Q3 2022 Genpact Ltd Earnings Call

November 9, 2022

Okay.

Good day, ladies and gentlemen, welcome to the 2022 third quarter Genpact Limited earnings Conference call. My name is Michelle and I will be your conference moderator today.

At this time all participants are in a listen only mode. We will conduct a question and answer session towards the end of the conference call.

This call is being recorded for replay purposes.

The replay of the call will be archived and made available on the IR section of Genpact website, I would now like to turn the call over to Roger Sachs head of Investor Relations at Genpact. Please proceed.

Thank you Michelle and good afternoon, everybody and welcome to our third quarter earnings call to discuss results for the period ended September 32022.

I hope you've had a chance to review our earnings release, which was posted to the IR section of our website Genpact Dot com.

On today's call are Taguchi authorizing our president and CEO and Mike Weiner, our Chief Financial Officer.

Today's agenda will be as follows. So again, we will provide an overview of our results and an update on our strategic initiatives. Mike will then walk you through our financial performance for the quarter as well as provide our current thoughts on our outlook for the full year 2022 Tiger will then come back with some closing remarks, and then we will take your questions. We expect the call to last rough.

And our.

And one of the matters, we will discuss in today's call are forward looking and involve a number of risks uncertainties and other factors that could cause actual results to differ materially from those in such forward looking statements such risks and uncertainties and uncertainties are set forth in our press release. In addition, during today's call we will refer to certain non-GAAP .

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 those 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.

Thank you Roger good afternoon, everyone and thank you for joining us today.

Good quarter.

Earnings call.

We delivered another quarter of solid results with revenue adjusted operating income margin and adjusted diluted EPS.

All in line with our expectations.

Demand for both data.

Physical operation services remains strong.

As we continue to help clients address.

The challenges are.

Cost and productivity growth.

Getting to work on building long term resiliency in their operating model.

In these times, we believe the essential.

Non discretionary nature of most of our services makes us even more valuable to our clients.

Specifically during the third quarter of 2022, we deliver stronger revenue.

111 1 billion.

Up 12% on a constant currency basis.

Data object.

Revenue of $110 million.

41% on a constant currency basis.

Digital operation services revenue of $601 million.

Up 6% on a constant currency basis.

Adjusted operating income margin of 17, 1% expanded 50 basis points year over year.

And adjusted diluted earnings per share.

75000 up 14% year over year.

All of our demand remains healthy as reflected in our high quality pipeline.

We have a durable and resilient business model, primarily made up of our annuity like revenue stream derived from designing building transforming I'm running mission critical operations for our clients.

Our chosen set of industry segments.

Given the unprecedented macro environment many clients are behaving cautiously.

We've seen some large guys that large scale cross makes or deals being broken up into medium sized deals that deliver faster payback.

Return on investment.

At the same time, we have seen a dramatic increase in the importance of driving cost agenda across all industry segments itself.

Many clients are doing is finding ways to Brazil.

<unk> long term transformational programs and funding them through aggressive cost initiative in which we are offering their partner.

As a result bookings in the quarter was supported by higher levels of medium and small deals with approximately two thirds of the total being annuity base and almost half sole source.

Already consistent with the past many quarters.

We have several large engagements progressing through the latter stages of our pipeline across all three of our industry segments and there's a good line of sight for some of these to close before year end.

I'm also excited that we continue to win new logos and added 34 this quarter compared to an average of 29 during the last 12 months period through June 30 of this year.

Many of these doctors initial data relationships and then separate Patriots fan engagement beyond the initial scope with a range of services. We have that are relevant for a variety of challenges.

Good day.

Total revenue for the quarter was up 12% year over year on a constant currency basis.

It was broad based across all of our industry segments.

Particular, but actually services.

And high Tech and manufacturing services continued to deliver strong double digit growth.

Data services.

Is that we design solutions.

Solutions.

Following our clients businesses grew 21% year over year on a constant currency basis.

Performance was driven by the ongoing momentum in our emerging services, including supply chain management sales and commercial risk.

Once again up more than 25% during the quarter.

Digital operation services ready digitally transform and run our clients' operations globally delivered another quarter of steady growth, increasing 6% year over year on a constant currency basis.

During the quarter, we continued to execute on the strategic initiatives, we outlined at our June Investor Day.

We're positioning ourselves to achieve our long term financial goals of driving 10% plus organic top line revenue growth and expanding profitability.

More meaningful than historical levels through 2026.

Let me share a few highlights of our progress.

Revenue from our priority accounts grew 14% year over year and represented 65% of total revenue.

Disproportionally investing in these accounts.

While undertaking significant transformation journey.

We see many of our opportunities that interlink multiple areas to drive meaningful outcomes for them for instance, finance and accounting with supply chain.

All financial risk and Brian with customer traffic.

In these engagements we are re imagining processes connected to multiple buying centers.

That drive Olympic change throughout our entire organization.

For example, we helped a large global technology company diversify their semiconductor supply base Super long term supply chain resilience.

Leveraging digital and analytics, we improve their supply and demand forecasting enables global inventory analysis.

Spot price forecasting to optimize timing of purchases.

We are now expanding our relationship into a long term digital operations deal, where we will run that demand planning operations for all new growth opportunities.

Second.

Outcome in conjunction based commercial models now representing 12% of total revenue on a path towards 20% by 2026.

This construct a line to outcomes and performance targets to deliver more value for clients and allow us to expand our relationships.

Particularly with our priority accounts interestingly. They also tend to have higher margins given that they have a risk reward construct.

Thank God, we are sharpening, our focus and better deploy our resources capital and leadership bandwidth to areas, where we see our best long term opportunities.

As such we are progressing with our plans to divest a small business we designated as held for sale last quarter.

We participate in a growth market that continues to be underpenetrated. It is expected to further expand over time.

Current macro environment creates opportunity for us as we help our clients navigate a rapidly changing landscape with cost consideration at the forefront.

We are seeing this with new clients, who have become more open to partnerships.

The first time, the change and transform themselves in response to this uncertain environment.

Over the past six months, we have had 64, new logos, including nine who are new buyers for all kinds of services, which several of those deals greater than $5 million.

We're also seeing existing relationships that started out with data tech AI transformation utilizing our emerging services now looking for cost transformation, leveraging our foundational services in areas, such as procurement finance and accounting insurance and banking back office operations.

Many of these expanded engagements are bolt on deals that we won because of our domain and process depth across our chosen verticals.

Let me share a couple of examples that demonstrate these trends we.

We are partnering with a European pharmaceutical clients, a first time outsourcer.

Digitally transform their back office to support future growth lower costs and drive better outcomes at a cost and cash flows we.

We are designing and implementing and we'll be running finance and accounting and it services leveraging digital technologies, such as Genpact Cora.

Robotic process automation.

Implementing service now as a common business workflow platform.

This represents a great example of a new relationship there are significant opportunities to become a priority accounts given that anticipated rapid growth.

Next for a large industrial manufacturing client success.

Success of our recent data tech supply chain transformation, improving demand forecasting and supply planning has positioned us for a sole source long term digital operations transformation deal for that.

Sourcing and procurement operations to drive savings in that total spend.

These dynamics are helping expand the size of many of our relationships. During the 12 months period ending September 32000, <unk>. We grew the number of relationships with annual revenue over $5 million from $1 43 to $1 58.

