Q1 2021 Genpact Ltd Earnings Call
Good day, ladies and gentlemen, welcome to the 'twenty to 'twenty, one first quarter Genpact Limited earnings conference call.
My name is RJ and I will be your conference moderator fourth day at.
At this time all participants are in a listen only mode.
We will conduct a question and answer session towards the end of this conference call.
As a reminder, this call is being recorded for replay purposes.
The replay of the call will be archived would make it available on the IR section of Genpact website, I would now like to turn the call over to Roger Sachs head of Investor Relations at Genpact. Please proceed.
Thank you R J and good afternoon, everybody and welcome to Genpact call to discuss our results for the first quarter ended March 31, 2021, we hope you've had a chance to review our earnings release, which was posted to the IR section of our website Genpact Dot com.
Speakers on today's call are Tiger, Thiago Rajan, our president and CEO and Ed Fitzpatrick, Our Chief Financial Officer Nathan.
They used the agenda will be as follows Tiger 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 as well as provide some thoughts on our outlook for 2021 triangle will then come back for some closing comments and then we will take your questions except on a call it to last about an hour.
Some of the matters, we will discuss in today's call are forward looking and all but 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.
In addition, during our call today, we will refer to certain non-GAAP financial measures that we believe provide additional information to enhance the understanding of the weight management views. The operating performance of our business you can find a reconciliation of these measures to GAAP in today's earnings release posted to the IR section of our website.
That let me turn the call over to Tiger.
Thank you Roger good afternoon, everyone on thank you for joining us today for our fourth quarter 2021 earnings call.
We had a strong start to the year with first quarter revenue adjusted operating income margin adjusted diluted EPS on.
Cash flow all exceeding our expectations.
I'm pleased with the continued momentum we are seeing across our business.
The growing need of enterprises to leverage digital technologies and cloud based analytics, it's creating a high demand for our solutions we.
We are increasingly engaging with clients on large scale holistic transformations.
Re imagine their business models and redesign that operations.
These operations straddle multiple functions on buying center is opening new parts of our expanding addressable market.
Quickly on remarks, Westwater 2021 results, we delivered total revenue of $946 million up 1% on a constant currency basis.
Global client revenue of $853 million up 5% on a constant currency basis, adjusted operating income margin on 17, 2% expanding torn on 50 basis points year over year and adjusted diluted earnings per share on a 59 cents up 11% year over year.
Before I get into the details I wanted to provide an update on the COVID-19 situation in India, where we have significant operations.
<unk> said from the start of the pandemic all our decisions on centered on two key pillars first.
Health safety and wellbeing of our global employees and second maintaining continuity of services for our clients.
While we had a very small in office presence across the two regions. The majority of those employees are now back to working from home.
I'm extremely proud of the passion and dedication of our teams to support their colleagues in the face of debt crisis.
They continue to work tirelessly to deliver to our clients while simultaneously doing everything they can to support on impact of colleagues and their families.
We also appreciate the outpouring of support we have received from our clients as we partner together to overcome this difficult time.
We have set up drive through testing per employees and their families as well as an employee hotline to help with questions and provide access to medical attention and resources.
We have increased insurance coverage and financial aid for our most impacted associate population.
We have net provisions to enable employees to get vaccines when they become available at all cost.
Across the globe, we have 24 by seven counseling hotlines offering mental health support for our teams access to an education wellness App on an online community with their sources for Barnes.
Now turning back to our performance during the first quarter flying demand remained very healthy carried forward. The momentum we saw in Q4 of last year.
Our pipeline reached another all time high driven by new intros interest.
Several large complex transformational deals that integrate multiple services, such as finance and accounting to supply chain or sales and commercial operations.
We are happy with our overall win rates that highlight our differentiation and competitive games sole source deals continue to account for more than half our inflows pipeline and bookings during the quarter.
Our strong global client performance was broad based across almost all of our chosen verticals, including double digit growth in consumer goods on retail life Sciences on health care and high Tech day.
The exception was banking and capital markets, which was impacted by the restructuring of the relationship with one of our banking and capital market clients that we discussed last quarter.
I'm, particularly pleased with our global client top line performance given our strong first quarter results of 2020, the last period.
But the challenges related to COVID-19 give.
Given the strong start to the yard we believe we are well positioned to deliver on our full year outlook.
As expected GE declined 24% as a result, our productivity delivery and a reduction in project spend in the uncertain macro environment.
The reduction also includes the impact of <unk> divestiture that are now part of a global client portfolio.
Transformation services, which includes consulting analytics and digital grew by approximately 20%, including the contribution from our recent acquisition of incredible and now represents more than 30% of global client revenue.
Installation services continues to drive new deal wins with consulting digital and analytics being systematically embedded into more than 70% of on pipeline.
