Genpact Limited (G) Earnings Call Transcript & Summary

Thanks, Lisa. Hello, everyone, and welcome to Genpact's Q2 2025 earnings conference call this afternoon. Hopefully, you've already seen our earnings press release, which can be found in the Investor Relations section of our website, genpact.com. Joining us today are BK Kalra, our President and CEO, and Mike Weiner, our Chief Financial Officer. BK will begin with a high-level summary of the quarter, and after that, Mike will walk through our financial performance in more detail before we open the line for your questions. Please be aware that on this call, we will be making forward-looking statements, including statements regarding our business outlook, strategies, and long-term goals. These remarks reflect our plans, predictions, and expectations as of today, and they may change over time. Actual results could differ materially because of a number of important risks and uncertainties, including the risk factors described in our 10-K and 10-Q filings with the SEC. Additionally, on this call, we will discuss certain non-GAAP financial measures. We have reconciled those to the most directly comparable GAAP financial measures in our earnings press release. These non-GAAP measures are not meant to serve as a substitute for our GAAP results. Lastly, this entire call is being webcast from our Investor Relations website, and a replay and transcript will be posted on our website within a few hours. With that, I'll hand things over to BK.

Thanks, Krista. Hi everybody, and I appreciate you being with us today. Genpact had another robust quarter in Q2, with revenue hitting $1.25 billion, which is a 7% increase compared to the same period last year, showing strong performance across all areas of our business. Our gross margin and adjusted operating income margin were both solid as well, rising 50 and 40 basis points respectively versus a year ago, as we keep expanding margins while simultaneously investing heavily for future growth. Notably, adjusted EPS is still rising more quickly than revenue, climbing 11% from a year earlier, and it even hit $0.88, which is above the top end of our guidance range. During our Investor Day in June, we unveiled Genpact Next, a plan aimed at making Genpact a worldwide frontrunner in advanced technology solutions, leveraging the strength of our core business services to speed up revenue growth and widen margins. The Genpact Next growth model consists of three main components, which we refer to as the three Cs. These are: first, our capabilities, which cover what we bring to market in advanced technology solutions and core business services. Second, our clients, which cover who we serve, both enterprise and mid-market. Third, our catalysts, which cover how we intend to further speed up growth by investing in partnerships and AI-focused talent. We're already seeing encouraging early traction in all three. Let me take you through the main points. To start with capabilities, we offer two distinct yet linked sets of offerings: advanced technology solutions and core business services; these offerings strengthen one another. Why? Because, as I've mentioned previously, artificial intelligence can't exist without process intelligence. We're seizing this chance by weaving advanced technologies into what Genpact has always excelled at: outstanding process, industry domain, and last-mile expertise; this quarter, revenue from advanced technology solutions, which encompasses data and AI, digital technologies, advisory, and agentic solutions, keeps speeding up, rising 17% year-over-year, fueled by momentum in data and AI, as we keep helping clients quickly put AI systems into production. Our data and AI pipeline has grown threefold in the past year, and we're innovating quickly. The AI gigafactory is now operational across every Genpact vertical, with over 45 clients brought on board so far this year and over 100 seasoned data and AI leaders joining us to assist clients in rapidly scaling AI. We currently have over 270 GenAI solutions in client production environments, either deployed or about to go live, which is more than 3x higher than a year ago. Our agentic solutions are picking up steam too. Every part of our agentic AP suite is now generally released, and we're seeing results we can measure — data gets captured more accurately, more items flow through without human handling, and both our customers and Genpact itself are enjoying substantial productivity improvements. This AP suite is just a single example of the way our cutting-edge technology offerings are creating bigger benefits for customers while bringing in lucrative income for Genpact. Relative to the typical figure across our company, these advanced technology solutions deliver more than double the revenue for each employee, and they're growing faster than Genpact's overall revenue by a factor of more than two. Advanced technology solutions bring in recurring revenue for close to 70% of the total, and roughly seven out of every ten dollars of that comes from commercial arrangements that don't hinge on full-time equivalents. That combination gives us high quality, sticky revenue that lines up strategically with our direction. We do hand productivity gains from AI over to our clients, but even so, more revenue keeps coming in by way of wider scope, bigger volumes, and completely new logos — all of which is driving net revenue growth. On the client side, our enterprise and mid-market accounts are a genuine point of pride, and plenty of those clients took the stage themselves at Investor Day to describe the meaningful value our advanced technology solutions deliver. I want to share a couple of additional examples with you now, both illustrating the way advanced technology solutions are being applied by us in the enterprise and mid-market segments alike, so that our clients end up with operations that are intelligent and agile. The first of these concerns a major healthcare solutions provider operating worldwide, which for more than 125 years has been serving patients along with providers. Working as a strategic partner, Genpact has brought this organization's new product introduction and install-based functions up to date, allowing it to thrive in an environment that shifts quickly. At present we are integrating GenAI and agentic AI into this organization's product lifecycle, reducing hours devoted to routine engineering tasks through documentation powered by GenAI, while employing agentic AI frameworks to track and manage compliance proactively as the regulatory landscape evolves rapidly. Thanks to our AI-driven tools and deep sector knowledge, companies can now bring new offerings to market more nimbly and creatively, and handle them once they're in the aftermarket — that delivers quicker launches, better regulatory adherence, and consistent quality worldwide. Take our second illustration: a major P&C insurance brokerage based in North America. Together with this organization, we're working to upgrade how it runs, leveraging AI along with other cutting-edge tech. By joining forces, we'll overhaul the way their policy lifecycle functions, applying smart automation, agentic workflows, and operating models that scale, all of which should produce bigger gains in efficiency, the ability to grow, and a stronger experience for the retail partners and carriers they serve. This really shows how strong our leadership is in insurance, and how committed we are to giving fast-growing mid-market clients AI-driven solutions they can scale and repeat. And when it comes to catalysts, we're stepping on the gas even more by putting money into partnerships and into hiring people focused on AI. For Genpact, partnerships are a big growth opportunity. In quarter two, revenue tied to partners climbed over 70% compared with the same period a year earlier, and that made up 10% of total revenue. With AWS, Salesforce, and ServiceNow, we've reached top-tier partnership status. On top of that, the portfolio of solutions we build jointly keeps getting bigger, which sets Genpact further apart and speeds up pipeline growth. As of today, we provide joint offerings for financial crimes using AWS Bedrock, for order management using Salesforce, and for sourcing and procurement using ServiceNow, to name just a handful. We're pushing our capabilities forward by teaming up with companies such as Instabase, which handles intelligent document processing, and Zenity, which focuses on responsible AI adoption, plus others along those lines. We're also putting substantial money into AI talent, which speeds up our shift toward advanced technology solutions, centered on AI builders, the specialists who create AI solutions, and AI practitioners — domain experts taught to apply AI within the flow of work for client processes. Let me move on to guidance. Because quarter two performed better than we'd expected, we're raising our full-year outlook for revenue, adjusted operating income margin, and EPS. Measured on an as-reported basis, our expected revenue range is now 4%- 6%, up from 2%- 5% previously. For adjusted operating income margin, our expectation is 17.4%, versus 17.3% previously, and at the midpoint of the range we're increasing our adjusted diluted EPS outlook by $0.08- $3.54. To wrap up, we couldn't be more excited about what lies ahead as we transform Genpact into an AI-first company. As we use advanced technology solutions to reinforce our last-mile advantage and establish Genpact as an obvious partner of choice for AI-driven transformation, momentum keeps growing. With that, I'll hand the call over to Mike Weiner.

