Good day, ladies and gentlemen. Welcome to the 2021 First Quarter Genpact Limited Earnings Conference Call. My name is RJ 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 Genpact's Web site. I would now like to turn the call over to Roger Sachs, Head of Investor Relations at Genpact. Please proceed.

Thank you, RJ, and good afternoon, everybody, and welcome to Genpact's call to discuss our results for the first quarter ended March 31, 2021. 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 on our strategic initiatives. Ed will then walk you through our financial performance for the quarter, as well as provide some thoughts on our outlook for 2021. Tiger will then come back for some closing comments. Then we will take your questions. We expect our 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 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 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 first quarter 2021 earnings call. We had a strong start to the year with first quarter revenue, adjusted operating income margin, adjusted diluted EPS and cash flow all exceeding our expectations. I'm pleased with the continued momentum we are seeing across our business. The growing need of enterprises to leverage digital technologies and cloud-based analytics is creating a high demand for our solutions. We are increasingly engaging with clients on large-scale holistic transformations to reimagine their business models and redesign their operations. These operations straddle multiple functions and buying centers, opening new parts of our expanding addressable market. Quickly covering our first quarter 2021 results. We delivered total revenue of $946 million, up 1% on a constant currency basis; global client revenue of $853 million, up 5% on a constant currency basis; adjusted operating income margin of 17.2%, expanding 250 basis points year-over-year; and adjusted diluted earnings per share of $0.59, up 11% year-over-year. Before I get into the details, I want to provide an update on the COVID-19 situation in India where we have significant operations. As we've said from the start of the pandemic, all our decisions are centered on two key pillars; first, the health, safety and well-being of our global employees; and second, maintaining continuity of services for our clients. While we had a very small in-office presence across the two regions, the majority of those employees are now back to working from home. I'm extremely proud of the passion and dedication of our teams to support their colleagues in the face of this crisis. They continue to work tirelessly to deliver to our clients, while simultaneously doing everything they can to support our impacted colleagues and their families. We also…

Thank you, Tiger and good afternoon everyone. Today, I'll review our first quarter results and provide our current thinking regarding our full year 2021 financial outlook. Total revenue was $946 million, up 2.5% year-over-year or 1% on a constant currency basis. This growth was higher than we anticipated driven by better-than-expected performance in our Global Client businesses. Global Client revenue, which represents 90% of total revenue increased 6% year-over-year or 5% on a constant currency basis including an approximate one point contribution from revenue related to certain divested GE businesses that is now included in Global Client revenue as of January 1st, 2021. Excluding this revenue, Global Client revenue would have increased 5% year-over-year or 4% on a constant currency basis ahead of our expectations largely driven by better transformation services performance led by strong analytics growth. GE revenue declined 24% year-over-year due to productivity commitments, the macroeconomic impact on GE's businesses and the impact from certain divested businesses now included in Global Client revenue. Excluding the effect of the revenues related to divested businesses, GE revenue declined 16% during the quarter. I will cover the full year outlook later on. But on an apples-to-apples basis, there is no change to our prior full year outlook for GE revenue. Adjusted operating income margin was 17.2%, up 250 basis points from the first quarter last year. The year-over-year improvement was largely due to higher gross margin, lower-than-expected travel expenses reflecting the impact from COVID-19 and greater operating leverage. As a reminder during the first quarter of 2020, our adjusted operating income margin was impacted by lower utilization from limits placed on our ability to work-from-home that were subsequently resolved as well as charges associated with reduced valuation of our India retirement fund. Gross margin in the quarter was 36.5% compared to…

