WNS (Holdings) Ltd (WNS) 2018 Q4 法說會逐字稿

Good morning, and welcome to the WNS Holdings Fiscal 2018 Fourth Quarter and Full Year Earnings Conference Call. (Operator Instructions) As a reminder, this 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 fourth quarter and full year 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 fourth quarter and full year ended March 31, 2018. 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 today's 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 fourth quarter, WNS once again posted solid financial results. Fourth quarter net revenue came in at $198.2 million, representing a year-over-year increase of 29% on a reported basis and 22% constant currency. Excluding the acquisitions of Denali and HealthHelp, organic constant currency revenue increased 14% versus the fourth quarter of last year. In the fourth quarter, WNS added 8 new clients, expanded 9 existing relationships and renewed 19 contracts.

In addition to our top line progress, the company also posted solid fourth quarter performance across margins, profitability and cash flow, which Sanjay will discuss in his prepared remarks. I would like to take a few minutes to discuss our full year fiscal 2018 results before turning to the year ahead.

From both the financial and operational perspective, WNS is pleased with our progress in fiscal 2018. The company grew revenue less repair payments by 28%, which represented 26% growth on a constant currency basis. Excluding the impact of acquisitions, WNS was able to grow organic constant currency revenue by 14%. Revenue growth was broad-based and healthy across key verticals, service offerings and geographies. We ended fiscal 2018 with 118 clients generating at least $1 million up from $94 million in fiscal 2017. We believe that two significant areas of growth for WNS, industry-specific BPM revenue and non-FTE revenue, are indicative of larger trends in the industry and our ability to successfully meet client expectations in these areas.

In fiscal 2018, our industry-specific revenues grew by 52%, increasing as a percentage of company revenue from 29% to 35%. While a portion of this increase was driven by our acquisition of HealthHelp, our progress clearly demonstrates the importance domain expertise in the BPM space, and the need to develop solution focused on addressing industry-specific problems. Because industry solutions cut across traditional horizontal areas, they are typically more complex in nature and require a high degree of client or provider alignment. We believe our differentiated vertical organization and ability to cocreate innovative solutions with our clients are well suited to address this trend.

In addition, in fiscal 2018, our non-FTE revenues grew by 84%, increasing from 25% of company revenue to 36% of revenue year-over-year. We're seeing clients increasingly willing to discuss engagement models based on outputs and outcomes, which enable them to increase cost structure flexibility, leverage technology and drive accountability for results. While the majority of the transaction and outcome-based pricing is with existing clients maturing and migrating, we are seeing some new clients looking for day 1 business and digital transformation. The transition to these nonlinear revenue models is being accelerated by increasing industry awareness and adoption of technology platforms and automation tools. As we increasingly deploy technology in our solutions, revenue per employee should continue to improve. In fiscal 2018, WNS's revenue per employee increased 18%, or 16% on constant currency basis. Excluding the acquisitions of Denali and HealthHelp, revenue per employee increased 9%, or 7% constant currency.

In fiscal 2018, we continued our investments in the areas of domain, technology, analytics and sales, which are aligned to drive differentiated positioning in the BPM marketplace. We were able to rollout several exciting offerings under the WNS TRAC umbrella, which leverage state-of-the-art technologies, including Natural Language Processing, RPA, Cognitive Computing, Machine Learning and Artificial Intelligence. New offerings were deployed across key verticals, including Travel, Insurance, Healthcare, and Retail/CPG as well as in horizontal practice areas, such as Analytics, Finance & Accounting, including Procurement, and Customer Interaction services. We also stepped up our investments in sales and marketing, growing the sales team 17% to 101 resources at year-end, and working to increase awareness of our differentiated capabilities with the influencer community, including the sourcing advisors and industry analysts. In addition to the solutions and offerings, which were created over the past year, we also made progress preparing our global workforce for the changing demands of the BPM industry. WNS's hiring, training and reskilling efforts have focused on shifting the employee base towards higher value specialized skills across verticals, services and technologies. This transition will be increasingly important as technology and automation replace resources managing lower level repetitive tasks.

Other highlights from this past year include the successful integration of our Denali and HealthHelp acquisitions and the continued diversification of our businesses across verticals, geographies, clients and delivery locations. As we head into fiscal 2019, the BPM industry remains stable and healthy. Business disruption continues to be the key driver for both existing and new clients looking to improve their competitive positioning in their respective industries. As a result, companies are increasingly turning to BPM partners to help reduce cost, increase operational efficiency and flexibility, manage regulatory and compliance-related changes, generate actionable insights, increase revenue sources, drive digital transformation and improve the end client experience. We enter the year with 90% visibility to double-digit organic constant currency growth and a pipeline, which continues to be very healthy across our business portfolio.

We also signed 2 large deals in fiscal fourth quarter of 2018, which we expect to be meaningful contributors to revenue as they ramp and scale in the coming years. The first deal, which began ramping in fiscal Q4, is with one of the world's largest container shipping companies. We believe this relationship has the potential to be a top 10 client for WNS. The second large deal is with one of the world's largest Insurance companies and is expected to begin ramping in fiscal Q2 of 2019. This engagement is complex and transformational in nature and leverages WNS's insurance expertise, technology platforms, analytics skills and digital capabilities. Based on the client's current plans, we believe this relationship has the potential to become a top 5 revenue contributor for WNS.

Given the health, relative immaturity and rapid changes impacting the BPM industry, we must continue to invest in our business to maintain and accelerate our differentiated positioning. Investments will continue to focus on domain expertise, advanced analytics and technology-enabled solutions. These capabilities will be created through a combination of internal R&D efforts, strategic partnerships and tuck-in acquisitions. Our goal from a financial perspective continues to be maintaining operating margins in the high teens, while delivering industry-leading organic constant currency growth. We will also continue to leverage our healthy balance sheet with a balanced, disciplined approach to capital allocation. This includes tuck-in acquisitions to enhance capabilities, share repurchases, debt repayment and routine CapEx.

