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

Frank Atkins - SunTrust Joseph Foresi - Cantor Fitzgerald Anil Doradla - William Blair Ashwin Shirvaikar - Citi Group Brian Kinstlinger - Maxim Group Edward Caso - Wells Fargo Puneet Jain - J.P. Morgan Vincent Colicchio - Barrington Research.

Good morning and welcome to the WNS Holdings’ Fiscal 2016 Fourth Quarter and Full Year Conference Call. At this time, all participants are in a listen-only mode. [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?.

Net revenue is defined as revenue less repair payments; adjusted operating margin and adjusted net income or ANI, are defined as operating margin and profit, excluding amortization of intangible assets and share-based compensation. These terms will be used throughout the call. I would now like to turn the call over to WNS’ CEO, Keshav Murugesh.

Keshav?.

Thank you David and good morning everyone. Our fiscal fourth quarter results were once again solid despite ongoing top line pressures driven by depreciation in key revenue currencies against the US dollar.

Fiscal fourth quarter net revenue came in at $135.3 million, representing a year-over-year increase of 7.4% on a reported basis and 12.7% constant currency. Sequentially, reported revenue was down 0.4%, but increased 2.8% on a constant currency basis. In Q4, WNS added eight new clients, expanded nine existing relationships, and renewed 15 contracts.

Adjusted operating and net profit margins in the fourth quarter remained healthy coming in at 22% and 19.9% respectively. In addition to strong financial performance, the company also had several operational highlights in Q4.

In a press release issued last month, WNS announced the signing of a large contract win with QBE Insurance in Australia, one of the world’s top 20 general insurance and reinsurance companies. WNS will deliver high-end analytics for QBE across claims, underwriting, actuarial, distribution and fraud.

This is one of the largest and most comprehensive insurance analytics deals in the BPM industry and a true testament to our deep domain capabilities.

In the fiscal fourth quarter, WNS also launched a suite of knowledge enabled solutions for the insurance vertical aimed at helping clients accelerate the digitization of their business processes and better service their end customers.

The collection of four unique offerings span the insurance value chain and leverage best in class embedded analytics, business automation, mobility and robotic process automation to address industry challenges, including claims settlement, fraudulent claims, and insurance policy lifecycle management.

In March, WNS was pleased to announce the acquisition of Value Edge Services Private Limited, a leading provider of commercial research and analytics services to the pharmaceutical industry.

This asset gives WNS consulting grade marketing and data analytics capabilities, a cloud-based advanced technology platform for competitive intelligence, and a blue-chip roster of clients including six of the world’s top 20 biopharma companies. We believe this tuck-in acquisition strengthens our capabilities and domain expertise in the pharma space.

As you may recall, in the weeks preceding the Value Edge announcement, WNS was positioned in the WINNER’S CIRCLE in HfS’ blueprint report for pharmaceutical industry specific BPO.

The company was cited for capabilities across both execution and innovation, including account management, delivery performance, generating actionable data, vision for pharma as a service, creating intelligent engagements focused on business outcomes, and investing in digital solutions.

WNS also received further validation of our capabilities in this subvertical with the extension of our high-end research and analytics contract with GlaxoSmithKline through the end of 2020. And finally, WNS was recently named to the Aon Hewitt Best Employer list in India for 2016.

The company was cited for creating a world-class work environment that drives collaboration across diverse cultures and countries and enables the company to deliver innovative and differentiated solutions.

WNS will continue to align our talent initiates with peoples’ career and growth aspirations and to ensure we have the right skills to transform our client’s businesses in this age of disruption. I would now like to take a few minutes to recap the highlights of our fiscal 2016 performance.

From both an operation and financial perspective, fiscal 2016 was a solid year for WNS. Net revenue growth was 5.6% on a reported basis, while constant currency revenue grew 11% after adjusting for the impacts of exchange and hedging. Growth was entirely organic and was broad-based across clients, verticals and service offerings.

Sales productivity continued to improve for both [hunting] and farming opportunities, driving a steadily expanding pipeline and the acceleration in constant currency revenue growth. In fiscal 2016, WNS added 24 new clients, expanded 30 existing relationships, and renewed or extended 69 contracts.

All of these figures represent solid improvement from fiscal 2015 levels. While currency net of hedging was a headwind to revenue it did provide a tailwind to margins and profit. Full year adjusted operating margin and adjusted net income percentages both expanded by over 100 basis points and adjusted EPS grew by over 11% to $1.92 per diluted share.

In fiscal 2016, WNS generated $103 million in cash from operations, paid off our remaining debt balance and completed the company’s first ever share repurchase program buying back 1.1 million shares of stock. In March, WNS received shareholder approval for an additional 3.3 million share buyback, which can be executed over the next 36 months.

We finished the year with $175 million in cash, and no debt, representing a net cash position of $3.26 per diluted share. WNS also made significant strides in 2016 in terms of capability creation and strategic positioning.

We rolled out new technology enabled solution suites for the travel and insurance verticals, announced the acquisition of Value Edge in the pharma space, entered into strategic relationships with technology and analytics partners, including Blue Prism, [Indiscernible] and Rosslyn Analytics, and launch several new hiring and training initiatives designed to ensure WNS resources are prepared for the future of BPM.

Entering 2017, the demand environment for BPM services is stable and healthy. As we have discussed on previous calls that are a number of disruptive trends pushing clients to evaluate and adjust their operations, processes and technology.

These include leveraging analytics to generate competitive advantage, managing regulatory and compliance related changes, enhancing the end-client experience and driving ongoing cost and efficiency requirements.

