Good day, ladies and gentlemen. And welcome to the 2024 First Quarter Genpact Limited Earnings Conference Call. My name is Michelle, and I will be your conference moderator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. 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 Krista Bessinger, Head of Investor Relations at Genpact. Please proceed.

Thank you, Michelle. Hi, everyone, and welcome to Genpact's Q1 2024 earnings conference call. We hope you’ve had a chance to read our earnings press release posted on the Investor relation section of our website, genpact.com. Today we have with us BK Kalra, President and CEO; and Mike Weiner, Chief Financial Officer. BK will start with a high level overview of our quarter, then, Mike will cover our financial performance in greater detail before we take your questions. Please also note that during this call, we will make forward-looking statements, including statements about our business outlook, strategies and long-term goals. These comments are based on our plans, predictions and expectations as of today, which may change over time. Our actual results could differ materially due to a number of important risks and uncertainties, including the risk factors in our 10-K and our 10-Q filings with the SEC. Also during this call, we will discuss certain non-GAAP financial measures. We have reconciled those to the most directly comparable GAAP financial measures in our earnings press release. These non-GAAP measures are not intended to be a substitute for our GAAP results. And finally, this call in its entirety is being webcast from our Investor Relations website. An audio replay and transcript will be available on our website in a few hours. And with that, let me turn the call over to BK.

Thank you, Krista. Hello, everyone, and thank you for joining us today. I'll start with a brief overview of Q1 performance, our updated outlook and then hand the call over to Mike to take you through our financial performance in more detail. Q1 was a solid start to the year with total revenues of $1.13 billion up 4% year-over-year. This was above the high end of our guidance range driven by early signs of improving execution and better-than-expected performance across both digital operations and Data-Tech-AI. Gross margin of 35% also exceeded expectations reflecting operational efficiencies and better-than-expected revenue performance. Adjusted operating income margin was 16.1% in line with guidance reflecting investments in our top priorities. In Q1 as most of you know we established our 3+1 Execution Framework and it is driving promising early results. 3+ 1 consists of three client-facing initiatives partnerships Data-Tech-AI and simplification and one internal facing initiative Client Zero. This is about establishing Genpact as our own best credential for AI-led transformation. Let me walk you through each one of them. First on partnerships. In first quarter we significantly strengthened our partnership team and achieved Tier 1 partnership status the highest level with AWS Salesforce and Adobe. We have also joined forces with Microsoft. By combining Genpact's leadership in finance and accounting with Azure open AI technology we are transforming finance organizations to best-in-class leveraging data and AI solutions. Second on Data-Tech-AI, we are aggressively driving go-to-market engagement across data engineering, analytics and AI with specific focus on gen AI. This drove a significant increase in client conversations in Q1 and contributed to better-than-expected Data-Tech-AI revenue. We are working with clients to integrate gen AI into their core business processes. gen AI is also serving as a driver of foundational work, as we help enterprises build…

Thank you, BK good afternoon, everyone. Today I'll review our first quarter results and then provide you with thoughts on our second quarter and full year 2024 outlook. Beginning with our first quarter results. While we continue to experience pressure in our discretionary short-cycle work, demand for our long-term annuity-based services continues to be strong. Specifically, our pipeline achieved record levels fueled by strong inflows. We booked three large deals in the quarter. While this was lower than the number in the first quarter of last year our overall total bookings level was near the level we booked in the same period last year. We also booked 30 new logos in the quarter with an average TCV of approximately $4.5 million compared to 17 new logos with an average TCV of approximately $5.6 million last year. Sole sourced deals represented approximately 40% of bookings and win rates remain elevated at 62%. Total revenue of $1.13 billion was up 4% year-over-year both on an as-reported and constant currency basis. This performance was above our expectation reflecting early signs of improved execution and better-than-expected performance across digital operations Data-Tech and AI and all segments. As noted in our press release, we made an enhancement to our Data Tech and AI and digital operations revenue breakout for more accurate to more a reflect revenue from certain solutions. We have also provided historical comparison results in our press release and in our financial fact sheet which were posted prior to the call. The results I will provide for Data-Tech and AI and digital operations below we'll leverage the prior methodology so that you can accurately compare the results to the guide we provided on our year end call.. Data-Tech and AI revenue which represents 44% of total revenue increased 3% year-over-year on an as…

Great. Thank you, Mike. We would now like to open the call for questions. Michelle, could you please give the instructions?

