Q2 2021 Genpact Ltd Earnings Call
Good day, ladies and gentlemen, and welcome to the 2021 second quarter of Genpact Limited earnings Conference call.
My name is Brandon and I will be of conference moderator for today at this time all participants are in a listen only mode.
We will conduct the question and answer session towards the end of this conference call.
This call is being recorded for replay for parts of the REIT.
So you have the calls will be archived and made available on the IR section of Genpact slip say aye.
I would now like to turn the call over to Roger Sachs Head of Investor Relations for Genpact. Please go ahead.
Thank you Brenda and good afternoon, everybody and welcome to Genpact second quarter call to discuss our results for the period ended June 30 of 2021.
We hope you 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 of Tiger Thiago Rosin now the president and CEO.
It's Patrick our outgoing Chief Financial Officer, and Mike Wiener, who is joining us as our new Chief Financial officer, succeeding Ed who will be transitioning to another leadership role within Genpact.
The agenda will be as follows Tiger will provide an overview of our results and update on our strategic initiatives. Ed will then walk you through your walk on units of performance for the quarter as well, let's provide some thoughts on our outlook for 2021.
Michael will then come back for some closing comments and then we'll take your questions.
The call will last about an hour.
Some of the matters, we will discuss on today's call are forward looking and the babic 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 the lead to provide additional information to enhance the understanding of the weight management view of the operating performance of our business you can find the reconciliation of these measures to GAAP in today's earnings release posted for 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 for our second quarter 2021earnings call.
On a second quarter performance saw global clients revenue returned to double digit growth earlier than we anticipated.
Driven by accelerated momentum in transformation service, particularly in analytics on the strength of out of intelligent operations business, we exceeded all expectations on the top line bottom line on cash flow.
Our strategic investments in services, such as supply chain sales and commercial and financial crimes on risk are proving to be extremely relevant for our clients opening many new opportunities to create value in the areas beyond just cost and productivity.
In the second quarter 2021 we delivered total revenue of $988 million up 7% on a constant currency basis global clients revenue of $893 million up 11% on a constant currency basis, adjusted operating income margin of 17, 9% expanding of heart.
The 70 basis points year over year, and adjusted diluted earnings per share of 66 cents up 27% Euro of yeah.
Before reviewing the quarter in more detail I want to welcome Mike Weiner, who has John Genpact as our new CFO effective August 10th.
Seeding of Fitzpatrick, who will be staying on in the market facing client advisory there on.
Mike comes to us with strong public company CFO experience on brings an extensive background in the finance function walking in many large global corporations.
We expect mic will make a significant contribution to the continued success of the company as we execute on our strategic growth agenda.
Really excited to have him on board, Mike is with us on the call today and will make a few comments later on.
During the second wave of COVID-19 in India, a few months back we weren't able to adapt and maintain on delivery of services to clients, resulting in no material impact to our business.
For the only possible because of the unwavering support of our clients together with a geographically distributed operations across India.
<unk> of global delivery footprint, and the ability to quickly redeploy talent across areas of the power business.
I'm happy to report that new cases, among our India based team have significantly declined and we are aggressively driving a vaccination campaign in partnership with local hospitals with vaccination clinics set up at many of our operating centers to date more than 60 per cent of R&D of workforce has at least 1 dose of the vaccine.
As we move into the second half of the yard the overall demand environment remains healthy as companies pursue of digital transformations.
The pipeline continues to include an increasing mix of new logos.
Global clients revenue returned to double digit growth on the corner.
This impressive performance was seen across most of our chosen industry verticals, including consumer goods on retail life Sciences, and health care High Tech and manufacturing on Zalviso.
We had expected banking on top of the market was impacted by the restructured relationship with 1 of our clients that resize its asset management business.
However, we saw on expansion of our banking a drop in the market pipeline supported by opportunities and financial crimes on risk services.
The transformation services accounted for 35 per cent of our global clients revenue in the quarter on grew at 30% plus.
The contribution from the inquiry of acquisition.
A good portion of our transformation services engagements continue to be an annuity based.
Transformation services continues to be powered by our analytics business that has grown at an increasing range in each of the past 3 years the.
The combination of robust demand and our strategic investments have led to the analytics, becoming the largest component of our transformation of this business. While we continue to also grow nicely across consulting on digital.
Let me share some examples of our transmission service engagements on the value they are driving for our clients.
For a global CPG company, changing that operating model and redesigning the user experience for the sales teams to significantly free up debt capacity and drive higher growth and customer satisfaction.
For an insurance company using our AI based cloud workflow solution Cora.
The orchestrate underwriting processes across the clients share, Microsoft Azure environment, leading to significantly foster of underwriting times with better premium pricing lowered risk on higher profitability.
For the high end consumer electronics company, leveraging our industry expertise and data AI and machine learning based analytics.