Clients with more than $25 million in annual revenue increase from 27 to 34.

Clients with more than $50 million in revenue increased from 11 to 14.

We saw a decrease in our quarterly attrition to 36% versus the 38% reported last quarter.

While too early to say that we are on a path to a more normalized level our attrition rate improved.

Just a month during the quarter and have continued to decline throughout October .

The majority of our attrition continues to be concentrated at the lower end of our organizational pyramid wherever we are able to quickly fill roles to meet demand.

As discussed last quarter arbitration, great includes all employees leave the company regardless of Kenya are a reason.

Adjusting for both involuntary attrition as well as employees with less than three months of serving our thirdquarter attrition would have been 33%.

During the quarter, we welcomed more than 14000, new team members across the globe.

Perfect.

Excellent, but beautiful world that works better for people and our value combined with a strong opportunity to learn and grow once Korea continues to attract great talent at all levels in a competitive market.

Definitely leveraging our internal redeployment platform talent match, we have successfully redeployed over 6000 retail employees to support the changing needs of our clients.

During the quarter, our employees completed approximately $2 3 million training all leveraging our online demand genome learning platform.

This includes our proprietary data and analytics certification program that is available to all our global team members to develop their expertise to generate critical insights from our vast operating that asset.

This unique program continues to be a differentiator for us and were recently recognized at the <unk> Com business innovation showcase for the ability to rapidly provide upskill and cross skill training.

We have found the team members, who are active on genome and employees will take advantage of opportunities to change roles and Charlie have at least 50% lower attrition rate than the company average.

This is a competitive advantage that we bring to our clients, particularly in today's macro environment, given our clients themselves are struggling to find the right talent.

Throughout the year.

We've actively been engaging with clients to help offset the impact of wage pressure and higher than normal accretion from a combination of off cycle pricing adjustment on implementing non FTE commercial models.

Made good progress on this initiative meeting our initial target set out earlier in the year.

Our year to date performance highlights the resilience of our business model and durable competitive advantage in the market.

We believe the investments we made in our strategic choices over the years position us well to help clients navigate the many challenges in the macro environment.

Combination of deep domain and process expertise with.

Digital technologies and analytics is even more relevant in these times to create lasting value for clients.

At the core of this is our agility and nimbleness, which allows us to take these different services to our clients to partner with them at speed and scale with that let me turn the call over to Mike.

Thank you Tiger and good afternoon, everyone.

Today I'll review, our third quarter results and update you on our full year 2022 financial outlook.

Total revenue was 111 1 billion up 9% year over year or 12% on a constant currency basis and in line with our expectations datasets and AI services revenue, which represents 46% of our total revenue increased 19% year over year or 21% on a constant.

Currency basis, largely driven by continued growth in our cloud based data and analytics solutions across our focus areas, including supply chain sales and commercial and risk services.

Digital digital operation services revenue, which represents 54% of total revenue increased 2% year over year or 6% on a constant currency basis, primarily due to deal ramps from existing and recent wins.

From a vertical perspective financial services increased 18% year over year, largely due to continued strong demand for our risk management services from both traditional banks and syntax leveraging data and analytics.

Consumer and health care increased 6% year over year, largely driven by data Tech NII sales in commercial and supply chain engagements.

Our high Tech and manufacturing increased 16%, primarily driven by sales of commercial supply chain, and finance and accounting engagements with both new and existing clients.

As Tiger mentioned earlier, we're progressing with our plan to divest the business that we designated for held for sale in the second quarter of this year.

As reflected in the other operating expense line in our third quarter P&L, we recorded a $21 million pre tax charge, reflecting the expected net realizable value of this business.

Adjusted operating income margin expanded 50 basis points year over year to 17, 1% largely due to growth related to the operating leverage and the impact of our recent cost containment initiatives.

<unk> for the quarter includes the impact from classifying the nonstrategic business held for sale and excluding the charges referred to a moment ago.

Gross margins for the third quarter declined 20 basis points year over year to 35, 4%. However increased to 100 basis points sequentially from the second quarter, the sequential quarter on quarter expansion is largely due to better utilization from ongoing demand of our data tech and have services.

And the benefit of off cycle pricing adjustments as a reminder, gross margin in the second quarter included a negative 80 basis point impact from restructuring costs related to strategic actions, we took in that period.

SG&A as a percentage of revenue was 28% down 50 basis points year over year, largely due to G&A leverage adjusted EPS was <unk> 75 up 14, 14% year over year from 65 in the third quarter of last year. This 10% increase was primarily driven.

By higher adjusted operating income of <unk>, the impact of lower outstanding shares of <unk> and <unk> related to higher FX Remeasurement gains recorded in the quarter compared to the same period last year, partially offset by higher net interest expense and taxes of <unk>.

Our effective tax rate was 28% compared to 17, 3% last year. The increase was primarily due to the mix of lower benefits recorded in the current year.

Turning to our cash on our balance sheet.

During the quarter, we generated $226 million of cash from operation that compare to $210 million in the same period last year. The increase was primarily driven by higher adjusted operating income margin and a sequential improvement in Dsos to 81 days from 84 days in the second quarter.

We now believe we will exit this year with the Dsos in the low 80 range instead of our earlier expectations and the high Seventy's given clients' cash management practices as interest rates remain elevated.

Overall credit quality of our portfolio continues to be very strong and unchanged cash and cash equivalents totaled $519 million compared to $460 million at the end of the second quarter of 2022, our net debt to EBITDA ratio for the last four rolling quarters was one five times with undrawn debt capacity existing cash.

<unk> balances, we continue to have ample liquidity to pursue growth opportunities and execute on our capital allocation strategy. We continue to expect our net debt to EBITDA ratio will remain in our preferred range of one times to two times.

Given the current market environment, we are pleased that almost 80% of our total debt is fixed rate during the quarter. We continued on a program of a more regular cadence of share repurchases and bought back approximately 627000 shares for a total cost of $30 million and an average price per share.

<unk> $47 86, we also paid out dividends totaling $23 million through.

Through the end of the third quarter, we repurchased more than $180 million.

Shares which is in line with the expectations, we set forth for the full year 2022 that we discussed earlier this year.

Capital expenditures as a percentage of revenue.

It was approximately 1% in the quarter. We now expect this percentage to be 1% to one 5% for full year 2022 due to the more effective use of a hybrid delivery model.

<unk> forward, we anticipate returning to a more normal normal more normal level of one to two times, 2% related to expansion of our facilities in various geographies now let me turn to the full year outlook given the continued strength of the US dollar. We now expect total revenue to be between $4 billion 320.

And $4 billion 355, representing a reported year over year growth of seven five to eight 5%.

This incorporates an incremental currency headwind of $15 million more than we provided in our updated full year outlook last quarter. This also includes $21 million of the expected revenue associated with the business held for sale down from $28 million. We now expect total revenue to be between 10 and 11%.

On a constant currency basis compared to our full year outlook of nine 5% to 11% we can.

We provided to expect in 2022, we continue to expect our full year 2022 operating income margin to be towards the high end of our range of 16 to 16, 5%.

We now expect adjusted earnings per share for full year 2022 to be between $2 69, and $2 74 compared to our outlook of $2 68.

