Genpact Limited (G) Earnings Call Transcript & Summary

Thanks, Buena. Hello, everyone, and good afternoon. It's great to have you join Genpact's Q2 call, where we'll be going over what we achieved during the period that closed on June 30th, 2021. Hopefully you've had the opportunity to look at our earnings release, which is available in the IR section on genpact.com. On the line today are Tiger Tyagarajan, our President and CEO; Ed Fitzpatrick, our Chief Financial Officer, who is departing that role; and Mike Weiner, joining us as the new Chief Financial Officer, taking over from Ed, who is moving into a different leadership position here at Genpact. Here's how today's agenda looks: Tiger will give an overview of how we performed and share an update on our strategic initiatives. After that, Ed will take you through the financial results for the quarter and offer some perspective on what we expect for 2021. Then Tiger will return with a few closing remarks. Following that, we'll open things up for your questions. We anticipate this call running roughly 60 minutes. A portion of what we cover today is forward-looking and carries 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 described in our press release. Also, on today's call we'll be referencing some non-GAAP financial measures that we feel give extra information and improve understanding of how management sees the operating performance of our business. A reconciliation of those measures to GAAP can be found in today's earnings release, which is posted in the IR section of our website. With that, I'll hand things over to Tiger.

Thanks, Roger. Hello, everyone, and I appreciate you being with us this afternoon for the earnings call covering our second quarter of 2021. During Q2, revenue from global clients came back to growth in the double digits sooner than we had expected. Momentum picked up in transformation services—analytics especially—and our intelligent operations business stayed strong, which pushed us past what we had projected for the top line, the bottom line, and cash flow. The strategic bets we've placed on offerings like supply chain, sales and commercial, and financial crimes and risk are turning out to be highly relevant for our clients, creating lots of fresh chances to deliver value in areas that go past cost and productivity alone. For Q2 2021, total revenue reached $988 million, which is a 7% increase on a constant currency basis. Revenue from global clients came to $893 million, rising 11% on a constant currency basis. Adjusted operating income margin stood at 17.9%, which is 170 basis points higher than the same period a year earlier. Adjusted diluted earnings per share were $0.66, a 27% gain versus a year ago. Before I go deeper into the quarter, I'd like to extend a welcome to Mike Weiner, who became Genpact's new CFO on August 10th, taking over from Ed Fitzpatrick, who is remaining with us in a market-facing client advisory capacity. Mike brings solid experience as a public company CFO and arrives with a deep background in the finance function, having worked at numerous large global corporations. We believe Mike will add a great deal to the company's ongoing success as we carry out our strategic growth agenda; we're thrilled to have him with us. Mike is on today's call and will offer a few remarks afterward. When India experienced the second wave of COVID-19 a few months ago, we managed to adapt and keep delivering services to clients, so our business saw no material impact; that was achievable only thanks to the steadfast support of our clients, along with our operations distributed geographically throughout India, our broad global delivery footprint, and our capacity to swiftly move talent between different parts of our business. I'm glad to share that new cases within our India-based team have dropped considerably, and we're pushing hard on a vaccination drive alongside local hospitals, with clinics for vaccination established at numerous operating centers of ours. So far, over 60% of our India workforce has received at least one vaccine dose. Looking ahead to the second half of the year, demand overall stays healthy as companies continue pursuing digital transformations. The pipeline keeps featuring a growing share of new logos. Revenue from global clients got back to double-digit growth during the quarter. That strong result showed up across the majority of the industry verticals we've chosen, among them consumer goods and retail, life sciences and healthcare, high-tech, and manufacturing and services. As we anticipated, banking and capital markets took a