Q4 2022 Genpact Ltd Earnings Call
Good day, ladies and gentlemen, welcome to the 2022 fourth quarter Genpact Limited earnings Conference call. My name is Justin and I will 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 toward.
At the end of this conference call as a reminder, this call is being recorded for replay purposes.
The replay of the call will be archived 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 Justin good afternoon, and welcome to Genpact earnings call to discuss results for the fourth quarter and full year ended December 31, 2022, you Hope you had a chance to get you have our earnings release, which was posted to the IR section of our website Genpact com speakers.
The speakers on today's call are Tiger Thiago Rajiv credit had been CEO and Mike Weiner, Our Chief Financial Officer, today's agenda will be as follows trial gave will provide an overview of our results.
Based on our strategic initiatives, Mike will then walk you through our financial performance in greater detail, but our outlook for the full year 2023.
It will then come back for some closing remarks, and then we can take your questions expect a call to last about an hour.
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 are set forth in our press release.
Today's call, we will reference certain non-GAAP financial measures.
We believe provide useful information to enhance the understanding of the weight management views the operating performance of allocation.
Yes.
Reconciliations 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 John here.
Thank you Roger good afternoon, everyone and thank you for joining us today for our fourth quarter and year end 2022 earnings call.
We are pleased with our full year actual results with revenue growth adjusted operating income margin and adjusted diluted earnings per share all coming in at the high end of our expectations highlighting the relevance of our data services and digital operations services for our clients.
Information is a pervasive theme across most enterprises with many of them, calling out 2023 other yards efficiently.
We are therefore, seeing a robust pipeline of continuous flow of data.
On large transformational deals.
In the fourth quarter or do we go live on a constant currency basis total revenue of 1.103 billion up 6% year over year data.
Revenue of $495 million up 5% year over year.
On digital operational services revenue of $608 million up 7% year over year.
Adjusted operating income margin of 17%, expanding Jordan and 60 basis points year over year and adjusted diluted earnings per share of <unk> 77 up 30% year over year.
Full year 2022 on a constant currency basis, we delivered total revenue of 4.37 billion up 11%.
Geographically our services revenue of $1 96 billion up 18%.
Digital operation services revenue of 2.41 billion up 6% adjust.
Adjusted operating income margin of 16, 5% flat year over year and adjusted diluted earnings per share of $2 74.
12% year over year.
This performance during 2022 reflects the non gets breached or even their job a majority of our services.
The full suite of services, we provide our clients to drive costs growth mitigated risk unemployed variety of such outcomes.
Our revenue growth was broad based across all our industry segments in particular financial services and high Tech manufacturing services delivered strong double digit growth.
Data service.
There's better design and better solutions to transform our clients businesses grew 18% on a constant currency basis.
Driven by the ongoing momentum in our emerging services.
Including supply chain services sales in commercial services on grid services that collectively grew 30% plus during the year.
Digital operations of a third right.
Digitally transform and run our plant operations globally delivered steady results throughout the year growing 6% on a constant currency basis.
Full year 2022 bookings was $3 9 billion up 6% year over year, we had a record level of deal flow was up almost 25% from the prior year, including a wave of large deal inflows in the last few months of the young.
Win rates held steady at 51% and sole source deals continue to represent approximately half of our bookings.
We also won 126, new logos during the year up 30% year over year. These.
These new logos include a number of companies that we believe will become priority accounts for us in the long term our average initial contract value with these new logos was up 10% to over $3 million.
Entering 2023, we are excited by the recent momentum around large deals.
Stage pipeline has expanded nicely with a strong line of sight to closures over the next few months across all three industry segments.
We are in a unique time in the market and are seeing a set of core teams across our clients in all industries and geographies.
First.
Every enterprise is on a journey to transform their business.
With that portfolio of charters and set that business up a strategic long term success.
The transformation drivers vary from company to company and include factors such as the desire to modernize their technology stacks supply chain volatility and risk management.
Need to leverage real time data and predictions shine.
China concentration risks and energy transition.
Second at the same time inflation at heart.
And that has led to a dramatic increase in costs being a huge agenda item for everyone. We have seen costs become a prime motivation for our clients.
More than 60% of situations versus 45% just six months back.
However, an increasing number of clients are using this moment to not only reduce cost through consolidation and standardization and digitization and global delivery.
But also to build our new operating model and deliver efficiently to redeploy towards long term investment.
Even the largest tech companies have declared a <unk> 23 is a Europe efficiently.
The quarter client.
I wanted to batten down for a recession on too long for that transformation and do both at the same time.
There's a clear desire to work with a few of our strategic partner in technology services.
