marketable securities. The Company generated $15 million in cash from operating activities this quarter and free cash flow of $7.4 million. Our gross debt position stood at $75.4 million at the end of Q2 with a net debt at $15.2 million. During the second quarter, WNS made the final installment payment of $24 million on our original term loan taken in July of 2008 to fund the acquisition of Aviva back office.

DSO in the second quarter came in at 38 days as compared to 35 days in Q2 of last year and 33 days last quarter. Our CapEx spend for the second quarter was $7.6 million with the year-to-date expenditures at $12 million. The majority of the spend is in support of our infrastructure expansion programs.

With respect to the other key operating metrics, our total headcount at the end of the second quarter was 25,714. Our accretion rate in Q2 dropped to 33%, down from 36% in the first quarter and 39% reported in the second quarter of last year. Billed seat capacity was 21,437 at the end of the quarter, which represented an increase of 1123 seats over the previous quarter. As Keshav mentioned, WNS has now added over 2500 seats in the first half of fiscal 2013.

As a result of this investment, average billed seat utilization in Q2 was 1.24 as compared to 1.27 reported in Q1 and 1.26 reported in the same quarter last year. Historically, WMS has run seat utilization and [drove] (inaudible) closer to 1.35 to 1.40.

In our press release issued earlier today, WNS updated its guidance for fiscal 2013. Based on current visibility levels, we expect that revenue in the range of $426 million to $438 million, assuming an average British pound to US dollar rate of 1.6 for the remainder of this fiscal year, and ANI of $50 million to $54 million based on a INR53 to US dollar exchange rate for the remainder of the fiscal year. This ANI implies an adjusted EPS of $0.96 to $1.04 on a diluted share count of approximately 52 million shares. We currently have 99% visibility to the midpoint of our revenue guidance range and we expect to update this guidance next quarter.

In terms of hedges, WNS is approximately 90% hedged for fiscal 2013 and 70% 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.

We will now open up the call for questions. Operator?

(Operator instructions) Joseph Foresi, Janney Montgomery Scott.

My first question here is just -- you made some comments earlier about the macro environment, and you're taking a little bit longer to sign these deals. Actually, I'm wondering, is that an effect of the macro environment, or is that just the new world we are in that these deals are going to take longer? And then maybe you could give us some color on the two awards you are working and your expectations for those.

Thanks, Joe. First of all, I must state that we are quite confident and positive about the client behavior from a client business point of view, the engagement levels, the way our strategic messages are resonating with clients and just generally the excitement that our client partners as well as our sales folks are able to evoke with clients and prospects.

Having said that, as I mentioned earlier, what we are seeing is some of the smaller deals moving through the pipeline faster, but much more engagement at very senior levels now around the larger, more transformational kind of deals. And I think a lot of this is essentially because of what's happening in the economy around us, the fact that a number of management teams, while they are facing a lot of pressure in terms of their business and the fact that there's no significant change. While they understand that dipping their toes in this model and getting aggressively after this model will help them gain efficiency, reduce costs, as well as very strategic advantage over the long term, also understand that there is a message of disruption that needs to be internalized inside the company.

So we are actually seeing a few of these deals get extended in terms of time frames because they are now getting referred to boards. We see a lot more engagement of the risk director. And coming specifically to the two deals we spoke about, we are actually seeing that one of these deals that we were talking about, where we have made very solid progress, we actually see now it has now been referred to the board and we are pretty certain that, once that process is over, we should be in a much better position in terms of announcing progress there.

In the case of the other one, again, we again see that what has really happened is an extension in terms of the time lines. So again, very confident in terms of the progress we are making, very confident in terms of how our strategic messages are resonating. But we just believe it's a function of the market and how that environment is, at this point in time, as a result of which people just want to get a few more sign-offs on the large transformational deals.

And I must tell you that we saw this earlier also with our large Australian deal, where not only did we have most of the board members visit us at our delivery centers, but again, we also saw the risk director of the company get quite involved. So I think it's just a function of where the market is, but no real impact in terms of where the demand trends are, because I think it's more a question of when and not if, as I said earlier.

