Genpact Limited (G) Earnings Call Transcript & Summary

Thanks, everyone, for joining. My name is Tien-Tsin Huang. I'm the payments processing and IT services analyst at JPMorgan. And always, one of my favorite things to do is to host the annual tech conference here. And so, so, so pleased that Tiger with us from Genpact. Tiger Tyagarajan is the President and CEO at Genpact. They just reported earnings earlier this week and going to go through some questions that I put together. We also have a Q&A button to take questions from the audience. So feel free to ask through that channel, and we'll try and hit that in addition to the questions that we've gathered from you as well. So Tiger, welcome. It's great to see you virtually.

Tien-Tsin, thank you and thank you for having me. And I know it's not the same as attending the conference live, but appreciate the ability to have the conversation.

Yes. No. Well, I'll make sure I'll shake your hand next -- as soon as we see you, hopefully, sooner rather than later, in person.

So Tiger, I know you just reported earnings. And I thought maybe if you could spend a minute or 2, just give us some of the key takeaways. And a lot like your peers, you withdrew guidance, which is completely understood, but maybe talk through the decision-making process or how you're thinking about the business now?

Yes. Yes. So let's start with the quarter itself. I almost would say the quarter couldn't have gone better. As we navigated the quarter, until the beginning of the third week of March, we thought this is going to be one hell of a quarter. Our numbers came in very strong. More importantly, every one of our verticals participated in that strength, all 7 of our verticals. So we really felt good and Transformation Services continued to be the lead engine of our growth, both organic Transformation Services as well as the Rightpoint acquisition that we have done in November. And then, of course, COVID-19 started rolling around the world and started having an impact on our business about the beginning of the third week of March. We have seen the beginnings of that in China. We had reacted to it. 4,000 people in China moved to work from home. So I'm sure we'll cover that. But other than the fact that we had to deal with probably a $7 million total top line impact on account of moving during the last 2 weeks of March to work from home, we couldn't have had a better first quarter. But as the way the world changes, it changes pretty rapidly.

Indeed. Indeed. And we had picked up pretty early, I think you've been quoted in some different press articles and we were hearing on the ground that Genpact was really quite early in this whole mobilization of the workforce. I know you have a big workforce in China. So can you talk us through that movement? I know we shouldn't take for granted how hard it is, especially for a BPO business like yours to get that done. So walk us through that whole, that mobilization effort, and where you stand out?

Yes. It sounds so, so long back. Late January is when we started reacting to China. In discussions with our clients in Japan, North Asia and China, all of whom are global clients of ours, but we serve them for those markets from China, 4 different operating centers in China, we had to take action in moving 4,000 of those people into work from home. And remember, we did not know what work from home meant. We have no playbook, neither did our clients. No one had any clue as to how to do it. So anyhow, so we did that, went through learnings. I think it was fortuitous that when we do some things like this, we end up creating typically playbooks. That's our process DNA. So my Global Operating Officer, Darren Saumur, and his team started creating a playbook. And then by the time we got to just 10 days after that, early Feb, we decided that this is going to be more global than just China. So we froze travel. We moved our Board meeting from London to New York. We canceled a bunch of our own events. We decided to switch to work from home operating center per operating center. So we rolled out the playbook in Europe. We rolled out the playbook in the U.S. in Richardson, Texas; in Wilkes-Barre, Pennsylvania; in Danville, Illinois, operating center per operating center. New York office, where I operate from, switched to work from home around that period. And then, ultimately, we had to deal with a pretty significant presence that we have in Guatemala, Mexico, India and Philippines, which took some time, particularly because we do serve banks in a number of these places. So today, we have 95%-plus coverage of our revenue through work from home. We feel very, very good about that. More importantly, our clients actually feel thrilled about it. I just finished -- as you can imagine, Zoom makes it easy and video conference makes it easy to actually deal with clients at the senior levels. So I just finished 3 calls this morning, nothing but thanks and appreciation from our clients. The last 5% is really a number of our banking capital markets clients, all of them related to approvals on their side for specific processes that they're not comfortable with being done from home. Now every day that passes by, they give an approval for this process and that process. So we move, but it's a slow movement because things are still locked down.

