David Mackey – Corporate Senior Vice President-Finance and Head-Investor Relations Keshav Murugesh – Chief Executive Officer Sanjay Puria – Chief Financial Officer Ron Gillette – Chief Operating Officer.

Maggie Nolan – William Blair Moshe Katri – Wedbush Bryan Bergin – Cowen Mayank Tandon – Needham & Company Frank Atkins – SunTrust Joseph Foresi – Cantor Fitzgerald Ashwin Shirvaikar – Citi Puneet Jain – JPMorgan Vincent Colicchio – Barrington Research Joseph Vafi – Loop Capital Korey Marcello – Deutsche Bank Justin Donati – Wells Fargo Robert Bamberger – Baird.

Good morning, and welcome to the WNS Holdings Fiscal 2019 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management’s prepared remarks, we will conduct a question-and-answer session, and instructions for how to ask a question will follow at that time.

As a reminder, this call is being recorded for replay purposes. 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 2019 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. A press release detailing our financial results was issued earlier today. This release is also available on the Investor Relations section of our website at www.wns.com.

Today’s remarks will focus on the results for the fiscal second quarter ended September 30, 2018. Some of the matters that will be discussed on today’s call are forward looking.

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

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

Some of the non-GAAP financial measures management will discuss are defined as follows. Net revenue is defined as revenue less repair payments. Adjusted operating margin is defined as operating margin excluding amortization of intangible assets, share-based compensation and goodwill impairment.

Adjusted net income or ANI is defined as profit excluding amortization of intangible assets, share-based compensation, goodwill impairment and all associated taxes. These terms will be used throughout the call. I would now like to turn the call over to WNS’ CEO, Keshav Murugesh.

Keshav?.

Thank you, David, and good morning, everyone. In the fiscal second quarter, WNS once again posted solid financial results across revenue growth, margins and profitability. Net revenue came in at $195.5 million, representing a year-over-year increase of 7% on a reported basis and 11% organic constant currency.

In the second quarter, WNS added 7 new clients, expanded 13 existing relationships and renewed 12 contracts. Adjusted operating margin in Q2 expanded to 21% and adjusted EPS grew 23% versus the second quarter of last year. Sanjay will discuss the details of our second quarter financial performance in his prepared remarks.

Over the past several quarters we have highlighted WNS’ growing capabilities across domain expertise, process excellence, advanced analytics and technology and automation.

Today I would like to provide you with a recent example of how WNS has combined these critical components to help one of our clients solve unique business problems, improve competitive positioning and drive through business transformation.

Our client is a global leader in the container shipping industry dealing with both industry-wide and company-specific issues. Some of their key challenges included the need to centralize and standardize systems and processes resulting from industry consolidation, streamline the order-to-cash cycle, improve the end customer experience and reduce cost.

Based on WNS’ deep experience in the container shipping space, the client selected us as their strategic partner to co-create a target operating model for their business.

The solution involved the creation of a shared services model leveraging multiple delivery locations, proprietary WNS frameworks and technology assets, third-party products and advanced analytics. Over the past year we’ve made solid progress together along our joint transformation roadmap.

Today, WNS deliver service for this client from three different countries in Asia supporting their operations which are located in more than 50 countries throughout North America, Europe and Asia-Pacific. We currently manage over 30 processes and 60 subprocesses across their front, middle and back office.

These include several mission-critical complex and domain-centric processes such as bookings, export documentation, vessel scheduling, equipment control, rate agreements, service contracts and detention and demurrage.

We are also supporting the CFO’s office with finance and accounting services, including accounts payable, accounts receivable, reconciliations, cash management and treasury. WHS has created a framework of KPIs and dashboards for the entire shared services organization and has implemented a Lean Six Sigma global quality support program.

We’ve deployed technology and automation across processes, including WNS proprietary, shipping platforms and the robotic process automation tools. We are also leveraging our analytics capabilities including dedicated data scientists and WNS developed advanced analytics tools which have been customized for the container shipping business.

As a result of these efforts, WNS has been able to create significant tangible business value for our client. Through process redesign and transformation, global delivery, analytics and technology, we’ve been able to impact cost, quality and the customer experience by delivering the following outcomes.

One, we have reduced the amount of time it takes to confirm bookings and allocate a shipping contract for in-scope transactions by up to 50% helping create a competitive advantage. Two, WNS has delivered a 30% improvement in turnaround time for translating shipping instructions into bills of lading leveraging advanced analytics and automation tools.

Three, we are currently delivering 99.7% accuracy in bookings and bills of lading processes, an improvement from 97.7% at the time of transition. Four, WNS has reduced average outstanding freight collections by 87%, improving working capital and reducing write-off risk.

Five, we have reduced the amount of manual efforts across the quality assurance function by 30%, while improving quality metrics. Finally, WNS has generated an overall cost savings to the client in excess of 50% for processes outsourced. The most exciting part of this relationship is that the journey is still in its early days.

Today, WNS manages only 25% of the clients’ share services work. We fully anticipate expanding both the scope and the scale of our relationship in the coming years as we move along the transition roadmap.

