Q4 2021 Genpact Ltd Earnings Call
Yeah.
Good day, ladies and gentlemen, welcome to the 2021 fourth quarter Genpact Limited earnings Conference call. My name is Catherine and I'll be your conference moderator for today. At this time all participants are in a listen-only mode. We will conduct a question and answer session towards the end of this call.
As a reminder, this call's being recorded for replay purposes. The replay of the call will be archived and made available on the IR section of Genpact's website, I would now like to turn the call over to Roger Sachs head of Investor Relations at Genpact. Please proceed.
Thank you Catherine and good morning, everyone and welcome to our earnings call to discuss results for the fourth quarter and full-year ended December 31, 2021. We hope you had a chance to do you have our earnings release, which was posted to the IR section of our website Genpact.com.
Speakers on today's call are Tiger Tyagarajan, our president and CEO and Mike Weiner, Our Chief Financial Officer.
Today's agenda will be as follows.
Tiger will provide an overview of our results and an update on our strategic initiatives. Mike will then walk you through our financial performance in greater detail and provide our outlook for 2022. Tiger will then come back with some closing comments and then we'll take your questions. We expect our call to last roughly an hour.
Some of the matters, we will discuss in today's call are forward-looking and develop a number of risks uncertainties and other factors that could cause actual results to differ materially from those in such forward-looking statements. These 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. And with that, let me turn the call over to Tiger.
Yeah.
Thank you Roger good afternoon, everyone, and thank you for joining us today for our fourth quarter and year-end 2021 earnings call.
We are very pleased with our full year 2021 financial results with revenue adjusted diluted EPS and cash flow ahead of our expectations. We continue to strategically invest for long term growth, while meaningfully expanding our adjusted operating income margin.
For the fourth consecutive year, our analytics digital and consulting businesses, which make up transformation services led our global client growth.
As you look at 2022 and beyond we see further expansion into multiple buying centers of our clients with cloud.
And data analytic solutions, driving even greater value for them.
For the fourth quarter of 2021 because of a total revenue of $1.1 billion.
Up 13% on a constant currency basis.
The decline in revenue of $979 million up 16% on a constant currency basis.
Adjusted operating income margin of 14.4% and adjusted diluted earnings per share of 54 cents.
54 cents.
For the full year 2021, we delivered total revenue of $4 billion up 7% on a constant currency basis. While the client revenue at $3.6 billion.
Up 11% on a constant currency basis.
Adjusted operating income margin of 16.5%, expanding 60 basis points year over year and adjusted diluted earnings per share of $2.45.
Up 16% year over year.
Our global client revenue was up 11% for the year.
This performance was primarily driven by transformation services that grew 33%.
Including the impact from Bancorp acquisition up from 21% in 2020 and represents now.
36% of total global client revenue up from 30% in 2020.
Intelligent operations grew 3% and representing 64% of total global client revenue.
We saw double-digit growth across most of our verticals, including consumer goods retail, life Sciences.
Health care, high Tech and manufacturing and services.
As we mentioned last year banking and capital markets performance was impacted by the restructured relationship with a client that resize this asset management business at the end of '20. The impact of which we expect to complete the roll off by second quarter.
I'd be expecting revenue from GE businesses declined 18% for the full year 2021.
We continue to have a strong relationship with GE and believed it announced separation into three independent companies will provide us with opportunities to win new work to support the spinoff.
We saw continued acceleration of digital transformation across all industries.
Companies are striving to rapidly solve their end customer in new ways, given the shift towards utilization and increased expectations for user and customer experience.
All clients are leveraging disruptive technologies and predictive analytics to drive actionable insights that lead to superior outcome in order to establish a competitive advantage in their markets.
Our bookings accelerated in line with these trends with total new bookings for 20201 of $3.7 billion up a healthy 20% from 2020.
Apart from an increase in inflows and pipeline our win rate for 2021 was 52% up from 47%.
In 2020.
Thoughtful deals continue to represent approximately half of our bookings.
You'll find bookings increased by 21% from 2020 level and went up 12% wasn't a pre pandemic 2019 level.
Large deal bookings also grew as we signed.
Nine new engagements with total contract value of greater than $50 million during the year all across our industry verticals.
All but one of these talking with analytics.
Resulted in digital engagement, demonstrating that client relationships that start with transformation services often lead to significant subsequent growth.
In 2021 we added 97, new client logos up from 72 in '20.
Each of these new logos represent an initial average booking of approximately $3 million.
We are talking about these new relationships as it allows us to grow with these clients into the future.
Transformation services represented 45% of our total global client bookings.
From 36% in '20.
During 2021 approximately two thirds of new accounts that started with a standalone transformation services engagement either shut down or [inaudible] next to a follow on booking including intelligent operations.
Which are annuity based in nature.
Almost 50% of transmission services booking a longer term annuity engagements, providing us with very good visibility to future revenue.
Our performance during 2021 was a result of
Our continued focus on [inaudible] verticals and services.
Larger addressable market.
[inaudible] data and analytics.
We believe the sharp focus we have July adapting industry and process knowledge that is needed to drive people value for clients.
While we continue to see growth in our original strategic focus area of finance and accounting.
We are seeing very strong momentum across newer growth areas.
Such as [sales] and commercial supply chain management financial crimes and risk and financial [inaudible].
The combined target addressable market in these areas is more than double that of finance and accounting alone.
And they are much less penetrated.
Across all of these areas you have searched significant expertise through both organic and inorganic investments and by tapping into growing partnership ecosystem.
These grew more than 43% in quarter four and 36% for 2021.
