WNS (Holdings) Ltd (WNS) 2018 Q3 法說會逐字稿

Good morning, and welcome to the WNS Holdings Fiscal 2018 Third Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes.

Now I would like to turn the call over to David Mackey, WNS's Corporate Senior Vice President of Finance and Head of Investor Relations. David?

Thank you, and welcome to our fiscal 2018 third quarter earnings call. With me today on the call, I have WNS's CEO, Keshav Murugesh; WNS's 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 third quarter ended December 31, 2017. 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 -- 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 is defined as operating margin, excluding amortization of intangible assets, share-based compensation and goodwill impairment; adjusted net income, or ANI, is defined as profit, excluding amortization of intangible assets, share-based compensation, goodwill impairment and all associated taxes. These terms will be used throughout the call.

I would now like to turn the call over to WNS's CEO, Keshav Murugesh. Keshav?

Thank you, David, and good morning, everyone. In the fiscal third quarter, WNS once again posted solid financial results. Our third quarter net revenue came in at $185.2 million, representing a year-over-year increase of 32% on a reported basis and 28% constant currency. Excluding the acquisitions of Denali and HealthHelp, organic constant currency revenue increased 16% versus the third quarter of last year.

Our revenue growth continues to be broad-based and healthy across key verticals, service offerings and geographies.

In the third quarter, WNS added 7 new clients, expanded 7 existing relationships and renewed 9 contracts. In addition to our top line progress, the company also posted solid third quarter performance across margins, profitability and cash flow. Sanjay will provide details on these key metrics in his prepared remarks.

On today's call, I wanted to spend some time discussing WNS's capabilities and positioning in the area of analytics, focusing on our investments in technology and our differentiated approach.

Over the past few years, WNS has been aggressively working to enhance our technology-enabled analytics offerings, leveraging machine learning, cognitive computing and artificial intelligence. We've taken a three-pronged approach to the creation of new solutions, utilizing internally developed IP, strategic partnerships and acquisitions.

The creation of new analytics offerings within WNS is the responsibility of our R&D analytics capability and products group, which is focused on delivering new cutting edge solutions and products, to meet the needs of our clients.

The group is comprised of analytics experts, including data scientists and big data specialists, data modelers and statisticians. They collaborate with WNS's vertical leadership and capability teams as well as with clients and industry experts to evaluate, incubate and deliver analytics solutions.

Examples of WNS-developed proprietary IP include Brandttitude, our state-of-the-art insights-as-a-service analytics platform and SocioSEER, our social media analytics product, which leverages advanced machine learning and artificial intelligence to create a true brand equity index for clients.

In addition to products and platforms, our R&D teams are also creating unique niche analytics capabilities, powered by advanced technologies, which have been embedded into our industry-specific solutions. For example, our travel offerings and now utilize internally developed analytics to increase ancillary revenue and reduce revenue leakage, minimize flight disruption and manage the end customer experience.

Our insurance offerings also leveraged proprietary advanced analytics, which have been deployed across the complete insurance life cycle from customer acquisition to claims management, to pricing and actuarial.

Strategic solutions in areas of fraud and customer recommendation engines, which are powered by AI and machine learning, are also proving to be differentiators in the insurance marketplace.

In addition to our internally developed IP, WNS has also established strategic partnerships with innovative technology vendors. These relationships enable us to experiment with new analytics products and service lines in a cost-effective manner, helping us to develop new business models across verticals, geographies and functional domains.

Our package-agnostic approach to partnering allows us to evaluate and develop the best possible solutions for our clients.

The third area of new analytics-based offerings comes from our recent acquisitions. The acquisition of Value Edge has provided us with unique technology capabilities for the pharmaceutical industry, including marketing analytics, data analytics and data modeling. These solutions help biopharma clients drive better decisions by providing domain-based competitive intelligence, opportunity assessment, predictive forecasting, reporting and pricing.

Our Denali acquisition has brought to WNS unique analytics solutions in the procurement space, including spend analytics and client savings tracking, which help drive cost optimization. And with HealthHelp, WNS acquired a strategic asset in care management, including a proprietary decision support technology platform, which leverages predictive analytics to reduce costs and improve patient outcomes.

From an overall approach to analytics, I believe that our company has taken a healthy, long-term view on the analytics space. At WNS, our primary focus is on analytics as a recurring capability, designed to drive long-term client value.

One key way, we are able to provide this benefit, is by running dedicated analytics centers for our clients as opposed to project-based relationships. By creating this structure, backed by long-term contracts, we are able to provide clients with the depth, flexibility and specialized knowledge necessary to drive optimal insights and business outcomes.

In short, it allows us to act as an extension to the client's enterprise. In the past, we have mentioned our dedicated analytics centers for QBE Insurance and GlaxoSmithKline Pharmaceuticals. But WNS also supports several other household brands in key verticals such as Travel and Retail and CPG.

Another way we are able to leverage analytics to generate long-term value is by embedding these capabilities into our end-to-end solutions. We believe that clients will expect their BPM partners to deliver process transformation and business outcomes, with advanced analytics representing one important component of the solution.