In summary, we believe that WNS is well positioned as a strategic BPM partner with the demonstrated capabilities to transform our clients' businesses and help make them much more competitive. As a result, we are performing well in a healthy demand environment, driven by disruption in our clients' businesses. WNS remains focused on creating long-term sustainable business value for all of our key stakeholders, including clients, employees and shareholders.

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

Thank you, Keshav. With respect to our fourth quarter financials, net revenue came in at $198.2 million, up 28.6% from $154.1 million posted in the same quarter of last year and up 21.9% on a constant currency basis. Excluding the impact of acquisitions, year-over-year organic constant currency revenue grew 14.4%. By vertical, revenue growth was broad-based, with Healthcare, Shipping and Logistics, Retail/CPG, Utilities, and Travel verticals each growing more than 15% 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, and Customer Interaction services.

Sequentially, net revenue increased by 7.1%, or 4.6% on a constant currency basis. Quarter-over-quarter, revenue improvement was driven by $5 million of currency benefits net of hedging, $5 million of short-term revenue, which is not expected to continue in quarter 1, and by new client revenues and the expansion of existing relationships totaling $8 million. While the company was pleased to see client ramps and new deals signing generate revenue in the quarter ahead of expectation, at this point in time, we do not believe this will be indicative of a macro trend towards shorter sales cycle.

Adjusted operating margin in quarter 4 was 20.4% as compared to 18.1% reported in the same quarter of fiscal 2017 and 19.9% last quarter. On a year-over-year basis, adjusted operating margin increased as a result of improved productivity, operating leverage on higher volumes and acquisition-related expense incurred in quarter 4 of last year. This benefit more than offset the impact of our annual rate increases and currency movement net of hedging. Sequentially, adjusted operating margin increased as a result of improved productivity and operating leverage on higher volumes, which more than offset currency movement net of hedging and lower seat utilization. As we have discussed in the past, on a quarter-to-quarter basis, there will be tradeoffs between seat utilization and productivity metrics. The company's net other income expense was $2.4 million in the fourth quarter, up from $1.6 million reported in quarter 4 of fiscal 2017 and up from $1.5 million last quarter.

Year-over-year, favorability in interest income, driven by higher cash balances, was partially offset by a full quarter of debt expense associated with our fiscal quarter 4 2017 acquisition. WNS effective tax rate for quarter 4 came in at 23%, up from 18.9% last year and up from 10.8% last quarter. Versus last year, the effective tax rate increased as a result of a one-time tax reversal of $1.5 million in quarter 4 of fiscal 2017. Sequentially, our tax rate increased as a result of a one-time favorable tax adjustment of $5.2 million recorded in the fiscal third quarter related to the 2017 U.S. Tax Reform bill. Other changes in the quarterly tax rate are primarily due to the mix of profit between geographies. On a going forward basis, we expect WNS effective corporate tax rate to be approximately 25%. The company's adjusted net income for quarter 4 was $33 million compared with $24 million in the same quarter of fiscal 2017 and $34.2 million last quarter. Adjusted diluted earnings were $0.63 per share in quarter 4 versus $0.46 in the fourth quarter of last year and $0.66 last quarter. As of March 31, 2018, WNS balances in cash and investments totaled $221.3 million, and the company had $89.1 million of debt. WNS generated $39.8 million of cash from operating activities this quarter and free cash flow of $34 million after accounting for $5.9 million in capital expenditures.

DSO in the fourth quarter came in at 30 days as compared to 29 days last year and 30 days last quarter. With respect to other key operating metrics, total headcount at the end of the quarter was 36,540. Our attrition rate in the fourth quarter was 31% as compared to 34% reported in quarter 4 of last year and 25% in the previous quarter. Global billed seat capacity at the end of the fourth quarter was 30,390 and average billed seat utilization was 1.20.

I would now like to provide you with a brief financial summary for fiscal 2018 before discussing our outlook for the coming year.

Net revenue for the year came in at $741 million, growing 28.1% on a reported basis and 25.8% on a constant currency basis. Excluding the impact of acquisitions, organic constant currency revenue growth was 14.2%. Full year revenue growth was led by the Healthcare, Shipping and Logistics, Retail/CPG and Banking Financial Services vertical, which all grew over 24%. The company's fiscal 2018 adjusted operating margin came in at 19%, down from the 19.4% reported in fiscal 2017, and in line with guidance entering the fiscal year. Our effective tax rate was 19.9%, down from 23.5% in fiscal 2017, as a result of a nonrecurring result reversal in quarter 2 and the one-time impact of the 2017 U.S. Tax Reform bill in quarter 3.

In total, these tax items contributed $6.9 million to fiscal 2018 profit, which is not expected to recur in fiscal 2019. Full year adjusted net income and adjusted diluted earnings per share both rose over 28% in fiscal 2018, reaching $118.4 million and $2.24, respectively.

In fiscal 2018, WNS generated $136.3 million in cash from operations and $102.6 million in free cash, both increasing 48% year-over-year. During the year, company repurchased 1.1 million shares of stock at a cost of $39.5 million or $35.95 per share, spent $33.7 million on capital expenditure, made scheduled debt payment of $28.1 million and made a default payment of $5.5 million relating to our quarter 4 2017 acquisitions. WNS ended the year with a net cash balance of $132.2 million or approximately $2.50 per diluted share.

