Good day, ladies and gentlemen. Welcome to the 2021 Third Quarter Genpact Limited Earnings Conference Call. My name is Nika, and I will be your conference moderator for today. [Operator Instructions]. As a reminder, this call is being recorded for replay purposes. The replay of the call will be archived and made available on the IR section of Genpact's website. I would now like to turn the call over to Roger Sachs, Head of Investor Relations at Genpact. Please proceed.

Thank you, Nika, and good afternoon, everybody. Welcome to our earnings call to discuss results for the quarter ended September 30, 2021. We hope you had a chance to review our earnings release, which was posted to the IR section of our website, genpact.com. Speakers on today's call are Tiger Tyagarajan, our President and CEO; and Mike Weiner, our Chief Financial Officer. Today's agenda will be as follows: Tiger will provide an overview of our results and update you on our strategic initiatives; Mike will then walk you through our financial performance for the quarter as well as provide you our current thoughts on our outlook for the full year 2021; Tiger will then come back for some closing comments; and then we will take your questions. We expect the call to last roughly an hour. Some of the matters we will discuss in today's call are forward looking and 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 are set forth in our press release. In addition, during our call today, we will refer to certain non-GAAP financial measures that we believe provide additional information to enhance the understanding of the way management views the operating performance of our business. You can find a reconciliation of those measures to GAAP in today's earnings release posted to the IR section of our website. And with that, let me turn the call over to Tiger.

Thank you, Roger. Good afternoon, everyone, and thank you for joining us today for our third quarter 2021 earnings call. Our third quarter performance reflects continued momentum across our business. Global Client top line performance, which grew at 11% on a constant currency basis was once again driven by strong demand for Transformation Services, made up of analytics, digital and consulting. Our strategic investments over the years in capabilities and talent, including the continuous training and development of our global workforce positions us well to address the pressing challenges and opportunities our clients are facing. This quarter, we achieved the milestone of crossing the threshold of $1 billion in quarterly total revenue for the first time. For the third quarter 2021, we delivered: total revenue of $1.02 billion, up 8% on a constant currency basis; Global Client revenue of $921 million, up 11% on a constant currency basis; adjusted operating income margin of 16.6% compared to 17.1% during the third quarter of 2020; and adjusted diluted earnings per share of $0.66 per share, up 18% year-over-year. Global Client revenue growth in the quarter cut across almost all of our industry verticals with double-digit growth in consumer goods and retail, life sciences and health care, high-tech and manufacturing and services. As expected, banking and capital markets growth continued to be muted due to the restructured relationship with 1 client that resized its asset management business in late 2020. Our pipeline remains healthy with a mix of both large and regular-sized deals. We continue to scale our revenue and bookings from existing relationships and add new logos, which sets the stage for future growth. During the third quarter, we signed 4 large deals across life sciences, CPG, banking and capital markets and high-tech services. As we deepen our role as a trusted…

Thank you, Tiger, and good afternoon, everyone. Today, I'll review our third quarter results and provide our latest thinking regarding our full year 2021 financial outlook. Total revenue was $1.02 billion, up 9% year-over-year or 8% on a constant currency basis. Global Client revenue that expanded to 91% of total revenue increased 12% year-over-year or 11% on a constant currency basis primarily driven by ongoing movement in Transformation Services led by analytics that grew more than 30% in the quarter as we continued underlying strength in our Intelligent Operations business. Total Global Client growth included approximately 1 point contribution from revenue related to certain divested GE businesses that we began including in our Global Client portfolio as of January 1. During the quarter, we continued to expand the size of our Global Client relationships. For example, during the 12-month period ended September 30, we grew the number of Global Client relationships with annual revenue over $5 million from 129 to 142 or a 10% year-over-year increase. This included clients with more than $25 million in annual revenue, increasing from 23 to 26 or 13% year-over-year. GE revenue declined 15% year-over-year driven by our delivery of committed productivity and the overall macroeconomic impact on GE. Excluding the effect of revenue related to divested GE businesses I mentioned earlier, GE revenue would have declined 6% during the quarter, which is in line with our expectations. Adjusted operating income margin at 16.6% declined from the first half of the year largely due to the increase in investment activity that we discussed with you last quarter as well as higher travel expenses. As we move into the latter part of the year, we expect travel-related activity to increase as the macro environment continues to stabilize. Gross margin in the quarter was 35.6% compared to…

