WNS (Holdings) Ltd (WNS) 2015 Q4 法說會逐字稿

Good morning and welcome to the WNS Holdings Fiscal 2015 Fourth Quarter and Full Year Conference Call. At this time, all participants are in listen-only mode. After management's prepared remarks, we will conduct a question-and-answer session and instructions for how to ask a question will follow at that time. Now I'd 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 fiscal 2015 fourth quarter and full year earnings call. With me today on the call, I have WNS' CEO, Keshav Murugesh; WNS' CFO Sanjay Puria; and our COO Ron Gillette. 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 fourth quarter and full year ended March 31, 2015. 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. 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 revenue is defined as revenue less repair payments; adjusted operating margin and adjusted net income or ANI, are defined as operating margin and 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 WNS' CEO, Keshav Murugesh. Keshav?

Thank you, David, and good morning everyone. Our fourth quarter results were largely in line with Company expectations, with Q4 net revenue coming in at $126.1 million. This represented a year-over-year increase of 2.7% on a reported basis and 6.1% constant currency. As a reminder, year-over-year revenue was adversely impacted by approximately 5% as a result of a large OTA client transition and the Aviva contract extension discussed in previous quarters. Sequentially, revenue was negatively impacted by approximately $2 million of non-recurring revenue booked in the third quarter and continued depreciation in key revenue currencies against the US dollar's. While reported revenue was down 1.8% sequentially, revenue on a constant currency basis was up 0.7%.

In the fiscal fourth quarter, WNS added six new clients, expanded five existing relationships and renewed 13 contracts. We also closed one additional large deal, bringing our full-year total to [six]. Adjusted operating and net profit margins in the fourth quarter were once again solid. Year-over-year, our adjusted operating margin expanded 160 basis points to 20.7%, while our adjusted net income percentage expanded 110 basis points to 18.2%. Sequentially, margins compressed in the fourth quarter, largely the result of the non-recurring revenue items in Q3, which were previously mentioned.

I would now like to take a few minutes to recap our full-year performance before we turn our attention to fiscal 2016. From both a financial and operational perspective, fiscal 2015 was a good year for WNS. Reported net revenue growth was 7%, helped by a 2% currency tailwind, but pressured by headwinds of 6%, resulting from the ramp down of a large OTA customer and the Aviva contract extension. Excluding currency favorability and the non-recurring headwinds, net revenue growth was 11%. In fiscal 2015, the quantity, quality and size of client additions continued to improve, helping lay the foundations for future growth. Adjusted operating margin and net profits increased with adjusted operating margins expanding 370 basis points to 20.7% and adjusted net income growing by 300 basis points to 18.4%. These key financial performance measures represent industry-leading levels.

WNS generated over $95 million in cash from operations, which enabled the Company to increase the net cash position at year-end to $140 million, up 128% from $61 million at the end of last year. As we enter fiscal 2016, the demand environment for Business Process Management remains stable and healthy. NASSCOM is currently projecting low-double-digit growth in BPM exports for fiscal 2016, similar to the expected growth rate for fiscal 2015. Given today's low industry penetration and the dynamic business challenges facing our clients, there remains a significant opportunity for the adoption of BPM services to improve in the coming years. Clients will be faced with cost pressure, increased business complexity and the need to rapidly adjust their business models to effectively compete. As a result, many companies will turn to their BPM partners to help drive operating efficiency, advance their digital enterprises and improve the end-client experience. We believe that WNS is well positioned to capitalize on these industry trends.

Cost reduction remains the primary driver for BPM, and we expect that reductions in total cost of ownership or TCO will continue to be top of mind for both new prospects, as well as existing clients. First-time outsourcers will focus on selecting the right partner for their BPM journey and balancing cost benefits with perceived organizational risk. Established clients will increasingly push the envelope in terms of what processes can be outsourced while continuing to expect committed productivity improvements on existing engagements. In order for BPM firms like WNS to deliver improved productivity and manage profitability, it will be critical to automate our services and solutions and to deliver them through transaction and outcome based engagement models.

WNS continues to invest in automating our services by creating proprietary tools and technologies and leveraging strategic partnerships. These components of automation are increasingly being integrated into our horizontal and vertical service offerings. We are also comfortable in our ability to provide clients with transaction and outcome-based relationship structures. Long-term, as the BPM market matures and clients comfort with managed services improves, we expect the percentage of work delivered in these high-value models will steadily increase.

In addition to reducing costs, clients will also expect that BPM partners to help them design, implement, and manage their digital enterprises. The move to digital is driven by the use of technology to create a competitive advantage. This typically involves the collection and analysis of large amounts of data and the ability to leverage this information to improve business outcomes. Investments in social media, mobility analytics and the cloud or SMAC are fundamentally changing our clients business processes and how they interact from their -- with their end-clients. At WNS, we believe that the proper combination of vertical expertise, analytics, as well as automation are the keys to helping clients manage a successful digital strategy. Today, WNS remains the only BPM pure-play with an end-to-end vertical organization. This structure has allowed the Company to create domain based universities, open centers of excellence and higher dedicated industry experts across sales, solutions and delivery. In short, it has enabled WNS to consolidate and leverage our industry knowledge to create industry specific solutions and to enhance our horizontal analytical capabilities.

Analytics remains a key topline growth driver and investment focus area for WNS. In fiscal 2015, our standalone research and analytics revenue grew 16% and now represents 13% of total Company revenue. This does not include the analytics work which is embedded in our industry specific solutions. That being said, we will continue to expand and deepen our analytics offerings by making focused investments in both people and technology. WNS is aggressively hiring senior leaders, consultants and technical experts to help enhance our analytics team while working on several technology and automation initiatives, designed to create new tools, frameworks and platforms.

