Q4 2023 Genpact Ltd Earnings Call
Okay.
Good day, ladies and gentlemen, and welcome to the 2023 fourth quarter Genpact Limited earnings Conference call. My name is Michelle 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 towards the end of this conference.
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 Vice President of Investor Relations at Genpact. Please proceed.
Roger Sachs: Thank you Michelle and good afternoon, everybody and welcome to <unk> fourth quarter and full year 2023 earnings Conference call. We hope you've had a chance to read our earnings press release posted on the IR section of our website Genpact dotcom today, we habitats integrity entourage in our outgoing president and CEO.
Roger Sachs: BK Kalra, our incoming president and CEO and Mike Weiner, our Chief Financial Officer.
I will start with a high level overview of our performance with full year 2023 P. J you will then speak to our strategic priorities and outlook and finally, Mike will cover our financial performance and outlook in greater detail before opening the floor to your questions.
Roger Sachs: Please also note that during this call will make forward looking statements, including statements about our business outlook strategy is a long term lease.
Roger Sachs: These comments are based on our plans predictions and expectations as of today, which may change over time.
Our actual results could differ materially.
Important risks and uncertainties, including the risk factors in our 10-K, and our 10-Q filings with the SEC.
During this call we will discuss certain non-GAAP financial measures, we have reconciled those to the most directly comparable GAAP financial measures in our earnings press release. These non-GAAP measures are not intended to be a substitute for our GAAP results and finally this call in its entirety is being webcast from our Investor Relations website.
An audio replay and transcript will be available on our website in a few hours and with that let me turn the call over to Tiger.
Yeah.
Oh.
Tiger: I was on mute thank you.
Tiger: Uh huh.
Tiger: Hello, everyone and thank you for joining us today for our fourth quarter and full year 2023 earnings call.
I'll get started a brief overview of our 2023 financial results.
And then on the call and all of our to our incoming CEO of weekend to take you through our strategic priorities and outlook for 2024.
Speaker Change: For the full year 2023 we delivered total revenue of $4.48 billion up 2% year over year and 3% on a constant currency basis.
And by data that I saw this as revenue of $1 $99 billion.
Speaker Change: Up 2% on board and as reported and constant currency basis.
On digital operation services revenue of $2.48 billion up 3% year over yours reported a 4% on a constant currency basis.
Gross margins of 35, 1%, which was flat year over year.
Speaker Change: Income from operations margin of 14.1% upturn in 60 basis points year over year.
Speaker Change: And adjusted operating income margin of 17% up 50 basis points year over year.
And diluted earnings per share of $3.41 up 81% year over year, and adjusted diluted earnings per share of $2.98 up 9% year over year.
Speaker Change: Bookings for the full year reached four $9 billion up a strong 26% on a year over year basis, as we signed a record 14, new large deals each with total contract value greater than $50 million.
It flows remain healthy, resulting in a high quality pipeline that reached near record levels.
Speaker Change: Yeah.
Speaker Change: When rates increase to 60% what is 51% in the prior year.
Speaker Change: And we added 91 new logos.
So stores deals represented 40% of bookings below our typical 50% level.
The much higher number of large deal wins, which tend to be more competitive.
Throughout the year, we made progress on our key initiatives for 'twenty or 'twenty three.
Revenue from priority accounts grew 4% year over year and expanded to 63% of corporate revenue.
Second we strengthened and expanded relationships with key cloud technology partners to co innovate and develop joint IP solutions.
We opened I'm scared three new operating centers in tier three cities in India.
Fourth we continue to drive non FTE commercial models with non FTE deals, reaching 20% of total revenue in the fourth quarter and 17% of total revenue for the full year.
First investments in our large deal teams generated the strong bookings and pipeline that I described earlier.
Speaker Change: And finally for the fourth consecutive year, our global workforce completed approximately 10 million training hours on genome or on demand learning platform.
Finally, before I turn the call over to Beacon I wanted to take a moment to reflect on Genpact is a major accomplishment. During these last 12 years.
Beacon: During that time, we grew total revenue at a compounded annual growth rate of 9%.
Beacon: And by a number of important strategic progress, including our decision to double down in their chosen set of industry verticals service lines and geographic markets.
Beacon: Our decision to extend beyond business process management with significant investments in data Tech and AI.
And finally, our move over the last five years to that middle and front office without emerging service lines and supply chain risk unfair to commercial services.
Beacon: All of our success would not be possible without the tireless efforts of the genpact team that constant passion and focus on driving client outcomes and value and that insatiable curiosity and desire to learn.
It's become a cultural foundation and that's been a source of unless inspiration for me.
It is my daily interaction with them that I'll Miss the most as I transition into the next phase of my journey.
With regard to begin our board could not have picked a better buffer to be Genpact next CEO.
Beacon: His deep understanding of our business the crusher in relation future paired with our clients on our strategic leadership with a strong bias for technology and AI has been a key driver of our success driver.
Driving a significant expansion of our consumer health care and financial services verticals that collectively generated $2.8 billion in revenue and 2023.
