Q4 2020 Genpact Ltd Earnings Call
Good day, ladies and gentlemen, and welcome to the 2024th quarter and for year Genpact Limited earnings Conference call. My name is to Wanda and I will be your conference moderator for today.
At this time all participants are in a listen only mode.
And we'll conduct a question and answer session towards the end of this conference call.
As a reminder, this call is being reported for replay purposes.
The replay of the call will be archived and made available on the IR section of Genpact website.
Now I'd like to turn the call over to Roger Sachs head of Investor Relations and Genpact. Sir. Please proceed.
Thank you for Rhonda and good afternoon, everyone and welcome to Genpact is called <unk>.
Our results for the fourth quarter and full year ended December 31st 2020.
And we hope you had a chance to review our earnings release, which was posted to the IR section of our website.
<unk> Dot com.
Speakers on today's call are Tiger T at Horizon, our president and CEO and Ed Fitzpatrick, our Chief Financial Officer.
And his agenda will be as follows I will provide an overview of our results and up.
And our strategic initiatives.
He will then walk you through our financial performance and greater detail and provide our outlook for 2021.
And then come back for some closing comments and then we will take your questions and that's to Wanda just mentioned, we expect the call to last Bosnia and network.
Some of them and as we will discuss in today's call are forward looking and involve a number of risks uncertainties and other factors that could cause actual results to differ materially from those and such forward looking statements such risks and uncertainties are set forth in our press release.
In addition, there and I recall today, we will refer to certain non-GAAP financial measures that we believe provide additional information to enhance the understanding of the waste management day, you'll see operating performance about business you can find a reconciliation of these measures to GAAP and 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 afternoon, everyone and thank you for joining us today and for 'twenty and 'twenty fourth quarter, and you all and earnings call.
We're very pleased with our fourth quarter and full year 'twenty and 'twenty result.
Especially in the face of the challenging macroeconomic environment.
Our performance reflects our agility and culture of embracing change and allowed us to rapidly meet client needs and successfully pivot to new ways of working.
Led by the dedication of our global work force our ability to grow our top and bottom line is a testament to the resiliency of our business.
The acceleration of digital transformation into new buying centers across all industries.
Bond and I'll talk about total addressable market for a while.
As with many more opportunities to drive sustainable and profitable long term growth.
In summary for the full year 'twenty and 'twenty, we delivered total revenue of $3 7 billion up 6% on a constant currency basis global client revenue of $3 3 billion up 7% on a constant currency basis and.
Adjusted operating income margin of 15, 9% ahead of our expectations and in line with pre Covid levels in 2019, and finally adjusted diluted earnings per share of $2 and Tulsa and up three percentage year over year.
Our global client revenue growth was led by consumer goods retail lifestyle, and says health care high Tech and and charters at this.
Same time inflows of new deals during the year hit an all time high leading to 20% plus year over your pipeline growth by the end of the Gulf.
During 'twenty and 'twenty, we signed total new bookings of more than $3 billion.
As we had expected the impact of COVID-19 prices led to total bookings coming in lower than last year levels. However, we saw strong momentum and global client bookings in the fourth quarter as client decision cycles return to more normalized pre COVID-19 levels as a result.
Mobile cloud deals signed and the fourth quarter for almost three times above our third quarter bookings and more than 20% above water for 2019 global client bookings.
We signed six large deals and the fourth quarter alone, which helped fuel this growth.
Let me give you some color on a few of these large deals we signed.
First building on our successful relationship with Walmart and not and Latin America, we will manage and transform finance and accounting for that and majority owned African operations last month.
We will leverage digital technology and analytics to create completely new ways of working to support our growth strategy.
And expanding our partnership and relationship with a global CPG ecosystem into Japan, and we were rapidly transform their finance and accounting procurement and supply chain operations to drive better better customer relationships and accelerate new product introductions to grow the business drive profitability.
And maximize cash flow leveraging both transformation services and intelligent operations for the long term.
And finally for our high Tech distribution company after conducting and initial consulting engagement, we will now drive transformation across finance supply chain and procurement leveraging our digital core our platform, who bring standardization automation and risk controls across the organization.
Unexpected G bookings declined in 'twenty and 'twenty due to the large GE deals we signed in 2018 on 2019.
Transformation services made up of our consulting digital and analytics businesses grew more than 20% during 'twenty and 'twenty and expanded to over 30% of total global client revenue.
Analytics continued to be the fastest growing transformation services engine throughout 'twenty and 'twenty.
I'm excited about the momentum we saw for the fourth consecutive yard and transformation services.
Approximately 70% of the value of global client bookings had transformation services embedded in them and these types of deals make up the fastest growing segment of our pipeline.
As we've said before a good portion of our transportation and services business is also a new P based.
During 'twenty and 'twenty, we significantly expanded our transformation services offerings to meet the accelerated demand for digital solutions that we've seen across all industry verticals.
Coupled with our broader M to M intelligent operations and services, a large transformation services engagements have expanded our relationships with many of our strategic clients.
The best demonstration of this is that more than 50 per cent of our bookings were from sole source deals in 'twenty and 'twenty.