$2 74.

This updated outlook takes into account the incremental currency headwind impact at the top end of our revenue outlook and slightly higher net interest expense offset by higher year to date below the line FX remeasurement gains.

Lastly, given our revised DSO outlook, we now expect to generate full year cash flow from operations closer to $450 million. This lower cash flows.

Expectations not related to a business slowdown as overall demand remained strong with that said, let me turn the call back over to Tiger.

Thank you Mike.

The capabilities, we built organically and through targeted acquisitions continue to resonate in the marketplace and our own agility enables us to quickly meet the changing needs of our clients. This is reflected in our year to date performance.

One of the most interesting thing we are seeing is that clients increasingly want to leverage their data across their organizations to build more meaningful insights and predictions that are then used for actions to deliver improved outcomes.

<unk> 50000 people in our digital operations team have completed that data re skilling program.

Building prediction models to drive better outcomes for our clients.

A few examples include in financial services predicting a consumer's propensity to pay in.

Consumer and health care predicting demand at various price and promotion points and in manufacturing and Hi Tech.

Victims customer satisfaction, driving better renewal rates on maintenance on SaaS products.

We continue to be recognized for our commitment to ESG initiatives.

We have recently been named for the second year in a row.

<unk>.

List of world's best employers.

We also recognized again by Forbes as one of America's best employer for veterans and acknowledged as an exemplar of inclusion in the most inclusive companies index.

Against the backdrop of the current macroeconomic environment I wanted to thank more than the 110000 global team members for their continued commitment to drive value for our clients communities and shareholders.

You can also see resilience and ability to meet new challenges head on is the key to our long term success with that let me turn the call back to Roger.

Thank you Tiger, we'd now like to open up our call for your questions. Michelle can you. Please provide the instructions. Thank you. If you have a question at this time. Please press star one on your telephone one moment for Q&A roster to compile.

And our first question comes from the line of maybe telling with.

Eric Your line is open. Please go ahead.

Hey, guys nice job again this quarter.

Thank you David.

Yeah. Good thanks, and yes, maybe maybe just as my question or my first question.

Year to date revenue spend very good I think constant currency about 13%, but the full year now youre, saying, 11% for the full year and if we kind of back into Q4, it seems like mid single digits or so constant currency.

Is that is there anything really driving that I know you said there is some breaking up into smaller pieces of some of the deals, but maybe talk through a little bit of that if I'm thinking of that right.

Yeah.

Yes, so it's a great question, David and let me start off by saying that.

Overall, the quality of our pipeline remains really good what we have been seeing and we talked about just the prior quarter and we continue to see this.

Large transformational deals I think clients.

Breaking them down into a phased approach primarily driven by our fast payback on our speed.

Or would you actually interestingly good news, which is wide.

Smaller and medium deals.

If I can count on those continue to be really good.

As it relates to larger deals, particularly from first time outsourcers they are taking longer.

It requires buying for many more people people are much more careful about.

And time and when do you pull the trigger and Youre seeing that play through in a very interesting way for our pipeline as we navigate this but as I said many of those are getting broken up into medium sized deals and those are moving forward very nicely. We also saw.

John .

Pipeline on data take AI.

From growth related agenda cost related agenda.

And we've seen that by the way across all industry segments.

Quickly customize our refocusing back on cost and that have generated a new set of pipeline fresh why solve the growth agenda has gone a little bit slower so that churn slows down as we cycled through in our pipeline and then go back into the railroad.

Got you thanks for that.

Does the pipeline suggests right now and anything different as we kind of look into next year I mean does it feel right now like it would support a pretty normalized year in both both segments or is that a little early to tell and of the churn makes it a little tougher than usual to talk.

Yeah, So David I think that.

Under normal conditions I would have said, it's too early to tell under the conditions of the current award I would certainly say its too early to tell so I think we've got by the time, we get to the first quarter in February when we announced our full year results and we talk about our full year outlook for 2023, I think it will have much better.

The ability I think a lot of the world without much better visibility.

We are in the process as usual of bringing building that up grounds up in terms of our total plan client by client, particularly starting with our priority clients might want to add anything to that.

Yes building on what you said earlier Tiger two things one is that we are seeing notable pivot in our data second half Tiger alluded to from more of a growth agenda to our cost agenda, which makes complete sense with macroeconomic environment.

And keep in mind at any given time with about 70% visibility and a rolling basis into our forecast. So layering that on top we will rollout we're doing our strategic planning for next year on an account by account level basis, we'll have more color on that.

And so we've laid out our blueprint 2026 of our long term strategy for the organization, which really has us targeting about 10%.

<unk> year on year.

And in any given year could be higher this year, we're guiding between 10%, 11%. So by definition will be a little bit higher potentially next year could be lower or higher so we'll have a little bit more clarity on that but nothing marketable too.

Pull from what Youre seeing in the fourth quarter building that guidance from from year to date is predicated for the full year.

Yes, yes, yes.

Just to round that off the list because it is probably a very important.

Question in the markets, we are in to round that off and in Chile.

What we've shown historically is that as the world goes through.

One can call a macro down cycle, whereas the global financial crisis or the pandemic.

We whether that really well.

While overall growth may have come down across the board for everyone, including us the relative difference for US was our strength because we did not come down the way others good and that's.

That is a reflection of the type of services, we provide as well as the diversity on the final clients that we work with so we continue to feel good about that the overall environment will play itself out over the next few months and I think a lot better visibility by the time, we get to February .

Got you well, thanks, guys nice job.

Thank you David.

Thank you and one moment for our next question.

Our next question comes from the line of frankly Clark with BMO. Your line is open. Please go ahead.

Alright. Thank you for taking our question in Mexico I wanted to follow up on the cash flow commentary about the increasing DSO.

Clients are.

Yes.

Urban class et cetera, doing a higher interest rate environment and I'm trying to understand how this evolves and what can genpact due to perhaps.

<unk> some of the impact of longer cash payments and how much specifically are you working with your customers to get the best outcome for both parties to want to understand how that dynamic is playing out as more thank you.

Yes, let me, let me kick it off here and then separate add on anybody so.

Essentially what's gone on is that we're moving to a more normal DSO pattern that we have historically we.

We had a number of them.

Clients, essentially prepay us surpass early rent, which drove which drove that down and exacerbated our cash flow. So when we gave out our original set of guidance.

We built upon that model, we saw marketable churn in that behavior, probably typically in the first and second quarter and still became a lot more mindful of cash flow management. So what we're seeing right now is more of a reverting back to historical norms.

Well as far as working with our clients all of our agreements have any.

Collection days T minus.

30, 60, 90, and we work with them for.

Payments from that perspective, but fundamentally the way I kind of think about it from a rolling five quarter basis, we'll be back to where we are.

But more interestingly that I focus on credit quality of that core of cheap, which is just been phenomenal doesn't keep me up at night at all regarding that.

Yes, I think I think the key to note there to what Mike said is that this was a reversion back to the mean.

Dsos, which has always been the case pre pandemic, we got we got some benefits actually through the pandemic on the Dsos coming down does that benefit has been given back as we have navigated through this year.

Great I appreciate the clarification. Thank you.

Think about it.

Thank you and one moment for our next question.