I am very excited to see him lead the next evolution of jackpot.
And finally I want to sincerely, thank our board for being such great stewards of the company through multiple cycles and I'm. So many occasions being my and my team's guy and mentor with that let me turn the call over to begin.
Thank you Tiger and good afternoon, everyone.
Begin: Let me start by saying that I'm excited and humbled to lead our 125000 talented people around the world that make up genpact.
Begin: I have seen firsthand the incredible dedication of Genpact team and the significant value, we add to our clients designing implementing and running mission critical operations for some of the world's biggest brands.
In preparation for stepping into the CEO role I have been carefully assessing our senior leadership team and the strategic priorities, we must pursue to put us on path towards accelerating growth.
Begin: As I reflect on what is going to be three day, there's no doubt that in.
Begin: Macro economic environment challenged us and the industry as a whole.
Begin: I am very proud of the team and the long term accomplishments all claimed a moment ago.
But I must also say that we must improve our execution to reach our full potential.
Digital operations and data taken together represent a 750 billion market.
Growing at high single digit growth rate well above the 3% constant currency growth, we delivered in calling on victory.
Begin: My number one goal as CEO is to make sure that we realize our full potential.
He has a long standing member of the Genpact team I have a clear point of view about where we can improve execution.
Need to sharpen our focus and drive simplification to increase speed and accountability throughout the organization.
'twenty 'twenty four we will be laser focused on changing the conversation, we're having with clients.
Bringing more data and technology to Bayer to deliver more holistic and growth oriented solutions.
Begin: We'll also drive simplification to increase speed and accountability, Let me give you a couple examples first.
We have simplified our sales and go to market leadership structure moving from highly metrics organization.
He does that mirror our client organization.
And roll it into key vertical segments, we report externally.
Second rehab unified data deck.
Under one leader, which matches, how our clients operate and buy.
Both of these changes will increase speed and accountability driving improved sales execution in 'twenty 'twenty four particularly in data.
In my first hundred days I'm prioritizing.
Spending more time with clients as we partner with them to shape, the future building ours by leveraging data and technology.
Begin: AI footprints through both.
Begin: I have already met a number of our clients since the announcement and I am committed to meeting where the 100 plus clients in my first hundred days to further inform our strategy.
Begin: <unk> be continuing to build our team and leadership team.
We haven't seen a number of important additions to our leadership team in the last few months across operations finance marketing and.
And I am committed to continually identify and fill gaps quickly.
Reaching our full potential will require maximizing our talent and driving greater accountability across the organization.
See strengthening our partner relationships to deliver holistic solutions.
Believe me I Didnt know unique position to further leverage our domain and industry expertise access to data and CX relationships to deliver improved performance for clients and thereby improve revenue growth and profitability for genpact.
I want to be clear then doing business as usual just doing what we have done in the past only slightly better is not acceptable.
That said improving execution will not happen overnight it will take time and investment.
And compete on before we plan to invest in two key areas.
Partnerships.
Begin: First.
Begin: I mentioned partnership a moment ago, and we will continue to invest in deepening our relationships with various platform providers.
Begin: <unk> specialized as well as with enterprise application and cloud workflow technology partners.
Second we are moving quickly to embed AI in all our solutions that we bring to market and investing to make our internal operations as well.
For the first time, we have appointed a chief technology and transformation officer, who will leave beach on embedding AI and our internal operations.
Begin: With regards to Jamie.
We continue to make rapid progress.
Last year, we had more than 3000 client conversations more than 80000 Genpact team members enrolling AI training programs.
Begin: The launch of our first innovation center in London and.
Begin: And more than 50, Jamie our use cases, and testing and third PJM AI solutions in production environment with clients either deploy not going live.
Turning now to our 2020 for the outlook and Mike will go into more details, but I would like to provide a high level overview upfront.
First on revenue.
Going forward, we'll be building as we strengthen our foundation for future growth.
Mike Reid: Therefore, we are setting our revenue guidance for the full year at two.
Two 3% year over year growth.
As reported basis.
On profitability, we expect to keep gross margin and margins roughly flat in 'twenty than before at 35% and 17% respectively.
With regard to Ami revenue upside, we are able to achieve over the course of the year, our bias will be to reinvest a portion of the upside back into the business to drive future revenue growth.
Before I hand, it over to Mike I want to say a few words about tiger.
Rehab exceptionally fortunate to have Tiger lead us for the past 12 years he shaped the company to be one of the world's leaders in domain like finance and accounting procurement and supply chain to name a few.
His commitment to clients is unparalleled.
Mike: And we will always act as a guide for all of US have Genpact and is focused on building the capability of our team that scale to platforms like genome is inspiring.
On behalf of all of Genpact I do want to thank Dave for his enormous dedication.
Patient and leadership.
Mike: Finally, I want to conclude by saying that I am confident that we will achieve our full potential.
Delivering the revenue growth and profitability.
Believe we are capable of.
That said I also want you to know.