Okay, and then just on the margin front, it looks like guidance calls for some margin expansion in the back half of the year. Maybe you could talk about, first, how you are balancing the ramp of the new clients versus what we are looking at for margins in the back half of the year, and then how quickly or how effective all the recent sales hires you made are starting to produce, and just how we should think about all that in total.

Sure. I'll take that, Joe. I think in terms of the pressure that we've seen on the margins -- and obviously, as you are aware, it's a very normal pattern for us to have a margin expansion throughout the year as we go on. And a lot of that has to do with how we digest and manage the annual wage increases that we give.

At this point in time, we believe that our investment levels in the business are largely set. We are running seat utilization at 1.24, which is an all-time low for the Company, significant opportunity as we start to put bodies into these seats and sign contracts to raise margin. Obviously, those costs are fixed and sunk at this point in time. So between the investments that we've made in the sales force, the investment that we've made in infrastructure, some of the investments that Keshav spoke about earlier in terms of the capability creation group, these levels are largely set. So what we don't see, going forward, currency aside, is significant volatility in terms of our cost structure.

What we do see is that as revenue continues to accelerate, and obviously when you look at our guidance and look at the midpoint and what's implied in that, we do see revenue acceleration in the back half of the year, what it should drive is margin expansion. So that's how we plan to get there. And I don't think anything has fundamentally changed from where we were a quarter ago.

Okay, and then just a last question from me. I think guidance implies that the organic growth rate is going to accelerate, and you have talked a little bit about it taking longer to ramp deals. I guess it's fair that we could assume that you are not expecting any change in the time frame at which you are projecting for a return to industry-like growth rates due to either the macro or the slower deal signings. Is that fair?

Yes, I would say that's fair. We are not expecting any change there. As I underlined even earlier, the quality of the discussions we are having; the scope, size, scale and complexity of deals that we are playing in; the kind of pipeline that has now been built by the sales force across verticals as well as horizontals and geographies is very exciting for WNS. And, whereas decision-making may take a little longer on the larger deals, we believe that we have made all the right investments in terms of sales, in terms of capacity, in terms of capability creation and new offering creation to help us return to industry growth rates very, very soon.

So from that point of view, very confident about how the future is going to shape up for the Company.

Great, thank you.

Rahul Bhangare, William Blair.

I was just curious about the healthcare vertical. I saw a pretty notable sequential decline over there. Anything specific going on?

Nothing interesting or exciting, Rahul. We just had a situation where we had some analytics work that was project-based that rolled off this quarter. But in terms of what we expect with not only that client but the vertical overall, we expect to see growth going forward. So I don't think it's indicative of any kind of a trend in the healthcare business.

Okay, and then just given that there's lower attrition -- it was nice to see that, by the way -- and just given the facility expansion, I was just wondering why headcount declined sequentially.

I think when you look at our headcount and look at the ramp-ups that we had seen, both in terms of within core WNS as well as within the Fusion acquisition, we were running a little bit hot in terms of our overall headcount levels. So even at a 33% attrition rate, which is lower than where we've been in the past, we saw some scope to manage some of the unproductive resource within the Company. And as a result, we didn't need to hire at the same rate as we have previously. So a little bit of bench management, if you will.

And have the hiring plans for the year stayed the same?

Yes. I don't think there's been any change at a macro level for the hiring plans.

Alright, that's all for me, thanks.

Bryan Keane, Deutsche Bank.

I wanted to ask about the large deal pipeline beyond these two deals, these two large deals that we have been talking about. Is there enough in the pipeline for future business to get the growth rate, the organic growth rate up, as we head into fiscal year 2014?

Yes, Brian, absolutely. I think that is what is really exciting from our perspective, the fact that we now are playing deals which are much larger in size and scope that we have played in, one. The second is the fact that with a superior execution capability thanks to our vertically aligned strategy as well as our strong knowledge of technology-enabled kind of offerings, our ability to go into some of our existing clients as well and actually change the complexity of the game thereby carving out a completely new deal has also expanded very significantly. So at this point in time, we are pretty pleased with the kind of deals we are playing in, particularly on the larger size, one.

