Press Release

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Genpact Reports Full Year and Fourth Quarter 2018 Results

2018 Revenues of $3.0 Billion, Up 10% (~9% on a constant currency basis)1
2018 Global Client BPO Revenues of $2.3 Billion, Up 12% 
2018 Diluted EPS of $1.45, Up 9%; 2018 Adjusted Diluted EPS2 of $1.80, Up 11%

NEW YORK, February 7, 2019 — 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, 2018.

“We had a great end to 2018.  I am really pleased with our fourth quarter and full-year results as we stayed focused and executed well on our strategy, driving strong financial performance,” said ‘Tiger’ Tyagarajan, Genpact’s president and CEO. “It is clear that we have crossed the tipping point in terms of our reputation as a preferred digital transformation partner in our chosen industry verticals and service lines.  We believe we have set the stage for long-term, sustainable growth and profitability in an expanding addressable market.”

Key Financial Results – Full Year 20185

  • Total revenue was $3.0 billion, up 10% year-over-year (up ~9% on a constant currency basis). 
  • Income from operations was $348 million, up 5% year-over-year, with a corresponding margin of 11.6%.  Adjusted income from operations was $473 million, up 10% year-over-year, with a corresponding margin of 15.8%.3
  • Diluted earnings per share were $1.45, up 9% year-over-year, and adjusted diluted earnings per share were $1.80, up 11% year-over-year.
  • New bookings were approximately $3.9 billion, up 40% from $2.8 billion in 2017.4
  • Genpact repurchased approximately 5.1 million of its common shares in 2018 for a total of $158 million at an average price per share of $;31.08.

Key Financial Results – Fourth Quarter 2018

  • Total revenue was $835 million, up 14% year-over-year (up ~15% on a constant currency basis).
  • Income from operations was $111 million, up 51% year-over-year, with a corresponding margin of 13.3%.  Adjusted income from operations was $142 million, up 24% year-over-year, with a corresponding margin of 17.0%.
  • Diluted earnings per share were $0.41, up 20% year-over-year, and adjusted diluted earnings per share were $0.52, up 19% year-over-year.

Revenue Details – Full Year 2018

  • Revenue from Global Clients was $2.7 billion, up 11% year-over-year (up 10.5% on a constant currency basis), representing approximately 91% of total revenues.
  • Revenue from GE was $268 million, flat year-over-year, representing approximately 9% of total revenues.
  • Total BPO revenue was $2.5 billion, up 11% year-over-year, representing approximately 83% of total revenues. 
  • Global Client BPO revenue was $2.3 billion, up 12% year-over-year, both on an as reported and constant currency basis.
  • GE BPO revenue was $158 million, down 10% year-over-year.
  • Total IT revenue was $498 million, up 5% year-over-year, representing approximately 17% of total revenues.
  • Global Client IT revenue was $388 million, up 2% year-over-year.
  • GE IT revenue was $110 million, up 17% year-over-year.

Revenue Detail – Fourth Quarter 2018

  • Revenue from Global Clients was $755 million, up 13% year-over-year (up ~14% on a constant currency basis), representing approximately 90% of total revenues.
  • Revenue from GE was $80 million, up 24% year-over-year, representing approximately 10% of total revenues.
  • Total BPO revenue was $700 million, up 14% year-over-year, representing approximately 84% of total revenues. 
  • Global Client BPO revenue was $650 million, up 13% year-over-year (up ~14% on a constant currency basis).
  • GE BPO revenue was $50 million, up 30% year-over-year.
  • Total IT revenue was $135 million, up 12% year-over-year, representing approximately 16% of total revenues.
  • Global Client IT revenue was $105 million, up 11% year-over-year.
  • GE IT revenue was $31 million, up 16% year-over-year.

Cash Flow from Operations

  • Cash generated from operations in 2018 was $340 million, compared to $359 million in 2017.

2019 Outlook
Genpact expects:

  • Total revenue for the full year 2019 to be $3.33 to $3.39 billion, which represents a growth range of 11% to 13%, or 12% to 14% on a constant currency basis.
  • Global Client revenue growth to be in the range of 9.0% to 10.5%, or 10.0% to 11.5% on a constant currency basis.
  • Adjusted income from operations margin6 of approximately 16.0%.
  • Adjusted diluted EPS7 of $1.96 to $2.00.

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 7, 2019 to discuss the company’s performance for the fourth quarter and full year ended December 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, 6458009.