I understand that actions speak louder than words and on that point I look forward to providing more details and progress reports to you in the coming quarters with that let me turn the call over to Mike. Thanks for you Ken I wanted to congratulate you on being named Genpact GNU C.
Having worked closely with you over the last few years I've seen firsthand a strong focus on execution financial argument and the ability to energize teams I believe we're very fortunate to have you as CEO.
I'll review, our fourth quarter results and brief highlights of our full year 2023 performance I will then provide our outlook for 2024.
Beginning with fourth quarter results total revenue of 1.15 billion was up 4% year over year, both on an as reported and constant currency basis.
<unk> check in AI services revenue, which represents 44% of total revenue increased 3% year over year or 2% on a constant currency basis. This performance was largely driven by increased sales of data and analytical service solutions and notable focus areas, including supply chain and risk.
Digital operation services revenue, which represents 56% of total revenue increased 5% year over year or 4% on a constant currency basis, primarily reflecting on schedule deal ramps for our recent large booking wins from a vertical perspective financial services revenue increased 4% year over.
A year largely due to large deal ramps, probably offset by continued pressure around client discretionary textbook consumer and health care revenue increased 2% year over year, largely due to a ramping of finance and accounting and supply chain engagements, partially offset by pressure on discretionary tech spending as well as the impact of the recent divestiture.
<unk> business classified as held for sale last year.
Mike: Hi Tech and manufacturing revenue increased 6% year over year, primarily driven by ramp of new logos within finance and accounting engagements across both digital operations in data Tech and AI services, partly offset by the impact of a reduction in scope from a high tech client in early 2023.
Adjusted operating income was 17, 7% up 70 basis points year over year, primarily due to higher gross margin and general operating leverage as a reminder, our performance during the fourth quarter last year included a positive impact from businesses designated as held for sale that has been divested.
Gross margin in the fourth quarter expanded 70 basis points year over year, primarily reflecting cost management actions implemented early last year, better utilization and greater mix of digital operations revenue offset by the impact of ramping up of recent large deal wins.
SG&A as a percentage of revenue improved 80 basis points year over year to 27% the year over year improvement was largely due to the absence of expenses related to the non strategic business that was divested as well as the overall operating leverage offset by higher investments in sales and marketing and research and development.
In the fourth quarter of 2023.
Our effective tax rate was negative 83, 8% compared to 27, 1%. During the same period last year, primarily driven by a nonrecurring $170 million benefit related to intercompany transfer of certain intellectual property rights. Excluding this impact our effective tax rate.
Would have been 23, 4%.
GAAP net income was $291 million up 225% year over year GAAP diluted EPS was $1 59 up 231% year over year.
These growth rates reflect the impact of the tax benefit I just mentioned adjusted EPS was <unk> 82 up 17% year over year from 70 cents in the fourth quarter of last year the.
The increase was primarily driven by higher adjusted operating income of seven.
The impact of lower taxes, five cents, each lower outstanding shares of <unk> and a one cent benefit related to lower interest expenses, partly offset by a 2% impact from lower FX remeasurement gains compared to the same period last year.
Lastly, our attrition rate for the fourth quarter was 23% near the low end of our historical levels adjusting for involuntary attrition and employers with less than three months of service our attrition rate was 19% during the fourth quarter.
Now let me provide you some color around full year 2023 performance total revenue was $4 four 8 billion up 2% year over year or 3% on a constant currency basis data Tech and AI services revenue, which represents 45% of total revenue increased 2% both on an as reported and constant currency base.
Mike: <unk>.
Digital operation services revenue, which represents 55% of total revenue increased 3% year over year or 4% on a constant currency basis. During the year. We grew the number of client relationships with annual revenue of greater than $5 million from 158 to 185. Additionally clients with annual revenue greater than 20.
$5 million expanded to 34 from 39 clients with more than $100 million increased from three to five.
Mike: As expected gross margin for the year was flat versus 2022. This was largely due to the impact of ramping of new large deal wins with significant portion of onshore delivery that exhibited lower gross margin in their early years. Despite a flat gross margin adjusted operating income margin expanded 50 basis.
Mike: This points year over year to 17%, primarily driven by cost efficiencies and operating leverage SG&A as a percentage of revenue declined 110 basis points to 24% largely due to the absence of expenses related to the non strategic business that was divested as well as the overall operating leverage offset by higher.
Mike: Activity during the latter half of the year, our full year tax rate was negative four 8% down from the 24% into in 2022, largely due to the nonrecurring benefit from the IP transfer I mentioned earlier excluding.
Excluding that transaction at the transaction our full year 2023 effective tax rate would have been 23, 4%.
Given this tax benefit our full year GAAP net income was $631 million up 79% year over year and our full year GAAP diluted EPS was $3 41 up 81% year over year adjusted EPS was $2 98 up 9% year over year from $2 <unk>.
94 cents in 2022.
The increase of 24 cents was primarily driven by higher adjusted operating income of 18 cents.
Lower share count of five.
Lower net interest expense of <unk> and a four cent benefit related to lower taxes, partially offset by lower FX remeasurement gains during 2023 compared to 2022 five.
