Good day, ladies and gentlemen, and welcome to the Q3 2012 Genpact Limited Earnings Conference Call. My name is Laura, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Shishir Verma, head of Investor Relations at Genpact. Please proceed, sir.

Thank you, Laura. Welcome to Genpact's earning call to discuss our results for the third quarter ended September 30, 2012. We hope you have all had a chance to review our earnings release. But if you have not, you'll find it in the IR section of our website, genpact.com. With me on the call are Tiger Tyagarajan, our President and Chief Executive Officer; and Mohit Bhatia, our Chief Financial Officer. Our agenda for today is as follows. Tiger will begin with an overview of our results in the context of our long-term strategy, with a perspective on the current environment followed by Mohit, who will discuss our financial performance in greater detail. And then Tiger will have some closing comments. Finally, Tiger and Mohit will be available to take your questions. We expect the call to last about an hour. Please note that some of the matters we will discuss in today's call are forward looking. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those in such forward-looking statements. Such risks and uncertainties include, but are not limited to, general economic conditions and those factors set forth in our press release and discussed under the Risk Factors section of our annual report on Form 10-K and other SEC filings. Genpact assumes no obligation to update the information presented on this conference call. In our call today, we will refer to certain non-GAAP financial measures, which we believe provide additional information for investors and better reflect the way management views the operating performance of the business. You can find a reconciliation of those measures to GAAP, as well as related information in our earnings release, as mentioned, in the Investor Relations section of our website, genpact.com. Please also refer to the Investor Fact Sheet on the front page of the IR section of our website for further details on our quarter results. With that, let me turn over the call over to Tiger.

Thank you, Verma. Good morning, good afternoon, good evening, everyone, and thank you for joining us on our earnings call today. Before I turn to the quarter, I want to acknowledge the unprecedented events that took place in the near tri-state area, which is where we are today, where Genpact has many employees, investors, analysts and other constituents. On behalf of Genpact, our thoughts are with everyone impacted by the hurricane, as well as those working hard to get things back to normal again. Genpact continued to deliver solid financial results in the third quarter of 2012, with strong growth in revenues and adjusted operating income. Overall revenues are $491 million, increased 14.3% year-over-year and 5% sequentially. Revenues from our Global Clients business increased 19.3% year-over-year, while GE revenues grew 1.9% over the same period last year. Revenue growth was led by a 24% increase in Global Clients Business Process Management revenues, including 29% growth in Smart Decision Services, as well as strong client demand for traditional annuity services, such as financial accounting and banking and insurance operations. In addition to the strong year-over-year growth, Global Client BPM revenues increased 8% sequentially. Growth in the third quarter was particularly strong in our consumer goods, life sciences, retail and insurance verticals. IT services revenue increased 7% year-over-year in Quarter 3, also reflecting solid growth across many of our verticals offset by continuing softness in capital markets that was in-line with industry trends. Excluding capital markets, IT services revenue grew 18% year-over-year. We continue to expand relationships with existing clients across a broad range of our verticals. Clients representing more than $1 million in annual revenue increased to 189, up from 172 in Quarter 3 of 2011, within which clients representing more than $25 million in annual revenue increased to 11 from…

Thank you, Tiger, and good morning, everyone. Today, I will review our third quarter performance, followed by a summary of key highlights in the balance sheet and statements of cash flow. On a year-to-date basis, our revenues are $1.394 billion, up 20% compared to the first 9 months of 2011. Our adjusted operating income for the first 9 months of 2012 was $229.2 million, up 22%, compared to the same period last year, representing a margin of 16.4%, up 20 basis points. We grew the third quarter of 2012 with net revenues of $491.2 million, an increase of 14.3% year-over-year and 5% sequentially. The Global Clients revenue increased 19% in the third quarter, representing 74% of Genpact's total business. Growth was driven by strong demand for nearly all major service lines in industries, except for capital markets. We also saw a double-digit revenue growth across Europe and the Americas. Revenue from GE in the third quarter totaled $125 million, up 2% year-over-year, driven by growth from Smart Decision Services and IT. Business Process Management revenue increased 17% driven by a strong Global Client BPM growth of 24%, which included Smart Decision Services growth of 29%. In addition, our overall IT Services business continued to grow, with revenues increasing 7%, compared to a strong Q3 in 2011, and 4.5% sequentially. Within the order likely [ph] Services business, Global Clients grew 6%, and GE grew 9% year-over-year. Excluding capital markets, the overall IT Services business grew 18% year-over-year. Adjusted income from operations totaled $79.7 million in the third quarter of 2012, an increase of $8.9 million, or 12.6% from the prior-year quarter. This represents a margin of 16.2%, compared to 16.5% in the third quarter of 2011. The margin decline was driven by planned investments in resources and capabilities in the second…