In our press release issued earlier today, WNS provided our initial guidance for fiscal 2019. Based on the company's current visibility level, we expect net revenue to be in the range of $801 million to $847 million, representing year-over-year revenue growth of 8% to 14%. Revenue guidance assumes an average British pound to U.S. dollar exchange rate of 1.40 for fiscal 2019. Fiscal 2019 guidance also includes the impact of IFRS 9, which is applicable to WNS effective April 1, 2018. IFRS 9 requires company to report cash flow, hedging gains and losses on the revenue line, which WNS had previously reported on the FX gain/loss line. WNS fiscal 2019 guidance includes the $1.7 million in revenue relating to this change, which has been removed from the constant currency revenue growth calculation. Excluding exchange rate impacts, revenue guidance represents constant currency growth of 7% to 13%. As our acquisitions have now anniversaried, all of this projected growth is organic.

Fiscal 2019 revenue guidance includes a headwind of approximately 9%, relating to productivity improvement, project runoff, volume reduction and nonrecurring revenue items from fiscal 2018. We currently have 90% visibility to the midpoint of the revenue range, consistent with April guidance in prior year. Adjusted net income is expected to be in the range of $115 million to $227 million based on a INR 65 to U.S. dollar exchange rate for fiscal 2019. This implies adjusted EPS of $2.18 to $2.41, assuming a diluted share count of approximately 52.8 million shares. At our Extraordinary General Meeting held in March, shareholders approved a 3.3 million shares 36 months repurchase authorization, which has been factored into the share count and EPS guidance. With respect to capital expenditures, WNS expects our requirement for fiscal 2019 to be approximately $30 million.

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

(Operator Instructions) Our first question is from the line of Korey Marcello of Deutsche Bank.

I just wanted to start off on sort of the large deal wins that you talked about ramping in the year. Can you give a little bit more color there and help us kind of understand how you're thinking about the revenue growth trajectory from a quarterly cadence perspective going forward given those wins?

Sure. Let me take that Korey. Obviously, as Keshav mentioned, we did sign 2 large deals in the fourth quarter. One of them began generating revenue in the quarter itself, which was somewhat of a surprise to us, obviously a pleasant surprise. We've got visibility to the first couple of waves of commitment from that client in the Shipping and Logistics vertical. And given that we've had some transition revenue and some upfront billings associated with that, I would expect the revenue, at least at this point in time, to be relatively consistent across the quarters in fiscal '19 for that client. The second large deal that we signed we do not believe will begin ramping until fiscal Q2 of 2019. And obviously, we hope to see a steady ramp with the amount of work that we've been awarded already across the 3 quarters in fiscal '19, Q2, Q3, Q4. But longer term over the next 3 to 5 years, we expect both of these relationships to continue to add processes, move down transformational path and become meaningful contributors to the overall corporate revenue.

That's helpful. And then just as a follow-up, maybe, can you kind of talk about the margin outlook? I know you're kind of targeting the high teens, but should we assume similar seasonality in the past? And then how much of the non-FTE increase was kind of due to the acquisitions? And what does that mean for margins, I guess, longer term, as you see that kind of continue to increase?

Yes. Obviously, we do expect a similar pattern to our margins in fiscal 2019 where we're going to take a reduction in Q1, both from a revenue perspective as well as from a margin perspective as a result of the committed productivity improvements that we give to clients as well as the impact of our annual wage increases, which are skewed towards April 1 of each fiscal year. And we would expect kind of similar to last year to see roughly 100 basis point improvement in net adjusted operating margin number as we go across the quarters throughout the year. When you look at the implied guidance, the expectation for fiscal '19 is that operating margin should be in the same general ballpark as where they were this year.

And our next question is from the line of Maggie Nolan of William Blair.

Obviously, you are having success with winning some of these large and dynamic deals. And I am wondering as you go through this transition, where these companies are looking to you to generate revenue, and be kind of a transformational partner, can you give us an idea of how that shows up in your pitch process? And whether you've had any changes to your client acquisition strategy as a result of those trends?

Sure. I think that's a great question. And it seasoned perfectly to our completely differentiated strategy in terms of how we go to the market. So I think the core of our offering is around the fact that we understand our clients' business and their business domains extremely well to the extent that we have -- we give them a lot of comfort around appreciating their subverticals as well. And therefore, when we go into a discussion, I think, they're pleased. The clients appreciate the fact that they are interacting with people who understand their business well, who speak the language that they appreciate, and more importantly are able to come in as consultants who can advise them in terms of what is likely to change or likely to happen from their business point of view, give them a sense of how competitors are looking at the same segment, give them a sense of where competition, new competition is likely to come from. Along with that, really focusing on helping them understand that we bring in strong technology capability, we can lead in terms of technology transformation first, and then drive the heavy lifting from our global kind of delivery centers gives them lot of comfort. Most importantly, the fact that when we go in, we're able to actually explain to them that we're building a lot of IT ourselves, building great partnerships with technology companies and investing in all of the areas of disruption, it means that we're giving them comfort that they have to just focus on their external markets, knowing fully well that there's a safe pair of hands at the back end that is operating as an extension of their enterprise. I think a combination of all of this, and the fact that we will reward our own leaders around revenue growth, profitable revenue growth, and more importantly the impact we are creating for our clients means that the trust factor is built very, very heavily. So the theme at WNS really is co-creation. And in most solutions, where we have been successful and where we have beaten competition, it is our ability to cocreate a winning solution or a winning innovation with the client that is setting us apart.

And then building up on that, you talked about kind of delivering that proprietary technology. How do you balance that with some of these third-party partnerships that you have in order to best meet your clients' needs?