Turning to cash flow and our balance sheet.
Year end cash and cash equivalents totaled $584 million compared to 647 million at the end of the fourth quarter of 2022.
We reduced total debt by $161 million and exited the year with a net debt to EBITDA ratio of the last four rolling quarters of 0.9 times with Undrawn debt capacity and existing cash balances, we have ample flexibility to pursue growth opportunities and execute on our capital allocation strategy of reinvesting back in our business pursue.
<unk> M&A and returning capital to shareholders.
Days outstanding expanded to 88 days from 81 days in 2022 due to the increased penetration of non FTE pricing models and client cash management practices as interest rates remain elevated the <unk>.
Overall credit quality of our portfolio continues to be very strong.
Despite the higher dsos were able to generate $491 million of cash from operations exceeding our expectations for the year. The majority of this outperformance was driven by higher adjusted operating income.
Capital expenditures as a percentage of revenue was approximately one 4% in line with our expectations during the fourth quarter and full year 2023, we returned $100 million and $325 million of capital to shareholders, respectively. This increase.
This included dividend payments of $25 million in the fourth quarter and $100 million for the full year. We also repurchased two 2 million shares at a total cost of $75 million at a weighted cost of $34.27 per share during the quarter and a total of 6 million shares at a total cost of 225.
At a weighted average price of $37 48 for the full year, our buyback during the 2023 and our net share count outstanding reduced by 3% as we continued our <unk> as we continue to exceed our expectations. We initially set for full year as we took advantage of the meaningful discount or intrinsic value.
Calculations finally, let me provide us with some color on our outlook first I wanted to acknowledge that as you can see in our press release, we have adopted a new guidance structure heading into 2024, specifically, we are now providing full year revenue guidance for digital operations and out of ticket AI services revenue along.
With first quarter guidance for total revenue.
Mike: Digital operations and data Tech and AI services revenue gross margin and adjusted operating income margin, Let me review the details.
Mike: Genpact outlook for full year 'twenty 'twenty four is as follows total revenue is in the range of $4 $5 7 billion to $4 six 1 billion representing year over year growth of approximately two to three 2% to 3% as reported and 2.1 to 3.1 on a constant currency basis. This includes digital operations.
Services revenue of approximately 3% year over year and data Tech and AI services revenue of approximately 1.9% year over year at the midpoint of the range as reported and digital operation services revenue of approximately three 1% year over year and data Tech and AI services growth of approximately 2.1 person.
Year over year at the midpoint of the range on a constant currency basis.
Mike: I would also like to note that based on our bookings mix and timing associated with deal ramps as we expected as we expect year over year revenue will be higher in the second half of the year related to the first half which is in line with our historical patterns.
Full year gross margin of approximately 35% full year adjusted income from operation margin of approximately 17% and full year adjusted EPS in the range of $3 to $3 <unk>.
This is this represents year over year growth of 1% to 2% and includes the positive impact related to lower share count of <unk> offset by the impact of higher than expected taxes of four cents higher interest expense of <unk> and the negative year over year FX impact of <unk> due to the 4 million.
Remeasurement gain we recorded last year.
Our effective tax rate is expected to be 24, 5% compared to 23, 4% reported for the full year 2023, the increase reflects the implementation of new of new.
Mike: New.
Global minimum tax rates as well as our lower year over year benefit related to stock based compensation, we are forecasting cash flow from operations to be approximately 500 million.
Capital expenditures as a percentage of revenue are expected to be approximately one 5% to 2% in 2024, which includes investments related to our internal systems upgrades.
Outlook for the first quarter is as follows total revenue of $1 1 billion to 1.114 billion represents year over year growth of approximately 175% to two 5% as reported or one point, 95% to 2.45% on a constant currency basis.
Mike: This includes digital service digital operations revenue growth of approximately two 8% year over year and data ticket AI services growth of approximately 1% year over year at the midpoint of the range as reported and digital operation services revenue growth of approximately 3% year over year and data checking.
AI services growth of approximately one 3% year over year at the midpoint of the range on a constant currency basis gross margin is expected to start the year at approximately 34, 5% in the first quarter an increase over the course of the year as we make progress with offshoring delivery improving utilization and the continued adoption of <unk>.
FTE pricing commercial models.
Adjusted operating income margin is expected to start the year at approximately 16% in the first quarter and increased steadily over the course of the year as gross margin improves.
Our expectation is that investments and partnerships.
And AI the BK spoke about in his opening remarks will be funded largely through efficiency gains with little to no increase in full year operating expense in terms of absolute dollars on a year over year basis that said as VK noted to the extent, we're able to deliver revenue upside over the course of the year, our bias is to reinvest a portion of.
Of that upside back into the business for future revenue growth Lastly, we remain committed to returning capital to shareholders through a regular cadence of buyback and quarterly dividend payments. We currently anticipate approximately 30% cash flow from operations for share repurchases. During 2024. Additionally, our board of directors approved 11.
