Genpact Limited (G) Earnings Call Transcript & Summary

Hi. Good afternoon, everyone. This is Ashwin Shirvaikar. I'm Citi's payments processors and IT services analyst. And welcome to the afternoon sessions of our 2021 technology conference. Next session for us, I'm very happy to host Genpact. And from Genpact, we have CEO Tiger Tyagarajan joining us. Tiger, thank you for doing this. Welcome. I'm really looking forward to our conversation here.

Thank you, Ashwin. Thank you for having me, and look.

Absolutely. And well, as you were saying, welcome back to [ you ].

To New York.

Because in a group setting, there are often investors who may not be completely familiar with the story, perhaps you can start with a level set question with regards to who Genpact is, what you do at -- a high level, how you think of competition, how you think the differentiation.

A great place to start, Ashwin. Genpact is a global professional services organization that helps large enterprises undertake multiyear digital transformation journeys that allows those enterprises to leverage new technologies, deliver services, leveraging those new technologies, and in today's world, really be able to unlock the value from all the data from -- within the organization and outside the organization to be able to build much more predictive insights to help companies take decisions in what is obviously a rapidly changing world, even more in a dramatic transformation journey in the last 20 months ever since the pandemic happened to, before that, help companies undertake leverage of the cloud, leverage of digital technologies, run processes more effectively while obviously being efficient in cost, but also more effectively to drive real outcomes that have a significant impact to their competitive advantage. And all of these done in typically in a multiyear relationship that we think of as multidecade relationships over time. That's the way we think about it. And therefore, we compete with people who are in similar partnerships with clients, leveraging technology, data analytics process. And that's been our history, initially, doing that with GE, and then since 2005, being an independent company serving Global 1000, Global 2000 enterprises.

Right, right. Absolutely. Can I ask -- obviously, you've been talking about digital for a while, certainly aspects of digital automation for a while. You can roll in the impact of COVID. The last couple of years have been an evolution for pretty much everybody. Can you talk maybe Genpact specific with regards to some of the things that you had to do over the last couple of years to kind of adapt to kind of the new reality?

So obviously, the first adaptation that everyone in the world went through -- every enterprise [indiscernible] able to provide the same services that we used to do from a concentrated office environment across the globe, 100-plus offices in 25-plus countries, to then being able to deliver similar services, same services with great customer satisfaction and outcomes in a virtual work-from-home remote environment. And to be able to do that basically at the flip of a switch without ever having tested it was a pretty flabbergasting outcome for ourselves, for our clients and for, I guess, the world because everyone did it. So to be able to close the books for the first quarter of 2020, 31st March, for 200-plus global enterprises and not miss a heartbeat and a 98% of them be able to deliver maybe even 2, 3 hours and sometimes a day faster than before was a while. A number of the services that we deliver are very critical for keeping the wheels of the economy going, keeping the wheels of our customers going. And that's a big realization we had through the pandemic while maintaining the safety and health of our employees. To fast forward to the last 20 months, the journey to the cloud has accelerated. The journey to -- I want virtualization of all my ability to transact and ability to leverage data and insights to take decisions from any device, from anywhere at any time, I think that's gone through an exponential curve. When you combine those 2, and then you say every customer of ours in every industry has seen a shift of volume from offline to online, some companies have gone from 100% penetration of online to 10%, that's 10x. Some have gone from 20% penetration to 45%, but everyone has gone through a change. And that online shift has meant a lot of changes. And all of that packaged with the importance of experience has dramatically gone up, whether it's employee experience, customer experience, user experience, et cetera. And as a result, we've actually changed a little bit of our capability and DNA to be able to leverage those new capabilities. We did the Rightpoint acquisition just about at the -- prior to the pandemic, November 2019, and that's seen a real value in the post-pandemic and during the pandemic world. And then we did the acquisition of Something Digital, a company that is focused on helping large enterprises shift to online by using technologies like Adobe and Magento and so on. And that was very deliberate. We identified and did the acquisition during the pandemic given what we saw in our client base. And then the final acquisition that we closed in December of 2020 was the acquisition of Enquero, which is based on the West Coast and focused on digital engineering by leveraging movement of data to the cloud and orchestrating that data into the cloud to build insights and predictive insights for our clients. So clearly, acceleration of digital is something we see with our clients and acceleration of leverage of data is we see a lot. And I think some of the capabilities we're now bringing together marries a lot of that and add value to our clients.

