Good day, ladies and gentlemen. Welcome to the 2020 Second Quarter Genpact Limited Earnings Conference Call. My name is Victor, 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 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 Genpact’s website. I would now like to turn the call over to Roger Sachs, Head of Investor Relations at Genpact. Please proceed.

Thank you, Victor, and good afternoon, everybody, and welcome to Genpact’s second quarter earnings call to discuss our results for the quarter ended June 30, 2020. We hope you had a chance to review our earnings release, which was posted to the IR section of our website, genpact.com. Speakers on today’s call are Tiger Tyagarajan, our President and CEO; and Ed Fitzpatrick, 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. Ed will then walk you through our financial performance for the quarter, as well as provide our new outlook for 2020. Tiger will then come back for some closing comments, 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. 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. In addition, 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 those measures to GAAP 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 second quarter earnings call. Our second quarter results were much stronger than expected in the light of the unprecedented environment the world is facing. Our performance was driven by incredibly strong execution by our teams on many fronts as well as the resilience of our business model and the strategic choices we’ve made over many years. The four biggest drivers of these results are: first, reaching 99% plus work enablement for our global delivery teams across both intelligent operations and transformation services. Second, continuing to win new client relationships in both intelligent operations and transformation services through global lockdowns. Third, rapidly bringing new solutions to market, leveraging both existing and new capabilities as we help our clients pivot their business models through accelerate digital transformation. And forth, swiftly and decisively, optimizing our operating and SG&A cost base, while continuing to invest in new areas relevant for our clients and the world of the future. The amazing dedication of our more than 96,000 person global team, as we transitioned to remote virtual work and the continued high quality delivery of services to our clients makes me very proud and have strengthened our trusted advisor position with boards and C-suites. Specifically during the second quarter, total revenue was $900 million, up 3% on a constant currency basis. Global Client revenue grew 4% on a constant currency basis. We also deliver adjusted operating income margin of 16.2%, up 80 basis points year-over-year and adjusted diluted earnings per share of $0.52, up 6% year-over-year. The first half of this year has more than amply demonstrated the strength and resilience of our strategic choices and industry verticals and the predominantly non-discretionary nature of the solutions and services we provide…

Thank you, Tiger, and good afternoon, everyone. Today I will review our second quarter results as well as provide our current full year financial outlook for 2020. Beginning with our second quarter results. Total revenue for the second quarter was $900 million, up 2% year-over-year or 3% on a constant currency basis, led by better than expected performance in both our global client and GE businesses. Global client revenue, which represented 87% of total revenue increased 3% year-over-year or 4% on a constant currency basis ahead of our expectations. Performance was driven by improved revenue coverage related to our transition to our remote working model and stronger than anticipated client demand for transformation services. As Tiger mentioned earlier, overall revenue coverage improved as we received additional approvals in our banking and capital markets business to work-from-home and we were able to allow certain employees around the globe to return to the office using a disciplined and measured approach. During the quarter, we continued to expand the size of our global client relationships. For the 12 month period ended June 30, 2020, we grew the number of global client relationships with annual revenues over 5 million from 121 to 132. This include clients with more than $50 million in annual revenue growing from 8 to 11. GE revenue declined 2% year-over-year. Adjusted operating income margin was 16.2% compared to 15.4% during the same period last year, largely driven by better than expected revenue growth. Coupled with the accelerated cost containment initiatives we drove during the quarter. The cost contain initiatives included lower discretionary spending, targeted reductions of transmission services headcount, which improved utilization levels. Then you do SG&A headcount and related spending, which is now more aligned with our new revenue level expectations. Lower travel and favorable foreign exchange also contributed…