Yes. Again, one thing that we -- we've made clear over the years is that in terms of technology, anything that is strategic to WNS, we will build through our internal R&D, and we will own the IP and nothing has changed there. In addition to that, wherever we believe that we have to accelerate acquisitions of a platform or a domain-based solution that is accelerated through platform use, we have gone down the M&A route. So we have actually acquired some of the capabilities through our acquisition strategy. And beyond that, we've tied up with a number of these partners, and the key there is really to go to a client and help them essentially deliver the highest ROI on their investments and technology that they've already made. So we go in there and say that, we make your technology investments more efficient with the use of all of these channels that we bring to the table. And I think that is what clients appreciate very much. We come in with a domain knowledge, we come in with a deep understanding of our own technologies, and we bring in the right kind of partners and ecosystem of technologies that makes the ROI on the existing investment much higher. And I think that is what creates a transformational relationship because thereafter, between partner and us, between the client and us, we operate through a very well disciplined governance model. And as I said earlier, we operate as an extension of their enterprise. So the reality is, they see us as being part of them, and that gives a lot of comfort in this age of disruption.

Our next question is from the line of Moshe Katri of Wedbush Securities.

Couple things. Can we get an update on your top clients, the top line, actually in the U.K.? Talk also a bit about what you are seeing in the U.K. market in terms of deal pipeline?

Sure. Obviously, what we continue to see with our largest client is a very stable, healthy, value-added relationship. But consistent with what we've seen across the last 4 or 5 years, a very slow reduction on a year-over-year basis in terms of the amount of work we're doing for that client as they become more efficient as their volumes are under pressure. So it's been a slow, steady reduction in terms of the revenues we get from that client from that perspective as well as from the perspective of the productivity improvements that we see. With respect to the U.K. overall, we see the market is being extremely healthy right now. Lots of opportunity, very strong pipeline. As Keshav mentioned, we signed a large insurance deal in the fourth quarter, which will be ramping in fiscal '19. That deal is based out of the U.K. So feel very good and very comfortable about the overall market in U.K., and more importantly given the company's history, tradition, culture, our positioning within the market in the U.K.

Let me just add a little bit of color for the second part of that answer. Today, in an environment of Brexit, it is, from a WNS perspective, difficult to just consider the U.K. alone without considering the rest of Europe. And as Dave already mentioned, with the uncertainty, and in our case actually, the opportunity coming from Brexit, we're actually seeing U.K. companies starting to accelerate and then give out more business to relevant companies like WNS. But at the same time, because of uncertainties that Brexit poses for different countries and companies still figuring out how it will impact them, we're actually seeing acceleration from other markets in Europe as well. And that I think augurs very well from a WNS perspective.

Just a follow-up quickly. Is there anything to consider in our numbers from FX hedging for fiscal year 2019?

I think from an optics perspective, there will be, Moshe -- the reality is, as Sanjay mentioned, the impact of IFRS 9 on our financial statements for next year is going to be that the revenues -- the hedging gains and losses on our cash flows are going to be required to be moved from the FX line to the revenue line. So from a straight visibility standpoint, the only thing that's going to be left on that FX gain and loss line is balance sheet revaluation. Our expectation for fiscal '19 is that, that number is going to be somewhere between $2 million and $3 million of a gain, with the balance having moved up to the revenue line from a reporting standpoint. We will, however, remove that hedging gain and loss along with the currency fluctuation from our constant currency calculation. And as Sanjay mentioned, the expectation for fiscal '19 is that, that amount that has moved from the FX line to the revenue line is about $1.7 million.

And maybe just to add to that, if you consider the last year's number from an operating margin perspective because if the FX gain line moved to the revenue lines to the extent of $14 million in operating margin and arithmetically will reduce by 30 basis points. And also the other impact is going to be, the revenue volatility, because of the exchange rate movement, is going to be lesser than what we used to see earlier.

Next question is from the line of Bryan Bergin of Cowen.

Wanted to ask about the verticals. You, obviously, spoke about key services lines of strength. Are there any particular industry verticals that standout stronger than others in your fiscal '19 outlook?

Look, I'll take that first. Actually, we expect to see broad-based growth across all our verticals, horizontals and geographies, as we've already underlined earlier. But at the same time, based on what is actually happening in the market and the stress that certain kind of businesses are seeing in the marketplace, we're actually expecting that some specific verticals, particularly the Shipping and Logistics vertical will continue to accelerate. We expect Insurance will continue to do -- want to do more. And we expect Healthcare and Utilities also to be reasonably buoyant. So these are the 3 or 4 kind of verticals that I believe have higher potential for play during 2019 and beyond if you ask me.

And then you noticed the -- you noted the sales investments that you're making and the ramp that you had in the workforce there. Any particular reasons where you are adding more on that? And then can you just talk about your onshore expansion efforts and headcount as well?

Sure. Let me talk about the sales part, and David and others will cover the rest. But in this age of disruption and in this age of opportunity, as WNS sees it, I think having really smart people with the DNA of WNS, who understand domain, who understand technology, who understand business, who can articulate solutions well, and who can create or craft win-win deal for clients and for WNS is really where we are investing. And as you know, over the past few years, we have kept transitioning the sales model from one to another, where we have kept moving the value chain to a completely new level. And the result of all of that has been the fact that, whereas earlier we were much more exposed to a particular geography, if you just look at how WNS is now positioned, we are very well positioned from a risk point of view across the globe from a sales point of view. So the investment really is to ensure that we have the right kind of resources that are able to have these kind of conversation from a vertical point of view; are able to articulate a solution from a technology and analytics point of view; are able to actually talk the language of analytics, because you need specialized people doing that when you are doing that or when you are interacting on analytics kind of deal; and also having experts who can talk the CFO framework as well as Advanced Procurement or Finance & Accounting solutions. So the opportunity is such that it could be vertical-led, it could also be horizontal-led, but because of our vertical strategy, the ability to penetrate and radiate is much higher. And therefore, just having better and better quality salespeople and higher numbers across the globe and driving higher productivity is what we're doing.

