Good morning, and welcome to the WNS (Holdings) Fiscal 2020 Second Quarter Earnings Conference Call. [Operator Instructions]. As a reminder, this call is being recorded for replay purposes. Now I would like to turn the call over to David Mackey, WNS' Executive Vice President of Finance and Head of Investor Relations.

David?.

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. WNS continued to deliver solid financial results in the fiscal second quarter. Net revenue for the quarter came in at $220.7 million, which represents a year-over-year increase of 13% on both a reported and constant currency basis.

In the second quarter, WNS added 6 new clients, expanded 9 existing relationships and renewed 15 contracts. Our revenue growth continues to be driven by healthy, broad-based business momentum across our key verticals and service offerings.

Q2 adjusted operating margin came in at 23.5%, and adjusted diluted EPS grew 22% versus the second quarter of last year coming in at $0.79 per share. Sanjay will discuss the details of our second quarter financial performance in his prepared remarks.

On this quarter's call, I wanted to spend a little time discussing the global procurement space and WNS' differentiated positioning in this market. In today's hypercompetitive business environment, clients are recognizing the strategic importance of an effective sourcing and procurement function.

CxO understand that procurement has 4x more leverage than sales in terms of bottom line contribution. Or to put it in another way, it takes a 4% increase in sales to generate the same increase in profit as a 1% decrease in cost. As a result, the role of the procurement function is rapidly moving away from practical to strategic in nature.

Today, WNS is at the forefront of this evolving and increasingly impactful procurement management market, due in large part to our acquisition of Denali Sourcing Services in January of 2017.

We've been able to successfully integrate Denali's source to contract capabilities with WNS' procure-to-pay offerings and create solutions and platforms to manage the end-to-end procurement cycle.

We are helping clients transform their procurement operations across the entire Source-to-Pay value chain, which includes strategic sourcing and category management, contract and supplier management, spend analytics, transactional procurement and accounts payable.

Increasingly, WNS' procurement solutions are being delivered in the cloud, enhanced with advanced analytics and automated with technology-enabled tools and platforms leveraging RPA, machine learning and artificial intelligence.

These solutions are enabling CPOs and CFOs to achieve their strategic business goals, which include reducing both direct and indirect spending, enhancing the end-user experience, increasing capacity and improving strategic decision-making by driving business insights into spending patterns and supply markets.

As a result, WNS has established a leadership position in the procurement space. Today, the company manages over $75 billion in materials and services spent for more than 65 clients across industries and geographies.

WNS has helped our clients lower their costs by 12% to 14% for spend under management through sourcing, reduced error rates on payments by 25% to 30% and through our proprietary operating model, we've been able to remove bottlenecks in the procurement process and increasing throughput or capacity by reducing sourcing and contracted cycle times by 2 to 3x.

WNS currently has over 2,800 procurement experts globally, including more than 150 client-facing onshore category experts.

Our enhanced procurement capabilities has enabled successful cross-selling of services into legacy WNS and Denali relationships, allowed the company to use strategic sourcing as a differentiated lead offering for signing new clients and helping bolster the company's overall positioning in the SMA space.

Since the acquisition, Denali revenues have more than doubled, and we have been able to add 10 new Fortune 500 logos to our clients roster. Our unique capabilities were recently recognized by CPO Innovation who presented WNS with the Best in Advanced Procurement Practices Award for smart procurement at their 2019 Technology Supply Chain Conference.

While we are pleased with our progress in this important area, we understand that the company must continue to invest to stay ahead of the rapidly changing industry trends.

As a result, we have created a dedicated sourcing center of excellence, a training academy to service both WNS employees and our end clients and a state-of-the-art procurement innovation lab to ideate and incubate new digital and technology-enabled procurement solutions.

We are also excited to announce that WNS will be rolling out several exciting new technology tools and offerings in the coming months to support the CPO's digital transformation journey. Stay tuned for further details on these unique solutions.

As we reach the midpoint of our fiscal year, WNS remains excited about the overall health of the BPM demand environment, the expanding market of opportunities driven by technology and disruption and our differentiated positioning.

Our unique vertical structure continues to receive accolades from industry analysts and advisers and most importantly to resonate with our clients. WNS' ability to combine this domain-centric approach with expertise in analytics, technology, transformation and process is the key to our success.

