WNS (Holdings) Ltd

NYSE:WNS

Earnings Call Transcript 2018-Q3

[Operator]

Good morning, and welcome to the WNS Holdings’ Fiscal 2018 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After 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 conference call is being recorded for replay purposes.

Now, I would like to turn the call over to David Mackey, WNS’s Corporate Senior Vice President of Finance and Head of Investor Relations. David?

[David Mackey, Corporate SVP of Finance and Head of IR]

Thank you, and welcome to our fiscal 2018 third quarter earnings call. With me today on the call, I have WNS’s CEO, Keshav Murugesh; WNS’s 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 third quarter ended December 31st, 2017. 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 to 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's CEO, Keshav Murugesh. Keshav?

[Keshav Murugesh, CEO]

Thank you, David and good morning everyone. In the fiscal third quarter, WNS once again posted solid financial results. Our third quarter net revenue came in at $185.2 million, representing a year-over-year increase of 32% on a reported basis and 28% constant currency. Excluding the acquisitions of Denali and HealthHelp, organic constant currency revenue increased 16% versus the third quarter of last year. Our revenue growth continues to be broad based and healthy across key verticals, service offerings and geographies.

In the third quarter, WNS added 7 new clients expanded 7 existing relationships and renewed 9 contracts. In addition to our top-line progress, the company also posted solid third quarter performance across margins, profitability and cash flow. Sanjay will provide details of these key metrics in his prepared remarks.

On today's call, I wanted to spend some time discussing WNS' capabilities and positioning in the area of analytics, focusing on our investments in technology and our differentiated approach. Over the past few years, WNS has been aggressively working to enhance our technology enabled analytics offerings leveraging machine learning, cognitive computing and artificial intelligence. We've taken a three-pronged approach to the creation of new solutions, utilizing internally developed IP, strategic partnerships and acquisitions.

The creation of new analytics offerings within WNS is the responsibility of our R&D analytics capability and products group, which is focused on delivering new cutting-edge solutions and products to meet the needs of our clients. The group is comprised of analytics experts, including data scientists, and Big Data specialists, data modelers and statisticians. They collaborate with WNS's vertical leadership and capability teams as well as with clients and industry experts to evaluate, incubate and deliver analytics solutions.

Examples of WNS developed proprietary IP include Branditude, our state-of-the-art, Insights-as-a-service analytics platform and SocioSphere, our social media analytics product, which leverages advanced machine learning and artificial intelligence, to create a true brand equity index for clients.

In addition to products and platforms, our R&D teams are also creating unique niche analytics capabilities powered by advanced technologies, which have been embedded into our industry specific solutions. For example, our travel offerings now utilized internally developed analytics to increase ancillary revenue and reduce revenue leakage, minimize flight disruption and manage the end-customer experience.

Our insurance offerings also leveraged proprietary advanced analytics which have been deployed across the complete insurance lifecycle from customer acquisition, to change management, the pricing and actuarial. Strategic solutions in areas of fraud and customer recommendation engines, which are poweredby AI and machine learning are also proven to be differentiators in the insurance marketplace.

In addition to our internally developed IP, WNS has also established strategic partnerships with innovative technology vendors. These relationships enable us to experiment with new analytics products and service lines in a cost-effective matter helping us to develop new business models across verticals, geographies and functional domains. Our package agnostic approach to partnering allows us to evaluate and develop the best possible solutions for our clients.

The third area of new analytics based offerings comes from our recent acquisitions. The acquisition of value hedge has provided us with unique technology capabilities for the pharmaceutical industry including marketing analytics, data analytics and data modeling. These solutions help bio-pharma clients drive better decisions by providing domain based competitive intelligence, opportunity assessment, predictive forecasting reporting and pricing. Our Denali acquisition has brought to WNS unique analytic solutions in the procurement space including spend analytics and client savings tracking which help drive cost optimization and with their help WNS acquired a strategic effort in care management including a proprietary decision support technology platform, which leverages predictive analytics to reduce costs and improve patient outcomes.

From an overall approach analytics, I believe that our company has taken a healthy long-term view on the analytics space. At WNS, our primary focus is on analytics as a recurring capability designed to drive long-term client value. One key way, we are able to provide this benefit is by running dedicated analytic centers for our clients as oppose to project based relationships. By creating this structure that by long-term contracts, we’re able to provide clients with the depth, flexibility and specialized knowledge necessary to drive optimal insights and business outcomes. In short, it allows us to active and essential of client enterprise.

In the past, we have mentioned on dedicated analytic center for QBE insurance and GlaxoSmithKline Pharmaceuticals. But WNS also supports several other household brands in key verticals such as travel and retail and CPG. Another way, we’re able to leverage analytics to generate long-term value is by embedding these capabilities into our end-to-end solutions. We believe the clients will expect their BPM partners to deliver process transformation and business outcomes with advanced analytics representing one important component of the solution.

Today, at WNS this type of work is part of our industry-specific revenues which represent over one-third of our business. In these relationships the analytics work cannot be separated from the ongoing operational support. Overall, with respect to analytics, I believe that our capabilities and approach are resonating well with clients and prospects. By combining our analytics solutions with domain expertise, we are in a unique position to help our clients generate actionable insights and solve business problems.