The second is some more strategic deals which we think, over a period of time, which will obviously have long sales cycles but which essentially, over a period of time, we are capable of influencing as sole-source kind of deals and where, as opposed to taking market share away or wallet share away from somebody else, we are actually looking at expanding the pie and creating or expanding the wallet size itself. So very confident about how some of this will result in better execution on the sales side for the long-term.

How long do you think it will be, or when do you think it will be, before WNS gets up the kind of industry growth averages for the BPO industry? Do you think it's a year out, a couple years out, or how do you think about that, Keshav?

Brian, I think, as I have said before, I think from our perspective, the investments we have made is all focused on trying to get the company back to in or around industry growth rates in fiscal 2014. So that's really where the management team is focused at this point in time. And again, I feel confident that we have made the right investments in that area.

And just to add a little bit of color on that, Brian, if you look at our guidance and you look at the midpoint of the guidance and take a look at the growth that WNS needs to post to get there in terms of what that means in year-over-year improvement, we are looking at 11%, 12% second-half growth versus where we were last year. So in terms of the acceleration, I think we are getting close to those industry growth levels. And I think we are set up very well as we exit this year, assuming things continue on the right path, to be able to do that next year or the year after.

Okay, and just on the adjusted operating margins, what does the guidance imply for this year? Should we see margins to be down a little bit year-over-year, due to the acquisition and some additional buildup costs on the seat capacity?

I think at a macro level, Brian, we're looking at operating margins that relatively flat year over year.

And then the key for fiscal year 2014 to improve those margins will be to improve seat utilization as one of the major drivers towards the 1.35, or at least the 1.3 range?

Absolutely. With the number of seats that we've added already as of right now, we could go this Company 10% without adding a seat.

Okay, thanks so much.

Tim Wojs, Baird.

Just a question -- I know you guys think of Q3 as quarterly guidance, but I'm just curious. I think Q3 is sequentially a little weaker for you guys around travel and maybe insurance. So, historically, that has been the case. Should we think of that happening again in Q3 and then a sequential ramp in Q4? How should we think just about the sequential growth trends over the next two quarters?

I think you're going to see a little bit of pressure in the travel vertical, as we do every year. But looking at the pipeline and looking at where we are right now, I think the growth that we should see in the back half of the year should be fairly linear.

Okay. And then just on G&A, I know you talked about some of the infrastructure costs you had incurred this quarter. Is the $15 million or so in G of A a good go-forward number, or is there some one-time stuff in Q2 that we should be aware of?

In terms of just the base G&A (multiple speakers) --

Yes, just the base G&A, yes.

-- including the sales and marketing parts? I think we are probably pretty close to a good run rate.

Okay, and then just on the M&A, just curious about your appetite. I know you have done the Fusion acquisition, but I think the pipeline in the industry, at least for M&A, seems to be pretty full. So just curious on what your appetite is there.

As I said before, I think we have focused over the last 2.5 years on just delivering, proving to ourselves and the market that we can deliver organic growth rates. And I think we have now done that. At the same time, we also see that the opportunities in the market is immense. Industry analysts are still projecting significant growth rates on a CAGR basis for the outer years over the next four or five years. We definitely want to participate in that growth. We certainly want to lead the market in terms of growth there.

So at this point in time, while inorganic means of growth is not a priority, I must tell you that the management team is quite comfortable in terms of focusing on an opportunistic basis and looking at small tuck-in kind of acquisitions that really help drive our three differentiators. And again, to remind everyone, those three differentiators are essentially our end-to-end vertical model, the technology-enabled BPO model, as well as using the client partner model and driving further global footprint.

So we won't be opportunistic. We constantly look for interesting deals, and we will keep you updated if something happens.

Great, thanks.

Ed Caso, Wells Fargo.

