Genpact Limited (G) Earnings Call Transcript & Summary

Thanks, Lisa. Hello, everyone, and good afternoon. It's great to have you join Genpact's Q3 2025 earnings conference call. Hopefully, you've already seen our earnings press release, which is up in the Investor Relations area of genpact.com. Joining us today are BK Kalra, our President and CEO, and Mike Weiner, our Chief Financial Officer. BK will kick things off with a broad look at the quarter, after which Mike will walk through our financial results in more depth, and then we'll open the line for your questions. Before we go further, please be aware that forward-looking statements will be made on this call, covering topics such as our business outlook, strategies, and long-term goals. Those remarks reflect our plans, predictions, and expectations as of today, and they could shift down the road. A number of significant risks and uncertainties, among them the risk factors laid out in our 10-K and 10-Q filings with the SEC, could cause actual results to differ materially. In addition, certain non-GAAP financial measures will be discussed on this call. Reconciliations of those measures to the most directly comparable GAAP figures appear in our earnings press release. These non-GAAP measures should not be viewed as a replacement for our GAAP results. Lastly, a webcast of this entire call is being made from our Investor Relations website, and within a few hours, an audio replay and a transcript will be posted there as well. With that said, I'll hand things over to BK.

Thank you, Krista. Hi, everyone, and thanks for being with us today. For Genpact, Q3 was yet another solid quarter, as revenue climbed 7% compared to the same period last year, hitting $1.291 billion, which beat the top end of our guidance range by $21 million. Our advanced technology solutions business keeps growing faster, with revenue rising 20% versus a year ago; that marks the fifth quarter in a row of accelerating growth, showing solid momentum as we carry out Genpact Next successfully. Gross margin came in at 36.4%, and adjusted operating income margin was 17.7%, both above what we had expected, as we keep delivering healthy margin expansion while investing significantly for long-term growth. Adjusted diluted EPS keeps rising notably, outpacing revenue, climbing 14% from a year earlier to $0.97, which is 7 cents higher than the top end of our guidance range. Through Genpact Next, we keep reinforcing our foundation. Advanced technology solutions growth is speeding up, and that business now accounts for over half of our revenue growth. Revenue per head count is climbing too, especially within advanced technology solutions, pushing overall revenue per head count up. In 2025, incremental revenue is arriving at a much better gross margin. We anticipate these trends will persist over the longer term. GenpactNext is built to make Genpact a worldwide leader in advanced technology solutions, leveraging the strength of our core business services with faster revenue growth and wider margins. Its growth model rests on three main elements: capabilities, clients, and catalysts. We are performing well on all three. Let me take you through the key points. To start, our capabilities, covering advanced technology solutions along with core business services. In September, we held our second annual AI Day, with close to 200 clients and partners there. Our message came through clearly. Genpact is shaping what agentic operations will look like going forward. We think businesses that shift toward agentic operations will transform their sectors, picking up market share and operating leverage by a factor, not just a few points. To back this vision of what's ahead, we unveiled three major products during AI Day. Number one is AI Maestro, a software platform built for AI practitioners that speeds up bringing AI into last-mile business processes, producing measurable near-term ROI. We also introduced two new agentic suites: the Genpact Insurance Policy Suite for commercial and specialty insurance, built to boost touchless clearance and speed up handling times, plus the Genpact Record to Report Suite, which boosts predictability and lowers enterprise risk during month and quarter-end close processes. These launches underscore how quickly innovation is moving at Genpact and position us well to capture more market share and momentum. Our dedication to delivering innovative results is also fueling broader strength in data and AI. The AI Gigafactory now serves roughly 100 clients, more than 2x higher quarter-over-quarter, backed by a strong set of accelerators built via gsolution.ai. We also have over 330 GenAI solutions now in market, whether deployed or going live, which is more than 1.5x what we had a year ago. All of these are complete offerings running right now in actual client settings, and they’re producing results you can measure. When it comes to agentic adoption, demand for our agentic operations offerings is expanding exponentially — quicker than anything else in Genpact’s history — and we’ve got a robust product roadmap in front of us. It’s still early, but agentic contract value is climbing quickly too. Volumes are much greater than what we described back at our Investor Day in June, and the mix is healthy, with contracts arriving from both new and existing clients. So far this year, over 30% of the agentic contract value we’ve been awarded has come from clients who are new to us. Among existing clients, net revenue growth and gross margin expansion are both still moving favorably compared with the figures we gave you in June; within core business services, revenue was up 3% year-over-year, with