Good day, ladies and gentlemen. Welcome to the 2024 Second 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 call. As a reminder, this call is being recorded for replay purposes. The replay of this 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. Good afternoon, everyone, and welcome to Genpact’s Q2 2024 earnings conference call. We hope you had a chance to read our earnings press release, which was posted on the Investor Relations section of our website, genpact.com. And 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 the quarter, and 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. Actual results could differ materially due to a number of important risks and uncertainties, including the risk factors in our 10-K and 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, and an audio replay and transcript will be available on our website in few hours. And with that, I’d like to turn it over to BK.

Thank you, Krista. Hello, everyone, and thank you for joining us today. I am pleased to report another strong quarter as we continue to successfully deliver on our 3+1 Execution Framework. Revenue in Q2 reached $1.18 billion up 6% year-over-year above the high-end of our guidance range with better than expected performance across both Data-Tech-AI and Digital Operations. Gross margin of 35.4% and adjusted operating income margin of 16.9% also exceeded expectations driven by operating efficiencies. We are on the right path and momentum is building. For context, in FY 2023, we grew roughly the revenue by $100 million on an absolute basis. In 2024, we have already hit $100 million in incremental revenues in the first half of the year with higher gross margin, all while continuing to invest in our top priorities. Unwavering focus on our 3+1 Execution Framework is accelerating growth, and we will continue to build our execution muscle in the second half of the year with a continued focus on: One, strong partnerships; Two, comprehensive Data-Tech-AI Solutions; Three, a simplified go-to-market approach and our plus one that is leading Genpact as our best credential for AI-First innovation. Let me walk you through the key highlights on each. First on partnerships, we see a significant opportunity to accelerate revenue growth as we increase the strength of our partner relationships. To give you a sense, IT service and solution companies with mature partner operations typically generate 20% to 50% of their revenue from partners. For us, partner related revenues was in low-single-digits in 2023. This represents a significant opportunity for Genpact. We started ramping our investments in our partnership organization at the beginning of this year. And, at the end of second quarter, we have more than doubled the percentage of revenue generated by partners with line-of-sight…

Thank you, BK, and good afternoon, everyone. I appreciate your time today as we review our financial performance in the second quarter of 2024 and provide insights into our outlook for the third quarter and full-year. I’m pleased to report Genpact delivered another strong quarter, including an all-time high income from operations of $170 million. We continue to build the foundational improvements needed to drive sustainable growth and efficiencies. Our pipeline reached a record level in the second quarter, driven by a healthy mix of small, medium and large deals. Generative AI contributed to our pipeline also doubled in the first half of 2024. All this sets us up well for future growth. During the quarter, we added 23 new logos, bringing our first half total to 53 new logos, a 29% increase year-over-year. We also booked four large deals in the quarter. Our win rate was 51%, while sole sourced deals accounted for approximately 45% of total bookings. Highlighting our strong value proposition, we continue to deepen and broaden our client base. During the second quarter compared to the prior period, we expanded a number of client relationships generating annual revenue greater than $5 million from $180 million to $185 million. We also increased the number of clients with annual revenue exceeding $25 million from 38 to 42, while five of these clients generated more than $100 million in revenue. Now, on to our income statement. Total revenue for the quarter was $1.176 billion up 6% year-over-year as reported and 7% on a constant currency basis. This performance, which exceeded our expectations, is the result of renewed focus on driving results in Data-Tech and AI and Digital Operations. Data-Tech and AI represents roughly 46% of total revenue in the second quarter and grew 4% year-over-year on both the reported…

Hi, operator. We’re ready to go ahead and call for questions.

Thank you. [Operator Instructions] And, our first question comes from Maggie Nolan with William Blair. Your line is now open.

Hi, everyone. It’s Kate on for Maggie. Congrats on a nice quarter. My first question is, I understand that you guys are not accounting for any improvement in client demand with the revised outlook. But, can you provide any update just on where overall client sentiment is right now and how it’s evolved, over the past quarter?

I’ll take that. This is BK. So, first of all, thanks so much. And, what I can report on the client sentiment that it has largely stayed the same as we have observed over last six months or I would say even over last 12 months. So, we haven’t seen as an example in the discretionary spends neither any improvement and yes, no deterioration either. And, clients continue to stay very cautious, very watchful and continue to be almost in the same zone given all the uncertainties that surround them.

Okay, great. Thank you, BK. And then, my next question is, it was nice to hear about the continued increase in consumption and outcome based deals. Has your long-term mindset changed at all and what that percentage could eventually get up to?

Sure. This is Mike. I’ll take that one. So, you’re correct. We’ve already reached our goal that we put out ahead of schedule on that. While we don’t have any concrete numbers to share today, but you can expect that number to be notionally higher as we move forward in the year. But, I think what’s so important about it is, as we’re approximately at 20% right now, is also to think about it’s not just that it’s helping us pivot this new economic model. But, if we look back at that 20%, the margin on it continues to remain robust and above average. So, more to come on that.