With respect to fiscal 2016 guidance, we enter the year with our new business pipeline and large deal pipeline stronger than a year ago and which is diversified across verticals, geographies and service offerings. Net revenue is expected to be between $515 million and $545 million, representing growth of 2% to 8%. This guidance reflects revenue growth of 7% to 14% on a constant currency basis and we begin the year with 90% visibility to the midpoint of the revenue range.

As we discussed last quarter, adjusted operating margins are expected to normalize in fiscal 2016 into the high teens as a result of non-recurring items booked in 2015, as well as the impact of currency depreciation in our non-US revenues. Today, these high-teen margins represent best in class performance in the BPM peer set. Guidance also assumes that investments will be funded through a combination of productivity improvements and leveraging our prior investments in sales and infrastructure.

Adjusted net income is expected to be in the range of $88 million to $94 million or $1.65 to $1.76 per diluted share. WNS expects to put our balance sheet to work in fiscal 2016 with uses of cash, including share repurchases, debt retirement and the opportunistic pursuit of tuck-in acquisitions.

In summary, we are pleased with the progress our Company made in fiscal 2015 and are excited about our business momentum, pipeline and positioning as we enter fiscal 2016. I would like to personally thank our almost 30,000 employees globally for their dedication and support in helping get WNS to this position and our clients for their confidence and trust. We are investing to service our clients' traditional, transitional, and innovative needs while leveraging our end-to-end vertical alignment and domain knowledge as a key differentiator. WNS will continue to focus on driving sustainable business value for all of our key stakeholders with the goal of growing revenue and maintaining profit margins at or above industry levels.

I would now like to turn the call over to Sanjay Puria, our CFO, to further discuss our financials. Sanjay?

Thank you, Keshav. With respect to our fourth quarter financials, net revenue increased to $126.1 million from $122.7 million in the same quarter of last year, growing 2.7% on a reported basis and 6.1% on a constant currency basis. Year-over-year, quarter four revenue was pressured by continued depreciation in key revenue currencies against the US dollar, including the British pound, Australian dollar, South African rand, and the euro. Additionally, our fourth quarter year-over-year revenue growth was adversely impacted by approximately 5% as a result of the ramp down of our OTA client and the Aviva contract extension. Despite these headwinds, our underlying revenue momentum remained solid and broad-based. From a vertical perspective, revenue growth was paced by our emerging verticals, including healthcare, utilities, and shipping and logistics. With respect to our service offerings, revenue growth versus the prior year was driven by our industry-specific solutions and research and analytics.

Sequentially, net revenue decreased by $2.3 million or 1.8%. As Keshav mentioned, the required depreciation in key revenue currencies this quarter had a significant impact on our quarter four revenue. On a constant currency basis, fourth quarter revenue increased 0.7% sequentially. Also, it is important to remember that our quarter three number included approximately $2 million of non-recurring revenue benefit resulting from the completion of negotiations with various clients to remove FX collars from our contracts.

Adjusted operating margin was 20.7% in quarter four, as compared to 19.1% reported in the same quarter of fiscal 2014 and 22.3% last quarter. On a year-over-year basis, adjusted operating margin improved 116 basis point as a result of hedging favorability, net off revenue currency fluctuations, increased operating leverage on higher volumes and improved productivity and seat utilization. The sum of these benefits more than offset the impacts associated with the Aviva contract extension and our annual wage increases. The sequential adjusted operating margin reduction of 160 basis points were largely the result of one-time favorability reported in quarter three from the removal of FX collars on certain client contracts. The majority of the unfavorable quarter-over-quarter impacts associated with revenue currency depreciation were protected by our hedging positions.

Interest expense this quarter was $0.2 million, down from the $0.7 million reported in quarter four of last year and $0.3 million last quarter, as WNS continues to reduce our debt levels. The Company's other income was $2.8 million in the fourth quarter, down from $3.1 million reported in both quarter four of fiscal 2014 and last quarter. Year-over-year, the reduction in other income is a result of a change in the India budget, which increased the dividend distribution tax.

WNS' effective tax rate in the fourth quarter was 20.4%, up from 19.1% reported last year and 20% in the previous quarter. Year-over-year, the fourth quarter tax rate was unfavorably impacted by additional taxes relating to the 2015 India budget, which changed the taxability of our fixed maturity plan investments.

The Company's adjusted net income for quarter four was $22.9 million compared with $20.9 million in the same quarter of fiscal 2014 and $25.1 million last quarter. Adjusted diluted earnings were $0.43 per share in quarter four, up from $0.40 reported in the fourth quarter of last year and down from $0.47 in the prior quarter. As of March 31, 2015 WNS's balances in cash and investments, totaled $166 million. The gross debt position was $25.7 million with the Company reporting a net cash of $140.3 million at the end of quarter four. WNS generated $28.8 million of cash from operating activities this quarter and free cash flow of $23.4 million after accounting for $5.4 million in capital expenditures. The Company also reduced gross debt levels by $15.4 million this quarter, as improved cash generation has reduced the need to use that for some of our short-term working capital requirement.

DSO in the fourth quarter came in at 28 days, down from 30 days in quarter four of last year and the same as reported last quarter.

