WNS (Holdings) Ltd (WNS) 2013 Q3 法說會逐字稿

Good morning and welcome to the WNS (Holdings) third-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 on how to ask a question will follow at that time. Now, I would like to turn the call over to David Mackey, WNS Corporate Senior Vice President of Finance and Head of Investor Relations. David?

Thank you and welcome to our 2013 third-quarter earnings call. With me today, I have WNS's CEO, Keshav Murugesh and WNS's new, CFO Deepak Sogani. 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 third quarter ended December 31, 2012. Some of the matters that will be discussed on today's call are forward-looking. Please keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, those factors set forth in the Company's Form 20-F, which was filed with the SEC in April of 2012. This document is also available on the Company website.

During the call, management will reference certain non-GAAP financial measures, which we believe provide useful information for investors. Reconciliations of these non-GAAP financial measures to GAAP results can be found in the press release issued earlier today. Some of the non-GAAP financial measures management will discuss are defined as follows. Net revenues are defined as revenues less repair payments; adjusted net income, or ANI, is defined as profit excluding amortization of intangible assets and share-based compensation. These terms will be used throughout the call. I would now like to turn the call over to Keshav Murugesh, WNS's CEO. Keshav?

Thank you, David and good morning, everyone. During the third quarter, WNS continued to grow the Company's top line and slightly expanded our operating margin percentage. Third-quarter net revenue was $113.5 million, growing 16.8% on a year-over-year basis and 5.8% versus the prior quarter.

During the third quarter, WNS added nine new clients, expanded eight relationships and renewed or extended nine contracts. Several of the new projects, which began during the quarter, are in ramp-up or transition mode. As a result, for the first three to six months, we expect that travel and starting costs associated with knowledge transfer will keep margins under pressure. However, as these engagements move into steady-state, margins will expand. These large projects are not only increasing our footprint and visibility across several key verticals, but are also allowing us to establish beachheads in new geographies, including our Poland development center.

At a high level, our revenue growth in the third quarter was broad-based with the retail, CPG, insurance and utilities' verticals driving improvement versus the prior quarter. From a services perspective, the third-quarter sequential growth was paved by financial accounting, industry-specific BPO and premium contact center solutions.

Adjusted operating margin for the third quarter was 13.9%, increasing 20 basis points from Q2. Sequential margin improvement was driven by operating leverage associated with higher revenue and improved productivity. These benefits were partially offset by lower seat utilization resulting from our global infrastructure expansion, transition costs associated with new project ramps and unfavorable currency impacts resulting from appreciation in the Indian rupee against the US dollar.

As we have discussed on our previous calls, the Company has been investing heavily in several key initiatives, which include expanding our geographic footprint, technology enabling our solutions, creating new service offerings and deepening our domain expertise.

I would like to take a moment to address these activities. We continue to work on the buildout in our new locations, which include South Africa, the US, Poland and (inaudible) in India. Traction with both new and existing clients around these locations continue to be positive, including 25% sequential revenue growth in South Africa. In addition, WNS is happy to report that, during the third quarter, we began delivering services from China with the help of a local partner. The Company expects to expand our presence and delivery capability in this geography in the coming quarters. While WNS must continue to expand our delivery footprint to properly service our global clients, we believe that, going forward, the pace at which we add seats and locations should slow down relative to our top-line growth. As a result, we do expect, over the next few quarters, that our seat utilization will improve and help enable gross and operating margin expansion.

From a technology and services standpoint, WNS was able to make significant progress this quarter in creating an expanded set of solutions and offerings for the BPO marketplace. The Company announced last week a strategic partnership with Modern Terminals, a leading container and terminal operator, under which our two companies will provide shippers, forwarders, 3PLs and ocean carriers a full suite of BPO services. These include F&A, analytics and several industry-specific solutions such as bookings, import/export documentation and terminal operations.

The Company also announced strategic partnerships with Kinaxis for platform-based BPO services around supply chain management and with Kyriba for cloud-based treasury and cash management solutions. During the third quarter, WNS rolled out an internally-developed accounts payable workbench solution for non-Oracle SAP environments to complement our existing ERP workbench offerings. In addition, our capability creation group is actively working to create additional WNS-owned IP around risk offerings, domain-led analytics, social media solutions and technology platforms.

We will continue to develop internal IP for strategic partnerships and evaluate niche tuck-in acquisitions, which are designed to create and maintain differentiated positioning in the market and are aligned with the long-term direction of the BPO industry. WNS also received praise for our domain expertise this past quarter from key industry analysts. In research reports on the industry, BPO industry, from Everest Group and HfS Research, WNS was placed in the leader category based on our insurance capability, experience, knowledge and platforms.

