Genpact Limited (G) Earnings Call Transcript & Summary

Thanks, Victor. Good afternoon, everyone, and welcome to Genpact's call for the second quarter, where we'll be discussing the results for the quarter that closed on June 30, 2020. Hopefully you've had an opportunity to look through our earnings release, which went up in the IR section of genpact.com, our website. Joining us on today's call are Tiger Tyagarajan, our President and CEO, and Ed Fitzpatrick, our Chief Financial Officer. Here's how today's agenda looks. Tiger will give an overview of our results and bring you up to date on our strategic initiatives. After that, Ed will take you through how we performed financially during the quarter and share our new outlook for 2020. Tiger will then return with some closing comments, and following that we'll open things up for your questions; we anticipate the call running roughly an hour. A number of the matters we'll cover today are forward-looking; these forward-looking statements carry various risks, uncertainties and other factors that might lead actual results to differ materially from what those forward-looking statements suggest. Those risks and uncertainties are laid out in our press release. Also, on today's call we'll reference certain non-GAAP financial measures that we feel offer additional information to deepen understanding of how management sees the operating performance of our business. A reconciliation of those measures to GAAP is available in today's earnings release, posted in the IR section of our website; and with that, I'll hand the call over to Tiger.

Thanks, Roger. Hello, everybody, and I appreciate your joining this call about our second-quarter 2020 results this afternoon. Given the extraordinary situation the world is confronting, our Q2 numbers came in far above what we had anticipated. What powered this outcome was outstanding implementation by our people across numerous areas, together with the durability of our operating model and the strategic decisions taken throughout many years. Four factors stand out as the primary contributors to these outcomes: number one, achieving work enablement of 99% or higher for our delivery teams worldwide, spanning intelligent operations as well as transformation services. Number two, persevering in securing fresh client engagements in both intelligent operations and transformation services despite worldwide lockdowns. Number three, swiftly launching new offerings in the market by drawing on established and newly developed capabilities as we assist clients in reshaping their business models via accelerated digital transformation. And number four, acting quickly and firmly to streamline our operating expenses and SG&A cost structure, even as we kept funding new areas that matter to our clients and to the future world. The remarkable commitment shown by our worldwide workforce of over 96,000 people as we shifted to working remotely and virtually, along with the sustained delivery of high-quality services to clients, fills me with great pride and has reinforced our standing as a trusted advisor with boards and C-suites. Let me give you the specifics for the second quarter. Our total revenue came in at $900 million, which works out to 3% growth when you strip out currency effects. For Global Clients, the top line was up 4% on that same constant currency basis. On profitability, we recorded an adjusted operating income margin of 16.2% — that's an 80 basis point improvement compared with a year ago — and adjusted diluted earnings per share came to $0.52, which represents a 6% increase year-over-year. Looking at the first half of this year, it has made abundantly clear just how robust and resilient our strategic choices are, along with our industry verticals and the fact that the solutions and services we provide to clients are largely non-discretionary in nature. The industries that have been hit hardest make up only a tiny portion of where we're exposed. Also, a large portion of what we do is annuity-based, and that includes our transformation services segment. Our client relationship teams, plus the transformation services groups that work completely remotely, have managed to launch several digital and cloud enabled offerings that we've spent the last couple of years putting into place. As a result, we've seen continuous flows of new deals, our pipeline has reached an all-time high, and we've won business with new logos. Double-digit growth was led by the consumer goods retail, insurance, and high tech verticals. The strain we anticipated in our banking and capital markets vertical eased, since we secured additional client approvals in the quarter that permitted work-from-home for processes dealing with highly sensitive customer information. The consulting, digital, analytics, and right point experience portions of our transformation services grew by a mid-teens percentage — evidence of how much digital transformation has come to matter to our clients at this moment. Beyond that, we brought clients solutions for optimizing cash and working capital, redesigning supply chains, reducing payment fraud in banking, deploying cloud-based automation, and handling insurance underwriting, along with many other areas, and