David Mackey - Corporate SVP, Finance & Head, IR Keshav Murugesh - CEO Sanjay Puria - CFO Ron Gillette - COO.

Maggie Nolan - William Blair Mayank Tandon - Needham Edward Caso - Wells Fargo Securities SK Prasad Borra - Goldman Sachs Bryan Keane - Deutsche Bank Brian Kinstlinger - Maxim Group Ashwin Shirvaikar - Citi Puneet Jain - JPMorgan Dave Koning - Robert W. Baird.

Welcome to the WNS Holdings' Fiscal 2016 Second Quarter Conference Call. [Operator Instructions]. Now, I would like to turn the call over to David Mackey, WNS' Corporate Senior Vice President of Finance and Head of Investor Relations.

David?.

Thank you and welcome to our fiscal 2016 second quarter earnings call. With me today on the call, I have WNS' CEO, Keshav Murugesh; WNS' CFO, Sanjay Puria; and our COO, Ron Gillette. The 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 second quarter ended September 30, 2015. Some of the matters that will be discussed on today's call are forward-looking.

Please keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, those factors set forth in the company's Form 20-F.

This document is also available on the company website. During the call, management will reference certain non-GAAP financial measures which we believe provide useful information for investors. Reconciliations of these non-GAAP financial measures to GAAP results can be found in the press release issued earlier today.

Some of the non-GAAP financial measures management will discuss are defined as follows. Net revenue is defined as revenue less repair payments; adjusted operating margin and adjusted net income or ANI, are defined as operating margin and profit, excluding amortization of intangible assets and share-based compensation.

These terms will be used throughout the call. I would now like to turn the call over to WNS' CEO, Keshav Murugesh.

Keshav?.

Thank you, David and good morning, everyone. From both the fiscal and operational perspective, Q2 was a solid quarter for WNS.

Fiscal second quarter net revenue came in at $133.3 million, representing a year-over-year increase of 5.4% on a reported basis and 11.2% on constant currency terms versus the second quarter of last year, the depreciation of several key currencies against the U.S. dollar adversely impacted our revenue.

These include the British pound, Australian dollar, South African rand, the euro and Canadian dollar. Sequentially, revenue improved 5.4% on a reported basis and 5.7% constant currency. We continue to make solid progress in securing new logos and cross-selling services to existing clients.

In the fiscal second quarter, WNS added five new clients, expanded six existing relationships and renewed 16 contracts. The sales pipeline remains healthy and broad based, highlighted by opportunities for emerging verticals, disruptive services and large deals. In the second quarter, our adjusted operating and net profit margins were stellar.

The combination of currency favorability, gains on our hedge positions, operational productivity and higher volumes helped WNS post year-over-year and quarter-over-quarter margin expansion. While some of this favorability is non-recurring in nature, we’re pleased with the underlying business performance.

Sanjay will discuss the details of our margin movements in his prepared remarks. From a balance sheet perspective, the second quarter marked two major milestones for WNS. During the second quarter WNS completed our first ever share repurchase program, buying 330,000 ADS's at an average price of $29.65 per ADS.

In total, WNS repurchased 1.1 million shares of stock in the first half of the fiscal year at a total cost of $30.5 million. In addition, we’re currently debt free, after paying off our remaining debt balance of $8.2 million in the second quarter. Capital allocation will remain a focus area for WNS going forward.

And in addition to share repurchases and financing alternatives, we will continue to opportunistically look for tuck-in acquisitions to augment our capabilities as well as solutions. We believe that this is a very exciting time for the business process management space. Today, demand for core traditional BPM services remains stable and healthy.

Additionally, disruption in our clients' business environments is creating new opportunities for well positioned solution partners like WNS. The move to digital is fundamentally changing how our partners interact with their end clients and as a result, changing their business processes.

At WNS, we believe that our unique combination of domain knowledge, operations expertise, analytics capabilities and technology enabled solutions position us front and center to meet these evolving requirements. As you may be aware, we recently announced the launch of a new suite of technology offerings for the travel industry.

The suite consists of four technology enabled solutions which are WNS IP and leverage high-end analytics, process rigor and over 20 year of travel expertise to address pressing industry problems.

These offerings include an automated web enabled proration engine called SmartPro to help airlines with revenue management decisions, an automated queue management platform that was works across locations, accounts and GDF environments called [Technical Difficulty], an enhanced version of our Verifare fare audit platform with built-in high-end analytics that not only stops revenue leaks but proactively helps prevent them and finally, our flight disruption management system called RePAX which we discussed on last quarter's call.

In fact, two of these solutions, Verifare Plus and RePAX where both Stevie winners at this year's 2015 International Business Awards, both offerings where recognized in the overall category of Best New Product or Service of the Year in software.

We’re also pleased that WNS continues to receive positive recognition from the sourcing advisors and industry analysts who remained key influences for many client outsourcing decisions.

Last quarter, we highlighted our leader position in finance and accounting from both Gartner and IDC along with our high performance status with HFS in the area of enterprise analytics services.

This quarter, we had been recognized by HFS in the Winning Circle for insurance as a service and by NelsonHall as a leader in mortgage and loan BPO as well as by Everest as a major contender in record to report procurement outsourcing and analytics business process services.

Additionally, WNS has been named a leader in the 2015 Global Outsourcing 100 list and Top 10 Outsourcing Service Provider by ISG. Another exciting initiative at WNS that I would like to highlight on today's call is the enhanced company focus on training.