Our next question comes from the line of.

Maggie Nolan with William Blair. Your line is open. Please go ahead.

Hi, This is Kate <unk> on for Matt I wanted to quickly ask about the improvement in attrition.

And if you.

Could kind of dive into what has driven that improvement and if you think it's sustainable in the long term.

Yes, I think I'd start by saying that the macro has a role to play here.

<unk>.

We we did say that the macro is beginning to change and we talked about it last quarter.

And as.

Whether it is in the U S.

Ara.

Philippines and India.

Reality is that.

A number of large enterprises.

Well as startups in the various technology and data and analytics arena.

Slowed down their own hiring not to talk about some companies that have allowance announced layoffs I think we expected attrition levels to come down.

Start coming down as I said in my prepared remarks, I don't think we should declare victory Hari.

We've seen the attrition level come down across the board all geographies, all kinds of skills and all levels.

They are still higher than pre pandemic levels.

So if.

If we were to place. This forward one would expect attrition to continue to come down going into the next few quarters. If the world continues to go through the cycle, that's going through right now so we've been doing all the right things around talent talent match re skilling.

Bob.

Making sure that our employees get great opportunities to add value to clients and Milan.

And those practices are things that we've always been proud of.

No question that the macro has changed in the last 90 to 180 days.

Okay, great. Thank you that's really helpful color and then I have one quick follow up.

Automation been in higher demand.

The current macro right now and if so is that impacting the number of full time employees that youre able to deploy on clients.

If I understood the question right.

No.

I guess the thing is that a higher demand for automation.

Did I get that question, but right and is that impacting the demand for talent I get that right.

Yes, yes.

Yes sure.

So I would say I mean, there has been a secular demand for digital transformation that not just us but everyone in our industry have called out in fact every one of our clients have spoken about that got further accelerated through the pandemic.

That included.

Robotic process automation deploying AI and machine learning technology workflows in the cloud migrating technologies and processes to the cloud.

And that journey continues with our clients.

In my prepared remarks, I talked about the desire for a number of our clients to preserve some of that strategic transformation journeys.

Good call out.

Digital transformation is one of those areas that they want to preserve and the way. They do that is by far driving cost improvement productivity and efficiency in various other parts of the business sometime back we further accelerating automation of those parts. So all of this.

Ends up being a tailwind for our business.

When clients undertake those journeys they want scale they want expertise they want speed.

As a partner we bring scale, we bring expertise we bring speed.

And actually overall its great for our talent and our talent.

It's constantly being rescheduled in both digital technology as well as data analytics will be able to provide that for our clients.

Okay, great. Thank you and congrats on a nice quarter.

Thank you very much.

Thank you and one moment for our next question.

And our next question comes from the line of Bryan <unk> with Cowen. Your line is open. Please go ahead.

Hi. Thanks. This is exactly hasn't been offer Brian looking at dig further into the underlying dynamics of the implied <unk> guide can we peel back the data Tech AI segment, a bit more just looking for insight into which specific areas cater to growth initiatives versus the areas that are more cost focused.

And can you give us a sense of the high level mix of the growth bucket versus the cost focused bucket.

Yeah, I'll start by saying if you look at the data Tech World.

Three emerging services that we called out both our Investor day and on subsequent calls that we've done.

Supply chain sales and commercial.

Risks.

And we can look at all three of them.

And have a conversation of how each of those have services and solutions that are riveted on driving growth for our customers as well as other services and solutions in those same arena that are pivoted on cost of the agenda.

Let's take supply chain I mean, clearly that's still a significant demand for improving.

Supply chain.

In a situation where.

Geopolitics transportation energy costs and availability of raw materials, but let's just take those four topics create supply chain challenges for all manufacturing companies and consumer goods retail life Sciences companies.

And in that environment do.

Two things.

Is what clients are looking for how do I optimize my supply chain in order to drive lower cost of transportation and a high energy high transportation cost environment.

Inflationary raw material environment.

Now you flip that to.

How do I make sure that I have the right product available in the shelf with my customers.

By optimizing my supply chain in an environment, where demand is highly volatile.

And therefore, my ability to forecast demand and.

Navigate supply in order for products to be available allows me to drive growth in my agenda. So theres a balance in supply chain on with agenda is more important and we are seeing the importance of cost rise up.

From six months back most of the conversations were about fulfillment market share customer satisfaction in supply chain.

I can articulate a similar story on sales in commercial and on risk where it is a balance of a calculation some focus on cost some focus on growth and UBS.

We are seeing a rise of the cost agenda in all three of them with us.

Okay, Thanks, and a follow up on the <unk>.

Operating margins here can you discuss the progress getting contracting and pricing where it needs to be it sounds like theres been some nice improvement here that helps you hold the $16 five calendar 'twenty two guide, but curious how this informs the calendar 'twenty three setup any considerations to be mindful of that can change the starting point for the adjusted operating.

Any margin next year or does the base expectation to build off of 16, 5% remained.

Yes.

Kick them off I think the base remains.

As we alluded to a year or so ago that we were going to work through this year.

We are diligently to get we considered off off cycle pricing adjustments working in concert with our clients to provide value on both sides of that and get that more in line with what our inflationary cost structures was through the year I think I can successfully report back when we did that we said at that time, the natural trajectory of it.

Business would be to linear and really move towards 16, and a half anywhere in that process and we'd like you to build all of their models.

Thinks about the business in 2023 off of that $16 five with an expanding margin what that might be I don't know, but we will have the inherent operating leverage of the business of just seeing bigger players as well as the benefit of all the actions that we've taken.

What we said.

Nine months ago is really playing out.

Quite well, we've got a lot of fits and starts and.

Deviations in the macroeconomic and.

So thats petroleum are at this point.

Great. Thank you.

Thank you.

Okay.

And again, if you have a question at this time. Please press star one on your Touchtone telephone.

One moment for our next question.

Our next question comes from the line of Bryan Keane with Deutsche Bank. Your line is open. Please go ahead.

Hi, guys congrats on the quarter when I when I look at the quarter, it's incredibly solid 12% constant currency growth that was well ahead of our estimates and consensus but I'm still trying to understand the fourth quarter guide.

Quite a bit lower than that in kind of that mid single digit range. How much of that is macro the fourth quarter guide how much of that is conservatism on your part and I heard a little bit about the <unk>.

Growth versus cost.

Some payback cycles, but I'm just trying to figure out the lower guide what does that resulting from exactly if you can quantify it.

Yes, I'll kick this off.

I'm sorry go ahead.

Good.

I was just going to say, let's be mindful of the comp on a year over year basis to start with right. So extensively we had a very very strong fourth quarter last year.

With some data tech and AI.

Our license sales that type of thing, which which were wonderful, but it certainly made for a tough year over year comp.

And again.

I just want to build upon that with this with the point of cost versus growth agenda, and what we're seeing now sitting where we are now in November .

And our predictability and the Max.

Six seven weeks.

Got it.

And Brian just to add to what Mike said and thank you for your compliments I appreciate that.

We signed up I think we do feel really good about our year to date results through the three quarters, where overall across the three quarters, we have exceeded our own expectations that you have of the three quarters now in that three quarter period, we clearly.

<unk> recognized that the world around us has changed our clients have become more cautious.

They have in many instances.

