Genpact Limited (G) Earnings Call Transcript & Summary

Justin, thank you. Hello, everyone, and good afternoon. You're listening to Genpact's earnings call, and we're going to go over how we did in the fourth quarter as well as the entire year that closed on December 31, 2022. Ideally, you've already reviewed the earnings release we put out, which is available in the IR area of genpact.com, our Web site. Joining us on this call are Tiger Tyagarajan, who serves as President and CEO, along with Mike Weiner, our Chief Financial Officer. Let me walk you through what we'll cover today. Tiger will walk through our results at a high level and share where our strategic initiatives stand. Following that, Mike will give a more detailed breakdown of our financial results and share guidance for the whole of 2023. After Tiger shares a few final thoughts, we'll open things up for your questions. The call should run roughly sixty minutes. A portion of what we cover today looks ahead and involves various risks, uncertainties, and other elements that might make actual outcomes differ significantly from what those statements suggest. Those risks and uncertainties appear in our press release. On this call, we'll also mention some non-GAAP financial measures that we think offer helpful context and give a clearer picture of how management evaluates our business's operating performance. Reconciliations linking those metrics back to GAAP can be found in the earnings release we published today, which is available in the IR area of our site. Having said that, I'll now hand things over to Tiger.

Thanks, Roger. Hello, everyone, and I appreciate your presence on this call covering our Q4 and full-year 2022 results. We feel good about how 2022 turned out financially — revenue growth, adjusted operating income margin, and adjusted diluted EPS all landed at the upper end of what we had anticipated, which speaks to how important our data tech AI services and digital operation services are to our clients. Across most enterprises, transformation comes up constantly, and a lot of them are describing 2023 as a year focused on efficiency. Because of that, we see a strong pipeline and a steady stream of data tech AI work along with big transformational deals; during Q4 of 2022, on a constant currency basis, we posted total revenue of $1.103 billion, a 6% increase year-over-year; data tech AI services revenue of $495 million, rising 5% year-over-year; and digital operation services revenue of $608 million, climbing 7% year-over-year. Adjusted operating income margin reached 17%, which is 260 basis points wider year-over-year, and adjusted diluted earnings per share came to $0.70, a 30% gain year-over-year. Looking at the whole of 2022, on a constant currency basis, total revenue reached $4.37 billion, rising 11%; data tech AI services revenue was $1.96 billion, up 18%; digital operation services revenue totaled $2.41 billion, an increase of 6%; adjusted operating income margin was 16.5%, unchanged year-over-year; and adjusted diluted earnings per share hit $2.74, 12% higher year-over-year; these 2022 results show that most of what we do is nondiscretionary and reflect the complete range of services we offer clients to lower costs, generate growth, reduce risk, and enhance a range of such outcomes. Growth in revenue came from every industry segment broadly, with financial services and high tech manufacturing services specifically posting strong double digit gains. Data tech AI services — where we design and build solutions that transform our clients' businesses — expanded 18% on a constant currency basis. Momentum in our emerging services fueled this, among them supply chain services, sales and commercial services, and risk services, which together increased 20% plus over the year. Digital operation services, through which we digitally transform and run client operations around the world, produced steady results all year, with 6% growth on a constant currency basis. Bookings for full year 2022 came to $3.9 billion, 6% higher year-over-year; deal inflows hit a record, rising almost 25% versus the prior year, helped by a surge of large deal inflows during the final months of the year. Win rate remained at 51%, and sole sourced deals still account for roughly half of our bookings; we also brought in 126 new logos over the year, a 30% increase year-over-year. Among these new logos are several companies we expect will turn into priority accounts for us over the long term. With these new logos, our average initial contract value rose 10% to more than $3 million. As we head into 2023, the recent