Genpact Limited

Good day, ladies and gentlemen. Welcome to the 2020 First Quarter GINPAC Limited Earnings Conference Call. My name is Bridget, and I'll 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 conference call is being recorded for replay purposes. The replay of the call will be archived and made available on the IR section of GINPAC's website. I would now like to turn the call over to Roger Sachs, out of Investor Relations at GenPAC. Please proceed.

Thank you, Bridget, and good afternoon, everybody, and welcome to GenPAC's first quarter earnings call to discuss our results for the quarter ended March 31, 2020. We hope you had a chance to review our earnings release, which was posted to the IR section of our website, genpac.com. The speakers on our call today are Tiger T. Agarajan, our President and CEO, who is joining from his home in New York City, and Ed Fitzpatrick, our Chief Financial Officer, joining from his home in Pennsylvania. We have a lot to cover during today's call, including GenPAC's response to the COVID-19 crisis, our positioning for a path to longer-term growth, a review of our financial performance. We will also provide some color related to our expectations for our second quarter results. Our prepared remarks will be somewhat longer than usual, but we will provide extra time to answer all of your questions. As a reminder, some of the matters we will discuss in today's call are forward looking. These forward looking statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those in such forward looking statements. Such risks and uncertainties are set forth in our press release. Additionally, 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 these measures to GAP 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 2020 first quarter earnings call. I'm extremely proud of the passion and dedication of the Genpak team around the globe who have worked tirelessly to support our clients, deliver phenomenal service and help communities and each in these unprecedented times. The COVID-19 crisis has disrupted personal lives, businesses and economies around the world in a very short period of time. Today, I will start with a quick review of our first quarter results and then share an update on our response so far to COVID-19. I will then discuss the status of our delivery to clients, learnings from our journey to work from home, and the impact we are seeing on our clients and their industries. I will also cover the new opportunities we are seeing in the market, why we are well positioned to win these opportunities, and how our strategic focus over many years, and particularly over the last five, allows us to be resilient in these times and sets a clear path forward for longer-term growth in the post-COVID-19 world. Despite the challenges the world faced starting in the second half of March, we had strong first quarter results demonstrating a continuation of the momentum we saw throughout 2019. All of our industry verticals, consumer goods retail, life sciences, healthcare, banking and capital markets, insurance, high tech, and industrial manufacturing and services grew nicely. Transformation Services was once again the leading engine with particular strength in analytics and significant new traction in our cloud services. Specifically, total revenue was $923 million, up 14% on a constant currency basis, and global client revenue increased 15% on a constant currency basis. We also delivered adjusted operating income margin of 14.7% and adjusted diluted EPS of 53 cents, up 23% year over year. Transformation services, including the contribution from RightPoint, grew more than 30% in the quarter and accounted for approximately 30% of total global client revenue. We were off to a strong start to the year as we continue to see traction in our under-penetrated target markets. We saw early signals of the COVID-19 crisis in our China operations, where we have more than 4,000 associates serving a number of our global clients in China, Japan, South Korea, and the Northern Asian economies, and responded with an agile switch to work from home. As COVID-19 began to spread throughout the world, in the second half of March, we reacted quickly across our global footprint, including Europe, US, Latin America, Philippines, and India, with our China playbook in hand as a great starting point. We estimate a loss of about $7 million in first quarter revenue, primarily driven by supply constraints in the transition to work from home. Much of the revenue loss from the supply side was related to delays in approving work from home from many of our banking and capital markets clients due to regulatory constraints and privacy and security concerns. From the very beginning of the crisis, our decision-making framework has been focused on two key pillars. One, ensuring the safety, health, and well-being of our 95,000-plus global team members. And two, continuing to deliver service to our clients knowing that the work we do for them is essential in many cases to make their businesses and economies in which they operate function effectively. On day one, we established a global COVID-19 response task force with eight specific work streams with responsibilities to, one, transition operations to work from home, two, orchestrate internal and client communications, three, refresh our financial outlook with a high frequency to drive actions, four, drive superior operational delivery performance and productivity in a virtual work environment. Five, design and implement a comprehensive employee well-being program for this new environment. Six, develop frameworks and playbooks for transformation services engagements, digital implementations, collaborative solution design, and transition in a virtual world. Seven, build and take to market new transformation services