Firstsource Solutions Limited (FSL) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Firstsource Solutions Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankur Maheshwari from Firstsource Solutions. Thank you, and over to you, sir.

Thank you, Zaid, and welcome, everyone, and thank you for joining us for the quarter ended December 30 -- 31, 2020, earnings call for Firstsource. To take us through the results and to answer your queries, we have with us today Mr. Vipul Khanna, our MD and CEO; and Mr. Dinesh Jain, our CFO. We will be starting this call with a brief presentation providing an overview of the company's performance followed by a Q&A session. Do note that the results, the fact sheet and the presentation have been e-mailed to you, and you can also view them on the website, www.firstsource.com. Before we begin the call, please note that some of the matters we'll discuss on this call, including our business outlook, are forward looking and as such are subject to known and unknown risks. These uncertainties and risks are included, but not limited to, what we have mentioned in our prospectus filed with SEBI and subsequent annual reports that are available on our website. With that said, I'll now turn the call over to Mr. Vipul Khanna to begin the proceedings. Vipul?

All right. Thanks, Ankur. Good morning, everyone, from a cold San Francisco evening. Thank you for joining us today. I hope everyone continues to keep good health as we enter, hopefully, the home stretch of this long COVID fight. Let me start by giving a quick overview of our Q3 performance. We had another strong quarter with revenue growth better than expectations. Revenue grew 23.8% year-on-year in constant currency, 29.6% in rupees and came in at INR 13,652 million or USD 184.8 million. Adjusting for the acquisition of PatientMatters, organic growth in constant currency was 22.9% year-on-year. I will discuss the importance of this acquisition in a few minutes. The EPS for third quarter came in at INR 1.72 per share compared to INR 1.29 per share last year for the same period. The demand environment has been good, and our teams have stepped up to execute strongly to take advantage of it. Revenue growth in CMT segment was driven by strong demand from existing clients and ramp-up of recent wins. Incidentally, this segment grew the most sequentially. BFS witnessed continued demand, particularly in our mortgage unit, and our U.K. retail banking business also saw a sequential recovery. In health care, especially in health plan and health services segment, recent wins fueled the sequential growth in revenues. Sales momentum continued. We added 18 new clients this quarter, taking the tally to 43 new clients year-to-date. This does not include the clients added from the acquisition of PatientMatters. Our intelligent automation practice is making meaningful strides across verticals, including a significant win in the born digital segment. Overall, I'm pleased with the way our overall strategy is playing out and the execution rhythm of our organization. Despite the logistical challenge of a distributed operation, the team is doing a phenomenal job in ensuring both clients and employee satisfaction while delivering strong growth. In the past, I've spoken of the 3 tenets of our ambition to build sustainable, high-quality growth platform. These 3 tenets are: one, for the 3 core industries we serve, sharp focus on specific segments where we have or can attain market leadership; two, modernizing our offering, underpinning them with our Digital First Digital Now approach; and three, a scalable and an agile organization with the right leadership and skills to drive our growth and vision. We're making good progress against each of these 3 dimensions. Let me give you a few additional data points on that. In the last 12 to 18 months, I've spoken about our aspiration of expanding into the new age sector and, in particular, amongst the born digital companies. In the last 9 months, we've added 9 clients -- new clients, which are in the fintech or the tech industry. At the same time, we are solidifying our domain expertise in our chosen segments. The addition of PatientMatters in our portfolio not only enhances our scale in the health care industry but also provides niche platform-based capabilities. Second, our digital office, as we call it, has turned one last week. In these last 12 months, we've retooled most of our existing capabilities, making them more agile and market ready. The solution for almost all deals that we compete for now leverage our new tools and platforms. And I’ll talk a little bit more when we discuss the segment results. The third key element is to scale our organization. In the last 3 quarters, we added nearly 5,300 people organically. This already exceeds the net addition of any fiscal year in the history of the company. And what's exciting is that we were able to pull this off remotely. I'm very impressed by the energy, focus and collaboration across our team globally to make this possible. Let me talk a little bit about the PatientMatters acquisition. As we have said in the previous quarters, we are pursuing a systematic inorganic growth strategy for growth adjacencies to our existing offerings. During this quarter, we completed the acquisition of PatientMatters. PatientMatters is a national revenue cycle service provider that provides 2 services: patient advocacy services and a front-end Revenue Cycle Management SaaS to address patient responsibility and self-pay segments. This segment -- this acquisition complements Firstsource’s provider business on 2 dimensions. One, it strengthens our geographic presence in large markets like Texas and New York. And two, it adds new capabilities of pre-authorization and patient bill estimation at the front end of the RCM cycle, strengthening our core offerings of self-payments and uncompensated care. This acquisition cost us $13 million, 100% funded in cash, and the integration process is underway. We are focused on growth synergies as we prepare for the hospitals and the physician segment to return to normalcy. We have consolidated our health care provider brands, MedAssist and PatientMatters, under the Firstsource provider business to reflect the close alignment with our core brand and leveraging our position as a global BPM leader. Let me now move into our key industry performances. Our Banking and Financial Services segment grew 56.5% year-on-year, 49.9% in constant currency terms. Growth was driven by volume recovery in U.K. retail banking and continued volume and business growth in mortgage. Collections had a somewhat softer quarter due to seasonality. In this quarter, we added 10 new clients, including one fintech. The deal momentum continues to remain quite strong amongst both new and existing clients. Digital collections product continues to gain market share. The mortgage industry continues to benefit from a low interest rate environment. And even today, a large portion of existing mortgages would benefit from refinancing. New home sales are at record high driven by people moving, low interest rates and higher disposable surplus with consumers. If interest rates remain low, as widely expected, mortgage volume should stay strong. We continue to focus on building the mortgaging services portfolio and are witnessing good momentum of new wins here. This helps diversify the overall mortgage portfolio. Volumes are recovering in the U.K. retail banking sector. We are seeing good traction with our existing customers and a healthy pipeline as U.K. banks gear up for post-Brexit and a post-pandemic economic environment. Overall, trends for this segment look positive. Health care increased 0.8% year-on-year while declining 3% in constant currency. Organically, the segment declined 2% year-on-year and 5.7% in constant currency. Volumes for this industry remain flat or lower than last year as the deal -- as U.S. deals with the second wave of COVID-19, and more states are grappling with a higher Medicaid cost load. Despite these trends, we are encouraged by the progress in our portfolio. We've been systematically enhancing and productizing our go-to-market offerings over this past year, and this is being received positively in the market. Health Plan and Healthcare Services, in particular, has shown good momentum with a strong pipeline and a number of strategic deal wins. In the third quarter, we won a 5-year deal to manage digital intake of claims, et cetera, for a top 5 health plan in the U.S. We continue to make steady inroads in the telehealth market, adding one new client this quarter. In the Provider business, we expect a return to growth in the coming quarters. As you know, the last couple of quarters have been soft for the industry. The addition of PatientMatters’ capability will help us strengthen our patient responsibility value chain and help us differentiate in the marketplace. In this quarter, we added 3 new clients for the Provider business and all of them on our platform-based offering. I'm confident that the health care sector will see a rebound in growth during the next fiscal year. Let's talk a little bit about Comms, Media & Tech, the CMT segment. This segment grew 21.3% year-on-year and 15.1% in constant currency. We're seeing good growth with our top customers. Their business has recovered nicely and growing, especially the OTT or the streaming business. This has driven volume recovery and new work stream for us. We've achieved nearly 50% work-from-home capacity for the U.K. operations supporting the largest customer, minimizing the impact of the second wave, which U.K. is grappling with now. India operations remain very stable over the last few quarters now. Other media clients are also trending better than their pre-COVID level, led by strong volumes. We added an international weekly publication for high mix of clientele to our clients this quarter. We will manage this client's digital customer engagement journey based on our new age contact center offering for their U.K. and U.S. user base. The media and tech portion of CMT is a key and a new area of investment, especially in the U.S., and is beginning to take shape. We added 2 new clients this quarter, including an e-commerce giant and one of the largest born digital process automation platform. While revenue contribution is still small, I'm pleased with the progress we're making in this new market segment. And lastly, the diverse industries grew 5% -- 5.1% year-on-year and was flat in constant currency. Finally, a look at our outlook for FY 2021. Considering the momentum that we are witnessing across our businesses, we are further revising our guidance upwards. Our fiscal '21 revenue now is expected to grow between 16% to 17% in constant currency. This includes 0.9% from the PatientMatters acquisition. On the operating margin, we expect a range of 11.25% to 11.5% for the current fiscal. This factors in promotion and increments 1st January. With this, let me turn the call over to Dinesh to cover the financial details of the quarter. Dinesh?