Today at WNS, this type of work is part of our industry-specific revenues, which represent over 1/3 of our business.

In these relationships, the analytics work cannot be separated from the ongoing operational support.

Overall, with respect to analytics, I believe that our capabilities and approach are resonating well with clients and prospects. By combining our analytics solutions with domain expertise, we are in a unique position to help our clients generate actionable insights and solve business problems.

Last quarter, WNS was named a Star Performer in Everest's PEAK Matrix for analytics business process services. Of the 18 analytics providers evaluated, WNS was 1 of only 3 to receive this distinction.

The company was specifically cited for its new logo additions, investments in technology and advanced analytics, strategic partnerships and domain-based approach. I'm pleased to report that today, WNS has over 2,500 analytics professionals in the company and is a trusted analytics partner to over 50 clients. We've developed capabilities in strategic areas such as Big Data management and visualization, digital analytics, sales and marketing analytics, risk analytics and consulting, with many specifically tailored to vertical requirements.

As a result of our approach, we've been able to create a stable recurring business, which is approximately 18% of overall company revenues when combined stand-alone analytics and embedded analytics.

Over the past 2 years, our analytics business has been growing at a compound annual growth rate of 19% on a constant currency basis.

In summary, we believe that our expertise in the areas of analytics, domain, technology and process enable WNS to transform our clients' businesses and help make them much more competitive.

As a result, WNS is performing well in a healthy demand environment, driven by disruption in our clients' businesses. We remain focused on delivering industry-leading growth and profitability and creating long-term sustainable business value for all our key stakeholders.

I would now like to turn the call over to Sanjay Puria, our CFO, to further discuss our results as well as the guidance. Sanjay?

Thank you, Keshav. With respect to our third quarter financial, net revenue came in at $185.2 million, up 32.4% from $139.8 million posted in the same quarter of last year and up 28.5% on a constant currency basis.

Excluding the impact of acquisition, year-over-year organic constant currency revenue grew 15.7%. By vertical, revenue growth was broad-based, with the Healthcare, retail CPG, Banking & Financial Services, Insurance and Shipping and Logistics verticals, each growing more than 25% year-over-year.

With respect to our service offerings, revenue growth versus the prior year was driven by strength in technology services, industry-specific BPM, Finance & Accounting, customer interaction services and Research & Analytics.

Sequentially, net revenue increased by 1.6% or 2% on a constant currency basis. Sequential revenue headwinds in Quarter 3 associated with approximately $4 million of nonrecurring benefit in Quarter 2 and currency movement, net of hedging, were more than offset by healthy growth with both new and existing clients and approximately $5 million of revenue benefit, which is not expected to continue in Quarter 4.

This quarter, the additional $5 million was largely the result of delays in project ramp down, which are now scheduled to roll out in the fiscal fourth quarter.

Adjusted operating margin in Quarter 3 was 19.9% as compared to 21.3% reported in the same quarter of fiscal 2017 and 18.5% last quarter.

On a year-over-year basis, adjusted operating margin decreased due to the impact of our annual wage increases and currency movement net of hedging. This headwind was partially offset by improved seat utilization and operating leverage on higher volumes.

As we have discussed in the past, on a quarter-to-quarter basis, there will be trade-offs between seat utilization and productivity metrics. Sequentially, adjusted operating margins increased as a result of improved productivity and currency movement, net of hedging, which more than offset lower seat utilization.

The company's net other income expense was $1.5 million in the third quarter, down from $2.2 million reported in Quarter 3 of fiscal 2017 and up from $1.4 million last quarter.

Year-over-year, favorability in interest income associated with higher cash balances was offset by debt expense associated with our fiscal Quarter 4 2017 acquisitions.

In the fiscal third quarter, WNS recorded a onetime favorable tax adjustment of $5.2 million, relating to the 2017 U.S. tax reform bill. This provisional adjustment includes the net impact of the new tax bill that reduced the U.S. corporate tax rate on our deferred tax asset and deferred tax liability and required us to record a charge for deemed repatriation of offshore earnings.

As a result, WNS's effective tax rate in the third quarter was 10.8%, down from 21.4% last year and down from 21% in the previous quarter.

Other changes in the quarterly tax rate are primarily due to a mix of profit between geographies.

On a going-forward basis, we expect WNS effective corporate tax rate to reduce by 1% as a result of U.S. tax reform. The company's adjusted net income for Quarter 3 was $34.2 million compared with $25.2 million in the same quarter of fiscal 2017 and $27.7 million last quarter.

Adjusted diluted earnings were $0.66 per share in Quarter 3 versus $0.49 in the third quarter of last year and $0.53 last quarter.

As of December 31, 2017, WNS balances in cash and investment totaled $208.4 million and the company had $103.1 million of debt. WNS generated $38.3 million of cash from operating activities this quarter and free cash flow of $29.3 million after accounting for $9 million in capital expenditures.

During Quarter 3, WNS repurchased 220,461 shares of stock, with our buyback program impacting cash by $9.5 million.

