Genpact Limited

Good day, ladies and gentlemen. Welcome to the 2022 second quarter GEMPAC limited earnings conference call. My name is Lisa, 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 toward the end of the conference call. 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 GENPAC's website. I would now like to turn the call over to Roger Sacks, Head of Investor Relations at GENPAC. Please proceed.

Roger Sacks Thank you, Lisa, and good afternoon, everybody. Welcome to our earnings call to discuss our second quarter results. This period ended June 30, 2022. We hope you had a chance to review our earnings release, which was posted to the IR section of our website, genpak.com. Speakers on today's call are Tiger T. Agarajan, our president and CEO, and Mike Wiener, our chief financial officer. Today's agenda will be as follows. Tiger will provide an overview of our results and update you on our strategic initiatives. Mike will then walk you through our financial performance for the quarter, as well as provide our current thoughts on our outlook for the full year 2022. Shai will then come back for some closing remarks, and then we will take your questions. And as usual, 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 today's call, 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 GAAP in today's earnings release posted to the IR section of our website. And with that, I'm going to turn the call over to Tiger.

Thank you, Roger. Good afternoon, everyone, and thank you for joining us today for our second quarter 2022 earnings call. I hope all of you had the opportunity to attend our Investor and Analyst Day in New York City this past June or had a chance to listen to the archived webcast available on the investor relations section of our website. Our results for the second quarter reinforced the strategic plan we laid out for the next several years. We are pleased that the momentum we saw coming out of 2021 has continued through the first half of the year. As we had expected, Strong demand for our data tech AI services was the primary driver of our 12% constant currency year-over-year top-line growth for the quarter, while digital operations services delivered steady performance. Our priority accounts grew 17% and represented 65% of total revenue. In a challenging macro environment, our adjusted operating income margin expanded 190 basis points on the back of several strategic actions that align to our long-term plan and build agility for the future. Specifically during the second quarter of 2022, we delivered total revenue of $1.089 billion, up 12% on a constant currency basis. Data tech AI services revenue of $489 million, up 22% on a constant currency basis. Digital operations services revenue of $601 million, up 5% on a constant currency basis, adjusted operating income margin of 16.9%, expanding 190 basis points from the first quarter, and adjusted diluted earnings per share of 70 cents, up 6% year-over-year. Every company continues to grapple with numerous challenges, including 40-year high inflation, rising energy costs, ongoing supply chain disruption, and high levels of talent attrition. In response, clients are engaging with us to navigate the short term and build resilience for the long term, particularly in areas such as supply chain, sales and commercial, and risk. As we move into the second half of the year, overall demand remains healthy as reflected in our high-quality pipeline. With all this macro uncertainty, we have seen clear signs of shifting client priorities with cost taking center stage. Bookings during the second quarter remained strong and in line with our expectations. The majority of our deals continue to be long-term in nature, with almost 70% being annuity-based, and nearly half of them continue to be sole-sourced. We converted a number of small and medium-sized deals this quarter that closed faster than before, and I've seen cycle times trending down over the last four quarters as clients are looking for faster payback to their investments. We also signed three new large engagements during the second quarter with total contract value exceeding $50 million each. One in banking, one in insurance, and the third in high tech. Additionally, we added 30 new logos up from an average of 26 new logos in the last 12 months period through March 31st of this year. Total revenue for the quarter was up 12% year over year on a constant currency basis, and growth was broad-based across all our industry segments. In particular, financial services delivered strong double-digit growth. As we discussed at our recent Investor and Analyst Day, we have two service sets that work together to deliver tangible outcomes for our clients. The first is Data Tech AI Services, where we design and build solutions using data and modern technologies to help transform our clients' businesses and operations. These address our clients' key problems, better align them to their strategic goals, and deliver improvement in their outcomes. The second is digital operations services, where we transform our clients' operations and run them globally to deliver higher levels of end-to-end performance. As our business has evolved, we have reassessed how we will report our results to be more in line with our clients' needs and how we think about our business internally. Going forward, we will report revenue by these two service sets, data tech AI and digital operations. We're also retiring the GE global client bifurcation as GE is now less than 9% of our revenue. During the second quarter, data tech AI services grew 22% year over year on a constant currency basis, fueled by the ongoing momentum we are seeing in our emerging services like supply chain management, sales and commercial, and risk. Data tech AI services contributed 45% of total revenue for the quarter, up from 44% in the first quarter of this year, and 42% in the full year 2021. Digital operations services continued its steady growth, increasing 5% year over year on a constant currency basis, broadly in line with the first quarter of this year, and up from a decline of 1% in full year 2021. Digital operations services contributed 55% of total revenue for the quarter. Let me share a few examples of how our services are helping our clients deliver better outcomes. First, a global food and beverage company was facing intense volatility in demand, leading to much higher than expected inventory write-offs for perishable products. We designed and built new demand forecasting models for these product lines, leveraging machine learning and analytics to significantly improve supply and demand planning and supply chain efficiency that led to better margins, as well as a $400 million reduction in inventory. We now run the supply chain operations for them. Second, technology companies are trying to adopt new business models, transitioning from asset-based to consumption-based