We are seeing these requirements impact WNS in all phases of the demand cycle with improving activity levels for client discussions, RFPs, and facility site visits. The demand is broad-based in nature, cutting across verticals, services and geographies.

The net result is that WNS enter fiscal 2017 with a healthier new business pipeline than last year, and solid visibility for top line growth. Currently we have 90% visibility to the midpoint of our revenue guidance, which represents over 11% constant currency growth.

Given the market opportunity for BPM in fiscal 2017 and beyond, WNS must continue to invest in our business in order to meet the changing needs of our clients. The objective of these investments will be enhancing our capabilities, including specialized domain skills, high-end analytics, digital accelerators and technology tools and platforms.

In addition to internal operational initiatives and R&D efforts, we will continue to look for strategic partnerships and tuck-in acquisitions to augment our offerings. Leveraging our healthy balance sheet to help achieve these goals will remain a focus area for WNS in fiscal 2017 and beyond.

Additionally, we will need to ensure that we are hiring and training our talent force to meet the changing BPM landscape. Technology and automation will reduce requirements for lower end repeatable process tasks, analytics will be embedded in all key business processes and end clients will increasingly expect high-end multi-channel servicing.

Despite these changes, it is important to remember that at the end of the day the ability to help manage a client’s traditional, transitional and transformational requirements begins with deep domain expertise.

We believe our vertical structure and industry focus provides WNS with a differentiated position in the marketplace and a unique ability to deliver quantifiable outcomes and true business impact. In our press release issued earlier today, WNS provided our initial full year guidance for fiscal 2017.

We currently expect revenue to be in the range of $551 million to $583 million, representing top line growth of 4% to 10%. Excluding the impacts of currency and hedging, guidance reflects constant currency revenue growth of 8% to 14. Consistent with previous years, we enter the fiscal year with 99% visibility to the midpoint of the range.

Adjusted net income for fiscal 2017 is expected to be in the range of $97 million to $105 million or $1.83 to $1.98 per adjusted diluted share. In summary, we are pleased with our fourth quarter and full year 2016 fiscal and operational performance, and exited about our business momentum as we enter fiscal 2017.

Demand for BPM services is evolving and growing and we believe that WNS is well positioned to capitalize on industry trends with a unique combination of domain knowledge, operations expertise, analytics capabilities, and technology enabled solutions.

We will continue to focus on driving industry-leading top line growth and profitability, while investing in our business, and managing our capital allocation programs efficiently in order to drive long-term value for all of our key stakeholders. I would now like to turn the call over to Sanjay Puria, our CFO, to further discuss our financials.

Sanjay?.

Thank you, Keshav. With respect to our fourth quarter financials, net revenue increased to $135.3 million from $126.1 million in the same quarter of last year, growing 7.4% on a reported basis and 12.7% on a constant currency basis.

Year-over-year, quarter-four revenue was pressured by depreciation in key revenue currencies against the US dollar, including the British pound, South African rand, Australian dollar, euro and the Canadian dollar.

From an industry perspective, revenue growth was broad-based with the shipping and logistics, consulting and professional services, travel, healthcare and utilities vertical each growing 9% or more year-over-year.

With respect to our service offerings, revenue growth versus the prior year was driven by high-end customer interaction services, research and analytics, and technology services. Sequentially, net revenue was down 0.4%, but increased by 2.8% on a constant currency basis.

Quarter-over-quarter, revenue growth was broad-based and healthy, but offset by currency headwinds net of hedging. Adjusted operating margin in quarter four was 22% as compared to 20.7%, reported in the same quarter of fiscal 2015 and 22.1% last quarter.

On a year-over-year basis, adjusted operating margin increased 130 basis points, as a result of currency favorability net of hedging, improved seat utilization, and operating leverage on higher volumes.

These benefits were partially offset by the quarterly impact of our annual wage increase and costs associated with hiring requirement for ramping projects. Sequentially, adjusted operating margin was down by less than 10 basis points.

Costs associated with hiring ramps were largely offset by improved seat utilization and the reduction in catch-up costs from the India Payment of Bonus Act recorded in quarter three. The Company’s other income was $2.6 million in the fourth quarter, down from $2.8 million reported in quarter four of fiscal 2015, and up from $1.9 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. Sequentially interest income increased due to higher average cash balances. WNS’ effective tax rate in the fourth quarter was 17%, down from 20.4% last year and 17.1% reported in the previous quarter.

The year-over-year decline in tax rate is largely the result of the shift in our investment instruments, which was offset by the lower interest income, previously mentioned. The company’s adjusted net income for quarter four was $26.9 million compared with $22.9 million in the same quarter of fiscal 2015 and $26.4 million last quarter.

Adjusted diluted earnings were $0.50 per share in quarter four, up from $0.43 in the fourth quarter of last year and the same as reported last quarter. As of March 31, 2016, WNS’ balances in cash and investments totaled $174.8 million and the company had no debt.

WNS generated $31.8 million of cash from operating activities this quarter and free cash flow of $23.1 million after accounting for $8.6 million in capital expenditures. DSO in the fourth quarter came in at 28 days, the same as reported in both quarter four of last year and in quarter three of this year.

With respect to other key operating metrics, our total headcount at the end of the quarter was 32,388. WNS continued to hire throughout quarter four as we prepare for committed project ramps in the first half of fiscal 2017.