They are revisiting that charters are project our partner and we are being told that we are differentiated in technology because of our domain process and data analytics.
There is a heightened desire to have us bring our unique approach to building solutions and leveraging cloud based technology and approach rich and industrial demand process and data.
There's been a significant increase in spinoffs of our business is getting ready for separation companies redefine their portfolios. We have seen such opportunity has doubled in the last 12 months.
There isn't any taxable and rising appetite to leverage data and ensure our real time access.
And the arrival of GPT and other technologies and generator AI will only further paradigm.
What structurally shrinking workforces in many countries companies are unable to meet their demand for talent, particularly data digital and technology skills.
As always we respond to these changing client behavior.
All right.
We are continuing to invest in our priority accounts, which represent a portfolio of select clients.
Navigant transformation journey that we believe are great potential to generate above average company growth.
Crops turn client intimacy, we are building with them across multiple buying centers allows us to drive value for them and growth for us.
During 2022 revenue from our priority accounts grew 15% and represents approximately 60% October revenue.
Next we are expanding our large deal team to take advantage of the increasing opportunities we see in the market to drive more sole source multi stage of engagement given our positioning as a partner with the accenture domain depth and.
Suite of capabilities to be able to transform clients' operations.
Okay.
We continue to deepen our relationships with our partners, where we design implement and support technology and data solutions on AWS Azure and Google cloud platform specialized data platforms like snowflake.
Enterprise applications like I said it'd be an oracle cloud.
Cloud workflow technologies like service now and specific micro platforms that can access black line on island radios in specific domain areas.
Let me bring this to life with some examples.
For a large tech platform provider in the automotive industry, we have been chosen to drive the complete modernization of their tech stack to AWS cloud while at the same time consolidating all of their operations globally.
Our domain depth in the automotive industry, where we understand not just a vehicle, but its repair maintenance financing and insurance one of the relationship.
For a large global medical technology company, we have been chosen to consolidate all functions leveraging new technology on the cloud.
Deliver meaningful cost savings in the past two years that allows them to reinvest into strategic growth initiatives.
For one of the largest enterprises in the world, we will be implementing can access on their cloud platform to deliver better planning part of supply chain for their data centers the.
The exciting opportunity here is to then take those jointly as a solution along with a tech backup to a range of other clients.
For another large enterprise, we won a small engagement in sourcing and procurement operations for their cloud business. Another clear example of how.
Efficiency is the mantra for 2023, even four growth oriented Victor.
For our global Life Sciences company, bringing our industry domain and functional depth to set them up for a spinoff of one of their divisions.
This is a literally a consulting and advisory relationship that we expect will lead to a digital operations.
And finally for a leading provider of healthcare liability insurance, we are modernizing their data management practices.
Grading their data infrastructure to the cloud and ensuring broad availability of that data for business decisioning by their finance underwriting and claims teams.
Our attrition rates significantly improved in the fourth quarter declining to 31%, which is our lowest level since the second quarter of 2021.
Adjusting for involuntary attrition and employers with less than three months of stomach auto Christian was even lower at 27%.
The first five weeks of 2023 continues to show a declining trend.
We have seen this across the board across all levels, all skills, including data analytics digital and technology skills and in every part of the globe.
This augurs well.
Really well for delivering sustained value to our clients.
During the quarter, we welcomed more than 9000, new team members across the globe and almost 50000 for the full year 2022, reflecting genpact powerful brand and reputation as an employer of choice, providing many opportunities to learn and advance one carrier across the globe.
For the third consecutive year, our global workforce completed more than 10 million trading hours, leveraging our genome online on demand platform.
Despite the ongoing macro uncertainty we have a healthy pipeline, which includes several large deals. We believe many of these will close over the next few months.
This gives us confidence in our ability to deliver total revenue growth for the full year of 2023 of six 5% to 8% on a constant currency basis. We also plan to expand our adjusted operating income margin to 16, 8% with that let me turn the call over to Mike for a detailed review of our results.
While the young.
Thank you Tiger and good afternoon, everyone. Today I'll review the fourth quarter results and then discuss highlights of our full year 2022 performance and provide you with our current outlook for 2023.
Beginning with our fourth quarter results total revenue was $1 $1 3 billion up 3% year over year or 6% on a constant currency basis data Tech services revenue, which represented 45% of total revenue increased 2% year over year or 5% on a constant currency basis Laurence.
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. As a reminder, that in tech and I add services revenue grew in the mid 30% range during the fourth quarter of 2021, reflecting a higher level of short cycle.
Yes.
Digital operation services revenue, which represents 55% of our total revenue increased 3% year over year or 7% on a constant currency basis, primarily due to deal ramps from existing and existing in recent wins.
