Good day, ladies and gentlemen, and welcome to the Q2 2014 Genpact Limited Earnings Conference Call. My name is Janeda, and I will 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 Bharani Bobba, Head of Investor Relations at Genpact. Please proceed, sir.

Thank you, operator. Welcome to Genpact's earnings call to discuss our results for the second quarter ended June 30, 2014. We hope you've had a chance to review our earnings release, which you'll also find in the IR section of our website, genpact.com. With me in New York today are Tiger Tyagarajan, our President and Chief Executive Officer; Mohit Bhatia, our outgoing Chief Financial Officer; and Ed Fitzpatrick, who joined us 2 weeks ago as our new Chief Financial Officer, succeeding Mohit, who is transitioning into another leadership role within Genpact. Our agenda today is as follows: Tiger will provide an overview of our results and address our progress in executing our more focused strategy, followed by Mohit who will discuss our financial performance in greater detail. And Tiger will then have some closing comments. Finally, we will all be available to take your questions. We expect the call to last about an hour. Please note that we've also included slides which you can find on the webcast version of our call and you'll be able to download them after the call has concluded. 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 the reconciliation of those measures to GAAP, as well as related information in our earnings release in the IR section of our website, genpact.com. Please also refer to the Investor Factsheet on the front page of the IR section of our website for further details on our results. With that, let me turn the call over to Tiger

Thank you, Bharani. Good afternoon, everyone, and thank you for joining us today. Genpact delivered solid results in the second quarter of 2014. Our revenue growth and adjusted operating income and net income levels are all tracking in line with our stated expectations for the full year, as well as the longer-term objectives of our strategic plan. We are being disciplined in executing our strategy with particular emphasis on investments in our chosen verticals, geographies and service lines. Our increased focus has resulted in signing 2 large deals in our chosen areas this past quarter in addition to the 1 we signed in the first quarter. Our new hires have enabled us to accelerate our reallocation of resources to focus areas. This has allowed us to close deals in the pipeline while also creating additional opportunities, including new large deal discussions. As we conclude the first half of 2014, I am very excited about the investments we are making in client-facing teams, as well as capabilities. We are well-positioned to meet our objective of investing at least 6% of our revenue for the full year in sales and marketing. These investments are beginning to translate into a new level of transformative discussions with existing and prospective clients, which we expect to drive long-term profitable growth. During the quarter, we made significant progress in our strategy execution journey. Some of our highlights: we are making good progress in our big deal pipeline, and in the second quarter, we signed 2 large transformational engagements in our chosen verticals. We have also ramped up our new engagement in consumer packaged goods which we mentioned last quarter. Our work on this engagement is resonating within the CPG industry as we are quickly building unique core operations capabilities that help clients grow revenue faster by…

Thank you, Tiger, and good afternoon, everyone. Today, I will review our second quarter performance, followed by a summary of key highlights on the balance sheet and cash flows. On a year-to-date basis, our revenues were $1.09 billion, up 5% compared to the first 6 months of 2013. Our adjusted operating income for the first 6 months of 2014 was $174 million, up 1% compared to the same period last year, representing a margin of 16%, down 60 basis points from last year. We closed the second quarter of 2014 with revenues of $561.6 million, an increase of 5% year-over-year. Revenue growth was 4.5% excluding Pharmalink which we acquired in June of 2014. Foreign exchange had an adverse impact on revenues this quarter, with revenues increasing 5.6% year-over-year in constant currency terms. Second quarter revenues from Global Clients increased 7% year-over-year. Within Global Clients, business process outsourcing revenues increased 9%. Our Global Clients IT services revenues increased 2%. GE revenues performed better than expected with a decline of 1% year-over-year. Our overall business process outsourcing revenues increased 6%. Our overall IT services revenues increased 3% driven by growth in both Global Clients and GE. We've continued to expand relationships with Global Clients in 2014 across the range of our industry verticals. In the second quarter, we grew client relationships with revenues over $5 million from 81 to 85 compared to last year. This includes clients with greater than $50 million in revenue increasing from 26 to 27, and clients with greater than $25 million in annual revenue increasing from 12 to 14. Adjusted income from operations totaled $87.6 million, a decrease of $1.6 million from the prior year. This represents a margin of 15.6%, down from 16.7% in the second quarter of 2013. This was in line with our expectations…

Before I give my closing comments, I'd like to, again, welcome Ed Fitzpatrick to the team. As you know, Ed will be based in New York with a number of other members of our leadership team and me. I will hand it over to Ed to make a few comments.

