Genpact(G)2024-05-10 01:05Financial Data and Key Metrics - Total revenues for Q1 2024 were 117 million, up 10% year-over-year, with GAAP diluted EPS of 0.73, up 7% year-over-year, driven by lower outstanding share count and higher adjusted operating income [23] Business Line Performance - Data-Tech-AI revenue, representing 44% of total revenue, increased 3% year-over-year, driven by finance and accounting, supply chain, and risk service lines [20] - Digital operations revenue, representing 56% of total revenue, increased 4% year-over-year (5% on a constant currency basis), primarily due to deal ramps from last year's large bookings [20] - Outcome and consumption-based models expanded to approximately 19% of Q1 revenue, up from 13% in Q1 2023 [21] Market Performance - Financial services segment revenue increased 3% year-over-year, driven by large deal ramps and growth in financial crimes, partially offset by pressure in discretionary tax spend [21] - Consumer and Healthcare segment revenue increased 5% year-over-year, due to large deal ramps and growth in supply chain engagements [21] - High Tech and Manufacturing segment revenue increased 4% year-over-year, driven by new logos in digital operations and Data-Tech-AI, partially offset by descoping of a high-tech priority client [22] Strategic Direction and Industry Competition - The company's 3+1 Execution Framework is driving early results, focusing on partnerships, Data-Tech-AI, simplification, and internal transformation (Client Zero) [8][9][15][16] - Genpact strengthened partnerships with AWS, Salesforce, Adobe, and Microsoft, leveraging AI to transform finance organizations [9] - The company is aggressively driving go-to-market engagement in Data-Tech-AI, with a focus on generative AI, leading to increased client conversations and revenue [9][14] - Genpact is building responsible AI centers of excellence for clients, helping them automate operational finance activities and other processes [13][14] Management Commentary on Operating Environment and Future Outlook - The company increased full-year revenue guidance by 50 basis points to 2.5%-3.5% growth, reflecting Q1 outperformance [16] - Gross margin outlook for the full year was increased by 30 basis points to 35.3%, while adjusted operating income margin remains unchanged at 17% [17] - The outlook does not assume any improvement in the macro buying environment, with revenue upside from Q1 being flowed through the full year [17] - Management highlighted early signs of improving execution and momentum in generative AI-related revenues and bookings [14][17] Other Important Information - The company repurchased approximately 865,000 shares at a total cost of $30 million in Q1 [25] - Attrition rate for the quarter was 23%, in line with Q4 levels, with adjusted attrition (excluding involuntary attrition and employees with less than three months of service) at 17% [25] - Days sales outstanding expanded to 91 days from 83 days in 2023 due to collection delays and higher payment terms in new accounts [24] Q&A Session Summary Question: Long-term revenue targets and macro environment - The company is focused on 2024 execution and will provide updates on long-term targets as the year progresses [31][32] Question: Generative AI traction and business size - Early days for generative AI, but significant client interest and momentum in bookings and revenues, though still a small portion of overall business [35][36] Question: Q1 outperformance drivers - Outperformance driven by better execution in digital operations and Data-Tech-AI, particularly in finance and accounting supply chain projects [37][38] Question: Sales team changes and attrition - Positive reception to organizational changes, with excitement and improved execution, and hiring of over 50 senior leaders in Q1 [40] Question: Visibility into Q2 and full-year growth - Prudent guidance for the second half of 2024, with no anticipated improvement in the macro environment [43][44][45] Question: Productivity commitments from clients - No increase in productivity expectations from clients, but interest in AI tools and learning about their implementation [47][48] Question: Go-to-market changes and gross margin drivers - Sales and go-to-market changes are ongoing, with simplification efforts yielding results [51][52] - Gross margin improvement driven by lower severance costs and large deal investments, with a sequential downtick in Q2 due to annual compensation refresh [54] Question: Win rates and operating margin - Elevated win rates (62%) driven by sole-sourced deals and follow-on engagements, with operating margin held constant due to reinvestment in growth initiatives [57][60][61] Question: Outcome-based pricing and discretionary work - Outcome-based pricing models are showing higher margins than FTE-based pricing, with a push to decouple revenue from FTE headcount [64][65][70] - Over 70% of revenue is annuity-based, with discretionary work primarily in Data-Tech-AI consulting and project work [67] Question: Demand environment and execution - Record pipeline levels across segments, driven by increased agility and partnerships, but no meaningful improvement in the macro environment [77][78] Closing Remarks - Q1 was a solid start to the year, with revenue and gross margin above guidance, and early signs of improving execution under the 3+1 Execution Framework [81]