WNS’ approach based on domain less co-creation is clearly helping us demonstrate and deliver value, enabling us to expand existing relationships and add new strategic clients. In the second quarter alone WNS added seven new strategic logos across verticals and service offerings.

These included an operations management win for a cruise line and analytics win featuring our SocioSEER platform for a large retailer, and order management win for our digital high-tech firm and the new logo for HealthHelp in the healthcare specialty benefits management space.

In conclusion, we believe WNS remains extremely well positioned in a healthy growing BPM markets. Our investments over the past several years have helped us deliver industry-leading financial performance, and we continue to build out our capabilities in areas such as technology, domain and analytics to ensure we are prepared for the future.

Our goal of creating long-term sustainable business value for our clients, investors and employees remains unchanged. I would now like to turn the call over to Sanjay Puria, our CFO, to further discuss our results and guidance.

Sanjay?.

Thank you, Keshav. With respect to our second quarter financials, net revenue came in at $195.5 million, up 7.2% from $182.3 million posted in the same quarter of last year, and up 11% on a constant currency basis.

By vertical, revenue growth was broad-based with the Shipping and Logistics, Auto Claims, Consulting and Professional Services, Insurance and Healthcare verticals each growing more than 10% year-over-year.

With respect to our service offerings, revenue growth versus the prior year was driven by strength in industry-specific BPM and technology services. Sequentially, net revenue decreased by 0.3% on a reported basis but increased 3.4% on a constant currency basis.

Quarter-over-quarter revenue improvement was driven by both new client ramps and expansion of existing relationships. These benefits were more than offset by the impact of currency movements and losses on hedging positions. As you recall, our cash flow hedging gains and losses are now reported on the revenue line as a result of IFRS 9.

The quarter two depreciation in the Indian rupee helped reduced our operating costs, but the offset hedging loss was reported on the revenue line. The net impact of this movement remained favorable for both margins and profits.

In the second quarter, WNS recorded approximately $2 million of short-term revenue, which is not expected to continue in quarter three. This amount is the same as reported last quarter. Adjusted operating margin in quarter two was 21% as compared to 18.5% reported in the same quarter of fiscal 2018 and 18.8% last quarter.

On a year-over-year basis, adjusted operating margin increased as a result of improved productivity; operating leverage on higher volumes; and currency movements, net of hedging. These benefits more than offset the impact of our annual wage increases and lower seat utilization.

Sequentially, adjusted operating margins increased as a result of improved productivity, currency net of hedging and operating leverage on higher volumes. These benefits more than offset headwind associated with our annual wage increases.

As we have discussed in the past, on a quarter-to-quarter basis, there will be trade-offs between seat utilization and productivity metrics. The company’s net other income expense was $2.2 million in the second quarter, up from $1.4 million reported in quarter two of fiscal 2018 and down from $2.5 million last quarter.

Year-over-year favorability was a result of increased interest income driven by better rate on our liquid mutual funds and lower interest expense, resulting from schedule debt repayments. Sequentially, interest income was down based on lower cash balances resulting from share repurchases and debt repayment.

WNS’ effective tax rate for quarter two came in at 21.8%, up from 21% last year and up from 21.5% last quarter. Quarter two of fiscal 2018 had $1.7 million of tax reversals and quarter one of fiscal 2019 had $0.9 million.

While these favorable items were not present in fiscal quarter two of this year, we have been able to reduce our effective tax rate by delivering volume growth from new tax exempt facilities in certain geographies. Other changes in the quarterly tax rate are primarily due to the mix of profits between geographies.

As a result of our efforts, on a going-forward basis, we now expect WNS’ effective corporate tax rate to be approximately 23% instead of the 25% we discussed last quarter. The company’s adjusted net income for quarter two was $33.7 million compared with $27.7 million in the same quarter of fiscal 2018 and $30.9 million last quarter.

Adjusted diluted earnings were $0.65 per share in quarter two versus $0.53 in the second quarter of last year and $0.59 last quarter. This represents growth in EPS of 23% year-over-year and 11% sequentially. As of September 30, 2018, WNS’ balances in cash and investments totaled $158.1 million, and the company had $75.3 million of debt.

The company generated $30.6 million of cash from operating activities this quarter and free cash flow of $19.8 million after accounting for $10.7 million in capital expenditures. During the quarter, company repurchased 649,700 shares of stock at an average price of $50.73. Share repurchases impacted quarter two cash by $33.3 million.

The company also gave scheduled debt payment of $14.1 million. DSO in the second quarter came in at 35 days as compared to 30 days last year and 31 days last quarter. With respect to other key operating metrics, total headcount at the end of the quarter was 38,516.

Our attrition rate in the second quarter was 32%, as compared to 30% reported in quarter two of last year and 31% in the previous quarter. Global billed seat capacity at the end of the second quarter was 31,798, and average billed seat utilization was 1.21.

In the second quarter, WNS was able to leverage the headcount and infrastructure that was added in quarter one to support committed project ramps. In our press release issued earlier today, WNS provided updated guidance for fiscal 2019.

Based on the company’s current visibility level, we expect net revenue to be in the range of $775 million to $801 million, representing year-over-year revenue growth of 5% to 8%. Revenue guidance assumes an average British pound-to-U.S. dollar exchange rate of $1.31 for the remainder of fiscal 2019.

