WNS (Holdings) Ltd (WNS) 2016 Q1 法說會逐字稿

Good morning and welcome to the WNS Holdings Fiscal 2016 First Quarter Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, we will conduct a question-and-answer session. And instructions for how to ask a question will follow at that time. Now I would like to turn the call over to David Mackey, WMS Corporate Senior Vice President of Finance and Head of Investor Relations. David?

Thank you and welcome to our fiscal 2016 first quarter 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 first quarter ended June 30, 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 payment. 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. We are pleased with our first quarter financial and operational results, and the progress made in positioning WNS in the BPM marketplace.

Fiscal first quarter net revenue came in at $126.5 million. This represented a year-over-year increase of 3.6% on a reported basis and 9.5% constant currency. The currency headwind was driven by depreciation in the British pound, Australian dollar, euro and South African rand against the US dollar. Sequentially, revenue improved 0.3% on a reported basis and 0.6% constant currency.

In the fiscal first quarter, WNS added six new clients, expanded nine existing relationships and renewed 17 contracts. We continue to make solid progress in building our new business pipeline for both hunting and farming opportunities and in moving deals along through the sales cycle. We are also excited about the growth of disruptive services in the pipeline, including opportunities in analytics, robotic process automation, or RPA, mobility and industry-specific solutions. In addition, the large deal pipeline also remains robust.

In the first quarter, our adjusted operating and net profit margins were once again solid. Year-over-year, adjusted operating margin expanded 210 basis points to 20%, while our adjusted net income percentage expanded 120 basis points to 17.9%. Sequentially, first quarter margins compressed slightly, as discussed on last quarter's call. Sanjay will explain the year-over-year and quarter-over-quarter margin movements in his prepared remarks.

From a balance sheet perspective, the first quarter saw WNS begin execution on our first-ever share repurchase program. During the quarter, the Company bought 770,000 [ADS's] at an average price of $26.79 per ADS, totaling $20.7 million. In addition, we reduced our gross debt levels by another $17.5 million during the first quarter. Capital allocation is a focus area for WNS going forward, and in addition to share repurchases and debt repayment, we will continue to opportunistically look for tuck-in acquisitions to augment our capabilities and solutions.

At a macro level, we believe that demand for BPM services remains stable and healthy. Customers are increasingly looking for their partners to not only improve operating efficiency, but to also help them improve competitive positioning. Cost reduction and ongoing productivity improvements are becoming baseline services. Delivering business value and differentiation increasingly requires solutions which combine domain expertise, analytics, automation and an improved end-client experience. Over time, these solutions will be delivered in transaction and outcome-based models, which transfers ownership and accountability for results to the provider. WNS is working to create enhanced capability in these emerging areas, the costs of which have been included in our fiscal 2016 profit guidance. We are looking to do so through a combination of internal R&D efforts, strategic partnerships and tuck-in acquisitions.

I would like to take a little time to share with you a few of the exciting things WNS is doing to leverage our vertical structure and create differentiated capabilities in the marketplace. The first area that I would like to highlight is the work we are doing in robotics process automation. Today, the combination of software tools, domain knowledge and process expertise enables WNS to deliver RPA solutions to our clients and prospects. From a customer perspective, RPA drives lower cost, reduces error rates and improves the end-client experience. We have already implemented robotic solutions for several WNS clients and have specific plans for formal offerings across key verticals. Examples include accounts payable, exception management, direct sales, reservations and ticketing in the travel vertical; certificate validation, claims adjudication and EDI bill payments for insurance clients and data alignments for the utility sector. Several of these offerings will be easily portable across multiple clients and verticals.

WNS is also developing our own technology assets to create high value sticky revenue streams. One example is a new solution for the travel industry, which helps airlines better manage flight disruptions caused by issues such as bad weather, mechanical problems and traffic. Our automated tool, which is WNS owned IP, enables a large number of passengers to be quickly re-accommodated based on airline rules and global distribution systems. This includes gate reassignments, flight transfers to both current and new carriers and hotel reservations if required. The assignment is accomplished in seconds or minutes, whereas current airline processes for large disruptions can take hours. This solution showcases how WNS is able to combine process knowledge, technology, analytics and domain expertise to help clients solve business problems.

The analysts and advisor community is increasingly recognizing the work WNS is doing to drive value and create differentiated BPM capability. In the last quarter, WNS was recognized as a Leader in Finance and Accounting BPO by Gartner in their Magic Quadrant assessment and by IDC in their MarketScape Report. We have also been rated as a High Performer in Enterprise Analytics Services by HfS in their most recent Blueprint Report and named a leader in the 2015 Global Outsourcing 100 List.

In our press release issued earlier today, WNS provided an update to our fiscal 2016 full-year guidance. We currently expect revenue to be in the range of $523 million to $549 million, representing growth of 4% to 9%. Excluding the impacts of currency and hedging, guidance reflects growth of 8% to 13% on a constant currency basis. Consistent with previous years, we currently have 95% visibility to the midpoint of the range. Adjusted net income is now expected to be in the range of $90 million to $96 million or $1.69 to $1.80 per adjusted diluted share.

In summary, we are pleased with our financial and operational performance in the first quarter and the business opportunities we see going forward. We are working to fully leverage our Company's strength and investing in our business to drive future growth. In short, we believe WNS remains well positioned to meet our clients' BPM needs, both today as well as tomorrow. WNS remains focused on delivering superior results for all of our key stakeholders, including customers, shareholders and employee.