Got it. Got it. I want to talk about -- investors tend to always be interested in talking about demand trends. But before we go there, I want to ask you a -- what I hope you don't think is an oddball type question. And the reason for that is because one thing I've kind of perceived is that most investors understand what IT services companies are doing with the push to digital, but the understanding of what business process outsourcing and BPM companies are doing with the push to digital is sometimes a little bit less clear. So I want to ask you, can you give maybe 1 or 2 illustrative examples of some really cool things that Genpact is doing today?

Yes. No, it's a great question. And I'll start by saying that, for us, digital transformation is actually not -- at least the way that our clients think about it is that it's no longer a technology play. It's actually how do I re-architect my business? How do I re-architect the way I provide services, the way I provide solutions? How do I add value to clients is the way our clients think about it. And therefore, it means it's the way we have to think about the services that we provide to our clients. So in some sense, digital infiltrates everything in the world today. And the reason that's the case is because ultimately, the holy grail here is to unlock 2 things, unlock, experience. Digital allows experience to be so much better; and unlock insights from data in a highly predictive way, much more real time. So people can real time take decisions using that prediction. One -- I'll give a few examples. So working with a bank -- and I'm talking about a traditional bank that has a highly successful traditional consumer banking business that says, I want to actually start from scratch and build a digital bank to almost compete with my traditional bank. And we are seeing a number of banks start that journey. Some are more advanced than others. And working with one of those banks to actually think about, so what does that mean for customer acquisition, for underwriting, for customer service, for collecting money if it's unsecured lending, for various triggers of changes that a typical life cycle of a customer goes through? And how does that get orchestrated? Using digital technologies, there are much more self-service, much more automated and much more predictive so that you almost provide the customer with an answer to a question before the customer asked the question because you have done the analytics and the platform does the analytics and says, "I think you're getting ready to buy a home. So if you are, then here are the various options for you to think about a mortgage that we as a bank can provide. And so far, our relationship with you has been as a credit card customer, but you've been a great credit card customer." That's what a digital bank is expected to do in the future. And helping orchestrate that for a bank because we understand the domain, we understand risk, we understand KYC, we understand AML, we understand collections, we understand risks on write-offs and delinquencies and share of wallet and so on. That's one example. Another example in the consumer goods world would be -- or actually, let me take a very hot topic, semiconductors. Helping a semiconductor company understand the volatility of its supply chain and, therefore, how do you actually collect data on demand and data on supply and really orchestrate that almost on a daily basis to make the best demand match to the best supply in order to add the most value to their clients. And how do you create an integrated platform that sits on top of their ERPs, which is leveraging cloud technologies, leveraging platforms like Kinaxis on Anaplan in planning, leveraging data and insights to have better forecasting of demand and better forecasting of supply. So the 4 services that we are seeing the most traction in today's world is financial crimes and risk in banking, supply chain and manufacturing, consumer goods, semiconductors, retail, life sciences, et cetera. Sales and commercial operations, because everyone is searching for how do I get my salespeople not to be bothered by fixing data, correcting data, but they are giving insights for them to do more selling. It's almost like bring the joy of selling back to sales. And the fourth one is financial planning and analysis, which -- the CFO's job is no longer about just managing the books and doing accounting. It is I'm going to provide insights to my sales leader, to my marketing leader, to my supply chain leader, and that's the job of a CFO more and more. And we are in the middle of a lot of those discussions and journey. So those are 4 fastest-growing services, and all of them leverage data and digital.