we did all of it in our quick, agile manner. Today, about 30% of the revenue we earn from global clients comes from Transformation Services. Meanwhile, our conversations with CEOs at the C suite level have risen nearly 5x, which lets us grasp their strategic competitors in these conditions and open new sole source possibilities, both through relationships we already have and with new logos. The deeply collaborative manner in which we shifted to work-from-home, plus the steady delivery of our service level metrics, productivity, and ongoing innovation, have earned us a stronger seat at the table with many clients, in relationships we already hold. Across industries, we observe five major trends that are here to stay for our clients. First, a notable move from offline to online. Second, virtualization of every technology service and solution delivery. Moving on, the third item is that cloud-based services and solutions are being consumed more quickly. The fourth is the tremendous expansion of real-time predictive analytics. And fifth, combining everything mentioned above with a human-centered approach to designing processes and collaboration experiences. These developments fit nicely with what we've prioritized in recent years — working alongside our clients as partners in their digital transformation efforts. Those kinds of transformations have been squeezed dramatically, shrinking from what was typically a five-year timeframe to roughly 18 months. Our cloud service offerings represent one major area where we're investing more heavily; in our view, achieving successful digital transformation through cloud-based solutions depends on three competencies that they are putting money into: deep domain knowledge that's needed to guide the functional design and configuration of a new business architecture. Next, we offer transformation services. These assist with finding and planning, altering, overseeing, and using software to steer cloud initiatives throughout every one of the four assets within our organization: staff, workflows, information, and tech. Last of all, there's the capacity to unite the components of our offerings atop a cloud foundation in a nimble manner. We're teaming up with leading cloud companies to deliver these cloud-powered offerings across every one of our top-priority domains — think finance and accounting, supply chain management, banking operations, and insurance operations, just to give a few examples. Take one big industrial customer: we're redesigning how they handle cash collections, aiming to cut payment mistakes and strengthen regulatory compliance, by moving their collections application onto Amazon Web Services so they can achieve better cash flows. Digital commerce is another place where we're ramping up attention and spending, and there we're serving clients in the B2B and B2C markets alike. With the global move from physical to digital picking up speed, the companies we serve must rethink how they do business—revamping both the essential processes they run on and the look and feel customers encounter. When it comes to selling online, getting information, money, and goods to move without friction is essential if you want customers to have a great experience. Our part is unlike anyone else's: we help connect that freshly imagined customer-facing side with a supply chain, auto management, and finance operation—spanning everything from start to finish—that has been rebuilt from the ground up. That gives us a real advantage that sets us apart when it comes to supporting customers as they shift toward digital channels. Consider a leading consumer packaged goods company that's making a major push to grow its e-commerce business — we're rebuilding its entire middle- and back-office technology stack and workflows, and connecting all of that to brand-new front-end systems. Through artificial intelligence and predictive analytics, we're reshaping how its supply chain runs, how trade promotions are handled, and how cash gets collected, all so leakage goes down and the user experience gets better. The result of this work has been an expanding pipeline that now contains quite a few sizable deals. Many of these sizable contracts are taking longer to work their way through each stage of the pipeline, but the overall age profile has not shifted from what we've seen historically, and we're seeing more deal activity and more inflows; during the second quarter we signed a number of new agreements and we're gaining share among clients both new and existing. Our partnership with Walgreens Boots Alliance, which has existed for a long time, was expanded — they selected us as a long-term partner to help improve their finance capabilities, costs and controls. This draws on our deep expertise in domain processes as well as our retail and healthcare knowledge, together with AI, automation and analytics offerings powered by Genpact Cora, our digital business platform. Working as one, we'll bring consistency to how finance gets done, create great experiences, encourage, enable easier and more intelligent use of information, and free up cost savings so that innovation can flourish across Walgreens Boots Alliance—while also supporting stronger results for the business.