With respect to other key operating metrics, our total headcount at the end of the quarter was 28,890. Our attrition rate in quarter four was 32%, up from 31% reported last year and the same as reported last quarter. Global billed seat capacity at the end of the fourth quarter was 24,316. Average [billed] seats utilization in quarter four was [1.18%], showing improvement from [1.14%] posted last year and [1.16%] reported last quarter. We expect this metric to fluctuate quarter-to-quarter based on facility build-out requirements and hiring cycles, but directionally our seat utilization is expected to improve over the next few years. It is also important to remember that automation of services, improvements in delivery, productivity and non-linear engagement models can have an adverse impact on seat utilization in the short term.

I would now like to provide you with a brief financial summary for fiscal 2015 before we turn our attention to the coming year. Net revenue for the year came in at $503 million, growing 6.7% on a reported basis and 5% on a constant currency basis. The Company's full-year adjusted operating margins expanded 370 basis points to 20.7%, driven by hedging gains, net of currency, one-time revenue benefits, improved productivity and higher business volumes. This improvement was partially offset by the impact of our Aviva contract extension and annual wage increases. Interest income increased $2.4 million based on higher cash balances, while interest expense reduced $1.6 million on lower debt levels.

Our full-year effective tax rate jumped from 16.5% to 19.5%, due to India budget changes, which increased the tax rate on our fixed maturity investment products. As a result, adjusted net income increased from $72.4 million in fiscal 2014 to $92.3 million in fiscal 2015, growing 27.5%. WNS generated $95.5 million in cash from operations and $72.6 million in free cash, both up 17% from the prior year. This enabled the Company's cash balances to grow $19.8 million, while gross debt levels reduced by $59 million.

In our press release issued earlier today, WNS provided guidance for fiscal 2016. Based on the Company's current visibility levels, we expect net revenue to be in the range of $515 million to $545 million, representing year-over-year revenue growth of 2% to 8%. Revenue guidance assumes an average British pound to US dollar exchange rate of [1.49] for the fiscal year. In fact, our guidance assumes that approximately 65% of our revenues denominated in foreign currency will be down over 8% versus fiscal 2015.

Excluding this exchange rate impacts, our revenue guidance represents constant currency growth of 7% to 14%. We currently have 90% visibility to the midpoint of the revenue range, consistent with April guidance in prior years. As Keshav mentioned, our adjusted operating margins are expected to normalize into the high-teens in 2016 as a result of non-recurring benefits in fiscal 2015 and currency headwinds. We will fund our new investments and manage the impact of our annual wage increases through improved productivity and better leveraging our previous investments.

Below the operating margin line, we anticipate lower interest income levels due to a shift in our investment strategy, which was driven by the 2015 India's budget tax changing. This reduction in the other income will partially be offset by a lower effective tax rate in fiscal 2016, which we expect to be in the range of 17% to 18%.

Adjusted net income is expected to be in the range of $88 million to $94 million based on a INR62 to US dollar exchange rate for the fiscal year. This implies adjusted EPS of $1.65 to $1.76, assuming a diluted share count of approximately 53.3 million shares. From a capital allocation perspective, our shareholders have approved a 1.1 million share buyback over the next year, which we expect to begin in the fiscal first quarter. We also continue to look for tuck-in acquisitions and currently have a robust pipeline of opportunities in various stages of evaluation.

With respect to capital expenditures, WNS anticipates our requirements for fiscal 2016 to be in the range of $21 million to $25 million.

We'll now open up the call for questions. Operator?

(Operator Instructions) Anil.

Congratulations on the continued execution. Keshav, I had a couple of questions. Can you give us a little bit more color on this large deal, you know what is the end vertical and which markets do these customers focus on?

So this is a very interesting deal from our perspective, because not only is it a large deal as we define it, but it is also headquartered in the North America markets and it also takes us into the digital media space aggressively where we already have some traction, but with this particular win our ability to actually expand our presence in that area is very, very solid. So very excited about it and something that we're looking to leverage on for the long-term.

And some good hiring during the quarter, can you provide a little bit more color, is it just a reflection of the good deal pipeline going forward?

Yeah, sure. Absolutely. I think as I said in my earlier remarks, Anil, that frankly I'm very positive about the pipeline, the sales pipeline and the way deals are progressing across each stage .And at this point in time, I'm also very positive about some of the news coming in as we enter this year in terms of wins that we have already seen that are not part of the 2015 numbers. So obviously, preparing for that we've already -- you know we've been hiring and some of these wins, including the one that you underlined earlier, need trained people, particularly considering it's completely -- it's a new area for us as well, and therefore that hiring reflects our confidence in our pipeline and our ability to scale.

And finally Keshav, on the analytic side of the business, clearly you're making efforts, your peers are making efforts, there are some qualitative changes in terms of the demand of this functionality from clients. But can you walk us through kind of the pros and cons of hiring good talent? Is there a perception issue in hiring high quality talent for your analytics business, because at the end of the day, you and your peers in the BPO industry are competing against the big analytic guys? So some of your peers are branding themselves slightly different. Can you walk us through how you're finding the experience on the hiring front? Thank you.

That's a fantastic question. And the reality is, in the past I would say that when BPM companies positioned themselves as traditional BPO kind of firms that was a challenge, and as you know that we led the charge in terms of really changing the name of this industry from BPO to BPM, we re-branded ourselves, we did a lot in terms of verticalization in some of our strategic programs and I would say over the past year or two, in particular, we've been able to consolidate and drive clearly our message to talent that this business and a company like WNS is no more the old traditional BPO business, but we actually provide long-term career, stretch opportunities, the ability to interact with [CXO profiled] people, more importantly, to work with some of the world's-leading brands in terms of not just their cost reduction initiatives, but in terms of just giving them fantastic insights into the business, and as a result of which at the rank and file level, we've actually started hiring a number of PhDs, statisticians, mathematics, and you are already aware probably that for a few years now, we've been actually handling the entire offshore knowledge center for one of the world's most successful pharmaceutical brands.

