Genpact Reports Results for the Third Quarter of 2017
NEW YORK, Nov. 7, 2017 /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, 2017.
"Our strong third quarter Global Client BPO constant currency revenue growth of 15% continued to fuel our momentum for the year and was balanced across most of our chosen industry verticals. Transformation services, comprised of consulting, digital and analytics, grew more than 25% for Global Clients," said N.V. 'Tiger' Tyagarajan, Genpact's president and CEO. "We are gaining traction in our key service lines as clients are increasingly looking for transformative solutions incorporating deep expertise in domain, process, and digital technologies. The Genpact Cora(TM) Automation to AI platform, coupled with the enhanced capabilities from our targeted acquisitions in AI, design thinking, mobility, cloud-based intelligent workflow technologies and deep domain expertise, are all resonating really well in the market. I am also excited by the positive response to our relaunch of the Genpact brand with the tagline, 'Transformation happens here.'"
Key Financial Results - Third Quarter 2017
-- Total revenue was $708.8 million, up 9% year-over-year (up ~10% on a
constant currency basis).
-- Income from operations was $97.5 million, up 11.9% year-over-year, with
a corresponding margin of 13.7%. Adjusted income from operations was
$115.9 million, up 11.3% year-over-year, with a corresponding margin of
16.4%.(4)
-- Diluted earnings per share were $0.38, up 15% year-over-year, and
adjusted diluted earnings per share were $0.46, up 23% year-over-year.
Diluted earnings per share includes a $0.02 foreign currency gain
resulting from balance sheet re-measurement.
Revenue Details - Third Quarter 2017(5)
-- Revenue from Global Clients was $637 million, up 13% year-over-year (up
~14% 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 12%
year-over-year (or ~13% on a constant currency basis).
-- Revenue from GE was $72 million, down 15% 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 12% year-over-year.
-- Total BPO revenue was $583 million, up 10% year-over-year, representing
approximately 82% of total revenues.
-- Global Client BPO revenue was $541 million, up 15% year-over-year (up
~16% 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 14% year-over-year (or 15% on a
constant currency basis).
-- GE BPO revenue was $43 million, down 30% year-over-year. If all 2016 GE
revenue reclassifications had occurred on January 1, 2016, GE BPO
revenue would have decreased 26% year-over-year.
-- Total IT revenue was $126 million, up 6% year-over-year, representing
approximately 18% of total revenues.
-- Global Client IT revenue was $96 million, up 2% year-over-year.
-- GE IT revenue was $30 million, up 21% year-over-year.
Cash Flow from Operations
-- Cash generated from operations was $148 million in the third quarter of
2017 compared to $150 million in the third quarter of 2016.
2017 Outlook
-- Total revenue for the full year 2017 is now expected to be $2.72 to
$2.73 billion (including an assumed adverse foreign exchange impact of
$15 million, all of which is reflected in Global Client revenue),
representing growth of approximately 6%, or 7% on a constant currency
basis.
-- Global Client revenue is now expected to grow approximately 9%, or 10%
on a constant currency basis.
-- Adjusted income from operations margin(6) is expected to be
approximately 15.7%.
-- Adjusted diluted EPS(7) is now expected to be $1.59 to $1.60.
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 7, 2017 to discuss the company's performance for the third quarter of 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, 93773556.
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 participate in the call, a replay will be available 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 77,000+ 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, 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,
2016 2017
---- ----
Assets
Current assets
Cash and cash equivalents $422,623 $440,055
Accounts receivable, net 615,265 670,692
Prepaid expenses and other current
assets 189,149 243,867
------- -------
Total current assets $1,227,037 $1,354,614
Property, plant and equipment, net 193,218 205,623
Deferred tax assets 70,143 75,273
Investment in equity affiliates 4,800 833
Intangible assets, net 78,946 138,215
Goodwill 1,069,408 1,315,312
Other assets 242,328 260,021
------- -------
Total assets $2,885,880 $3,349,891
========== ==========
Liabilities and equity
Current liabilities
Short-term borrowings $160,000 $160,000
Current portion of long-term debt 39,181 39,224
Accounts payable 9,768 16,858
Income taxes payable 24,159 66,328
Accrued expenses and other current
liabilities 498,247 540,743
------- -------
Total current liabilities $731,355 $823,153
Long-term debt, less current portion 698,152 1,016,371
Deferred tax liabilities 2,415 7,210
Other liabilities 162,790 184,965
------- -------
Total liabilities $1,594,712 $2,031,699
---------- ----------