Thanks, it's actually Rick Eskelsen on for Ed. Just a quick question on what you're seeing in the transformational side of things. It sounds like demand is pretty good there, but if you give a little more color, that would be helpful.

Sure, Rick. I think, as Keshav mentioned, anytime you start talking about transformation and changing how a client does business and how they look at changing their business, the amount of organizational change and business disruption associated with that is significant. So while there's a lot of interest and while there's a large number of clients both big and small that are highly interested in how to take the companies forward this way, the reality is transformational change typically doesn't happen in one fell swoop. So what we're looking at is trying to find small projects, ways to get our foot in the door, ways to help clients solve smaller problems and lead that into larger, more transformational types of opportunities. But it's pretty rare to see clients want to try and overhaul everything they do all at once. So whether we can do that with an automation solution or a piece of technology or a platform or analytics or actuarial types of services, these are always -- we can add value, help clients look at their business different than how they are looking at it today and lead that into larger scale types of opportunities.

So kind of the short answer is, we believe there are transformational opportunities out there. We're definitely in discussions with clients about them, but we believe that they are probably going to be starting, by and large, as small types of engagements with huge expansion opportunity.

Thanks, that's helpful. And then just, what were the integration and deal costs in the quarter? Do you have that level?

It was about $250,000.

$250,000?

Yes.

Okay, thank you. And then just, what we should we be expecting now with your balance sheet, now that you have paid off the last Aviva-related debt installment? Are you guys really focused here on being net cash positive? Is that something your clients are looking for? Or what around expectations for the balance sheet?

In terms of cash, we have solid cash in the balance sheet at this point in time as well -- $60 million. We expect to pay off the debt and become net cash positive and continue to grow our cash as we go along. We have significant, handy cash generation quarter on quarter, and we expect to grow that as we go along.

I think there's going to be a baseline level of debt that we are going to have. If you look at the debt maturities and the restructuring that we have done of those over the last year or so, we have got roughly $40 million in long-term debt right now that will probably stay on the balance sheet for a period of time here. The rest of it is short-term and it's more for geographical requirements as we move into some newer areas or need cash to be moved around the globe. But as Kumar said, I think the focus is on continuing to drive top line, to make sure we expand our margins, to make sure that that's dropping through the cash at a healthy rate. And certainly, we expect to improve not only our cash flow, but also improve cash on the balance sheet over time.

Thanks, and then just last one for me -- on the infrastructure side with you guys being pretty aggressive here in adding seats over the past several quarters, when should we expect the -- what should we expect for seat growth and utilization? It sounds like you want to move up utilization, but does that mean you're going to slow the level of seats here?

Let me try to address that strategic level first and have Dave and Kumar talk a little more about specifics. But I think what we are doing is essentially investing first and foremost is a global footprint, because we are seeing a significant change. We predicted this, we invested in this and we are actually seeing a significant change now in client behavior in terms of a global client now wanting to have one partner, you know, run processes for them across the globe. Right?

And so as part of that scenario, we have now made sure that we are available in all logical locations that clients can leverage us. And you'll notice that over the last few quarters, as opposed to building a facility and then waiting for business, we have actually piggy-backed based on specific client demand.

Now, having said that -- and in India, where we have also been aggressively investing in special economic zone capacity. And again, that is strategic and good for the Company long-term, because over a period of time it helps us with that tax rate as well. However, we have to appreciate that in the short term, as we continue to add new business and the business -- we fill some of these seats in the global locations and bring a lot of it back into India, there is going to be a period of time during which we will have to have duplication of some seats, both in the old STPI kind of facilities as well as the new special economic zone facilities. And I think, over a period of time, you should expect to see some of the old facilities come off and more of the delivery taking place from these new seats.

Now, specifically in terms of what time frame, I will ask Dave and Kumar to address that.

Sure. I think, when you look at what we have done here -- and as Keshav mentioned, three key areas of expansion -- one is to manage tax through the SEZ going forward. One is to manage cost of delivering services by looking at lower-cost geographies across India. And the third, to have a global footprint across multiple destinations backed by firm client demand. What it has done is it's driven down our seat utilization, obviously. And as a result, we think at this point in time we have hit a bottom in terms of seat utilization.