Thank you, Ed. We are in an industry that continues to be under penetrated. The need for our clients to drive change with speed has become greater than ever. We are often the advisor and catalyst for transformation journeys with our clients and can bring them the capabilities needed to lead them through these changes. The strategic choices we have made in the industry verticals and service lines we focus have served us well. Our investments in digital, analytics and consulting, including the recent acquisition of Rightpoint, allow us to lead our clients through digital transformation journeys at a time when digital is front and center. Our strong execution has reinforced our credibility as a trusted advisor to our clients. The flexibility and agility with which we've addressed our cost base allows us to double down on our investments in cloud and digital commerce, which are increasingly more critical for our clients. We continue to strategically recruit talent to support these areas. The strength of our balance sheet and cash flow allows us to continue to pursue strategic acquisitions to bolster these and other capabilities. If there's one thing the world have shown us, it's that ecosystems win. Along with our clients we realize that deep and varied partnerships provide speed and expertise in this fast paced ever changing environment. And we are constantly deepening our ecosystem of partners. Some of our key relationships include hyperscaler cloud providers like Amazon Web Services, Google Cloud Platforms, and Microsoft Azure. Specific cloud based solution providers like Anaplan, BlackLine, HighRadius and Kinaxis and strategic go-to-market partners like Deloitte, a partnership that we just announced this week. The strength of our inflows and pipeline shows that our strategy and execution is working. We believe several of our recent wins across our chosen verticals demonstrate…

Great. Thank you, Tiger. We would like now to open the call for your questions. Victor, can you please give the instructions.

[Operator Instructions] And our first question will come to the line of Ashwin Shirvaikar from Citi. You may begin.

Thank you. Hi, Tiger. Hi, Ed. Good to hear from both of you.

Thank you, Ashwin.

Hey, pretty good solid quarter compared to -- definitely compared to expectations. So congratulations on that.

Thank you.

And that's kind of where my first question is, is if you could break out the delta, because you guys spoke almost halfway through the quarter and such a major positive surprise is generally speaking unusual for a company such as Genpact, which has high visibility into outcomes. So if we can break out the impact of incremental work-from-home, the separate -- the impact of what seemed like better transformation services and other factors that would help.

Yes, Ashwin. Thank you. A good question. So ours is a high visibility business, there's no question. We've always said that. We -- if you remember, we stop guidance when we spoke at the end of the first quarter. And the reason for that was there was a lot of changes happening in the environment and we wanted to pause and see how that would transpire. Our expectations on work-from-home approvals from our banking clients was faster than we had expected. If you remember at that time, we had talked about getting approvals from some of our banking clients, we got that done, which helped us achieve the 99% plus of our revenue coverage from work-from-home. So that was one big contributor to beating our own expectations. The second is transmission services. If you remember, we talked about new solutions that we have taken to market pulling together a set of capabilities that we've been building over five years, very relevant to today's market around cash, working capital fraud, supply chain, analytics, all of those really got traction in the marketplace. And third, I would say our delivery, not just in moving to work-from-home, but continued productivity and innovation has really delighted our clients. We've got much closer to the C suite. As a result, we've been able to talk about some new transmission service journeys. Some of them have converted into subsequent inflows into our pipeline. So I would say all of that turned out to be much better than our expectations based on visibility at that time, which if you remember, I said was not very good.

Right. No, I understand that. I was hoping you could maybe quantify the impact of each of these key pieces. And then my second question is with regards to just, is your traction continuing into July conversations and so on, so forth because it seems to me that perhaps the outlook that you provided for Q3, Q4 for at least at the lower end seems quite conservative. I think this -- some comment on that would be great.

Maybe I will cover a little bit -- maybe just provide a little more color on each of those items. I would say the first thing that Tiger talked about, better coverage on work-from-home was probably the largest followed by transformation services, almost pretty close. And then actually pretty -- it wasn't one thing or another, there were multiple along and those two were the biggest, a bit better in intelligent operations as well, right? Tiger talk about execution, so it was all of them. The biggest one, I think we talked about the inability to build on a work-from-home was about $30 million, roughly. We probably cut that in half, something orders of that magnitude to give you some quantification in TA, and then TS followed that followed by the intelligent operations. So just to put some numbers to what we talked to our last quarter and how we came through. And then if the second -- the question that you just asked, remind me what that was again.