We are continuing to have a very healthy and growing pipeline of new opportunities in these services.
Our ability to organize and orchestrate data and develop cloud-based analytic solutions with industrial and process depth.
Differentiate us in the market.
Analytics is the fastest growing component of our global client transformation services portfolio.
Grew 58% in 2021 up from 29% in 2020, and now makes up about half of total global client transformation services.
We are helping clients through complex data sets to derive actionable insights that lead to meaningful business outcomes beyond [inaudible] productivity.
Next data to derive actionable insights that lead to meaningful business outcomes beyond Boston productivity.
For example, preventing fraud, improving pricing, reducing losses, improving sales targeting and improving customer satisfaction and retention.
Let me give a couple of examples.
[inaudible] work where we are driving meaningful value for our clients.
Adding meaningful value for our clients.
Well the life Sciences company, we are redesigning our global supply chain operations as it moves to the cloud.
Leveraging our deep domain expertise, we will validate the client data and refine processes to enhance demand and supply planning and forecast accuracy and improve product fulfillment and create for clients.
For multiple insurance line.
We are using AI and machine learning to analyze pictures of vehicles outage.
All time auto claims estimates coupled with an end to end cloud based workflow solution on Microsoft [Azure] that automatically creates en route new claim [inaudible].
Yeah.
This has dramatically reduced cycle time for claims increasing customer satisfaction and retention, while also reducing fraud.
For a large aerospace manufacturer, we are leveraging our deep domain and digital expertise.
To transform their receivable process with high radius is order to cash SaaS platform.
Because our clients reduce their dsos and unlock cash foster to support strategic initiatives.
Extending our reach into clients marketing and sales organization last quarter, we acquired Hulu digital to augment on right point expedient seems capabilities in digital content.
We are now providing clients with a full end to end solution that seamlessly integrates digital content e-commerce, and marketing operations to generate better insights and drive growth.
Our experience acquisitions have been successful in allowing us to enter new buying centers like sales in commercial and grow both our transformation services and intelligent operations and [gig.]
Similarly, our acquisition of Enquero incremental or supplemented our high organic growth in data and analytics. These acquisitions of Altra has helped bolster our talent in these areas.
Let me talk about our competitive position in the global talent market.
During 2021 we welcomed approximately 42,000 new team members, reflecting the strength of Genpact brand in a very competitive environment for talent.
We continue to invest in the learning and development of our employees to provide them with the critical skills needed for the future to build their careers.
For the second consecutive year, all of our global workforce completed over 10 million training hours leveraging genome online on-demand learning platform.
This led to approximately 10,000 of our employees being trained and cloud basic, about 25,000 trained and tested in lean Linx and Sigma and more than 52,000 becoming certified in data and analytics.
Additionally, through our talent match platform 14,000 newly leased skilled employees were redeployed to new loans.
The combination of re skilling and redeployment is a competitive advantage in this challenging job market.
Our attrition rate in the fourth quarter was 33% remaining steady what does the third quarter without the ability to reschedule redeploy on higher scale, we continue to successfully serve our clients and convert new opportunities.
Turning to 2022, I believe we are well-positioned to build on the momentum we saw in global client revenue last year, we saw a return to double-digit growth ahead of our initial expectations.
Given strong market demand for our services, leading to the expansion of existing client relationships.
As well as the addition of new client logos to our portfolio, we expect global client revenue growth to be between 9% and 12% on a constant currency basis.
This includes a recovery in our banking and capital markets vertical.
Where we are seeing great traction.
I'd like to take a minute to comment on how rapidly the world has changed since we last spoke in early November.
Inflationary pressures across all industries have increased in an unprecedented way as confirmed by yesterday's US economic data.
We are absorbing higher expenses related to the current inflationary environment, including increased labor costs, while continuing investments in our growth.
For example, we want to spin up new deals at the end of the year.
Leading to advance hiring in order to support those deals as they ramp up including onshore and multiple geographies.
Travel levels are on their way to normalize as our teams have begun to once again engage with clients in person on a regular basis.
With our strength in bookings, including new client logos.
And our ability to diligently manage our cost as revenue ramps through 2022, we expect our full-year adjusted operating income margins will be between 16 and 16.5%.
With that, let me turn the call over to Mike.
Thank you Tiger and good morning, everyone. Today I'll review, our fourth-quarter results and then discuss highlights of our full-year performance and provide you with our outlook for 2022.
Beginning with fourth quarter results. Total revenue was $1.1 billion up 13% year over year, both as reported and on a constant currency basis global client revenue, which represents 91% of total revenue increased 16% year over year, both as reported and on a constant currency basis.
This was primarily driven by ongoing movement in our transformation services that grew ahead of expectations and more than 45%.
Total global client revenue growth in the quarter included approximately one point contribution from revenue related to certain [diversity] businesses that we began including global client portfolio as of January 1st 2021.
During the quarter, we continued to expand the size of our global client relationships. For example, during the 12 month period ending December 31, 2021, we grew the number of global client relationships with annual revenue over $5 million from 129 to 144. This includes clients in more than 25 million in annual.
Revenue increasing from 23 to 32 with 11 of those over $50 million in annual revenue same as last year.
Revenue from GE businesses declined 14% year over year.
Above our expectations, primarily due to the short cycle project work in the quarter, excluding the effect of revenue related to divested businesses revenue from GE businesses would've declined 6% during the quarter as expected adjusted operating income margin declined sequentially to 14.4%, primarily driven by higher investment.
Activity in sales and marketing and research and development increased travel expense and a higher level of transaction costs related to recent deal wins and a notable increase in wage inflation during the latter part of the fourth quarter.
