Genpact Limited

Good day, ladies and gentlemen. Welcome to the 2023 Third Quarter GENPACT Limited Earnings Conference Call. My name is DeeDee, 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 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 GenPAC. Please proceed.

Thank you, DeeDee. Good afternoon, everybody, and welcome to our third quarter earnings call to discuss results for the period ended September 30, 2023. We hope you had a chance to review our earnings release, which was posted to the IR section of our website, genpac.com. Speakers on today's call are Tiger T. Adarajan, our President and CEO, Mike Wiener, our Chief Financial Officer, and BK Kalra, our next CEO. Today's agenda will be as follows. Tiger will provide an overview of our results and update you on our strategic initiatives. BK will follow with a few brief introductory comments, and then Mike will walk you through our financial performance for the quarter, as well as update you on our full year 2023 outlook. Mike and Target will then 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 about the 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 recommendation of these measures to GAAP in today's earnings release, go 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 third quarter 2020 earnings call. I know you've all seen the exciting news that BK Conrad has been appointed as Gentax's next CEO. as I've announced my retirement in February of 2024. I will share more about this announcement and BK will share a few words. But first, let's review the quarter. At a high level, we saw increasing pressure in short cycle advisory and other project work in quarter three as clients remained sharply focused on large fund special deals that prioritize cost reductions. This resulted in total revenue being below our expectations. However, Bookings remain strong and are on pace to grow at least 25% in 2023. In addition, we continue to make significant progress in the use and deployment of GenAI as we move into live production environments with early demonstrated results. This is leading to many new inflows as clients prepare to embed large language models into their operations. Turning to our performance in more detail, we deliver on a constant currency basis Total revenue of $1.14 billion, up 2% year-over-year. Data Tech AI services revenue of $500 million, down 2% year-over-year. And digital operations services revenue of $636 million, up 6% year-over-year. We also delivered adjusted operating income margin of 17.2%, up 10 basis points year-over-year. And adjusted diluted earnings per share of $0.76, up 1% year-over-year. Our third quarter revenue grew less than expected. We saw ongoing pressure in short cycle projects and advisory work driven by three things. One, fewer small deals converted. Two, longer decision cycle times for those small deals. And three, lower demand for smaller tech deals in our financial services and consumer healthcare verticals. These challenges were predominantly felt in our data taking services where we design and build solutions to transform our clients' businesses. However, our recent large deal wins are ramping up on schedule. This has drive solid performance in our digital operations services, where we digitally transform and run our clients' operations. Given our year-to-date performance, lower than normal visibility into client discretionary spending, and no expectation of seeing the typical seasonal year-end lift From budget-flush spending, we are resetting our full-year 2020 revenue outlook. We now expect full-year top-line growth of approximately 2.5% year-over-year on a constant currency basis compared to our prior expectation of 5.5% to 6.5% growth. Mike will provide greater details on this updated outlook. Despite the challenging macro environment, demand for our long-term annuity-based services remains very healthy. fueled by continued robust inflows, our high-quality pipeline once again reached a record level. We believe our deep domain process and data expertise, combined with our experience building, developing, and refining our AI capabilities over the last seven years, gives us a unique competitive advantage in these times with the rise of GenAI. This has led to many new deal inflows year-to-date embedded with GenAI. We signed two new large deals during the quarter, following the 11 we signed in the first half of the year. Win rates in the period were approximately 55% above historical levels, and roughly half of our wins continue to be sole sourced. We also added 32 new logos during the quarter, a bounce back from the first half of the year. With anticipated growth in bookings for the year and ongoing expansion of our pipeline, we continue to believe that we are well positioned for accelerating growth in 2024 compared to our adjusted outlook for 2023. However, given limited visibility into our short cycle revenue, we currently do not have the same level of confidence in forecasting a return to double digit growth in 2024 as we did in our prior quarter update. We will provide a more detailed 2024 outlook during our year-end earnings call in early February. Turning to our five key strategic initiatives, we continue to make progress in all of them in quarter three. First, revenue from our priority accounts grew 6% year-over-year during the quarter and expanded to approximately 64% of total revenue. Our investments in these clients are paying off as approximately 70% of our year-to-date 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 cloud technology players as we co-innovate and create joint IP solutions. Three