Yes. That it seems as though you're bringing considerable momentum into Q3. So at the lower end of your suggested outlook, Q3, Q4 being sequential seems quite conservative. And what do you think of that statement first, and how would you respond, I guess?

I'll start. Tiger, you can add in. I think, I mean, this is the environment that we're in, right? It's still -- even though we're getting guidance for the full year, there's still uncertainty. I'm not sure, right? Every day you hear about another state, that's where the cases are going up. So I think at that level of uncertainty that it's just an abundance of caution of, hey, look, we got to see how this plays out before we would feel better about pushing the envelope. I think flattish for the next couple of quarters is prudent. But we’ve also said, hey, look, we ought to be able to see things go well, sequential improvement each quarter Q3 and Q4. So I think that's the prudent view. Tiger, anymore color to add? I mean, the good news is, as Tiger mentioned, the inflows are good. They're coming, the pipeline is growing. That's good. Now we didn't get the deals over the hurdle. But until we get more certainty into the environment, I think our guidance is appropriate. Tiger?

Yes, there's nothing -- Ashwin, there's nothing more to read into that then saying, that's the environment we are in. It's the visibility and uncertainty can change information that we don't know today. And therefore in this environment to be prudent is the right thing to do at the lower end. Very clearly. If everything remains unchanged, you are right that lower end, we should be able to beat, which is why Ed talked about the quarter two revenue number being at the low end of this year. And from here on it'll be higher. But we just think that the environment demands us to be conservative and prudent.

That’s perfectly understandable because there's a lot of good news here. Thank you.

Yes.

Thank you, Ashwin.

Ashwin, mathematically as well, you also gave a little color on GC, GC and GE. We do expect based upon productivity and other to be lower in the second half of the year. So that's another driver of the overall number, just for your model.

Thank you. Our next question will come from the line of Tien Tsin Huang from JPMorgan. You may begin.

Hi. Thanks. My cell service is so good. So I'm going to ask two questions together, if you don't mind. Just the first one on -- and the quarter -- the results were great, by the way.

Thank you.

Just on the sale cycles seem a little bit longer, as you suggested. So I'm curious how much of that is also just you're going after maybe larger enterprises, as well as maybe clients that are newer to outsourcing. And then my follow-up was on the margin. Just -- I heard the outlook obviously in the R&D, just want to make sure is that a lever that you can pull, as you explained to Ashwin, if things do get a little bit tougher, should we -- can we infer that that's a lever that would be available to you to spend a little bit less to still preserve margin. Just trying to understand the dynamics here of how revenue shapes up and what you still want to deliver on margins in the two scenarios of good versus bad. If that makes sense.

Yes, I know. Both good questions, Tien. So let me start the first one. In a way it is a tale of two cities. When you talk about the cycle times, et cetera, there's a whole set of large deals, which by the very nature of being complex and includes very clearly digital front end center in all of those transformation journeys. It doesn't matter which vertical you're talking about. It doesn't matter which service you're talking about. Supply chain to insurance operations to banking, KYC, AML, or finance and accounting. By definition, therefore they tend to take longer. I don't think it has too much to do with new clients, new logos. I think the journey has been well proven by so many others that even if it's a new client, by the way, there are many who got motivated to undertake these journeys now, I think they can turn to the others look at it and jump onto it. So I don't think that's the issue. The issue is more -- it takes time to pull all this together. And on top of that, we have work-from-home, we’ve virtual visits. So all of that takes a little bit of time. Plus there was a period of, I would say, a 90 to 120 days when all that people cared about was moving themselves to a bunch of work-from-home environment. And if we were serving them or someone else was serving them, we also had to do the same thing and all of that has to settle down. The reason I called it a tale of two cities is because there are quite a few situations where we are seeing speed that we've never seen before. They don't tend to be large deals, they tend to be reasonable size deals. They certainly are transmission services deals for sure. In many cases, they are analytics deals. Analytics have had a very strong run in the second quarter on top of a strong run in the first quarter. And those are probably faster than it's ever been. And that's a reflection of the way decisions are being taken, much foster decision cycle times, much more agile behavior from our clients. And your second question, I think, Tien, the best way to answer the question is our performance in the second quarter. The way the team came together to pull the right levers, to readjust our cost base for the new normal that we think this year is, tells us that we can do it and we know how to do it. So as we think about reinvesting in some of the new offerings that we are building, particularly with the two that we called out cloud and digital commerce, adjusting that to make sure that the margin is regulated to the revenue and top line performance, I think is a given. Tien, did we lose you?

