Press Release

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Genpact Reports Full Year and Fourth Quarter 2017 Results

2017 Revenues of $2.74 Billion, Up 6% (~7% on a constant currency basis) 1
2017 Global Client BPO Revenues of $2.09 Billion, Up 13% (~14% on a constant currency basis) 2
2017 Diluted EPS of $1.34, Up 4%; 2017 Adjusted Diluted EPS 3 of $1.62, Up 11%

NEW YORK, February 12, 2018 — Genpact Limited (NYSE: G), a global professional services firm focused on delivering digital transformation, today announced financial results for the fourth quarter and full year ended December 31, 2017.

“We are very pleased with our full year 2017 results.  We grew Global Client BPO revenues 14% on a constant currency basis and generated double-digit adjusted EPS growth,” said “Tiger” Tyagarajan, Genpact’s president and CEO.  “The strategic investments we are making in digital, domain, and talent drove 25% growth in transformation services revenues from our Global Clients.  We will remain sharply focused on a specific set of industry verticals and service lines, and continue to use the increasing power of our Genpact Cora platform to unleash opportunities for our clients.”

Key Financial Results – Full Year 2017

  • Total revenue was $2.74 billion, up 6% year-over-year (up ~7% on a constant currency basis). 
  • Income from operations was $328.6 million, down 4% year-over-year, with a corresponding margin of 12.0%.  Adjusted income from operations was $429.6 million, up 8% year-over-year, with a corresponding margin of 15.7%. 4
  • Diluted earnings per share were $1.34, up 4% year-over-year, and adjusted diluted earnings per share were $1.62, up 11% year-over-year.
  • New bookings were approximately $2.80 billion, up 5% from $2.65 billion in 2016. 5
  • Genpact repurchased approximately 7.7 million of its common shares in 2017 for a total of $216 million at an average price per share of $27.89.
  • Total revenue was $734 million, up 8% year-over-year (up ~7% on a constant currency basis).
  • Income from operations was $72 million, down 27% year-over-year, with a corresponding margin of 9.8%.  Adjusted income from operations was $115 million, up 1% year-over-year, with a corresponding margin of 15.7%.

Key Financial Results – Fourth Quarter 2017

  • Total revenue was $734 million, up 8% year-over-year (up ~7% on a constant currency basis).
  • Income from operations was $72 million, down 27% year-over-year, with a corresponding margin of 9.8%.  Adjusted income from operations was $115 million, up 1% year-over-year, with a corresponding margin of 15.7%.
  • Diluted earnings per share were $0.34, down 9% year-over-year, and adjusted diluted earnings per share were $0.43, down 2.0% year-over-year.

Revenue Details – Full Year 2017 6

  • Revenue from Global Clients was $2.47 billion, up 11% year-over-year (up ~12% on a constant currency basis), representing approximately 90% of total revenues. If all 2016 GE revenue reclassifications had occurred on January 1, 2016, revenue from Global Clients would have increased 10% year-over-year (or ~11% on a constant currency basis).
  • Revenue from GE was $270 million, down 25% year-over-year, representing approximately 10% of total revenues. If all 2016 GE revenue reclassifications had occurred on January 1, 2016, revenue from GE would have decreased 19% year-over-year.
  • Total BPO revenue was $2.3 billion, up 9% year-over-year, representing approximately 83% of total revenues. 
  • Global Client BPO revenue was $2.09 billion, up 14% year-over-year (up ~15% on a constant currency basis). If all 2016 GE revenue reclassifications had occurred on January 1, 2016, BPO revenue from Global Clients would have increased 13% year-over-year (or 14% on a constant currency basis).
  • GE BPO revenue was $176 million, down 32% year-over-year. If all 2016 GE revenue reclassifications had occurred on January 1, 2016, GE BPO revenue would have decreased 24% year-over-year.
  • Total IT revenue was $473 million, down 3% year-over-year, representing approximately 17% of total revenues.
  • Global Client IT revenue was $379 million, down 2% year-over-year.
  • GE IT revenue was $94 million, down 6% year-over-year.