Thank you, Ed. We've had a great start to the year. Our culture of embracing change, strengthen process, and relentless focus on client outcomes differentiates us in the market. As we go into the future, we will drive value for our clients leveraging digital and analytics for predictive insights. Given the combination of our analytics capabilities and our deep domain expertise, we are well-positioned to deliver on our long-term growth trajectory. One of our pillars of success has been the sustained investment in our employees' learning and development on rapidly evolving skills. Coupled with our online learning platform, Genome, we leveraged our talent redeployment platform, Talent Match to identify, reskill, and redeploy another 2,000 team members for new roles during the quarter, resulting in better utilization and talent retention. For example, we recently launched a proprietary data and analytics certification program available to all our team members to develop the expertise needed to generate critical insights from our vast operating data sets. The response to this program has been overwhelming with nearly one-third of our global workforce currently enrolled demonstrating the desire and dedication of our people to continuously learn, which we believe contributes to our competitive advantage. Our robust hiring, onboarding, and reskilling programs have allowed us to continue to recruit top talent to join our workforce and capture the many long-term opportunities ahead of us. In the last 12 months, we have added more than 20,000 colleagues to our global team and recently crossed the threshold of 100,000 employees globally. We are deeply committed to investing in ESG initiatives and will provide regular updates on our efforts and progress. We've always had an unwavering commitment to drive sustainability with initiatives around diversity and inclusion, climate impact, supporting our communities, and transparent governance, all of which enable us to…

Thank you, Tiger. We'd now like to open up our call for your questions. RJ, can I ask you to please provide the instructions?

[Operator Instructions] Your first question comes from the line of Bryan Bergin from Cowen. Your line is open.

Hi. Good afternoon. Thank you.

Hi, Bryan.

Hi. I wanted to just start on the outlook factors. So, just how do we translate the strong 1Q results here that came in above plan, but the holding of the outlook? Is it just the fact that it's early stage of the year? Are you building in pandemic-related items within India for operations? Any pull-forwards we need to be aware of? Can you just help us marry those two?

I'm just going to say, Bryan you nailed it in your first comment. It's just the first quarter, really pleased with the strength of the first quarter. And therefore, all the narrative around feel good about the full year. But it's only one quarter. We haven't built in anything on the impact of COVID-19 in India. Our operations, our delivery to clients, the partnership with clients, in spite of obviously increased absenteeism driven by both COVID-19 in our population as well as the impact on families, obviously means that we work very closely with our clients to continue to deliver our services. So, we haven't had to build in anything on that impact into our outlook. It's just that it's just one quarter.

Okay. And then, you heard the pipeline commentary at record levels here. Can you talk about decision-making and also deal ramp timing? Have you seen that change versus three months ago?

No, Bryan. It seems to be on track both in terms of the speed at which decision-making is happening and the expected ramp and the time for ramp run. Have to take into account the fact that these are often -- particularly, the larger deals are complex deals clearly multi-geography, but also multi-buy center with connected services. I talked about finance and accounting connected to supply chain, and sometimes connected to sales operations. And then, you do that kind of a connected large deal that takes time to ramp up. It's got nothing to do with the pandemic.

It’s okay. Thank you.

Thanks, Bryan.

Your next question comes from the line of Mayank Tandon from Needham. Your line is open.

Thank you. Good evening. Hi, Tiger, Ed and Roger, congrats on the quarter.

Thank you, Mayank.

I wanted to start with just a little bit more color on the revenue momentum that you're seeing. I don't have your data sheet in front of me. So, just would love to get some perspective on which verticals outperformed your expectations. Are you seeing any soft spots within that vertical portfolio? So any more color on the revenue breakdown that you're seeing across your verticals and regions. Thank you.

So, I'll kick it off, and then, Ed can add to it. I'd like to -- on our prepared remarks Mayank, we're seeing pretty pervasive good growth performance across all our verticals other than banking capital markets, which I'll talk about separately, but all our verticals other than banking capital markets. In fact, consumables retail, life sciences and health care and high tech, all double-digit. And then when it comes to banking capital markets, we saw a decline versus last year first quarter. But that was as we had expected. Because if you remember, last quarter we had said that, one of our banking capital markets clients in the asset management business was restructuring, resizing their entire business, as well as therefore our contract. And we have planned for this. As we entered the quarter, we knew that's exactly what is going to happen and it got executed exactly the way we had planned. What we are seeing in the banking capital markets business is an increased inflow into a new pipeline. Pipeline is growing very nicely. So as we finish the year, we expect banking capital markets to be actually very strong. Ed, do you want to add to that?