These differentiated solutions that are gaining traction with our clients allowed us to grow the number of global client relationships with annual revenues over $5 million from $1 21 to 129.
This included clients with more than $50 million and annual revenue growing from nine to 11.
As we expand these relationships we continue to build our reputation as a trusted adviser and thought leader to the C suite and boards all for clients, especially now when they are seeking guidance the most.
As we called out over the last few quarters, we've seen five trends driving our CX hope on the sanctions plus a significant shift from offline to online across every industry and second the virtualization of all technology services and solution delivery.
Todd and accelerated consumption of cloud based services and solutions fault and exponential growth and real time predictive analytics and finally, the above the move to human centered design that creates superior experiences for customers and users unemployed.
Let me share and a few examples of how our agile response to these trends is allowing us to drive value for our clients and further fuel our growth.
For a leading provider of personal fitness equipment experiencing tremendous product demand and growth, we are designing and deploying a future stage supply chain solution, leveraging data and predictive analytics and reducing cycle time for new product introductions for.
For Lyft kindly.
Collectible and plant based food and media brands, we are leveraging cloud technology and predictive analytics to re imagine and two and operations drive competitive growth and core in a way to create a digital source data led organization and the food industry.
For various healthcare and pharma clients, we are partnering on a variety of initiatives related to COVID-19, such as building a mobile app that allows rapid access to tests and results.
Integrating our AI based pharmacovigilance platform to process advanced vaccine reactions for the UK and regulator NHRA and leveraging digital technologies to increase the speed and accuracy of clinical trial submissions for vaccines.
Our industry, leading 'twenty and 'twenty growth clearly demonstrates the resilience of our business and the non discretionary nature of our services.
We are in a growth market that is highly underpenetrated and.
There are further expanded in response to the challenges of 'twenty and 'twenty.
This market expansion is primarily driven by the changing needs of two different sets of clients.
First existing clients, who want to accelerate their transformation journeys, leading to increased engagement with us on more services and and more buying centers and before.
And second new clients, who are now much more open to partnerships in order to change transform and respond to the five trends and I called out in 'twenty and 'twenty. We added 11, new client logos greater than $5 million all of whom are first time buyers for all kinds of services and putting mature for us.
It says like finance and accounting.
We continue to drive investments and strategic areas like supply chain services.
And I shall crimes and risk services sales and commercial services and financial planning and analysis.
And we are seeing great traction and all of them and.
And our more mature service lines, such as finance and accounting and insurance underwriting and claims we continue to deepen our advantage by accelerating the fusion of domain digital and data.
As I mentioned last quarter, we have doubled down on our cloud service offerings to bring domain led as a service solutions and our key focus areas are recent acquisitions demonstrate our continued commitment to build out our capabilities in the cloud.
And the fourth quarter, we acquired something digital boards.
Bolstering our digital commerce capabilities combined with the strength of right points experience offerings, we are seeing our pipeline and bookings grow meaningfully as many of our clients completely re imagined that commercial and supply chain operations driven by that journey to online commerce.
We also recently closed the acquisition of <unk> and industry, leading data engineering and analytics firm and enhancing our ability to develop new cloud based data and analytics solutions for clients as well as execute on last mile connections using digital technologies, we're already seeing the benefits of new giant deals and the pipeline.
Turning to profitability, the agility with which we restructured our costs during the second quarter of 2020, and Reskill and redeploy talent for new client work allowed us to deliver strong adjusted operating income margins adjusted EPS and cash flows in a challenging environment.
By the time, you reach the fourth quarter, we began and dialing up our investment and R&D transformation services and the front and.
This has allowed us to enter 'twenty and 'twenty, one with the robust pipeline I spoke about.
As we look at growth in 'twenty and 'twenty. One we are mindful of three factors for us as expected our tough year over year first quarter pre Covid comparison.
Second the impact from clients and the hardest hit industrial and such as hospitality travel and leisure and energy that will affect the year over year comparison of the first half.
And Todd one of our banking and capital market clients recently, resized and restructured their asset management business. We responded as a true partner and scaling down our operations for them and now will have a more focused relationship which remains very strong as a result, we expect our banking capital markets vertical to be down.
Year over year.
We are however, encouraged by the expansion of our banking capital markets pipeline during the latter part of 'twenty and 'twenty.
Even after fully considering these factors we continue to believe our global client revenue will come back to double digit growth by the time, we hit the fourth quarter of 2021.
Our bookings momentum in the fourth quarter and plenty plenty.
And that we could possibly hit that milestone even earlier.
At a high level, we are definitely expecting to deliver global client growth that is in line or better than 'twenty, and 'twenty and drive and improvement to our adjusted operating income margin.
With that let me turn the call over to Ed who will take you through our 'twenty and 'twenty performance on 'twenty and 'twenty one outlook in detail.
Thank you Tiger and good luck.
And you and everyone.
Today I'll review, our fourth quarter results and then discuss highlights of our full year performance and provide our financial outlook for 'twenty and 'twenty one.
Beginning with our fourth quarter results.
Revenues increased sequentially by approximately 2%.
Global client revenue increased 4% year over year or 3% on a constant currency basis, largely driven by demand for transmission services across many of our chosen verticals.