Thank you, Mohit. In closing, our third quarter results continued the great momentum we have established since the beginning of 2011. And we are well positioned to partner with clients on their transformational journeys, especially through a continued implementation of our key growth strategies and our targeted investments. Genpact helps clients weather economics storms as they continue to face volatility and uncertainty that is forcing them to control costs, develop more competitive insights, drive growth and even rethink their business models. Like our clients, we remain cautious about the global economy in the near term. As a result, we continue to expect our full year revenues to be in a range of $1.86 billion to $1.90 billion and adjusted operating income margin in a range of 16% to 16.5%. I will now hand the call back to Verma.

Thank you, Tiger. We'd like to open up the call for Q&A at this time. Laura, can you please give the instructions?

[Operator Instructions] Your first question comes from the line of Joseph Foresi, Janney Montgomery Scott.

My first question here is just around guidance for 2012. I think it implies a sequentially stable growth rate year-over-year in the fourth quarter. How should we think about guidance? Is the business steady or are you being conservative? And then just in-line with that, what are your expectations for capital markets?

The context to follow this is, as we explained, the situation that our clients continue to face in terms of volatility and uncertainty in the whole macro economic environment. Obviously, it is more accentuated in some industry verticals like capital markets. But broadly, if you look at Europe, it you look at China, I mean, there are enough volatility. And therefore, our guidance and our expectation for the year remains the same, which is, which is $1.86 billion to $1.9 billion. And that, it's in the context of what we are seeing around in the macro economic environment.

Okay. And then just if we -- what was your organic growth rate for the quarter? And I know you'd added there -- your focus is adding to the sales force and driving that growth rate. Where do we stand with that 3 quarters of the way through the year?

Joe, this is Mohit. Let me take that. Our organic growth rate for the quarter was about 11.3%. I do want to mention at this point that there was a lot of volatility in currency this quarter. And we took a hit from the constant currency perspective of about $7.6 million. So on constant currency, this 11.3% would have gone to 13.1%. Does that help?

And Joe, on the question of investments in the sales force, we started that journey 18 months back. We have probably, I would say, halfway through that journey in the investments, not just in the sales force but in sales and marketing as a total expense as a percentage of revenue. We are probably halfway through that journey. Payback on that, we expect typically in our long cycle business, in terms of revenue growth, it takes about 24 months. So the first step of that payback is start -- you start seeing in the pipeline. And we have seen some nice movement in the pipeline over the last 12 months. And then subsequently, conversion into revenue. So we are happy with the investments we've made. We are pacing our investments as we go forward because integration of the great leader that we bring in is important, and we will continue that journey.

Okay, and then last question for me. Just on 2013, what can you give us for color around your pipeline at this point heading into next year versus last year? Any color you want to provide from a numerical standpoint? And how should we think about interest expense in 2013?

So I'd talk about the pipeline, and I'll turn it to Mohit on interest expense. Our pipeline, as we've articulated, remains stable. It obviously, has grown, as compared to last year. But that you would expect in a growing business. It's too early to talk about 2013 from a revenue expectation perspective. We normally use Quarter 4 and the end of Quarter 4 to do a bottoms up buildup, which is the exercise that we are actually going through right now. So I think more color on 2013, will have to wait until the early part of -- very early part of next year.