As the BPM model evolves, technology and automation will reduce requirements for manual involvements in the lower end, repeatable process stocks. BPM providers will increasingly need to focus their labor forces on domain expertise, operations and process knowledge, analytical capabilities and much higher levels of specialization across the spectrum.

At the entry-level, WNS has recently launched a new training program designed to help college students in India increase employability. The program targeting Tier II and Tier III cities has a curriculum focused on English language communication and business skills designed to help student’s secure BPM specialist roles.

The goal is to train over 2,000 students per year across 35 college campuses in seven cities. Obviously, we anticipate that this program will also serve as a targeted recruitment engine for WNS as we grow our business. In addition, WNS continues to invest in our domain universities, an integral part of end-to-end vertical organizational structure.

The domain universities help train and develop our employees for long and fulfilling careers in BPM by providing a structured learning environment designed to enhance industry knowledge and to drive operational excellence.

For WNS, these programs allow the company to attract and retain talent, reduce learning curves, increased collaboration and most importantly, create the deep domain expertise and resource specialization required to meet the higher value requirements of our BPM clients.

Today, WNS has six individual domain universities with plans to expand this program into additional verticals and horizontals and to enhance our existing curriculums.

We've had over 4300 employees complete training and receive certifications since program inception and we’re striving to continuously improve the number of program participants and the level of certification. In our press release issued earlier today, WNS provided an update to our fiscal 2016 full year guidance.

We currently expect revenue to be in the range of $523 million to $539 million, representing growth of 4% to 7%. Excluding the impacts of currency and hedging, guidance reflects growth of 9% to 12% on a constant currency basis. Consistent with previous years, we currently have over 98% visibility to the midpoint of the range.

Adjusted net income is now expected to be in the range of $98 million to $102 million or $1.83 to $1.91 per adjusted diluted share. In summary, we’re pleased with the company's financial and operational performance in the second quarter and on overall business momentum.

We believe WNS is tracking well to our short-term and long-term goals and I'm excited about our positioning in the growing Business Process Management states. We must however continue to innovate and invest to meet the evolving needs of our clients, including the traditional, transitional and transformational requirements.

WNS remains focused on delivering business value for all of our key stakeholders, including customers, shareholders and employees. I would now like to turn the call over to Sanjay Puria, our CFO, to discuss further our financials.

Sanjay?.

Thank you, Keshav.

With respect to our second quarter financials, net revenue increased to $133.3 million from increased $126.5 million in the same quarter of last year, growing 5.4% on a reported basis and 11.2% on a constant currency business, year-over-year quarter two revenue was pressured by depreciation in key revenue currencies against the U.S.

dollar, including the British pound, Australian dollar, South African rand and the euro. Form an industry perspective, revenue growth was hit by our emerging verticals including retail/CPG, utilities, shipping and logistics, healthcare and consulting and professional service, each of this verticals grew in excess of 12% year-over-year.

With respect to our service offerings, revenue growth versus the prior year was driven by high end contact center work and industry-specific solutions. Sequentially, net revenue increased by 5.4% or 5.7% on a constant currency basis. Quarter-over-quarter revenue growth was broad-based and healthy despite slight currency headwinds net of hedging.

Adjusted operating margin was 23.1% in quarter two as compared to 21.8% reported in the same quarter of fiscal 2015 and 20% last quarter. On a year-over-year basis, adjusted operating margin improved 140 basis points as a result of the favorable net impact of currency movement and hedging gains.

Approximately $2 million of hedging gains were related to mark to market gain for open Indian rupee auction position and devaluation in the Sri Lankan rupee. WNS margin in the second quarter were also positively impacted by improved seat utilization and increased operating leverage on higher volumes.

The sum of these benefits more than offset the quarterly impact of our annual wage increases and performance based incentives and gain sharing recorded in the second quarter of last year.

The sequential adjusted operating margin improvement of 310 basis points was the result of a favorable net impact from currency and hedging, improved productivity and higher volumes. This margin benefits were partially offset by lower peak utilization.

Interest expense this quarter was $0.1 million, down from the $0.3 million reported in quarter two of last year and slightly below last quarter's level. The company's other income was $1.8 million in the second quarter, down from $2.9 million reported in quarter two of fiscal 2015 and $2.2 million last quarter.

Year-over-year, the reduction in other income is largely the result of a change in the India budget which increased the dividend distribution tax. WNS' effective tax rate in the second quarter was 16.9%, down from 20.7% reported last year and down from 17.3% in the previous quarter.

The sequential decline in tax rate is largely the result of the shift in our investment instruments which is offset by the lower interest income previously mentioned. The company's adjusted net income for quarter two was $27.1 million compared with $23.9 million in the same quarter of fiscal 2015 and $22.6 million last quarter.

Adjusted diluted earnings was $0.51 per share in quarter two, up from $0.45 reported in the first quarter of last year and up from $0.42 in the prior quarter. Year-to-date, the company has increased adjusted diluted EPS 12% on a reported revenue increase of 5% and a constant currency revenue increase of 10%.

As of September 30, 2015, WNS' balance sheet in cash and investments totaled $129.1 million. As Keshav mentioned, the company had no debt at the end of quarter two and our current cash flows have reduced the need to use debt for our short-term working capital requirements.

WNS generated $26.6 million of cash from operating activities this quarter and free cash flow of $19.9 million, after accounting for $6.6 million in capital expenditure. The company also spent $9.8 million in quarter two to complete our share repurchase plan and $8.2 million to repay debt.

