Genpact Limited ($G)

All right. Good morning. My name is Puneet. I'm from JPMorgan's Payment Processing and IT Services team. Glad to have here with us BK. You all know him well, CEO of Genpact; and Kyle, who heads Investor Relations. So the format of this presentation is going to be fireside chat. I'll start with a few questions, and then we'll open the floor for questions from audience. So BK, welcome. Thanks for doing this.

So for benefit of investors like who may not be as close to the story, why don't you start with talking about like a little bit about Genpact, like about your journey and if we can touch upon like talk about Genpact next strategy that you envy last year.

Sure. Sure, and thanks for having me here. I appreciate that. So look, I think we started as nearly 30 years ago for first 10 years, we were a 100% subsidiary of General Electric Company got spun off about 2 decades ago, 20 years ago. And what we were known for, we're running mission-critical operations for our clients, be it in finance, procurement, supply chain, many critical workloads for our customers. And that gave us the advantage in this new world where I often talk about that there is no artificial intelligence without process intelligence. And process intelligence is what we have worked over the last 3 decades. And that is what has begun to shine off late in our new strategy, which we call as Genpact Next. And Genpact Next is bringing advanced technologies to the work -- the critical work that we do for our clients, be it in finance, procurement or the of various workloads that we have chosen to agentify. And Genpact Next has 3 Cs as our framework, our capabilities catalyst that enables client value and gen face value at scale. So when I talk about capabilities, it is pivoting to advanced technology solutions, most importantly, agentic, but data and AI, and we can chat more about that. it's taking shape in a very significant way. We mentioned that last quarter, it grew better than our expectation at 24% and Advanced Tech now represents 27% of the revenue. Catalyst. One of -- there are many, many catalysts, but 1 catalyst that we constantly talk about is how partnership is and partnership ecosystem is shaping the journey at Genpact for our clients and for us. And then clearly, clients -- existing clients as well as new clients in our chosen spaces, is what we are accelerating with. So overall, Genpact Next is taking shape in a very, very significant fashion. And what it is doing is we are building new Genpact. We are building new company. And the results of that have come to show -- be shown in the -- in our books. We shared that Advance Tech grew nearly 24%. We have now guided this fleet that will grow greater than 20% for all of this year. It is also the characteristics of Advance Tech is what we call as 2x 2x 70 70. So it is greater than 2x revenue by head count of the company. It is growing at greater than 2x the rate of the company, -- greater than 70% of the revenue is anutized and greater than 70% is on non-FTE models commercial models. So more accretion of margin happens to Genpact. And that is, again, point number two, shown in the gross margin for 12 quarters in a row, we grew the gross margins. And we are just getting started. So really pleased as to how we are building the new Genpact.

No, that's great. You covered like everything that I wanted to discuss. But seriously, so advanced technology, like you talked about like last quarter, like it grew 20% plus, I think, 24% year-on-year which is faster than what you shared with us, like the high teens growth at your Investor Day. So talk to us like what's driving this higher growth? And is it sustainable at these levels? Or should we expect like the medium-term growth to still return to high-teens level?

Look, I think we have already guided the street to greater than 20% for this year. And you all know our guidance philosophy, we are prudent and cautious always in guiding so we feel really good that for the entire balance year, it will grow greater than 20% and the reason it is growing faster is because our differentiation is showing up in a significant fashion. And the differentiation sits in context-rich process intelligence we are adding these advanced technologies to it and bringing those solutions to our clients, existing clients, new clients. And the most differentiating solution in there is agentic solutions, which are -- which we mentioned that we booked nearly equal to whatever we booked in all of last year. We booked nearly equal to that in the first quarter. And all of this booking is in annuitized recurring revenues with minimum volume commits. So it is a long-term amortized revenue, which is more IP-based. And that is creating the differentiation that is creating the momentum, and we believe we are just getting started.

So on that, like the agentic solutions. So what's driving this growth? Is it like the models like by anthropic-open AI, like they are more capable, like all the new hype around like all those evolution of model? Or is it that the clients are more comfortable with governance and all those risk factors? Or is it just like this is new year, new budgets and clients just feel ready to embrace AI. So what's driving the shift towards more agentic this year compared to, let's say, all of last year -- and if we can size like order of magnitude of how large that pipeline or the bookings of agentic solution is with an overall company.

