Press Release


Genpact Reports First Quarter 2018 Results

Revenues of $689 Million, Up 11% (~9% on a constant currency basis)1
Global Client BPO Revenues of $540 Million, Up 17% (~15% on a constant currency basis)
Diluted EPS of $0.33, Up 25%; Adjusted Diluted EPSof $0.39, Up 27%

NEW YORK, May 3, 2018 — Genpact Limited (NYSE: G), a global professional services firm focused on delivering digital transformation, today announced financial results for the first quarter ended March 31, 2018.

“We had a strong start to the year, highlighted by double-digit growth in a number of our chosen verticals and service lines, leading to mid-teen Global Client BPO revenue growth on a constant currency basis,” said “Tiger” Tyagarajan, Genpact’s president and CEO.  “Our two highly synergistic routes to market, Transformation Services and Intelligent Operations, are unlocking many opportunities for us to win new logos as well as increase penetration with existing clients, including more sole-sourced deals.”

Key Financial Results – First Quarter 2018

  • Total revenue was $689 million, up 11% year-over-year (up ~9% on a constant currency basis).
  • Income from operations was $64 million, down 19% year-over-year, with a corresponding margin of 9.3%.  Adjusted income from operations was $97 million, up 11% year-over-year, with a corresponding margin of 14.1%.3
  • Diluted earnings per share were $0.33, up 25% year-over-year, and adjusted diluted earnings per share were $0.39, up 27% year-over-year.  The current quarter diluted earnings per share includes a $0.02 foreign currency gain resulting from balance sheet re-measurement.
  • Genpact repurchased approximately 3.2 million of its common shares during the quarter for total consideration of $1oo million at an average price per share of $31.44.

Revenue Details – First Quarter 2018

  • Revenue from Global Clients was $631 million, up 14% year-over-year (up ~12% on a constant currency basis), representing approximately 92% of total revenues.
  • Revenue from GE was $58 million, down 16% year-over-year, representing approximately 8% of total revenues.
  • Total BPO revenue was $574 million, up 12% year-over-year, representing approximately 83% of total revenues. 
  • Global Client BPO revenue was $540 million, up 17% year-over-year (up ~15% on a constant currency basis).
  • GE BPO revenue was $34 million, down 31% year-over-year.
  • Total IT revenue was $115 million, up 3% year-over-year, representing approximately 17% of total revenues.
  • Global Client IT revenue was $91 million, down 1% year-over-year.
  • GE IT revenue was $24 million, up 19% year-over-year.

Cash Flow from Operations

  • Genpact utilized $27 million of cash in operations in the first quarter of 2018, compared to generating $31 million in cash from operations during the first quarter of 2017.

2018 Outlook
Genpact continues to expect:

  • Total revenue for the full year 2018 of $2.93 to $3.0 billion.
  • Global Client revenue growth in the range of 9% to 11%, 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 increase to $1.72 to $1.76, from our prior outlook of $1.70 to $1.74.

Conference Call to Discuss Financial Results
Genpact’s management will host an hour-long conference call beginning at 4:30 p.m. ET on May 3, 2018 to discuss the company’s performance for the first quarter ended March 31, 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, 8895845.

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 78,000+ 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 March 31,

 

 

2017

 

 

2018

 

Assets

 

 

 

Current assets

 

 

Cash and cash equivalents

$

504,468

 

$

424,226

 

Accounts receivable, net

693,085

 

703,066

 

Prepaid expenses and other current assets

236,342

 

199,208

 

Total current assets

$

1,433,895

 

$

1,326,500

 

Property, plant and equipment, net

207,030

 

205,035

 

Deferred tax assets

76,929

 

81,734

 

Investment in equity affiliates

886

 

919

 

Intangible assets, net

131,590

 

125,781

 

Goodwill

1,337,122

 

1,337,051

 

Contract cost assets

 

162,435

 

Other assets

262,169

 

157,672

 

Total assets

$

3,449,621

 

$

3,397,127

 

Liabilities and equity

 

 

 

Current liabilities

 

 

Short-term borrowings

$

170,000

 

$

275,000

 

Current portion of long-term debt

39,226

 

39,237

 

Accounts payable

15,050

 

13,811

 

Income taxes payable

30,026

 

40,026

 