The improved demand and supply forecast accuracy.
Integrating these forecast with the planning on production processes.
I'll turn on or 20% of improvement in order fulfillment.
<unk> 40 per cent reduction in planning time on a 15% lower inventory.
On a global bank, bringing the data specialists and subject matter experts together to significantly improve the data governance, leading to better timeliness and accuracy of their regulatory reporting.
We have consistently seen that starting a new client relationship with transformation services Leach. The subsequent dropped over the past 18 months, 60% of new accounts that started with the Standalone transformation services engagement led to a follow on bookings.
Including longer term on new treaties. Additionally.
Additionally, many of these engagements provide the opportunity to leverage new and more profitable commercial models beyond traditional FTE pricing.
The share of our total revenue with alternative commercial models has been consistently increasing.
The markedly they're not free competitive differentiators that are helping us win.
First our ability to orchestrate data on analytics in the cloud as its becoming core to every clients transformation journey.
Our deep expertise new.
Linking services, such as finance and accounting to supply chain, all financial crimes on risks to banking operations, our supply chain to sales and commercial operations.
And finally, our focus on driving value for clients beyond just Boston productivity, such as increased growth lower receivables and inventory are lower losses on shrunk each case Lincoln client outcomes to commercial constructs.
On a portfolio of services investments in data and profit models on digital expertise are proving to be incredibly relevant for clients in this business environment.
For specific areas that we are seeing strong momentum include soon.
Sales in commercial supply chain management financial crimes, and risk and financial planning and analysis.
That's the expand on each of these for.
Lastly, in our sales and commercial service line, bringing together cloud based data and analytics and operations insights to drive revenue growth for our clients for an example, helping all of Hi Tech clients sales teams focus on best opportunities to pursue with small and medium businesses.
Second in supply chain services, given the disruption in the semiconductor industry, helping improve demand and supply planning by leveraging data and analytics for many integrated device manufacturing companies foundries and tier 1 chip manufacturers.
So hard on.
Digital commerce becomes pervasive in the industry agnostic, we see an increased need for clients to address fraud on financial crimes.
Our teams of industry experts on data scientists are developing and implementing omnicell solutions on the cloud in the areas of fraud and anti money laundering, knowing our customer on transaction monitoring and finally.
DNA is an area of ripe for disruption and we are seeing significant opportunities to leverage our deep industry expertise strength.
The financial accounting and use of data and analytics in the cloud to provide every child forecasting on decision, making capabilities for our clients I think the cross customer supply chain marketing and finance data.
All of these areas highlight anything that drives growth for our clients represents high growth opportunities for us.
For example, we recently announced a new strategic relationship with Coca Cola beverages Africa to help them drive competitive growth.
Leveraging our deep process and domain depth and CPG on beverages, we are establishing a multifunction digitally enabled shared services organization to centralize on automate finance procurement data management as well as other functions, creating intelligent operations that improve customer service and allow them to come.
Centric on their growth initiatives.
We've always believed our people are our biggest competitive advantage. Therefore, attracting building on retaining talent continues to be a top priority for us in the quarter, we increased our net global employee base by more than 5000 people.
All of the yards, we have earned the reputation as an organization known for building great careers are investments in the learning and development of our employees allow our talent to build critical new skills needed for the future.
We leverage our scalable online learning platform genome to Reskill our work force.
Genome in combination with our redeployment platform talent match has been on enormous success on during the quarter, we redeployed for thousand team members into new roles, providing them with new career opportunities.
As we discussed last quarter, we have a unique certification program and data and analytics that enables our employees to generate critical insights from vast operating data effects all of it.
Dramatically, allowing us to build unique data models and specific domain areas that bring tremendous client value.
60% of our global workforce is currently enrolled in this program with about 10000 fully trained and cash it by the end of second quarter.
Our strong second quarter results true that the powerful combination of deep domain and process expertise coupled with our strategic investments in digital analytics and experience provides us with the competitive differentiation.
We believe transformation services engagements drive better long term partnerships with clients with better on CX silk connects creating box 2 different buying centers.
This has led to more than half of our bookings to continue being driven by sole source deals.
With our expanding addressable market, we are bringing more of transformation services and the intelligent operations solutions to our clients setting the stage to continue our long term journey of delivering on your double digit to low teens global clients growth and deliberate adjusted operating margin expansion.
Based on our year to date the hormones, we're now raising our 2021 full year topline adjusted operating income margin and adjusted diluted EPS outlook.
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 second quarter results and provide the latest thinking regarding our full year 2021 financial outlook.
Total revenue was $988 million up 10% year over year for 7% on a constant currency basis.
As we saw in the first quarter are better than expected performance was driven by stronger than anticipated global client growth, particularly in analytics.
Global client revenue, which represents 90% of total revenue increased 14% year over year or 11% on a constant currency basis.