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 primarily for Global Fortune 500 companies. We think with design, dream in digital, and solve problems with data and analytics.  Combining our expertise in end-to-end operations and our AI-based platform, Genpact Cora, we focus on the details – all 87,000+ of us. From New York to New Delhi and more than 25 countries in between, we connect every dot, reimagine every process, and reinvent companies’ ways of working. We know that reimagining each step from start to finish creates better business outcomes. Whatever it is, we’ll be there with you – accelerating digital transformation 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,

 

 

 

2017

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

504,468

 

 

$

368,396

 

Accounts receivable, net

 

 

693,085

 

 

 

774,184

 

Prepaid expenses and other current assets

 

 

236,342

 

 

 

212,477

 

Total current assets

 

$

1,433,895

 

 

$

1,355,057

 

Property, plant and equipment, net

 

 

207,030

 

 

 

212,715

 

Deferred tax assets

 

 

76,929

 

 

 

74,566

 

Investment in equity affiliates

 

 

886

 

 

 

836

 

Intangible assets, net

 

 

131,590

 

 

 

177,087

 

Goodwill

 

 

1,337,122

 

 

 

1,393,832

 

Contract cost assets

 

 

 

 

 

160,193

 

Other assets

 

 

262,169

 

 

 

155,159

 

Total assets

 

$

3,449,621

 

 

$

3,529,445

 

Liabilities and equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

170,000

 

 

$

295,000

 

Current portion of long-term debt

 

 

39,226

 

 

 

33,483

 

Accounts payable

 

 

15,050

 

 

 

42,584

 

Income taxes payable

 

 

30,026

 

 

 

33,895

 

Accrued expenses and other current liabilities

 

 

584,482

 

 

 

571,350

 

Total current liabilities

 

$

838,784

 

 

$

976,312

 

Long-term debt, less current portion

 

 

1,006,687

 

 

 

975,645

 

Deferred tax liabilities

 

 

6,747

 

 

 

8,080

 

Other liabilities

 

 

168,609

 

 

 

165,226

 

Total liabilities

 

$

2,020,827

 

 

$

2,125,263

 

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 189,346,101 issued and outstanding as of December 31, 2017 and

   December 31, 2018, respectively

 

 

1,924

 

 

 

1,888

 

Additional paid-in capital

 

 

1,421,368

 

 

 

1,471,301

 

Retained earnings

 

 

355,982

 

 

 

438,453

 

Accumulated other comprehensive income (loss)

 

 

(355,230

)

 

 

(507,460

)

Total equity

 

$

1,424,044

 

 

$

1,404,182

 

Total liabilities, redeemable non-controlling interest and equity

 

$

3,449,621

 

 

$

3,529,445

 

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

 

 

Three months ended December 31,

 

 

 

20168

 

 

20178    

 

 

2018

 

Net revenues

 

$

681,747

 

 

$

734,413

 

 

$

835,339

 

Cost of revenue

 

 

405,678

 

 

 

454,803

 

 

 

533,134

 

Gross profit

 

$

276,069

 

 

$

279,610

 

 

$

302,205

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

170,715

 

 

 

188,817

 

 

 

178,580

 

Amortization of acquired intangible assets

 

 

7,419

 

 

 

10,632

 

 

 

9,716

 

Other operating (income) expense, net

 

 

(149

)

 

 

6,856

 

 

 

3,068

 

Income from operations

 

$

98,084

 

 

$

73,305

 

 

$

110,841

 

Foreign exchange gains (losses), net

 

 

(526

)

 

 

(49

)

 

 

186

 

Interest income (expense), net

 

 

(5,012

)

 

 

(7,668

)

 

 

(9,473

)

Other income (expense), net

 

 

2,955

 

 

 

15,971

 

 

 

5,078

 

Income before equity-method investment activity, net

   and income tax expense

 

$

95,501

 

 

$

81,559

 

 

$

106,632

 

Equity-method investment activity, net

 

 

(1,362

)

 

 

24

 

 

 

10

 

Income before income tax expense

 

$

94,139

 

 

$

81,583

 

 

$

106,642

 

Income tax expense

 

 

18,072

 

 

 

15,445

 

 

 

27,495

 

Net income

 

$

76,067

 

 

$

66,138

 

 

$

79,147

 

Net loss attributable to redeemable non-controlling interest

 

 

232

 

 

 

944

 

 

 

 

Net income attributable to Genpact Limited

   shareholders

 

$

76,299

 

 

$

67,082

 

 

$

79,147

 

Net income available to Genpact Limited common shareholders

 

$

76,299

 

 

$

67,082

 

 

$

79,147

 

Earnings per common share attributable to Genpact Limited

   common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.38

 

 

$

0.35

 

 

$

0.42

 

Diluted

 

$

0.38

 

 

$

0.34

 

 

$

0.41

 