Last quarter, WNS was named as StarPerformer in Everest’s PEAK Matrix for analytics business processed services. Of the 18 analytics providers evaluated, WNS was one of only three to receive this distinction. The company was specifically cited for its new logo additions, investments in technology and advanced analytics, strategic partnerships and domain-based approach.

I am pleased to report that today WNS has over 2,500 analytics professionals in the company and is a trusted analytics partner to over 50 clients. We have developed capabilities in strategic areas such as Big Data management and visualization, digital analytics, sales and marketing analytics, risk analytics, and consulting, with many specifically tailored to vertical requirements.

As a result of our approach, we have been able to create a stable recurring business which is approximately 18% of overall company revenues when combined standalone analytics and embedded analytics.

Over the past two years, our analytics business has been growing at a compound annual growth rate of 19% on a constant currency basis.

In summary, we believe that our expertise in the areas of analytics, domain, technology and process enable WNS to transform our clients’ businesses and help make them much more competitive.

As a result, WNS is performing well in a healthy demand environment driven by disruption in our clients’ businesses. We remain focused on delivering industry-leading growth and profitability and creating long-term sustainable business value for all our key stakeholders.

I would now like to turn the call over to Sanjay Puria, our CFO, to further discuss our results as well as the guidance. Sanjay?

[Sanjay Puria, CFO]

Thank you, Keshav. With respect to our third quarter financial, net revenue came in at $185.2 million, up 32.4% from $139.8 million posted in the same quarter of last year and up 28.5% on a constant currency basis. Excluding the impact of acquisitions, year-over-year organic constant currency revenue grew 15.7%.

By vertical, revenue growth was broad-based with the healthcare, retail, CPG, banking financial services, insurance, and shipping and logistics verticals, each growing more than 25% year-over-year.

With respect to our service offerings, revenue growth versus the prior year was driven by strength in technology services, industry specific BPM, finance and accounting, customer interaction services and research resource and analytics. Sequentially net revenue increased by 1.6% or 2% on a constant currency basis. Sequential revenue headwind in quarter three associated with approximately $4 million of non-recurring benefit in quarter two and currency movement, net of hedging was more than offset by healthy growth with both new and existing client and approximately 5 million of revenue benefit which is not expected to continue in quarter four.

This quarter, an additional $5 million was largely the result of delays in project hand downs, which are now scheduled to roll-off in the fiscal fourth quarter. Adjusted operating margin in quarter three was 19.9% as compared to 21.3% reported in the same quarter of fiscal 2017 and 18.5% last quarter.

On a year-over-year basis, adjusted operating margin decreased due to the impact of our annual wage increases and currency movement net of hedging. This headwind was partially offset by improved seat utilization and operating leverage on high volumes. As we have discussed in the past, on a quarter-to-quarter basis there will be trade-offs between seat utilization and productivity metrics.

Sequentially, adjusted operating margin increased as a result of improved productivity and currency movement net of hedging which more than offset lower seat utilization. The company’s net other income expense was $1.5 million in the third quarter down from $2.2 million reported in quarter three of fiscal 2017 and up from $1.4 billion last quarter.

Year-over-year, favorability in interest income associated with higher cash balances was offset by debt expense associated with our fiscal quarter four 2017 acquisitions. In the fiscal third quarter, WNS recorded a onetime favorable debt adjustment of $5.2 million relating to the 2017 US tax reform business. This provisional adjustment includes the net impact of the new tax bill that reduced the US corporate tax rate on our deferred tax assets and deferred tax liabilities and required us to record a chart for deemed repatriation of offshore earnings.

As a result, WNS' expecting tax rate in the third quarter was 10.8% down from 21.4% last year and down from 21% in the previous quarter. Other changes in the quarterly tax rate are primarily due to a mix of profits between geographies. On a going forward basis, we expect WNS expected caproate tax rate to reduce by 1% as a result of US tax reforms.

The company’s adjusted net income for quarter three was $34.2 million compared with $25.2 million in the same quarter of fiscal 2017 and $27.7 million last quarter.

Adjusted diluted earnings was $0.66 per share in Quarter 3 versus $0.49 in the third quarter of last year, and $0.53 last quarter. As of December 31, 2017, WNS balances in cash and investments totaled $208.4 million and the company had $103.1million of debt. WNS generated $38.3 million of cash from operating activities this quarter and free cash flow of $29.3 million after accounting for $9 million in capital expenditures.

During Quarter 3, WNS repurchased 220,461 shares of stock with our buyback program impacting cash by $9.5 million. DSO in the third quarter came in at 30 days the same as reported in both Quarter 3 of last year and last quarter.

With respect to other key operating metrics, our total headcount at the end of the quarter was 35,657. Our attrition rate in the third quarter was 25% as compared to 32% reported in Quarter 3 of last year and 30% in the previous quarter. Global seat capacity at the end of the third quarter was 29,583 and average build seat utilization was 1.22. We expect the seat utilization metric will continue to fluctuate quarter-to-quarter based on facility build out requirements and hiring cycles.

In our press release issued earlier today, WNS provided updated guidance for fiscal 2018. Based on the company's current visibility level, we expect net revenue to be in the range of $720 million to $726 million, representing year-over-year revenue growth of 24.5% to 25.5%. Revenue guidance assumes an average British pound to U.S. dollar exchange rate of 1.34 for the remainder of the fiscal 2018. Excluding exchange rate impact, revenue guidance represents constant currency growth of 23% to 24%. Removing the revenue impact of acquisition, organic constant currency growth is 11% to 12%.

