Q3 2020 Genpact Ltd Earnings Call
Quarter Genpact Limited earnings Conference call. My name is Michelle and I will be your conference moderator for today at this.
Time, all participants are in a listen only mode. We will conduct a question and answer session towards the end of the conference call. As a reminder, this call is being recorded for replay purposes, a replay of the call. Please archived and made available on the IR section of Gentex website, I would now like to turn the call over to Roger Sachs head of Investor Relations.
Genpact Sir please go ahead.
Thank you Michelle and good afternoon, everybody welcome to Genpact <unk> third quarter earnings call to discuss our results for the quarter ended September Thirtyth 2020.
I Hope you had a chance to review our earnings release, which was posted to the IR section of our website Genpact Dotcom speaker.
Speakers on today's call are Tiger Tyagarajan, our president and CEO and it's it's Patrick our Chief Financial Officer.
Today's agenda will be as follows try get will provide an overview of our results and an update on our strategic initiatives. Ed will then walk you through our financial performance for the quarter slots provide our updated outlook for 2020.
I will then come back for some closing comments and we will take your questions. We expect the call to last about an hour.
Some of the matters, we will discuss in today's call are forward looking these forward looking statements involve a number of risks uncertainties and other factors that could cause actual results to differ materially from those in such forward looking statements such risks and uncertainties are set forth in our press release.
Christian during our call today, you will refer to certain non-GAAP financial measures that we believe provide additional information to enhance the understanding of the weight management views yeah.
Our business.
I'm not sure if the gap in today's earnings release posted to the IR section of our website and with that let me turn the call over to Tiger.
Thank you Roger good.
Good afternoon, everyone and thank you for joining us today for us.
Who called in and 23rd quarter earnings call.
Our better than expected third quarter results continued to demonstrate the resiliency of our business, providing essential non discretionary services and solutions.
Yeah, Bob learning, even more closely with offline to Reimagine and transform their operating I know, we're all business models to deal with the new normal driving growth in our digital transformation services.
Our existing strategic relationships are expanding our new logo win how box already talked through the quarter.
We continue to invest in capabilities and a growing experience economy, including all recent acquisitions or some.
One thing digital that builds on our ability to deliver end to end digital commerce solutions at scale.
Customer experience being front and center.
We have realigned our costs and discretionary expenses to deliver margin performance for the quarter.
All of this has been on the foundation of tremendous execution by our global teams.
Specifically during the quarter total revenue was nine out of $36 million up 5% on a constant currency basis.
Oh, My God revenue was $824 million up 7% on a constant currency basis.
We also delivered adjusted operating income margin of 17.1% compared to 16% during the third quarter last year and.
On an adjusted diluted earnings for sure all 56 cents.
Global client revenue growth was broad based led by consumer goods retail life Sciences healthcare high Tech and insurance verticals.
With less than 10% about blue blood revenue coming from the Industrys hardest hit by the prices.
Approximately 90% of all global blogs portfolio grew at an almost double digit rig yodle, where youre during the quarter.
Regarding business environment remains highly uncertain.
I think that's reality launch I'll focus on fluctuate girl information.
This is opening up many new opportunities for us since declines now more than ever need botanist or help them design a job business models.
Really overcome your challenges, but also position them to compete more effectively in today and Tomorrow's Board.
This has led to a healthy pipeline fueled by new inflows with an increasing mix of large complex transformation deals dot interlink multiple areas. For example, we're not going to ground Jane which supplied drain on sales operations, often onshore <unk> garden Cline with documents all different colors.
Trends in banking.
In many of these engagements we are re imagining processes connected to multiple barring centrally driving holistic change throughout the entire organization.
We continue to see our friends that are bought up every cxo conversation.
Plus a significant shift from offline to online across every industry second the virtualization not all technology cell buses on solution delivery.
Sure and accelerated consumption of cloud based services and solutions.
For an exponential growth in real time predictive analytics.
I'm sure the move to human centric design that create superior experiences for customers use the unemployed.
These trends are driving demand for our Transmix and felt that the solutions, which include consulting digital analytics on the Lifepoint experience business.
Representing approximately 30% of global client revenue grew at more than 20%.
Analytics once again, one of the key contributor to our transmission sounds of drug.
Deeply connected to sell this isn't all focus areas not just the Blanchard binocular grinds on financial planning and analysis.
These transformation services solutions, all relevant Twok launched today.
Hello drive the change they need to improve both short and long term outcomes and their businesses let.
Let me share a few examples.
Well, a leading personal care products company, we improved sales forecasting accuracy by more than 40%.
Then on your margins would put the money to drive growth through predictor of insights from relevant social media digital Doodle combined with traditional in memory data.
For market pulp line, we leveraged <unk> ARX <unk> on for Brightree with gold bar them and on new boats to pretty much all that solution to minimize on readable overpayments to the bars.
For our health care Cline, we use our deep understanding about lines domain and technology to run wandered off mckesson's on a cloud based platform, which includes YOD machine learning driven model that roster. She wintermantel unstructured data.
He was insights to drive better health care.