From a sales effectiveness perspective, the Company continues to make progress with an expanding pipeline and visible revenue results beginning to show. We have been successful in farming several key accounts leveraging our domain knowledge and vertical structure to drive increased business value to these clients. These include expansion into new service process areas, as well as new geographies.

On the large deal front, we now have four large wins this year defined as having potential for $5 million to $10 million in annual contract value. These include two in the travel space, one in retail CPG and one in consulting and professional services.

In addition, our pipeline remains quite healthy with respect to large deal opportunities. While we continue to see final decisions on larger and more transformational deals progressing at a slower rate, we do believe WNS Corp remains well-positioned to win several of these large engagements in the coming quarters.

In summary, with only one quarter left in our fiscal year, we are pleased with the progress we have made in moving our business forward. The demand environment for BPO services remains stable and healthy despite uncertainty, which persists in the global economy. In the coming quarters, we expect that our higher value services and offerings will drive our growth with an increasing percentage of these services to be delivered to nonlinear engagement markets. As an organization, we are focused on achieving top-line growth at or above industry rates and on driving improved margins and profitability.

Let me now hand the call over to Deepak Sogani, WNS's new CFO, to walk through the financials. We are delighted to have Deepak on board and look forward to him supporting the organization and leading the finance function as WNS continues to grow and evolve. Deepak?

Thank you, Keshav. I am very glad to join WNS and look forward to partnering with you and the other business leaders to help enable the Company to reach new heights.

With respect to the third-quarter numbers, our net revenues increased to $113.5 million from $97.2 million in the same quarter last year, representing an increase of 16.8%. On a constant currency basis, year-over-year net revenues grew 15.7%, reflecting a 2.1% appreciation in the British pound. Sequentially, net revenues increased 5.8%, including approximately $2 million of incremental transition revenue for new projects and trend in the retail CPG, insurance and utilities verticals.

The third-quarter revenues were adversely impacted by seasonality in the travel vertical, which reduced 2.9% sequentially. On a constant currency basis, total (inaudible) revenue increased 4.8% versus the previous quarter.

Gross margin, which is excluding the share-based compensation, was 34.7% in Q3 as compared to 36.3% reported in the same quarter of fiscal 2012 and 35.5% last quarter. On a year-over-year basis, gross margin declined 170 basis points primarily due to investments in our global infrastructure expansion and transition costs, which more than offset benefits from higher revenue and depreciation in the Indian rupee against the US dollar. The sequential gross margin reduction of 80 basis points was driven by transition costs and fleet utilization levels, which were partially offset by volume increases and productivity improvements.

Third-quarter 2013 operating margins, excluding share-based compensation and amortization of intangible assets, were 13.9% as compared to 16.7% reported in the same quarter of last year and 13.7% in the last quarter. Year-over-year, operating margins were negatively impacted by slightly higher SG&A levels, hedging losses on the FX line and the reduced gross margin discussed earlier. The SG&A increase was associated with delivery center overhead costs, the establishment of our capability creation group and Fusion SG&A. On a sequential basis, SG&A leverage on higher revenues more than offset the softness in quarterly gross margins.

Interest expenses this quarter was $0.9 million, slightly better than the $1 million reported in Q3 of last year and the same as reported in the previous quarter. The Company's other income was $1.3 million in Q3 versus $0.2 million reported in the same quarter last year and up from $1 million in the last quarter.

The year-over-year and sequential increases in other income are the result of improved cash flow and higher balances in cash and marketable securities. WNS's effective tax rate in the third quarter was 13.5%, down from 21.1% last year and 17.2% in the previous quarter. We currently expect that the average effective tax rate to be in the region of 16% to 17% for fiscal 2013.

The Company's ANI for Q3 was $14 million compared with $12.1 million in the same quarter of fiscal 2012 and $12.2 million last quarter. Adjusted diluted earnings were $0.27 per share in Q3, the same as reported last year and up from $0.24 per share last quarter. Earnings per share in the third quarter were reduced by approximately 12% when compared to Q3 of last year as a result of the primary stock offering completed by the Company in February.