DSO in the second quarter came in at 27 days, down from 30 days in quarter two of last year and down from 28 days reported last quarter. WNS continues to look for ways to put our healthy balance sheet to work with the focus on pursuing strategic tuck-in acquisitions.

Over the past several quarter, we have been working to expand our M&A pipeline through focused organizational efforts and expansion of our relationship channels.

We’re excited about the prospects of enhancing our capabilities via acquisition and are actively pursuing strategic opportunities which includes embedded analytics, healthcare and software technology platforms. With respect to other key operating metrics, our total headcount at the end of the quarter was 29,830.

Our attrition rate in quarter two was 35%, the same as reported in the second quarter of last year and down from 36% in the first quarter. Global built seat capacity at the end of the second quarter was 25,655 and average built seat utilization decreased to 1.20 as WNS completed two new facilities in Durban and Port Elizabeth, South Africa.

As was discussed last quarter, these facilities were necessary to house client resources that were transitioned to WNS in quarter one as part of our new large deal.

Going forward, we expect this metric will fluctuate quarter to quarter based on facility build out requirements and hiring cycles, but directionally annual seat utilization levels are expected to improve over the next few years. In our press release issued earlier today, WNS provided revised guidance for fiscal 2016.

Based on the company's current visibility levels, we expect net revenue to be in the range of $523 million to $539 million, representing year-over-year revenue growth of 4% to 7%. Revenue guidance assumes an average British pound to U.S. dollar exchange rate of 1.53 for the remainder of the fiscal year.

Excluding exchange rate impacts, our revenue guidance represents constant currency growth of 9% to 12%. We currently have over 98% visibility to the midpoint of the revenue range, consistent with October guidance in prior years. Adjusted net income is expected to be in the range of $98 million to $102 million based on INR65 to U.S.

dollar exchange rate for the remainder of fiscal 2016. This implies adjusted EPS of $1.83 to $1.91, assuming a diluted share count of approximately 53.5 million shares. With respect to capital expenditures, WNS anticipates our requirement for fiscal 2016 to be in the range of $22 million to $25 million. We'll now open up the call for questions.

Operator?.

[Operator Instructions]. Your first question comes from the line of Anil Doradla..

This is Maggie Nolan in for Anil Doradla. My first question is obviously there has been a significant upward revision to the EPS and I'm assuming that, that's kind of implying some operating margin expansion. So, you guys already have higher margins than a lot of your peers.

So, I want to know kind of maybe dig deeper on what's causing that expansion and then also, is this sustainable going forward?.

For the quarter there is a non-recurring FX hedge gain specifically for two reasons which is LKR, Sri Lankan rupee devaluation as well as mark-to-market gain on the INR appreciation. So that may not recur going forward.

But having said that, the overall increase in the EPS as well as the operating margin has been two poles, one is from the currency as well as by operating leverage due to the increased volumes and going forward, we continue to be investing into some of the new areas which Keshav spoke about and directionally.

We believe the high-teens is a good range for the operating margin..

And I just want to add a little color to that, this is Keshav.

The facts as you said that the company continues to produce operating margins higher than the peer set is a great vindication of our investment programs that we have made over the years, the fact that as opposed to allowing some of the new disruptive trends to stress the company, we've actually co-opted all of these trends into our business model and therefore are driving much better performance.

And I'm sure during the call you'll hear a lot about how we’re leveraging technology, robotics, analytics, cloud solutions and digital enterprise models.

So while we think that we will have to continue to make investments and we will continue lead in terms of operating margins, we believe that we’re in a very, very good place at this point in time and for the future as well..

And then second question, if that's all right, I did notice that the top end of the 2016 revenue range was brought down slightly.

So I was wondering if there are any cancellations or push outs that would be causing that?.

No, certainly no cancellations or no push outs. I think when you look at how we guide from a revenue perspective, the methodology and approach is consistent. It's visibility-based.

We take what we have committed at a given point in time, usually for October, it's anywhere between 98% and 99% visibility and that becomes the midpoint of our revenue range. We also tend to tighten the range because we know as the year progresses the opportunities to either beat or miss that number go up or down.

So, we have shaved about 1% off of the high end of revenue guidance based on where we’re today. We've also increased the low end of revenue guidance by 1%.

So, I think it's just kind of the normal approach to guidance for WNS and it doesn't mean that we can't meet or beat the high end, but obviously, this is consistent from a methodology perspective in terms of how we've historically provided guidance..

The next question comes from Mayank Tandon of Needham..

Keshav, I know you talked about this a little bit in your prepared remarks but could you call out some of the key trends you're seeing in the emerging verticals because that clearly seems to be one of the driving forces behind the acceleration in the constant currency growth.

So, maybe just give us some perspective on what the trends are, how are you positioned and what kind of competitors are you seeing in these emerging verticals versus what you have traditionally seen in your core areas like travel and insurance, if they are different?.

Sure, it was an excellent question. I think the most exciting story there is that each of these verticals are responding very favorably to the kind of effort that WNS has made in the past and the kind of impact that WNS sales people are having with companies in each one of these verticals.

Now the approach obviously across the emerging verticals is different and it's not the same for each one, but for us its utilities, shipping and logistics, healthcare and retail.