hit from the restructured relationship with one client that downsized its asset management business. Our banking and capital markets pipeline got bigger, and financial crimes plus risk services opportunities helped drive that. In the quarter, transformation services made up 35% of global client revenue and expanded at 30%+, with Enquero's acquisition contribution included. Many of our transformation service engagements remain annuity-based. Analytics keeps fueling transformation services, and that business has posted faster growth in each of the last three years. Strong demand combined with our strategic investment means analytics is now the biggest piece of our transformation service business, and we're still growing well in consulting and digital too. Let me give you a few examples of transformation service engagements and the value clients get. A global CPG company is shifting its operating model and redesigning the user experience for sales teams so they free up substantial capacity to drive greater growth and customer satisfaction; an insurance company is using Cora, our AI-based cloud workflow solution, to coordinate underwriting processes across the client's shared Microsoft Azure environment, which speeds up underwriting significantly while improving premium pricing, reducing risk, and lifting profitability. A high-end consumer electronics company is drawing on our industry expertise and data, AI, and machine learning-based analytics to sharpen demand and supply forecast accuracy. By connecting those forecasts with planning and production processes, order fulfillment improved 20%, planning time fell 40%, and inventory dropped 15%. A global bank brought our data specialists and subject matter experts together to strengthen data governance substantially, which made regulatory reporting more timely and accurate. We've repeatedly observed that launching a new client relationship through transformation services generates later growth. During the last 18 months, 60% of new accounts that began with a stand-alone transformation services engagement produced a follow-on booking, including longer-term annuity deals. On top of that, many of these engagements let us use new and more profitable commercial models rather than traditional FTE pricing. The portion of total revenue tied to alternate commercial models has kept rising. Thematically, three competitive differentiators help us win. First, we can orchestrate data and analytics in the cloud, which is becoming central to every client's transformation journey. Second, we have deep expertise connecting services like finance and accounting with supply chain, or financial crimes and risks with banking operations, or supply chain with sales and commercial operations. Finally, we concentrate on delivering value to clients beyond cost and productivity alone, such as higher growth, lower receivables and inventory, or reduced losses and fraud. In every instance, we tie client outcomes to commercial constructs. Our service portfolio, investments in data and process models, and digital expertise are proving highly relevant to clients in this business environment. We're seeing particularly strong momentum in four areas: sales and commercial, supply chain management, financial crimes and risks, and financial planning and analysis. Let me go through each one. First, in sales and commercial, we're combining cloud-based data and analytics with operations insights to help clients grow revenue. As an example, we help the sales teams at our high-tech clients zero in on the best opportunities to go after with small and medium businesses. Second, in supply chain services, because of the disruption in semiconductors, we're helping many integrated device manufacturing companies, foundries, and tier-one chip manufacturers improve demand and supply planning through data and analytics. Third, with digital commerce becoming pervasive and no longer industry specific, clients increasingly need to tackle fraud and financial crimes. Our teams of industry experts and data scientists are building and deploying as-a-service cloud solutions for fraud and anti-money laundering, know your customer, and transaction monitoring. Last, FP&A is ripe for disruption, and we see major opportunities to apply our deep industry expertise, strengthen finance and accounting, and use cloud-based data and analytics to give clients agile forecasting and decision-making capabilities that cut across customer, supply chain, marketing, and finance data. All of this shows that whatever drives growth for our clients is a high-growth opportunity for us.