We are seeing a growing opportunity to solve the fast changing needs of our clients with innovative solutions that leverage cloud architecture.
And data and analytics.
On a couple of examples on a fee.
Food company, we are using our AI and machine learning solution to generate more accurate and real time demand forecast leveraging traditional and non traditional data sources stored in the cloud after re imagining the entire planning process.
On a global banking client, we are designing building and deploying our digital cloud native commercial load solution on AWS, leveraging a deep understanding of the commercial lending on syndication business on processes.
The bank's objective is to disrupt this market with dramatically Foster decision on funding times, along with a superior customer experience that ultimately should drive market share gains for them.
Many of our transformation services engagements lead to much larger intelligent operations deals as clients drive change to gain a competitive advantage in that changing markets.
Over the last four years, approximately 25% of our global client accounts that started initially with small transmission services engagement with a relationship of less than $1 million.
Now expanded to a larger relationships of more than $5 million with some of course, becoming even larger.
Many of our engagements have alternate promotional models that are not just input our people cost based.
We exited the quarter with more than 40% of October revenue coming from newer construct such a low.
Campaigns pricing on fixed price model up from 30% in 2017.
The highlight of the quarter was the growth of analytics in our transformation services portfolio.
Quarter on global client analytics revenue grew more than 30%.
We expect that momentum to continue through the year.
Given our significant growth over the past several years analytics has become the biggest component of our transmission services business.
For the last couple of years, we've increased our focus on solutions and the use of data and analytics to drive insights on action in many services like supply chain sales and commercial and financial crimes interest.
The growing appetite on clients across industries to leverage data on predictive insights on a 10 digital layer in the cloud.
Solve problems and drive outcomes is fueling demand.
Bolstered by our recent acquisition of Inferno, something digital and right point, we're now designing and implementing new cloud based data and analytics solutions to accelerate client strong solution Johnny.
Some examples on for a global media and entertainment business, we are creating our cloud enterprise platform that combined I know it in house data with third party consumer data to run analytics at scale in order to gain insights about consumer preferences generate behavior recommendations and improve the buying experience.
All to drive new revenue streams on growth across all of its channels.
But our major insurance carrier, we're using AI and machine learning to process claims and litigation expense data to predict exposure to large new claims in order to significantly reduce payouts and mitigate switch on underwriting risk.
As I said not earnings call last quarter.
We are on a growing market that remains highly underpenetrated with digital transformation driving companies across all industries, the redefined themselves unlocking new opportunities.
Our strategic investments over the years enable us to lead clients through that journey, GAAP, expanding our pipeline and leading to new bookings.
This expansion on total addressable market is led largely by two types of clients.
Existing clients looking to accelerate transformation journey, leading to larger engagements with us that in corporate services and buying centers beyond the CFO on the CIO Chuck out the P O the chief risk officer, and the chief supply chain out yourself on second new clients that are now open to partnerships for the first time.
To change and transform themselves in response to this new global environment.
Two interesting metrics that demonstrate the strength of our global clients with annual revenue of $50 million or greater increased to 11 up from 10 during the same period last year and.
And our revenue from this client group grew at more than double global client growth.
Secondly, clients with annual revenues of $5 million on more increased to 132 up from 128, they've been told in many first time buyers to the type of services we provide.
We are seeing permanent changes to the way businesses adapt to the new normal operating environment.
They no longer exclusively rely on traditional kpis on frameworks to drive performance such as sales levels profit optimization and efficiency from automation all walk in rigid industrial line business models.
And then C suites have shifted priorities and are investing to design industry disrupting operating models based on on metrics like customer empathy and delight.
We believe these factors to rely on a longer runway of sustainable low double digit to low teen growth for global clients.
Our strong first quarter results reflect on our resilient business model focused strategies and top tier execution, all playing out in the market we.
We continue to build on our strengths and become even more relevant to clients by solving problems caused by the disruption to industrial value chains.
We believe our agility enables us to quickly bring new innovative transformation solutions, leveraging digital and analytics to the market.
This has strengthened our position as a trusted adviser separating us from our competition and fueling our continued growth even in challenging environments with that let me turn the call over to Ed for a detailed review of our second quarter results.
Thank you Tiger and good afternoon, everyone.
Today I'll review, our first quarter results and provide our current thinking regarding our full year 2021 financial outlook.
Total revenue was 946 billion up two 5% year over year or 1% on a constant currency basis.
This growth was higher than we anticipated driven by better than expected performance in our global client businesses.
Global client revenue, which represents 90% of total revenue increased 6% year over year or 5% on a constant currency basis, including an approximate one point contribution from revenue related to certain divested GE businesses that is now included in global client revenue as of January one 2021.