We currently have 99% visibility to the midpoint of the revenue range, consistent with January guidance in prior year. Adjusted net income is expected to be in the range of $114 million to $116 million, based on a INR64 to U.S. dollar exchange rate for the remainder of the fiscal 2018. This implied adjusted EPS of $2.18 to $2.22 assuming a diluted share count of approximately 52.3 million shares.

With respect to capital expenditures, WNS expects our requirement for fiscal 2018 to be approximately $33 million.

We'll now open up the call for questions. Operator?

[Operator]

Thank you. [Operator Instructions].And our first question comes from Bryan Bergin from Cowen. Your line is open.

[Bryan Bergin, Cowen]

Just wanted to ask how did Denali and HealthHelp perform in the quarter relative to your expectations. Can you comment on the cross-sell progress there and then for the full year, is there any change to your inorganic assumption in revenue growth?

[Keshav Murugesh, CEO]

This is Keshav. So, Bryan, I think, like I mentioned in my prepared remarks we are quite pleased in terms of how our acquisitions are performing. And I think all the promises that we had from each of these acquisitions continue to deliver well. So, on the one hand, we continue to see good solid organic momentum from each of these operations on a standalone basis. But more importantly, I think the integration has taken place well and therefore the impact from these offerings across traditional WNS clients is also quite exciting for the longer term. So good momentum overall at this point in time. And from an overall longer -term assumption point of view, we will continue to drive the growth momentum leveraging these assets.

[Bryan Bergin, Cowen]

And then on the new clients that you added during the quarter, can you just confirm which verticals those came in and any interesting relationships there that can turn into large clients in the near-term?

[Sanjay Puria, CFO]

Sure. Let me take that. In terms of the 7 new clients that we added this quarter. I don’t think anything unusual in terms of the size of the contribution. There are a couple of opportunities here to have sizeable relationships. But kind of similar to Keshav’s commentary about the overall business, pretty broad based in terms of the vertical representation, the 7-new customer adds represented, just doing a quick calculation here 1, 2, 3, 4, 5 different verticals. So happy to see new customer adds in insurance, in travel, in healthcare retail CPG and in travel. So, I think we feel pretty good about as Keshav’s said kind of the positioning and the fact that we continue to be pretty healthy and broad based in terms of the front end of our funnel new customer adds.

[Operator]

Our next question comes from Dave Koning from Baird. Your line is open.

[Dave Koning, Baird]

I guess first of all, just on the tax reform, you mentioned 1% better tax rate going forward. I’m just wondering, what’s that off of a base, is that kind of a 24% normalizedrate historically moves down 1% to 23%. What’s kind of the way to think about that?

[Keshav Murugesh, CEO]

Yes. So, from this year in fact, maybe perspective excluding the US tax reform, as well as we had a one-time tax benefit also in quarter two. The normalized tax rate is 26%. So,we expect on a going forward basis with 1% effective tax rate coming down, the normalized tax rate to be around 25%.

[Dave Koning, Baird]

And then, the one other thing, just thinking about margin. Q3 was obviously up nicely sequentially and follows kind of the normal pattern where through the year margins tend to pick-up. I am just wondering like how you are thinking about Q4 margins? I was just trying to balance full year guidance with taxes and margins and thinking, do you think margins are going to go up sequentially? And then how do you think about next year margins in the context of the rupee?

[Keshav Murugesh, CEO]

Yes, so if you see from a world guidance perspective, the quarter four margin sequentially goes up and may be approximately we expect around 21%, sequentially it’s been going up quarter-over-quarter, as well as from a going forward perspective we continue to expect the operating margin to be around high teens.

[Operator]

Thank you. Our next question comes from Edward Caso from Wells Fargo Securities. Your line is open.

[Edward Caso, Wells Fargo Securities]

Hey, good morning, good evening. Congratulations. Can you talk a little bit about robotics process automation and how that works into your business model, is it good news, bad news? Help us sort of frame whether it’s a risk or an opportunity. Thanks.

[Keshav Murugesh, CEO]

Thanks. So, let me first start that answer and I’ll have Ron talk a little more about it. But I think on an overall basis as we’ve been saying for the past few quarters, this is an area that WNS has been investing in significantly because we believe it’s a strategic long-term asset for us to help expand the business for WNS. And I think the fact that we’ve been investing in this area, driving much more automation, much more technology absorption, creating much more connect with our clients around this, means that they are really focused on the disruption at their own customer end with the comfort that WNS is doing whatever we need to do internally.

So first and foremost, I must say that we believe that this is something that we need to keep doing in order to grow and expand the market which is what we are seeing from a WNS point of view. So, it’s actually an exciting opportunity, while it may cannibalize revenues in the short-term, it’s creating much more longer-term sticky revenue streams for us. And with that, I’ll have Ron give you a little more -- a bit more color.

[Ron Gillette, COO]

Yes, so Ed, we’re very positive on this. It’s been part of our business for a while and we made some investments as Keshav referred to. It’s broad-based across our business. Now our clients are going at different paces with this. We have some in our -- further along on the journey and some that aren’t. But most of our new opportunities it’s a key part of the solution going forward that we are bringing to clients and delivering to them. So, we do see it is as part of our business going forward and it will be a component of it as well as other new automations that will be brought to bear artificial intelligence. We’re doing research and developing our own solutions across the business in all these areas.