Thank you, Mike. Our results for the third quarter are a reflection of the focused long-term strategic choices we have made, the capabilities we have built organically and added inorganically over the years are resonating well in the market. We are pleased with our performance that we believe reinforces our medium- to long-term trajectory of double-digit to low teens Global Client revenue growth driven by continued momentum in Transformation Services, particularly analytics with an expanding adjusted operating income margin and adjusted diluted earnings per share growing ahead of total revenue, all supported by strong cash flow generations. Clients across all industries are increasingly looking to leverage data and analytics for predictive insights to drive actions and position themselves to compete in this new world. This secular trend plays to our strengths in Transformation Services that continues to power our revenue growth led by its largest segment analytics that have been consistently growing more than 30%. The majority of our Transformation Services engagements are longer-term annuity-based work that often leads to larger intelligent operations engagements that are, of course, annuity based by definition. Our outcome-oriented solutions are resonating well with clients as we focus on generating value beyond just cost and productivity, which is helping us win many sole-source opportunities, both with existing client relationships that are growing as well as with new logos. We are at the forefront of developing new ways of working. We are conducting many experiments across the globe with and for our clients in a variety of hybrid flexible models that allows our talent to get the benefits of being able to work from home while coming together as a team in a set rhythm to collaborate, innovate and build on a strong team culture that we are known for. Our clients value us for our talent practices and our ability to reskill globally and at scale. These strengths differentiate us even more in the talent market we are today. This is opening doors to many opportunities to help clients transform their business models with new cloud-based digital solutions that leverage newer commercial constructs given the changing nature of work away from traditional FTE modes. I want to thank our more than 100,000-person global team for their ongoing commitment and the relentless pursuit of a world that works better for people. I'm very proud of the work we are doing and the impact our global teams have for our clients, our colleagues, our shareholders and the communities we live in, and I'm very excited about the opportunities ahead of us. Thank you. With that, let me turn the call back to Roger.

Thank you, Tiger. I'd now like to open up our call for your questions. Nika, can you please provide the instructions?

[Operator Instructions]. Your first question comes from the line of Dave Koning from Baird.

Great job. And I guess, I guess, first of all, the momentum has been really good. You got to the 10% plus Global Client, 2 quarters early. You got there last quarter. You're continuing this quarter. I guess I'm wondering, is kind of your post ramp-up kind of post-COVID, is it fully at scale now, and we can just kind of expect that level to keep going? Or is there more to come? I know you said kind of low teens as possible like -- do you fully expect that kind of recurring growth to happen kind of into next year as we think about next year?

So Dave, thank you. And let's talk a little bit about the medium, long term rather than next year. As I reiterated on my script, the medium, long term, we continue to believe Global Client double-digit to low teens is the trajectory we are back on to. Obviously, last year with the pandemic, we didn't grow as much. But otherwise, we've been on that long-term trajectory for many years now. And we think we are back on to that trajectory. So we feel very good. I agree that we got there a couple of quarters earlier than originally we had thought as we concluded last year and started this year. And therefore, we feel good about inflows about our pipeline, about bookings, about the mix of our business and the fact that it's pervasive across all our industries, including, by the way, banking and capital markets, which if you take out the impact of the 1 client we talked about end of 2020, it's actually doing very well.

Great. And maybe just the second one. I know the way you kind of set up guidance is for Q4 to be lower margin than the rest of the year. Is -- like when we think of the gross margin part of it being lower in Q4, is any of that just having to do with wage inflation? Or can we kind of look at this year's baseline and kind of think the full year is more how to think about next year rather than how the trends go into Q4?

Yes. So Dave, it's Mike. That's exactly how we're thinking about it. So when we talked about the baseline for AOI at 6.5%, you can make the same case for our gross margin as we go forward. We see a lot of things happening in the latter part of the year. Notably, the thing that we're most interested in is we're seeing travel and activity pick up, investment in our accounts pick up, and that's all driving that margin as we go forward. So we look to use that as a baseline to jump into next year.

Your next question comes from the line of Maggie Nolan from William Blair.

Congrats. I wanted to build up on the first question a little bit about kind of the sustainability of growth. Tiger, did you say that the analytics piece of TS was growing at 30% or was that TS in general? And then can you comment on the sustainability of that growth rate given that it's quite high, and we've seen that increased demand for analytics coming through in postpandemic?