Redeemable non-controlling interest 4,520 3,839
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 1,984
193,033,898 issued and outstanding as
of December 31, 2016 and September 30,
2017, respectively
1,926
Additional paid-in capital 1,384,468 1,369,392
Retained earnings 358,121 338,349
Accumulated other comprehensive income
(loss) (457,925) (395,314)
-------- --------
Total equity $1,286,648 $1,314,353
---------- ----------
Total liabilities, redeemable non-
controlling interest and equity $2,885,880 $3,349,891
========== ==========
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,
-------------------------------- -------------------------------
20168 2017 20168 2017
----- ---- ----- ----
Net revenues $648,783 $708,824 $1,889,009 $2,002,516
Cost of revenue 392,432 429,191 1,149,035 1,227,821
------- ------- --------- ---------
Gross profit $256,351 $279,633 $739,974 $774,695
Operating expenses:
Selling, general and administrative
expenses 156,969 172,095 482,315 500,854
Amortization of acquired intangible
assets 7,126 10,151 19,764 25,780
Other operating (income) expense,
net 5,132 (64) (4,791) (8,517)
----- --- ------ ------
Income from operations $87,124 $97,451 $242,686 $256,578
Foreign exchange gains (losses), net (654) 5,045 3,156 2.045
Interest income (expense), net (4,901) (8,724) (11,172) (24,067)
Other income (expense), net 5,791 (4,030) 7,172 9,011
----- ------ ----- -----
Income before equity-method
investment activity, net and income
tax expense $87,360 $89,742 $241,842 $243,567
Equity-method investment activity,
net (2,117) - (6,336) (4,567)
------ --- ------ ------
Income before income tax expense $85,243 $89,742 $235,506 $239,000
Income tax expense 17,055 16,581 44,026 44,297
------ ------ ------ ------
Net income $68,188 $73,161 $191,480 $194,703
Net loss attributable to redeemable
non-controlling interest 734 584 1,905 1,326
--- --- ----- -----
Net income attributable to Genpact
Limited shareholders $68,922 $73,745 $193,385 $196,029
======= ======= ======== ========
Net income available to Genpact
Limited common shareholders $68,922 $73,745 $193,385 $196,029
Earnings per common share
attributable to Genpact Limited
common shareholders
Basic $0.33 $0.38 $0. 93 $1.01
Diluted $0.33 $0.38 $0.91 $0.99
Weighted average number of common
shares used in computing earnings
per common share attributable to
Genpact Limited common shareholders
Basic 206,146,007 192,124,366 209,034,741 194,221,162
Diluted 209,376,683 194,947,699 212,357,594 197,112,014
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine months ended September 30,
-------------------------------
20169 2017
----- ----
Operating
activities
Net
income
attributable
to
Genpact
Limited
shareholders $193,385 $196,029
Net
loss
attributable
to
redeemable
non-
controlling
interest (1,905) (1,326)
------ ------
Net
income $191,480 $194,703
-------- --------
Adjustments to
reconcile net
income to net cash
provided by (used
for) operating
activities:
Depreciation
and
amortization 40,366 42,271
Amortization
of
debt
issuance
costs 1,150 1,382
Amortization
of
acquired
intangible
assets 19,764 25,780
Intangible
assets
write-
down 11,195 -
Reserve
for
doubtful
receivables 7,307 4,871
Unrealized
loss
(gain)
on
revaluation
of
foreign
currency
asset/
liability 1,304 (9,296)
Equity-
method
investment
activity,
net 6,336 4,567
Stock-
based
compensation
expense 18,344 22,402
Deferred
income
taxes 20,729 (4,589)
Gain on
divestiture (5,214) -
Provision for
expected loss
on divestiture - 5,195
Others,
net 29 (5,261)
Change in operating
assets and
liabilities:
Increase
in
accounts
receivable (33,760) (30,687)
Increase
in
prepaid
expenses,
other
current
assets
and
other
assets (64,252) (56,230)
Decrease
in
accounts
payable (397) (462)
Increase/
(decrease)
in
accrued
expenses,
other
current
liabilities
and
other
liabilities (14,797) 27,723
Increase
in
income
taxes
payable 36,420 41,324
------ ------
Net
cash
provided
by
operating
activities $236,004 $263,693
-------- --------
Investing
activities
Purchase
of
property,
plant
and
equipment
and
intangibles (64,441) (56,460)
Proceeds
from
sale
of
property,
plant
and
equipment 334 1,648
Investment
in
equity
affiliates (7,519) (496)
Payment
for
business
acquisitions,
net
of
cash
acquired (41,558) (277,549)
Proceeds
from
divestiture
of
business,
net
of
cash
divested 17,582 -
------ ---
Net
cash
used
for
investing
activities $(95,602) $(332,857)
-------- ---------
Financing
activities
Repayment
of
capital
lease
obligations (1,344) (2,199)
Payment
of
debt
issuance
costs - (1,481)
Proceeds from
long-term
debt - 350,000
Repayment
of
long-
term
debt (30,000) (30,000)
Proceeds
from
short-
term
borrowings 155,000 275,000
Repayment
of
short-
term
borrowings (61,500) (275,000)
Proceeds
from
issuance
of
common
shares
under
stock-
based
compensation
plans 12,808 12,834
Payment
for
net
settlement
of
stock-
based
awards (461) (10,296)
Payment
of
earn-
out/
deferred
consideration (1,406) (6,219)
Dividend paid - (35,096)
Payment
for
stock
purchased
and
retired (242,552) (219,784)
Payment
for