[David Mackey, Corporate SVP of Finance and Head of IR]

Yes, and let me just add one little piece to what both Keshav and Ron said, obviously from a revenue, from a pricing perspective when you look at the impact of robotics, it either reduces the addressable market or reduces the per unit price but obviously there are emerging freightouts to go with that. I think the reality is when you look at the true impact of all of these technologies, whether it’s AI or robotics or machine learning or cognitive computing, the one upside to these technologies is that because they have received the amount of attention and buzz that they have in the market, the reality is that we have a lot more customers that are interested in process outsourcing because they don’t want to be left behind regarding what’s going on.

So, I think the upside to technology and automation for us the fact that its bringing a lot of people to process outsourcing that might not have otherwise been interested in looking at these kinds of opportunities. So, a little bit of a double-edged sword but again you know from an immediate impact perspective we really view robotics and technology as the way to deliver the productivity that we’ve committed to our clients anyway.

[Edward Caso, Wells Fargo Securities]

Can you talk a little bit about any trends you see in in-sourcing particularly in this as RPA ramps up? Are clients trying to bring more work inside or not or what trends you’re seeing on in-sourcing?

[Sanjay Puria, CFO]

Yeah, let me take that Ed. I think when you look at the reasons that a company would look to bring work back in house it would be because they believe that the processes or the functions that have been outsourced are so strategic to their business that they want to invest and if they want to differentiate based on it and as a result that’s why they would look to bring it back in-house. We don’t see many companies looking to do that because of technology and automation.

I think the reality is that the ability to deploy these technology solutions and to monitor and manage them going forward is not a simple task that most companies aren’t really ready to do that. And there has obviously been a lot written out in the space today by the advisor community about challenges that a lot of companies that had implementing RPA and technology by themselves and trying to manage it. It's not that simple to deploy, it's not that simple to manage and I think the results where clients have done this on their own have been mixed at best.

[Operator]

Thank you. Our next question comes from Korey Marcello from Deutsche Bank.

[Korey Marcello, Deutsche Bank]

Hey guys, thanks for taking my question. just wanted to start-up, you know the company has kind of discuss this second half kind of ‘18 incremental headwinds from project ramp down, auto claims business and the seasonality in third quarter for the travel business. However, it looks the travel and leisure have done pretty fairly well and auto claims business appears to have been tracking above this sort of guidance that you provided in the fourth quarter last year. I think it was minus 30% year-over-year decline.

So, my question is what’s kind of baked into the fourth quarter guidance as it relates to some of these headwinds and I know you mentioned project ramp downs were pushed in the fourth quarter. but are there any other headwinds that we should be thinking about and then any kind of bogeys as we head into fiscal year '19.

[Keshav Murugesh, CEO]

Sure. Good question Korey and I think you’re right. You know obviously the guidance to a softer back half is something that we provided walking into the year. From an auto claims perspective, through the first three quarters of revenue has been relatively flat but important to note that on a constant currency basis year-over-year the auto claims business is actually down about 11%. The reality is that business line because it is entirely denominated in British pounds had optically looked a little bit stronger than it would have otherwise. So, when we look at constant currency revenue growth for the company, certainly auto claims is not helping that even though it looks flat from a reported basis.

There is the travel business in terms of the seasonality, you know we did have a 1% sequential decline in the travel business in Q3. The good news is from an overall vertical perspective it was quite strong on a year-over-year basis up 19%.

So, I think third quarter, back to Sanjay's comments was probably a little bit stronger than we would have expected. And the real reason is because some of the projects that we had expected to ramp down didn’t really occur. But if you look at what's embedded in our fourth quarter guidance, we have assumed that $5 million is not going to recur in the fourth quarter. Because we don't have a commitment to it, we don't have visibility to it at this point in time. So, we have not included it. I think the approach to Q4 is similar to what we've provided. Its visibility based, it's commitment based. And with a little bit of luck and some additional momentum here, we certainly got the opportunity to get the higher end of guidance as opposed to the midpoint. But to be consistent in terms of how we guide the street, this is how we provided it. And obviously, we feel pretty good about how the overall business is performing as we exit the year and how the overall year is shaping up.

[Sanjay Puria, CFO]

Yeah. And just to add specifically on the auto claims, the headwinds what we spoke about was 1% was there. But it was offset by some of the expansion from new opportunities what we had from auto claims perspective.

[Korey Marcello, Deutsche Bank]

Okay, thanks guys. And then just as a follow up. Having kind of grown the sales force 20% year-over-year earlier in the year and with revenue per employee kind of accelerating. Can you maybe provide some color on what's driving that? And how long does it really take for the sales hires to ramp up? Were some of those maybe professional hires that are starting to contribute or are they kind of freeing up time for some of the senior folks to win new business? Maybe can you just provide some color there? Thanks.

[Keshav Murugesh, CEO]

Yeah. Like I, as I've said in the past, I think the focus really has been on increasing the productivity of our sales folks. So, I think over the past few years, we did add some numbers. We have to make changes in terms of the quality of the sales force and the kind of people that we needed as the business changed and the kind of business that we were chasing also changed. So, what has actually happened is that we have continuously kept evolving, bringing in the most appropriate kind of sales force that is required for the company at this point in time and preparing for long-term growth on an overall basis.

