Genpact Limited

Good day, ladies and gentlemen. Welcome to the 2023 second quarter GENPAC limited earnings conference call. My name is Crystal 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 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 Sachs, Head of Investor Relations at Genpak. Please proceed.

Thank you, Crystal. Good afternoon, everybody, and welcome to our second quarter earnings call to discuss results for the period ended June 30th, 2023. 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 Tiyagarajan, 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 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 2023. Tiger will then come back for some closing remarks, 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 today's call, we will refer to certain non-GAAP financial measures that we believe provide additional information. and the understanding of the way management views the operating performance of our business. You can find the reconciliation of these measures to GAAP and today's earnings release posted to the IR section of our website. And with that, let me turn it all over to Tiger.

Thank you, Roger. Good afternoon, everyone, and thank you for joining us today for our second quarter 2023 earnings call. Before I get to the financial performance for the quarter, I want to highlight that our strong bookings momentum continued in the second quarter. We currently expect 2023 full year bookings growth of 25% to 30% driven by large deal and new logo wins. This positions us for strong top line growth in 2024 and beyond. Along with a great bookings quarter, our adjusted operating income margin, adjusted diluted EPS, and cash flow from operations all exceeded our expectations. While cost reduction and digital transformation continue to remain high priority for our clients, they are increasingly turning to us to help accelerate their data journeys, triggered by a desire to leverage Gen AI. This will allow us to deliver more value to them through AI augmented end-to-end services. Specifically during second quarter of 2023, we delivered on a constant currency basis, total revenue of 1.106 billion up 3% year-over-year, data tech AI services revenue of $501 million, up 3% year-over-year, and digital operations services revenue of $605 million, up 2% year-over-year. We also delivered adjusted operating income margin of 16.8% at 10 basis point year-over-year decline, and adjusted diluted earnings per share of $0.72, up 3% year-over-year. Our top-line revenue during the second quarter was below our expectations. This reflects the current environment where clients across industry verticals continue to prioritize large transformations focusing on structural cost reduction and replatforming operations, while at the same time seeing incremental pressure on discretionary project spending in areas related to marketing and short-cycle advisory work. We also saw some volume reductions from our high-tech clients driven by macro events. As a result of these near-term challenges, data tech AI services, where we design and build solutions to transform our clients' business, grew 3% on a constant currency basis, while digital operations services, where we digitally transform and run our clients' operations, was up 2% on a constant currency basis. As a result of these trends, we now expect total revenue for the full year to increase 5.5% to 6.5% year-over-year on a constant currency basis, compared to our prior expectation of 6.5% to 8% growth. Mike will provide greater detail on our updated full-year outlook. Despite the near-term revenue pressure, demand for our services remains strong. The incredible deal momentum we saw earlier in the year continued as we set a new second quarter and first half of the year record for bookings. The majority of our deals remain long-term in nature with approximately 70% being annuity-based, which demonstrates the resilience of our business model. Win rates over this period were well above historic averages at more than 60%. In quarter two, we signed six large deals all above a total contract value of $50 million, following the five we signed in quarter one of this year. Both are above historic levels. Our client roster also expanded nicely as we added 24 new logos during the quarter, including three large deals. Driven by robust new inflows, our pipeline reached another all-time high, including several new large deal opportunities. We are seeing an increasing trend of clients focused on getting their data consolidated, improving its quality, and migrating and orchestrating that data in the cloud. All of this helps prepare them to use gen AI, large language models, and predictive AI and machine learning to deliver dramatically better business outcomes. Given our year-to-date record bookings and robust pipeline, we currently expect 2023 full year bookings growth of 25% to 30% above last year's level of $3.9 billion. While we have not shared a bookings outlook in the past, given the consistent strength we are seeing, we thought it's important to do so now as it shows the way our clients are thinking about setting themselves up to leverage GenAI in the future. Let me add some color on the six large deals we signed in the quarter. For a large global insurance company, We will be managing all of their technology, including infrastructure, applications, and platforms, while we transition their data to the cloud and integrate all of their disparate systems and processes from acquisitions. For one of the largest global technology platform providers to financial institutions, we will run and transform their operations in deposits, lending, collections, fraud chargebacks, and fraud alert management. The whole contract is transaction-based pricing and will create a true win-win as over time, we will use GenAI and other digital technologies to run their operations. Our domain depth was the winner here. We are partnering with an e-commerce company to run all of their corporate technology security operations, financial accounting, and customer care services. Our objective is to modernize the technology apps, move them to the cloud, and dramatically improve customer experience. The ultimate plan is to create the capability to leverage GenAI to run these services. We expanded our relationship with a global food company to standardize and transform their finance operations in EMEA to replicate our execution of the highly successful North America journey. The next objective here is to leverage GenAI and predictive analytics from all this streamlined data to drive competitive advantage in their markets. And finally, for a large industrial client, we will leverage digital technologies, advanced analytics, and Gen AI to provide real-time critical decision insights to grow their business, reduce costs, and improve cash flow. We also expanded our relationship with a global financial institution to help build and launch an all-digital savings account option for their customers. The combination of our experienced team, our banking experts, and digital technologies, designed and built the front-end user interface, as well as customer service fraud detection and other back-office functions, which we