Earnings Calls: Cerence and Genpact Report Q2 2024 Results

Earnings call: Cerence reports steady revenue, plans for cost savings By Investing.com

Cerence Inc . (NASDAQ:CRNC), a leader in AI and voice-powered technology for vehicles, held its fiscal year 2024 third-quarter earnings call, reporting revenues that met expectations and outlining strategic plans for the future. Despite taking a substantial goodwill impairment charge, the company's non-GAAP profitability outperformed its guidance. Cerence is on track to meet its full-year guidance while anticipating net annualized cost savings in the upcoming fiscal year through various cost reduction measures. Cerence's third-quarter results show a company navigating through financial complexities while maintaining a focus on innovation and market leadership. With a strategic eye on cost savings and operational efficiencies, Cerence is positioning itself for sustainable growth in the evolving automotive AI market. The company's emphasis on strong customer relationships and advanced technology offerings underscores its commitment to remaining at the forefront of the industry. Investors and stakeholders will be watching closely as Cerence approaches the fiscal year end and strategizes to address its convertible notes due in 2025. Cerence Inc. (CRNC) has demonstrated resilience in its Q3 2024 earnings, yet the company's stock performance and financial health show a mix of challenges and potential. Here are some insights from InvestingPro that provide a deeper look into the company's financial state: 1. The company operates with a significant debt burden, which is an important consideration for investors as the company navigates its financial strategies. 2. Analysts predict the company will be profitable this year, which could be a turning point for investors looking for growth in earnings. For investors seeking a comprehensive analysis of Cerence's financial health and stock performance, InvestingPro offers additional tips. Currently, there are 10 InvestingPro Tips available for Cerence, which can be accessed for further detailed insights at https://www.investing.com/pro/CRNC. These tips could provide valuable guidance for investors considering Cerence as part of their portfolio, especially in light of the company's strategic plans and the challenges it faces with its debt obligations. Operator: Good day and thank you for standing by. Welcome to the Cerence's Third Quarter 2024 Earnings Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today Richard Yerganian, Senior Vice President, Investor Relations. Richard, please go ahead. Richard Yerganian: Thank you, Felicia. Welcome to Cerence's third quarter of fiscal year 2024 conference call. Before we begin, I would like to remind you that this call may involve certain forward-looking statements. Any statements that are not statements of historical fact, including statements related to our expectations, estimates, assumptions, beliefs, outlook, strategy, goals, objectives, targets, and plans, should be considered to be forward-looking statements. Cerence makes no representations to update those statements after today. These statements are subject to risks and uncertainties which may cause actual results to differ materially from such statements, as described in our SEC filings, including the Form 8-K with the press release preceding today's call, our Form 10-K filed on November 29, 2023 and our most recent Form 10-Q. In addition, the company may refer to certain non-GAAP measures, key performance indicators, and pro forma financial information during this call. Please refer to today's press release for further details of the definitions, limitations, and uses of those measures, and reconciliations of non-GAAP measures to the closest GAAP equivalent. The press release is available in the IR section of our website. Joining me on today's call are Stefan Ortmanns, CEO of Cerence, and Tony Rodriquez, Interim CFO of Cerence. As a reminder, the only authorized spokespeople for the company are Stefan, Tony, and me. Now onto the call. Stefan? Stefan Ortmanns: Thank you, Rich, and good morning everyone. To begin, I would like to briefly comment on our third quarter results. Our financial performance was as expected with revenue in the middle of our guidance. Due to the decline in our stock price, we performed a goodwill assessment following completion of the quarter that resulted in a goodwill impairment charge of approximately $357 million, negatively impacting our GAAP profitability. With the exception of gross margin, which was within the range, all other non-GAAP profitability metrics were above the guidance we provided on our last call. Additionally, we had a strong quarter for cash flow from operations, which came in at $12.9 million. We remain substantially on track to achieve the full year guidance we provided our last conference call and Tony will provide the details later in the call. We recognized that some of you may be listening to our call for the first time and thought it would be helpful to provide a high-level overview of Cerence and our business. Cerence creates AI and voice powered user experiences across the transportation industry, primarily for automobiles. We were among the first to bring voice interaction to cars and today we count nearly all the world's leading OEMs and tier 1 suppliers as our customers and partners. More than half of cars that roll off the production line globally includes Cerence solutions. So as many of you have interfaced with Cerence as the company behind the audio and voice technology in your cars, whether it be Mercedes-Benz (OTC:MBGAF), Volkswagen (ETR:VOWG_p), Stellantis (NYSE:STLA), Toyota (NYSE:TM), or many others. In fact, we recently surpassed half a billion cars shipped with our technology. As the automotive industry faces an incredible transformation, we believe Cerence is well positioned to partner with automakers to deliver what drivers want and need from the in-car experience. That is an intuitive, seamless interaction in which they can complete virtually any task, all without comprising safety. We believe there are three key differentiators that distinguish our offering. First, we have a lengthy history and deep customer relationships giving us critical understanding of the unique dynamics in the automotive industry. We have extensive experience in both in production and in development systems and we work closely with our customer as an innovation partner, helping to define and design their next generation infotainment system. Second, we have a strong IP position, approximately 700 patents and automotive specific data supporting an end to end solution that improves all aspects of the in-car user experience from the moment a driver begins speaking all the way through to task completion. Additionally, our global footprint spans more than 70 languages to support OEMs worldwide. Third, we are deeply customer centric, empowering our OEM customers with flexible and customizable solutions that puts their brands at the forefront so they can not only differentiate themselves from their competitors, but also maintain ownership of their data. Think about it. The infotainment system is a car brand's main interface with their customers on a daily basis. They don't want to just hand that brand equity over to a partner who doesn't have their interest as its top priority. Plus, we believe that OEMs want to maintain their ability to monetize the valuable data generated from their systems rather than handing it off to a third party. Our solutions address all of these considerations. As we look to the future as a preferred supplier of voice and AI in the car, we are moving quickly to advance generative AI and large language model powered innovation that we believe will be central to the automotive user experience of the future. I will provide more details on that in a few minutes. Given our relationships with nearly all the world's leading OEMs, we have deep insight into the many challenges automakers are facing today. First, pressure for faster development cycles that consistently deliver a fresh user experience; second, increasing software development requirements and the push on AI, all while balancing cost; and lastly, growing pressure from an evolving regulatory landscape. These factors are driving automakers and their suppliers to assess their strategies and investment, and that includes Cerence. As such, we are undergoing a business transformation intended to position Cerence to meet the current and future needs of our customers. On our last conference call, we also shared that given our lower revenue run rate profile we will be undertaking cost reduction actions that we expect to position us to consistently deliver positive adjusted EBITDA and positive cash flows. Along these lines, our objective is to realign our cost structure to create a more efficient organization