One of the most exciting updates I want to share with our recent launch of Genpact Gaurav consumer banking solutions.
These solutions using AI and the bonds analytics to drive superior customer service interaction through marketable journals and getting calls emails on shops.
The solutions also automate many parts of the end to end customer collections process, resulting in faster and more convenient revenue through Oct delinquencies driving customer satisfaction.
Losses down pullbacks.
Last quarter, we had reflected there longer decision cycle times, particularly for large deals that are more complex in nature.
Some of these deals mature in the pipeline, we are seeing decision, making returned to normal.
Just in the last few weeks, we have been awarded three large deals.
Several medium sized deals where do we see a great box to an expanded school overtime.
We're also seeing great momentum with new logo wins.
Year to date have been talked about for your new logo wins is up more than 80%.
This demonstrates the demand for our new solutions, particularly in transmission services.
Which has historically that's the subsequent conversion to longer drawn on your T. based intelligent operations engagement.
And these relationships.
Why human nature of bookings off some lower than last year. We are encouraged that pipeline conversions on all picking up.
At the same time off our plan remains near record levels with a greater than normal bias towards early stage deals.
You combine this with a healthy number of majority deals in the pipeline. We believe we are well positioned to return to double digit revenue growth rate by the fourth quarter or next year or I got shared last quarter.
Additionally, the need OFAC lines in every industry vertical loxo rate change and that businesses, which is also expanding our total addressable market gives us confidence and reporting for double digit to low teens growth for build to suit lines or the medium term horizon.
All focused strategy investments and expanding partner ecosystem continue to prove increasingly the relevant for offline as they deal with challenges in the business environment.
For everyones going up, particularly if you'd rather than on an entre day, a blob solutions and services.
I liked your installed this is actually Brian <unk>.
An end to end digital government services.
Let me give you some color on these.
Well you have doubled down on our cloud solutions and services, helping our clients to develop and implement strategies using our deep domain and operations expertise to more effectively re block long solutions to the cloud.
You know in all four areas of strength were.
Hoping blinds implement their cloud strategies that speed and scale.
Josh This quarter, you have reorganized our cloud solutions and services under a new cloud Lido Hep scale, our offerings in the marketplace.
As an example for a global asset management from Weibos done on that its ecosystem and developed a visualization interface on the cloud regarding field sales reps with a pre 60 degrees view off that line, enabling them to provide superior customer engagement that drives retention on growth for them.
Second we are seeing great momentum in supply chain services without pipeline up more than 30% since 2019.
Dramatic shift to online combined with rapidly changing consumer preferences, I've driven blondes, two birds significant agility in their end to end supply chains.
Not only their need for much more better demand forecasting planning on building.
The current environment of acquired businesses to Revaluate supplier diversification on Gryska, though.
For example for a global CPG company, we have completely redesign the end to end information flow from sales on autos manufacturing fulfillment and gosh.
We deployed we.
Lord robotic process automation and utilize advanced predictive analytics develop new models to optimize the larger network planning, which drove improved order fulfillment and customer satisfaction.
Sorry, we are seeing the increasing importance for our blogs to address fraud and financial crimes beyond just financial institutions, almost every industry digital commerce becomes more pervasive.
With deep domain next risk expertise our team of industry experts on did I find it odd developing either sell the solutions indiegogo frog anti money laundering on transaction monitoring to address the growing need.
For example for a global bank, we improve the accuracy of their financial crime production models, using AI and machine learning or enhanced regulatory compliance and customer experience.
And four in the shift to online on growth in digital Commerce. We're also helping clients connect supply chain planning order fulfillment on online payments, a nuisance danival great digital experiences.
With the acquisition of the experience consulting from done them seven.
Barack acquisition, all digital consultancy from Lifepoint, we enhanced our capabilities and customer experience call Maus on mobile application development.
With the recent acquisition or something digital we have added significant capabilities and digital commerce.
The possible combination not something digital frontend design capabilities with the right points experienced in a wish and embedded with Genpact deep domain and operations experience in the middle and back office enhances our already strong ability to bring end to end digital commerce solutions to the marketplace.
You know worried where a walk from anywhere model isn't necessity for many organizations, we are inclined not only a dock what embrace.
This change.
Our own delivery models, what disruptor onto early and decisive actions, we successfully transitioned over 90000, plus global walk for two or more work from home model maintaining productivity on sell this level of performance.
This is no longer a shark don't but thats been dirty solution, but a more meaningful long term flexible delivery model.
We envision the future look to be a hybrid offshore onshore nearshore on remote.
Based on the types of its client need and blog references and regulatory considerations there.
That's just opens up many more degrees of freedom in business models.
We continue to take a very deliberate approach to returning to offices across our global operating footprint.
Our decision to embark has always been based on the dual objectives of ensuring to health and safety of all the teams on continued yourselves Falklands Guard.
Currently less than 10 wasn't up all walk fourth hubs are drawn to the office most of them in China.
I'm very proud of the unwavering commitment I'll be able to use up demonstrator to her about blogs navigate the extraordinary challenges all these last several months.