Revenue Detail – Fourth Quarter 2017

  • Revenue from Global Clients was $669 million, up 12% year-over-year (up ~11% on a constant currency basis), representing approximately 91% of total revenues. If all 2016 GE revenue reclassifications had occurred on January 1, 2016, revenue from Global Clients would have increased 11% year-over-year (or ~11% on a constant currency basis).
  • Revenue from GE was $65 million, down 20% year-over-year, representing approximately 9% of total revenues. If all 2016 GE revenue reclassifications had occurred on January 1, 2016, revenue from GE would have decreased 20% year-over-year.
  • Total BPO revenue was $614 million, up 11% year-over-year, representing approximately 84% of total revenues. 
  • Global Client BPO revenue was $575 million, up 15% year-over-year (up ~15% on a constant currency basis). If all 2016 GE revenue reclassifications had occurred on January 1, 2016, BPO revenue from Global Clients would have increased 15% year-over-year (or 15% on a constant currency basis).
  • GE BPO revenue was $39 million, down 30% year-over-year. If all 2016 GE revenue reclassifications had occurred on January 1, 2016, GE BPO revenue would have decreased 30% year-over-year.
  • Total IT revenue was $121 million, down 6% year-over-year, representing approximately 16% of total revenues.
  • Global Client IT revenue was $94 million, down 8% year-over-year.
  • GE IT revenue was $26 million, up 2% year-over-year.

Cash Flow from Operations

  • Cash generated from operations was $359 million in the full year 2017, up 4% from the full year 2016.

2018 Outlook

Genpact expects:

  • Total revenue for the full year 2018 to be $2.93 to $3.0 billion.
  • Global Client revenue growth to be in the range of 9% to 11%, both on an as-reported and constant currency basis.
  • Adjusted income from operations margin 7 of approximately 15.8%.
  • Adjusted diluted EPS 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 February 12, 2018 to discuss the company’s performance for the fourth quarter and full year ended December 31, 2017. 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, 6994337.

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 December 31,

 

 

 

2016

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

422,623

 

 

$

504,468

 

Accounts receivable, net

 

 

615,265

 

 

 

693,085

 

Prepaid expenses and other current assets

 

 

189,149

 

 

 

236,342

 

Total current assets

 

$

1,227,037

 

 

$

1,433,895

 

Property, plant and equipment, net

 

 

193,218

 

 

 

207,030

 

Deferred tax assets

 

 

70,143

 

 

 

76,929

 

Investment in equity affiliates

 

 

4,800

 

 

 

886

 

Intangible assets, net

 

 

78,946

 

 

 

131,590

 

Goodwill

 

 

1,069,408

 

 

 

1,337,122

 

Other assets

 

 

242,328

 

 

 

262,169

 

Total assets

 

$

2,885,880

 

 

$

3,449,621

 

Liabilities and equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

160,000

 

 

$

170,000

 

Current portion of long-term debt

 

 

39,181

 

 

 

39,226

 

Accounts payable

 

 

9,768

 

 

 

15,050

 

Income taxes payable

 

 

24,159

 

 

 

30,026

 

Accrued expenses and other current liabilities

 

 

498,247

 

 

 

584,482

 

Total current liabilities

 

$

731,355

 

 

$

838,784

 

Long-term debt, less current portion

 

 

698,152

 

 

 

1,006,687

 

Deferred tax liabilities

 

 

2,415

 

 

 

6,747

 

Other liabilities

 

 

162,790

 

 

 

168,609

 

Total liabilities

 

$

1,594,712

 

 

$

2,020,827

 

Redeemable non-controlling interest

 

 

4,520

 

 

 

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, 198,794,052 and

   192,825,207 issued and outstanding as of December 31, 2016 and

   December 31, 2017, respectively

 

 

1,984

 

 

 

1,924

 

Additional paid-in capital

 

 

1,384,468

 

 

 

1,421,368

 

Retained earnings

 

 

358,121

 