digital operations and technology services showing strength, which gives us a solid base for growth ahead. Going forward, we see a chance to sharpen our go-to-market focus in decision support services so we can drive better execution and capture more market share over time; we’re still putting investment into all three capabilities within core business services to support clients pursuing AI readiness who aren’t prepared to start agentic operations right now. Zooming out, advanced technology solutions and core business services keep reinforcing one another. Let me offer a few examples to show what I mean. At AI Day, we were privileged to have several large clients with us to describe real-world cases of how Genpact’s data and AI knowledge along with last-mile expertise are producing genuine business outcomes. Today I’d like to tell you two stories involving long-standing clients who began with us many years ago in core business services and who have since become power users of advanced technology solutions, while still being highly valued core clients. The first is Mars, a family-owned company generating over $55 billion in annual revenue and making some of the world’s best-loved brands. Our long-standing partnership has rested on operational excellence, trust, innovation, and shared success. Mars came on board with us in 2018 as a digital operations client in finance and accounting, and afterward broadened into additional service lines. Right now, we’ve deployed a number of AI solutions delivering strong ROI, with more set to launch shortly. For instance, we have built and deployed a team of autonomous GenAI agents that interpret, reason, and act across the whole cash lifecycle, producing an increase in on-time cash collections and working capital improvements. The Mars team has been an exceptional partner for us. The other keys to our success have been our deep process intelligence, our industry depth, working with some of the world’s largest consumer goods companies. Our last-mile knowledge, which here includes a detailed understanding of Mars technology, their operating environment, understanding of friction points, and the years of operational experience that we have gained there. Our collaboration has generated considerable worth, and ideally the strongest period lies ahead as we move toward an agentic and more autonomous enterprise. Take Heineken as the next illustration — a beverage firm recognized among the globe's most famous; being their partner has been an honor for more than 15 years. During the last 12 months, we built a data quality factory that establishes fresh benchmarks for providing reliable data at scale; with agentic AI now woven in via orchestrated agents running on Azure and Databricks, we've made a major leap toward intelligent and autonomous data quality. To make this happen, Genpact contributed far more than tech alone. We additionally supplied process intelligence plus insight into the way data moves across the Heineken ecosystem, how their individual markets function, and an understanding of where friction arises at different stages of the process. Initial outcomes indicate robust ROI, featuring an uplift in automated data quality reaching as much as 70% alongside 67% quicker diagnosis and resolution of data quality problems. The team has further noted improved order fulfillment, reduced delivery failures, tighter compliance. Decisions made with greater confidence. We feel tremendous gratitude for their partnership. Last, regarding catalysts, we keep speeding up expansion by investing in partnerships and AI talent. During Q3, revenue tied to partners climbed 56% versus the prior year. Partnerships stand as a key opportunity for Genpact, since demand for data and AI-led transformation calls for deep process and domain expertise along with integrated offerings. We're teaming up with firms such as AWS, GCP, and Databricks to place domain-led solutions inside their tech stacks through shared go-to-market work and roadmaps. At just 10% of revenue, we see partnerships as a substantial growth prospect for Genpact ahead. We're likewise continuing to invest heavily in AI talent, sharply boosting both the speed and caliber of hiring within our advanced technology solutions leadership team to back our strategic pivot. We keep bringing aboard leaders possessing deep experience across data and AI, product development, and technology consulting who are propelling key initiatives at Genpact, among them our AI Gigafactory and agentic products; we're additionally cultivating thousands of AI builders and practitioners and stay on schedule to hit the 2025 targets set out at our Investor Day in June. Now shifting to guidance. Given stronger-than-anticipated Q3 results, we're lifting our full-year projection for revenue and EPS. Our anticipated revenue band now stands at 6.1%-6.4%. On an as reported basis, that's up from 4%-6% before, amounting to a 120 basis point rise at the range's midpoint; we're also boosting our adjusted diluted EPS outlook by $0.07 to $3.61 at the midpoint, which mirrors double-digit growth. To wrap up, we're immensely enthusiastic about what's ahead. Genpact is demonstrating it is plainly the partner of choice for AI-driven transformation, carrying notable momentum as we use advanced technology solutions to reinforce our last-mile advantage. I mentioned before that we hold the view that businesses pivoting toward agentic will reshape their sectors, capturing market share and operating leverage by a factor, rather than a few points. I'm convinced that future is available to Genpact too. Having said that, I'll now hand things over to Mike. Thanks.