The resiliency of our business model has been pressure tested through these times now.
Not only have we come back to 40 delivery capacity, one new deals, including new logos on pick a new solutions to market that have helped us grow our transmission services revenue up more than 20%.
But weve also energized our inflows leading to a historically high pipeline that gives us confidence that we will continue to drive future bookings on top line growth.
With just better visibility, we've started to reinvest in sales and marketing and R&D to capture the many long term opportunities ahead of us.
We also lifted the freeze on compensation increases that we put in place well have you ever in there youre recognizing the tremendous efforts of our employees.
I'm incredibly pleased with our year to date performance.
We are now raising our money's already fully on top line adjusted operating income margin and not just for DBS I'll close.
With that let me turn the call I want to add.
Thank you Tiger and good afternoon, everyone.
They are your third quarter results as well as provide our full year financial outlook.
Total revenue was 936 million, but.
5%.
Year over year, both on an as reported and constant currency basis.
This growth exceeded our expectations and was driven by better than expected performance in both our global client and GE businesses.
Global client revenue, which represented 88% of total revenue increased 7% year over year, both on an as reported and constant currency basis performance in the quarter was driven by better than expected growth in transmission services driven in large part by demand for our shorter cycle transmission services solutions in areas such as.
Okay, that's supply chain.
I'm really pleased to see your analytics revenue continued to grow at a more than 20% clip.
During the quarter, we continue to expand the size of our global client relationships for the 12 month period ended September 32020.
Grew the number of global client relationships with annual revenues over 5 billion promoting 24 to 129.
Included clay before the 50 billion of annual revenue growing from nine to 11 claims before the 100 million in annual revenue expanding from one to three just the third quarter of last year.
GE revenue declined 8% year over year.
Better than we expected.
The year over year decline was primarily due to reduced project I T said resulted from the uncertain macro environment.
Adjusted operating income margin was 17.1% expanding 90 basis points from the second quarter level of 16.2% and up from 16% during the third quarter 2019.
The sequential improvement was largely due to better gross margin in the current period, driven by efficiency and utilization improvement initiatives, we started last quarter as well as the improved banking margins that were adversely impacted last quarter due to the onset Covis Nike.
During the quarter, we recorded a $5 million restructuring charge that is excluded from our adjusted operating income.
This was the final set of actions related to the 2020 cobalt related restructuring plan.
Gross margin for the quarter was 35.2% 30 basis points lower year over year, but up 120 basis points sequentially. This.
The sequential improvement was primarily driven by the impact of moving beyond the challenges we felt earlier in the year related to claim approvals for the remote work within our banking and capital markets vertical.
As well as improve transmission services utilization driven by higher revenue send reduced staffing as a result of our cost reduction actions.
As a percentage of revenue <unk> expenses declined 70 basis points year over year large.
Largely driven by cost containment initiatives and the impact of lower travel expenses related to COVID-19.
On a sequential basis total us unique access increased 50 basis points as we dial up investments to be able to take advantage of long term growth opportunities.
Adjusted EPS was 56 cents flat year over year were up 7%, excluding the negative impact of FX remeasurement.
To give you a quick year over year bridge adjusted operating income drove a seven cents increase it was all offset by FX remeasurement loss of 2 million during the quarter compared to a $7 million gain during the third quarter last year.
At four cents negative impact as well as higher test two cents net interest expense of one set.
Our effective tax rate during the quarter was 22.6% compared to 20.5% last year current.
Current year rate was largely in line with our expectations. The prior year rate was lower than our normalized rate due to a more favorable jurisdictional mix of income and certain discrete benefits.
Turning to our balance sheet and cash flows.
Cash and cash equivalents totaled 803 million compared to 867 million at the end of the second quarter.
Our free cash flow of 235 billion was offset by a $250 million revolver repayment.
Jerry purchases of 29 million and EUR $19 million dividend payment.
Our net debt to EBITDA ratio for the last four rolling quarters was 1.29 times compared to 1.63 times at the end of the second quarter.
Given our strong liquidity and more stable capital market conditions, we repaid another 150 million the balance outstanding follow the Bali revolving credit facility in October.
Now have approximately 95 million outstanding on this facility.
During the quarter.
Generated 252 million of cash from operations compared to 220 million during the same period last year.
The increase was driven by higher adjusted operating income.
Crude dsos and lower tax payments during the quarter.
Yes, it was improved sequentially to 83 days compared to 87 days during the second quarter due to improved collections and a reduction in billing cycle time.
Reduced cycle time was due to an initiative, we kicked off earlier in the year.
We expect to exit the year with your sales level in the low 80 day range.
Capital expenditures as a percentage of revenue was 2.2% in the third quarter compared to 1.8% during the second quarter of this year due to higher investments to support our cotai team work from home capabilities, including information technology and related information security.
We now expect capital expenditures for the full year to be approximately 2.5% of revenue.
During the quarter, we returned $48 million of capital to shareholders.
This included $19 million in the form of regular quarterly dividend of 10 cents per share.