Accrued expenses and other current liabilities

584,482

 

503,116

 

Total current liabilities

$

838,784

 

$

871,190

 

Long-term debt, less current portion

1,006,687

 

996,999

 

Deferred tax liabilities

6,747

 

7,083

 

Other liabilities

168,609

 

155,858

 

Total liabilities

$

2,020,827

 

$

2,031,130

 

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 190,613,135 issued and outstanding as of   December 31, 2017 and

   March 31, 2018, respectively

1,924

 

1,903

 

Additional paid-in capital

1,421,368

 

1,422,897

 

Retained earnings

355,982

 

321,916

 

Accumulated other comprehensive income (loss)

(355,230

)

(380,719

)

Total equity

$

1,424,044

 

$

1,365,997

 

Total liabilities, redeemable non-controlling interest and equity

$

3,449,621

 

$

3,397,127

 

GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data and share count)

 

Three months ended March 31,

 

 

2017

 

 

2018

 

Net revenues

$

622,995

 

$

688,912

 

Cost of revenue

 

383,337

 

444,324

 

Gross profit

$

239,658

 

$

244,588

 

Operating expenses:

 

 

 

 

Selling, general and administrative expenses

 

160,858

 

 

171,109

 

Amortization of acquired intangible assets

 

7,242

 

 

9,936

 

Other operating (income) expense, net

 

(7,538

)

 

(218

)

Income from operations

$

79,096

 

$

63,761

 

Foreign exchange gains (losses), net

 

(4,913

)

 

4,798

 

Interest income (expense), net

 

(5,493

)

 

(8,100

)

Other income (expense), net

 

553

 

 

15,550

 

Income before equity-method investment activity, net and income tax

   expense

$

69,243

 

$

76,009

 

Equity-method investment activity, net

(4,558

)

 

Income before income tax expense

$

64,685

 

$

  76,009

 

Income tax expense

 

12,245

 

12,075

 

Net income

$

52,440

 

$

63,934

 

Net loss attributable to redeemable non-controlling interest

898

 

761

 

Net income attributable to Genpact Limited shareholders

$

53,338

 

$

64,695

 

Net income available to Genpact Limited common shareholders

$

53,338

 

$

64,695

 

Earnings per common share attributable to Genpact Limited common

   shareholders

 

 

 

 

Basic

$

0.27

 

$

0.34

 

Diluted

$

0.26

 

$

0.33

 

Weighted average number of common shares used in computing earnings per

   common share attributable to Genpact Limited common shareholders

 

 

 

 

 

Basic

 

199,069,528

 

 

192,816,626

 

Diluted

 

202,655,937

 

 

196,288,569

 


GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

 

Three months ended March 31,

 

 

2017

 

 

2018

 

Operating activities

 

 

 

 

 

Net income attributable to Genpact Limited shareholders

$

53,338

 

$

64,695

 

Net loss attributable to redeemable non-controlling interest

(898

)

(761

)

Net income 

$

52,440

 

$

63,934

 

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

   activities:

 

 

 

Depreciation and amortization

14,139

 

15,836

 

Amortization of debt issuance costs

375

 

488

 

Amortization of acquired intangible assets

7,242

 

9,936

 

Reserve for doubtful receivables

—  

 

(103

)

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

8,757

 

(8,525

)

Equity-method investment activity, net

4,558

 

 

Stock-based compensation expense

4,986

 

7,787

 

Deferred income taxes

(2,890

)

(4,625

)

Others, net

(4,301

)

(28

)

Change in operating assets and liabilities:

 

 

 

Decrease (increase) in accounts receivable

19,649

 

(6,025

)

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

   other assets

(12,025

)

(37,008

)

Decrease in accounts payable

(928

)

(1,224

)

Decrease in accrued expenses, other current liabilities and other liabilities

(69,131

)

(77,734

)

Increase in income taxes payable

8,157

 

9,969

 

Net cash provided by/(used for) operating activities

$

31,028

 

$

(27,322

)

Investing activities

 

 

Purchase of property, plant and equipment

(17,084

)

(18,706

)

Payment for internally generated intangible assets

(2,614

)

(4,365

)

Proceeds from sale of property, plant and equipment

389

 

144

 

Investment in equity affiliates

(467

)

 