Yes. So given this exercise of working from home and how successful it's been, Tiger, how does it change your long-term thinking about delivery? And this is a people business after all. And so does it change the total cost of ownership equation for clients, pricing, on-site, offshore, investments, training? Just curious how you're thinking about it here as a CEO and as a thought leader in the space.

So Tien-Tsin, it actually changes everything, not just for us. I'll start with our clients. I think business is going to be run differently. I think the world is going to run differently on a variety of dimensions. And a number of those changes obviously have an impact on us directly because we also will change, but also because that change allows us either as an opportunity or as a requirement to change. So let's start with the thing that I think is fundamentally going to change for our clients is target operating models will change. The distribution of onshore, offshore, work from home, virtual, which a typical business would have had a certain view, those views have been changing over time. I think those are all getting revisited on more of that distribution. That means we are revisiting our distribution of onshore, nearshore, offshore and work from home service line by service line. So if I take an extreme case, why wouldn't we be able to do analytics for supply chain in a completely work-from-home environment? Why wouldn't we do work from home closing of the books every month and every quarter for our clients? After all, we did that for Q1. 98% of them were done better than before ever. 2% of them were equal to what they were before. And this is not a small sample. This is a highly representative sample of a global 1000 footprint. Why wouldn't we do that on a continuous basis? So we are revisiting and questioning a lot of those things for ourselves. I think movement to the cloud, big acceleration that we see in clients; movement to real-time analytics, big acceleration; virtual work, big acceleration. Experience, I think, is going to become more important because in that world, experience becomes important. And a significant shift of the business model for everyone from off-line to a higher proportion than before are online, all of that changes our business as well. So I think we're going to deal with a lot of changes. And I think we have to change, therefore, with those changes, and it provides opportunities.

Yes. So how do you seize that, Tiger? I mean from a sales and marketing perspective, I know you've made some changes there. And recently, it's been very fruitful for Genpact with some big marquee wins. I'm sure we'll talk about that. But how do you seize that? I mean can you -- are you able to sell effectively now given what you know?

So again, Tien-Tsin, it starts interestingly with what we've always believed in, which is amazing delivery and operational excellence that clients feel delighted about, and for many years now, we've always focused on that. And that leads to high Net Promoter Scores where our clients want to talk about the fact that they love working with us and therefore end up growing with us and also becoming a reference for others. Now you put COVID-19 in the middle of that and you look at this disruption, and the disruption really provides an opportunity -- provided an opportunity to really go above and beyond for our clients. Now looking back now over the last 8 to 10 weeks, I would say our teams have done amazingly well. As a result, a number of those clients, if I were to pick a cohort of 2/3 of them, have actually shifted their perception, their view about us to however positive they were, even more positive. That's allowed us to get closer to them. That's allowed us to, therefore, have a conversation on things that they are grappling with. We set up a separate team and a separate set of leaders to actually innovate in Transformation Services. Because in this world, transformation services is the one that will gain the most fastest traction with new solutions. So we built 17 new solutions to take to market. An example would be how do you -- how do banks react to The CARES Act and the PPE program -- the PPP program, and how do we support that? How do consumables and retail companies or life sciences companies react to supply chain changes with the demand and supply becoming so volatile? How do we support building on those models? How do we allow some of the models that clients have to be taken to the cloud very quickly so that you can run those models in the cloud? These are solutions we took to market. These are fast payback, immediate needs. And obviously clients then say, okay, I want to engage you right now. Can you do this right now for me? And we were ready to do it, and as a result, our intimacy with clients goes up. And we believe that allows us to then look at new deals. As clients start thinking about, okay, I'm now stable in this new environment. You are stable. We are working in a good way. Here's how I think about the world of the future, what do you think? So we debate that and we say, okay, let's think about as the world changes, let's think about this new way of operating in a big way, so this new big deal. So we're finding a new infusion of big deals into the pipeline. They'll be slow. They won't see the light of day immediately. But I think it positions us well for the future.