momentum behind large deals has us excited. We've seen a good uptick in our late-stage pipeline, and there's a strong likelihood of deals closing in the coming months across each of the three industry segments. This is a distinctive moment in the marketplace, and we're noticing a handful of central themes among our clients regardless of industry or geography. To begin with, each enterprise is undergoing an effort to remake how it does business, reconsider which portfolio options to pursue and position itself for strategic success over the long haul. What propels that transformation differs from one company to the next, encompassing things like a wish to update their technology stack, volatility in supply chains along with risk management, the imperative to harness real-time data and forecasts, exposure tied to concentration in China and the shift in energy sources. Next, concurrently, inflation is taking a toll, which has produced a sharp rise in cost becoming an enormous priority for everybody. Costs have emerged as a leading driver for our clients in over 60% of cases compared with 45% merely 6 months ago; still, a growing share of clients are seizing this juncture not just to trim costs via consolidation, standardization, digitization and global delivery, but additionally to construct fresh operating models and generate efficiency that can be redirected toward long-term investments. Even the biggest technology firms have stated that 2023 is a year of efficiency. As one client put it, I want to batten down for a recession and tool up for a transformation and do both at the same time. There's an evident inclination to engage a smaller number of strategic partners in technology services. They're re-evaluating their selections of priority check partners, and we're hearing that we stand apart in technology owing to our depth in domain, process and data analytics. There's a stronger wish for us to apply our distinctive method of crafting solutions and employing cloud-based technologies and an approach steeped in industry domain, process and data. Spin-offs of businesses being prepared for separation have risen considerably as companies reshape their portfolios; we've witnessed such opportunities double over the last 12 months. The hunger to tap into data and guarantee real-time access keeps growing without limit, and the emergence of ChatGPT alongside other generative AI technologies will merely accelerate that further. Given workforces that are shrinking structurally in numerous nations, companies can't satisfy their need for talent, especially when it comes to data, digital and technology skills. As we always do, we answer these shifting client behaviors nimbly. We keep putting money into our priority accounts, a portfolio made up of chosen clients who are pursuing a substantial transformation journey that we think holds strong potential to yield better-than-average company growth. The confidence and closeness we're establishing with them throughout numerous buying centers lets us create value for them and growth for ourselves. Throughout 2022, revenue from our priority accounts rose 15% and accounts for roughly 60% of total revenue. Moving on, we're growing our large deal team so we can capitalize on the growing opportunities we're seeing in the market, which will let us drive additional sole source multi stage engagements thanks to our standing as a partner possessing the critical domain depth and array of capabilities needed to transform client operations from start to finish. We keep strengthening ties with our partners, with whom we design, implement and support technology and data solutions across AWS, Azure and Google Cloud platforms, specialized data platforms such as Snowflake, enterprise applications such as SAP and Oracle, cloud workflow technologies such as ServiceNow and particular micro platforms such as Kinaxis, BlackLine, o9 and HighRadius in particular domain areas. Let me illustrate this with a few examples. For a big tech platform provider in the automotive industry, we were selected to lead the full modernization of their tech stack onto AWS cloud, while simultaneously consolidating all of their operations worldwide. Our domain depth in the automotive industry, where we grasp not only the vehicle but also its repair, maintenance, financing and insurance, one of the relationship, for a big global medical technology company, we were selected to consolidate all functions, using new technology on the cloud and deliver significant cost savings within the first two years, which lets them reinvest into strategic growth initiatives.