Excluding this revenue global client revenue would have increased 5% year over year, we're 4% on a constant currency basis ahead of our expectations largely driven by better transmission services performance led by strong analytics growth.
<unk> revenue declined 24% year over year due to productivity commitments, the macroeconomic impact on ge's businesses and the impact from certain divested businesses now included and global client revenue.
Excluding the effect of the revenues related to divested businesses GE revenue declined 16% during the quarter.
I'll cover the full year outlook later on but on apples to apples basis. There is no change to our prior full year outlook for GE revenue.
Adjusted operating income margin was 17, 2% up 250 basis points from the first quarter last year.
The year over year improvement was largely due to higher gross margin lower than expected travel expenses, reflecting the impact from COVID-19, and greater operating leverage.
As a reminder, during the first quarter of 2020, our adjusted operating income margin was impacted by lower utilization from limit placed on our ability to work from home that were subsequently resolved as well as charges associated with reduced valuation or India retirement fund.
Gross margin in the quarter was $36 five per cent compared to 34, 5% during the same period last year.
200 basis point expansion was largely due to better overall overall utilization led by transformation services and improved productivity gains.
Additionally, the prior year figure was lower than normal due to the impact from the COVID-19 related charges I mentioned earlier.
We continue to expect full year gross margin level to improve by at least 50 basis points year over year.
As a percentage of revenue SG&A expenses declined by 20 basis points year over year, largely driven by lower than expected travel costs related to COVID-19, and partly offset by investments in sales and marketing.
Adjusted EPS.
P. S was 59 sets up 11% year over year compared to 53 cents in 2020.
The success increase was primarily driven by higher operating income of 10 cents.
Of approximately 20% year over year and the impact of a lower share count of one set.
Partially offset by a lower year over year FX remeasurement gain of four sets.
As a reminder, in the first quarter last year, we recorded a $15 million FX remeasurement gain comparison to a $3 million gain this quarter.
Higher taxes also had a one set negative impact.
Our effective tax rate was $24 one per cent compared to 22, 5% last year.
The increase was primarily due to the expiration of certain tax benefits and higher discrete benefits last year.
Turning to our cash flows and balance sheet.
During the first quarter, we generated 77 million of cash from operations compared to utilizing 19 million. During the same period last year due to higher adjusted operating income as well as improved dsos and overall lower working capital levels.
As a reminder, cash flow from operations during the first quarter of 2020 included a nonrecurring tax payment related to a prior period, India tax matter.
Our day sales outstanding improved year over year to 84 days compared to 89 days last year, largely driven by a reduction in billing cycle time and improve collection timing.
Cash and cash equivalents totaled $644 million compared to $680 million on December 31, 2020, as free cash flow of $63 million was augmented by proceeds from our recent bond issuance.
Offset by a $259 million revolver repayment share repurchases of $134 million and 20 million related to dividend payments in the quarter.
During the quarter, we tapped into the low interest rate environment and issued a new $350 million bond with an attractive 1.75% coupon rate.
We currently plan to retire our existing $350 million bond with a coupon rate of three 7% and are scheduled to mature in April 2022, and are closely monitoring market conditions to optimize the timing of the paydown.
Once the 'twenty 'twenty two bonds are retired we expect to recognize annual interest savings of approximately $7 million due to the interest rate differential of the two bonds.
Our net debt to EBITDA ratio for the last four rolling quarters was 1.67 times, including the impact from the new $350 million dollar bond offering.
During the quarter. We also took advantage of the attractive valuation of our shares have you repurchased.
We purchased approximately $3 3 million shares or almost 2% of the outstanding amount for a total cost of 304 $134 million at an average price per share of $40 68 sets.
Our intrinsic value calculation highlighted a meaningful disconnect in our share price and given we had sufficient capital available during the quarter, we stepped up our share repurchases accordingly, and we're able to do so while keeping our net debt to EBITDA level below one seven times.
Since we initiated our share buyback program in 2015, we have repurchased 44 million shares at an average price of approximately $28.28 per share for a total of $1 $2 billion.
The annual return on these purchases to date is approximately 16%.
We have approximately $503 million of authorized capacity remaining under our share repurchase program.
There is no change to our capital allocation priorities, we will continue.
To invest first in driving organic growth, but we also have a solid M&A pipeline and will be vigilant in continuing to search for companies that can strengthen our capabilities in our chosen service lines.
And to the extent capital available we continue to believe repurchasing shares, particularly on our valuation is very attractive in comparison to our view of the intrinsic value of the firm represents an incredibly value value accretive investments.
When assessing the prospects of the firm. It is certainly prudent to consider past performance is an indicator of future growth, particularly noteworthy.
Worthy over the past five and 10 calendar year periods, we generated free cash flow growth at a compound annual rate in the mid teens.
We expect to continue to generate strong double digit plus cash flow is moving forward, which aligns with our overall medium to long term growth outlook.
