Genpact Limited (G) Earnings Call Transcript & Summary

So Maggie, it is a credit to our teams that we haven't had loss of client service productivity. What I mean by that is if we set expectations with our clients for delivery of a certain type of service with a certain time line and with a certain completion, again, a little bit here and there. But broadly, we're meeting all of those in spite of absenteeism driven by either people directly impacted by COVID-19 or close family members impacted. Therefore, they had to be absent. And what that means is 3 things. Number one, the teams that are available are stretching and going above and beyond. That's kind of been par for the course for now quite a long time, and people continue to do that. So that's been really -- I mean they're stepping in for their colleagues. Number two, we've actually put a lot of support structure around helping our employees deal with the situation on the ground, whether it is help on medical, help with hospitals, oxygen, now vaccination. We have big vaccination drives that are going on in every one of our centers in India as well as testing. Even for people -- I mean we had about 3,000 to 4,000 people come into the office to do work, particularly in the regulated banking and insurance space. All of that has gone back home of the 60,000-plus people. But even if they're all working from home, if they want, they can drive into the office, get tested and go back. We've opened that up for our employees to get tested because we think the more you get tested, the more you can detect COVID-19 early, et cetera, et cetera. So -- and then lastly, I'll call out our clients. Our clients have been phenomenal, very empathetic. And I think it's a reflection of the investment in relationship that we've built over 5 years, 10 years, 15 years, 20 years, depending on the client, that hopefully is now getting paid back in terms of their partnering with us. Our global footprint is a big benefit. Given that a number of our clients, we deliver services from multiple centers across the globe. Our ability to move the most critical work from, for example, India to Europe, to one of our European centers where we have many, many centers now, I think has been a big benefit. The U.S. centers -- Philippines, which came back from a little bit of an upswing in COVID-19, it came back very quickly down to normal. I think all of those have been beneficial. So no, we haven't seen any material impact on actual service delivery.

Right, and good to hear all that you're doing to support your employees as well. Ed, on the financial side of things, over the past couple of years, there's been a concerted effort to kind of make for a smoother cadence in terms of that margin profile over the course of the year with things like transformation service utilization. And I wonder, in a year like this year where you've laid out 50 basis points of gross margin expansion, you've come out of the gate with a very strong quarter, is this the type of year just given the uncertainty that we may expect more lumpiness on a quarter-over-quarter basis?

Well, I think as we've talked about on the prior earnings call, we got out of the gate pretty well, but a lot of that's driven by mix. So I'd say mix and the favorability of analytics flowing through pretty high-end work, which really helped a bunch as well as a bit of the lower spending than expected, kind of spending a bit slower than we had expected in terms of the ramp-up and the favorable mix causing a bunch of that. We don't expect it to be that robust for the balance of the year. Obviously, we did say we're going to take our margins up 50 basis points -- at least 50 basis points. And we're happy that we got out of the gate the way we did. A little lumpy is the right answer. I do think our spend will ramp up a bit. So we'll see it be -- should be a bit lower Q2, 3 and 4. If the mix is better, it can be better, but our spend will certainly ramp. So I would just say it's -- we got out of the gate very fast. The rest of the year we'll expect to be that robust. Have to see how it plays out. But kind of, I don't know, conservative, but we think kind of coming back to more normalized levels of what we're expecting for the balance of the year. And we'll see how that plays out.

Understood. And then as you think about revenue growth going forward from here, how do you think about the leverage in the business? And then just given the emphasis that you've placed on kind of these redeployment and reskilling platforms, is it feasible that Genpact could sustain this kind of low double-digit Global Client growth that you've talked about at perhaps a slightly lower pace of hiring going forward?