Our third-quarter diluted share count was 51.8 million shares. As of December 31, 2012, WNS's cash balance was $26.7 million with an additional $59.6 million in bank deposits and marketable securities. Total cash and cash equivalents of $86.3 million exceeded our gross debt position of $84.6 million by $1.7 million at the end of Q3. The Company generated $25.8 million in cash from operating activities this quarter and free cash flow of $20 million. DSO in the third quarter came in at 32 days as compared to 36 days in Q3 of last year and 38 days in the last quarter. Our CapEx spend for the quarter was $5.8 million with year-to-date expenditures at $17.8 million. The majority of this 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 third quarter was 25,931. The attrition rate in Q3 was 33%, down from 35% in the third quarter of last year and the same as reported last quarter. Base seat capacity was 21,547 at the end of the quarter, which represented a net increase of 110 seats over the previous quarter. WNS has now added over 2600 seats in fiscal 2013.

As a result of this investment, (inaudible) seat utilization in Q3 was 1.2 as compared to 1.23 reported in the same quarter of last year and 1.24 in the previous quarter. Historically, WNS has run seat utilizations at rates closer to 1.35 to 1.40.

In our press release issued earlier today, WNS updated guidance for fiscal 2013. Based on current visibility levels, we expect net revenues in the range of $437 million to $439 million assuming an average British pound to US dollar rate of GBP1.61 for the fourth quarter and ANI of $52 million to $54 million based on INR54.5 to US dollar exchange rate for Q4. This ANI implies an adjusted EPS of $1 to $1.04 on a diluted share count of approximately 52 million shares. We currently have over 99% visibility to the midpoint of our revenue guidance range.

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 in the region of $20 million to $22 million in fiscal 2013. We will now open up the call for questions. Operator, please take over.

(Operator Instructions). Paul Thomas, Goldman Sachs.

Good morning, guys. Thanks for taking my question. I guess first off, you mentioned several new project starts in the quarter. Was any of that related to the two large contracts we have been talking about that have been in discussions for a while now?

I will take that, Paul. The two -- we now have four large contracts wins to date. Of the four that we have won, the two that we have been speaking about most recently are not included in that number. Both of those deals still remain in play. We believe we are still very well-positioned for both of those projects, but the client has yet to make decisions in terms of finalization and contract discussion.

Okay. Then I guess with respect to margins thinking about those contracts, if you are expecting margins to be under pressure for the next couple of quarters here from the current ramps, I guess we will continue to see that as those larger wins come through later on?

I think, Paul, the impact on margin is going to be more about the relative amount of transition cost to the total revenue within the quarter. So depending on what is ramping up or what is ramping down in any given quarter, that transition revenue can present the opportunity to either expand or contract margins.

This quarter, as both Keshav and Deepak mentioned, we had an additional $2 million of transition revenues related to the projects that we have underway. If we do kick off several new projects over the next couple of quarters, we would expect that to continue to pressure margins a little bit. But, again, as that happens, we would expect the transition from the projects we have just discussed in Q3 to begin rolling off.

Okay. And then maybe the last one, any early thoughts on next fiscal year with these wins here? I mean how does the pipeline look going into FY '14? Thank you.

Let me take that. As I mentioned, obviously, we see BPO, the demand for BPO services being stable and healthy. We do have a good pipeline of business that are going through the various stages. We are quite comfortable with the fact that -- I am very confident about the fact that what we said we would deliver this year, we are heading in that direction and moving towards double-digit growth rates. And at this point in time, whereas we have no numbers to update you, all I can tell you is we feel comfortable going into next year.

Edward Caso, Wells Fargo.

Hi, good evening. I was wondering if you could discuss a little bit about the competitive situation, particularly if the larger multinational companies have increased their visibility in your part of the market.

Right. Again, so that is a great question and from our perspective, we continue to see the usual suspects in the deals we are pursuing. We do see every now and then some of the large players there, but I think what has also happened is, over the past few quarters, we have actually successfully been able to take business away from some of them from their existing clients.

So at this point in time, we are not seeing any aggressive kind of moves or changes to what we saw over the past few quarters. We continue to see more activity from the traditional pure-plays, the IT/BPO kind of integrated players and every now and then, we do see some of these players coming in, but not really impacting in terms of our ability to build a pipeline, take that pipeline through and win more deals.

You mentioned that you were taking business away. So is the opportunity set that you are looking at a takeaway opportunity set or is it new sort of greenfield opportunities?

Again, great question. I think our team is charged with doing two things. One is hunting new logos, which are new logos essentially for the Company and that is the reason why we made all those investments around the new hunters that we have positioned globally. So that could be based on a very focused targeted prospect list that the business unit leaders and the salespeople agree to and it could mean essentially getting into a multivendor environment with a client and going into a completely new area there by positioning WNS strongly.