As an organization, we remain focused on investing ahead of the curve and executing on all our strategic objectives with a long-term goal of driving enhanced value for our clients, shareholders, employees and the communities and that we live and work in.

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

Sanjay?.

Thank you, Keshav. In the fiscal second quarter, WNS net revenue came in at $220.7 million, up 12.9% from 19 -- $195.5 million posted in the same quarter of last year and up 12.8% on a constant currency basis.

By vertical, revenue growth was broad-based with the health care, travel, insurance and consulting and professional services, each growing 15% or more year-over-year. With respect to our service offerings, revenue growth versus the prior year was driven by strength in finance and accounting and industry-specific BPM, which both grew more than 20%.

Sequentially, net revenue increased by 4.3% on a reported basis and 4.8% on a constant currency basis. Quarter-over-quarter, revenue performance was driven by solid growth with both new and existing clients, which more than offset headwinds from currency movements net of hedging.

In the second quarter, WNS recorded approximately $2 million of short-term nonrecurring revenue, which was booked at close to 100% margin. Adjusted operating margin in quarter two was 23.5% as compared to 21% reported in the same quarter of fiscal 2019 and 22.8% last quarter.

Year-over-year, adjusted operating margin increased as a result of increased productivity, including the high-margin short-term revenue, the impact of IFRS 16 lease accounting, operating leverage on higher volumes and hedging gains net of currency movements. These benefits more than offset the impact of our annual wage increases.

Sequentially, adjusted operating margin increased as a result of increased productivity, hedging gains net of currency movements and operating leverage on higher volumes.

Based on our margin performance in the first half of fiscal 2020 and current visibility, we now expect full year adjusted operating margin to be in the range of 22% to 23%, up from the 21% to 22% assumed in last quarter's guidance.

The company's net other income expense was $1.1 million net expense in the second quarter as compared to $2.2 million of net income reported in quarter two of fiscal 2019 and $0.8 million of net expense last quarter.

Year-over-year, a $3.7 million impact from IFRS 16 lease accounting on interest expense more than offset higher interest income on larger cash balances and lower interest expense resulting from the scheduled debt payments.

Sequentially, the increase in net expense is due to reduced interest income driven by lower cash balances and lower interest rates. WNS effective tax rate for quarter two came in at 20.2%, down from 21.8% last year and down from 20.7% last quarter.

Changes in the quarterly tax rate are primarily due to the mix of work delivered from tax incentive facilities and the mix of profits between geographies. For fiscal 2020, we now expect our effective corporate tax rate to be approximately 21%.

The company's adjusted net income for quarter two was $40.6 million compared with $33.7 million in the same quarter of fiscal 2019 and $37.6 million last quarter. Adjusted diluted earnings were $0.79 per share in quarter two versus $0.65 in the second quarter of last year and $0.72 last quarter. This represents growth in EPS of 21.7% year-over-year.

As of September 30, 2019, WNS balance in cash and investments totaled $223.8 million, and the company had $47.5 million of debt. WNS generated $45.5 million of cash from operating activities this quarter and incurred $7.6 million in capital expenditures.

During the quarter, the company repurchased 296,478 shares of stock at an average price of $58.95, which impacted quarter two cash by $15.7 million. Fiscal year-to-date, we have repurchased 1.1 million shares at a total cost of $63.7 million. The company also made scheduled debt payments in quarter two of $14.1 million.

DSO in the second quarter came in at 29 days as compared to 35 days last year and 30 days last quarter. With respect to other key operating metrics, total headcount at the end of the quarter was 42,602, a sequential increase of more than 1,500 people.

Our attrition rate in the second quarter was 32%, the same as reported in quarter two of last year and down from 34% in the previous quarter. Global billed seat capacity at the end of the second quarter was 34,221 and average billed seat utilization improved to 1.23.

The infrastructure build-out previously planned for quarter two is now expected to impact the P&L in quarter 3 and quarter 4 of this fiscal year. In our press release issued earlier today, WNS provided updated guidance for fiscal 2020.

Based on the company's current visibility levels, we expect net revenue to be in the range of $861 million to $892 million, representing year-over-year revenue growth of 8% to 12%. Revenue guidance assumes an average British pound to U.S. dollar exchange rate of 1.23 for the remainder of fiscal 2020.