Yes. So on the meeting, those are good examples. So on the earnings call, you had mentioned, right, some delays in the pipeline, which is logical. Companies are adapting to business continuity and safety. And then you just mentioned new pipeline as it related to dealing with the pandemic. So are those 2 mutually exclusive, I guess, is the question. I'm just trying to think about how the pipeline sort of evolves here. Are we just going to be chasing those things depending on the recovery from pandemic here? Or do you think this pipeline is legitimately here to stay in the way it is?

No. That's a great question, Tien-Tsin. So we pressure test the pipeline literally every day. These days -- and that's the other change that's happening, these days, all forecasting all outlook of every business in the world has to be done much more real time. You can't forecast something for the year and say I've done my forecast for the year. So we do pressure test those. I would say all of the pipeline is active. They're not canceled. But they clearly slowed down because, one, clients have been focused on the disruption they were dealing with. And two, some of the priorities have changed. To hold this priority, not for the moment, I'm going to come back to it, something else has become more important. The good news is we were ready with that something else. So to your question, mutually exclusive, so the new pipeline is mutually exclusive to the existing pipeline to the extent that they are new deals with new solutions. But they are not mutually exclusive because 3/4 of them are with existing clients, which is the normal expectation that we've always had in our business. So a few examples. When a client is dealing with working capital, cash flow, receivables, inventory and all the challenges that poses in today's world, clearly, anything to deal with bringing working capital down, bringing DSOs and receivables down, finding ways to actually segment the portfolio and actually get cash in, improve the cash cycle gets the attention of the CEO of the company and the Board of the company. Or when a retailer's orders go up dramatically and the consumer goods or the staple food company that manufactures these, they have to deal with that dramatic change in order, while something else goes down, how did that supply chain change? How do you rapidly change that? Those become new deals, and they take priority versus some other deals that were sitting with the same customer in the pipeline. Having said that, I thought I talked about the insurance customer in the call. That insurance customer was dealing with the COVID-19 situation of a concentration risk in a particular geography that they had operations in. And we had been talking to them. They took a decision in 7 days. We moved the work in the subsequent 3 weeks, work from home to work from home. We hired people -- well, we redeployed people, we didn't hire people. We redeployed people. We trained them on insurance. We trained them on the process all virtually. They're delivering service and actually they're delivering better than what was being delivered just 4 weeks back. And we see that, I think, is going to happen. And the last one I would say is, look, at 95% revenue coverage of work from home, I would say that puts us at the higher end of the range of the industry, which means some people are not there, which means some of our clients have to deal with that, which means some of that work has ended up being a phone call to us saying, can you guys deal with that extra work and volume? And sometimes it's a new work, not just increase in our current volume. And we've been able to actually help our clients deal with those situations. I would expect those to continue.

Yes. That makes sense. So maybe just to close out the sales conversation, Tiger. I mean you've -- we've known each other a long time. You've been in this business a long time. I mean you've been through, what, September 11, the great financial crisis, a lot of different tech waves.

Y2K. I was here in the business when Y2K happened.

Y2K?

We were, in those days, only servicing GE. But at that time, Y2K was a big event.

So I'd put that in the book as one of the chapters, right, of all the different events that we've seen. And so I'm not trying to turn a very difficult situation to a positive, but how would you rank this in terms of opportunity or opening up the opportunity set for outsourcing and everything else as a catalyst? How would you rank this versus some of the other events in the past?

Yes. So I think you kind of referred to the phrase that not to characterize this as something good. So let's start with -- the reality is this is a crisis. This is bad. It's bad for our clients. It's bad for business. It's bad for humans. They're suffering and all of that. And that is disruption and change, in many cases, very painful for our clients; in many cases, very painful for their employees, their customers and so on. So when that kind of a disruption happens, I think the first step that you take is participate in mitigating the impact of that disruption. So a lot of the effort that's gone in, in the last 3 months has been how do we mitigate the impact of that disruption on our clients, on their customers, on the economy, and therefore, for ourselves. And then, of course, how do we continue to mitigate that going forward by actually helping them solve their problems. Having said that, obviously, every disruption creates new open spaces, new things that have to be done because the world demands it and the world expects it to be done. And we think that's going to create new opportunities for our clients, and therefore, for us to work together to actually solve those opportunities and problems. So we've always had the view, Tien-Tsin, that change is a given. Sometimes it's very rapid. Sometimes it's slow. Sometimes it's very unexpected. Sometimes it's expected. Sometimes it's in one area, in another area and another area. Rarely is it all pervasive. I would call this particular disruption one single biggest difference between this disruption and everything I described in the past is that this is all pervasive. All across the globe, every country, every citizen, every business, every government, every economy. That makes it different.