That's -- those are some great insights and good examples. So since you've talked already about sort of the fast-growing services, are they -- I guess, more of a before and after question. How is the mix of the pipeline and the type of deals that you do changed like pre-pandemic, post-pandemic? Because Genpact had indicated that it would take some time to go through a process of recovery. So are we there yet is the ultimate intent of the question.

It's a great question, Ashwin, and I'm going to try and answer that along different dimensions. So dimension number one, I think the conversation with almost every client is no longer about where can work be done from. It's a moot point. It's no longer a discussion. The fact is it is obvious that lots of things can be done from almost anywhere, and that's not a discussion anymore, which unlocks a lot of time and value for a lot of the leaders of our clients because they don't -- no longer need to convince other people in the organization, whether it is a discussion around supply chain can be done from anywhere, sales and commercial support can be done from anywhere, et cetera, et cetera. So that's one clear unlock that's happened. As a result, we are finding a lot of new clients who have never engaged in partnerships such as partnership with companies like us to actually unlock some of that value, to consolidate, to bring things that are done in a fragmented way across 100 countries and say let's consolidate it into 6 countries, into 6 centers, 10 centers. No longer is it a conversation about, no, no, no, but this needs to be done in my market. So that's when we change, so we have a lot of new logos in our pipeline. First-time outsourcers, first-time partners. Second, 100% of our clients are clearly looking for the ability to leapfrog on the digital transformation journey. And they are realizing they can't leapfrog unless they have partners like us or other people like us because it takes too long to be able to leapfrog given that you need capabilities on digital, you need capabilities of having done this before and you need to do it fast. No longer are people talking about 3-year journeys. It's much faster. The third change we are finding is a lot of the conversations now are not just back office, but middle and front office. If you think about all 4 examples of services I gave, FP&A, supply chain, sales and commercial operations, and financial crimes and risk, they are much more closely connected to the front end of our clients' businesses. And we're finding that to be a big change. 2 to 3 years back versus today, and I think the pandemic has accelerated that, which means that a lot of the value that we deliver to clients is not just cost and efficiency, but growth, unlocking sales time for growth, providing insights to drive share of wallet for our clients in their competitive landscape, better pricing for our clients. I just reviewed a phenomenal project that one of our teams have done to allow one of our transportation and logistics clients to -- in a world where transportation and logistics is undergoing so much change, with all the changes that are happening in transportation and logistics in supply chain, how do they get better pricing? How do they get better pricing and actually deliver better value for their clients? What kind of routing changes and optimization will help them? How do they serve the carbon footprint reduction by actually optimizing fuel consumption and carbon burn? All of that is coming together for that client. And that's all analytics, which is why we are seeing double -- actually more than double, almost close to 3x, our Global Client growth, we are seeing analytics growth.

Okay. Okay. So that kind of raises the question. I mean, in fact, the very first point you had with regards to it doesn't matter where the tenant is based, almost raises the question with regards to maybe the definition of value is changing, right? It is not cost. It's outcome. Is that changing the nature of your contracts? Is that -- I mean how are you dealing with that with regards to everything from your side of the procurement, your side of the selling, your side of the delivery? Can you talk a little bit about that?

Ashwin, it's actually a great question. And we truly believe that the nature of and definition of value has been undergoing a change but is now an accelerated undergoing a change. And it's not about only cost or efficiency. The reality is that when you automate and digitize, you're going to get the benefit of cost and efficiency, but that's small value. Real big value is in the lending world, can you approve a transaction for a mid-market customer who's applied for a loan in hours rather than days? When a consumer goods company has to deliver to a retailer, can they do it in the same-day delivery? Which, by the way, is what online expects. So the shift to online means supply chains have become much more agile. All of that means that the definition of value is becoming much more growth, pricing, losses, fraud, working capital, speed and being measured on that, delivering on that and commercial models being structured to deliver that is the journey that we are on and our clients are on, and we can see that in our commercial models. We are driving it ourselves. So we have a team that actually focuses on convincing our clients on alternate commercial models. We have a significant leadership team attention on being able to orchestrate that. It has to start with the way we have those conversations with clients, the way the solutions are crafted, the way metrics and measurements are run, the way our teams get incented, the way we govern that with our clients, and the way we share in the delivery of outcomes, and the way we share the risk. All of that is undergoing change. So we think that our industry has been on that journey for some time. But like many other things I talked about, it's got accelerated. And I think it's good because that's true value, and that's true value of our partnership. So yes, it's happening. It's happening as we speak.

