Good day, ladies and gentlemen. Welcome to the 2022 First Quarter Genpact Limited Earnings Conference Call. My name is RJ 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, RJ, and good afternoon, everybody, and welcome to our earnings call to discuss results for the first quarter ended March 31, 2022. 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 an update on our strategic initiatives, Mike will then walk you through our financial performance for the quarter as well as provide our current thoughts on our outlook for the full year 2022. Tiger will then come back for some closing comments, and then we will take your questions. We expect the call to last about 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 will find a reconciliation of these 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 first quarter 2022 earnings call. We had a great start to the year with top line growth, adjusted operating income margin and adjusted diluted EPS, all coming in ahead of our initial expectations. Our investments in our strategic choices have positioned us well to help clients navigate the many challenges in this macro environment. We saw another quarter of strong demand for our data and analytics, digital and consulting businesses that make up transformation services as well as continued strength in our Intelligent Operations business. For the first quarter 2022, we delivered total revenue of $1.1 billion, up 14% on a constant currency basis. Global Client revenue of $973 million up 15% on a constant currency basis, adjusted operating income margin of 15%, expanding 60 basis points from the fourth quarter and adjusted diluted earnings per share of $0.60, up 2% year-over-year. The macro environment continues to be challenging with inflation rising to a 40-year high, a massive spike in energy prices, ongoing disruption to supply chains, hot talent market and the Ukraine/Russia award to name just a few. Our Eastern European delivery footprint, which is centered around Romania, Poland and Hungary, with approximately 7,000 employees has not experienced any operational disruptions. We’re also not seeing any material change in client behavior as it relates to our global business. Client demand remains healthy on the back of the momentum we saw last year, particularly as every company searches for solutions to help them undertake the transformation needed in these times. Bookings reached the highest first quarter level since quarter 1, 2019 with 60% being annuity-based deals and 50% sole sourced. While we don’t typically share color on quarterly bookings, given the environment, we thought this…

Thank you, Tiger and good afternoon everybody. Today, I will review our first quarter financial results and provide an update on our full year 2022 financial outlook. Total revenue was $1.1 billion, up 13% year-over-year or 14% on a constant currency basis, driven by better-than-expected performance in both Global Client and GE revenue. Global Client revenue, which represents 91% of our total revenue, increased 14% year-over-year or 15% on a constant currency basis, largely driven by continued strong demand for Transformation Services that was up 29% in the quarter as well as a 7% growth in intelligent operations, primarily related to deal ramps. GE revenue increased 2% year-over-year, primarily due to short cycle project work during the quarter. Adjusted operating income margin was 15%, down 220 basis points from first quarter of last year. As a reminder, our higher-than-normal adjusted operating income margin levels during the first quarter of 2021 largely resulted from lower travel expenses and the deferment of certain planned R&D and sales and marketing investments for the second half of the year, reflecting the impact of COVID-19. The better-than-expected adjusted operating income margin performance during the quarter was primarily driven by strong top line performance across our businesses. Gross margin in the quarter declined 70 basis points year-over-year to 36.1%. However, it increased 130 basis points sequentially from the fourth quarter. This quarter-on-quarter expansion largely due to positive impact from scaling up investments made during the fourth quarter related to deal activity and the benefit of improving pricing Tiger referred to earlier. SG&A as a percentage of revenue was 22.2%, up 100 basis points year-over-year, largely due to the impact of the investments in sales and marketing and R&D that we dialed up in the latter part of 2021. Adjusted EPS was $0.60, up 2% year-over-year from…

Thank you, Mike. Our strong start to the year reflects our resilient business model and relevancy for our clients in the market. Our acquisitions of Hoodoo Digital and Enquero have integrated well and bolstered our capabilities in digital experience and data and analytics, both critical areas driving end-to-end digital transformation for clients. The other targeted acquisitions we have done ensuring Rightpoint and experience, something digital in digital commerce, Barkawi and supply chain management and risk canvas and financial crimes have all fueled growth in our focused service lines and capabilities. Our business is primarily made up of annuity-based revenue streams derived from designing, transforming and running mission-critical operations for clients in our chosen industry verticals. The more we become a trusted partner of choice, the more we can help our clients drive change, so they can better compete in their markets. Whether reducing fraud, optimizing inventory, creating overall operational efficiencies to increase profitability, while providing a better employee of customer experience to help grow our revenue. We help clients navigate the many challenges associated with economic cycles. We are proud of our progress on environmental, social and governance. We recently published our 2021 sustainability report, highlighting some of this progress, including 41% global gender diversity, a 44% reduction in Scope 1 and Scope 2 emissions since 2017, exceeding 10 million learning hours by our employees for the second year in a row and 11 million lives in packet to our corporate social responsibility initiatives. We continue to be recognized for our commitment to ESG initiatives. We are thrilled to have been named to the Forbes list of Best Employers for Diversity 2022, demonstrating our ability to foster a diverse, equitable and inclusive environment where our employees can thrive. We’ve also been named a world’s most ethical company by Ethisphere for the fourth time, recognizing our commitment to the highest level of ethical behavior aligned to our purpose. We know building a more sustainable world is complex and requires partnerships. We will do our part as a company but recognize the tremendous opportunity we have to make disproportionate impact by helping our clients do theirs. We are excited about our opportunity to leverage our industry knowledge, strength in data and analytics and deep familiarity with our clients’ processes to help them make progress on their own ESG journeys, across areas like responsible sourcing, supply chain optimization and financial crimes, just to name a few. We believe ESG is a lever to drive transformation that can create a competitive advantage for our clients while also creating a positive environmental and social impact. Before I close, I’m excited to announce that we will be holding an in-person Investor and Analyst Day in New York City on June 23. We will present Genpact’s vision for 2026, outlining our strategic blueprint for success and financial outlook. Details on how to register will be available shortly. We look forward to seeing you all there. With that, let me turn the call back to Roger.