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

Thank you Keshav. With respect to our first quarter financials, net revenue increased to $126.5 million from $122.1 million in the same quarter of last year, growing 3.6% on a reported basis and 9.5% on a constant currency basis. Year-over-year, quarter one revenue was pressured by depreciation in key revenue currencies against the US dollar, including the British pound, Australian dollar, euro and the South African rand. From an industry perspective, revenue growth was paced by our emerging verticals, including shipping and logistics, utilities, retail CPG and healthcare. Each of these verticals grew in excess of 15% year-over-year.

With respect to our service offerings, revenue growth versus the prior year was driven by high-end contact center work and industries-specific solutions. Sequentially, net revenue increased by 0.3% or 0.6% on a constant currency basis. Quarter-over-quarter, revenue growth was pressured by the seasonal impact of committed productivity improvement for several large clients and a slight currency headwind, net of hedging.

Adjusted operating margin was 20% in quarter one, as compared to 17.9% reported in the same quarter of fiscal 2015 and 20.7% last quarter. On a year-over-year basis, adjusted operating margin improved 210 basis points as a result of the favorable net impact of currency movement and hedging, increased operating leverage on higher volumes, and improved utilization. The sum of this benefit more than offset the quarterly impact of our annual wage increases. The sequential adjusted operating margin reduction of 70 basis points was a result of an unfavorable net impact of currency and hedging and the quarterly cost of our annual wage increases. This margin reduction was partially offset by improved seat utilization and lower SG&A cost.

Interest expense this quarter was $0.1 million, down from the $0.5 million reported in quarter one of last year and $0.2 million last quarter, as WNS continues to reduce our debt levels. The Company's other income was $2.2 million in the first quarter, down from $3.1 million reported in quarter one of fiscal 2015 and $2.8 million last quarter. Year-over-year, the reduction in other income is largely the result of a change in the India budget, which increased the dividend distribution tax.

WNS' effective tax rate in the first quarter was 17.3%, up from 16.5% reported last year and down from 20.4% in the previous quarter. The sequential decline in tax rate is largely the result of the shift in our investment instrument, which is offset by the lower interest income previously mentioned. The Company's adjusted net income for quarter one was $22.6 million, compared with $20.4 million in the same quarter of fiscal 2015 and $22.9 million last quarter. Adjusted diluted earnings were $0.42 per share in quarter one, up from $0.39 reported in the first quarter of last year and down from $0.43 in the prior quarter.

As of June 30, 2015, WNS' balances in cash and investments totaled $135.2 million. The gross debt position was $8.2 million, with the Company reporting a net cash position of $127 million at the end of quarter one. WNS generated $17 million of cash from (technical difficulty) and free cash flow of $8.4 million after accounting for $8.6 million in capital expenditures. The Company also reduced gross debt levels by $17.5 million in quarter one, as improved cash generation has reduced the need to use debt for some of our short-term working capital requirements.

DSO in the first quarter came in at 28 days, down from 32 days in quarter one of last year and the same as reported last quarter. As Keshav mentioned, the Company also spent $20.7 million in the first quarter on our share repurchase program. We are actively looking to leverage our healthy balance sheet and have worked diligently over the past several quarters to develop our M&A pipeline. We are excited about the prospects of enhancing our capabilities through this channel and are actively pursuing opportunities, which include embedded analytics, healthcare and software technology platforms.

With respect to other key operating metrics, our total headcount at the end of the quarter was 29,672. Our attrition rate in quarter one was 36%, the same as reported in the first quarter of last year and up from 32% in the fourth quarter. Global [billed] seat capacity at the end of the first quarter was 24,032. Average [billed] seat utilization in quarter one was 1.22, reaching its highest level in over two years. This quarter, the seat utilization improvement was driven by the ramp of a large deal in South Africa. As a part of the deal, WNS has rebadged resources, which will work from our client's location until we open our new facility in quarter two. This work will be performed from a new WNS delivery location.

In the meantime, we have consolidated some seats in one of our existing South African facilities. As a result, we anticipate that seat utilization will slightly decline in quarter two. We expect this metric will fluctuate quarter to quarter, based on facility build-out, requirements and hiring cycles, but directionally annual seat utilization levels are expected to improve over the next few years.

In our press release issued earlier today, WNS provided revised guidance for fiscal 2016. Based on the Company's current visibility levels, we expect net revenue to be in the range of $523 million to $549 million, representing year-over-year revenue growth of 4% to 9%. Revenue guidance assumes an average British pound to US dollar exchange rate of [GBP1.55] for the remainder of the fiscal year. Excluding exchange rate impact, our revenue guidance represents constant currency growth of 8% to 13%. We currently have 95% visibility to the midpoint of the revenue range, consistent with July guidance in prior years.

Adjusted net income is expected to be in the range of $90 million to $96 million, based on INR63.5 to US dollar exchange rate for the remainder of fiscal 2016. This implies adjusted EPS of $1.69 to $1.80, assuming a diluted share count of approximately 53.3 million shares. With respect to capital expenditures, WNS anticipates our requirement for fiscal 2016 to be in the range of $22 million to $25 million.

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

(Operator Instructions) Anil Doradla, William Blair.