For client revenues grew approximately 2% sequentially also due to higher transformation services revenue.
As a reminder, global client revenue and in the third quarter includes the benefit of surge activity.
And so instead of banking clients.
It does not recur during the fourth quarter.
G revenue declined as expected, 16% year over year due to the macroeconomic impact on their businesses and play and productivity commitments, we discussed last quarter.
<unk> revenue declined approximately 2% sequentially slightly better than we expected.
Adjusted operating income margin was $15 five per cent.
Got it and we expected primarily due to higher than expected revenues.
As we discussed on our last earnings call, we began to dial up investments and the fourth quarter and both R&D as well as sales and marketing toward normalized levels and we restarted salary increases for our global workforce.
Yeah.
Additionally, we incurred approximately 4 million of net other operating expenses during the fourth quarter compared with approximately 4 million net gain last quarter.
The fourth quarter net other operating expenses, primarily related to an impairment charge for certain leased properties, we no longer plan to occupy.
As a result operating margins were lower sequentially.
Gross margin improved by 20 basis points sequentially, and 240 basis points year over year to 35, 4%.
The sequential improvement was largely driven by better transformation services utilization.
The year over year improvement was also primarily due to higher transmission services utilization levels as well as and unusually low gross margin levels. During the fourth quarter last year due primarily to an impairment charge related to a European wealth management platform.
Adjusted EPS was <unk> 51 cents.
Six at year over year decline.
And our current quarter, we generated higher gross profits of approximately 10 cents year over year as higher gross profit level and the current quarter was offset by higher other operating income of 13 cents last year, primarily related to a gain on land monetization and a negative FX remeasurement impact us and sets.
Our effective tax rate during the quarter was 25.2 per cent compared to 28, 1% last year due to certain higher discrete items and the prior year.
Now, let me provide some color around her for year 2020.
Despite the uncertain environment total revenues up 5% year over year for 6% on a constant currency basis.
Global client revenue, which represented 88 per cent of total revenue increased 7% both of them and as reported and constant currency basis coming in at the high and have a full year outlook is for.
Performance was largely driven by transformation services bolstered by strong growth and our analytics services.
<unk> revenue declined 4% year over year, primarily due to productivity Columbus, and the macro and economic impact on Ge's businesses.
Adjusted operating income margin was 15, 9% for the full year consistent with the prior year and above our 15, 7% expectation for the current year largely due to the incremental revenues generated during the quarter.
We are really pleased and we were able to continue to drive growth and maintain our operating margin level and a very challenging year.
Okay.
Gross margin for the year was 34, 8% in line with the prior year level.
We're able to stabilize margins despite absorbing some early year challenges related to certain customers. Initially out of proving worked from home delivery and our banking and capital markets vertical as well as utilization challenge and our Treasury services due to the impact of COVID-19, particularly and consulting services.
As a percentage of revenue SG&A expenses declined 130 basis points year over year, largely driven by cost containment initiatives taken during the year and lower travel expenses as a result for COVID-19.
Adjusted EPS was $2 12 sets up 3% year over year compared to $2 five stopes and 2019.
Seven and set increase was driven primarily by higher adjusted operating income of 11 and says partially offset by higher net interest expense of two says and higher taxes of two cents.
Our effective full year tax rate during the year was 23% slightly lower compared to $23 seven last year due primarily to jurisdictional mix of income.
Turning to our balance sheet and cash flows.
At year end cash and cash equivalents totaled $680 million up for.
$467 million at the end of the fourth quarter 2019.
Our net debt to EBITDA ratio for the last four rolling quarters was one 5%, including the impact from our recent acquisition of and clearer that close at the end of December.
Day sales outstanding for 82 days, which improved from 86 days last year due primarily to a reduction and billing cycle time, driven by initiatives. We kicked off earlier. This earlier this year.
With better Dsos and higher year over year, adjusted operating income, we generated $584 million of cash from operations. This year.
Up from 428 million last year with growth of 36%.
To hit the favorable impact for working capital from lower year over year revenue growth in the fourth quarter. This year versus the gross less growth rate last year also help lift operating cash flow well above our typical 10 per cent range.
We expect free cash flows to revert closer to the one to one ratio for net income and 2021, and we've historically seen and our business and comparison to be approximately one six to one level this year.
During the quarter and full year, we returned $82 million and $211 million of capital to shareholders respectively.
This included dividend payments of $18 million, and the fourth quarter and $74 million for the full year.
We also repurchased approximately one 6 million shares at a total cost of $62 million and an average.
A weighted average price of $38 94 per share during the quarter and $3 4 million shares at a total cost of $137 million at a weighted average price of $40 16 per share for the full year.
Year to date through February 5th we repurchase another 1 million shares totaling $41 million at an average price of $40 47 per share.
Since we initiated our share buyback program and 2015.
Reduced our net outstanding shares by 19%.
Over this period, we repurchased 41 million shares at an average price of approximately $27 46 per share for a total of $1 1 billion.
We can increase and share repurchase authority. The board of directors just approved we currently have approximately $595 million and authorized capacity remaining under our share repurchase program.