Excluding exchange rate impacts, revenue guidance represents constant currency growth of 10% to 14%, all of which is organic. We currently have over 98% visibility to the midpoint of the revenue range consistent with October guidance in prior years.

Adjusted net income is expected to be in the range of $152 million to $160 million based on a INR 71 to U.S. dollar exchange rate for the remainder of fiscal 2020. This implies adjusted EPS of $2.93 to $3.08, assuming a diluted share count of approximately 51.9 million shares.

Full year EPS guidance includes a year-over-year negative impact of approximately $0.06 per share associated with the adoption of IFRS 16. With respect to capital expenditures, WNS continues to expect our requirement for fiscal 2020 to be up to $37 million. We'll now open the call for questions.

Operator?.

[Operator Instructions]. Our first question comes from the line of Bryan Bergin with Cowen..

I'll ask the macro question here upfront.

It doesn't seem to be an issue for you, but can you just give us some comments here around clients' spending behavior and sentiment, particularly in Europe?.

Yes. So Bryan, great question. I'll just say that nothing has changed. From our perspective, pipeline looks strong, clients are behaving just as they were a few quarters ago. And if -- nothing else, I'll say that my salespeople as well as some of my transformation leaders have never been as busy as they have been in the last few quarters.

And I must say that this strength continues to be strong across the U.K. and Europe as well..

Okay. And then we dig into expand relationships and renewals.

Can you talk about the nature and the scale of how expansions are occurring today relative to maybe a few years ago as far as the -- how the pace of expansions are occurring, the levels, service line additions and bundling? And then on renewals, just talk about what you're seeing in the expected productivity commitments?.

Sure. Let me take that Bryan. I think we're pretty pleased with, as Keshav said, not only the overall health of the pipeline, but the large deal signings, the new clients signings as well as the expansion of our existing relationships.

And I think as everyone knows at this point, in our business, the majority of the revenue growth in any given year is going to come from the expansion of those existing relationships.

So when you see us continually nudge up the revenue guidance for the full year, that's typically going to be based on the fact that we're successfully expanding relationships at or above the kind of pace that we expect.

So when you look at not just the overall number of expansions that we're seeing, but the fact that we spoke a few quarters ago about the average deal size for new clients increasing, we're also seeing that clients as they move along the journey are willing to take slightly larger bites in terms of how they expand the existing relationships.

So we're essentially seeing, I think, across the spectrum of clients, the fact that they're becoming more comfortable with broader scopes of work and looking at more end-to-end types of services as they move along the journey, so really excited about that..

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

Just staying on the same theme maybe Keshav and Dave, can growth inflict even higher over time? I think historically you've been averaging very impressive 12% to 14% type constant currency organic growth, but I'm just wondering given the more mainstream adoption of BPM and the impact of digital and next-gen technologies, is there maybe an opportunity for growth to even run at a higher level, say, longer term?.

Mayank, again, good morning to you, and excellent question, again. I mean that's the reason all of us are so positive and that's why we exist. We actually think this is the third big new face of the transformation of the BPM business as I have continued to comment on over the past few years or maybe the few quarters.

And the reality is, with digital becoming mainstream, with new models of go-to-market being seen, the potential for us continues to be strong.

I think what is even more exciting is the fact that we still believe that the business is so under-penetrated with constantly seeing new clients come on the table who have been an existence for a very long time and who are now accelerating the pace of actually dipping their toes in this model.

So you know what, at this point in time, we are very positive about the potential for the business longer term. As you have seen, as we have kept executing, we have kept growing revenues. And this quarter, we have actually taken up the guidance as well.

We'll wait and see, but I think if there's a particular time, which has the best potential for that growth that you are talking about, I think, this is the time and it's probably the early stage of that new face for the industry..

That's very helpful.

And then I guess in terms of sourcing talent, I'm just wondering has your strategy around recruiting and retention changed given the focus on more digital-type or next-gen technology-type projects that are now incorporated into your BPM processes?.

Yes. Without giving out too much, I will say that yes, there has been a significant transformation inside the company as well in terms of the programs we are running around talent.

And I would say, one of the biggest investments WNS has made very cleverly over the past 3 or 4 years is predicting this trend and the fact that this is how business -- the business models of the future will change.

And therefore, reskilling, upskilling people within the company, but more importantly, also creating strategic programs outside the company with universities as well as with other partners in order to make sure that, that kind of talent we bring into this company are perfectly suited to the new ways of doing business.