Now on the utility side, we have seen that traditionally this sector has been governed a lot by governmental controls and as the need to save money and to become more efficient is becoming more and more required, we're seeing that the effort that we have made in terms of positioning some our models as well as the experience that we've had with companies in adjoining sectors is actually extremely useful to some of these players.

So, what we have learned and delivered for example on the energy side is very much being appreciated now on the water side, right? And the kind of the pipeline that is now being built, the kind of wins that we’re starting to see, some of which are large client kind of wins are some things that will transform the company over a period of time in my view.

Similarly, on the shipping and logistics side, again, it's a case of providing niche kind of services and offerings which are technology enabled and taking it across a broad spectrum of clients out there.

On the healthcare side, clearly we have focused a lot on some specific areas and we believe that as we make progress on our M&A strategy and bringing in new capability that will continue to drive even more progress. Now in terms of competition obviously there is competition in every one of these areas.

But as I've said earlier as well, WNS has spent quite a bit of money as well as time in terms of bringing in outstanding people, driving and co-opting some of the new business models that most others look at as stressful kind of areas, we actually have embedded them in our business models today.

We may capitalizing a little bit of our revenue, but we’re building deep inroads into each one of these sectors, individual clients, creating very strong and sticky revenue streams and as a result, driving margin leadership as well.

So very happy that where we're positioned at this point in time and I think it's going to be quite difficult to dislodge us from the position we have achieved in some of these areas..

If I can squeeze one more in, I wanted to just get a sense of maybe I can't quite answer this specifically, but maybe just qualitatively, in terms of where you are with these large deals that you won over the past several years, in terms of the life cycle of these deals, could we potentially see an inflection point when these deals hit their stride or will this be just as of a gradual uptick in growth rates as these deals ramps, maybe just give us some sense of where these large deals are in their ramp-up cycle from a longer-term perspective?.

When you look at the progress that we've made on two fronts, one, the large deal signings over the last four to five years as well as the new client additions that we've had over the same period, obviously, very excited about the long term opportunities that we've created.

We know that when we add a new customer, the initial scope of work that we start the relationship with this is usually the tip of the iceberg in terms of the opportunity with that client. And we know that it's going to take a good year to two years of effort to prove that we're the right partner for that client.

And that's why you see a lot of these relationships start with lower end client interaction services on the front or finance and accounting types of services on the back but obviously with the goal for us is to not only help clients solve problems on the front and back end, but kind of close the gap in between and manage key processes end to end.

That obviously takes time, it takes comfort before the client is willing to pass on the crown jewels if you will, but I think when you look at the life cycle, we kind of view years three through eight, three through nine as the sweet spot for accelerating customer relationships and if the relationship progresses, if the client continues to move down the path of outsourcing.

We can see a nice trend there and then obviously part of the growth and the acceleration in our business that has taken place over the last couple of years from a constant currency growth perspective has come from relationships that were put in place three, four years ago.

But we believe that these relationships remain largely immature, remain underpenetrated and the opportunity over the next four years to five years, to continue to grow and expand these relationships is significant and will be the primary growth driver for the company.

We know that new relationships in year one and year two, while they can contribute, they typically don't contribute in a meaningful way. So very, very excited about the opportunity to farm the relationships and take advantage of all the work that's been done by the sales force in terms of large deals in new logos over the last four, five years..

The next question comes from Edward Caso of Wells Fargo..

Could you talk a little bit about the auto claims, business seems to be decelerating, is that a currency issue and if I did the numbers right, a loss in the quarter?.

Sure. Let me kind of take the first crack at that, Ed and I'm sure both Sanjay and Keshav will add some comments as well. But your understanding is correct. We did have a loss in the auto claims business this quarter.

If you look what's been happening over the last six, seven quarters, the volumes in this business have been steadily declining and the reason is because what's happened is, there has been a change in the auto claims business in the UK, where it's been increasingly necessary to be able to deliver not only claims management services for repair but also claims management service in terms of personal injury on the legal side.

And as those two have become married, it's been very critical for us to try and get involved in the second part of that business. We've been going through a process for the past few years to get ourselves certified as a legal firm and to be able to participate in these types of opportunities.

In July, for the first time, after a considerable amount of effort, we were awarded the opportunity to become a legal firm in the UK and to participate. And we're very excited about the opportunities this creates for us going forward. But the reality is we've missed out on growth opportunities for the last year or so.

We've also incurred some incremental costs in that business to set ourselves up as legal firm.

So we’re operating today as a loss, but we do view the changes that we've made in this business and the investments that we've made in this business as an opportunity for us to reaccelerate growth over the next couple of quarters and understanding that this is a largely fixed cost business as that revenue growth accelerates, we should see acceleration in margin and profits..

Keshav, could you give us an update on your sales investment here.

How big is the team at this point and how big is it relative to, say a year ago?.

From a global point of view, in terms of number of sales people, there isn't much of a change other than the usual people, non-performers being shown the door and new people coming in.

So, in terms of that metric, no significant change there, but as we've said on previous calls, in terms of the kind of resources that we’re focused on to bring in for the longer term.

We're really focused on people who understand business domains exceeding the well, who are people who can understand the new kind of disruptive thinking that WNS is introducing and implementing across each of clients and people who understand how to interact with the new age disruptors, who have actually started spending money to WNS and who have helped to create a very strong pipeline for the company for the longer term..

Last quick one, if I can sneak it in here.

In the quarter, any large deals as the way you used to describe them?.

I think it's safe to say that we have continued to make significant progress on the large deal front, as we've talked about, we're not going to be providing that as a metric going forward.

