Good day, ladies and gentlemen. Welcome to the 2022 Fourth Quarter Genpact Limited Earnings Conference Call. My name is Justin, 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. A 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, Justin. Good afternoon, and welcome to Genpact's earnings call to discuss results for the fourth quarter and full year ended December 31, 2022. We hope you had a chance to review our earnings release, which was posted to the IR section of our Web site, genpact.com. Speakers on today's call are Tiger Tyagarajan, our President and CEO; and Mike Weiner, 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 in greater detail and provide an outlook for the full year 2023. Tiger will then come back with some closing remarks, and 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 above 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. During today's call, we will reference certain non-GAAP financial measures that we believe provide useful information to enhance the understanding of the way management views the operating performance of our business. We include reconciliations of these measures to GAAP in today's earnings release posted to the IR section of our Web site. 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 fourth quarter and year end 2022 earnings call. We are pleased with our full year 2022 financial results with revenue growth, adjusted operating income margin and adjusted diluted earnings per share, all coming in at the high end of our expectations, highlighting the relevance of our data tech AI services and digital operation services for our clients. Transformation is a pervasive theme across most enterprises with many of them calling out 2023 as a year of efficiency. We're therefore seeing a robust pipeline of continuous flow of data tech AI and large transformational deals. In the fourth quarter of 2022, we delivered on a constant currency basis; total revenue of $1.103 billion, up 6% year-over-year; data tech AI services revenue of $495 million, up 5% year-over-year; and digital operation services revenue of $608 million, up 7% year-over-year. Adjusted operating income margin of 17%, expanding 260 basis points year-over-year and adjusted diluted earnings per share of $0.70, up 30% year-over-year. For the full year 2022, on a constant currency basis, we delivered total revenue of $4.37 billion, up 11%; data tech AI services revenue of $1.96 billion, up 18%; digital operation services revenue of $2.41 billion, up 6%; adjusted operating income margin of 16.5%, flat year-over-year; and adjusted diluted earnings per share of $2.74, up 12% year-over-year. This performance during 2022 reflects the nondiscretionary nature of a majority of our services and the full suite of services we provide our clients to drive cost, growth, mitigate risk and improve a variety of such outcomes. Our revenue growth was broad based across all our industry segments, in particular, financial services and high tech manufacturing services delivered strong double digit growth. Data tech AI services when we design…

Thank you, Tiger, and good afternoon, everyone. Today I'll review the fourth quarter results and then discuss highlights of our full year 2022 performance and provide you with our current outlook for 2023. Beginning with our fourth quarter results. Total revenue was $1.103 billion, up 3% year-over-year or 6% on a constant currency basis. Data and tech AI services revenue, which represents 45% of total revenue, increased 2% year-over-year or 5% on a constant currency basis, largely driven by continued growth in our cloud based data and analytics solutions across our focus areas, including supply chain, sales and commercial and risk services. As a reminder, data tech and AI services revenue grew in the mid-30% rates during the fourth quarter of 2021, reflecting a higher level of short cycle revenue. Digital operations services revenue, which represents 55% of our total revenue, increased 3% year-over-year or 7% on a constant currency basis, primarily due to deal ramps from existing and recent wins. From a vertical perspective, Financial Services increased 17% year-over-year, largely due to continued strong demand for our risk management services, leveraging data and analytics. Consumer and healthcare declined 1% year-over-year, largely driven by the impact from lengthening large deal cycles and lower data tech and AI services revenue. High tech and manufacturing increased 7%, primarily driven by sale and commercial, sourcing and procurement and supply chain engagements with both new and existing clients. We successfully divested the business that we previously classified as held for sale. Given a lower than anticipated net realized value, we recorded an $11 million charge during the fourth quarter that is included in the other operating expense line in our P&L. Our adjusted operating income margin expanded 260 basis points year-over-year to 17%, largely due to operating leverage, the positive impact of off cycle…