Okay, and just on the interest expense.

And Joe, on the interest expense, we expect approximately about $9 million a quarter. So between, say, $35 million to $37 million annually for 2013. And this is a pretax number.

Your next question comes from the line of Edward Caso, WF See.

It's actually Rick Eskelsen on for Ed. Just following up on the demand that you're seeing. Can you compare it to what you're seeing from your clients last quarter? Are your clients being incrementally cautious or you're just adding conservatism to your guidance?

No, I don't think they are being incrementally cautious across the board. We have been talking about the macro economic environment the way we see it, and the way we think our clients see it from a volatility and uncertainty perspective, right through 2012, and actually going back to late 2011 itself. So I don't think there's any change in that. The one definite change is in capital markets where there is a clear reduction in smaller discretionary spends and projects, and there is a real dialogue around large transformational partnerships that will change the way that industry works and, which is expected given that secular change that an industry is going through.

And then just following up on the capital markets. Can you talk about what you're seeing in the 2 sides of your business, on the BPM side and also on the IT side? You touched on a little bit there but more color, and especially on what you're Headstrong business is seeing.

So our capital markets business is weighted predominantly on the IT side. So therefore, most of our commentary is actually referencing the IT business. Our BPM engagements in capital markets are still very early days. A lot of the partnership discussions and transformational discussions that are referred to in capital markets include BPM as well. And as you can imagine, those decision cycle times are -- have always been long. They take time. And for the capital markets industry, they are often new discussions. So most of the commentary around cutback and reduction in discretionary spends is all around the IT business in capital markets.

Last one for me. You talked about seeing some largely stable client decision-making timelines, but there were some pockets. Was it anything outside of capital markets? I think I missed that.

No, I would say capital markets stands us out. I would also say, maybe in some cases, technology discretionary spends, maybe a little bit analytics discretionary spends in pockets of discretionary spends that are there in IT or in analytics across any vertical. But other than that, really the one that stands out is capital markets.

Your next question from the line of Nathan Novak from Baird. Nathan J. Novak - Robert W. Baird & Co. Incorporated, Research Division: I was wondering if you could give any color around expected FX gains for Q4 and potentially 2013. How are you looking at that?

Sure, this is Mohit. The foreign exchange remeasurement gain or loss that we report every quarter is predicated by what parade is at the end of the quarter, as compared to the end of the previous quarter. And it's really hard to predict. So the loss that we made in this quarter of $13.2 million, as compared to a $9.7 million gain in Q3 last year, was really a result of the rupee volatility, which at the end of the previous quarter, was beyond INR 56 to USD 1. And by the time we closed the third quarter, it was just ahead of INR 52 to USD 1. So that appreciation on the Indian rupee caused this $30 million of loss. Now we've closed the quarter at about INR 52.7. It all depends on what we have closed in the first quarter at. If we close the fourth quarter at that same rate, there will be no gain and no loss. If we close at, say, INR 55 we'll make a gain. And if we close lower than 52.7, say a INR 50, we will make a loss. So it's hard to predict, but I just wanted to put it out that for you. Nathan J. Novak - Robert W. Baird & Co. Incorporated, Research Division: Got you. Got you, that makes sense. Thanks for the color. And one more for me. Looks like IT growth decelerated pretty meaningfully this quarter. You talked about capital markets quite a bit so far this call, is that essentially the large majority of the growth deceleration, or is there something else going on there?

No, it's primarily capital market. Because if you take off IT in capital markets, our growth rate has been 18% year-over-year, quarter 3 to quarter 3, and has been 4.5% sequentially, which in comparison to a lot of the IT growth that we see around, is on the good side. So I would say broadly, it's capital markets driven.

Your next question comes from the line of Manish Hemrajani from Oppenheimer. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: ITO, however, is up to [indiscernible] Can you just highlight some of the challenges you're facing in that business on the IT side? Particularly when it comes to Headstrong, and what are you doing to address those?

