WNS (Holdings) Limited (WNS)

WNS 
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WNS (Holdings) Ltd. (WNS)

F3Q08 (Qtr End 12/31/07) Earnings Call

February 8, 2008 8:00 pm ET

Executives

Jay Venkateswaran - Senior Vice President, Investor Relations

Neeraj Bhargava - Chief Executive Officer

Anup Gupta - Chief Operating Officer

Vibha Padalkar - Executive Vice President and Controller

Analysts

Bryan Keane - Credit Suisse

Joseph Vafi - Jefferies & Co

Mark Marostica - Piper Jaffrey

Ashwin Shirvaikar - Citigroup

Julie Santoriello - Morgan Stanley

Mitali Ghosh - Merrill Lynch

Tim Fox - Deutsche Bank

Matt McCormack - FBR Capital Markets

Tim Rose - Robert W. Baird

Tien-Tsin Huang - JPMorgan

Joseph Foresi - Janney Montgomery Scott

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2008 WNS Holdings Ltd. Earnings Call. My name is Lacy and I'll be your coordinator for today. At this time, all participants are in a listen-only-mode. We will be facilitating a question-and-answer-session towards the end of this conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes.

I would now like to turn the presentation over to our host for today's call, Mr. Jay Venkateswaran, Please proceed sir.

Jay Venkateswaran

Thank you, Lacy. Good morning, ladies and gentlemen, and good evening to those of you joining us from Asia. Welcome to WNS's fiscal 2008 third quarter conference call. I am Jay Venkateswaran, Senior Vice President of Investor Relations at WNS.

With me I have Neeraj Bhargava, our Chief Executive Officer. We also have with us Anup Gupta, our Chief Operating Officer, and Vibha Padalkar, Executive Vice President and Controller. Today's remarks will focus on our recently announced results for the fiscal third quarter ended December 31, 2007.

Some of the matters we will discuss on this call are forward-looking, and you should 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 our Form 6-K filed with the SEC today.

During this call, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors. You can find reconciliations of these non-GAAP measures to GAAP measures in our press release issued on Feb 7.

I will now turn the call over to Neeraj.

Neeraj Bhargava

Thank you, Jay and thank you all for joining today's call. In today's discussion, I would like to cover four key topics. First, I will summarize the results for this quarter. Second, I will discuss key strategic issues we face in today's business environment. Third, I will discuss our operational performance. And last, I will touch upon organizational development and other key strategic initiatives including the appointment of our new CFO.

Vibha will discuss our financial performance in detail including our increase in net income guidance for fiscal 2008. After our prepared remarks, Anup, Vibha and I will respond to your questions.

Let me start by summarizing the financial results achieved for the third fiscal quarter. Revenue less repair payment grew by 21.5% from December 2006, as we put last quarters' mortgage losses behind us. Gross margins excluding share-based compensation were stable at 32.9%, while SG&A cost declined. As a consequence, operating margins excluding share based compensation, related fringe benefit taxes, and amortization of intangible assets increased to 10.4% from 9.6% in the second quarter of fiscal 2008.

Overall, our numbers exceeded our expectations for the quarter. This has been a period of continued recovery after the reduction in mortgage revenue. We feel good about how things have shaped up, and are confident enough to raise net income guidance by $1 million for fiscal 2008.

Let me move on to my second topic, a discussion on key strategic issues. I want to highlight six key items that are sharply in focus in our current business environment. First, over 90% of WNS's revenue stream is made up of annuity based long-term contracts. We process mission critical transactions between our clients and the business partners or their end customers. [Sending] on offshore BPO services is not dependent on our client's annual budget, as we manage ongoing operations and not one-time project.

Offshore BPO program typically delivered cost savings within 6 months to 12 months and that makes our value proposition very attractive to clients in their [recessionary] environment. Our revenue stream is also more, sticky and less susceptible to budget cuts. Second, offshore BPO still remains a large untapped market with a potential to grow rapidly for a long period of time. Research reports such as the recent Everest NASSCOM study expect the market to grow as much as five fold over the next five years. And broadly, we see no slowdown in client interest and commitment to offshore BPO.

During the last quarter, we added four new clients, three in the consumer products industry and one a broad based services company. We also signed 11 expansions with existing clients. We'll discuss two examples, a consumer product line, who we serve in the US, recently added their UK operation to what they outsource to us. Another client of ours in the utility industry, who we serve in multiple areas, also outsourced their F&A function to us. Third, in sectors like insurance, manufacturing, utility, logistics and consumer products, our pipelines at their strongest, better than this time last year. The economic uncertainties present WNS a good opportunity to accelerate the penetration of these sectors as they face growth challenges and margin pressure.

Fourth, we have low exposure to the mortgage and banking sector among the lowest in our industry. Only about 5% of our revenue less repair payment comes from the mortgage and banking space. Fifth, we believe our travel business is well positioned to grow even in a recessionary environment. In response to queries from investors and analysts, we studied our travel revenues sensitivity, while, volume reductions could affect some of our existing processes. We believe that we have enough strength in our existing and new client pipelines to more than counter any potential volume loss.

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