Thank you, Mike. We are pleased with our 2022 results. As enterprises respond strategically to this macro environment, we are seeing the benefit of that with increased conversations, inflows and pipeline. There is no debate that data has become the most valuable asset for all businesses. We are seeing this with the increased demand in our focused service areas of supply chain, sales and commercial and risk, all deeply connected to data and analytics. Our intelligent platform, Genpact Enterprise 360 enables clients to harness the power of data driven insights derived from running clients’ operations and using our proprietary metrics and benchmarks. This powerful tool empowers clients to take actions themselves or through our work with them to deliver outcomes today and discover transformation opportunities for the future. We continue to be recognized for our ESG initiatives with Genpact being included in the 2023 Bloomberg Gender Equality Index for the second year in a row. We were also named as one of the best performing companies in ESG by Sustainalytics. In summary, we have a growing top line primarily made up of sticky long term global relationships with inherent operating leverage to help drive long term margin expansion. We also have the ability to take advantage of opportunities in our large and growing underpenetrated market that is getting unlocked by our data tech AI and digital operation services. In fact, 70% of accounts that start out as data tech AI engagements end up expanding into larger data tech AI or digital operations relationships. The 126 new logos we signed in 2022 are the seeds in which future priority accounts will be borne. Our 2023 outlook is very much aligned with our long term growth and profitability goals. Before I close my prepared remarks, our thoughts are with those that are affected by the devastating earthquake in Turkey, including the approximately 50 Genpact employees who are there and their families. With that, let me turn the call back to Roger.

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

[Operator Instructions] And our first question comes from Puneet Jain from JPMorgan.

It's great to see like that you're seeing like strong momentum for large deals. Could you also talk about demand environment you're seeing for short term project based work, and what does the guidance -- annual guidance assume for that?

Puneet, overall, we are seeing good demand for both short term specific engagements because everyone, as I said, is on a journey to reevaluate the portfolio and protect their strategic journey around digital transformation and changing their business. And then, of course, you already and I already referred to the large deal environment being good. The one thing I would call out is towards the third -- end of the third quarter of last year and the fourth quarter, and continuing into 2023, we saw and we expect front end digital marketing and experience driven short term consulting and advisory kind of engagement slow down. We saw that in the fourth quarter. We expect that to continue to be slower through the year.

And are you also seeing higher mix of employee rebadging deals as your clients look to cut cost, and what's the typical profile of such deals that you would pursue?

So Puneet, I don't know whether I would say from a longer term -- if you take a bigger time scale of three years, I wouldn't necessarily say that there is material difference in more rebadge deals. Having said that, we are going to see probably a little bit more of that in our profile for 2023 because as we said, we didn't close too many large deals in the fourth quarter, and we have a strong pipeline that we are working on now. As we close those, some of them will have a rebadge component. So if you take a longer term trajectory, not that different, if you just shorten that to a couple of quarters, you will see a bump in that. There is no question that as companies reevaluate their own long term trajectory as they reevaluate how do they get cost efficiency in order to reinvest back in those strategic initiatives, captive centers, existing global business service operations absolutely come into play as part of the overall transaction. And we've become pretty much one of the leading global experts at doing that. So we feel very good every time that happens.

And our next question comes from Keith Bachman from BMO.

Tiger, my first one for you is similar to the previous question. But how do you think about the growth algorithm for CY '23? And really looking at new logos versus existing customers, and I know you said you signed up to 126 new logos this year, how do you think about that in CY '23? And in particular on the existing customers, are you seeing more pressure on the existing business and really wondering on the difference between, say, growth retention and net retention. In other words, are you finding the renewals more challenging in the economic cycle, are you seeing lower mix or less volumes? But just any -- I'd love to hear you comment a little bit more on the growth algorithm.

So growth algorithm is a great phrase. I'll start by -- let's talk about renewals. Renewals are always contingent completely on what's the value we have been driving for our clients over, let's say, the five year relationship we've had. We start those conversations with our clients well before any renewal comes up, let's say, 18 months. And our objective and our clients’ objective in all those conversations when we talk about renewals is incremental the next slug of value creation. And often, that leads to expansion of scope, it leads to more digital intervention, it leads to technology stack getting added, more movement to the cloud, more data analytics and prediction engines being built. So we see the renewal process and our focus on renewals over the last 18 months to be really strong and having paid off. And in this economic environment, we see that actually as a big benefit because clients are looking for fast paybacks. So that's on renewal. On new deals, you talked about -- your other question was, just remind me, Keith…