Yes. So what is driving is clearly overall, we know that advanced technologies or AI is a conversation in every boardroom, every company. And given we have been running these mission-critical workloads or operations for our clients. And we know the overall outcome that we deliver for our clients, what is the total cost of ownership and how we are reducing the total cost of ownership while creating more high-value revenue for impact. So it is not the models. Models are available. And yes, as reasoning improves, it is part of the architecture in which we are delivering to our clients. But it is more driven by how we stay accountable to driving those business outcomes that we have driven for decades. But now in a far superior fashion and bringing technology at that last mile intersect with operations. And it is not just with the existing clients -- we mentioned we signed 6 large deals in first quarter. It hasn't happened as just a comparison point, we only signed a couple of large deals in the previous first quarter of last year 2025. So overall, momentum is building up, and momentum is building up not only in Advance Tech in core business services because clients by not a particular -- oh, I want to buy advanced tech or core they're buying a solution. It is how we are architecting the solution and how we are making that difference come to life.

And can you talk about like the unit economics on some of these agentic deals? And just like the contract structure -- do you own the IP of the solutions that you offer? And what are like the unit economics margin profile, incremental margin profile on some of those deals?

Let me address that. So yes, we own the IP. And this is in a pretty straightforward SaaS kind of models in which we are selling all of these agentic contracts. -- agentic contracts, as I mentioned, were nearly equal to what we sold all of last year. What we sold all of last year, it was over $200 million. In Q1, we nearly sold that a little bit over around that and momentum is continuing as we are progressing even in this quarter. And on unit economics, this is how maybe I'll pick up our existing client and give you a shape of the unit economics. So if our existing client for a particular workload, we know their total cost of ownership, sometimes actually better than clients because clients a lot of time see their own budgets and they don't see across the upstream, downstream, what are the other costs or what are the other systems that they have for fulfilling a particular transaction, sometimes fulfilling a transaction takes 15 systems, 20 systems. And we have -- we at that last mile can see and observe all of those systems and where the cost is sitting. So we provide that window of truth of have. This is what your total cost of ownership is. Obviously, we validated with them. And we are reducing that total cost of ownership first from a client perspective because that's how the engagement happens. Now on the Genpact side, What we have also shared during our last Investor Day on finite number of contracts we had -- we said that we are seeing, as we rotate this to Agentic revenue, we saw 103, 300 bps. So what was 103, we are -- if $100 is the revenue we are earning from the client, we are earning $103, so 3% higher at 300 bps higher gross margin. So how is it that client is getting total cost of ownership down, you are earning more revenue, more margin? How is it happening? And the method is pretty simple -- higher gross margin 1 -- the higher gross margin, higher revenue is coming from either the volume or the scope. And I'll give you use cases, as an example, a particular client is these are large global clients, Fortune 50, Fortune 100 customers. Sometimes they are running the same workload in Europe or in different parts of the geography in-house -- or with another provider. If now we have a better mousetrap, that volume is coming to us. Or two, they were using another system that is -- or a software that is not used now that is not needed now because we have baked it in our solution as our software is how the revenue is increasing. And for gross margin, obviously, we are reducing the total cost of ownership, but our costs are going down faster is how gross margin equation is happening. Last point I'll make that we said 103, 300 bps at the end of June. That was on finite number of contracts. We have also subsequently reported that these numbers are better on more number of aggregated contracts. So it was very few contracts at that point in time. Now these contracts are running into many, many, many contracts, and our numbers are better than 103, 300, 300 bps.

So on some of these contracts, so when you offer like an Agentic solution like so you combine like the human labor tokens, like offer to clients. So -- in future, hypothetically, like if token cost increases like, do you take that risk? Or will you be able to pass it on to clients?