It could also mean stealing existing wallet share away from an existing provider and we have actually done this quite successfully in a number of cases. So that is one option. Once we have won the account and brought it into steady-state, the focus thereafter is for our farming community to really penetrate and radiate the account and after starting with maybe one area or one process just provide the entire area of services into the client.

So we are selling in both cases, but the way to do it is a combination of all of this. So we could start with a horizontal offering. We could start with a vertical offering. We could start with one of our new offerings, but it could be to a first-time adopter of these services. It could also be to a mature adopter of these services in which case we are actually taking some clients' business away from an existing vendor of theirs.

Just a quick question then. Approval levels, have they increased? The number of sign-offs? I am trying to get a sense for how long the decision process takes and how difficult the decision process is. And maybe you can anchor that versus maybe a year ago or two years ago and do you see it getting better, worse, the same?

Yes, so as we have been consistently saying over the last few quarters, we continue to see decision timing cycles as long, but we have not seen any significant change from there or the situation deteriorate any further.

Now having said that, Dave, you might like to talk about the comparison to the previous year and two years ago.

Sure. I think relative to the approval levels and the decision cycles, Ed, we have been seeing deals that have high levels of complexity, that are transformational in nature and that cover multi-towers across businesses requiring higher and higher levels approval over time. We talked about a very large Australian contract that we won about a year back and that required Board-level signoff. One of the large deals that we have been tracking here that we just spoke about with Paul's question that is still in play that we expect to have word on soon has also gone through Board-level approval for the client.

So I do think if it is someone who is relatively new to outsourcing, if the engagement is transformational, what we have seen over the last year to year and a half is that those decision cycles may be a little bit slower because they are requiring higher and higher levels of approval. That being said, I think as you look at some of the smaller deals that are in the pipeline and some of the deals where clients have a higher level of maturity with outsourcing and specifically business process outsourcing, those deal cycles have not been lengthening and seem to be moving through the pipeline at a pretty steady rate.

And I just want to add one last piece of information there and that is, as you look specifically to WNS, we see that at least, in the top 10 or 15 clients that we have, quite a few of them actually have completely new management teams and senior level executives and we are really excited about the fact that these new teams now in some of these large accounts are actually driving decision-making faster to show a quicker impact. So it is actually working well for us and presenting well for others.

Just a final one on attrition. It seems like it has kind of stabilized here at the 33% level. I guess just thinking out longer term as you try to be more industry-specific and vertical-specific, is the type of people that you are hiring changing and should that -- what impact do you expect that to have on attrition?

Again, we're very excited about the fact that the attrition rate of the Company has kept going down across the quarters. And I must say that's because of very focused talent management initiatives that have been unleashed at the Company and with very strong ownership and collaboration by the business unit and the horizontal leaders of the Company. So very happy and proud about that.

Having said that, we are also even happier about the fact that the attrition levels in the higher-end processes have actually kept declining. So on the technology side, F&A, research and analytics, the higher-end areas, attrition actually are at significantly lower levels than the corporate average. It is most often the [voice conference] that pushes the average up.

And while our overall business, our focus is to get the overall number down, I think there is a lot more focus in terms of the higher value services, the areas that remain -- that need a lot more of domain kind of input and at the same time some very critical specific interventions on the voice side, as well, particularly around training and retention, that are actually being focused on. So I would say that our expectation is to get it down next to around 30% levels and we will just keep progressing from there.

I think one other point that is important to note, guys, is the fact that when you look at the attrition rates and how they impact our business, especially, as Keshav mentioned, on some of the lower-end offerings and the lower-end skill sets, a certain amount of attrition in this industry is actually healthy and it's required in order for us to manage our cost structure and manage the impact of annual wage increases.

So these are things that we need to monitor and manage. Obviously, we want to control attrition where it affects our ability to deliver service for our clients, but we think we are doing a good job directionally and still have a little bit of ways to go, but certainly directionally headed the right way.

Thank you.

Joseph Foresi, Janney Montgomery Scott.

Hi, I don't know if I missed this in the introduction, but could you just give us the core organic growth rate in constant currency quarter-over-quarter or year-over-year, whatever you have?

Yes, so this is Deepak here. We have seen, on a constant currency basis, on a quarter-over-quarter basis, 4.8% growth in revenues and on a YoY basis, it has seen 15.7% growth. And without, or at the normal level, not at constant currency, we have reported 5.8% sequentially and 16.8% YoY total.