[Operator Instructions] And our first question comes from Puneet Jain with JPMorgan. Your line is open.

Hi. This is Selina [ph] on for Puneet. Congratulations on the results. Of course, it's still early, but now that you guys are kind of seeing some of the benefits of your new strategies such as three plus one payoff on the P&L is it pretty soon to start thinking about longer-term revenue targets? I think we're currently modeling you guys at high single digits, but I know the previous target was closer to low double. So just would appreciate any color here.

Yes. So it's Michael. I'll kick this off and then I'll turn it over to BK. Right now, we're really focused on our execution in 2024. So at this point now, I think we're comfortable with the ranges we provided for this year. And as we get additional clarity, as we move forward in the year, we'll provide additional color on a go-forward basis.

Yes. And if I may add, we don't see any change in the macro environment. And in our model, macro environment is more baked than where it was at the back half of last year. But we are enthused with our early execution and we'll continue to update as we go along.

Great. Thank you.

Thank you. Our next question comes from Bradley Clark with BMO. Your line is open.

Hi. This is Brad Clark on for Keith Bachman. Thanks for taking my question. I wanted to hone in on the comment on GenAI for your clients. I think you said, better-than-expected revenues and bookings in the quarter. Is there any other color that you can provide to help shape perhaps the size or depth of the business and where you're seeing early traction with clients?

So, Brad, I'll say three comments. One, obviously, these are early days, not just for us, for our clients or overall in the industry, but in the early days, we see a lot of interest from clients relative to many of the technology waves that we saw in the past. Point number two, I think, we are seeing, therefore, enhanced conversations, and a number of those conversations convert into booking and revenue, and a number of those conversations don't convert. They just stay as an excitement and, possibilities that we can harness and that we need to kind of handhold our clients as we go along. And last point, I think what we have seen in booking and revenues is still a very, very small portion. So we have set up our systems to see that on a consistent basis and as it solidifies, as it progresses at some point in time, we will share more light on that.

Yes. BK, let me just elaborate on some of those comments, right? While we're not providing any quantitative benefit to the question, I think it's very interesting. Today, we sit between the client and the hyperscaling large enterprise technology companies. And the vast majority of all of our client conversations are how can we help in the middle of those two things. And we think that's going to be a real driver for us for future growth.

Great. Thank you.

Thank you. Our next question comes from Maggie Nolan with William Blair. Your line is open.

Hi. Thank you. Can you dissect for me in a little bit more detail where the outperformance came from in Q1? Is there anything about that that's one time or non-recurring or timing considerations that we should keep in mind as we think about how Q2 might shape up in comparison to Q1?

No, I think it's from that perspective. It's Mike answering the question. Hey, Maggie, how are you? So in the first quarter, right, if you think about our business, our two revenue disaggregation units, our digital operations revenue, right, it was with better expected execution, particularly regarding the deal ramps of the large deals that we implemented in the third and fourth quarter of last year. We continue to execute really well in that. As far as our data tech and AI business versus our expectations, project work, particularly in finance and accounting supply chain, really drove a lot of that outperformance.

And if I can add, Mike, look, where it is all coming from in early days is all about C+1 [ph] framework, Maggie. So take an example of partnerships. In partnerships, as one of the key attributes in C+1, we invested in really strong talent, including a leader and a team in there, and started engaging with technology partners. And what we see in more detail, the inflows are roughly 2.5 to 3x relative to the corresponding period last year. relative to the corresponding period last year. Or if I go into, like Mike was saying, in data tech AI, how our employees are also embracing this pivot, there are more and more conversations happening with the clients on data and AI. And some of it you've already seen are results in data tech AI. So, clearly, the investments that we are making, the pivot that we are embracing, is showing some early results as well as the cadence of governance and execution that we have put in place.

Thank you. That's great to hear. When you think about all these changes that you are making within the organization now that some of that is underway, particularly on the sales team, can you talk a little bit about reception of those changes culture? Have there been any changes in voluntary attrition within the group? Thanks for taking my question.

Yeah. Thanks Maggie. And what I can tell you is that, overall, there is a level of excitement in the team excitement, because everybody is clamoring to deliver better results point number one. And they see their efforts pay off, though I think we all are aware that they are a little bit more coming in from easier comps I would say that. Two, I think with the routines and rituals and there are a few routines and rituals that are getting etched for now and in the future. Those routines and rituals are yielding results and a number of our colleagues are seeing the results of their hard work pay off. So I would see -- I would say that a lot of -- there's a lot of excitement that I can feel in a palpable manner. We also hired north of 50 leaders at a senior level in the last 90 days or in first quarter and more focus on Data, Technology AI also in partnerships. And all of that support is enabling our existing staff to progress further with clients.