And I think the other part of your question, Bryan, when you look at the onshore headcount, obviously, I think Keshav addressed the sales component of that. With respect to the delivery component, the reality is that the model that we followed for the last 3, 4 years anyway is that we're going to let our clients tell us where the work needs to be done. We're not going to take a field of dreams approach to this and build it and they will come. So certainly, we've seen accelerating demand within the U.S. We are building out higher-end capabilities within the U.S., some of that organically, some of that through our acquisition strategy. We do believe it will continue to grow at a healthy clip, as clients want more integrated, customer-facing, high alignment types of services and solutions. And we're fully prepared to be able to deliver that.

And next question comes from the line of Edward Caso of Wells Fargo.

I was curious why the revenue guidance range is as wide as it is, given your sort of positive view of everything? If you could give us context relative to prior years?

For the guidance, it is primely based on the visibility what we have. So consistently during April, this time frame, we have 90% visibility. And what we want is to really stick to the -- based on the visibility what we have. Quarter 4 as well as for the last year, if you believe that quarter-over-quarter for four quarters, we had a nonrecurring revenue related to maybe gain share or project-based and other stuff, which is almost like 2.5% for the next year. And going forward, we don't have any visibility to that kind of a revenue, which may come. So based on 90%, that's the range in the midpoint we believe [as a guidance].

Yes. And I think to Sanjay's point, the midpoint and the visibility entering the year has been consistently right at 90%. The other thing is from a revenue range perspective, each of the last 5 years, the range between the high and the low has been between 5% and 6%, this year is at 5.7%. So very, very consistent, both in terms of the visibility approach as well as the overall size of the range entering the year.

Great. My other question is the trend on productivity. You mentioned 9% in the guidance. Is that -- can you give us some historical perspective to what it used to be and where you think it might be going?

Yes. Historically, it used to be 5% to 6% range what we have from our productivity perspective, including some of the project-based or the strategic direction from a client, which continues to be there. But adding to that was the 2.5%, which I mentioned, which is relating to the nonrecurring revenue what we had during the whole year, quarter-over-quarter, to which we don't have the visibility.

And that's the biggest difference. I think that the $19 million, the $4 or $5 million per quarter that we actually experienced within fiscal 2018 that we talked every quarter about not having visibility for even to walk into the quarter let alone a year, those numbers have not been included in our fiscal 2019 guidance. And as a result, when you look at the year-over-year headwind, the $19 million that we actually got in fiscal '18 creates a 2.5% headwind to our growth in fiscal '19. Again, we're hopeful that it does continue to happen that we do have higher volumes, gain shares, all of the things that we've been experiencing this year. But to Sanjay's point, from a methodology standpoint, from a consistency standpoint, we're entering the year with 90% visibility and that visibility does not include these items as we don't have it at this point.

Our next question comes from the line of Mayank Tandon from Needham & Company.

Keshav, you called out the RPA growth. And also, I think in the past you've talked about working with digital clients. Does that change the hiring pool that you're targeting going forward? And also does that also mean at some point we could see maybe acquisitions on the IT side and maybe have partnerships with IT services companies on some of the integrated-type work?

Right, Mayank. So first of all, great question. And yes, I think as WNS has evolved its solutions and has become far more relevant to a broader category of clients across the globe, we have become very relevant to some of the so-called digital trackers as you -- we would call them. And therefore, the need to have the right kind of thinking, the right kind of knowledge, and the right kind of people is critical for us. So remember, as we went down the path, some of the acquisitions that we did was essentially to plug that gap first from a capability point of view as well as to bring in the kind of people that could engage with some of these digital companies. So Denali, for example, if you look at the kind of talent that we have brought in from Denali -- forget the capability, I think the capability is outstanding. I think what I'm much more excited about is the quality of talent that we brought in. Similarly, if you look at HealthHelp, right, the entire solution that is offered is a unique domain-intensive, but very platform-focused kind of offering. And if you again look at the kind of talent we have acquired as a result of our acquisition, simply outstanding. So for us, it is a case of -- and the same as value-adds actually. And for us, it is a case of how are we constantly acquiring the kind of talent that can engage with clients at a front-end in terms of these conversations. And at the same time, driving programs inside the company to, at least, make sure that large components of people delivering at the back-end are also upgraded in terms of their knowledge. At the same time, what we have also done is rather than wait for countries or governments or universities to create programs, we have actually gone ahead and have invested in programs, where we are creating the curriculum, course content and driving the acquisition of a new kind of talent on the analytics side or on the digital side and things like that. So it's an effort that is being made across many areas. And in the longer term, our M&A strategy also will reflect some of it. Again, I'll -- at this point in time, I'm not committing to anything. All I will say is, we are very, very focused on looking at certain areas, where we believe we may have gaps, and we think the market opportunity is still very, very strong for WNS's services, and we'll fill those gaps by bringing in strong capability along with outstanding talent.

That's very helpful, Keshav. Just a quick follow-up, maybe, for Dave. Could you reconcile the growth in the top client with the fact that insurance was actually down sequentially? And anything on the Banking and Financial Services side that may have caused some weakness, even though it's a pretty small segment.

Yes, I mean, with respect -- let me answer the second question first. With respect to the banking side, obviously, as you said, a small number. We're going to see that volatility quarter-to-quarter, especially when we have components of project work. In the Insurance space, I think we've got a lot of moving parts going on. Obviously, from an overall standpoint, on our largest client, we do have some quarter-to-quarter movements. But as I mentioned earlier, over the course of year-over-year, we expect that, that client is going to continue to decrease on a percentage of revenue basis when we look at the nonrecurring components of our business that also had an impact within the Insurance verticals. But we think, overall, the Insurance is going to be very strong. As Keshav mentioned, heading into fiscal '19, you're going to see the impact of this new large deal that we signed ramping up. We've also signed 2 other large deals across the globe in the last 24 months that should be in ramp mode. So I think what you're going to see from WNS, both in terms of overall customer concentration as well as the Insurance vertical is a reduced reliance and a reduced exposure to the volatility within that largest client.