Excluding exchange rate impacts, revenue guidance represents constant currency growth of 8% to 12%, all of which is organic. We currently have 98% visibility to the midpoint of the revenue range, consistent with October guidance in prior years. Adjusted net income is expected to be in a range of $127 million to $135 million based on a INR 74 to U.S.

dollar exchange rate for the remainder of fiscal 2019. This implies adjusted EPS of $2.42 to $2.58, assuming a diluted share count of approximately 52.4 million shares. With respect to capital expenditures, WNS currently expects our requirements for fiscal 2019 to be up to $35 million. We’ll now open up the call for questions.

Operator?.

[Operator Instructions] Our first question comes from the line of Maggie Nolan of William Blair. Your line is now open..

Good morning. I’m wondering if you can break down the year-over-year margin expansion in a little more detail between foreign currency and productivity and other factors.

And then where do you expect the full year margins to come in relative to your long-term goal of operating margins in the high teens, just given that you’ve had stronger margins in the first half of the year?.

Sure, let me take that, Maggie. In terms of the year-over-year margins, obviously, if you look at what’s implied in our guidance, what we’re looking at for fiscal 2019 now, a 20% operating margin for the full year, which is in comparison to a 19% adjusted operating margin that we did last year.

So we’re actually planning for fiscal 2019 to be 100 basis points, slightly over 100 basis points better on the adjusted operating margin year-over-year.

Safe to assume that based on our current visibility and in the current exchange assumptions, about half of that increase is going to be related to FX, net of hedging, and half of that increase is going to be operational and related to increased volume and leverage on our business..

Okay, great. Thanks, Dave, very helpful. And then can you share any updated thoughts that you guys have on the potential impact of Brexit and have you seen any impact on the business yet? Thanks and congrats..

Yes, I’ll take that. So Brexit has been discussed for such a long time and as we have been reminding all of you in the past few quarters, we have actually not seen any significant impact from Brexit particularly around the pipeline of business, the need for clients to continue to move ahead with their strategic programs.

And at this point in time, as we interact with clients and prospects, we haven’t seen any let up in their need to save money, become more efficient and also transform their businesses. So at this point in time, no impact..

Great, thank you..

And our next question comes from the line of Moshe Katri of Wedbush. Your line is now open..

Hey, thanks. Congrats on a strong quarter. Just to verify here, you mentioned, in terms of your guide, there was a constant currency for the year, for fiscal year.

Is that also organic constant currency? Is it the 12% number that you gave? And then can you remind us, what were the prior expectation for the FX impact on the growth that you had last quarter?.

Sure, so let me take that. Yes, the short answer to your first question is the entire growth for fiscal 2019 is going to be organic.

So when you look at the guidance that we provided for this fiscal year from a revenue perspective, which currently sits at $775 million to $801 million, we are looking at 5% to 8% on a reported basis and 8% to 12% on a constant currency basis.

The comparable numbers from last quarter’s guidance were $777 million to $821 million from a revenue perspective, which represented 7% to 13% organic constant currency.

So essentially, in the last three months, what we’ve done is we’ve increased the low end of the range by 1%, we decreased the high end of the range by 1% and the midpoint remains consistent with the 98% visibility instead of a 95% visibility..

Understood, that is helpful. And then can we get an update – you made a brief comment on Brexit, but what are you seeing in terms of the pipeline and the deal activity in the UK. And then maybe also get an update on your legacy client Aviva in terms of where they are? Thanks a lot..

I’m sorry. A little bit hard to understand you, Moshe.

I believe the first part of the question was about the UK pipeline, is that correct?.

Yes, deal activity in the UK and then just an update on Aviva your legacy client. Thanks..

Yes. Overall, deal activity in the UK remains healthy. We still continue to see both expansions with existing clients. We continue to see large and small deal opportunities within the UK.

I think as Keshav mentioned, we are seeing what I would consider to be normal activity in the UK both in terms of existing client behavior as well as the pipeline for new opportunity.

So no real impact to this point in terms of Brexit and I think some of the pressures that we’ve talked about historically from a business perspective, the need to leverage technology, the need to improve the customer experience, the need to reduce costs, all of these things are still important to clients in the UK, similar to what we’re seeing in both the U.S.

and Asia. So that remains the same. You asked for an update for Aviva. Aviva, the relationship continues to be healthy. They continue to be a top five client for us.

Obviously, as we’ve discussed over the past several years, because we tend to do everything today for this client, it’s a client that from a revenue perspective has been under constant pressure for us as we continue to become more efficient and deliver productivity improvements for the client and in addition to that from a contribution perspective obviously, it’s been impacted by the depreciation in the British pound.

So continues to be a great relationship, but also continues to be a little bit of a headwind from an overall business perspective..

Understood. Thanks..

And our next question comes from the line of Bryan Bergin of Cowen. Your line is now open..

Hi, guys. Thank you.

Can you comment on the overall demand environment outside of UK as far as whether you’re seeing any changes in client behavior due to macro volatility? And I’m curious on a tightened constant currency revenue guidance; anything specific that took the top end of the table?.