revenue models. These companies are experiencing challenges from customer churn, and revenue leakage in license revenue. For one such client, we have built proprietary analytical models that combine internal data such as customer booking and license usage with external data such as competitor products and wallet share to align their 9,000 strong sales force to the right opportunities at the right time with tailor-made offerings and pricing. This drives material improvement in customer renewals and profitability for the client. Lastly, a large global equipment manufacturer with long-term service and maintenance contracts is dealing with rapid inflation, impacting more than 50,000 parts used to replace and repair equipment serviced in the field. We built complex algorithms to optimize its service and maintenance pricing models, leveraging external economic and competitor data and internal parts cost margin and reliability data. This dynamic market-based pricing and servicing model is expected to improve the client's overall revenue growth and profitability. All of these examples address challenges that are extremely relevant in today's macro environment and are highly replicable across clients and across industries. We are disproportionately investing in our priority accounts, a portfolio of clients that are on significant transformation journeys where we see the most opportunity to drive meaningful outcomes for them that we believe have significant growth potential for us above company average. During the second quarter, revenue from our priority accounts grew at 17% and represented 65% of total revenue in line with the first quarter of this year. During the 12-month period ending June 30th, 2022, we grew the number of relationships with annual revenue over $5 million from 137 to 154. Clients with more than $25 million in annual revenue increased from 27 to 34. Clients with more than $50 million in revenue increased from 12 to 14. During the quarter, we initiated several strategic actions to align our cost base to our long-term plan, while also building agility to better respond to the macro environment. First, as part of our continuous evaluation of our business, we have sharpened our portfolio to focus on services where we see the greatest opportunity and have de-prioritized assets that do not align with our strategy or adversely impact long-term profitability. We have identified a small business that we expect to divest where we believe there is potential to better maximize its value under different ownership. We have classified this business as held for sale, allowing us to better deploy our resources, capital, and leadership bandwidth to more sharply defined strategic opportunities. We've been implementing a long-term flexible and hybrid global delivery model that incorporates a mix of offshore, onshore, nearshore, and remote working based on the needs of our clients, type of services, regulatory considerations, and employee preferences. This has allowed us to further optimize our real estate footprint by consolidating sites, leading to future cost savings, and importantly, giving us more flexibility to help clients drive tangible outcomes. The sharpening of our focus caused us to take certain deliberate employee actions in the second quarter, largely tied to roles related to our non-strategic services or rightshoring of roles. Non-strategic services currently represent approximately 10% of our total revenue, down from 21% in 2018, and growing at less than company average. As a result of these actions, we recorded a restructuring charge during the second quarter. Mike will cover the financial impact of these actions on both the quarter as well as our updated full year outlook. Let me spend a few minutes on talent. As we had expected, we saw an uptick in our quarterly attrition to 38% versus 33% over the prior three quarters. We've always witnessed an increase in attrition during the second quarter post our annual bonus payout that occurs in March each year. This attrition was primarily concentrated at the lower end of our organizational pyramid, where we are able to quickly fill roles to meet demand. Our attrition rate includes all employees who leave the company, regardless of their tenure or reason. Adjusting for both involuntary attrition, as well as employees in training with less than three months of service, our attrition for the quarter would have been 34%. As we've always said, we manage attrition at the individual skill and geography level. For example, attrition in our call centers in the Philippines and the Americas has always been higher than company average. On the other hand, our attrition in the mid-senior level and specialist expert groups is the same as pre-pandemic levels. Given our global talent management practices that enable us to hire, reskill, and redeploy employees at scale, we did not see any impact to our clients' engagements or our ability to convert new bookings. During the quarter, we hired almost 10,000 new team members across the globe, reflecting Genpak's powerful brand in a very competitive talent environment. During the quarter, our employees completed more than 2.5 million training hours leveraging our online, on-demand learning platform, Genome, up from approximately 2 million training hours last quarter. Using our internal redeployment platform, Talent Match, we successfully redeployed almost 6,000 reskilled employees to support the changing needs of our clients. The ability to reskill, upskill, and provide new opportunities for our employees is critical to managing attrition. Employees who are active on Genome and employees who move to different roles internally have at least 50% lower attrition rates than the company average. This is a competitive advantage that we bring to our clients, particularly in today's macro environment given our clients themselves are struggling to find the right talent. As we enter the second half of the year, I believe we are well positioned to continue to address the changing needs of our clients. Through our strategic investments over the past several years, we have diversified our service offerings to include many emerging services on top of the strength of our core services like financial accounting. This wide range provides our clients with access to capabilities that help them manage a variety of challenges associated with today's highly volatile environment, while also enabling them to build resilience for the future. This includes cost, working capital, growth, risk, and supply chain challenges, all of which are non-discretionary needs. Across these areas, we are able to partner with our clients to deliver better outcomes for them. At the core of this, is our agility and nimbleness, which allows us to take these different services to our clients, to partner with them at speed and scale. With that, let me turn the call over to Mike.