Thank you. Thank you, Vipul, and good morning, everyone. Let me take you through the financial performance highlights for Q3 FY '21. Revenue came in at INR 1,365.2 crores or $184.8 million. This implies a year-on-year growth of 23.8% in constant currency and 29.6% in rupee terms. On the margin front, operating margin came in at INR 159 crore or 11.6% of the revenue. Profit after tax came in at INR 121 crores or 8.9% of the revenue. I'm pleased to inform that Board has also approved an interim dividend of INR 3 per share. This will result into a payout of INR 208.7 crores. We have generated INR 645.3 crores cash from operation, and our FCFs came in at INR 535.5 crores. This is after adjusting for CapEx of INR 109.8 crores, which was -- and in the Q3, it was almost INR 63 crores, which is the highest in some of the quarters. We're also lucky in some form where one of the largest customers wanted to give advance for future receivables, and we've happily taken those one and which was about INR 180 crores. And this also results into a good interest arbitrage to us because we also still have a debt in the balance sheet. CapEx for the quarter was slightly higher, as I spoke. This was for the 2 new centers, which we have set up in -- one in Mumbai and another in the U.S. Our DSO declined sequentially from 54 to 53 days, including unbilled. This is driven by timely collection of receivables and also billing on time. Our closing cash balance as of December 31 was approximately INR 301.3 crores after repaying INR 101 crore of our working capital borrowing and also utilizing INR 95 crores for acquiring PatientMatters. Of the $13 million which we have paid for PatientMatters, we have allocated $1.5 million or INR 10.9 crores to the fair value of the identified net assets and balance of $11.5 million or INR 84 crore has been allocated to goodwill on a provisional basis. The net debt stand at INR 204 crores versus the INR 391 crore in the Q2. And in the dollar term, we have a net debt of $27.9 million against $53 million in Q2. During the quarter, also looking at low interest rate environment, we have converted GBP 50 million working capital to a long-term debt, which will have a 2-year period. Last 3 quarters, we have brought down our net debt by INR 448.5 crore or approximately $58 million. Tax rate for the Q1 -- Q3 was 18%, but we expect that it should be in the range between 16% to 18% for the year. On the ForEx hedging, we have coverage of GBP 63 million for the next 3 years with the rates ranging between INR 103 to INR 119 to the pound. And the dollar coverage is $90.5 million with average rate of INR 76.57. I'm pleased with our business performing in various constituents of the business are coming together to drive holistic growth. With this, we can open the call for questions.

[Operator Instructions] The first question is from the line of Manik Taneja from JM Financial.

Congratulations to the team for a very solid execution. I had a couple of questions before I get back into the queue. Number one question is on your guidance. Given the fact that typically 4Q is broadly in line with 3Q, how should we be thinking about the sharp Q-on-Q fall in growth rate that the guidance seems to suggest? While I understand that it’s coming on the back of a very solid 2Q and 3Q performance. And the second question was to get some quantitative sense on the contribution of the mortgage business in the BFSI revenue performance this quarter.