Manish, I think, you'll have to repeat the first part of your question. We lost you for a couple of words. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: Yes, I just wanted to ask you about some of the challenges you're facing in the IT business, particularly when it comes to Headstrong. And what are you doing to address those?

Manish, it's not so much about anything new that we are facing. It's what's happening in that industry in terms of most investment banks and most capital markets businesses of large banks are looking at every part of their business to make sure that they can deal with all the new regulations, all the capital requirements of the different lines of their businesses. Therefore, they are taking decisions in terms of what investments to continue, and I'm talking about IT investments, what projects to continue, and at the same time, they are also looking for that, that obviously, has an impact on new projects and new discretionary projects around IT investments. At the same time, they're looking at their entire cost space around IT, and saying, is there a better way to run this? Is there a better way to consolidate this? And how do we drive lower cost in obviously, an environment where being efficient is going to be vital for everyone of the participants in that industry. How are we organizing ourselves for it? We have all the right people focused on these accounts. We have all the right conversations at the right levels. We have great relationships with every one of our clients in that vertical. Our delivery in that vertical is outstanding. Our net promoter score in that vertical is outstanding. That positions us well to be part of these conversations. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: Can you remind us again, what's your exposure to discretionary spending in total?

I would say, we, of course, don't measure our business like that because each of our businesses, whether it's analytics or IT, have a mix of annuity and project numbers. But broadly, if I was to throw a range out there, I would say, 15% to 20% would fall in the category of discretionary. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: Got it. And Mohit, you have talked about 39% gross margins being somewhat of a peak couple of quarters ago, and had expected gross margin to actually come down about 100 basis points over the next few quarters. But here we are in 4Q and you reported your highest gross margins since December '09. Is this the new normal as you model out our gross margin expectations going forward? Or do we expect this to moderate a bit going ahead?

No, I would definitely expect it to moderate. These gross margins are abnormally high because of some of the benefits that we've got off of our great hedging. But I would expect, if you go back and look at the trending, the gross margin has really been in the range of 36% to 37% over a couple of years. And if I were to normalize for benefits, I would model in that range.

I would also say, Manish, that in the context of the investments we talked about, and in our business a lot of those investments are in domain expertise that you ramp up. And therefore, in our ramp up of investments, the full impact of those investments has always stayed in subsequent quarters. So just to add to what Mohit said, this would be at the highest end of the gross margins. This is not going to be the gross margin going forward. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: Got it, and then one last one for me. I mean, you've be been hearing about softness in Europe for a while now, especially from your IT services peers. You're actually growing there in both delivery and clients. Can you share some of the client and additions you had in Europe? And why is that you're having success with your peers?

So we actually called out 2 of them on this call. We talked about Centrica. We talked about Telefonica. We do think that Europe -- corporations in Europe are taking a complete relook at the way they run themselves and the way they have structured themselves and at the way they think about longer-term costs. As we've said many times now, we built out our front-end sales team and decided doing that 3.5 years, 4 years back. We've also said that it takes time to get the benefit of that. Partly some of that benefit is now being reaped. We also think some of the financial services clients in Continental Europe are beginning to have conversations. So I would say we feel good about our Europe performance. Our pipeline is stable in Europe. Part of the reason is because of the transformational agenda that a lot of the clients there have. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: Got it. And then on your cash position. Any plans to bring some of that cash back to India?

Actually, the chink of cash is in India. So the best question would be, do we have any intention of taking it to the U.S. That is in fact, always the intention. We just look at the right, most effective moments of truth when we can do that. Right now, it's actually well divided, about 30% of the cash is in India, another 30% in the U.S. and Bermuda, so it's well balanced. And ultimately, we would like our cash to be in the U.S. to take advantage of our opportunities for M&A or acquisitions and so forth. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: And you said your interest expense should be about $9 million per quarter? Right?

That is correct. That's our current estimate. Yes. This is taking into account the new facility, the new credit facility of $925 million that we've taken. We have drawn down $755 million as of September 30. We took the full term of $675 million, and we've drawn down the revolver of about $80 million. I mentioned in all the interest of about $4.6 million, including amort. And that's really getting us to the $9 million pretax.