Hello, everyone, and thanks for being with us this afternoon. Our second-quarter results came in above what we had anticipated, with strength seen broadly throughout our business lines. Revenue on a total basis climbed to $1.254 billion, representing 7% growth compared with the previous year, powered by organic gains. Data tech and AI made up 48% of overall revenue, amounting to $599 million, and rose 10% versus the prior year, fueled by ongoing momentum in data and AI. Digital operations brought in $655 million, an increase of 4% year-over-year, thanks to solid execution and deal ramps. Digital operations made up 52% of overall revenue. During Investor Day, we rolled out two new revenue metrics to measure our progress on the Genpact Next strategy: advanced technology solutions and core business services. Advanced technology solutions generated $293 million, climbing 17% year-over-year, which reflects momentum in data and AI. Core business services produced roughly $962 million, rising 4%, mostly due to digital operations. In this quarter, advanced technology solutions made up 23% of overall revenue. We signed four large deals during the second quarter, among them one that had slipped from the first quarter. Every other large deal that had slipped remains live. Just to remind you, large deals carry a total contract value of $50 million or more. We're also continuing to broaden our presence with both enterprise and mid-market clients. Our pipeline stays robust and well balanced across various deal sizes, and the advanced technology solutions pipeline is up almost 1.5x year-over-year. Revenue increased across every segment, with high tech and manufacturing leading at 13%, then financial services at 6%, and consumer and healthcare at 1%. Non-FTE revenue, which now encompasses outcome, consumption, and fixed fee deals, made up 46% of second-quarter revenue, matching the same period last year. Moving to profitability, we achieved a gross margin expansion of 50 basis points year-over-year, hitting 35.9%, thanks to operating leverage. SG&A came to 21.2% of revenue. Adjusted operating income reached $217 million, while adjusted operating income margin widened by 40 basis points to 17.3%. Our effective tax rate during the second quarter stood at 24.9%, matching the prior year. Net income for the quarter totaled $133 million, and diluted EPS came to $0.75. Adjusted diluted EPS reached $0.88, an 11.4% increase year-over-year. Operating cash flow totaled $177 million, lower than the $209 million recorded a year earlier. In addition, DSOs stood at 91 days. We finished the second quarter holding $663 million in cash and cash equivalents, a decline from $914 million the year before. As a reminder, Q2 2024 had benefited from proceeds tied to a bond issuance, which were later used to pay off a bond maturity during the year. We gave back $60 million to shareholders in the second quarter, split between $30 million in share repurchases and $30 million in dividends. Now for guidance, given our robust second-quarter performance, we are raising our guidance range. For the entire year, on an as-reported basis, we now anticipate net revenue between $4.958 billion and $5.053 billion, which equals 4% to 6% growth. If we hit the 5% midpoint, revenue from data tech and AI plus digital operations should come in around 7.4% and 2.9%, respectively. Based on that projected range, adjusted diluted EPS should now land somewhere between $3.51 and $3.58, which works out to 8.1% growth year-over-year at the midpoint, and once again that's forecast to outpace revenue growth. To give you a bit more color on how we get to that 5% midpoint of our full-year revenue guide, we'd need to generate $238 million in growth across the full year, and roughly 70% of that has already been delivered in the first half; that means 30%, or $76 million, still needs to come in the second half. Next, our full-year gross margin outlook is unchanged at 36%, which is a 50 basis point improvement year-over-year. We now see adjusted operating income margin at 17.4%, up 30 basis points from the prior year. Operating cash flow should come in at roughly $610 million. When it comes to capital allocation, our goal remains returning no less than 50% of cash flow to investors via share repurchases and dividends, while keeping the flexibility for strategic investments. Just a reminder that the Exponential acquisition, which closed in June, is now baked into our guide and isn't anticipated to have a material impact on 2025 results. Shifting to the third quarter, on an as-reported basis, we expect net revenue to land between $1.258 billion and $1.27 billion, which is 3.9%- 4.9% growth, or 4.4% at the midpoint. That breaks down to data tech and AI and digital operations revenue of approximately 6.7% and 2.3%, respectively. We're now expecting a margin of 36% and an adjusted operating income margin of 17.5%. For the third quarter, we anticipate diluted EPS of $0.89- $0.90. You can find more detail on constant currency growth rates in our earnings press release and fact sheet posted to our Investor Relations website. To wrap up, we're excited about what's ahead, staying committed to growing adjusted diluted EPS faster than revenue, expanding margins while self-funding investments for growth, and keeping up a strong track record of returning cash to shareholders. With that, I'll hand the call over to Krista now.