This growth includes an approximate 1 point contribution for revenue related to certain divested GE businesses that we began including in our global client portfolio as of January 1.2021.
As Tiger mentioned earlier, we returned to double digit global client topline growth ahead of our prior expectations.
This was largely driven by the strong performance we delivered in transformation services revenue led once again by strong analytics analytics growth.
During the quarter, we continued to expand the size of our global client relationships. For example, during the 12 month period in the June 32021, we grew the number of global client relationships with annual revenue of over 5 billion for 132 to 136.
This included of clients with more than $25 million of annual revenue growing from 23 to 26.
<unk> revenue declined 19% year over year, driven by our delivery of committed productivity and the overall macroeconomic impact on GE businesses.
Excluding the effect of the revenue related to divested businesses I mentioned earlier <unk> revenue would have declined 10% during the quarter in line with our expectations.
Adjusted operating income margin was 17, 9% up 170 basis points from the same period last year.
The year over year improvement was driven by gross margin expansion operating leverage and continued lower overall operating expenses, including lower travel related expenses.
Gross margin in the quarter was 35, 9% compared to 34% during the same period last year.
This 190 basis point expansion was largely due to a higher mix of transportation services, particularly the analytics and improved utilization, partially offset the higher expenses associated with medical costs. They were elevated in part due to COVID-19.
It should also be noted that last year's gross margin was lower than expected due to the negative impact on client billings related to the shift to remote delivery at the onset of the pandemic.
SG&A expenses as a percentage of revenue was 27% in line with last year's level.
We continue to expect to increase our investments in sales and marketing and research and development during the second half of the year.
Adjusted EPS was <unk> 66 up 27% year over year compared to <unk> 52 in 2020.
This 14th net increase was primarily driven by higher operating income of 13 sets.
For measurement gain of true <unk>.
And the impact of the lower share count of 1 set of partially offset the higher taxes of <unk>.
Our effective tax rate was 24, 2% compared to 21, 5% last year, largely driven by a more favorable mix of jurisdictional income last year and lower tax incentives in 2021 in.
In line with our expectations.
Turning to our cash flows and balance sheet.
During the second quarter, we generated $161 million of cash from operations compared to $192 million during the same period last year the.
The decrease is largely attributable to a higher investment in working capital, reflecting higher revenue growth for the quarter.
To the second quarter of last year on our topline performance was impacted by COVID-19.
Our day sales outstanding improved year over year to 83 days compared to 87 days last year, largely driven by a reduction of billing cycle times and improved collection timing.
Cash and cash equivalents totaled $753 million compared to $644 million at the end of the first quarter of 2021.
Our net debt to EBITDA ratio for the last 4 rolling quarters was 1.4 times.
But the undrawn debt capacity of approximately 500 million net.
<unk> cash balance as well.
Continue to have ample liquidity to pursue growth opportunities and execute on our capital allocation strategy.
We continue to have a solid M&A pipeline and we remain vigilant and searching for companies that can strengthen our capabilities and our true chosen service lines.
As we have said in the past to the extent of capital is available we will continue to repurchase our shares, particularly when the valuation is attractive in comparison to our view of the intrinsic value of the firm.
During the quarter, we repurchased approximately 300000 shares for a total cost of $13 million for an average price per share of $44 of 15 cents.
We also paid out $20 million in the form of a regular quarterly dividend cash dividend of $10.75 per share.
Since we initiated our share buyback program in 2015, we've reduced our net of outstanding shares by approximately 20%.
Over this period of me repurchased 44 million shares at an average price of $28 of 38 cents per share for a total of $1.3 billion.
To date, we estimate the annual return on these purchases to date is approximately 16%.
At the end of the second quarter, we of approximately $490 million of authorized capacity remaining under our share repurchase program.
Capital expenditures as a percentage of revenue was less than 1% during the second quarter, driven primarily by lower infrastructure spending due to our employees continuing to work remotely.
We expect to increase investments during the second half of the year related to the ramp of deals signed late last year.
And as our global work force slowly begin to return to the office.
Given the lower first half spending we now expect capital expenditures as a percentage of revenue for the full year to be towards the lower end of our prior outlook of 2%. The 2.5 per cent of revenue.
Let me now turn to an update on our full year outlook.
With our strong first half performance and better visibility for the full year. We now expect total revenues to be between $3.96 billion and 4 billion representing year over year constant currency growth of 5 and half the 6% compared to our prior outlook of 5 to 6.5%.
For global clients, we now expect revenue growth to be in the range of 10, 5 to 11, a M or 9% to 10% on a constant currency basis compared to our prior outlook of 9% to 11% for 8% to 10% on a constant currency basis.
For the second half of the year, we expect global client revenue to continue to grow at a single digit rate sequentially. During both the third and fourth quarters with year over year growth in those quarters remaining at a low double digit rate.