Let me address the revenue momentum. Again, I feel very, very comfortable with the pipeline with the kind of digits we are seeing. With the need for transformation that clients continue to talk about, with the kind of deals that are now currently in the pipeline, these are dispersed across the entire globe.

So it’s not just limited to the UK or Europe, but it’s North America, it’s in the Asia-Pac markets, and therefore, feel very, very confident about the pipeline, the scale of deals, the impact of these deals, the complexity of the deals that we are working on, the fact that many of them are now led by technology transformation with services following, so that’s one.

We’re also been seeing a few clients actually work on some interesting structures with us, including carve-outs and things like that. So clearly in terms of demand, the overall messaging from the company in terms of being a transformation agent is resonating very well.

The fact that we understand clients’ businesses extremely well, again, is resonating very well. The fact that all the areas that traditionally have caused disruption in the minds of customers are actually invested in by WNS again, it’s playing out quite well. So very happy with this pipeline..

And maybe just to add on the top end of the guidance, the visibility. Right now, it’s 98%. And accordingly, it all depends from a early closure and faster ramp up based on some of the close what we have.

And also if you’ll observe, last year we had a non-recurring revenue in the second half itself of $8 million to $9 million, it’s not giving the guidance based on as we don’t have a visibility right now.

But in the first half itself we have seen $4 million of the non-recurring revenue, which we’ll have to just wait and watch as we progress during the quarters..

Okay, thanks. That makes sense.

And just on margins, is the rupee depreciation impacting any client pricing conversations, or are you seeing anything from change in behavior by competitors on the pricing side because of that reduction in costs?.

No. I think for anyone of our existing relationship with the contract coming for renewal and even from a new client perspective, it’s an usual pricing behavior, but we are not seeing any pressure due to the rupee as of now..

Thank you..

And our next question comes from the line of Mayank Tandon of Needham & Company. Your line is now open..

Thank you, good morning.

Maybe for Keshav or Dave, I just wanted to get your thoughts how we should think about revenue growth going forward as the model shifts more to may be outcome-based or transaction-based revenue in terms of headcount growth versus pricing leverage? Any potential lower seat utilization expansion as well?.

Sure. Let me take that, Mayank. I think as we’ve kind of talked about in the past, there’s always going to be trade-offs in our business between productivity and headcount seat utilization.

Our objective certainly is over the long run to continue to kind of nod our seat utilization metric up to effectively and efficiently deploy our infrastructure, but more importantly, make sure that we’re driving that revenue per employee number up. And I think we’ve done a pretty good job at that over the last several years.

If you look at kind of what’s embedded in this year’s guidance, we’re looking at a constant currency basis, once again, improving revenue per employee by about 2% to 3%. So I think this is reflective of not only kind of the efficiency in which we operate, but also kind of the trends in the industry and where the business is headed.

So we’re certainly excited to see that over time, we do believe that interestingly growth in revenue and growth in headcount will be de-linked, but obviously, when we look at the seat utilization side, we do tend to see quarter-to-quarter quite a bit of volatility.

And we’ve also kind of seen over the last several years a shift in where we’re delivering service ramps. So obviously, seat utilization is somewhat impacted by whether you’re delivering from locations that can run two or three shifts versus locations that can run single shift and these are all kind of part of mix.

But at the end of the day; if directionally they’re both headed right way, then we’re probably doing the right things for our clients..

Great, that’s helpful. And then just a quick follow up on M&A. I think the company’s been relatively quiet versus your peers, especially since I think you did the last deal was the HealthHelp last year.

Any commentary on the M&A pipeline expectations in the market on acquisitions and where you might be headed in terms of the direction along – in terms of M&A?.

Thanks a lot. So let me first complete the earlier answer and just give you a sense also that from our perspective in terms of the business model itself, we’re quite positive about how transformation is impacting clients at this point in time.

So clearly, the areas we invested in, which is domain technology, analytics, which Dave spoke about is critical but we’re also seeing that with the change in the conversation that is taking place and the comfort that is being built with clients and prospects, clients – the conversation is moving much more away from efficiency and productivity to much more customer experience.

I think that’s very comforting for clients and for them to want to actually do more business with companies like WNS that are invested in this model.

So I’m very comfortable with the longer-term momentum and the fact that every existing client can potentially have three separate revenue streams like I’ve said in the past, existing, transformational as well as transitional moving from one model to the other.

On the M&A front, so while with this as a background, clearly, the company has limited time and ability to create all the current capabilities that we have, that we need, in order to be impactful in the marketplace.

So I must say that while we have done two or three M&A transactions in the past, maybe 2, 2.5 years ago, we are constantly on the lookout. We have a very active M&A pipeline. We have a team that’s constantly covering the market. We’re interacting with a number of potential kind of prospects on the other side.

And we are comfortable and confident that as and when we have something in place, we will be in the position to make announcement. But the focus is around the right capability, the right valuation obviously, the right time..

Great. Thank you very much..

Thanks, Mayank..

And our next question comes from the line of Frank Atkins of SunTrust. Your line is now open..

Thanks for taking my question. Wanted to ask a little bit about service line.

Can you talk a little bit about the demand environment and client interest in both Finance and Accounting and Analytics, and where you see that going over time?.