So I'm pretty, pretty confident about the fact that we are making the right investments in that area and more importantly, that WNS is probably one of the few companies that is extremely well positioned to help clients with their transformational journeys in terms of this new digital space that we are seeing..

Great. Congrats on the results..

Thank you..

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

Congrats on strong numbers. Margins came in better than expected again.

Maybe you can talk a bit about the puts and takes in terms of what droves that? And then, is there any change in terms of your margin expectations for the year? And then finally, maybe you can talk a bit about the pipeline of -- and the deal flow?.

Yes. Thanks. Margin came better than expected as we spoke last time and we guided almost a flat-to-little lower margin, but there were two factors. Primarily, one was a nonrecurring revenue, which was not factored in our guidance when we provided last time, so that does helped from a better margin.

And in fact, in my prepared remarks, I spoke about some of the infrastructure push what we have done for the later half of the year. Those 2 primary factors has helped better margin expected in quarter two.

As well as for the full year, second half is going to be a little lower than the first half, again, primarily because nonrecurring revenue as we don't have a visibility, we have not factored in the guidance for the second half, so that's not there as well as the infrastructure, as I mentioned, is going to be there in the second half.

There's going to be travel seasonality in quarter 3, which is usual what we have, including continuously our investments into the sales, technology, some of the programs, what Keshav mentioned, primarily getting offsetted by the productivity. So that's where for the full year is there.

So from a full year perspective, overall we have updated and upgraded our operating margin by almost 100 basis point as an average..

I think you also had another question on the pipeline, and let me just once again give comfort around the fact that the pipeline is solid. In this last quarter, again, we saw some more wins.

I think what is really interesting is the pipeline is solid, enough deals in there which are going across all ranges, including large deals in terms of size, scale and complexity. They are truly globally in nature. They are coming across all geographies.

And some of our horizontal offerings are also leading the way in terms of some of the new initiatives and recent wins that we have seen.

So very pleased with the strength of the pipeline, the activity in the pipeline and the fact that WNS has got positioned in every geography and in every core vertical that we operate in as a must-have brand for any prospect to talk to in terms of their strategic thinking for their business..

Our next question comes from the line of Maggie Nolan with William Blair..

I wanted to build upon that headcount question. There was, obviously, a large increase in headcount in the first half of the year and digital is clearly a focus area.

Are there any other noteworthy focus areas, like particular verticals or horizontals that you are hiring for?.

Sure. I think, obviously, Maggie, when you look at the hiring and the headcount, it's going to be a function of where we have not only the existing fraction, but also the visibility to demand. I mean we don't tend to run a business that has high bench levels where we hire far in advance.

But that being said, I think you're going to see the hiring continue to track from a vertical perspective with where we've seen strength in our business, which has been on the health care side, on the insurance side, more recently on the travel side of the business and shipping and logistics.

So these have been the growth drivers for us from a percentage perspective. And the hiring profiles tend to track with that..

Also, just to add to what Dave mentioned, we're seeing a significant addition in our actuarial analytics and financing -- finance and accounting professionals..

And then, you highlighted procurement this quarter, are there specific areas where you think you'd like to maybe acquire to round out that procurement strategy? Or are there other focus areas for your M&A strategy going forward?.

Yes. I'll take that.

Actually, without specifically calling out any specific area within procurement as an interest area, let me say that our M&A pipeline is very robust and in fact we are continuously having interactions with a number of prospects and our interest at this point in time continues to be adding and building more capability-led acquisitions, and -- so we're continuing to make good progress there.

And like I've said on previous calls, we'll do an acquisition at the right place, right time and for the right valuation.

And I'm pretty certain that at this point in time, we're making extremely good progress across different areas, the traditional verticals that I've spoken about earlier as well as some of the horizontal areas that will drive growth for this company, procurement included..

Our next question comes from the line of Joseph Foresi with Cantor Fitzgerald..

This is Drew coming on for Joe.

You touched on a little on the last question, but just curious on the vertical side which vertical you see as potential for the strongest growth moving forward? And then maybe you could touch on how the margin cadence looks for the rest of this year?.

Sure. So let me take that, Drew. I think when you look at the vertical strength, I mean, I don't think we expect to see in the back half of this year anything dramatically different in terms of where the driver is going to come from.