How do you see new logos [Multiple Speakers] deals which could be different…

So Keith, if you look at our new logo history, I talked about 126 for 2022. I said 30% higher than the prior year. So if you look at, again, a three, four year trajectory, it's been in the ballpark of 80, 85 newer to this 126, which is clearly a high. We don't see that changing in 2023, because everything that I described about the environment, I would say applies to every enterprise and every part of the globe in every industry vertical. It's a question of which of those are they picking up, are they picking up a journey on technology stack, are they picking up a journey on consolidating tech partners, are they picking up a journey on moving apps to the cloud, are they picking up a journey on extracting cost by consolidating functions in order to reinvest back in growth initiatives, which we know is very important these days given the environment around where growth is not easy. So we see that growth algorithm being not that different between existing clients and new clients. We have -- our focus on priority clients continues and our focus on those 126 new logos just to pick them would be to sow the seeds of future priority clients, let's say, a couple of years from now and that's the business model longer term, if you play this out over the five, 10 year horizon.

My follow-up question then is similar. Tiger, are you seeing more risk of competition from technology? And what I mean by that, as you focus on, say, AR collection, there's actually more software companies bringing up and try to enhance doing AR collections in an automated fashion, and/or if you want to just go to a lot of the AI announcements that occurred in the last couple of weeks. How do you think about the maturation or advent of new technologies potentially offering new opportunities or placing incremental risk on some of your practices?

It's a very simple answer, Keith, because we've been on this journey now for about seven to eight years of leveraging new technologies. And we've always said that our role in that is to find the right technology, incorporate it into the end-to-end service that we offer our clients or bring it to our clients so that they can incorporate it into their operations, because they don't give us the digital operations to run. In both cases, our deep belief has always been that technology adds value only if you know how to use it, if you know how to implement it, if you understand the industry, if you understand the domain and if you understand the data. What's happening around us in our clients is that there is a real belief in our client base, but that's exactly what needs to be done, which is why we are beginning to see real traction in technology, real traction in incorporating technology with us as the partner. Our relationship with some of the AR examples you gave is, HighRadius is a great example of that. And it's not new, it's more than four years old that we've been working with HighRadius and incorporating it into our solution, if that's what is the right thing for the client. So we see these technologies coming in as a real opportunity, because the client has to find a way to leverage them, they need us, people like us to help them leverage them. It's not a threat it's actually an opportunity.

And our next question comes from Dave Koning from Robert W. Baird.

Maybe to piggyback a little on Keith’s question about new technologies. I know you've been in the press, you've been talking about ChatGPT and stuff. And as you said, you've done a nice job integrating technology into your processes, and that's actually an accelerator of growth. Do you have any examples you have of clients coming to you saying, hey, on this process, could we try to integrate ChatGPT? And have you seen either examples of it being a benefit, or do you see any examples where it could be a headwind?

I just think it's too early to expect a full integration. So the answer is no. I don't think a client would expect a full integration now, and we wouldn't expect that to happen. Having said that, it's very clear that there's real opportunity to actually bring technologies like that, not just ChatGPT but other generative AI technologies into a number of our operations and services. But to do that, the first step that has to happen is that particular generative AI must get seat in the data and the domain that it needs to address. It's not generic, it's specific. So there's a whole backend training that, that ChatGPT needs to undergo. And actually, it's going to create a whole slew of data operations jobs to train the ChatGPT on specific domains. And who best positioned to do that, people like us because you need the specificity of what does an insurance claim for an automotive in the state of Michigan look like. And that needs to be part of ChatGPT's data infrastructure for it to be able to answer the question that is needed to be answered in order to incorporate ChatGPT into a claims process. So we see a real opportunity. We just kicked off a major hackathon across the company of 90,000 people participating to figure out use cases and pilots and ideas of where it can get incorporated.

And the maybe a second question and my follow up. I would imagine the data tech AI business, you expect that to grow faster than the digital operations business this year, and probably have more of a hockey stick acceleration through the year, whereas the digital apps business will be more stable. Is that a fair way to think about it through the year?

Absolutely. And so when you think about the business and the cadence of the earnings or revenue pattern associated with it, that low single digit growth rate that we have in the digital operations will be much more consistent than data tech and AI business.

And our next question comes from Jesse Wilson from William Blair.

This is Jesse on for Maggie. I wanted to follow up on Puneet's question earlier. So what is Genpact's exposure to those types of digital marketing experience, short term consulting engagements you mentioned earlier?