Thank you, Tiger. We’d now like to open up the call for your questions. R.J, can I ask you to please provide the instructions.

Thank you. [Operator Instructions] Your first question comes from the line of Keith Bachman with BMO. Your line is open.

Hi, this is Brad Clark on for Keith. Thank you for taking my question. I wanted to ask about the pricing environment. You especially said you’re going back to clients to discuss pricing to offset wage inflation and other inflation now you push it. Can you discuss what are the opportunities now versus in the next couple of months through the rest of the year to discuss pricing? And you mentioned you saw some impact to gross margin in this first quarter some pricing. How would you expect that cadence to develop throughout the year, given it’s still relatively early on in conversations? Thank you.

So I’ll start off and then I’ll have Mike add to what I’m going to say. So we just started late last quarter and then late fourth quarter and then through the first quarter. Our relationships with our clients are long-term relationships, and we understand the value that we provide to our clients. We are very clear that in many of these conversations, our objective is to actually tackle the bigger opportunity of driving value to our clients together. Our clients are also facing a similar inflationary environment and a similar hot talent market. So they also understand that the skills that are needed to deliver that value comes at an inflationary price these days. That allows us the opportunity to sit down and have those conversations. But as I said in my prepared remarks, they take time. They require an alignment of goals. And we believe that over the year and actually into next year, we will be able to navigate that. And the early signs of the early steps we have taken with some clients, seem to tell us that, that is the journey we are on. The impact on margin for the year, Mike, maybe you can comment on that and for the balance of the year.

Yes, let me first address the pricing adjustments that we received in the quarter relatively de minimis. They’ll compound upon themselves as we move through the year as Tiger alluded to, and it lean carry forward into the following year. So it has no – really no impact on the margin in the current quarter. It is – potentially, there is obviously a lot of puts and takes what will affect us on a go-forward basis.

Okay, thank you very much.

Thank you.

Your next question comes from the line of Dave Koning with Baird. Your line is open.

Yes. Hey, guys. Great job just across the board. And maybe first – so I guess, first of all, looking at verticals. I know last year, the BFSI vertical struggle a little bit, and you talked about that through the year, but it sounds like it returned to really good growth. Maybe discuss a little bit of kind of what kind of catalyzed that back into really good growth.

No. So Dave, actually, a great point. And last year, we had said that there was one particular client in the asset management business that was restructuring themselves. And as a result, our relationship also got restructured with them. And that had a full year impact that actually was felt even in the first quarter of 2022, the tail impact of that. And that has tapered off. Our core growth in the banking vertical is coming through. And even in the last couple of quarters in our earnings prepared remarks, we had talked about the momentum building up in our pipeline and in our bookings for the banking vertical. We’re now beginning to see that come through as the impact of that restructured client laps – undertakes a full lap.

No, I’d just like to add to that we will fully lap it actually not this quarter, we will fully lap at the end of the second quarter. It is going down literally. So on a complete – on an apples-to-apples basis, will really be put third and the fourth quarter. So nice headwind for us.

And the other thing I would say is just in one of the service lines that we talked about, financial crimes, risk, anti-money laundering, KYC, the world we are in is a world where a number of the financial institutions across the globe are dealing with having to use technologies, leverage data and analytics to deal with the right compliance to regulations as well as do that in a manner where customer experience and employee experience is really good. Part of the problem that the environment and the banking environment has had is that typically, those types of compliance situations, experience is not good. The ability to leverage technology, which is what we bring to the table makes a big difference.