But I think it's safe to say that the company is pleased with the progress that we continue to make in terms of not only adding new customers, but also signing large deals..

The next question comes from [indiscernible]..

My first question here is just on the margins in general, you talked about there being some productivity that contributed to the gains here, typically, productivity is measured by seat utilization and or we measure growth on headcount in these businesses, but seat utilization hasn't moved much and headcount hasn't moved much.

So, maybe you could just give us some understanding of what's going on internally in the model that's driving that productivity and why it's different than what we measured in the past?.

It's a good question.

If you observe from a productivity perspective, the revenue expansion was [indiscernible] whereas our every headcount growth was 1.6% and productivity and seat utilization doesn't go from a hand in hand, specifically if there is a productivity where fewer resources are required to do the same work, the seat utilization metric does get impacting because the net number of seats are now required or are being used by those resources.

Having said that, does the margin get impacted? The margin improves from the productivity and we're able to utilize those seats later for the expansion where we don't need to invest as required which also leaves us opportunity to expand margin further..

And then on the pipeline, we were heading into next year, maybe can you just give us some color on the relative year-over-year pipeline versus last year and how will be early sales cycle is trending heading into next?.

Probably, you take a stab at that first, at least or the negative part of that question. Now obviously we cannot give -- we're not giving guidance at this point in time for next year, but I just want to say that we still believe that demand trends for this business continue to be very nascent. We continue to see the market under-penetrated.

We’re extremely excited with the kind of impact that sales folks are making in the market place, the kind of visits that we’re having from our traditional clients, clients looking to transform themselves and move to new models as well as the new age kind of disruptors that I believe WNS has very successfully created that connects with.

In terms of just the size of the pipeline both hunting and farming, I'm very pleased with the kind of deals that we're playing in and we come across the geography, that come across all geographies, come across all capability areas, come across lots of new areas like the whole digital space, analytics, [indiscernible] areas and generally.

At this point in time, I will say that the only thing that we’re not completely sure about is something that is out of our control and that is the timing of a client's decision, but in terms of just the size of the pipeline, the scale of the pipeline and the diversity of the pipeline.

I've never been as happy about it as I've seen over the past three or four months..

Okay and then just one last follow-up on the digital side of things, I think investors can understand why the IT services players would participate in that, but maybe you can give us an example of how from a BPO perspective, you can participate in the digital trend and what we could expect for an impact from revenues, would be very helpful?.

I started number of my answers today by giving all of you comfort that at WNS, we have actually co-opted all these so called disruptive trends into our business model.

Now, while we were looking ahead of the curve, crystal ball gazing over the past few years and planning for the future, we kept adding some of these disruptive thinking and these models into how we deliver our services.

And so if you look at some of the offerings that we have already announced on say the travel side, the four new offerings from travel, that's going to dramatically change the way travel companies, airline interact with WNS, interact with their end clients and the kind of value that all of them will end up providing end clients.

Now what does that mean from a WNS perspective? So first and foremost, I do not believe that many other players even have solutions in some of the spaces that we spoke about, one.

The second thing is, it allows us to build very, very sticky relationships with CFOs on the other side because we’re now creating new value adds and new interaction levels with end clients that will create maybe subscription based pricing and outcome based pricing for us, but will really differentiate us from the pack and that's obviously going to drive both topline as well as bottom line.

You look at insurance and some of the pioneering work that we’re doing on the actuarial space again using some of these new technology enabled digital models, again, it's the case of creating new revenue streams and being much faster for our clients with their end customers as a result of which they would prefer interacting with us.

Part of the culture of WNS is that in each strategic planning exercise, every business unit is focused on new technology enabled offerings. Over the past few calls, I spoke about a new Chief Technology Officer who has come into the company.

He and the business units are driving a very intense program around some of this based on our superior domain knowledge and as we have said in previous calls as well, wherever we need technology to build a strategic partnership, we’re creating and building our own IP and for the rest where we need bolt-on tools, we're doing partnerships.

Overall, I'm really pleased with the kind of traction that we're seeing across every one of our existing clients including the new age disrupters who understand that while they may be outstanding from a technology and a delivery point of view and understanding of their customers, our ability to use our proprietary models to bring in new thinking around risk management, around interactions with customers, around building new revenue streams for them, around farming and existing client are far superior.

So, overall, again I just want to end this answer by saying that we have co-opted all these models and it means domain continues to be important, but it's also the high value offerings including technology as well as analytics that are all embedded together in our solutions including the technology and digital solutions..

The next question comes from SK Prasad Borra of Goldman Sachs..

Couple, if I may, probably just from a more macro perspective, obviously, from a macro point of view, the comments seem to be slightly more negative and pricing in general, most of the IT services vendors are talking about slight pressure on pricing.

Are you seeing any impact from macro or anything you have say on pricing?.

Actually, on the contrary, we've never felt as positive about the traction for the industry, first of all and for the company as we feel now and probably individual IT companies may have their own issues. But overall, pricing seems very stable.

From our perspective, we're seeing that as we go in with these new models, new thinking, the ability to manage new disruptive kind of models for clients, their ability to engage with us in new models which are outcome based pricing or output-based pricing is much higher and therefore, as we look at WNS' margins, you will see that at this point in time, we continue to lead, we expect to make investments and that's the reason why we guided towards the high teens for the longer term.

But we'll have to wait and watch because the reality is; we believe we’re transforming the industry as well as the delivery models of the company through some of these new strategic thinking that is now being deployed in the marketplace..

