• Revenue: $1.18 billion in Q2, up 6% year-over-year.
• Gross Margin: 35.4%, exceeding expectations.
• Adjusted Operating Income Margin: 16.9%, above expectations.
• Net Income: $122 million, a 5% improvement year-over-year.
• GAAP Diluted EPS: $0.67, a 6% increase year-over-year.
• Adjusted Diluted EPS: $0.79, up 10% from last year.
• Cash from Operations: $209 million, compared to $171 million in the prior year period.
• Cash and Cash Equivalents: $914 million, up $491 million from the same period last year.
• Attrition Rate: 23%, 200 basis points lower than the same quarter last year.
• New Logos Added: 23 in Q2, totaling 53 new logos in the first half, a 29% increase year-over-year.
• Revenue Guidance Increase: Raised by 150 basis points to 4% to 5% growth for the full year.
• Adjusted Diluted EPS Guidance: Raised to $3.14 to $3.18 for the full year.
• Operating Cash Flow Guidance: Approximately $525 million for the full year.

• Warning! GuruFocus has detected 1 Warning Sign with FNA.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Genpact Ltd (NYSE:G) reported a strong quarter with revenue reaching $1.18 billion, up 6% year-over-year, exceeding the high end of their guidance range.
• Gross margin of 35.4% and adjusted operating income margin of 16.9% surpassed expectations, driven by operating efficiencies.
• The company has seen significant growth in GenAI bookings, which are up more than 10 times compared to the full year of 2023.
• Genpact Ltd (NYSE:G) added 23 new logos in the quarter, bringing the first half total to 53 new logos, a 29% increase year-over-year.
• The company raised its revenue and EPS outlook for the full year, reflecting strong performance in the first half of 2024.

Negative Points

• Client sentiment has remained cautious and unchanged over the past 12 months, with no improvement in discretionary spending.
• Despite strong performance, Genpact Ltd (NYSE:G) is not assuming any improvement in the buying environment for the remainder of the year.
• The company faces a significant gap in partnership revenue compared to peers, although efforts are being made to close this gap.
• Attrition remains at historical lows but still stands at 23% for the second quarter.
• The guidance for the third quarter indicates a deceleration in growth rate compared to the strong performance in the second quarter.

Q & A Highlights

Q: Can you provide an update on overall client sentiment and how it has evolved over the past quarter? A: Balkrishan Kalra, President and CEO, stated that client sentiment has largely remained the same over the last 6 to 12 months. There has been no significant improvement or deterioration in discretionary spending, with clients remaining cautious and watchful due to ongoing uncertainties.

Q: Has your long-term mindset changed regarding the percentage of outcome-based deals? A: Michael Weiner, CFO, mentioned that while they don't have concrete numbers to share, they expect the percentage of outcome-based deals to increase. Currently, these deals comprise about 20% of revenue and have robust margins above average.

Q: Can you provide perspective on initiatives that have worked well and areas needing more emphasis? A: Balkrishan Kalra highlighted the success of their 3+1 initiatives, focusing on partnerships, Data-Tech-AI, and simplifying go-to-market strategies. They have also leaned into innovation, particularly with GenAI, and are seeing early results.

Q: How is large-deal revenue flowing through 2024 and 2025, and what are the impacts on EBIT and gross margins? A: Michael Weiner explained that large deals from late 2023 are ramping up and typically start with lower gross margins, improving over time. These deals, often spanning five years, are reflected in their guidance for the year.

Q: How does GenAI expand your total addressable market (TAM), and can you quantify it? A: Balkrishan Kalra noted that GenAI expands TAM by increasing the scope of opportunities and engaging clients in new areas. While quantification is challenging at this stage, they see increased bookings and pipeline contributions from GenAI.

Q: How quickly can you close the gap in partnership revenue compared to peers? A: Balkrishan Kalra emphasized rapid investment and focus on partnerships, aiming to reach double-digit revenue from partnerships faster than a five-year horizon.

Q: How are GenAI deals priced, and are they higher margin than normal contracts? A: Balkrishan Kalra explained that GenAI deals are largely outcome-based, leading to higher profitability. These deals focus on the outcomes generated for clients, aligning with their strategy for higher-margin contracts.

Q: How does your team sell Data-Tech-AI and GenAI solutions, and have sales incentives changed? A: Balkrishan Kalra confirmed changes in sales incentives and described the use of offering hubs to tailor solutions based on client needs. They have set up rituals and rigor to drive accountability and agility in sales motions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.