Okay, very good. And then just kind of building on that, Keshav, I think you talked about -- maybe you could just give us some color around the pipeline this year compared to last year and your thoughts on what industry growth rate -- because I know you have always talked about being at or above industry growth rates -- look like for next year? What marker you are using?

Right. Okay, so we believe that industry growth rates on an organic basis are in the low double digits and at this point in time, we are confident of getting there. This year, as Deepak said, we have delivered to the expectation that we have set of double-digit growth rates and feel confident about continuing to progress that momentum based on the pipeline we have built.

Now when you compare where we are today with where we were a year ago, I think we have made significant progress on a number of fronts. First and foremost, our sales teams, both hunting and farming, have settled well, understand the space well, understand WNS core offerings well and are having very meaningful conversations with prospects and clients.

The second I will say is that we have been able to penetrate and radiate a number of our existing accounts quite efficiently this year and are having very meaningful conversations with a number of them, which we believe will add momentum to next year's numbers. We also believe that, in terms of the pipeline that has now been built, the scope, size, scale, complexity and the global nature of some of these deals that we have now actually signed up and which we are also continuing to drive at this point in time, are quite different to what we saw maybe a year or two earlier.

So I think there is a lot more maturity that has settled in, a lot more comfort and confidence. More importantly, I think our brand has been quite well-established. So if you look at the quarterly numbers, you will see that, on the higher-end value services as well, both F&A and research and analytics on a year-on-year basis, are now growing at 17% and 18% respectively. Again, the kind of services, higher value added, higher margin kind of services that we want to grow.

So overall, very confident in terms of how we are impacting the market, the fact that we are playing in all the right deals, I would like to see a little more closure happen in North America, but are quite happy with the kind of momentum that has been built there at this time.

Sure. So basically I mean just to sum up, given the scope, the size and the scale, the pipeline heading into 2013 is bigger would you say than 2012 or is it just that it is a different type of pipeline?

No, since we are comfortable with delivering to the growth rates, we will be talking about double-digit kind of growth rates, at this point in time, we are comfortable in saying that the pipeline we think is actually bigger than what we saw last year.

Okay. And then last question from me, seat utilization ticked down and obviously as you take on more work, there is a balance there. Maybe you could just kind of remind us, is seat utilization kind of moving back up dependent on currently contracted work or would you need to see more realization in the pipeline? And if you could give us some idea on timing outside of guidance when you think you will get back to that 1.35 range.

Sure. I will take parts of that question, Joe. When you look at the seat utilization this quarter, we averaged, as Deepak mentioned in his prepared remarks, we averaged 1.2 for the quarter, which was down from 1.24 that we averaged the quarter before.

The thing that gets lost in that average metric is the fact that if you look at where we ended September from a seat utilization standpoint and where we ended December from a seat utilization standpoint, the numbers are actually the same. So what we have really done this quarter is stabilized the seat utilization at [1.2]. We do believe, as we go forward, that adding revenue and adding headcount should be at a faster pace than the addition of seats and as a result, our seat utilization should improve over time.

Now obviously it is predicated on continuing to grow top line going forward, but what we do expect is that the growth in our revenues will exceed the growth in our seat capacity. And as a result, we should have an increasing seat utilization number and an opportunity to expand margins accordingly.

Bryan Keane, Deutsche Bank.

This is actually Matt Diamond on for Bryan. I am just curious about Continental Europe. I know the UK was spoken at length, but it would seem from the industry that clients in Continental Europe are actually becoming more and more interested in BPO and even better penetrated BPO. I am curious if you have seen anything that would suggest that is happening and whether Europe could be -- Continental Europe could be a meaningful growth driver for you, if not in fiscal '13, then in fiscal '14.

Yes, some of our global clients, we have already started servicing some of them in terms of Continental Europe. And if you recall, I said earlier that, during this quarter, we also set up a new center in Poland this quarter in addition to our existing infrastructure that we already have in Romania. So clearly, Continental Europe is also getting it. Clients there are beginning to understand the value that we bring to the table.

I think a lot of them are also starting to seriously look at removing the impediments that they traditionally placed on this model in the past and whereas we are having a lot of good conversations happening at this point in time, I am pretty certain that over the next year or two, Continental Europe will also start providing the right kind of revenue to the Company. But at this point in time, I must give you comfort that we are already servicing some of them.

And just to add to that, Matt, I think when you look at Continental Europe and you look at our progress this year, Continental Europe as a percentage of our total revenue hasn't changed much, which means it is actually growing at the corporate average, which we are happy to see. And as Keshav mentioned, we have made some investments into the area both from a delivery capability perspective, as well as from a sales perspective.