A vertical perspective financial services increased 17% year over year, largely due to continued strong demand for our risk management services leveraging data and analytics.
Tumor and healthcare declined 1% year over year, largely driven by the impact from one large deal cycles, and lower data Tech and AI services revenue.
Hi, Tech and manufacturing increased 7%, primarily driven by Sheldon commercial sourcing procurement and supply chain engagements with both new and existing clients.
We successfully divested the business that we previously classified as held for sale given a lower than anticipated net realized value. We recorded an $11 million charge during the fourth quarter that is included in the other operating expense line in our P&L.
Our adjusted operating income margin expanded 260 basis points year over year to 17% largely due to operating leverage the positive impact of off cycle Cola adjustments and cost containment initiatives.
As a reminder, our lower than normal adjusted operating income margin level in the fourth quarter of 2021, largely resulted from higher investment activity deferred from the first half of the year and notably increases in transaction cost related to deal wins and the impact of wage inflation and our.
Our performance in the quarter excludes the negative impact of the business that was held for sale and the related charges referred to a moment ago.
Gross margin in the quarter was 34, 9% an increase of 40 basis points year over year.
Spansion was largely due to higher utilization and the benefit of off cycle pricing adjustments investments, we made during the fourth quarter and supporting new deal activity led to the 50 basis point sequential decline in gross margin in the third quarter from the third quarter.
SG&A as a percentage of revenue was 21, 5% down 140 basis points year over year, largely due to cost containment initiatives and overall G&A leverage.
Adjusted EPS was <unk> 70 up.
30% year over year from 54 in the fourth quarter last year. This 16% increase was primarily driven by higher adjusted operating income of 13 <unk>.
The impact of lower outstanding shares to <unk> and higher FX remeasurement gains of <unk>, partially offset by higher net interest expense of one seven our effective tax rate was 27, 1% down from 29, 6% last year, primarily due to higher level of discrete benefits in the quarter.
<unk> to the same period a year ago now let me provide you with some color around full year 2022 performance total revenue was $4 $3 7 billion up 9% year over year or 11% on a constant currency basis coming in at the high end of our full year 2022 outlets and above our 10% long term.
<unk> revenue target data Tech and AI services revenue, which represents 45% of total revenue increased 16% year over year or 18% on a constant currency basis, largely driven by continued growth in our cloud based data and analytics solutions across our focused areas, including supply chain sales and commercial.
And risk services digital operation services revenue, which represents 55% of total revenue increased 3% year over year or 6% on a constant currency basis.
During the year, we grew the number of client relationships with annual revenue greater than $5 million from 145 to 158 clients with more than $15 million in revenue increased from 59 to 63 and clients in more than $50 million in revenue increase from 12 to 15.
Outcome and consumption based commercial model now represents 14% of full year revenue on our path towards 20% by 2026.
Adjusted operating income margin Cumulus the high end of our outlook at 16, 5%, despite absorbing the impact of wage inflation and higher attrition.
Gross margin was 35, 1% compared to 35, 6% a 50 basis point decline was largely due to elevated attrition during the year wage inflation and higher year over year travel costs, partially offset by off cycle call adjustments and better utilization.
Our full year gross margin includes a negative 20 basis point impact related to the restructuring charge for strategic actions. We took in the second quarter of 2022.
As a percentage of revenue SG&A remained flat year over year at 21, 5% largely due to the absorption of higher investment activity that incurred in the latter part of 2021.
Offset by overall G&A leverage adjusted EPS was $2 74 up.
12% year over year from $2 45 in 2021. This 29% increase was primarily driven by higher adjusted operating income of 22.
The impact of lower share count seven.
Reflecting our capital allocation strategy.
And foreign exchange Remeasurement gains of <unk>, partially offset by higher taxes of one.
Our full year effective tax rate was 24% from.
From 23% last year, primarily due to lower level of discrete tax benefits taken during 2022 compared to the prior year.
Turning to cash flow and balance sheet for 2022, we generated cash flow from operations of $444 million, reflecting clients' reverting to historical patterns instead of paying us in advance to take advantage of the elevated interest rates, resulting in dsos expanding to 81 days from 74 days last year for exam.
We received payments from a few accounts of approximately $100 million in the early part of January that negatively impacted our year end dsos by two days the aging of accounts receivable has remained in line with prior periods and we have seen no deterioration in credit.
At year end, our cash and cash equivalents totaled $647 million compared to $899 million at the end of the fourth quarter of 2021.
As we reduced our total debt by almost $230 million and returned capital of more than 300 million to shareholders during the year.