The board of Directors has also approved a 10% increase to our quarterly dividend for $10 75 per share, which equates to an annual dividend of 43 cents.
We've increased our dividends per share 10% for greater every year since we first initiated our dividend and the first quarter for 2017.
Yeah.
Finally, let me provide our full year outlook for 2021.
We expect total revenues to be between.
And $333 93 billion and $3 99 billion representing year over year growth of six to seven and 5% for <unk>.
Five to six 5% on a constant currency basis.
Recent acquisition activity is expected to contribute approximately 200 basis points to our total company growth rate and 2021 and.
Acquisitions contributed approximately 250 basis points of growth and 2020.
For global clients, we expect revenue growth to be and the range of 8% to 10 per cent for 7% to 9% on a constant currency basis.
Let me provide our current thinking and we expect a key to provide some perspective on how we see growth progressing throughout the year.
Similar to our historical pattern, we expect global client revenue to decline and a low single digit sequentially and the first quarter, and then ramp up each quarter and throughout the year.
The first quarter will be the toughest year over year comparison due to a very strong first quarter performance last year.
Given that we anticipate 1% to 2% year over year growth and global client revenue for the first year of 2021.
We expect to see a meaningful step up and growth and the second quarter for high single digits, given the expected sequential revenue growth coupled with the revenue impact caused by COVID-19, and the second quarter of last year.
The large deal signings and took place during the fourth quarter of 2020, which represented the highest level of bookings we've seen in any quarter, coupled with a robust pipeline entering this year gives us even greater confidence and we will return to double digit global client year over year revenue growth by the fourth quarter, if not sooner.
<unk> revenues are expected to decline approximately 10% to 12%.
As we mentioned on our prior call, we expect quarterly GE revenue levels to be relatively stable throughout 2021.
Okay.
We expect to return for our strategic objectives of deliberately driving adjusted operating margin expansion balancing long term profitable growth with appropriate investment activity.
As such we are expecting to improve adjusted operating income margin and 2021 for approximately 16% driven largely by improved gross margin.
We're expecting our full year gross margins to improve by approximately 50 basis points and 2021, while at the same time investing more in R&D and sales and marketing.
Due to the seasonality, we see and our business and currently expect our adjusted operating margin for the first quarter of 2000, and 2012 2021 to be and similar 2014 to 15 per cent range, we have seen and the last two years.
Our 2021 effective tax rate is expected to be approximately 23, 5% to 24, 5% up from 23% and 2020 primarily for me.
Really driven by the expiration of special economic zones and India.
We continue to expect our effective tax rate to stabilize and mid 20% range is a special economic zone expirations reduce overtime.
Given the outlook I just provided for your estimated adjusted earnings per share.
For the full year 2021.
And $2 26, and $2 29.
This represents year over year growth of 7% to 8% and includes the negative impact of the higher tax rate of approximately two.
And a negative FX impact of <unk> <unk> per share due to the gains recorded in 2020.
We have assumed for 2020 year and outstanding shares adjusted for the share repurchases, we've executed through February 5th.
For this calculation.
We are forecasting cash flow from operations of approximately $450 million to $500 million, where approximately one three to one four times net income in line with our historical range. This equates to free cash flow of approximately one to one one times net income as I mentioned earlier.
Capital expenditures as a percentage of revenue is expected to be approximately two to two 5% and 2021.
This percentage is lower than our historical average as we expect some impact from a greater work from home mix longer term and it.
And just our digital solution development and largely migrate to agile methodologies. During 2020 and are being expenses incurred we expect capital expenditures to continue to be lower than average we saw in 2019 and prior periods.
We will continue to update you on this estimate as we progressed through 2021 and beyond we do expect some reduction and from our historical range of approximately 2.5% to 3% going forward.
With that let me turn the call back over to Tiger.
Thank you Ed.
During 2020, we rose to the challenge and quickly adopted a distributor global delivery model without sacrificing productivity.
Service level performance.
Our strategic choices made over the last few years the.
And the non discretionary nature of our services and our strong execution drove our industry, leading global client growth falling all while preserving margins.
The disruption caused by COVID-19 is opening new doors for our unique domain led transformation services and intelligent operations solutions that incorporate digital automation and AI data and analytics all wrapped in a great experience and delivered in the cloud.
Our achievements have been recognized by industry analysts with 18 leadership position and awards in 'twenty and 'twenty and most recently being ranked number one and finance and accounting by industry research from Hff's.
Viewing client challenges that information and process problems, we are able to make digital transformations will by connecting data domain specific insights driving real time predictive analytics that speed up decisions and actions. All of this has expanded our total addressable market for 'twenty and 'twenty one.
And beyond.
2020 further reinforced the importance of serving all four of our stakeholders clients and employees investors and our communities over.
Over the last 10 plus years, we have made great strides and promoting a diverse and inclusive workplace.
We have long held the belief that a diverse team believes the best solutions for our clients.
Women now represent more than 40% of our global workforce with many of our senior leadership team and 40% of our board feet being held by women.
During the year, we also had elevated ratio and equity as a high priority and identified various actions to drive change, including new programs to attract and retain great racially diverse talent.
Regarding professional growth opportunities for our global workforce has always been a top priority for us.