And next question comes from the line of Ashwin Shirvaikar of Citi.

I wanted to ask about revenue per billed up seat. And obviously over the last few years, you've done a pretty good job increasing that particular metric. I guess, one part of the question is, can you continue doing that? But by the any components of that become, what capabilities do you need to keep adding so that the incremental value is then paid for? And then the second part of it is the productivity part. And, I think, you can split that out into -- bits to it?

Yes, I guess, you got a lot of moving parts in there, Ashwin. One of the things that we do track pretty closely from a productivity metrics perspective are both the revenue per employee, and I would say, as a byproduct of that more than anything else, revenue per seat. One of the things we've talked a lot about is that, if you look within a quarter and sometimes even within a year, there can be ramps within your hiring cycles, there can be ramps within building out infrastructure ahead of demand. So the seat count and the headcounts are not necessarily aligned. And then I think what we've also discussed from a productivity perspective, in some ways those metrics can actually start to play with each other. So one of the things we're focused on is long-term driving increasing revenue per employee. And I think we've done a really nice job of doing that. As Keshav mentioned in his prepared remarks, we saw real healthy growth in fiscal '18 on an organic constant currency basis. You're looking at solid 70% growth in revenue per employee. Some of that's driven by -- and that excludes the acquisition. So one of the things we're going to continue to see is that as we deploy more technology, we're going to be less reliant on headcount to deliver services, we're going to be less reliant on facilities to support that headcount. And as the skill sets required shift, the location of where we deliver from will also shift. So these are all going to be moving parts going forward. But at the end of the day, it's going to be driven by client demand and the fact that we know we're going to have to continue to automate in technology-enabled services we deliver to our clients. Bottom line is if we're not doing that, we're not going to be successful. So the right metric to watch from that perspective over time is the revenue per employee.

Got it. That's fair. The other question I had is with regards to sort of the pipeline in terms of M&A. I think Keshav, you mentioned that was going to continue to be one of the key things you look out for. Any idea with regards to thoughts on big types of acquisitions what you continue to look for?

Sure, Ashwin. Again, like is said, we will be very, very opportunistic. And as a company, we are very disciplined in terms of identifying opportunities, working with the ecosystem, prequalifying them and then just -- then making call whether we want to move ahead with something or not. From our perspective, at a high level, I would say, at this point in time, there are many areas, which are exciting growth areas for us and where we may need some additional capability, which we may not want to waste time building out ourselves, right? And so some of those would be certain higher-end analytics areas, some specific domain areas or some high-growth kind of verticals that we called out a little earlier. On the F&A side, again, there could be one or two areas that we're looking at. And on the technology side, we will also be looking at a few areas, which are part of this pipeline. So I'll likely say that we have a very interesting pipeline at this point in time. But being such a disciplined company, we are making sure that it ticks all the boxes before we decide to do something. So again, we will be opportunistic, and we will do whatever is right for our clients and for our shareholders.

And next question is from the line of Joseph Foresi of Cantor Fitzgerald.

I was wondering if you can give us some puts and takes on FY '19 margins? I think I missed the commentary about FX, but are margins and their expansion based on revenue growth? Or do you think they might be able to expand through cost savings over time? I'm just trying to get a good sense of the margin profile.

Sure. I think the implied guidance for fiscal '19, Joe, is that our margins are going to be, on an operating basis, relatively stable. We do know that as clients transition to non-FTE models, and we're successful in being able to deploy technology against those non-FTE nonlinear revenues, that there's a margin opportunity. The flip side to that is, we're running a 19% adjusted operating margin business. It's extremely healthy from an overall profitability perspective. And to Keshav's point, we know we need to continue to invest in our business to make sure we're not missing out on the massive opportunity that's sitting in front of us. So the expectation is that, while we probably will internally drive productivity and improve margin, the reality is we're going to be redeploying that investment into the business to make sure that we're continuing to grow at a premium rate.

And then my second one. What are the potential areas for outperformance as you look at FY '19? Would it be the large contracts that you signed at the end of the year? Is it driving more revenue out of your present client base? Or acquisitions would be something that we should be taking a look at? I'm just wondering if you had to look at the real area of opportunity that you think might drive you to the top end of that guidance or above, what would you see as being the biggest opportunity?

So Joe, if you ask me, every one of those things that you named are opportunities for us. I mean, end of the day, I think we are a very relevant company to our clients, very relevant partner in terms of what we offer to them. The reality is, what we offer finally is disruptive from a client's -- from a client's delivery point of view. So from their perspective, it is them taking the final decision that will help accelerate revenues beyond whatever we have called out at this point in time. So that's something that could be positive for us because you saw this year as well, we had a certain thought process as of even last quarter. But we saw with some of the new clients that we brought in, they wanted to accelerate the pace much faster. So that could happen again. So that's one. M&A, as you put it, if there is something that is compelling that comes up, this will still add to the revenue top line. And other than that, an existing client wanting to start going to a completely new area based on months and months of effort from WNS could also lead to growth. So from my perspective, I actually think the market for growth and acceleration is there. The guidance provided today is based on consistency and visibility.