As an illustration, not long ago we shared news of a fresh strategic alliance with Coca-Cola Beverages Africa, aimed at assisting them in achieving competitive growth. Drawing on our extensive process knowledge and domain expertise in the consumer packaged goods and beverage sectors, we're setting up a shared services entity that spans multiple functions and is digitally powered, designed to consolidate and streamline finance, procurement, data management, and additional areas, producing smart operations that enhance customer service and free them up to focus on their expansion plans. It's always been our conviction that our personnel represent our greatest edge over competitors. So bringing in, developing, and keeping skilled individuals remains a leading priority for the company. During this quarter, we grew our net worldwide headcount by over 5,000 individuals. Through the years, we've built a standing as a company recognized for fostering excellent career paths. What we put into training and growth for our staff lets our people acquire essential new abilities that will be required going forward. We make use of our expandable web-based education system, Genome, to retrain our employees. Genome, when paired with our internal mobility system, Talent Match, has proven hugely successful, and in this quarter, we moved 4,000 team members into different positions, giving them fresh career prospects. As we talked about three months ago, we offer a distinctive accreditation initiative focused on data and analytics that equips our staff to produce key insights from our enormous operational data collections, which in turn lets us create distinctive data frameworks in particular specialty fields that deliver significant value to clients. 60% of our worldwide staff is presently signed up for this initiative, with roughly 10,000 completely educated and assessed by the close of the second quarter. Our robust results for the second quarter demonstrate that the strong fusion of profound domain and process know-how, together with our strategic bets on digital analytics and experience, gives us an edge that sets us apart. We hold the view that engagements in transformation services foster superior long-term relationships with customers, with stronger connections to C-suite executives, opening avenues to various purchasing hubs. This has resulted in over half of our bookings continuing to come from single-source agreements; as our market opportunity grows, we're delivering additional transformation services and smart operational solutions to our customers, positioning ourselves to carry on our extended mission of achieving annual global client growth in the double-digit to low teens range and intentional growth in adjusted operating margin. Given how we've performed so far this year, we're now lifting our projections for 2021 full-year revenue, adjusted operating income margin, and adjusted diluted earnings per share. Having said that, I'll now hand the call over to Ed for a thorough walkthrough of our second quarter results.