DSO in the third quarter came in at 30 days, the same as reported in both Quarter 3 of last year and last quarter.

With respect to other key operating metrics, our total headcount at the end of the quarter was 35,657. Our attrition rate in the third quarter was 25% as compared to 32% reported in Quarter 3 of last year and 30% in the previous quarter.

Global billed seat capacity at the end of the third quarter was 29,583 and average billed seat utilization was 1.22. We expect the seat utilization metric will continue to fluctuate quarter-to-quarter based on facility build-out requirements and hiring cycles.

In our press release issued earlier today, WNS provided updated guidance for fiscal 2018. Based on the company's current visibility level, we expect net revenue to be in the range of $720 million to $726 million, representing year-over-year revenue growth of 24.5% to 25.5%.

Revenue guidance assumes an average British pound to U.S. dollar exchange rate of 1.34 for the remainder of the fiscal 2018. Excluding exchange rate impacts, revenue guidance represents constant currency growth of 23% to 24%. Removing the revenue impact of acquisitions, organic constant currency growth is 11% to 12%. We currently have 99% visibility to the midpoint of the revenue range consistent with January guidance in prior years.

Adjusted net income is expected to be in the range of $114 million to $116 million based on a INR 64 to U.S. dollar exchange rate for the remainder of fiscal 2018. This implies adjusted EPS of $2.18 to $2.22, assuming a diluted share count of approximately 52.3 million shares.

With respect to capital expenditures, WNS expect our requirement for fiscal 2018 to be approximately $33 million. We'll now open up the call for questions. Operator?

(Operator Instructions) And our first question comes from Bryan Bergin from Cowen.

Just wanted to ask how did Denali and HealthHelp perform in the quarter relative to your expectations? Can you comment on the cross-sell progress there? And then for the full year, just any change to your inorganic assumption in revenue growth?

Yes. This is Keshav. So Bryan, I think we're quite -- like I mentioned in my prepared remarks, we are quite pleased in terms of how our acquisitions are performing. And I think all the promises that we had from each of these acquisitions continue to deliver well. So on the one hand, we're continuing to see good solid organic momentum from each of these operations on a stand-alone basis. But more importantly, I think the integration has taken place well. And therefore, the impact from these offerings across traditional WNS clients is also quite exciting for the longer term. So good momentum overall at this point in time. And from an overall longer-term assumption point of view, we will continue to drive the growth momentum, leveraging these assets.

Okay. And then on the new clients that you added during the quarter, can you just confirm, which verticals those came in and any interesting relationships there that can turn into large clients in this new term?

Sure. Let me take that. In terms of the 7 new clients that we added this quarter, I don't think anything unusual in terms of the size or the contribution. There are a couple of opportunities here to have sizable relationships. But kind of similar to Keshav's commentary about the overall business. Pretty broad-based in terms of the vertical representation that the 7 new customer adds represented just doing a quick calculation here 1, 2, 3, 4, 5 different verticals. So happy to see new customer adds in Insurance, in Travel and Healthcare, in retail CPG and in Travel. So I think we feel pretty good about, as Keshav said, kind of the positioning and the fact that we continue to be pretty healthy and broad-based in terms of the front end of our funnel, new customer adds.

Our next question comes from Dave Koning from Baird.

And I guess, first of all, just on the tax reform, you mentioned 1% better tax rate going forward. I'm just wondering what's that off of, a base of -- is that kind of a 24% normalized rate, historically moves down 1% to 23%, or what's kind of the way to think about that?

Yes. So from a this year tax rate perspective, excluding the U.S. tax reform as well as we had a onetime tax benefit also in Quarter 2, the normalized tax rate is 26%. So we expect on a going-forward basis, with 1% effective tax rate coming down, the normalized tax rate to be around 25%.

Got you. Okay. And then, the one other thing just thinking about margin. In -- Q3 was obviously up nicely sequentially and it follows kind of the normal pattern where through the year margins tend to tick up. Is Q4, I'm just wondering, like how you're thinking about Q4 margins. I was just trying to balance full year guidance with taxes and margins and thinking do you think margins are going to go up sequentially? And then, how do you think about next year margins in the context of the rupee?

Yes. So you know if you see from an overall guidance perspective, the Quarter 4 margin sequentially goes up and maybe approximately, we expect around 21%. Sequentially, it's been going up quarter-over-quarter. As well as from a going-forward perspective, we continue to expect that operating margin to be around high teens.

Our next question comes from Edward Caso from Wells Fargo Securities.

Can you talk a little bit about robotics process automation and how that works into your business model? Is it good news, bad news? Help us sort of frame whether it's a risk or an opportunity?