while also focusing our resources on the product areas we expect to reach the most reward driving faster growth and improved profitability. We have partnered with a specialized firm [ph] to support us through our transformation efforts, which are well underway. As one of our first steps, we recently unified our product and core technology teams, which we believe will help to accelerate innovation and to drive efficiency to meet customer demands and elevate pain points, as well as deliver on our AI roadmap. We expect to begin the next steps in our cost reduction efforts within the months. Our initial expectations are to achieve net annualized cost savings on a run rate basis of approximately $35 million to $40 million, which will be predominantly realized in fiscal year 2025. Next quarter. We will provide fiscal year 2025 guidance and give more specifics on where those savings fall in the P&L. The gross savings are expected to be higher, allowing us to reinvest in the resources that are required to bring innovative, new solutions to the market, including advancing our generative AI road map and next generation platform. We expect that some of the expense reductions will have an impact on certain revenue streams, primarily those that are less profitable. We are carefully managing these actions to mitigate the impact and focus our investments in the areas that we expect will drive our future growth and support OEMs as they continue to prioritize software and AI innovation. Tony will discuss this more in his remarks, and he will provide specifics along with official fiscal year 2025 guidance on our next call. From a product and technology perspective, we have three main areas of focus. First, advance our core technology stack as a foundation for everything we do. We continue to innovate across input, output, conversational AI, audio AI and other solutions like emergency vehicle detection, bring in advanced capabilities and new features. Our turnkey offering, Cerence assistant, provides a strong foundation for our new generative AI solutions. Second, we continue to capitalize on the traction we generated at CES in January for our generative AI powered solutions that enables OEMs to leverage AI with customization and cost efficiency. We have made fast progress with eight OEM design wins since January and several global OEMs, including Volkswagen, Audi, SEAT and Škoda, already going live with these solutions not only in new cars, but also those already on the road. We expect another four Gen AI customer programs to go live before the end of the calendar year. Also based on a small sample size and short time frame, we are seeing a positive - increase in price per unit for these offerings and an increase in user adoption and usage. Lastly, as OEMs are moving quickly and looking to Cerence as a trusted partner to help them efficiently bring AI into their cars, we are laying a strong foundation and developing an eager customer base that we have the potential to convert to our next generation AI computing platform, down the line. This new platform leverages Cerence's proprietary automotive large language model, enabling a single conversation interface to work across application to complete tasks based on user preferences. To give you a real-world example, imagine getting into your car after a busy workday. You ask the in care assistant to summarize the text messages you received throughout the day, it filters out a few less important messages and highlights one from your spouse that says, "we are low on groceries, should we go out to dinner tonight?" You ask the assistant to find you a French restaurant with outdoor seating and an open reservation. Confirm the details, then send a test message back to your spouse, filling them in on the plans. The assistant confirms that there is a charging station near the restaurant that you have enough battery to get there, and then starts the navigation. This is all done in a single interaction rather than multiple steps that require switching back and forth between applications. And you can speak naturally and comfortably to the system just as you would to another human. This new platform is in development and we're working closely with several customers on their specific needs. We do not expect our transformation plans to slow this program down. In fact, our plan is to take some of the gross savings - cost savings to reinvest them to scale and accelerate our GenAI roadmap. In summary, we believe that our product strategy will further strengthen our ability to serve customers and lead to a healthy pipeline of business opportunities. I would like to now hand the call off to Tony to review our Q3 results and outlook for Q4. Tony joined us in early June as our Interim CFO as we continue our search for a permanent CFO. Tony brings over 25 years of experience as a financial leader, managing all aspects of finance and accounting for both public and private global companies. After Tony's comments, I will be back for a few closing remarks and then we will take your questions. Tony? Tony Rodriquez: Thank you, Stefan. I will now talk through our Q3 results, Q4, and full year guidance and continue the revenue framework discussion for fiscal year 2025 that was introduced last quarter. For Q3, our revenue was $70.5 million, landing in the middle of our range of guidance of $66 million to $72 million. This represents an increase of $8.8 billion, or 14% over last year's Q3 revenue of $61.7 million. At $12.5 million, our Q3 adjusted EBITDA for the quarter was $9.7 million, higher than a year ago and above the higher end of the guidance range. This quarter's revenue and profitability benefited from increased fixed license revenue as compared to prior year. Our cash flow from operations for the quarter was $12.9 million and our balance sheet at the end of the quarter included total cash and marketable securities of $126 million. As to what Stefan mentioned a few minutes ago, our GAAP results were negatively affected by a $357 million goodwill impairment. This is a non-cash impairment charge that only affects our GAAP results. Turning to our detailed revenue breakdown, variable license revenue was $23.1 million, down $2.7 million, or 10% from the same year - same quarter last year. Fixed license revenue came in at $20 million for the quarter compared to a Q3 last year where we had no fixed license revenue. This brings our fiscal year-to-date 2024 fixed license revenue total to approximately $30.4 million, and we do not expect additional fixed license revenue in Q4. Connected services revenue was $10.9 million. This was slightly higher than last year's connected services revenue of $10.2 million. When excluding $8.4 million of revenue from the legacy contract that we will discuss again in a little more detail later. Our professional services revenue was down 4% year-over-year. As a reminder, our professional services are not a revenue growth driver for us in itself, but rather an enabler of both license and connected services revenue. We expect professional services revenue to be flat to down year-over-year going forward. Moving on with more detail on our license business, as a reminder, pro forma royalties is an operating measure representing the total value of variable licenses shipped in a quarter as it includes consumption of previously recognized fixed license contracts. Our pro forma royalties were $39.6 million, which were flat to Q2 but down as compared to Q3 of last year due to lower volume of licensing royalties. Consumption of our previously recognized fixed license contracts totaled $16.5 million this quarter, lower than same quarter of last year by 12%. Because the annual value of fixed contracts has been trending down over time this result in smaller consumption of royalties associated with past fixed contracts. As consumption levels decline, we expect that should correspondingly result in variable license revenue growth in future periods as royalties will accrue directly to the revenue line as production occurs. We continue to expect consumption run rates to normalize by the end of fiscal year 2026, at which time new fixed contracts should roughly align with the level of consumption during the year. As we review our key performance indicators this quarter, our penetration of global auto production for the trailing 12 months declined slightly to 53% due to weaker production volumes among our top customers. We shipped 11.7 million cars with Cerence technology in the quarter, down 6.2% year-over-year, while IHS production for the same period declined 0.5%. Quarter-over-quarter we were up 3% while IHS production was also up 3%. The number of cards produced that use our connected services increased 19% on a trailing 12-month basis compared to the same metric a year ago as some programs that were previously delayed started ramping production. Adjusted total billings increased 3% for the