Thanks, Tiger. I'm really excited to be part of the Genpact team. The thought of joining a company with excellent growth potential, large under-penetrated markets and leading market position was what really attracted me to Genpact. My meetings with the leadership team and the Board of Directors and the energy level of the global team have only reinforced my thinking that this is the right company for me. I'm very much looking forward to partnering with Tiger and the team on our operational and strategic initiatives to drive value for our stakeholders. I'm also looking forward to meeting all of you in person.

Thank you, Ed. I also want to take this opportunity to thank Mohit for his leadership of the finance organization over the last 4-plus years, for his counsel, and in particular, for his role in developing our targeted investment strategy. We are fortunate that he's continuing with Genpact in a critical role, that of leading our own internal transformation. We are positioning Genpact for accelerated long-term growth in the best way possible, and we are making focused investments through the 4 pillars of our strategy. These investments are expected to be at least $45 million or an incremental 2% of revenue in 2014. We expect to spend approximately 2/3 of this on client-facing teams and the rest on building key service line capabilities. We expect to continue to make these investments over the course of the year. We are funding a portion of these investments through productivity and cost discipline. We are on track to achieve our productivity goals in 2014. We expect these investments to continue through 2016. We firmly believe these investments will position us for long-term accelerated growth. We continue to expect 2014 to be a pivotal year for Genpact. With the expected contribution from Pharmalink through the remainder of the year, we have increased our revenue guidance for 2014 to $2.24 billion to $2.28 billion. Our expectation for adjusted operating income margins continues to be a range of 15% to 15.5%. Based on the opportunity in our attractive and under-penetrated markets, we believe our focused growth and investment strategy will position Genpact for accelerated Global Client revenue growth in the years ahead. When we look out beyond 2015, we believe Global Client growth will return to a mid-teens rate. In closing, Genpact works with clients to help them design, transform and run their business-critical operations to make them more competitive. For clients, our impact is measurable in higher ROI, greater efficiency and effectiveness, cost savings and better management of risks, regulations and growth. We are differentiated by our expertise in select industries and service lines, a high level of satisfaction among our Fortune Global 500 clients as measured by industry-leading Net Promoter Scores, and a passion for operational rigor and excellence. Our goal is to provide world-class service to our clients and to drive sustainable profitable growth and value for our shareholders in our focused industry verticals, service lines and geographic markets. We are also increasing the integration of technology and analytics into our solutions to solve big client and industry problems. I will now hand the call back to Bharani.

Thank you, Tiger. Operator, can you give the instructions to open the call up for Q&A?

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

I was wondering if you could talk a little bit about, now that you're starting to put the investments to work, where you're starting to see some of the changes from those investments. And maybe you can give us qualitatively or quantitatively about how it's making its way into your results?

Joe, thanks for your question. As you know, our business really is a long-cycle annuity business, particularly on the business process outsourcing side, and therefore, the initial impact that we would have would be in the level of conversations and the level of discussions and dialogues, particularly with existing clients, and then as time passes by, with new clients in the hunting arena. These conversations then lead to additions to the pipeline, which then leads to a competitive situation where it should lead to us winning bookings and then finally, revenue. And as I just described this that is a long cycle. So where we will see action is initial conversations and activity, which we are seeing when we've added these client-facing resources into our verticals, geographies and service lines. We also see, obviously, faster impact in the shorter cycles side of our business, namely the consulting services side, the analytics side, the reengineering side. And as we pointed out, our consulting services growth has been very good for the first 2 quarters. So I think we are seeing the right level of conversations that are beginning to happen as these people come in. In terms of it’s actually making its way into the revenue stream of the company that will take time.

Okay. And you announced some large deal signings. I wonder if you could give us an update on what the backlog looks like there, and how you're seeing sales cycle conversion times.

So as I said, sales cycle times haven't changed. They are long for the larger deals for the reasons that we've talked about earlier, so those haven't changed. So there is a natural pipeline flow. And as part of the natural pipeline flow, we had close one deal that we talked about in the CPG vertical in the first quarter and we closed 2 deals in the second quarter. The deal in the first quarter, as I said, ramped up very nicely. And in fact, now it's allowing us to demonstrate some of those capabilities, which are very unique in the core operations arena for the CPG vertical to other clients. We expect the same thing to happen as we ramp up the insurance client we talked about and the information services client we talked about. Those ramps will be much longer ramp cycles as compared to the first one that we signed in the first quarter, which is a very fast ramp.