Great. Thank you, Mike and BK.

Thank you.

And, the next question comes from Bryan Bergin with TD Cowen. Your line is open.

Hey, guys. Good afternoon. Thank you. BK, maybe a high-level question. You’ve been in the role six plus months now. Can you give some perspective on the initiatives that you think have worked really well here versus any of those that are moving slower? And, just any added areas of emphasis for you as you’re working through the second half of ‘24?

Absolutely, Bryan. Thanks. So, as we clearly articulated, Bryan, that we are focused predominantly on these four initiatives what we call as 3+1, which I’m building through line across the Company as well along with all the colleagues in Genpact. And, what I would gladly say that all of these 3+1 initiatives be it plus one being Genpact, building Genpact as the best credential on AI-First journey or in the three client facing ones, the first one being partnership, the second one on Data-Tech-AI and third more simplified go-to-market motions. All of them are progressing really well and some I reflected already. What we have also done, Bryan, that filled many initiatives and that has helped us focus on these initiatives that are meaningfully better for our future as well as our present and we are seeing results. Having said all of that, we are also leaning hard into innovation, innovation represented by Data and gen AI and we are at the early stages of that and more to come on that.

Okay, understood. And then, as it relates to Digital Operations, so a nice uptick here in 2Q, that sequential uptick. As we compare that to the 3Q and the 4Q outlook, can you just maybe tease out if anything changes, the outlook flattens out a little bit. Was there anything that happened in 2Q that allowed for that strong ramp, anything one-time or just more so kind of the prudent approach you have demonstrated?

It is more prudent approach, Bryan. I think we continue to see earning of large deals into each quarter actually on-schedule a little bit ahead of schedule, and really pleased with that, really pleased with the, how all the cadences on various deals even this year be it small deals, medium deals, large deals. And, it is, we are but also wanting to maintain a prudent approach as we go through on the balance of the year.

All right. Makes sense. Thank you.

Thank you, Bryan.

And, our next question comes from Robby Bamberger with Baird. Your line is now open.

Yes. Thanks for taking my question. So, in terms of the large deals you noted at the end of 2023, can you maybe touch on how that large deal revenue is flowing through in 2024 and 2025? And, maybe the puts and takes of the larger deals on EBIT and gross margins for 2024?

Let me kick that off and maybe BK can opine on it. So, in the second half of 2024, we had a notable amount of large deals that started to ramp that continued throughout the first two quarters of this year. I apologize, 2023 into 2024. Those continue to perform very well and we’re at the point where they’re ramping. Those deals typically come in at the beginning at a lower gross margin and end up at a higher gross margin as they move through the pipeline and as they mature. Keep in mind, our large deal for us typically can be about a five year in terms of their duration. So, if you think about our guide for the remaining piece of the year, it really does reflect that movement as we move forward.

Very well said. And, I think we’ll continue with the momentum overall, Robby.

Perfect. And then, in terms of the gen AI deals, you noted 95% of gen AI bookings are on a non-FTE basis. So, can you maybe dive into the pricing of these non-FTE based contracts that you have with clients? Are they higher margin than normal contracts?

Yes. Number of these gen AI deals are which is also reflected in the quarter-end results that we just spoke about are non-FTE based. When we say non-FTE based, they are largely more based on outcomes, outcomes they generate for our clients and how we get paid for it. And, most of our outcome deals are at a higher profitability, and that’s what we are anchoring the entire Company on.

Great. Thank you.

Thank you, Robby.

Our next question comes from Mayank Tandon with Needham. Your line is open.

Thank you. Good evening. Bala, you mentioned that the gen AI opportunity expands your TAM. So, could you maybe just give us some sense of how it does it? Is it just, opening up new avenues of growth that haven’t been explored before by clients? Just maybe a little bit more details around how it expands the TAM and maybe if you could quantify it too.

Yes. So I think, quantification might be challenging at this early stages, but it clearly what we see, Mayank, is increasing of our TAM be it in the bookings that we are seeing or even in our pipeline or a number of solutions that we are baking for clients as we speak. And, it increases TAM because of two or three reasons. One, it also expands the scope of opportunity that we are talking about, Point #1. Point #2, given especially with gen AI and AI always existed at least for a decade I would say. But, with gen AI, a lot of our clients have also woken up to this transformative opportunity, and therefore they are engaging while we are engaging with them in different buying centers. And, given our intense client-centric approach, we get called in some of the areas where we were earlier not getting calls. So, those are obviously adding to opportunities as well. So, our TAM in a particular client as well as TAM in a particular opportunity within the client. And, if you look at the example that I shared in my prepared remarks, in that Financial Services industry case, overall the deal size it’s a large deal. We call large deals are greater than 50 million as much bigger than 50 million. The deal size pre-gen AI or post-gen AI is much bigger MTCB.