Right. So hold on -- so let me -- Ed, let me first start that answer and then I'll have Ron talk a little more about it. But I think on an overall basis, as we've been saying for the past few quarters, this is an area that WNS has been investing in significantly because we believe it's a strategic long-term asset for us to help expand the business for WNS. And I think the fact that we've been investing in this area, driving much more automation, much more technology absorption, creating much more connect with our clients around this means that they are really focused on the disruption at their own customer end, with the comfort that WNS is doing whatever we need to do internally. So first and foremost, I must say that we believe that this is something that we need to keep doing in order to grow and expand the market, which is what we're seeing from a WNS point of view. So it's actually an exciting opportunity. While it may cannibalize revenues in the short term, it's creating much more longer-term sticky revenue streams for us. And with that, I'll have Ron give you a little more -- bit more color.

Yes. So Ed, we're very positive on this. It's been part of our business for a while. And we've made some investments, as Keshav referred to, it's broad-based across our business. Our clients are going at different paces with this. We have some that are further along on the journey and some that aren't. But in most of our new opportunities, it's a key part of the solution going forward that we're bringing to clients and delivering to them. So we just see it as part of our business going forward, and it's -- will be a component of it as well as other new automations that will be brought to bear artificial intelligence. We're doing research and developing our own solutions across the business in all these areas.

Yes. And let me just add one little piece to what both Keshav and Ron said. Obviously, from a revenue or from a pricing perspective, when you look at the impact of robotics, it either reduces the addressable market or reduces the per unit price. But obviously, there are margin trade-offs that go with that. I think the reality is when you look at the true impact of all of these technologies, whether it's AI or robotics or machine learning or cognitive computing. The one upside to these technologies is that because they have received the amount of attention and buzz that they have in the market, the reality is that we have a lot more customers that are interested in process outsourcing because they don't want to be left behind regarding what's going on. So I think the upside to technology and automation for us is the fact that it's bringing a lot of people to process outsourcing that might not have otherwise been interested in looking at these kinds of opportunities. So a little bit of a double-edged sword, but again, from an immediate impact perspective, we really view robotics and technology as a way to deliver the productivity that we've committed to our clients anyway.

Can you talk a little bit about any trends you see in insourcing, particularly in this as RPA ramps up? Are clients trying to bring more work inside or not or what trends are you seeing on insourcing?

Yes. Let me take that Ed. I think when you look at the reasons that a company would look to bring, work back in-house, it would be because they believe that the processes or the functions that have been outsourced are so strategic to their business that they want to invest in it. They want to differentiate based on it and as a result, that's why they would look to bring it back in-house. We don't see many companies looking to do that because of technology and automation. I think the reality is that the ability to deploy these technology solutions and to monitor and manage them going forward is not a simple task, that most companies aren't really ready to do that. And there's obviously been a lot written out in the space today by the adviser community about challenges that a lot of companies have had implementing RPA and technology by themselves and trying to manage it. It's not that simple to deploy. It's not that simple to manage. And I think the results where clients have done this on their own have been mixed at best.

Our next question comes from Korey Marcello from Deutsche Bank.

Just wanted to start up. The company's kind of discussed the second half kind of '18 incremental headwinds from project ramp down, auto claims business and the seasonality in third quarter for the Travel business. However, it looks like the travel and leisure kind of has done pretty fairly well and auto claims business appears to have been tracking above the sort of guidance that you've provided in fourth quarter last year. I think it was minus 30% year-over-year decline? So my question is what's kind of baked into the fourth quarter guidance as it relates to some of these headwinds? And I know you mentioned project ramp downs were pushed into fourth quarter. But are there any other headwinds that we should be thinking about and then any kind of bogeys kind of as we head into fiscal year '19?

Sure. Good question, Korey. And I think you're right. Obviously, the guidance to a softer back half is something that we provided walking into the year. From an Auto Claims perspective, through the first 3 quarters, the revenue has been relatively flat. But important to note that on a constant currency basis year-over-year, the auto claims business is actually down about 11%. The reality is that business line because it is entirely denominated in British pounds has optically looked a little bit stronger than it would have otherwise. So when we look at constant currency revenue growth for the company, certainly Auto Claims is not helping that even though it looks flat from a reported basis. With the Travel business, in terms of the seasonality, we did have a 1% sequential decline in the Travel business in Q3. The good news is from an overall vertical perspective, it was quite strong on a year-over-year basis, up 19%. So I think third quarter, back to Sanjay's comments, was probably a little bit stronger than we would have expected. And the real reason is because some of the projects that we had expected to ramp down didn't really occur. But if you look at what's embedded in our fourth quarter guidance, we have assumed that, that $5 million is not going to recur in the fourth quarter because we don't have a commitment to it. We don't have visibility to it at this point in time. So we have not included it. I think the approach to Q4 is similar to what we've provided. It's visibility based. It's commitment based. And with a little bit of luck and some additional momentum here, we've certainly got the opportunity to get to the higher end of guidance as opposed to the midpoint. But to be consistent in terms of how we guide the Street, this is how we provided it. And obviously, we feel pretty good about how the overall business is performing as we exit the year and how the overall year is shaping up.

Yes. And just to add specifically on the Auto Claims, the headwind what we spoke about a 1% was there, but it was offset by some of the expansion from the new opportunities what we had from an Auto Claims perspective.