Thank you.

Thank you. Our next question comes from Ryan Potter with Citigroup. Your line is open.

Hi. Thanks for taking my question. It was nice to see the solid execution and the return to sequential growth that's implied in the 2Q outlook you have here. I was wondering if you could comment on the visibility that you have into this 2Q outcome in the remainder of the year. Are you expecting sequential growth through the remainder of the year past 2Q? And what kind of assumptions have you made around things like, discretionary spending which I know some of us kind of more of an impact on Data-Tech-AI?

Yeah. So this is Mike. Let me kind of kick that off. And I'll turn it over to BK. We're not really looking to provide additional color on really how we're seeing it out greater than this year in 2024. But what I'll talk about is really our second half in terms of what our guidance is really based on particularly with regard to revenue which I think you're alluding to. It's a prudent guide to be completely frank with you, right? We have not anticipated any real change in the macro environment, particularly from the second half of 2023 and through first quarter 2024, right? We have the large deals that we did flowing through. And yes arguably off of a poorer comp. But that's really what's reflected in our second half revenue round.

Yeah. And I think the only add that I have Ryan is, for the second quarter guide clearly sitting on May 9th we have better visibility to what will happen in the next 55 days. And on the second half Mike just responded to that question.

Got it. And then just quickly on productivity commitments from clients. Can you provide some more color I guess on activity seeing there? Like has the macro or increased interest in AI led to clients asking for higher levels of productivity than in the past in your core services?

So there is a lot of interest from clients on AI, but there has not been any increase in productivity expectations that we see in our -- all of our client conversations and renewals in new signings. And reality is Ryan that, we always baked in a lot of productivity based on AI tools. Now yes they may be new. What we see an interest from clients to learn more about the how that certainly has changed but not the quantitative side of those.

We've also seen we talked about in our prepared remarks a nice amount of growth in alternative commercial models right moving away from FTE-related pricing which all supports the implementation of a lot of this new technology.

Got it. Thank you.

Thank you. Our next question comes from Bryan Bergin with TD Cowen. Your line is open.

Hey, guys. Good afternoon. Thank you. I wanted to ask a follow-up question on the go-to-market changes that Maggie asked. Specifically are the changes to your sales and go-to-market organizations. Are those fully implemented as you exited the first quarter? Or do you have incremental kind of changes that you're now pursuing in 2Q and as you go through the balance of this year?

Thanks Bryan. So look I think we have made a number of changes and we'll continue to evolve. As we progress through the year as we as 3+1 takes hold as well as a client as we continue to engage with clients and learn more on their needs. So it's a continuous evolution and there's nothing new. I think what we did was a surge of changes that we have driven. More fundamentally, and as an example in simplification we moved from a matrix organization to finite 12 units that truly face the clients and brought in a lot of decision-making to those 12 units. And those changes happened in Q1. But there are -- as we continue to progress I think we will continue to improve it on the edges as well as bringing in new talent that pushes the agenda of data and technology and AI further.

And thus far the execution has been wonderful. We had a nice growth in terms of our inflows and our bookings but more to come.

Okay. Very good on that. And then just pivoting to gross margin here. So just first a clarification on the 1Q. I thought, I heard you say you had less large deal upfront investments. So if I'm right on that what does that do too? And then can you just talk about the drivers as you go through the balance of this year the cadence of gross margin I understand you took the outlook for gross margin up a bit here for the year. But the 2Q downtick I think first before you build in a second half recovery. So just help us with the moving parts as you go through the year for gross margin.

Sure. So our gross margin I believe in the first quarter was up about 100 basis points right? And I think what you're referring to is prior year comps with lower severance and less large deal investments than we had in the prior year as well as lower stock expense that really drove that increase. And as far as, we have increased our gross margin as we continue to move through the year we're flowing through the revenue that we had in terms of better-than-expected revenue in the first quarter and we have enhanced operating leverage which we're flowing through in terms of the gross margin for the remaining part of the year in our guide.

All right. Thank you.

Our next question comes from Bryan Keane with Deutsche Bank. Your line is open.

Congrats on this solid execution there. I guess, my question BK 62% win rates that seems elevated. I mean what would you point to p-p is it the pitch or go-to-market strategy that's pushing up the win rates?