So look, I think the bill of material is we are keeping the bill of material with ourselves, be it the cost of technology or the architecture or the servicing cost. Fundamentally, we do believe take an example, servicing cost over a period of time if the models continue to improve, the servicing cost or the labor cost in that component will go down. Overall cost of intelligence, in my view, over a period of time will actually go down. So I think we have structure the contracts in a way which are annuitized recurring revenues with minimum volume commit. So as transactions or any of those are add-ons -- and there are certain provisions that we have carved out in these pricing contracts, but we feel really good about how we are managing this transition of commercial models.

Got it. Got it. And going back to like what you talked about earlier about like how you are seeing clients sending more workflow your way. So talk to us about your core business services, like that is like obviously more than 70% of revenue, you expect it to grow this year. What will drive that growth? I imagine like the part of -- large part of core over the next few years will transition into Advanced Technology Solutions, as you bring some of those agentic solutions help clients do that. So talk to us like what drives that growth within core? Like do you expect that segment to grow for next 2 or 3 years?

So Core continues to be Puneet integral part of our growth equation and technical part of our growth model. Core is the reason advanced technology is accelerating. Core is the reason why we see exceptional product market fit with all the agent solution that we are bringing to bear. And core is the reason we know the total cost of ownership for our clients. So core is integral part of our equation. And for foreseeable future, we do see core continue to grow because a lot of foundational work, a lot of process intelligence work happens in core. And if you want to or if our clients want a ton of returns on artificial intelligence investments, -- it will not happen without foundational work happening in core. And I must also say that while we are rotating and we are wanting to rotate core as fast as possible to advance tech because it is stickier. It is high-value revenue. It is still not as we are saying, oh, we grew 24%. Rotation is not the reason it became 24% or rotation is not the reason that it will be greater than 20% it is de minimis in -- at least as we see it for this year. So -- and clients don't, as I mentioned, come to us, so I want to buy a core or I want to buy advance tech -- but increasingly, we are building newer mousetraps. We are wanting to get the clients where they want to be, which is more advanced solutions as fast as possible. And -- we do see core as an integral part of our ecosystem and core as the reason of continued growth. Last point I'll make Puneet on core. I often use this phrase intentional disruption. And we are also identifying the workloads where our domain is strongest, in core finance, supply chain, HR, procurement, this is where our domain shines. Now there are parts of core that will not identify, and we'll continue to run it for our clients. But core is the reason why identification and product market fit is happening in a very, very strong fashion, and we see that as a core part of our model.

Yes. No, absolutely. I totally agree. Like the core is the reason like that you have right to win in agent -- or in advanced technology solutions. So I totally agree with that. So let's talk about like how your competition is changing. Like you talked about that you're winning some work from clients in-house operations. So let's focus on that because there is still like a lot of market that's where clients in-house operations. So how should we think about 1 penetration rate of outsourcing versus in-sourcing and core work as well as like the Genpact pros and cons like in being able to bring some of those agentic solutions to customers that clients can do themselves.

So even before this wave of technology, we always share and maintain that we are still in early journeys of outsourcing penetration. It increasingly is true even today. And now as we are bringing all of this innovation at scale, we are getting more and more TAM unlock for us. And we are also seeing new competition as an example, various software providers that we never used to see or even in case of data as we have strengthened that franchise in a pretty strong fashion. We are again into newer buying centers of data or AI where we are building customer agents for our clients. So all of these are newer TAMs that we have unlocked. And all of the Advance Tech solutions are firing. Obviously, data and AI and agentic. Agentic is our own proprietary solutions. But there are many solutions where we are enabling it for clients in our data and AI segment or the segments. So I think -- so we are seeing newer type of competition that we didn't encounter earlier.

No, I imagine like identification of business processes, that's the holy grill like everyone is going after. So talk to us, like, let's say, versus like a software company, I don't want to name like they might be here at the conference, but you can a them to software company or LLM, like the created their services businesses compared to those names like what are pros and cons for clients to go with Genpact or IT services companies like they all are like talk about like as a Horizon 3, this is the area that they want to focus on, right? So talk to us.