trailing 12-month period this year compared to the previous year. As a reminder, we provide updates on our five-year backlog on our second and fourth quarter earnings calls. Now, before I review our outlook for the fourth quarter and fiscal year, I'd like to address our outstanding convertible notes. As you may be aware, we have $87.5 million of convertible notes that have gone current and are due in June of 2025. Because of the conversion price of $37 per share, these notes are viewed as debt. Given the coupon rate of 3%, these notes are favorable to the company compared to similar instruments available in the current debt market. We are reviewing options for next steps, including evaluating the trade-off between cash flow and dilution, and we'll prioritize a solution that we believe to be in the long-term interest of the company and our shareholders. We will update you when a decision has been made. Moving on to our guidance. We are guiding the fourth quarter revenue to be between $44 million and $50 million. For the full fiscal year, we expect revenue to be between $321 million and $327 million. Excluding the cash impact of our transformation activities, we expect fiscal year 2024 cash flow from operations to be in the range of $10 million to $15 million. We do expect total cash restructuring charges in the range of $18 million to $22 million related to the transformation efforts. We expect to incur these charges in the fourth quarter of fiscal year 2024 and the first quarter of fiscal year 2025. Consistent with what we explained in last quarter's call, I want to take a moment to discuss the legacy contract with Toyota. This contract was a connected services contract acquired by our former parent Nuance Communications (NASDAQ:NUAN) in 2013. Toyota decommissioned the solution in Q1 of fiscal 2024, resulting in accelerated deferred revenue in Q1 of this year for Toyota and a directly related contract. So as of the first fiscal quarter of this year, the contract is behind us. It is important to view fiscal year 2024 revenue excluding the impacts from those services. We believe this provides a new revenue run rate profile from the company. If you take the mid-point of our current fiscal year 2024 revenue guidance I just discussed on the previous slide of $324 million and exclude $87 million of legacy related revenue recognized in Q1, the adjusted revenue for the fiscal - adjusted revenue for the company for fiscal year 2024 is approximately $237 million. We consider this new revenue run rate relevant for both our cost model and as well as planning our business activities going forward. With this adjusted new run rate of our expected revenue, I do want to take a moment to look forward. While I'm not prepared to provide fiscal year 2025 guidance at this time, I can discuss the framework we provided last quarter of how to think about the fiscal year 2025 revenue and profitability. As - first, as Stefan mentioned, we expect to begin implementation of our recently identified cost reduction efforts within the month and our initial expectation is to achieve net annualized cost savings on a run rate basis of approximately $35 million to $40 million, which will predominantly be realized in fiscal 2025. Since fixed contracts have been trending down, we would expect significantly less fixed license consumption in fiscal year 2025 compared to fiscal year 2024, assuming flat OEM production and mix and pricing mix. In addition, if you assume $20 million of new fixed licenses in fiscal year 2025, very modest growth in run rate connected services and some modest revenue impact related to the cost reduction efforts of the Q4 transformation, it would be reasonable to anticipate a range of flat to low-single digit percentage decline off of the new estimated revenue run rate of $237 million. For some additional color on sensitivity of this view, those assumptions could be lower or higher depending on global auto production changes, date shifts in the introduction of new platforms, pricing and mix shifts. Again, this does not represent guidance, but rather as a framework of how to think about fiscal year 2025 revenue, which is subject to changes based on a number of operating industry and customer related factors. In terms of profitability, with a lower anticipated mix of professional services in the revenue framework, we expect improved gross margins as compared to a fiscal year 2025 business without legacy revenue, including the impact of our cost saving efforts, in the near-term, we are striving for positive adjusted EBITDA in the single-digit margin range as we progress toward our higher long-term profitability goals. I'd now like to hand the call back off to Stefan for closing remarks. Stefan Ortmanns: Thank you, Tony. As we close out the fiscal year, we have three main priorities. First, accomplish our fiscal fourth quarter and full year financial objectives. Second, execute on our transformation plan while minimizing any disruptions to our ongoing customer operations. And third, deliver on our AI innovation roadmap. That concludes our prepared remarks. And we will now open the call up for questions. Operator: Thank you. [Operator Instructions] The first question comes from the line of Jeff Van Rhee of Craig-Hallum Capital Group. Jeff, please go ahead. Jeff Van Rhee: Great. Thanks for taking my questions. Just a couple for me. First Stefan, on the AI wins, maybe just talk to what you're seeing early understandably, but what are you seeing in terms of the actual usage on an apples-to-apples basis? I think you got a slide in the deck that talks a little bit about that, but wonder if you could quantify it a little more precisely. And then also along those same lines, any quantification around average revenue per unit or user, however you want to dial it in, what you're seeing on revenue impact there? Stefan Ortmanns: Hey, good morning, Jeff, and thanks for your question here. Yes. So I think it's too early to quantify all the details here. I think in the near-term there's not a significant impact on the revenue and billings as the programs are just launched, yes, and have been rolled out. Feedback from the OEMs directly are very positive, yes. There is also a good growth potential, but still, as said at the early stage and this depends heavily on the user adaption and user subscriptions. And as a reminder, our business is B2B. Nevertheless, what you can see from the graph in the deck is that it's not just about Chat Pro who sees a tremendous improvement for general questions. It's across all domains here, from navigation up to simple command and control calling mom and so on, so forth. And that shows actually or is a proof of concept that we're doing the right thing here. What we said also earlier, right, this kind of ChatGPT or Chat Pro is heavily integrated in the OEM assisted OEM branded assistant and the assistant has full control about the solution. And also by feeding the system with our own automotive data, we see less hallucinations, right. And overall, it's also a very cost effective approach for the OEM. Jeff Van Rhee: Got it. As you think about the usage of in car sort of engagement systems, if you will, and you'll look at the broad landscape, obviously you've dominated the - what I would call the in car systems, but then you've got people Bluetoothing in CarPlay, Android Auto, when you do your studies on the market and the TAM, so to speak, how are you seeing the evolution of the percent of users that are opting for which of those solutions? I'm talking like over time. But do you have any sense of how many people are opting for just simple Bluetooth versus embedded in car systems? And if they are, which brands are using, how that's playing out? Stefan Ortmanns: I mean, I cannot disclose all information, but when referring to Mercedes, clearly they want to see a higher boost in their solution with respect to CarPlay and that's indeed what they are achieving now. For us, it's much more than just bring in large language models, right. It's all about AI computing platform with multi-seat capabilities, right, and full interaction with the car, right, and also bring in general knowledge, right, so overall, I think that's a trend that is really appreciated by OEMs and I'm pretty sure also with their end consumers. Colin Langan: Great. Thanks for taking my questions. The comments are now, I thought last quarter you mentioned 25, you expected mid-single-digit growth and now it's flat to low. Is that right? And what sort of - if I'm right, what drove the slightly softer outlook into next year? Stefan Ortmanns: Maybe let me start first, Colin, and good morning to you as well. And then I will ask Tony to share his view. So overall, I think we have this significant reduction in costs, right. And we assume also there will be a modest impact on the revenue side, as we said, okay, we are - with this kind of product