Our investments and our flexible digital learning platform genome and our proprietary redeployment platform talent much paid off this year with trading losses, increasing by 35% year over year to more than 10 million hours and more than 10000 employees redeployed.
We have become increasingly focused on sustainability and corporate priority.
We're driving initiatives to minimize our carbon footprint and eliminate the use of non essential single use plastics and make our operating facilities more green.
Our sustainable sourcing practices have received recognition and for the third consecutive year Genpact was chosen by Frost and Sullivan and the Energy Research Institute as a leader in sustainability.
Our global teams are passionately engaged and their communities through a variety of programs. And example is a free to $1 billion project, a volunteer program, providing meals for underprivileged communities globally with.
We are strongly committed to leveraging technology for the greater good creating sustainable meaningful transformation that both resilient companies and communities we.
We are proud to be named the world's most ethical company by the Ethisphere Institute in 2019, and 2000 and training.
We will continue to provide regular updates on our progress on our ESG efforts as we formalized targets across our environmental social and governance initiatives over and above all sustainability report and we have been publishing for the last 10 years.
In summary, I couldn't be more pleased with our performance in 2020, where we grew our top and bottom line and an extremely challenging macroeconomic environment. We believe we are well positioned to return to double digit global client growth. During the latter part of 'twenty and 'twenty, one and continue on our deliberate path of improving operating margins.
We see and expansion and our total addressable market, we are bringing more solutions and transformation services and intelligent operations to our clients and we are working with more buying centers than ever before.
All of which sets the stage to continue a long term journey of delivering on your double digit to low teens global client growth and.
Adjusted operating income margin expansion.
While we have accomplished a lot relative.
Tiger by the opportunities ahead and blocked as trusted advisers to our clients as they continue to transform themselves with that let me turn the call back to Roger.
Thank you Tiger, we'd now like to open up our call for your questions to one day can you. Please provide the instructions.
Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.
To withdraw your question press the pound key.
Again, Thats star one to ask the question. Please.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Ashwin <unk> with Citi. Your line is open.
Thank you.
Hi, Tiger and good to hear from you.
And.
Thank you.
So both of you used the phrase fourth quarter, if not sooner in describing the timing of global client growth.
So what would drive the sooner and you're looking for a higher level of discretionary work is it just more about and working.
The bookings that you talked about revenues with greater velocity, what are some of the factors that drive that.
So I shouldn't be a very very pleased with the velocity of decision, making and we saw in the fourth quarter, which led to the bookings that we talked about and we think fourth quarter is a.
And all what we would call back and I'll make decision making.
And a strong net inflows are strong so.
If the momentum that we saw in Q4 continues and you.
Know that our bookings lead for a ramp up and revenue as we go through the next three or four quarters, we see that.
Fourth quarter, all being pulled forward so.
To answer your question.
We continue to see the same momentum we continue to see the movement and the pipeline because the pipeline is there and then stopped ramping up and of course transformation services continues to be a lead engine for us those are shorter cycles. So I would say, we feel very good about the fourth quarter and unlike the last time, when both Ed and I said fourth quarter, when I was saying.
It could be a little earlier than the fourth quarter as well.
Got it got it Okay, and then could you provide more details on and Quito and that seems like a very solid <unk>.
Utilization engineering company seems to have meaningful tableau and and planned relationships any incremental and full you can provide on the combination and any financial metrics would be great.
So I'll talk a little bit about their capabilities itself and maybe I'll turn to Ed on the financials, but you know you you captured and also what's the company really.
And it stands for and got us excited and lead.
Known the company for almost two years now.
We worked with them and the Pos So we know the team they are non us we know the value that the two of US together can bring to a set of clients and the same verticals that we serve and DSO.
And that's what got us together and already and the month of January we are seeing joint propositions to common clients in the area of supply chain and the area of digital commerce and the area of moving to online.
Around the platform such as Ana plan, and Diablo and so on that you already called out. So the fact that it's moving data to the cloud and helping clients access the cloud and then build analytics on the cloud and virtualization on the cloud.
Across disparate technology platforms and they have.
Exciting part here.
Got it and on the <unk>.
And on the financial side, we talked about it being accretive and it is going to be accretive is largely aligned with our profitability Ashwin first there will be a little bit less is still accretive as we do the integration as you might expect for for sure will be a little bit less and then we have new grow from there and I forget the other.
And just to add as I talked about the analytics business being kind of one of our fastest growing and add strength for that strength. So feel really good about this from.
Okay. Thank you Bob.
Thank you Ashwin.
Thank you.
Our next question comes from the line of Maggie Nolan with William Blair. Your line is open.
Thank you.
Nice to hear about the progress, you're making and your ESG initiatives and thanks for sharing that.
And then I was thinking.
Can you quantify the <unk>.
Headwinds from the banking and capital markets client or maybe more importantly, how do you expect the rest of the business.
Business to perform outside of that account.
Yes, so I would say the the banking capital markets clients client, it's a very unique situation and.
And it was driven by that reevaluation of their business restructuring.
You know the way they run it et cetera, and like any good partner and we've done. This so many times and the POS weekend for the cable we restructured our operations the impact on our business overall would be two.