Okay. And then just as a follow-up. Having kind of grown the sales force 20% year-over-year early in the year and with revenue per employee kind of accelerating, can you maybe provide some color on what's driving that? And how long does it really take for the sales hires to kind of ramp up? And were some of those maybe professional hires that are starting to contribute or are they kind of freeing up time for some of the senior folks to win new business, maybe you could just provide some color there?

Yes. Like I -- so as I've said in the past, I think the focus really has been on increasing the productivity of our sales force. So I think over the past few years, we did add some numbers. We had to make changes in terms of the quality of the sales force and the kind of people that we needed as the business changed and the kind of business that we were chasing also changed. So what has actually happened is that we have continuously kept evolving, bringing in the most appropriate kind of sales force that is required for the company at this point in time and preparing for long-term growth on an overall basis. And when you look at the kind of salespeople we have, we would have the traditional kind of hunters, who are very domain kind of focused and who will kick open the door. We would have experts who are -- the traditional horizontal kind of experts who understand core areas of finance and accounting, analytics, CIS, and things like that. We would have people who are extremely strong on the new areas of technology, but along with that, also appreciate and understand how technology and domain interplay with each other. And at the same time, we also have a very senior client -- partner kind of profile at the company who are much more practice-oriented and driving a group of people to grow on existing accounts from point A to point B. So on an overall basis, the focus of the company continues to be investing in the right talent profile for sales in order to ensure the productivity is the highest. And we are very positive about the progress we have made.

Our next question comes from Frank Atkins from SunTrust.

Wanted to ask first on attrition. A nice drop there. Was there something onetime-ish going on, or how sustainable is the level there? And what are you kind of doing in terms of the hiring environment and retention?

So thanks for the question. We're happy to see our attrition rate trending on the right direction. Do want to say that this 1 quarter is in of itself a trend. Third quarter tends to be our lowest attrition rate. Year-to-date, we're 29%. So positive going in the right direction. We've -- in WNS, we've invested in our HR programs, in our people. We have been named Best Employer in India this year. So there's many things that are having a positive impact, and we'll continue to work well with attrition. And we're happy to see it's down year-on-year and year-to-date. Again, this quarter tends to be lower, and we're pleased with what it is. But we'll continue to work on and just keep improving on attrition.

Okay. Great. That's helpful. And then as we look at research and analytics. Is -- are those margins still above corporate average? And as that becomes a larger chunk of revenue is there any potential thought of breaking that out separately and giving us more color on margins there?

Sure. Well, we do break out the research and analytics from a revenue perspective, again, we've seen some good healthy growth. We have healthy margins in that business. And I think a lot of it has to do with exactly what Keshav spoke about earlier, which is the fact that we've taken a slightly different approach to the analytics business, and we're running analytics functions for our clients as opposed to focusing on kind of one-off projects that require a lot more maintenance, management and bench requirements. That being said, I think in terms of breaking it out separately, one of the challenges that we have is that we've got over 1/3 of our business today that's been sold independent of traditional horizontal. So when you look at our industry-specific solutions, where we're charging an insurance client per claim or we're charging a travel client per passenger. The reality is it's very difficult if not impossible for us to break that out into horizontal components. And in fact, we don't want to do that. We want to align our business with how we're looking at our customers and how our customers are looking at their business. So for us, I think we're happy with the way we break it out. We're happy with the way that segment is performing. We're happy with our positioning. And I think for the time being anyway, we'll probably continue to run it that way.

Our next question comes from Joseph Vafi from Loop Capital.

Keshav, a couple of quarters ago, you seem to be getting a little more excited about the large deal pipeline. I was wondering if you could give us an update on that, especially, here as we enter our new calendar year for some of your clients. And then, secondly, now that HealthHelp has been onboard for a little while and they have more visibility into the payer market, I was wondering if you could provide an update on that vertical for us moving forward.

Sure, Joe. So yes, so we continue to be very enthused with the overall sales pipeline of WNS as we also go into fiscal 2019, while obviously, we will provide guidance in our next quarter. I think the way the pipeline has shaped up in terms of the kind of deals, the geographies they're coming from, the kind of the mix of deals as well as the impact of some of these deals are outstanding for WNS. And I must give full credit to our sales teams as well as our vertical teams for actually positioning ourselves so strongly over the past few quarters. In fact, if you just look at how WNS has performed and has guided over the past few quarters, you will see that each year, the number of new clients that we have kept adding has keep -- has kept increasing. And as we reminded everyone, I think over the past few calls, the number of $1 million accounts that we actually have opened up here, which has momentum to grow are significant. In fact, we have more than 100 of these accounts at the company. Having said that, the large deal pipeline continues to be very, very strong. And we are continuously cracking some of these deals. And obviously, they take a much longer time to bake and actually get signed up. But once again, we are very enthusiastic about some of these deals in the pipeline. And the impact of these deals, the complexity of these deals, the fact that they lead with technology transformation, the fact that they need all the core areas that WNS has been investing in. And more importantly, the fact that it allows -- each of these deals allows us to engage with the senior-most stakeholders on the other side. So very, very positive about the large deal pipeline. The ones that we opened up earlier are progressing very well in terms of transition, growth and potential for much more growth over the next few years. And the new prospects that we have in hand are also cooking very well, that's one. Then your second question was on HealthHelp and generally, the payer side. And again, we are very positive with the impact that HealthHelp has had. We are obviously leveraging that management team, that capability and that asset to grow the business from a HealthHelp point of view itself. But because of the fact that HealthHelp is now owned by a much larger player that brings much more capability and maturity, the pipeline is actually increasing out there and the quality of interactions that HealthHelp is also having as a result of being owned by WNS has also dramatically changed positively. So again, we expect this asset and this capability to be a long-term generator of revenue and profitability for the company and also I would say managerial talent for WNS.