Good afternoon, everyone, and thanks for being here. Our third quarter results came in above what we had expected, thanks to solid execution throughout the business. As BK said, momentum keeps building with Genpact Next, and our strategic investments are beginning to deliver returns. Total revenue rose to $1.291 billion, an increase of 6.6% year-over-year. Advanced technology solutions revenue — covering data and AI, digital technologies, advisory, and agentic solutions — picked up speed once more, climbing 20% to $311 million, with especially strong performance in data and AI solutions. Advanced technology solutions made up 24% of our third-quarter revenue, versus 21% in 3Q 2024. So far this year, advanced technology solutions has contributed more than half of Genpact's overall growth. Core business services, which covers revenue from digital operations, decision support services, and technology services, rose 3% to $980 million, lifted by strength in digital operations and technology services, reflecting ongoing demand for our deep operational and industry experience. This was partly offset by weakness in decision support services, which we are working to address, as BK mentioned earlier. Data tech and AI climbed 9.3% year-over-year to $622 million, while digital operations rose 4.3% year-over-year to $669 million. Looking at segments, revenue was up 14% in high-tech and manufacturing, then financial services at 3% and consumer and healthcare at 1%. Non-FTE revenue, covering fixed fee plus outcome deals, made up 47% of third-quarter revenue, up from the prior year, helped by ongoing momentum in advanced technology solutions. Demand for our solutions keeps rising. We signed five large deals during the quarter. As a reminder, these deals carry a total contract value of $50 million or greater. Our pipeline grew from 2Q as clients turn to us as partners to run and transform their businesses. Now to profitability: gross margin widened this quarter to 36.4%, an increase of more than 70 basis points year-over-year, reflecting ongoing operating leverage alongside healthy revenue growth. So far this year, we have generated $242 million of incremental revenue year-over-year, along with $104 million of incremental gross profit over that same period. SG&A expense as a percentage of revenue came to 20.3%. Adjusted operating income for the quarter was $229 million, with adjusted operating income margin widening more than 10 basis points to 17.7% as we keep self-funding our strategic investments. Our effective tax rate was 23%, lower than the previous year, reflecting the geographic mix of earnings. Third-quarter net income was $146 million, and diluted EPS was $0.83. Adjusted diluted EPS once again outpaced revenue growth, reaching $0.97, up 14.1% from the same period a year ago. Operating cash flow of $308 million includes a $45 million advanced client payment made during the quarter. Excluding that impact, operating cash flow was $228 million, up 15% year-over-year. In addition, DSOs were 89 days. The third quarter closed with $741 million in cash and cash equivalents, down from $1 billion a year ago.