Sure, let me take a crack at that..

Those are two of the most exciting growth areas for the company. So obviously, domain specialism, along with a deep understanding of data analytics is something that every client is focused on. And then leveraging that to deliver actionable insight is what WNS is great at.

So both the Finance and Accounting pipeline and the Research Analytics kind of pipeline that we are focused on are probably the hottest growth areas for the company longer-term.

And what’s more interesting is that while some of these has been introduced in many of our existing clients, a lot of the new pipeline that has been generated with the clients of which are potentially larger deals are starting with F&A and are R&A and then going into the traditional domain areas.

So very comfortable with the fact that that’s the big growth area for the company. We have a very strong leadership pipeline in place. We have very strong training programs in place. And the pipeline for bringing in top quality talent in this area is where we’re investing in very strongly.

And as we reminded you on previous calls, a number of our new offerings are really around Finance and Accounting and Analytics..

And let me just add a little bit to that, Frank. To Keshav’s point, we do see both of these areas as extremely hot and impactful in the marketplace today.

The interesting thing is, while we continue to see good acceleration in the pipeline and the opportunities within those segments, we’re also seeing large clients come to the table with the transformation journey is kind of the lead-in.

So the conversation Keshav had a little bit earlier about the large shipping and logistics client, the large insurance customers we added in Q4. These are relationships that actually start as industry-specific and cut across multiple traditional horizontals.

So I think the interesting thing about the BPM space today is because it is relatively immature, you do see clients that come to the table with very, very different perspectives on how they want to start their transformation journey..

Okay, great. That’s very helpful.

And then given recent kind of market volatility, can you just remind us of your philosophy on buyback?.

Sure. Let me take a crack at that, Frank, and Sanjay can jump in as well. But when we look at the WNS share repurchase program, we’re taking a long-term due to our business. We believe the company is well positioned. We believe the space is relatively immature. We believe in the long-term health and the long-term value of what we deliver for a client.

So we’re going to continue to buy back our shares on an annual basis. It’s part of our capital deployment program and we certainly feel that when you look at historically, our ability to generate healthy returns on these investments and in these repurchases, the proof shows up in the numbers..

Yes. And just to add and to recall that we already have a 3.3 million approval, out of which we have exhibited 1.1 million. So at the right time, we have an ability to execute another 2.2 million shares from a buyback program perspective..

Yes. And just to add one more thing, and I’m sorry, Sanjay, to add one more thing.

I think the other thing that’s important to note is that Keshav mentioned that when we talked about M&A, we do take a balanced disciplined approach to our capital allocation program, and that these share repurchases are not at the expense of M&A and things that are strategic in terms of driving long-term growth in our business..

Okay, great. Thank you very much..

And our next question comes from the line of Joseph Foresi of Cantor Fitzgerald. Your line is now open..

Hi.

I was wondering if you could talk about maybe your expectations for the strength of the different verticals given how strong transport was? And any changes you can talk about from a vertical perspective or otherwise in your top 10?.

Sure. I mean, obviously, we’ve got several large verticals and depending on whether we’re looking at a quarter or a year, we’re going to get very, very different views to this.

What you’ve seen over the last several quarters from WNS is that, by and large, most of our key strategic verticals being Travel, Insurance, Healthcare, Utilities, Manufacturing, Retail, CPG, Shipping and Logistics, these have all grown at relatively healthy clips.

So the pipeline is good, the approach has been well received by clients, and we think we’ve been able to create differentiated value in these areas.

The one place from a vertical perspective that’s been a little soft for us over the last couple of quarters has been the utility space and this was something we expected coming into the year in terms of understanding where we had known ramp downs and volume impacts.

So overall, we continue to see the business as being extremely healthy broad-based across verticals..

Okay. And then just on margins. I think in your earlier remarks, you talked about half of the margin improvement being operational.

Is that sustainable? And are we looking at a 20% margin next year and maybe 50 basis points from operational improvement on an annual basis? I’m just wondering how sustainable the step-up is and what we should be thinking about for the out years. Thanks..

Directionally, we have always mentioned that in a long-term perspective, we believe high-teens is a sustainable margin. And accordingly, what we have visibility for this year, based on where the currency is, it’s a 20% operating margin what we’re able to guide as per our guidance.

But there’s a lot of currency volatility, and it depends on where we land and where we start next year. But having said that, directionally on the long-term, high-teens is a sustainable margin for us..

Yes, I think the long and the short of it, Joe, is that if we don’t see any changes to our business from an industry perspective, from a currency perspective, then the short answer is yes, we should be able to sustain these margins.

The flip side to that is we don’t see at this point in time much of an opportunity to move beyond these 20% levels going forward, as we know we’re going to have continued to reinvest in our business and continue to change our business dynamically with an industry that’s adapting and adjusting very quickly to a lot of changes.

So we feel that operating at this high-teens, and then obviously, for this year, 20% is certainly a good place to be. It allows us to balance investment with putting good numbers up. It also, I think as everyone is aware, the significant premium to where others in this space are operating..

Thank you..

And our next question comes from the line of Ashwin Shirvaikar of Citi. Your line is now open..