Got it. And then the last one for me, as we look at 2015, and I'm not really looking for guidance, just general thoughts, how should we think about the relationship between the revenue growth and the margin profile? I know that you've said that you're going to continue to invest at this cycle. Will you review that at the end of the year? Should we think about -- how should we think about sort of the general revenue growth and margin trajectory for the business in light all the investments?

So Joe, I mean, obviously, there are lots of moving parts in trying to come to the right answer for 2015, and I think we are sometime away from being able to provide visibility to that, as you rightly pointed out. There are 3 things that are for sure. One, the ramp in new deals and big deals, et cetera, will, by definition, as you know, in our business, require early investments as those deals ramp. Two, we will continue to journey through these investments into '15 as well. Three, as we had pointed out earlier, as we work through these investments and as the pipeline flows through, that should help revenue. But I think there are so many moving parts that, really, the visibility to that will become better as we get to the end of the year and the beginning of next year.

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

How much are you hearing from clients about, let's call it, BPaaS, business process as a service that approach as opposed to sort of taking over and optimizing existing systems? I believe the CPG deal sounded like sort of a lift-and-shift kind of opportunity and I think one of the ones in the second quarter was a captive takeover. So how much are you seeing in the BPaaS area? How much are you investing to pursue that? How much do you view it as a threat to the Genpact model?

So Ed, I don't think we are seeing an either-or situation. We see, in most clients, both. And the reason for that is very simple. If we take the CPG example, it is very important to continue to run the back-ended operations of a large CPG company or an insurance company, and drive optimization that delivers value immediately. At the same time, there is no question that in specific areas, we continue to find ways to take those services to the cloud, bundle technology and analytics, and the process to make it a BPaaS. The reality is that we are talking about large corporations with multiple geographies and countries that they deal with multiple business units often a history of acquisitions. So while the vision could be BPaaS, the journey to BPaaS actually requires exactly the kind of deals that we're talking about. So it is not an either-or. So our investments are in both. It's investing in making sure that we can optimize; and two, it's actually taking the services that we have started optimizing and standardizing to the cloud. The reality is unless you optimize and standardize, you can't take it to the cloud. So for us, it is not a threat. It's actually an opportunity. And that's the way we view it. We take BPaaS to the client in the same conversation where we are actually taking over their operations or moving their operations.

Very helpful. Are you seeing a greater capital intensity? You're obviously going after larger, more complex deals, and we're hearing almost, sounds like, a return to the old EDS days, a very capital-intensive opportunity. So is there an upward drift in that?

So Ed, actually, a great question. I would say no, because you're comparing it to the example that you took, the EDS days example. And the no is because these are not asset takeovers, and I'm talking about technology assets and real estate asset, which then makes it very, very capital-intensive. There is more capital intensity here in terms of the upfront investment than a regular small BPO deal, and that's what had an impact on cash through the year that we talked about, but materially very different than the old EDS days. I think the old EDS, those types of deals, we don't see much, we've never seen them and I think they're much less in the world these days.

Great. Last question. A framework on Pharmalink. How big is it run rate -- the contribution this year and then the run rate contribution? And I think I heard that it was -- you bought it, you have 1 months’ worth but it's already been $0.01 accretive, is that correct?

No. So let me first talk about the revenue side. So as you can see, we've increased our guidance by $20 million, which basically reflects broadly our expectation from the revenue side of the house from Pharmalink for this year. As far as the broad profile of the company is concerned, the expectation for Pharmalink is in a regular running business, it would be similar margin profile to Genpact. The reality is like you would expect an acquisition of capabilities, we are immediately and have actually immediately started investing in taking those capabilities to the market, and therefore, in the first year, it will actually not be accretive to the company.

I'm sorry, I wanted to slip one more in. On these large outsourcing deals, do you assume a few of them in your annual guidance so you have to do a few to hit the number before they become incremental to, at least, revenues?

Yes, absolutely, Ed, because they are a significant part of our pipeline. We all have to convert a certain fair share of that pipeline, so the answer is yes. We do assume. Some of that happening during the year.

Your next question comes from the line of Tien-tsin Huang with JPMorgan. Puneet Jain - JP Morgan Chase & Co, Research Division: This is Puneet filling in for Tien-tsin. It's nice to see [indiscernible] sales team and with sales as percentage of revenue also hitting your target. Should we expect continued net additions in sales force from here on?