I would just quickly add on. So, I said in my remarks as well, our pipeline reached a record level in the second quarter, right. So, if you also think about the gen AI contribution of that has more than doubled in the six months of this year versus the full-year and next year. So, we are seeing a net increase in our quality pipeline, which does support the notion that BK alluded to as a TAM enhancer to it. And then, if you extrapolate upon that as BK alluded to with outcome based deals and looking at the margin on that being higher, we feel very positive about it as a net TAM enhancer and a net revenue enhancer to our business and our franchise.

That’s helpful. But, on margins then, I would be curious, does this potentially create a nice tailwind for you and maybe helps you close the gap versus your peers that run at slightly higher adjusted EBIT margins. I think the general margin level has been high-teens, low-20s. I think you have some more headroom to get there. Is this potentially a longer-term tailwind to close that gap?

Two things. So potentially, yes, Mayank. But, keep in mind as well that our adjusted operating income margin, right, continues to remain stable as we’ve taken fluid through the operating leverage that we have in our business and have made substantial investments into our franchise on a go-forward basis. Things BK alluded to earlier, including enhanced training, investments in partnerships and all these things, we think are a pivotal part to our Company to generate long-term sustainable growth. So, we’ll be doing that at least for the foreseeable future this year and that’s reflected in our numbers.

Great. Thank you for all that color. Congrats on the quarter.

Thank you.

And, our next question comes from Surinder Thind with Jefferies. Your line is open.

Thank you. I’d like to start with a question about the partnerships. It’s quite surprising that your partnership revenue sourcing is quite low. Can you help us understand why the strategy was what it was, given that the difference between your peers is so significant? And, how quickly do you think you can ultimately close that gap to get to where maybe where your peers are?

Yes. So, we are moving ahead rapidly and therefore investing rapidly, Surinder. And, given we were running many initiatives as I also alluded to earlier in the commentary, it was generating results not fast enough. And, that is what is changing. And, we are very, very pleased with the investments we have made and given we had made many of these connections with various hyperscalers or other iconic partners. We have been in relationship with them for X number of years, but not in a focused manner. And, now they see us more. We have a pretty strong leader and a very strong team, possibly one of the best team in the industry that we have put up. And, we are seeing early results and we certainly want to close this gap fast.

Just any color on how quickly that gap can, are we talking about like a five year journey or is it something shorter or just any color?

Five year is a very long time, Surinder. So, we are not thinking five year horizons. But, clearly want to get to double-digit fast.

Yes. I would also bring on, I would also just quickly bring on as well. I think we can all agree nobody has better insight into what we call keystroke level information and data that we have. As our clients and hyperscalers and other partners that we deal with continue to want to penetrate with their offerings, nobody has a better domain level experience in our chosen verticals than we do. So, net-net, it’s a win for Genpact, it’s a win for our clients, right, and it’s a win for our partners. So, we’re putting a lot of effort and money towards that and we think we’ll see results in the not too distant future.

That’s helpful. And then, in terms of just the innovation pipeline, I think you alluded to some ideas. You said, there’s more coming. Conceptually, are you pushing towards, like, building proprietary LLMs? Are you trying to build other pieces of software related to workflow? How should we think about what’s coming down the pipeline at this point?

And, I would say all of the above and more. As an example, if you think we are one of the largest players in finance and within finance we are developing various LLMs including for let’s say accounts payable and building many of what we are calling edge solutions internally, which are backed off by many of the LLMs. So, a number of those innovation ideas are taking shape as we speak.

Thank you.

Thanks, Surinder.

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

Hi, guys. Saw the results here. Wanted to ask about some of the gen AI bookings, and I think you said 95% of those bookings are on the non-FTE basis. I know you’re really not generating much revenue yet from gen AI, but how do those contracts price, competitively versus the marketplace? And, how do you know if, on renewals and other deals, if you’ll be generating the same types of revenue you’re generating that was typically on FTE basis?

Yes. Bryan, a number of these, one we have we report sole source as well a number of these are sole source opportunities too. But, even in a competitive environment, it is a lot of, it is part of embedded solution that gen AI is integral part of. And, as we are moving and pushing the agenda more on non-FTE basis, a lot of these solutions are therefore now with these technologies, which are a number of them are IP and number of them are partner solutions. We are centered on what are the outcomes that they are achieving for our clients and how that cadence of outcome then also flows to us. And, what we are seeing is early good results.