1% increase in our regular dividend to <unk> 15.3 cents per quarter or <unk> 61 on an annual basis, our dividends increased at a compounded growth rate of approximately 15% since we began paying dividends in the first quarter of 2017.
With the with this expected activity, we plan to distribute 50% of our operating cash flow to shareholders during the year.
In closing I am confident that the path pks laying to drive draw.
Drive increased focus speed and accountability to reorganization will put us in a strong position to drive long term shareholder value with that said, let me turn the call back over to Roger.
Thank you, Mike we would now like to open up the call up to your questions. Michelle would you. Please provide the instructions.
Thank you to ask a question at this time. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment, while we compile our Q&A roster.
And our first question is going to come from the mine to meet Jain with Jpmorgan. Your line is open. Please go ahead.
Hey, Thanks for taking my question Congrats bouquet for the new role and Tiger. Thank you. So much for your talk later shifts and all the discussions we have had over the last.
More than 12 years actually.
For like elective.
Let's start with the question on the guidance like they're looking at that guidance for Q1, and the full year looking at that range is it doesn't look like you expect like a steep ramp from Q1 levels rest of the year.
In terms of like the absolute dollar numbers.
Mike: For revenue.
So I know you mentioned that it could be like a year ago.
Can you double click on those comments like.
Well like all of those changes like the simplification, it's all seems like makes sense.
They have an impact on revenue.
Do you expect like footprints rest of the year.
Yes, So let me start with talking about the guide in totality I'll turn it over to vacated view on spread some additional color right. So as we think about the guidance Youre correct in this 2% to 3%.
What I want to give you a little more color on how we're thinking about it I think we took a prudent approach in creating that guide right.
What we did this year, we took a more detailed bottoms up planning approach at a very granular level. The key change in our assumptions, we really is regarding the macro.
We assumed no improvement from the second half of 2023 with regard to the macro now that being said we have some good good tailwind coming into the year at that 20%, 26% I should say growth in bookings remembering that growth in bookings comes in over a three to five year period.
Unfortunately that is netted against the weak macro that we have seen notably hitting us in small deals. So as we extrapolate the what we've seen in the second half of 2023, we're not predicting any recovery in that in the guide right. That's also netted against the typical productivity and changes in scope that have been factored into our guy.
Good.
That said, a better macro and execution, we can do better and as far as your other comment with regard to I believe you're asking about the cadence of the revenue, earning it we gave some general guidance in my comments that will be more skewed towards the second half than the first half of the year and what we're committed to do we've given your first quarter Guide, we'll continue to do that on a quarterly basis as we move through the year.
<unk>.
And if you want add anything bigger.
You said it very well for me thanks, so much.
And I think you mentioned macro and execution.
Mike and I would say, we look macro we don't control and we will be allowed as we progress.
Execution redo.
And the simplification comment that you made.
<unk>.
As we execute.
I do see more potential for now we are wanting to stick to the guidance and we will provide you more color as we progress.
Got it no that's.
Helpful and fast.
Can you also share your thoughts on Genpact long term guidance that was issued a few years I think.
The prior goal was to hit double digit topline growth.
Over the medium term is that still doable beyond this year.
So let me take that.
Look I think how I am.
Think about that following.
Following puneet.
<unk> mission is to have the same achieve its full potential.
And in that full potential do we believe that we will we can grow at market or above market would be answer is yes.
And it means improvement in our execution and that is what I'm focused on and as we improve execution, we can certainly come back to overall.
Year of growing at or above market rates.
If you're specifically asking is going to be going to be fixed we are all being too I think we are in early stages of my meetings here and then as we progress we will update you more on that.
Got it thank you and all the best.
Thank you.
Thank you and one moment as we move on to our next question.
And our next question is going to come from the line of Keith Bachman with BMO. Your line is open. Please go ahead.
Hi, Thank you very much at a couple you've mentioned a few times during your prepared remarks about improving execution and I'm just.
Trying to understand I don't want to steal thunder from future conversations or presentations.
What type of things do you think need improvement on in terms of execution that might translate to.
Better growth.
Great question Keith.
How I think about that is.
Keith: How do we strengthen our foundation, we have already high quality Foundation foundational domain and data foundation of trusted client relationships Foundation of global talent.
And when I speak about execution. It is how we are strengthening but Chris. It further so take an example of clients. We are wanting to change our conversation and we are changing the conversation as we speak to include data and technology in.
Making the conversation more holistic and making our solution far more holistic.
You're paying from our comprehensive data and domain, how do we bring game solutions partner, then Thats, where we are investing in so that again, we are more focused on growth oriented solutions and front to back solution for our clients.
This is what I mean by this.
This is what I mean by execution.
Simplification is an integral part of it and we are driving grid changes as I come into this year and Vantiv.
My view.
Improve our agility and accountability and I'm seeing early results of that that's what I mean my execution.
Okay and my second my follow up question relates to that is.
How do you think about either expanding existing skill sets or getting into new market opportunities in terms of.
Using M&A in particular, and so you mentioned, 50% I think of free cash flow to capital allocation.
Projects.