Important things to remember though, the European market is extremely fragmented and what you do in Continental Europe in one country may not necessarily work in another country. I think the other thing that is important to remember is that, from a maturity perspective, Continental Europe is really just beginning to kick the tires with outsourcing at least in terms of global outsourcing, leveraging lower-cost destinations. So we do believe there is an opportunity longer term to expand in Continental Europe, but as we have seen before on the IT side of the business, it will probably be slow and evolutionary over time.

Okay. And in the same vein, it looks like healthcare actually improved a little bit sequentially this quarter versus sequentially in the year-ago quarter. Now that the Affordable Health Care Act is here to stay, are you seeing any real opportunities being engendered by really from outsourcing? And if you could, would that be a meaningful growth driver for you in fiscal '14?

I think certainly healthcare creates an opportunity for us going forward. If you look at the growth in our healthcare vertical this quarter, both from a sequential perspective, as well as from a year-over-year perspective, I think you won't see an abnormal growth rate. It is really growing at or about the corporate average.

Again, similar to your question about Continental Europe, this is a vertical where maturity levels are relatively low as it relates to business process outsourcing. And certainly, we are optimistic and hopeful that regulatory changes and requirements will help drive more and more companies to have experiences with business process outsourcing, but again we believe it will be evolutionary over time.

Okay, great. Thanks, guys.

Manish Hemrajani, Oppenheimer.

Yes, thanks for taking my call. You are obviously on the right road to victory here, but still lagging industry growth rates. How long do you think it will be before you get to an industry average growth rate level? And then do you have any early read into how budgets are firming up for this year?

Right. So let me just take that. Again, we spoke about what we thought -- what we see as industry growth rates from an organic point of view and we see that in the low double digits. We are confident that if we continue to execute in this fashion, the ability to get there soon and preferably in the next year or so is very high. So we are confident that we should get back to industry growth rates.

As far as budgets are concerned, again, I think it is a question of, with some of our existing clients and the businesses where we know clients are taking decisions at this point in time, our ability to use our value proposition and get those budgets released is very high. With new clients, as you know, it is for us to really create that budget because, at the end of the day, if we come up with a value proposition that is compelling, on the other side, CEOs or CFOs will enable us to have the budget because that budget is coming from savings.

So in terms of just the macroeconomic situation, in terms of how companies outside there are preparing or are continuing to face the economic realities, we believe that with our differentiated story, our end-to-end vertical, with our technology-enabled kind of operating program and with a very strong client-centric model, as well as a strong global kind of delivery footprint, we are extremely well-positioned to come back to industry growth rates next year, as well as keep influencing really the budgets positively.

Your attrition rates were relatively stable quarter-over-quarter at 33%, but you guys have a higher contact center component than your peers. Would you be able to give us what your non-contact center attrition rate was in the quarter?

We are not going to provide a breakdown between contact center and non-contact center, but I would say that I disagree with the thesis that our contact center as a percentage of revenue is dramatically different than that of the peer group. As a matter of fact, I would actually argue that our contact center as a percentage of total may be below that of our peers.

Okay. And then for fiscal (technical difficulty) margin improvements from here, what do you have as your (inaudible) utilization targets for next year? And then can you remind us again of the impact of seat utilization on margins?

So let me attempt that and we will have Dave and Deepak take the rest. We provide guidance on fiscal '14 sometime in April along with our full-year results. So at this point in time, we are not going to provide any numbers there. As far as seat utilization is concerned, I think there are specific programs to drive utilization higher. And as Dave mentioned, as new revenue comes in, our need to build new seats has dramatically reduced because we have all of this already in place. So we are quite confident that those utilization numbers will go up quite well. But again, it is a program that has to be run over a one to two-year period and not something that is going to happen overnight. Having said that, Deepak, you might like to remind all of us about what the metrics are.

Economics are, yes. So in terms of the (inaudible), if the seat utilization goes up from the current level of 1.2% to 1.3%, we should see an incremental margin of 2.5% going down at the operating level.

Okay, got it. And then last one from me, coming back to the two large deals that have been pending for a while now, is there any timeline that you have when you expect these clients to make a decision? And then what are some of the reasons your clients are citing for the delays in decision-making?