Just to recap, third-quarter 2024 cash figures reflected money brought in from issuing bonds, and those funds went toward paying off a bond that came due afterward that same year. While we're putting substantial resources behind our transformation into an agentic, AI-driven organization, we're still giving back a large chunk of capital to those who hold our stock. During this quarter, shareholders received $119 million back, split between $90 million of buybacks and $29 million of dividend payments, which pushes our capital returned so far this year to $272 million — equal to 59% of free cash flow. Now for the outlook: like BK said, after putting up yet another solid quarter of execution, we're lifting our guidance for the whole year on both revenue and EPS. Looking at quarter four specifically, we're projecting net revenue of $1.298 billion to $1.311 billion, which works out to 4%-5% growth, or 4.5% at the midpoint. Advanced technology solutions should see mid-teens growth, fueled by ongoing demand tied to data and AI, while at the midpoint we're calling for core business services to expand in the low single digits. That breaks out to roughly 7% and 2.2% revenue growth for data tech and AI and for digital operations, respectively. Gross margin should widen to 36.4%, adjusted operating income margin is projected at 17.4%, and we're looking for diluted EPS of $0.93-$0.94 in quarter four. Putting it together for the entire year, net revenue is now anticipated at $5.059 billion-$5.071 billion, meaning 6.1%-6.4% growth, with advanced technology solutions landing in the mid to high teens and core business services in the low single digits. At the midpoint, data tech and AI and digital operations revenue should come in at 9.2%-3.6%, respectively. For the full year, gross margin is projected at 36%, up 50 basis points versus the prior year. Adjusted operating income margin should reach 17.4%, which is 30 basis points better than the prior year. Adjusted diluted EPS is now anticipated in the $3.60 to $3.61 range, which reflects 10.2% growth year-over-year, and we keep expanding adjusted diluted EPS at a quicker pace than revenue. Operating cash flow should land at roughly $650 million, and that figure includes the $45 million advance payment we received in quarter three from the client mentioned earlier. On how we allocate capital, our goal remains returning no less than 50% of cash flow to investors via buybacks plus dividends, while preserving room for strategic investments. You can find further specifics about constant currency growth rates in the earnings press release and fact sheet we've posted on our investor relations website. Before I hand things to Krista, I want to offer a few early reflections about 2026. To start, we're staying firm on the medium-term targets introduced at our Investor Day, and we believe there's room for upside as momentum keeps building, which magnifies our differentiation through advanced technology solutions as we shape what agentic operations will look like going forward. Following that, you ought to anticipate a stronger focus on the Genpact Next framework, especially as we monitor how we're doing relative to our goal of making Genpact a worldwide frontrunner in advanced technology solutions. And lastly, we keep delivering throughout our business areas to generate sustainable growth, collaborating with our clients to speed up AI transformation that creates lasting partnerships and helps better economics for Genpact as well as for our clients. Having said that, I'll hand the call over to Krista.

Thanks, Mike. Before we move into Q&A, I want to mention something briefly: because of an emergency involving family, BK and Mike are joining this call from different places today. So even though we ran tests to make sure the connection would be smooth, there could be a lag or a delay while they speak. If that occurs, please be patient with us while we try our best to fix it. Thank you. Operator, we're ready now to take questions.

Hey, everyone. Good afternoon, and thanks. I'd like to start things off regarding demand. Could you talk about how bookings came in during Q3, provide some perspective on momentum for bigger deals, how you're feeling about that, and perhaps—just to switch things up—what you've observed moving through October and on into November?

Absolutely, Bryan. I'll take that one, and Mike, jump in whenever you'd like. So Brian, the signals we're seeing on demand overall remain robust everywhere. Whether I'm looking at different deal cohorts, or considering new customers, current customers, or even across segments, the indicators on demand are still quite favorable—whether that's inflows or pipelines. What I also need to mention is this: sales cycles, particularly when it comes to sizable deals, keep being—what we're observing is a mix. Certain ones are progressing at a faster clip. We finalized 5 big transactions during this quarter, particularly considering how large they were. Others require additional time to finalize while we navigate long-range transformation plans as our customers incorporate every AI advantage into those agreements. Naturally, as you're aware, big deals amount to strategic partnerships over the long haul; they follow their own schedule, their own rhythm, and don't always progress in a tidy 90-day step or anything like that; we're feeling quite positive about the broader landscape. Mike, if you'd care to weigh in a little further on the booking.