One of the biggest technology companies in the world will have us put Kinaxis into place on their cloud platform, so their supply chain planning for data centers works better. What makes this exciting is the chance to then bring that same joint offering, together with a technology partner, to many other customers. With a second major technology company, we secured a modest piece of work covering sourcing and procurement operations for their cloud business. That's one more obvious illustration of how efficiency has become the watchword for 2023, including among growth focused large tech firms. With a worldwide life sciences organization, we are contributing our sector knowledge and functional strength to prepare them for a carve-out of one of their divisions; at the outset this is a consulting and advisory arrangement that we anticipate will develop into digital operations. And last, for a top healthcare liability insurance provider, we are updating how they handle data, shifting their data infrastructure onto the cloud and making sure their data is widely accessible so that finance, underwriting and claims teams can make business decisions with it. Our attrition figure got noticeably better during the fourth quarter, dropping to 31%, the smallest it has been since the second quarter of 2021. Once you account for involuntary attrition and staff with under three months of service, the number was lower still, at 27%. Through the opening five weeks of 2023 the downward trend has persisted; we've observed it everywhere, at every level, in every skill, among them data analytics, digital and technology skills, and in each region of the world. This stayed strong — genuinely strong for bringing lasting value to our clients. Over the quarter, we brought aboard over 9,000 new colleagues worldwide, and close to 50,000 across all of 2022, which speaks to Genpact's strong brand and standing as an employer of choice, offering plenty of chances to learn and grow a career anywhere in the world. For a third year running, our people around the globe logged over 10 million training hours, drawing on our Genome online on-demand platform. Even with continuing macroeconomic uncertainty, our pipeline is healthy and contains a number of sizable deals; we think a good portion of them will be signed in the coming months. That leaves us confident we can achieve total revenue growth of 6.5% to 8% for the whole of 2023 on a constant currency basis. We further intend to grow our adjusted operating income margin to 16.8%. So with that, I'll hand the call to Mike, who will walk through our results in detail and our outlook for the year.