I think you hit it Tiger. I think consumer goods life science is growing continuing to grow at a fast clip, which is great, high tech as well within HMS growing a nice clip. Just in general, pleased with all the verticals barring just the one that Tiger mentioned. So we feel really good about the comprehensive nature of the growth across the board.

Got it. And then just as a quick follow-up. Ed, maybe on margins just given the strong outperformance in the first quarter, what are some of the puts and takes that are going to weigh in margins over the next three quarters to drive that 16% level that you mentioned? One would think given the strong start to the year, you might be able to actually outperform that. So just if you could call out some of the various factors that might weigh in the margins that would be helpful. Thank you.

And I'll touch on the full year expectation or thoughts. I think Tiger said it. We're really happy that we got out of the gate the way we did. That's great. We feel better about the full year. So that's a nice place to start. In terms of the first year better than expected – first quarter, sorry, better than expected. We mentioned Transformation Services, which is better. And analytics within Transformation Services, really higher-level services at a nice margin clip. So mix was a piece of it and that's good. Can that continue? Sure, but do we expect it to continue for the rest of the balance of the year? We thought not appropriate at this point. So want to see how that plays itself out. And then other things are going to come back in. We're going to continue to invest. We're going to invest – travel will come back. It looks like at a slower clip than everybody is thinking, particularly with what's happening in the world. But I do think we will be ramping up R&D. We'll be ramping up, selling and marketing and investments for the balance of the year. So mix a piece of it – early on in the year is another piece of it. And then some of the investments we're going to ramp up for the balance of the year explains the rest. Tiger, anything else to add?

No. No I think you hit it. That was good, yes.

Great. Thank you so much.

Thanks, Mayank.

Your next question comes from the line of Tien-Tsin Huang from JPMorgan. Your line is open.

Hey, thanks so much. I hope everyone is safe at the firm out of India. I wanted to ask on that with – I think Tiger, you mentioned, there's some absenteeism but you're not seeing any impact on operations yet. Is that impacting deal flow as well as folks are trying to maybe see how things play out from a delivery perspective, or do you have contingency in place to deliver from other locations in case things get worse God forbid of course?

No, Tien-Tsin thank you very much for your sentiments. Really appreciate it. I'll start off by saying that, absenteeism is obviously higher than typical absenteeism driven by regular leave and vacation and all of that. There are a few things that we need to keep in mind. One, our delivery footprint in India is very nicely distributed between the Delhi, Gurgaon National Capital Region, Bangalore, Hyderabad, Calcutta, Jaipur, Bombay, Pune. And what that distribution does in the context of the current pandemic situation in India is that, it's not at the same time all cities ramping up in absenteeism in the COVID-19 situation on the ground. And as it rolls through city by city, we have been able to deal with the ability to move volume around a little bit across those cities to bring our European centers and our US centers into play, because our global delivery footprint compared to about seven, eight years back is nicely balanced, really well balanced. And of course, I think it will be fair to say, that our clients have been unbelievably supportive in the way they have worked with our teams, reprioritize one of the important SLAs, because our objective here as I said to balance and make sure that the safety and health of our employees and their families are fully taken care of while continuing services that we have to deliver. So, so far really feel good. On new business and transitions, we have actually transition going on as we speak. I haven't seen any impact and we don't expect to see any impact as long as we continue our services which at the moment we are confident that we will be able to.

Okay. Now, I am glad to hear. Thank you, Tiger.

Thanks, Tien-Tsin.

Your next question comes from the line of Dave Koning from Baird. Your line is open.

Yes. Hi guys, nice job.

Thank you, Dave.