As we mentioned, we will continue to assess our share price and compare that price with their own valuation assessment and take advantage of valuation dislocations.
Let me now turn to our current thinking on our full year outlook.
We continue to expect total revenues to be between 3.93 billion and $3 99 billion representing year over year constant currency growth of 5% to 6.5%.
We are pleased with the strong start and believe we're even we were in better positioned to achieve our full year top line outlook.
Of course, we are closely monitoring the COVID-19 situation in India, and so far have been able to continue to serve our clients through the extraordinary efforts from our global teams and the partnerships with our clients who have been usually supportive.
For global clients, we now expect revenue growth to be in the range of 9% to 11% were 8% to 10% on a constant currency basis, which includes an approximate one point contribution from revenue related to certain GE divested businesses that is now included in global client revenue.
Excluding this revenue global client revenue for the year will be expected to grow eight to 10 per cent for 79% on a constant currency basis in line with the outlook, we provided last quarter.
During the second quarter, we expect to see a meaningful step up in year over year growth for global client revenue to high single digits. Given the momentum we are seeing in our business coupled with top line impact caused by COVID-19 in the second quarter of last year.
With expected low single digit sequential growth during the third and fourth quarters. We continue to believe we are well positioned to return to double digit global client year over year growth by the fourth quarter, if not sooner.
<unk> revenues are expected to decline approximately 20% year over year.
Excluding the effect of the approximately $40 million in revenue related to GE divested businesses GE full year revenues are expected to decline, 10% to 12% in line with our prior outlook. We gave earlier this year.
Given the strong adjusted operating margin we generated in the first quarter. We believe we are even better positioned to expand our adjusted operating margin for the full year to 16%.
We continue to expect to ramp our R&D and sales and marketing efforts, including travel as we navigate through the balance of 2021, along with the expected sequential revenue growth we are anticipating.
Given this outlook, we estimate adjusted diluting earnings per share for the full year 2021 to be between $2 27 and.
$2 31.
But once that increase from our prior range of $2 26 to $2 29, due to an FX remeasurement gain of 3 million, we reported during the first quarter.
Before I turn it over to Tiger on went dimension that we are very pleased that we were recently added to the S&P 400, Midcap index, which is a nice testament to the fundamental performance of the firm with that let me turn the call back over to Tiger.
Thank you.
We've had a great start to the year.
Our culture of embracing change strengthen processor and relentless focus on client outcomes differentiates us in the market.
As we go into the future, we will drive value for our clients leveraging digital and analytics for predictive insights.
Given the combination of our analytics capabilities and our deep domain expertise, we are well positioned to deliver on our long term growth trajectory.
One of our pillars of success has been the sustained investment in our employees learning and development on rapidly evolving skills.
Coupled with our online learning platform genome, we leveraged our talent redeployment platform tallies much do identify reskill and redeploy and another 2000 team members from new loans during the quarter.
<unk> and better utilization on talent retention.
For example, we recently launched our proprietary data and analytics certification program available to all our team members to develop the expertise needed to generate critical insights from our vast operating debt affects the response of this program has been overwhelming with nearly one third of our global work force currently enrolled.
Demonstrating the desire and dedication of our people to continuously lung, which we believe contributes to our competitive advantage.
Our robust hiring on boarding and re skilling programs have allowed us to continue to recruit top talent to join our workforce and capture the many long term opportunities ahead of us.
In the last 12 months, we have added more than 20000 colleagues to our global team and recently crossed the threshold of 100000 employees globally.
We are deeply committed to investing in ESG initiatives and will provide regular updates on our efforts and progress.
We've always had an unwavering commitment to drive sustainability with initiatives that on diversity and inclusion Flanagan back supporting our communities and transparent governance, all of which enable us to achieve our long term financial goals and benefit our communities.
In addition to all our efforts in India. We're also at the forefront of helping to safely and effectively reopened the U S economy Foster.
We recently announced a new collaboration with the COVID-19 collaborative and creative destruction lab rapid screening consortium the launch the U S rapid action contortion.
The goal of this group is to work together with a diverse ecosystem of leading private sector businesses expert and organization.
Accelerate the use of safe cost effective rapid COVID-19 testing to better enable businesses to return to the office safely.
I've been extremely proud of the tenacity and resilience of our teams in partnership with our clients as we have all navigated the COVID-19 crisis and I'm confident that we will together get through the most recent development in India.
Before I close I'd like to welcome the newest member of Genpact as board of Directors, Tammy Franklin, who has an impressive track record of leading digital transformation across numerous companies.
We are all excited to bring a deep expertise into our strategic conversation and I'm very pleased with the diverse talent of our board.
With that let me turn the call back over to Roger.