Weighted average number of common shares used in computing

   earnings per common share attributable to Genpact Limited

   common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

200,341,922

 

 

 

192,795,534

 

 

 

189,724,744

 

Diluted

 

 

203,431,310

 

 

 

196,862,168

 

 

 

193,149,836

 


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

 

 

Year ended December 31,

 

 

 

20169

 

 

20179       

 

 

2018

 

Net revenues

 

$

2,570,756

 

 

$

2,736,929

 

 

$

3,000,790

 

Cost of revenue

 

 

1,554,340

 

 

 

1,681,438

 

 

 

1,921,768

 

Gross profit

 

$

1,016,416

 

 

$

1,055,491

 

 

$

1,079,022

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

652,967

 

 

 

689,461

 

 

 

693,865

 

Amortization of acquired intangible assets

 

 

27,183

 

 

 

36,412

 

 

 

38,850

 

Other operating (income) expense, net

 

 

(4,940

)

 

 

(1,661

)

 

 

(1,845

)

Income from operations

 

$

341,206

 

 

$

331,279

 

 

$

348,152

 

Foreign exchange gains (losses), net

 

 

2,630

 

 

 

1,996

 

 

 

15,239

 

Interest income (expense), net

 

 

(16,184

)

 

 

(31,735

)

 

 

(37,119

)

Other income (expense), net

 

 

9,691

 

 

 

23,586

 

 

 

35,761

 

Income before equity-method investment activity, net

   and income tax expense

 

$

337,343

 

 

$

325,126

 

 

$

362,033

 

Equity-method investment activity, net

 

 

(7,698

)

 

 

(4,543

)

 

 

(12

)

Income before income tax expense

 

$

329,645

 

 

$

320,583

 

 

$

362,021

 

Income tax expense

 

 

62,098

 

 

 

59,742

 

 

 

80,763

 

Net income

 

$

267,547

 

 

$

260,841

 

 

$

281,258

 

Net loss attributable to redeemable non-controlling interest

 

 

2,137

 

 

 

2,270

 

 

 

761

 

Net income attributable to Genpact Limited

   shareholders

 

$

269,684

 

 

$

263,111

 

 

$

282,019

 

Net income available to Genpact Limited common shareholders

 

$

269,684

 

 

$

263,111

 

 

$

282,019

 

Earnings per common share attributable to Genpact Limited

   common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.30

 

 

$

1.36

 

 

$

1.48

 

Diluted

 

$

1.28

 

 

$

1.34

 

 

$

1.45

 

Weighted average number of common shares used in computing

   earnings per common share attributable to Genpact Limited

   common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

206,861,536

 

 

 

193,864,755

 

 

 

190,674,740

 

Diluted

 

 

210,126,023

 

 

 

197,049,552

 

 

 

193,980,038

 


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

 

 

Year ended December 31,

 

 

 

2016

 

 

2017

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Genpact Limited shareholders

 

$

269,684

 

 

$

263,111

 

 

$

282,019

 

Net loss attributable to redeemable non-controlling interest

 

 

(2,137

)

 

 

(2,270

)

 

 

(761

)

Net income

 

$

267,547

 

 

$

260,841

 

 

$

281,258

 

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

   operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

54,553

 

 

 

58,503

 

 

 

64,868

 

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

 

 

1,531

 

 

 

1,884

 

 

 

3,975

 

Amortization of acquired intangible assets

 

 

27,183

 

 

 

36,412

 

 

 

38,850

 

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

 

 

11,195

 

 

 

9,311

 

 

 

4,265

 

Reserve for doubtful receivables

 

 

7,282

 

 

 

9,819

 

 

 

1,857

 

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

 

 

1,717

 

 

 

(11,830

)

 

 

3,352

 

Equity-method investment activity, net

 

 

7,698

 

 

 

4,543

 

 

 

12

 

Stock-based compensation expense

 

 

25,113

 

 

 

35,685

 

 

 

48,998

 

Deferred tax expense (benefit)

 

 

30,454

 

 

 

(10,391

)

 

 

6,054

 

Loss (gain) on divestiture

 

 

(5,214

)

 

 

5,668

 

 

 

 

Others, net

 

 

(41

)

 

 

(4,785

)

 

 

1,317

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Increase in accounts receivable

 

 

(48,612

)

 

 

(57,267

)

 

 

(76,894

)

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

   other assets

 

 

(62,852

)

 

 

(28,381

)

 

 

(76,392

)

Increase (decrease) in accounts payable

 

 

(463

)

 

 

(2,155

)

 

 

26,401

 

Increase in accrued expenses, other current liabilities and other liabilities

 