rationalization, right. And we believe that also some products with lower margin, we are going to downsize and - but Tony, what's your view on this? Tony Rodriquez: I think that's exactly right. As you think about the guidance at single-digit growth year-over-year last quarter, really, it's the impact of the cost restructuring. As we take a significant amount of cost out of the business to realign our cost, it will have an impact to the top line. So we've brought that down slightly. Colin Langan: Got it. And in your comments, you mentioned the debt coming due next year. What are the options? It sounded like you were alluding to potentially maybe issuing equity to pay that down. But also, I look at the balance sheet, I think you have over $100 million. I mean, can you fund a lot of that repayment with the cash on the balance sheet? And are the debt markets open to refinance it? Tony Rodriquez: Yes, that's exactly right. I think we're looking at all options. Certainly, as we mentioned, 3% notes are beneficial at the company at this point, but we want to address the liquidity concerns of it coming due in June of 2025. So we're looking at all options, including refinancing using our existing cash as well, and looking at that, the benefit of the liquidity from a lower coupon rate, which would be adjusted higher on refinancing and certainly the conversion price would be lower than currently in the notes. So we're looking at all those. But yes, the markets are open to refinance. Colin Langan: Got it. All right. Thanks for taking my questions. Operator: [Operator Instructions] The next question comes from the line of Nick Doyle of Needham & Company. Nick, please go ahead. Nick Doyle: Hey, guys. Good morning and thanks for taking my questions also. You had - we just talked about, the lower OpEx will impact revenue, and you talked about it a couple of times in your script. Could you just be a little more specific on which product streams are impacted or at least which segment? And then that adjusted net cost savings of $35 million to $40 million, would that put you in the $140 million a year range for 2025 or is still too early? Thanks. Tony Rodriquez: Yes, so I'll take that. Yes. When you think about the impacts of the cost reductions, it will be primarily related to professional services revenue. So that's where Stefan had mentioned that if that mix is a bit lower than prior expectations, we'd expect higher gross margins overall. So - and then, I'm sorry, I missed the last question about the $140 million. Nick Doyle: Just asking if that, the adjusted net cost savings number of $35 million to $40 million would put you around a $140 million a year in total OpEx. Tony Rodriquez: Yes. Well, there's - when you think about it, there's - there's a combination of things. We got run rate from 2024, but that's entire year we also have increases in 2025. And so we're looking at really run rate off of Q4 run rate, and the expenses would be off of that number. Nick Doyle: Got it. Thank you. And then on the fixed contract consumption, you're saying you hope to normalize by 2026, and the consumption should go lower over time as that normalizes, and that all makes sense. But do you have a specific number that you're looking at for the fourth quarter? And maybe what we're thinking of through 2025 is that 10 million a quarter number. I get that, it moves up and down? Tony Rodriquez: Yes. I don't have specifics that I can speak of now on consumption rates, other than what we've said, that we expect that to be lower in fiscal 2025. Nick Doyle: Okay, thank you. Operator: [Operator Instructions] The next question comes from the line of Luke Junk from Baird. Luke, please go ahead. Luke Junk: Good morning. Thanks for taking the questions. Stefan wanted to start with maybe just a higher level question and understanding the approach to the R&D organization going forward. Clearly, it sounds like there's going to be some impacts in terms of the pro-services element of R&D. I think you also mentioned sort of a unified product and core technology team in your prepared remarks? Maybe could expand on that, and I know you're not breaking out the cost reductions into individual buckets right now, but R&D is going to be an important part of that, clearly. So maybe just at a high level, if you could come in on R&D opportunities on cost? Thank you. Stefan Ortmanns: Yes. So, as said, our focus is clearly on our Gen AI roadmap, including the new AI computing platform. We have recently unified our product and core technology teams. We believe that we will see some efficiency here, and also this will help us to accelerate innovation and again, drive efficiency to meet also the demands of our OEMs, that's very important. Overall, what I said is that our solution - our new solution is well received by a couple of OEMs across the globe. I think we are doing the right things here also with respect to cost optimization, finding synergies between the two teams, right. And Nils Schanz, who joined us one-and-a-half-year ago from Mercedes, who was also essential for various launches over the last couple of weeks here. He is extremely qualified, and he will run both R&D and product and professional services. Operator: [Operator Instructions] The next question comes from the line of Mark Delaney of Goldman Sachs (NYSE:GS). Mark, please go ahead. Mark Delaney: Yes, good morning. Thanks very much for taking my questions. First, I was hoping to better understand how you're thinking about professional services going forward. I think in the past you've used that as a lead generator and you've described it as part of your investments that helps with your longer term traction and revenue growth. It sounds like you want to make some cuts there and understand the lower margins, but maybe help us better understand the implications for revenue growth and why you're making some of the cuts in that part of your business? Stefan Ortmanns: So first, I mean, professional services is a very important tool for us for enabling licenses, whether it's be embedded or cloud services, right? So don't get us wrong here. We see some optimizations in professional services and also for streamlining our products. We see also efficiencies in deploying our new products. To give you also an example, a POC so proof of concept can be done within a car within less than two-and-a-half-weeks. And then of course for doing the fine tuning and optimization and customizations with respect to the OEM demands, like Brandon and so on so forth, it takes us between four to six months. Compare this with the past where it took us 12 to 18, 24 months, right? And of course then PS [ph] revenue goes down. But nevertheless, PS is the enabler for the licensed business, and that goes also hand-in-hand with the expectations from OEMs, right. What we said also in the earnings call earlier is that, I mean, there's clearly a demand for more flexibility and a faster deployment and also keeping the system fresh and up to date, and we're supporting these new requests from the OEMs and finally from the consumers. Mark Delaney: Understood. Thank you. My other question was just better understanding your commentary, Stefan, around how to think about monetization for the new Gen AI types of subscriptions. You mentioned your revenue is going to depend on usage and what the OEM customers are seeing in terms of how often these services are being used. Can you elaborate a little bit more on how your revenue will flow through? Is there some piece of it that is more committed in terms of the subscription rates you're seeing? And then how much is maybe based on usage rates of your products in the car themselves, and just is it more tilted towards usage rates more? You guys have more guaranteed subscription fees? Just trying to better understand that dynamic, if I could, please? Thanks. Stefan Ortmanns: So again, we are currently at an early stage with those OEMs and our new products. We see an uptick in usage of about 50% to 70%. We see also nice increase in our price per unit per year. Most of the services are cloud services. So we should also focus in the future a bit more on billings. Then you asked about monetization of the data here. We are still in discussion with OEMs what we can do together. And as said before, right, we are still a B2B partner of the OEMs, but nevertheless we see for those deals really a significant increase in price per unit. Mark Delaney: Thank you. Operator: [Operator Instructions] I see no further questions at the moment. So I would now like to hand the call back over to Richard Yerganian, Senior Vice President, Investor Relations. Richard, please go ahead. Richard Yerganian: Thank you, Felicia, and thank you for everyone joining us on the call this morning, and we look forward to further discussions. Thank you and have a good day. Operator: This does conclude today's conference call. You may now disconnect.