Yes. No. Well said. Well said. I want to make sure we hit some of these questions. We have 7 minutes left. So there's a question here about margins, right, both near term, your ability to protect the bottom line as well as you're thinking longer-term around margins, Tiger.

Yes. So Tien-Tsin, I think the question itself begins the answer, which is our role as a leadership team and our Board's role as great stewards of the company for our shareholders, for our customers and for our employees is to make sure that we balance the short and the long. We do believe that it's incredibly important as the world goes through this for us to be really close partners with our clients to actually help them navigate through this. We did that with the financial institutions that we worked with in the financial crisis. We did that in the automotive industry at that time it's got hit very badly. We think that we are doing that right now with a number of our clients as they navigate through this. That helps us build muscle to actually catapult us into a growth trajectory as the world ultimately recovers in whatever new normal that recovery is. So at every step of the way, we are balancing financial discipline now. So obviously, when revenue growth declines to the extent that we called out Q2 is going to be from being a growth to being a 3% to 5% currency decline, it does mean that we have to bring our cost structure down. Now we are very careful when we do that, that we don't cut into muscle. In fact, I would say there are some areas where we're actually investing while we are cutting in other areas. And that's the strength that we must exhibit as a company and as a leadership team to be able to do that. Because if you invest in some of the transmission services I talked about, I think it's going to help our clients. It's going to create value for them. I think it creates value for us. And more importantly, it creates long-term value. So we are doing both. I think we have taken the right actions in terms of freezing compensation in the company, freezing promotions in the company. We are very careful about redeploying resources because, clearly, when a client is actually shrinking in volume, we obviously shrink in volume for that client as well, but that allows resources to be released. We're redeploying them as in the insurance company case that I described into those new opportunities. And we have a Genome platform that allows that virtual training to be done in a very AI, machine learning-driven way that we had tested for 12 months that worked really in a scaled fashion. We didn't expect the pandemic to be the reason to use it, but my God, it's been such a godsend. It's been predominantly -- 2,000 people redeployed, fully trained from account A to account B unconnected to each other in 3 weeks. That's a big benefit because, otherwise, what do I do with those 2,000 people?

Yes. No. I'm sure being able to redeploy is so critical and we're learning that on the fly. Another question here is around M&A and it's similar to the question I had. Has this reorganized or reprioritized or changed your thinking on the types of companies you would target?

Again, a great question, Tien-Tsin. So one of the things we have done quickly in the last 90 days is to go back to our strategy of which industry verticals, which services, which geographic markets as well as our solutions, which digital capabilities, which analytics capabilities, which domain capabilities. And one of the conclusions that we came to, fascinating, is that the choices we had made in 2013, '14 and the digital analytics pivot that we did in 2015,'16 has stood the test of time. And whether it's the vertical choices we made or the digital analytics capabilities that we brought in or continue to be focused on trying to bring in hasn't undergone much change, which is itself wild. Whether it's experience -- acquisition that we did with Rightpoint or our continued focus on data engineering, our continued focus on services on the cloud, our continued focus is on specific capabilities that will add domain depth into the industry verticals we're focused on: supply chain, trade promotions, property and casualty insurance in specific spots. So the good news is we didn't have to change our specific focus areas. Some became even more important than before. I would call cloud out, I would call analytics out. Experience, even more important than before. So we always had targets. M&A was always driven from a strategic lens rather than a consolidation and scale lens. Does the current environment provide more opportunities? I think it does. Are we careful about how we jump on them? I think we will be. I don't think we'll just move for the sake of, hey, that sounds like a good value. I think we'll be very careful and thoughtful and measured. But our M&A team is very, very active as we speak. We're evaluating and thinking and talking often to targets who we've talked to before.