And I think just kind of further that, Joe, if you look at kind of the components of what would drive accelerated revenue growth or get us closer to the high end? Keshav spoke a lot about the overall health of the pipeline and the fact that we feel very, very comfortable about the deals and the large deals that we're playing in and how many are kind of getting close to an area, where we potentially could close them similar to what we saw in Q4. I think that's kind of the presales side of it. If you look at fiscal 2018, we had 29 new clients across the year. That was an increase of new client adds by 21%. At the end of the year, we had 118 customers of at least $1 million. That's a 26% increase in the farming opportunity within our business. So when you kind of look at where the opportunities are, obviously, in the short-term, the easiest revenue is always going to come from your existing customers. But the reality is if you look at what happened in Q4, we saw a ramp from a brand new customer that was unanticipated. So I think there are a number of levers that we have to get towards the higher end of guidance, including the 2.5% short-term revenues that wasn't baked into that numbers. So we're certainly optimistic as we move throughout the year that we'll see a similar pattern to what we saw last year. But at this point in time, this is where we sit from a visibility standpoint.

Our next question is from the line of Frank Atkins of SunTrust.

I wanted to get a quick update on the analytics practice that's doing well. What you see there in terms of pipeline? And just to confirm, there's a portion of that, that's still classified in the industry-specific horizontal. Is that correct?

Yes, that's correct, Frank. And we actually have components of all of our horizontals embedded into the industry BPO number. And that's because the way we charge the customer and the way we go to the customer is independent of traditional horizontals. I mean when you charge an insurance client a certain price per claim, there's really no way to break that out between what is customer interaction, what is F&A, what is R&A. So one of the things that's happened as we move more work to industry-specific BPO, technology enabled more of that is that you have less visibility into the specific horizontals from a visibility perspective. That being said, our R&A business on a stand-alone basis is 12% of revenue. There is, at least, another 6%, 7% of revenue embedded within our industry-specific BPO, which will push us up closer to 20% of company revenues and it's growing, at least, on par overall with the company's growth rate. So feel very good about the investments that we've made in R&A, the traction that we see in that business. But as Keshav mentioned, we want to continue to apply our assets, deepen our capabilities, expand our skill sets and take those to market. So it's clearly an area of focus going forward.

Okay, great. And then on the 2 large deals, can you talk about why do you think you won those? And was that a takeaway or was that new work for the clients?

I'll take that. Simple, one sentence. I think from a clients' perspective, as they give us feedback, they said that we were absolutely the best company to partner them, and that was based on essentially our understanding of the domain. The fact that we really help them in terms of leveraging their technology to provide the right kind of solutions. And more importantly that in our DNA, embedding analytics behind everything was something that they appreciated a lot. So I would say that, that is really the core of why we are winning deals. And the fact that, in one case, which is a brand-new client, they actually allowed us to lead through technology transformation shows the comfort and the confidence that they have in our technology thinking, in the technology assets that we brought to play, the partnerships that we introduced into the deal, and a lot of comfort thereafter in terms of just doing the heavy lifting. In the case of the other client, let me tell you that this was already an existing client, happy with our work, but based on a change in strategic direction at the company, they needed to accelerate the pace much faster. And again, being so comfortable with us across the years, they were -- it was an easy choice for them because the ability to work across multiple geographies, multiple process areas, and very quickly give them the kind of ROI from a cost reduction point of view, efficiency gain point of view and insights point of view was something that they appreciated with WNS.

And the answer to the other part of your question, Frank, is that one of the deals that we won would have been directly from the client-to-client, which we work in-house. The second would actually be an approach where the client had fragmented vendors in their operating activities, and they've actually looked to WNS to replace all of those vendors and consolidate operations.

And next question is from the line of Joseph Vafi of Loop Capital.

Just kind of as a follow up on Frank's question. I know Keshav, I think you mentioned that the sales cycle compressed a little bit, and you don't want to call that a trend yet, but perhaps you could provide a little more color as to the reasons those -- you think those sales cycles compressed for these specific clients, was it their own business we're seeing volume gains and they needed a better solution to service their business? Was it -- or was it primarily cost-driven? Was it -- technology-driven? That would be helpful. And then the same commentary on the 2 large clients, I think, were they cost-driven or were they volume-driven, given the strong macro?

All right. Again, excellent question. So I think as I interacted with each of these clients and my team understood the decision-making process well, I think what came out very clearly was not really any one of the specific elements. I mean, all of them, obviously, have a part to play, but these companies being the absolute leader in their space just wanted to leverage a great partnership and a great advisor like us to just be competitive and stay ahead of competition by a few years. And I think that is what is most exciting from our perspective.

And I think you need to break the decision into 2 pieces, Joe. One is whether or not a contract gets signed in the time frame that you expect. The second is how quickly does that work start to ramp once the deal has been signed. As Keshav mentioned in his prepared remarks, we signed 2 large deals this quarter, but 1 of them is not going to start ramping until the second quarter of next year. So that kind of had a more normal profile, if you will. With respect to the other one, you had a client that just really want to be very aggressive about how they position themselves, they wanted to get market quicker and the comfort level was there to move quickly with WNS. So again -- and I think that's part of the reason we talked about this not necessarily being a trend is a really client-specific behaviors that are driven by their individual situation. But at the end of the day, it's going to come down to comfort. Nobody is going to move in a meaningful way and outsource core mission-critical parts of the business, unless they've been able to establish that level of comfort.

Okay, that's helpful. And then just quickly, if you kind of circle back to maybe the non-FTE service solution part of the mix. For rev back, say, 2 to 3 years, could you quantify a percentage of non-FTE that was part of a solution mix versus some of the stuff that you are bidding now?

Yes, we've kind of had a strange journey, if you will, in the non-FTE and some of that relates back to several years ago, the loss of Travelocity, which created a significant dip in our non-FTE revenues. But if you look over the last 3, 4 years, I think what you've seen is a slow and steady transition more so within the existing client base than the new customer starting 2 non-FTE types of business. So the non-FTE component of our revenues, for example, in fiscal '15 was 74%. We're down to 64% here in fiscal '18 that's just completed. So we've seen a full 10% shift from non-FTE -- sorry, from FTE to non-FTE models. And I think we're going to continue to see that. What was interesting, I think, this quarter, and Keshav touched on it in his prepared remarks, was to see very large client that was comfortable moving to a non-FTE model sooner rather than later. And that's something we're going to have to watch over the next few years. But obviously, we would much rather bake technology and start with models that are aligned with the client day 1. The reality is from a client behavior standpoint, typically, most customers have not been ready for that model day 1. Let's see if that transition time accelerates, let's see if more customers are willing to behave this way, but at this point I don't think we're ready to call it a trend.

