Genpact Limited (G) Earnings Call Transcript & Summary

Thanks, Carmen. Hello everyone, and good afternoon. You're joining us for Genpact's Q4 2024 earnings conference call. Hopefully you've already seen our earnings press release, which can be found in the Investor Relations area of our site, Genpact.com. Joining us today are BK Kalra, our President and CEO, along with Mike Weiner, our Chief Financial Officer. BK will begin with a big-picture look at both the quarter and the year, after which Mike will walk through our financial results in more depth, and then we'll open things up for your questions. I want to remind you that on this call, we'll be making forward-looking statements, including ones regarding our business outlook, our strategies, and our long-term goals. Those remarks reflect our plans, predictions, and expectations as of today, and they could change down the road. Actual results might differ materially because of a number of significant risks and uncertainties, among them the risk factors described in our 10-K and 10-Q filings with the SEC. In addition, on this call we'll be discussing certain non-GAAP financial measures, and we've reconciled those to the most directly comparable GAAP financial measures in our earnings press release. These non-GAAP measures aren't meant to replace our GAAP results. And lastly, this entire call is being webcast from our Investor Relations website, and an audio replay along with a transcript will be posted on our website within a few hours. With all that said, I'll hand things over to BK.

Thanks, Krista. Hi, everyone, and I appreciate you being with us today. I'm happy to share that we delivered another solid quarter, and results came in above what we had expected. Q4 revenue came to $1.25 billion, which is a 9% increase compared with the same period last year. What's significant is that Data-Tech-AI is starting to demonstrate what it can do, rising 12% versus a year ago, and revenue growth picked up speed during Q4. Growth in Digital Operations also sped up, climbing 6% compared with last year. In Q4, gross margin and adjusted operating income margin likewise came in ahead of expectations, since we keep generating operating efficiency even as we put money into growth. Looking at the bigger picture, I take pride in what we got done during 2024. We laid a solid groundwork, considerably bolstering how well we execute and how well we innovate; we signed 14 large deals, matching last year's count, yet aggregate bookings across that group came in 10% greater. For the full year, revenue rose 6.5%, roughly 400 basis points higher than the midpoint of the guidance range we started with. Operating cash flow was up 25% compared with a year earlier. Adjusted diluted EPS rose 10% versus last year, outpacing revenue for a fourth consecutive year, and we finished 2024 with new bookings totaling $5.7 billion, a 15% increase over last year, following an exceptionally strong 2023. As 2025 gets underway, innovation sits front and center at Genpact. It's obvious that companies must go past generic AI toward domain-specific intelligence that fits their particular industry needs. To serve that need, we're thrilled to announce that our first agentic solution for accounts payable is now generally available. This marks the initial offering in a series of agentic solutions we intend to introduce within our Digital Operations business. Driven by a proprietary LLM, our offering uses GenAI along with machine learning models to automate invoice extraction, generating superior value via this inventive approach. Genpact's deep industry expertise forms the basis for our agentic solutions, with extremely detailed domain-specific knowledge built into every one of our agents so value gets delivered at scale. We're also picking up the pace in Data-Tech-AI by launching our AI Value Studio along with the Genpact Gigafactory. The AI Value Studio assists companies in pinpointing high-impact use cases and building custom roadmaps alongside experienced Genpact AI architects, merging process, industry, and technology know-how. The Genpact Gigafactory is an AI accelerator unlike any other, intended to help enterprises quickly scale AI solutions from pilot all the way to full-scale production; it contains thousands of pre-built AI and generative models that merge deep industry knowledge with state-of-the-art data engineering tools, all using a distinctive pod delivery model featuring cross-functional teams that unite domain-specific knowledge, data engineering, and integration expertise within a single team to speed up time-to-value with responsible AI by design. Databricks is among our first partners as we scale this Gigafactory. This quicker pace of innovation rests on the solid groundwork of the 3+1 execution framework we rolled out in 2024, which is now deeply woven into our DNA; it spans partnerships, Data-Tech-AI, simplification, and the plus one in our 3+1 framework, which is about establishing Genpact as our own best credential for AI-led transformation. As we wrap up the year, I want to take you through the last set of important points for each