Thank you Tiger, we'd now like to open up our call for your questions RJ can I ask you to please provide the instructions.
Ladies and gentlemen, if you would like to ask a question. Please press Star then the number one on your telephone keypad again that is star one to withdraw your question press the pound or Hashed E. Lee said by low we compile the Q&A roster.
Your first question comes from the line of Bryan Bergin from Cowen Your line is open.
Hi, good afternoon. Thank you.
Wanted to just.
I wanted to just start on the outlook factors. So just.
How do we translate the strong <unk> results here that came in above plan, but the holding of the outlook or is it just the fact that would in this early stage of the year are you building in pandemic related items.
Within India for operations any pull forwards we need to be aware of just help us narrow those those two.
Yes, Brian I'll start on exercise you're glad to go into your on the allergist benefit on just going to say a bond you nailed it on your first comment.
It's just the first quarter really pleased with the strength of the first quarter and therefore, all the narrative around feel good about the full year, but it's only one quarter.
We haven't built in entertainment on the impact of COVID-19 in India.
Our operations, our delivery to clients the partnership with clients in.
In spite of obviously increased absenteeism driven by both the COVID-19 in our population as well as the impact on families.
You know obviously means that we work very closely with our clients to continue to deliver services. So we haven't had to build on anything on that impact into our into our outlook. It's just on its just one quarter.
Okay, and then you heard the pipeline commentary are at record levels. Here can you talk about decision, making and also deal ramp timing have you seen that change versus the three months ago.
No Brian it seems to be on track both in terms of.
The speed at which decision, making is happening and the expected ramp on the time for ramp.
I have to take into account. The fact that these are often particularly the larger deals are complex deals.
Clearly multi geography, but also multi buying center with connected.
Services, I talked about finance and accounting connected to supply chain and sometimes connected to sales operations and then you'll do that kind of a connected large deal that takes time to ramp up it's got nothing to do with the pandemic.
Okay. Thank you.
Thanks, Brian.
Your next question comes from the line.
<unk> Tandon from Needham Your line is open.
Thank you good evening, Hi, Tiger, Ed and Roger Congrats on the quarter. Thank.
Thank you Mike I wanted to start with just a little bit more color on the revenue momentum that youre seeing I don't have good data sheet in front of me. So just love to get some perspective on which verticals outperformed your expectations are you seeing any soft spots within that vertical portfolio. So any more color on the revenue breakdown that you are seeing.
Across your verticals and regions. Thank you.
So I'll kick it off and then Ed.
On the.
I'd like to turn on prepared foods.
Prepared remarks minds.
We're seeing pretty pervasive.
Good growth performance across all our verticals on.
Other than banking capital markets, which I'll talk about separately, but all our verticals other than banking capital markets and in fact on Jim because retail lifestyle on health care on Hy Tech are double digit.
And then when it comes to banking capital markets we.
We saw.
On a decline buses.
Last year first quarter, but that was obviously on it.
Expected because if you remember last quarter, we had said that one of our banking capital market clients.
In the asset management business was restructuring resizing that entire business as well as therefore on a contract and we had planned for this as we entered per quarter. We knew that's exactly what it's going to happen and Ive got executed exactly the way we had planned.
What we're seeing in our banking capital markets business is an increase in flow into new pipeline pipeline is growing very nicely. So as we finish the yard we expect banking capital markets to be actually very strong on going after that.
Yeah.
I think you hit it Tiger.
I think consumer good still good life sciences growing continuing to grow at a fast clip, which is great hi tech as well with an H M. S growing at growing at a nice clip at just in general pleased at all the verticals.
They're banning just don't want that Tiger mentioned, so feel really good about the comprehensive nature of the of the growth across the board.
Got it and then just as a quick follow up Ed maybe on margins just given the strong outperformance in the first quarter, but what are some of the puts and takes on that are going to maybe rein in margins over the next three quarters to drive that 16% level that you mentioned here one would think given the strong start to the year you might be up.
They actually outperformed that so to speak.
Got called out some of the various factors that migrate on the margins that would be helpful. Thank you.
And I'll touch on our full year expectation or thoughts on royalty Tiger said it we're really.
We're happy that we got out of the gate, where we did that's great, but I feel better about the whole year. So that's a nice place to start in terms of the first year better than expected first quarter, sorry better than expected.
Transformation services, which is better than analytics with interest mission services really higher level services at a nice at amort nice margin clip. So mix was a piece of it and that's good cannot continue sure, but do expect that to continue for.
For the rest of it for the balance of the year, we thought we thought non appropriate at this point so let's see how that plays itself out and then others. Other things are going to come back in that we're going to continue to invest where we invest travel will come back it looks like at a slower clip that everybody's thinking, particularly with what's happening.
In the world, but I do think we will be ramping up R&D will be ramping up selling and marketing and this type of investments for the balance of the year. So.
