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Genpact Reports Third Quarter 2018 Results
Revenues of $748 Million, Up 6% (~6% on a constant currency basis)(1)
Global Client BPO Revenues of $586 Million, Up 8% (~9% on a constant currency basis)
Diluted EPS of $0.38; Adjusted Diluted EPS(2) of $0.48

NEW YORK, Nov. 6, 2018 /PRNewswire/ -- Genpact Limited (NYSE: G), a global professional services firm focused on delivering digital transformation, today announced financial results for the third quarter ended September 30, 2018.

New Genpact logo - September 2017 (PRNewsfoto/Genpact)

"Overall, Genpact delivered solid third quarter results and we are on track to meet our 2018 full-year outlook.  More importantly, the momentum we continue to see in our pipeline and bookings sets us up on a trajectory to drive strong top line growth in our Global Client BPO and GE businesses in 2019 and beyond," said "Tiger" Tyagarajan, Genpact's president and CEO.  "It is very clear that our deep domain and process depth coupled with our expertise in digital and data analytics is differentiating us in the marketplace and is the key reason why clients are increasingly choosing Genpact as their strategic transformation partner."

Key Financial Results – Third Quarter 2018

  • Total revenue was $748 million, up 6% year-over-year (up ~6% on a constant currency basis).
  • Income from operations was $94 million, down 4% year-over-year, with a corresponding margin of 12.6%. Adjusted income from operations was $124 million, up 7% year-over-year, with a corresponding margin of 16.6%.3
  • Diluted earnings per share were $0.38, flat year-over-year, and adjusted diluted earnings per share were $0.48, up 5% year-over-year.

Revenue Details – Third Quarter 2018

Total Company

  • Total BPO revenue was $623 million, up 7% year-over-year, representing approximately 83% of total revenues.
  • Total IT revenue was $125 million, flat year-over-year, representing approximately 17% of total revenues.

Global Clients

  • Revenue from Global Clients was $683 million, up 7% year-over-year (up ~8% on a constant currency basis), representing approximately 91% of total revenues.
  • Global Client BPO revenue was $586 million, up 8% year-over-year (up ~9% on a constant currency basis).
  • Global Client IT revenue was $98 million, up 2% year-over-year.

GE

  • Revenue from GE was $65 million, down 11% year-over-year, representing approximately 9% of total revenues. GE revenue was flat sequentially.
  • GE BPO revenue was $37 million, down 13% year-over-year.
  • GE IT revenue was $27 million, down 7% year-over-year.

Cash Flow from Operations

  • Cash generated from operations was $153 million in the third quarter of 2018, compared to $148 million in the third quarter of 2017.

2018 Outlook

Genpact continues to expect:

  • Total revenue for the full-year 2018 of $2.95 to $3.01 billion, representing growth of 8% to 10% both on an as-reported and constant currency basis.
  • Global Client revenue growth in the range of 9.5% to 11.5%, both on an as-reported and constant currency basis.
  • Adjusted income from operations margin4 of approximately 15.8%.

Genpact now expects:

  • Adjusted diluted EPS5 to be at the high end of the prior $1.72 to $1.76 range.

Conference Call to Discuss Financial Results

Genpact's management will host an hour-long conference call beginning at 4:30 p.m. ET on November 6, 2018 to discuss the company's performance for the third quarter ended September 30, 2018. To participate, callers can dial +1 (877) 654-0173 from within the U.S. or +1 (281) 973- 6289 from any other country. Thereafter, callers will be prompted to enter the conference ID, 4276952.

A live webcast of the call will also be made available on the Genpact Investor Relations website at http://investors.genpact.com. For those who cannot join the call live, a replay will be archived on the Genpact website after the end of the call. A transcript of the call will also be made available on the website.

About Genpact

Genpact (NYSE: G) is a global professional services firm that makes business transformation real. We drive digital-led innovation and digitally-enabled intelligent operations for our clients, guided by our experience running thousands of processes for hundreds of Global Fortune 500 companies. We think with design, dream in digital, and solve problems with data and analytics. We obsess over operations and focus on the details – all 80,000+ of us. From New York to New Delhi and more than 20 countries in between, Genpact has the end-to-end expertise to connect every dot, reimagine every process, and reinvent companies' ways of working. We know that rethinking each step from start to finish will create better business outcomes. Whatever it is, we'll be there with you – putting data and digital to work to create bold, lasting results – because transformation happens here.