A global bank chose us as well, tasking us with marketing operations and campaign management, drawing on our data and analytics strengths. On top of that, we handle scale-up support and collections for that same bank in several geographies. So with this bank, we now share a broad, varied relationship, with solutions reaching across customer service, collections, core operations, credit and risk, data quality and governance, and lending on marketing operations. Speed and agility, in our view, are the crucial ingredients of success — they let us react fast when the marketplace shifts and deliver creative offerings to our clients. Thanks to that, our teams made a smooth transition through a model that was mostly work-from-home. We refreshed our Smart Enterprise Process, or SEP, frameworks with fresh protocols so services could run virtually, and gave clients thorough playbooks explaining how to rework their processes for a work-from-home setting. Several new solutions also arrived during the past few months, tailored to the industries we've chosen and aimed at particular outcomes for our clients. Let me offer a handful of illustrations. Plenty of our clients use a forecasting-as-a-service offering built on AI and machine learning, tapping nontraditional client data plus other external datasets to project key business metrics like revenue, cash, and inventory, at a time when conventional forecasting approaches resting purely on historical trends can no longer be trusted. A big industrial manufacturing company employs AI and machine learning through an assisted buying process and a cloud-based automated procurement solution, lifting user experience, boosting visibility, and driving spend reduction. Clients in a range of industries use AI and machine learning to spot duplicate and fraudulent claims in areas where volumes run high and visibility is thin. The power of these offerings drove our mid-teens growth in transformation services, even under these conditions. Such tightly focused engagements frequently pave the way for long-term annuity work down the road. In this virtualized world, we're convinced that a work-from-anywhere model — one offering a flexible blend of home and office delivery — will turn into the standard. Every service delivery model will combine onshore, near shore, offshore, and work-from-home, shaped by client processes, regulatory constraints, and employee preferences. That gives unconstrained reach into talent pools worldwide, 45 business resilience and continuity, and can lift both employee and customer experience. We're already piloting a permanent work-from-home, work-from-anywhere model in chosen geographies, with plans to potentially take it global. Across the past several months, our proprietary platform TalentMatch has let us spot talent ready for redeployment from one area of our business to another as client needs evolve. Paired with Genome, our reskilling platform, this strengthened our capacity to scale the work-from-anywhere model and sharpens employee utilization around the world. We've likewise reworked our cost structure in light of reduced growth projections for this year, through steps aimed at raising utilization further and making our real estate footprint more efficient. That gives us room to reconcile near-term requirements with the capacity to put money into long-term growth possibilities. When a broad-scale comeback to the workplace might happen stayed unclear. That's because of the differing pandemic phases of COVID-19 among the geographies where we do business. With the health, safety and overall welfare of our worldwide employees as a foremost concern; we stand ready to keep providing services to our clients and to innovate on their behalf under a mostly work-from-home approach. Any resumption of office work is going to be rolled out gradually and in a phased manner, alongside social distancing, temperature screening, and other protocols. The vital character of the product was redeliver for our clients, occupies a central part in worldwide commerce and puts us in a good position to cope with elevated uncertainty in the macro setting. Clients are looking for a strategic partner possessing a wide delivery — worldwide delivery footprint so they can diversify their operations and be helped in pursuing a sped-up digital transformation journey that let their business model adapt to the new normal. What the past 7 months have demonstrated to us is that our profound domain depth and process expertise, together with our investments in digital transformation services, assist us in keeping a robust, competitive advantage. None of this could happen absent the disciplined efforts of our leadership teams; yet always shifting with speed and agility, pivoting toward the new and driving our values and culture deeply into the organization. With that, let me hand the call over to Ed.