And when you look at the kind of sales people we have, we would have the traditional kind of hunters who are very domain focused and who will kick open the door. We would have experts, who are the traditional horizontal kind of experts who understand core areas of finance and accounting, analytics, CIS, and things like that. We would have people who are extremely strong on the new areas of technology, but along with that, also appreciate and understand how technology and domain interplay with each other. And at the same time, we also have the very senior client partner kind of profile at the company who are much more practice oriented and driving a group of people to grow an existing account from point A to point B. So, on an overall basis, the focus of the company continues to be investing in the right talent profile for sales in order to ensure the productivity is the highest. And we are very positive about the progress we have made.

[Operator]

Thank you. Our next question comes from Frank Atkins from SunTrust. Your line is open.

[Frank Atkins, SunTrust]

Thank you for taking my questions. Wanted to ask first on attrition, nice drop there. Was there something onetime-ish going on or how sustainable is the level there and what you’re going to doing in terms of the hiring environment and retention?

[Sanjay Puria, CFO]

So, thanks for the question. We’re happy to see our attrition rate trending in the right direction. Do you want to say that this one quarter isn’t of itself the trend, third quarter tends to be our lowest attrition rate year-to-date were 29%, so positive going in the right direction?In WNS, we’ve invested in our HR programs and or our people, we’ve been named best employer in India this year. So, there is many things that are having a positive impact and we’ll continue to work well with attrition. We’re happy to see, it’s down year-on-year and year-to-date. Again, this quarter tends to be lower, we’re pleased with what it is. But we’ll continue to work and just keep improving on attrition.

[Frank Atkins, SunTrust]

And then as we look at research and analytics. Are those margins still above corporate average and as that becomes a larger chunk of revenue, is there any potential thought at breaking that out separately and giving us more color on margins there?

[Keshav Murugesh, CEO]

Sure, we do breakout the research and analytics from a revenue perspective. Again, we think some good healthy growth, we had healthy margins in that business and I think a lot of it has to do with exactly what Keshav spoke about earlier, which is the fact that we think in a slightly different approach to the analytics business and we’re running analytics functions for our clients as opposed to focusing on kind of one-off projects that require a lot more maintenance, management and bench requirements. That being said, I think in terms of breaking it out separately. One of the challenges that we had, is that we’ve got over a third of our business today, that’s been sold independent of traditional horizontal.

So, when you look at our industry specific solutions, where we’re charging an insurance client per claim or we’re charging a travel client per passenger. The reality is its very difficult if not impossible for us to break that out into horizontal component and in fact we don’t want to do that. We want to align our business with how we’re looking at our customers and how our customers are looking at their business. So, for us, I think we’re happy with the waywe break it out. We’re happy with the way that segment is performing, we’re happy with our positioning. And I think for the time being any way we will probably continue to run it that way.

[Operator]

Our next question comes from Joseph Vafi from Loop Capital. Your line is open.

[Joseph Vafi, Loop Capital]

Keshav, couple of quarters ago you seem to be getting a little more excited about the large deal pipeline. I was wonderingif you could give us an update on that especially here as we add our new calendar year for near clients.

And then secondly how that helps on board for a little while, you may have more visibility into the payer market. I was wondering, if you can provide an update on that vertical for us moving forward? Thanks.

[Keshav Murugesh, CEO]

Sure. Joe, so, yes. So, we continue to be very enthused with the overall sales pipeline of WNS. As we also going to fiscal 2019, while obviously, we will provide guidance in the next quarter, I think the way, the pipeline has shaped up in terms of the kind of deals, the geographies that coming from, the kind of mix of deals as well as the impact of some of these deals are outstanding for WNS and I must give full credit to our sales teams as well as our vertical teams for actually positioning ourselves so strongly over the pastfew quarters.

In fact, if you just look at how WNS has performed and has guided over the past few quarters, you will see that each year the number of new clients that we’re kept adding has kept increasing. And as we reminded everyone I think over the past few calls, the number of $1 million accounts that we actually have opened up here which have momentum to grow are significant, in fact we have more than a hundred of these accounts at the company.

Having said that, the large deal pipeline continues to be very, very strong and we are continuously cracking some of these deals. Obviously, they take a much longer time to bake and actually get signed up. But once again, we are very enthusiastic about some of these deals in the pipeline. The kind of impact of these deals, the complexity of these deals, the fact that they lead with technology transformation, the fact that they need all the core areas that WNS has been investing in and more importantly, the fact that it allows -- each of these deals allows us to engage with the senior most stakeholders on the other side. So very, very positive about the large deal pipeline. The ones that we opened up earlier are progressing very well in terms of transition, growth and potential for much more growth over the next few years and the new prospects that we have in hand are also cooking very well. That’s one.

Then your second question was on HealthHelp and generally the payer side, and again we are positive with the impact of HealthHelp has had. We are obviously leveraging that management team, that capability and that asset to grow the business from a HealthHelp point of view itself. But because of the fact that HealthHelp is now owned by a much larger player that bring much more capability and maturity, the pipeline is actually increasing out there and the quality of interactions that HealthHelp is also having as a result of being owned by WNS has also dramatically changed positively. So again, we expect this asset and this capability to be a long-term kind of generator of revenue and profitability for the company and also, I would say managerial talent for WNS.