area. To start, 2024 brought substantial strides in our partnerships, as revenue tied to partners climbed 50% compared with the prior year, hitting high single digits as a share of total revenue by the time the year ended, and we can see a clear path to producing considerably more in periods ahead. The expansion came from putting resources into top-tier leadership teams, building awareness, sharpening how we bring offerings to market, and growing our delivery capacity alongside several hyperscalers and other major technology allies. In our view, this points to a major opportunity that will keep unfolding for Genpact throughout 2025 and afterward. As we look forward, we are also broadening our presence within the startup community, zeroing in especially on next-generation AI orchestration and other systems built specifically to optimize business processes and workflows using AI. We anticipate that these alliances with up-and-coming technology innovators will speed up both our technology capabilities and our go-to-market work in Data-Tech-AI. Next, our commitment to providing end-to-end solutions fueled faster growth in Data-Tech-AI during Q4, with revenue rising 12% versus the same period last year. Let me share a couple of illustrations that show the type of work we take on and the value it creates for clients. We are building a strategic alliance with Otis, the top global firm in elevator and escalator manufacturing, installation, and service, to speed up their transformation. Within that effort, we would put in place robust data architecture and fresh AI-driven technologies to make several core, high-volume transactional, and repeatable tasks more efficient. Using advanced automation, we would assist in standardizing Otis's essential business processes, which makes it simpler for customers to engage with them and lets Otis keep concentrating on serving its customers through best-in-class service and innovative products that will drive them forward. We are likewise collaborating with NTT Data, a worldwide technology leader that supplies network solutions, cloud infrastructure, and data center services, to overhaul the finance operations of their technology solutions with generative AI. As part of that effort, Genpact is rolling out several AI-powered solutions built to enhance numerous finance and accounting processes, among them time-to-bill and credit rebill, resulting in greater accuracy, reduced purchase order lead times, and an improved overall experience for vendors and customers; we keep seeing proof that GenAI is greatly widening our total addressable market. At this point we have over 145 GenAI solutions in client production environments, whether already deployed or in the process of going live, and GenAI bookings sped up to $100 million in Q4 alone. Turning back to the third piece of our 3+1 framework, simplification, we keep streamlining our operations so we can scale more efficiently. For instance, continuous simplification of our cash collection process helped drive the sizable rise in operating cash flows we achieved in 2024. And last, when it comes to leading with Genpact as our own strongest proof point for AI-led transformation, we keep making solid headway. Here are two illustrations. We launched Chat with Data, and that capability is now live across HR, finance, and sales, bringing together advanced analytics, machine learning, and generative AI to boost forecast accuracy and take advantage of intelligent sourcing. We've likewise embraced AI-driven network operations, putting AI to work at 120,000 endpoints throughout our network, rolling out zero-touch provisioning, and cutting tickets considerably over the course of the year. Moving on to what lies ahead, for Genpact 2025 is going to be a period of faster-paced innovation, and our momentum going into the year gives us confidence. Accordingly, our full-year revenue guidance is set at 6.5% at the midpoint on an as-reported basis, which works out to roughly 7.2% at the midpoint when measured in constant currency. For gross margin and AOI margin, we anticipate 36% and 17.3%, respectively, which marks solid expansion relative to 2024, alongside EPS growth of 9% at the midpoint. Just as we did in 2024, we intend to plow any revenue upside we manage to produce throughout the year back into the business so it fuels future revenue growth. Last, as we push hard into innovation during 2025, we're eager to reveal more at our analyst day coming up, scheduled for June 26 in New York City. Mark your calendars, please. A press release containing further details is on its way shortly. To wrap up, we couldn't be more enthusiastic about what's ahead as we speed up the rate of innovation and change here at Genpact. By committing to scale data, AI, and domain-driven agentic solutions, we are establishing ourselves as an obvious frontrunner in AI-driven transformation while generating exceptional value for our clients. I'd like to express gratitude to the whole Genpact team for their amazing commitment, and I can't wait to see what we accomplish together in 2025. With that said, I'll hand the call over to Mike.