 

 

355,982

 

Accumulated other comprehensive income (loss)

 

 

(457,925

)

 

 

(355,230

)

Total equity

 

$

1,286,648

 

 

$

1,424,044

 

Total liabilities, redeemable non-controlling interest and equity

 

$

2,885,880

 

 

$

3,449,621

 

 

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

 

 

Three months ended December 31,

 

 

 

2015

 

 

2016

2017

 

Net revenues

 

$

646,528

 

 

$

681,747

 

 

$

734,413

 

Cost of revenue

 

 

393,937

 

 

 

405,672

 

 

 

455,883

 

Gross profit

 

$

252,591

 

 

$

276,075

 

 

$

278,530

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

165,413

 

 

 

170,714

 

 

 

188,993

 

Amortization of acquired intangible assets

 

 

6,638

 

 

 

7,419

 

 

 

10,632

 

Other operating (income) expense, net

 

 

(2,906

)

 

 

(149

)

 

 

6,856

 

Income from operations

 

$

83,446

 

 

$

98,091

 

 

$

72,049

 

Foreign exchange gains (losses), net

 

 

1,171

 

 

 

(526

)

 

 

(49

)

Interest income (expense), net

 

 

(2,023

)

 

 

(5,012

)

 

 

(7,668

)

Other income (expense), net

 

 

2,092

 

 

 

2,948

 

 

 

17,227

 

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

   expense

 

$

84,686

 

 

$

95,501

 

 

$

81,559

 

Equity-method investment activity, net

 

 

(2,805

)

 

 

(1,362

)

 

 

24

 

Income before income tax expense

 

$

81,881

 

 

$

94,139

 

 

$

81,583

 

Income tax expense

 

 

17,468

 

 

 

18,072

 

 

 

15,445

 

Net income

 

$

64,413

 

 

$

76,067

 

 

$

66,138

 

Net loss attributable to redeemable non-controlling interest

 

 

 

 

232

 

 

 

944

 

Net income attributable to Genpact Limited shareholders

 

$

64,413

 

 

$

76,299

 

 

$

67,082

 

Net income available to Genpact Limited common shareholders

 

$

64,413

 

 

$

76,299

 

 

$

67,082

 

Earnings per common share attributable to Genpact Limited common

   shareholders

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$               0.30

 

 

$                0.38

 

 

$                0.35

 

Diluted

 

$               0.30

 

 

$                0.38

 

 

$                0.34

 

Weighted average number of common shares used in computing earnings per common share attributable to Genpact Limited common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

212,697,001

 

 

 

200,341,922

 

 

 

192,795,534

 

Diluted

 

 

215,675,065

 

 

 

203,431,310

 

 

 

196,862,168

 

 

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

 

 

Year ended December 31,

 

 

 

2015

 

 

2016

 

 

2017

 

Net revenues

 

$

2,461,044

 

 

$

2,570,756

 

 

$

2,736,929

 

Cost of revenue

 

 

1,493,547

 

 

 

1,554,707

 

 

 

1,683,704

 

Gross profit

 

$

967,497

 

 

$

1,016,049

 

 

$

1,053,225

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

608,114

 

 

 

653,029

 

 

 

689,847

 

Amortization of acquired intangible assets

 

 

28,513

 

 

 

27,183

 

 

 

36,412

 

Other operating (income) expense, net

 

 

(3,322

)

 

 

(4,940

)

 

 

(1,661

)

Income from operations

 

$

334,192

 

 

$

340,777

 

 

$

328,627

 

Foreign exchange gains (losses), net

 

 

5,269

 

 

 

2,630

 

 

 

1,996

 

Interest income (expense), net

 

 

(31,267

)

 

 

(16,184

)

 

 

(31,735

)

Other income (expense), net

 

 

4,360

 

 

 

10,120

 

 

 

26,238

 

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

   expense

 

$

312,554

 

 

$

337,343

 

 

$

325,126

 

Equity-method investment activity, net

 

 

(10,800

)

 

 