Thanks, Tiger, and good afternoon, everyone. I'll start by walking through what we saw in the second quarter, then share our current view on the full-year 2021 financial outlook. Revenue came in at $988 million, which is a 10% increase compared with a year ago, or 7% if you strip out currency effects. Just like we saw in Q1, the upside versus what we had expected came from global client growth that was stronger than we'd anticipated, especially in analytics. Revenue from global clients makes up 90% of the total and rose 14% versus last year, or 11% in constant currency terms; within that growth there's a contribution of roughly one point tied to certain divested GE businesses that we started counting in our global client portfolio on January 1st, 2021. As Tiger said a moment ago, we got back to double-digit top-line growth with global clients sooner than we'd planned; the main force behind that was how well our transformation services revenue performed, once again powered by robust analytics growth. We kept making our global client relationships bigger during the quarter. To illustrate, across the 12-month period that ended June 30, 2021, the count of global client relationships generating annual revenue above $5 million went from 132 to 136. That figure encompassed clients whose yearly revenue exceeds $25 million, which climbed from 23 to 26. GE revenue fell 19% compared with a year earlier, reflecting the productivity savings we're committed to delivering as well as the broad macroeconomic pressure on GE's businesses. If you set aside the revenue tied to the divested businesses I just referenced, GE revenue would have been down 10% for the quarter, which is exactly what we had expected. Adjusted operating income margin reached 17.9%, a gain of 170 basis points versus the same quarter last year. That improvement over last year came from gross margin expansion, operating leverage, and overall operating expenses that stayed lower, including reduced travel-related costs. Gross margin for the quarter was 35.9% versus 34% a year earlier; the 190 basis point expansion was mostly attributable to a richer mix of transformation services, analytics in particular, along with better utilization, though that was partly offset by greater medical costs, which were elevated due in part to COVID-19. Worth noting as well: last year's gross margin came in below expectations because client billings took a hit from the move to remote delivery when the pandemic first struck. SG&A expenses represented 20.7% of revenue, matching last year's figure. We still plan to ramp up what we spend on sales and marketing as well as research and development over the back half of the year. Adjusted EPS was $0.66, a 27% rise from a year ago, versus $0.52 in 2020. That $0.14 improvement came mostly from $0.13 of higher operating income, a $0.02 FX remeasurement gain, and a $0.01 benefit from a lower share count, partly offset by $0.02 of higher taxes. Our effective tax rate was 24.2% against 21.5% a year ago, driven largely by a more favorable jurisdictional income mix last year and reduced tax incentives in 2021, which is consistent with what we expected. Turning now to how cash moved and what our balance sheet looks like. During the second quarter, our operations generated $161 million of cash, compared with $192 million across the same period 12 months before. The main driver of that drop is a larger working capital investment, reflecting the stronger revenue growth we saw this quarter than in the equivalent quarter last year, when COVID-19 held back our top line. DSO landed at 83 days, better than the 87 days posted a year back, largely thanks to quicker billing cycles and improved collection timing. Cash and cash equivalents totaled $753 million, rising from $644 million at the close of 2021's first quarter. Measured across the last four quarters, net debt to EBITDA came to 1.4x. With approximately $500 million in unused borrowing capacity plus the cash on hand, we retain ample liquidity to support growth and execute our capital allocation strategy. Our M&A pipeline stays robust, and we continue watching closely for companies that would strengthen our offerings within the service lines we've selected. As previously mentioned, whenever capital permits, we'll continue repurchasing stock, particularly when the price appears attractive relative to our view of the company's intrinsic value. During this quarter, we repurchased about 300,000 shares, spending a total of $13 million, an average of $44.15 per share. Beyond that, we returned $20 million via our standard quarterly cash dividend of $0.1075 per share. Since the buyback program began in 2015, we've reduced net outstanding shares by roughly 20%. Over that period, 44 million shares were bought back at an average price of $28.38, amounting to $1.3 billion. We estimate the annual return on those repurchases to date is approximately 16%. At the close of the second quarter, roughly $490 million of authorization remained under the repurchase program. Capex came in below 1% of revenue in Q2, primarily because infrastructure spending declined while our employees continued working remotely. We expect to increase investment during the back half of the year, linked to deals signed late last year coming online and our global workforce steadily returning to offices. Given low first-half spending, we now expect full-year capital expenditures as a percentage of revenue to land at the bottom end of our prior 2%-2.5% of revenue guidance. Let me now move on to providing a revised outlook for the full year. Thanks to a strong performance in the first six months and improved visibility across all of 2021, our total revenue forecast now stands at $3.96 billion to $4 billion, equal to constant currency growth of 5.5%-6% against last year, raised from the 5%-6.5% we guided previously. For global clients, we're projecting revenue growth of 10.5%-11.5%, or 9%-10% in constant currency, versus our prior range of 9%-11%, or 8%-10% on a constant currency basis. This encompassed customers generating over $25 million in yearly revenue, expanding from $23 million to $26 million. Turning to the second half of the year, we expect global client revenue to continue rising by a single-digit percentage each quarter, both in Q3 and Q4, while the year-over-year comparison for those two quarters remains in the low double digits. Our full-year outlook for GE hasn't changed from what we said earlier, and we still expect a year-over-year decline of about 20%. Excluding the approximately $40 million associated with GE businesses that have been divested, full-year GE revenue would be lower by 10%-12%. Given how our adjusted operating income margin came in during the first six months, we are raising our target for the full year to approximately 16.5%, which is an improvement over the roughly 16% we had anticipated before. In the second half, we expect adjusted operating income margin to be lower than it was in the first half, because we are increasing our investments in sales and marketing and in research and development to support our longer-term growth initiatives, while also absorbing transition costs from deal ramps and experiencing a higher level of travel-related activity. Gross margin is also expected to increase by 70 to 75 basis points on a year-over-year basis, exceeding the 50 basis point improvement we had previously forecast. With this updated outlook, our adjusted earnings per share estimate for the full year 2021 is now in the range of $2.36 to $2.39, which is $0.09 above the $2.27-$2.30 we had previously projected, reflecting the expected gains in gross and adjusted operating income margins along with $0.01 from the FX remeasurement gain recorded this quarter; for the EPS calculation, we've assumed a weighted average share count of 193 million for the year. Additionally, since our results so far this year have exceeded our expectations, we now expect full-year operating cash flow of at least $500 million, up from the $450 million-$500 million range we provided earlier. Combined with the lower capital expenditure level we now expect for the year, free cash flow should be approximately 1.2x to 1.3x net income, which is higher than the roughly 1:1 ratio we've seen historically. This included clients with more than $25 million in annual revenue, growing from $23 million to $26 million. Having said all that, I'll turn the call back over to Tiger.

