Gen AI's Impact on TAM
Q: Does Gen AI expand your total addressable market?
A: Management believes that Generative AI is increasing their total addressable market by expanding the scope of opportunities and engaging with clients in new buying centers. While quantification is challenging at this early stage, they are seeing larger deal sizes post-Gen AI, with one large financial services deal being much bigger than $50 million in total contract value. The pipeline has reached a record level in the second quarter, with Gen AI contributions more than doubling in the first six months compared to the full year prior. They view Gen AI as a net enhancer to their pipeline and a driver of sustainable growth, rather than cannibalizing existing demand. ,

Guidance and Growth Deceleration
Q: Why is growth expected to decelerate despite strong Q2?
A: The company remains prudent in its guidance due to a consistent business environment and the nature of its revenue mix. About 75% of the business is annuitized, providing good visibility, while the remaining 25% consists of shorter-duration deals they need to earn throughout the year. They are not anticipating any real change in the macro business environment and are mindful of lapping the strong execution on large deals from the first half. Therefore, they expect growth rates to flatten in the third and fourth quarters.

Large Deals and Margin Impact
Q: How are large deals affecting revenue and margins?
A: In the second half of 2024, the company had a notable amount of large deals that are now ramping well. These deals typically start with lower gross margins and improve over time as they mature, usually over a five-year duration. The guidance reflects this margin progression. Management is pleased with the momentum and expects continued performance from these large deals.

Partnership Revenue and Strategy
Q: How will you close the gap in partnership revenue?
A: Management acknowledges that partnership revenue sourcing is low compared to peers but is moving rapidly to close the gap. They have invested in building strong teams and focused relationships with hyperscalers and other iconic partners. Early results are promising, and they aim to reach double-digit partnership revenue faster, viewing a five-year timeline as too long. They believe that their domain expertise and client insights make them valuable to partners, leading to a win-win situation for all parties.

Pricing Environment
Q: Are you seeing aggressive pricing in the BPO market?
A: The company has observed that year-over-year and sequential pricing, particularly in their digital operations business, has remained relatively consistent. About half of this business is sole-sourced, and they haven't seen any irrational or aggressive pricing behavior in the marketplace. They describe the environment as reasonably competitive.

Margins and Gen AI
Q: Will Gen AI help improve your margins?
A: Management believes that Generative AI has the potential to enhance margins over time. Their adjusted operating income margin remains stable as they leverage operating efficiencies and make substantial investments in the business. While they see Gen AI as a net enhancer to the total addressable market and revenue, they are also focusing on sustainable long-term growth rather than immediate margin expansion.

Key Initiatives and Innovation
Q: Which initiatives are working well, and what's next?
A: The company is focused on four main initiatives, referred to as "3+1." The "plus one" is building Genpact as the best credential on an AI-first journey, and the other three are client-facing: partnerships, Data-Tech-AI, and simplified go-to-market motions. All are progressing well, and the company has pruned other initiatives to focus on these. They are also leaning hard into innovation, especially with data and Generative AI, and are at early stages with more developments to come.

Client Sentiment
Q: How has client sentiment evolved recently?
A: Client sentiment has largely remained the same over the past six to twelve months. There has been neither improvement nor deterioration in discretionary spending. Clients continue to stay very cautious and watchful, given the uncertainties surrounding them.

Sales Approach and Incentives
Q: Did you change sales incentives for Data-Tech-AI solutions?
A: Yes, the company has adjusted sales incentives and continues to iterate and improve them. They have established offering hubs with solutions developed based on client needs and competencies. By simplifying go-to-market motions and setting up rituals and rigor, they are driving accountability and agility within the organization to better sell Data-Tech-AI and Gen AI solutions.

Competitiveness of Non-FTE Contracts
Q: How do non-FTE Gen AI contracts price competitively?
A: Many Gen AI deals are based on outcomes rather than full-time equivalents (FTEs), with 95% of Gen AI bookings on a non-FTE basis. These contracts are often sole-sourced and embedded within broader solutions. Management is moving towards outcome-based models, which typically come with higher profitability. They are seeing early positive results, even in competitive environments, as Gen AI becomes integral to client solutions. ,