Gross margins in the quarter declined 110 basis points sequentially to 34.5%, primarily due to investment-related and deal ramp-ups and supporting new deal activity.
Adjusted EPS was 54 cents up six cents year over year compared to 51 cents in 2020. This recent increase was primarily driven by higher adjusted operating income of two cents.
A foreign exchange remeasurement gain of two cents and the impact of lower share count of one set partly offset by higher interest expense and higher taxes together to equate to 2 cents.
Our effective tax rate was 29.6% compared to 25.3% last year due to a return to provision adjustments realized in the fourth quarter of 2021 as well as certain nonrecurring discrete items in the fourth quarter of 2020.
Now let me provide you with some color around our full year performance in 2021.
Total revenue was up 8% year over year, 7% on a constant currency basis. Global client revenue, which represents 91% of total revenue increased 12% year over year or 11% on a constant currency basis. This better than expected performance was largely driven by transformation services. Total global client revenue
For the full year included approximately one point contribution from revenue related to certain divestitures. This that we began to include in our global client portfolio as of January one 2021.
Revenue from GE businesses declined 18% year over year, primarily due to the prior productivity commitments and the macroeconomic environment as we expected adjusted operating income margin expanded 60 basis points year over year to 16.5% primarily attributable to higher gross margins and lower travel expenses.
Gross margin for the for the year expanded 80 basis points to 35.6% slightly ahead of our expectations due to better mix of revenue towards transformation services and reflecting digital led productivity. During the latter part of fourth quarter, we saw escalating inflation pressure relating to general.
Wage increases, medical and insurance expenses as well as increased hiring costs connected to new deal signings and other growth opportunities. These elevated costs, coupled with the ramp-up of onshore deals over the next few quarters are expected to have a disproportional impact on our first-quarter gross margin we expect.
our gross margin to improve through the balance of the year due to operating leverage and increasingly higher margin transformation services revenue.
As a percentage of revenue SG&A increased 20 basis points year over year as we dial up investments that take the advantage of long term growth opportunities.
Adjusted EPS was $2.45 up 16% year over year compared to $2.12 during 2020. This 33 cent increase was primarily driven by higher adjusted operating income of 29 cents. The impact of lower share count of 3 cents and foreign exchange remeasurement gain of 2 cents.
Partly offset by higher net interest expense of 1 cent. Our full-year effective tax rate was 23.5% up from 23% last year, primarily due to the impact of exploration of special economic zones. Turning to the balance sheet and cash flow. At year-end cash and cash equivalents totaled
$899 million compared to 680 million at the end of fourth-quarter 2020, our net debt to EBITDA ratio was 1.1 times, including the impact of our recently announced who do digital that closed in December.
Days sales outstanding improved to 74 days down from 82 days last year. This was primarily driven by reduced billing cycle times overall improvement in collection processes as well as the benefit of more short-cycle revenue booked in the fourth quarter, we expect dsos to be in the high 70% in 2022.
Days sales outstanding improved to 74 days down from 82 days last year. This was primarily driven by reduced billing cycle times overall improvement in collection processes as well as the benefit of more short-cycle revenue booked in the fourth quarter, we expect dsos to be in the high 70% in 2022.
In 2022.
We generated record level of cash from operations of $694 million.
Up 19% year over year. This better than expected performance was primarily driven by higher operating income and more favorable working capital position related to the improved days outstanding.
And lower cash taxes. During the quarter, we returned $171 million and $379 million of capital to shareholders, respectively. This includes dividend payments of $20 million in the fourth quarter and 80 million. The full year. We also repurchased 3 million shares at a cost of $151 million at a weighted.
Average price of $50.56 of shares during the quarter and $6.6 million shares at a cost of $298 million at a weighted average price of $45.32 for the full year.
Year to date during 2022, we've repurchased an additional 0.5 million shares totaling $28 million at an average price of $52.44.
Our capital allocation priorities to drive long term shareholder value are as follows. First, we are investing in our businesses to support organic long term growth initiatives. Next, we will continue to go after strategic M&A to add to our domain and operations depth in our chosen verticals. And lastly, we are committed to returning
capital to shareholders through quarterly dividends.
With respect to share repurchases, given our strong cash flow generation, we expect to implement a more.
Regular cadence of buybacks with a minimum of 30% of our cash flow from operations allocated to purchases for the full year.
Capital expenditures as a percentage of revenue equates to one 3% for full-year 2021. That compares to 2.1% during 2020. This was slightly lower than our expected range of 1.5% to 2% of revenue.
And finally, let me provide you with an outlook for 2022.
We expect total revenue to be between $4.3 billion and $4.4 billion, representing a year over year growth of 7% to 9% or 8% to 10% on a constant currency basis. For global clients, we expect revenue growth to be between eight and 11% or 9% and 12% on a constant currency basis. Revenue from GE business
are expected to decline 5%.
With inflation rising at the fastest pace in decades based on the latest data we are assuming higher labor costs and other costs will continue for the balance of 2022, while we're offsetting some of these increased costs with price adjustments, commercial models linked to outcomes versus input like FTEs.
Our focus on rationalization of expenses, our visibility into the full-year impact of these inflationary pressures as lumpy as it is for the entire market. Therefore, we currently expect our full-year 2022, adjusted operating income margin to fall within the range of 16% to 16.5%. This is a market base.
Adjustment as we get better visibility during the year, we expect to tighten this range. We anticipate pricing and other actions will mitigate current inflationary pressures. We continue to believe our margins will expand in line with our strategy over the medium term.