So that's to begin with. And last year, in order to reflect our commitment in this area, we actually brought in a new leader for the entire analytics practice and the person that came in actually came in as -- the last job that he had was head of analytics at one of the largest rating agencies out of India. So clearly, we have positioned ourselves as a very attractive place for top quality talent to gravitate to, and the fact that we are now working with all these brands, and more importantly, driving our vertical kind of program and taking our message deeper and deeper into clients environments means we are now being trusted much more to get into some of these higher-growth areas.

So I think I would say that this is the beginning of a very exciting future. And I want to again remind you, when you look at the margins that this Company has now been delivering, I can assure you that quite a bit of it is also being delivered, because we are moving into higher margin areas like analytics, and like I said, 13% of the Company's revenues is already analytics.

Adam Dahms, Baird.

Just on the fiscal 2016 guidance, I was wondering are there any incrementals, like one-off headwinds contemplated in the topline growth? And then I guess in the bottom line, you guys mentioned some potential uses of cash over the next year. Are there any benefits included in that guidance as well?

When you look at our fiscal 2016 guidance, I think there are a couple of things that are going on and we highlighted some of the margin compression issues, but from a perspective of investments, yes, we do expect to invest aggressively. Those investments through the year will be funded through a combination of productivity improvements, through working our seat utilization and through leveraging our previous investments that have been made in specifically the sales force and the infrastructure spend. So, there are definitely some levers that we're going to pull throughout the year, but they should be largely offset by investments into some of the new areas that (technical difficulty). I think what's really important is if you look year-over-year at what's really compressing our margins, the two biggest issues are the one-timers in fiscal 2015 and the currency headwinds that are really on the revenue line for us.

Yes, that makes sense. But I guess nothing incremental from the OTA conversion rate or anything like that; is that pretty much fully run-off at this point?

Yeah, I think at this point, Adam, the expectation with respect to the topline is that we've got our standard headwinds that we look at in our business, which are comprised of a combination of productivity improvements that we commit to clients, declining business volumes, project related revenues that have definitive starts and definitive ends, and some assumption that we're going to lose certain pieces of business because clients have small changes in strategic direction that's bringing work and how it's divesting of a business unit, so on and so forth, but at this point in time we have no visibility to unique headwinds over and above the standard 5% or so headwinds that we expect.

And then I guess just lastly in terms of acquisition or tuck-in acquisition targets, you guys called out automation and analytics seem like two areas you guys are certainly interested in. Is that where we should expect a potential acquisition to come from, or are there other areas maybe to think about?

Actually, it's a very exciting area, which has got to be broader than what you just defined as of now, but I think what we are looking to do, really is enhance our capability across both vertical and domain expertise, horizontal capabilities and obviously automation and technology, and we've got to be very opportunistic in terms of -- based on the market valuations we are seeing for some of the assets in the space. At this point in time, it's fair to say that the healthcare space, particularly driven by care management, the digital marketing areas, some F&A areas in particular, analytics and insurance related actuarial space are of interest to us, and the pipeline is quite solid in terms of opportunities in various stages. But again, I want to underline, these will be tuck-in kind of acquisitions to build capability and to really allow us arrowhead opportunity into new areas, and very excited with how that is progressing at this point in time.

Edward Caso, Wells Fargo.

Congrats on another solid quarter. Can you talk about where your cash is at this point? And I know you have unique ownerships location and what implications that might have for your ability to, one, execute on the repurchase program; and two, facilitate acquisitions? Thank you.

Good question, Ed. As the majority of the delivery is being at offshore, the majority of the cash is over here, in India, specifically. But it will not have any impact specifically to drive over any repurchase programs, because of the various -- the structure at the organization level and free movement of the cash, as well as some of the -- even the credit lines available to us in case of a requirement of execution.

Keshav, can you talk a little bit about the pace of decision making with your clients, what you're seeing there, both on the BPM side, as well as on the analytics side?

First of all, pleasure to be talking to you again and I'm actually very excited about how clients are behaving. If you recall, when we last met, I actually said that we are seeing a lot of clients travel up and down, that trend continues to happen, so we are seeing a lot of prospects to travel to lot of our centers, which is always an exciting metric to track. As I said earlier, even since we completed fiscal 2015, we are actually confident about how our pipeline has shaped, how decision taking is progressing and it would be fair to say that we believe that we will also -- we have actually closed some more new deals very early in the year, which again gives us tremendous confidence in terms of how this year should shape up.

I would say, at this point in time, the sector is hot. I think clients have now understood that this is not an area that you can just be opportunistic with. You need to be aggressive on and I think areas that are driving this are essentially the traditional areas where they want to save cost, but beyond that it's analytics, it's all other areas. And again, when you just look at what's happening in the market, I think this -- the whole need for us to keep interacting with our clients in an intelligent way is actually -- is a huge opportunity for us and this is driven around all these new trends we keep hearing about; the Internet of Things, the 3D printing initiatives that people are talking about, autonomous cars and what could happen to insurance rates, as well as manufacturing, how banking itself is changing in terms of digital banking. The new e-commerce models that are completely changing, how customers are interacting from a retail perspective, all of this means that customers and prospects are seeing so much of disruption in their traditional models that they are reaching out to people like us who have that end-to-end vertical model with all of the other horizontal capability, who speak their language and are now asking us to help them really stay relevant. So I'm happy to say that decision making actually is progressing quicker. We're seeing lot more of activity on the ground and higher value services like analytics are taking off quite well for large organizations like WNS where clients have experimented with smaller organizations on the analytics front, but as they look to grow, they believe that some of these organizations do not have the org structure to lead them in a different fashion the way we can.