There is no change to our prior GE for your outlook of an approximately 20% year over year decline.
Excluding the effect of the approximately $40 million in revenue related to divested businesses GE full year revenue would be expected to decline of 10% to 12%.
Taking into account our adjusted operating income margin performance in the first half of the year. We are expanding our adjusted operating income margin outlook for the full year 2 of approximately 16, 5% up from our prior expectation of approximately 16%.
We expect our adjusted operating income margin during the second half of the year will be lower relative to the first half as you ramp investments in sales and marketing and research and development to support our long term growth initiatives absorbed transition costs related to deal ramps and increased travel related activity.
We also expect on gross margin to improve by 70 to 75 basis points year over year versus our prior expectation of a 50 basis point improvement.
Given this updated outlook. We are now estimating adjusted earnings per share for the full year 2021 to be between $2.36, and $2.39 sets up 9 cents from our prior estimate of $2.27 to $2.30.
Due to expected higher gross and adjusted operating income margins and 1 set related to the FX Remeasurement gains we recorded this quarter.
We have assumed the weighted average share count of $193 million and our EPS estimate for the year.
Additionally, given our stronger than expected year to date performance. We are now forecasting our full year operating cash flow to be at least $500 million versus our prior $450 million to $500 million range.
When combined with the new lower anticipated level of capital expenditures for the year. We now expect free cash flow of approximately 1 point to the 1.3 times net income above our historical level of around 1 to 1 ratio.
Let me turn the call back over the Tiger.
Thank you Ed.
Before I give my closing remarks.
I'd like to once again welcome Mike Weiner to our team on I'll handle the call to him to make a few brief comments Mike.
Mike.
Thank you Tiger, having been on the other side of digital transformation journeys in the other businesses out of it.
I'm excited to now be on the side, helping a wide range of clients undertake those journeys I'm also thrilled to join the Genpact team and then become part of the company with excellent growth potential that owns a leading position in a large underpenetrated market.
Twos by the energy level I've seen from the global team and I'm looking forward of partnering with everyone. As we move forward on executing on our strategic initiatives to drive value for our stakeholders.
I'm also looking forward to speaking with and hopefully meeting with you all in person in the near term.
Thank you Tiger.
Thank you Mike we all look forward to your contributions in the months and years ahead.
Our strong performance on the first half of 2021 reflects all the agility on culture of embracing change, which continually allows us to move more rapidly to meet the evolving needs of our clients.
The Bill clients revenue has recovered the double digit growth and we feel good about our positioning in the market and the opportunities ahead for both the balance of this year and over the medium and long term.
I'm very pleased to share that this past week, we published on 2020 sustainability report, which is available on our website improving our disclosure about moving from a 1 for 2 years do on annual reporting cadence.
This increase frequency is aligned with our unwavering commitment to a lot of initiatives around diversity equity and inclusion of climate impact governance and community support.
Help us achieve our long term financial goals.
I wanted to point out of few metrics for demonstrating our focus glue.
Global gender diversity of 41%.
The 28% reduction in scope, 1 and scope 2 emissions since 2016.
Learning a completed by our employees in 2020 exceeding $10 million and on a global corporate social responsibility initiatives impacted nearly 25 million lives.
We were also recently named for the Forbes Best employers for women 2021 list, reflecting our effort in our pursuit of an inclusive agenda of equitable roughness of.
Additionally, we were named to fast company's hundred best workplaces for innovators.
On a pharmacovigilance team was named to their innovative team of the year list for the COVID-19 work, we did with the UK medicines on healthcare products regulatory agency.
Before closing.
I want to thank Ed for cash.
Partnering with me is our CFO over these last 7 years during which he has successfully met the finance organization to support our profitable growth strategy and along the way of achieved many milestones.
We are very fortunate to have edge day on to work closely with Mike M. <unk>.
For a seamless transition on to take on his new client advisory role, which even leverages. The extensive expertise as the CFO to benefit many of our strategic clients with that let me turn on the call back to Roger.
Thank you Tiger, we'd now like to open up our call for your questions. Guaino can you. Please provide the instructions.
Yes, so as a reminder to ask the question. He will lead the press star 1 on your telephone to withdraw your question press the turnkey and please standby, while we compile the Q&A last day.
Yes first question is from Tien Tsin Huang of Jpmorgan. Your line is now open.
Thank you all the best for you Ed in the.
And your next role I'm sure there'll be I'm sure it'll be fun, so I wont, but I can't let you go without asking the margin question just for good times Jake.
Just on the on the gross margin.
Youre, taking it up a little bit here.
I know you're running a higher utilization I'm sure of transformation mix.
It is helping as well so just kind of get a sense of what's structural here debt.
That can sustain.
Of course is what might be.
Temporary error here.
As we look at the short in the midterm.