During the fourth quarter, we refinanced our bank debt that was set to mature in the second half of 2023, given the uncertain market environment. We are pleased that our facility carries a similar interest rate spread as a prior borrowings.
We ended the year with net debt to EBITDA ratio of one <unk> in line with our preferred one to two times range with the Undrawn debt capacity existing cash balances. We continue to have ample flexibility to pursue growth opportunities and execute on our capital allocation strategy of reinvesting back in our business.
Pursuing capability based acquisitions, and returning capital to shareholders capital expenditures as a percentage of revenue equated to one 2% for full year 2022 compared to one 3% in 2021.
During the fourth quarter and full year, we returned $55 million and $306 million of capital to shareholders, respectively, which includes dividend repayment of $23 million in fourth quarter and $292 million for the full year. We also repurchased 700000 shares with a total cost of.
$32 million at a weighted average price of $50.
$45 three during the quarter and $4 8 million shares at a total cost of $214 million at a weighted price of $44 79.
For the full year, our buybacks during 2022 reduced our net share count outstanding by two 5%.
We remain committed to returning capital to shareholders through our quarterly dividend as well as a regular cadence of share buybacks. We currently anticipate a minimum of 30% of our cash flow from operations to be allocated to share repurchases during 2023.
Our board of directors approved an increase in <unk>.
Proved an increase of $500 million.
Two the company's existing share repurchase authorization, providing us with a total of $625 million of availability for future stock buybacks. Additionally, our board approved a 10% increase to our dividend to $13 75 per quarter or <unk> 55.
On an annual basis, our dividend has increased at a compounded growth rate of 15% since we began paying dividends in the first quarter of 2017.
Finally, let me provide you with.
With our full year 2023 outlook.
We expect total revenue to be between 464, and $4 seven 1 billion, representing a year over year growth of six to seven 5% and six 5% to 8% on a constant currency basis. This outlook reflects our expectations of existing client revenue.
And the risk weighting of bookings, we expect to win during the year DSO.
Against the backdrop of the current macroeconomic environment.
Current expect.
Our full year 2023, adjusted operating income margin to be approximately 16, 8% aligned with our strategy to drive margin expansion at a faster pace than we've done historically. This 30 basis point improvement is primarily driven by the continued scaling of data Tech and AI services and operating leverage our 2023 effective tax.
Right. It is expected to be approximately 24% to 25% compared to 24% we reported full year 2022.
Given the outlook I just provided we are estimating adjusted earnings per share for the full year 2023 to be between $2 92 and.
And $2 99 times this represents year over year growth of 7% to 9% and includes the positive impact related to lower share count of two.
Offset by the impact of higher expected taxes at <unk>.
And the negative year over year FX impact of <unk> <unk> per share due to the $15 million of re measurement gains recorded last year, we are forecasting cash flow from operations of approximately $500 million primarily driven.
Given by the expected growth in our adjusted operating income during 2023 cap.
Capital expenditures as a percentage of total revenue is expected to be approximately one 5% to 2% in 2023 as we expected as we expect to invest a new operating centers related to a hybrid delivery model and continued investment in digital solutions Lastly, let me provide you with some perspective on.
And how we see revenue growth progressing through the year.
With the expected ramp in recent new deal wins, we currently expect the seasonal first quarter sequential revenue decline to be less than typical therefore.
Therefore, we expect to see low single digit quarter over quarter growth throughout the remainder of the year from a year over year perspective, we expect growth during the second half of the year to be at the higher end of the first half of the year.
Related to ramp of new deal wins and easier comparisons year over year. We currently expect our adjusted operating income margin to follow our typical pattern to be lower in the first quarter and expanding through the year with that let me turn the call back over to Tiger.
Thank you Mike.
We are pleased with our 2022 results as enterprises respond strategically to this macro environment. We are seeing the benefits of that with increased conversation inflows and pipeline.
There is no debate that data has become the most valuable asset for all businesses. We are seeing this with the increased demand and are focused on this area of supply chain sales and commercial and risk R&D.
Our deeply connected to data and analytics.
Intelligent platform Genpact enterprise 360 enables clients to harnessed the power of data driven insights derived from running clients' operations and using our proprietary metrics and benchmarks.
This powerful tool and power clients or take actions themselves all through our work with them to deliver outcomes today and discover transformation opportunities for the future.
We continue to be recognized for our ESG initiatives, where genpact being included in the <unk>.
Bloomberg gender equality index for the second year in alone.
We're also named as one of the best performing companies in ESG by sustained analytics.
In summary, we have a growing top line, primarily made up of sticky long term global relationships with the inherent operating leverage to drive long term margin expansion.
I have the ability to take advantage of opportunities in our large and growing underpenetrated market.