If I heard you correctly, you said you had some wins here in early FY16 and if I heard that correctly, are they large wins or just some wins that build comfort in the outlook?

Ed, I think it's a combination of both new client additions, as well as a couple of large wins that are already in the book. So we're going to see these things ramp here as we get into late Q1, early Q2, and it gives us a lot of confidence and a lot of visibility towards healthy growth for the year.

Final question, analytics, obviously going well. Is there a target you have for FY16 on the growth rate and where it could get to as a percent of revenue?

I don't think so, I think the goal is to continue to service our clients, to meet their needs as they come. We are definitely not only using analytics as an entry strategy, but we're also using it as a cross-sell opportunity to our existing client base and we're not targeting at a very specific percentage of the business. We don't expect to become an analytics firm, but we do expect this to be a healthy growth area for us and a meaningful contributor in terms of both growth and profits.

Joseph Foresi, Janney Montgomery Scott.

Keshav, you seem fairly excited about the prospects for the upcoming year. And it seems like there has been a positive change in the demand outlook and from what you're seeing from clients. So I'm wondering, what do you think changed and what has caused the decision-making to accelerate and is it something macro, is it something among the clients, is the adoption rate of BPO improving? I'm wondering why it's inflecting up at this point in time.

Yes. I think there's a combination of a number of things to it. I would say that the first is the confidence that companies like WNS are no more following old traditional models that delivers plain vanilla commoditized services, playing the wage arbitrage game. I think that's the biggest kind of change. The second is with the kind of disruption all of them are seeing around some of the models that we keep seeing analysts and advisors write about, I think all of them have got comfortable that by just sitting quietly and not taking decisions, they are not going to be benefited. So I think the constant kind of knocking at their doors by our sales people, by constant messaging going out from the industry bodies, as well as successful clients who have transformed their business models by leveraging the BPM model has really helped.

And there also appears to be a feel good factor, I would say, where people believe that there isn't going to be massive economic uncertainty in the near future at this point in time. Again, that always plays in well from a BPM point of view. So I would say a combination of all of this and the fact that the models are moving to all these new models where data is driving decision making and customers, therefore, wanting to have strategic partners around them to help them navigate this path is what I would say is driving this progress.

And then in the past couple of years we've had different verticals create headwinds. I think last year we dealt with travel. Just so I'm understanding correctly, you don't see any of those headwinds outside of the normal ones coming up this year, and then I assume that the large deal contribution is what gets you to the upper end of guidance, is that accurate?

Let me take that Joe. I think there's a couple of things going on. So, from a unique headwind perspective, no, we do not see anything. I think the important thing to remember though is that when you look at when we typically do see the headwinds from productivity improvements, it's a seasonality issue, it's usually something that affects our first quarter revenues. So one of the things that I can tell you, for example, is that we do expect Q1 revenues to be seasonally soft, and that would be from a combination of the productivity improvements coming on line and the quarter-over-quarter significant currency depreciation, but we should see very healthy acceleration in our revenues through the last three quarters of the year. As a matter of fact, when you look at our first quarter revenues on a constant currency basis, growth is going to be muted. So on an absolute reported basis, it would not be ridiculous to see Q1 revenues sequentially down on a reported basis. But constant currency, given that we've had significant depreciation in our key revenue currencies, will be down quarter-over-quarter. Overall, for the full year, yes, we look at the large deals that we signed last year and the ramp-up there, we look at the large deals that have been signed already this year. As importantly, we look at the increase in the number of customer adds that have taken place. We added more total customers in fiscal 2015 than we did in 2014 and we look at how we expect those clients to ramp. It gives us a healthy amount of visibility to what the year is going to look like. If they ramp faster, if our new deals come online faster, if we are successful in farming and hunting, we have an opportunity to meet or beat the top end of the guidance. And to be honest with the way we report and the way we provide guidance, something would actually have to go wrong at this point in the year for us to fall below the midpoint. So when you look at $515 million to $545 million as the guidance range, the midpoint is at $530 million, which on a organic constant currency basis represents about 10.5% growth. We feel really good about how the business looks walking into the year.

Than a last question from me. I know margins are going to moderate this year because you had some one-times last year, but how do we think about the margin profile, once you get to a more normalized level? Will there be -- if you're working on productivity, what could be the annual margin increase that we should be thinking about after we get through the difficult comps this year?

I think long-term, Joe, we've talked about the margins in this business being in the high teens. It doesn't mean that if something structural changes in the business that they can't get higher. So I mean long-term when you look at the margins, the opportunities, for example, tend to be things like moving to higher value services, things like moving to higher value engagement models, including transaction and outcome based. These could structurally change the margin profiles of our business, but these are 5, 10 years down the road. When you look over the next two to three years, the one thing we are confident of is that while there are opportunities to leverage the investments that we made, there are going to be requirements to continue to invest in our business and that's what we're really seeing this year as well. If you look at the compression, it really isn't about investing at a higher level, it's about investing in different areas and funding those investments through productivity improvements and leveraging the prior investments. The real structural issue that we're dealing with on a year-over-year basis are one-time issues from fiscal 2015 and currency. And honestly, we know long-term there is really nothing we can do about currency implications. We can manage currency over a two to three year period through our hedging programs, but the bottom line is, at the end of the day, if the rupee, or the pound are systemically weak or systemically strong, at some point it's going to impact our P&L.