Our 2022 effective tax rate is expected to be 23.5% to 24.5% up from 23% in 2021.
We are estimating adjusted earnings per share for the full year 2022 to be between $2.53 and $2.71. This represents year over year growth of 3% to 11% and includes the positive impact related to lower expected net expense noninterest expense of two cents and lower anticipated.
share count of 2 cents offset by the impact of higher taxes of 3 cents and the negative FX impact of 5 cents a share due to an approximate $13 million gain recorded last year.
We're forecasting cash flow from operations to be approximately 600 million compared to $694 million for the full year 2021. We anticipate free cash flow of approximately 1.2 to 1.3 times net income above our historical one to one.
Capital expenditures as a percentage of revenue is expected to be approximately 1.5% to 2.0% in 2022 as we expect a higher level of infrastructure spending related to 2021 related to increased employees returning to the office as part of a hybrid delivery model and continued investments in digital solutions.
<unk>.
Our board of Directors has approved a 16% increase in our dividends to 212.5 cents per quarter or 50 cents on annual basis. Our dividend has increased at a compound annual rate of 16% since we began paying dividends in the first quarter of 2017. Lastly, let me share some color on how revenue and adjusting
Operating income margin will play out in the first quarter. We continue to anticipate mid single-digit sequential decline in global client first-quarter revenue due to the typical seasonality we see in our business.
With the expectation that the quarter over quarter growth will ramp up.
Additionally, we currently expect adjusted operating income margin to follow our pre-COVID historical pattern of being low in the first quarter and expanding sequentially through the year. We currently expect our adjusted operating income margin to fall in the quarter, the former quarter to be in the low 14% range based on historical seasonality. With that said, let me turn the call back
Over to Tiger.
Thank you Mike.
Summing up the world we are in. The pandemic continues to linger. Digital dominates [CxO] and board agenda. Analytics has taken center stage and the war for talent has intensified.
Given that backdrop. It is no surprise that we are seeing traction in our inflows pipeline and bookings.
In the following five area.
One, end to end supply chain transformation and consumer books semiconductor industry that the broad industrial manufacturing industry. Two, financial crime regulatory compliant and transaction monitoring not only in banks and financial institutions but also new age protect payment and e-commerce platforms. Number three, experienced
And analytics-driven transformation sales and commercial in our B2B clients.
Particularly leveraging new digital and data driven marketing capabilities.
Four, moving data to the cloud and orchestrating that data with technology to generate predictive actionable insights using analytics to deliver better outcomes. And finally, driving value and transformation of large enterprises across the globe undertake portfolio action that leads to spinoffs divestiture of M&A and IPO.
Yeah.
We believe we are well-positioned to grow in these areas as we continue to leverage our deep industry and process knowledge, expertise in data and analytics and digital capabilities to drive value for our clients beyond just cost and productivity.
Despite the inflationary environment, we continue to invest in the capabilities we need to fuel growth and margin expansion in the long term.
In an increasingly complex environment, helping our clients navigate challenges today and build resilience for the future deepens our long term client relationships. Similarly, ensuring we continue to have the best talent to enable those relationships, especially in this tight talent market is a critical differentiator.
We continue to evolve our talent management practices, including areas like [inaudible] engagement.
Creating a development and building a more inclusive environment for our employees and clients.
Our commitment to driving a more diverse and inclusive workplace was once again recognized in January with our inclusion in Blue box 2022 gender equality index.
Our employees as well as their health and safety throughout this prolonged pandemic continues to be a top priority.
Our commitment to serve communities in which we operate was strong with tens of thousands of passionate employees participating in our corporate social responsibility initiatives throughout the year.
We had meaningful outcomes for example, providing 30 million meals for the hungry across the globe.
We continue to be excited about our progress on our ongoing ESG commitments. We are even more excited about the work we are doing to help clients on their own ESG agenda.
Another area of value generation beyond cost and productivity for them.
And their stakeholders.
We truly believe that driving value for all of our stakeholders, our clients employees community and shareholders, it's fundamental to our long term perfect.
Like our response to the pandemic, we continue to approach new challenges like the inflationary environment through this lens. Our strong results for 2021 would not have been possible without the unwavering commitment of our more than 100,000 global employee base.
As we look beyond 2022, our actions around pricing continued growth in higher value-added services, including analytics digital and consulting.
And value based commercial model strengthens our belief that we will be back to our increased margin trajectory with 16.5% of the base.
Slide 22 has already suffered a new set of challenges for the world. I believe in our ability to manage those and are positioned to achieve our long term growth and profitability goals. With that, let me turn the call back to Roger.
Great. Thank you Tiger, we'd now like to open up our call for your questions. Catherine, can you please provide the instructions?
Thank you.
To ask a question you'll need to press star one on your telephone. To withdraw your question press the pound key.
Our first question comes from Tien Tsin Huang with JPMorgan. Your line is open.
Alright, thanks so much good morning, everyone.
Good bookings results here. I was curious given your prepared remarks, CAGR just with this inflationary market.
Obvious for everyone theme for. This earnings season is that good for Genpact and I would imagine that.
This earnings season is that good for Genpact and I would imagine that.
The selling environment.
That should bode well for Genpact and I'd Love your thoughts in general and do you see a shift beyond the secular.
Between short term projects as well as longer term bigger projects, given what's happening with inflation.
Now I'll turn there. Thank you and our great question by the way and it's something that we have.
Not true DP.
As well as watch the environment. So one in this environment, it's very clear that every one of our clients is facing the same challenge that everyone else is facing which is a.
Need for talent.