Thanks, Tiger, and good afternoon to all of you. I'll walk you through the results for our second quarter and then share the full year financial outlook for 2020 as it currently stands. Let me start with the second quarter. We posted total revenue of $900 million for the quarter, which was up 2% compared with a year earlier, or 3% in constant currency terms, with the upside coming from stronger than anticipated performance in both our global client and GE businesses. Revenue from global clients made up 87% of the total and rose 3% year-over-year, or 4% in constant currency, coming in above what we had expected. The improvement came from better revenue coverage tied to the shift to our remote working model, along with client demand for transformation services that was stronger than we anticipated. As Tiger said earlier, revenue coverage overall got better as we secured additional approvals in our banking and capital markets business to work from home, and we were able to let certain employees across the globe come back to the office through a disciplined and measured approach. Throughout the quarter, we kept growing the size of our global client relationships. For the 12 month period that ended June 30, 2020, the count of global client relationships with annual revenues above $5 million rose from $121 million to $132 million. That figure covers clients with more than $50 million in annual revenue, which grew from 8 to 11. GE revenue fell 2% year-over-year. Adjusted operating income margin came in at 16.2%, versus 15.4% in the same period a year ago, mainly because revenue growth beat expectations. That was combined with the accelerated cost containment efforts we pushed during the quarter. Those containment efforts included lower discretionary spending, targeted cuts to transmission services headcount, which lifted utilization levels, and then SG&A headcount and related spending, which now lines up better with our updated revenue level expectations. Reduced travel and favorable foreign exchange also helped boost AOI margins compared with a year ago. As Tiger noted in his prepared remarks, given the uncertainty around COVID-19's impact during the quarter, we took steps to lower our run rate cost base. In the second quarter, we booked a $22 million restructuring charge, made up of 11 million of severance costs tied to workforce reductions to manage utilization and streamline corporate expenses, plus an $11 million charge in other operating expenses related to certain leased properties that we no longer expect to occupy. We expect the savings from the severance actions to cover the severance cost within the third quarter; these restructuring charges are excluded from our second quarter adjusted operating income. Also sitting in other operating expenses is an $8 million impairment of certain digital assets that we no longer plan to leverage, as we keep reallocating our resources toward the digital solutions that are most relevant and impactful for our clients. These costs are included in our adjusted operating income. For Q2, gross margin came in at 34%, and if you strip out the restructuring costs I referred to earlier, it would actually have been a touch higher than the 34.5% we posted in Q1 2020. That 34% figure takes in roughly a 100 basis point hit from some clients who wouldn't allow work-from-home arrangements during the quarter. So going forward, we anticipate margins improving as we move through the rest of 2020. SG&A, measured against revenue, fell 160 basis points from a year ago, helped by cost containment efforts tied to COVID and reduced travel spending, both of which came up earlier. If you set aside those restructuring charges we talked about, SG&A was down 220 basis points. Adjusted EPS reached $0.52, a 6% gain versus the $0.49 posted in 2019. That $0.03 improvement largely came from operating income that was $0.04 higher, partly offset by interest expense that was $0.01 greater. Our effective tax rate for the quarter stood at 21.5%, versus 22.4% a year ago, mostly because of a shift in the jurisdictional mix of income. Now moving to the balance sheet and cash flows. In the quarter, we gave back $19 million of capital to shareholders through our quarterly dividend of $0.10 per share, which represents a 15% increase over last year. Although roughly $229 million of authorized capacity remains available under the share purchase program we currently have, we're taking a cautious approach with buybacks until we get clearer visibility into how COVID-19 will play out. Cash and cash equivalents came to $867 million, up from $379 million at the close of Q2 2019, and that included $330 million tied to the drawdown on our bank facility that we executed early in the second quarter. Our net debt to EBITDA ratio across the trailing four quarters came down to 1.63x from 1.85x at the end of Q1. Days sales outstanding improved on a sequential basis to 87 days, compared with 89 days in the first quarter. In light of the current conditions, we'll keep watching the aging of our accounts receivable closely, and that has stayed fairly steady through the end of July. We produced $192 million of cash from operations in Q2, versus $126 million in the same period a year earlier. That gain reflects higher operating income along with comparatively less working capital investment than last year. With our strong liquidity position and the recent easing in debt market conditions, we'll probably move to pay down part of the outstanding balance on our revolving credit facility during Q3. Capital expenditures represented 1.8% of revenue in Q2, one percentage point below the prior quarter, as tighter spending controls kicked in amid the uncertain environment. That said, we're still investing to support our COVID-19 work-from-home capabilities, including information technology and related information security, and those efforts will carry on over the coming months. For the full year, we still expect capital expenditures to land between 2.5% and 3%. Based on what our results show, the strength of our balance sheet has been meaningfully enhanced. Our priorities for allocating capital remain unchanged. Organic growth remains the first place we will invest. In addition, we maintain a robust M&A pipeline, and we will stay diligent in looking for businesses that could enhance what we are able to do within the service lives we have selected. Let me move next to our outlook for the full year, plus an initial framework that can help you consider how revenue might grow in 2021. On a constant currency basis, we anticipate total revenue for full year 2020 will rise by about 3.5% to 5%. At the bottom end of that range, we are essentially assuming sequential revenue stays flat in the third and fourth quarters compared with the level in the second quarter, since we still believe the second quarter ought to be the weakest revenue quarter this year. At the top end of that range, we assume single-digit sequential gains in both the third quarter and fourth quarter. For Global Clients, revenue growth is now projected to land between 5% and 6.5% on a constant currency basis; for GE, we expect revenue to fall 6% to 8% this year. Although we generally don't provide bookings guidance, I'd like to offer some commentary on what we currently expect for bookings for the full year 2020, along with our early thinking about how that might convert into top line growth for 2021. Because of the longer client decisioning cycle that Tiger mentioned earlier, bookings this year are, unsurprisingly, on track to come in below last year's level in 2020. As a result, we think the path back to our top line growth rate will stretch across all of 2021. That said, with penetration rates still low, our market continuing to expand, and the record pipeline levels we are observing, we absolutely expect Global Client revenue growth to get back to low double-digit to low teen growth rates as we move through this period in which the current booking cycle is elongated. Regarding margins for 2020, we now anticipate delivering adjusted operating margin of roughly 15.5% for the full year. Our plan is to start ramping back up our R&D and sales and marketing spending over the remainder of the year as visibility improves and revenue grows sequentially. Naturally, everything here hinges on how COVID-19 develops, but at present we have factored in a fairly stable environment reflecting the current situation. With this outlook in mind, we estimate adjusted earnings per share for the full year 2020 will be in the range of $2.03 to $2.07. With that, I'll hand the call back to Tiger.