Mix a piece of it.
Early on in the year is another piece of it and then some of the investments we're going to wrap up for the balance of the year explains the rest tiger anything else that no no I think you hit it.
Yep.
Great. Thank you so much.
Thanks, Mike.
Your next question comes from the line of Tien Tsin Huang from JP Morgan Your line is open.
Hey, Thanks, so much hope everyone is okay for the firm on in India, I wanted to ask on that with.
I think Tiger you mentioned theres, some absenteeism, but youre not seeing any impact on operations yet.
Is that impacting deal flow as well as low as folks are trying to maybe.
See how things play out from a from a delivery perspective or do you have contingency in place to deliver some other locations in case things get worse God forbid of course.
Now on Tien tsin. Thank you very much for you all around for you on sentiment so really appreciate it.
I'll start by saying that you know absenteeism is.
Obviously, a higher than typical.
You know absenteeism driven by by regular leave on vacation and all of that.
Got a few things that are that we need to keep in mind, one our delivery footprint in India is Brian very nicely distributed between the Delhi without on National Capital Region, Bangalore, Hyderabad, Calcutta, Jacko, Bombay Pone and.
And what that distribution does in the context of the current pandemic situation in India is that it's not on.
At the same time, all cities ramping up in absenteeism in the COVID-19 situation on the ground and as it rolls through city by city, we have been able to deal with.
The ability to move volume around a little bit across the cities.
To bring our European centers.
And our U S sometimes into play because of our global delivery footprint compared to about seven eight years back is nicely balanced really well balanced and I'm on I think it'll be fair to say that our clients have been unbelievably supportive in the way. They have worked with our teams reprioritise one of the <unk>.
SMA is because our objective yard.
Our balance and make sure that the safety and health of our employees on their families are fully taken care off while continuing services that we have to deliver so so far so really feel good on new new business on transitions.
I've actually transition going on as we speak I haven't seen any impact and we don't expect to see any impact as long as we continue our services without the momentum we are confident that we will be able to okay.
Okay, No I'm glad to hear thank you Tim.
On extender.
Your next question comes from the line of Dave Koning from Baird. Your line is open.
Hey, guys nice job.
Thank you Dave.
Yeah, and I guess, just a couple first of all so gross margins were really strong up 200 bps. This quarter last quarter. It was really good too.
The way you guided you could basically a flat year over year gross margin the rest of the year and hit your guidance.
Is there any cadence youre thinking of like well Q2's, there'll be up year over year in Q3, Q4 down year over year, just think about all three of the last quarters being up pretty flattish year over year and maybe.
I think you've kind of reviewed why but maybe review through that a little bit again.
Yes, if we hit if we hit 36 points of gross margin for the balance of the year, which is kind of what we guided for the full year gross margin it'll be just above 36%, which tiger.
Tiger and I, both think we ought to be able to drive 36 per cent and hopefully better but again, we're early on we're not going to get ahead of ourselves. So we're just assuming that the mix isn't quite as favorable that we do have some expenses that do start to ramp up a little bit.
Including travel some of that some of that including cost of revenue. So we'll see how it plays out but the first quarter the favorable mix a bit lower spending and then just kind of being earlier on on a year not wanting to get ahead of ourselves is what is the way we're thinking about it.
Yes why.
One other thing the one other thing I would add is though.
Transformation services work.
Was one of the components of our business in the first quarter that came in really strong and within back analytics came in very strong.
Therefore utilization in transformation services and analytics was very strong all of that helps both gross margin as well as adjusted operating income margin and you know, we we think that that that that is something that we're very focused on because clearly our clients are very focused on leveraging data.
Leveraging the cloud on leveraging data on the cloud and on ready to drive insights and and be much more nimble and agile in the way they take decisions to run their business on operations, which is very different from the way. It was just two or three years margin.
And all of that actually augurs very well for our long term gross margin on <unk>.
Operating income margin in our business.
Yes got you. Thanks for that and then maybe secondly, just as a reminder, I know you did the acquisition in Q1 I think we're out.
Was that in the original guidance and maybe give or take how big I mean, it looks like a pretty big acquisition, you paid 200 million something how much revenue give or take this year.
We said it adds about 200 basis points of growth in the year, a little bit less a little bit less than the right point was added last year.
Yeah.
Yes. It was included it was it was included in our guidance because we closed the acquisition on the 31st of December.
Clearly the last day of the year.
And no change no change on the outlook related to that.
Okay.
Great. Thanks, guys good job.
Thanks, Dave.
Your next question comes from the line Maggie Nolan from William Blair. Your line is open.
Thanks nice quarter.
I Wonder if I could thank you on.