Congrats on the good quarter and glad to see trends are moving in the right direction. Keshav, couple of questions. You talked about the six new, nine existing, and I think 21 other clients. Can you break it down for us the new ones, existing ones, in terms of where you're seeing a little bit more activity? And these six new ones, could each of these become a large client for you? And I have a follow-up.

First of all, great to see you on this call. I must start by saying that in terms of the sales traction itself, I'm very positive about how the year has started for WNS. You know how it is with our business, when the pipeline develops early, but more importantly when we close deals early in the year, it means the ability to ramp revenues across the year. I think this is a year where we've started well with some of those client wins and therefore, the feel-good factor already is very, very high at WNS. That's one.

The second thing I want to mention is that these transactions or these particular clients are across geographies, across business units and importantly, some of them are actually from some of the new age disruptors, who traditionally were seen as technology companies and who never needed to be serviced in this format, but I'm delighted to say that because of the sales teams efforts at WNS, we are actually seeing some of these new age companies actually appreciate and understand the impact of high-end customer service, customer interaction, embedded with analytics and higher value services that WNS has to offer. So I'm very excited about how some of these transactions have started first and foremost, how they are transitioning through the system, and over a period of time, the exciting potential from each one of them, and you know what, it's completely dependent on how we operate, how we perform and how we convert each of them into the traditional large client definition that we have had in the past. So very positive about the potential.

So Keshav, maybe if you don't mind me just digging a little bit deeper, how much of those -- you know the activity you're seeing perhaps in your core expertise, which tends to be more travel and logistics, versus how much of it is in some of the kind of new verticals, and you referred to new age companies, healthcare seems to be a lot more active, so can you at least parse it down without going through customers, I mean at least by some of these end markets?

So let me once again say that our top vertical at the Company continues to be insurance actually and we see a very solid pipeline, some very strong wins on the insurance area, and we continue to see very good traction there. Of course, we are the absolute experts on the overall travel side and again, travel is, again, another very exciting area for us across the entire gamut of travels, whether it's airlines or the OTA side, or the cruise lines, shipping, logistics vertical. Healthcare is an interesting area, and we're seeing enough of traction there. But when I refer to new age companies, I'm talking about essentially the ecommerce kind of players, or the players who really leverage technology platforms to disrupt the marketplace. That's an area where we are also seeing very good traction at this point in time.

And in terms of geographies, Anil I must tell you, it is across the globe. We are seeing lot of traction coming in from Australia, South Africa, our traditional UK business, parts of US and very importantly, in some of our core kind of BUs or verticals, North America.

And finally, did you break down the analytics revenue? You could have, I kind of missed it.

It terms of the analytics, [specifically]?

Contribution revenues.

Yes. So for the fiscal first quarter, analytics as a percentage of total was 13%.

Edward Caso, Wells Fargo Securities.

Congrats on a -- or good evening I guess maybe -- on a great quarter here. I'm trying to dive into your insurance number, which is down notably year-over-year. How much of that is the Aviva, the new Aviva contract, how much of that is the unfavorable currency? If you pull those two out, what kind of growth rate would you be seeing in insurance?

I think Ed, when you look at the insurance performance in the first quarter, you hit on two of the issues from a year-over-year perspective that you're going to see. I would say the renewal of the contract with Aviva did not really have an impact on a year-over-year basis, because the new contract was effective April 1 of last fiscal year. What did affect us and Sanjay alluded to in is remarks were the committed productivity improvement that we give to several of our larger clients, including Aviva on an annualized basis. So clearly the productivity improvement component had an impact on our insurance business and as you rightly said, given the depreciation in the British pound on a year-over-year basis the insurance vertical was disproportionately hit. So I think if you looked at insurance excluding those two factors, you'd probably be looking at both on a year-over-year basis, but growth below Company average.

Shifting to repurchase activity, obviously you are active in the quarter, but I heard a lot of commentary about a -- looks like an increased focused on M&A here, sort of signaling maybe that there is something in the near term. Should we therefore expect the repurchase pace to sort of decline here?

Let me take that, Ed. So first and foremost, while we have implemented a significant part of whatever approvals we had in the first quarter, we sincerely continue to believe that there is huge value in the Company and in the stock and therefore we will continue to do whatever is the right from a Company point of view, in terms of our repurchase program. Having said that, the M&A activities that Sanjay and I spoke about is also something that we're very focused on, and again, I don't want to over-emphasize M&A alone, I think there are many areas that WNS has to continue to invest in as we continue to grow and lead in terms of new business models and M&A is an area that we are watching very carefully. We have a very good deal pipeline in place at this point in time. And who knows, you know when things work out as per what we want, we will have further announcements to make.

I think Ed, the focus needs to continue to be on the right assets at the right price, but clearly one of the things that we want to do to augment our capabilities, whether it's domain expertise, whether it's niche capabilities in technology, whether it's service offerings, these are things that we are actively pursuing to try and give us a leg up in that area, but I think the Company philosophy in terms of making sure that we're doing it in the right way continue. So there is no pressure for us to do M&A, we're very happy with our organic constant currency revenue growth. We're happy with the progress the Company is making, but we also understand that a lot of the things that are disrupting the industry create opportunities for us and we want to try and capitalize on that. So I think the focus is continuing to put our balance sheet to work through a combination of share repurchases, debt repayment, M&A, but making sure that we're doing it at the right price, at the right pace.