Our attrition rate in quarter four was 35%, up from 32% reported in the fourth quarter of last year and up from 30% in the third quarter. Global built seat capacity at the end of the fourth quarter was 26,407 and average built seat utilization came in at 1.22.

Based on the aggressive hiring in quarter three and quarter four, this improvement in seat utilization is to be expected. However, given that the headcount increases were largely in advance of revenue ramps, there was a corresponding reduction in productivity.

As always, we expect the seat utilization metric will fluctuate quarter-to-quarter, based on facility build out requirement and hiring cycles. I would now like to provide you with a brief financial summary for fiscal 2016 before we turn our attention to the coming year.

Net revenue for the year came in at $531 million, growing 5.6% on a reported basis and 11% on a constant currency basis. Full year revenue growth was led by the shipping and logistics, retail CPG, utilities and travel verticals, which all grew 10% or more.

The company’s fiscal 2016 adjusted operating margin expanded over 110 basis points to 21.8% driven by currency and hedging gains, improved seat utilization, operational productivity and higher business volumes.

These benefits were partially offset by the impact of our annual wage increases, cost associated with the Indian Payment of Bonus Act, advance hiring and ongoing investments.

Interest income, net of interest expense, was $2.4 million largely as a result of the shift in our investment strategy in response to changes in the India dividend distribution tax for certain instruments.

While this reduced our interest income, there was an offsetting reduction in our effective tax rate, which dropped from 19.5% in fiscal 2015 to 17.1% in fiscal 2016. Full year adjusted net income increased from $92.3 million in fiscal 2015 to $103 million in fiscal 2016, growing 11.6%.

WNS generated $103 million in cash from operations and $75.6 million in free cash. The company spent $27.5 million on capital expenditures, $26.2 million on debt repayments and $30.5 million on share repurchases.

The net result was that WNS ended fiscal 2016 with $174.8 million in cash and no debt, and increase in the company’s net cash balance of $34.6 million or 25%. The company was also pleased with the continued progress in several of our key operational metrics in 2016, including reduced customer concentration levels and improved seat utilization.

In our press release issued earlier today, WNS provided our initial guidance for fiscal 2017. Based on the company's current visibility levels, we expect net revenue to be in the range of $551 million to $583 million, representing year-over-year revenue growth of 4% to 10%.

Revenue guidance assumes an average British pound to US dollar exchange rate of 1.42 for fiscal 2017 as compared to 1.51 last year. Excluding exchange rate impacts, our revenue guidance represents constant currency growth of 8% to 14%. We currently have 90% visibility to the midpoint of the revenue range, consistent with April guidance in prior years.

Guidance includes our normal recurring revenue headwind of 5% related to committed productivity improvements, project runoffs, and lower client volumes. Similar to prior years, these headwinds are skewed to our fiscal first quarter. We expect our hedging gains to be lower in fiscal 2017 based on current FX rates and hedge position.

And excluding the impact of reduced hedging gains, year-over-year adjusted operating margin in fiscal 2017 are expected to be relatively stable. Ongoing investment in our business will be funded by productivity improvement, leveraging prior investment and higher volume.

Adjusted net income is expected to be in the range of $97 million to $105 million based on 66.5 rupee to US dollar exchange rate for fiscal 2017. This implies adjusted EPS of $1.83 to $1.98 assuming a diluted share count of approximately 53 million shares.

With respect to capital expenditures, WNS anticipates our requirement for fiscal 2017 to be in the range of $22 million to $25 million. We’ll now open up the call for questions.

Operator?.

[Operator Instructions] Our first question comes from the line of Frank Atkins of SunTrust. Your line is now open please go ahead..

Thanks for taking my question. And congratulations on good quarter.

I wanted to ask little bit about the banking and financial vertical, any color you can give us there in terms of the demand trend or opportunities you see?.

Let me take that Frank. I think for WNS obviously given the fact that our services to traditional banking and financial services is somewhat limited. I don't know that we are the best to provide that for you. We have seen actually some healthy growth in terms of the banking areas that we service.

On the year-over-year basis, we were able to grow this business which is a good sign for us in the fourth quarter it was also very healthy but as I mentioned the banking financial services vertical for us only represents 6% of revenues so not really the highest exposure.

If you are including the insurance in that segment and I think we probably have to play with different perspective. .

Okay that's helpful. And as my follow-up I wanted to ask about the revenue by contract type a little bit of tick up in FTE based contract anything driving that would you expect going forward and finally with the tax rate embedded in guidance. Thanks..

Sure I will take that Frank.

In terms of the contract type, you are correct we have seen good healthy growth in the FTE based revenues and I think that's largely a function of what we have been discussing over the last couple of quarters which is the fact that, as we bring on new clients and we start to engage a new services the trend tends to be that the folks that are newer to outsourcing and moving processes for the first time tend to do so on an FTE basis that allows us to provide the right level of comfort, that allows the client to maintain some level of control over the processes and for us most importantly it actually allows us to establish the proper benchmarks to convert those process into transaction and outcome base model.

So it does tend to work very well.

I think what you are seeing in terms of the growth in FTE for WNS similar to the growth that we have seen in our customer interaction services is the fact that we are bringing out a lot of new clients, we are bringing out a lot of new processes and clients are proceeding cautiously but it's a direct correlation to the acceleration in our growth. .

Yes and Frank this is Keshav I just add on to that in fact from our perspective it's actually a very positive signal of the fact that we are bringing in a number of first time outsourcers into WNS and as you know many of them when they start off on this basis and thereafter move to other models but it gives WNS a six to eight years run in terms of the ability to penetrate and varies across outcome.