Need for talent to drive all the transformation agenda that they have on the table, probably an acceleration of that agenda and therefore, an even more need for talent. So there is no question that that provides.
What one could call it a tailwind to partner with people like us both on transformation services as well as an intelligent operations. The other thing that we have seen it.
Some of our most recent wins.
At the end of the Fag end of the fourth quarter.
Cycle times that was shorter than before and more importantly, our ramp from our clients.
It's much faster than we've seen before and I think that's a reflection of the kind of environment. We are in so.
I believe that.
This environment does provide that opportunity, particularly.
The operations to automate operations give us better forecasting using data in a volatile environment all of those play out.
Yes, no that's great. That's very complete answer. Thank you just my quick follow up just.
Recognizing the gross margin commentary in your pricing.
How about the back book on pricing do you feel like there's an opportunity to.
To change.
The back book from a pricing standpoint, I understand that the front book comments that you made.
Yes.
So just just to clarify.
Definitely.
Well.
Yeah, Yeah your existing.
Excuse me.
Yeah.
As you know.
In our intelligent operations business, which is 65% plus of our business picked it up we can out of our business. It's a long term contracts those contracts typically have.
Inflation of just us in them.
And Bill is in any case, we contractually.
Regular periods, depending on the contract would get and they'll continue to come through.
This environment is different from work those contracts have assumed so we have started talking to clients.
And the fact that this is an environment that everyone is facing means that doesn't sit down conversation.
At the end of the day, it's going to be a combination of what incremental value can be drive how much more can be digitize and automate together and that should end up being a win win.
So back to your question on the back book the back book is something that we are systematically going through and we believe that we will systematically go through but as you can imagine it takes time and there is a lag which is one of the reasons why I think Mike in his prepared remarks talked about inflationary pressure coming in and then pricing.
Being a longer term discussion that actually played out through legal.
That's great Yeah, I'd like to just you think just like the other we've had some early successes in this and again early today's February 11th grade. So we continue to have very active dialogue with our clients about this.
Understood. Thank you.
Got it.
Thank you. Our next question comes from Keith Bachman with BMO. Your line is open.
Yes. Thank you I wanted to follow on that if you could just talk about you mentioned.
The margin context for 2022.
It's a wider range and obviously some pressure there are there other forces at work or is this is.
Is the variance you think really driven.
By the wage pressure in terms of the 16 to 16 and a half.
Sure. So it's really good that's correct, it's really all driven by the wage pressure right, which is also we're estimating a mitigation against that wage pressure why the why the range is so with increased pricing that we're getting on existing agreements that we have right normal Cola based adjustments right that are indexed.
Some frequency as well as what we call what we just talked about a minute or so ago existing agreements and trying to get rate. There. So it's a combination of all those things, but again the sole driver of all of this is this hyper inflationary environment that we're in right. Now one note is that since we all talked and as Tiger alluded to you in early November .
Things have changed very very rapidly in terms of as you've heard from many many companies in our industry and others with regard to inflationary pressures and when we thought about our guidance for this particular year right. We're looking not just an information as of the end of December 31 were looking at information again as of early February we were seeing in our daily.
Hirings and we're extrapolating that on a go forward basis. So that's why the range is as large as it is for us based on historical patterns.
Okay, well my follow up relates to that.
Other companies that granite have a different business model, such as in fee or cognizant or even accenture.
<unk> talked about wage inflation and I think we all it's quite visible. So it's no surprise you had seemed to have a better ability to absorb it is that driven by you.
You think of different business model or do you think you just have more up to date data I mean keep in mind that cognizant just reported.
Two weeks ago as well, so I'm just trying to understand why.
Genpact is is incorporating.
The wage inflation more so than some of the other broader it service providers and its margin targets for <unk> 'twenty two that's it for me. Thank you.
Yes.
I can't really talk about other competitors' rates of some of the some of the competitor information that you need is really related to information and potentially can be out of date right. Some as you mentioned is there but fundamentally some of those competitors are different operating models that we have right and if you look at the average life of the contract. So I don't know if you want to add onto that.
No.
What we are assuming Keith is that this is the environment we.
We are not making any assumptions about any change as to <unk>.
When this inflationary environment is going to go down I think I mean, we're not in a position to be able to make that call. So we've taken.
<unk> got current environment as the basis of our view on 2022, and our actions that we laid out both in terms of our own cost structure as well as you know.
Discussions with clients.
Moving up to higher value added services that we continue to do with analytics and all of those into account.
And in order to come up with our view of where we think the range of module is going to be as you can imagine in.
In the past recent past, we've always given a point margin view of the year.
Yeah.
This is after many years that we're giving a range right and that is a reflection of the worldwide.
Okay. Thank you Tiger.
Thanks Keith.
Thank you.
Our next question comes from.
Dave Koning with Baird. Your line is open.
Yeah, Hey, guys, Thanks, and a nice Q4.
And argue that it's Mike Yeah.
Yeah, Yeah, you're welcome.
I guess my question when you know when we think about you you were talking you know also kind of last year and even before getting back to 10% plus global client and it's a little splitting hairs. You are talking about nine to 11 this year.
But I guess, it's a little below.
And I know, who do I think maybe half a percent or so to global client revenue growth may be the ability to reprice, a little bit in a demand environment that seems probably better than normal maybe talk a little bit about why revenue growth isn't a little better.
No great question Great question.
No.
The Apple to Apple comparison would basically say that organic growth is stepping up.
On a constant currency basis, we are taking our global client growth will be 9% to 12%.
You are right, who do it small so it doesn't contribute that much into total growth. So most of that was organic and.