Yes. No, that’s really helpful. And I guess the second question just on gross margins again. It seems like usually when attrition spikes and when inflation hits, there is kind of an immediate – there is kind of an immediate hit but then it sounds like pricing comes a little later. Is it fair to say that’s maybe a 6 to 9-month lag from when all this started to when this pricing now is starting to kick in, in that by the second half, your gross margins can actually be up year-over-year again as you automate and just kind of deal with the pressure?

Yes. I think it’s probably a fair state. I mean it will probably more like 9 to 12 months as we start to get these adjustments at the beginning of the first quarter. So yes, it would flow through there would accompany some of the higher than expected, replacement costs that we’re dealing with right now, compensate us for that.

Yes. And the other thing I would say is we also have to recognize that the inflationary environment continues at the moment. They haven’t abated and therefore, we have to be cautious in our forward-looking view on that, Dave, because it depends on how well that plays out and while we continue to work with our clients, on getting to the right price point for all the services that we provide.

Got it. Yes, well, thanks guys. Great job.

Thank you, Dave.

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

Hi, guys. This is Jesse on for Maggie. Congrats on the quarter. We wanted to dig into the talent. We wanted to dig into the talent environment. You guys talked about attrition staying stable over the past two quarters, but are you seeing this higher in certain geographies?

Yes. So overall, it’s a stable 33%. But obviously, when you slice it into different pockets, let’s start with we see attrition to be at that elevated level, more at the lower levels of the organization and lower skill levels of the organization. Then, when you get to higher skills and leadership levels, in fact, at the higher skills and leadership levels, we have actually seen attrition levels not yet reach the pre-pandemic levels, which is fantastic. The second is we have seen attrition in the customer care call center type environments in the U.S. and in Philippines, spike up. And part of the stability that we see in overall attrition has within it an increase in attrition in those two geographies and those types of skills. And one of the special causes in Philippines is the government’s mandate to come back to the office for all service providers, which all of us are over the next few months complying. And that is leading to angst among some employees and their attrition and the whole industry is dealing with that. And then, of course, I would say, niche technology skills and niche data science and data analytics sales is no surprise. That’s a very hot skill and attrition levels continue to be as high as it was in the fourth quarter continuing into the first quarter.

Understood. And then a quick follow-up followed by my next question. How many employees does Genpact have in the Philippines? And then my second question was, how has your view on wage inflation changed since the beginning of the year?

So, Philippines, we have 5,000 employees. It’s a very strong center for us. However, it’s not as big as some of our other centers, including, I called out Eastern Europe, where we have 7,000 employees across three countries. So, good, excellent service from Philippines, but 5,000 employees out of the 110-odd plus thousand in the company. Wage inflation in the first quarter, again, broadly steady, actually very steady across almost all skill cohorts a few skilled cohorts have actually come down. They seem to be beginning to trend down. They are still higher and elevated versus prior three quarters or four quarters back. We haven’t seen any particular skill set where it’s gone in Q1 at a rate higher than the fourth quarter.

Awesome. Thanks for taking my question.

Thank you.

Your next question comes from the line of Ashwin Shirvaikar with Citi. Your line is open.

Hey Tiger. Hey Mike.

Hey Ashwin.

Good quarter. Congratulations on that. I want to kick off with Tiger, you mentioned large relationships growing at a faster pace than the average company. If you could perhaps maybe disaggregate that statement and talk about what’s the commonality across the large relationships. What’s the remaining opportunity, if you will. And as you sign these expansions, do they flow through pretty seamlessly and quickly into revenues? Is that a good expectation? If you could comment on a few of those things.

Yes, lots of questions there, Ashwin, and actually very good questions. So, let’s start with typically, the typical characteristic of these large relationships that – not all large relationships grow, but a number of them do. And they typically have a few characteristics. One, if you just think about the world we are in, these are enterprises that are driving change. These are enterprises that are transforming themselves to become more competitive. These are enterprises that are undertaking journeys of changing their business models, leveraging technologies, going to the cloud, leveraging data and analytics, a whole host of those things. So, therefore, they are the types of organizations that work with partners like us and others to accelerate those journeys, particularly as all of us know over the last 2 years, etcetera. And given the range of services that we now have, we have already had, as you know, deep strength in financial accounting, deep strength in core financial services operations, be it banking or insurance. But we now have significant strength in financial crimes and risk in supply chain, in trade promotions and order management in sales and commercial operations. And you connect those dots. You open up different conversations on a range of topics, and they all ultimately do connect up. That’s one big difference today versus 4 years or 5 years back. That allows us to deliver excellence to clients, deliver value to clients and continue to grow the relationship in different areas. Second, is the way some of these start. In the old days, it used to start with, we will outsource this operations for you and run it for you. These days, it doesn’t have to start that way. In fact, most of it, it doesn’t start that way. It starts with can we advise…

Understood. Thank you for all those details. I wanted to also ask about return to office. I might have missed it, but where do you stand from a return to office percentage perspective? And if there is a financial model expectation, including the Philippines perspective, where there is a regulatory push to do return to office?