That being said, based on the fact that we are spread across a wider base than we were previously, I wouldn't expect that the seat utilization will get back necessarily to the levels where it was before when we were optimized, if you will. But the reality is there's significant scope for improvement, and I think, as I said, we should have hit bottom now in terms of seat utilization. We would expect to drive that number up and drive margins up going forward.

Great, thank you very much.

Manish Hemrajani, Oppenheimer.

Can you talk a little bit more about your Concur opportunity? They have over 10,000 customers worldwide. Are you only limited right now to the EMEA region as far as Concur's clients are concerned?

Manish, right now, the relationship as it's struck is limited to Europe, Middle East and Africa. We do think, as we move forward, that there are opportunities to expand the relationship. But with this type of a partner, the concept of exclusivity is not going to exist. We do believe we bring a significant amount of experience to the table, and obviously, they've seen that. As a matter of fact, we've partnered with them to do a global installation across a very large electronics player, and it went extremely well.

So we think there is a significant opportunity for us to work together in the future. Right now, it's going to be in Europe and Middle East and Africa. But I think there will be, hopefully, an announcement sometime over the -- in the coming months about the ability to expand this relationship.

And can you touch upon how many clients that you're working with right now, of Concur?

This is a relatively new relationship. This was the first installation that we had worked on together.

Okay. And then you touched upon sales cycles lengthening. Would you attribute some of that to the November elections coming up? And do you expect the decisions to accelerate post-election, in three weeks?

Not at all, actually. In fact, I would put a stick in the ground and say that in the recent past, we are not actually seeing too much of the noise around that particular event or too much rhetoric coming as a result of that, either. Even from a client's point of view, I think people are more businesslike and focused on the outcomes that they want to drive. I think these sales cycles are lengthened more by the need for them to be able to explain the disruption better inside their own environments, one.

The second thing we have to also understand is that with the level of stress that has been seen across the globe, and we have seen it also over at some of our top 10 or top 20 clients as well, senior management teams have changed recently. And, therefore, the need for the new teams to come in, settle down, understand what they want to drive there get excited about what companies like WNS have done for them in the past and then partner with us to really drive new outcomes for them is high. But by the time all of this happens, it means a slightly extended sales cycle. But again, from our perspective, we are seeing that in spite of the fact that we are seeing a lot of new management teams also come, we are actually looking at as an exciting phase for us to take our message even deeper into our top 10 or top 20 clients.

Got it. And then, we had one of your peers make an acquisition in the healthcare space very recently, and healthcare is being touted as the next mega opportunity in BPOs. Are you thinking along similar lines in terms of inorganic growth, and should we expect you to make something similar of an announcement in the not-too-distant future?

So, Manish, great question. Yes, we do follow the events relating to our competitors and our peer set as well. And I think at this point in time, what I would like to say is that we are very, very focused on organic growth. At the same time, we believe the management team has settled down well. We have digested our last acquisition quite well. And, as I've said before, our focus is to look at small kind of tuck-in kind of acquisitions that can really help us with our technology story, our models of nonlinear growth, or our entry into a new geography, as opposed to really focusing on a specific vertical. So within a vertical, it could be something on the insurance or an insurance platform, it could be something on some particular area of healthcare. But it will be far more technology focused as opposed to going and doing a big bang kind of an acquisition or trying to acquire clients.

Okay, and last one for me, on the CFO search, I know that notice periods in India can be ridiculously long. But have you identified a candidate and just waiting for the notice period to end, or are you still looking?

At this point in time, what I will say is we have really identified appropriate candidates. We are now focused on making sure that we do all the right things at the board level to bring the right person in. So at this point in time, I would like to say that we have made a lot of progress, and I would request you now to wait for further announcements in terms of the new CFO.

Thank you, good luck.

Tien-Tsin Huang, JPMorgan.