Thanks, Tiger, and good afternoon to all of you. I'll start by walking through the fourth quarter results, then I'll talk about the standout points from our full year 2022 performance and share what we're currently expecting for 2023. Let's start with Q4. Total revenue came in at $1.103 billion, which is up 3% compared to a year ago, or 6% if you look at it on a constant currency basis. Revenue from data and tech AI services, which makes up 45% of the total, rose 2% year-over-year, or 5% in constant currency terms, mostly powered by ongoing expansion in our cloud based data and analytics solutions across the areas we focus on, such as supply chain, sales and commercial and risk services. Just to remind you, data tech and AI services revenue had grown in the mid-30% rates back in the fourth quarter of 2021, which reflected a greater amount of short cycle revenue. Digital operations services revenue, accounting for 55% of our total revenue, was up 3% year-over-year, or 7% on a constant currency basis, mainly because of deal ramps from existing and recent wins. If we break performance down by industry group, Financial Services grew 17% compared with a year earlier, driven largely by continued robust appetite for the risk management offerings we provide, which draw on data and analytics. In Consumer and healthcare, revenue declined 1% versus the prior year, mainly reflecting the effect of large deals taking longer to close as well as reduced revenue from data, tech, and AI services. High tech and manufacturing was up 7%, primarily on the strength of sale and commercial, sourcing and procurement, and supply chain work delivered for clients both new and existing. The divestiture of the business that we had earlier reported as held for sale has now closed. Since the net realized value turned out below what we had expected, we booked an $11 million charge during the fourth quarter, and that amount appears in the other operating expense line of our P&L. On an adjusted basis, operating income margin came in at 17%, which is 260 basis points wider than the same period last year. The main drivers were leverage from operations, a beneficial boost from coal adjustments made off cycle, and steps we took to hold down costs. Keep in mind that back in Q4 2021, that adjusted operating income margin figure ran below what we'd consider typical. The reasons were heavier investment spending pushed out from the first six months of that year, plus — importantly — a rise in transaction costs tied to deal wins, along with pressure from wage inflation. Results for this quarter leave out the drag from the business classified as held for sale, as well as the associated charge I referenced earlier. We posted a gross margin of 34.9% for the quarter, an increase of 40 basis points compared with a year ago. That growth largely came from improved utilization as well as gains tied to pricing adjustments made outside the normal cycle. Gross margin slipped 50 basis points compared with the third quarter, which stemmed from investments during the fourth quarter and spending to support new deal activity. SG&A equaled 21.5% of revenue, a year-over-year decrease of 140 basis points, driven mainly by initiatives to contain costs and greater leverage across G&A. Adjusted earnings per share reached $0.70, marking a 30% increase over the prior-year period, when the fourth quarter figure was $0.54. The $0.16 gain mostly came from adjusted operating income that was $0.13 higher, a $0.02 benefit from fewer shares outstanding, and $0.02 more from FX remeasurement gains, though these were partly offset by a $0.01 increase in net interest expense. Our effective tax rate stood at 27.1%, versus 29.6% a year ago, mainly because we had a larger amount of discrete benefits this quarter than in the comparable period last year. Let me now give you some detail on how full year 2022 played out. We brought in $4.37 billion in revenue. That's up 9% from the previous year, or 11% when you strip out currency effects. It came in at the high end of what we told you to expect for full year 2022, and it beat the 10% long term revenue target we've set. Data tech and AI services brought in 45% of total revenue, climbing 16% year-over-year, or 18% in constant currency. The main driver there was continued growth in our cloud based data and analytics solutions within the areas we concentrate on, like supply chain, sales and commercial, and risk services. Digital operation services made up 55% of total revenue, with 3% year-over-year growth, or 6% in constant currency. Throughout the year, the number of our customer relationships producing over $5 million in yearly revenue grew, rising from $145 million to $158 million. Clients whose revenue exceeded $15 million went from 59% to 63% as a proportion, and the group above $50 million climbed from 12% to 15%. Commercial models built on outcomes and consumption represent 14% of full-year revenue at this point, and we're working toward hitting 20% by 2026. Our adjusted operating income margin finished at 16.5%, the highest point in our guidance range, despite taking on wage inflation and elevated attrition. Gross margins stood at 35.1%, a decline from 35.6%. That 50 basis point drop stemmed largely from elevated attrition throughout the year, wage inflation and higher travel costs versus the prior year, partly offset by off cycle coal adjustments and improved utilization. Our full year gross margin carries a negative 20 basis point effect from the restructuring charge tied to strategic actions taken in the second quarter of 2022. SG&A, measured as a percentage of revenue, was unchanged from the prior year at 21.5%, mainly because we absorbed heavier investment activity from late 2021, offset by broader G&A leverage. Adjusted EPS reached $2.74, a 12% increase over the prior year's $2.45 in 2021. That $0.29 improvement was mainly due to adjusted operating income that was $0.22 higher, a $0.07 benefit from a reduced share count reflecting our capital allocation strategy, and $0.01 in foreign exchange remeasurement gains, partly offset by $0.01 in higher taxes. Our effective tax rate for the full year was 24%, compared with 23% a year earlier, mainly because we took a smaller amount of discrete tax benefits during 2022 than in the prior year. Moving on to cash flow and the balance sheet. During 2022, our operations brought in $444 million in cash flow, which shows that clients went back to their usual habits rather than prepaying to benefit from higher interest rates, and that pushed DSOs up to 81 days, compared with 74 days the previous year. To illustrate, roughly $100 million in payments arrived from a handful of accounts in the first days of January, which hurt our year-end DSOs by two days. Accounts receivable aging has stayed consistent with earlier periods, and credit quality has shown no signs of weakening. We closed the year with cash and cash equivalents of $647 million, down from $899 million at the close of the fourth quarter of 2021. Over the course of the year, we cut total debt by nearly $230 million and gave back over $300 million in capital to shareholders. In the fourth quarter, we refinanced bank debt that had been scheduled to come due in the back half of 2023. Because the market remains unpredictable, we are glad our facility has an interest rate spread close to that of our earlier borrowings. We finished the year at a net debt-to-EBITDA ratio of 1.2 times, which fits within our target range of 1 times to 2 times. Thanks to undrawn debt capacity and the cash we already hold, we still have plenty of room to chase growth opportunities and carry out our capital allocation approach of putting money back into the business, making capability-based acquisitions, and giving capital back to shareholders. For all of 2022, capital expenditures worked out to 1.2% of revenue, versus 1.3% in 2021.