Probably a question on margins, are you being conservative when you say high-teens margins, especially given as far as seat utilization is concerned is definitely still below optimal levels or would you say that the pace of investments would be higher and you would prefer to be more high-teens margins?.

Yes, I'll take that. I think when you look at our business going forward, while there certainly remain opportunities to leverage some of the investments that we've made in the past and we have done some of that as well.

We also understand that the need to continually invest and potentially invest in an accelerated rate is certainly there today, given the market opportunity and some of the evolving things that are going on in BPM that Keshav just spoke about with digital opportunities and changes in our clients' business processes.

So, we want to make sure that we're investing at the right rate. We want to make sure we're staying ahead of the curve, so that we can provide our customers with the types of solutions and the type of business value that they're looking for.

So, while we continue to try and leverage the investments that we've made in the past, including sales force and infrastructure and the capability group, we also understand that more investments into digital and analytics and technology and new verticals are things that we're going to have to continue to do going forward.

So, from that perspective, we believe margin neutral. When we look forward, we also have to take into consideration some of the one-time benefits that we've seen both in fiscal 2015 and fiscal 2016. We don't think we're being conservative. We think this is the right long-term place for the Business Process Management space.

Obviously, when we talk one year out, two years out it will be a function of where currency is, where our hedge positions are, all those kinds of things as well. But directionally, we think it's the right place for this industry..

The next question comes from Bryan Keane of Deutsche Bank..

Just a follow-up on the margin question, if we took out, looking at the hedges and the FX, how much year-over-year improvement was there in the core operating business?.

It's very safe to assume its 50%-50%. 50% from the hedging, FX gain and 50% on the operating leverage due to increasing volumes and proximity..

Okay.

And then just on the overall market, do you guys have a way to quantify what share you are gaining on the market in the BPO sector?.

Obviously, quantification of market share would be a very difficult thing to do and subjective based on how people are defining the marketplace.

I think suffice to say when you look at our growth rates on an organic constant currency basis vis-a-vis where some of our peers are, I think we feel very comfortable that we’re gaining share probably in the range of 2%, 3% kind of range a year but obviously a lot of that has to do with how people define the Business Process Management space and what types of opportunities they're pursuing..

I'll add a little color there and say that if you -- as I've had conversation with the analyst community and the advisor community as well as folks from other companies, I like to think that WNS is actually playing in the areas that we focus on, we’re playing in almost every deal that is out there at this point in time.

And I think that's a huge confidence boosting measure, for me as the CEO of the company, it means our team has understood and internalized the messages of the company, have been able to take those messages and experiences that WNS has garnered and has now presented and is continuing to present WNS in every relevant deal in the marketplace that we can contribute in and that's very different to what the position was maybe two or three years ago..

Can I ask, maybe there is another way to look at it is by win rate, how has the win rate for WNS improved on these deals versus a couple years ago?.

I would say our win rate is much better than where they were two years ago..

And just the final question I have is just thinking about over the long term on the topline, is there a way for us to tell how many signings, expansions and how much you need to retain in order to keep that double-digit constant currency revenue growth going? Since no bookies number, it's a little difficult for us to tell if you're signing enough business to -- you showed so much improvement over last couple of years, how do we know that's sustainable, the growth rates that you're showing?.

Sure, I'll take that, Bryan. I think when you look at the progress that we're making, certainly, there are some metrics that you can track that should give you comfort about the ability to continue to grow at a healthy clip and client additions, client expansions are two of those key metrics and directionally, they are both headed the right way.

I think what's really important for us and I think you've see it when you look at our customer concentration levels, is that from an exposure perspective, we've been steadily pushing down customer concentration level across the top 3, 5, 10, 20 within the company and that reduction in customer concentration is really two fold, one is the maintenance of our legacy customer base which is dropping them within the client list but more importantly, it's the ramp.

As we spoke a little bit earlier, of the new clients, the large deals that have been added over the last three or four years and what we're really excited about is, we know those are not mature complete relationships.

So I think where the comfort and the confidence from the company's perspective in terms of the ability to continue to grow at a healthy clip comes from is twofold. One, we're doing the right things, we're positioned well, the pipeline is healthy, we're participating in more deals as Keshav said and we're winning more deals.

So on the front end, we feel really good. The second is in terms of our ability to continue to farm and expand the relationships we've put in place, we’re in a much, much better position to expand and grow because of the change in the customer base than where we were three or four years ago.

So both of those directionally, I think, bode very well for WNS..

The next question comes from Brian Kinstlinger of Maxim Group..

I'm curious, based on the additional airline offerings you've got what's the addressable market within your client base by your estimate? Could you double the size of your airline revenue in three to five years?.

So that's a fantastic question and that's something that we're working on at this point in time. It's an offering that is now being piloted with two airlines.

But if you look at what the combination of those four offerings actually provide and once we’re able to actually customize them out on individual airlines, our ability to actually charge in the long term first to get sold and provide all of those offerings to an airline is extremely high.

So from a revenue point of view it can be a massive accelerator. We'll have wait and see how well our team positions this with a number of clients, one.

More importantly in the strategic priority of individual travel companies, so it's not just airline but it moves across airlines, hotels as well as the car rental companies, so anyone trying to provide an integrated solution to a traveler can now be addressed through WNS's offering. So we’re extremely bullish about the potential for revenue growth.