Last question, guidance, can you offer guidance on tax rate and stock comp please?

So, the guidance for the tax rate for the full year is still in the range of 17% to 18%.

And for stock comp?

Stock comp on a percentage of revenue basis should be slightly above where it was last year.

Mayank Tandon, Needham.

Solid results. Keshav, you talked about the broad-based growth. I just wanted to understand then, if I look at the constant currency guidance, you tightened the range, but essentially the midpoint is consistent with what you had it before. So maybe give us a sense, are you -- is it too early to raise numbers at this point or is there something else we should read into the constant currency growth numbers basically being flat with what you had guided to earlier?

I must say that I have never felt better in terms of the pipeline that we have, both on the hunting and the farming side and I can -- I can share my excitement at this point in time to say that we have some solid deals, which are across verticals, across geographies, and in all higher value areas as well, both on the hunting and farming side. And I know that our teams are working very hard to convert these into wins very quickly. Having said that, the timing of those wins is not in WNS' hand, although we are making the best effort. It's early in the year, that's the range of numbers that we can see at this point in time. We have provided that as a range at this point in time. And we will revisit it as we see more closures and better -- and the key thing there is we have a higher visibility already, so 95% visibility to the midpoint of the range already at the end of the first quarter. So very confident about where we are at this point in time. But again, we would like to be consistent in terms of how we provide guidance and we'll keep you updated as we make progress.

And then I wanted to shift gears to margins very quickly. Given the outperformance in 1Q, what does that mean for margins through the rest of the year and if you could also, maybe Dave, give us some sense on what the FX gain/loss item might look like through the year?

I think, Mayank, we had a really good first quarter and we talked about -- in addition to seat utilization improvement, some of the things that helped us with that number. Obviously, we do expect Q2 to be down somewhat sequentially from where we were in Q1 for some of those same reason. So we have investments that are phasing in throughout the year. I think when we look at the full year margin expectation, it's slightly better than where we were a few months ago, but I think we're still in that high teens adjusted operating margin range for the full year. So directionally headed the right way. Little bit of flow through from the currency benefit, little bit of flow through from some of the upside that we had in Q1. But directionally, through the rest of the year, I think we're consistent.

And then the FX gain/loss, should that be similar to what we saw in 1Q or does that change, given where the rupee is trading currently?

The FX gain/loss on a quarterly basis is going to change as a function of where the actual currency comes in, vis-a-vis the hedging rates that we have in place. The good news is I can say we're 90% hedged for this year, we're very well protected in terms of margin. If currency moves the right way for us, we should have some modest upside. If currency moves the wrong way, we should have significant downside protection. So that FX line on a standalone basis is difficult to predict, because there are going to be direct offsets in both our direct cost and our SG&A lines.

Brian Kinstlinger, Maxim Group.

Can you talk about -- specifically about the pipeline in utilities where we've seen deregulation, maybe how many potential customers are you in active discussions with and how far off maybe are some awards, in what countries are you seeing the most opportunity?

That's a great question, Brian. And yes, that's one of the verticals where we are seeing hyperactivity at this point in time. Obviously, I have to be careful about giving too much of detail there. But I can assure you that we're seeing a lot of activity, particularly around the UK and Europe and Australia, specifically around the water side, the electricity and the power side, the energy side, and many companies who have traditionally never outsourced before, have actually got on the bandwagon very aggressively. We are actually seeing some very aggressive kind of positioning from them and as they understand our track record in really helping some very well known brands in their journey, we have been favored with solid positioning in some of these deals.

Some of these deals will take some time to close, but I want to let you know that in both those geographies, as well as in a limited sense, in North America as well, we are seeing hyperactivity.

I think, Brian, to Keshav's point, we've seen some good traction in terms of wins in the past couple of years in the utility space and obviously you've seen that performance flow through into the P&L and into our utility segment. Keshav is speaking about the larger opportunities and the high probability opportunities that are at the tail end of the pipeline and that's reflected by the UK and Australia, where disruption has been an issue for an extended period of time, but we're also starting to see at the front end of the pipeline, more and more opportunities in utilities coming from North America, where I think some of this is a little bit more fresh.

So feel really good about where that is and also understanding that they're looking for a lot of help in kind of what we call the [meter to gas] process, the entire chain from the time somebody reads a utility meter, whether it's water, whether it's electric to the time they collect from the client. That process is something that has historically been extremely inefficient for utilities companies and given the pressure that they're facing has become a huge area of focus.

And then I think if I read all my notes from the last two quarters, you had three utilities customers headed into this quarter, did you add to that total or is three still that number, which I think is kind of high, given how new the industry is to outsourcing?

We've never reported an absolute number of clients within the verticals. Suffice to say that we do have more than three customers in the utility space. But I think what's more important than number of customers is the customers where you have a meaningful footprint and the ability to demonstrate capabilities across multiple areas within the organization. That being said, when you look at our first quarter client additions, I don't think you're going to see a utilities client in the Q1 adds.

And then I see your revenue per head is at the lowest point a long time. I'm not sure this is because of the British pound or the transition of a client to South Africa. Maybe I guess you can just give us a sense of how you are thinking about this metric and what the recent hiring in the first quarter means for ramps going forward?