Thank you.

And Joe, may I just add something there, it's Keshav. I am absolutely committed to ensuring that this Company leads in terms of operating margins, leads the peer set and the industry. So, as Dave mentioned, the high-teens is where we will be and as you can see in our results over the last year or two, or even in the guidance, it means already operationally, we are an outstanding company. We have all the programs from an operations point of view to deliver on the levers, as well as this Company has not sacrificed on pricing. Combination of both of those, along with what Dave just mentioned, the fact that we continuously enter into higher value services, including the analytics area that I spoke about, means we're very confident about maintaining our margins in the high teens.

Ashwin Shirvaikar, Citibank.

Thank you, and, say, congratulations, it's good to see the constant currency rev growth starting to come together. So, Keshav, if I can ask this -- this question, is there maybe in at the Company or at the Board level some level of frustration that you have fashioned this turnaround that you're growing steadily low-double digits, let's call it, constant currency, margins are where they are, and the market doesn't seem to necessarily recognize from a P/E perspective that sort of performance. And if so, what's the outcome that you guys can -- why should you not be doing. say for example, more capital return, more of a buyback, support your own stock, or potentially are there other strategic options? Has that sort of discussion taken place?

So Ashwin, that's an excellent question. And obviously these are discussions we always engage with all the time. I think the key is, we are extremely comfortable about the fact that the demand trends for the sector are still nascent and under-penetrated, and therefore there is huge opportunity for growth. We strongly believe that there is tremendous power in the long-term for the standalone BPM players to continue to make tremendous progress, based on how clients are behaving, and the market is the market. So I think from our perspective, what we're focused on is delivering, making sure that we're delivering on what we promise and we actually believe that the Company is significantly undervalued and based on the kind of results we've been showcasing and our positioning, as well as our performance, and therefore you will recall, we did announce a share repurchase and sooner than later, we will start executing on it. Along with that, obviously, we will have a more aggressive M&A philosophy as I underlined earlier as well. So we'll do whatever we need to do from our side and I think we'll wait to see how the market reacts in terms of multiples.

I also noticed that you said that trends like automation can affect some of the metrics you've followed in the past, things like seat utilization and so on, but you did not extend that comment to say that it could affect revenue growth or margins down the road and in fact there is a viewpoint I think that it can be beneficial to margins. So as we go a little bit more towards outcome based type work, what metrics are you internally looking at that we should be following on the Street that makes more sense?

I think Ashwin, when you look at look at the business, there are several key metrics that we track. And it's a little bit difficult to quantify, especially when we look at our business and look at analytics, not only on a standalone basis, but look at it as embedded into a number of our industry specific solutions. So when you have business that cuts across multiple, what I'll call traditional horizontals, the ability to say the voice on the front end is making X-percent and the data entry is making Y-percent and the reporting and the analytics on the back end is making Z-percent, it is very difficult, especially when you move those into transaction and outcome based models. But the one thing we do know is that analytics on a per-person basis should carry a higher revenue value than analytics on a margin per-person basis, independent of geographies should carry a higher margin. The one thing we don't know is what that mix is going to look like. So if your analytics revenue is going up, but it's going up in the US centric center, for example, it will result in significantly better revenues, but not potentially significantly better margins, as opposed to doing the same work out of an offshore location. So a lot of moving parts to try and do that.

At the end of the day, what we look at in the business is we look at revenue per employee, we look at profit per employee, we look at seat utilization and we have to look at all of these things together, because as Sanjay mentioned in his prepared remarks, there are offsets to some of these things. It's very difficult to go ahead and hire people and to do it in advance of the curve without affecting your seat utilization levels and your productivity level. So at the end of the day, you got to watch these trends in terms of revenue per employee, profit per employee, seat utilization, productivity metric and see how they move on a year-over-year basis, but it's very difficult to kind of isolate a specific service offering and try and understand what that should mean.

As I mentioned a little bit earlier, we do expect long-term, however, that as this business transitions to higher value services and as this business transitions to higher value engagement models and relationship structures that there should be an upward bias to margin.

But, Ashwin, I will just say one thing here, that I think your question is a very strategic kind of question and something that you know we discuss a lot internally, and I can just assure you that at WNS the -- it is completely within each of our businesses now, on getting after new innovation inside the business and driving some of these new models that we spoke about, including subscription based models as we really focus on more technology enabled kind of solutioning to some of our processes, and at the same time, making sure that there is a very strong analytics bias, and all of this will be advantaging the margin and will not be at the cost of revenue.

Brian Kinstlinger, Maxim Group.

Our sources suggest that Aviva plans to go to market with one brand and fold Friends Life into Aviva. First, I am curious if that's been communicated to you yet and if it had any impact on fiscal 2016 guidance, and if it has, are you aware of maybe when that integration is expected to be completed?

In terms of client specific behaviors, client specific opportunities, we really don't want to get into that in a public forum. When we look at the Friends Life-Aviva acquisition, we certainly view it as a long-term opportunity for WNS. The short answer to your question is with respect to our fiscal 2016 guidance, we have not included a significant benefit from any activities related to Aviva and Friends Life at this point in time.