I guess just to put a fine point on that then, from what you're talking about this, does that automatically lead to a conclusion that your deals now are bigger and just more complicated because there's just more to do and it's different than before and cost is not the primary -- cost is always going to be important, don't get me wrong, but cost is not the primary driver of them. Are your deals bigger, both on the BPM and the transformation side?

So I don't know, Ashwin, if I would make a statement saying all our deals are bigger. I think it opens up an opportunity, and we are seeing this in multibuying center, consolidated, complex, global, large, bigger deals. Clearly, we are seeing that, and we've actually seen that for quite a few years now. And again, we are seeing a lot of that now. However, we're also seeing a clear trajectory on -- some of the examples I gave are not necessarily big in terms of size. But in terms of value and impact, big. So for example, when we create a demand forecasting model for one of the consumer goods company that we worked with that allows 1,500 of their salespeople to actually reduce or release 20% of their time that they were spending on cleaning up the data and building up the forecast. And if now that is done by -- and present it to them on a real-time basis in virtual mobile devices on the cloud, then all of a sudden, you have 20% more sales capacity. Now that's not a big deal in terms of size, but it's big value. So therefore, the CEO of the company, and I'm talking about a $30 billion, $40 billion consumer goods enterprise. The CEO, the Chief Supply Chain Officer, the Growth Officer has visibility to the project. What complicates some of these deals is not size, but the multiple buying centers will get in, which is why back to your earlier question, we don't think digital is only a CIO, CDO, Chief Digital Officer decision. It's a combination of CFO, Supply Chain Officer with, obviously, CIO and Chief Digital Officer, or if it's a bank, then Chief Risk Officer, Chief Operating Officer and a CDO and a compliance head. And because these are so much value-creating and so much differentiating for our clients, then often, the CEO also is involved. So I'm talking -- over the last 2 years, I've been speaking more to CEOs than ever in the history of this company. And that's because value-driven conversations become CEO conversations. They're not necessarily large deals, but large value.

Yes, yes. That makes sense, certainly. Let's maybe talk a little bit more about talent, right? Because as the nature of work changes, more digital, I mean, the demands on Genpact as a company to perhaps hire differently than before, and maybe this has been a transition a long time coming. So you've made -- you've taken steps over time already. But how do you think of talent management, given the complexities of some of these deals, given just the locational challenges as well, not to minimize that? Can you talk -- and frankly, the shortage of the kinds of talent.