Sure, I'll take that, Brian. So for us, the focus -- we've talked a lot about seat utilization over the last year, year and a half, and more recently talked about some of the interplay between changes in the seat utilization metric and changes in productivity metrics and that if we get more technology enabled that it can actually be counterproductive to improving our seat utilization.

I think what you saw this quarter was seat utilization improved pretty dramatically to 1.22 and that was really the result of headcount coming on board in advance of a lot of the revenue that's coming with it. So when you look at what's happened at WNS over the last two quarters, we've really done a lot of hiring. The revenue per employee has actually dropped each of the last two quarters and it's because we are preparing for the ramps that are going to drive our accelerated revenue through the balance of the year. So the expectation would be that revenue growth throughout the rest of fiscal 2016 will be disproportionate from headcount growth.

The last question I've got is, are you expecting, given the M&A that your largest insurance customer will begin to grow in the second half of fiscal 2016?

So Brian, again excellent question. All I can tell you at this point in time is, we are very confident with how the integration is actually taking place, because we are very much right in the center of discussions out there and solid progress is obviously being made between those companies. There are a number of discussions around deals which are in the pipeline at this point in time and we expect to start seeing revenue traction from some of those deals in the latter half of the year.

Again, having said that, it is a large complex transaction and therefore, the timing will be determined much more by the large client, as opposed to WNS. But I think the confidence the client has is that WNS already understands their processes extremely well, also is operating in areas that the merged company is also in, which means logically it makes sense for us to take over some of those areas. And as you are aware, we also have some kind of an exclusivity in our earlier deals. So there are a lot of positives that are playing out for us as far as that transaction is concerned.

Ashwin Shirvaikar, Citi.

Congratulations; good solid [beat and raise] there. My first question is, Keshav, you highlighted the RPA capabilities automation. The airline example I thought was particularly intriguing. I'm hoping in view of the large upcoming US airline opportunity that sits out there. Any comment broadly on some of these new RFPs, how important are the newer capabilities like RPA and equally, is it resulting in a higher level of client expectation that it will lead to productivity gains through an internal or a [profit lease]?

That's a great question, Ashwin and while I'll provide a high level oversight on that, and then we'll have Ron, our Chief Operating Officer, talk in a little more detail. I think at this point in time, many clients are very sensitized to the fact that they don't just want cost savings, they want from their strategic partner, much more than just cost savings and that includes higher value services, a better understanding of their business, decision support kind of thinking coming from our domain experts, as well as an aggressive or intense knowledge of technology that makes the processes much more efficient, right?

So when we talk about things like social media, [analytics] cloud, as well as RPA, these are all, I would say at this point in time, still qualifiers. right? I think these are good things to have and different companies invest more intensely, based on where they see the direction of this journey going. We believe over a period of time, these are going to become very, very important and therefore, we have been investing in these areas for a while and that's why some of the analysts and the advisors actually rate us leaders in the RPA area, right?

Having said that, you have to appreciate that at this point in time, people have domain assets, as well as RPA tools are symbiotic, they don't replace each other really, right, they are symbiotic. What happens is the RPA tool really comes in and makes a commoditized kind of repeatable task more efficient, while the human talent moves to higher service areas. So that's how we are leveraging this model at this point in time.

I would say in many cases, we are probably a little more mature than where some of our clients are at this point in time. Now these are terms that they understand that they would like to have, they feel comfortable interacting with a partner who is investing in these areas, but it is not necessarily true that every one of them want all of this in their RFPs as a qualifier. They just want to make sure that we understand it. That is one. And so that is one area I want to talk about. And what we are doing is really leveraging some of these tools to make the process much more efficient, to create much more sticky revenue streams for ourselves, to really get much more control over some of these processes and obviously, over a period of time, drive margin. And that's how I would like to mention that we are driving some of these initiatives. And Ron will talk about some specific examples to help you understand how clients again come in different kinds. There are some who are traditional, who still need just cost savings, there are some who are transitional who are moving to higher value services, and then there are the innovative guys and those are the big technology disruptors I spoke about, who also need to be serviced. And I can assure you, WNS has solutions for all of them.

Ashwin, this is Ron. As far as the deployment of tools and technology to enable the BPM services, they are just part and parcel of everything that we do and our clients expect. With regards to the robotics process automation, in our business, it's widespread across all verticals and very good uptake and deployment of that. When we look at it though, it goes beyond that. Our domain expertise is enabling us to develop tools and platforms in each of the verticals to enable the business in other ways, which improves the productivity, the quality of service for our clients and also the quality of the job for our employees, reducing some of the very mundane tasks, taking those away and allowing our employees to be focused on delivering the value that their training, education and their domain knowledge can bring to enhance the service that we provide to our client. In each of the verticals we have activities underway to focus then on developing these platforms and tools, some in the travel industry and insurance we developed and we are in the process of enhancing those; in some cases, developing new ones. So very much part and parcel of what we do and provide to our clients and there has an increasing expectation [from the client] that when we come to the table that we bring these things with us. And that in our longstanding relationships that we continue to invest and reinvent the service offerings that we have for them and bring technology to bear as part of our service delivery model.

A seat utilization question, you know, and I can understand obviously quarter-to-quarter fluctuations that's part and parcel of the business, but where can you take it over time as you continue to focus on seat utilization, and I guess between high seat utilization, higher revenue per utilized seat, is that enough to offset -- you know, over time offset wage inflation, the FX benefit that we get and so on?