Thank you. Our next question will come from the line of Keith Bachman from BMO. You may begin.

Hi, Tiger and Ed. I wanted to follow-up on that last point and take it from perhaps the other side of the lens. Could you talk, Tiger, a little bit about how you see pipeline and signings growing. And any specifics on characterization about how quickly they're growing now on a year-over-year basis? And the reason I wanted to ask the question as you did take some headcount cuts during the quarter to reflect, as you described the new normal, but do you have concerns about as you flex up that you'll have the ability to meet those needs. And then I have a follow-up for Ed, specifically if I could.

Yes. Keith, I will get straight to that part of the question that you have. We don't have concerns about flexing. As we see more bookings, volumes, deals and ramp ups come through, we absolutely have no concerns on that. But kind of ramp up, you're talking about if that were to happen and it's a market were the surprise us with even more than we had expected. It would still put demands on us, lesser than the demand when we’ve had high growth rates just last year, for example. And we've ramped up in sales, digital, analytics, consulting, domain across the globe. So we have no concerns on that. Part of the actions that we took were based on utilization across a range of our transmission services group, as well as intelligent operations and our SG&A functions. And those were actions based on utilization in order to provide us the opportunity to actually go and hire fresh talent in areas that we wanted to continue to hire and add new capabilities in. So not concerned at all about both the ability to actually ramp up as we see more of that volume come through, as well as I don't think we've lost and let go of people that we didn't want to let go. In fact, I think we've created a pretty significant excitement in the company over the last five months. The way we've navigated this, the way the team has come together to serve the client, the response from the client and then what it's done to our pipeline and our inflows and our client conversations.

Okay. And just, Tiger to flush that out, though, could you talk about, is pipeline or signings growing low single digit, mid single digits? Are you in the double digits. And I just wanted to follow-up from my question because it relates to Ed. Ed, you did talk about you aspire to get back to for global clients in particular, the low teens, I think was the context. And you talked about to '21. Was the comment there that you think you'll get back there into '21? I wasn't sure what the conclusion for any kind of time horizon based on the pipeline and signings that you see now.

Yes, Keith, sort of our business is a long cycle business by definition. Therefore, if we have a couple of quarters of delayed bookings, because signings are not happening because people are basically hunkering down to deliver work-from-home, which is exactly what happened through the whole of Q2 and latter part, the last 15 days of Q1. And in some parts of our client base and on geographies continues to be the case. So then one would expect that to translate to lower bookings in 2020, than last year, which is what Ed called out. And that then translates to a tempered revenue growth next year versus just bouncing back. In our business, you wouldn't bounce back. What would start bouncing back if everything else remains stable is bookings would start coming back, but then that translates to revenue subsequently. So the way I described it is that we would expect to get back to normalized Global Client growth rate as we traverse 2031. So the way I would translate that is by the time we get to the end of 2021, our Global Client growth rate should come back to normalized growth rates.

Makes perfect sense. Many thanks for the response.

Thank you, Keith.

Thanks, Keith.

[Operator Instructions] Our next question comes from the line of Bryan Bergin from Cowen. You may begin.

Hi guys. Good afternoon.

Hey, Bryan.