Hi, Keshav, Sanjay, Dave, how are you?.

Hi, Ashwin..

Hey. So Keshav, just going back to the hunter versus farmer discussion from before, I’ve being seeing each quarter a steady level of contract expansions that you guys announced, I mean, obviously there’s a steady level of new logos but also contract expansions.

So the question is really about the sort of the relationship management side of your sales force, any comments on that, the penetration and also the nature of the expansions.

Is the size of the expansion is getting bigger? Are clients beginning to outsource more faster once you set up the relationship? Can you talk about that?.

Sure. I think first and foremost, I would say that I’ve given a lot credit to our overall corporate functions in terms of their ability to recruit the right kind of people both as hunters and as farmers.

And then over the past few years, and particularly in the past few quarters, keep upgrading their skills in terms of particularly the new disruptive models, the new technology changes that are taking place in the market, WNS’ own kind of programs that are relevant to clients.

And therefore, really arming our sales people both hunters and farmers in terms of being able to deliver strategic messages both with prospects as well as with existing clients.

I think what has really happened as a result of this is that clients have become far more comfortable with the notion that WNS really is an extension of their enterprise and while there is so much disruption out there in the marketplace, it allows them to focus their energies on the external world and really on competition knowing fully well, that at the back end, they brought a very safe pair of hands who understand their business domains, understand and can come with new thinking, new ideas to them and help them with all the strategic programs.

And I think that’s what is driving the growth that we’re seeing from a farming point of view, that’s one. On the hunting side, I must say I’m very, very excited about the fact that our message itself is so transformational, so different from most other.

And the fact that we are providing an end-to-end business solution to clients, which is what is resonating so well in the marketplace.

So again, it’s a function of the market, where we are in that market, the confidence our sales teams have and most importantly, the fact that at the back end, our operational leaders are delivering outstanding operational metrics and rigor to clients, which is just allowing us to expand across different areas.

Now, as you know, on existing clients, quite often it’s a multivendor environment. I think this approach is allowing us to use a needle approach to go after new clients who are already outsourcing to other strategic partners who are now able to experience that, understand how different we are and then really allow us to flow with them..

Got it. Understood. Thank you. Just two quick ones, numbers related. One is, I know you provided a lot of metric, so I don’t to overstate the importance of any particular one but the used seats went up at a very high pace. So big jump sequentially as well as year-over-year.

If you could explain that? And then on IFRS 9, I can understand how the P&L is impacted.

I just want to make sure that the intent of – the accounting is not making any change to the intent of the hedging?.

Yes. I’ll take the latter part first. The IFRS 9 is just a representation from an accounting perspective. No changes from our cash flow hedging program, which is more of a rule-based approach. So that IFRS 9 – it’s growing into the revenue line from a hedging gain/loss perspective. Earlier it was below the line, so that’s the only change.

And from a seat utilization perspective, if you recall that the last quarter our seat utilization number came down because we invested into some of the infrastructure and where for this quarter, for the growth, we are able to leverage that.

But having said that from quarter three – onwards again, the investment program into the capacity, we keep – there will be a momentum on that..

No, I mean, the total number of seats, the used seats, it’s like 25,000 to 30,000, been at the 22,000 level for some time….

Yes, so it’s all about the ramps and stuffs where the people were also in the training rooms, where once they’re out of the training rooms, they get into the production floor and that’s where with the growth utilization is there, because we spoke some of transformational deal and there were a lot of sources, which were into the training program and they came out and that’s where the seat utilization number went up..

Thank you..

Thanks, Ashwin..

And our next question comes from the line of Puneet Jain of JPMorgan. Your line is now open..

Hey, thanks for taking my question.

So Keshav, when you try and automate like a business process, does that typically also include re-engineering or re-platforming of the underlying technology and the process? And if macro deteriorate, could some of that work get pushed out?.

So let me – this is Ron Gillette, so let me answer the first part of this here. So absolutely.

When we engage with a client, we look at their business processes end-to-end and there is a re-engineering of the process, that’s a component to it and we bring to the table certain investments we’ve made in technology that we can bolt-on to a client’s environment that helps automate these solutions and drive efficiency and quality for the client.

So clearly, part and parcel to our approach to solving the client’s issue. It drives great productivity for the client and for ourselves as well. As Keshav mentioned earlier about our vertical domain, investment in domain knowledge and technology, those bolt them together to create the right solution for our clients..

Got it..

And I’m sorry, Puneet. To take the second part of your question about kind of whether if there is a macro deterioration, whether or not that could be impactful to this.

It’s important to remember that the technology investments that we’re putting in and the re-platforming and the re-engineering that we’re providing, delivers cost savings to the client at the end of day.

So unlike kind of what you typically see on the IT side where changes in technology, changes in infrastructure can have a negative effect from a project or from an incremental expense standpoint, what we’re providing gives the client to Ron’s point, not only a better customer experience, not only better efficiency and quality, but also cost reduction.

So I don’t think the value proposition changes dramatically..

Understood.

And what’s the FX hedge loss assumed in the revenue guidance for this year? And did you share that number for Q2 as well?.

We did not. The revenue loss – the hedging gain and loss number for this year, is that your question? We’re looking at about an $8 million hedging loss on the revenue line in fiscal 2019..