are now running. During the quarter, we continued to make great progress on our five strategic initiatives. First, revenue from our priority accounts grew 2% year-over-year during the quarter and represented approximately 62% of total revenue. Our investments in these clients are paying off, as approximately 70% of our first half bookings were from our priority accounts. We continue to expect this portfolio to grow faster than the company average over the long term. Second, we continue to deepen our partnerships with the cloud technology players with whom we are co-innovating and creating joint IP solutions. For example, with O9 Solutions, we launched a supply chain as a service offering that leverages GenAI and helps companies navigate ongoing supply chain disruption. The solution provides real-time scenario planning to help clients reduce supply chain costs, eliminate excess inventory, and drive top-line growth. Our new collaboration with Microsoft enables Genpak's global talent to access Microsoft's Azure OpenAI service so we can build and implement GenAI solutions embedded in our services. We are building a Gen AI practice team with Google Cloud to help accelerate the deployment of cloud-based AI solutions for businesses across our chosen verticals with a particular focus on financial services. In close collaboration with AWS, we are building and bringing to market a Gen AI-based regulatory reporting solution for a large global pharma company. We continue to strengthen our partnership with ServiceNow by bringing our deep domain and process capabilities that allows ServiceNow to be the workflow of choice across multiple buying centers outside of the IT function. Third, we are continuing to invest in new operating centers in tier three cities in India, providing us with access to larger and more diverse talent pools. In July, we opened our third new center this year. Fourth, we are seeing great momentum in our journey to non FTE based commercial models, such as transaction based pricing and outcome based pricing. These now represent 16% of our revenues. More importantly, one third of our first half bookings were non FTE pricing. And we now believe that we will hit our original goal of 20% of revenue penetration well before 2026. This has also been driven by the increase in our AI based solutions. And finally, our recent investments in our large team are generating great results, both in bookings and pipelines. As expected, our attrition level has stabilized and is now 25% for the second quarter, significantly lower than the 38% during the same time last year. Adjusting for involuntary attrition in employees with less than three months of service, our attrition rate was even lower at 20%. Let me now spend a few minutes on our systematic approach to leveraging GenAI in our business. As I discussed last quarter, we started our AI journey five plus years back, and since then, we have invested, developed, and refined our AI capabilities and solutions relevant for each of our services and industries. We have prioritized our resources and GenAI actions in three broad areas. First, we are using GenAI to disrupt less penetrated areas for us that are wide open for new service models. We are calling this offense strategy for us. Great examples of such services include customer care, FP&A, and sales and commercial digital marketing support. This will allow us to gain market share and drive growth. Second, we are prioritizing services where we are a recognized leader, such as financial accounting, financial crimes and risk services, and supply chain services, where infusing Gen AI can act as a catalyst to drive step function improvement and outcomes beyond just productivity. And third, we are rapidly deploying Gen AI within our own walls in areas such as HR, training, knowledge management, and internal software coding. This will help improve our margins and create use cases for our clients. Let me now bring this to life with a few examples. for one of the largest global consumer brands companies in the world. We have reimagined the revenue forecasting process, leveraging AI and machine learning models at an SKU level that significantly improves forecast accuracy from a 70% range to a 90% range, while at the same time cutting cycle time from weeks to minutes. For our global automotive manufacturer, we are using GenAI to gather and summarize competitive product features in real time, driving agility in their market response. For a global insurance company, where we run their end-to-end insurance claims process for household goods, we are using GenAI to collect and analyze product and pricing information to more accurately determine pricing used for claims reimbursements, leading to faster and more accurate settlements. For a digital financial institution, we are using GenAI to determine the true meaning of suspicious keywords in customer transaction notes, reducing false positive alerts for potential nefarious transactions in our KYC and AML services. For a global media and entertainment company, we are using GenAI to help customer care agents quickly resolve customer disputes with ideal responses developed by analyzing online chat data that understands customer sentiment real-time. For a global medical devices company, we equip the procurement team with a GenAI engine that provides real-time answers to questions related to contract clauses and payment terms to address vendor disputes with recommended actions. For a large Japanese technology conglomerate, we are charging and translating customer emails for rapid responses, improving customer satisfaction and sales. While still these are early days, I'm so excited that we have more than 60 specific GenAI solutions, either being tested with clients or internally. These have led to 500 plus client conversations across verticals to create the GenAI strategic roadmap for them. We believe we are uniquely positioned to build frameworks and playbooks for our clients to fine-tune large language models with client-specific data and industry domain data, given our deep understanding of the domain and the data. The other advantage we have is our historical focus on understanding end-to-end processes and delivering outcomes. This allows us to partner with our clients on deployment, change management, and adoption of these new AI solutions. All of this has quickly led to many new deal inflows embedded with GenAI, opening up new opportunities for long-term growth and margin expansion. As I said before, Every enterprise is grappling with accessing clean data and orchestrating data to the cloud to leverage AI models and large language models. We believe this will increase our total addressable market as every technology wave in the past has done. Over the next three years, we plan to invest approximately $600 million both organically and inorganically to continue to build out our AI capabilities. This will include investing in our own innovation R&D teams, client co-innovation programs, data tech and AI skills training, and creating deep expert groups, as well as acquisitions focused on data analytics and IP and frameworks in the use of data models. With that, let me turn the call over to Mike.