Grabbed onto.

Topics that theyre, having grappled with until three or four months back which is I need to resize my old business I need to announce a little bit of layoffs.

I need to.

Cut back on investment in this particular business that geography as they go through that.

In these cycles, we see a little bit of.

Claude.

Big decision, making particularly as it relates to bigger deals and bigger transformation agenda.

And that takes us a quarter or sort of settled down we recognize that we see that.

We've seen that particularly the larger deal decision, making taking longer because more people are being asked to sign all within a client environment and I think we're just being.

Very realistic I wouldn't say, we're being conservative I, just think we're being realistic about our view about the balance of the year.

And we feel really good that we will end the yard.

Having met all the expectations in fact, you know getting to the higher end of all our expectations that we set out at the beginning of the yard and the World has changed to the last 12 months.

So.

It is a recognition of what our clients are going through.

And then also with journey.

Sure.

Most important agenda from.

The thing actually is not that important metric will be when that happens it takes a little bit of an extra cycle time to actually make that happen.

We have the new terms for the original agenda, we're hot and yes, the near term for the new agenda.

Yeah, and I thought it was encouraging that the new logos is jumping a little bit so that youre actually getting new business for some of the people looking for more help on the cost side of things.

That's right Brian on one of the good things about that is it actually sets up for a much longer term growth with some of those becoming priority accounts a couple of years from now I'm absolutely convinced that many of those will be property accounts for us.

Okay helpful. Thanks for the color.

Thank you Bob.

Thank you and I'm showing no further questions at this time and I'd like to hand, the conference back over to Roger Sachs for any further remarks.

Thank you everybody for joining us today, and we look forward to speaking you again next quarter.

This concludes today's program you can now disconnect everyone have a great day.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Okay.

[music].

Yes.

[music].

Good day, ladies and gentlemen, welcome to the 2022 third quarter Genpact Limited earnings Conference call. My name is Michelle and I will be your conference moderator today.

At this time all participants are in a listen only mode. We will conduct a question and answer session towards the end of the conference call. As a reminder, this call is being recorded for replay purposes.

The replay of the call will be archived and made available on the IR section of <unk> website, I would now like to turn the call over to Roger Sachs head of Investor Relations at Genpact. Please proceed.

Thank you Michelle and good afternoon, everybody and welcome to our third quarter earnings call to discuss results for the period ended September 32022.

I hope you've had a chance to review our earnings release, which was posted to the IR section of our website Genpact Dot com.

On today's call are Tiger, <unk>, our president and CEO and Mike Weiner, Our Chief Financial Officer.

Today's agenda will be as follows. So I gave will provide an overview of our results and an update on our strategic initiatives. Mike will then walk you through our financial performance for the quarter as well as to provide our current thoughts on our outlook for the full year 2022 Tiger will then come back with some closing remarks, and then we will take your questions. We expect the call to last roughly.

And our.

And one of the matters, we will discuss in today's call are forward looking and are Bob a number of risks uncertainties and other factors that could cause actual results to differ materially from those in such forward looking statements.

Risks uncertainties and uncertainties are set forth in our press release. In addition, during today's call. 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 those measures to GAAP in today's earnings release.

<unk> posted to the IR section of our website and with that let me turn the call over to Tiger.

Thank you Roger good afternoon, everyone and thank you for joining us today.

Quarter two earnings call.

We delivered another quarter of solid results with revenue adjusted operating income margin.

Adjusted diluted EPS all in line with our expectation.

Demand for both data object.

Physical operation services remains strong as we continue to help clients address pressing challenges around cost and productivity growth.

Regarding Rick.

Building long term resiliency in their operating model.

In these times, we believe the essential.

Non discretionary nature of most of all it sounds like the mix up even more valuable to our clients.

Typically during the third quarter, two we delivered revenue of $1.111 billion.

12% on a constant currency basis.

Jackie I services revenue of $110 million up 1% on a constant currency basis.

Mexico Operation services revenue of $601 million up 6% on a constant currency basis.

Adjusted operating income margin of 17, 1% expanded 50 basis points year over year and adjusted diluted earnings per share.

75000 up 14% year over year.

All of our demand remained healthy.

And our high quality pipeline.

We have a durable and Zambia.

<unk> business model, primarily made up of our annuity like revenue stream derived from designing building transforming I'm running mission critical operations for our clients across our chosen set of industry segments.

Given the unprecedented macro environment, many blogs off behaving cautiously.

We have seen some monetize that large scale cross Mexico deal being broken up.

In fact deals that deliver a fast payback.

Return on investment.

At the same time, we have seen a dramatic increase in the importance of <unk>.

Rising cost agenda across all industry segments yourself.

Many clients are doing is finding ways to preserve.

Do you think long term transformational programs and funding them through aggressive cost initiative in which we are offering their partner.

As a result bookings in the quarter was supported by higher levels of medium and small deals with approximately two thirds of the total being annuity base and almost half sold.

All very consistent with the past many quarters.

I'm also very excited that we continue to win new logos and I could be for this quarter compared to an average of 29 during the last 12 months period through June 30 of this year.

Many of these doctors initial data relationships and then separate Patriots fan engagement beyond the initial scope with a range of services. We have that are relevant for a variety of challenges our clients face today.

Total revenue for the quarter was up 12% year over year on a constant currency basis and growth was broad based across all of our industry.

Particular, but actually services.

And how different manufacturing services continued to deliver strong double digit growth.

David I'll take the I saw that says that we design solutions.

Solutions.

Former client businesses grew 21% year over year on a constant currency basis.

Performance was driven by the ongoing momentum in our emerging services.

Supply chain management sales and commercial and.

That was once again up more than 25% during the quarter.

Digital operation services, maybe digitally transform and run our clients' operations globally delivered another quarter of steady growth, increasing 6% year over year on a constant currency basis.

During the quarter, we continued to execute on the strategic initiatives, we outlined at our June Investor Day.

Positioning ourselves to achieve our long term financial goals of driving 10% plus organic top line revenue growth.

Finding profitability at a more meaningful than historical levels through 26.

Let me share a few highlights of our progress.

But revenue from our priority accounts grew 14% year over year and represented 65% of total revenue.

Disproportionally investing in these accounts.

While undertaking significant transformational journey.

We've seen many of our opportunities that interlinked multiple areas to drive meaningful outcomes for them for instance, finance and accounting with supply chain.

All financial risk and Brian with customer service.

These engagements we are re imagining processes.

<unk> to multiple buying centers.

Drive holistic change throughout our entire organization.

For example, we helped a large global technology company diversified that semiconductor supply base.

Long term supply chain resilience.

Leveraging digital and analytics, we improve that supply and demand forecasting enabled global inventory analysis.

<unk> forecasting to optimize timing of budget, we are now expanding our relationship into a long term digital operations deal, where we will run that demand planning operations for all new growth opportunities.

Second outcome and consumption based commercial model now representing 12% of total revenue on a path towards 20% by 2026.

These construct allows you to outcomes and performance targets to deliver more value for clients and allow us to expand our relationships.

Particularly with our priority accounts interestingly. They also tend to have higher margins given that they have a risk reward construct.

Thank God, we are sharpening, our focus and better deploy our resources capital and leadership bandwidth to areas, where we see our best long term opportunities.