Thanks, Ed. The sector we compete in still has a lot of room left to grow. Clients today feel more urgency than at any point before to make changes quickly. Frequently we act as the guide and the spark for our clients' transformation efforts, and we're able to deliver the skills they require to steer through those shifts. The bets we placed on which industry verticals and service lines to prioritize have paid off. What we've put into digital, analytics and consulting — among them the Rightpoint deal we closed not long ago — lets us steer clients through digital transformation efforts right when digital sits at the very center of things. Our solid execution has strengthened how much clients trust us as a reliable advisor. The nimbleness and adaptability we showed in managing our cost structure let us pour more into cloud and digital commerce, areas that matter more and more to our clients. We keep hiring talent on purpose to back these areas. A healthy balance sheet plus robust cash flow let us keep chasing strategic acquisitions that strengthen these and other capabilities. If the world has taught us a single lesson, it's that ecosystems come out on top. Together with our clients, we understand that deep, wide-ranging partnerships deliver both speed and know-how in this rapidly moving, constantly shifting landscape. And we never stop expanding our partner ecosystem. Among our most important relationships are hyperscaler cloud players such as Amazon Web Services, Google Cloud Platforms, and Microsoft Azure. Then there are specialized cloud solution providers such as Anaplan, BlackLine, HighRadius and Kinaxis, plus strategic go-to-market allies such as Deloitte — a partnership we announced just this week. The vigor of our inflows and pipeline demonstrates that our strategy and execution are delivering results; we think a number of our recent wins spanning our selected verticals prove our standing as a transformation thought leader. Nothing has changed in our confidence about long-term top line growth trajectory and margin profile. Our long cycle business gets complemented by short cycle transmission service engagements, which lets us help clients transform their operations quickly through every phase of the business cycle. Recent months have driven home how resilient this model is. One source of pride for me is how our teams keep giving back to the communities where we work. Whether running call centers for various state governments in India, to support COVID-19 patients, or managing COVID-19 testing data for local governments, or serving meals to underprivileged communities, our teams keep exceeding expectations. We've also made parts of Genome, our internal reskilling platform, available to the public so people can pick up the right skills for what's ahead; we've long held that a robust culture of diversity and inclusion offers a competitive edge for cultivating the best ideas and building cutting edge solutions. Across the past 10 plus years, we've achieved tremendous progress on gender equity, beginning with our Board representation, my leadership team, and spreading around the world across the whole organization. Our racial equity initiative is getting more of our attention; we recognize there is much still to accomplish, yet we remain dedicated to helping propel this change the world has needed for far too long. I'd like to use this moment to express gratitude to Bob Scott, who retired not long ago from his position as Chairman of the Board of Directors. Through the years, every one of us has gained enormously from Bob's guidance, sharp mind, and sound judgment. We send him our warmest wishes. Jim Madden, who has served on our Board for a long time, has stepped into that leadership position. I'm eager to work side by side with him as he settles into this new capacity, continuing to draw on the tremendous advice he has offered us throughout his tenure; finally, I want to acknowledge once more the incredible effort and commitment shown by our more than 96,000 team members worldwide, who have united to stand behind our clients, communities, and one another throughout these trying times; over the past several months they have met this challenge squarely, fueling productivity and innovation for our clients while living our values and culture daily, coming together around a common mission to bolster the global economy. With that, I'll hand the call over to Roger.