and digital offerings. And finally, eight, develop a point of view on the post-COVID-19 world. Each workstream is led by one of my leaders across businesses, functions, and jobs to ensure rapid, real-time decision-making. As you look back over the last eight weeks, the speed and agility with which we have transitioned to a new virtual work-from-home model for all of our services can be attributed to our early adoption of virtual collaboration and communication tools to deliver global solutions over many years. Our culture of running the company with a globally distributed leadership team made the transition easier for us to embrace. To date, more than 95% of our overall revenue coverage is being delivered. The single biggest gap to reaching 100% virtual is in our banking and capital markets vertical, where client approvals to work from home in processes that manage highly sensitive customer information has taken time and has varied dramatically by regulatory jurisdiction in which these clients operate. To protect the long-term health of our business and allow us to continue to invest strategically in areas that will fuel growth in the future, we have taken decisive action to reduce our cost base, such as freeze on all salaries across the organization, including our executive leaders, and a hold on internal promotions for the year after paying our 2019 bonuses in full. Second, a temporary ban on all team member travel around the globe to ensure the safety of our employees and clients, as well as a pullback on all discretionary spending. And three, the deployment of a proprietary platform, Talent Match, that has allowed us to identify talent available for redeployment to other parts of our business as the needs of our clients change. This, combined with our Genome reskilling platform, has been a home run in these times. The strength of the portfolio choices we made as part of our 2013 strategy exercise in terms of both industry verticals and service lines is making a huge difference. Additionally, the global diversity of our delivery footprint between onshore, nearshore, and offshore has been a major driver of our resilience in these times. We have rapidly developed the science of virtually running our services efficiently and effectively. We have taken our end-to-end smart enterprise process, SEP frameworks, and refresh them for this new model, focusing on security controls, monitoring service level adherence, and maximizing employee productivity in a work-from-home environment. As an example, for the most recent quarter close, using these updated frameworks, we closed the books up to two days quicker for 98% of clients that we closed the books for, with the balance being closed in normal cycle times. At a broader level, we have seen better service level performance for more than 50% of our services and only a small single digit percentage of our services have performed below par. This has further led to client delight even in these difficult times. Very early in this transition to work from home, we started developing programs and initiatives to help our employees manage the stress of this new way of working. We set up 24 by 7 helplines with mental health professionals to provide assistance to employees, shared best practices on working from home, and self-care during this crisis, and conducted global webinars with experts on a variety of topics, including health and well-being. We're also leveraging our AI-driven employee sentiment chatbot to capture daily mood across our global workforce. Many of our core enterprise services, including finance and accounting, sourcing and procurement, and supply chain, as well as industry-specific services such as financial crimes and risk, insurance underwriting and claims, and content moderation are non-discretionary in nature. We estimate that more than 85% of our portfolio is positioned to weather the short-term economic challenges of the current environment. Our exposure to the hardest hit industries such as travel, hospitality, and leisure and energy is limited. We are seeing heightened demand for our solutions in supply chain management, consumer banking collections, small business lending through government support programs, and analytical services to a range of industries, witnessing volatile demand and supply patterns, all of which we have strengthened. Over the last two years, we have refocused our IT services work to specific areas connected to our domain depth and digital capabilities, providing us with a springboard to accelerate our digital transformation and cloud engagements in these times. Two recent examples of a large technology firm moving all of their analytics engines to the cloud and for a global pharma company implementing workday finance across their enterprise. Our transformation services engagements did not miss a heartbeat. Most of these engagements have continued demonstrating both our ability to deliver these virtually, as well as the essential nature of some of the change programs we need for our clients. The last couple of months have reinforced the importance of flawless execution, client intimacy, and net promoter score as the true North Star of our culture. As we look at our overall portfolio of revenue, more than two-thirds comes from a cohort of clients where our relationships have strengthened throughout this crisis. We believe this sets the stage for growth with these same clients as they emerge from the crisis and look to significantly transform their businesses. As expected, we are seeing the progression of our large deal pipeline slow down as clients manage disruption and uncertainty to their businesses. With the exception of clients in the hardest hit industries, all other deals in the pipeline continue to be active, although at a much slower pace. At the same time, we are