So just on that last -- hey, on that last point, is the -- can you remind us what typically is the timeframe over which bookings are converting to revenue? I'm curious if the pace of that conversion is extended to, or if it's really just the injection and signings rate? And then also just as you're seeing the pipeline have greater injection, are you seeing new types of deals that you can call out?

Yes, so the conversion of bookings to revenue obviously has so many factors associated with that whatever I'm going to tell you is going to be a normalized, averaged out kind of trajectory. But you can expect a typical sales cycle for a large deal to be of at the order of magnitude of 9 months, then you sign the deal. And then you ramp and that ramp could be 9, 12 month, 18 month ramp. So by the time you get to what one would call steady state revenue off that booking, you could be in your 18 month post getting that deal signed. That's a classic global large deal environment that you're in. Now, there are lots of differences that happen if you do a rebadged deal where you carve out an operations and take it over, that could be lumpy leaving those aside. That's the way it normally works.

So more impact on the book -- more impact on the bookings timing as opposed to post book as Tiger saying, that's kind of what we typically expect. There's no normal. If there was a range on average, there's no normal, depending on the size of the deal, the type of deal, et cetera, but what's taking longer now of getting the deals through and to execution. And that's why we think bookings will be impacted in comparison to last year. That was the common question I think.

On your question on the type of deal that we are seeing, I wouldn't say that type is different from a service perspective, because we already focused on a specific set of industry verticals, a specific set of services that we’ve very deep capabilities on. What I would say is different is the importance of in that journey, the importance of digital, which one would argue over the last three or four years has gone up significantly has gone up many notches just in the last four months. The importance of integrating and making those services capable of dealing with online versus just offline, depending on the industry, if it's a consumer goods company, if it's a retail, if it's a life sciences company. If it's a manufacturing company that is pivoting from distribution to online distribution in a B2B world, and let's assume 3% of their revenue used to be B2B. And now they’re thinking about 25% of that being B2B. That’s a very different environment for their supply chain for their order management, for their finance, for their out to cash. And that changes the nature of the deal, the complexity of the deal and the evaluation that deal goes through.

Okay. That's helpful. And then just on transformation services, are you expecting to maintain the level of growth you saw in 2Q within that kind of second half outlook that you have?

I think so broadly at a broad level, the answer is yes. Because we have seen a demand for the type of services and the type of change that is being looked for with rapid payback, it's pretty strong. Think about it. A lot of our clients in almost every industry are looking at two things and they're interconnected. One, they're looking at sometimes a smaller top line, a lower growth. And in that environment, they have to find a way to run the company more efficiently and save cost. We are a big player in that journey and in doing so, actually bringing all technologies in order to run it in a new modern way. At the same time, they actually want to undertake a broader digital transformation journey to leverage the cloud, to leverage virtualization, they're going to use real time analytics and to be able to pivot to online. And all of that in the context of bringing better experience when everyone is virtual, that requires dollars. So you undertake a cost journey in order to undertake a digital transformation journey, to pivot to a new business model. We play in both cases. And that allows us to therefore sometimes enter with one and pivot to the other.

Okay. So that would infer you're not seeing anything that was pulled forward in transformation services or anything kind of one-time surge related in that?

No, not at all. Not at the moment.

Okay, great. Thank you.

Thank you.

[Operator Instructions] Our next question comes from the line of Justin Donati from Wells Fargo. You may begin.

Hi, thanks for taking my questions this evening. In your prepared remarks, you talked about banking and capital markets, some of the pressure there alleviating. So looking here in Q3 has that business stabilized? And then can you also provide a little bit more color on your consumer retail and healthcare business as well? Thank you.