Perfect. Thanks, Tiger. At this point, we'd like to begin the Q&A portion of the call. Victor, please share the instructions for asking questions.

Thanks. Hello, Tiger, and hello, Ed. It's great to get an update from the two of you.

Thanks, Ashwin.

Hi there — that was a really strong quarter relative to what had been expected, no question about it, so nice work on that.

Thanks a lot.

And that's roughly where my opening question sits — could you unpack the delta for us? You all spoke about midway through the quarter, and a surprise this strongly positive tends to be rare for a business like Genpact, which enjoys strong visibility into results. So it would help if you could separate out how much came from the added work-from-home shift, the distinct effect of what looked like stronger transformation services, and any other elements.

Yes, Ashwin. Thanks. That's a fair question. Ours is indeed a business with strong visibility — no doubt about that. We've consistently stated as much; as you may recall, guidance was suspended when we spoke at the close of the first quarter. The rationale there was that the environment was shifting a great deal, so we chose to hold off and observe how things would play out. Approvals for work-from-home from our banking clients came through more quickly than we had anticipated. As you may recall, back then we mentioned securing approvals from certain banking clients, and we accomplished that, which is what let us reach 99% plus of revenue coverage through work-from-home. That was one major factor in surpassing our own projections. The second is transmission services. As you may recall, we described new solutions brought to market that combine a set of capabilities assembled over five years, highly pertinent to today's market in areas like cash, working capital fraud, supply chain, and analytics — all of those genuinely gained marketplace traction; and third, I'd point to our delivery, not only in the shift to work-from-home, but in sustained productivity and innovation, which has truly pleased our clients; we've grown considerably closer to the C suite. Consequently, we've been able to discuss certain new transmission service journeys. A number of them have turned into subsequent inflows into our pipeline. So I'd say every one of those elements came in well ahead of what we expected given the visibility at that moment, which, as you may recall, I described as rather poor.

Okay, got it. What I was really after was some way to break down how much each of those main elements contributed. And then, for my other point, I'm curious whether your momentum has kept going through July and beyond, because from where I sit, the guidance you gave for Q3 and Q4 — at least the bottom end of it — looks pretty cautious. Any thoughts on that would be helpful.

Let me try to address that — perhaps add a bit more detail on each of those areas. The way I'd put it, what Tiger mentioned first, improved coverage around work-from-home, was likely the biggest contributor, with transformation services close behind, nearly neck and neck. And honestly, it wasn't really any single item — there were several things at play, and those two stood out as the largest, plus a somewhat better result in intelligent operations too, correct? Tiger discussed execution, so every one of them played a part. The largest single piece, I believe we mentioned, was the roughly $30 million tied to not being able to build on a work-from-home setup. We likely reduced that by about half, on that sort of scale, to give you a sense of the quantification in TA, and TS came after that, then intelligent operations. So that's some figures attached to what we discussed during our prior quarter and how things turned out. As for the second — what was that question you asked again?