But how do you think about the changing nature or changing the strategy as it relates to M&A or is it more of the same. Thank you and that's it for me.
Thank you thank you Keith.
I think how I think about it is following and we made continuous to be a key strategic lever for us and always has.
It would be.
And as.
As I obtained golf MMA and I want to connect it back to execute I think we havent done reasonably well in finding assets.
Can we improve our execution and integrating the assets.
I attribute of execution.
It is an integral part of our strategy the answer is yes.
And we will continue to be disciplined from Ottawa few standpoint, and as we can.
Execute more than what we will update you as we go along.
Yes.
Our number one thing that we're looking for is in addition to the financial discipline in everything else package deluded too is how we're building additional capabilities for the organization and organically so to the extent those capabilities Jan AI related or AI related come about you'll we'll be deploying capital there to build upon that build the franchise.
Okay. Many thanks gentlemen.
Thank you.
Thank you and one moment as we move on to our next question.
And it looks like our next question is going to come from the line of Maggie Nolan with William Blair. Your line is open. Please go ahead.
Hi, Thank you.
Can you elaborate on the simplification of our go to market strategy and what you hope the outcome to the Saar for the business.
Sure Maggie.
So clearly I think.
As organically you.
Through the organization.
You somehow start orienting yourself to radius dimensions, and that is what happened with us as well.
Coming in from inside really understood from the client perspective, as well as from the teams as to how we can increase the agility and accountability. So problem multiple metrics organization, what we have done the last 60 days.
ODM kudos to drilling business units.
Mineral client organization.
So take an example.
Orienting with consumer goods and retail companies are ramping we always had but we had other dimension that I think we've clarified it.
The organisation EM oriented everybody to be in the service of clients as we build the capability.
It will be about AI capabilities.
Keith: Simplification exercises, we will report back, but do you see what I mean by simplification what your specific here.
Yes, I think I'll just quickly add onto that ultimately what we're hoping for with all of that is speed and clarity to be able to move quicker and quite frankly grow our revenue just faster pace.
The opportunities are out there.
Thank you that's helpful and then specifically on the D T AI segment.
Did something change between <unk> and <unk> that allows you to grow sequentially and then how should we think about any potential change in the context.
At 2024, and how you incorporated that into the guidance.
Yes, So let me quickly talk about the sequential movement in any deal.
From <unk> to <unk>, we had the impact of the new deal new deals, we talked about they've ramped as expected they actually ramped even a little bit better that that was offset by higher productivity and change in scope on existing work, which is typical within our historical average rent as we move into our first quarter guide we saw.
The positive impact of those new large deals now quarter three as they continue to move through on a year over year basis. However, when you look at the vintage of the historical vintage of existing contracts, we have higher deal.
Keith: Related productivity on those existing contracts, which is typical in terms of the timing, which pulls down some of that growth as well as with the absence of second half of 2023, which had the largest fewer large deals flowing in which is going to affect us in the first half of the year there are lumpy in nature.
As well as <unk> just has a seasonal low in the first quarter.
Okay got it.
And congrats VK and thank you Tiger.
Thank you Brittany.
I came out of it.
Thank you and one moment as we move on to our next question.
Yeah.
And our next question is going to come from the line of Ashwin <unk> with Citigroup. Your line is open. Please go ahead.
Hey, thanks.
Congratulations.
They can tiger.
On the on the formalization of the changes that you guys had announced.
That's the last quarter.
Thank you.
Maybe I can start with asking a question on margins.
Normally we do see sort of year over year.
Margin improvement kind of holding the line on that.
Is that Dave.
Specific ignored with regards to wanting to invest for growth.
And then the part two of the Morgan question is Youre, starting out with 16%.
What's driving in <unk>, what's driving that and what kind of margin cadence should we then expect to see.
So I'll start I'll start off and I'll talk to you I'll turn it over to vacate at the end of it. So it will expand at a normal cadence throughout the year based on the historical patterns right. So it will expand to also as we have the revenue that will earn in on the growth that we have in the business as we're projecting but yes, you're right we're holding our dollar.
Fixed costs relatively constant what we're doing with those additional monies as we're putting in into the business quite notably in terms of investments that are staged throughout the year.
And what island.
Extreme impact so much for your comments earlier, yes.
Yes, we are investing to grow.
We always have Avi infusing more the answer is yes, but as we go along we will install more about as I understand is that lithium from clients really inform you more about our on pieces, but clearly we have one thing doing risk too.
Make sure that growth stacks up all at or above market rates.
And that's sort of where I wanted to go with my next question you had mentioned that you want.
Yeah.
And you are scheduled meeting.
100, plus clients in the first 100 days.
You know that peanut obviously it started already met a number of clients.
Could you share maybe some granularity what sorts of.
Anthony you are getting back from.
From the clients with regards to your capabilities, where you might need to incrementally invest in perhaps even thoughts on M&A.
Great question, Jim So look I also have three comments, our shrimp point number one.
More broadly clients still are seeing the uncertain environment and that's what you see in our.
In our.
Macro comments that Mike alluded to point number one point.