Hello, everyone, and thanks for joining us this afternoon. I'll start with a look at how we performed in the fourth quarter, and after that I'll walk through our results for the entire year along with our guidance. We finished Q4 ahead of our expectations, and we're particularly pleased by the robust top-line expansion, which showed up across all of our segments and was especially pronounced in data tech and AI. Moving now to the Q4 income statement, net revenue on an as-reported basis totaled $1.25 billion, which represents 9% growth compared with the same period a year ago. Revenue from data, tech, and AI reached $595 million, a 12% gain, fueled by healthy appetite for our data and technology offerings. On this quarter's call, Data-T ech- AI represented 48% of Digital Operations for the quarter. Digital Operations itself was 52% of total revenue, and that figure climbed 6% to reach $654 million, with large-scale deal ramp-ups going well contributing to the result. Priority accounts generated roughly 9% more revenue than a year earlier and supplied 64% of Q4 revenue. All three vertical segments delivered solid Q4 growth: Consumer and Healthcare increased 11%, High Tech and Manufacturing increased 9%, and Financial Services increased 6%. Deals based on outcomes and consumption, leaving out fixed- fee contracts, represented 21% of Q4 revenue. Because we have shifted strategically toward such deals, we are well positioned to seize opportunities with higher margins and simultaneously give clients more value than before. Now for profitability: our gross margin improved by 10 basis points compared with the same quarter last year, reaching 35.7% in Q4, which we owe to operating leverage. SG&A accounted for 20% of revenue, down from 20.7% a year earlier, a reflection of ongoing spending in strategic growth areas as well as leaner operations and better productivity. Adjusted operating income reached $221 million, giving us an adjusted operating income margin of 17.7%. For Q4, our effective tax rate stood at 22.3%, while the prior-year rate had benefited favorably from a non-recurring tax benefit tied to an intercompany transfer of intellectual property. Net income for the quarter totaled $142 million. On a diluted basis, earnings per share came in at $0.79, while adjusted diluted EPS reached a record $0.91 — an 11.1% gain year over year. Switching to the full year: bookings climbed 15% to $5.7 billion, with solid increases seen across every deal size. Large deals totaled 14, matching last year's count, though the combined bookings from that group were 10% greater; new logos numbered 101, up by 10 from the previous year, and our win rate stood at 50%, while sole-source agreements accounted for 42% of all annual bookings. Full-year income, reported on an as-reported basis, breaks down as follows. Net revenue was up 6.5%, reaching $4.77 billion. On the call, we reported that Data-T ech- AI brought in $2.23 billion in revenue, which is a 6.9% increase and represents 47% of total Digital Operations. The other 53% of revenue came from Digital Operations itself, which grew 6.1% year-over-year to $2.53 billion, helped by big deal wins and expanding client relationships. Looking at our industry segments, growth was balanced across the year: Consumer and Healthcare each rose 8%, while High Tech and Manufacturing was up 6% and Financial Services was up 5%. For the full year, outcome- and consumption-based deals—excluding fixed fee contracts—made up 20% of total revenue. At the same time, priority accounts generated about 6% more than they did the year before and represented 63% of total revenue. Our gross margin rose 40 basis points to 35.5% for the year, reflecting the operational leverage we achieved. SG&A came in at 20.3% of total revenue versus 20.4% a year earlier, which shows we kept investing strategically while managing G&A costs with discipline. Adjusted operating income climbed 6.7% to $814 million. Margin went up 10 basis points from last year to 17.1%, the highest annual figure we've recorded. Our effective tax rate was 24.1% for the year, producing net income of $514 million. Adjusted diluted EPS reached $3.28, up 10% and well ahead of revenue growth for a fourth straight year. Cash flow from operations was strong at $615 million, 25% above the prior year. Turning to our balance sheet and how we allocate capital: 2024 ended with us in a strong spot, holding $648 million of cash and cash equivalents, up from $584 million the prior year. Our DSOs landed at 86 days, an improvement of two days versus 2023. In Q4, we returned $112 million to shareholders—$85 million via repurchases at an average share price of $45.41, along with $27 million in dividends. For the entire year, we gave back $361 million, made up of $253 million in buybacks at an average price of $38.31 and $108 million in dividends. I'll pause there and walk through our 2025 guidance. We're sticking with the same approach we used a year ago, and it presumes the macroeconomic environment will look a lot like it did in 2024. Across the entire year, on an as-reported basis, we expect net revenue to land somewhere between $5.029 billion and $5.125 billion. That works out to an increase of 5.5%-7.7%, and 6.5% if you take the midpoint. At that midpoint, revenue growth for data tech should be roughly 6.2%, while AI Digital Operations should be about 6.8%. If we take the midpoint of that projected range, adjusted diluted EPS comes in at $3.52 to $3.59 — that works out to 9% growth over last year at the middle of the range, and once again we expect it to grow faster than revenue. Looking at constant currency, net revenue would rise 6.2%-8.2%, with 7.2% at the midpoint, which means Data-T ech- AI Digital Operations revenue growth of roughly 6.4% and 7.9%, respectively. Turning to the full year, gross margin is expected to reach 36%, a 50 basis point improvement versus a year ago, driven partly by operating leverage. We anticipate operating cash flow of about $590 million; as for capital allocation, staying consistent with what we've done before, our plan is to give back no less than half of that cash flow to investors through buybacks and dividends, while keeping room to make strategic investments. Our board has given the green light to increase the regular quarterly dividend by 11%, bringing it to $0.17 each quarter, or $0.68 yearly. They also signed off on a $500 million increase to the share repurchase program already in place. Turning to Q1, using the as-reported basis, we expect net revenue between $1.202 billion and $1.213 billion, representing growth of 6.2% to 7.2%, with the midpoint at 6.7%. Broken down, that means roughly 9.8% for Data-Tech-AI and 4.1% for Digital Operations revenue. On a constant currency basis, net revenue growth lands in the 7.1% to 8.1% range, which is 7.6% at the midpoint, translating to about 10% growth for Data-Tech-AI and 5.4% for Digital Operations revenue. Our forecast is a gross margin of 35% along with an adjusted operating income margin of 16.5%. Finally, adjusted diluted EPS is projected at $0.79-$0.80, roughly a 9% rise at the midpoint versus the prior year; having said that, I'll hand the call to Krista.