So from a seat utilization perspective, as we have been alluding that you know directionally long-term focus is to continuously have the improvement on the seat utilization metric. And you know if you closely observe from the last two years, where we were around 1.16, which went last year to 1.18 and you know now it's 1.22 and as you rightly said, it may be volatile in the quarters based on the demand and as well as the requirement where we need to continuously build up the new facility, but directionally, it will be a long-term drawn process of a continuous improvement. To point a specific number, it may be really difficult because again, it depends on the demand, as well as the capacity we need to create to serve our client, but our focus long-term is to improve that.

To Sanjay's point Ashwin, I think one of the things that gets lost in the shuffle on seat utilization is any time you run above seat utilization of 1, it means you are running multiple shifts and to the extent that you are expanding your geographical footprint and you're delivering services increasingly from locations that don't allow for multiple shifts or the type of work that you're doing doesn't allow for multiple shifts that becomes a challenge as well. So seat utilization in terms of an optimized number is a function of what we're doing, where we're doing it and how we're doing it. As I mentioned mention a little bit earlier, the more we automate our services, the less headcount that's required to deliver those services, puts pressure on our seat utilization because the capacity is fixed. So in addition to building and trying to build at the right levels, we're actually looking for, in certain places, ways to consolidate or remove infrastructure as well. So it's going to be a constant push and pull, but directionally, as Sanjay mentioned, the goal is to continue to keep this thing moving in a positive direction and understanding that the optimal number will be a function of where we are at any point in time.

Joseph Foresi, Janney Montgomery Scott.

So I guess my first question here is just around the revenue growth trajectory. As we kind of understand it, I think BPO basically

you've got high visibility, because most of the year is kind of already sold. But we've consistently talked about a high single-digit kind of low double-digit growth rate for the industry. Do you feel like, as we go forward that you can continue to capitalize on the present growth rate, which has improved over last year's and do you feel like you can maybe get above industry growth rate over a shorter or longer period of time?

Hi, Joe. Yes, actually in terms of the pipeline and traction, I mean the quicker you're able to generate the pipeline and the faster you're able to convert it means the ability to deliver revenues across the year. So I think this year, as I said earlier, we've been very comfortable in terms of how the pipeline is looking, as well as what we already converted in first quarter and as a result of which we have been able to provide this kind of guidance at this point in time. And I think the key is, as we continue to shift the mix of our business and bring in more and more of these now clients who have the ability to ramp and grow over the next five to six years, our ability to therefore grow at or above industry rates that we keep talking about is actually getting better and better. So suffice it to say at this point in time that I'm very pleased with how the sales team is progressing on our key initiatives and driving the pipeline. I also feel good at this point in time that provided we are able to close some of these earlier in the year and build a higher pipeline for the following year, our ability to go ahead of the traditional growth rates is very, very [positive].

And then you mentioned sort of in your prepared that some of the e-commerce companies were maybe tapping BPO now. What type of work are you doing in those particular verticals? And I guess I'm a little bit surprised to see those types of players now in your client list. How do you feel about the runway there and how do you see that progressing over time?

Look, it's interesting, but you know some of these disrupters that we keep reading about, and I think that we keep consuming from we -- a lot of people traditionally assume do not have the appropriate need to actually service the end customer, their own end customers. And while they have a lot of technology and they are outstanding in terms of handling things at the front end, the reality is some of them are growing so fast they have now realized as they've interacted with our sales teams that there is a particular maturity and a particular quality of service that we bring to the table and also more importantly, as Ron mentioned, understanding of business domains that we bring to the table that actually can help them first of all deliver a much more efficient quality of service, a much more dependable quality of service to their customers, and at the same time, allow them to focus really on the front end. And so from our perspective, you must realize that a lot of these actually start with the higher end customer interaction areas for which WNS is extremely well known and as we ran pilots with some of these people we actually found out that they were amazed at the quality of our people, the understanding of domains, understanding of technology and more importantly, the sensitivity with which they were able to actually handle and convert for their end clients.

So it always starts with higher end customer service, but over a period of time it gives us a runway to get after every other areas and broad-based programs inside each of these plants. So, I'm very, very excited and you must also appreciate that some of these guys are growing so fast that sometimes as you get in their demand on you also is very, very significant. So sometimes we have to moderate the pace, based on what is practical and what will result in error free, high quality services.

And last question from me, just on headcount. In general, maybe you could help put it in perspective, I know that it tends to fluctuate and you've also got you utilization going in the right direction, but how should we look at increases in headcount and/or flat headcount? In the past, it typically would be an indication, an increase would be an indication that you either won some large contracts or you're ramping. Is that still the case with utilization going up and how do we think about those additions and when they happen and how they make their way into revenue?

I will start, I'll just give a high level thing. I can assure you in our business, even today, more headcount generally means more confidence and a better pipeline of one deal and potential deals that are around the corner. And again, this headcount that you've seen at the end of this quarter, I believe signifies that. But Ron and Dave, you want to add any other color, please go ahead.

I will add to that also that we are constantly driving productivity and looking to take cost out and reduce our labor component as was mentioned earlier, is we are infusing technology into our service delivery model. So our indicator of growth is, of course, as we're adding headcount in a quarter, it's more reflective of new ramps or new client additions.