 

27,977

 

 

 

46,581

 

 

 

5,993

 

Increase in income taxes payable

 

 

704

 

 

 

4,640

 

 

 

5,597

 

Net cash provided by operating activities

 

$

345,772

 

 

$

359,078

 

 

$

339,511

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(81,926

)

 

 

(57,231

)

 

 

(84,978

)

Payment for acquired/internally generated intangible assets (including

   intangibles under development)

 

 

(6,846

)

 

 

(16,441

)

 

 

(75,439

)

Proceeds from sale of property, plant and equipment

 

 

547

 

 

 

1,738

 

 

 

668

 

Investment in equity affiliates

 

 

(9,620

)

 

 

(496

)

 

 

 

Payment for business acquisitions, net of cash acquired

 

 

(45,162

)

 

 

(284,822

)

 

 

(111,571

)

Proceeds from divestiture of business, net of cash divested

 

 

17,242

 

 

 

(4,738

)

 

 

 

Payment for purchase of redeemable non-controlling interest

 

 

 

 

 

 

 

 

(4,730

)

Net cash used for investing activities

 

$

(125,765

)

 

$

(361,990

)

 

$

(276,050

)

Financing activities

 

 

 

 

 

 

 

 

 

 

 

 

Repayment of capital lease obligations

 

 

(1,793

)

 

 

(2,708

)

 

 

(2,395

)

Payment of debt issuance costs

 

 

 

 

 

(2,630

)

 

 

(4,293

)

Proceeds from long-term debt

 

 

 

 

 

350,000

 

 

 

129,186

 

Repayment of long-term debt

 

 

(40,000

)

 

 

(40,000

)

 

 

(166,186

)

Proceeds from short-term borrowings

 

 

200,000

 

 

 

295,000

 

 

 

250,000

 

Repayment of short-term borrowings

 

 

(61,500

)

 

 

(285,000

)

 

 

(125,000

)

Proceeds from issuance of common shares under stock-based compensation

   Plans

 

 

18,228

 

 

 

15,528

 

 

 

14,034

 

Payment for net settlement of stock based awards

 

 

(769

)

 

 

(10,296

)

 

 

(15,919

)

Payment of earn-out/deferred consideration

 

 

(1,485

)

 

 

(6,219

)

 

 

(3,356

)

Dividend paid

 

 

 

 

 

(46,686

)

 

 

(57,102

)

Payment for stock repurchased and retired

 

 

(345,200

)

 

 

(219,784

)

 

 

(154,058

)

Payment for expenses related to stock purchase

 

 

(279

)

 

 

(16

)

 

 

(98

)

Net cash provided by/(used for) financing activities

 

$

(232,798

)

 

$

47,189

 

 

$

(135,187

)

Effect of exchange rate changes

 

 

(15,493

)

 

 

37,568

 

 

 

(64,346

)

Net increase (decrease) in cash and cash equivalents

 

 

(12,791

)

 

 

44,277

 

 

 

(71,726

)

Cash and cash equivalents at the beginning of the period

 

 

450,907

 

 

 

422,623

 

 

 

504,468

 

Cash and cash equivalents at the end of the period

 

$

422,623

 

 

$

504,468

 

 

$

368,396

 

Supplementary information

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for interest (including interest rate swaps)

 

$

19,530

 

 

$

27,915

 

 

$

41,484

 

Cash paid during the period for income taxes

 

$

46,731

 

 

$

66,238

 

 

$

81,411

 

Property, plant and equipment acquired under capital lease obligations

 

$

2,206

 

 

$

2,318

 

 

$

2,031

 

Non-GAAP Financial 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 compared to prior fiscal periods, 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 to the most directly comparable GAAP measures for the year and three months ended December 31, 2017 and 2018:

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

 

 

Year ended December 31,

 

 

Three months ended December 31,

 

 

 

2017

 

 

2018

 

 

2017

 

 

2018

 

Income from operations

 

$

331,279

 

 

$

348,152

 

 

$

73,305

 

 

$

110,841

 

Add: Stock-based compensation

 

 

35,685

 

 

 

48,998

 

 

 

13,283

 

 

 

16,840

 

Add: Amortization of acquired intangible assets

 

 

35,467

 

 

 

37,292

 

 

 

11,390

 

 

 

9,333

 

Add: Acquisition-related expenses

 

 

5,886

 

 

 

2,362

 

 

 

131

 

 

 

 

Add: Other income (expense), net

 

 

23,586

 

 

 

35,761

 

 

 

15,971

 

 

 

5,078

 

Less: Equity-method investment activity, net

 

 

(4,543

)

 

 

(12

)