examples. First, we expanded our partnership with AWS, integrating their Bedrock Gen AI capabilities with our proprietary cloud-based financial grant solution. This solution has been deployed into production at two financial institutions to drive precision and efficiency in detecting, investigating, and preventing financial crime. We grew our team and certifications in Gen AI, machine learning, and data engineering for Google Cloud, and new SaaS solutions listed on the Google Cloud platform marketplace. And finally, as an elite partner of ServiceNow, we are enhancing our cloud-based joint solutions that automate procurement and sourcing, supply chain, and insurance processes, just to name a few. Third initiative, we are continuing to invest in new operating centers in tier three cities in India, where we expanded our talent base and footprint. These new hubs not only offer us cost benefits, but also access to diverse talent pools with lower attrition. Fourth, we continue to drive outcome and transaction-based commercial models, which represented 16% of our revenue in the third quarter. And finally, our recent investments in large team teams continue to generate great results both in bookings and pipeline. As expected, our attrition level for the third quarter was 25%, consistent with the first half of the year, and significantly lower than the 36% during the same period last year. Adjusting for involuntary attrition and employees with less than three months of service, our attrition rate was even lower at 21%. Let me now update you on the rapid progress we're making with GenAI. I'm more confident than ever that this is a huge opportunity for us. We have three focus areas. First, we are using Gen AI to disrupt less-federated areas for us that are wide open for new service models. For example, customer care, FP&A, sales and commercial operations. Second, we are prioritizing services where we are a recognized leader. For example, financial accounting, financial crimes and risk services, and supply chain, where Gen AI acts as a catalyst to drive a step function improvement in outcomes. And third, we are implementing GenAI internally across our own HR, training, knowledge management, and software development functions, helping to drive speed, margin improvement, and employee and user experience. We currently have more than 90 specific GenAI solutions that are undergoing rigorous testing, either with clients or our internal teams. we have begun to shift our focus from building proof of concept and pilots to implementing solutions in live production environments with about 10 either deployed or on the verge of going live. To date, we've had nearly 2,000 client conversations helping to generate Gen AI roadmaps with specific use cases and related execution parts. While I already shared the financial crimes solution deployed on Amazon Bedrock earlier in the call, let me now share two more examples that are on a rapid path to production. For a global entertainment company, we've integrated AI into mining and sentiment analysis of their customer chat data. This has led to a 40% reduction in resources for handling chat feedback, as well as a significant increase in first-time resolution by providing ideal responses to service agents to solve customers' issues. For a leading financial institution, we integrated GenAI predictive AI and machine learning models into their loan review process, resulting in a three-time increase in volume processed. This transformation is enhancing client satisfaction and driving business growth. While we are still in the early days, GenAI embedded solutions enable clients to quickly achieve outcomes. As a result, we believe it will help accelerate the trend towards greater use of alternate commercial pricing models ultimately leading to a greater decoupling of revenue growth from employee growth over the long term. Our ability to upskill our employees at scale combined with our deep domain expertise represents a competitive advantage for us as we help clients unlock the benefits of GenAI. We now have more than 90,000 team members enrolled in our AI training programs with almost 47,000 having completed various levels of certifications. We have also created an internal AI playground where our employees can experiment with multiple large language models to help drive Gen AI adoption. Currently, more than 60,000 employees are using this platform. Our progress was recently recognized by the leading industry analyst firm, HFS, where we earned the highest ranking in their inaugural Generative Enterprise Services Horizon Report. Now, let me come back to the CEO succession plan we announced today. It has been an incredible journey for me leading Genpak over the last 12 plus years. The world around us has changed dramatically in that time, and Genpak has successfully transformed along with it. I have tremendous personal and professional respect for BK. He has been a true partner for me for years and helped shape and execute the various pivots of the company. He knows our business, our clients, and our teams better than anyone and embodies the very best of who we are at Genpak. His holistic and hands-on approach to strategic and operational leadership will be a guiding force as he becomes our next CEO. Equally importantly, we've built a great leadership team over the years that will make the whole transition seamless. As for me, I plan to stay actively involved as a member of the board and will, of course, work very closely with PK to ensure a smooth and successful transition. With that, I'd like to turn it over to PK for a few additional remarks.