Getting unlocked by our data and digital operations services.
In fact, 70% of accounts that start out as data.
<unk> end up expanding into larger data.
Our digital operations relationships.
The 126, new logos, we signed in 2020 two other feeds in which future priority accounts will be born.
<unk> outlook is very much aligned with our long term growth and profitability goals.
Before I close my prepared remarks, our thoughts solid doors that are affected by the devastating earthquake in Turkey and currently approximately 50, Genpact employees, who are there and their families.
With that let me turn the call back to Roger Thank.
Thank you Tiger.
I'd like to open up our call for your questions. Justin can you. Please provide the instructions. Thank you.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again please.
Please standby, while we compile the Q&A roster and we do ask that you limit yourself to one question and one follow up again, we ask that you limit yourself to one question one follow up and one moment for our first question.
And our first question comes from Puneet Jain from Jpmorgan. Your line is now open.
Hey, Thanks for taking my question.
It's great to see like that Youre seeing like strong momentum philosophy, but do you also talk about demand environment, you're seeing for a short term project based work.
And what does the guidance annual guidance assume for that.
I put it overall, we are seeing good demand for both.
Short term.
Specific engagements because everyone as I said is on a journey to.
To reevaluate the portfolio and protect our strategic journey around digital transformation and changing their business.
One thing I would call out.
Towards the third quarter end of the third quarter of last year, and the fourth quarter and continuing integrating three weeks, we saw and we expect front end digital marketing.
Experienced driven.
Short term consulting and advisory kind of engagement slowdown we saw that in the fourth quarter, we expect that to continue to be slower through the AUM.
Got it.
And are you.
<unk> also seen higher mix of employee re badging deals as clients look to cut costs and what's the typical profile of such the respective wood question.
So puneet I don't know, whether I would say from a longer term if you take a bigger timescale of three years I wouldn't necessarily say that there is.
US materially difference in more re badge deals, having said that we are going to see probably a little bit more of that in our.
Profile for 2023 because we are.
As we said we didn't close too many large deals in the fourth quarter.
And we have a strong pipeline that we're working on now as we close doors. Some of them will have a re badge components. So if you take a longer a longer term trajectory not that different if you just sharpened up to a couple of quarters, you will see a bump in that.
There is no question that as companies reevaluate, they're all long term trajectory as they reevaluate.
How does it get cost efficiency in order to reinvest back in those strategic initiatives.
Captive center exist.
Existing global business service operations.
Absolutely come into play as part of the overall transaction and we've become pretty much one of the leading global experts at doing that so we feel very good every time that happens.
Got it thank you.
Thanks, Ed and thank you and one moment for our next question.
And our next question comes from Keith Bachman from BMO. Your line is now.
Now open.
Yes. Thank you Tiger My first one for you is similar to the previous question.
But how do you think about the growth algorithm for C y 23.
And really looking at.
New logos versus existing customers and I know you said you signed up to 126, new logos this year.
How do you think about that.
<unk> 23, and in particular on the existing customers are you seeing.
More pressure on the existing business and really wondering on the difference between say.
Gross retention and net retention in other words are you are you.
Finding the renewals more challenging in the economic cycle.
Are you seeing lower mix or less volumes, but just any any love to hear your comment a little bit more on the growth algorithm.
Yes.
So the growth algorithm is a great trade.
Start by let's talk about renewals.
Renewals are always contingent completely on what's the value we have been driving for our clients or let's say a five year relationship. We've had we start those conversations our clients well before any renewal comes up let's say 18 months.
And our objective and our clients' objective and all of those plant locations. When we talk about renewal is incremental the next slug of value creation and often that leads to expansion of scope. It leads to more digital.
Intervention it leads to technology start getting at it more movement to the cloud more get analytics and prediction engines being better so we see the renewal.
Our process and our focus on renewals over the last 18 months to be really strong and having paid off I'm. This economic environment, we see that actually has a big benefit because clients are looking for fast payback.
So that's on renewals.
Okay.
On new deals.
You talked about.
Your other question was just remind me.
New logos have you seen new logos.
Deals, which may be which could be different.
Yeah. So Keith if you look at our new logo history, I talked about 100000 fixed for 22 or 30% higher than the prior year.
If you look at a again a three four year trajectory. It's been in the ballpark of 80 85, new logos to the one six which is clearly a high.
We don't see that changing in 2023, because everything that I described about the environment.
I would say applies to every enterprise and every part of the globe in every industry vertical.
Question on which of those are they picking up are you picking up Johnny on technology stock I'll be picking up Virginia and consolidating partner are they picking up of Johnny on moving apps to the cloud are.