Got it. Thank you..

And our next question comes from the line of Vincent Colicchio of Barrington Research. Your line is now open..

Yes.

Keshav, could you characterize the number of large deals in the pipeline now versus say two or three quarters ago? And are you’re feeling good about closing any of them in the near future?.

Right. So the number of large deals continues to amaze me. So compared to – while we don’t provide specific numbers, the reality is each of these deals are significant in nature. They’re complex in nature. They mean – the interaction is happening at CSO level on the other side.

It also means that they are transformational in nature because the client is spending a lot of time, energy, attention and leadership time really in terms of appreciating WNS’ entire area of offering and then really helping us provide to them a solution that is multi-year and creating huge impact across the organization.

So all of this is really, really positive for WNS’ point of view. I would say that the number of deals is definitely increasing every quarter in terms of size and scale and again, it is very well distributed across the globe. It’s not coming from one particular geography, but it’s coming from all across. So very excited about what’s happening there..

And then what needs to happen to hit the high end of your expectations for this fiscal year?.

Look, the reality is we have a very, very solid visibility to the midpoint of the range as we have consistently guided. The only thing that needs to happen in order to hit the higher point of our guidance number is really the timing of decisions that clients will take, and that is something that is really not in our control.

So what is in our control is, really getting after the clients, presenting them with various options, eliminating all competition. But because the deals are larger in nature, complex in nature and involve so many geographies, sometimes a few deals take a little longer.

So I would say the key reason of that – the key thing that must fall in place to reach that higher end of the pipeline is timing of decisions and may be some decisions that we baked in is happening later moving earlier in the year. That’s it..

Yes, and I would just add to that, Vince. What Sanjay mentioned earlier, which is that important to know that our guidance and our visibility did not include any of the short-term revenues in the second half of the year.

So certainly, if we can do $4 million or $5 million like we did the last year, what we’re going to add another percent to our growth. If we do $2 million like we’ve done in the first half of this year per quarter, we’re going to add 0.5% to this number.

So this is clearly one of the other ways that we can make up that gap, if you will between the 10% midpoint and the 12% high end. And we did see last year that we were able to do that, actually then go beyond what we had guided to in the third quarter. So that opportunity is still definitely under the table for us..

Okay. Nice job in the quarter guys. Thanks..

Thank you..

And our next question comes from the line of Joseph Vafi of Loop Capital. Your line is now open..

Hey guys, good morning. I was wondering if you can – is there any change of this quarter to breakdown of new clients between say growth clients versus I guess cost takeout clients? And then I have a follow-up. Thanks..

Yes, I don’t think there was a major change in the quarter, Joe. I think we continue to see a healthy mix of clients that are coming to the table for business transformation, business change as well as for cost production.

Sometimes, it’s a little bit difficult to figure out kind of what the priority is but we do believe that a healthy, healthy number of these customers today are coming for reasons other than cost, although they all want cost reduction as well.

So I think it’s more about disruption, that’s driving the bulk of the opportunity, but there are definitely clients out there that have cost as the number one objective as well..

Okay. And just circling back to the beginning of the call and Keshav talked about the larger Shipping and Logistics client. It’d be interesting to hear if you did implement some of your own automation tools as part of that first wave of engagement with the client.

Any specifics there where you’re able to automate, when versus when the clients was operating that tough process of after you took over? Thanks..

Sure. So the headline news really is that the transformation that we delivered was on the back of a technology transformation, creating our own IP, bringing in bolt-on tools, making – ensuring that the ROI on the technology investments that we already had was positive or much better.

But more importantly, just making sure that the overall solution was such that it helped them save money, become far more efficient, impact their collections and things like that. On specific that had – Ron talked a little more about the technology aspect, which I think you’re interested in..

So as we’re looking at these processes, so we have large domain knowledges we’ve shared with you, we had experienced with this client to date, so we had insights into the solutions that we drive around the bill of lading and those tools. So we’ve made these investments over time.

So this was really a good time for us to bring us to the forefront over our engagement with this client, we’ve earned their trust, the deep domain knowledge we have is very resonant with them and the opportunity to deploy these technologies that we’ve been planning for some time to deploy across this industry, really met in this client this time.

So we’ll continue to do that across all of our verticals where we’re looking forward to the nature of our clients’ business, where we can deploy technologies, and it’s broad-based, our approach. This is an isolated incident.

So you’ll see that in the future, we may talk to you again and give another example of a client at some future date where we’ve been driven a large transformation with them and help them achieve really strong and sustainable outcomes..

And I think just to add to that, Joe. As Keshav mentioned, this transformation journey is not done with this client and kind of as we continue to move down the path with them, not only are we going to get into different areas with this customer, but we do believe the technology will become increasingly pervasive in this account.

So it is not kind of a one-stop shop, if you will, where we come in and we deploy technology and we are done. We think this is going to be an evolution over time and not only in our business as a whole but also with this customer and this will be part of how we’re able to deliver ongoing productivity improvements to this clients..

Thanks very much..

Thanks, Joe..

And our next question comes from the line of Korey Marcello of Deutsche Bank. Your line is now open..