And our next question is from the line of Dave Koning of Baird.

I just have 2 quick ones. So the first on just on FX gains just to make sure I'm totally clear. The only difference to fiscal '18 would have been $15 million more of revenue and the same adjusted EBIT and a little lower margin because the revenues are little higher?

$14 million, correct. $14 million would have moved from the FX line up to the revenue line. No change to EBIT, no change to profit, no change to operating profits and margins, but a slight book reduction in margin because you're going to have the same margin revenued -- the same margin dollars on a higher revenue base.

Yes, got you. And then the second one. Just from a sequential trends throughout the year, it looks like guidance would imply something like 2% sequential growth each quarter of the year. Is that pretty much right? Or is there some seasonality to the sequential growth through the year?

Yes, there's going to be seasonality, Dave. You know the reality is because we give productivity improvements in Q1 because we don't have, at least at this point in time, the visibility to that $4 million or $5 million of recurring revenue that we've been seeing, the stuff that we don't have the project-based gain sharing. At this point in time, we would expect Q1 to actually be down sequentially from Q4. But yes, across the four quarters, we would expect to see a steady increase. The only caveat to that would be fiscal Q3 is usually a little bit softer sequentially because of the impact of the Travel vertical. I do think it's important that everyone understand that the expectation at this point is for Q1 to be down sequentially, both from a revenue perspective as well as from an adjusted operating margin perspective.

Next question is from the line of Puneet Jain of JP Morgan.

Can you bake that 9% headwind you talked about from productivity improvement runoff, et cetera, into individual components, and how did each compared to last year?

I don't think we're going break it into the individual components, Puneet. I think the 5% that we've been talking about historically, which encompass productivity improvements, yes, the 5% to 6% that we talked about historically between productivity improvements, volume and strategic changes in our customers business, right, they shave off a division, they consolidate operations. These are the kinds of things that will affect us from time to time. I think that number remains fairly consistent. I think the one difference from the traditional headwind, if you will, is that $19 million or 2.5% of revenue, this relates to those short-term nonrecurring types of revenues that are not visible walking into a quarter that we experienced this year. So like Sanjay mentioned earlier, $19 million on $741 million of last year's revenue is 2.5% headwind. It doesn't mean it won't happen again this year, but In terms of the visibility and the headwind on a year-over-year basis, as it relates to visibility, that 2.5% is included in the 9%.

Got it. That was my second question like if 2.5% is included in there, so thanks for that. And quickly one more. Do you expect overall addressable market to increase or shrink with higher adoption of automation and technology solutions that you are implementing for your client?

So Puneet, I am a big bull in terms of the potential for this market because I think we're now -- all of us getting into areas, which, traditionally, we did not expect to see as potential areas of growth. So frankly, I think the addressable market will only continue to expand. Technology and client-related changes will mean opportunity for smart companies who understand the client's business, and who have invested at the back end in social, mobile, analytics, cloud technology, RPA, AI, ML. Things like that will actually be the preferred companies that will drive this growth. And analytics will continue to be at the forefront of driving insight for these clients. So I am really, really positive about how things would -- can shape up for this industry.

I think what we're seeing and what we're hearing from clients, too, is that -- while, obviously, from an industry perspective and from a financial perspective, we get a lot of questions around the impacts of technology and automation as it relates to productivity and cannibalization. What people don't seem to understand is that it's driving increased interest in this space. It is accelerating the pipeline for WNS and, I believe, for the entire space. And more importantly, it's increasing the scope of what is outsourceable. So I think it's going to generate an accelerated adoption. I think it's going to increase the overall market size, as Keshav mentioned, and one of the byproducts is that there may be slightly lower revenue per unit because a portion of that work is going to be get done with technology and automation as opposed to labor.

Our next question is from the line of Vincent Colicchio of Barrington Research.

Just one for me. On HealthHelp, I think you had a very large customer there when you did the acquisition. Just wondering if you can update us on your ability to diversify that customer base?

I think, obviously, moving into new areas with a large client can be a difficult call, especially when it's driven by acquisition. I think the large client has very receptive to the scope of the new organization, as a whole, and some of the things that we can help them with. Discussions that are ongoing, we're very optimistic. But at this point, we have not seen a major impact in our revenues from expanding beyond the traditional scope of services. So it still remains a high opportunity for us. And we're excited about the fact that it's not yet baked into these numbers.

And our next question is from the line of Ashwin Shirvaikar of Citi.

Just one quick clarification follow-up. The $19 million that's been referenced a few times in the call may be nonrecurring. You guys do tend to have some level of nonrecurring each year. So do you sort of remember what that equivalent number was this time year before that?

Yes. I mean, if you look at what's been happening, Ashwin, we've been generating $4 million or $5 million a quarter beyond what our traditional visibility has been. So this really represents an acceleration over the last, I would say, 6 quarters to numbers that we had not seen before this. So we do believe that this variable volume, this short-term volume -- and Sanjay spoke a little bit about it, as a result of some of the analytics work that we're doing, some of the Denali work that we're doing on the procurement side, this work is creating a little bit more of that kind of short-term pop to our business that we traditionally had and it's really kind of where it's set over the last 6 quarters as I mentioned. So we believe this 2.5% is truly incremental.

Thank you. And at this time, there are no further questions in queue. This will conclude today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a great day.