Yes. So the overall TS growth has been 30% for Global Clients. And within that, analytics clearly is above that. So it's a leading engine of our growth, and it's now the -- actually for quite a few quarters now, it's the largest segment of TS. So it's always good to have the largest segment of our Transformation Services business also be the fastest growing, and Transformation Services itself is growing at 30%, all very good. Obviously, as that business continues to scale, I'm not -- I don't want to presuppose that, that 30% growth is going to be something that we can expect longer term. I think the way it will play out is the way we described it, which is the fact that every enterprise that we are working with in every industry is filling out a way to leverage data and analytics for insights and actions on a real-time predictive basis in order to add value to their customers and differentiate themselves in the marketplace. That's the world we are in right now. And that secular trend, I would argue, is here for the next 10 years to stay. So the whole analytics engine and the value we bring to clients in driving that insights and benchmarks and the ability to then convert it into actions and decisions and then deliver outcomes, which is where we really differentiate ourselves, it's not just the insights we produce, but it's the outcomes we deliver. And more and more, some of our commercial constructs are getting paid for those outcomes. That's what makes us feel really good.

Okay, Tiger. And then you both were referencing the GE divestitures and the results, and there's obviously more change to come with that client. So can you talk a little bit about when large customers have significant restructurings or the like? Talk about your success historically navigating the risk and opportunity that comes out of that.

No, it's a great question, Maggie. And no surprise, after this morning's announcement with our large client GE, it's a question that is obvious. One of the most interesting things about our history is that we've really created an amazing playbook that helps our clients allow real flexibility as they acquire businesses and spin-off businesses, separate themselves into independent companies. We've seen that again and again in a variety of industries, a set of consumer goods companies where we've actually participated in that separation. They separated often to companies. Some of them listing separately. Pharma companies, some of our largest pharma companies have listed independent companies recently in the last 3 or 4 years, and we were in the middle of all those separations given the work that we do in finance, in procurement, in supply chain, in some of the regulatory work. And then, of course, talking about GE. As GE went through its divestiture of the various GE Capital businesses, and then subsequently a number of the industrial businesses over the last 3 to 4 years, in almost a majority of them, we've ended up with new contracts, with new clients and then set that up for growth. So we really have a very good playbook. Our relationship with the GE businesses is very strong, and we continue to find ways to add value to GE. So I think we're very well positioned to continue to add value to GE as they undertake their transformation journey.

Next question comes from the line of Ashwin Shirvaikar from Citi.

It's Ryan Potter on for Ashwin. I was wondering if you could give some more color on the sales pipeline. Are you still seeing a good mix of some larger and more complex deals as well as first-time outsourcers flowing through the pipeline? And the deal that you've closed in the quarter, have you seen decision cycles speeding up at all?

No. Actually, a little bit of the answer, Ryan, is going to be, it's boring, same old, same old. The mix of deals between large, complex deals and regular deals is pretty consistent as it's been in the last few quarters. The mix between new logos and growing existing large relationships and scaling them, similar mix that we've seen in the past. Cycle times are pretty consistent. They've been very steady as we went through the prior quarter as well as third quarter. So all very steady eddy as we've gone through the third quarter and into the fourth quarter.

Got it. And then have you guys given any more thought to what the future working model might look like going forward? Is it likely to be some hybrid of work from home and office? And does a more remote workforce allow you to now more easily enter some newer telemarkets that you weren't able to enter before?

I think, Ryan, it's a great question. I think as I described in my prepared remarks, we are -- as we see conducting a whole set of experiments, so think about experiments by different clients in different industries, some regulated, some not regulated, clients where we provide services from different geographies ranging from India to Philippines to Europe, to onshore the U.S. to China into markets across the globe. And then various types of services from order management, supply chain, insurance claims, financial crimes and risk to receivables management, sourcing and procurement. And all those experiments are figuring out the right design for what kind of work and what stage of the work in a month, in a quarter and a year should be done from where and what's the best design. And we think it's going to be dependent on various clients' appetite for how that design will work. We are already seeing some client discussions gravitate to almost the entire work being done remotely. And for the same type of work, other clients are actually saying that 90% of the work will be done from an office environment. If you were to ask me, I would say it will broadly land somewhere in the middle in a flexible hybrid model with a clear understanding that we will bring teams back together into an office kind of an environment where we will have them innovate, brainstorm, create solutions, build a team bonding and collaboration that is necessary to build a culture and apprenticeship that is necessary to build the talent and reskilling that we need as we continue to go forward. So I think the world is still in an experimental mode. I don't think there's a definitive, deterministic answer to the question that you just had. And the good news for us is that we have so many of these going on that will shape the answer for a lot of our clients actually.