All right. Thanks, Manik. So look, we had obviously a very strong sequential growth in Q3 primarily driven by a couple of factors. CMT had good volume recovery in Q3. Mortgage, obviously, continue to grow strongly, but we do expect that’ll start to -- the growth rate will start to kind of moderate a little bit, right, while the business will grow, maybe not just at the same pace. So we've kind of tried to model that in -- as we start this new year in the U.S. Hospital segment, right, it's still evolving, right. We were looking at good traction sort of as the Q3 started. But with the second surge and Thanksgiving surge, it's kind of gone again into a little bit of de-growth zone. So you'll see sort of how Q4 plays out on the hospital side of it. So overall, when we model all this in, we felt that 16% to 17% for the full year reflects the good estimate of where we think the year will end at this point in time, building on Q3 and seeing some of the factors that I mentioned for the Q4 development. Your second question was share of mortgage?

Yes. That's correct, Vipul.

Yes. So look, mortgage continues to be a strong performer, right. The revenues this quarter for mortgage jumps to about, I think, about 55 million to 56 million. We continue to gain good market share in terms of new wins as well as volume growth. But at the same time, U.K. retail banking, which is the other large component of our BFS business, that has started to show very good traction. We have had a decent amount of win and a strong pipeline as we execute this quarter, which we are excited about. And collections, if I could take a moment to comment on collections. When COVID started, there was expectation that the credit default will increase in the U.S. But as the government has stepped in, as the stimulus has stepped in, as moratorium stepped in, that default scenario has got pushed out further and further and further, right. So to that extent, collections had somewhat off from what we started the year, somewhat lesser growth, more muted growth than we expected. But overall, I think Q4 typically tends to be a stronger quarter. We will see better results from them. And then we'll see how the macro will pay out in the next year for collection.

The next question is from the line of Mohit Jain from Anand Rathi.

Vipul, first for you, like in health care vertical, what kind of -- firstly, on the large deals that you have signed. So if you could quantify some numbers there and how health care verticals recovery is expected next year, given that you're talking about some moderation in the mortgage business. That's one. And second, on the offshore side of it, we have seen some improvement, but as you reduce contact center and move more towards health care, should we expect offshore overall and therefore, margins to have a positive bias going ahead?

Sure. So look, for the health care segment, there are 2 segments, right. There is the health plan and health services and there is the provider. In the health plan, health services, HPHS, we've been working hard for the last almost 12 months now. We built a team focused on sort of our strength. And our digital intake platform is being received very good in the market. And the new win that I mentioned is for the digital intake, for 1 of the top 5 health plans, and this is a new relationship that we opened up. And it's a giant health plan. We hope that we can continue to kind of build on this relationship. It's a 5-year contract, and this, for now, we have quantified about a 22 million TCV on a 5-year basis. We have other wins as well in HPHS and a strong pipeline. So I'm expecting that Q4 onwards as well as going into next year, HPHS will perform strongly, and we'll start to see meaningful revenue growth starting to come from there, okay. Although I would just add one little qualifier that typically Q3 or the December quarter for HPHS tends to be higher because of the open enrollment season in the U.S. and then see some seasonal downtick in Q4. That's just a peak up of Q3, which doesn’t sustain in Q4. But structurally, our pipeline and products are developing well. And from the historical numbers, you'll see meaningful growth going forward on HPHS. On offshore, yes, given a lot of our growth this quarter was driven -- has been driven by mortgage, so we've seen continued uptick of offshore. As I mentioned earlier, we -- given the value proposition that we offer of global delivery, right, we don't necessarily go to the clients with one or the other, right, it's the proposition of a layer onshore and where required a layer offshore. So it's not a conscious strategy by design to go and say, "We want more offshore-heavy business here." It all depends on what the opportunities and what the client's context is. So as a margin lever, it's not something we are consciously driving. But overall, on the margins, you've seen this kind of delivered on what we had forecast. And even this quarter, we had about, I think, a 40 basis point or year-on-year 40 basis point improvement in our operating margin. So we're kind of within the growth that -- within the range of margin that we had forecast on top of the strong growth.

Right. What I was asking was, last year, when you took charge that time there was this talk of investment into the growth. And therefore, we had this the 150 or 200 basis point additional investment requirement, which was brought in. And I was hoping that in '22 that we sort of start enrolling given that your growth is sort of back, and the investment side would have been complete. So your margin should have some tailwind ahead. Is that a fair assessment?