[Operator]

Thank you. Our next question comes from Joseph Foresi from Cantor Fitzgerald. Your line is open.

[Joseph Foresi, Cantor Fitzgerald]

Hi. I wanted to focus on the rising revenue per employee. Is this automation or is this some element of the new acquisitions that makes it orient to those numbers and how should we think about that metric going forward?

[David Mackey, Corporate SVP of Finance and Head of IR]

Yes, great question. Joe, I will take that. I think the increase in our revenue per employee has been dramatic. And there are really multiple reasons for that. First and foremost, as you said, we have been deploying technology and automation into our solutions. So, the number of people per dollar that we use on work has been reducing which drives up that productivity, drives up that revenue per employee.

Secondly, our acquisition both HealthHelp and Denali were very high dollar per person acquisitions, HealthHelp obviously given that the majority of the work that’s done through a technology platform essentially means that you’re looking at a business for example that is generating almost $140,000 per FCE. Denali, because it is US centric, because it is high value, because it is senior level work also had high revenue per employee.

So first and foremost, technology and automation deployment, secondly the impact of our acquisition and third, if you look at where our growth has been coming from. We’ve been increasingly growing our footprint in the United States that has had an onsite centric component to that, you’ve seen that in terms of our increase in US headcount. So that has also helped improved revenue per employee. So, kind of all the key underlying operational metrics in our business are helping to improve that revenue per employee number.

[Sanjay Puria, CFO]

If you have been seeing year-over-year our revenue growth is much faster than our headcount growth and sale [ph] contributed was that what Davidmentioned.

[Joseph Foresi, Cantor Fitzgerald]

Got it. And then just kind of working off the same question, so how much of the strength and demand is healthy demand backdrop versus expanding capabilities and is growth at this point more predicated on the new logos or the current client penetration? I’m just trying to get a sense of whether you’re expanding into new verticals versus the traditional land and expand.

[David Mackey, Corporate SVP of Finance and Head of IR]

I think Joe its always going to be in the short run land and expand. I mean the reality is the majority of our revenue growth and trajectory in any given year is going to come from the maturation of the client that we’ve added over the last two to three years. But as Keshav mentioned I think the opportunity in the long-term is the fact that we’ve been adding a higher number of clients that we’ve been moving more customers into the $1 million range or the $5 million range or the $20 million range.

So, the progress that we’re seeing in our business is actually across multiple levels, right we’ve talked about a healthy pipeline, we’ve talked about more new customer adds. But what you see if you look at the stratification of our customer base through average size is that we’re moving those relationships up overtime. So as long as we continue to do that, there is the opportunity to continue the business momentum and to potentially accelerate it. But the reality is if you look at any given quarter or any given year, the majority of short-term revenue acceleration is going to come from the expansion of existing relationships.

[Operator]

Thank you. Our next question comes from Moshe Katri from Wedbush Securities. Your line is open.

[Moshe Katri, Wedbush Securities]

Thanks for taking my call, great quarter guys. Couple of things, so when we talk to the by-side, the biggest push back continues to be regarding story, your exposure to the UK post Brexit and also there are some questions about your largest client in terms of what’s going on there. Can you give us some kind of an update there on both topics? Thanks a lot.

[David Mackey, Corporate SVP of Finance and Head of IR]

Sure, I’ll take that Moshe. I think we’ve continued to make really solid progress as a company in terms of diversifying our business and as Keshav spoke a couple of quarters ago, not just diversification by geography but diversification by vertical, by horizontal, by type of work, by delivery location and by overall customer contribution. With respect specifically to the UK, you know if you look at the UK for example, just this last quarter and this was with a solid British pound quarter relative to where we’ve been, the UK was 31% of company revenue. If you look at where that business was for example, in the third quarter of last fiscal year, it was just under 36%. Year-to-date, our pound, our UK exposure is 33% compared to 39 last year.

And similarly, when you look at our largest client, which is Aviva, Aviva last year for WNS was 9.5% of revenue, year-to-date it's 7% of revenue it was 6.5% in Q4. The relationship remains healthy, they're referenceable, they are an extremely important part of helping us landnew insurance companies and new insurance clients. And the reality is, we believe our overall UK business is still quite healthy. But the growth that we've seen in other verticals and diversification away from the company's historical traditional strength in the UK have been really kind of a long-term benefit for WNS. And we feel good about how we're positioned going forward here.

[Operator]

Thank you. Our next question comes from Ashwin Shirvaikar from Citi. Your line is open.

[Ashwin Shirvaikar, Citi]

Thank you. Good morning, guys and good job here once again. So, my question is thinking ahead to the next fiscal year and I'm obviously not asking for any specific outlook. But throughout fiscal 2018, you now had some onetime benefit each quarter. So, can you discuss how you're thinking in terms of a growth [ph] over? And as you model, what we should not forget to think through in terms of existing ramps, contract renewals and onetime impact, things like that?