We also repurchased approximately 740000 shares at a total cost of 29 million.
A weighted average price of $38 or 59 cents per share during the quarter.
We repurchased 2.9 million shares totaling $160 million at a weighted average price of $40 or 18 cents per share year to date through October 30, Onest income.
Including the 1.1 million shares we repurchased $38, a 41 cents per share for $42 million in October.
Since we initiated a share buyback program in 2015, we have reduced our debt outstanding shares by 18%.
Over this period, we repurchased 40 million shares at an average price of approximately $27.10 per share for a total of 1.1 billion.
We have approximately $158 million of authorized capacity remaining under our share repurchase program.
Let me now provide you with an update to our full year 2020 outlook.
We now expect full year 2020 revenue to grow approximately 5% to 5.5% on a constant currency basis up from our prior range of 3.5% to 5%.
This reflects stronger than initially anticipated results from both our global client and GE businesses.
For global clients.
We now expect revenue growth to be in the range of 6.5% to 7% on a constant currency basis up from our prior expectation of 5% to 6.5%.
We expect revenue to decline approximately 5% for the year compared to our prior expectation of a decline of 60%.
Given our strong third quarter results were now expecting full year adjusted operating margins to be approximately 15.7% up from our prior estimate of 15.5%.
As you mentioned earlier, your dialing up our R&D and selling and marketing investments in the fourth quarter to more normalized levels.
We expect to return to our path of deliberate margin improvement in 2021 and beyond.
Given this outlook we are now estimating adjusted earnings per share for the full year to be between $2 to eight cents per share.
And $2 11 says Oh from our prior estimate of 2003 cents to $2 and southern sales.
We've also talked about the resiliency of our business model. This year clearly demonstrates the non discretionary and recurring nature of our services.
The person to the overall business climate with U.S. and global GDP expected to shrink approximately 3% to 5% I'm really pleased with how our business is performing not only in terms of generating topline growth, while many industry, you're seeing declines, but also the decisive steps our teams took to drive improved utilization and cutting costs as a result, our adjusted operating.
The margin expected to drop only 20 basis points year over year, and we are well position and fully focused on continuing to drive attractive adjusted EPS growth going forward.
With that let me turn the call back to Tiger.
Thank you Ed.
Our performance this year demonstrates our agility and I'll call job embracing change.
We have a replication of being a trusted transformation partner, who leads with clients Centricity innovation and operational excellence we've.
We believe all fully up constant currency go groupon growth outlook of approximately 7% will be among the best in the industry.
The same time, we have to flex our cost structure to better align because it's yours growth trajectory, allowing us to achieve an adjusted operating income margin close to our original expectations.
Why is bringing back investments in the front end and R&D.
I'm pleased with our step up in innovation, particularly given the changing environment as evidenced by increased badran filing activity yesterday.
As we look towards the future, we see a medium to long term global client growth expectations continue to be unchanged on a double digit to low teens rate.
Our confidence stems from four signals we are seeing.
One a heightened level of cxo conversations to drive change.
Due to an increase in new logo wins with great brands, three continued momentum and transformation services driven by an acceleration of digital transformation journeys four outlines on for large deal closure is beginning to come back after a pause of a few months.
The continued growth of our strategic relationships greater than 50 million $900 million is a testament.
The strength of our business model. The difference here should we have under value would drive for offline.
The strategic choices, we have made over the last few years through our organic investment on acquisitions, such as supply chain financial crimes and Red Studer group almost an experience are proving to be hugely relevant in today's world.
We feel extremely well positioned to compete in 2021 and beyond with Dod Let me turn the call back to Roger.
Thank you Tiger now like to open up the call for your questions. Michelle can I ask you to please provide the instructions.
[noise], Oh, ladies and gentlemen, if you have a question at this time. Please press Star then one on your telephone.
Your question has been answered I wish to remind yourself from the queue. Please press the pound key to prevent any background noise. We ask that you. Please place your line on mute. Once your question has been stated.
Our first question comes from the line of Ashwin Shirvaikar with Citi. Your line is open. Please go ahead.
Great Hey, guys.
Good quarter congratulations thank you.
I had a question about the outlook for this year, though.
I know you brought up the full year outlook, but it does seem like for Q is at least at first glance quite considerably to what what am I missing it seems as though you're assuming.
A defect in.
On the top line and also and lower margins had there.
Other factors that we should consider consider that a that you are not dependent like away.
Oh, I see I mean first of all good.
So let me let me just kick it off and then you cannot do it I would say Ashwin you know we are in an uncertain environment.
It doesn't take much to somebody that conclusion, so partly it does the reflection of the environment. We are done on the environment our clients face number you.
I think as we looked at what.
Quarter, three we had some of the benefit of some so much work that we did for a federal particularly banking clients, which we don't want to do you want to go to repeat.
Number three Oh Gee on lines like GE and other clients that had.
I'm down driven by some of the environment to corporate and ideas. Some of that gets completed in Q4. So you know in any case I think the most important thing I forgot that we really don't think about our business quarter to quarter, we really think about our business more in a 12 month cycle or an annual cycle that rolling four quarters. So.