As such we are progressing with our plans to divest a small business we designated as held for sale last quarter.

We participate in a growth market that continues to be underpenetrated on is expected to further expand over time.

Current macro environment creates opportunities for us as we help our clients navigate a rapidly changing landscape with cost configuration at the forefront.

We are seeing this with new clients, who have become more open to partnerships for the first time.

Change and transform themselves in response to the uncertain environment.

Over the past six months, we have had 64, new logos, including nine who are new buyers for all kinds of services with several of those deals greater than $5 million.

Many of these expanded engagements are bolt on deals that you won because of our domain and process depth.

Our chosen verticals.

Let me share a couple of examples that demonstrate these trends we.

We are partnering with a European pharmaceutical clients.

Time ourselves though.

Digitally transform their back office to support future growth lower costs and drive better outcomes, such as Boston cash flows we.

We are designing and implementing and we'll be running finance and accounting and IV services, leveraging digital technologies, such as Genpact Cora.

Robotic process automation.

Implementing service now as a common business workflow platform.

This represents a great example of a new relationship there are significant opportunities to become a priority accounts given that anticipated rapid growth.

Next for a large industrial manufacturing client success.

These dynamics are helping expand the size of many of our relationships. During the 12 months period ending September 30th 20, Grateful. We grew the number of relationships with annual revenue of over $5 million from $1 43 to $1 58.

With more than $25 million in annual revenue increased from 27 to 34.

Clients with more than $50 million in revenue increased from 11 to 14.

We saw a decrease in our quarterly attrition to 36% versus the 38% reported last quarter.

Why do I need to say that we are in a box to a more normalized level.

Our attrition rate improved.

Just a month during the quarter and have continued to decline throughout October .

The majority of our attrition continues to be concentrated at the lower end of our organizational pyramid.

We are able to quickly fill roles to meet demand.

As discussed last quarter auditors grades includes all employees leave the company, regardless of Zhejiang or reason.

Adjusting for both involuntary attrition as well as employees with less than three months of southern third quarter attrition would have been 33%.

During the quarter, we welcomed more than 14000, new team members across the globe.

Our puppet the relentless pursuit of a world that works better for our people and our value combined with a strong opportunity to learn and grow once Korea continues to attract great talent at all levels in a competitive market.

Additionally, leveraging our internal redeployment platform talent match, we have successfully redeployed over 6000 greenfield employees to support the changing needs of our clients.

During the quarter, our employees completed approximately $2 3 million training are leveraging our online demand genome learning platform that includes our proprietary data and analytics certification program that is available to all our global team members to develop their expertise to generate critical insight from our vast operating get out there.

This unique program continues to be a differentiator for us.

Continued recognized at the <unk> Com business innovation showcase for the ability to rapidly provide upskill and cross skill training.

We have found the team members, who are active on genome and employees will take advantage of opportunities to change roles entirely have at least 50% lower attrition rate than the company average. This is a competitive advantage that we bring to our clients, particularly in today's macro environment, given our clients themselves are struggling to find the right talent.

Throughout the year.

We've actively been engaging with clients to help offset the impact of wage pressure and higher than normal accretion from a combination of off cycle pricing adjustments and implementing non FTE commercial model.

We've made good progress on this initiative meeting our initial target set out earlier in the year.

Our year to date performance highlights the resilience of our business model and durable competitive advantage in the market.

We believe the investments we made in our strategic charges over the years position us well to help clients navigate the many challenges in the macro environment there.

Combination of deep domain and process expertise with digital technologies and analytics is even more relevant in these times to create lasting value for clients.

At the core of this is our agility and nimbleness, which allows us to take these different services to our clients to partner with them at speed and scale with that let me turn the call over to Mike.

Thank you Tiger and good afternoon, everyone.

Today I'll review, our third quarter results and update you on our full year 2022 financial outlook.

Total revenue was 111 1 billion up 9% year over year or 12% on a constant currency basis and in line with our expectations data Tech and AI services revenue, which represents 46% of our total revenue increased 19% year over year or 21% on a constant.

Currency basis, largely driven by continued growth in our cloud based data and analytics solutions across our focus areas, including supply chain sales and commercial and risk services.

Consumer and health care increased 6% year over year, largely driven by data Tech NII sales in commercial and supply chain engagements and our high Tech and manufacturing increased 16%, primarily driven by sales of commercial supply chain and finance and accounting engagements with both new.

And existing clients.

As Tiger mentioned earlier, we're progressing with our plan to divest the business that we designated for held for sale in the second quarter of this year.

As reflected in the other operating expense line in our third quarter P&L, we recorded a $21 million pre tax charge, reflecting the expected net realizable value of this business.

Adjusted operating income margin expanded 50 basis points year over year to 17, 1% largely due to growth related to the operating leverage and the impact of our recent cost containment initiatives.

<unk> for the quarter includes the impact from classifying the nonstrategic business held for sale and excluding the charge you referred to a moment ago.

Gross margins for the third quarter declined 20 basis points year over year to 35, 4%. However, increased 100 basis points sequentially from the second quarter, the sequential quarter on quarter expansion is largely due to better utilization from ongoing demand of our data tech and AI services.

SG&A as a percentage of revenue was 28% down 50 basis points year over year, largely due to G&A leverage adjusted EPS was <unk> 75 up 14, 14% year over year from 65 cents in the third quarter of last year. This 10% increase was primarily driven.

And by higher adjusted operating income of <unk>, the impact of lower outstanding shares of <unk> and <unk> related to higher FX Remeasurement gains recorded in the quarter compared to the same period last year, partially offset by higher net interest expense and taxes of <unk>.

Our effective tax rate was 28% compared to 17, 3% last year. The increase was primarily due to the mix of lower benefits recorded in the current year.

Turning to our cash on our balance sheet.

During the quarter, we generated $226 million of cash from operation that compared to $210 million in the same period last year. The increase was primarily driven by higher adjusted operating income margin and a sequential improvement in Dsos to 81 days from 84 days in the second quarter.

We now believe we will exit this year with the Dsos in the low 80 range instead of our early expectations in the high 70, given clients' cash management practices as interest rates remain elevated.

<unk> <unk> $47 86.

Also paid out dividends totaling $23 million through.

Through the end of the third quarter, we repurchased more than $180 million of.

Shares which is in line with the expectations, we set forth for the full year 2022 that we discussed earlier this year.

Capital expenditures as a percentage of revenue.

Was approximately 1% in the quarter. We now expect this percentage to be 1% to one 5% for full year 2022 due to the more effective use of a hybrid delivery model.

Going forward, we anticipate returning to a more normal normal more normal level of one to two times, 2% related to expansion of our facilities in various geographies now let me turn to the full year outlook.

The continued strength of the US dollar we now expect total revenue to be between $4 billion 320, and $4 billion 355, representing a reported year over year growth of seven five to eight 5%.

On a constant currency basis compared to our full year outlook of nine 5% to 11%.

We.

We provided to expect in 2022.

We continue to expect our full year 2022 operating income margin to be towards the high end of our range of 16 to 16, 5%.

We now expect adjusted earnings per share for full year 2022 to be between $2 69, and $2 74 compared to our outlook of $2 68 to $2 74.