If you look at year-to-date where we've had success, it's been in the traditional verticals and the area where we were able to establish a differentiated capability led by health care, travel, insurance and the shipping and logistics areas.

So these are clearly differentiated capabilities for WNS and the marketplace, and we don't anticipate that, that acceleration and that momentum is going to change through the back half of the year. The second part of your question with respect to the margin cadence as we move throughout fiscal 2020.

As Sanjay mentioned, we've upped our guidance for the full year to where we now expect total margin to be between 22% and 23%, which is up 100 basis points from where we were a quarter ago. If you look at where we are today in terms of year-to-date, we're right around 23%.

So what that implies is the back half while there is pressure, as Sanjay mentioned, from infrastructure build, from the lack of short-term revenues in that number, from the investments we need to make, that pressure that we're looking at is only about 100 basis points in total..

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

Congratulations here on the good numbers.

Curious if you're seeing any new competitors move into the space, and I'm thinking particularly around the BPaaS model?.

Yes. Thanks, Ed. Actually, seeing the same old competitors at the moment across all our deals. And given the advances that we have made in our offerings, we don't see any new competitors emerging..

And my other question is around repurchase activity, should we just assume a steady pace? Or is it really dictated by the level of your stock price?.

Yes. So we had still $1.1 million authorization left from our repurchase perspective. And as we have indicated earlier, that usually it's $1.1 million during the year, specifically from -- to offset the impact from a deletion perspective.

But as the stock price is volatile and there may be an opportunity because we are still left with $1.1 million authorization, so at the right time and based on the Board approval, we expect to impact -- or to do that in case there's an opportunity..

Our next question comes from the line of Ashwin Shirvaikar with Citi..

Guys, another solid quarter there, congratulations..

Thank you..

My first question is going to margins.

Would margins have been up without the nonrecurring that you mentioned, and I think some of the other questions that also, I think, seeking to find -- to figure out whether there are these fundamental underlying changes with digital, automation, outcome-based contracts and so on, does it lead to more attractive revenues and hence the better margin profile longer term?.

So Ashwin, definitely nonrecurring is helping, but beyond that, as we have been always talking about it, our revenue has been growing faster than the headcount and those are all based on the nonlinear model, the RPA, the technologies, the digital journey what we have been driving which is resonating well with our client.

Absolutely, that is helping us to win more clients, more business and at a healthy margin which helps us to continuously keep on investing into this journey from a directional perspective..

Yes. And I think, Ashwin, when you look at the impact of where the industry is headed, right? The impact of digital and the impact of leveraging technology into our existing services, when you look at the mix shift that has the potential to drive margin improvement moving away from headcount-led models towards transaction and outcome-based models.

These are journeys. These are not things that are going to change in a quarter and they're probably not going to change materially in a year. These are things that, hopefully, serve as tailwinds to our business over the next 5 to 10 years.

But we know how clients behave, we know how clients move and even though we talked a lot about accelerated traction and the adoption of digital and seeing more large transformational deals, the reality is for everyone of those larger transformational deals we see, we have clients who are behaving in a traditional manner and that are moving around a much more slow, steady, predictable kind of a path.

So I do think there's opportunity. I do think we're excited about where the industry is headed, but we also need to temper that with the fact that this business does not turn quickly. It's something that moves very slowly and clients when they take these decisions take them very -- in a very measured fashion..

Understood. No, no, that's very well understood. The second question, Keshav, I appreciate the comments on procurement.

I guess, is there a way to quantify how well you have done with Denali and how it's grown? Maybe a penetration comment, where can you take this next?.

Yes. That's a great question, Ashwin.

I wish I had some better metrics or answer to give you, but all I can say is, since Denali came in and more importantly, a very highly qualified and a talented team came in, WNS' ability to work with all their traditional clients has dramatically increased, more importantly, WNS' ability to go after the entire high-tech sector, which is such a fast-growing area at this point in time, has dramatically been kind of influenced.

And even as we speak with digital taking off in such a manner in the board rooms of every company, I think, Denali is definitely for us one of the core resources that allows us access into each of these boardrooms to start these discussions.

So at this point in time, I will say that this capability that we have brought in is actually helping every part of our business to become much, much stronger.