Sure, I will take that. I think when you look at the large deals that we have been pursuing and the conversations that we have been having with the clients, especially these two large deals, different reasons for what the delays have been. We do have a timeline that we expect to see in terms of when these deals will get signed and when we are hoping to start. But I would also tell you that if you had asked the same question six to nine months ago, we would have had a timeline and it would have changed.

So what we are finding, and it was asked a little bit earlier, is that oftentimes some of these require additional levels of approval, additional levels of conversation. In some cases, we have had situations where there have been changes in executive management that have affected the decision cycle. So different things affecting these deals and honestly, if they are not being driven extremely hard from top down within the organization and bought into from bottom up, things tend to find ways to delay and to take a little extra time.

But we believe we are well-positioned, we are doing the right things to help coach the client through the outsourcing decision process and we are very, very comfortable with how we sit right now for these deals and we will certainly be ready to execute on them if and when the clients select us.

And on there, in one case, we are also very happy with the fact that we know that the prospect of the client is actually proactively communicating with various stakeholders, including unions at this point in time. So clearly, while things may be delayed a bit, we are headed in the right direction we believe.

That is all I have. Thank you.

Ashwin Shirvaikar, Citi.

Thank you. My first question was with regards to Fusion. Could you give us an update on the integration, the client response, what it has been and in view of what I think is a relatively successful acquisition, any thoughts on future M&A?

Sure, I will take that. I think you are correct in your assessment that the Fusion acquisition for us has been a tremendous success. As we mentioned in the prepared remarks, our revenues coming from South Africa actually increased 25%. So we are very happy with our ability to expand not only in South Africa in capability to our existing customer base, but also the fact that we have been able to attract new clients to South Africa as a destination.

In addition, we have been able to sell into South Africa as a new market for us as well. So I think all three of those things are working extremely well for WNS at this point in time. I think the approach that we took to this acquisition was very helpful and very instrumental in terms of having an existing client that helped us get to South Africa and gave us a contract to back the relationship.

And certainly to the extent that we are able to do that going forward, it is a great model to follow. But we certainly will continue to look for capabilities across the globe that allow us to connect with either our existing customer base or new customers. And we have opened, as we have mentioned, we have opened centers in the US, opened a center in Poland. We have done this acquisition in South Africa. We have just announced the relationship that we have kicked off in China to deliver services out of Mainland China.

So I think we will continue to be opportunistic about our global delivery footprint and make sure we are doing the right things in terms of having a very good sense of the amount of business and the opportunity before we move forward with something from an acquisition standpoint.

Okay. Along the same vein actually, in the last probably four to six weeks, you guys have announced multiple strategic engagements, if you will, or strategic relationships. And I just wanted to see if this is a sign that maybe there is more of a demand for product-based BPO or platform BPO and if there is, what does that mean for you guys from an investment perspective? Future investment and opportunity, but I guess the investment comes first.

Yes, I think what we are trying to do really is to make sure that each one of our business verticals and horizontals have the right partnerships in place such that when we go into a hunt, we are able to really plug all the gaps, competition or some prospects may feel that we have. So the first thing that is being done is, in a very disciplined fashion, ensuring that we are building these partnerships, managing these partnerships well, using these partnerships to actually expand our list of prospects and in some cases, at least jointly hunt and share the reward so to speak.

Beyond this, I think what we are also looking at doing is really focusing on the technology side, which is really looking at technology platforms and relationships where we can continue to send out a clear message of being technology-agnostic as we go into a dealer with a client. So if you ask me, I think it is a stage one. Some of it around -- product BPO is essentially a case of how we use some of this to drive along with our technology-enabled models business outcome-oriented kind of solutions with yet priced in a different fashion. That is something that has been a focal area of the Company for more than a year now, but we believe that with some of these new relationships, our ability to grow further and further into the model is very high.

Okay. I guess my last question, you have now been there for several weeks, had a chance to look at the finance organization. Any changes that we should expect going forward either on say a reporting standpoint or metrics or anything like that?

Nothing in particular from a reporting standpoint. I think the same reporting [package], the same accounting (inaudible), everything is the same. And on the (inaudible) also, there is no clear [total] if there is any change in the quarter at this point of time. But I would perhaps like to just take this opportunity to add that, from whatever I have understood, this is the momentum that we are seeing in the business, the sales momentum in the current year and given the fact that we have already made significant investments in the capability creation side in the near shore center side, in the seat creation side, it will be exciting to see how the next couple of years play out. And I am very positive that we will be able to kind of expand our business footprint really successfully.

Thank you.

Nathan Novak, Baird.