We believe that that's a good step up from what organic growth for 2020 . One has been and as we described that total growth for global clients in 2021.
Well, we had said at the beginning of the yard that maybe by the fourth quarter will get the double digit we actually got to double digits much earlier.
We are in a long cycle business as you know and we actually feel really good that we are this takes us closer and closer to what we've always said.
Our long term trajectory, which is global client growth of double digit to low teens.
In that ZIP code, so I think that we feel really really good.
About this as well as the fact that we've had strength in our global cloud bookings that we called out.
Yeah. Thank you and maybe just a quick follow up on I think did you make a comment about 16, 5% adjusted margin is sort of the base to grow from into the out years. So it is it did I catch that right.
Yes, yes, well.
Basically the way to think about it is that.
But what else is going through a pretty unique.
Let's call it up to three decades four decades.
First time inflationary environment and it takes time for the world to adjust to that and for us to adjust to that and we are we have the firm believers in our circular margin trajectory I think our actions around value based pricing our actions around digital and analytics.
This is growing so much faster than.
The total company all of the new service lines that add so much more value to the client again, leveraging data and analytics I think all of that gave us the confidence that we'll continue to be on that long term secular trajectory within the normal course, and again, we are talking about them in the last earnings call would assume a base, particularly in the house.
That there is an operation that we're calling out for 2022, and we'll be back to the same trajectory.
Gotcha, Thanks, guys.
Yeah.
Thank you Dave.
Thank you. Our next question comes from Maggie Nolan with William Blair. Your line is open.
Hey, this is Ted on for Maggie Thanks for taking our question at.
It sounds like you guys have been making some investments in the sales force. So I'm just kind of dig into that I mean, how large is the salesforce today, how does that compare to pre pandemic levels and I guess, how has the profile of the Salesforce changed.
The investments Youre, making there.
Sure Great question of overall sales.
Salesforce continues to keep pace with the way the company has been growing if you take the total cost base of our front end teams I think the more important question are the ones that you asked around what are the composition of those people. So there is a combination of people who manage large client relationships.
And then you have the global relationship managers, who manage the next level of relationships, we have people, who open up new relationships because the 97 accounts that we opened a.
Let's call them hunters and then we have a pretty significant team now part of transformation services.
Much more consultative well much more.
Transformation services, what is the change that the customer is trying to drive and how can we participate in helping the client drive that change. So it doesn't much broader ecosystem, which is a combination of our sales team.
Globally as well as our consulting lead partner and it's that combination that works.
Lots of our clients and focus.
Focusing on the top line.
Alright, great Thats helpful.
For my follow up question I, just wanted to ask about the higher value services that you highlighted tighter supply chain financial crime et cetera.
Looking at the bookings could.
Could you give us kind of just sort of framework to think about kind of the percentage of bookings or the business that is in those higher value services and where do you think that could go longer term.
So Charles I'll talk about some of the metrics, we already shared in the prepared remarks, 50% of our bookings of 45% of our bookings and transmission services.
A significant portion of that is what.
He gets captured in the <unk>.
<unk> service lines that I talked about which we've been focused on by the way for three plus years now.
All of them analytics and digital hidden if you think about financial planning and analysis, if you think about supply.
Supply chain sales and commercial and financial crimes and risk those four service lines very heavy analytics and very heavy digital embedded in them and those are growing at.
The rates that we called out both in terms of bookings as well as in terms of revenue and we also I also talked about the fact that the total addressable market of those four service lines well at six two times.
The market that you think about in finance and accounting, which as you know our strategic focus area for 20 years. So all of that bodes very well for our growth trajectory and then the last thing I'll say is a number of these are very interconnected so think about financial planning and analysis, which is an extension into the CFO .
And from there using data and analytics you extend into the kind of improvement that feels in commercial can drive supply chain can drive order fulfillment can drive and that's one of the strengths that we have as we expand into a client once we start working with our clients and add value for them.
Got it thank you very much.
Thank you.
Thank you. Our next question comes from Bryan Bergin with Cowen Your line is open.
Sure.
Hi, Good morning, Thank you Tiger I wanted to dig in first the expansion into new buying centers that you talked about can you dig in a little bit of first the revenue scale of finance and accounting for you relative to these other areas like sales and commercial and others that you had mentioned and then do you have to do things differently in the go to market in those new areas given they might not be as mature.
Sure and outsourcing versus finance and accounting.
Yes, that's a great question for Great question, Brian . So first of all you know we don't we don't have specific numbers that we that we share on finance and accounting as I said to the extent of the client, but it is 30% plus of our overall business on a poor overall book.
<unk> continues to grow.
Obviously, a much lower clip than transformation services that continues to grow.
The more important question that you asked is what is the nature of the way we start engaging in those new buying centers and you rightly pointed out that many of those are less mature.
Less than you're cranking, and therefore, often starts with transformation services starts with can we design a new operating model.
With the example of the Aerospace company that we've talked about.
Help improve.
Receivable and in order to do that need a technology platform.
That gets executed well there.
Our salespeople are hot.
To change the way they engage with their customers and that's an improvement not just for Dsos, but also for the way they manage their own time and relief sales capacity. So a lot of it then bogged down too much more data intensive selling much more analytics incentive selling and solution.
A much more digitally intensive selling a solution, which is why a lot of that overlaps a lot for transmission services.
Okay helpful. And then just trying to unpack growth here, a little bit can you remind us what the asset management client headwind was in 'twenty. One how much is that still a partial growth headwind in 'twenty two and then just to be clear in the 'twenty two outlook inorganic contribution just to say anything around that.