(7,698

)

 

 

(4,543

)

Income before income tax expense

 

$

301,754

 

 

$

329,645

 

 

$

320,583

 

Income tax expense

 

 

61,937

 

 

 

62,098

 

 

 

59,742

 

Net income

 

$

239,817

 

 

$

267,547

 

 

$

260,841

 

Net loss attributable to redeemable non-controlling interest

 

 

 

 

 

2,137

 

 

 

2,270

 

Net income attributable to Genpact Limited shareholders

 

$

239,817

 

 

$

269,684

 

 

$

263,111

 

Net income available to Genpact Limited common shareholders

 

$

239,817

 

 

$

269,684

 

 

$

263,111

 

Earnings per common share attributable to Genpact Limited common

   shareholders

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.11

 

 

$

1.30

 

 

$

1.36

 

Diluted

 

$

1.09

 

 

$

1.28

 

 

$

1.34

 

Weighted average number of common shares used in computing earnings

   per common share attributable to Genpact Limited common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

216,606,542

 

 

 

206,861,536

 

 

 

193,864,755

 

Diluted

 

 

219,145,044

 

 

 

210,126,023

 

 

 

197,049,552

 


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

 

 

Year ended December 31,

 

 

 

2015

 

 

2016

 

 

2017

 

Operating activities

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Genpact Limited shareholders

 

$

239,817

 

 

$

269,684

 

 

$

263,111

 

Net loss attributable to redeemable non-controlling interest

 

 

 

 

 

(2,137

)

 

 

(2,270

)

Net income

 

$

239,817

 

 

$

267,547

 

 

$

260,841

 

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

   activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

54,286

 

 

 

54,553

 

 

 

58,503

 

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

 

 

13,546

 

 

 

1,531

 

 

 

1,884

 

Amortization of acquired intangible assets

 

 

28,513

 

 

 

27,183

 

 

 

36,412

 

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

 

 

10,714

 

 

 

11,195

 

 

 

9,311

 

Reserve for doubtful receivables

 

 

2,449

 

 

 

7,282

 

 

 

9,819

 

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

 

 

(4,999

)

 

 

1,717

 

 

 

(11,830

)

Equity-method investment activity, net

 

 

10,800

 

 

 

7,698

 

 

 

4,543

 

Excess tax benefit on stock-based compensation

 

 

(6,560

)

 

 

 

 

 

 

Stock-based compensation expense

 

 

24,976

 

 

 

25,113

 

 

 

35,685

 

Deferred income taxes

 

 

(18,713

)

 

 

30,454

 

 

 

(10,391

)

Loss (gain) on divestiture

 

 

 

 

 

(5,214

)

 

 

5,668

 

Others, net

 

 

(238

)

 

 

(41

)

 

 

(4,785

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Increase in accounts receivable

 

 

(78,923

)

 

 

(48,612

)

 

 

(57,267

)

Increase in prepaid expenses, other current assets and other assets

 

 

(32,602

)

 

 

(62,852

)

 

 

(28,381

)

Decrease in accounts payable

 

 

(3,988

)

 

 

(463

)

 

 

(2,155

)

Increase in accrued expenses, other current liabilities and other liabilities

 

 

69,606

 

 

 

27,977

 

 

 

46,581

 

Increase in income taxes payable

 

 

18,757

 

 

 

704

 

 

 

4,640

 

Net cash provided by operating activities

 

$

327,441

 

 

$

345,772

 

 

$

359,078

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(62,173

)

 

 

(81,926

)

 

 

(57,231

)

Payment for internally generated intangible assets

 

 

 

 

 

(6,846

)

 

 

(16,441

)

Proceeds from sale of property, plant and equipment

 

 

1,486

 

 

 

547

 

 

 

1,738

 

Investment in equity affiliates

 

 

(18,423

)

 

 

(9,620

)

 

 

(496

)

Payment for business acquisitions, net of cash acquired

 

 

(21,363

)

 

 

(45,162

)

 

 

(284,822

)