I wouldn't necessarily draw too many conclusions between Q3 and Q4 those numbers move around quite easy.
Ed, though you want to know if you want to hit on anything after that but I think also the growth in Q4 last year too was a was was robust cigarettes.
There's also.
Sure.
Right there was some modest margin might be.
Sockets, we have started dialing dining box or dialing up our.
Our sales and marketing as well as R&D or both of which we had to stop a you know as we went through the early days of Golden Monkey on Oh, we brought back up our regular on salary and compensation increases again, yet bogs for all the two quarters in the money.
Understood understood that.
And then the other thing is a unique cash flow from ops pretty strong.
And I wanted to kind of the first phone call called that out but also ask you. If there were any one time type factors that affected it or.
Is this is kind of reflective of where you can be on a sustainable basis from a revenue conversion standpoint again so.
I think our growth year to date and likely for the full year is going to be outsized to normal right I mean, even in a in a normal quarter for Q4 were likely going to be over 20% cash flow growth rate for the year, which is tremendous I'd.
I'd like to take full credit for that [laughter], but part of that part of that is based upon the working capital impacts right. Just the macro right now pleased with obviously the the teams improving dsos half of a quarter. So that is terrific progress on happy with that.
But the bigger picture would also lead you indicate that working capital is much less of an impact to cash flow growth. This year that it would be in a normal year. So typically we ought to be growing in line with net income as I said right. Yeah, yeah, right around a double digit clip for cash flow. So were well in excess of that you think the biggest part of that is related to working capital.
As part of that being receivable balances driven by the growth.
Year over year comparisons.
Got it but I've heard but we will we will take some credit for execution as well [laughter] reverting to revenue the gossip apartment sales.
Right sorry, Kevin. Thank you know that that's that's a little bit. Thanks, I guess would you say.
Thank you and our next question comes from the line of Keith kind with Baird. Your line is open. Please go ahead.
Yeah, Hey, guys, thanks, and great job I'm good. Thank you.
Yeah. So [noise], maybe first of all you know now that were seven to eight months or so into the covert crisis. What have you been able to observe kind of about this in kind of a real I guess the question is what do you see the long term benefits and headwinds to revenue and margins that you're starting to pick up just seeing seeing yourselves.
We have worked through this off.
So you don't get a bill I think it would be it would be wrong to say that there are benefits all fall Copenhagen, and I guess, that's not what you're asking I think we've we've already been awarded on under businesses have launched a number of things one the leverage all technology both for doing.
Business for information flow unfold walk flow Oh digital transformation collaboration using technology, all of which has been available. So I think the bottom or change on Doc has accelerated dramatically and I think that would be a great lesson.
That the World has learned that every oct lines of loans, we have learned I don't think that's never going to change. So we are now on on Fox and murdered Bob All Digitization all moving.
So this isn't solutions to the cloud all being able to access information and do transactions from anywhere at anytime on any device or the demand for predictive on you know insights and analytics.
You know all of that is change that has happened that normally would have taken five yard and though we are in the middle of inoculated changes and how could that not be good.
Let's not let's not make the mistake of assuming that job.
That the businesses that we saw declines that we saw on not staring at an uncertain world on and are going to pain.
So I think that it's a little bit of a tale of two cities.
As we get through the.
Prices on a you know, let's say that the vaccine and it comes out I think the word what I've learned so much guys.
Got really want is looking forward to the word where you can actually take all the learnings from yards some back to a more normal way, we used to run businesses on mix and match all of that a hybrid delivery hybrid collaborated foods are the ability to actually do so much more on but so much more speed up decision, making so lots of things that are learning but.
Sure the world and find and alter the mix and match and that impacts our ability to deliver great value to our clients and in fact, it really good leverage technology.
Got it and back to the extent to which online is going to be successful a again, an acceleration so lots of things like that.
Great Great. Thank you and maybe just one.
Quick one just on how much were acquisitions in Q3 I think it was just right point contributing and then how much do you expect in Q4 as right point, I think anniversaries and something digital comes on.
Yes. In fact is what point consistent with what we talked about before I think we said about a 200 basis points roughly of growth for the full year no no change for the company was impacted as Litepoint, both kinda almost equally so that percentage hasn't changed at all.
You're right that anniversaries.
And in November I think as little as one that is from Canada, So you're right.
Okay, well, thanks, guys great job.
Thank you there David.
Thank you and our next question comes from the line of Tyson hung with JP Morgan. Your line is open. Please go ahead.
Hi, This is puneet sitting in for Tims and thanks for taking my question.
So tiger, but many countries ready to go back and locked down again and this is rising everywhere what would you attribute to be not to repeat this time around versus Hello, I'm looking for shock that we saw in March in it.
Our enterprise clients not delaying decision, making Oh no given continued uncertainty like you mentioned actually is.
Hopefully the board is very different right. If you go back to a mark down of the first time, a we are offline and I'm talking about everyone in the world a hot to let's call. It rush home in order to find a way to set up infrastructure on grounds actions on the ability to actually done it.