Our next question comes from Joseph Foresi from Cantor Fitzgerald.

I wanted to focus on the rise of revenue per employee. Is this automation or is there some element of the new acquisitions that makes it buoyant to those numbers and how should we think about that metric going forward?

Yes. Great question, Joe. I'll take that. I think the increase in our revenue per employee has been dramatic. And there are really multiple reasons for that. First and foremost, as we said, we have been deploying technology and automation into our solution. So the number of people per dollar that we use on work has been reducing, which drives up that productivity, drives up that revenue per employee. Secondly, our acquisitions of both HealthHelp and Denali were very high dollar per person acquisitions. HealthHelp obviously given that the majority of the work is done through a technology platform essentially means that you're looking at a business, for example, that was generating almost $140,000 per FTE. Denali, because it is U.S.-centric, because it is high value, because it is senior level work, also had a high revenue per employee. So first and foremost, technology and automation deployment. Secondly, the impact of our acquisition. And third, if you look at where our growth has been coming from. We've been increasingly growing our footprint in the United States, that has had an on-site center component to that. You've seen it in terms of our increase in U.S. headcount. So that has also helped improve revenue per employee. So kind of, of all the key underlying operational metrics in our business are helping to improve that revenue per employee number.

Yes. And just to add, if you have been seeing year-over-year, our revenue growth is much faster than our headcount growth and it's all contributed what Dave mentioned.

Got it. And then just kind of working off the same question. So how much of the strength and demand is a healthy demand backdrop versus expanding capabilities? And is growth at this point more predicated on the new logos or the current client penetration? I'm just trying to get a sense of whether you're expanding into new verticals versus the traditional land and expand?

Yes, I think, Joe, it's always going to be in the short run land and expand. I mean, the reality is the majority of our revenue growth and trajectory in any given year is going to come from the maturation of the clients that we've added over the last 2 to 3 years. But as Keshav mentioned, I think the opportunity long term, is the fact that we've been adding a higher number of clients, that we've been moving more customers into the $1 million range or the $5 million range or the $20 million range. So the progress that we're seeing in our business is actually across multiple levels, right? We've talked about a healthy pipeline. We've talked about more new customer adds. But what you see, if you look at the stratification of our customer base through average size, is that we're moving those relationships up over time. So as long as we continue to do that, there's the opportunity to continue the business momentum and to potentially accelerate it. But the reality is if you look at any given quarter or any given year, the majority of short-term revenue acceleration is going to come from the expansion of existing relationships.

Our next question comes from Moshe Katri from Wedbush Securities.

Couple of things. So when we talk to the buy side, the biggest pushback continues to be, regarding the story, your exposure to the U.K. post Brexit. And also there were some questions about your largest client in terms of what's going on there. Can you give us some kind of an update there on both topics?

Sure. I'll take that, Moshe. I think we've continued to make really solid progress as a company in terms of diversifying our business and as Keshav spoke a couple of quarters ago, not just diversification by geography, but diversification by vertical, by horizontal, by type of work, by delivery location and by overall customer contribution. With respect specifically to the U.K. If you look at the U.K. for example just this last quarter and this was with a solid British pound quarter relative to where we've been. The U.K. was 31% of company revenue. If you look at where that business was, for example, in the third quarter of last fiscal year. It was 30 -- just under 36%. So year-to-date, our pound -- our U.K. exposure is 33% compared to 39% last year. And similarly, when you look at our largest client, which is Aviva. Aviva last year for WNS was 9.5% of revenue, year-to-date it's 7% of revenue. It was 6.5% in Q4. The relationship remains healthy. They're referenceable. They're an extremely important part of helping us land new insurance companies and new insurance clients. And the reality is, we believe our overall U.K. business is still quite healthy. But the growth that we've seen in other verticals and diversification away from the company's historical traditional strength in the U.K. has been really kind of a long-term benefit for WNS. And we feel good about how we're positioned going forward here.

Our next question comes from Ashwin Shirvaikar from Citi.

So my question is thinking ahead to the next fiscal year, and I'm obviously not asking for any specific outlook. But throughout fiscal 2018, you now had some onetime benefit each quarter. So can you discuss how you're thinking in terms of a grow over? And as we model, what we should not forget to think through in terms of existing ramps, contract renewals, any onetime impact, things like that?