And I guess just a couple. First of all, gross margins were really strong, up 200 bps this quarter. Last quarter was really good too. The way you guided, you could basically have flat year-over-year gross margins for the rest of the year and hit your guidance. Is there any cadence, you're thinking of? Like will Q2 still be up year-over-year and Q3 and Q4 down year-over-year? Just think of all three of the last quarters being pretty flattish year-over-year. And maybe, I think you kind of reviewed why but maybe review through that a little bit again.

Yes. If we hit 36 points of gross margin for the balance of the year, which is kind of what we guided for the full year, gross margins will be just above 36%, which Tiger and I both think that we ought to be able to drive 36% and hopefully better. But again, we're early on so we're not going to get ahead of ourselves. So, we're just assuming that the mix isn't quite as favorable that we do have some expenses that do start to ramp up a little bit, including travel, some of that including cost of revenue. So, we'll see how it plays out. But the first quarter, the favorable mix, a bit lower spending, and then just kind of being earlier on in the year, not wanting to get ahead of ourselves is the way we're thinking about it Dave.

And Dave, the one other thing, I would add is, Transformation Services was one of the components of our business in the first quarter that came in very strong. And within that analytics, came in very strong. And therefore, utilization in Transformation Services and Analytics was very strong. All of that helped both gross margin, as well as adjusted operating income margin. And we think that that is something that we are very focused on because, clearly our clients are very focused on leveraging data, leveraging the cloud and leveraging data on the cloud in order to drive insights and be much more nimble and agile in the way they take decisions to run their business and operations, which is very different from the way it was just two or three years back. And all of that actually augurs very well for long-term gross margin and adjusted operating income margin in our business.

Yes. Got you. Thanks for that. And then, maybe secondly, just as a reminder, I know you did the acquisition in Q1, I think Enquero. Was that in the original guidance? And maybe give or take, how big -- I mean, it looked like a pretty big acquisition, you paid $200 million something for it. How much revenue give or take this year?

We said, it adds about 200 basis points of growth in the year, a little bit less than Rightpoint was adding last year.

Yes, it was -- yes sorry.

It was included. Yes.

It was included in our guidance, because we closed the acquisition on the 31st of December of 2020, the last day of the year.

And no change, no change in the outlook related to that acquisition?

Okay. Great. Thanks guys. Good job.

Thank you, Dave.

Thanks, Dave.

Your next question comes from the line of Maggie Nolan from William Blair. Your line is open.

Thanks. Nice quarter. I wanted to follow up on some of the business continuity question. When you do have to shift work to other geographies, are you able to share any incremental costs with clients, just given that this is such a unique environment that is happening in right now?

So, actually Maggie, when we shift work to let's take Bucharest, which is one of our larger European centers, what we are doing is, leveraging our existing teams. We have a pretty significant presence in our European operations in Bucharest, in Krakow, in Cataloochee, and in a number of other locations. And the kind of work that they do, is the kind of work that -- with some cross-training they're able to absorb. One of the things that our teams did, which I'm really proud of is systematically in the last two quarters of 2020 they went down the path of cross-training people, because they said, if something like the current situation in India were to happen, how do you have backups for individuals are very different from the situation we were in last year where all we wanted to do, which is a mammoth exercise is move from work in office to work from home everyone. Here it is who is the backup for John? Who's the backup for Mary? Who's the backup for this critical resource? And no, so it's actually not necessarily incremental costs. It's just that people have to work longer. People are therefore have to be paid extra, incentives, over time. And we do all of that. But remember clients are going above and beyond in their partnership with us, so it's actually not about -- in this situation it's not about who pays for what. It's making sure that the services get delivered. And I think our partnerships are really shining through at this time.

Got it. Thank you. And then great to see the strength in TS and analytics continuing the trend of strength that we've seen. What is your ability to turn any kind of project-based analytics work into longer-term relationships and recurring revenue streams?