Thanks, Ed. Prior to sharing my final thoughts, I want to extend another warm welcome to Mike Weiner as he joins us, and then I'll pass things over so he can offer a few short remarks. Mike?

Thanks, Tiger. In the other companies I worked at, I sat on the client side of digital transformation efforts, so it's exciting to be on this side now and assist a broad set of clients as they go through those same journeys. I'm delighted as well to be part of the Genpact team and to have joined a business with outstanding growth prospects that holds a top position in a big market where penetration remains low. The energy coming from the worldwide team has me enthusiastic, and I look forward to working alongside each of you as we proceed with carrying out our strategic initiatives to generate value for our stakeholders. I also can't wait to talk with all of you and, I hope, meet you face-to-face before long. Thanks, Tiger.

I appreciate that, Mike, and everyone here is eager to see what you'll bring in the coming months and years. The strength we showed during the first half of 2021 speaks to how nimble we are and to a culture that welcomes change, which keeps letting us act faster to serve what our clients need as those needs shift. Revenue from clients around the world is back to growing at a double-digit pace, and we're confident about where we stand in the market and about the possibilities that lie ahead both for the rest of this year and across the medium and long term. It's a pleasure to tell you that during the past week, our 2020 sustainability report came out, and you can find it on our website; we've improved what we disclose by shifting from a biennial to a yearly reporting rhythm, and that greater frequency matches our steadfast dedication to our work in diversity, equity, and inclusion, in climate impact, in governance, and in community support, all of which help us reach our long-term financial objectives. I'd like to highlight several metrics that show where our attention lies. Global gender diversity stands at 41%, Scope 1 and Scope 2 emissions have fallen 28% since 2016, our employees logged more than 10 million hours of learning in 2020, and our corporate social responsibility programs worldwide touched close to 25 million lives. We were also just added to the Forbes Best Employers for Women 2021 list, a recognition of our work as we strive for a workplace that is inclusive and equitable across genders. On top of that, we made Fast Company's 100 Best Workplaces for Innovators, and our pharmacovigilance team earned a spot on its Innovative Team of the Year list for the COVID-19 efforts we undertook alongside the U.K. Medicines and Healthcare products Regulatory Agency. Before I wrap up, I'd like to express my gratitude to Ed for standing beside me as our CFO throughout these past seven years, a stretch in which he guided the finance organization effectively in backing our profitable growth strategy and hit numerous milestones along the way; we're extremely lucky that Ed is remaining to collaborate closely with Mike so the handover goes smoothly and to step into his new client advisory position, where he'll put his deep CFO know-how to work for the benefit of many of our strategic clients. With that, I'll hand the call back over to Roger.

Thanks, Tiger. At this point we'd like to begin the Q&A portion of the call. Buena, would you mind walking everyone through how to ask a question?

Thanks. Wishing you the very best, Ed, in whatever you take on next. I'm certain it will be enjoyable. Before you leave, I have to squeeze in one margin question, just for old times' sake. Regarding gross margin, I picked up that you're nudging it upward somewhat. I realize utilization is running higher for you. I'm sure the transformation mix is providing a lift too. I'm just hoping to understand which pieces are structural and can hold up, versus which could prove short-lived, both near term and a bit further out.

Yes. So far this year, we're in fact slightly above that 70%-75% range, Tien-tsin, which the figures show. This quarter, gross margin did take a bit of a hit from certain healthcare expenses tied partly to the COVID pandemic, which has affected us worldwide. I'd say in part because of that, our year-to-date position is somewhat stronger. Our plan does not assume that will remain at such a high level through the remainder of the year. As we see it right now, those 50 basis points should be within reach, and we can do better than that, which is the reason we lifted guidance to a 70 to 75 basis point gain versus last year. I'd note that some of the upside from transformation services, especially analytics, carried on during the quarter. The decline wasn't truly tied to that mix, which came up in the first quarter; that remained fairly solid. What caused the softer result this quarter is mostly those healthcare-related expenses. We're comfortable with that; regarding the mix, we don't anticipate it persisting for the rest of the year. That isn't in our forecast. We're seeing solid momentum, not only in TS, but also in gross margins and intelligent operations, plus our efforts to generate productivities for clients, passing those savings to them, which likewise helps lift our gross margin. Given all of that, we believe the gain we'll deliver over the rest of the year ought to still be an improvement, though possibly not quite matching what the first half showed. We'll need to watch how it unfolds. Tiger, is there anything more you'd like to add?

No, I believe you've addressed every point. Tien-tsin, the sole remark I'd make is that obviously the momentum we've witnessed across three straight years in the analytics segment is unfolding, and every one of those offerings is a high-value-added service. Another point I'd add is that, since we keep generating growth above the company average, worldwide client expansion in areas such as FP&A, supply chain, financial crimes, sales, and commercial — all of these, as I mentioned, are services pivoting toward delivering value beyond cost and productivity for our clients. As we accomplish that and tie those commercial outcomes to the value being generated, I can envision us embarking on a long-term journey regarding gross margins.

No, that's wonderful to learn. If it's alright with you, I have just a single broad question, Tiger. Looking across this reporting period, demand appears pretty strong in numerous regions, naturally, when it comes to digital. If you had to describe the demand landscape relative to earlier cycles, what would you say? It's really difficult now that we're emerging from the pandemic, yet concurrently, the digital transformation element is unmistakable. In what way might you draw that comparison, or perhaps describe it against prior cycles? What kind of staying power do you observe here?

Obviously, Tien-tsin, we certainly observe staying power that will endure for a considerable period, since this is fairly secular when it comes to the appetite to adopt digital so as to unlock essentially 2 things. Cost along with automation and everything like that is simply assumed, however the 2 items that organizations are currently seeking to unlock are experience plus insights, so that they can make decisions. That's the reason for analytics. Each of those represents growth. If you were to ask me, the major distinction between what we're witnessing today and any prior cycles is agendas driven by growth. The next point I'd mention is quite widespread, and the third point I'd mention is a much greater number of fresh clients, fresh logos, that haven't previously undertaken this. That does create a single difficulty, which we've discussed previously too, namely those fresh relationships that haven't previously done it, and they are complicated, sizable deals, at times requiring more time to finalize. I view this as a secular shift that will endure.