So actually it's very exciting in terms of the pipeline the kind of customer visits we are having, the conversion ratio that we are seeing and how some of these contracts started off on the FTE basis maybe two years ago have started transitioning to other models as well. .

Yes and the second part of your question Frank we expect the tax rate in fiscal 2017 to be fairly consistent with ’16 what we are looking right now in the range of 17% to 18%..

Alright great. Thank you very much..

Thank you..

Thank you and our next question comes from the line of Joseph Foresi of Cantor Fitzgerald. Your line is now open. Please go ahead..

Hi. I was wondering what we talked about the guidance our there for next year. You had some pretty good growth rate stags at this year and I think you talked about the pipeline being better heading it to this year than last year.

So I am wondering on the guidance range for this year, what puts you at the bottom end of that range and what put you at the upper end?.

I think Joe that the methodology is we walk into the areas is consistent as I said we walk in with 90% visibility to the mid-point of guidance which is a little bit above 11%, I think the things that help us get to the higher end of guidance are faster ramps of the projects that we have visibility to today and acceleration in the new business and just overall healthy demand in the space.

So there are certainly a number of factors that could help us get towards the higher end or potentially beyond the higher end of guidance. Again, this is 90% visibility, 12 months out from the end of the year. So very happy with where we stand today.

In terms of what create downside relative to the mid-point, obviously if we are unable to sell the remaining 10% or close to remaining 10% that is one of the factors but if you look historically at how the company has performed and executed we move throughout the year at this point in time I would say that the biggest risk on the downside to the midpoint of guidance would be if something unexpected were to happen and we were to lose the piece of business for some reason that we don't have visibility to today..

Got it. .

Joe I just wanted to add something here, having said all of that in terms of momentum from a company point of view we are going into 2017 we feel really great.

The momentum is great, client interactions are solid and quite early in the year we are seeing some very-very good signals in terms of potential client decision making so I feel extremely good about where we are entering into the year. .

Yes that's why I asked this because it gives me a biased three upper end of the guidance range.

Just it sounds like you have some maybe some larger deals that are embedded in obviously we have seen in the headcount growth, can we get some color on the flow of revenues in the upcoming quarters? I think you mentioned the first quarter in your commentary, how should we expect revenues to flow throughout the year on sort of a quarter-by-quarter basis? I am just looking for a short of a rough idea of that.

.

Yes I think you are right Joe. I mean clearly we have had some good tractions in terms of large deal signing and in terms of new client adds over the past couple of quarters than you have seen that in the fact that we have actually hired 2500 people over the last two quarters.

So we do expect those 2500 people, new clients to ramp over the first two quarters of fiscal 2017 Q1 for us is going to be soft as it has been over the last few years.

We typically see the biggest impact in our business from productivity from project run-off from volume impacts hit us on Q1 so we are expecting at this point in time that on a reported basis Q1 will be relatively flat with Q4 but if you look at Q1 on a year-over-year basis assuming a flat revenue number for example what you are looking at is 7% reported growth and 13% to 14% growth on a constant currency basis.

So I think as Keshav mentioned we do walk into the year with considerable momentum, we are expecting that revenue growth from the reported basis will be biased towards the back half of the year but fairly healthy and consistent throughout the year on that [indiscernible] basis..

Okay and the last question from me just on the margins we saw huge productivity pick up a little bit and then you talked about sort of fluctuating around headcount, how should we think about that metric in relationship to the margins on both the short and long term basis. If you can give a color on that it would be helpful. And thank you..

Yes you right Joe we have made considerable progress over the last couple of years in fact on the seat utilization metric and our fourth quarter numbers came in at 1.22, the full year numbers came in at 1.21 and I believe that's up from a low two years ago where we did 1.16. So we have done a good job in getting that number up.

We do expect that we will volatile quarter to quarter. I think as Sanjay mentioned in his prepared remarks when you hire at an accelerated rate the way seat utilization is calculated it's going to have a favorable impact on seat utilization.

The flip side to that is when you are adding heads and you are not actually billing the clients for those heads it has a negative impact on productivity or revenue per employee.

But directionally what our goal is over the next couple of years is to continue to move that seat utilization in the right direction to move up from 1.22 towards 1.25 over the time. But we want to do that while also improving productivity or improving the revenue per employee metric.

So what we want to do is make sure they are both moving in the right direction not one heading North and one is headed South.

So I think to accurately gauge our performance you need to watch both of those metrics on a standalone basis, same of 1% movement of seat utilization has a positive benefit to our operating margin is about 20 basis points but again need to make sure you are viewing that in parallel with looking at what’s going on in terms of employee productivity. .

Thank you and our next question comes from the line of Anil Doradla of William Blair. Your line is now open. Please go ahead..

Hey guys congrats from my end too, glad to see continued solid execution. So couple of things you guys talked about the headcount, obviously a very strong growth year for the headcount it takes some time for these guys to ramp and become productive.

So couple of questions around it, one is if I got my numbers right Philippines seems to have witness a nice spike there can you remind us again what Philippines has used from a geography point of view from a competency point of view?.

Yes so let me start that answer, I am sure Ron will have something to add on as well but yes absolutely we are quite excited about the growth we are seeing all over obviously in this quarter we saw some significant growth from the Philippines driven a lot by our travel vertical and the insurance vertical and as you are aware we do a lot of work on the customer interaction side from the Philippines and we are seeing some of our high growth accounts ramp very-very fast.

.