All right. Thanks, Mike. Operator, we're set to move forward and take some questions. Appreciate it.

Good afternoon, and thanks for taking my questions. So I suppose the first thing I want to ask about is the speed and the conversion of new bookings. You mentioned that a deal got signed before Investor Day. Have you seen any additional momentum when it comes to converting the pipeline, and are the earlier delays tied to tariffs starting to ease up?

I can kick things off, Mike. Jump in if you'd like. Thank you, Bryan. Well, on the whole, our inflow, our conversion, and our pipeline are all still quite healthy. Bryan, I'm genuinely happy with how we're executing, the innovation we're driving, and the investments we're making to power that innovation. To be specific about those deals we discussed in quarter one, like Mike mentioned during his prepared remarks, one has already been closed by us, and we also closed several other sizable deals — or a handful of other sizable deals — during quarter two. That big deal, along with the pipeline as a whole, remains in a fairly healthy position, Mike.

One more point I want to make is that, as BK mentioned, we finalized one of those agreements during the first quarter. In addition, three other sizable deals in a separate cohort — none of which slipped — were completed in the second quarter. Conversations regarding those deals remain ongoing, and we anticipate they will reach a successful conclusion before the year ends.

All right, good. For my second question, I'd like to ask about GenAI. Is there anything more recent you can tell us regarding how GenAI, through traditional contracting, is affecting your core business on a net basis? And if you have any additional information about the different possible results you might see across engagements.

Yes. As you likely saw, Bryan, we provided a somewhat detailed example at our Investor Day showing the way many of these GenAI and agentic implementations are taking shape within our franchise. Things have largely remained within a comparable band. That was an illustration of AI being an obvious tailwind, and we keep witnessing that momentum move along fairly nicely. If I consider the pipeline, whether viewed through a data and AI lens or a GenAI lens, then as a share coming from advanced technology solutions, that pipeline in fact remains at a really quite robust point. I'm genuinely excited about the way we're bending the trajectory of this business, particularly given our spending on this innovation.