Yeah. Good stuff. Thank you.

Thank you, Tien-tsin.

Yes, thanks. There were a few points I wanted to follow up on regarding Tien-tsin, if that's alright. About what you just said, Tiger, when you consider that sizable pipeline involving new logos and possibly uneven deals — to put it another way — does that carry any margin impact as you look ahead over the coming year or so, as those big new agreements and new customers arrive? Should we be factoring in anything on the margin front tied to that kind of pipeline?

Yeah, no. Let me start us off on that. Good question. Ed will chime in. I think uneven is an apt term; we've said it previously. In particular, the bigger deals are often quite uneven. Giving any answer quarter by quarter isn't really meaningful for us as a business. When we consider margins and growth alike, we need to look at a minimum of a full year's cycle, maybe longer. One reason Ed mentioned the second half of the year isn't only the spending in sales and marketing and R&D, but the ramps too. During the early part of those ramps, especially with the more uneven deals, a margin drag gets created that you then have to recover from as you move into the following year. If you look at longer cycles of 12, 18 months, things generally balance out, and that's the reason we believe we're on a secular gross margin change. Ed?

Alright. Yeah, Keith, I believe — like you've watched us handle — it was maybe 2 or 3 years back, we had an enormous volume of bookings involving how many big contracts, or 3 or 4 truly massive, large deals, and we managed that without needing to push margins down; we continued advancing just as we had on that 10 to 20 basis point operating margin improvement effort we've been pursuing. I think, considering the significant leverage we can deliver with this business annually, we've handled it. Should we ever face so many large deals that we must pull it back, we'd definitely give you an update. That hasn't been necessary up to now, and I doubt it will be. If it happens, it likely signals growth could be elevated to another level thanks to those large deals. I think we've handled it, even during a fairly wild year 2 or 3 years ago.

All right, excellent. Let me squeeze in my follow-up before Roger derails me. Tiger, regarding supply, are you running into limitations tied to either A, what's available, or B, the expense required to satisfy what looks like quite robust demand?

No, Keith, I'd say it's reasonable to observe that the battle for talent has returned to where it stood before the pandemic, no doubt about that; that part is certain. Our attrition figures, which serve as a solid indicator to monitor, have risen compared with the prior year, precisely in line with what we anticipated. It sits at the bottom portion of the band we saw before the pandemic. That said, if I break this down by particular groups now. Take data engineering, take cloud, take analytics, data science. As you're aware, these are extremely in-demand subjects in the market. When you've got such sizzling subjects driving demand in the market, naturally you end up with an extremely heated talent market. That's precisely why, on our side, the focus has never been solely on bringing in talent but rather on developing talent over the long haul. We excel at doing that. We've been doing it across 20 years in various domains. I just mentioned one of those domains we discussed, namely analytics. We're pursuing a very substantial effort to cultivate highly capable talent from within our own ranks in analytics. Returning to what you asked, heated talent market, fierce rivalry for talent. I believe our brand is well positioned. We offer people a solid career trajectory. We retrain our people effectively; we're feeling positive. We sit at the bottom portion of the band we occupied before the pandemic. Certain areas are exceptionally, exceptionally hot.

Alright, I appreciate you answering my question, and Ed, wishing you the very best as you move into your new role.

Thank you, Keith.

All right, hi everyone, and thank you. Nice work on the quarter. And yes, we're going to miss having you around on these calls.

Appreciate that, Dave.

Yeah. So I suppose the first thing is, when you look at how we grew quarter over quarter, that was the strongest in 2 years or so — honestly among your finest sequential quarters across many years. Is part of that tied to certain transformation deals performing especially well, or to some nonrecurring gains, or is a portion of it simply economic recovery among some of your clients, or is it purely sales momentum? Perhaps walk through what's behind all of it.