Earnings call: Genpact highlights strong Q2 2024 with revenue up 6% By Investing.com

Genpact Limited (NYSE: NYSE:G), a global professional services firm, has announced a robust financial performance for the second quarter of 2024. The company's revenue saw a 6% year-over-year increase, reaching $1.18 billion, with significant contributions from its Data-Tech-AI and Digital Operations segments. Genpact's focus on innovation and strategic partnerships has been fruitful, leading to $100 million in incremental revenues in the first half of the year. The company's gross margin stood at 35.4%, and adjusted operating income margin at 16.9%, both surpassing expectations. With strong earnings, Genpact raised its full-year revenue guidance to 4-5% growth and expects to generate around $525 million in operating cash flow. Genpact's second quarter earnings call highlighted the company's successful strategy in leveraging Data-Tech-AI and Digital Operations to drive growth. The firm's prudent approach and commitment to innovation and strategic partnerships have positioned it for continued success in the global markets. With a raised revenue outlook and a strong innovation pipeline, Genpact remains focused on delivering value to its clients and shareholders through advanced technologies and improved execution. Operator: Good day, ladies and gentlemen. Welcome to the 2024 Second 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 call. As a reminder, this call is being recorded for replay purposes. The replay of this call will be archived and made available on the IR section of Genpact's website. I would now like to turn the call over to Krista Bessinger, Head of Investor Relations at Genpact. Please proceed. Krista Bessinger: Thank you, Michelle. Good afternoon, everyone, and welcome to Genpact's Q2 2024 earnings conference call. We hope you had a chance to read our earnings press release, which was posted on the Investor Relations section of our website, genpact.com. And today, we have with us BK Kalra, President and CEO; and Mike Weiner, Chief Financial Officer. BK will start with a high-level overview of the quarter, and then Mike will cover our financial performance in greater detail before we take your questions. Please also note that during this call, we will make forward-looking statements, including statements about our business outlook, strategies, and long-term goals. These comments are based on our plans, predictions, and expectations as of today, which may change over time. Actual results could differ materially due to a number of important risks and uncertainties, including the risk factors in our 10-K and 10-Q filings with the SEC. Also 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, and an audio replay and transcript will be available on our website in few hours. And with that, I'd like to turn it over to BK. Balkrishan Kalra: Thank you, Krista. Hello, everyone, and thank you for joining us today. I am pleased to report another strong quarter as we continue to successfully deliver on our 3+1 Execution Framework. Revenue in Q2 reached $1.18 billion up 6% year-over-year above the high-end of our guidance range with better than expected performance across both Data-Tech-AI and Digital Operations. Gross margin of 35.4% and adjusted operating income margin of 16.9% also exceeded expectations driven by operating efficiencies. We are on the right path and momentum is building. For context, in FY 2023, we grew roughly the revenue by $100 million on an absolute basis. In 2024, we have already hit $100 million in incremental revenues in the first half of the year with higher gross margin, all while continuing to invest in our top priorities. Unwavering focus on our 3+1 Execution Framework is accelerating growth, and we will continue to build our execution muscle in the second half of the year with a continued focus on: One, strong partnerships; Two, comprehensive Data-Tech-AI Solutions; Three, a simplified go-to-market approach and our plus one that is leading Genpact as our best credential for AI-First innovation. Let me walk you through the key highlights on each. First on partnerships, we see a significant opportunity to accelerate revenue growth as we increase the strength of our partner relationships. To give you a sense, IT service and solution companies with mature partner operations typically generate 20% to 50% of their revenue from partners. For us, partner related revenues was in low-single-digits in 2023. This represents a significant opportunity for Genpact. We started ramping our investments in our partnership organization at the beginning of this year. And, at the end of second quarter, we have more than doubled the percentage of revenue generated by partners with line-of-sight to generate significantly more in future periods. Growth to-date has been driven by investing in world class leadership team, driving awareness, improving go-to-market activations and scaling delivery capabilities with a number of hyperscaler partners including Microsoft (NASDAQ:MSFT), AWS, GCP and other key partners like ServiceNow (NYSE:NOW), Salesforce (NYSE:CRM), Databricks to just name a few. Second on Data-Tech-AI, our focused go-to-market approach continued to drive accelerating revenue growth in Quarter 2. Gen AI has significantly expanded our total addressable market and is increasingly becoming a driver of our business. While the absolute numbers are still small, gen AI bookings in the first half of 2024 are already up more than 10 times compared to full-year of 2023 with more than 95% of our gen AI bookings year-to-date contracted on non-FTE basis. We also now have more than 80 gen AI solutions in production environments with clients either deployed or going live. Embedding AI into enterprise systems is a significant undertaking. It requires weaving AI into the very fabric of an organization, cutting across data engineering, conversational interfaces, existing IT systems and ultimately weaving AI in end-to-end business processes. This represents a significant opportunity for Genpact. We play a critical role in leveraging AI to drive business transformation for our clients because our deep domain expertise at the key stroke level is essential to the successful implementation of an AI-First end-to-end business processes in production environments. Let me give you few examples. A leading global provider of financial technology solution has chosen Genpact to drive their business-wide transformation and increase scalability and efficiency through the use of gen AI. This is one of the large deals that we signed in second quarter and gen AI is significant part of the design. We are leveraging our banking domain, end-to-end process frameworks and technology expertise along with ServiceNow to deliver a suite of AI solutions. These AI solutions are integrated with the client existing IT systems, leveraging large amount of unstructured data to drive competitive advantage and growth. This implementation has a potential to serve as a template that can be replicated across industries. I have talked before about how our deep domain allows us to bridge the gap between out-of-the-box solutions and what clients need on the ground to transform their business processes with gen AI. This case study is a perfect example of that. Another example is the work we are doing with Mondelez (NASDAQ:MDLZ) to address their need for upskilling and shorter ramp times for new employees. Leveraging Genpact's Quora knowledge assist platform to enable faster access to knowledge, insights and standardized operating procedures. For example, with ALDI SÜD, here we are transforming their retail operations in U.S. and Australia by leveraging data, technology and AI solutions to drive agility and cost leadership, ultimately creating an exceptional customer experience and driving competitive growth. Our work for Amazon (NASDAQ:AMZN) is another great example of AI. For Amazon for their out-of-warranty device customer service in Europe, we have leveraged AI and Amazon Connect to create an end-to-end solutions that integrates AI powered chatbots and enables logistics management, our repair partner network, end-to-end tracking and proactive customer notifications all with minimal human interactions. These are just few examples. At the end of the day, clients choose us for five key reasons; our deep domain data and AI expertise, comprehensive solutions, accelerating partner ecosystem, client-centric approach, and innovative technology including our pre-built AI accelerators. In a world increasingly driven by advanced technologies, these trends are more critical than ever and enable us to deliver solutions that keep our clients ahead of the curve. Coming back to the third element in our 3+1 Execution Framework, which is simplification. We continue to streamline our go-to-market approach so that we can scale more efficiently. As an example, we have standardized our rate cards across our Data-Tech-AI service offerings and we are reducing complexity in our end-to-end sales process by automating workflows and adopting AI contracting tools. And finally, on leading with Genpact as our own best credential for AI-driven transformation, we hit a number of major milestones in second quarter. I'll give you two specific examples. First, we launched a new Cora (LON:CORAC) AI assistant for our global IT help desk. Since launch, we have seen a 2x increase in user satisfaction and a 30% reduction in service desk staff. Our future road map includes Cora AI assistant for HR, finance, sourcing and many other functions and we aim for similar improvement across these functions. Second, AI Guru, our gen AI powered learning coach is making personalized learning recommendations for over 60,000 employees, increasing productivity and amplifying the collective knowledge of our internal experts. And, that gets me to the talent. Our employees are critical to our success and we have made significant progress year-to-date scaling our broader technology skills as part of our overall investment in Data-Tech-AI. On foundational gen AI, we have more than 100,000 employees who are actively learning, 70,000 have completed entry level training and 18,000 have completed more advanced work. For gen AI delivery capabilities, we have 3,000 AI practitioners across the Company. And, for applied AI leadership, we are making a significant change at the most senior levels in the Company. 