Yes. So Ashwin, so let me just start with the answer. I'm sure Dave and Sanjay will have lot more to contribute thereafter. But as we look at the future, I think we are extremely confident about the overall business sector of WNS. The sales engine is cranking well. The sales pipeline is very strong. The large deal pipeline and prospect list is very, very strong. The new capabilities that we invested over the past few years or few quarters are resonating well. Our M&A program has worked extremely well, and we're delighted with the kind of progress we have made in terms of bringing in these new capabilities as well. From a market point of view also, we are seeing that as economics is changing across the globe and some of the economies are doing better, we're seeing people focus less and less on the cost impact and much more on working with a strategic partner like WNS to just stay current or ahead of the game in terms of robotics, machine learning, AI, analytic, all the good things that will keep them very focused on a great future for themselves. And so therefore, from that point of view, I think we are extremely well positioned and very confident about continuing to see solid growth momentum and profit momentum for the long term. Now in terms of the specifics around the onetimers and the impact for the future, I'll leave it to Dave and Sanjay to just add color.

Yes. Just from a onetimer perspective, there's no like consistency in the causes, right? Every quarter, there has been a different reason or cause for that. For example, there was, sometimes, like hurricane or there are sometimes short-term projects or based on some gain share what we have from a client perspective. And you don't have -- get a visibility till the time you enter into the quarter because it all depends from a client perspective based on certain of their ramp down, all growth, what they have. And accordingly, we follow very consistently based on our visibility even from a guidance perspective. But yes, there is no consistency. It's a different reason for different quarters what we have seen specifically this year.

Yes. And just to add one thing that I think is important, Ashwin. Sanjay spoke about some of the reasons that we've seen these onetime impacts in the quarter, nonrecurring impacts in the quarter. And whether it's project delays or volume increases, or gain shares or project-related work, I think the one thing that's important to understand is that these are still all parts of our business. This is operational revenue. So this is part of being a business process management company. It's not that the onetimers or the nonrecurring business came from accrual reversals or accounting or nonoperational issues. So the important thing to understand is that while we did get the benefit this year from some of these things, it is a part of our business and not something that -- it's not necessarily something that we don't expect to continue. It's something that we don't have visibility to continue it. And I think that's the important part.

Those are all good points. My follow-up question on tax reform just the process and the uncertainty associated with that. Did that cause you guys to sort of relook strategically at where you're doing work from? Is that still the appropriate model, the extent to which you use technology? Just a strategic re-up on the business if you could. I know that's an odd question, but I would appreciate.

Yes. So we know, we definitely keep on exploring based on some of the tax reform, whether it's in India or whether it's in U.S. or different geographies that what's the right model from a long-term perspective as an organization, which can help us from tax optimization perspective. And accordingly, if you see, despite being some of the negative tax reform in various geographies, we have been consistently able to manage our tax rate within the 25%, 26% range year-over-year.

And Ashwin, I'll just say one thing. Sorry, Dave -- before that, I just want to say one thing. As a company, we will have to do whatever is right to make sure that our clients get the best attention and the best service. So constantly, there will be something of this nature happening somewhere in the world. And we have a very smart team. So we will be very cognizant about all of those changes and accordingly keep adjusting the model. But 2 years ago, we had Brexit, now we have a tax thing. All the time there's something of this kind happening, but we will never take our eyes off the ball in terms of making the right investments, ensuring that our clients are serviced very well. And at the same time that we are having the optimum model in order to deliver well to clients and deliver the kind of profit impact that we need to see.

Our next question comes from Puneet Jain from JPMorgan.

Can you talk about penetration of analytics within your existing BPO clients? And how do contracts structure change when you add dedicated analytics center to a contract?

Sure. Let me take that. So I think when you look at, overall, our analytics penetration, I think the company still has significant opportunity to not only add analytics capabilities into our -- some of our traditional relationships, but also increase analytics penetration, analytics solutions into some of the clients that we do support today from an analytics perspective. Now as Keshav mentioned, we have over 50 clients today, where we have some component of analytics, whether that's on a project basis, whether that's on a dedicated center basis as you mentioned or on an embedded basis. But we -- the one thing we know is that clients are going to increasingly going to expect their process outsourcing partner to provide them with the insights to help make the business more competitive. And we're absolutely committed to doing that. The benefit, as Keshav mentioned in his prepared remarks to a dedicated center, is it really allows for knowledge consolidation and leverage to the client. So if you can make commitments to hiring people and they have those people in place for 3, 5, 7 years. Not only do they bring analytics capabilities and knowledge and domain expertise from WNS to bear, but after a year or 2, they start to bring client-specific knowledge to bear. And I think customers understand that. If you can have that kind of a model, where it also gives you the flexibility to move resources up and down quickly as and when needed, then I think it really is a model that works for a lot of clients. And we've seen that with several very large global organizations. So we kind of view that as a great way either for us to establish a first relationship with the client or an expansion opportunity with some of our existing customers as well. But the model that we take to customers from an analytics perspective is going to be more predicated on their history, their culture and their business needs than anything else.