So let me answer it this way, right, that there was a bump of our investment we made in our SGA. Now as we go deeper into the segment, we continue to make investments, maybe now at an account level or trying to open new offerings. Like in mortgage, we're evaluating 1 or 2 adjacencies into the closure and the due diligence segments, right. So investments for building, not at the bumpy level that you saw in '20. We'll see continued investments to kind of fuel the growth. From a margin standpoint, directionally, you are right, we are aspiring that through operational excellence and as our service mix changes a little bit, a little bit more higher margin, digital options come into play. We should see a tick up in our margins over the next couple of years. But keep in mind, our primary -- sort of primary, sort of strategy at this point is to drive top-quartile growth with continued investment focused for them.

Right. And then second for Dinesh, sir. So your debt was going down, which is good to see. But current liabilities saw some jump ex-customer advances. Is there any other liability which has gone up in this particular quarter? And last is on tax rate for FY '22. Like when do you expect tax rates to be more in sync with the rest of the industry?

Yes. So the current liability, normally, other than the one advance which is now taken out, so it's only on account of the employees' payments. What happened is the payment cycle in U.S. and U.K. so you have sometimes the lesser number of days get picked, so you have to accrue those liability. So that is one component. As well as the U.K. has given a VAT liability can be postponed for 12 months, so we opted for that. So your VAT liability will, in future, will get paid in a proportionate basis. These are 2 components which have added to the current liability. As far as the tax rate is concerned, I think, going forward, it has to be slightly increased. But as you know, onshore still the U.S. and U.K. rates are around 19% until the time U.S. government does not come back and change the tax rate. I think it should range around, I'll say, between 18% to 20% for at least next 1, 2 years. It should not drastically change. India side also, again, I think the new SEZ will not come. So probably next 2, 3 years, still we have a good window to have a benefit of SEZ, which will taper down in the future. But I see at least the next 2, 3 years we should be around 18%, 20%.

Next question is from the line of Rahul Jain from Dolat Capital.

Congratulation on strong execution. Firstly, on this acquisition, I would just like to understand how we plan to improve for the hospital kind of revenue for this business. And what is the cross-sell opportunity that we see in general, which could be done in the immediate future?

Rahul, thanks for the wishes. So this acquisition, as I said, is complementary to us in 2. We see cost-sell opportunities both ways. Their patient advocacy business is similar to what we call eligibility services, except they operate in states like Texas and New York and Arkansas where we're not very big as it opens up new client segment for us. And we can take our payments offering and our other automation services offering to their clients, right. So that's cross-sell into their client base. Second, they have a front-end SaaS, which does upfront patient estimation and pre-procedure payments, right. Historically, we have done post-procedure payments and collections, right, that's been our play on the payment side. These guys are coming at the front end on the prepay side of it. I think with this, it allows us to expand our platform and start to kind of go with the vision of end-to-end payment of the self-pay portion of the patient expenses. So there is the insurance portion, right, which is collected either from commercial or Medicaid. But the self-pay portion, which is mined as a patient share, collecting that, and that's about a big chunk of the debt for the hospital. Collecting that, that proposition is the one which expands for us. And I think we can take it to our existing clients, and we'll take to their clients in an expanded form. So those are the 2 cross-sells or the revenue synergies we see with them.

Yes. So in any sense of quantification of changing addressable opportunity size because I think our base of hospital is much larger, so taking their capability into our set of customer and other way around. Do you think this total addressable opportunity within the current client pool itself goes up significantly higher?

It does. Absolutely, it does. I don't have the numbers handy in terms of the addressable market on what it does. We'll get back to you. But in general, if you ask me, these guys, for PatientMatters, the acquisition is in about a $15 million, $16 million annual run rate. And we have a base case or a business case to drive up in the next 2 to 3 years revenue synergies from them at a reasonably sort of aggressive [ clip ], right? That's the synergy that it's selling to their client base or ours. But we expect this revenue to go pretty aggressively in the next 2 or 3 years as we integrate and go to their client base and vice versa.