So quickly the first one.
But Mike.
Do you want to take both.
Yeah. So in terms of what it is we're going to roll that most of the vast majority of that it will be rolling off in the first quarter of this year I don't know what the historical impact was in this this year I think it was about two or 3% of our global global clients, but again it will be pretty much worked through us.
In the first quarter as far as what's assumed in that growth rate or it's pretty much all organic we had some earning associated with who do but that's going to be a very small number. So when we talk about that nine to 12 to think about it from an organic perspective.
Okay. Thank you.
Thank you Brian .
Thank you. Our next question comes from Moshe catchy with Wedbush Securities. Your line is open.
Hey, Thanks, just a couple of clarifications here, the 20% bookings growth that you mentioned for the year is that all from new logos or does that include also renewals.
Oh, a lot of that is from existing clients somewhat here because that's the nature of our business.
If you look at the 97 accounts that we talked about that we opened in there I said that the average entry because about $3 million total contract value.
It clearly shows that a bulk of our bookings in any particular yard tends to be existing.
Existing clients.
We may have entered the previous year or a couple of years back with either another deal or an intelligent operations. All we kind of entered the translation services so for us.
It's all incredibly important to our stock our relationship in one area of our clients.
Just through delivery of excellence and value expand overall multiple services multiple buying centers and more and more these are internal.
Connected with data flows and physical digital cloud flows.
Alright, that's helpful. So if we wanted to get actually just the expansion or scope expansion piece of that 20% growth is there a way to kind of isolate that just because obviously were trying to figure out what's driving the booking numbers look great.
But you know you're guiding for about half of that growth for this year. So trying to figure out maybe the the scope expansion piece in terms of growth rates on a year over year basis is there a way to kind of get that color.
Yeah I'm sure. We can now we don't have the number as you already know we.
We haven't shared that before but I think it's a good question Guangzhou.
Mike any any any other pumps.
No we can work and work and bifurcate that and we think about it but just wanted to flag that when we talk about bookings as they don't include renewals.
Right, yes so.
While there well there is existing clients is net new.
That's fine.
Neely and the one of adult yet, but one of the metrics that I would point to is the one that Mike said in his prepared remarks, where we talked about the growth in number of clients at various revenue cohorts. So a number of times about $50 million number of lines of about $35 million.
And the number that we share.
Constantly shows.
A growing number of clients in each of those clubs.
Alright, Thats, there and then you're you're guiding that.
Second question you are guiding for a significant ramp in margins during the second half of the year. So.
You mentioned productivity you mentioned pricing.
Is there any way to kind of gauge.
What sort of blended pricing increases you are expecting to see during the second half of the year, that's going to offset.
The impact of increasing costs.
Obviously, it's inflation investments ramp up et cetera.
Yes.
I don't know if you have an exact percentage for you right, but we're getting those rate increases above notable historical levels. We again have the cola adjustments that some of them have been scheduled to move in earlier and part of it part of the year and those will ramp up accordingly, right, but unfortunately, we have that inflation pressure right now.
We're committed to delivering for those clients. So I think we'd probably go back to if you look at some historical patterns in terms of how our margin pre COVID-19 , it's probably a good basis to kind of model out the year, if that's where you're going.
Okay, and then final point attrition I don't know if you had mentioned that during the call is it up is it.
What's the kind of number at this point.
Yes, so a few things our attrition rate of approximately 33% it was flat sequentially from the third quarter.
Which is.
A good sign in terms of stabilization and keep and note that our attrition rate right is really base from day. One there isn't we just that's how we do our calculations that there's some confusion out there regarding it so it's a pretty good number and it's relatively flat from.
<unk> great. Thank.
Thank you.
Thank you.
And as a reminder, if you would like to ask a question press. The Star then one key when you touch tone telephone. Our next question comes from Ashwin sure Vikar with Citi. Your line is open.
Yes.
Thank you.
Tiger.
Hi, Ashwin.
Thanks.
I guess my first question is just.
Clarification, if you are not able to get adequate adjustments in pricing.
Can you still be at the lower end of the range and what sort of pricing adjustments that are incorporated in the upper part of the range I guess mathematically you would need to be I guess about.
Range margins in one of the later quarters to be at a reasonable point there.
And a corollary to the question is I know you guys are always adding tools and automation for clients, but given the current environment, they're non linear growth opportunities you are or should be considering.
Sure.
Sure.
We kicked out and let me kick it off and then I'll flip over to the denominator of your question.
Back to Tiger.
The answer is to complete its a complicated algorithm of it and a lot of puts and takes as opposed to just pricing and labor costs right. So as I talked about earlier, the labor cost inflationary pressures hitting us now as we've been.
Yeah.
As we've been meeting the needs of our clients and we're trying to be as realistic as possible. We will manage our spend accordingly, there were a number of levers that we have at our.
At our discretion, but again, we're committed to investing in our franchise from sales and marketing and from an R&D perspective. So we still feel good about that 16% to 16, 5% and again.
We don't know ultimately if this will we're assuming this inflationary pressure is going to continue for the remaining part of the year. We continue to continue to manage our bench, our internal hirings and our skill set allocation of folks. So there's a number of puts and takes there that will allow us to work within that in addition to it don't forget it's just the business is.
Stork Lee has been non linear right and it's going to be more exacerbated this year kind of manifests itself with tiger's comment at the end that he feels good about that 16, 5% just over a longer period of time as all of these actions are going to take place ramping up through the year and into next year quite frankly.
Yeah. So ashwin just to add to work tomorrow, Mike just to add to what Mike said.