Got it. And can you also comment on your appetite for acquisitions and more broadly, on your use of cash [clarities]?

Sure. Let me take a quick cut at that. I think overall, the company's approach remains consistent to capital allocation. I'm sure everybody saw this morning that we did a press release announcing that the board has authorized another $3.3 million share buyback over the next 3 years. That will be going to shareholders through an extraordinary general meeting for approval. But we view share repurchases as certainly one of the tools that we have in our toolkit in terms of capital allocation we want to take a balanced disciplined approach. But I think as we've discussed in the past and as Keshav has mentioned on numerous occasions, priority one is taking advantage of the market opportunity that's out there. We want to make sure we're finding the right assets at the right price with the right fit. But when we can find complementary capabilities that help plug holes in what we do that will allow us to expand our footprint with both new and existing customers, that's job one. We're in a great industry. It's early days, and we should be looking for these kinds of tuck-in acquisitions to help accelerate growth and accelerate our positioning. That is the primary use of cash. That being said, I don't think -- and we've seen this over the past few years. We don't view the 2 as mutually exclusive, and we view share repurchases as, at a minimum, a way for us to manage the diluted impact of restricted stock issuance.

Our next question comes from Vincent Colicchio from Barrington Research.

Most of mine were asked. Keshav, I was wondering if you can talk about your small verticals, some of them have lagged on the growth side. I just want to know do you remain optimistic on their growth potential?

Yes. So every one of the verticals that we have within the company and which we report on, we believe have opportunity for growth. Some of them may lag in a particular quarter. But I think for each of them, we see them as areas of opportunity for the longer term. And if you remember, maybe a few years ago, Healthcare was an area that was small and probably not growing very much, but we still saw it as an opportune area for the company, and we have focused on growing that area, backing it with an acquisition strategy. And we're actually seeing solid momentum come from there. From an Auto Claims point of view, we did call out a few quarters ago the need to make certain changes. We are making those changes. We are focused on some specific areas, dropping areas that are of lower interest. But having said that, on an overall basis, the ability for us to leverage them and add impact into the rest of our Insurance business is continuing to be high. So -- yes, go ahead Dave

I was just going to add, Vince, when you look at the year-to-date performance of some of these smaller verticals, they really have not seen any of the inorganic benefit from either HealthHelp or Denali that some of the other verticals have. So optically obviously, there is an issue there. But if you look at the verticals that we have in the 5% to 10% of revenue range, like shipping and logistics, like utilities, like banking. These businesses have grown 21%, 17% and 32%, respectively on a year-to-date basis. So these businesses are growing at a healthy clip. Obviously, when they're small like this, you can see some volatility quarter-to-quarter. But the reality is we've seen pretty good progress in some of these smaller verticals.

Our next question comes from Brian Kinstlinger from Maxim Group.

Given the emergence of analytics and robotics that you've talked about, are you seeing any changes in the competitive landscapes, maybe any new credible competitors?

Sure. Go ahead, Keshav.

So I think all of these are obviously areas that can create impact for clients. And therefore, there would be some of the pure plays that are completely focused only on analytics that are trying to make an impact. At the same time, the traditional competition also have been investing in this area and creating impact. But I think what we are trying to follow is a very differentiated approach, where not only are we driving impact through analytics, but we're actually embedding it within our traditional vertical solution. So on an overall basis in deals, we expect to see probably the big 4. We're seeing some of the boutique firms. And it's a hot area. So we will expect to see more and more competition. But how we differentiate ourselves and how we specialize our offerings and create more impact is what is actually ensuring WNS's success.

Okay. And just to add to that Brian, from a capability standpoint, where there are niche capabilities out there that are impactful and important. We have actually been partnering with some of these companies. So whether it's a robotics process company or an artificial intelligence company or machine learning company, we have been working with several of these niche innovative players in their respective spaces to help us build out some of our solutions. So if we can't do it ourselves, well, we're certainly willing to partner.

Great. And then lastly, over time, we've talked about this. Can you update us on the natural evolution of clients after first project? For example, you announced 7 clients from the quarter today, how many -- what percentage of clients never materialize into much more? And then of the clients that do become larger, what's the average time it takes to get to $1 million or $5 million in annual revenue?

I don't know that we have a specific percentage that -- of customers that expand beyond the initial scope. But I would say just based on the number of relationships that we've been able to move forward, I would say that number is probably pretty high, north of 75%, 80% anyway. I think the reality is, Brian, when you look at the overall evolution of a client, we still believe that at a minimum that journey from doing nothing to being a mature customer is going to take 5 years. And the majority of the acceleration in that relationship tends to happen in years 2, 3, and 4. Obviously, some take longer as you rightly said, some never get there. But by the time you hit 7, 8 years, most customers have outsourced what they're going to outsource. Now obviously, as business changes and what is perceived as being outsourceable changes, that can have an impact, but the meat of that really takes place in years 3, 4, 5; 2, 3, 4 of the relationship.

Thank you. And at this time, we have no further questions in the queue. This will conclude today's conference call. Thank you for your participation, and you may now disconnect.