Lastly, given our revised DSO outlook, we now expect to generate full year cash flow from operations closer to $450 million. This lower cash flows XP.

Expectations not related to a business slowdown as overall demand remained strong with that said, we turn the call back over to Tiger.

Thank you Mike.

More than 50000 people in our digital operations team have completed their data Reskilling program.

Building prediction models to drive better outcomes for our clients.

A few examples include in financial services, predicting a consumer's propensity to pay and.

Consumer and health care predicting demand at various price and promotion points and manufacturing and high Tech.

<unk> customer satisfaction, driving better renewal rates on maintenance and SaaS products.

We can do you have to be recognized for our commitment to ESG initiatives.

Good to have recently been named for the second year in a row.

Hubs.

List of world's best employers.

We're also recognized again by Forbes as one of America's best employer for veterans and acknowledged as an exemplar of inclusion in the most inclusive companies index.

You cannot see resilience and ability to meet new challenges head on is the key to our long term success with that let me turn the call back to Roger.

Eric Your line is open. Please go ahead.

Hey, guys nice job again this quarter.

Thank you David.

Yeah. Good thanks, and yeah, maybe maybe just as my question or my first question.

To date revenue has been very good I think constant currency about 13%, but the full year and now you're saying, 11% for the full year and if we kind of back into Q4. It seems like mid single digits or so constant currency is that is there anything really driving that I know you said there were some breaking up into smaller pieces of some of the deal.

But maybe talk through a little bit of that if I'm thinking of that right.

Sure.

Yeah. So it's a great question, David and let me start off by saying that.

Overall, the quality of our pipeline remains really good.

What we have been seen and we've talked about this prior quarter and we continue to see this is <unk>.

A large transformational deal I think client of <unk>.

Breaking them down into a phased approach primarily driven by I want fast payback on our speed.

Could you actually interestingly, good news, which is wide.

Smaller and medium deals.

The cycle times on those continue to be really good.

As it relates to larger deals, particularly from first time outsourcers.

They are taking longer.

It requires buying for many more people people are much more careful about.

On time, and when do you pull the trigger.

And we're seeing that play through in a very interesting way for our pipeline.

Navigate this but as I said many of those are getting broken up into medium sized deals and those are moving forward very nicely. We also saw.

In our pipeline on data take AI.

From growth related agenda cost related agenda.

And we've seen that by the way across all industry segments.

Quickly customize our refocusing back on cost and that have generated a new set of pipeline fresh why some of the growth agenda has gone a little bit slower so that John slows down as we cycled through in our pipeline and then go back into the range.

Gotcha no thanks for that.

Yeah, So David I think that.

Under normal conditions I would've said, it's too early to tell.

Under the conditions of the current war I would certainly say its too early to tell so I think we've got by the time, we get to the first quarter in February when we announced our full year results and we talk about our full year outlook for 2023, I think it will have much better visibility I think a lot of the world without much better visibility.

We are in the process as usual I'll bring that up grounds up in terms of our total plan client by client, particularly starting with our priority cloud, Mike you want to add anything to that.

Yes building on what you said earlier Tiger two things. One is we are seeing notable pivot in our data second half Tiger alluded to from more of a growth agenda to our cost agenda, which makes complete sense with macroeconomic environment.

And keep in mind that any given time with about 70% visibility and on a rolling basis into our forecast right. So layering that on top we will rollout we're doing our strategic planning for next year on an account by account level basis, we'll have more color on that.

And so we've laid out our blueprint 2020 to our long term strategy for the organization, which really has us targeting about 10%.

<unk> year on year.

And in any given year could be higher this year, we're guiding between 10%, 11%. So by definition will be a little bit higher potentially next year could be lower or higher so well have a little bit more clarity on that but nothing marketable too.

Pull from what Youre seeing in the fourth quarter building that guidance from year to date is pretty good and for the full year.

Yes, yes, yes.

Yes around that because it is probably a very important.

Question in the markets, we are in the round that off and in Chile.

What we've shown historically is that as the world goes through what one can call a macro down cycle, whereas the global financial crisis or the pandemic, we whether that really well.

While overall growth may have come down across the board for everyone, including us the relative difference for US was our strength because we did not come down the way of us doing.

That is a reflection of the type of services, we provide as well as the diversity on the final clients that we work with so we continue to feel good about the overall environment will play itself out over the next few months and I think we'll have better visibility about the time to get through February .

Gotcha, Thanks, guys nice job.

Thank you David.

Thank you and one moment for our next question.

Our next question comes from the line of Bradley Clark with BMO. Your line is open. Please go ahead.

Alright. Thank you for taking my question in Mexico, I wanted to follow up on the cash flow commentary about increasing DSO.

Clients are.

They have been tasked with kind of a doing a higher interest rate environment.

I understand how this evolves and what can genpact due to perhaps minimize some of the impact of longer cash payments and how more specifically are you working with your customers to get the best outcome for both parties.

And how this dynamic is playing out more thank you.

Yes, well, let me, let me kick it off here and then separately on anybody so.

Secondly, what's gone on and that we're moving to a more normal DSO pattern that we have historically.

We had a number of.

Our clients essentially pre payoffs or pay us early rent, which drove which drove that down and exacerbated our cash flow. So when we gave out our original set of guidance.

We built upon that model, we saw marketable churn in that behavior, probably certainly in the first and second quarter is still became a lot more mindful of cash flow management. So what we're seeing right now is more of a reverting back to historical mean.

Well as far as working with our clients all of our agreements have any.

Collection days T minus.

30, 60, 90, and we work with them for for for payments from that perspective, what's fundamentally the way I kind of think about it from a rolling five quarter basis, we'll be back to where we are.

But more interestingly that I focus on credit quality of that correction, which has just been phenomenal doesn't keep me up at night at all regarding that.

Yes, I think I think the keys or note there to what Mike said is that this was a reversion back to the mean.

<unk>, which has always been the case pre pandemic, we got we got some benefits actually through the pandemic on the Dsos coming down does that benefit has been given back as we have navigated through this year.

Greg I appreciate the clarification. Thank you.

Thank you Bobby.

Thank you and one moment for our next question.

Yeah.

Our next question comes from the line of.

Yeah.

Maggie Nolan with William Blair. Your line is open. Please go ahead.

Hi, This is Kate on for Matt.

To quickly ask about the improvement in attrition.

Do you think you could kind of dive into what has driven that improvement and if you think it's sustainable in the long term.

Yes, I think I'd start by saying that the macro has a role to play here.

We we did say that the macro is beginning to change and we talked about it last quarter.

And as well.

Whether it is in the U S in the yard.

Ara in Philippines, and India.

The reality is that <unk>.

A number of large enterprises.

As well as startups in the various technology and data and analytics arena.

Slowed down their own hiring not to talk about some companies that have a lounge announced layoffs.

We expect attrition levels to come down.

I'll start coming down.

I said in my prepared remarks.

Don't think we should declare victory in a hurry.

We've seen the attrition level come down across the board all geographies, all kinds of skills and all levels.

Yes, you had a higher than pre pandemic levels.

So if.

If we were to play this forward one would expect attrition to continue to come down going into the next few quarters. If the world continues to go through the cycle, that's going through right now so we've been doing all the right things around talent talent match re skilling.

Uh huh.