Proceeds from divestiture of business, net of cash divested

 

 

 

 

 

17,242

 

 

 

(4,738

)

Net cash used for investing activities

 

$

(100,473

)

 

$

(125,765

)

 

$

(361,990

)

Financing activities

 

 

 

 

 

 

 

 

 

 

 

 

Repayment of capital lease obligations

 

 

(2,035

)

 

 

(1,793

)

 

 

(2,708

)

Payment of debt issuance costs

 

 

(6,584

)

 

 

 

 

 

(2,630

)

Proceeds from long-term debt

 

 

800,000

 

 

 

 

 

 

350,000

 

Repayment of long-term debt

 

 

(684,875

)

 

 

(40,000

)

 

 

(40,000

)

Proceeds from short-term borrowings

 

 

1,451,500

 

 

 

200,000

 

 

 

295,000

 

Repayment of short-term borrowings

 

 

(1,565,000

)

 

 

(61,500

)

 

 

(285,000

)

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

 

 

16,088

 

 

 

18,228

 

 

 

15,528

 

Payment for net settlement of stock-based awards

 

 

(7,194

)

 

 

(769

)

 

 

(10,296

)

Payment of earn-out/deferred consideration

 

 

(230

)

 

 

(1,485

)

 

 

(6,219

)

Dividend paid

 

 

 

 

 

 

 

 

(46,686

)

Payment for stock purchased and retired

 

 

(226,917

)

 

 

(345,200

)

 

 

(219,784

)

Payment for expenses related to stock purchase

 

 

(197

)

 

 

(279

)

 

 

(16

)

Excess tax benefit on stock-based compensation

 

 

6,560

 

 

 

 

 

 

 

Net cash (used for) provided by financing activities

 

$

(218,884

)

 

$

(232,798

)

 

$

47,189

 

Effect of exchange rate changes

 

 

(18,965

)

 

 

(15,493

)

 

 

37,568

 

Net increase (decrease) in cash and cash equivalents

 

 

8,084

 

 

 

(12,791

)

 

 

44,277

 

Cash and cash equivalents at the beginning of the period

 

 

461,788

 

 

 

450,907

 

 

 

422,623

 

Cash and cash equivalents at the end of the period

 

$

450,907

 

 

$

422,623

 

 

$

504,468

 

Supplementary information

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

20,950

 

 

$

17,860

 

 

$

27,853

 

Cash paid during the period for income taxes

 

$

72,102

 

 

$

46,731

 

 

$

66,238

 

Property, plant and equipment acquired under capital lease obligations

 

$

1,656

 

 

$

2,206

 

 

$

2,318

 

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 views these interests as part of its 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 year and three months ended December 31, 2016 and 2017:


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

 

 

Year ended December 31,

 

 

Three months ended December 31,

 

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

Income from operations

 

$

340,777

 

 

$

328,627

 

 

$

98,091

 

 

$

72,049

 

Add: Stock-based compensation

 

 

25,113

 

 

 

35,685

 

 

 

6,769

 

 

 

13,283

 

Add: Amortization and impairment of acquired intangible assets

 

 

25,023

 

 

 

35,467

 

 

 

6,816

 

 

 

11,390

 

Add: Acquisition-related expenses

 

 

1,956

 

 

 

5,886

 

 

 

120

 

 

 

131

 

Add: Other income (expense), net

 

 

10,120

 

 

 

26,238

 

 

 

2,948

 

 

 

17,227

 

Less: Equity-method investment activity, net

 

 

(7,698

)

 

 

(4,543

)

 

 

(1,362

)

 

 

24

 

Add: Net loss attributable to redeemable non-controlling interest

 

 

2,137

 

 

 

2,270

 

 

 

232

 

 

 

944

 

Adjusted income from operations

 

$

397,428

 

 

$

429,630

 

 

$

113,614

 

 

$

115,048

 

Adjusted income from operations margin

 

 

15.5%


 

 

15.7%


 

 

16.7%


 

 

15.7%

 

 