Thank you, Mike. Carmen, we're ready to take questions. Thank you.

Hi, appreciate you fielding my question. Fantastic quarter. I'd like to ask about the guidance, particularly regarding Data-Tech-AI and Digital Operations. Based on what the guidance suggests, it appears you're anticipating a deceleration in Data-Tech-AI past Q1. Some of that may stem from difficult comparisons. Still, I want to check whether anything else is at play; and for Digital Operations, the same inquiry applies, except growth there is projected to pick up. So what's behind that pickup for the remaining portion of the year past Q1 in taxes?

Yes, allow me to begin this and then pass it over to you, BK, in case you'd like to add anything further for Ed; so Puneet, as you're aware, roughly 75% of what we do is what we refer to as annuitized. That's activity we possess that has been turned into bookings, which then becomes revenue, and we enjoy strong visibility into it along with confidence. For the remaining 25% of revenue, we must transform that pipeline into bookings and then into revenue within the current quarter. So clearly, the further out you move in the year, the less visibility you have. Therefore I'd say when we established our full-year guide on a quarterly basis, and we already provided Q1 to you, it mirrors a cautious stance, factoring in that annuitized portion of the business, plus the non-annuitized portion, which is disproportionately impacted by or tied to Data-Tech-AI. On top of that, as you pointed out, comparisons get somewhat harder during the second half of the year. So we remain dedicated to giving guidance every quarter and we'll see how things unfold from there.