Okay. And when I look at the year from average revenue per employee obviously 2016 would be a down year just because of the mix new guys coming on board.

But as I look at fiscal ’17 can we expect to see an year-over-year growth in the average revenue per employee metric or do you think that will continue to take some time before it reverse to be positive?.

Actually let me take that Anil because there is some really interesting uptakes to our business. One of the things that I think people fail to take in consideration when they look at our revenue per employee metric and then how that's tracking over the time is the impact of currency.

So if you look at our average headcount in fiscal ’16 we had a little over 30,000 people and when you look at that as compared to fiscal ’15 what you will see is that you are looking at about 3.5% reduction in revenue per employee on year-over-year basis. But what that doesn't do is take into a account the impact of currency that I mentioned.

So when you adjust for currency what you would see in fiscal ’16 is that our revenue per employee actually grew 1.5% so I think when you look at this metrics and you look at how it's been trending over time we have been improving revenue per employee between 1% and 2% per year and certainly as we move forward that the goal is to continue to move in that direction, we continue to look at technology enabling our services to work smarter to flatten the leverage pyramid and to do all these things to drive productivity hopefully in conjunction with how we are improving our seat utilization..

That's very useful David.

So effectively what I sense is that in spite of a big headcount increase productivity improvements and technology utilization is offsetting whatever time it takes for those guys to be productive is that a conclusion?.

Yes, that's correct I mean when you look at our margins for next year we have a significant number of investments that we have embedded into our plan and those investments in addition to the impact of annual wage increases are going to get funded through improved seat utilization. They are going to get funded through improved productivity.

They are going to get funded through higher operating leverage on top-line growth.

The compression that you see in margin, the pressure that you see on the bottom-line and that gives entirely about currency, a portion of that related to the depreciation in the British pound, a portion of that related to the roll off our hedging positions but essentially what we are doing is funding ongoing investments in our business with running our business smarter and more efficiently.

.

Excellent congrats once again and looking forward to a great 2017..

Thank you. .

Thank you and our next question comes from the line of Ashwin Shirvaikar of Citi Group. Your line is now open. Please go ahead..

Thank you guys. Good morning and congratulations on the good quarter. .

Thank you Ashwin..

So, the first question I have is just to clarify, I think Keshav you mentioned ramping a number of clients that are new to outsourcing this year you talked a little bit about the revenue cadence, is there also sort of cash flow cadence to worry about in terms of the quarters of the full year?.

Let me take that Ashwin I think when you look at the seasonality of our business again there is a history there we pay bonuses in Q1, we have lower revenues on our quarter-over-quarter basis in Q1 so what we typically see from the cash flow perspective is Q1 tends to be the softest quarter of the year and those cash flows tend to improve as we move throughout the year.

So there is some seasonality to cash flows with Q1 being seasonally light but other than that nothing that we would expect in fiscal 2017 different than our normal pattern..

Okay got it.

And in terms of competitive intensity in general for the pipeline and when it comes to projects like BAQBE, when that you mentioned with the insurance analytic what sort of, are you seeing differentiated competition as you move deeper into those sorts of analytics or is it basically the usual suspects?.

Yes that's an interesting question.

So first of all I will say that I think all the good work that our business leaders and our sales team did across the whole of last year meant that we kept growing the pipeline, building the pipeline and refining the pipeline along the way and as we enter the year we obviously have deals that we expect will have decisions very early in the year which I think is very-very good from our perspective that's one.

The second is as over the past few years we have kept investing in some of these new higher value services than differentiating ourselves with our unique domain based kind of focus as well as financial accounting, research and analytics and new capabilities within each one of these areas I think I am very enthused with the fact that as we went into this particular account for example we actually entered with a high value kind of a project which also from a scale and size point of view can be very-very significant.

The ability for us therefore when you are going with this kind of an offering get selected your ability thereafter to radiate across the account by providing solutions that we are outstanding at is also very-very high.

So we very good discussions happening inside this company as well as other companies and I will say that in terms of competition there will be the unique, the usual suspects here and there but I think the way we positioned ourselves as a company that understands the space very well and then understands how to leverage the data that this company was generating is what helps us stand apart..

So let me add to that a little bit when we look at our competition across our different industry verticals, it differs because of the focus of the competition the clients interest but within those verticals the competition does appear to be the same in many cases.

When we talk about the example use with QBE where they are unique solution require it's a slightly different competitions then we would typically see in our core business process management business but I think that shows our strength we are able to compete against traditional competitors in our core business and compete effectively and win in those areas that we choose to compete on a stronger basis like in analytics..

Got it. That's very useful. So last question from me, obviously you have been growing the tech-enabled solutions with capability and automation relationships over the last couple of years actually but what sort of productivity give back the currently being embedded in your contracts.

The amount that you normally give historically have given has that gone up as the productivity from automation might be realized or is just still not scaling?.

Yes I will take that Ashwin I think we talk a lot about the 5% recurring headwinds we have to our business and certainly a portion of that is related to committed productivity improvements that we provide to our clients obviously the type of services and solutions that we provide will dictate whether or not they are eligible for productivity improvements and what productivity improvements depending on the maturity of the relationship but I think we continue to see clients push for productivity improvements we continue to deliver those we continue to execute to what we commit to within our contracts but in terms of how our initial contracts starts for example Keshav spoke quite a bit about contact starting on an FTE basis so while clients may in a second or third contract look for increased use of automation to accelerate productivity or continued productivity improvements it's also important to remember that the move towards technology enablement and automation also involves an additional loss of control for the clients.