Yes. It feels like you're carrying a lot of momentum as we head into Q3. So if we take the bottom end of the outlook you gave, having Q3 and Q4 come in sequentially looks pretty cautious. What's your take on that first, and how would you answer, I suppose?

I'll go first. Tiger, feel free to jump in. I think, well, this is the situation we find ourselves in, correct? Even with full-year guidance out there, uncertainty remains. I'm not certain, right? Each day there's news about yet another state where infections are climbing. So given that degree of uncertainty, it's simply an abundance of caution — hey, look, we need to watch how this unfolds before we'd be comfortable stretching further. I think roughly flat across the coming two quarters is wise. But we've also noted, hey, look, we ought to be in a position to see things turn out well, with quarter-over-quarter gains in Q3 and Q4. So I believe that's the sensible approach. Tiger, anything else you'd like to add? I mean, the positive side is, as Tiger said, the inflows look solid. They're arriving, the pipeline keeps expanding. That's encouraging. Now we didn't manage to get those deals across the finish line. But absent greater certainty in the environment, I think the guidance we've given is fitting. Tiger?

No — Ashwin, you shouldn't read anything else into it beyond the fact that this is simply the climate we find ourselves in. Conditions can shift, and visibility plus uncertainty may alter details that are unknown to us as of now. So given those circumstances, being cautious at the bottom of the range is the correct approach. That's absolutely clear. Should nothing change, you're correct that we ought to be able to outperform at that lower bound, which explains why Ed mentioned the Q2 revenue figure sitting at the lower bound for this year; and going forward from that point it will rise. Still, our view is simply that present conditions require us to stay conservative and prudent.

That makes complete sense, since there is plenty of positive news in this. Thanks.

Indeed.

Thanks, Ashwin.

Ashwin, if you look at it from a math standpoint too, you provided some detail on GC, GC and GE; our expectation, driven by productivity and other factors, is that those will come in lower during the year's second half; so for your model, that's one more thing pushing the overall figure.

Hello, and thanks. My mobile reception is excellent right now. So, if it's okay with you, I'll combine a couple of questions into one. To start with — and by the way, the results this quarter were fantastic.

Thanks.

Regarding the sales cycles appearing somewhat extended, as you mentioned, I'm wondering how much of that stems from pursuing potentially bigger enterprises and perhaps customers who are new to outsourcing. My second question concerns margin. I heard the outlook regarding R&D, and I just want to confirm whether that's something you can adjust, as you described to Ashwin, should conditions become more challenging — can we take it that you'd have the option to reduce spending somewhat while still maintaining margin? I'm simply trying to grasp the dynamics of how revenue will develop and what you intend to achieve on margins under both the favorable and unfavorable scenarios. Hopefully that's clear.