Two to three percentage points of growth on the global client side.
And therefore, if you take that out and.
Global clients and growing even better than than than what we just described and all the verticals are pumping in and you want to add to that.
I think that was the key comment Tiger I think thank you for capital markets will be down year over year probably.
All of that how we and the 10% to 50% slot for the rest of the businesses you can do the math.
And feel really good about comprehensive growth over 10% and all that and all the vertical so it's almost like for back to Q1 last year and every business.
Except for banking capital markets, but as Tiger said on the call also feel good that we're we're kind of at the point where we.
No, we don't know what back and capital market and that we're building right. So hopefully we will see that progress sequentially with growth as well as right as we go through.
2021, and back and capital markets and and I can just go for it.
And the inflows.
In the latter part of 'twenty and 'twenty and therefore, the buildup of the pipeline and banking capital market was really good so.
All of us and the team for really good about that.
Great. Thank you and then you talked a lot of successful announcements about expanding relationships like that mass market announcement.
But you've also highlighted strong new client logo additions.
And you're highlighting it and growing total addressable markets and so.
And I'm wondering as you look out for the next couple of years, how much gross do you expect to come from kind of that existing client base versus new logo additions and is that different from what you've seen in the past.
I don't think so Maggie and.
This was a little bit crystal ball gazing, but I don't think so I would say three things are noticeable number one is if you take any client.
It's very clear to us that even after 15 years of a relationship that is still things to be done.
And that the client wants that we can bring to the table. Because we are also adding more and more capabilities to ourselves that are relevant for them.
So we continue to grow the client even offer for PD and so that's the that's the first element of growth that I would talk about and that runway. It just keeps expanding number two.
When we add a new client and I talked about 11, new logos, but I called a 11 net new logos for new logos and I haven't outsourced before new logos. It would be a much bigger number for new logos will never outsourced before and.
Those logos set the stage for very long term gross and I'm talking about five kv our growth trajectory.
So this is less about.
Any change in proportion from existing clients and new clients.
And because that that cadence hasn't changed it's just the fact that got runway is just getting longer and longer.
Alright, Thank you for day update.
Thanks, Maggie thing.
Thank you.
Our next question comes from Puneet Jain with Jpmorgan.
Your line is open.
Hi, Thanks for taking my question.
Can you.
And.
Can you share some margin puts and takes for this year like subsidies or any margin considerations as it relates to the banking contract that's going to ramp down and any other cost total use of cash contributions from the recent and goodbye.
Okay and Mr and Mrs.
The last one that I'll cover that I'll cover the first two and and you can tell me the third piece of it.
Part with the banking piece really expected to be impacted overall margins.
Progression from 59% to 16% holds true.
And we don't expect that to move the needle largely consistent with the company margins.
And then the gives and takes I mean, I think the big give and take as you all probably recall is the other other operating income item last year and in prior periods. The export subsidy, which went away and the export subsidy was 2018 and 19 last year, we had the.
The gain on the on the land that we had talked about and other income that went away and we didn't have that this year. This year. We replaced that was effectively replaced by <unk>.
Gross profit as being strong and we expect that to continue going into next year as well as SG&A leverage continuing to drive operating margins. So that's that piece.
Net other operating income item, we don't expect us and meal and a big level 17, and the test going for it and those are the two biggest.
And it gives and takes.
In the year anything else Tiger.
No I guess.
And if I've understood for needs question and one tower at one time zone and if you can add to that if you. If you can share I think on the Indian budget I don't think there's anything material as it relates.
Specifically to our industry that.
And we would call out on either the positive although all the impact site is that true.
Is that fair that's.
That's fair.
Yes.
No.
Thank you and what do you expect for long term changes and the delivery model as it.
The result of supply and demand maybe in terms of.
Onsite support required during transition for our employees working from offices versus home or even delivering services from gig economy models.
So and so puneet I think I would answer the question and and probably two ways. One if you look at what happened in 2020.
We've transitioned remotely without anyone visiting anyone anywhere about eight to 10000 people.
And this is knowledge transfer.
<unk> had a number of new logos new clients new services.
And that is a demonstration that that can be done I can be done really well.
And the industry has demonstrated does not just not just us and to me that means that going forward that will be a pretty significant portion of the model and that has a lot of ramifications in terms of speed in terms of actually the intensity with which you can do knowledge transfer as well as obviously value the <unk>.
Second and third win.
And when do you have a situation and therefore a yard every one of our client teams working from home and their operations and in that business doing really complex look and every one of our teams solving them also working from home all barriers of resistance, saying work and this work be done from.
Which often used to be the conversation and some cases, it's gone.
One of the reasons why I think the total addressable market goes up is that there is no debate about which work can be done from where the debate is actually what are the best way to do it one of the best technologies to apply what is the sequence who doesn't work those are the conversations. This is a big change and COVID-19 has completely changed that.
Dialogue.
No that's great that's great I agree.
Thank you for me.
Thank you.
Our next question comes from the line of Keith Bachman with Bank of Montreal and your line is open.
Hi, Thank you I have two questions.
Okay.
Good afternoon, good evening good afternoon.