We are picking up a journey on extracting cost by consolidating functions in order to reinvest back in growth initiatives, which we know is very important these days given the environment around where growth is not easy. So we see that growth algorithm as being not that different between existing clients and new clients we have.
Our focus on project lines continues and our focus on those 126, new logo just to pick them would be to solve the fees.
All future priority clients, let's say a couple of years from now and that's that's the business model longer term. If you play this out over the 510 year horizon.
Okay Alright, my follow up question, then is similar integra you've seen.
More risk of competition from technology and what it means by that if you focus on say a collection.
There is actually more software companies springing up to and try to enhance them.
Doing our collections in an automated fashion and or if you want to just go to a lot of the AI announcements that occurred in the last couple of weeks, how do you think about.
The maturation or add Ben of new technologies potentially.
For any new opportunities or.
Facing incremental risk on some of your practices.
It's a very simple answer Keith because we've been on this journey now for about seven to eight years of leveraging new technologies, and we've always said that our role and that is to find the right technology.
Incorporated into the end to end service that we that we offer our clients.
We are bringing to our clients so that they can incorporate it into their operations because they don't give us the digital operations to run in both cases.
<unk> belief has always been that technology adds value only if you know how to use it if you know how to implement it if you understand the industry. If you understand the domain on your if you understand the data.
What's happening around us and our clients is that there is a real belief.
Our client base, but that's exactly what needs to be done which is why we are beginning to see real traction in technology without a traction in incorporating technology with us as the partner our relationship with Tom who they are.
The example, you gave is high and this is a great example of that.
It's not new it's more than four years old, but we've been working with holidays and incorporating them into our solution. If that's one of the right thing for the client. So we see these technologies coming in as a real opportunity because the client has to find a way to leverage them.
They need us and people like us to help them leverage them, it's not attract it's actually an opportunity.
Alright, perfect. Thank you Tiger.
Thank you Kate.
Thank you.
And one moment our next question.
Okay.
And our next question comes from Dave Koning from Robert W. Baird. Your line is now open.
Yeah, Hey, guys. Thank you.
Maybe to piggyback a little on Keith's question about new technologies I know you've been in the press, even talking about chat GBT GBP GPT and stuff.
And as you said you've done a nice job integrating technology into your processes and that's actually an accelerator of growth do you have any examples yet of clients coming to you, saying Hey, you know on this process could we try to integrate chat Jeep GPT and have you seen either examples of it being a benefit or do you see any examples where it could be a head.
Wind.
Great question, there I just think it's too early.
I do expect a full integration so the answer is no.
I don't think applied would expect a full integration non we wouldn't expect that to happen.
It's very clear that a great opportunity to actually bring technologies like that not just start to begin but other generator of AI technologies into a number of our operations and services.
But to do it.
But to do that the first step that has to happen is that particular generative AI must get seats in their data and their domain that it needs to address.
It's not a generic specific.
So theres a whole Bakken printing dot Dot chart GPT needs to undergo and actually it's going to create a whole slew of data operations jobs to train.
Dutch at GPT on specific domain and who's best positioned to do that people like us because you need the specificity of what that an insurance claim.
Foreign automotive in the state of Michigan looked like and that needs to be part of Gbt's data infrastructure project to be able to answer. The question that is needed to be answered in order to incorporate tax you begin into our claims process. So we see a real opportunity. We just kicked off a major a hackathon across the company.
90000 people participating to figure it out use cases and pilots and ideas of where it can get incorporated.
Alright, Thank you for that and then maybe a second question and my follow up.
I would imagine the data tech AI business, you expect that to grow faster than the digital operations business. This year and probably have more of a hockey stick acceleration through the year, whereas the ditch.
Digital ops business will be more stable is that a fair way to think about it through the year.
Absolutely. So when you think about the business and the cadence of the.
The earning our revenue pattern associated with it that low single digit growth rate than we have in the digital operations be much more consistent than the data tech in the AI business.
Alright, great. Thanks, guys.
Doug.
And thank you.
And one moment our next question.
And our next question comes from Jesse Wilson from William and Blair. Your line is now open.
Hi, Good afternoon. This is jesse on for Maggie.
Wanted to follow up on <unk> question earlier, so what does genpact exposure to those types of digital marketing experience.
Short term consulting engagements you mentioned earlier.
Yeah. So our exposure is that we have a growing and emerging business. There. We don't really talk about it in the notional size of it it's not a tremendous percentage of our total revenue in the business, but kind of building on one of the comments Tiger said earlier, we've seen the revenue performance of that almost.
Index.
Incredibly large marketers in this general macroeconomic environment as <unk> seen so as general demand has pulled back from that are.