[Operator Instructions] And your next question come from the line of Rahul Bhangare from William Blair.

It's good to see the re-acceleration in SDS during the quarter. Could you maybe split out that segment and just talk about the specific demand trends within each?

Rahul, we'll not be able to split it out completely, but I'll add some color. Smart Decision Services is very composed, as you know, of 3 segments within it. Analytics, which is the largest piece of it, where we do obviously, data analytics and in-site building for our clients using data across the broad range of domains in verticals. The second is re-engineering, re-designing our processes to deliver better outcomes often using Smart Enterprise Processes as the backbone of the framework. And the third is risk and compliance services, audit services, et cetera. The reengineering and redesigning services, the risk and compliance services are doing exceedingly well. In the context of all the things that we just talked about, both from our regulation and risk services perspective, as well as transformational agenda that our clients are on, redesigning their organization, redesigning their processes in the context of splitting themselves up into 2 public companies and so on. Analytical services continues to do well in the context of people wanting to build in sites. However, there are segments within analytical services, which we talked about last time as well, which have a discretionary component to it, where people are, continue to evaluate whether it's something they need to spend money on. So it's a combination of all of that. Feel good about the fact that there's re-acceleration in Quarter 3.

Great. And then can you remind us how much visibility you have to the midpoint of your guidance for the remainder of the year?

The question I heard was how much visibility we have to the midpoint of our guidance?

Correct.

With the guidance being $1,860 to $1,900 in the midpoint in BPM, I would feel very confident about the midpoint at this stage.

Your next question comes from the line of Bryan Keane from Deutsche Bank.

This is actually Matt Diamond for Bryan Keane. I just wanted to touch on the Banking and Capital Market segment here for a second. It was mentioned last quarter that retail banking seem to be holding up pretty well and the mortgage volumes this quarter would seem to accelerate that. I just wanted to get your thoughts on how that's holding up this quarter, and how it might be positioned for fiscal '13.

It's holding out well this quarter as well. And it's really giving a nice boost to retail banking. And you would expect it in the U.S. given the interest rates and refinance and so on. So and we have some very nice client relationships in the Mortgage segment. How it's going to play out in 2013 is a little bit of anyone's guess. Our Mortgage business is a very small proportion of the overall market. So obviously, the market is important. But at the same time, the reality is that our mortgage business is a small proportion of that. So we continue to build that business out nicely, a lot of it is focused on technology platform, along with process and adding value in that space. So I feel good about it. We'll have to wait as we build our plans out for 2013 to talk about 2013.

Okay. And in the same way, it was mentioned, kind of there's a motif in this call that the clients seem to be really putting the brakes on discretionary spend at least in the capital markets. If you could pinpoint, I know there's a lot of general uncertainty out there with macro and whatnot, but are you seeing sort of one thematic issue creep up in your dialogues with clients that's preventing them from putting the pen to the paper, and maybe opening up their wallets a little bit discretionarily? And do you expect that same theme to play on '13?

I don't think it takes anything more than opening up The Wall Street Journal in the morning to say that there are events that keep happening that cause a lot of our clients to pause. Whether it is talking about the fiscal cliff, as we think about the next year for the U.S. or it's talking about government spending and austerity measures in Western Europe. So it's a series of each of those things. Because I mentioned it depends upon the client and their industry, and therefore, the impact that it has whether it's to [indiscernible] past industry or it's the retail industry or its and enclosed in the life sciences industry. At the same time, it's these things that also cause them to take a look at transformational agendas. So on the one hand, some of these lead to discretionary spend. But on the other hand they look at transformational agendas that change the way they run their business.

Your final question comes from the line of Arvind Ramnani from BNP.

I just wanted to get a sense of what's a good target growth rate for Smart Decisions social business. I mean, the 29% growth relative to the rest of the business is certainly impressive. But given that the business is unique, to offer a smaller base, when you think of growth in this business, what kind of target -- how do you think of what kind of growing the business?