[Operator Instructions]. Your next question comes from the line of Bryan Bergin from Cowen.

This is Zach Ajzenman on for Bryan. First question from us on gross margin. How should we think about the puts and takes on structurally higher gross margins, particularly as Transformation Services continues to become a larger part of the mix?

So a number of things, this is Mike talking. So gross margin, there are a number of puts and takes that go that you're right in the sense that potentially there's some higher margin and pull -- a lower margin implications associated with wages there, but you have also productivity that goes against it. And as we grow the operating leverage on the business, kind of normalizes for all of those things. So when we kind of think about it as a -- in totality, why we're having the hyper growth in TS as we like to think about it, the leverage that we have in some of the other businesses and the productivity kind of normalizes it. So I don't see that as a big risk as we go forward.

Got it. And Mike, maybe while we have you, just looking for some of your early observations on Genpact. And I hear is that you expect to spend a lot of time on over the next 12 months or so. Just kind of looking for you to shed some light. And also as it relates to the capital allocation program, how do you weigh investments in the current business environment, both organic and inorganic versus share repos particularly given the valuation discount here versus peers?

Yes. So we're going through our typical process that we look at. And we don't look at capital allocation in any kind of 90-day increment of the quarter, right? So we're going to allocate our capital, first and foremost, to supporting our business organically then looking for inorganic acquisitions that will support the strategy of our business and becoming more relevant to our clients and growing the business. But to the extent that those 2 don't come to fruition, again, not over any 90-day period of time, we'll continue to look at repurchasing the shares, particularly when we see it at attractive levels from an intrinsic value perspective. Really no change to what was done prior.

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

I just want to ask about attrition. I mean it's an industry-wide issue. Do you feel like you have a handle on it that starts to come down next quarter? Or is this going to be a multi-quarter process and some of the things you're doing to bring attrition back down?

So Bryan, it's a great question. I think number one, it's an industry wide. And when I say industry, and you probably also meant the same thing, we're not talking about our industry. We're talking about all industries. Some of the talent that we are looking for and our competitors are looking for are the same talents that our clients are looking for. And that cuts across supply chain, that cuts across data engineering, analytics, digital, and that cuts across almost all geographies. So will that come down in the next quarter? I don't think I would necessarily assume that. And the good news is I don't think we need to assume that. The current attrition levels that we have, we have clearly demonstrated that we can manage both the hiring engine as well as the redeployment and training and reskilling engine to really deliver both to existing clients as well as our new solutions and bookings. Here's the interesting thing that as we slice and dice our attrition that it's important to remember and understand. Our attrition is the highest at the lowest levels of the company. At the easiest skill levels of the company is where the attrition is the highest. Those levels are where it's easier for us to hire fresh talent and train them and then deploy them. As we go up to more skill levels, as we go up into more managerial levels and leadership levels, our attrition drops off materially and systematically. It also goes back a little bit to the history of the company and the strength that we've always had on talent management, people practices, our HR practices, the focus we've had historically on training and development and career pathing. And then the recent focus over the last 4 years on our talent and training and development and learning platform on-demand, self-service genome, that's really been one of the hallmarks of the way we build talent, I mean just that data analytics program that I described in my prepared remarks is a fabulous example of the way 70% of our workforce are actually, at the moment, as we speak, going through that program, with 43,000 of them already certified. And that's a huge benefit for our clients who are all trying to scale analytics. So yes, attrition could continue at these levels for some more quarters as the demand supply stabilizes. But we feel very comfortable about our ability to manage through that.

But it doesn't seem like there is a surplus of demand that you can't fulfill that attrition is becoming a problem where you can't get the folks trained enough to do the demand that's out there.

No. I would say, Bryan, that's certainly through across the board at a total level. Clearly, there will be pockets where you have a demand, where you need to redeploy and move people around to fulfill supply. But one of the advantages of 100,000 people is that you have scale. By the way, one of the opportunities that I talked about is the fact that our clients do not have access to that scale. So one of the reasons we are finding a tailwind in the industry is the current talent situation provides an opportunity for our clients to actually leverage people like us to be able to deal with the current situation so we provide a capability for our clients to actually access that kind of talent.

There are no further questions at this time. I will turn it over back to Roger Sachs.

Thank you, everybody, for joining us today, and we look forward to speaking with you again next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.