Hey guys, thanks for taking my question. How much of a revenue synergy benefit are you guys seeing from cross-sell success as it relates to recent acquisitions, and you guys mentioned several strategic wins in the quarter, including one for HealthHelp, I believe.

So just curious how that cross-sell is kind of contributing to the success?.

Sure. Let me take that, Korey.

I think, obviously, with the acquisitions that we’ve done and the three that we’ve done in the last couple of years here, Value Edge, Denali and HealthHelp, if you look at the ability to leverage those assets across both existing customers and then the ability to deploy WNS traditional solutions into those environments, I would say that the result has been mixed, and that’s kind of what we expected going in.

Obviously, the reason we partnered with HealthHelp was to give us an asset and a technology asset in the healthcare payer space.

And as a result, if you look at it, it’s part of the one asset where we have not done to date, a lot of work in terms of leveraging WNS solutions into their install base as well as deploying their solutions into ours because honestly, prior to acquiring HealthHelp, we didn’t have anything.

The complete opposite to that would be Denali where we’ve had a lot of success not only going into new accounts with Denali and expanding the services into other WNS areas, but also deploying Denali services into the install WNS space. So I think kind of depends on the assets and the type of work that we’re doing.

But, clearly, I think when you look at the success that we’ve had with these three acquisitions, they’re all behaving kind of as to plan and in some cases better than planned when we completed these acquisitions..

Thanks, David. That’s helpful. And then I guess on the large Insurance win that started to come on, can you talk about the growth in the verticals and horizontals like Insurance and Auto Claims? It looks Insurance from a year-over-year perspective moderated a bit but Auto Claims kind of accelerated.

Is that just timing of services or are there other factors there? Maybe you could give us a sense of where the relationship is in terms of ramping and kind of the outlook going forward. Thanks, guys..

Yes, sure. I mean, and there’s definitely a timing issue as we discussed in the past, one is a key benefit of this new large Insurance relationship was the ability to sell the Auto Claim Solutions into the client and to provide kind of end-to-end services. So that’s been exciting for us to kind of see that revenue reaccelerating.

The flip side to that is this relationship is still early days. We signed the deal in the fourth quarter of last year. We had just two quarters of ramp right now. This is a relationship that we would actually expect to ramp over the next two to three years in a meaningful way.

So hopefully, we can continue to see this account and this relationship ramp and start to drive some accelerated traction into the Insurance vertical..

All right. Thanks guys. Good job..

And our next question comes from the line of Edward Caso of Wells Fargo. Your line is now open..

Hi. This is Justin Donati on for Ed. Thank you for taking my questions. Can you talk about your expectations for DSO and cash flow for the remainder of the year? I know you had some kind of working capital build here in the first half..

So from a DSO perspective, we believe that it’s going to be around in the range of 30 to 35. And maybe just to add this quarter, it was a little bit high, primarily driven by some client processes change as well as some client behavior from managing the quarter end from a balance sheet perspective.

Having said that, all those money were already collected in first week of October and there was no default on that. But going forward basis, we believe, as volume we have seen, it will be in the range of 30 to 35.

On a cash flow business perspective, for the full year, pretty much stable what we see based on the guidance from a profitability perspective, what we had provided..

Okay, and last question. Can you provide an update on overall size and credit rate of your total Analytics business.

I think in the past you’ve pegged it at about 20% of revenue?.

Sure, let me take that. So yes, we’ve historically kind of talked about that number bouncing around. What we have seen is growth in our Analytics business as it relates to not only standalone but also the embedded component in our industry-specific.

So I would say overall, right now, we’re probably still right around 19%, maybe 20% combined Analytics across the organization with 11% showing up as the standalone component. So a little bit larger on the industry-specific side, a little bit smaller on the Analytics side..

Great. Thank you..

Thanks, Justin..

And our next question comes from the line of Robert Bamberger of Baird. Your line is now open..

Yes, thanks. It looked like revenue per employee declined around 1% year-over-year in the quarter, which is a little bit weaker than we’ve recently seen.

Can you touch a little bit about the trends that you’re seeing there?.

Yes, no specific trends in terms of revenue per employee, Robbie. I think when you look at our expectation for the year is still that we’re probably going to be on a constant-currency basis, 2%. You got to remember that part of what you’ll see when you look at Q2 revenue is an FX headwind as well as a hedging headwind.

So I think if you adjust the revenue in the second quarter for those non-operational items, if you will, what you’ll see is, that there actually was an improvement both sequentially as well as year-over-year on a revenue per employee basis..

Got it, thank you. And in terms of tax rate guidance, you reduced to 23% versus 25% for fiscal 2019.

I guess looking past 2019, what are you looking at for a sustainable growth rate because of the new mix shift that you talked about?.

So from a tax perspective, we pretty much believe it’s an expected sustainable. If the situation and we see as the situation where we are, it can be a little volatile between the quarters based on the certain mix of the geographies where we deliver for, but from long-term perspective, things doesn’t change.

It’s quite sustainable but as we have seen there are various regulations keeps on changing year-over-year based on the geography, taxation, so it’s something impact, it may change but if everything remains the same, sustainable for 23%..

Great. Thank you..

Thanks..

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