Payment for business acquisitions, net of cash acquired

(9,237

)

 

Payment for purchase of redeemable non-controlling interest

 

 

(4,730)

 

Net cash used for investing activities

$

(29,013

)

$

(27,657

)

Financing activities

 

 

Repayment of capital lease obligations

(494

)

(537

)

Payment of debt issuance costs

(1,481

)

 

Proceeds from long-term debt

 

350,000

 

 

Repayment of long-term debt

(10,000

)

(10,000

)

Proceeds from short-term borrowings

40,000

 

105,000

 

Repayment of short-term borrowings

(185,000

)

 

Proceeds from issuance of common shares under stock-based compensation plans

7,761

 

4,202

 

Payment for net settlement of stock-based awards

(9,939

)

(13,284

)

Payment of earn-out/deferred consideration

(1,097

)

(1,476

)

Dividend paid

(11,957

)

(14,408

)

Payment for stock purchased and retired

(219,784

)

(95,984

)

Payment for expenses related to stock purchase

(16

)

(60

)

Net cash used for financing activities

$

(42,007

)

$

(26,547

)

Effect of exchange rate changes

5,555

 

1,284

 

Net increase (decrease) in cash and cash equivalents

(39,992

)

(81,526

)

Cash and cash equivalents at the beginning of the period

422,623

 

504,468

 

Cash and cash equivalents at the end of the period

$

388,186

 

$

424,226

 

Supplementary information

 

 

Cash paid during the period for interest

$

5,324

 

$

13,194

 

Cash paid during the period for income taxes

$

16,426

 

$

24,157

 

Property, plant and equipment acquired under capital lease obligations

$

576

 

$

297

 

Non-GAAP Financial Measures to GAAP Measures
To supplement the consolidated financial statements presented in accordance with GAAP, this press release includes the following measures defined by the Securities and Exchange Commission as 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 our 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 months ended March 31, 2017 and 2018:

Reconciliation of Adjusted Income from Operations and Adjusted Income from Operations Margin
(Unaudited)
(In thousands)

 

 

Three months ended March 31,

 

 

 

2017

 

 

2018

 

Income from operations

 

$

79,096

 

$

63,761

 

Add: Stock-based compensation

4,986

 

7,787

 

Add: Amortization of acquired intangible assets

 

6,709

 

9,540

 

Add: Acquisition-related expenses

422

 

 

Add: Other income (expense), net

 

553

 

15,550

 

Less: Equity-method investment activity, net

(4,558

)

 

Add: Net loss attributable to redeemable non-controlling interest

 

898

 

761

 

Adjusted income from operations

$

88,106

 

$

97,399

 

Adjusted income from operations margin

 

14.1%


14.1%



Reconciliation of Adjusted Diluted EPS6
(Unaudited)
(Per share data)

 

Three months ended March 31,

 

 

2017

 

 

2018

 

Diluted EPS

$

0.26

 

$

0.33

 

Add: Stock-based compensation

0.02

 

0.04

 

Add: Amortization of acquired intangible assets

0.03

 

0.05

 

Add: Acquisition-related expenses

 

 

Less: Tax impact on stock-based compensation

(0.01

)

(0.02

)

Less: Tax impact on amortization of acquired intangibles

(0.01

)

(0.01

)

Less: Tax impact on acquisition-related expenses

—  

 

 

Adjusted diluted EPS

$

0.31

 

$

0.39

 


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

 

 

12.2%


Add: Estimated stock-based compensation

1.6%


Add: Estimated amortization of acquired intangible assets

 

 

1.2%


Add: Estimated acquisition-related expenses

0.1%


Add: Estimated other income (expense), net

 

 

0.7%


Less: Estimated equity-method investment activity, net

 

Adjusted income from operations margin

 

15.8%


Reconciliation of Outlook for Adjusted Diluted EPS7
(Unaudited)
(Per share data)

 

Year ending December 31, 2018

 

 

Lower

 

 

Upper

 

Diluted EPS

$

1.41

 

 

$

1.45

 

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

(0.08

)

 

(0.08

)

Less: Estimated tax impact on amortization of acquired intangibles

(0.06

)

(0.06

)

Less: Estimated tax impact on acquisition-related expenses

 

 

 

Adjusted diluted EPS

$

1.72

 

$

1.76

 

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