Looking at Q4 along with the entire year, the capital we gave back to shareholders came to $55 million and $306 million, respectively. Dividend payments accounted for $23 million in Q4 and $92 million across the full year; on top of that, we bought back 700,000 shares during the quarter, spending $32 million total, which works out to a weighted average price of $45.03, while for the whole year we repurchased 4.8 million shares at a total cost of $214 million and a weighted price of $44.79. Buybacks through 2022 brought our net share count outstanding down by 2.5%; returning capital to shareholders remains a priority for us, both via the quarterly dividend and our steady rhythm of repurchases. For 2023, our current expectation is that no less than 30% of cash flow from operations will go toward repurchasing shares. The Board of Directors gave the green light to adding $500 million to the company's existing share repurchase authorization, which leaves us with $625 million in total availability for buying back stock going forward. On top of that, our board signed off on raising the dividend by 10%, bringing it to $0.1375 each quarter, or $0.55 on an annual basis. Since we started paying dividends in Q1 of 2017, the dividend has grown at a compounded rate of 15%. Last, let me walk you through the full year 2023 outlook. Total revenue should land somewhere between $4.64 billion and $4.71 billion, which translates to year-over-year growth of 6% to 7.5%, or 6.5% to 8% when measured on a constant currency basis. This outlook captures what we expect from existing client revenue as well as the risk weighting of bookings we anticipate winning over the year. All of this sits against the backdrop of the current macroeconomic environment. At present, we anticipate our full year 2023 adjusted operating income margin will come in around 16.8%, consistent with our strategy of achieving margin expansion more quickly than we have in the past. That 30 basis point improvement stems mainly from continued scaling of data tech and AI services along with operating leverage. For 2023, our effective tax rate should be roughly 24% and 25%, versus the 24% we reported for full year 2022. With the < > just provided, we estimate adjusted earnings per share for full year 2023 will fall between $2.92 and $2.99; that amounts to year-over-year growth of 7% to 9%, and it factors in a positive $0.02 from the lower share count, which is offset by $0.02 from higher expected taxes and a negative year-over-year FX impact of $0.06 per share stemming from the $15 million of remeasurement gains booked last year; we're projecting cash flow from operations of roughly $500 million, mostly due to anticipated growth in our adjusted operating income during 2023. Capital expenditures as a share of total revenue should be around 1.5% to 2% in 2023, since we plan to invest in new operating expenses tied to our hybrid delivery model as well as keep investing in digital solutions. To wrap up, I'd like to give you a sense of how we anticipate revenue growth unfolding over the course of the year. Given the ramp we expect from new deals won recently, our current view is that the usual seasonal drop in revenue from the fourth quarter to the first quarter will be smaller than what we typically see. As a result, we anticipate low single digit growth quarter-over-quarter for the rest of the year. Looking at it year-over-year, we expect growth in the second half to land at the higher end of what we see in the first half, driven by the ramp of new deal wins and easier comparisons year-over-year. At present, we expect our adjusted operating income margin to follow the pattern we normally see, lower in the first quarter and expanding as the year goes on. With that, I'll hand the call back to Tiger.

Thanks, Mike. We feel good about how 2022 turned out. As companies make strategic choices in response to the current macro backdrop, we're benefiting from that through more conversations, more inflows, and a stronger pipeline. It's undeniable that data now ranks as the most valuable asset for every business; we see evidence of this in rising demand across our focused service areas — supply chain, sales and commercial, and risk — each of which is tightly tied to data and analytics. Our intelligent platform, Genpact Enterprise 360, lets clients tap into the power of data driven insights that come from running their operations and applying our proprietary metrics and benchmarks. This strong tool gives clients the ability to act on their own or alongside us to produce outcomes now and uncover transformation possibilities going forward. We keep getting recognition for our ESG efforts, with Genpact appearing in the 2023 Bloomberg Gender Equality Index for a second consecutive year. Sustainalytics also listed us among the best performing companies in ESG; in short, we have a top line that keeps growing, built mostly on sticky long term global relationships with built-in operating leverage that helps fuel long term margin expansion; we can also seize opportunities in our big and expanding underpenetrated market, which our data tech AI and digital operation services are unlocking. In fact, 70% of accounts that begin as data tech AI engagements wind up growing into bigger data tech AI or digital operations relationships. The 126 new logos we signed in 2022 are the seeds from which future priority accounts will grow. Our 2023 outlook lines up closely with our long term growth and profitability goals. Before I wrap up my prepared remarks, our thoughts go out to everyone impacted by the devastating earthquake in Turkey, including the roughly 50 Genpact employees located there and their families. With that, I'll hand the call back to Roger.