Yeah. What I'd say, Dave, is that a single quarter isn't something we'd stake our reputation on, simply given how our business works. This is a long-cycle business. Closing a deal takes time; ramping a deal takes time. When you look at only one quarter, occasionally it's a matter of timing shifting slightly one way or another. There's nothing unusual I'd point to in the quarter that's so distinctive I'd highlight it. Transformation services, very good. Inside that, analytics was very good. Among the strongest analytics quarters we've ever posted. Among the strongest analytics half years we've ever posted. At the same time, consulting and digital also performed really well. Another thing that showed up was, and we keep seeing this; whenever we begin with transformation services, it generates follow-on work. Later on, a lot of those do turn into intelligent operations, which are longer annuity deals. I simply believe our focus, investments, the front-end sales team, the transformation services team, all of it has come together well. We hope to keep it going. Now, I wouldn't pick out the fact that it's the strongest quarter in 2 years and ask, "Does that mean it's a new benchmark?" I wouldn't necessarily go there, because it's only one quarter.

Understood. All right, thank you. For the second item, regarding margins, Ed delivered excellent results across numerous consecutive years, with something like 10 to 20 basis point declines annually; the current year will be far beyond that level. Should we view the latter half as the more sustainable figure from which to build, or should we use the entire year's figure? I'm simply asking whether we're operating at an unusually elevated level only for this year, such that next year we should presume a slight decrease as attrition and other factors return to normal, or what's the right way to frame this?

Dave. When we examine the first-half performance, it was truly outstanding, correct? Above 17% margin. That's fantastic. Clearly, the outlook we provided for the back half of the year assumes we will increase our investments, correct? Perhaps we've fallen somewhat behind on certain investments; the intention is to definitely complete those investments so we can generate the lasting growth Tiger mentioned, correct? That GC expansion in the double digits or higher is what we aim to maintain across the medium and long term, correct? This isn't merely a single-year matter. From that angle, we will proceed with investments. On a normalized footing, Tiger was quite explicit that this represents essentially the fresh baseline, correct? Approximately 16.5 is what our full-year guidance reflects as the baseline we'd adopt. We won't discuss 2022, yet we also won't declare that our fresh baseline is 15. Whatever the back half must be to reach 16.5. Our expectation is that 16.5 will serve as the baseline, to be clear.

Yes. Dave, looking back at how we kicked off this year, our message was, "You should expect us to put money into sales and marketing and R&D, and you should expect that throughout the year." What actually happens is that within our business, the effect of raising those costs is felt most strongly late in the year. Beyond that, consider what took place during Q2 with COVID-19 in India — that made it harder for us to bring on some of those sales and marketing and R&D expenses. Well, we will keep pursuing that path as we move through the back half of the year. So the correct way to view it is to use the full year margin as the margin to work off, not the second half margin. The second half margin reflects the first half margin, with a portion of those sales and marketing and R&D costs having moved.

Understood. Appreciate it, everyone. Well done.

I really appreciate that.

Thanks, Dave.

Hey, this is Ted on for Maggie. Tiger, you mentioned at the beginning of the call that the pipeline has increased of new logos; in terms of the composition of the pipeline, what proportion are first- time outsourcers, and how does that compare to prior to the pandemic, or even just over the last couple of years?

Yeah. Ted, I don't think we have those specific numbers. All I can say is that the last couple of quarters, we've called out that there are many more new logo, first- time outsourcers who have jumped into the fray; in my prepared remarks, what I was trying to say is the pipeline continues to show that, and it continues to be the case. Again, I think it's a reflection of there is a rising tide that is lifting all companies and all industries to really say, "We need to change to grab the opportunity to transform, to leverage new technologies, to leverage data and analytics, in order to drive growth as well as cost and productivity, et cetera, to actually fuel that growth." I wouldn't call out anything different this quarter versus the last couple of quarters. It's just a continuation of what I've been saying, which is, as compared to five years back, three years back, the number of first- time outsourcers is more than before.

All right, thank you. That is useful. For a second follow-up, I'd like to ask about M&A. When it comes to the overall offerings, are there specific capabilities you're aiming to bring into the services portfolio?

In fact, this ties in quite well with a few items I mentioned during my prepared remarks. Consider some of the services that carry greater value add, the ones more oriented toward generating client value rather than simply reducing cost. Take financial crimes and risk. Take, for instance, sales and commercial, supply chain, FP&A. When it comes to analytics or digital, cloud, we've completed two acquisitions over the past four years in the area of experience. Our experience team is very strong. We closed the Enquero acquisition at the end of last year, focused on data analytics and digital engineering on the cloud, and that has proven to be an excellent team to bring into the company; those sorts of areas will keep receiving our focus and attention, through organic build as well as through M&A.

Okay, excellent. We appreciate you fielding our questions, and best wishes to you, Ed.

Thanks.

Appreciate it, Ted. Many thanks.