Yeah. If you -- thanks Bryan. If you look at even last year where we ended our win rates were in the range of 60%. And I completely agree with you that they are really high win rates. And what is driven by is two factors. One there is a lot of small deals and medium-sized deals where we do a lot of sole source. And that is helping us improve our win rates. And two, even they areas we have onboarded many clients, there are follow-on larger deals that we are doing and some of these follow-on deals that we do, they happen to be sole source and therefore, our win rate improved, because we have already seen the CI ratio they have already seen the performance that we drive in the account. Having said that, I would say that yes, they are very high win rates. And I'd rather have a bigger pipe and we have a record level of pipeline as I speak today. But it won't hurt to increase the pipeline further and that's where our effort is and even if some of the wins goes down, I'll be less bothered by that.

Got it. And then my follow-up is, just looking -- you increased gross margin but not operating margin or adjusted operating margin. Maybe what is the cause of that? In second quarter, the margin guide of 16.5% is a little lower than we had in our model. So, just thinking about the puts and takes there as well? Thanks.

Yes. Let me first address your first question really with regard to -- yes, I think what you're asking is our growth margin up and we're holding our AOI relatively constant from our initial guide, right? So in our prepared remarks, to the extent we continue to execute on better revenue performance, what we're going to do is essentially focus that on increasing our investments, our time investments in our business. So if you kind of think about the model on a go-forward basis, that's really driving this. Better revenue that we flowed through in the first quarter. We'll have the operating leverage on growth that we have on a go-forward basis. And as clients zero for the company, we continue to execute on our own efficiencies. What we're going to do with all three of those positive is we're going to deploy those back in the business and focus really on derive AI investments.

And then just a second quarter in particular?

I'm sorry. It's relatively the same thing for the second quarter. In terms of -- I think your question is, why it's 16.5%, right? I think it's really -- I can't really comment on your model, but it really results in if you look at our seasonal pattern, it's pretty much in line.

Got it. Thanks for the color.

Thank you, Bryan.

Thank you. Our next question comes from Moshe Katri with Wedbush. Your line is open.

Thanks. Congrats on strong execution. I have a couple first. As the model continues to shift towards outcome-based pricing or what you call, I guess non-FTE-based pricing. How should we think about the back changing in terms of profitability headcount, et cetera? And then, the follow-up is more about discretionary work. Which part of the revenue today is considered discretionary of Gen 5? Thanks a lot.

So let me kick it off and then I'll hand it over to BK, right. So what we have seen thus far in terms of our alternative commercial or not FTE-related pricing, we've actually seen the contrary in terms of the average margin on that work that we do is higher than the average of the company as a whole, right? Yes, and we continue to believe that there will be an enhanced decoupling between revenue and FTE-related costs.

Yes. Exactly to the point that you're making Mike. We are increasingly seeing that decoupling and we are pushing the decoupling of FTE to revenue. And I would again say we are in the early stages of that and we are putting certain architecture infrastructure in place to over a period of time build more momentum there. And clearly, more of our investments are also going Moshe in building IP and building repeatable assets that we can deploy over and above say software of our partners. And we are again at early stages of that as more and more data and IP takes hold more disassociation of revenue with FT will happen and that's where our endeavor is.

And the question for the business?

Say that again your voice broke up here Moshe.

How about the discretionary part in general?

Oh discretionary part? So I think -- and the question on discretionary is that what portion of our business is associated with discretionary? Just wanting to clarify because your voice is a little bit muffled.

Correct yes. That's correct.

So we have in Data-Tech-AI Moshe what we have is also a lot of consulting and portions of projects that we do. Over 70% of our revenue is annuity -- and so bulk of our digital ops and a large portion and a significant portion even in Data-Tech-AI is MLT for us. They are long-term contracts. But as we think of the end-to-end capabilities, one of the reasons why clients buy from us is strategy designed to run and transform, that strategy and design portion of it has componentry which is tied to discretionary. And owing to better execution our pipeline is looking better, but we don't see it is because budgets have been released. It is more because we are becoming more agile in the marketplace if that answers the question.

Thanks for the color.

Thank you. [Operator Instructions] Our next question comes from Surinder Thind with Jefferies. Your line is open.

Thank you. Just a follow up on the non-FTE revenues and the mix shift over the past year. How should we think about that on a go-forward basis? Because the shift is pretty significant in the past year. So were there a few projects a few clients that drove that? And is this something that's going to be maybe lumpy going forward? Or where do you kind of see the end game for this?