Okay. Just one more, if I may. Despite the significant growth leverage we have right now, we have not seen this translating into profitability. And of course, we are investing in the areas which we've been articulating for some time. My worry is more from the point of view because how we would ensure that this level of profitability can be protected if the growth slows down eventually.

Okay. So your question is how will we protect the margins?

So yes. So for example, as you guys are portraying that this is the level of profitability, beyond which you are mostly investing back for the channels you want to. And so as long as we have such a high growth, I mean, flattish profitability is also a very strong trend because you end up growing based on EBITDA as well. But when the reverse of the cycle happens, when your growth comes off, but costs have their own inflation involved from the supply side factor also, how you protect this margin at this level also?

Sure. Sure. Let me give you 2 colors, right. First of all, for sort of how this year's margins are playing out, right. First of all, you see the mortgage business has grown very aggressively, and we want to invest to harvest the growth, right. So things like hiring ahead of time, investing in longer training cycles to kind of make sure that semi-finished talent we can bring up to speed before we put them up to client processes and to billability because we want to make sure when clients come to us and when they have high needs, we are there to meet that, right. So we continue to be the first port of call for them, right. That's been our sort of strategy. So to that extent, we've invested at the account level, at the talent level to kind of make sure we harvest this growth. And I'm convinced that this adds up to healthier the relationships in the long term. The second aspect is that our provider business is largely outcome driven. And with muted volume, it impacts margins from fixed and semi-fixed costs. As volumes return, right, in the next fiscal and we add more plans to this platform, we will see the margins for this business kind of rebound back strong. So this has been sort of couple of the factors which have played on the margin for this year, right, some to feed the growth and some to kind of deal with sort of the volume volatility in the provider business. At the overall level, the businesses that we've added, the wins that we've added, whether it's in mortgage or HPHS or in continued -- the new wins in CMT, these are high-quality, above-threshold margin deals that we have done. So I'm confident that while we'll continue to drive top-quartile industry growth, we can see year-on-year sort of modest increases to our operating margins from the current level to OpEx and higher-margin mix of our sales.

Okay. So you expect this as a gradual uptick over a period of time?

Yes.

Okay. And in a way, we can also view if the mortgage growth opportunity slows down, whenever it happens, and provider also picks up, this itself should have a good outcome on reported profitability.

For sure on providers because that's the nature of the business, right, it's completely -- your big chunk is outcome driven, right. And mortgage, as I said, we've been building -- obviously, origination has been a strong part, but we have been building our servicing portfolio as much. And a good chunk of our recent wins had been in the servicing business, which is steady business with decent margins, and that will continue to free up. The drift of your question is correct or your assumption -- sorry, the gist of your assumption is correct.

Next question is from the line of Dipesh Mehta from Emkay Global.

Congrats on a very strong execution. First question is just try to understand if you can provide some outlook on CMT business outside of the top client, how you expect it to play out? You gave some new client addition and acquisition in fintech and other new age technology. But if you can provide some perspective about how you expect it to play out over the next couple of years? Second is about U.K. BFS. Seeing some recovery this quarter, but how you expect that recovery to certain and accelerate or you think it reached to some kind of plateauing once we exit this year? Second question is about the top client. Now we have seen strong recovery this quarter. How do you expect that recovery to play out? Do you expect this momentum to certain or it is likely to see some softness? And related question is about the advance received. I just want to understand nature of this advance received in terms of whether it is a normal course of business or it is some specific event and that's why we received this advancing?