With all this is to each other and the deadlines.
From home since then we've been running.
Our our business as well as outlines businesses predominantly walking from one as I said, 90% of our work continues to be delivered from a remote environment. So you know when you're not when the word now be used in many countries. As he described with a second wave that is no new action needed in order to.
Deal with it other than continuing walk you have been doing on maybe push out any chances all coming back to office if people have plans for this year.
Other than that you know there's no change so therefore.
He does and offline teams.
Have not been distracted with how do I deal with going into home and doing work from home because they're already working from home. So I would say that's a huge difference and that's more significantly impacted our decision, making you ought to think that impact your decision, making was a lot of things in our pipeline.
At that time with clients.
Belong to a year ago that I would call the recall that either.
Now what's sitting in the pipeline itself that people have discussed with us. It's it's things that they want to drive change on and that continues. So I think it's a very different situation. We are in now are somewhat parts of the world deal with wave two <unk> compared to <unk>.
No Doctor does it make sense it does and what did it mean margin benefits. This quarter that does not expected to continue over the medium term assuming like in post fund of Macquarie or that be higher mix of work from home how should we think about like the margin profile like when someone is.
The lesson. So this from home purchases from office.
Yeah Weve looked at everyone's initial thought was all you're gonna be saving money working from home network from the office, but as we've looked at it all different costs, including connectivity information security information technology and the like we haven't seen a big big difference in the cost structure work from home versus what work from office up we'll see how that plays out.
Maybe there are opportunities going forward in that regard, but we don't see a big impact on that going forward.
In terms of kind of near term benefits in profitability I think is the big one that everybody knows about is travel revenue.
No one has been traveling for those four Oh for the last couple of quarters. So that's that's up sales is something that we'll return it.
For us.
Sales, a 100 basis points roughly.
Lower spending year over year. So that's the one that will come back not to the extent that it was in 2019, but we expect it will come back a partially in 2012.
Yes. Thank you.
Yes, just thing I will mention is I talked about utilization in my prepared remarks utilization as you know it because it is a really high levels right. We saw revenue growth while at the same time, we took sales or the sizing of the transmission services delivery team. So we saw you know getting to a point where some of them are at the point, where almost too high utilization levels places like analytics for you.
Let me talk about really really terrific growth in the quarter.
There's a play that's a place where we don't want to depending lifestyle foolish. So got to make sure we get the people to deliver as we drive growth going forward. So we're looking at that but you know that is at a level that we're pleased with maybe almost too. Good if you will in certain areas.
Thank you.
Hi, Richard.
Thank you and our next question comes from the line of Mackie Nolan with William Blair. Your line is open. Please go ahead.
Hi tech or not next quarter.
Thank you Maggie Tiger you had mentioned to a pickup in pipeline conversion.
Can you talk about what's driving that and then do you expect that trend to continue over the next few quarters.
Somebody else or what's driving that is that as I said, there was a pause or.
When a number of clients almost I would say without exception, particularly on large deals.
Basically said wait let's make sure we know how to deal with the new work.
One that's settled down.
And you know people could close the books people could actually transact people could make sure that credit card fraud, if that's what you're watching far you could actually do that in a lot from warm environment.
To make sure that supply chain walked et cetera et cetera.
Once that was all done on set her down well then people went back to the conversations that they were having an add longer they won't bother conversations in today's board and needed to be prioritized. Those continued in many cases actually in some cases accelerating through the pipeline because now people don't.
I would not want to get this done faster in a few cases, but that actually I don't want to do this I want to do something else. So it's it's a little bit to the audio question.
No more is it how do I deal with this was gonna go cab dealt with it not what do I need to do to run my business better and by the way I've, just decided that I'm going to accelerate digital transformation. That's a decision that I would say you know, let's pick a number 75% 80% of our client base.
Taken in respect to up industry. It has a different forms depending on the industry, but you know digital transformation is you have to stay on that means change on.
And that does mean, you know requiring thought knows like us and others.
Actually helping dot changed because now you need capability, you also need to accelerate a rather than wait for a five year changed journey.
And then I think you said you were awarded three large deals in the last couple of weeks here are these new clients can you talk about the long term opportunity for these are meaningful piece accounts may become.
Yeah, I would say one of them is a new client.
Two of them are existing clients.
And if I go back to you know the previous Florida, We had another client wants a new plan. So you know as I said, we've had new logo wins.
The fact that makes.
Including on large deals.
In fact, these dr. during the pandemic and ended on VR and luxury proposition and watch on hiring and so on so so both new deals as well as existing relationships.
You know we have we have large deals making progress now as I described our pipeline how does have a higher bias to early stage deals that are coming off guard the optic over 90 and those by definition because they're let's make sure we take that time to mature as they progress through the pipeline.
And they basically ended up replacing some of the deals that actually didn't make sense I got the call. They belong to companies that are in construction industries. Thank me only about 10% of our call.
Our overall offline base belongs with those types of industries.
But I also think that didn't make sense, because something else became hyper.