Yes, yes. So Ashwin, it's a great question because no longer is the kind of -- particularly when it comes to digital and data and analytics and cloud and so on, no longer is the war for talent only between our competitive landscape. Every enterprise in every industry is looking for the same talent, right? Our clients are looking for the same talent in every industry, in every market, by the way. It doesn't matter which market and which geography. By the way, that actually is an opportunity because that's one of the reasons for demand for all kinds of services. Because if people like us specialize in being able to provide that talent across a full value chain, then our clients who do not have scale in every one of these areas will look for partners like us to be able to do that in different geographies of the world. So our approach to talent has always been threefold, Ashwin. Our approach has always been how do you make it sustainable in the long run? And the only way you make something sustainable in the long run in talent is if you create a long-term building plan that actually builds that talent inside the company. Once you determine what kind of talent you want to build with what kind of skills. We've done that, as you rightly said, historically, in many, many topics across industries, across depth in industries, across depth in process, across depth in services and across depth in different technologies. We just have to keep doing that probably even more than ever before. And therefore, the time that we are now spending on reskilling. So I think in the last earnings call, I talked about 75,000 out of our 105,000 people have enrolled into what we call the data bridge program. The data bridge program is 9 months old. It's a program that we launched 9 months back where we are asking our people to become literate in data. And that is understanding various types of data, definition of data, how do you clean data, how do you audit where data came from, how do you understand the various technologies that underlie data, how do you then think about what are the right models to build insights from that data, which models work and what kind of domains in what kind of problem areas? Now I'm not asking 75,000 people to become experts at data. I'm asking 75,000 people to become literate at data so they become comfortable. And then from that pool, we will be able to identify 1,000, 2,000 people who are -- really want to go down the path of becoming experts, have the capability to do that and have the desire and passion to do that. And we have the platform, the Genome training platform that actually allows them to get certified over a longer-term journey. And we have in the company so many projects that we can actually put them on specific projects so they learn and then they put them on the next project and they learn. So this is the classic journey of building a pyramid of talent in data engineering, in S/4HANA, in azure cloud implementation, in AWS implementation, in building KYC and AML models, in building supply chain models. And then we have the talent match framework and ecosystem where we have demand for talent and we have supply for talent based on certification they've done, and then we match that. So the combination of reskilling programs with the talent management platform, but the work for talent as well. And continuing to be an attractive destination for talent and then retaining that talent is going to be very, very important in the long run for all companies, including ours.

Got it. Okay, okay. GE, who is obviously a very good client of yours for a very long time, former parent, but it has been over the last couple -- last few years, up and down with regards to the new work that you found, large decline that you had to face and so on and so forth. What should investors expect from that bucket of revenue in the next 2 to 3 years?

Yes. Ashwin, it's a great question. So for a long time, we had said that we have pretty significant penetration with a range of GE businesses for a variety of services and that as GE went through its journey of divesting the financial services, businesses of GE Capital from GE, then we will establish new relationships with those new owners of those businesses. And that was one part of the journey, which led to a material reduction in our GE revenue. But at the same time, we established new relationships with new financial services clients, et cetera. Then we went through a journey of a significant step-up in our relationship with GE as GE took the decision to actually engage us for the next level of work in the industrial businesses, and that was all industrial. And then over the last couple of years, 2 things have happened -- last 3 years, actually. One was GE spun off and sold off portions of its industrial businesses as the new leadership team reconfigured their portfolio, which then allowed us to establish new relationships with new industrial clients, and that's what we've done, again, I would say, very successfully, like in the financial services world. And then, of course, the last 20 months has seen some of the GE businesses, particularly GE Aviation, have a material impact of the pandemic as it rolled through the aviation industry. And as a result, we actually -- as they restructure the business to become a much smaller business to deal with the pandemic, we restructured the work that we did for GE to become much smaller. As we go forward, I would say the macro -- if you look at all the GE analysts, they all talk about the macro having an impact on GE. So as the macro recovers from the pandemic, a lot of the analysts of GE are saying GE will get the benefit of that recovery, particularly as you look at the aviation business, with a lag because the aviation business will take time to recover. We do a lot of work for the GE businesses that we think as that recovers, we will have the opportunity to come back to more steady states. So I think the way to think about the GE business going forward is the way we've always thought about it prior to this GE Capital divestiture and prior to this sudden step-up with the GE Industrial businesses and then prior to this step down because of the macro to plus 2, minus 2 kind of a journey over the medium term. Because again, we are very well penetrated with a range of GE businesses, we do some of the most -- we continue to do some of the most interest -- so for example, one of the most interesting work we've been doing in the last 12 months at GE is a range of applications getting replatformed on the cloud, both Azure and AWS, from the supply chain arena, from the aftermarket services arena, from the finance and accounting arena. And every one of our other clients are going to go through the same journey. And we are in the middle of all of that and doing a lot of that. And being able to take that to the client is a big opportunity.