Yes. So, right now, we are at the beginning of return to office, it’s still relatively low from where we are. The financial outlook and the models that we have going forward in the guidance does incorporate a return to office for geographic area by geographic area. But going back to what I think our return to office is sub-20% at this point now in aggregate. And…

Sorry. No, no, the Philippines impact, I just wanted to ask about.

No, no, so the Philippines, we are in the process of progressing to the 40%, 50% mark. And then there are milestones, I think as we go through the balance of the next couple of quarters and the industry is I think in good discussions with the government to make sure that there is a glide patht to that. But if you look at the overall company, I think Mike’s overall number is an aggregate of less than 20% at the moment. We expect that to keep progressing. By the way, in the recent few weeks, as you can imagine, almost 80% of our China employees have gone back to work remotely, given what’s happened in China. And the amazing thing is that happened in a 24-hour period. So, we now know – I think the world now knows how to do this very well. The real answer, Ashwin, from an overall company perspective is there is no single percentage number that one can lay down and say, that’s the percentage that we should get to or will get to because that’s a function of geography. It’s a function of the kind of service that one is doing, certain services, think about banking customer care work, I think will ultimately probably be 100% come back to the office. But certain other kinds of services, we are already in discussions with clients where we think for the next few years, it will be remote. As long as we can continue to bring the teams back to office with some cadence so we can build culture, we can do training, we can build team dynamics. We can sit down and talk through innovation, come up with ideas, do hackathons. And all of those are already doing in many of our operating centers across the globe. So, it’s going to be a little bit of the right size to fit the right situation with the right client. And that’s exactly the excise that we are going through with every client.

Very clear. Thank you.

Thanks Ashwin.

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

Hi guys. Good afternoon and thank you. I wanted to ask on bookings. So, the bookings commentary was really good to hear. It sounds like you converted a lot of opportunities. So, I am just curious, anything you did differently around sales practices, salespeople or investments there that drove this? I think it’s atypical that a first quarter would be so strong here. So, I am just curious, Tiger, what you think the key drivers were for that conversion?

Bryan, thank you. I don’t think we did anything special in quarter one. No, we didn’t do anything special in quarter one. I think it’s a function of three or four things. While we had a very strong bookings quarter in quarter four, we did say when we talked about the full year 2021, that our inflows and pipeline even as bookings were strong, continue to be strong at that time. And that just momentum continued through. And again, I go back to – it’s a reflection of the world we are in, and it’s a reflection of the fact that our total addressable market, and we said this now for probably four quarters or five quarters, our total addressable market, we believe has grown from what it used to be 4 years to 5 years back. The range of services that we have and the fact that a number of clients who in the past may not have thought about change and may not have thought about a partner to have in that process of change, given the requirement of speed and given the requirement to embrace new technologies are all talking about partnerships and talking about change and talking about it now. So, I wish I could give myself credit and give our team credit only. There is no question that I think we had the right team aligned. I think the fact that we often enter these conversations with change agendas, digital technologies, all the acquisitions we have done, I have to say, and I named a number of them in the recent few years have made a big difference to the way we engage with our clients, some of the examples I gave, where our Rightpoint experience team comes in and helps along with our team, really improve the experience of users and customers. That does make a huge difference. When the Enquero team comes in and finds a way to orchestrate data to then build insights for a client who is trying to build out a new e-commerce business in their really massive global business. So, I think it’s a combination of all of that.

Okay. Makes sense. And then the follow-up here on the client re-pricing. So, you said steady progress on that front. Can you give us maybe a sense of the mix where you have achieved the pricing adjustments versus the mix that you are still working on?

It’s too early to say, Bryan. As I have said, these are – you can think about our business. I mean let’s leave the shorter cycle portion of our Transformation Services business. And as we have described before, even our Transformation Services business, particularly analytics, which is the fastest growing of our Transformation Services business has a significant annuity component there. So, all of that annuity component as well as all our intelligent operations. Our long-term contracts with built-in inflation adjusters, what we are talking to clients about is, given the current environment, given the need for the right talent to be engaged in driving value for our clients. And given that our clients also understand the situation that they themselves face in their marketplace. I think we are having those conversations, but it takes time. So, I don’t think any meaningful number could be given right now. So, this is going to be a full year and into next year journey.

Yes. We are making progress as we move forward. But it was not material in this particular quarter. But we have line of sight to keep on building upon what we are doing. Right away, pretty high expectations, and we are working hard.

Okay. Thank you.

Thanks Bryan.

And there are no further questions at this time. I would now like to turn the call back to Roger.

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

Ladies and gentlemen, this concludes today’s conference call. And we thank you all for participating. You may now disconnect.