85% of senior leaders will have gone through certification from schools like MIT by end of 2024. As we look ahead, we will continue to invest aggressively in our talent with a focus on practical application of advanced technologies. Now, turning to guidance. With another quarter of better-than-expected results and strong performance in the first half, we are raising our revenue and EPS outlook for the full-year. We are increasing our revenue guidance by 150 basis points to 4% to 5% growth on as reported basis up from 2.5% to 3.5% previously. Similar to the last quarter, we are not assuming any improvement in the buying environment. We are simply reflecting our improved execution in our full-year outlook. Guidance for gross margin and AOI margin for full-year remains unchanged at 35.3% and 17% respectively. As we continue to invest in our top priorities, partnerships and advanced technologies in Data-Tech-AI to drive accelerating long-term growth. For the full-year, we are also raising our outlook of adjusted diluted EPS to reflect the strong performance we achieved in the first half with a $0.14 increase at the midpoint of the range. In closing, I would like to extend my heartfelt thanks to every one of our employees. Your dedication is delivering exceptional value to our clients and driving success and growth for Genpact. As we continue to innovate and expand, your commitment is the cornerstone of our achievement. Thank you. And, we continue to sharpen our competitive edge and build the next chapter of Genpact. With that, let me turn the call over to, Mike. Mike Weiner: Thank you, BK, and good afternoon, everyone. I appreciate your time today as we review our financial performance in the second quarter of 2024 and provide insights into our outlook for the third quarter and full-year. I'm pleased to report Genpact delivered another strong quarter, including an all-time high income from operations of $170 million. We continue to build the foundational improvements needed to drive sustainable growth and efficiencies. Our pipeline reached a record level in the second quarter, driven by a healthy mix of small, medium and large deals. Generative AI contributed to our pipeline also doubled in the first half of 2024. All this sets us up well for future growth. During the quarter, we added 23 new logos, bringing our first half total to 53 new logos, a 29% increase year-over-year. We also booked four large deals in the quarter. Our win rate was 51%, while sole sourced deals accounted for approximately 45% of total bookings. Highlighting our strong value proposition, we continue to deepen and broaden our client base. During the second quarter compared to the prior period, we expanded a number of client relationships generating annual revenue greater than $5 million from $180 million to $185 million. We also increased the number of clients with annual revenue exceeding $25 million from 38 to 42, while five of these clients generated more than $100 million in revenue. Now, on to our income statement. Total revenue for the quarter was $1.176 billion up 6% year-over-year as reported and 7% on a constant currency basis. This performance, which exceeded our expectations, is the result of renewed focus on driving results in Data-Tech and AI and Digital Operations. Data-Tech and AI represents roughly 46% of total revenue in the second quarter and grew 4% year-over-year on both the reported and constant currency basis. Growth was primarily driven by supply chain and risk management service lines. Digital Operations revenue increased 9% year-over-year on both the reported and constant currency basis, primarily due to ramp-ups of large deals. Digital Operations accounted for 54% of total revenue in the quarter. Revenue contributed from outcome and consumption based deals, which excludes fixed fee contracts continues to expand compared to prior year. It now comprises 20% of second quarter revenue, a milestone we achieved at the end of 2023. This recurring achievement demonstrates our commitments to meeting our long-term objectives. Expanding these deals enables us to drive profitable growth and enhance value to our clients. Revenue from priority accounts grew approximately 7% year-over-year and comprised of 62% of total revenue. Now, on to our three segments, all which delivered strong results. Revenue in Consumer and Healthcare grew 7%, while revenue in Financial Services as well as High Tech Manufacturing increased approximately 6% year-over-year. The primary revenue growth drivers of all three segments remain largely unchanged from the prior quarters, reflecting stability and consistency in our business operations. Transitioning from topline performance to gross margin of 35.4%, up 10 basis points from the prior year quarter, driven by operational leverage and modestly lower stock-based compensation expense, partly offset by our annual comp cycle. Adjusted operating income margin was 16.9%, up 10 basis points year-over-year. SG&A as a percentage of revenue declined 40 basis points year-over-year to 20.4%, driven by higher operating leverage, some of which results from our ongoing simplification efforts, offset by increased investments. Our effective tax rate was 24.9%, up from 22.7% in the prior year quarter, which had a discrete tax benefit. GAAP net income was $122 million a 5% improvement year-over-year. GAAP diluted EPS rose to $0.67, a 6% increase year-over-year. Similarly adjusted diluted EPS climbed to $0.79 up 10% from last year, outpacing revenue growth. We continue to generate significant cash from operations. We delivered $209 million compared to $171 million in the prior year period. Moving on to our balance sheet, cash and cash equivalents were $914 million up $491 million at the end of the same period last year. The cash increase is primarily due to proceeds from our recent bond issuance, which will be used to repay up and coming bond maturities. Days sales outstanding decreased by two days versus last quarter. We delivered net debt to EBITDA ratio of 0.9x for the quarter, at the low-end of our preferred range. This positions us well for strategic investments in future growth opportunities. In the second quarter, we repurchased approximately 1.9 million shares at an aggregate cost of $63 million. We also paid $27 million in dividends. Overall, we've returned approximately $90 million to our shareholders in the second quarter alone. We remain committed to returning capital to shareholders and allocating a minimum of 30% of operating cash flow to share repurchases, in addition to the 20% annual dividends. Attrition remains at historical lows at 23% for the second quarter, a 200 basis points lower than the same quarter last year. Moving on to our expectations for the third quarter. We guided to total revenue in the range of $1.18 billion to $1.186 billion a year-over-year growth of approximately 3.9% to 4.4% as reported. This comprised of digital revenue growth of approximately 3.8% and 4.6% versus the prior year period respectively at the midpoint of the range as reported. Gross margin for the quarter is expected to be approximately 35.4% consistent with prior quarter. Adjusted operating income margin is expected to be 17.2% as we continue to invest for long-term growth. For the full-year, we are raising our adjusted diluted EPS guide. We now project adjusted diluted EPS to be between $3.14 and $3.18. This represents a $0.14 increase at the midpoint of our previous guide and will mark the fourth consecutive year of delivering EPS growth that outpaces revenue. The year-over-year increase in EPS is driven by adjusted operating income of $0.14 and a $0.09 benefit from lower share count. The increases are forecast to be partially offset by higher interest expense of $0.03 and expected tax rate impact of $0.01. As BK mentioned, we are not anticipating a more favorable market conditions as the year progresses. We are primarily incorporating the strong performance in the first half into our projections for the full-year. Specifically, we are now anticipating total revenue to be between $4.656 billion and $4.701 billion representing a year-over-year growth of 4% to 5% as reported. This positive adjustment reflects Digital Operations revenue growth of 5.2% and approximately 3.8% in Data-Tech and AI revenue growth at the midpoint. We continue to expect full-year gross margin to be approximately 35.3% and an adjusted operating income margin of 17%, highlighting our ability to maintain profitability, while navigating uncertain economic and business environment and investing in our business. We now anticipate to generate approximately $525 million in operating cash flow this year. In addition to our results driven focus, our strategic investments, robust client relationships and operating excellence, all positions us to navigate the dynamic market environment effectively. These efforts are designed to enhance shareholder value, drive sustainable growth and generate long-term returns to our shareholders. Now, I'll turn the call back over to, Krista. Thank you. Krista Bessinger: Hi, operator. We're ready to go ahead and call for questions. Operator: Thank you. [Operator Instructions] And, our first question comes from Maggie Nolan with William Blair. Your line is now