Point number two very quickly every conversation.
Certainly has componentry of data and AI, which wasn't the case and just.
Six months ago eight months ago.
And therefore, a lot of conversation is about transforming them.
Front to back transformation.
And.
I'm thinking about here, how do we generate value not just in a particular function, but across the board in the sectors we operate in.
And I think we have demonstrated to them and many number of years you've taken an example of a recent press release that we did.
<unk> branded solutions.
We announced a partnership with a branded solutions, a leading provider of field in marketing services and consumer goods space.
<unk>.
We are delivering to our front to back solution along with Salesforce.
The seasoning process for them.
And it is one of the larger deals.
<unk> simply so commutation like these are taking shape in a more significantly.
This call Michael alluded to we are constantly looking at our pipeline from an M&A standpoint, two booklets our capabilities, while staying disciplined on the various pieces of M&A envelope integrating them.
But really exciting time for us.
We believe we are ahead in the AI conversations and really really excited about our capabilities and the ones that we are going to be.
Thank you all the best.
Thank you.
Thank you and one moment as we move on to our next question.
And our next question is going to come from the line of Bryan Bergin with TD Cowen. Your line is open. Please go ahead.
Bryan C. Bergin: Hi, Thank you and Tiger and BK Congrats again.
My first question BK I appreciate the details you've shared here on the sale of simplification and the DTA leadership consolidation that was really seem to center more on driving consistent growth execution. So I wanted to ask you about your view on the cost side of the equation I understand you're you've got growth investments youre going to lean into here.
Are there any structural changes in the organization you may also be considering to improve profitability.
So thanks, Brian So look I think I'll answer that in two parts.
And Mike feel free to chime in.
Point number one.
Are we constantly focus on improving profitability, we answer the <unk> youll see that in <unk> and you see that consistently over the last 567 years.
Year on year, then you'll see the cadence improving.
So we have acute focus on improving profitability, while clearly investing to grow in ramping our topline growth point number one why madhu.
As we.
As we go through the cycle.
We'll constantly evaluate.
How to invest our dollars and.
Also.
At least for this year well we are thinking.
Well to grow better we want to stay in that range.
We are investing to grow yes, im going to parse it into two things right. I think you hit it really well when you talk about what we're trying to do in the 2024 guide about reinvesting in our business.
One of them <unk> mantras in the organization as we are an AI first company right. So what does that mean he is pushing every functional area. My own included in finance on how we can adopt AI solutions embedded in our own organization that will drive cost efficiencies as well as production efficiencies and we can be our own test cases.
Bryan C. Bergin: For that so I can foresee ourselves in the future years being able to leverage that from a productivity and cost perspective, but for 2024, we're going to take all of those efficiencies that we're having and we're just at the beginning of many of them and we're looking to plow a lot of them into it and we have a laundry list of investments to execute on all really supporting our capabilities that will.
Ultimately result in an increased level of sales.
Okay. That's clear. Thank you and then my follow up is just on large client performance. So are there any large client ramp downs that are weighing here as you enter 'twenty four we know you had the di Tech client last year, just curious if theres any further reductions like that this year as you entered the year that may be offsetting the ramp of new bookings.
No nothing more than the typical cadence that we have on that so nothing to call out we look at it it's all within the same.
Bryan C. Bergin: Historical average so there's nothing like we had last year or nothing pending that we're aware of so we're not planning for any of that.
Alright, thank you.
Thank you and one moment as we move on to our next question.
And our next question is going to come from the line of Sean Kennedy with Mizuho. Your line is open. Please go ahead.
Hi, everyone. Thank you for taking my question and congrats on a strong quarter.
Was wondering how you see your clients Janet ready.
Readiness and overall reception to it are there any specific barriers to overcome and you see a difference depending on the type of client and project. Thank you.
Thank you Sean.
So overall idle Boston to <unk> is there a lot of excitement with every single client, which wasn't the case six months ago.
And the answer is overwhelming gifts every single client conversation before.
Before we provoke and.
We are always the longer we're wanting to provoke.
One thing to have the conversation.
The doors are open is point number one however.
Just take the example of data data is not as structured that AI can result into outcomes that we expect good fashion.
So all of that is helping us bring our data capabilities as well as our AI frameworks that we have <unk> beam into AI for last seven years since the time, we acquired rage frameworks back in 2016 2017 timeframe. So we have formed frameworks on AI. So that is really helping us with this term on me.
And <unk>.
In vascular and I reported in my prepared remarks that we have 3000 conversations. So many conversations are record every single conversation we're behalf.
Disciplined company.
Bryan C. Bergin: I also reported to be members that have gone into production.
Do see increased velocity of that and we really feel good about that.
Okay.
Speaker Change: Great. Thanks for all the detail.
Thanks, Sean.
Thank you and one moment as we move on to our next question.
And our next question is going to come from the line of Spencer the bowls.
Ledbury Securities. Your line is open. Please go ahead.
Hey, Thanks, it's actually Marcia category from Wedbush.
Youre welcome.