So look, I think maybe I'll pick up 2 or 3 and of competition or, I'll say, partners and everybody's frenemies and I always believe in an ecosystem play. Look, first off, if what is the core advantage in which core differentiation because of which we are accelerating. It is because of understanding the context at the last mile because we've been running operations. Now many of our IT peers have not been running operations. They've been running various different workflows, IT workloads, not operational workload. We've been running operations workload, and that's what we have called our identity and our brand and all of our assets around that. That is shining up now because you think about actually any company, any company is process people technology. Any company is including yours, process people technology. And people is what make process and technology happen. What became simpler. What became more ubiquitous. What became more available. Technology became more ubiquitous. Technology became more available. Technology is becoming more cheaper. Operations and the process part, which is the upstream and downstream how data and where data sits, that didn't become simpler. Technology or tool will go only that far as much as the process allows. Our differentiation sat in the process. And we are bringing that technologies why it is accelerating at a pace. And as far as model companies go, we are leveraging all of the model companies in our technology architecture. But also swapping out wherever deterministic models are needed or probabilistic models are needed and -- or where certain things can be done by open source models. So because we do believe that cost of intelligence overall will go down, and a lot of powering is happening even with open source models. So how do you find and build the architecture in a secure environment in a responsible fashion, where you use all these capabilities to drive most value for clients and take a share of that value for Genpact.

At this time, like, are there any questions from audience?

BK, thanks so much for being here. On that cost of intelligence thesis, you seem pretty convicted in your idea that the cost of intelligence will go down. We're trying to do some work on token pricing and how that's going to shake out for all the foundational labs, they need to charge more for inference costs and kind of cover all the amortization of all the capital investments they've outlaid. So some of the leading models, it feels like there's big price increases potentially in front of us, but also obviously, some democratization or competition. Could you just share your thoughts state of the market as you see it for compute inference cost of intelligence?

Yes. So Brandon, look, I think there are many competing forces, including the ones you initiated where these model companies will have to charge more. And then there are other competing forces where democratization of intelligence, open source models, models from different parts of the world becoming available. And then I think everything doesn't need probabilistic high-end models. A lot can be delivered through deterministic models, which are far more cheaper. And it is also the nature of problem you are wanting to solve. The nature of problem that you are wanting to solve is a very acute hard problem or nature of problem if we are wanting to build a scalable finance solution, is it really the most intense problem where the lots of token will be used, I doubt it. So it is dependent upon also the spaces we are choosing, how what we are going after. And how we see building a sustainable revenue generating more margin accretive model for Genpact.

It might take some time, like everyone is token max right now. But totally agree, like not every workflow needs frontier models. So no, that's a fair point. So any other questions? Okay. I'll keep going. So let's talk about near term for this year. So talk to us like the trends you are seeing in near-term demand environment guidance that you issued last week. A couple of weeks ago, All has -- so the guidance that you issued indicates like the growth will accelerate in the second half of this year. So you talked about earlier like the large deals that you signed PAUSE large deals in Q1. I think there was a similar number in Q4 last year. So talk to us like what drives the confidence that the growth acceleration is doable, like in second half? Like talk to us about the near-term trends that you are seeing.

Sure. So overall, let me first just get the guidance out if that's okay Puneet. And it is a simple structured process and a pretty simple philosophy that we have of our prudent and cautious approach. And it is -- the first half, second half is a simple mathematics. Some of that you initiated also in 6 large deals that we signed, continued momentum from end of last year. So we will see a little bit of acceleration both in Advance Tech as well as we go into the second half for core business services. And -- so we feel good about the guidance that we have given. And it is also aided by the pipeline by the booking, by the backlog we have, and the number of conversations and the demand that we see across the board, across all cohorts, be it geos, be it advance tech, core business services, be it the various vertical segments that we report. So if we see any cohort, our demand is off the charts. If I take an example of Advance Tech solutions, the pipeline is up 30% just over the last 90 days. Agentic pipeline or inflow is up greater than 3x. So we feel really good about as to where we sit. And we see strong demand of the solutions that we are building and the pivot we are making.

Yes. Any impact from like the geopolitical tensions that we've been seeing for the last months, more than 3 months, not just, let's say, in form of energy prices, but like the disruption in supply chain. You do a lot of work in supply chain areas. So are you seeing any impact at all?