So Maggie, let's start with the Transformation Services at the higher level. We're finding the ability for us to enter a new client relationship with Transmission Services to be one of the real opportunities that we are able to take to clients to quickly start adding value and that applies to analytics as well. And we are finding in many, many, many of those situations given a certain amount of time, let's say, at the end of one year at the end of two years, they tend to start converting into larger annual TD. I would say, analytics often starts with annual TD themselves not just project work. So when we talk about our analytics growth that is easily half of that if not more is actually annual analytics work.

Great details. Thanks Tiger.

Thank you, Maggie.

Your next question comes from the line of Ashwin Shirvaikar from Citi. Your line is open.

Hey, thanks. Good quarter guys.

Hi, Ashwin. Thank you, Ashwin. Thank you.

I wanted to kind of start with this is sort of heading into the second year of kind of work-from-home. What are you broadly seeing from your clients in terms of feedback with regards to the need to continue working from home? Are they -- I know you mentioned supportive, but what are sort of the intermediate and longer-term implications of this continuing the tragedy that it did?

So Ashwin, I don't think it's a one size fits all would be the start of my answer. What we are doing and we are leading the effort here with and for our clients is actually taking to them the archetype of design of the way a particular service in an industry should run. So how should the closing of the books for a large enterprise run in a typical month in a typical quarter? What kind of work should be done from an office environment and when? And what kind of work should be and can be done from a remote environment? So we think about that as a design construct of near-shore, onshore, offshore in an office, offshore in work-from-home environment and it's really a design discussion. And like everything else different customers are going to land at different spots in that design and then will migrate over time to different other spots. So that's one which is the hybrid design. And the second one is the flexibility of talent. Some people are going to say that they would like to always work from an office. And some other people are going to say that they think about working a predominant amount of time from a remote environment -- from a home environment. Our view again is that we must construct a design where particularly for the people who are going to be working from a remote environment, there is a cadence with which they come back into an office. They have an opportunity to come together as a team, build a culture, learn new skills, innovate. And that's again, a discussion that is very, very relevant with different clients. It will end up in different constructs and different archetypes. Our job is to design those come up with those archetypes, discuss with different clients pros and cons. And that's exactly what we are doing as we speak.

Understood. Very detailed. The other question, I mean, you're kind of at this point halfway through the second quarter. Is there anything you're seeing in the environment in terms of how your project flow is, in terms of costs and such that would cause you to say that the 1Q strength was kind of one-off in nature?

I won't speak to anything mid-quarter, Ashwin. I think just the commentary we've already provided on, kind of, why Q1 was stronger and how we're looking at the balance of the year, we think is appropriate given where we are right now. And as we get through the second quarter, we'll come back to you. But still too early to kind of give any more -- any level of color on the detail for Q2 and the balance of the year.

Understood.

And I think, Ashwin, what Ed has already described in terms of our strength on margins, for example, in the first quarter and therefore what does that mean for the year. We are going to be continuing to invest in sales and marketing and R&D, as our revenue ramps through the year. And of course, we do -- we are already seeing travel come back in domestic US, certain parts of domestic Europe. Of course, international travel between India and the global markets is right now nothing and we can't predict as to when that is going to come back. But some of that other travel is coming back. And that is all going to be factored into the overall margin of the company, as we go forward into Q2 and beyond.

Thanks.

Thanks, Ashwin.

[Operator Instructions] Your next question comes from the line of Keith Bachman from Bank of Montreal. Your line is open.

Hi. Thank you very much, gentlemen. I want to ask two questions. The first one, Tiger, I'll direct towards you and it's really about growth. And I wanted to get your views, as you think about net new bookings and you called out some interesting areas, but how do you think about the net new bookings contribution to growth associated with existing clients versus new clients? And you seem to highlight -- to use your words kind of new partnerships with new clients. Just wondering how you're thinking about that. And really part B to the question is, I understand there's probably some conservatism to guidance. How long do you think it takes to really generate into that durable double-digit constant currency Global Client growth. You reached some the -- some of it you reached to kind of Q4 this year you said. Compares are a little bit easy. But I want to talk about kind of building the pipeline and how you think about the durable double-digit Global Client growth, because you're getting some contribution this year also from M&A. So that's question one really around demand. And then I had a follow-up.