So it's not always an easy decision or an easy discussion to have. We do expect that automation and technology will continue to generate productivity improvements but I don't think it's fundamentally changing the percentage of increment that we are providing on a year-over-year basis at this point in time..

Got it..

And maybe just to add to that from a productivity perspective but though it maybe cannibalizing some of the revenue but some of the different models what we adapt including the gain share because that also encourage beyond what we committed from a contract perspective to help the client as well as to improve the margin from a company perspective..

Understood. Thank you good. Good results. .

Thanks Ashwin..

Thank you..

Thank you and our next question comes from the line of Brian Kinstlinger of Maxim Group. Your line is now open. Please go ahead..

Great thank you so much. The first question we have heard this earnings seasoned not just from your peers but pretty much most the discretionary enterprise spending a slow and I am wondering if that has any impact on your sales cycles or projects starts..

Yes I think, let me say that from our perspective we are seeing no impact at all because the reality is the kind of people we interact with are people who take decisions who do not have budgets who have to deliver shareholder outcomes.

So we are not a traditional IT services firms so no such issues and in fact as I have already underlined earlier going into the year I have never felt as good as I am feeling at this point in time in terms of our pipeline and the kind of interactions we are having with our clients so no impact of any of that as far as WNS and our pipeline is concerned..

Great.

My follow-up is we talked about I think two and three quarters ago, you are largest UK insurance customer made a large acquisition bit ago yet revenue from top customers down 14%, I realized you get efficiency every year and I also realize currency every year, I am just curious at this point have you seen increased volumes related to the large acquisition and if not do you still expect to in a meaningful way.

Thanks..

Yes let me start with the second part of your question Brian. Yes we expect to be definitely expect to see more volume coming out from this client as they digest and integrate that acquisition. There have been delays on their end in terms of some decision taking as we have been updating you over the past few quarters.

Having said that in certain areas where they could move faster they have taken decisions and actually WNS has already won some of these contracts.

But I think the bigger opportunity is still out there, discussions are still ongoing and it's more a case of timing of the decision that is impeding that growth coming in but we are pretty confident it's out there it's available, good discussion they are taking place and it will happen. .

Just quick one on that, is that customer planning to consolidate the two brands have they communicated that in the public yet?.

I don't believe the formal strategy has been communicated yet Brian. no..

Great. Thank you, David..

Thank you and our next question comes from the line of Edward Caso of Wells Fargo. Your line is now open. Please go ahead..

Good morning. Thank you for taking my question. This is actually Tyler Scott on for Ed.

So first if I could just go back to the adjusted operating margin I believe you said that assumed in guidance is kind of a flat core operating margin year-over-year, just wanted to make sure I heard that right so it looks like the hedging gains are about 200 basis points this year and then also if you could just provide any timing update in terms of those hedges rolling off..

Sure let me take and then let me just start by giving the high level view point here and then have Sanjay and David take it further but the reality is yes I just want to confirm that that's what we said in the prepared remarks we actually expect to see operating margins generally in the same range that you have seen and after taking out the impacts of ForEx gains and losses and roll off of hedges in the high teens is where we expect as 19% to 20% is where we expect to see it.

And on specifics could you..

Yes, so from a FY2017 perspective, let me just take out a little bit step back when you see from a year-over-year perspective last three years when we take FY 2014/ 2015/ 2016 there has been hedge loss in FY2014 there has been a gain in FY15 and there has been a further gain in FY16 and that's where Keshav was mentioning that when you just exclude those hedging gains from operational perspective our performance has been pretty consistent and stable on operating margin which is in the range of 19% to 20% and as you aware that we have 24 months hedging program which is a roll on year-over-year so it all depends that what’s the FX rate during when we get enter into the year as well as where is our hedging position and it has been so volatile that we have to wait and watch that which way the currency moves but as per our hedging program we are already 86% to 90% hedged for the year and any movement based on the option and forwards what we have we may have impact but operationally it's going to be stable from 19% to 20% on the operating margin.

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Okay so I guess based on those comments, I was kind of follow-up it looks like the pound has already moved sort of in a favorable direction since maybe you set your hedges but have you changed the strategy at all preparing for the possibly UK vote leaving the [indiscernible] have you just sort of maintained the old strategy?.

So we just avoid speculating where the FX is going to be what we believe in a very rule based hedging program and the policy which we have been consistently following and has been working for the organization so we don't plan any as of now to move away with our philosophy and the hedging program. .

That's why we also prefer to report constant currency kind of numbers just to make sure that all of us are in the same page..

Absolutely thanks and just quick follow-up as you could just provide a quick update on the capital deployment strategy and maybe how you are balancing share repurchases versus tuck-in acquisitions and maybe just also have the pipeline for acquisition works is looking and as well as when you can get back into the market and repurchase shares.

Thank you very much..

Sure let me take that Tyler. I think our approach to capital allocation is to be a balanced approach.

I think we do fundamentally believe in the long term value of the company and believe that share repurchases are an effective use of cash I think when you look at our share repurchase programs and what we are expecting to do over the next three years I think everyone would be comfortable saying that we don't believe that these share repurchases are at the expense of any other opportunity.

So we can take those decisions completely independently we can buy back shares we have a lot of visibility in our business we know what we have got 175 million in cash today we know we are going to generate significant free cash in fiscal 2017 and fiscal 2018.