expenses
related
to
stock
purchase (192) (16)
Net
cash
provided
by
(used
for)
financing
activities $(169,647) $57,743
--------- -------
Effect
of
exchange
rate
changes (2,570) 28,853
Net
increase
(decrease)
in
cash
and
cash
equivalents (29,245) (11,421)
Cash
and
cash
equivalents
at
the
beginning
of
the
period 450,907 422,623
------- -------
Cash
and
cash
equivalents
at
the
end
of
the
period $419,092 $440,055
======== ========
Supplementary
information
Cash
paid
during
the
period
for
interest $13,267 $23,414
Cash
paid
during
the
period
for
income
taxes $40,294 $46,935
Property,
plant
and
equipment
acquired
under
capital
lease
obligations $1,667 $1,944
Reconciliation of 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
-- Net revenues 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. Revenues on a constant currency basis are 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 revenues 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, namely stock-based compensation and amortization 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 adjusted financial measures from GAAP for the three and nine months ended September 30, 2016 and 2017:
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,
-------------------------------- --------------------------------
2016 2017 2016 2017
---- ---- ---- ----
Income from operations $87,124 $97,451 $242,686 $256,578
Add: Stock-based compensation 4,828 10,051 18,344 22,402
Add: Amortization of acquired
intangible assets 6,519 9,520 18,207 24,077
Add: Acquisition-related
expenses 1,334 2,364 1,836 5,755
Add: Other income (expense),
net 5,791 (4,030) 7,172 9,011
Less: Equity-method
investment activity, net (2,117) - (6,336) (4,567)
Add: Net loss attributable to
redeemable non-controlling
interest 734 584 1,905 1,326
--- --- ----- -----
Adjusted income from
operations $104,213 $115,940 $283,814 $314,582
======== ======== ======== ========
Adjusted income from
operations margin 16.1% 16.4% 15.2% 15.7%
==== ==== ==== ====
Reconciliation of Adjusted Diluted EPS10
(Unaudited)
(Per share data)
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2016 2017 2016 2017
---- ---- ---- ----
Diluted EPS $0.33 $0.38 $0.91 $0.99
Add: Stock-based compensation 0.02 0.05 0.09 0.11
Add: Amortization of acquired
intangible assets 0.03 0.05 0.09 0.12
Add: Acquisition-related
expenses 0.01 0.01 0.01 0.03
Less: Tax impact on stock-
based compensation (0.01) (0.02) (0.02) (0.03)
Less: Tax impact on
amortization of acquired
intangibles (0.01) (0.02) (0.03) (0.04)
Less: Tax impact on
acquisition-related
expenses - - - -
--- --- --- ---
Adjusted diluted EPS $0.37 $0.46 $1.04 $1.19
===== ===== ===== =====
The following tables show the reconciliation of forward-looking adjusted financial measures from GAAP for the year ending December 31, 2017:
Reconciliation of Outlook for Adjusted Income from Operations Margin11
(Unaudited)
Year ending
December 31,
2017
------------
Income from operations margin 12.9%
Add: Estimated stock-based compensation 1.2%
Add: Estimated amortization of acquired
intangible assets 1.2%
Add: Estimated acquisition-related expenses 0.2%
Add: Estimated other income (expense), net 0.4%
Less: Estimated equity-method investment
activity, net (0.2)%
Adjusted income from operations margin 15.7%
Reconciliation of Outlook for Adjusted Diluted EPS11
(Unaudited)
(Per share data)
Year ending December 31, 2017
-----------------------------
Lower Upper
----- -----
Diluted EPS $1.33 $1.34
Add: Estimated
stock-based
compensation 0.17 0.17
Add: Estimated
amortization
of acquired
intangible
assets 0.17 0.17
Add: Estimated
acquisition-
related
expenses 0.03 0.03
Less: Estimated
tax impact on
stock-based
compensation (0.05) (0.05)
Less: Estimated
tax impact on
amortization
of acquired
intangibles (0.05) (0.05)
Less: Estimated
tax impact on
acquisition-
related
expenses - -
--- ---
Adjusted
diluted EPS $1.59 $1.60
===== =====
(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 15% (~16% on a constant currency basis). See the information under the heading "Revenue Details - Third Quarter 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) 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 revenue results and 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 revenue results and growth rates adjusted to assume that the 2016 GE reclassifications occurred on January 1, 2016.
(6) 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.
(7) 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.
(8) Income taxes, net income and basic and diluted net income per common share for the three and nine months ended September 30, 2016 have been restated due to the adoption of ASU No. 2016-09 in 2016 with effect from January 1, 2016.
(9) Income taxes, net income and cash flows for the nine months ended September 30, 2016 have been restated due to the adoption of ASU No. 2016-09 in 2016 with effect from January 1, 2016.
(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.
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SOURCE Genpact Limited