It wasn't -- your question wasn't very clear, but I'm hoping I got it right. So the expectation for the balance of the year is to continue to add to our client-facing teams the way we had planned. And as I pointed out, our objective was, originally, when we set out at the beginning of the year the investment plan, we had said that we will hit 6% as a percentage of revenue. So we will definitely at least hit 6% sales and marketing expense as a percentage of revenue for the full year. Puneet Jain - JP Morgan Chase & Co, Research Division: Right. And this $45 million of investments that you talked about for this year, what does that represent on an annualized basis by the year end? $45 million, I assume, is like year-on-year's number.

Yes, that's right. Puneet, this is Mohit. The $45 million is approximately 2% of revenue investment that we had committed to make. And to Tiger's point, 2/3 of that investment was going towards sales and marketing, 1/3 of it was going towards building capability and domain expertise and we are on track and we expect to at least invest $45 million, if not more, by the end of the year. Puneet Jain - JP Morgan Chase & Co, Research Division: Understood. And last, GE continue to come in better than what you thought [indiscernible] line that you pointed toward here this year. So is there an improvement in outlook for GE for this year, or you think GE could deteriorate in rest of the year?

So as I think the way we should think about GE, the way we thought about GE at the beginning of the year, we are very happy with the first half. But the first half had some very nice growth on the tech IT side of GE and on risk and regulatory projects, given the regulatory work that a lot of the financial services institutions are doing across the globe. By its very nature, both on the IT side and on the regulatory risk side, some of these may not continue into the second half. So the way we would still continue to think about GE is the way we thought about GE at the beginning of the year. We do feel very good about the first half.

Your next question comes from the line of George Tong with Piper Jaffray.

Mohit, we all wish you well in your new role. And Ed, welcome to the company.

Thank you.

I just want to explore for a bit the competitive landscape. Can you tell us what you're seeing as you compete for these larger deals, and how the pricing environment is like?

So George, interesting question. The last deals, by definition, obviously, means that from a cost and from a scale perspective, they would tend to be price-competitive. However, by very nature of the fact that they are complex, they are very global and they require, in many cases, integration of deep domain understanding, whether it is domain as financial accounting or domain in a vertical-like insurance, the reality is that the competitive landscape actually pins out. So there are a couple of forces acting out there. It is competitive. It is a few players and often the known names who are there in that competitive landscape specific to certain domains and specific to global geographies. So I think it's a fair landscape. It is not necessarily much more price-competitive than you would expect any other deal to be.

That's very helpful. You've indicated you can return to mid-teens Global Client growth. Can you share with us how you get to that growth target and what your confidence level is about hitting that target?

So George, these are still very early days because I was talking about beyond 2015 global Clients mid-teens growth as the trajectory. And that's very similar to what we had talked about at our March Investor Day. And really, it is about continuing to do what we are doing in terms of the 4 pillars of our strategy, continuing to drive the investments. And as those investments get made, driving the productivity and the outcome and effectiveness of those investments. Some of the early signs of that to an earlier question, very early signs seem good. The large deal wins are another reason, and we have to continue to win more of them to allow us to ramp into the future. So a number of those start creating the building blocks of that journey to beyond 2015 mid-teens Global Client growth.

Right, that's helpful. And then lastly, Ed, I know it's still early, but could you share what your strategic priorities for Genpact are financially and how they may differ from what they are currently?

I think what Tiger just talked about is probably paramount to success, right. With growth of the company, the rest of it is a lot easier. So if we're able to move the company forward. We're making the right investments in selling and marketing, in the client facing and in the capabilities that Tiger talked about, it's really driving that. And if we do the right things in running the business, that should flow to the bottom line, improved cash flows and obviously improved shareholder value, which is what we have to do, right? Improve the client relationships, drive top line that will drive the bottom line, we'll be disciplined about the way that we operate, which will improve cash flows as well and that's what drives value. So that's really the key initiative. My current thinking now is to come up the curve while understanding the business the best I can, and as you might expect drinking from a fire hose right now, but enjoying every minute of it.

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

This is Evan Bull on for Bryan. Most of my questions have been answered, but just real quick. Can you call out which verticals those 2 large deals that were signed in the quarter were for?

Yes. The one of them is the insurance vertical and the other one is. What we call the manufacturing and services vertical.

Great. And then I guess just looking ahead for margins for '15, I know that you aren't going to give specific guidance, but is it fair to say that to characterize that you guys could return to kind of the margin profile that you saw in '13 kind of exiting the year?

One, again, Bull, I think it is too early. But by definition, given ramps, given our investments that will continue into '15, to the simple question, will we return to those margins? The answer is no.

Your next question comes from the line of Keith Bachman with BMO.

It's Keith Bachman from BMO. A clarification and then a question. Could you just reiterate, what was the constant currency organic growth rate of Global Clients, please?