On the acquisition side we want to continue the approach that we have had which is primarily be looking for tuck-in acquisitions to augment our capabilities but to make sure that we continue to be smart about how we do it we don't need to buy assets to generate growth we are looking forward the right types of assets at the right price that will be a good cultural fit for us that we can easily digest.

So I think the approach remains the same.

I think the pipeline from M&A activity has never been healthier we are casting a wider and largest in our organization we are looking for different channels to drive M&A but we feel good about how we have been able to build that pipeline, feel good that we are able to get one acquisition under our belt although it was extremely small and we will continue to look at these tuck-in acquisitions as something that we can do to efficiently and effectively to drive accelerated growth down the road..

Maybe I’ll just add a little bit here, this is Keshav. And I think Dave hit all the important points and really as we go in to the early part of this year, we feel very confident about how our business has shaped up, we feel very confident about the pipeline for M&A.

We’ve probably done one acquisition, we’re scouting around looking for a few more and while the focus really is on tuck-in, if there is something compelling that comes up which makes sense, we may also look at something little more transformational as well.

So, I just want to mention that we’re very, very focused on being opportunistic about, focused on really adding more capability and leveraging all of this to drive even more faster growth and better margin for the company overall..

Thank you. And our next question comes from the line of Puneet Jain of J.P. Morgan, your line is now open, please go ahead..

Hi thanks for taking my question. So it was nice to see increase in $5 million to $10 million accounts this year which likely is your sweet spot as well.

But, as you invest in new services like technology platforms, R&D, can you talk about potential to grow those accounts to beyond $10 million, $20 million levels which has been steady recently?.

Let me take that Puneet. I think you’re right when you look at this year, we’ve had a really good year in terms of accelerating some of those relationships.

I think we’ve got opportunity at almost all of our large accounts and what’s exciting I think for WNS and what’s fundamentally different from where we were four or five years ago is, all of these new clients that we’ve added, all of these large deals that we’ve added have opportunity for expansion.

So, while we want to continue to move these clients up in terms of annual spend, the one thing we don’t control is the timing, but feel very, very good about the amount of work that we’ve in the pipeline, the number of relationships that we’ve with opportunities for expansion and that’s a fundamental difference from where this company was four or five years ago.

We had a very mature customer base, we were managing all of their services end to end, and the opportunities for growth within that existing customer were somewhat limited.

We feel very good about where we’re today and certainly the goal is to continue to generate additional $20 million, $10 million, $5 million customers, but we want to also do that in the right type of pattern as well which is maintaining lower levels of customer concentration.

So, it’s a little bit of double edged sword, but yes, we’re here to service our clients, we’re here to meet their needs as and when they’re ready and we certainly expect that these relationships will grow over time. We just want to make sure we got a lot of growing at the same time so that we don’t become too heavily exposed or concentrated..

Right. And related question, like if we look back like two, three years you’ve significantly enhanced your client base like you mentioned moving into new verticals, enhance delivery capabilities with South Africa, Philippines sitting scale.

Should we expect higher incremental margins moving forward or maybe more focused investments in areas such as technology platforms, research analytics that you mentioned over next few years? How should we think about like need for investments versus margins over next few years?.

Yes, Puneet that’s an interesting question. So, as we said at this point in time we expect margin performance in spite of all the investments that we’ll make and some of these investments will continue to be at an accelerated pace.

We expect margin performance at an operating margin level to be stable with what has been seen over the past two or three years and what we saw in 2016 as well.

And having said that because of the kind of disruption that is taking place in a clients’ business models, some of the new kind of modules that they’re seeing as well, while there is some kind of impact with a number of clients in the marketplace around trying to respond to these changes, from our perspective actually it’s a very, very big opportunity and that’s how we’re focused on leveraging our investment.

So, it’s safe to say that we will continue to invest in every one of these areas, we’ll continue to invest a lot more technology, robotics, smack models, the digital models, I spoke about regulatory and compliance areas, things like that. We will continue to grow our footprint in some of these compelling geographies.

Our clients want us to drive more investments in some of these areas and clients want to grow faster with us in some of these geographies. But having said that it will not be at the cost of margins..

Right, understood, understood. Basically what I wanted to ask was, should we expect higher incremental margins on contracts, on your existing book of business, which frees up more dollars for investments.

I understand you expect overall margins to be steady, but like margins, should we expect higher margins on the individual contracts, on existing book of business?.

I think what you’ll see Puneet is that as our relationships with existing clients has process maturity takes over time, the margins on those relationships will increase.

The real question is going to be do you have more relationships coming in at a lower margin on an FTE basis then you have migrating to transaction and outcome base models and technology enabled models.

So the real driver there will be the rate at which clients mature and move to higher level processes, higher level engagement models, first is the rate at which we’re bringing in new customers, who are new to outsourcing, who are doing work at the lower end and on a trends, on an FTE basis. So it’s more about pace than anything else.

We’re comfortable that our existing customer base will mature, will move to higher models, will increase in terms of margin. The real question is the pace at which they move versus the pace at which we add new customers..

Understood and that’s helpful, thanks nice quarter guys..

Thank you, Puneet..

Thank you. And our next question comes from the line of Vincent Colicchio of Barrington Research, your line is now open, please go ahead..

Yes, good quarter guys. Most of my questions are asked, just a couple here.

Do you have any large contracts coming up in the near future that we should be aware of on the scale of GS case something like that?.

We do have a couple of large contracts up for renewal this year and it’s actually safe assume Vincent in any give year.

We’re going to have roughly 20% of our business that will come up for renewal, but I think at this point in time given where our relationships are, where the discussions are with those clients that have either statements of work or master services agreements coming up for renewal this year that we feel pretty good about where we’re overall..