seeing a number of new deal opportunities, in many cases triggered by the challenges of the current environment, that start off at the CEO-CFO level. These are large-scale multifunction transformation deals in the $100 million plus range. Just in the last three weeks, we were awarded a new relationship with a large global insurance client and are also significantly ramping up with an existing large global banking client as they both reconfigure their location and partner operational footprints. We are solutioning and transitioning this work directly to a work-from-home team as we speak. We're also remote solutioning and seamlessly transitioning more than 2,000 people for more than 40 clients across both existing and new engagements. As I said earlier, we are now executing our Transmission Services engagements in a virtual setting. With the slowdown of the movement of our large deal pipeline, Transmission Services embedded in these deals have also naturally slowed down. The problems and solutions that clients engage with us in our Transmission Services business has significantly changed. We are seeing heightened demand for a range of new transmission service solutions that have quick payback and are very relevant in the current environment. We have recently developed and taken to market 17 new transmission services solutions and 8 new digitization solutions, all as rapid response offerings. A few examples of these are For healthcare companies using real-time predictive analytics to ensure rapid deployment of life-saving devices and personal protective equipment to the right locations at the right time. For pharma companies using predictive analytics to help them adapt their end-to-end supply chain to changing demands in their portfolio of medicines. For example, demand for allergy relief medications are down as fewer people are going out. We are helping with material purchase, capacity planning, and logistics orchestration. For banks, monitoring credit risk and detecting financial crimes and fraud, we are providing expertise to set up surge operations in various regions of the world and helping manage the record high volume of small business loan applications as part of the Paycheck Protection Program, a key element of the CARES Act, by streamlining and digitizing loan application and funding processes. For consumer goods retail and manufacturing companies, using supply chain analytics to redesign distribution networks in order to balance volatile supply and demand, as well as supporting offline to online transformation through rapid digitization given increasing volumes over online channels. And finally, for a range of manufacturing companies, we are running supplier risk assessments, sourcing programs, benchmarking, digital interventions, and segmentation and customer behavior analytics to drive receivables down to improve cash flows. The broad themes that cut across these new opportunities are an increased consumption of cloud-based services, automating and digitizing for rapid payback, and analytics that deliver real-time predictive insights. In times of uncertainty, strategic partnerships with deep client intimacy mean more than ever and CXOs and boards continue to look for ways to drive change in their organizations to achieve outcomes in both the short and the long term. The essential non-discretionary and annuity-based nature of the services in our industry provides resiliency during these uncertain times. With a strong balance sheet and solid cash flows, the underlying fundamentals of our business remain very healthy. Geographical concentration risk is also a paramount concern for many of our clients. Our broad, robust global delivery footprint allows for a balanced mix of offshore, nearshore, and onshore delivery. This diversity is a huge strength that helped us win the large insurance client I talked about earlier, who selected us to de-risk their delivery concentration in the middle of the crisis. Our stepped-up investments in digital and analytics over the last five years both organic as well as through partnerships and acquisitions, have positioned us well to offer specific solutions for our clients looking for immediate value creation. The capabilities we acquired through the acquisition of the AI and machine learning business and the dynamic cloud workflow business that provides the digital layer of Genpak Cora are examples of these. When we acquired RightPoint late last year, our thesis was that we are in a unique position to bring process and experience together in an unprecedented way to help our clients drive true end-to-end digital transformation and win in the growing experience economy. We believed our ability to connect front to middle and back offices would make a huge difference to our clients as we help orchestrate their digital transformation journey. In this virtual world, the importance of customer and user experience has gone up dramatically. As offline businesses accelerate their journeys to online, it further reinforces the need for a focus on digital experience. This positions us well to leverage these capabilities in the post-COVID-19 world where digital transformation becomes center stage. A quick note on GE. Our relationship remains strong across the multiple GE businesses we serve. As GE drives cost improvements to deal with a reduced market size for a number of their businesses, As always, we are responding with our own productivity initiatives to deliver value back. Due to the impact of COVID-19, we are currently anticipating second quarter revenue to be down 3% to 5% year over year on a constant currency basis. Lastly, due to the uncertainty caused by COVID-19, we have decided to withdraw our 2020 financial outlook issued on February the 6th, 2020 until visibility improves. With that, let me turn the call over to Ed.