Got to keep the dialogue going, I know. We have 2 minutes left, Tiger. I wanted to make sure I ask you here with -- and I wish we had more time. It's always fun to talk to you. Just what does Genpact look like here in this post-COVID world, right? I mean we covered a lot of ground, it's moving on time, but how would you summarize it in 1 to 2 minutes here? What does Genpact look like in the post-COVID world?

I think we would -- I'd start by saying that our purpose as a company has got even more sharply accentuated. And that's very important for 95,000 people. Our purpose has got accentuated because we are now very clear that a number of the services we provide -- almost all the services we provide, are essential. They are not essential only because they're essential for our clients, which has always been, to make our clients valuable and competitive and all that. We realize that a number of the services we provide are essential for the economies into which those services go. When a consumer walks in and wants to buy staple food at a retailer, if that food is not available, he or she cannot buy it. If the CPG company cannot deliver it, they can't buy it. If the credit card transaction cannot go through because the customer service person is not available at the other end of the line, the transaction cannot go through. If the small business lending cannot be done then the small business is not able to borrow on The CARES Act and actually make sure their employees get their money and on and on and on. So I would say our purpose, we've really discovered even more sharply our purpose and that has energized our team. And I think that's going to stay forever with us. And the second is I think the closeness with which we are working with our clients at the C-suite of the boardroom has got accentuated through this crisis. I think the solutions we are building are going to last beyond the crisis. Some of the things we've done in the past I think are going to be -- come to use even more strongly, digital, analytics, on the strength of Lean and Six Sigma process that we had. Our focus on industry vehicles that we chose has got reinforced. So we're just going to double and triple down on those. And the last thing I'll say is I'm so proud of the leadership team that I have and the talent that we had in the company. As we go to the post-COVID world, our ability to attract talent that is even more diverse and distributed or being able to work from home, and therefore, not have to commute 3 hours a day opened up a whole new set of talent. And ours is a talent business. And I think it opens up even more opportunities for companies like us. And I just think our culture has shown through in these times.

Yes. No. I think the crisis will definitely -- everyone will show their true colors, right? That's what they say. So I think we actually do have a few more minutes. I was referring to the prepared sessions. So we do have questions from the audience. If you don't mind, Tiger, we'll stick -- can we take a couple of these? Okay. So just reading them almost verbatim. Call center work, it is very people intensive. You mentioned your ability to also convince some that were holdouts that were unable to get comfortable with it. Is there work that will never get to the point that you can do it from home and you'll always have to have something in place? And then as a related question, visibility on GE is the other question on it.

So it's -- COVID-19 and work from home, 95,000 people -- 95% of 95,000 people demonstrates and everyone else in our clients working from home, doing all kinds of things from home, tells you that never say never. So we actually currently are doing call center work from home. We are doing call center work from home for every industry that we serve. We don't have a big call center business, but we are doing it from home from a variety of global delivery locations. So even today, it's being done from home. Different clients have different requirements, have different bars and benchmarks on what they are comfortable with it and what they are not, and that has determined which of them have agreed to allow us to do work from home and allow us not to. In the long term, I think call center work can be done from home. There's going to be new technology solutions that will be born. There'll be new security solutions that will be available. I don't even know what they are. But they are going become available. There's going to be start-ups that come up with those that will allow all that to happen. I think innovation, there's an explosion of innovation that's happening as we speak, in our clients, in start-ups, in technology firms and in all kind of firm. All of that is going to make all kinds of things happen that we can't imagine today.

Yes. No doubt, collaboration tools will be better. No doubt.

GE...

GE, yes.