Sure. This is Mohit. Global Clients grew 7%. Organically, Global Clients grew 6.1%. And at constant currency, Global Clients grew a shade under 7%.

Okay, okay. All right. So as we think about the growth rate, you're hiring sales reps and delivery teams, when do you think investors start to see the benefit of that? Is that at 2015? Or since you've been hiring for some time, is there some kind of yield that's associated with that exiting this year, or is it really first half of next year? Because I think the reference point folks are trying to understand is margins and revenues. So if you could just talk about when -- when you just describe if the organic global constant currency revenue growth is in, call it, the 5% range, when does it improve? When do you start to see some yield from the investments that you're making?

So the revenue, if you think about the revenue profile for Global Client growth, the expectation that one would have is an acceleration from the 2014 global client revenue growth as you get to 2015 and then a further acceleration as you get to 2016. So that's on the revenue side for Global Clients. And that acceleration, driven by all the investments we are doing, both on the capability side building solutions, as well as the client-facing side. From a margin profile perspective, that would lag that revenue growth. And the lag is driven, one, by the investment that we are doing upfront; and two, by definition in our business, as you grow revenue and accelerate revenue growth, you have ramps on deals which then leads to margin drag from those ramps. So to cut a long story short here, the margin profile ramp would be a much more extended ramp.

Yes. So investors can presumably expect improved revenues in '15 and then perhaps improved revenues after that and the margins would catch up thereafter, right?

Yes.

Okay. If you could just also revisit on your capital allocation and balance sheet, you've completed a deal and you obviously finished the stock buyback. How are you thinking about debt levels? And how should investors be thinking about any potential incremental capital allocation going to shareholders juxtaposed against your aspirations in M&A? And that's it for me.

So we've always said that obviously, we generate very healthy cash in our business. That is the nature of the business. We've also said that we -- and we've demonstrated over the last couple of years that there is a certain level of leverage that makes sense in our kind of a business. And then in terms of use of cash, clearly, we've demonstrated that when there is an opportunity to actually add new capabilities and continue to drive growth in the company using those capabilities, we will continue to look for the right acquisitions. At the same time, we will evaluate on an ongoing basis the right return of incremental cash to shareholders, either through what we did a couple of years back on the special dividend, buyback. So we've always had all the options that are debated by the management team and the board to come to the right decision, and that's the way we've always looked at our balance sheet and capital.

Okay. So there is any constraints now? If you saw another $100 million deal or $200 million deal over the next 12 months, is there any constraints against doing something like that on the M&A side?

No, and in fact, that's what Mohit said in his prepared remarks as well, which is the combination of the cash we have and the undrawn facility we have makes it relatively easy for us to continue to look for the right acquisition opportunities, and that doesn't take into account any incremental debt that we can take on. The reality is, our cash flow position and the strength of that cash flow allows us to take our leverage higher than what we'd traditionally run it at, if we want to, if the opportunity is right.

Your next question comes from the line of Manish Hemrajani with Oppenheimer.

This is Kunal Doctor on behalf of Manish. Can you share deal strength for your client-facing team, and what number are you targeting for the year end? So can you give us an idea as how you are measuring your sales productivity and build rates?

So if I understand the question right. In terms of our client-facing teams, as I said, for the year, it would be more than 6% in total cost of that whole sales and marketing function as a percentage of revenue, and that's -- we are clearly on track to be on that roadmap. From -- if I heard your other question, from a productivity perspective, that varies a lot by the type of industry you're in, the type of deals that you have in that industry, the size of those deals, the service lines that you're salesperson for, whether it's technology, it's analytics, it's finance and accounting. So the variation of that productivity number is pretty significant depending on what type of a salesperson you are. And we have benchmarks for different sales teams that we track. We have benchmarks for one of the vintage of the salesperson in terms of their experience in the company, because it takes time to get to that benchmark for every salesperson. So -- and that's how we track the movement of productivity for every salesperson.

All right. And in your prepared remarks, you mentioned the win rates have improved. Was it year-over-year or quarter-over-quarter?

So we talked about year-over-year.

Year-over-year, all right. And I may have missed this, but can you give some metrics around Smart Decision Services? What was the growth rate?

So on Smart Decision Services this quarter, we grew by 10.6% overall, and our Global Clients Smart Decision Services grew over 14%.

And at this time, we have no further questions. I would now like to turn the call back over to Bharani Bobba for any closing remarks.

Thank you, everyone, for joining us on the call today. And as always, we'll be available post the call to answer further questions.