Our revenues goes accordingly to it it's very well indexed to it but again not a huge piece of the business, but I don't think its going anywhere I think it is going to come back now.
Particularly relatively strong in the second half of the year.
Okay.
Got it that makes sense to me and then Mike a follow up question for you on margins, obviously guidance is for expansion this year.
How are you thinking about the medium term should we be thinking about kind of a steady state or the potential for a normal cadence going forward.
No I mean, if you think about how we talked about our margin at our June Investor day, right. When we looked at it and looked at the drivers of margin, particularly that.
The increased scalability of our data tech and AI business, becoming more and more meaningful to the company, but as well as a number of other factors. Our goal has been to grow that margin at a greater clip.
Historically, so I think we're showing now within our guidance, we think thats going to continue to drive us to our 2026 strategy to think about it from that perspective is it going to be 30 basis points per annum don't know, we'll see how it goes on an annual basis.
Okay. That's helpful. I appreciate it.
Thanks Jesse.
And thank you.
And one moment our next question.
And our next question.
Comes from Bryan Bergin from Cowen <unk> Company. Your line is now open.
Hi, guys. Good afternoon. Thank you.
What is that.
Demand one is that the man based on client location or are you seeing any different activity in the U S.
First is Europe , it really any different behavior, you're seeing based on client location right now.
Actually no Brian we are not.
It is actually interesting.
And in my prepared remarks, I talked about the fact that a number of the themes that I called out seem to be pretty global teams cutting across the U S. Canada.
Europe .
As well as.
Global companies headquartered in Asia, So there doesn't seem to be that distinctive.
Australia that I can pull out and say this was different in this geography.
Yes.
Okay, and then a follow up on margin. So just wanted to dig into the 30 basis points of expansion for this year. How do you. How do you anticipate the attribution between potential gross margin improvement in 2023 versus SG&A deleverage and I ask because I'm hearing the optimism about large deal pipeline. So I'm not sure of investments there could potentially work against you and gross <unk>.
Margin initially and things like that ramp yet.
You got it exactly right. So disproportionately as large deal ramp ups happen, we will have investments on them early part of the cycle remember our revenue and expense cadence is in line.
Perfectly right, so others greater investments early on which will dilute our gross margins as we grow we will get the SG&A leverage and that's much more linear that's 100% correct way to think about it.
Alright, thank you.
And thank you.
And thank you gentlemen, our next question.
Okay.
And our next question comes from <unk> Tandon from Needham <unk> Company. Your line is now open.
Thank you good evening Tiger I, just wanted to get some thoughts on the sales force where are you today in terms of the head count and just given your optimism on demand, but what are your expectations in terms of ramping up the sales force to hit your revenue growth targets.
Yes, Mike It's a great question actually it's very timely because we just finished a good assessment of our entire sales force as you would expect any good enterprise to do towards the end of the year and beginning of the yard.
We have really good coverage.
Size and scale of the sales force across our various industry verticals. We also are very nimble at moving that salesforce from where we see demand too.
The less demand.
Great example of that was about 18 24 months back wherever you reallocated salesforce literally in two weeks into the semiconductor space and but the big benefit of that.
In the semiconductor space went through supply chain challenges. So in terms of total number I think we are well positioned what I would say is.
Given the nature of the type of services, including.
Technology intensity of those services the technology partnerships that we talked about and in carpet and drove into our services. Some of the people are in.
In those client situations, we are changing around and we continue to do that.
I expect that to continue to happen as we go through the yard.
And and of course, we have a number of training programs and our marketing programs that get a number of the people ready on the new technologies on the different partnerships on the different solution, which has always been one of our strengths.
So great to hear and then just as a quick follow up I wanted to ask you about your exposure to the large tech companies that are announcing layoffs does that have any implications for your data Tech AI revenue.
And just in general do you see this as a positive but it might rely more on you for.
Digitally investments or do you think it might actually be working against you in the short term any exposure there and implications of that.
Yeah, Great question actually.
<unk> city.
It's a five has always been not surprised a fast growing sector of the industry and therefore, a fast growing segment for us for many years.
<unk> said that.
There are still many many enterprises there that are just.
Just about waking up I guess, making up is the right word to use.
In 2023, being the euro of efficiency and productivity.
Language is new for probably the entire sector that language is throwing up a bunch of opportunities for us having said that the reason I called it a tale of two cities is that there are a few situations, where we would have.
Very high intensity in terms of our relationship where we do a lot of digital marketing support sales support and obviously those undergoing changes that may shrink with one or two of the players.
In the net it's actually a benefit for us and actually one of the things we have done over the last six months is again back to the Salesforce conversation realign some resources into that space and we are getting the benefit of that.