 

 

24

 

 

 

10

 

Add: Net loss attributable to redeemable non-controlling

   interest

 

 

2,270

 

 

 

761

 

 

 

944

 

 

 

 

Adjusted income from operations

 

$

429,630

 

 

$

473,314

 

 

$

115,048

 

 

$

142,102

 

Income from operations margin

 

 

12.1%


 

 

11.6%


 

 

10.0%


 

 

13.3%


Adjusted income from operations margin

 

 

15.7%


 

 

15.8%


 

 

15.7%


 

 

17.0%


 

Reconciliation of Diluted EPS to Adjusted Diluted EPS10
(Unaudited)
(Per share data)

 

 

Year ended December 31,

 

 

Three months ended December 31,

 

 

 

2017

 

 

2018

 

 

2017

 

 

2018

 

Diluted EPS

 

$

1.34

 

 

$

1.45

 

 

$

0.34

 

 

$

0.41

 

Add: Stock-based compensation

 

 

0.18

 

 

 

0.25

 

 

 

0.07

 

 

 

0.09

 

Add: Amortization of acquired intangible assets

 

 

0.18

 

 

 

0.19

 

 

 

0.06

 

 

 

0.05

 

Add: Acquisition-related expenses

 

 

0.03

 

 

 

0.01

 

 

 

 

 

 

 

Less: Tax impact on stock-based compensation

 

 

(0.05

)

 

 

(0.06

)

 

 

(0.02

)

 

 

(0.02

)

Less: Tax impact on amortization of acquired intangible

   assets

 

 

(0.06

)

 

 

(0.05

)

 

 

(0.02

)

 

 

(0.01

)

Less: Tax impact on acquisition-related expenses

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted diluted EPS

 

$

1.62

 

 

$

1.80

 

 

$

0.43

 

 

$

0.52

 


The following tables show the reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP measures for the year ending December 31, 2019:

Reconciliation of Outlook for Income from Operations Margin to Adjusted Income from Operations Margin11
(Unaudited)

 

 

Year ending

December 31, 2019

 

Income from operations margin

 

 

12.3%      


Add: Estimated stock-based compensation

 

 

2.1%


Add: Estimated amortization of acquired intangible assets

 

 

0.8%


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

 

 

16.0%


 

Reconciliation of Outlook for Diluted EPS to Adjusted Diluted EPS11
(Unaudited)
(Per share data)

 

 

Year ending December 31, 2019

 

 

 

Lower

 

 

Upper

 

Diluted EPS

 

$

1.54

 

 

$

1.58

 

Add: Estimated stock-based compensation

 

 

0.37

 

 

 

0.37

 

Add: Estimated amortization of acquired intangible assets

 

 

0.14

 

 

 

0.14

 

Add: Estimated acquisition-related expenses

 

 

0.02

 

 

 

0.02

 

Less: Estimated tax impact on stock-based compensation

 

 

(0.08

)

 

 

(0.08

)

Less: Estimated tax impact on amortization of acquired intangible assets

 

 

(0.04

)

 

 

(0.04

)

Less: Estimated tax impact on acquisition-related expenses

 

 

 

 

 

 

Adjusted diluted EPS

 

$

1.96

 

 

$

2.00

 


  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 to 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. Reconciliations of GAAP income from operations to adjusted income from operations and GAAP income from operations margin to adjusted income from operations margin are attached to this release.
  4. 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.
  5. 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.  The 2017 numbers presented in this release reflect reclassifications from GE to Global Client revenue due to divestitures in 2017, the impact of which was immaterial.  There were no such reclassifications of revenue in 2018.
  6. Adjusted income from operations margin is a non-GAAP measure.  A reconciliation of the outlook for GAAP income from operations margin to adjusted income from operations margin is attached to this release.
  7. Adjusted diluted earnings per share is a non-GAAP measure.  A reconciliation of the outlook for GAAP diluted earnings per share to adjusted diluted earnings per share is attached to this release.
  8. Cost of revenue, selling, general and administrative expenses, other income (expense) and income from operations for the three months ended December 31, 2016 and 2017 have been restated due to the adoption of ASU No. 2017-07 with effect from January 1, 2018.  The impact of such restatement is not material.
  9. Cost of revenue, selling, general and administrative expenses, other income (expense) and income from operations for the years ended December 31, 2016 and 2017 have been restated due to the adoption of ASU No. 2017-07 with effect from January 1, 2018.  The impact of such restatement is not material.
  10.  Due to rounding, the numbers presented in this table may not add up precisely to the totals provided.
  11.  Due to rounding, the numbers presented in this table may not add up precisely to the totals provided.