Thank you.
I'm sorry.
Thank you and our next question comes from the line of Bryan Bergin with Cowen. Your line is open. Please go ahead.
Good afternoon, guys. Thank you.
I wanted to ask Hey, I wanted to ask on the recovery slope in fiscal 21, So Tiger obviously more positive commentary here on the large deal progression in the pipeline, but you maintain that double digit quite a global client growth return by I think it was for Q is this a function of the pace of some of these deal ramps that you're assuming.
Is that greater confidence maybe in this recovery or could this come sooner.
No actually it is very naturally mathemagics. Unfortunately, Brian all business. So I'll start by saying all business is a long cycle business.
You know do you make shark through the pipeline already called out the fact that the golf pause.
Hi to you know, let's say close to a quarter and a half.
He more than a quarter and a half where deals were paused now when you.
You know the base comes back to normal you know you want the plants walk walk most falls into I know in that period, whatever was supposed to happen didnt happen.
Ah you know why is that happening is kind of getting back to normal that obviously flows through into revenue and back up over a 12 month period. So that's one.
Oh, Oh some of the new deals that are then common odds are that if at all do you stage. So those take time to mature. So that's a natural mathematic for how this book and the last thing I'll say Q1, we had an amazing quarter, one great ready or before.
Before Golden Monkey and as we get into next year that comparison is going to be the first quarter. When we will have that kind of a comparison, which is a poor school, but all in all the to go over and then come back to one of our best quarter before pulled it happened. So you know Ed maybe you can describe the cadence next squad next you up at all.
Actually you know, we will give more detail obviously.
I think Brian as we get to February but Uh huh.
To tell you that was good color and just providing more color to what Tiger said last quarter and we added this quarter.
We do expect it to ramp expect GDP growth to ramp throughout the year each quarter sequentially year over year growth ramps, especially up to about 10% by the time, we get to the fourth quarter. How do we progress. It is year over year growth rates are interesting as you look at that in comparison to the prior year because of the late 2020 as though in terms of growth in revenue rights for Tiger mentioned, it Q1 is a terrific.
Gross quarter, not just for GCA, but also the hybrid mortgage REIT. So as I'm looking at it we're doing are a bottoms up planning now in the planning process, but we're doing the modeling we're looking at the pipeline looking at historical unsold percentages. So I'll give you a kind of a preliminary view. Thank you and we'll come back to you at our February call it more specifics, but in general.
We'll see we're expecting to see a traditional sequential decline from Q4 Q1, as we typically see somewhere in the two or 3% to 5% reduction sequentially from Q4 to Q1.
That's not going to change and then we are expecting to build each quarter from Q1 through Q4 of the 10%. So what does that mean for Q1 Q1, given that we had about a 15% increase.
Last year, we are expecting GC to be roughly flat to maybe down single digits in Q1, but just based upon where were yet where we are in Q4. This year sequential decline that is typical.
We then expect to increase each quarter going forward Q2's, an easier compare like Q2, we grew I think three or 4%. So we would expect it to improve on that as we go from Q1 to Q2, and then get up closer to double digits not quite get there by Q3 and then in Q4, we are expecting to get there because of that double digit again, that's all based upon the pipeline.
And we have the Windier Tiger talk about how they ramp up but.
We'll get into the details, but it's all.
Okay February a bit more color and more specificity on GE GE is similar to GE will is expected to.
Will likely be down a bit more next year initially going to be down mid single digits. This year, just mathematically based upon where we all GE will expect next year to be kind of at around where we ended this year Q4, roughly flat at that level. What that means is GE will be down more meaningfully in Q1, because we had a high watermark for GP in Q1 of 2012.
So that'll be down somewhere in the double digit range, so that each quarter going forward.
It will improve to the point when we get to Q4 of next year, we'd expect to be roughly flat because I said it would be at the run rate for Q4 2020. So I give you a lot of detail there what does that mean for global clients. It means we're kinda largely aligned with growth. This year I think we said we'd be six or they have to 7% will likely be in the in that space next year, but a totally.
Different trajectory right when it will begin to hear a bit lower growth because of the year over year comparisons we should end the year at higher than that at the end that roughly six would have to sort of have to shut in the second half of year based upon the way I just described.
I think thats anything more to add to that could tighten [laughter] provide a lot of color.
No I'd done basically brought into in the end what it says that we are from a medium term perspective, we have a line of sight still said and we said we have deep confidence in back to build Brookline double digit to low teens growth and as you know Oh are done back to a very deliberate.
It steady or margin or cadence as we deliver that so we feel really good about you know where we are in fact you.
Some of the solutions. We now have is still relevant for today's work. It's it's it's it's pretty amazing to be actually made some of these choices before golden Monkey.
Okay. Thank you guys for all that color just want to follow up on analytics. So this has certainly been a growth engine for you can you talk about where you know where are you most penetrated with that and where you think you can cross sell that across other areas in the business or other verticals, we haven't really gotten into yet.
It's actually it's pretty pervasive Brian that's one of the most interesting things about analytics for us. So first of all for US. It's a scaled business and has been a scale business for many years now what we are seeing is that demand for analytics for predictive on.