Got it, got it. Then regarding GenAI, BK, you mentioned rolling out certain solutions, with a few already in use by clients. As for the revenue those engagements can bring in, are you noticing growth in the scale of a number of those agreements?

What we're observing, Puneet, is that when we put these GenAI solutions into place, plenty of follow-up discussions and deals come our way, whether from customers we already have or ones who are new, since they witness the value and the benefits we're capable of delivering. That also sparked the Gigafactory we unveiled not long ago, which assists clients in advancing beyond proof of concept or pilots toward reaching enterprise-wide, large-scale production more quickly. So the brief reply, as we've consistently stated — in fact, we said it throughout last year — is that for us GenAI serves as an enhancer of our total addressable market, and we keep watching that unfold across our pipeline, our conversations, and our revenues.

Understood. Thanks very much.

Hello, and thanks. Regarding those agentic solutions you mentioned, when we look at the outlook you provided — the 2025 revenue guidance — how fast should we anticipate hiring to grow alongside it, particularly as these kinds of solutions get rolled out?

Thanks, Maggie. I'll handle that one. First, I'd say we're genuinely excited about the innovative mindset taking shape across the market, and about the early-mover edge we're starting to tap into at this early point. Over the medium to long term, the pace of our revenue growth will outstrip the hiring patterns typical of, let's say, the previous 4 or 5 years. Near term, we need more skills in data, technology, and AI, and we're ramping up recruiting for those. So I wouldn't expect a dramatic quarter-over-quarter swing, but a dramatic shift is underway within the company to bring in skilled people, and at the same time we're reskilling and re-architecting our existing skill base via internal build programs and Genpact programs to the world, aimed at the capabilities required in the world ahead. Yes. And I'd add that the cost structure tied to everything we're doing shows up in the plan we set out or received.

Understood. Now, when we consider the company as a whole and the way these emerging tools could be deployed down the road, how would you characterize the mix between solutions that lean more horizontal — say, that payables product, or payables-related tasks generally — and the work you do that's specific to particular domains? And in your view, how relevant is this new technology to each of those two categories?

Maggie, when I look at what we do, it's really a blend of solutions that span horizontally and those tailored to specific verticals. Take the payables example you mentioned — yes, that one skews more horizontal. Some elements on the supply chain side also skew horizontal. But our approach is consistent: we're expanding within insurance, which centers more on claims, underwriting, or our banking division, or things such as trade promotion and CPG. So the stance stays the same, and I'd say it applies both within the industry verticals where we operate and at the meeting points with horizontal areas like finance, supply chain, procurement, and so on. Thank you.

Thanks for that. And the guidance looks solid.

Hello, everyone, and I appreciate you letting me ask. Great job on these results. I wanted to understand how GenAI is impacting your trust and safety segment, particularly content moderation — what opportunities and difficulties might arise for that part of the business. Also, might policy shifts similar to what Meta did lately play a role there? Thanks.

I'll handle that one, Sean. Appreciate it. First, a quick reminder: content moderation and comparable functions account for under 10% of Genpact revenue. So that's not a major piece of Genpact revenue — that's my first point. Second, regarding the details you mentioned, or many other efforts like them, we remain in regular contact with our clients, and what we're finding is deeper engagement with them. The particular item — like fact-checking — that's the type of work we avoid, so we aren't seeing that effect. Even more importantly, we keep very active communication with every one of our clients, and we observe ongoing movement toward our objectives and toward what our clients aim for. We don't perceive any danger that you might be suggesting.

When it comes to content moderation, could AI be used to fight some of the harmful material that AI itself poses a risk for? Does that kind of chance exist too?

The brief response is affirmative; nonetheless, since you're working alongside the big technology firms, Sean, they clearly possess their own suites of offerings that they're busy putting to use. And we form a vital piece of that answer, and we deliver every one of those breakthroughs right to their door as well. So it comes down to a mix of elements in which those major tech corporations roll out their own instruments, or in some instances, we roll out the instruments on their behalf.

Fantastic. I really appreciate that added detail. Once more, congratulations on the quarter.