But in terms of calling out specifically at this point in time what that impact could be over three to five years, I would like to wait and give a specific answer..

And how long these two pilots going to last, when do you think this might be available for sale?.

So these pilots are actually pilots that are ongoing at this point in time and we expect that in the next quarter or two, our ability to take them across different airlines and travel players exists..

And then on the income statement, I'm just curious we saw a jump in stock-based comp, I believe.

Should we expect going forward this kind of quarterly run rate, was there any anomaly there?.

So from a stock-based compensation there were two specific reasons for just an increase. One was the stock price performance. Based on the overall company performance as well as some of the earlier issues, performance related stock which was still based on the company's performance.

But having said that, it is very much in line with the peers and we expect to be in this range, but having said that there is also a dependency on how positive the stock performance and the overall company performs and the costs are being based on that..

I really say that historically probably it was at low levels because the company was more in a turnaround kind of phase. I think that's how it happened and I think we’re just getting to where the market is..

And then finally a two-part question. Curious what the wage increases that you highlighted, what kind of percentage increase was there and then can you talk about the expected hiring plans for the fiscal year? Thanks so much..

Sure. Wage increases this year, for the most part, effective in our fiscal first quarter, April quarter. We're in line with where they've been. Now one of the things we have been doing is moving more towards an anniversary-based wage increase. So we’re trying to spread out the impact of wage increases every quarter.

But that being said, the overall increase that we expect for this year is in line with where it's been in the past in the 7% to 9% range overall. We don't see that changing in the near future, so feel very comfortable not only in that number, but also the ability for us to manage that number going forward..

The next question comes from Ashwin Shirvaikar of Citi..

So I have two interrelated questions. I'm going to ask them together. One is on build and other is on buy. So as I look at your more traditional verticals, you're certainly deploying more IT, more software. You mentioned traction in your newer verticals.

How do you differentiate in those and how do you rapidly build expertise so you can win and successfully deliver more IT-based solutions in those newer ones? And then the buy question is maybe the way you do it is through M&A. Can you give us a qualitative color on the pipeline and seller expectations for the M&A pipeline? Thanks..

Sure, Ashwin, that's an excellent question that before I answer that I must say that every one of our existing clients also has a traditional need, a transitional need and a new innovative need.

So, the most exciting part of our business pipeline is the fact that with existing clients who have now being serviced for years together and who understand the model well, understand WNS well.

We're very excited with some of the new models that we're bringing to the table leveraging some of these new disruptive volume models that I spoke about and are engaging exceeding well. But I think the more important impact is as the traditional areas inside the clients have got comfortable.

They are actually allowing us to farm and get into completely new areas within a client that we may have serviced for six or eight years, right because those clients earlier probably were serviced by different kinds of companies, maybe the traditional consulting kind of companies and today they see that a company like WNS who understands the domain exceedingly well, who has created intensive kind of models around some domains, leveraging all these other models, can actually help them.

And that's actually opened up a new pipeline which we’re very excited about with our traditional clients.

With some of the new clients we’re seeing that a few of them would like to start in the traditional model which means FTE-led and staffing with what I would call more customer interaction as opposed to traditional call center and then from there our ability to penetrate [indiscernible] higher value and other services.

And there are some like that digital disrupters that I spoke about, the e-commerce companies, some of the new travel, portals, some of the other companies who actually are engaging with us in a much more advanced model, right, where they really control the technology, they interact with the customers, but they want us to service the end customers and ensure that the customer that they've brought in is serviced and handled exceedingly well.

More importantly that we're continuously pushing towards analytics around what is the new thinking and what the end customer is telling them about their new demand. So, we're actually helping them to convert sale. So this essentially is how we're focused and how we have built the pipeline on our existing customer base.

Now if you look at some of the newer areas that we spoke about which can be serviced to the M&A, as I said before, our M&A strategy at this point in time is completely focused on building new capability in some chosen areas.

Sanjay spoke about health care, actuarial, some analytics areas and these are areas that over the past two quarters we have spent a lot of time on. We have built a decent pipeline of prospects. We’re interacting with some of them and as and when we believe it is the right time and at the right value we will do something, right.

But again, I want to caution everyone that this is not transformational kind of M&A at this point in time. Our focus really is building capability and then using it to enhance our revenue-earning potential..

The next question comes from Puneet Jain of JPMorgan..

So, question on this platform or RPA kind of work that you talked about last quarter also. So it's great to see continued traction in that work, but I would have expected increase in transaction on outcome-based pricing.

Can you talk about how you incorporate those sources in your FTE-based contracts, do price increase reflect volume of work done or transition those contracts to other players in the market?.

I think when we engage with most of our clients, the initial phases of the relationship, as I mentioned earlier, tend to start with either front-end types of customer interaction services or back-end types of finance and accounting services.

And as a result, we also expect the first couple of years to be a feeling out process where there needs to be comfort that you've selected the right provider for your longer-term business process management journey.

As part of that journey what needs to happen is the client needs to get to a comfort level where as they move up the value chain to higher-level services, they're not only comfortable in allowing someone to manage those for them, but also allowing them to manage it in more of a controlled environment.

And one of the things that people don't talk a lot about is the move to transaction-based models, the move to outcome-based models involves a significant level of trust with the provider because at that point in time essentially the client has lost a lot of the control over how those processes are managed day to day.

They're not dictating the number of FTEs, they're not dictating where those resources sit, they are not dictating what the resume of those resources needs to look like. So a lot of this comes over time with comfort and confidence in picking the right providers.

