Genpact's AI Unit Masks Cash Flow Strain and Legacy Slowdown
Genpact posted second-quarter revenue of $1.343 billion, up 7.1% from a year earlier, as a 24% surge in its Advanced Technology Solutions business offset a sharp slowdown in its legacy operations segment.
Genpact (G) reported second-quarter net revenues of $1.343 billion, up 7.1% year over year, or 6.9% on a constant-currency basis. The growth rate accelerated from 6.7% in the first quarter of 2024, extending a run of steady top-line gains even as the composition beneath the headline number shifted sharply.
That shift centers on Advanced Technology Solutions, the company's AI and technology-driven business, which generated $363 million in revenue, up 24.1% year over year. The pace matched the 24.3% growth posted in the first quarter and marked a second straight quarter near the mid-20% range, up from 20.0% in the third quarter of 2023 and roughly 17% in the two quarters before that. Genpact raised its full-year Advanced Technology Solutions growth guidance to at least 25%, up from the at least 20% it had guided in the first quarter.
The acceleration in Advanced Technology Solutions came alongside a deceleration in Core Business Services, the company's larger, more traditional segment. Core Business Services revenue rose 1.9% year over year to $980 million in the second quarter, up only modestly from 1.4% growth in the first quarter but well below the 2.9% and 3.0% growth rates posted in the fourth and third quarters of 2023, respectively, and below the 3.8% growth the segment itself posted a year earlier. For the third quarter, Genpact guided Core Business Services revenue to be flat to slightly down year over year, a negative disclosure that departs from prior quarters, when the company had said it expected the segment to continue growing.
Profitability metrics held up despite the segment divergence. Gross margin expanded to 36.5% from 36.4% in the first quarter and 35.9% a year earlier, extending a streak of consecutive year-over-year gross margin expansion that has now run 13 quarters or more. Adjusted income from operations margin was roughly flat sequentially at 17.4%, up modestly from 17.3% in both the first quarter of 2024 and the year-ago quarter. Diluted earnings per share rose 14.7% year over year to $0.86, reaccelerating after growing 17.8% in the first quarter, with both readings well above the 11.9% growth Genpact posted in the second quarter of 2023.
Cash generation told a different story. Cash from operations fell 59% to $72 million from $177 million a year earlier, following a first quarter in which the company used $24 million in operating cash versus generating $40 million in the same period last year. Share repurchases slowed alongside the cash pressure: Genpact bought back roughly 1.6 million shares for about $50 million in the second quarter, at an average price of $32.04, down from 1.8 million shares for $70 million at $38.61 in the first quarter and well below the $44-to-$46 average prices paid in the back half of 2023.
Genpact also dropped the Data-Tech-AI and Digital Operations segment breakdown that had appeared in every quarterly release through full-year 2023 results, removing a disclosure investors had used to track the underlying mix shift now visible in the Advanced Technology Solutions and Core Business Services split.
For the third quarter, Genpact guided revenue of $1.369 billion to $1.382 billion, implying year-over-year growth of roughly 6.0% to 7.0%, in line with the 6.6% to 7.1% growth the company has reported over the trailing several quarters. Full-year adjusted diluted earnings-per-share growth guidance was raised to at least 12%, up from more than 10% guided in the first quarter.