And I would add to what Ron said what you'll actually see is, is an early indicator of growth and it touches a little bit on the point Keshav was bringing out, to the extent that new clients tend to start on the front end or the very back end of a process, to the extent that they usually start on an FTE or a time and material basis. Growth in time and material services, growth in contact center and F&A services, growth in headcount all tend to be early indicators that the business is headed the right way. Ideally what we want to do over time is take those same processes and make them more efficient and use it to leverage what we're capable of delivering for a client by moving to transaction and outcome-based models and by driving higher revenue per employee. But on the front end, that's often not easy to do, based on how these relationships start and where this relationship start.

S.K. Prasad Borra, Goldman Sachs.

Couple if I may. Probably to start off first on the general industry trends, if you could comment what's happening with regards to salary increases you are seeing in the BPO services space?

On the salary increases in the BPOs is as what we saw in the last year. So it's been pretty stable. So we have not seen any major disruption or any unique trend over there, it's pretty stable as of now.

And probably just second one more with regards to capital allocation or just M&A. What are the constraints for you to get a bit more active in this space. Is it just more valuation, is it finding the right fit or what's your thought process on that and has it changed at all in the last 12 months? Are you a bit more flexible with regards to valuation or are you looking at much broader segments rather than just looking at say analytics or traditional BPO space?

Actually, we are quite active in the space in terms of evaluating opportunities, and I must say that, you know, as we said earlier, I think for us in our business, we are absolutely clear, our core differentiator continues to be superior domain specialism, right? And that along with technology enablement and being very customer service oriented are really the core platforms on which this Company delivers to the marketplace. Now around this, we are seeing so much of opportunity and excitement to deliver great solutions to our clients that compels us to also look at some of these new niche kind of M&A opportunities, and I can assure you that we are monitoring very carefully, looking at a number of deals across some very key areas within both horizontal, vertical and the technology spaces and analytics spaces. And again, we are very clear that we will not do a deal just for sake of doing a deal. So there has to be an appropriate fit, it must be at the right valuation and we believe that that discipline is good for this Company and while we do all of this, we will continue to grow the Company at a constant currency organic rate at the ratio -- at the rate that we mentioned earlier. But I just want to assure you that we are very, very active in the market and opportunistic and at the right time we will do the right thing.

Probably just to follow up on one of the points that you mentioned there with regards to what differentiates you in the market that definitely seems to be vertical focus. Now when you think about some of these newer verticals where you are seeing good traction, what kind of specific investments do you need to make? You did talk about something on domain expertise. Is it more also focused on platforms or is it just more about hiring domain experts?

It's a combination of many things actually. You know, obviously, depending on the domain, very intense domain thinking is required. So for example, shipping and logistics, you need to have a completely different kind of profile of people working in that vertical, as opposed to some of the others. So some of these people would actually be master mariners, they would actually be people you know who have been on ships, they are people who have run shipping operations and things like that, and that's a very different kind of conversation that a traditional shipping person or a logistics person would have, as opposed to the normal BPM kind of talent that would have. So you need that kind of talent first of all. Beyond that, you need to be able to provide understanding and solutions that are significantly disruptive and far more sticky and different to what these companies already have, which means understanding of technology and platforms automation and tools. And in that area, again, WNS will own whatever is strategic, we will do a number of partnerships. We have done a number of partnerships in a number of areas and some of those partnerships are highly niche oriented. So these are tool sets that are used only in particular domains or in a particular horizontal. So that's another area that we invest in.

And technology is becoming a very, very important play. And as you know that over the years, we've developed a solid technology understanding inside this Company to be very dangerous, I would say, but at the same time, we are very clear that the technology understanding must be subservient to our domain specialism, which is our calling card and which the client understands. Having said that, in terms of investments, one of the things I want to call out this quarter, is that we've actually brought in a new Chief Technology Officer as well into this Company who is helping us drive some of these initiatives across the Company. And you may recall that a few quarters ago I spoke also about a new analytics head that has come into this Company. This is a new talent that we're bringing into to drive horizontal understanding and platforms across the organization, while continue to be very vertical focused.

Dave Koning, Baird.

Hey guys, nice job. I just got back from a sabbatical, so I must feel rusty here, but it looks like over the last five years, margins in Q1 have always been significantly lower, like not even just a little bit lower, but every single year a lot lower than the rest of the year by about 350 basis points on average. In this year, on top of it, it looks like Q1, there was a lot of investment activity, your yields on the seats was lower and you've made the comment about how you're investing now in ramping kind of in front of the revenue that comes in. So it just seems like you've been really conservative when the normal seasonal pattern is for quite a bit higher margins the rest of the year, at the same time as this year you called out kind of additional investment spending early in the year that revenues coming on to get leverage. So I'm just wondering what might be -- what looks like significantly different this year about the way you're guiding than in the past?

Typically in quarter one our annual wage increases is being rolled out and that's always an impact over there. Having said that, some of those impacts (technical difficulty) by the currency favorability, as well as on some of the operating leverage and the volume increase what we have seen in the quarter one. Having said that there are investments which are planned which is going to be in a phase wise manner during the year and accordingly, we feel very comfortable from an high-teens operating margin, which we have spoken about earlier, which is also factored in our guidance.