So I'll take that and then Mike feel free to add. Look Surinder endeavor is to push that agenda more be it in large deals and we have succeeded in a few large deals or in renewals or in smaller and medium-sized deals. And even if the entire large deal or a medium-sized deal is not on non-FTE I think there are portions of it that we are inserting is point number one. Point number two I already spoke about IP and data and these are early days. So clearly our-- where is the end game, it is too early to tell. What we are exceptionally clear that we want to break this association of FTE with revenues and have revenue grow disproportionately relative to the FTE headcount. And I think we are putting architecture and infrastructure elements around that and we'll continue to report progress. Mike?

Yes. I'm just going to build on that. So historically over the last two years, I would say we disproportionately saw on renewals, our ability to get these models implemented. But I think one of the interesting things regarding our generative AI conversations we're having with clients initially. They're much more receptible to moving to those models than they were historically. So the generative AI narrative is acting as a catalyst for those discussions, as well as just our pivot to have more IP-related assets that have to drive that decoupling.

That's helpful. And then when I think about just guidance in general, I look back to last year. And obviously the environment has been challenging. It's been hard to predict client behavior, fast forward to this year, you guys are out executing the guide. How should I think about the overall quality of the guide? Or any methodology changes that you guys have made? Is it just you guys are being maybe a bit more conservative this year? Any color there would be helpful or how you've been adapting to maybe the lower levels of visibility in this environment?

Yeah. So nothing has changed from what we told you about a quarter or so ago with in terms of other methodology on a go-forward basis. Obviously we get smarter every quarter that we go. Listen I will say it's prudent from that perspective. And that prudency really relates to our assessment that the macro environment particularly that affect some of our more discretionary shorter duration work has not improved in our models from the second half of last year through the first quarter of this year. To the extent that changes? Yeah, potentially we could see additional benefits to it. But for now, I think the prudent way to move forward is using the information that we have best of our ability and making a conservative view from that perspective. Keep in mind as BK alluded to over 70% of our business is somewhat annuitized and we have very good visibility at any given point on how that's going to perform for the remaining piece of the year on a rolling 12-month basis. So it really comes down to that 25% roughly cohort of our business at short-term discretionary in nature. And again what we're doing is we're tying that to our assertion of where the macro business environment is going to be for that period of time as it changes, we'll update our guidance accordingly.

Thank you.

Thank you. Our next question comes from Sean Kennedy with Mizuho. Your line is open. Q – Sean Kennedy: Hi, everyone. Nice job on the quarter. Thank you for taking my questions. Can you touch on how the demand environment for new business progressed throughout the quarter both for the shorter duration discretionary deals, and the larger ones as well. It seems like the outperformance in the quarter was more Genpact specific execution versus the macroeconomic environment. Thank you.

So Sean, what I would say, yes, I think the execution and early signs are good. However, I'll also say that our pipeline is at a record level, across all the segments across Data-Tech-AI and across Digital Ops. And now we can also attribute a lot of that to our increased agility again, acting more proactively with our partnership and with technology partners and we are getting more and more advice from our technology partner, as well. As I speak to clients or even partners what Mike also incited earlier, that with understanding of hands on the keyboard and the assets and strategy and design and how we run and transform. We are able to capture the knowledge at a very key stroke level, which a lot of technology partners coming top down are not able to. And that is the true execution that is needed by clients. And therefore, there's a reaffirmation and we are seeing as we engage more actively with clients, to reflect that in our pipeline. Now, I would again continue to maintain it there are many ways in which we see where the macro environment is? Where the budgets are? Have we seen any significant or any meaningful improvement there? The answer is no. It continues to be as it was at second half of last year. So that is what is sitting in our prudent guide. Q – Sean Kennedy: Great. Good luck with the rest of the year.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to the company for closing remarks.

Well, thank you so much, Michelle. And what I would say is, Q1 was a solid start to the year with revenue and gross margin above high end of our guidance range, early signs of improving execution and we are excited with the progress we are making with our 3+1 Execution Framework. And yes, we are pleased with the beat and flow I would say, with this prudent guide. And I do want to take this opportunity to thank all of our employees for embracing the pivot, all of our clients for choosing the impact, and all the shareholders for ongoing support. And I do want to thank you all, and we'll come back to you next quarter.

Thank you for your participation. This does conclude the program. You may now disconnect. Good day. Good day.