And Tiger Good luck on whatever you Youre planning to do next.
So a question they can when youre looking at your portfolio are you happy with the.
The decline base I E. Do you think that you need to prune some of those customers that are not really maybe worthy pension that you have and maybe that also could potentially at least.
Temporary impact topline growth for this year. That's my first question.
Thank you Spencer.
So what we feel exceptionally good about is all of our clients.
Not just a fortune 50 fortune 100 clients that get named.
But all of our clients.
We are very disciplined in Onboarding every single client, but we are very very proud of all the client base that we have.
In their own right. They are iconic company, so norton data than any plan Spencer that you specifically asked.
Understood and then the follow up is more about.
For the next 612 months and kind of going back to <unk>.
Speaker Change: Tigers commentary on win rates.
So whether it's had a pretty nice uptick maybe you can talk a bit about what drove that uptick and what do we need to do to kind of keep on moving that one rate number higher it's a pretty impressive kind of improvement.
And year over year basis.
It's a great question Iot a few specific things Spencer one, we're really really proud of and with FDA.
Speaker Change: <unk>.
And our.
Few reasons Tiger also spoke about large deals increase.
Our focus on large deals.
And that has helped us increase.
The win rates with <unk> in a significant fashion.
This was.
Three we had 14 large deals greater than $50 million.
Reflected in the.
60% memory Tiger spoke about why number two.
We are increasing our focus on <unk>, making our solution far more holistic that is also helping us improve our win rate and point number three we are increasing our investment and focus on partners and <unk>.
That is a game.
We'll bring you see some of those I already spoke about Salesforce, We also announced.
Another press release, just a couple of days back on Dropbox, where service now and Genpact came together to streamline their procurement function. So.
Partners is also helping us increase our win rates.
Understood. Thanks.
Speaker Change: Thank you.
Yeah.
And as a reminder, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone.
Well.
Okay.
And our next question comes from the line of Sarah Anderson with Jefferies. LLC. Your line is open. Please go ahead.
Thank you.
The key is I think about the transformation journey.
About the kind of take Genpact on at this point.
Can you talk about how maybe structurally it is and how you're going to evaluate the change in terms of the key metrics.
And the timeframe that youre thinking about is it.
Is it just on the sales side or do you really have to kind of rethink about delivery here.
And part of the question.
It is also is that given all of this conversation about generative AI.
Our clients asking for a lot more productivity commitments at this point as well.
Speaker Change: But there are many questions in your question reversal, if I don't.
And for that I mean, you can call that out, but let me phosphate.
Formerly you my first.
Speaker Change: CEO.
So I think.
I would just say that yes.
I'm here.
For many many years so I understand.
Clients and Jim Packer exceptionally well, so therefore speed is operations.
Having said that.
Point number one.
What we are talking about is front to back transformation for us as well not just for our clients.
If you would note that.
This morning, we.
Speaker Change: Amounts.
<unk> technology and transformation officer for first time in <unk> history.
And that particular role is to transform genpact internal processes.
My first lengths that Mike.
Mike was alluding to.
So it does not just 70 front end of the business.
But also a little in Middle office back office, and Hao 127000 of us interact with one another as well as with clients.
And I think we are looking at.
No.
Specific I also do not want to launch 55 initiative, just want to stay focused on execution and discipline.
As we progress there at stage, one and stage two initiatives that we are together coming on as the management team and committing to it and there'll be specific lead indicators that we will have internally and at appropriate time, we will expose it to all of you.
That's helpful.
And then I guess just on the last part of this is.
Related to the commentary earlier about.
The conversations with clients focused on the data component in the AI component.
How does that impact maybe the productivity commitments that they're looking for.
And then additionally, lets say that Theres deals that you signed a year ago before there was all of this excitement about some of these new offerings.
Speaker Change: Are some of those clients also revisiting some of that is that what's may be causing a slower ramp or clients have an opportunity to revisit maybe what they had wanted six months ago in light of how fast technology in <unk>.
Processes and things are changing how do we think about that dynamic.
So I missed answering that question. Thanks for reminding me.
So I'll answer that in two parts so number one.
There is we win.
As a conversation for us as I mentioned, just a while ago is not new for US yes. It is new fault lines, but we were always baking all of that email our solutions and we are now <unk> has opened up a lot more for having those conversation short answer to the question.
That you are asking is there more productivity. Therefore, no. We are not seeing that because I think we've been fairly competitive place and competitive market and I think we are leaning in upfront.
Our contracts.
We are demonstrating to clients and it isn't new common rotation opening up with clients that he now Jamie has come in because we've been demonstrating that in our solutions.
And.
I think we are building actually a more holistic solutions, including data.
As I mentioned opening up newer conversations for us short answer Surinder.
We have not seen any dip.
<unk> productivity curve.
And if at all at any point that it happens we will authentically shared with all of you.
Speaker Change: Thank you.
Thank you I'm showing no further questions and I would like to turn the conference back over to Roger Sachs for closing remarks.
Thank you everybody for joining us today, and we look forward to speaking with you again next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
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