Q3 2024 Earnings Summary
- Raised Financial Guidance Demonstrates Confidence in Future Performance: Genpact increased its full-year revenue guidance to 6% growth at the midpoint, up from 4.5% previously, and raised its adjusted diluted EPS guidance by approximately $0.08, now expected to reach $3.24 at the midpoint. This upward revision reflects the company's solid year-to-date results and continued strength across the business, indicating confidence in future performance.
- Accelerated Growth in Data-Tech-AI Driven by Generative AI Solutions: The Data-Tech-AI segment experienced a 9% year-over-year revenue increase, more than doubling the growth from the second quarter. This growth is attributed to strong execution in advanced technology-led solutions, including significant traction in generative AI initiatives. The company has approximately 130 GenAI solutions in production environments, up more than 60% quarter-over-quarter, highlighting Genpact's successful innovation efforts in this area. , ,
- Expansion of Total Addressable Market Through Increased Client Engagement in GenAI and Data-Led Solutions: Genpact is observing an increase in the scope of client engagements due to the expanding role of generative AI and data-led solutions. Clients are now seeking more end-to-end and domain-led AI solutions, effectively increasing the company's total addressable market. This holistic approach is contributing to a stronger pipeline and future growth prospects. ,
- Decrease in sole-source deals: The percentage of sole-source deals declined from 45% last quarter to 42% this quarter, which may indicate increased competition and could impact pricing dynamics negatively. ,
- Low partnership-sourced revenue: The company acknowledged that partnership-sourced revenue is still relatively low compared to the industry, which may limit future growth potential if not increased.
- Early-stage generative AI adoption: While there is progress in generative AI adoption, it is still early days, suggesting that anticipated growth from AI initiatives may take longer to realize. ,
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2025 Growth Expectations
Q: Is 6% Q4 growth a good starting point for 2025?
A: Management indicated that while 6% to 7% growth is projected for Q4, they will provide formal guidance for 2025 in three months. They continue to see a stable buying environment and feel good about their performance but note that they are facing tougher comps next year. -
Data-Tech-AI Accelerated Growth
Q: What drives accelerated growth in Data-Tech-AI?
A: All parts of the Data-Tech-AI business are resonating with clients, not just AI or Generative AI. A holistic approach integrating data, technology, and AI is changing their game. Every digital operations deal now significantly involves Data-Tech-AI components. -
Expanded Total Addressable Market
Q: Why is TAM increasing for your services?
A: Generative AI has expanded the scope of services, allowing them to offer more end-to-end and domain-led AI solutions. Clients are engaging them for new stand-alone and embedded solutions, making data a main actor in conversations and increasing the TAM. -
Budget Outlook for Next Year
Q: Any signs of improved budgets for next year?
A: Management has not seen signs of budget increases or flushes for the remainder of the year or into next year. They hope to have more clarity as clients refine their budgets for 2025, with additional guidance to be provided next quarter. -
Partnership Revenue Growth
Q: Update on expanding partnership-sourced revenue?
A: They continue to build strong partnerships with hyperscalers like AWS, Microsoft, and Google, as well as ServiceNow and Salesforce. While partnership revenue is still relatively low compared to the industry, investments in these areas are driving current revenue, and they are bullish on future growth. -
Outcome-Based Pricing Trend
Q: What's the update on outcome-based pricing?
A: Outcome-based revenue remained at 20% of total revenue this quarter, up from 17% a year ago. While flat sequentially, management is bullish on increasing adoption of alternative commercial models, especially as generative AI solutions gain traction. -
Pricing Environment Stability
Q: Any changes in the pricing environment?
A: The pricing environment remains relatively constant with no dramatic changes or increased competitive pressures, even around generative AI projects. -
Improvement in Short-Cycle Projects
Q: Any improvement in short-cycle projects recently?
A: Strong execution is driving results in a stable business environment, leading to better performance. They are pleased with their performance in Data-Tech-AI, involving advanced technologies and AI initiatives. -
Customer Adoption of Generative AI
Q: Are customers more comfortable with generative AI now?
A: While still early days, there's more adoption of generative AI, moving from interest and proof of concept to production environments. Clients showcased meaningful value during their AI Day, indicating progress but acknowledging it's still early.
Research analysts covering Genpact.