Safe Harbor

This press release contains certain statements concerning our future growth prospects and forward-looking statements, as defined in the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those in such forward-looking statements. These risks, uncertainties and other factors include but are not limited to a slowdown in the economies and sectors in which our clients operate, a slowdown in the business process outsourcing and information technology services sectors, the risks and uncertainties arising from our past and future acquisitions, our ability to convert bookings to revenues, our ability to manage growth, factors which may impact our cost advantage, wage increases, changes in tax rates and tax legislation and other laws and regulations, our ability to attract and retain skilled professionals, risks and uncertainties regarding fluctuations in our earnings, foreign currency fluctuations, general economic conditions affecting our industry as well as other risks detailed in our reports filed with the U.S. Securities and Exchange Commission, including Genpact's Annual Report on Form 10-K. These filings are available at www.sec.gov. Genpact may from time to time make additional written and oral forward-looking statements, including statements contained in our filings with the Securities and Exchange Commission and our reports to shareholders. Although Genpact believes that these forward-looking statements are based on reasonable assumptions, you are cautioned not to put undue reliance on these forward-looking statements, which reflect management's current analysis of future events and should not be relied upon as representing management's expectations or beliefs as of any date subsequent to the time they are made. Genpact undertakes no obligation to update any forward-looking statements that may be made from time to time by or on behalf of Genpact.

Contacts

Investors


Roger Sachs, CFA



+1 (203) 808-6725



roger.sachs@genpact.com



Media


Gail Marold

+1 (919) 345-3899

gail.marold@genpact.com

 

 

GENPACT LIMITED AND ITS SUBSIDIARIES


Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share data and share count)




As of December 31,



As of September 30,




2017



2018


Assets









Current assets









Cash and cash equivalents


$

504,468



$

401,230


Accounts receivable, net



693,085




710,045


Prepaid expenses and other current assets



236,342




210,006


Total current assets


$

1,433,895



$

1,321,281


Property, plant and equipment, net



207,030




211,382


Deferred tax assets



76,929




94,212


Investment in equity affiliates



886




825


Intangible assets, net



131,590




135,028


Goodwill



1,337,122




1,386,408


Contract cost assets





160,110


Other assets


262,169




147,383


Total assets


$

3,449,621



$

3,456,629


Liabilities and equity









Current liabilities









Short-term borrowings


$

170,000



$

330,000


Current portion of long-term debt



39,226




33,476


Accounts payable



15,050




14,436


Income taxes payable



30,026




73,567


Accrued expenses and other current liabilities



584,482




554,708


Total current liabilities


$

838,784



$

1,006,187


Long-term debt, less current portion



1,006,687




983,884


Deferred tax liabilities



6,747




6,512


Other liabilities



168,609




175,028


Total liabilities


$

2,020,827



$

2,171,611


Redeemable non-controlling interest



4,750




Shareholders' equity









Preferred shares, $0.01 par value, 250,000,000 authorized, none issued





Common shares, $0.01 par value, 500,000,000 authorized,
   192,825,207 and 190,053,249 issued and outstanding as of
  
December 31, 2017 and September 30, 2018, respectively



1,924




1,896


Additional paid-in capital



1,421,368




1,453,674


Retained earnings



355,982




397,470


Accumulated other comprehensive income (loss)



(355,230)




(568,022)


Total equity


$

1,424,044



$

1,285,018


Total liabilities, redeemable non-controlling interest and equity


$

3,449,621



$

3,456,629


 

 

GENPACT LIMITED AND ITS SUBSIDIARIES


Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data and share count)




Three months ended September 30,



Nine months ended September 30,




20176



2018



20176



2018


Net revenues


$

708,824



$

747,978



$

2,002,516



$

2,165,451


Cost of revenue



428,790




481,412




1,226,635




1,388,634


Gross profit


$

280,034



$

266,566



$

775,881



$

776,817


Operating expenses:

















Selling, general and administrative 
  expenses



172,028




168,010




500,644




515,285


Amortization of acquired intangible 
  assets



10,151




9,372




25,780




29,134


Other operating (income) expense, net



(64)




(4,844)




(8,517)




(4,913)