I think the other thing, Dave from a seasonality perspective, and we've discussed it at least a couple of quarters ago anyway, is that the Company has been moving over the last 12 to 18 months from an April 1 across the Company increase, to an anniversaried increase for employees. So what you're actually going to see is that while the impact of wage on an annual basis doesn't change, the seasonality and the traditional dip from Q4 to Q1 is going to be increasingly less than it has been. So what you're going to see now is the impact of wages will be spread much more across the four quarters as opposed to heavily focused on Q1.

I guess the other thing on margins, as we look across the industry, everybody's done well in the industry. All three of the main publicly traded companies have done well over a long period of time, but it seems like there is a little divergence in margins in the last couple of years now, where the others have kind of stuck around mid teens, especially the biggest one in the group just seems to be kind of stuck at mid-teens. But (technical difficulty) is there -- I don't know if there's a way for you to even kind of [dis-aggregate] what's different between you and maybe some others in the industry that allows you to get better margins?

I think I would just say that I believe superior domain thinking, which is resonating very well in the marketplace for us, because our customers tell us that openly that when they interact with our people they believe that they interact with people who understand or look at their business the same way they look at it. I think that's a big differentiator, that's one. The second is that, you know, while we've been talking a lot recently about all the investments in technology, RPA and some of these other, I would say, buzzwords at this point in time, we've been very disciplined about investing in technology and owned IP for some years as a result of which the revenue streams have become much more sticky, we've been able to change the pricing models with client and have built so much of trust with clients that the client really doesn't care how we deliver. Many of them don't really care how we deliver, as long as we're delivering well and that allows us to enhance our margins much more.

So I would say clearly those are core kind of differentiators that drive margin. And I think operationally as well, we've been very, very solid. You will see that traditionally we have been right on top in terms of operational metrics, we've traditionally not had any significant (inaudible) in terms of under-performance with the client. And wherever we had headwinds, it was not because of us, but it was because the client making a strategic difference. And again, there is continued focus on maintaining those margins while investing and over a period of time, looking at opportunities to keep driving margins higher as we -- as the client also accepts some of these new models that we're looking at.

At the end of the day, Dave, I mean the margins that we deliver are a reflection of what our clients think about us. And the bottom line is, if we're not providing high value services and high value models, the client's going to find someone else who will do it or someone who will do the same thing at a lower price point. So, the reality is, I think at the end of the day when you combine all the things that Keshav spoke about, the bottom line is customers value what we're doing for them.

Puneet Jain, JP Morgan.

Following up on an earlier question on Aviva, that account was down around 10% sequential and down on year-on-year basis also. So typically when you cut prices at large accounts, are you able to maintain your margin dollars or do that also goes down? And do price discounts come in exchange for higher volumes in most cases?

Good question, Puneet. Specifically price discount does not necessarily mean the dip in the margin, because what you see only from a revenue, (inaudible), it's a combination of price discount, as well as some of the productivity commitment what has been given to the client and those productive commitments is basically converting from FTE to non-FTE model and as outcome models and various other mechanism, which also is being achieved by driving the productivity from a cost perspective and accordingly maintaining the margin or improve the margin on that. So not necessarily impacting the margin from the revenue dip perspective.

It's important, Puneet, to differentiate between lower priced and committed productivity improvements, because to the extent that we're able to deliver the same service with fewer people or to the extent that we're able to automate solutions that are in a transaction or an outcome based model, while the topline is pressured and we've talked about this consistent 5% headwind to our business that comes from productivity improvements that we commit to from the fact that we have some project-based revenues, from the fact that when you look at our client business volumes they tend to be trending down. There is not much we can do about that other than to sell new services to that customer, but when you look at the same services while there does tend to be a downward pressure over time on the topline, there is not a corresponding impact on margin and as a matter of fact, what you can see is, if we're able to move those clients to transaction and outcome based models, what you can see is actually a step-up in terms of the margin profile.

And you know just to add to that ,to your second question specifically from a volume increase perspective, is basically as we are able to drive value and productivity and bring lot of domain expertise, we are pretty excited by seeing the -- even the farming pipeline, what Keshav alluded, and the growth prospects from each of those clients. And specifically to Aviva, also you alluded about the exclusivity what we have and we are also looking at some of the opportunity which [trends] -- once the integration is done, which we will be able to get in the latter half of the year.

But specific to the accounts you referenced Puneet, we did give a discount and we did discuss it at the beginning of last fiscal year, there was not a discount this year. So when you look at first quarter of last year versus first quarter of this year, the dip in that account and obviously it's visible because we report our largest customer as a percentage of revenue, the dip in that account is a function of three things; depreciation in the currency, slightly lower business volumes, and committed productivity improvements.

Another one on auto claims. Margins there have been flattish over the last few quarters. Can you comment like if there was any structural change in the business model in pricing or recent margin dip is just temporary?

It's a function, along with the volume, because there's a lot of [place] on the software and the technology side and so we have observed a little bit of flattish kind of revenue from an auto claim perspective. So once the volume starts picking up, we expect the margin also to start improving in that, as well as we are also working some of the alternate business structure into auto claims, which may help us to grow the revenue from a long-term perspective.

At this time we have no further questions in the queue. This will conclude today's conference call. Thank you for your participation. You may now disconnect. Have a great day.