Yes year to date, we're actually a little better than the 70, 75%. Since then as you've seen in the numbers. We did have a little bit of an impact on gross margin this quarter related to some of the health care costs that were in part due to the COVID-19.
The pandemic.
<unk> been hitting us globally.
So I think part of that year to date, we're a little bit better we feel like we're not going to plan on that stay at that elevated level for the rest of the year, but we feel like at this point the 50 basis points, we ought to be able to hit that in more of and that's why we raised it by 70 to 75 basis point year over year improvement.
Some of the benefit that we also saw in transformation services, particularly with the analytics continued in.
In the quarter, so of the drop wasn't really necessarily related to that mix, which we talked about on the first quarter that was still pretty good.
The debt this quarter is for more due to the health care related costs. So feel good about that but that mix. We're not we're not expecting that the continue for the balance of the year for that forecasting that.
Seeing good progress, but not an M. T S. But also on gross margins in the intelligent operations as well as our initiatives to drive productivity for our clients.
Has the benefit of loan to them as well helps us improve our gross margin so all of that.
On being the case, we felt that the improvement that we'll see for the balance of the year should still be an improvement, but maybe not quite as good as what we saw on the first half of to see how it plays out tiger anything else to add debt.
No I think I think you covered it all of them.
On antigen the only thing I would say is clearly the buoyancy that we've seen in for 2 consecutive years in the analytics business is playing out on those are all high value added services on the other thing that I would say is as we continue to drive better than company average growth of global client growth in AR.
Things like F B and a supply chain financial crime sales and commercial these are all as I said, our services that pivot to driving value beyond the cost and productivity for our clients and as we do dock on connect those commercials 2 of that value being driven I I can see us undertake.
Long term journey on gross margins.
No that's great that's great to hear if you don't mind, just 1 quick Big picture question for you Tiger just you know we.
Going through this earning season demand seems to be quite good.
A lot of different places of course on the digital side.
How would you characterize the demand environment. If you were to compare it to past cycles sort of tricky coming out of the pandemic here, but at the same time.
The digital transformation part of it is very very clear so how would you compare it or maybe characterize it the past cycles, I mean, and how much longevity do you see on it.
Clearly the engine, we definitely see longevity of being.
Last thing for quite some time, because this is pretty secular in terms of the desire to embrace digital in order to unlock.
Really 2 things.
Cost of an automation on all of that is of given but the 2 things that people are now trying to unlock it.
His experience and.
The insights in order to take decisions and that's why analytics on all of that of growth. So if you ask me the big difference in what we're seeing now was any cycles of the past is growth driven agendas.
On the second thing that I would say, it's very pervasive.
And the totality of many more new clients, new logos, who have not done this before.
And that does pose 1 challenge, which we've talked about in.
In the Boston as well, which is those new relationships will not done it before on their complex large deals.
Sometimes take longer to close.
For those ramps you know it does particularly the lumpy ideals does create you know a margin you know dragged. The then you've got to work on off as you get into the next year, but you know you talked with many of when you talk longer cycles of 12.18 months you know those tend to even out on that's Y V T.
<unk> that we are on the second of gross margin change <unk>, Okay [laughter].
<unk> at the case is you've seen those do it was probably 2 or 3 years ago, we had a massive bookings of the <unk>, how many Lord show the 3 or 4 really big dark feels and we were able to manage manage that without having to take more than the backwards. We still progressed as we had on our 10 of 20 basis points operating margin improvement drive that we've been all of that so I think given the large.
<unk> the meaningful of out of leverage that we're able to bring with this business year to year, we've been able to manage that if we if we have so many large deals that we have to take it back we'd certainly update you, but we haven't had to do that so far and I suspect that will be the case. If it is it it probably means of growth of might be taken to the next level because of this you got the the large deals, but I I think we'd be.
Able to manage it even at a pretty crazy year, 2 or 3 years back.
Okay, great and if I could just ask for my follow up before Rogers throws me off is tiger on the on the supply side are are you seen constraints the.
Or is this just sales momentum like maybe kind of go through.
What's the what's driving all of this.
Yeah, I would say a day of that.
You know 1 quarter is not something that we would hang our hat on just on the nature of our business at the long cycle business, you're kind of it takes time to close the deal. It takes time to ramp of deal. So just looking at 1 quarter, sometimes it's a little bit of timing on that there's nothing unique that I would call out on the quarter that is so special is that.
You know that I would call out of.
And then the transformation services very good within that analytics was was very very good 1 of the best analytics quarters, we've ever had 1 of the best analytics half years, we've ever had at the same time consulting and digital also played really well. The other thing that played out was on.
They are seeing the consistently every.
Every time, we start with transformation services. It leads to follow on work and then subsequently many of them do convert to intelligent operations.
As long the annuity deal. So I just think our focused investments the front end sales team the transmission services team, it's all come together nicely.