Thanks so much. I just wanted to go back to the implied acceleration in the revenue guidance. I'm just trying to better understand how much visibility you have there, what needs to go right, what could go wrong for you to deliver that.

If you look at our revenue guidance for the year, the midpoint of the guidance right now stands at $432 million. We have 99% visibility to that figure. So as we walk into this quarter, we've got roughly $426 million of committed business. Now, obviously, in a BPO environment, there are volume assumptions embedded in that, and things can change over time. But in terms of signed processes and visibility to what we are doing within those processes and client claims, we are very, very comfortable, obviously, with the $426 million. Something would have to go wrong in terms of either losing the contract we already have or having business volumes with an existing client, with an existing process that we manage fall off the table. But outside of that, there's not much risk to the midpoint of that guidance.

In terms of what could get us at or above the high end of our guidance, as Keshav mentioned, we need to continue to accelerate our farming efforts. There are a number of smaller opportunities, especially with existing clients, that have much shorter fuses than the larger transformational deals that we have been chasing. And certainly, the two big deals that were in the kill zone in the first half of the year that are still, we believe, in very good shape here and again, hopefully ready for some kind of a decision in the near future -- those certainly would help us to the extent that it happens in October or November, would certainly help us get to the higher end of our guidance.

Got it, that's helpful, David. Appreciate that, that's good. The second thing I want to ask, just around the US, it obviously came in a little down. I'm curious what the trend should be here in the next couple of quarters, based on what you see, just to help us think about geographies.

I think it's just a timing thing. I don't think it's directionally an indication of what's going on in the US. As a matter of fact, if you look at the pipeline, our US pipeline has probably never been healthier. So I think the opportunities for us to grow and accelerate growth in the US is clearly one of the top priorities. And we have allocated a disproportionate number of resources, if you will, from a sales perspective to attacking this region. So we understand it's a huge growth opportunity for BPO services and we also understand we need to diversify from the historic strength that WNS has had in the UK.

So clearly an area of focus and, we think, a big opportunity, but the pressure that we saw this quarter in terms of what went on in the North American region, I don't think, indicative of what we expect to see going forward.

Okay, last one, I promise, just a bigger-picture question, I guess, just hearing some from your peers, Accenture included, on BPOs, a lot of talk about platforms and using platform delivery as a supplement to classic BPOs. I'm curious what WNS's thoughts are around investing in platforms and building that way, going forward. Thanks.

Sure. And as we mentioned earlier, I think understanding that this was the way we saw the industry going forward over the last year and a half, we kept focusing our model around technology-enabled kind of BPO models. And therefore, so one of the differentiators we keep talking about is technology-enabled BPO, which means really enabling each of our processes through much higher levels of automation as well as bringing in mini-platforms as well as using partnerships on the technology side to drive much more nonlinear models of growth for us.

One of things that we did effective January this year is to create the capability creation group at the Company. And this group really is focused a lot on the technology and the transformation story with each of our clients, as well as constantly coming up with new offerings so that we can increase our menu kind of offerings that we take to each of our clients, which ultimately enables us to maybe start the process on an FP basis, but then take that process into their technology platform and then deliver on the basis, which could be transaction, outcome, output, gain share, risk/reward kind of models. And I'm glad to say that at this point in time, almost 39% of our revenues already come from non-FP models.

And again, I must mention that we are focused on being seen as a technology-agnostic player. So we are not the kind of a company that goes in and says, our (inaudible) a client around the specific technology that we have. So we build all the logical partnerships and find our verticals and horizontals with the technology players. At the same time, we are adding technology layers and creating our own IP inside the company to make each one of our processes much more efficient. So I think in the long-term, you should expect to see revenue and headcount get de-linked at WNS. That's one.

Second thing is, as a result of this, we expect to see margin performance get driven in a much more positive manner.

And the third thing I will say is that, as a result of technology enhancement, building much more stickier relationships with clients because we are getting clients focused on outcomes and not inputs into the process.

Great, thank you.