open. Unidentified Analyst: Hi, everyone. It's Kate on for Maggie. Congrats on a nice quarter. My first question is, I understand that you guys are not accounting for any improvement in client demand with the revised outlook. But, can you provide any update just on where overall client sentiment is right now and how it's evolved, over the past quarter? Balkrishan Kalra: I'll take that. This is BK. So, first of all, thanks so much. And, what I can report on the client sentiment that it has largely stayed the same as we have observed over last six months or I would say even over last 12 months. So, we haven't seen as an example in the discretionary spends neither any improvement and yes, no deterioration either. And, clients continue to stay very cautious, very watchful and continue to be almost in the same zone given all the uncertainties that surround them. Unidentified Analyst: Okay, great. Thank you, BK. And then, my next question is, it was nice to hear about the continued increase in consumption and outcome based deals. Has your long-term mindset changed at all and what that percentage could eventually get up to? Mike Weiner: Sure. This is Mike. I'll take that one. So, you're correct. We've already reached our goal that we put out ahead of schedule on that. While we don't have any concrete numbers to share today, but you can expect that number to be notionally higher as we move forward in the year. But, I think what's so important about it is, as we're approximately at 20% right now, is also to think about it's not just that it's helping us pivot this new economic model. But, if we look back at that 20%, the margin on it continues to remain robust and above average. So, more to come on that. Operator: And, the next question comes from Bryan Bergin with TD Cowen. Your line is open. Bryan Bergin: Hey, guys. Good afternoon. Thank you. BK, maybe a high-level question. You've been in the role six plus months now. Can you give some perspective on the initiatives that you think have worked really well here versus any of those that are moving slower? And, just any added areas of emphasis for you as you're working through the second half of '24? Balkrishan Kalra: Absolutely, Bryan. Thanks. So, as we clearly articulated, Bryan, that we are focused predominantly on these four initiatives what we call as 3+1, which I'm building through line across the Company as well along with all the colleagues in Genpact. And, what I would gladly say that all of these 3+1 initiatives be it plus one being Genpact, building Genpact as the best credential on AI-First journey or in the three client facing ones, the first one being partnership, the second one on Data-Tech-AI and third more simplified go-to-market motions. All of them are progressing really well and some I reflected already. What we have also done, Bryan, that filled many initiatives and that has helped us focus on these initiatives that are meaningfully better for our future as well as our present and we are seeing results. Having said all of that, we are also leaning hard into innovation, innovation represented by Data and gen AI and we are at the early stages of that and more to come on that. Bryan Bergin: Okay, understood. And then, as it relates to Digital Operations, so a nice uptick here in 2Q, that sequential uptick. As we compare that to the 3Q and the 4Q outlook, can you just maybe tease out if anything changes, the outlook flattens out a little bit. Was there anything that happened in 2Q that allowed for that strong ramp, anything one-time or just more so kind of the prudent approach you have demonstrated? Balkrishan Kalra: It is more prudent approach, Bryan. I think we continue to see earning of large deals into each quarter actually on-schedule a little bit ahead of schedule, and really pleased with that, really pleased with the, how all the cadences on various deals even this year be it small deals, medium deals, large deals. And, it is, we are but also wanting to maintain a prudent approach as we go through on the balance of the year. Operator: And, our next question comes from Robby Bamberger with Baird. Your line is now open. Robby Bamberger: Yes. Thanks for taking my question. So, in terms of the large deals you noted at the end of 2023, can you maybe touch on how that large deal revenue is flowing through in 2024 and 2025? And, maybe the puts and takes of the larger deals on EBIT and gross margins for 2024? Mike Weiner: Let me kick that off and maybe BK can opine on it. So, in the second half of 2024, we had a notable amount of large deals that started to ramp that continued throughout the first two quarters of this year. I apologize, 2023 into 2024. Those continue to perform very well and we're at the point where they're ramping. Those deals typically come in at the beginning at a lower gross margin and end up at a higher gross margin as they move through the pipeline and as they mature. Keep in mind, our large deal for us typically can be about a five year in terms of their duration. So, if you think about our guide for the remaining piece of the year, it really does reflect that movement as we move forward. Balkrishan Kalra: Very well said. And, I think we'll continue with the momentum overall, Robby. Robby Bamberger: Perfect. And then, in terms of the gen AI deals, you noted 95% of gen AI bookings are on a non-FTE basis. So, can you maybe dive into the pricing of these non-FTE based contracts that you have with clients? Are they higher margin than normal contracts? Balkrishan Kalra: Yes. Number of these gen AI deals are which is also reflected in the quarter-end results that we just spoke about are non-FTE based. When we say non-FTE based, they are largely more based on outcomes, outcomes they generate for our clients and how we get paid for it. And, most of our outcome deals are at a higher profitability, and that's what we are anchoring the entire Company on. Operator: Our next question comes from Mayank Tandon with Needham. Your line is open. Mayank Tandon: Thank you. Good evening. Bala, you mentioned that the gen AI opportunity expands your TAM. So, could you maybe just give us some sense of how it does it? Is it just, opening up new avenues of growth that haven't been explored before by clients? Just maybe a little bit more details around how it expands the TAM and maybe if you could quantify it too. Balkrishan Kalra: Yes. So I think, quantification might be challenging at this early stages, but it clearly what we see, Mayank, is increasing of our TAM be it in the bookings that we are seeing or even in our pipeline or a number of solutions that we are baking for clients as we speak. And, it increases TAM because of two or three reasons. One, it also expands the scope of opportunity that we are talking about, Point #1. Point #2, given especially with gen AI and AI always existed at least for a decade I would say. But, with gen AI, a lot of our clients have also woken up to this transformative opportunity, and therefore they are engaging while we are engaging with them in different buying centers. And, given our intense client-centric approach, we get called in some of the areas where we were earlier not getting calls. So, those are obviously adding to opportunities as well. So, our TAM in a particular client as well as TAM in a particular opportunity within the client. And, if you look at the example that I shared in my prepared remarks, in that Financial Services industry case, overall the deal size it's a large deal. We call large deals are greater than 50 million as much bigger than 50 million. The deal size pre-gen AI or post-gen AI is much bigger MTCB. Mike Weiner: I would just quickly add on. So, I said in my remarks as well, our pipeline reached a record level in the second quarter, right. So, if you also think about the gen AI contribution of that has more than doubled in the six months of this year versus the full-year and next year. So, we are seeing a net increase in our quality pipeline, which does support the notion that BK alluded to as a TAM enhancer to it. And then, if you extrapolate upon that as BK alluded to with outcome based deals and looking at the margin on that being higher, we feel very positive about it as a net TAM enhancer and a net revenue enhancer to our business and our franchise. Mayank Tandon: That's helpful. But, on margins then, I would be curious, does this potentially create a nice tailwind for you and maybe helps you close the gap versus your peers that run at slightly higher adjusted EBIT margins. I think the general margin level has been high-teens, low-20s. I think you have some more headroom to get there. Is this potentially a longer-term tailwind to close that gap? Mike Weiner: Two things. So potentially, yes, Mayank. But, keep in mind as well that our adjusted operating income margin, right, continues to remain stable as we've taken fluid through the operating leverage that we have in our business and have made substantial investments into our franchise on a go-forward basis. Things BK alluded to earlier, including enhanced training, investments in partnerships and all these things, we think are a pivotal part to our Company to generate long-term sustainable growth. So, we'll be doing that at least for the foreseeable future this year and that's reflected in our numbers. Operator: And, our next question comes from Surinder Thind with Jefferies. Your line is open. Surinder Thind: Thank you. I'd like to start with a question about the partnerships. It's quite surprising that your partnership revenue sourcing is quite low. Can you help us understand why the strategy was what it was, given that the difference between your peers is so significant? And, how quickly do you think you can ultimately close that gap to get to where maybe where your peers are? Balkrishan Kalra: Yes. So, we are moving ahead rapidly and therefore investing