Sure and I wanted to follow up on some of the on business continuity questions. When you do have to shift work to other geography are you able to share any incremental costs with clients. Just given that this is such a unique environment that debt it's happening in right now.
So Archie Maggie when we shift work to let's take Bucharest, which is one of our larger European centers, what we're doing is leveraging our existing teams.
We have a pretty significant presence in our European operations in Bucharest in Krakow on.
It got to reach you and then a number of other locations and.
On the kind of work that they do.
Is that kind of work that you know with.
Some cross training, they're able to absorb one of the things that our teams did which I'm really proud of it.
Systematically in the last two quarters of 2020, they went down the path of cross training people.
Because they said if something like the currency drag on India Walter happen. How do you have backups for individuals are very different from the situation that you had last year, where all we wanted to do which is a mammoth exercise has moved from work in office to work from home everyone. Here at <unk>, who was the backup for John Who's the back.
Mary who is a marker for this critical resource and have no. So it's actually not necessarily incremental cost. It's just that people have to work longer people are therefore has to be paid extra incentives over time, and we do all of that but remember clients on going above and beyond in that partnership with us So it's actually not.
You know in this situation, it's not about who pays for what it's making sure that the services get delivered and I think I think all partnerships are really shining through at this time.
Alright. Thank you and then great to see you know the strength in T S and analytics continuing the trend of strength that we've seen what is your ability to turn any kind of project based analytics work into longer term relationships and recurring revenue streams.
So Maggie let's start with transformation services at the higher level.
We're finding.
On the ability for us to enter a new client relationship with transformation services to be one of the real opportunities.
That we are able to take to clients to quickly start adding value and that applies to analytics as well and.
And we are finding in many many many of those situations.
Given a certain amount of time lets say on at the end of one day at the end of two years, they tend to start converting into larger on the Ot deals.
I would say on a net often starts with Ami deals themselves not just project work. So when we talk about our analytics growth that is easily half of that if not more is actually on using analytics work.
Great details thanks Tiger.
Thank you Maggie.
Yes.
Your next question comes from the line of Ashwin share if icon from Citi. Your line is open.
Hey, thanks.
Good question.
Hey, Thank you. Thank you.
I wanted to kind.
Kind of start with you know this is sort of heading into the second year kind of look from home.
What are you broadly seeing from your clients in terms of feedback with regards to the.
The need to continue working from home a day I know you mentioned supporting Bud.
But but you know what are the sort of the intermediate and longer term implications of this continuing the tiger.
The next day.
So I'll share and I don't think it's a one size fits all would be the start up my own so what.
What we are doing.
Doing.
And we are leading the effort your wit and fallen off line is actually taking to them. The archetype of our design of the way a particular service and industrial should run so how should the closing of the books for a large enterprise run.
In a typical month in a typical quarter.
What kind of what should be done from an office environment on when and what kind of work.
And can be done from a remote environment. So we think about that as a design construct all nearshore and onshore offshore in an office offshore in a walk from our environment and it's really a design discussion on.
Like everything else different customers are going to land at different spots on that design and then will migrate over time to different spots. So that's one which is the hybrid design and the second one is the flexibility of talent.
Some people are going to say that they would like to always work from an office and some other people are going to say that they think about working on.
A dominant amount of time.
Remote environment from a home environment.
Our view again is that we must construct of design work, particularly for the people are going to be walking from a remote environment. There is a cadence with which they come back into an office. They have an opportunity to come together as a team builder culture learn new skills in a wait and that's again, that's a discussion that is very very relevant.
With different clients.
It will end up being different constructs on different archetypes, our job is to design those come up with those archetypes discussed with different clients frozen content, that's exactly what we're doing as we speak.
Understood very detail.
The other question I mean, you've kind of at this point halfway through the second quarter is there anything you're seeing in the environment in terms of how you and project flow is in terms of costs and such that would cause you to.
Say that debt.
The <unk> strength was kind of one off in nature.
I won't speak to anything mid mid quarter. So I think just the.
The commentary we've already provided on kind of why Q1 was stronger than how we're looking at the balance of the year. We think is appropriate given where we are right now.
And as we get through the second quarter will come back to you, but still it's still too early to kind of get anymore any level of color on the detail for Q2.
The balance of the year.
Understood.
And I think my strength and I think I've heard what Ed has already described in terms of.
Our strength.
On margins for example, in the first quarter and therefore, what does that mean for the yard.
We are going to be continuing to invest in sales and marketing and R&D is our revenue ramps to the yard and of course, we do we are already seeing travel come back in domestic U S.
Certain parts of domestic Europe.
Cost international travel between India, and the global markets is right now nothing.
And we can predict as to when that is going to come back, but some of that other travel is coming back on that that's all going to be factored into the overall margin of the company as we go forward into Q2 and beyond.
Thanks.
Thanks Ashwin.