And we hope to continue now.
Single out the fact that it is the best quarter in 2 years and say does that mean, it's a new it's a new benchmark I wouldnt necessarily go there because of just 1 quarter.
Gotcha, Okay. Thanks.
The second 1 just on on margins of at done such a nice job for many years in a row kind of 10 to 20 bps a year and this year is going to be well above that you know do we think of kind of the the second half being a little more of the sustainable number to grow off of or the full year number to grow off of like I guess I'm. Just wondering are we running pretty high.
For this year that next year, just assume it's down a little bit just as we normalize the attrition and the other stuff or how should we think of that.
Yes, David.
As we look at the it's really for the first half results really really terrific right over 17% margin. That's wonderful obviously the guidance for gave for the second half of the year.
The contemplates us wrapping up the investments right, where maybe we're a little behind on some of the investments and the plant is the absolutely make those investments so that we could drive that sustainable growth that tiger talked about right in the double digit plus G. C growth is what we're looking to sustain for over the medium and long term right not just the 1 year's day. So I think for from that perspective, we are going on.
The investments, but probably the normalized basis Tiger I've been pretty clear that this is kind of the new baseline right around 60 of the half is where the.
Outlook, we've given for the full year as our baseline.
Of that we would debt we would use to set we're not going to talk about 2022, but we're also not going to tell you of our new baselines.
15 point, whatever the second half of the year has to be to get the 65.65 is where we where we expect our baseline.
To make it quick.
Yeah, and David to think about when we began the year, we said it.
Expect us to invest in our sales.
Sales and sales and marketing on R&D and expect that to happen through the on the reality is that.
In our business when you ramp costs up the.
The impact of that is most felt towards the latter part of the year and on top of that if you think about what happened in the second quarter around COVID-19 in India that created challenges and our ability to ramp some of that sales and marketing on R&D cost now we're going to continue that journey as we continue the second half of the year on.
And therefore on the right way to think about it as the full year margin.
On the module to work off rather than the second half margin.
But the second half margin is because of the first half margin a little bit of some of that sales and marketing on R&D of shifting.
Gotcha, Thanks, guys nice job.
Thank you very much.
Thanks, Dave.
Your next question is for them.
The only Nolan and it's really of Blair your.
Your line is now open.
Hey, this is Ted on for Maggie.
Tiger you mentioned at the beginning of the call. The the pipeline has increased the of new logos. So in terms of the composition of the pipeline. What proportion are first time, outsourcers and how does that compare to prior to the pandemic or even just kind of over the last couple of years.
Yeah, so sort of I don't think we have those specific numbers all I can say is that.
The last couple of quarters, we've called out that there are many nor new logo first time, outsourcers, who have jumped into the free.
And.
In my prepared remarks, what I was trying to say is the pipeline continues to show of dock and it continues to be the case again I think it's a reflection of debt is a rising tide that is lifting all the companies in all industries to really say, we need to change to grab the opportunity to transform to leverage new technologies.
To leverage data on analytics.
To drive.
As well as cost and productivity et cetera to actually feel that growth. So I wouldn't call out anything different this quarter versus the last couple of quarters. It's just a continuation of what I've been saying which is.
As compared to 5 years back 3 years back the number of first time outsourcers as more than before.
Okay. Thanks, that's helpful and then on 1 for follow up on wanted to ask about M&A.
Are there are there certain capabilities that you're targeting in terms of just overall offerings that you'd like to add to the services portfolio.
Just building off of the last the M&A question, because that's the for areas you highlighted it seems that each of them has benefited from the good size acquisition, you did whether it's number of carriers price point or in Peru.
Curious if that informs your view on future M&A.
In terms of do you feel the need to perhaps.
Keep adding service lines double down on what you how.
Because I would imagine that there is.
Plenty to be done for you and indeed the areas.
Yeah.
The to consider something like supply chain give you.
And given what's going on in the World. That's a huge opportunity can you talk of a little bit about about that when you, perhaps even consider scaling of M&A.
As the driver of growth.
Yeah. So ashwin, great question, and I want to start by saying our first step in those journeys was a strategic decision that supply chain, our financial crimes or data engineering et cetera are the right spaces for us at the right time.
To go into to expand to build capabilities and so on so so the first step in that journey is the is a choice.
That has nothing to do with M&A, it's got to do with rich areas.
Do we have the best opportunity to to grow on to add value to clients and to expand on to create a differentiated value proposition and then the decision gets too. Okay. That's what we want to do then which ones do we build our own capabilities.
Which ones do we partner.
On which capabilities to actually acquire so you then have 3 choices obviously acquisitions.
It's no surprise, it's probably the most.
Capital intensive obviously at the same time it actually gets you to the races Foster.
And on all of them trying to say is that.