And it's a wonderful win-win where the traditional WNS offerings has been enhanced and at the same time, Denali, as a company, also has been significantly enhanced by the strength and power of WNS' balance sheet and rest of what WNS brings to the table because remember, when you are interacting with clients of that scale and size that Denali had traditionally interacted with, they are much more relieved when they now seeing that they are interacting of the balance sheet of a much, much larger corporation now.

So that's how, at this point in time, I will answer that question..

No, that's quite useful. And congratulations, again..

Thank you..

Our next question comes from the line of Dave Koning with Baird..

I guess, my first question just when we think about the year, we've been talking a lot about margins, but just EBIT dollars, you're going to grow revenue, let's say, $80 million or somewhere around there, you're going to grow EBIT somewhere in the ballpark of $35 million, which is massive incremental margins and I know, I think, $11 million of that, if I remember right, is just the accounting shift, but still even if you exclude that, the incremental margins are really big.

And I'm just wondering if there's any, like, structural shift to stop that's coming on now that's just really high incremental margin?.

Yes. So let me take that, Dave. I mean, I think obviously what we're really pleased about and what we really feel reflects the pulse of our business is that adjusted operating margin number. And you're right, a portion of that, that we've called out, which is about 120 basis points, relates to IFRS 16 and kind of how that's been.

But if we take a step back and we look at where this company was 2 or 3 years ago, we were talking about a sustainable margin in the high-teens and then kind of walking into the last year we had upped that number to 20%.

And now where we are is we're really driving a 21%, 22% adjusted operating margin, and this year is going to be higher as we've already spoken about with 100 basis points of that coming from IFRS. But this really reflects the health and the pulse of our business.

The difference for WNS between the adjusted operating margin numbers and the EBIT or the EBITDA numbers are not going to fluctuate relative to the adjusted operating margin other than the changes as a result of IFRS 16.

So I think if you're really kind of looking at where this business is headed, you want to focus on the adjusted operating margin lines, the rest is really going to be an accounting.

We'd love to take credit for an over 400 basis point increase in our adjusted EBITDA numbers, but the reality is we can't do that because it's relates to an accounting change.

So continue to focus on the adjusted operating margin line that's where we focus internally and making sure that we continue to drive healthy sustainable margin, industry-leading margins, which continue to be significantly above the peer set and to look for opportunities moving forward as the industry evolves..

Okay. No, that's great. And I guess just one other one, travel and leisure up, I think, 20% or so, one of the strongest really in 2 to 3 years, it looks like.

I guess, maybe what's driving that? And then anything on Thomas Cook, I don't know how big of a client that was?.

Yes. In terms of the travel and leisure vertical, what we have seen is the successful execution of couple of the large deals that we mentioned over the last few quarters that have been ramping up to plan and expansion across most of our large logos within the travel ecosystem that's added to significant growth across the board.

And thirdly, with regard to Thomas Cook, even in the last quarter, as we had alluded, it's quite -- when we have taken the numbers into context, it did not have any material impact. It's quite a nonmaterial client for us..

Yes. And just to add that for the balance of the year, that's not factored into our guidance. What we have provided from a Thomas Cook's perspective, and as Gautam mentioned, it was not a material client from overall number perspective..

And from a risk perspective, just so everyone knows, there is no financial risk that -- of bad debt scenario that's unaccounted for..

Our next question comes from the line of Puneet Jain with JPMorgan..

Nice quarter guys. How should we think about exposure to client business volume in the U.K.

and in Europe? Is there any impact favorable or adverse from the upcoming Brexit deadline on your volume-based business? I know you mentioned that client behaviors then change, but was there -- or could there be an impact from changes in business volumes?.

Yes. Let me take that, Puneet. I think we, in general, feel very comfortable about not only the types of services that we provide to our clients in the U.K. but also the fact that when you look at the work that we're doing not a lot of that has exposure to volume.

Obviously, people are aware of the fact that WNS, at its core, is a spin-off from British Airways. And certainly, if there were changes to their volume, it could have a slight impact, but the British Airways today is not a significant client for WNS.

If you look at who our larger clients are in the U.K., most of those businesses are not cyclical in nature. So as a result, we don't expect to have significant exposure to volume fluctuations and the types of work that we do. So kind of similar to the messages that we provided back in 2016 around Brexit exposure.

We continue to feel pretty comfortable not only about the opportunities going forward, but also the fact that our existing book of business should be extremely stable..

Got it. No, that's helpful.