So, it's very, very common for relationships to start, as I said, front end or back end, it's also very common for these relationships to start on an FTE basis. Now, there's always going to be a loose affiliation between the number of people you have working on a process and the number of transactions or the output that you're managing.

Unlike a transaction or an outcome based model, it's not one for one, but for example, a client's business volumes are declining steadily over the first two to three years of the contract, even within an FTE-based model, you will see that the client will push for lower numbers of resource and a lower cost.

What we try and do is, in order to allow the client to continue to deliver to the client productivity improvements, one of the things we want to do is link that to more control on our part to managing the process.

So a lot of that is really more a function of control and our ability to move to those kinds of higher value models, as the client gets comfortable..

And [indiscernible] pipeline remains healthy, if this confidence in pipeline stemming from new business with existing clients versus being dependent on winning new clients where the actual visibility might be lower?.

I think it's both, Puneet. I think when you look at the comments that Keshav has made about the pipeline in terms of it being broad based, I think what that means is expansion opportunities within our existing customer base and new logo opportunities across the spectrum of verticals and across the spectrum of services.

So we feel very, very good about how we've been able to progress that pipeline and certainly having 75 plus new logos added over the last two to three years helps the opportunity for farming. So feel really good about both the hunting and the farming opportunities today in the pipeline..

And is your visibility on pipeline converting into revenue better than what it was last year, maybe two years ago?.

I think always the visibility for pipeline converting into revenue, Keshav mentioned that the win rates are certainly a little bit better which is encouraging, but it's also the one area where we have very limited control in terms of timing.

So I think we feel comfortable that the conversion rate should maintain and hopefully continue to improve and that's one of the focus areas. That's why we haven't increased the size of the sales forces as Keshav mentioned. We've been relatively stable in terms of the number of the resources that we've had.

And the focus has been on increasing the productivity, increasing the throughput from that team.

We really do want to get to the point where we've pushed the team to the point where we need to add resources to continue to grow, but at this point in time we don't think we're there and the opportunity for us to continue to improve productivity to continue to improve throughput and adjust the win rate upward is still there for us.

So feel good about the progress, but still have work to do..

The next question comes from Dave Koning of Baird..

I'll keep this short, but basically, the South African business has been crushing. Your run rate in Q2, about double what it was just a couple of quarters ago.

Is this a higher margin business? I guess, this part of the reason and maybe you can just describe what exactly is happening there and if that's set to continue to grow fast even with a very weak rand, that's part of the surprise too?.

I think we feel really good about the investment that we made and the acquisition that we did a few years ago in South Africa and it was part of the reason that we have progressively moved on that opportunity back then.

We have seen that not only has South Africa presented a domestic opportunity for us, but it's also presented a significant opportunity to expand the work that we do for some of our other global clients. So, South Africa has really become the strategic asset for us.

We've seen other key competitors starting to move into the geography because it is a key delivery location, not only have we been able to establish it as kind of an alternative voice location for us, but it's also become a huge opportunity from an insurance capability perspective for us and we've set up a center of excellence on the actuarial side within South Africa.

So we feel really good about this location as a delivery hub for us, as we mentioned, over the last couple of quarters.

Part of that growth has been a large deal that we recently signed where we rebadged some employees, but overall the traction from expanding new relationships in that area as well as doing more work for our existing customers out of that location have been terrific and the margins for that business are extremely healthy..

Okay.

So it's a trend not like a one-time uplift, it's like this level could be sustainable, this level of revenue?.

Yes, I think we believe, not only is it sustainable but we hope to continue to see more progress out of South Africa..

I will say that actually from our perspective, we were among the early entrants to identify the potential of that location. We have now taken that location to our global clients and because of the advantage we have from being early entrants there, our ability to really grow leveraging that location is far higher.

So at this point in time, not only are we servicing local clients and winning lots more of clients because the confidence around the WNS name is very high, but many of our global clients have already started being serviced from South Africa, many more are visiting and this is not on existing work.

This is around expansion in new areas that traditionally WNS, as you know could not offer because we were not positioned in that geography..

I guess one just really quick follow up. Aviva growth, biggest decline in about five years, are we close to turning the corner? I know you've talked a lot in the past about eventually more services, but it just seems to be in pretty aggressive decline mode right now.

I just want to know that we're kind of turning the corner there soon?.

Yes, I would say that we're pretty confident that all the activities and actions that our sales team and farmers have inside the Aviva account as well as influencing whatever needs to be done on big acquisitions that we did recently is likely to bear fruit very soon.

So as obviously Aviva looks at synergies of that acquisition, they may have delayed certain programs temporarily but we're pretty confident that growth on that account will only come back very soon.

So I think it's just a question of timing and we'll have to wait and watch but I can only tell you that WNS is extremely well positioned in number of conversations inside the account..

And I think, Dave, from an overall perspective, when you look for example at a year-over-year perspective at the Aviva account, you're looking at over 7% depreciation in the British pound, you're looking at volumes on the same services that as we've talked about with this natural 5% headwind to our business.

The volumes on the same services at Aviva have been ticking down and we also have committed the productivity improvements which we kicked in, in the first quarter.

So, kind of the combination of productivity improvements, slightly declining volumes and currency depreciation have a lot to do with the optics in terms of why that business is down, but as Keshav mentioned, we’re excited about some of the opportunities for us to get this relationship and this account moving back in the right direction..

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