Income from operations


$

97,919



$

94,028



$

257,974



$

237,311


Foreign exchange gains (losses), net



5,045




7,450




2,045




15,053


Interest income (expense), net



(8,724)




(9,139)




(24,067)




(27,646)


Other income (expense), net



(4,498)




5,385




7,615




30,683


Income before equity-method investment

   activity, net and income tax expense


$

89,742



$

97,724



$

243,567



$

255,401


Equity-method investment activity, net





(7)




(4,567)




(22)


Income before income tax expense


$

89,742



$

97,717



$

239,000



$

255,379


Income tax expense



16,581




24,114




44,297




53,268


Net income


$

73,161



$

73,603



$

194,703



$

202,111


Net loss attributable to redeemable non-

   controlling interest



584






1,326




761


Net income attributable to Genpact

   Limited shareholders


$

73,745



$

73,603



$

196,029



$

202,872


Net income available to Genpact Limited

   common shareholders


$

73,745



$

73,603



$

196,029



$

202,872


Earnings per common share attributable

   to Genpact Limited common

   shareholders

















Basic


$

0.38



$

0.39



$

1.01



$

1.06


Diluted


$

0.38



$

0.38



$

0.99



$

1.04


Weighted average number of common

   shares used in computing earnings per

   common share attributable to Genpact

   Limited common shareholders

















Basic


192,124,366



190,024,924



194,221,162



190,991,405


Diluted


194,947,699



193,115,769



197,112,014



194,256,771


____________________________

6 Cost of revenue, selling, general and administrative expenses, other income (expense) and income from operations for the three and nine months ended September 30, 2017 have been restated due to the adoption of ASU No. 2017-07 with effect from January 1, 2018. 

 

 

GENPACT LIMITED AND ITS SUBSIDIARIES


Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)




Nine months ended September 30,




2017



2018


Operating activities









Net income attributable to Genpact Limited shareholders


$

196,029



$

202,872


Net loss attributable to redeemable non-controlling interest



(1,326)




(761)


Net income


$

194,703



$

202,111


Adjustments to reconcile net income to net cash provided by (used for)

   operating activities:









Depreciation and amortization



42,271




47,612


Amortization of debt issuance costs (including loss on extinguishment of debt)



1,382




3,546


Amortization of acquired intangible assets



25,780




29,134


Write-down of intangible assets and property, plant and equipment





1,538


Reserve for doubtful receivables



4,871




1,705


Unrealized loss (gain) on revaluation of foreign currency asset/liability



(9,296)




(4,544)


Equity-method investment activity, net



4,567




22


Stock-based compensation expense



22,402




32,158


Deferred income taxes



(4,589)




(1,768)


Provision for expected loss on divestiture



5,195




Others, net



(5,261)



255


Change in operating assets and liabilities:









Increase in accounts receivable



(30,687)




(12,946)


Increase in prepaid expenses, other current assets, contract cost assets and
  
other assets



(56,230)




(96,300)


Decrease in accounts payable



(462)




(913)


Increase (decrease) in accrued expenses, other current liabilities and
  
other liabilities



27,723




(44,602)


Increase in income taxes payable



41,324




45,798


Net cash provided by operating activities


$

263,693



$

202,806











Investing activities









Purchase of property, plant and equipment



(47,510)




(68,027)


Payment for internally generated intangible assets (including intangibles

   under development)



(8,950)




(19,397)


Proceeds from sale of property, plant and equipment



1,648




499


Investment in equity affiliates



(496)





Payment for business acquisitions, net of cash acquired



(277,549)




(108,105)


Payment for purchase of redeemable non-controlling interest





(4,730)


Net cash used for investing activities


$

(332,857)



$

(199,760)


Financing activities









Repayment of capital lease obligations



(2,199)




(1,954)


Payment of debt issuance costs



(1,481)




(4,293)


Proceeds from long term debt



350,000




129,186


Repayment of long-term debt



(30,000)




(157,686)


Proceeds from short-term borrowings



275,000




225,000


Repayment of short-term borrowings



(275,000)




(65,000)


Proceeds from issuance of common shares under stock-based

   compensation plans



12,834




12,275


Payment for net settlement of stock-based awards



(10,296)




(14,947)


Payment of earn-out/deferred consideration



(6,219)




(1,559)


Dividend paid



(35,096)