Analytics that helps real time decision, making in the world we are in today.
That's true across a range of you know, let's talk that supply chain better demand forecasting and better ability to forecast supply and then match those two up.
Better working capital management that starts with inventories.
Better receivables management better prediction on credit quality of receivables back.
Better prediction or supply risk.
And then you move into financial services, the ability to actually managed transactions money laundering fraud, both in the consumer space as well as the institutional space you wont get insurance you don't the ability to actually predict which in short and deals are what closing foster because you have a.
John's are getting a better price. So you know speed up the space office space, and then you get to finance and as one of the leaders in finance and accounting into was more and more cfos and business leaders are realizing that there is let's hold off did all that they can use.
From both within the company and outside the company a true the financial planning and analysis group along with the help of digital technologies to four cost better to blind Beddoe, just run the company very differently and restrict technologies I'm Gonna help all of that so we really feel very bullish about the intersection all digital.
And on the jeans on data analytics provide real time insight, but with a deep understanding of the business on domain and that's where we shine.
Thank you yes.
Thank you and again.
And again, ladies and gentlemen, if you have a question at this time. Please press Star then one.
And our next question comes from the line of Matt can deal with Needham. Your line is open. Please go ahead.
Hey, good evening, guys actually Kyle Peterson from my Okay. Thanks for taking my questions.
Just wanted to touch a little bit on.
I think you guys mentioned about 90% of that delivery right now its remote first I think 10% is more on site [laughter] you know how quickly we don't between laptops and interest client approvals. If we were to see like a second wave of additional like Lockdowns and restrictions that movement.
Do you think you guys would be able to shift.
That last 10% to remote delivery versus you know what we saw in kind of March and April.
That's true that's.
That's that's an easy no mine a as I said, Oh predominant portion of that.
In the office work right now is in China, and let's start with China, we dealt with to try not bleed to work from home as the first group that went to work from home got a well established the playbook is established and metadata establish the technology footprint is established so for us.
To react.
Shipped to work from home as well as product lines who'll be so from China to deal with it is is way way easier than anything we dealt with in March.
And then you know the balance of the loss from office right now it's scattered between India, Philippines, Some Latin America, some U.S. again, our ability to flip dr. walked from a walk from home.
Home.
The very easy, though there are some portions of work, particularly in the India.
You S., Latin America, and Philippines footprint, where.
We do that work in the office because the client, particularly banking requires that work to be done in the office given certain regulatory considerations that they have.
If that was forced to be done from home it might not be possible. Although it's less about can be do couldn't be moving to work from home. It's more about when declined a lot about the book to be moved to work from home, but it settled down and go good rhythm I mean, if you look at India.
The kids problems in India or rose a month back two months back.
No. We had a protocol was set up almost like a landlord machine that allowed the people who came to the office with very good social distancing with temperature checks with all the protocols that you would expect.
On action plans well laid out that's been working well.
Great. That's helpful color and then I guess, just switching over to capital allocation, particularly on the M&A front, maybe you could just describe how that the pipelines looking right now and just how you guys are kind of going about identifying vetting and integrating some of these transactions.
More virtual environment.
So George talk but adults, so pipeline and done a lot, but add a color on capital allocation strategy itself.
Oh look we've we've been very careful many years now that our identification all M&A.
I plan on choices are driven by a very good understanding of strategically what capabilities do we want you know whats kind of capabilities do we want to bring in an integrated with some of the services.
The solutions that our clients are looking for where we see the market going and don't go read a buck is going and I think some of the choices. We have made seem to have been good choices and that's how we are focused on even today. So they continue to have a pipeline that's very robust driven by specific choices around specific so this isn't supposed.
Nick industry verticals that has bolstered our capabilities around some of the things that we already talked about data analytics get our engineering cloud capabilities things that you would expect given where the world is going.
Oh I'm given all the discussion that we've already had.
And those continue to be great discussions, they're all about Joel.
And I think it's fair to say that what Joel conversations what your due diligences are possible they take that part and planning but.
But we did that with something digitally and now we're doing integration off something digital into the REIT foreign business. All virtually we are off teams I'll jump back in the virtual right born during the lunch when something goes are deemed a bunch of.
On its books you just to have discipline you have to have execution you have to have a playbook and we have all of that one of the great thing about it is that we approach all of these with a systematic execution mindset that seems to help Ed.
Yeah, the only other.
I'll add is look for that to EBITDA levels are at.
And low slow they've been in a few years now so there's plenty of dry powder for us to execute to M&A attractive M&A.
In in indoor share repurchases. So I think we're in a pretty good place and.
Well he'll play this forward.
Okay. Thanks for the color nice quarter guys.
Thank you Mike.
No go [laughter].
Thank you and I'm showing no further questions at this time I would like to turn the conference over to Mr. Roger Sachs for any further remarks.
Thanks, everybody for joining us today, and we look forward to speak with you again next quarter. Thanks much.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect everyone have a great. Thanks.
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