And then assuming you don't want to comment on them and I understand that. If we did assume that it was folded under one brand, is it accurate to think that you own the rights -- exclusive rights to the back-office processing and should we view the fact that they are a quarter of the revenue size of Aviva, if that did happen that your volumes might increase by 25% there, if that did happen?

I think the way we're viewing this Brian is that at this point in time, when we look at the merger of these two companies, it should at the end of the day result in upside for WNS.

And then one question on, I guess, the large deals in 2015 versus 2014. I guess, how do you kind of view the long-term potential, with the clients that you added in 2015, maybe even not just the large ones, all of them, do they have a lot more potential than the ones in 2014, are they about equal, I'm just trying to think of their long-term potential of -- and the platform for growth?

Yes, it's a great question Brian -- I'm sorry, go ahead, Keshav.

I just want to just give a quick comment on the question, you can continue. But I think the most exciting thing that has happened to WNS, Brian, really is the fact that over the past two or three years, we've been winning all these new deals, some of them being the large deals that we have called out in the past and the fact that it means that as we look at our -- the aging of our accounts, a lot of these newer deals are actually creating the maximum excitement for us for the next three to five or seven years, and each of these deals when they come in have small revenue potential in year one, based on when the deal is won and therefore I'm quite happy that we've actually won some large deals early in this year as well. But the reality is, these cause a lot of excitement, because they may have a smaller revenue impact in year one, but their ability to actually grow across the outer years is huge, particularly with a first time outsourcer, because we may enter in one particular area, but we are able to penetrate and radiate dramatically. So they are very exciting from our point of view.

And then two quick ones on numbers. What's your stock based compensation expectation for fiscal 2016, did you give that?

So the stock-based compensation for FY16 is approximately $8 million to $9 million as of now.

And then clearly you've talked about the share repurchases, you are going to be active, your guidance reflects 300,000 [less] shares in the fourth quarter. When should we expect to see that drop again? Will you be pretty aggressive in the first quarter or will be gradual over the course of the year? Can you kind of give us a sense of that please?

The share repurchase program is based on the 10b5-1 and accordingly, there are certain -- the guidelines what we need to follow around that. As Dave mentioned, that he's going to be starting the program in quarter one, but it all depends upon some of the guidelines, as well as the activity which may happen. Pretty well, it may get spread out across the year, based on how the volumes and the trading volumes are going to be there.

Bryan Keane, Deutsche Bank.

Just had a couple of clarifications. Dave, I think you were talking about the first quarter and the seasonality there. Should we expect the first quarter constant currency to be below the full-year range of 7% to 14%, just want make to sure we get our numbers right?

Yes, absolutely. I think when you look at on an absolute dollar basis, we're looking at Q1 below Q4, but on a constant currency basis, it should be slightly above Q4. So we know we've got the currency headwinds, we know we've got the productivity improvements that we offer to a number of our clients that are effective the first of the year. Q1 is typically a seasonally soft quarter for us, but what you should see it's very healthy acceleration across Q2, Q3 and Q4, especially based on the large deals that have rolled on in the second half of this year and the ones that have already been signed for this year for fiscal 2016.

And the two main headwinds in fiscal year 2015, the OTA client, the Aviva extension, are those completely behind us at this point?

They are.

Because I would have though then that it would have carried just those [5 to 6 points] that would have carried us to higher constant currency revenue growth between the fourth and the [first], on a year-over-year basis?

On a year-over-year basis, yes. But again, we've got this -- on a constant currency basis, you are seeing healthy growth on a year-over-year basis, it's the sequential that's the issue.

I might have missed this, but did you guys -- I know you talked about a stable and healthy pipeline, but do you have a target for large deals for fiscal year 2016, a target number?

We do not Bryan. I think one of the things that we talked a lot about and we've certainly been alluding to on the last couple of calls, has been the fact that as our businesses transition towards a turnaround story -- from a turnaround story towards a steady healthy growth story that there are a number of levers that we need to look at in terms of our ability to generate revenue growth over a two to three year period. And while large deals are a part of that, the size of those deals within large deals, the timing, the number of client adds that we have and most importantly, now the farming opportunities within this new customer base that we've created over the last five years are really what's going to be driving it. One of the things that we've certainly found is that people have been looking at that large deal metric as a proxy for growth and it's just not the case anymore. So we were not going to be providing a target for the year, we will certainly be happy to give you the kind of updates that we have today in terms of healthy large deal signings within the quarter and good progress within the pipeline, but there is not going to be a large deal metric for the year.

And then just finally from me, on the operating margins. I think we came in at 20.7% for this fiscal year, and we are targeting high teens. Can you just quantify the impacts? I think currency was one and then some one-time benefits that bring us back down to the high teens. Thanks so much and congrats on the quarter and the guidance.

I think the big -- the two biggest issues that we have in terms of year-over-year margin, one, we've got about 60 basis points of margin compression as a result of the revenue one-timers in fiscal 2015 and that would be the gain sharing and incentives that were reported in the second quarter and the removal of the FX collars that were reported in the third quarter. The second issue on a year-over-year basis is the operating margin impact of the depreciation in the key revenue currencies. So kind of pull through effect net of hedging will cost us about 100 basis points year-over-year. So when you look at margin compression, 60 basis points related to one-timers, 100 basis points related to currency.

Puneet Jain, J.P. Morgan.

A question on automation. So what does automation of client workflow mean for your revenue and margins? I understand you help clients achieve those goals, but what does that mean for you in terms of -- in FTE-based accounts, FTE-based contracts and should it result in higher mix of outcome and managed services contracts for you?