Reconciliation of Adjusted Diluted EPS 9
(Unaudited)
(Per share data)

 

 

 

Year ended December 31,

 

 

Three months ended December 31,

 

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

Diluted EPS

 

$

1.28

 

 

$

1.34

 

 

$

0.38

 

 

$

0.34

 

Add: Stock-based compensation

 

 

0.12

 

 

 

0.18

 

 

 

0.03

 

 

 

0.07

 

Add: Amortization and impairment of acquired intangible assets

 

 

0.12

 

 

 

0.18

 

 

 

0.03

 

 

 

0.06

 

Add: Acquisition-related expenses

 

 

0.01

 

 

 

0.03

 

 

 

 

 

 

 

Less: Tax impact on stock-based compensation

 

 

(0.03

)

 

 

(0.05

)

 

 

(0.01

)

 

 

(0.02

)

Less: Tax impact on amortization and impairment of acquired

   intangibles

 

 

(0.04

)

 

 

(0.06

)

 

 

(0.01

)

 

 

(0.02

)

Less: Tax impact on acquisition-related expenses

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted diluted EPS

 

$

1.46

 

 

$

1.62

 

 

$

0.43

 

 

$

0.43

 

 

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

 

 

12.4%


Add: Estimated stock-based compensation

 

 

1.4%


Add: Estimated amortization of acquired intangible assets

 

 

1.3%


Add: Estimated acquisition-related expenses

 

 

0.1%


Add: Estimated other income (expense), net

 

 

0.6%


Less: Estimated equity-method investment activity, net

 

 

 

Adjusted income from operations margin

 

 

15.8%


 

Reconciliation of Outlook for Adjusted Diluted EPS 10
(Unaudited)
(Per share data) 

 

 

Year ending December 31, 2018

 

 

 

Lower

 

 

Upper

 

Diluted EPS

 

$

1.39

 

 

$

1.43

 

Add: Estimated stock-based compensation

 

 

0.23

 

 

 

0.23

 

Add: Estimated amortization of acquired intangible assets

 

 

0.21

 

 

 

0.21

 

Add: Estimated acquisition-related expenses

 

 

0.01

 

 

 

0.01

 

Less: Estimated tax impact on stock-based compensation

 

 

(0.06

)

 

 

(0.06

)

Less: Estimated tax impact on amortization of acquired intangibles

 

 

(0.07

)

 

 

(0.07

)

Less: Estimated tax impact on acquisition-related expenses

 

 

 

 

 

 

Adjusted diluted EPS

 

$

1.70

 

 

$

1.74

 

 

  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. Global Client BPO revenue growth rates have been adjusted to assume that the GE revenue reclassifications we undertook at the end of fiscal 2016 occurred on January 1, 2016.  On an unadjusted basis, Global Client BPO revenue was up 14% (~15% on a constant currency basis). See the information under the heading “Revenue Details – Full Year 2017.”
  3. 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.
  4. 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.
  5. New bookings, an operating measure, represents the total contract value of new contracts and certain renewals, extensions and changes to existing contracts.  Regular renewals of contracts with no change in scope are not counted as new bookings.
  6. At the end of each fiscal year, we reclassify revenue related to certain divested GE businesses as Global Client revenue as of the dates of divestiture. Additionally, at the end of 2016, we reclassified revenue from our acquisitions of Endeavour Software Technologies Pvt. Ltd. and PNMSoft Ltd. from IT services to BPO revenue effective as of the date of the acquisitions.  The impact of these reclassifications is reflected in the growth rates presented under this heading.  In order to provide a consistent view of the trends underlying our business, we are also presenting under this heading growth rates adjusted to assume that the 2016 GE reclassifications occurred on January 1, 2016.  The reclassification of revenue related to certain divested GE businesses as Global Client revenue for 2017 was immaterial.
  7. 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.
  8. 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.
  9. Due to rounding, the numbers presented in this table may not add up precisely to the totals provided.
  10.  Due to rounding, the numbers presented in this table may not add up precisely to the totals provided.