Yes. So GE is -- continues to be a very strategic, important relationship for us. Like every other client I described, our focus on operational delivery, our focus on shifting and transitioning to work from home and a virtual environment, our focus on delivering excellence through a range of services that we offer GE, and with GE, we offer a range of services that goes to pretty high value-added services, have all been really appreciated by a bunch of the leadership team of GE. So that makes us feel really a valued partner of GE as much as we've always felt, and if anything, more than ever before. GE continues to navigate through its change pre-COVID-19 and through COVID-19 and post-COVID-19. Like any good partner for 20-plus years, we've always played the role of finding solutions in that change as they drive productivity with some of the industries where their own industry may be shrinking that they serve. We will obviously shrink with that industry that they serve. We've done that before. We continue to do that. We're finding new solutions to do that. So we will continue to do that with GE, and we feel very good about the way we are set up to be able to do that for GE.

Question here about pricing. Some of your peers are talking about offering out price concessions to existing and to new prospects. What are you seeing in the market?

So Tien-Tsin, I would say, first of all, our industry has always been competitive. So I don't think our industry has lacked competitive pressure. I would say to talk about pricing in the absence of talking about value is probably something that we think is not the way we would approach pricing and our clients don't approach pricing with us that way. So our conversations start and end with value. We lead with value. When we lead with value, our clients are actually very interested in the value that they will get and can get through some of the services and solutions that we bring to the table. So I would say our conversations have been moving in the direction of much more value-driven conversations for quite a few years now. COVID-19, I would say, has accelerated those, I'm guessing many more of those. Does that translate into pricing pressure? I wouldn't say naturally -- I wouldn't call it as pricing pressure. There are going to be times when it will be a pricing discussion. But that's always the case in the case of competitive pressure. There's always going to be a time when you find your client needs something today to actually help them today and it's the right thing to do because you're in a long game here with them. And we do that. So I wouldn't necessarily call out pricing pressure as the single biggest vector of the many vectors that we just talked about.

Cool. Let's do one more here, it's a question around BPO versus IT services companies. And I guess I was referring to how you, Tiger, were talking about your brand and the culture and this is what you do. But the breadth of some of the more diversified IT services firms, could they get more aggressive here in doing what you're doing in BPO?

They could, they have been, so it's nothing new. I would say, fundamentally, our focus has been 3 things. We do believe that there is deep element of excellence that you build and knowledge that you build when you focus on processes and the domain of the industry you serve at a level of detail that you really understand the industry that you serve and the outcome that need to get delivered and how you do it. That's the strength, which we have always taken to market. I believe that's the strength that's playing out right now. And that's why we've been focused on only some industries. We have not deviated from those industries. You don't build that overnight. You build that over time. Second, I think our focus on specific industries and clients and the solutions that we bring to them, allows us to expand with those clients and gain with those clients and provide interconnected solutions to those clients. One big example would be when we now deal with supply chain for our clients, the fact that we do finance and accounting for them is a huge plus because the interconnection between those 2 is massive. One of the big benefits we are seeing is in analytics, both for banking clients and risk and fraud and claims and so on and insurance claims, as well as supply chain analytics or life sciences analytics or health care analytics. Its connection to process and domain gives us strength and then the cloud journey that we've been on. So our specificity and granularity of our journey, I think, makes us very special. I don't think you can build BPO capabilities overnight, we've always said that. There is a nature of our business in BPO that makes it sticky, annuity, long-term contracts. And the nature of our services is nondiscretionary in many, many cases. That makes us different from many other competitors of ours. Tien-Tsin, I think you're on mute.

Yes. I was going to say, yes, you would think I learned how to do this by now, but yes, a lot of the work you do is much more mission critical. And I think it's always this debate, right, comparing BPO and IT services. But in the end, we can see where the clients are going to go, and that's the most important thing for us to hopefully get right and distinguish well. We should probably end there. Tiger, it's always a pleasure to see you. Even it was virtual, happy to see you. Hope you stay well and healthy. I'm sure you're working really hard. And so look forward to next time we connect.

As we all are, I guess, Tien-Tsin, video call after video call.

Yes, sir. That's right. Keep your eyes off the screen. Take a break every once in a while. But we'll see you very soon, Tiger. Thanks for the time.

Thank you so much, Tien-Tsin.