Hey, guys, just looking at Q4 margins here, it looks like, to get to the midpoint of adjusted net income guidance, it implies a pretty significant acceleration in operating margins, a little bit more than we have seen sequentially and just judging by your commentary on how margins will continue to be pressed as you ramp up these new deals, I was wondering if you could provide any color on what is driving that sequential increase in margins? Is there something maybe below the line that I am missing or what?

Sure, I will take that, Nate. I think when you look at the implied guidance for the full year, there is some operating margin expansion expected in the fourth quarter. I wouldn't say it is significant in terms of the margin expansion. What you need to look at is obviously the fact that we don't expect all of the transition costs that have hit us in Q3 to continue into Q4, so there is some opportunities there. We also do expect to see some improvement on the seat utilization side, which should give us some level of operating margin leverage in the quarter.

If we do, for example, have a meaningful new client added in the fourth quarter and it creates another transition bubble for us, we will be very happy to talk about the fact that we have added a new client, that it has created a little bit of a challenge in Q4 from a margin perspective. But honestly, from both a revenue and from an ANI perspective, having those new clients on board in Q4 is not materially baked into these numbers. So while it would provide a little bit of an uptick to the top line, it probably wouldn't provide any benefit to the bottom line. Would drag the operating margin percentage a little bit, but not affect what we expect in terms of ANI. So we do see that as more of an opportunity as we head into fiscal '14 than anything else at this point.

Got you. And just from a modeling standpoint, it looks like tax rate guidance has sort of ticked down in the last couple of quarters now. Any chance you would give even directional color on the tax rate for fiscal 2014 at all?

I think at a macro level directionally we should be similar to potentially a little bit higher than what we are looking at this year. We are at 16% to 17% this year. Again, we have got to see not only what the growth profile looks like for next year, but more importantly where the growth is coming from. If it is coming from newer clients, we will be able to leverage our SCV investments and help drive that tax rate down even further. But right now, I think the expectation is for the tax rate to be relatively stable for next year.

Excellent. Then last one from me, is the G&A run rate good to look at about $15 million per quarter and can you continue to grow and even accelerate top line if that sort of baseline is around that level?

I think there is a certain component of the G&A that will continue to be variable, but relative to the large portion of SG&A and specifically the G&A, I think there are some leverage opportunities that we have spoken about and we do believe that as the top line continues to grow, we should be able to grow it at incremental margins.

Excellent. Thanks for taking my questions.

Kunal Tayal, Bank of America.

Hi, thanks. Keshav, given the success that WNS has seen of its own accord, any thoughts on whether one should expect cyclical aspects going into CY'13? [Expanding] in on those lines, I know you did mention that the enclosures are still taking a little longer than what you would have expected, but any sense? Do you expect them to (inaudible) through the year? And lastly your thoughts on like-to-like pricing for the year? Thank you.

Sorry, I didn't get that question right fully, but is your question around the health of the deal pipeline, one and also in terms of how you expect that to play out for the next year?

I was really asking whether one should expect firstly a cyclical effect this year and the second was would you expect (technical difficulty) to shorten through the year?

Yes, so, again, I don't think we are seeing any kind of cyclical change in terms of deal momentum. We continue to see decision cycles be long, which is something we have said consistently. But, at the same time, we have a number of deals that are going through stage progression in that list and therefore, though it is long, there is something that is (inaudible) one and something that is ramping and going to phase one, going to phase two, phase three and things like that.

We have not seen any specific signals that give the impression that decision-making is taking longer than what we have seen traditionally. So I just want to give you the comfort there; that is one. The second thing is we continue to see the demand for our services stable and healthy as well. And from a future perspective, again, we see no reason for prospects and clients to not want to be more efficient or want to save more money and actually leverage WNS very aggressively.

Sure. And lastly your thoughts on the pricing outlook for the year. By and large, do you expect it to be stable or movement either way?

Yes, pricing has been stable as we have been a (inaudible). Pricing has been stable. Again, as long as you are driving value and having the right discussions with the right levels on the other side, we see no challenges as far as pricing is concerned.

Got it. Thank you.

At this time, there are no other questions in the queue. I would like to turn your call back over to Keshav Murugesh for your closing remarks.

While we continue to make progress on many of our key short-term and long-term business objectives, we realize that we still have work to do. The WNS team is committed to providing increased value to all of our key stakeholders, including our clients, employees, shareholders and the communities in which we live and work. Thank you again for joining us today and we look forward to speaking with you soon.

Ladies and gentlemen, this concludes your presentation. You may now disconnect and have a good day.