BK, I’ll just quickly bridge upon that. Well, gen AI is net new and a frothy level of discussion. AI is not new to us as well as other enhancements and productivity tools, right, it seems to be a big focus of it. We are not able or have not been able to generate the efficiencies and profitability for our clients and for ourselves without utilizing tools. So, this will continue to evolve over time. It is a net new technology, but it’s really an enhancement or an evolution of what we’ve done in terms of using technologies to drive outcomes.

Got it. And then just a follow-up, maybe I can ask the guidance question a little bit differently. Since the growth rate was so strong in second quarter, what would cause the growth rate to decelerate, the way you guys guided to? Because it just seems like the momentum you have, especially with the partnerships, we’re going to see similar growth rates if not better in the third quarter and not the deceleration?

Yes, I think I’ll start this one. I think it really first starts with a consistent business environment. Keep in mind about three quarters of our business is annuitized, so we have a very good view into that. The other 25% cohort of our business tends to be shorter duration deals that we have to earn and win throughout the year, right. So we’re just not anticipating any real change in the macro business environment. We remain prudent in terms of our guide. In addition to it is, yes, we had strong growth in the first half of the year, particularly off of better execution, namely in a lot of those large deals, which in many cases will be lapping each other. So, we’ll continue to monitor the business environment, but again, we remain prudent in how we think about it for the next two quarters.

Got it. Thanks, guys.

Thank you.

The next question comes from Sean Kennedy with Mizuho. Your line is open.

Hi. Good evening. Congrats on the results. So, I was wondering about the go-to-market approach on focusing on Data-Tech-AI and gen AI solutions. So, how does your team sell these solutions into your customer base? And did you change the sales incentives to help achieve these results?

Yes, sales incentives change, Sean, and we continue to iterate and improve on that as well as we go along. And typically what we have is offering hubs. So, there are series of offerings that we have developed based on the client set and the needs and the competencies that we have. And these offerings are many of them are just Genpact offerings or also on the marketplace of our partners. And then depending upon active sales motion in all of the clients that we operate in, depending upon the needs, there is active activation of these offerings that happen in different client situations. And there is from a simplification standpoint, we’ve also set up certain rituals and rigor that is driving accountability and agility in the organization.

Got it. Thank you.

Thanks, Sean.

And our next question comes from Keith Bachman with BMO. Your line is open.

Hi. Good afternoon. Good evening. Guys, I wanted to ask first on how would you characterize pricing in the first half of calendar year ‘24 versus the same time last year. One of your competitors big competitors suggested that pricing is much more aggressive across the BPO landscape. How would you characterize that?

Thanks for that question. It’s Mike. We’ve heard that before, right? So we’ve thought about it. We have had year-over-year and sequential, I think we’re alluding to in terms of pricing, particularly in our digital operations business, right? Keep in mind, half of it is predominantly sole sourcing and half is not, has been relatively consistent. We haven’t seen anything irrational that’s really gone on in pricing. And so it’s hard for us to comment on others. BK, any views?

No. I think you’re right. It’s a reasonably competitive environment, but we haven’t seen any irrational behavior in the marketplace.

Okay. Related to that, could you be willing to provide what some of your business is based services related or customer facing? What percent of that is total? Now call center business would be a part of that, but I’m talking DX more broadly. How much do you have of service-related business?

Yes. So, in the past, we’ve talked about that in terms of, I think, you’re asking about customer service-related business, that type of work. When you aggregate it up in the many in what we do for a lot of our customers in a lot of different flavors and you take that aggregate revenue, it’s less than 10% of our business of our revenue.

Yes. Last question for me then quickly is, IBM and Accenture have said that, gen AI is great growth for everybody in the industry, but it’s not additive to customer demand and that in order to pursue these projects, it’s coming out of -- it’s sourced from some other area, if you will. It sounds like you guys have a different view of that, but I just wanted to try to clarify because Mike, you clearly said you think its additive to the pool, but I just wanted to make sure I heard that correctly.

Yes, you’re hearing that correctly. Again, it’s hard for us to comment on other companies in terms of what their native mix of business is. But we look clearly at our pipeline at our very defined definition of what generative AI is, we are seeing it as a net enhancer to our pipeline. So, when BK talks about we view the TAM on this being a driver of our sustainable growth in the future as opposed to a trade-off, we’re just not seeing that.

Perfect. Okay. Many thanks, guys. Cheers.

Thank you, Keith.

[Operator Instructions]. I show no further questions at this time. I would now like to turn the call back to the company for closing remarks.

Thank you. Thank you, Michelle. Quarter two was another strong quarter for Genpact. As we look ahead, we will continue to drive improving execution leveraging our 3+1 Framework and lean into innovation. We will innovate by leveraging gen AI and other advanced technologies to deliver superior value for clients and drive productivity for Genpact. I also want to take this opportunity to thank all of our clients for choosing Genpact and all the shareholders for ongoing support. We look forward to speaking with you again next quarter. Thank you.

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