Okay. Great. Thanks, Dipesh. First question, CMT business outside of Sky. So outside of Sky, our focus has been -- we have a good niche developing for digital media, right. So I talked about the win with a global leading publication to manage their customer experience across channels. And on the strength of that win and the capability that we have, we are expecting good sort of outcomes in our pipeline in this quarter as well. So digital media is one area of growth. The second area of growth is sort of the technology segment, right, the bond digital segments that I've been talking about. So there, we've been working hard. Obviously, we're starting afresh, so we started afresh on that. So it’ll take time to build revenue. But we've had good wins. We are zeroing in on sort of what the value proposition there will be. And I expect that in FY '22, we’ll continue to make good new account wins in the born digital or the tech segment, whether it's fintech or consumer tech or enterprise tech, right. Some of it will have to play out. Meaningful revenue, I expect, will start to come towards the flag end of FY '22 or into FY '23, unless we kind of have some early and substantial wins. And this incidentally is also an area of inorganic focus for us to kind of get more momentum into our efforts for the born digital segment. Besides that, I think the U.S. portion of our -- the C portion of our CMT, right, the comms portion, that also saw good growth in Q3, which we expect will sustain through from here onwards. So that's kind of color on CMT outside of our largest customer. U.K. BFS. We are amongst the leaders. We fought hard, and I think we're starting to see some good wins come out on our existing clients there. Our overall sense is that the U.K. banking sector is preparing for continued low interest rate regime, right, and post pandemic, whatever the fall out on the economy would be. So there is a good momentum of conversations among the U.K. banks for looking at their cost base. And we're starting to see those opportunities line up or come up to fore, which were not there in the last 2 years. And we are kind of working hard to make sure we win a fair share of their efforts to find cost benefits as well as transformation to their portfolio of businesses as they don't want to lose the tactical gains on digital. They want to make it more permanent gains in digital. There are opportunities for transformation of individual business lines. So I think the bottom line there is I think the momentum there will be sustained in the U.K. BFS segment. Sky, last question, whether this momentum will sustain. Clearly, we have worked very hard and be very agile and flexible to their needs. This is well recognized by the client. We continue to be their pre-eminent supplier, and I think we've gained market share compared to some of their other smaller partners. What we are now back is sort of to the pre-COVID levels. Their businesses are at pre-COVID levels, and we are slightly ahead of that from a pre-COVID level of our share of the spend that they have with us. I expect that this will sustain. And as we get into the summer and as the world finds its new ways of sort of evolving, as they kind of figure the way out, we are kind of working lock, stock and barrel with them under their new leadership. As they lay out their growth strategy, we want to play an integral part of that. So we definitely expect this to be sustained and hopefully grow modestly from this level, given we are specific part of their momentum, a big part of their portfolio. Lastly, the advance received. It's a fairly widely used technique of when interest rate regimes are low, that customers want to do advanced payments of invoices to gain some interest rates. And as Dinesh said, it is still beneficial to us. So we kind of wanted to do this as a win-win for our largest client as well as for us. But I've seen this used fairly regularly interest rates regimes where treasuries of our clients want to get some financial advantage by paying ahead of time. Dinesh, anything to add to that last comment?

No. I think that's perfect. I think that was the reason they have reached out to us and say whether we are happy to take their advance. And this will be adjusted against the invoices between March to June. So yes, it is very clear understanding that deliver future receivables. And absolutely, for their treasury purposes, this has been done.

Understand. And last question is about the development center, which we had almost fixed in the last 2, 3 quarters. Now considering work from home as well as -- I understand because of mortgage business, you might require increase, but your OpEx seems to flat, if I look, let's say, Q2 to Q3. I just want to understand thinking on this part. When you have work-from-home option available, then why to add center? And if you’re adding, why it is not getting reflected into OpEx?

Sure. Dinesh, do you want to start on that?

Yes. So OpEx cost, if you see why most of the centers are open. It's not that due to work from home, those are not there because for some of the customers we are still working from offices. And due to the social distancing, the number of seats used is lesser. As far as the new centers are concerned, those have started into this quarter. So there, slight increase of cost must have happened. But in a percentage terms to the revenue, there is no meaningful increase, the reason being that all of the centers are operating, and the same operating cost, including rentals, are all getting incurred. Future going, when the people will start coming back to the offices, again, we don't see that we have to add a meaningful capacity. We may have to add few capacities around. But again, there are some of the costs, which is, as of today's access for us, for example, on a technology or, for example, on the transport to bring the people to the offices, which will also come down when everybody in the office and all public transport will open. So I think going forward, when everybody who are work from home will back to offices, we don't see it's going to be a meaningful change into the operating expenses per se. Hope that answered your question.