You or me Tiger? You want me to start with it? Yes, we said double-digit to low teens is kind of where we think this business is and has been as far back as I've looked and since I've been -- here as a company -- with the company. So a double-digit, low teen is kind of the normalized. As we mentioned, it was going to take in the lull that we saw in Q2, Q3 last year because of COVID in the bookings that -- it takes us a few quarters to catch up effectively, right, and to get that ramp going with Intelligent Operations deals that ramp over time. TS also was not as robust in terms of growth last year, so that's kind of returning to where we expected it in the Intelligent Operation deals now that we've got -- we're going to have several quarters in a row where we've got that bookings now coming in at a more normalized level. We expect growth to return to that double-digit to low teens to where we've been. For the last 10 years, we expect going forward, the runway for that double-digit plus growth is there. So I don't see that. In terms of the hiring, we've been -- we'll see how everything goes with turnover of the team, but we've been at much lower turnover levels Q2, Q3 even in Q4. We've come back up, as we expected, still just below our -- the low end of the range that we've been on a normalized basis. So we expect, given what's happening in India that -- the hypothesis that we have is a turnover will probably reduce a bit, if you will, during this time frame. But we expect it to return to somewhat more normalized levels in that 25% to 30% range over time and be there. In hiring, Tiger, you can add in. But we've been able to hire folks. We've been hiring folks all during -- even during this challenging period. And we've been hiring volumes of people to support the work that we've been winning. So it hasn't been a challenge. But Tiger, add anything that I maybe missed.

No. So one, hiring has not been a challenge through 2020. Hiring hasn't been a challenge in the first quarter. And in the most recent impact in India, we continue to hire, which is the reason why I said our projects and transitions in-flight continue to deliver. Our hiring has always been a tad lower than revenue growth. And that's historical. I mean that's for 10-plus years. And that's a reflection of continued progress towards higher value-added services, less transactional, more analytical, more digital, more what I would call middle-office services. I mean when I talk about supply chain, our sales and commercial support or even financial planning analysis or financial crimes, they're all really not back-office services. They're all what we would call middle-office services that supports the front end, and therefore, tends to be higher value added. And those tend to have a pretty nonlinear connection between revenue growth and head count growth. So -- and all of that is good for the business in terms of overall leverage.

Understood. Take a moment to encourage the audience to submit any questions if they have any, and I'll pull one from the queue right now. When you were talking about you're becoming more global and that helps in terms of shifting workloads, the question is, with IT services moving near shore and in light of COVID resurgences around the world, is that a model that you have interest in exploring?

We've been "nearshore" for as long as I can think of. So we have significant scale operations in Texas, in Pennsylvania, in Illinois, in Poland, in Romania, in Hungary, so -- in Japan, in the U.K. So we are very close to our clients with on-the-ground operating centers that hire local people and then get them trained in a bunch of the services that we deliver. Typically, the kind of services that those local near our client onshore operations do tend to be a combination of need to be very close to the client; need to be in the same time zone; handle sensitive information; sometimes, regulated. Sometimes the client risk profile is such that they would prefer it to be near. Sometimes it requires contextual information and knowledge that is best sourced in the market. And often connects end-to-end, process-wise, with a global delivery center. It could be in India, it could be in Latin America, it could be in Philippines, it could be in China. So that's been our model now for 15 years. We've grown that model substantially over the last 15 years. So it's not new for us. And that's different from the IT services cohort. Our business has always been that way, so it's not new for us. So I would say that journey just continues. And that's a benefit because, for example, we've not been in the dialogue around Visa law changes and what that does and H1Bs and so on because for us, our operating centers are on-the-ground operating centers where we hire local staff to do operations.

Okay. And then this next one, we've got about 5 minutes left here, is an area that interests me quite a bit. And we've been talking about the customer experience side of things for years now. And in this year where normal operations and ways of working and living have just been upended, companies have kind of tuned in better to their employees' experiences as well. And so I was wondering what you think about Genpact services. Can they be as impactful on the employee experience side of things for clients? And do you think that this is a trend that brings new opportunity and scope for the company?