[Keshav Murugesh, CEO]

Yeah. So, Ashwin, let just pass with the answer, I'm sure Dave and Sanjay will have lot more to contribute thereafter. But, as we look at the future, I think we are extremely confident about the overall business momentum of WNS. The sales engine is clanking well, the sales pipeline is very strong, the large deal pipeline and brand specialist is very, very strong. The new capabilities that we invested over the past few years, or few quarters are resonating well. Our M&A program has worked extremely well and we're delighted with the kind of the progress we have made in terms of bringing in these new capabilities as well. From a market point of viewalso, we are seeing that as economics is changing across the globe and some of the economies are doing better, we are seeing people focus less and less on the cost impact and much more on working with the strategic partner like WNS to just stay current or ahead of the game in terms of robotics, machine learning, AI, analytics all the good things that will keep them very focused on a great future for themselves. And so therefore, from that point of view, I think we are extremely well positioned and very confident about continuing to see solid growth momentum and profit momentum for the long-term.

Now in terms of the specifics around the one-timers and impacts to the future, I'll leave it to Dave and Sanjay to just add color.

[Sanjay Puria, CFO]

Just from a one-timer perspective, there is no like consistent theme that causes it. Every quarter, there has been a different reason or cause for that, for example there was some time like hurricane or there are sometime short-term projects or based on some gain share what we have from a client perspective. And you don’t have -- get a visibility till the time you enter into the quarter. Because it all depends from a client perspective based on certain of their ramp down all closed what they have. And accordingly, we follow very consistently based on our visibilityfrom a guidance perspective. But yes, there is no consistency, it’s a different reason for different quarters what we have seen specifically this year.

[David Mackey, Corporate SVP of Finance and Head of IR]

And just to add one thing that I think it’s important Ashwin. Sanjay spoke about some of the reasons that we’ve seen these one-time impacts in the quarter, are not referring impacts in the quarterand whether it’s project delays or volume increases or gaining shares or project related work. I think the one thing that’s important to understand is that these are still all parts of our business. This is operational revenue, so this is part of being a business process management company, it’s not that’s a one-timers or the non-recurring business came from accrual reversals or accounting or non-operational issue. So, the important thing to understand is that whilewe did get the benefit this year from some of these things, it is a part of our business and not something that’s -- it’s not necessarily something that we don’t expect to continue with something that we don’t have visibility to continue and I think that’s the important part.

[Ashwin Shirvaikar, Citi]

My follow-up question on tax reform. Just to process and the uncertainty associated with that. Did that cause you guys to sort of relook strategically at where you’re doing work from, is that still the appropriate model, the extent to which we use technology. Just a strategic re-up on the business, if you could. I know that’s a hard question, but I would appreciate.

[Sanjay Puria, CFO]

So, we definitely keep on exploring based on some of the tax reform whether it’s in India or whether it’s in U.S or different geographies that what'sthe right model from a long-term prospect as an organization, which can help us from that optimization perspective. And accordingly, if you see despite being some of the negative tax reform in various geographies, we have been consistently able to manage our tax rate within the 25%, 26% range year-over-year.

[Keshav Murugesh, CEO]

And Ashwin, I just say one thing, sorry, did before that I just want to say one thing. As the company, we will have to do whatever is right to make sure that our clients get the best attention and the best service. So constantly there will be something of this nature happening, somewhere in the world and we have a very smart team, so we will be very cognizant about all of those changes and accordingly keep adjusting the model. But two years ago, we had Brexit, now we have a tax thing [ph]. All the time some of thing kind happening. But we will never keep their eyes of the ball in terms of making the right investments, ensuring that our clients are serviced very well and at the same time that we are having the optimum model in order to deliver well to clients and deliver the kind of profit impact that we need to see.

[Operator]

Our next question comes from Puneet Jain from JPMorgan. Your line is open.

[Puneet Jain, JPMorgan]

Can you talk about penetration of analytics within your existing BPO clients and how do contract structure change when you add dedicated analytics into a contract?

[David Mackey, Corporate SVP of Finance and Head of IR]

Sure, let me take that. So, I think when you look at overall our analytics penetration, I think the company still has significant opportunity to not only add analytics capabilities into our similar traditional relationships but also increase analytics penetration, analytics solution into some of the clients that we do support today from an analytics perspective.

Now as Keshav mentioned, we have over 50 clients today where we have some component of analytics, whether that’s on a project basis, whether that’s on a dedicated center basis as you mentioned or on an embedded basis. but the one thing we know is the clients are going to increasingly expect their process outsourcing partner to provide them with the insights to help make the business more competitive. And we are absolutely committed to doing that.

The benefit as Keshav mentioned in his prepared remarks to a dedicated center is, it really allows for knowledge consolidation and leverage to the clients. So, if you can make commitments to hiring people and they have those people in place for three, five, seven years, not only do they bring analytics capabilities and knowledge and domain expertise in WNS to bear but after a year or two they start to bring client-specific knowledge to bear. And I think customers understand that.

If you can have that kind of a model where it also gives you the flexibility to move resources up and down quickly as and when needed, then I think it really is a model that works for a lot of clients and we’ve seen that with several very large global organizations.

So, we view that as the great way either for us to establish our first relationship with the client or an expansion opportunity with some of our distant customers as well. But it’s a model that we take to customers from an analytics perspective, it’s going to be more predicated on their history, their culture and their business needs than anything else.

[Puneet Jain, JPMorgan]

Got it. And can you also comment on your appetite for acquisitions and more broadly on your use of cash priorities?