(42,901)


Payment for stock repurchased and retired



(219,784)




(130,103)


Payment for expenses related to stock purchase



(16)




(82)


Net cash provided by (used for) financing activities


$

57,743



$

(52,064)


Effect of exchange rate changes



28,853




(54,220)


Net increase (decrease) in cash and cash equivalents



(11,421)




(49,018)


Cash and cash equivalents at the beginning of the period



422,623




504,468


Cash and cash equivalents at the end of the period


$

440,055



$

401,230


Supplementary information









Cash paid during the period for interest


$

23,414



$

35,082


Cash paid during the period for income taxes


$

46,935



$

54,920


Property, plant and equipment acquired under capital lease obligations


$

1,944



$

1,832


 

Non-GAAP Financial Measures to GAAP Measures

To supplement the consolidated financial statements presented in accordance with GAAP, this press release includes the following non-GAAP financial measures:

  • Adjusted income from operations attributable to shareholders of Genpact Limited, or adjusted income from operations;
  • Adjusted income from operations margin;
  • Adjusted diluted earnings per share attributable to shareholders of Genpact Limited, or adjusted diluted earnings per share; and
  • Revenue growth on a constant currency basis.

These non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. Accordingly, these non-GAAP financial measures, the financial statements prepared in accordance with GAAP and the reconciliations of Genpact's GAAP financial statements to such non-GAAP financial measures should be carefully evaluated.

Prior to July 2012, Genpact's management used financial statements that excluded significant acquisition-related expenses, amortization of related acquired intangibles, and amortization of acquired intangibles at the company's formation in 2004 for its internal management reporting, budgeting and decision making purposes, including comparing Genpact's operating results to that of its competitors. However, considering Genpact's frequent acquisitions of varying scale and size, and the difficulty in predicting expenses relating to acquisitions and the amortization of acquired intangibles thereof, since July 2012 Genpact's management has used financial statements that exclude all acquisition-related expenses and amortization of acquired intangibles for its internal management reporting, budgeting and decision-making purposes, including comparing Genpact's operating results to those of its competitors. For the same reasons, since April 2016 Genpact's management has excluded the impairment of acquired intangible assets from the financial statements it uses for internal management purposes. Acquisition-related expenses are excluded in the period in which an acquisition is consummated.

Genpact's management also uses financial statements that exclude stock-based compensation expense. Because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use when adopting ASC 718 "Compensation-Stock Compensation," Genpact's management believes that providing non-GAAP financial measures that exclude such expenses allows investors to make additional comparisons between Genpact's operating results and those of other companies. Additionally, in its calculations of such non-GAAP financial measures, Genpact's management has adjusted other income and expenses, certain gains, losses and impairment charges attributable to equity-method investments, and gains or losses attributable to non-controlling interests because management believes that the Company's results after taking into account these adjustments more accurately reflect the Company's ongoing operations. For the purpose of calculating adjusted diluted earnings per share, the combined current and deferred tax effect is determined by multiplying each pre-tax adjustment by the applicable statutory income tax rate.

Genpact's management provides information about revenues on a constant currency basis so that the revenues may be viewed without the impact of foreign currency exchange rate fluctuations, thereby facilitating period-to-period comparisons of the Company's true business performance. Revenue growth on a constant currency basis is calculated by restating current-period activity using the prior fiscal period's foreign currency exchange rates adjusted for hedging gains/losses in such period.

Accordingly, Genpact believes that the presentation of adjusted income from operations, adjusted income from operations margin, adjusted diluted earnings per share and revenue growth on a constant currency basis, when read in conjunction with the Company's reported results, can provide useful supplemental information to investors and management regarding financial and business trends relating to its financial condition and results of operations.

A limitation of using adjusted income from operations and adjusted income from operations margin versus income from operations and income from operations margin calculated in accordance with GAAP is that these non-GAAP financial measures exclude certain recurring costs and certain other charges, namely stock-based compensation and amortization and impairment of acquired intangibles. Management compensates for this limitation by providing specific information on the GAAP amounts excluded from adjusted income from operations and adjusted income from operations margin.