No. Understood. So my immediate question was, is the work from home any benefit we are getting? Because now even top clients gave some permission for us to work from home.

Which is the additional one. I think the -- you've seen the U.K. COVID situation, the people who are not able to come to the office, they have given work from home and the extra work. We have sufficient capacity. So once you -- they will come back, probably, we'll run at 95%, 98% capacity, which is, as of today, 50%, the reason being social distancing. And these businesses which we are getting is basically to the growth, which we already have a seat capacity available. We may add a few more centers. There is no doubt on that. But it's not going to be that the huge additions we need to do.

We are right now, overall, at a global level, about 40%, slightly south of 40% working from office, right, as some of the folks are starting to come in. But obviously, as we've added far more business, we obviously have to start preparing for that capacity for eventual even if it's not 100%, but partial return to work. So we're starting to prepare for some of that request, right, or when the transition happens back to office in sort of like earnest.

The next question is from the line of Kshitij Kaji from Carnelian Capital.

Congratulations on very strong growth in this quarter. So most of my questions have been answered. Just had one broad question. So in the revenue by service line that we have defined in our fact sheet, the platform, the service line has basically seen a de-growth over the last quarter, while it was seeing an uptrend over the previous 2 quarters. So just wanted to understand what is the reason for that.

Sure. No, thanks for picking it up. Sorry, can you hear me okay, Kshitij?

Yes. Yes. Sure. Sure.

Right. So look, this is a focus area, right, we continue to work on building platforms and even because it's a better way of doing things, we even go to our existing clients and convert them from the traditional way of doing to the new platform, right. And that's the transition that we were working on. Just specifically this quarter, the decline in this service line was primarily from a short-term project that we had finished and that had impact on revenue. But directionally, in terms of our win that we saw in this quarter in Q3 as well as the pipeline, the share of digital continues to rise from what it was a year ago, but this is more a quarterly aberration from a seasonal project or a short-term project.

Okay. Perfect. So from next quarter, now you see this again picking up and growing as we go forward.

Correct.

Next question is from the line of Shradha from AMSEC.

Congratulations on a great set of numbers. Two questions, Vipul. Firstly, we've seen a meaningful increase in our offshore revenue mix. And despite that, EBITDA margins have declined. I'm not talking about EBIT margins, but EBITDA margins have declined. So your comments there would be helpful.

Sure. So on the margin, right, the earlier comment I had made that we're not consciously going to apply it with one or the other, right. We have a global delivery proposition that we're taking. From a margin impact standpoint, as I mentioned earlier, the growth that we have seen in mortgage, the aggressive growth or servicing that faster growth, it has taken some additional investment from us, right. We've had to hire people ahead of time. Obviously, salaries for certain high-skill segments are high; and two, training cycles are longer, right, even from the fact that because we are in a distributed operation, managing the logistics of getting equipment to everybody's home, getting them started, et cetera, that impacts somewhat the time to bill, right. So those are some sort of executional reasons on why by -- we have focused on pursuing the growth, not leaving growth the opportunities, even though it has meant additional sort of effort and additional costs from our side to harness that growth. And then the second reason was that the provider muted growth impacts margins disproportionately because they're an outcome-based service, right. It's a completely onshore-based business, 100% onshore-based business, outcome based. When the volumes return, cost base kind of remaining the same, we'll see a better impact on the margin. But it kind of hurts us on the reverse when the volumes decline. Those are the 2 primary reasons why we've seen margins flattish despite some of the positive levers of growth in offshore coming there.

Okay. And just a follow-up to this, health care, the segmental margins, which we disclosed, health care margins have also come off 350 bps on a sequential basis. So is it more to do with consolidation of PatientMatters? Or is it because of the outcome-based revenue model that we follow in [ this field ]?

I'm drawing a blank on that. Ankur, can you answer that?

Sure. So Shradha, there will be some element of the PatientMatters acquisition as well on a sequential basis. But having said that, the margin softness is largely attributed to the revenues of definitely provider segment. As that normalizes, you should see the margin come back as well.