Ashwin Shirvaikar, Citibank.

My question is around the large deals that are still in your pipeline. If you can talk about the potential margin and cash flow implications of those deals? And given that, frankly, WNS has a spotty history in terms of large deals, can you talk about, from a risk management perspective, how you are viewing the ramping of those deals once they are signed?

Let me first address the first part. And I think, at this point in time, our definition of large deal is anything that drives or delivers an ACV of $5 million or beyond. So that's how we define it.

As far as delivery of deals is concerned, you probably are aware that only recently WNS won this large deal out of Australia, which is very large. Right now, we have just completed transitioning close to 17 processes, a very happy client on the other end. And we believe that in the next two years it will be a top five client for us. So it is on that basis and that performance that gives us a lot of confidence about the future reserve.

So at this point in time, again, I will say that we are playing in at least two of these large deals that I spoke about a few quarters ago, which we expect to see decisions on sometime soon. At the same time, I am delighted to say that our hunting teams as well as our farming teams have been able to position us in more deals which are transformational in nature. And we will update you about some of these sometime else along the way, as we make progress on them.

And as I mentioned earlier in the call, based on the capability we have built, based on the differentiators we have invested in, our ability to actually sole source deals with some of our existing clients and really drive much larger kind of deal play at this point in time is high. So we are actually working on a few of these deals with some of our existing clients where, as I mentioned earlier, we are not taking wallet share away from somebody else, but we are actually creating an expanded wallet.

And as we have mentioned earlier, as we move ahead, we win these deals and we move ahead, whereas in the very short term as you transition projects, obviously you eat some of the transition costs across the early part. All of them are deals that are accretive in terms of margins and the margin performance that you see from WNS is after digesting all these deals.

Okay. No, that's good color. I was imagining that when you said large deals, they were much larger than the number you mentioned with the ACV. One other question I just wanted to talk about was when you roll out new centers such as the ones you've done recently, is that based on a specific client demand that they want you to deliver from certain geography? How does that thought process work? And in terms of forward-looking investments, you mentioned China. Generally speaking, when would you say that you are reasonably complete in terms of an infrastructure rollout?

I'll take that. I don't know that we can ever say we are fully complete in terms of infrastructure buildout because, at the end of the day, we need to be where our clients want us to be. I think the nice approach that we have taken at WNS, and you saw it with the relationship that we struck in South Africa and how we turned that into an acquisition that's now a growth engine for us -- I think the approach is that what we want to do is use our clients' existing demand, use our existing relationships to vet locations, to make sure that we've got demand and to make sure, most importantly from a strategic perspective, the geography fits into what we are doing overall.

So for example, we just announced a new center opening in Poland. We have a client that we are doing work for globally today that is backing at least part of the opening of that center through the rates and through the business that we are going to be doing with them and through a firm contract. The reason we feel that having a center in Poland is important, as Keshav mentioned, is it gives us a German language capability to deliver to European clients that we don't have today. Our centers today are largely based in either local geographies like the UK or Romania. But the bottom line is, there was a 40% need for German language in Europe that we were largely unable to service.

So what this center allows us to do this effectively kill two birds with one stone. So I think what we're looking for is a combination of existing demand, a combination of strategically a location that makes sense for us long-term and potentially making sure that we are in a market that we think has a long-term internal growth opportunity.

So, for example, the one center we've opened in the US where we don't necessarily have firm contracts to back, we know we need to be in this geography to be successful selling in North America.

Got it, that's very useful, thank you.

And that completes the Q&A session for today's call. I will now turn the call over to Keshav for any closing remarks.

Thank you. We are pleased with the progress we have made over the past few quarters and we believe that our targeted investment programs will align the business objectives of our clients with long-term goals of WNS. As we deliver operational plans to leverage these investments, WNS expects to accelerate top-line growth and expand profit margins.

Thank you for joining us today and we look forward to speaking with you once again soon.

Thank you for your participation on today's conference. This concludes the presentation. Everyone may now disconnect, and have a great day.