So our exposure is that we have a growing and emerging business there. We don't really talk about it in the notional size of it. It's not a tremendous percentage of our total revenue in the business. But kind of building on one of the comments Tiger said earlier, we've seen the revenue performance of that almost indexed with incredibly large marketers in this general macroeconomic environment as you've seen. So as general demand has pulled back from that, our revenues goes accordingly to it. It's very well indexed to it. But again, not a huge piece of the business. But I don't think it's going anywhere. I think it's going to come back particularly in relatively strong in the second half of the year.

And then, Mike, a follow-up question for you on margins. Obviously, guidance is for expansion this year. So how are you thinking about the medium term, should we be thinking about kind of steady state or the potential for a normal cadence going forward?

No, I mean if you think about how we talked about our margin at our June Investor Day, right, when we looked at it and looked at the drivers of margin, particularly that the increased scalability of our data tech and AI business becoming more and more meaningful to the company, right, as well as a number of other factors, our goal has been to grow that margin at a greater clip than they've done historically. So I think we're showing that within our guidance. We think that's going to continue to drive us through our 2026 strategy to think about it from that perspective. Is it going to be 30 basis points per annum? Still no. We'll see how it goes on an annual basis.

And our next question comes from Bryan Bergin from Cowen & Company.

I wanted to ask demand based on client location. Are you seeing any different activity in the US versus Europe? Is there really any different behavior you're seeing based on client location right now?

Actually, no, Brian, we are not. It is actually interesting. Even in my prepared remarks, I talked about the fact that a number of the themes that I called out seem to be pretty global themes cutting across the US, Canada, Europe as well as global companies headquartered in Asia. So there doesn't seem to be that distinctive of strand that I can pull out and say this is different in this geography versus another.

And then a follow-up on margin. So I just wanted to dig into the 30 basis points of expansion for this year. How do you anticipate the attribution between potential gross margin improvement in 2023 versus SG&A leverage? And I asked because I'm hearing the optimism about large deal pipeline. So I'm not sure if investments there could potentially work against you in gross margin initially as things like that ramp.

Yes. You got it exactly right. So disproportionately as large deal ramp ups happen, we'll have investments on them early part of the cycle. Remember, our revenue and expense cadence is in line perfectly, right? So have those greater investments early on, which will dilute our gross margins as we grow. We will get the SG&A leverage and that's much more linear. But that's 100% correct the way to think about it.

And our next question comes from Mayank Tandon from Needham & Company.

Tiger, I just wanted to get some thoughts on the sales force. Where are you today in terms of the headcount? And just given your optimism on demand, what are your expectations in terms of ramping up the sales force to hit your revenue growth targets?

Mike, it's a great question. And actually, it's very timely because we just finished a good assessment of our entire sales force. As you would expect, any good enterprise to do towards the end of the year and beginning of the year. We think we have really good coverage, size and scale of the sales force across our various industry verticals. We also are very nimble at moving that sales force from where we see demand to where we see less demand. A great example of that was about 18, 24 months back where we reallocated sales force literally in two weeks into the semiconductor space and got the big benefit of that as the world in the semiconductor space went through supply chain challenges. So in terms of total numbers, I think we are well positioned. What I would say is, given the nature of the type of services, including technology intensity of those services, the technology partnerships that we talked about and incorporate growth into our services, some of the people in those client situations, we are changing around and we continue to do that. And I expect that to continue to happen as we go through the year. And of course, we have a number of training programs and immersion programs that get a number of the people ready on the new technologies, on the different partnerships, on the different solutions, which has always been one of our strengths.

And then just as a quick follow-up, I wanted to ask you about your exposure to the large tech companies that are announcing layoffs. Does that have any implications for your data tech AI revenue? And just in general, do you see this as a positive where they might rely more on you for digital investments, or do you think it might actually be working against you in the short term, any exposure there and implications of that?

It's a tale of two cities. It has always been, no surprise, a fast growing sector and industry, and therefore, a fast growing segment for us for many years. Having said that, there are still many, many enterprises there that are just about waking up, I guess, waking up is the right word to use, to 2023 being a year of efficiency and productivity. That language is new for probably the entire sector. That language is throwing up a bunch of opportunities for us. Having said that, the reason I called it a tale of two cities is that there are a few situations where we would have a very high intensity in terms of our relationship where we do a lot of digital marketing support sales support. And obviously, those undergo changes as that pie may shrink with one or two of the players. In the net, it's actually a benefit for us. And actually, one of the things we have done over the last six months is, again, back to the sales force conversation, realign some resources into that space and we are getting the benefit of that.