rapidly, Surinder. And, given we were running many initiatives as I also alluded to earlier in the commentary, it was generating results not fast enough. And, that is what is changing. And, we are very, very pleased with the investments we have made and given we had made many of these connections with various hyperscalers or other iconic partners. We have been in relationship with them for X number of years, but not in a focused manner. And, now they see us more. We have a pretty strong leader and a very strong team, possibly one of the best team in the industry that we have put up. And, we are seeing early results and we certainly want to close this gap fast. Surinder Thind: Just any color on how quickly that gap can, are we talking about like a five year journey or is it something shorter or just any color? Balkrishan Kalra: Five year is a very long time, Surinder. So, we are not thinking five year horizons. But, clearly want to get to double-digit fast. Mike Weiner: Yes. I would also bring on, I would also just quickly bring on as well. I think we can all agree nobody has better insight into what we call keystroke level information and data that we have. As our clients and hyperscalers and other partners that we deal with continue to want to penetrate with their offerings, nobody has a better domain level experience in our chosen verticals than we do. So, net-net, it's a win for Genpact, it's a win for our clients, right, and it's a win for our partners. So, we're putting a lot of effort and money towards that and we think we'll see results in the not too distant future. Surinder Thind: That's helpful. And then, in terms of just the innovation pipeline, I think you alluded to some ideas. You said, there's more coming. Conceptually, are you pushing towards, like, building proprietary LLMs? Are you trying to build other pieces of software related to workflow? How should we think about what's coming down the pipeline at this point? Balkrishan Kalra: And, I would say all of the above and more. As an example, if you think we are one of the largest players in finance and within finance we are developing various LLMs including for let's say accounts payable and building many of what we are calling edge solutions internally, which are backed off by many of the LLMs. So, a number of those innovation ideas are taking shape as we speak. Bryan Keane: Hi, guys. Saw the results here. Wanted to ask about some of the gen AI bookings, and I think you said 95% of those bookings are on the non-FTE basis. I know you're really not generating much revenue yet from gen AI, but how do those contracts price, competitively versus the marketplace? And, how do you know if, on renewals and other deals, if you'll be generating the same types of revenue you're generating that was typically on FTE basis? Balkrishan Kalra: Yes. Bryan, a number of these, one we have we report sole source as well a number of these are sole source opportunities too. But, even in a competitive environment, it is a lot of, it is part of embedded solution that gen AI is integral part of. And, as we are moving and pushing the agenda more on non-FTE basis, a lot of these solutions are therefore now with these technologies, which are a number of them are IP and number of them are partner solutions. We are centered on what are the outcomes that they are achieving for our clients and how that cadence of outcome then also flows to us. And, what we are seeing is early good results. Mike Weiner: BK, I'll just quickly bridge upon that. Well, gen AI is net new and a frothy level of discussion. AI is not new to us as well as other enhancements and productivity tools, right, it seems to be a big focus of it. We are not able or have not been able to generate the efficiencies and profitability for our clients and for ourselves without utilizing tools. So, this will continue to evolve over time. It is a net new technology, but it's really an enhancement or an evolution of what we've done in terms of using technologies to drive outcomes. Bryan Keane: Got it. And then just a follow-up, maybe I can ask the guidance question a little bit differently. Since the growth rate was so strong in second quarter, what would cause the growth rate to decelerate, the way you guys guided to? Because it just seems like the momentum you have, especially with the partnerships, we're going to see similar growth rates if not better in the third quarter and not the deceleration? Balkrishan Kalra: Yes, I think I'll start this one. I think it really first starts with a consistent business environment. Keep in mind about three quarters of our business is annuitized, so we have a very good view into that. The other 25% cohort of our business tends to be shorter duration deals that we have to earn and win throughout the year, right. So we're just not anticipating any real change in the macro business environment. We remain prudent in terms of our guide. In addition to it is, yes, we had strong growth in the first half of the year, particularly off of better execution, namely in a lot of those large deals, which in many cases will be lapping each other. So, we'll continue to monitor the business environment, but again, we remain prudent in how we think about it for the next two quarters. Operator: The next question comes from Sean Kennedy with Mizuho. Your line is open. Sean Kennedy: Hi. Good evening. Congrats on the results. So, I was wondering about the go-to-market approach on focusing on Data-Tech-AI and gen AI solutions. So, how does your team sell these solutions into your customer base? And did you change the sales incentives to help achieve these results? Balkrishan Kalra: Yes, sales incentives change, Sean, and we continue to iterate and improve on that as well as we go along. And typically what we have is offering hubs. So, there are series of offerings that we have developed based on the client set and the needs and the competencies that we have. And these offerings are many of them are just Genpact offerings or also on the marketplace of our partners. And then depending upon active sales motion in all of the clients that we operate in, depending upon the needs, there is active activation of these offerings that happen in different client situations. And there is from a simplification standpoint, we've also set up certain rituals and rigor that is driving accountability and agility in the organization. Operator: And our next question comes from Keith Bachman with BMO. Your line is open. Keith Bachman: Hi. Good afternoon. Good evening. Guys, I wanted to ask first on how would you characterize pricing in the first half of calendar year '24 versus the same time last year. One of your competitors big competitors suggested that pricing is much more aggressive across the BPO landscape. How would you characterize that? Mike Weiner: Thanks for that question. It's Mike. We've heard that before, right? So we've thought about it. We have had year-over-year and sequential, I think we're alluding to in terms of pricing, particularly in our digital operations business, right? Keep in mind, half of it is predominantly sole sourcing and half is not, has been relatively consistent. We haven't seen anything irrational that's really gone on in pricing. And so it's hard for us to comment on others. BK, any views? Balkrishan Kalra: No. I think you're right. It's a reasonably competitive environment, but we haven't seen any irrational behavior in the marketplace. Keith Bachman: Okay. Related to that, could you be willing to provide what some of your business is based services related or customer facing? What percent of that is total? Now call center business would be a part of that, but I'm talking DX more broadly. How much do you have of service-related business? Mike Weiner: Yes. So, in the past, we've talked about that in terms of, I think, you're asking about customer service-related business, that type of work. When you aggregate it up in the many in what we do for a lot of our customers in a lot of different flavors and you take that aggregate revenue, it's less than 10% of our business of our revenue. Keith Bachman: Yes. Last question for me then quickly is, IBM (NYSE:IBM) and Accenture (NYSE:ACN) have said that, gen AI is great growth for everybody in the industry, but it's not additive to customer demand and that in order to pursue these projects, it's coming out of -- it's sourced from some other area, if you will. It sounds like you guys have a different view of that, but I just wanted to try to clarify because Mike, you clearly said you think its additive to the pool, but I just wanted to make sure I heard that correctly. Mike Weiner: Yes, you're hearing that correctly. Again, it's hard for us to comment on other companies in terms of what their native mix of business is. But we look clearly at our pipeline at our very defined definition of what generative AI is, we are seeing it as a net enhancer to our pipeline. So, when BK talks about we view the TAM on this being a driver of our sustainable growth in the future as opposed to a trade-off, we're just not seeing that. Operator: [Operator Instructions]. I show no further questions at this time. I would now like to turn the call back to the company for closing remarks. Balkrishan Kalra: Thank you. Thank you, Michelle. Quarter two was another strong quarter for Genpact. As we look ahead, we will continue to drive improving execution leveraging our 3+1 Framework and lean into innovation. We will innovate by leveraging gen AI and other advanced technologies to deliver superior value for clients and drive productivity for Genpact. I also want to take this opportunity to thank all of our clients for choosing Genpact and all the shareholders for ongoing support. We look forward to speaking with you again next quarter. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.