Okay. To start with, I’d like to add a bit more context overall. We’re experiencing robust demand across both new and existing customers, correct? We’re still dedicated to the full-year guidance we provided previously, with growth of 6.1%-6.4% for the year, right? I also want to restate our medium-term goals for 2026 and 2027. Achieving at least 7% growth in each of those years, respectively, continues to be on track, correct? When it comes to bookings, once more, a strong pipeline and rising demand, right? That will convert into what the revenue will be over the medium term. We’ll assess all other matters as we move forward, but we feel very positive, especially regarding our medium-term targets for the coming few years.

All right, all right, that's great. For my follow-up, I want to ask about GenAI, agentic contracts, and how they affect revenue along with margins. You said contract values keep climbing, and you're clearly speaking positively about revenue carrying better margins and ETS delivering stronger margin growth. Could you give us any way to frame that? Regarding the investor you brought up, and that combined 300 basis points of additional margin, can you offer any context on that figure — is it still within that sort of range? Is it shifting one way or another? Thanks.

Absolutely, Brian. On the whole, we're feeling quite confident about how agentic contract value is developing. We genuinely believe this is unfolding very powerfully — there can be no artificial intelligence without process intelligence — as our clients engage more deeply with trusted partners such as us, since we must deploy increasingly complex tools, and the need for process expertise, that last mile. And now, on the specific metrics, those metrics keep moving favorably too. What truly delights us is the awarded agentic contract value, which, as Mike pointed out and I mentioned before, has 30% arriving from newer clients. That's a meaningful figure; it has gotten better since that particular day, along with the 300, or 300 basis points, or the growth from our current clients. Everything is heading in a favorable direction.

Sure. Let me jump in here quickly, BK, just to wrap this up for you, Bryan. When BK and I spoke one-on-one, he brought up that 30% of the agentic contract value awarded so far this year is being generated by clients who are new. That's a big figure, isn't it? As we keep progressing through the year, we take real pride in what BK mentioned — the 300 basis points, or 3%, of accretion when it comes to total revenue; measured on a year-to-date basis, we're actually running ahead of that figure. That's something we feel quite good about.

All right, that's great. Thanks.

Thanks. Could you perhaps walk me through why clients might hold off on starting up agentic operations? What typically stands in the way? And could you tell us anything regarding how far your agentic operations offerings have reached within your customer base, plus what you anticipate for how quickly uptake will go from now on?

Maggie, this is something that plays out over the long haul, and converting it will require considerably more time. Even so, we're pursuing it aggressively alongside every one of our current customers and our new ones. With new customers, it's often the case, which shouldn't shock anyone, that their datasets aren't prepared, or standardizing processes remains something they still need to do; the issue isn't solely technical debt — there's also process debt and data debt. That shows up in our advanced technology solution, since our data and AI offerings are gaining real traction in an extremely powerful way. We have to engage clients at whatever point they're at, and that definitely helps us move them from our core business services toward advanced technology solutions, agentic included. I'm feeling quite positive about guiding all our current and new customers along this agentic path, and about transforming the industry while also being its leader when it comes to agentic operations.

Sure, and let me build on what BK said, Maggie. From the standpoint of our clients, they want a partner they can trust, and Genpact is exactly what they've discovered. As they continue along their path, they require our expertise at the process or domain level, especially when it comes to agentic. What BK mentioned a minute ago matters a great deal, I believe. We have to engage with them at whatever point their processes currently stand. You can be sure that when it comes to advancing agentic solutions and technology improvements, we are pushing as hard as anyone. There has to be a level of comfort our clients require; we feel quite positive about the progress being made both in our core business services and in our advanced technology services, and I am especially encouraged by the strides we've taken in growing our agentic solutions.

All right. Thanks for that. Given the consolidation happening across the sector, plus the possibility that more conventional ITO players are ramping up attention on areas such as agentic operations, could you share your thoughts on how the competitive landscape looks for you at this moment, along with where you stand?