And who do you compete with in procurement space? And how much of the work that you do is solution-based versus people-based? Or how much of the work is industry-specific versus a horizontal service that can be offered across multiple industries?.

So there are the usual corporators what we have. On the one side, it is all around the Accentures and Infosys, but on the other side, it's on the GEP as some of the few competitors to name about.

What we usually see and compete in the procurement space, it's more around -- as Keshav also mentioned, it's around the vertical positioning what we do because each of the horizontal with the vertical is going to be very important from a domain perspective. And accordingly, the approach is more towards the solution based instead of just a body.

We don't go with that approach in any of our business. And it's well entrenched around some of the verticals what we are already present and that's what the whole approach and it's resonating well with all our clients even in the procurement space..

Yes.

And similar to how we talk -- similar to how we speak about the other parts of our business when you look at how we deliver these solutions, yes, there is a labor component to it, but we also have proprietary technology that we're deploying, including technologies and analytics and also using partners to deliver some of these services, companies like Ariba and Coupa.

So we had a similar approach to procurements that we have in all areas of our business..

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

Yes. Nice quarter, gentlemen. A question on the FTE portion of the mix on the contract revenue side. Is the increase -- it's up again this quarter as it was last quarter.

Is that -- is it right to assume that this tied to finance and accounting and new client activity? I'm just wondering if there's anything else there?.

Yes. I think you're absolutely correct, Vince. We typically see new clients engage on an FTE basis. It is not surprising that clients also start their journey either with customer interaction services or finance and accounting types of services.

So yes, we view both strength in F&A and strength in FTE as oftentimes where new clients will start their journey with WNS..

And then Sanjay or Dave, I missed the size of the onetime revenue in the quarter, and should we expect more onetime revenue in the current quarter?.

So for the current quarter, the nonrecurring revenue was $2 million. Right now, we have not factored into our guidance nonrecurring revenue for the second half.

But yes, we don't have that great visibility, so we can't comment whether it's going to be there or not and about the quantum, so we'll have to just wait and watch once we enter into the quarter..

I think it's safe to assume that we would expect something, but again to Sanjay's point, no visibility and volatility..

And then just on context revenue and the mix that dropped a bit, is that related to automation, anything to read into that?.

I don't think there's anything to read into it. I mean when you look at the CIS business, it kind of ebbs and flows, so we had strength in some years. We had less growth in others. And again remember, we also have from both an F&A and the CIS perspective, bundling that takes place as clients move along the journey.

So it's not uncommon for works to come out of CIS and come out of F&A and move into the industry-specific bucket as clients add services and bundle..

[Operator Instructions]. Our next question comes from Sam England with Berenberg..

Just a couple for me. The first one, the insurance revenues drove a decent pickup in Q2.

I'm just wondering if there is any specific drivers for that and whether you expect it to continue accelerating in H2?.

Yes, the key reasons for that, Sam, is based on the successful, again, implementation of the deal that we spoke about during our last quarter and at the same time, a broad-based growth occurs multiple of our insurance clients across all areas of services whether it's industry-specific, finance and accounting or analytics and actuarial, we continue to see a healthy momentum for the rest of the year too..

Great.

And then just a second one around operating margins, you've obviously talked a lot about the margins for H2 and for this year, but longer term, in light of how much improvement you've seen in H1? Do you think the margins could go beyond where you'd previously expect that they could? Or do you see a sort of natural cap on operating margins for the future?.

See, directionally, from a future perspective, as we believe, it can be in the range of 20% to 22%.

And where we are coming from is, it can go as low as 20% specifically from some of the increased investment is the whole digital transformation, technology space what we've been talking about as well as it can go as high as 22% specifically based on some of the nonrecurring revenue and the productivity drivers what we have been working towards..

Yes.

And let me just add that -- let me add that while we're talking numbers here and Sanjay gave some kind of guidance in terms of what operating margins could be like, I think what is really exciting from an overall business point of view is that WNS has never leveraged technology, analytics and different pricing models with clients as we are experiencing and experimenting with at this point in time.

And I think a lot of this also is driving both the quality of sticky revenues, but also the potential for margins.

So we will wait and see what margins ultimately stabilize at, but the exciting area here is that we are operating in a completely new environment based on investments we have made over the last few years, which I think allows us to position ourselves ahead of anyone else in the industry at this point in time..

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