We havent made.
Likely so we haven't made any assumptions that across the board we expect.
Price increases et cetera. These are very specific conversations they are dependent on what stage of the relationship.
And what is the specific action together, we and our clients can take so that actually becomes a win win.
And it can take all kinds of forms it could take the form of much more aggressive automation journey is on both sides much more value creation journey on both sides of that then generates value for both of us for sure. It can be an expansion of scope that then leads to better leverage our overall cost and price.
So tough to actually say that there is a one cookie cutter solution.
And that's why in the early days of that that we started good its showing that.
<unk> done the right way it can really be a win win in what is obviously a situation that everyone else is dealing with.
No word comes to my mind, it's partnership right, we keep using the word clients and if anything the last few weeks have shown US is how integrated we are and we have partnerships with these clients sorry to cut you off I apologize.
No no no I was just going to say it seems like you guys are being appropriately thoughtful particularly being.
First full year of outlook Mike.
Is it.
Safe to assume given your deep.
Relationship with GE that you are or will be the lead partner to help them baked into multiple entities. So as the year progresses would you expect to again pick up that and I guess the fairly significant locally.
The M&A department and sort of what Youre doing now.
Well no question that you asked me.
We are not taking the lead on I can tell you there's no there's no debate on that at all.
But that also applies.
AGA has a pretty significant player in technology.
Do you have a pretty significant long term GM relationship as well as things like supply chain aftermarket services sourcing and procurement. So so.
They are not the only lead player.
But in the topics maybe a lead you are absolutely right.
And our relationship is the right level with the right people in all the businesses that are <unk>.
<unk> called out.
As part of their spinoff.
Spinoff journey.
Understood. Thank you.
Yes.
Thank you.
I gotcha.
Thank you. Our next question comes from surrenders and with Jefferies. Your line is open.
Thank you.
Question for you Mike.
So when you were putting together your guidance forecast your revenue forecast.
Are there.
Other considerations here that.
That we should think about when the markets get volatile and there's the increased economic uncertainty when I think back to the first question that was asked.
It sounded like an inflationary environment might be.
Positive consideration, but can you talk about the push pull.
And maybe the confidence in this guide versus maybe previous guidance.
Yeah. So it's hard for me to articulate exactly how confident with where in previous I can talk to you about this one right. So I think what's kind of unique as a newcomer to the space is really when we think about it we've seen no deterioration using information is as yesterday on people pulling back from anything we actually think the current and we use the word inflationary environment, but it's.
There's it's much broader than that in terms of the volatility of the with the markets in the verticals that we operate in that theres enhanced opportunities against that as companies are continuing to digital the draws particularly at post pre COVID-19 and post COVID-19 .
So we think of it as a net positive for us.
Did we perfectly baked that into our forecast, it's kind of hard to see our forecast is really based on a bottoms up approach of looking at our pipeline looking at our bookings and looking at what we're targeting as far as the day by day macro environment that changes, we think that is a nice tailwind for our business on a go forward basis.
That's helpful and then in terms of it sounds like you're.
Generally able to negotiate new contracts.
Pass on the bulk of the cost increases that you're seeing how should we think about that in terms of how much of a tailwind that potentially is on the new contracts versus where they might have been if it weren't in this environment.
And then how does this impact something like an outcomes oriented strategy here, meaning.
Hum.
Right.
In your existing contracts like the equivalent numbers are fixed.
More <unk>.
Metrics, such as benchmarking games, like a CPI or something like that how does that the negotiations changed because if you're.
Entering into 345 year contracts.
But it's hard to predict what inflation and so forth is going to be even a Europe from it.
Yes, so every contracts a little different right. Some of our contracts Nikola is based on an index whatever that index might be of inflation. So it's hard to talk about it in generalities. The vast majority of not all of them have they didn't have that isn't there.
In addition to it I think one thing you alluded to in your first comment was.
It's not just on new agreements right, it's on existing agreements right as well as new agreements were breaking in this to kind of counterintuitive.
The way to think about it is I don't want people to think about the inflationary adjustments youre getting is a margin enhancement tool right.
Ultimately, there's productivity commitments and other things against that as we work with our clients, but the way. We would continue to want you to think about it is that and thinking about tiger's last comment about.
It's just going to be a longer ramp up than we anticipated between the ins and the inflationary cost pressures, we're dealing with today that pricing kind of catching up to it and that's why we continue to think that 2023 rate getting back to that 16, and a half expanding trajectory and a broad basis.
Thank you and turn those all here's a quick quick couple of more items of color to what Mike just described.
The colon contracts do have in some cases indexation.
But in some other cases, they don't and those are all driven by the particular client methodology that they use the competitive environment in that particular situation when the contract was signed.
What we are doing it systematically and figure out what what can we do to make it a win win and there are various ways of doing that as I described and then you'll have new contracts new contracts, obviously, the discussion starts with a new base.
New pricing.
New cost base.
Well as transformation services, which are which also starts with a new base in your pricing.
Competitive environment. The thing that is interesting about the discussion on this topic in today's world is that it's global so there is really no part of the world that's not impacted by similar inflationary pressures.
That applies to our clients irrespective of where they are and it applies to competitive environment irrespective of where the delivery comes from.
That makes it a little bit of a level playing field for everyone. And then the question is how do we create value using technology using data using analytics.
And then in Baghdad into the contract.
Again, thank you.
Frank is around them.
Thank you and I'm showing no further questions I would like to turn the call back to management for closing remarks.
Thanks, everybody for joining us today and look forward to speaking with you next quarter. Thanks.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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