[Operator Instructions] And our next question comes from Surinder Thind from Jefferies.

I guess for my first question, maybe if you can provide some color on what the time line for winning new deals look like in light of the comment around 2023 being a year of urgency around cost initiatives. I mean how much are you mining conversations at this point that you started three months ago, sis months ago, nine months ago? And I guess if you were to start new conversations, what is the urgency for those conversations or those deals to be transacted, especially the larger deals?

A number of the conversations that are in late stages now started six, nine, in some cases, 12 months back and have progressed to the point where we believe they're getting closer and closer. The issue is less about urgency from the client, it's more about the complexity of some of these larger deals. I talked about multifunction, I talked about technology stack, I talked about in answer to some other questions, I talked about, in some cases, not all of them, rebadging. That makes a deal large, it makes the deal complex, it makes many more people from the client side having to be involved in the decision. And of course, in the meanwhile, they have had to deal with, depending on the industry, regulations, to supply chain, to China, to Ukraine, to energy and inflation. So I would say the good news is every one of those conversations have continued to make progress as we get later and later into the stage of the pipeline, you get more and more confident of finally signing it. The more complex it is, the longer it takes, and that's what we have always planned for in this kind of an environment. And it's actually good because we are circling the wagons and then landing the plane in what is obviously a very complex journey. The other side of the house, which is data tech AI, tends to have faster decision cycles. Those decision cycles haven't expanded, they have continued to be at the same speed they were because payback is important. And as long as we go in with the right solution that is relevant for the client at that point in time, in a variety of buying centers and in a variety of services, we hit bulls eye. So again, it's a question of balancing both. And the last thing I'll say is I talked about this at the end of my prepared remarks, every data tech AI engagement, when we look back over three to four years ends up being subsequent more data tech AI engagements and digital operations agreements to the tune of 70-odd percent. So which means when you sign a 100 plus new logos and let's see all of them are data tech AI engagements and rest assured that 70 of them will have follow-on data tech AI and digital operations over the next four years, which is the beauty of our business.

And then as a follow-up, in terms of the complexity of the projects that you're taking on at this stage, any color on how maybe the projects are being oriented. And what I mean by that is there's a narrative out there that clients are looking for higher or quicker ROI on their investments. So does that change the strategy or the roadmap for implementation for you guys, but whether projects get chopped up a bit more or whether you do certain, I'll call, delivery projects out of order just to get the benefit to the client. And if that impacts, I guess, what I would call revenue timelines versus what a normal roadmap might look like?

So actually, again, a great question. And we talked about this, I think, probably in both the prior earnings calls, I think both quarter three and -- quarter two and quarter three earnings calls. Larger deals and complex deals, in some cases, not in all cases, do get broken up into a couple or three phases. And the idea there is exactly what you said, which is, can we get to first class, the low hanging fruit, get the payback and it generates the investment dollars for the second and the third. Having said that, there are some clients who prefer not to break them up and take bigger swings. They are okay spending a little longer time in order to actually get everyone aligned and then go for the whole at one shot, often including rebadging, because in a rebadging exercise, you cannot break that up in a particular operations into pieces because that doesn't work. So there are different colors in the way I would answer the question. There's no one standard size that fits everyone. I think we've seen all of the above. And our ability to adjust and flex and be agile to create the right solution is what has always won us the day.

And I guess just a clarification on that, Tiger. Does that change the revenue ramps or is it just different ways to get to the same end point?

I don't think it changes the revenue ramp. Obviously, development details. I think Mike said that on when we do digital operations and it's got rebadge then it will require investments upfront, and larger complex deals require a little bit more investment. So that changes the margin profile on the gross margin side. And as it relates to rebadge deal versus a slow ramp, a slow ramp is a slow revenue ramp where the rebadge deal, you get a pop in the revenue ramp in the beginning. So we have a good mix of all of the above. And as I said, it's not that different from the past. So therefore, I wouldn't necessarily call out any difference in revenue ramp on account of that.

And thank you. And I am showing no further questions. I would now like to turn the call back over to Roger Sachs for closing remarks.

Thanks, everybody, for joining us today, and I look forward to speaking with you again next quarter.

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