So Arvind, this is Mohit. For 2013, they yet to make our plans. Those plans are very detailed, they bottomed up, they're done with external breathing, we find out what's happening in the market, what our clients' are saying. How are some of the short cycle demand coming in. And then we really plan on what the growth rates are going to be for Smart Decision Services. Having said that, at this point, the numbers are high. They are off a small base. Over time, they will become growth rates on the bigger base. Smart Decision Services is still only about 15% of our revenue. As it becomes bigger, I would expect some of the growth rates to stabilize a little more. But hey, it's a little early to talk about that. I definitely expect Smart Decision Services to grow higher than the company average. That much I can say.

Great. And just on the interest expense, earlier you mentioned $9 million per quarter, how we should think of it. But as you start kind of paying off your loan, the numbers are obviously reduced. So would you start to expect -- will you -- are you planning to pay up the loan next year? Or is it going to take like 2 or 3 years before you start paying down that loan?

So Arvind, the bulk of the loan is the term loan, $675 million of the term loan, which is a bullet payment after 7 years. Other than that, I think 1% principal that has to be paid back every year. So for the most part, if you do nothing, 90%, 94% of that loan will be still be outstanding after 7 years. And therefore, that is the current assumption. As for the contract, I'm in any case, not permitted to repay anything in the first year. If I re-pay anything in the first year, I have some penalties on. And now so beyond that, it really depends on our cash flow, available opportunities for growth and we will take a call at that time and obviously, update you on our intentions. But at this point, the assumption is that we've done remains outstanding and that's how the $9 million per quarter has been calculated.

So Arvind, I just want to add to the earlier commentary around Smart Decision Services to what Mohit said. It is still a big business. I mean, in the context of analytical services, as an example, just in terms of size, while it's about, on the whole, 15% of our business, that's still a substantial large-sized business. In the context of the world, trying to build insights from data, it's a very exciting part of the business. And then when you think about Risk Services in the context of risk and regulations and the environment we are in, and then you think about redesigning processes to drive effectiveness and outcomes. That's -- the overall Smart Decision Services is a great segment of the business to be in. And it will do much better than the Company for quite some time to come.

Yes the thing that gets me excited about this business is, I mean, the revenue is 15%. And that's a reasonable number, but what's exciting with that business is a follow-on work that you get to other parts of your business. So that's kind of a reason why I kind of focus a little bit of this business as well.

Yes, good point.

Great. One last question here. Obviously, attrition is moving in the right direction. 25% is certainly a better number than 30%. And I think probably, some of it is due to, kind of, the Headstrong mix. But what kind of internal target do you have at attrition? Is 20% kind of like a baseline number? Or is it 15% or is it 25%?

So firstly, the movement of attrition downwards really had nothing much to do with the capital markets side of the business. Broadly, attrition has been trending down for some time now driven by a combination of obviously, macro in the delivery centers that we have large groups of our people, as well as a number of our initiatives around rewards and training and investments and people. What's the right number? It's great if we can get it down to 20%. But remember, these are still nice growing economies whether it is 5%, 6% in India, or it is 7%, 8% in China, nice growing economies. So our objective is obviously, to bring it down. But our even more important and equally important objective is to manage the business with the attrition, build the expertise in the people that we want to hold onto and invest in them.

Your final question comes from the line of Manish Hemrajani from Oppenheimer. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: Just one follow-up from me. I didn't get an answer for this. But any early reading for planned budget for next year from your conversations with the customers?

No, Manish. That's a nice way to figure out 2013. No, it's not that difficult to understand why. Volatility means cycles are shorter. And therefore, people wait a little longer to decide how the quarter and the year is going to look like. So the answer, the simple answer is no.

There are no further questions. And I would now like to turn the call over to Barney Bova for closing remarks.

Thank you for everyone. Thank you to everyone for joining us on the call today. As always, we'll make ourselves available post the call to answer further questions. Thanks once again.

Thank you for joining today's conference. This concludes the presentation, and you may now disconnect. Good day.