As a reminder, ladies and gentlemen to ask a question. Please press Star then the number one on your telephone keypad again that is star one.
Your next question comes from the line of Keith Bachman from Bank of Montreal. Your line is open.
Hi, Thank you very much gentlemen, I wanted to ask two questions. The first one tiger on direct towards you on a truly about.
Growth and I wanted to get your views as you think about.
Net new bookings and you called out some interesting areas, but how do you think about the net net bookings contribution to growth.
Associated with existing clients versus new clients.
You seem to highlight to use your words kind of new partnerships with new clients.
Just wondering how you're thinking about that and really part b to the question is.
Understand there's probably some conservatism into the guidance.
How long do you think it takes.
Really generate into that durable.
Double digit constant.
Constant currency global client growth, you'll reach some of you know some of it youll use.
Reached two kind of Q4 this year you said.
Parents are a little bit easy, but but you don't want to talk about kind of building the pipeline and how you think about the durable double digit global client growth because youre getting some contribution this year also.
M&A, but so that's question one really around demand and then I had a follow up.
Yeah.
<unk> from your second question.
Keith.
As Ed said I think we've said this more than.
The last couple of quarters. He said this which is by the time, we get to the fourth quarter, we expect on global client growth rate to get back to double digit constant currency and we had indicated on again, we indicated at this time that it could be a bit sooner, but fourth quarter is when we expect it and when we say that we mean that.
Our expectation going forward from there is to come back with.
Long term trajectory that we've been calling on for quite some time of global client double digit growth and our view is that the last 18 months.
We increased our total addressable market increase that runway of opportunity to undertake that double digit global client top line growth and we feel very good about that because the number of new clients, who are wanting to have partnerships on the number of existing clients who are.
Our opening up many more services and connected buying centers in order to drive enterprise level transformation is just improved the total addressable market, which kind of debt relates back to the first question, which is our ratio of a typical yard where revenue growth is still materially contributor by.
On existing clients.
Because the definition of an existing client as you start a relationship and sometimes on relationship barring a few exceptions starts with.
Transformation services relationship they are advising applied.
Sure.
On implementing a quick payback engagement you are doing on analytics engagement that drives immediate value that on as you stopped doing that you're already in discussions about a larger relationship those take long to orchestrate and undertake.
And that's the journey that we've been on since for example, the fourth quarter. When we had very strong bookings and it takes time to ramp that up so which is why by the time they get to the fourth quarter, we get a double digit growth.
Okay that makes sense.
Mike Keith go ahead Keith.
If you got to add is the year over year comparisons may be a bit easier, but remember we did grow I think five or 6% last year that we weren't flat to down like many of our peers. So that comparison is a little bit it's coming off of growth, which I'll make sure you are.
No I know durable nature.
It's a very important point, Keith because we had a you know.
Pretty material growth in the context on what the world is going through on what our industrial a great tool in 2020, and therefore, our 2021 is in the backdrop of that growth.
We didn't have that significant a V in our in our growth trajectory between 19, 2020 one.
Fair enough. My second question is just a clarification tiger.
On your competitors are not true competitors, but the.
Cognizance emphasis on Tcs had pretty meaningful.
Increase in attrition on that not only from September to December, but even more so does December to the March quarter and a previous question you had talked about absenteeism I think everybody is experiencing that and perfectly understandable, but just to be clear it doesn't sound like you've actually had.
An increase in attrition and I just wanted to clarify that a and then B b.
B P. O traditionally has higher levels of tradition on some of the others areas of IP services. Just wanted to see if you had any comments or thoughts why it doesn't sound like you are having the same issues surrounding attrition that some of the traditional it service providers are experiencing thank you.
So keep our attrition has gone back up.
Between the fourth quarter.
On the first quarter, but that we had expected on its gone back up to tad below what it used to be pre pandemic.
Why why why would one have any other expectation. So so the reason we haven't called it out is because that is exactly what we expected we plan for it.
We know exactly where those attrition seem to be higher versus lower it seems to be following a pattern that we've seen for 10 plus years. So on and are on our way of addressing that is to manage the business.
Got attrition to make sure that our high performing talent.
The opportunities to do new work get certification gets new scaling.
Compensation promotions and that's exactly what we've been doing that attrition is still lower than what it used to be pre pandemic.
Is it higher than what it was in fourth quarter income a little and free so how would one expect Q1 attrition to be do we not hired in Q4.
Okay, Alright, many thanks, congratulations cheers. Thank you Keith Thanks Keith.
And there are no further questions over the phone line at this time on a lot.
Ill turn back the call over to Roger Sachs Sir.
Great. Thank you everybody for joining us today, and we look forward to speaking with you again next quarter.
This.
Today's conference call. Thank you for participating you may now disconnect.
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