Making sure that our employees get great opportunities to add value to clients and Milan.

Those practices are things that we've always been proud of.

No question that the macro has changed in the last 90 to 180 days.

Okay, great. Thank you that's really helpful color and then I have one quick follow up.

Automation been in higher demand.

The current macro right now and if so is that impacting the number of full time employees that youre able to deploy on clients.

If I was if I understood the question right.

No.

I guess the thing is that a higher demand for automation.

Did I get that question, but right now and is that impacting the demand for talent I get that right.

Yes, yes.

Yeah sure.

So I would say I mean.

There has been a secular demand for digital transformation that not your thoughts with everyone in our industry have called out in fact every one of our clients has spoken about that got further accelerated through the pandemic.

That included.

Robotic process automation deploying AI and machine learning technology workflows in the cloud migrating technologies and processes to the cloud.

And that journey continues with our clients I in my prepared remarks, I talked about the desire for a number of our clients to preserve some of that strategic transformation journeys.

Good call out.

Digital transformation is one of those areas that they want to preserve and the way. They do that is by driving cost improvement productivity and efficiency in various other parts of the business sometime back any further accelerating automation and those parts. So all of that.

Ends up being a tailwind for our business because when clients undertake those journeys they want scale they want expertise they want speed.

As we bring scale, we bring expertise we bring speed.

And actually overall, it Gregg for our talent and our talent.

Constantly being rescheduled in both digital technologies as well as data analytics will be able to provide that for our clients.

Okay, great. Thank you and congrats on a nice quarter.

Thank you very much.

Thank you and one moment for our next question.

And our next question comes from the line of Ryan Brinkman with Cowen. Your line is open. Please go ahead.

Hi, Thanks. This is zach as a man on for Brian looking to dig further into the underlying dynamics of the implied <unk> guide can we peel back the data Tech AI segment, a bit more just looking for insight into which specific areas cater to growth initiatives versus the areas that are more cost focused.

And can you give us a sense of the high level of mix of the growth bucket versus the cost focus bucket.

Yeah, I'd start by saying if you look at the data.

Let's see.

Free emerging services that we called out both on Investor day and on subsequent calls that we've done.

Supply chain sales and commercial.

Risks.

And we can look at all three of them.

Let's take supply chain I mean, clearly that's still a significant demand for improving.

Supply chain.

In a situation where.

Geopolitics transportation energy costs and availability of raw materials, that's just take those four topics.

Supply chain challenges for all manufacturing company and consumer goods retail life Sciences company.

And in that environment do.

Two things.

Is what clients are looking for how do I optimize my supply chain in order to drive lower cost of transportation and a high energy high transportation cost environment.

Inflationary raw material environment.

Now you flip that to.

How do I make sure that I have the right product available in the shelf with my customers.

By optimizing my supply chain in an environment, where demand is highly volatile.

And therefore, my ability to forecast demand and.

From six months back most of the conversations were about fulfillment.

Market share customer satisfaction in supply chain and marketing.

Articulate a similar story on sales in commercial and on the risk.

It's a balance of a kind of affiliation some focus on cost some focus on growth and.

We are seeing a rise of the cost agenda in all three of them.

Okay.

Okay, Thanks, and a follow up on the operating margins here can you discuss the progress getting contracting and pricing where it needs to be it sounds like theres been some nice improvement here that helps you hold the $16 five calendar 'twenty two guide, but curious how this informs the calendar 'twenty reset up any considerations.

To be mindful of that can change the starting point for the adjusted operating margin next year or does the base expectation to build off of 16, 5% remained.

Yes.

Kick them off I think the base remains.

As we alluded to a year or so ago that we were going to work through this year.

Work diligently to get we considered off off cycle pricing adjustments working in concert with our clients to provide value on both sides of that and get that more in line with what our inflationary cost focus was for the year I think I can successor to report that we did that we said at that time, the natural trajectory of it.

Business would be to linear and really move towards 16, and a half anywhere in that process and we'd like you to build all of their models.

Thanks about the business in 2023 off of that 16, and a half with an expanding large what that might be I don't know, but we will have the inherent operating leverage of the business of just being a bigger player as well as the benefit of all the actions that we've taken.

What we said nine months ago is really playing out quite.

Quite well, we've got a lot of fits and starts and.

Deviations in the macroeconomic and.

So thats the portfolio at this point.

Great. Thank you.

Thank you.

Okay.

And again, if you have a question at this time. Please press star one one on your Touchtone telephone.

One moment for our next question.

Our next question comes from the line of Bryan Keane with Deutsche Bank. Your line is open. Please go ahead.

And some payback cycles, but I'm just trying to figure out the lower guide what does that resulting from exactly if you can quantify it.

Yes.

Oh I'm sorry go ahead.

It could.

I was just going to say, let's be mindful of the comp on a year over year basis to start with spread so extensively we had a very very strong fourth quarter last year.

With some data tech and AI.

License sales that type of thing, which which were wonderful, but it certainly made for a tough year over year comp.

And again.

Just wanted to build upon that with this with the point of cost versus growth agenda, and what we're seeing now sitting where we are now.

Number nine.

And our predictability and the Max.

Six seven weeks.

Got it.

No I'm, sorry, just to add to what Mike said and thank you for your compliments I appreciate that.

We start off by saying, we do feel really good about our year to date results through the three quarters, where overall across the three quarters, we have exceeded our own expectations have you out of the three quarters now in that three quarter period, we clearly must.

Recognize that the world around us has changed our clients have become more cautious.

They have in many instances.

<unk> gone to.

You know topics that there hadn't grappled with until three or four months back which is I need to resize my old business I need to announce a little bit of layoffs.

I need to.

Cut back on investment in this particular business on that geography.

As they go through that.

And these cycles, we see a little bit of.

Well, it's a big decision, making particularly as it relates to bigger deals and bigger observation agenda and that takes us a quarter or sort of settled down we recognize that we see that.

We've seen that particularly in a larger deal.

Isn't making taking longer because more people are being asked to sign all within a client environment.

I think we are just being.

Very realistic I Wouldnt say, we are being conservative I, just think we're being realistic about our view about the balance of the year.

And we feel really good that we will end the yard.

Having met all the expectations in fact getting to the higher end of all our expectations that we set out at the beginning of the yard and the World has changed since the last 12 months.

So yeah. It is a recognition of what our clients are going through.

And then also the journey there.

Most importantly, <unk> from <unk>.

The same actually is not that important metric will be when that happens, there's a little bit of extra hyper dying to actually make that John happen.

Yeah, So new terms for the original agenda would be hot and yes, the neutral for the new agenda.

Yeah, and I thought it was encouraging that the new logos is jumping a little bit so that youre actually getting new business for some of the people looking for more help on the cost side of things.

That's right, Brian I mean, one of the good things about that is it actually sets up for a much longer term growth with some of those becoming priority accounts a couple of years from now I'm absolutely convinced that many of those will be property accounts for us.

Okay helpful. Thanks for the color.

Thank you Bob.

Thank you and I'm showing no further questions at this time and I'd like to hand, the conference back over to Roger Sachs for any further remarks.

Thank you everybody for joining us today, and we look forward to speaking you again next quarter.

This concludes today's program you can now disconnect everyone have a great day.

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