[David Mackey, Corporate SVP of Finance and Head of IR]

Sure. Let me take a cut one at that. I think overall the company’s approach remains consistent with the capital allocation. I am sure everybody saw this morning that we did a press release announcing that the Board has authorized another 3.3 million share buybacks over the next three years that will be going to shareholders through an extraordinary general meeting for approval. But we view share repurchases as certainly one of the tools that we have in our toolkit in terms of capital allocation. We want to take a balanced disciplined approach. But I think as we’ve discussed in the past and as Keshav has mentioned on numerous occasions, priority one is taking advantage of the market opportunity that’s out there.

We want to make sure we are finding the right assets at the right price with the right fit. But when we can find complementary capabilities that help plug holes in what we do, that will allow us to expand our footprint with both new and existing customers. That’s job one.

We are in a great industry. It’s early days and we should be looking for these kinds of tuck-in acquisitions to help accelerate growth and accelerate our positioning in. That is the primary use of cash.

That being said, I don’t think -- and we’ve seen this over the past few years, we don’t view the two as mutually exclusive and we view share repurchases as a minimum way for us to manage the dilutive impact of restricted stock issuance.

[Operator]

Thank you. Our next question comes from Vincent Colicchio from Barrington Research. Your line is open.

[Vincent Colicchio, Barrington Research]

Yes, most of mine were asked. Keshav, I was wondering if you could talk about your small verticals, some of them have lagged on the gross side. Just wondering, do you remain optimistic on their potential?

[Keshav Murugesh, CEO]

Yes, so you know every one of the verticals that we have within the company and which we report on, we believe have opportunity for growth. Some of them may lag in a particular quarter but I think for each of them we see them as areas of opportunity for the longer term and if you remember maybe a few years ago healthcare was an area that was small and probably not growing very much but we still saw it as an opportune area for the company and we’re focused on growing that area, backing it with an acquisition strategy and we’re actually seeing solid momentum come from there.

From an auto claims point of view, we did call out a few quarters ago the need to make certain changes, we are making those changes, we are focused on some specific areas, dropping areas that are of lower interest. But having said that on an overall basis, the ability for us to leverage them and add impact into the rest of our insurance business is continuing to be high.

[David Mackey, Corporate SVP of Finance and Head of IR]

I was just going to add Vince you know when you look at the year-to-date performance of some of these smaller verticals, they really have not seen any of the inorganic benefit from either HealthHelp or Denali, that some of the other verticals have, so optically obviously there is an issue there. if you look at verticals that we have in the 5 to 10% revenue range like shipping and logistics, like utilities, like banking. These businesses have grown 21%, 17% and 32% respectively on a year to date basis. So, these businesses are growing at a health clip, obviously when they are small like this, you can see some volatility quarter-to-quarter but the reality is we’ve seen pretty good progress in some of these smaller verticals.

[Operator]

Thank you. Our next question comes from Brian Kinstlinger from Maxim Group, your line is open.

[Brian Kinstlinger, Maxim Group]

Hi thanks for taking my questions. Given the emergence of analytics from the box that you’ve talked about, are you seeing any changes in the competitive landscapes, maybe any new credible competitors?

[Keshav Murugesh, CEO]

You know I think all of these are obviously areas that can create impact for clients and therefore there would be some of the pureplays that are completely focused only on analytics that are trying to make an impact. At the same time, the traditional competition also have been investing in this area and creating impact.

But I think what we are trying to follow is a very differentiating approach where not only are we driving impact through analytics but we’re actually embedding it within our traditional vertical solution. So, on an overall basis, in deals we expect to see probably the big four, we’re seeing some of the boutique firms and it’s a hot area, so we will expect to see more and more competition but how we differentiate ourselves and how we specialize our offerings and create more impact is what is actually ensuring WNS' success.

[David Mackey, Corporate SVP of Finance and Head of IR]

And just to add to that Brian, from a capability standpoint. Where there are niche capabilities out there that are impactful and important, we've actually been partnering with some of these companies. So, whether it's a robotics process company or an artificial intelligence company or machine learning company we have been working with several of the niche innovative players in their respective spaces to help us build out some of our solutions. If we can't do it ourselves we're certainly willing to partner.

[Brian Kinstlinger, Maxim Group]

Great. And then lastly, overtime we've talked about this. Can you update us on the natural evolution of clients after first project for example, you announced 7 clients from the quarter-to-date? What percent of client never materialize in toomuch more. And then if clients that do become larger what's the average time it takes to get to $1 million to $5 million in annual revenue?

[Keshav Murugesh, CEO]

I don't know that we have a specific percentage that -- of customers that expand beyond the initial scope. But I would say just based on the number of relationships that we've been able to move forward, I would say that number is probably pretty high north of 75% - 80% anyway. I think the reality is Brian, when you look at the overall evolution of a client, we still believe that at a minimum that journey from doing nothing to being a mature customer is going to take 5 years. And the majority of the acceleration in that relationship tends to happen in years 2,3 and 4. Obviously some take longer, as you rightly said, some never get there. But by the time you hit 7-8 years, most customers have outsourced what they're going to outsourced. Now obviously if business changes, and what is perceived as being outsourceable changes that can have an impact. But the need of that really takes place in years 3,4,5, [2, 3, 4 of] relationship.

[Operator]

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