Yes. Look, there is an uncertain environment, but we are not seeing impact in our demand pipeline. Actually, some of our demand pipeline is up because of these uncertain environments as our solutions play right into it, like you mentioned supply chain or a few other solutions, they even in risk play right into it. And so we haven't seen the impact of the geopolitical uncertainty that is all around us.

Let me ask like, again, going back to like the new type of delivery model and structure. So talk to us like how it impacts Genpact in 2 ways. One, like the contracts that you are signing, like are you signing more outcome-based contracts. Why -- what is it like -- what is different now that clients are ready to sign outcome-based compared to any time before. And number two, talk to us change management in terms of your people, like, so there are so many employees, like how do you motivate your employees convinced them that this is not -- this shift towards AI is not bad for their jobs and whatnot, get them to align with your mission.

So let me talk about our people first because all the time, we talk about clients and contracts and so on and so forth, but I'll address that too. Really thrilled and that is 1 thing that I must say surprised me as to how our people are absorbing the change and are leaning in hard to become more AI natives and AI immigrants, if you will. And we have enabled all of our people with the latest tools and technologies, and we track it and we shared at the end of last year that we had north of 10 million hours, I think it was 12 million hours of learning, which was relative to our size, a disproportionate number, if you look at many of our peer sets. And bulk of that learning was in AI and agentic because we have enabled many of frontier courses and courses from Howard or MIT through our genome platform, and it is really working well. And then we talked about at the Investor Day, AI builders and AI practitioners. That progression is again continuing exceptionally well. So really, really thrilled as to how our talent is getting made. And we are also hiring a lot of new talent, too. While maintaining the headcount, we have started showing a little bit of how revenue is decoupling from the headcount. We're really pleased and thrilled as to how our employee base is absorbing all of this AI change. On commercial contracts, Puneet, again, I would say we want to nudge more and hard and faster. Very pleased as to how we are signing all of the agentic contracts because that's all is -- none of that is any time or material or FTE-based or anything like that. All of that is more amortized recurring revenues, also more in data and AI or Avantec. But overall, as a franchise, I would want us to nudge more to become non-FTE models. We are already at 48%, nearly half of the company is there, but our aspiration is much bigger.

Got it. Got it. With 2 minutes left. Let me ask 1 last question. So last year, like you launched Genpact Next, which included like 7%-plus revenue growth and you define like the operating like where you expect Genpact to be. So in last 1 year what have you learned, like how is that strategy evolved versus your plans 1 year ago? Like what surprised you? And also, from your perspective, but do you think like folks like us, like investors, analysts, like we don't appreciate enough.

Okay. It will take more than 2 minutes, but I'll quickly go -- so really thrilled with the progress that we have made on Genpact Next. And the strategy we announced. Strategy is playing right because we said Advantech will grow high teens. We are growing greater than 20 very quickly. And it is because of the product market fit because of the flywheel effect because of the flywheel effect from core business services to Advance Tech and all parts within that data and AI, consulting, digital solutions, partners and so on and so forth, Decision Support Services. All of this flywheel effect and creating the differentiation more through Agentic solutions. Look, I think what is less understood, I think I'll characterize it by 2 or 3 points. First point is it is less understood that we have exponential power of began small. This is what my clients tell us. Our clients tell us that. That we are big enough for them to consider as a Fortune 500 partner, and we are small enough to care for every client. We are big enough to make massive investments and we are small and agile enough to change and dance on dying and move with speed, and we are demonstrating the speed. What is also less understood is that our context-rich process intelligence is shaping up as differentiation in a significant way because we are bringing technology there. What is also less appreciated is the leadership team. The leadership team in our sector that we have brought is the most differentiating factor. It is a leadership team that existed for 25, 30 years, people like me and many others. And leadership team that we have brought net new who are technatives, and we are with 1 singular purpose of making us the most premier agentic solutions company in our chosen spaces, and we are moving with speed that we are demonstrating. And I think we'll show better and better results.

Absolutely. Appreciate it. Thank you so much.

Thank you.