The attrition rate picked up in the quarter, any color on what may have driven that and on the rate going forward?.

Let me take that. Okay, so I was going to say the attrition rate for us does pick up often in the fourth quarter.

We’ve seen a slight tick up however, we expect that as we work this throughout the year and improved our attrition here, you’re going to see that continued program for us, very focused effort on reducing attrition and increasing employee engagement throughout the year.

But, I don’t see has anything of great concern to us, I think we’ve got a good program in place, focus management, it is one of the top metrics that we look at internally as we judge ourselves and look for our management team to stay engaged with our employees and continue the focus on keeping that number in an acceptable range for our clients..

And maybe just to add to that attrition rate is definitely is the volatile quarter-over-quarter because of certain pattern or the certain behavior each geography and maybe a competition entering into a new area or maybe other reason.

But, directionally if you see there has been an improvement, I know what attrition metrics from year-over-year and that is what we expect to improve it directionally..

On the analytics side clearly there is strong macro demand worldwide for analytics talent, I’m curious has it done any more difficult to secure analytics talent in your businesses?.

Interesting question Vince, and you’re absolutely right that there is so much of demand out there in terms of the new business models with our existing clients with new prospects as well in terms of traditional kind of insurance, travel, retail appliance, and while we’ve over the years built a very compelling research and analytics factors and are leveraging analytics factors well, we also understand that we cannot just hang around and wait to actually produce this talent.

So, what we’ve actually done is for the first time ever in the history of the company and frankly for the first time in India, we’ve actually created in collaboration with a very well known university, an MBA and analytics program that will help feed the pipeline of dedicated people coming into WNS with industry ready thinking, knowledge, over a two year program.

So there is major investments going into that program, but as you can see we’re very, very positive about how the analytics pipeline for WNS looks and therefore not only are we doing whatever is traditional, we’re also actually feeding the pipeline a new model which has not been seen in the industry before..

Also important Vince to remember, one of the things we’re also focused on in addition to hiring folks and creating a pipeline of talent as Keshav mentioned, is continuing to look at ways to automate parts of analytics. So the reliance on labor has reduced as well.

So, this is also that component of the business that shifts to technology and automation that allows us to better manage that business as well and provides an accelerated level of scalability to the business..

Thanks for answering my question guys..

Thanks Vince..

Thank you Vince..

Thank you. And our next question comes from the line of [indiscernible] of Needham & Company, your line is now open, please go ahead..

Thank you for squeezing me at the end. Couple of quick questions, first either Keshav or Dave, could you comment on how the large OTA relationship is progressing that you I believe have preferred relationship with, just wanted to get some qualitative perspective on that. And then, I’ve the modeling question as well..

Sure Mike, first of all thanks for joining the call. I’ll just use one word to describe the relationship outstanding..

Thank you. Keshav just in terms of, I guess, this is more for Dave, but could you on the modeling front, could you comment on your expectations for amortization just so we get the model straight for the quarter. Will you have any impact from the recent acquisition that you did, I’m assuming that’s pretty small.

And then also what is the expectation on the stock compensation expense?.

Sure. Let me take that Mike, the impact from the value edge acquisition for this year will be pretty minimal in terms of the amortization. We do expect in fiscal ’17, a pretty meaningful fall-off in the amortization of intangible expenses.

We had a little bit over $25 million in fiscal ’16, I think we’re looking at a number for fiscal ’17, its closer to $17 million and the reason is because the amortization of our Aviva acquisition actually falls off I believe in November of 2016.

So, you’re going to see a sizeable drop in the amortization number in fiscal ’17 and a corresponding sizable drop in fiscal ’18.

So, right now we’re looking at an amortization number for this year, it’s going to be in the $17 million to $18 million range and the share base comp side, look in at $20 million of share based comps for the year which is consistent in terms of percentage of revenue with fiscal ’16..

Got it, okay. Well, I think you guys covered a lot of ground so I’m good, thank you very much, great job..

Thanks Mike..

Thank you. And our next question comes from the line of Eric [indiscernible] of Robert Baird, your line is now open, please go ahead..

Hi guys, great job this quarter..

Thank you..

I just have a question on the auto claims unit.

What you guys is expectations for margins in that unit going into fiscal ’17?.

From an auto claims perspective yes, there was a pretty much investment into the legal services new area what we started and that’s where you saw a little bit drop from a margin perspective. But going into the FY ’17, we expect the margin to be improved as compared to FY ’16 once legal services business has been stable.

And we start seeing some of the traction based on the program what we’ve done into that particular area..

I think Eric, the interesting thing about the auto claims business is, as you’re aware it’s heavily technology enabled, we made a number of investments as Sanjay mentioned. So the margin is really going to be a direct function of how the top line performs.

If we grow the top line in the auto claims business, you can see a significant amount of that growth drop directly to the gross margin line, the operating margin line, the profitability line. So the margins in that business are entirely about scale, at this point the cost in the business are large effects..

Okay, great.

And then, just one follow up, on the other income expectation fiscal ’17, do you expect kind of roughly similar $8 million to $9 million as you had in fiscal ’16?.

So, from another income perspective for FY ’17, we expect to be in the range of $7 million to $8 million, it’s the impact of the buyback program what we’re going to have as well as the expectation from an interest rate that we’re seeing from an India perspective it’s coming down.

And taking that impact we believe that it’s going to be in the range of $7 million to $8 million..

Thank you..

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