Yes. I'll start from your second question Keith. As Ed had said and I think we've said this more than the last couple of quarters, we've said this, which is, by the time we get to the fourth quarter, we expect our Global Client growth rate to get back to double digit constant currency. And we had indicated and, again, we indicated this time that, it could be a bit sooner, but fourth quarter is when we expect it. And when we say that we mean that we are -- our expectation going forward from there is to come back with a long-term trajectory that we've been calling out for quite some time of Global Client double-digit growth. And our view is that the last 18 months has increased our total addressable market, increased the runway of our opportunity to undertake that double-digit Global Client top line growth. And we feel very good about that, because the number of new clients who are wanting to have partnerships and the number of existing clients who are opening up many more services and connected buying centers in order to drive enterprise-level transformation is just improved the total addressable market, which kind of then relates back to the first question, which is, our ratio of a typical year where revenue growth is still materially contributed by existing clients. Because the definition of an existing client is you start a relationship. And sometimes a relationship barring a few exceptions, starts with, Transformation Services relationship, where you're advising our clients, you're implementing a quick payback engagement, you're doing an analytics engagement that drives immediate value. And as you start doing that, you're already in discussions about a larger relationship. Those take long to orchestrate and undertake. And that's the journey that we've been on since for example the fourth quarter, when we had very strong bookings. And it takes time to ramp that up. So which is why, by the time we get to the fourth quarter we'll get to double-digit growth.

Hi Keith, it's …

Yeah. Okay. That makes perfect sense Mike. Go ahead, Ed.

The only thing I'd add is, the year-over-year comparisons may be a bit easier. But remember we did grow, I think 5% or 6% last year, right? We weren't flat to down like many of our peers. So our comparison is a little bit -- it's coming off of growth. I just want to make sure you're aware of the durable nature.

It's a very important point Keith, because we had pretty material growth in the context of what the world is going through and what our industry are going through in 2020. And therefore, our 2021, is in the backdrop of that growth. We didn't have that significant of V in our growth trajectory between 2019, 2020 and 2021.

Yeah. Fair enough. My second question is just a clarification Tiger. Your competitors -- or not true competitors, but Cognizant Infosys and TCS had pretty meaningful increase in attrition not only from September to December, but even more so this December to the March quarter. In a previous question, you had talked about absenteeism. I think everybody is experiencing that and perfectly understandable. But just to be clear, it doesn't sound like, you've actually had an increase in attrition. And I just wanted to clarify that a. And then, b, BPO traditionally has higher levels of attrition than some of the other areas of IT services. I just wanted to see if you have any comments or thoughts why it doesn't sound like you're having the same issues surrounding attrition that some of the traditional IT service providers are experiencing. Thank you.

So, Keith our attrition has gone back up between the fourth quarter and the first quarter but that we had expected. And it's gone back up to tad below, what it used to be pre-pandemic.

Right.

But why would one have any other expectation? So the reason we haven't called it out is, because that is exactly what we expected. We planned for it. We know exactly where those, attrition seem to be higher versus lower. It seems to be following a pattern that we've seen for 10-plus years. So -- and our way of addressing that is to manage the business with that attrition, to make sure that our high-performing talent get opportunities to do new work, get certifications, gets new skilling, get compensation, promotions. And that's exactly what we've been doing. That attrition is still lower, than what it used to be pre-pandemic. It is higher, than it was -- what it was in fourth quarter, I'm a little intrigued as to, how would one expect Q1 attrition to be not higher than Q4.

Right. Okay. All right. Many thanks, congratulations. Cheers.

Thank you, Keith.

Thanks, Keith.

And there are no further questions over the phone line, at this time. I would now like to turn back the call over to, Roger Sachs, Sir?

Great. Thank you everybody for joining us today. And we look forward to speaking with you again next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.