Yes. If I may add one thing there, correct? As we consider this, we presented — we provided an illustrative case that BK mentioned before, which we included during our Investor Day. The manner in which one might approach thinking about this is that the productivity benefits from AI are being split with our customers; that is something to be anticipated. Additional revenue is arriving through multiple channels, such as broader scope, higher volumes, or a combination of the two, plus new logos. That, combined with our capacity to deliver this and improve our margins, makes it quite inventive for Genpact, on both the top and bottom line.

Okay. Very good. Thank you.

Thanks.

Thanks. BK, could you expand a little on the advanced technology solutions and what's in the pipeline, how fast that turns into revenue, and roughly how long these projects run? That would help us get a clearer picture of that segment reporting, since it's among the newer data points you're giving us.

Yeah. Appreciate it. I mean, when you look at it, this is really a revenue disaggregation, and I'm speaking specifically about advanced technology solutions. Like I just said, the pipeline is expanding at a considerably stronger rate overall, and that's true across the different pieces of advanced technology solutions. Things convert a bit more quickly. As I noted, whether at the Investor Day or in what I said in my prepared remarks today, revenue per head is more than 2x and it's certainly rising at over 2x the average for the whole company. On the particular point you raised about contract duration, roughly 70% of everything in advanced technology solutions is annuitized, and it's also non-FTE.

Understood, that helps. As a quick follow-up, looking at growth rates by segment, it appears each of the verticals grew nicely. Is there anything more you can share on that? Clearly, professional services seems to have picked up. Any insight into how demand should be viewed at the segment level.

Overall, once again, we're very happy with how we executed and with total growth of 7% year-over-year against fairly solid comps. High tech and manufacturing, and that is high tech and manufacturing. We don't break it out. It rose 13%, as Mike said during his prepared remarks. Financial services, 6%. Consumer healthcare, yes, came in at 1%, though you know there's some concentration among customers that are especially macro-sensitive. When I look at the pipeline, across cohorts, whether cohorts of the deal, cohorts of verticals, or cohorts of geos, it remains at a pretty strong and pretty healthy stage. I'm very pleased with the strong execution the team is showing together with our clients.

Sure, the one thing I want to tack onto that is we turned in 7% growth during the quarter, correct? We're starting to see the payoff from the strategic investments we've made, the ones we self-funded inside the business; that's genuinely showing up in how our revenue breaks down, especially the 17% in advanced technology solutions, which BK mentioned when answering the earlier question, and we're quite happy with that. Being 70% annuitized is something that makes us really proud.

Thanks.

Yeah. Hey everyone, and nice work on a solid quarter. I’ve got a quick question about sequential trends. When you look at the midpoint of the Q3 guidance, it suggests trends below the prior sequential pattern, and that would mean Q4 has to be somewhat above what’s typical for you in order to reach the high end of your guidance. If you land at the midpoint, is that actually achievable, or will you need to bring down that high end? How are you thinking about it?

Yeah. Sorry, this is Mike. Once again, we feel very good about our guidance when it comes to the range. Here’s how I’d like you to frame it: at 5%, which is the midpoint, correct? First, our method for guiding hasn’t changed, right? Nothing has really shifted on a sequential basis. Just doing the basic math, with 5% growth at the midpoint, we need to produce roughly $238 million for the year, as I mentioned. 70% of that is already completed. If you take that further, the remaining 30% comes to around $76 million. Again, we feel confident we can get there, certainly at the midpoint of the range. In the end, it will come down to execution and client engagement, which might be able to take us beyond that figure.

We continue to be prudent about how we guide and how we deliver.

Understood. That's a fast second question. The details you provided on advanced tech solutions and core business services are helpful. Thinking back on 2024, advanced tech solutions truly began picking up speed during Q3. From that point on, core business services have been slowing down. Do you anticipate that pattern will persist? I realize we begin encountering harder comparisons in the back half for advanced tech solutions. What's your take on how those two growth rates affect each other?

Yes. Let me start on this, BK, and after that perhaps we'll pass it to you for a few extra big-picture remarks on the topic. If we think back to our Investor Day, held roughly six weeks ago, we provided our targets at the midpoint. Here's a way to consider it: we see our ATS business expanding no less than 15%, correct? Our core businesses expanding 4% to 5%. A portion of that stems from the rotation away from core business services as we shift toward advanced technology solutions. It's right for you to assume, right for you to note the acceleration we saw late last year and all through this year in advanced technology solutions; that truly traces back to the investments we've made in that revenue category; we intend to supercharge that going forward; that is genuinely what our guide for this year and our medium-term guide reflect.

You're going to see some fluctuation in comps and figures that show up, and I won't read too much into that. At the core, I'm genuinely happy with every one of the investments we're making in advanced technology solutions, and with how it's ramping up. I'll also anchor the argument somewhat on total revenue growth, which we keep delivering at the top-end profile within our sector.

Understood. Appreciate it, everyone.