Fantastic question, Maggie. And the reason I'm saying that is because if you go back to November 2019, when we did the Rightpoint acquisition, it was really predicated on 2 vectors: one was customer experience, so the customers of our business, their experience; and the second was employee and user experience. And if you think about one of our core services, finance and accounting, it's actually less about customer experience. It's some customer experience, it's some supplier experience, but it's mostly about internal teams' experience. When you implement a digital technology that is going to be really good for, let's say, the procurement team to order services and products for the business, and if that technology is great experience and the usage of that is going to be much better, the leverage of that technology is going to be much better. The analytics, therefore, is going to be much cleaner. And therefore, the value for the company is going to be that much better. And by the way, the other important aspect I think you're referring to is that in that journey, with the war for talent the way it is, those companies that have great employee experience as part of their value proposition are going to attract better talent. So if you now think about today, our Rightpoint experience business, about half of what they do is improving employee experience for our clients. And the other half is improving the customer experience for our clients. So it's as much the former as the latter. And it's incredibly important for supply chain, for procurement, for underwriting. So if you implement a new technology that is going to make a lending small business underwriter's job better from a risk decision-making perspective, the chances of that person adopting that technology is so much better if the experience of the technology is great. Otherwise, people kind of have the technology, but they bypass the technology. And that's what a lot of companies are realizing. So therefore, those services are actually very, very relevant for a number of our services.

Very good. It's an area we'll definitely be keeping an eye on. I find it really interesting. In our last 2 minutes here, something that's been very important to our investors and something that Genpact has been vocal on, and I'm hoping you can add some additional context here. How do you think about ESG in the context of your business?

Incredibly important. We've actually spent quite a bit of time over the last 10-plus years on the 3 or 4 key dimensions of ESG. So let's start with diversity, inclusion and equity. For many years, we've been driving an agenda because we are a talent business. We are in the business of professional services. We've always held the view that the more diverse the talent we have that reflects the diversity of talent available as well as the diversity of talent of our clients, the more the chances are that we'll build better solutions, become a magnet to attract great talent. And that took us down the path of improving gender diversity in the company to a point where now at the leadership level, we have a much better gender-diverse talent. It's still probably not what I'd like it to be, which idealistically, I would think should be 50-50 because that's the way the world is, so why shouldn't we be. But we are way better than we used to be. At the Board, with Tammy Franklin recently joining the Board, 50% of our 10 independent Board members, if you take me out as a nonindependent, 50% of them are women. And that's amazing when we think about in 2012, we had 0 women on the Board. We are now going down the similar path around racial equity and diversity as it relates, for example, to the U.S. to Canada, to the U.K., et cetera. So that's the diversity equity inclusion. And for us, it's actually a business imperative more than anything else because we think better solutions are produced. The second is, given our global footprint of our operations, given the use of technology and given the travel that all our people do for consulting engagements, for client discussions, for solution discussions, there is a real opportunity to make our operations sustainable from an environment and carbon-neutrality perspective. So we measure all of that in all our operations. We've been rated as one of the most sustainable operating footprints many years and running. And then overall, from a governance, ethics, integrity, both in terms of policy and execution, both at the Board level, information security and privacy level as well as all the policies on compliance, et cetera, we've been rated continuously as being top tier. It makes our employee value proposition very strong. So that's the first thing I'll say. The employees that we hire across the globe, that talent wants to join a company that actually stands for a certain set of principles and then walks the talk in ESG. And the second is, I think it makes a big difference to our clients. Our clients are on our big ESG journey themselves. Obviously, there's a spectrum of them. Some are going faster than others. And our objective would be to be a role model for them and to help them along those journeys, which means as a supplier to them, we must be actually ahead of the pack. So it's driven from the top. It's driven by Ed and me and the leadership team. We review that as a Board every quarter. And it gets all the visibility that it should get and it demands. And for us, it's actually a core business strategy rather than a "we need to do this" kind of an approach.

Very good. Thank you for sharing with us, Tiger and Ed. We are out of time, but really a pleasure to host you both. And thank you. Thank you to everyone who dialed in as well.

Thank you, Maggie. Thank you.

Thanks, Maggie.