Yes, I understand. Both are good questions, Tien; allow me to address the first one; in some ways it resembles a tale of two cities. When you mention cycle times and so forth, there exists an entire group of sizable deals that, simply because they are complex and clearly incorporate a digital front end center within each of those transformation journeys, regardless of the vertical involved. Regardless of the service involved. From supply chain to insurance operations to banking, KYC, AML, or finance and accounting. Consequently, by their very definition, they typically require more time. I believe it has little connection to new customers or new logos. I think the path has been thoroughly demonstrated by numerous others, so even when it's a new customer, incidentally, many have been inspired to embark on these journeys at present, and I think they can observe what others have done and adopt it. So I don't believe that's the problem. The problem is more that assembling all of this requires time; and beyond that, we have work-from-home, we have virtual visits. So all of that requires a bit of time. Additionally, there was a stretch of, I'd say, 90 to 120 days during which everyone's sole focus was relocating themselves into a work-from-home setup. And whether we were providing services to them or another party was, we too had to do the same, and all of that needs to stabilize. The reason I described it as a tale of two cities is that there are a fair number of instances where we're witnessing speed unlike anything we've seen previously. These typically aren't large deals; they're usually deals of reasonable size. They are definitely transmission services deals, without question; in many instances, they are analytics deals. Analytics experienced a very strong second quarter following a strong first quarter. And those are likely faster than ever before. This reflects how choices are getting made — decision cycles are far quicker, and our customers are behaving with much greater agility. As for your second question, Tien, the strongest way to respond is by pointing to what we did in Q2. The manner in which the team united to pull the right levers and recalibrate our cost base for what we believe is this year's new normal shows us two things: we're capable of doing it, and we understand how. So when we consider putting money back into some of the new offerings we're developing — especially the 2 we singled out, cloud and digital commerce — fine-tuning that so margin stays aligned with revenue and top-line performance is, I believe, a given. Tien, did we lose you?

Hi, Tiger and Ed. I wanted to build on that final point and maybe approach it from a different angle. Tiger, could you share a bit about how you're seeing pipeline and signings expand; and any details that would characterize the pace at which they're growing right now compared with a year ago? And the reason I'm asking is that you did make some reductions in headcount during the quarter to reflect what you called the new normal, but are you worried that when you scale back up you'll be able to handle those requirements; and then I have a follow-up for Ed, if I may.

Yes. Keith, I'll address directly the portion of your question you raised. Flexing is not something we're worried about. As additional bookings, volumes, deals and ramp ups come in, we have absolutely zero worry on that front. But regarding ramp up, you're referring to a scenario in which that occurs and the market surprises us with even greater amounts than we anticipated. Even then it would create demands on us, though less than the demand we faced when growth rates were high just last year, for instance. And we've scaled up in sales, digital, analytics, consulting, domain around the world. So we have no worry about that. Some of the steps we took were driven by utilization across a portion of our transmission services group, along with intelligent operations and our SG&A functions. And those steps were taken because of utilization so that we'd have the chance to go and bring in fresh talent in areas where we wanted to keep hiring and build new capabilities; so I'm not at all worried about either our capacity to scale up as more of that volume arrives, or the idea that we've lost and let go of people we didn't want to let go. In fact, I believe we've generated fairly significant excitement within the company over the last five months. The manner in which we've navigated this, the manner in which the team has united to serve the client, the client's response and then the effect it's had on our pipeline and our inflows and our client conversations.

All right. And to have Tiger clarify that point, could you say whether the pipeline, or signings, is expanding at a low single digit pace, a mid single digit pace? Or are you seeing double digits? And I wanted to ask a follow-up, since it ties back to what Ed said. Ed, you mentioned an aspiration to return, for global clients especially, to the low teens — that was the context, I believe; and you referred to '21. Was the point that you expect to be back there by '21? I couldn't tell what the conclusion was regarding any sort of time horizon, given the pipeline and signings you're seeing right now.

Yes, Keith, our business is, by its very nature, one with long cycles. So if bookings are delayed for a couple of quarters, since signings aren't taking place because everyone is essentially hunkering down to get work-from-home delivered — which is precisely what occurred across the entirety of Q2 and the latter portion, the final 15 days, of Q1. And among certain segments of our client base, and in certain geographies, that remains true. So you would then anticipate that this leads to lower bookings in 2020 compared with last year, which is the very thing Ed pointed to. And that in turn leads to a tempered revenue growth rate next year, rather than simply bouncing back. In our business, a bounce back wouldn't happen. What would begin to bounce back, assuming everything else holds steady, is that bookings would start returning — but that then feeds into revenue afterward; so as I put it, we would expect to return to a normalized Global Client growth rate as we move through 2031. So to put that another way, once we reach the close of 2021, our Global Client growth rate ought to be back at normalized growth rates.

that clears things up completely. I really appreciate you taking the time to answer.

Thanks, Keith.

Thank you, Keith.

Hello everyone. Good afternoon.