We did not say now that you've got per coffee supply chain will be of big growth vector. We said supply chain is going to be 1 of our chosen areas. Therefore, let's look for something to feel of that and we know exactly what we wanted it and then we found the coffee and that's being such a great home run.
So on.
The choice the areas that we've had through our strategy exercise seem to have.
Stood the test.
Getting into the pandemic on through the pandemic all of the choices that are right out of the choices that we made well before the pandemic on you rightly pointed on for example on supply chain.
M is such a hot topic at the moment on is undergoing so much change, but there is so much more to do all of their other new service lines that we should look at we typically take a 1 for you on exercise I'd want New service lines to look at not every year or do we need to ask of this line. If we have enough runway in our existing service lines and we feel very good about our existing for.
Of this line.
Got it got it now that city or the thing is we thank you for that.
The other thing you mentioned.
I think you said more first time outsourcers than ever before and I wanted to ask as you ramp these new.
Find.
The seek out any change.
Change in contract terms.
From from your existing set of clients of the con.
Clients different.
Did the ramp faster of these do they have a much higher proportion of of shorter term analytics type work associated with the the attach on that what's what's different about the first time outsourcers and it'll be 1 of the sneaking a quick side question to Ed with me.
Many of the other income book worth it.
Yeah. So let me let me answer the first 1 and then I'll turn it over to Ed.
I think the advantage of that.
The people who are coming in now have clearly ashwin is that they can leapfrog.
They can leapfrog on the backs of other people who will undertake on these journeys learned the lessons et cetera.
And they can also leapfrog using new technologies that can be leveraged so all of that is happening.
The fact that these people are doing it now.
Means that they can use new technology of straight out of the gate and that's exactly 1 of our solution set.
Ah.
We take for the market and actually it's 1 of the attractions for a number of them for jumping.
A number of them do stock with not necessarily operations outsourcing, but often start with a change agenda that drive change in their operations that drives the analytical insights with their data that establishes for example, the ability to pull data from different sister.
Use AI and machine learning to clean that up moved out to the cloud big data of motors on the cloud and for example have better demand and supply of forecasting in order to drive better inventory in all of the examples that I just gave on the call.
Subsequent to the leading too.
Conversation that kind of actually why don't you guys manage the supply chain for me. So so you know your.
Your question.
More learnings on the back of which these these discussions happen therefore.
M speed is often once the contract is signed speeders actually often faster.
M. Because you can write off the learnings of others.
So I don't know of that you know.
Attempted to answer part of your question, but what I would say all of those play out in the is now having said all of that the reality is because they are.
Coming here for the first time.
It takes longer sometimes to close these it takes longer to get to a final contract.
Then starting the journey.
The solution itself.
The contract often has much more value component attached to it alternative commercial models, where you know if the risk sharing on the reward sharing on a gain share between us and the clients all of that is much more in the journeys.
Understood and do you want to you want to take the second yeah.
The other income was the combination of items.
All of positive this quarter don't always positive, but we typically have sublease income in there that's about 1 million bucks on a run rate basis each quarter.
We also had the deferred compensation plan the return on the portfolio goes there and if that has actually been positive has been negative for prior periods, but that's a couple of million Bucks.
Then.
We have.
And R&D spend around Resourcing has to be you know pushed into the end of the second quarter on into the third and fourth quarter. So that was much more of a timing of hiring and on boarding on that explains just got on that and that was the license plate up line was started.
The lawyer and we couldn't execute the that to the COVID-19 situation that'd be dealt with in India other than that there's nothing as in most of it is in the nature of adding capabilities.
Those capabilities end up there for getting a line to customers getting a line to specific services moving out some of those services. The model of that I talked about the data models and that's on the R&D side of.
You know of bringing those seems to get the building those data models, creating the benchmarks benchmark for the big thing in a number of the services that you have and that's what clients want from us and that's 1 of the reasons actually we ended up winning which of the benchmark that we have it on some of the course of his offerings that we have and you wanted to add to what I said.
Yeah. It was yeah, we talked about it as well.
The first half of it we'd assume that would wrap a bit quicker. So it is of it is a little bit of of of ketchup. There if you're all of the second half price. So and then as a result of obviously looking at how.
How much of that goes into the the end of the following year, obviously very conscious of run right. So the end of like so it'll be so combination of of of resources as well as you know other spent of that's outside of the the outside of that in people.
Okay that makes sense and then you recently announced plans to expand operations in Germany, I think the local clients curious how fast you plan to scale of that region and also of you considering any potential new geographies the break into.
No I think Germany has been on the cards for quite some time, Brian on I mean, it's no surprise, it's 1 of the largest economies of the word we now have capabilities.
True supply chain.
<unk>, the Maccabi acquisition, which has a strong presence in Munich in Germany with a set of gentlemen, Kline I think bringing all of that together has been culmination of work that'd be done actually over the last 12.15 months between front end theme on strategy team.