The two questions I had is first you mentioned that the bookings were up 20% year over year, and Q4 and Thats terrific.
But I was wondering and I was wondering if you could talk a little bit about the book to Bill and how you see is there any changes on how you see that.
Work filtering into the P&L or revenues is there any elongation of fulfillment or is there anything unusual that should be happening there and what I'm really trying to just understand is.
The 20% is a pretty good number you talked about Q1 being very looking robust as well.
And I'm, just trying to understand how much risk retention on either side of the revenue guidance you have provided through <unk>.
More near term work and then I have a follow up if I could.
And that's what keeps we don't look at book to Bill.
It's not that relevant in our long cycle my tie our annuity contracts that we signed on and certainly an intelligent operations and as I said on a material portion of transmission and services as well So book to Bill is not a good.
Something that we track and measure and drive.
What I would say is that as we.
As we got out of.
December into January.
After a pretty record booking quarter.
No real difference between the way that booking would convert into revenue.
The ramp up et cetera than one would normally expect there's nothing unique about it so and so I would say normal cadence normal growth trajectory, we just.
We just have to go through Q1, which has a comparison of Q1 of last year.
And then it'll just.
And that tells US and you went out to that.
Yes, I think I think visit one of your question relates to visibility too right. So coming into the year visibility is consistent feel good 70, 75% bookings.
Backlog of revenue to be delivered and that's and that's good and then in terms of booking growth required.
And we will expect to see book and come up often and easier compare year, but not at a level that we're uncomfortable with and the revenue range that we gave you so feel pretty good based upon the trends that the revenue ranges.
Yes.
Okay fair enough and Tiger Mike.
For one question is for you you mentioned a few times that your Tam has expanded was hoping that you could flush that out and just really explain why you think the Tam.
Has expanded and particularly.
Where you think that serves the interest of Genpact in other words as the Tam expands where do you think youre really key opportunities are within that thank you.
Great question, Keith So I'll start by saying when I say, Tom is expanded I'm only referring to areas that are relevant for us.
And the definition of time that I would have is the industries. We serve the services that we are focused on that sound definition of diamond that's argon and there's lots of other time that I'm sure is there, but that's not all.
Focus for us dotcom and <unk>.
Bonded for a variety of reasons and some that are independent of COVID-19, and some because of COVID-19, and some accelerated from COVID-19, and so three things one our investments and a set of chosen service lines.
And this is a choice that we made about three years back for years back supply chain services financial crime services financial planning and analysis services and sales and commercial and services deliberately chosen.
A follow on from our strength and finance and accounting procurement.
And then vertical services life underwriting and insurance and claims and insurance and so on those services. We knew was the right bets to make and we have started investing and those both organically as well as and as an example, the <unk> acquisition and supply chain and organically.
Those have really played through as we went through 'twenty and 'twenty. If you look at all for all of those all four of those have become even more important for clients to think about re imagining.
Each of those services. So that's one to Doug digital and technology investment and analytics investment that we've done including the experience investment a right point.
And again have become even more relevant when you're talking about and acceleration of digital transformation and every one of our clients are going through.
And the third is really the market and the market is basically the one that I answered <unk> question, which is.
No.
Gone are the days when someone would say for.
And so and accounting transactional work, yes, I think Genpact you can do it and you can do it really well.
And I'm sure the planning and analysis.
Very high and analytics work and finance art and supply chain.
It is still core to us.
And it should be done next door to me.
And it should be done by my people.
Those barriers have really collapsed and and digital technologies is actually the other reason why it's collapsing because if you want a client to undertake a significant acceleration of digital technology transformation, they need partners and they need partners that connect the dots between finance and auto management sales and commercial and supply chain to accelerate their journey to.
Online and those three are expanding the market for us.
Great great. Okay. Many thanks Tiger.
And Keith.
Thank you.
Our next question comes from the line and Bryan Bergin with Cowen Your line is open.
Hi, Thanks for this exact easement in for Brian on the pipeline could you maybe provide a little more color on the sustainability of the lift and large deal demand and also in terms of the mix early stage deals were started as a greater than normal mix last quarter.
Maybe you could provide an update on the pipeline mix and stand today.
Both great questions are really good questions and I'm.
To start off and then I'll have Ed and Quebec soap so.
The mix of large deals.
Has come.
Come back to what I would call normalized levels after a being a little slower and the second quarter and the pipeline.
The addition, and the second quarter was muted as you would expect.
It was muted and the first half of the third quarter as well, but it has come back and now we are and the pipeline similar ratios of large deals that we've always seen for more than two and a half years and we expect that to continue and we don't see any change and that particularly given the earlier discussion on expansion of time, the acceleration of digital transformation and so on.
And as far as early deals versus late stage deals.
The ratio.
And does have probably a god higher early stage deals than a normalized but it's a question of maybe one more quarter and you'll get there and you went after that.
Yes, I think we've talked about the late stage deals being pretty pretty pretty nice and mix of that for the third quarter going into fourth and we and we it looks like we've got a lot of those are the hurdle given the bookings number that we saw.
We're looking at the mix.
Earlier this week.