Yes. The reference to banking and capital markets was primarily with reference to transition to work-from-home where all of the industry verticals that we serve. No surprise that a number of clients in the banking vertical took time to give us the approval, given some of the sensitive data that we manage and the regulatory environment to allow us to move that particular portion of the work to a work-from-home environment and set it up in a manner where all of us were comfortable. And therefore by the time we got to the end of the second quarter, we -- it allowed the whole company to get to that 99% rate. And therefore that positions us well for stability in the Q3, Q4 environment. What I would say we are seeing in the banking capital markets where is a continued push for movement to the cloud, a continued push for the ability to drive cost out in an environment where clearly the banks are challenged with return on equity as a big requirement, looking into the future. At the same time, it throws up opportunities, for example, for collections in the consumer banking world. And we talked about that with one of the clients that I've referred to. So we expect the banking, capital markets verticals to continue to be lower growth than some of the other verticals. And you refer to the consumer goods, retail, life sciences, vertical, we see that to be a high growth vertical as we continue to finish the balance of the year. A number of those clients are pivoting to online, very aggressively. A number of them are pivoting to finding a way to deal with a very volatile demand and supply environment. Our capabilities in supply chain to top up our capabilities in finance and accounting have been really, really welcomed by clients at this point in time. And then our traction that they're getting an analytics in supply chain and finance and auto management as they pivot to real time analytics to deal with their environment. And then when we talk about all the changes happening in life sciences and healthcare. I think it positions us really well for continuing to be very strong in that vertical.

Okay. And just to be clear, so does that assume in your guidance that the financial services vertical is at least stable in Q3?

Yes, I would distinguish -- within financial services, the banking vertical would be stable. The insurance vertical has had a great -- we just started financial services vertical, but we run it separately. That is -- it had a very good first half and we expect that to continue into the second half.

I appreciate the color. Thank you.

Thank you.

And our next question comes from the line of Robbie Bamberger from Baird. You may begin.

Yes. Thanks. Great job this quarter.

Thanks, Robbie.

Thanks, Robbie.

Yes. So last quarter you noted 85% of your portfolio is essentially recurring and not really exposed to the hardest hit areas of COVID. And I guess, based on the positive results, over the past few months, have you seen this figure increase, I guess, as a percentage of revenue?

Robbie, you’re a little bit muffled. But if I understood your question, right what I thought you were referring to was last year we -- last quarter we said that about 15% of our revenue is in industry verticals that have been adversely hit by COVID-19. And our expectation is that that's our continued view. These are verticals that all of us know. This is travel, hospitality, aviation, energy -- some portions of automotive, and all of those put together account for about at the highest level probably shy of 15% of our total book [ph].

Okay. Yes, that's great. Yes. And then also just a question on Rightpoint. What was the revenue from Rightpoint this quarter, and I guess you expect growth to be better or worse than the overall business with Rightpoint? And do you still expect, I guess, 2.5% contribution to revenue growth this year?

Yes that remain relatively constant because the Rightpoint business impacted relatively in line with the rest of the business. So that 2.5% still a good number.

Okay, perfect. And then I guess one more. Is the mix of existing client revenue, I guess, versus new client revenue in terms of growth pretty normal, or does this environment, I guess, change that dynamic at all?

From a revenue perspective, it's pretty normal because it takes time for our revenue mix to change given the long cycle nature of the business. However, I think I would say we probably have in every one of our verticals quite a few new clients and new logos that have entered in. And it'd be interesting as they travel through the pipeline and ultimately take their decisions, those would be additions to our portfolio, which is very exciting. Because typically when we establish a relationship with a large global enterprise in any of these verticals, that ends up being a multiyear journey as we grow that relationship over time. So revenue mix hasn't changed. I would say our inflows and pipeline does have some very interesting new logos.

I've looked at this since I joined. I've been saying two-thirds from existing logos, one-third from new. I don't know that it's changed, but when we -- when I look next, I'll come back and advise. But I think it's pretty consistent.

Perfect. Thank you.

Thank you.

Thank you. And I'm not showing any further questions at this time. I'll turn the call back over to Roger for any closing remarks.

Thank you, Victor, and thanks everybody for joining. We look forward to speaking to you again next quarter.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.