Thanks, Tiger. At this point we want to turn the call over to your questions. Justin, would you mind giving the instructions?

It's encouraging to hear about the strong momentum you're seeing on large deals. Could you also discuss what the demand picture looks like for short-term, project-based work, and what does your annual guidance factor in for that?

Puneet, on the whole, demand is solid for short-term, specific engagements, since everybody — as I mentioned — is on a path to rethink their portfolio and safeguard their strategic path involving digital transformation and reshaping how they operate. And then, naturally, both you and I have already touched on the large deal space looking favorable. One point worth highlighting: as we moved toward the close of Q3 last year and into Q4, and on into 2023, we observed — and we anticipate — a slowdown in front-end digital marketing and experience-led, short-term consulting and advisory types of engagements. That showed up in Q4. We anticipate it staying slower for the rest of the year.

Also, are you noticing a bigger share of deals involving employee rebadging as clients try to reduce expenses, and what would a typical such deal you'd go after look like?

Puneet, I'm not sure I'd claim that over a longer horizon — looking across a broader span of 3 years, I wouldn't really say there's a meaningful shift toward more rebadging arrangements. That said, for 2023 our mix will likely show somewhat more of it, since, as we mentioned, not many big deals got signed by us during the fourth quarter, and there's a solid pipeline we're actively pursuing right now. When those get signed, a rebadge element will be part of some. So on a longer-term path, it's roughly the same; narrow the view to just a couple of quarters, though, and you'll notice an uptick. Without a doubt, when businesses rethink their own long-term path, when they rethink how to achieve cost savings so they can plow money back into those strategic programs, captive centers and current global business service operations definitely enter the picture within the whole transaction. And we've turned into arguably one of the top worldwide specialists at handling exactly that; so whenever it occurs, we feel quite pleased.

Tiger, my first question for you resembles the one just asked. Still, what's your view on the growth algorithm for CY '23? And specifically regarding new logos against existing customers — I know you mentioned signing up to 126 new logos this year, so how are you thinking about that in CY '23? And particularly on existing customers, are you noticing greater pressure on the existing business, and I'm really curious about the gap between, say, growth retention and net retention. Put differently, are renewals proving tougher in this economic cycle, are you seeing a lower mix or reduced volumes? But any — I'd love to hear a bit more from you on the growth algorithm.

Well, growth algorithm is a great phrase. Let me begin by — let's discuss renewals. Renewals always depend entirely on the value we've been driving for our clients across, let's say, the five year relationship we've had. We begin those conversations with our clients long before any renewal arrives, let's say, 18 months; and our goal and our clients’ goal throughout those conversations when we discuss renewals is the incremental next slug of value creation; and frequently, that results in expansion of scope, it results in more digital intervention, it results in technology stack getting added, more movement to the cloud, more data analytics and prediction engines being built. So we view the renewal process and our focus on renewals over the last 18 months as really strong and having paid off; and in this economic environment, we see that actually as a big benefit because clients are looking for fast paybacks. So that's on renewal; on new deals, you talked about — your other question was, just remind me, Keith…