Got it, got it. Okay, okay. I want to ask you a margin question, and this comes from some of the questions that you've answered already with regards to how the business is changing from a demand perspective as well as from a supply perspective. Historically, of course, Genpact has delivered a pretty steady -- I don't want to call it straight line, but often looks like a straight line improvement in margins. Could you -- so the relationship, first of all, between growth and margins. Could you grow faster if you didn't pay as much attention to the incremental benefit of margins? But the flip question on that is, why the 10, 20, 30 basis point improvement? Can -- why can you not do 50, right? And the answer would be simple, you're making investments, but I kind of have to ask.

Yes, yes, yes. No, it's a great question, Ashwin. And obviously, you can imagine a number of our leaders, including me, do spend time every year thinking through the right investments to do, the right -- the changes that are happening in the marketplace would actually start with changes in the marketplace, what are the changes we need to do to actually grab that opportunity and so on and so forth. So as we look at the last 5 or 7 years, ever since we -- 8 years back, 7 years back, honed in on a specific set of industry verticals and geographies and services to focus on, we've been balancing the investments needed to continuously drive the growth that we thought and we continue to believe this industry can deliver in what continues to be an underpenetrated market, which the pandemic has only further revealed as a bigger TAM than before. And we've done that through both organic and inorganic investments. Every time we do an acquisition, obviously, it takes time, particularly because it's not a consolidation cost takeout acquisition, but it's a preserve the team and leverage the team and the capabilities means it's not going to deliver margin accretion immediately. At the same time, some of the investments in building out the consulting and advisory muscle, the digital capability muscle meant that we had to invest. And so part of the -- why couldn't we have driven bigger margin improvement goes back to making sure that we don't -- not invest in those parts of the business. And I think we've struck a nice balance. I guess what I would say we are seeing in 2021 is some of the benefit of going to middle and back -- to middle and front office from just back office, some of the benefit of alternate commercial models, some of the benefit of scale in Transformation Services, in consulting and advisory, therefore, getting the benefit of that scale in utilization, in consulting, being able to run that with a little bit more scale. Digital getting, in some cases, not in all solutions, but in some solutions, to enough of a scale to start actually getting better gross margins than otherwise it would be, getting to higher value-added services, and therefore, getting better gross margins. If you compare, for example, onshore delivery versus offshore delivery, our ratio is dramatically different today than it was 5 years back. And that required investment. Because without that investment, that shift wouldn't have happened. And without that shift, we can't deliver higher value-added services. So I think we've been very measured in that shift, and I think we've orchestrated that well. Going forward, I think we'll continue to do that. I think we will continue to drive margin improvement. I think we've seen a nice step-up in that margin in 2021. I think as we get to the end of the year, we will evaluate total addressable market, total runway for growth, what are the capabilities we need to continue to build. Our M&A pipeline continues to look good. There are still opportunities that we can bring new capabilities into. We continue to invest on the front end as well as client advisory teams because more and more of our clients want advice, not just selling. So we're investing in that. I just think we are a growth industry. So we have to be careful about over delivering on margin when actually we could have invested to growth. At the same time, I think your other point is then why don't you just invest all of that in driving more growth? I think the question is we got to make sure that we are investing in the right spots. The good news is because it's reasonably agile investments, we can correct when the investment doesn't work. We're doing a number of experiments.

Yes, yes. No, that's very comprehensive. And I appreciate all the puts and takes with regards to margins, although I have to say, for maybe half a second that I thought first time in 10 years, I could get you to commit to maybe a bigger margin improvement. But steady is good. Steady is good. I like steady. And on that note, I know we're running out of time, Tiger, as always, it's a pleasure. I want to thank you for your insights, and thank you for being a part of our conference. Appreciate it.

Ashwin, thank you. Thank you for having me. And hopefully, by the time we do this next time, we can all do it on a proper room with people and all of that.

Absolutely, absolutely. Thank you.

Thank you very much, Ashwin. Bye.