Sure, this is Ron Gillette. So the automation isn't just workflow, we're actually doing automation beyond that. So workflow has been a core tool that we use. There are other bolt-on technologies and robotics that we are deploying with clients. So what that does is that gives us the opportunity to drive productivity that benefits both our clients and ourselves. So longer term, that will reduce the number of people necessary to deliver the work. Therefore, that's why we mentioned the point about seat utilization, that as we drive productivity and drive that value back to the clients and to WNS, we have that double-edge of aligning the seats with our growth. So that's something that we watch diligently, but the automation and use of tools with clients, we're focused on very much this year, we've found new opportunities with our clients and have had good conversations with them. We'll continue to deploy more throughout this year.

And maybe I'll just add, this is an area that is so important in a future world that while we've continuously been investing in this area, I'm delighted to actually say that WNS has just recently brought in a high-profile Chief Technology Officer as well, reporting into Ron, who will help drive more and more of these programs for the future.

And then second on margins, so your margins obviously in high-teens for this year are industry-leading, but how should we think about your sales and marketing spend this year, which seems to lag peers as a percentage of revenue? Thanks.

Actually from a sales and a marketing perspective, as we have been investing across the year, as well as quite earlier, there were operating leverages around that, but as we progress and keep on seeing those new large deals won, and one of the program what we have is on investing into the client partner program, so we'll be continuing investing on that, and we will see some progress on that. So, collectively, if you see, there is a sales and marketing, but on the G&A side, there's a little bit uptick based on the other investments what we have been doing. So, collectively, it's going to be still in the range of 18% to 19%.

S.K. Prasad Borra, Goldman Sachs.

Probably if I start of with more bigger picture question. Keshav, I just wanted to get a view, over the last 12 to 18 months, what has changed from an industry perspective? You talked about BPO vendors changing from a BPO perspective to more like a BPM model. Now is that largely driven by the clients, or would you say it's a push mostly from both BPO vendors and also the IT services companies?

I'll just say the BPM message is resonating much better, and with companies like WNS, really positioning themselves as end-to-end vertically aligned. I think it's taken some time, but prospects and clients now understand very clearly that we have invested very, very significantly in talent, in management practices, in people programs, as a result of which they now have access to some of our people who operate as an extension of their enterprise and who you actually look at their business the same way they look at it.

Now, recall, in the good old days, all that happened was clients would want some work to get done. They would basically punch in an order and essentially expect the BPO vendor to just deliver it out of a low cost location. Today, they understand that complex work can now be done by people like us, it's taken some time to push that message, but a few of us who have been able to elevate this pitch to a completely different level, through investments, through showcasing to these people, through technology, through higher value services, have been able to actually engage clients globally as a result of it and, A, process that earlier would have been divided across different vendors globally is now managed end-to-end by companies like WNS. I would say that is a [dramatic change], the fact that they can trust companies like WNS who have invested in the end-to-end vertical model, who understand their business as well as them and then have built the back-end processes and the technology tools and the people around it is, I think, the most important differentiator.

The second is, when they actually travel around, visit our centers, meet with our people, look at what they can actually leverage from us beyond the original scope of work, that's when the higher value services of analytics, and a few other things comes into play. So I would say it's a number of things coming together, and I think it's also helped a lot that industry bodies like NASSCOM has also helped in terms of focusing on re-branding the industry, as a result of which clients and prospects have got much more comfortable. So that's on this side, but I think on the other side as well, I think clients are seeing a far more stable kind of a business environment and have just got more comfortable with taking decisions.

Probably just from your own investments perspective, there seems to be lot more urgency at your end from a capital allocation perspective, looking at acquisitions, potential buybacks. Now what has changed now compared to, say, your position 12 months back?

Well, I will say customer behavior, we have customers who are getting much more aggressive, they love what they're seeing with us and they're saying why can't we do more with you in different areas. We're driving an innovation kind of mindset inside the Company. Our internal teams and leaders are coming back saying here's what we're already doing for clients, if we can invest in these areas of capability we can actually get after much more. And we are clear, our balance sheet now allows it, the demand environment is out there for people like WNS, and therefore we are going to (inaudible). And again, I want to underline that it will be around capability, it will not be the bulk of the Company. It will be niche, at our head kind of capability in some of the areas that I spoke about earlier and I must say my leaders, particularly in some of the larger businesses, as well as the emerging new businesses are going to receive allocations of capital in order to further grow their business and really leap-frog against competition.

Probably last one from my end. Just in terms of investments and the way you're looking at sales force deployment, are you separating out the sales force, a part of that targeting the analytics or the newer parts of the business and the remaining sales force just focusing on old traditional business?

Yes, so we do have a separate sales force that is now getting very engaged on the horizontal side on both F&A as well as analytics. But having said that, remember, this is not a business where you can just separate things out, because the client is -- the person taking the decision on the other side is a CXO profile. This is somebody who does not sit with budgets, but is actually looking to deliver business outcomes, and therefore our people have to understand the business vertical well, the domain area very well, should be able to detect where the pain area is, where the sense of urgency is and then go in and actually carve out a transaction or a deal, where originally there is none. This is not an IT services kind of a CIO budget allocation exercise, but it is really strategic selling. So while internally we have a few specialized hunters who focus only on some of these areas I spoke about, the reality is we are training every one of our people to be top quality salespeople, who understand vertical, as well as horizontal, as well as the agenda on the mind of the CEO.

Thank you. We have no further questions at this time.

Operator, you can conclude the call.

Thank you, ladies and gentlemen. That concludes your conference call for today. You may now disconnect. Thank for you joining and have a good day.