What's your view on new logo deals, which might look different…

Keith, when you look back at our history with new logos, I mentioned 126 for 2022. That figure, I noted, was 30% above what we saw the year before. So considering, once more, a trajectory of three, four years, it's landed around 80, 85 newer ones up to this 126, which is obviously a peak. We don't expect that to shift in 2023, since everything I laid out regarding the environment, I'd say holds true for each enterprise and every region across the globe in every industry vertical. The question is which of those they're choosing, are they choosing a journey on technology stack, are they choosing a journey on consolidating tech partners, are they choosing a journey on shifting apps to the cloud, are they choosing a journey on pulling out cost by consolidating functions so they can reinvest back into growth initiatives, which we know matters greatly these days given the environment where growth isn't easy. So we see that growth algorithm being not all that different between existing clients and new clients. We have — our emphasis on priority clients carries on and our emphasis on those 126 new logos, just to select them, would be to plant the seeds of future priority clients, let's say, a couple of years from now and that's the business model over the longer term, if you play this out across the five, 10 year horizon.

Keith, my next question is along the same lines. Tiger, do you perceive a greater competitive threat coming from technology? By that I mean, when you look at something like AR collection, you have more software firms stepping in and attempting to improve automated AR collections, and/or consider all the AI announcements that came out over the past couple of weeks. How do you view the maturing or arrival of new technologies as possibly creating fresh opportunities or adding incremental risk to certain practices of yours?

Keith, the answer is quite straightforward, since we have now spent roughly seven to eight years on this path of using new technologies. We have consistently maintained that our job there is to identify the appropriate technology, fold it into the end-to-end service we provide to clients, or deliver it to them so they can fold it into their own operations, since they do not hand us their digital operations to run. In either case, our strong conviction has always been that technology creates value only when you know how to apply it, when you know how to deploy it, when you grasp the industry, when you grasp the domain, and when you grasp the data. What is taking place around us among our clients is that there is genuine conviction across our client base, yet that is precisely what must be done, which explains why we are starting to see genuine momentum in technology, genuine momentum in folding technology in with us as the partner. Regarding the AR examples you mentioned, HighRadius is an excellent illustration of that. And it is not new — we have worked with HighRadius for more than four years, folding it into our solution when that is the right thing for the client. So we view these technologies arriving as a genuine opportunity, because the client must find a way to take advantage of them, and they need us, firms like ours, to assist them in taking advantage of them. It is not a threat, it is in fact an opportunity.

I want to build a bit on what Keith asked regarding emerging tech. You've obviously had media exposure, discussing ChatGPT and similar tools; and like you mentioned, your company has done well at weaving technology into how it operates, which in fact speeds up growth. Can you share instances where a client approaches you and asks, on a given process, whether we might attempt to bring ChatGPT in? And have you observed cases where it delivers an advantage, or any situations where it might turn into a drag?

My view is that expecting complete integration right now is premature. So no is my response. A client expecting full integration at this point doesn't seem realistic, and neither do we anticipate that occurring. That said, it's quite evident there's genuine potential to bring such technologies—not only ChatGPT, but additional generative AI tools—into many of our operations and services. To achieve that, though, the initial step required is for that specific generative AI to gain footing in the data and the domain it must handle. It isn't generic; it's particular. So an extensive backend training effort is what ChatGPT has to go through. In fact, this will generate a large number of data operations roles dedicated to training ChatGPT on particular domains; and who is best suited for that work, firms such as ours, since you require the specificity of what an automotive insurance claim in the state of Michigan looks like; and that has to become part of ChatGPT's data infrastructure so it can respond to the question that must be answered in order to embed ChatGPT within a claims process. So we identify genuine potential; we recently launched a significant hackathon throughout the organization with 90,000 people taking part to determine use cases plus pilots and concepts for where it might be incorporated.

Then perhaps for my second question, as a follow-up: my guess is that you're anticipating faster expansion in the data tech AI business compared with digital operations during this year, and likely a sharper hockey stick-style pickup as the year goes on, while the digital apps business should be steadier. Does that seem like a reasonable way to view the year?

Exactly. So as you consider the business and the rhythm of its earnings or revenue pattern, that low single digit growth rate we see in digital operations is going to be far more consistent than what we see in data tech and AI.