Transformation sounds the steam on I'll capability teams.
And we now have the team in place we are in the process of hiring a litre of et cetera. So we feel good that this is a good time to actually expand into more clients that have a significant presence on headquarters in Germany on that was the plan and we've done that for example of Japan.
For many 2 great success, and that's 1 of your trying to replicate of Germany.
Okay sounds good and good luck the on the sales by phone.
[laughter] good.
Okay.
Your next question is for my M tendon of Needham here line this little open.
Hey, good evening guys of sexually cow Peterson on for my own. Thanks for taking the questions. Just wanted to touch on you know the demand environments typically kind of what you guys are seeing in different vertical of <unk>, Oh are there any vertical or jumping out of <unk> really kind of being fast adopters for you guys. I know you mentioned, there's some restructuring.
<unk> with a large asset management client how is like demanding the F. S I outside of that client right now.
Yeah, well, it's out of the applied actually demand as good as I mentioned in my prepared remarks, if you take that particular book.
Find out of the equation pipelines groaned ready nicely.
And 1 of the Big drive is not the only drive on the is the whole set of actual crimes risks K Y C. M. L that whole ecosystem, we've got actually very good traction with syntax I've day scale and Kelly 1 of the big areas when day scale that day need happen is the same area, which is.
Can I ask for crimes risk et cetera, and then when you see the intersection of online marketing and E Commerce and the attraction that that's getting in the marketplace. The connection of that too payment black forms on the requirement of those people to bird similar financial problems of this kind of capable of.
Entities and bring that to bear I think all of those are becoming big dry was off our of on growth engine or parts of the fact that almost every bank on Earth is trying to figure out a way to make themselves more digital and that's the other traction degree of getting as Bang.
More and more big on digital not just on the front end, but connecting that the the middle of on back and I think we I think really good traction in customer service and portfolio management and collections and we have very good capabilities now the red taken for them and solutions that incorporate a I base.
Machine learning based chat interactions omnichannel interactions and all of that is helping fill up the banking pipeline.
Got it that's really helpful. And then just want a quick follow up with regard for like the Delta variant and you know some of those concerns. It seems like you guys definitely of the the delivery side of of the house in order to be able to kind of withstand any of this but have you guys noticed any change in any of the pace of current discussions or <unk>.
<unk> sentiment or really anything on on the other side of the equation given like some of the Covid case counts in recent weeks.
No nothing that I would call out the I mean, obviously I specific area is go back into the lock down. An example would be Australia, when Australia went back into the lock down the ability for our teams to interact with our clients in Australia, which had opened up very nicely.
I could go back to the boat.
And you know and all of those situations the decisions et cetera, very local if you know look at the U S. All of the U K, it's very clear that clients meetings I'm beginning to pick up you know people out of our meeting each other in a kind of situation.
But it's not the same as it was in the free pandemic thing, it's not large groups of people landing up for fries meetings in offices that are for et cetera. It's very measured it's very slow are operating teams continue to be the most passed in most parts of the world other than other than China, and a few thousand people in Philippines still on.
Operating and or the board environment on <unk> all of those places get to the point, where where the the judge on married on 1 of them. A variant on then vaccinations I'll get to the point of being really safe to get back to looking in much more of a hybrid mode.
Got it that's really helpful color. Thanks, Gus <unk> the best of luck of it.
Thank you.
Cute.
Your next question in his room, Brian Keene, that's the only Kid Bank. Your line is now open.
Hi, guys I know, we're running long years. So let me just ask 1 quick 1 tiger when you when you look at the conversion rate of the pipeline of.
You know how do you how do you measure how're you guys are doing the first the market I'm, just thinking about market share gains because everybody's doing well on I T services talking about digital on analytics, and that's doing well across the board. How do you know if if you guys are getting your fair share.
Target clients on existing clients all of US all win rate constant on a on steady and what's the aging of our pipeline and the other kind of metrics that we look at unfortunately, there's no reported they can look at it and say the sort of on exact market share.
In our specific services in a specific vertical.
And is there room for that win rate to go up in your eyes Tiger that you that you're sure you're getting.
So we have a we have a pretty good win rate are you now in a in many of the focus areas that we have I would say the.
The bigger the opportunity continues to be how do we open new client conversations how do we expand the buying centers how do we connect the dots between the various services that I talked about this at some of the best value of these days gets created when you connect those service lines of supply chain on finance and when data crosses all of them.
On some of the best value gets created for clients. So it's really dark versus win rate I think we have a pretty good win rates in most of these competitive situations.
Got it thanks for taking the questions.
Thank you.
Right.
And no further questions I would like to turn the call over to do the percentage for additional remarks.
Thank you everybody for joining us today and as always look forward to speaking with you next quarter. Thanks again.
This concludes today's conference call. Thank you for participating you may now disconnect.
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