And it varies a little bit by vertical, but it looks pretty good and looks in terms of kind of reverting to the mean, if you will in terms of early and late and one.
And are two it's more early than usual, but thats a good thing right because we refocused and places like at places like banking as an example, so I think I think in that regard it feels pretty good and we were joking earlier this week two on the.
And percentage of large deals.
My view is that that continues to increase as customers get more comfortable as we do more complex deals and the only.
And thats going to come down from the current level and my view overtime. If we raise the level of what we consider to be a large deal from 50 to 75 or 100.
And I think that's.
And that's trending and the right way.
That's right.
Got it and then just one follow up on guidance, what was the level of Prudence and formulating their 2021 out and look and we ask that in the context that there turned out to be consistently stronger performance across 2020 and mid what was arguably.
For uncertainty.
I think I think our methodology is consistent I think 2020 was it was a.
It was a crazy year right I think everybody out of the gate. After the first quarter and we came out faster than we had expected and then everybody took a step back and said I will give you at the REIT reassess what we can do growth obviously was not as great as we expected, but we were as we reset the bar.
Revenue is the stability of our business shown showing true.
And we were able to kind of meet or exceed and as we went forward.
After kind of.
Stepping away from giving guidance for the second quarter. So I think we've reverted again there to the norm of using the same processes on unsold percentages pipeline.
Backlog and business by business bottoms up.
Similar process the range is consistent and top and bottom line. So we've gone back to the way we think it should be no. We're not the world Hasnt fully returned to Villa you were talking about this earlier this week as well as the team.
But it's got more so back to kind of the way we'd expect it to be our guidance doesn't contemplate another another.
Hits, if you will or significant change and the environment, but it's continuing knock on wood down the favorable improving path that we talked about Q3 and wanted to see.
I think that's all that Tiger anything more to EBITDA no I was just it doesn't contemplate any any significant change and current environment, but at the same time it doesn't contemplate any other shock and really being administered as well.
Yes.
Understood Thanks very much.
Check.
Thank you.
And as a reminder, ladies and gentlemen to ask the question you will need to press Star then one on your telephone.
Star one to ask a question.
Our next question comes from the line of.
And with Needham Your line is open.
Thank you and good evening most of my questions have been answered, but Tiger and I was just curious have you noticed a given the effect from the pandemic and you talked about the acceleration and transformation services.
Our contracts being structured differently now versus pre COVID-19 levels down and especially asking in the context of outcome based pricing is that becoming more pervasive now across your client base.
And actually it's a great question I would start by saying, we've been pushing that agenda significantly for many years now.
So.
And it would be fair to say that therefore, even 'twenty and 'twenty.
Even before the pandemic those numbers of outcome based.
Transaction pricing based non FTE based contracts, while higher than before having said that it still had a long way to go COVID-19 has that accelerated.
And I wouldn't say necessarily it's COVID-19, or the pandemic accelerated outcome based pricing I would say.
When you enter the realm of.
Supply chain order management, when you and talking about them off.
Financial planning analysis, and when you enter the net them all impacting the front end of the customer driving growth for the customer the opportunity to actually do outcome based pricing just goes up.
It's no longer about cost, it's no longer about labor arbitrage and cost of input.
It's much more about the value we can drive and therefore, those contracts have a greater opportunity to actually have outcome based elements in them and Thats why do you think.
It's got less to do with the pandemic, it's about multiple with the nature of the work that is now.
Being done by us and and our pipeline and that's still going to be a journey, it's not that overnight.
Book is going to become and outcome based book, but now journey continues.
Got it and then given the mix of business and also from the cost items that might not come back given the hybrid nature of the work environment and potentially maybe potentially for less sales travel et cetera, do you think structurally margins could be better than what you would've thought pre COVID-19 and again I'm not looking for short term guidance, but just maybe more structural.
Long term margin outlook.
So my and I think I think that's a great question, but I think I would and I've said this before and I think one of the prior earnings calls.
I would be very very careful and we've done the math, we've actually had discussions significant discussions and modeling and side as well as with clients.
And we've seen clients themselves model their own businesses on the basically the fact that you should not assume that.
Our remote work from home environment.
And.
And you don't require and infrastructure and a facility reduces cost because first of all I think it would drive the wrong decision and secondly, I think we do ourselves a disservice in many aspects when we do remote work I think info SEC requirements privacy and security requirements has to go up and does go up and all of US are careful about making sure.
Sure we do those investments second.
Just because workforce and distribute it doesn't mean, you don't need incremental culture building exercises, bringing teams together.
All of those are going to be.
More than ever before are needed.
Mental health issues to watch for.
Stress et cetera, and people to work from home I don't think it's that simple an answer of saying we illustrate cost goes away. Therefore low margin on travel and goes away. When travel is replaced by virtual you've got you're going to substitute a whole bunch of things by doing.
Many more meetings many more conversations.
I don't think it's a simple math off one day, if eliminated therefore cost becomes better.
Thank you congrats on the Covid.
Thank you.
Okay.
Thank you.
I'm not showing any further questions and the queue I would now like to turn the call back over to Roger for closing remarks.
Thank you everybody for joining our call today, and we look forward to speaking with you again next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
[music].
And.
[music].