Great. Thank you so much for taking my questions congrats on the quarter.
Thank you Michael.
Thank you.
And if you would like to ask a question that is star one one again, if you'd like to ask a question that is star one one and one moment our next question.
And our next question comes from Surinder <unk> from Jefferies. Your line is now open.
Hi Tiger.
I guess for my first question.
Maybe if you can provide some color on what the timeline for winning new deals looks like in light of the comment around 2023 being a year of urgency around cost initiatives.
How much are you mining conversations at this point that you started three months ago six months ago nine months ago.
In Australia I guess.
Yep.
And I guess, if you were to start new conversations.
What is the urgency for those conversations are those deals to be transacted, especially the larger deals.
So that's a great question.
Number of the conversations that are in late stages now started.
Six nine and in some cases 12 months back.
And have progressed to the point, where we believe we're getting closer and closer.
The issue is less about emergency from climbed it's more about the complexity of some of these larger deals.
I talked about multiple function I talked about technology stack I talked about.
No.
The answer to some other question that talked about in some cases, not all of them re badging.
That makes the large it makes the deal complex. It makes many more people from the client side, having to be involved in the decision and of course in the Meanwhile, they have had to deal with depending on the industry regulations to supply chain too.
China, and Ukraine to energy and inflation.
So I would say the good news is every one of those conversations have continued to make progress I forget later and later into this stage of the pipeline you get more and more confidence finally, signing it.
The more complex the longer it takes and Thats, what we have always planned for in this kind of an environment and it's actually good because you have circling the wagons and then landing the landing the plane in what is obviously a very complex journey. The other side of the house, which is that our take AI.
Dense to have faster decision cycles. Those decision cycles haven't expanded there have continued to be at the same speed their work because the payback is important and as long as we go in with the right solution that is relevant for the client at that point in time in a variety of buying centers and in a variety of services, we have built out.
So again, it's a question of balancing bolt on and the last thing I'll say is I talked about this towards the end of my prepared remarks.
We get our deck AI engagement when.
When we look back over three to four years ends up being subsequent more engagements on digital operations that engagements to the tune of 70 odd percent.
So which means when you signed 100 plus new logos.
All of them are.
Engagement and rest assured that 70 of them will have follow on.
And digital operations over the next four years, which is the beauty of our business.
Got it.
And then as a follow up in terms of the complexity of the projects that you are taking on at this stage.
Any color on.
Maybe the projects are being oriented and what I mean by that is.
There's a narrative out there that clients are looking for higher or quicker ROI on their investments.
Does that change the strategy or the road map for implementation for you guys.
Whether projects get chopped up a bit more or whether you do.
Certain.
I'll call delivery projects out of order just to get the benefit to the client and if that impacts I guess, what I would call revenue timelines versus what a normal.
Road map might look like.
Our normal yes, surinder actually again again, a great question and we talked about it is I think probably in.
Both the prior year.
Earnings calls.
Both both quality and quantity and quality of earnings calls larger deals and complex deals in some cases not in all cases do get broken up into a couple of three phases and the idea that is exactly what you said, which is can we get the first lots of low hanging fruit gets the payback and it generates the investment dollars for the second.
On the <unk>.
Having said that there are some clients, who prefer not to break them up and.
Take bigger swings.
Okay spending a little longer time in order to actually get everyone aligned and then go for the whole at one shot often including re badging because in a rebounding exercise you cannot break that out in a particular operations in two pieces because that doesn't work so.
There are different colors, and the way I would answer the question. There is no one standard size that fits everyone.
I think we've seen all of the above and our ability to adjust and flex and be agile to create the right solution is what has always one off today.
Got it and I guess, just as a clarification on that Tiger does that change the revenue ramps or is it just different ways to get to the same endpoint.
Yeah, I don't think it changes the revenue ramps.
The Devil is in the details I think Mike said that on.
When we when we do digital operations and it's got re badge then.
It will require investments upfront.
On larger complex deals require a little bit more on vessels that changes the margin profile.
On the gross margin side.
And as it relates to <unk>.
<unk> deal versus a slow ramp the slow ramp of the slower revenue ramp.
Whereas everybody deal Youll get.
Operating the revenue ramp in the beginning so we have a good mix of all of the above.
As I said, it's not that different from the past. So therefore, I wouldn't necessarily call out any difference in revenue ramp on account of that.
Thank you.
Thanks Herman.
And thank you.
And I am showing no further questions I would now like to turn the call back over to Roger Sachs for closing remarks.
Thanks, everybody for joining us today, and we look forward to speak with you again next quarter.
This concludes today's conference call. Thank you for participating you may disconnect.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
Sure.
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