The following tables show the reconciliation of these non-GAAP financial measures from GAAP for the three and nine months ended September 30, 2017 and 2018:

Reconciliation of Adjusted Income from Operations and Adjusted Income from Operations Margin

(Unaudited)

(In thousands)




Three months ended September 30,



Nine months ended September 30,




2017



2018



2017



2018


Income from operations


$

97,919



$

94,028



$

257,974



$

237,311


Add: Stock-based compensation



10,051




13,434




22,402




32,158


Add: Amortization of acquired

   intangible assets



9,520




8,988




24,077




27,959


Add: Acquisition-related expenses



2,364




2,362




5,755




2,362


Add: Other income (expense), net



(4,498)




5,385




7,615




30,683


Less: Equity-method investment

   activity, net





(7)




(4,567)




(22)


Add: Net loss (income) attributable to

   redeemable non-controlling interest



584






1,326




761


Adjusted income from operations


$

115,940



$

124,190



$

314,582



$

331,212


Income from operations margin



13.8

%



12.6

%



12.9

%



11.0

%

Adjusted income from operations

   margin



16.4

%



16.6

%



15.7

%



15.3

%

 

 

Reconciliation of Adjusted Diluted EPS7

(Unaudited)

(Per share data) 




Three months ended September 30,



Nine months ended September 30,




2017



2018



2017



2018


Diluted EPS


$

0.38



$

0.38



$

0.99



$

1.04


Add: Stock-based compensation



0.05




0.07




0.11




0.17


Add: Amortization of acquired

   intangible assets



0.05




0.05




0.12




0.14


Add: Acquisition-related expenses



0.01




0.01




0.03




0.01


Less: Tax impact on stock-based

   compensation



(0.02)




(0.02)




(0.03)




(0.05)


Less: Tax impact on amortization of

   acquired intangibles



(0.02)




(0.01)




(0.04)




(0.04)


Less: Tax impact on acquisition-related

   expenses









Adjusted diluted EPS


$

0.46



$

0.48



$

1.19



$

1.28


_____________________

7Due to rounding, the numbers presented in this table may not add up precisely to the totals provided.

 

The following tables show the reconciliation of forward-looking non-GAAP financial measures from GAAP for the year ending December 31, 2018:

 

Reconciliation of Outlook for Adjusted Income from Operations Margin

(Unaudited)




Year ending

December 31, 2018


Income from operations margin



11.7

%

Add: Estimated stock-based compensation



1.5

%

Add: Estimated amortization of acquired intangible assets



1.3

%

Add: Estimated acquisition-related expenses



0.1

%

Add: Estimated other income (expense), net



1.2

%

Less: Estimated equity-method investment activity, net



Adjusted income from operations margin



15.8

%

 

 

Reconciliation of Outlook for Adjusted Diluted EPS8

(Unaudited)

(Per share data)




Year ending December 31, 2018




Lower



Upper


Diluted EPS


$

1.39



$

1.43


Add: Estimated stock-based compensation



0.24




0.24


Add: Estimated amortization of acquired intangible assets



0.19




0.19


Add: Estimated acquisition-related expenses



0.01




0.01


Less: Estimated tax impact on stock-based compensation



(0.07)




(0.07)


Less: Estimated tax impact on amortization of acquired intangibles



(0.05)




(0.05)


Less: Estimated tax impact on acquisition-related expenses





Adjusted diluted EPS


$

1.72



$

1.76


______________________________

8Due to rounding, the numbers presented in this table may not add up precisely to the totals provided.

 

1 Revenue growth on a constant currency basis is a non-GAAP measure and is calculated by restating current-period activity using the prior fiscal period's foreign currency exchange rates adjusted for hedging gains/losses in such period.

2 Adjusted diluted earnings per share is a non-GAAP measure. A reconciliation of GAAP diluted earnings per share and adjusted diluted earnings per share is attached to this release.

3 Adjusted income from operations and adjusted income from operations margin are non-GAAP measures. A reconciliation of GAAP income from operations and adjusted income from operations and a reconciliation of GAAP income from operations margin and adjusted income from operations margin are attached to this release.

4 Adjusted income from operations margin is a non-GAAP measure.  A reconciliation of the outlook for GAAP income from operations margin and adjusted income from operations margin is attached to this release.

5 Adjusted diluted earnings per share is a non-GAAP measure.  A reconciliation of the outlook for GAAP diluted earnings per share and adjusted diluted earnings per share is attached to this release.   

 

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SOURCE Genpact Limited