Genpact Reports First Quarter 2018 Results

Genpact Reports First Quarter 2018 Results

Revenues of $689 Million, Up 11 % (~9% on a constant currency basis)[1]

Global Client BPO Revenues of $540 Million, Up 17% (~15% on a constant currency basis)

Diluted EPS of $0.33, Up 25%; Adjusted Diluted EPS[2] of $0.39, Up 27%

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

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

Key Financial Results - First Quarter 2018

    --  Total revenue was $689 million, up 11% year-over-year (up ~9% on a
        constant currency basis).
    --  Income from operations was $64 million, down 19% year-over-year, with a
        corresponding margin of 9.3%.  Adjusted income from operations was $97
        million, up 11% year-over-year, with a corresponding margin of 14.1%.(3)
    --  Diluted earnings per share were $0.33, up 25% year-over-year, and
        adjusted diluted earnings per share were $0.39, up 27% year-over-year. 
        The current quarter diluted earnings per share includes a $0.02 foreign
        currency gain resulting from balance sheet re-measurement.
    --  Genpact repurchased approximately 3.2 million of its common shares
        during the quarter for total consideration of $100 million at an average
        price per share of $31.44.

Revenue Details - First Quarter 2018

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

Cash Flow from Operations

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

2018 Outlook

Genpact continues to expect:

    --  Total revenue for the full year 2018 of $2.93 to $3.0 billion.
    --  Global Client revenue growth in the range of 9% to 11%, both on an
        as-reported and constant currency basis.
    --  Adjusted income from operations margin(4) of approximately 15.8%.
    --  Genpact now expects:
    --  Adjusted diluted EPS(5) to increase to $1.72 to $1.76, from our prior
        outlook of $1.70 to $1.74.

Conference Call to Discuss Financial Results

Genpact's management will host an hour-long conference call beginning at 4:30 p.m. ET on May 3, 2018 to discuss the company's performance for the first quarter ended March 31, 2018. To participate, callers can dial +1 (877) 654-0173 from within the U.S. or +1 (281) 973-6289 from any other country. Thereafter, callers will be prompted to enter the conference ID, 8895845.

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

About Genpact

Genpact (NYSE: G) is a global professional services firm that makes business transformation real. We drive digital-led innovation and digitally-enabled intelligent operations for our clients, guided by our experience running thousands of processes for hundreds of Global Fortune 500 companies. We think with design, dream in digital, and solve problems with data and analytics. We obsess over operations and focus on the details - all 78,000+ of us. From New York to New Delhi and more than 20 countries in between, Genpact has the end-to-end expertise to connect every dot, reimagine every process, and reinvent companies' ways of working. We know that rethinking each step from start to finish will create better business outcomes. Whatever it is, we'll be there with you - putting data and digital to work to create bold, lasting results - because transformation happens here.

Safe Harbor

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


    Contacts
    --------


    Investors Roger Sachs, CFA

                                      +1 (203) 808-6725

              roger.sachs@genpact.com


    Media     Gail Marold

                                      +1 (919) 345-3899

              gail.marold@genpact.com


                                                                                      GENPACT LIMITED AND ITS SUBSIDIARIES

                                                                                           Consolidated Balance Sheets

                                                                                                   (Unaudited)

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



                                                                                                                                    As of December 31,            As of March 31,

                                                                                                                                                  2017                        2018
                                                                                                                                                  ----                        ----

    Assets

    Current assets

    Cash and cash equivalents                                                                                                                            $504,468                            $424,226

    Accounts receivable, net                                                                                                                   693,085                     703,066

    Prepaid expenses and other current assets                                                                                                  236,342                     199,208
                                                                                                                                               -------                     -------

    Total current assets                                                                                                                               $1,433,895                          $1,326,500

    Property, plant and equipment, net                                                                                                         207,030                     205,035

    Deferred tax assets                                                                                                                         76,929                      81,734

    Investment in equity affiliates                                                                                                                886                         919

    Intangible assets, net                                                                                                                     131,590                     125,781

    Goodwill                                                                                                                                 1,337,122                   1,337,051

    Contract cost assets                                                                                                                             -                             162,435

    Other assets                                                                                                                               262,169                     157,672
                                                                                                                                               -------                     -------

    Total assets                                                                                                                                       $3,449,621                          $3,397,127
                                                                                                                                                       ==========                          ==========

    Liabilities and equity

    Current liabilities

    Short-term borrowings                                                                                                                                $170,000                            $275,000

    Current portion of long-term debt                                                                                                           39,226                      39,237

    Accounts payable                                                                                                                            15,050                      13,811

    Income taxes payable                                                                                                                        30,026                      40,026

    Accrued expenses and other current liabilities                                                                                             584,482                     503,116

    Total current liabilities                                                                                                                            $838,784                            $871,190

    Long-term debt, less current portion                                                                                                     1,006,687                     996,999

    Deferred tax liabilities                                                                                                                     6,747                       7,083

    Other liabilities                                                                                                                          168,609                     155,858
                                                                                                                                               -------                     -------

    Total liabilities                                                                                                                                  $2,020,827                          $2,031,130
                                                                                                                                                       ----------                          ----------

    Redeemable non-controlling interest                                                                                                          4,750                           -

    Shareholders' equity

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

    Common shares, $0.01 par value, 500,000,000 authorized,  192,825,207                                                                         1,924                       1,903
         and 190,613,135 issued and outstanding as of   December 31, 2017 and
         March 31, 2018, respectively

    Additional paid-in capital                                                                                                               1,421,368                   1,422,897

    Retained earnings                                                                                                                          355,982                     321,916

    Accumulated other comprehensive income (loss)                                                                                            (355,230)                  (380,719)

    Total equity                                                                                                                                       $1,424,044                          $1,365,997
                                                                                                                                                       ----------                          ----------

    Total liabilities, redeemable non-controlling interest and equity                                                                                  $3,449,621                          $3,397,127
                                                                                                                                                       ==========                          ==========


                                                                                     GENPACT LIMITED AND ITS SUBSIDIARIES

                                                                                      Consolidated Statements of Income

                                                                                                 (Unaudited)

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



                                                                                                                                     Three months ended March 31,
                                                                                                                                     ----------------------------

                                                                                                                                  2017                            2018
                                                                                                                                  ----                            ----

    Net revenues                                                                                                                              $622,995                      $688,912

    Cost of revenue                                                                                                                          383,337                       444,324
                                                                                                                                             -------                       -------

    Gross profit                                                                                                                              $239,658                      $244,588

    Operating expenses:

    Selling, general and administrative expenses                                                                                             160,858                       171,109

    Amortization of acquired intangible assets                                                                                                 7,242                         9,936

    Other operating (income) expense, net                                                                                                    (7,538)                        (218)

    Income from operations                                                                                                                     $79,096                       $63,761

    Foreign exchange gains (losses), net                                                                                                     (4,913)                        4,798

    Interest income (expense), net                                                                                                           (5,493)                      (8,100)

    Other income (expense), net                                                                                                                  553                        15,550

    Income before equity-method investment activity, net and income tax                                                                        $69,243                       $76,009

       expense

    Equity-method investment activity, net                                                                                                   (4,558)                            -

    Income before income tax expense                                                                                                           $64,685                       $76,009

    Income tax expense                                                                                                                        12,245                        12,075

    Net income                                                                                                                                 $52,440                       $63,934

    Net loss attributable to redeemable non-controlling interest                                                                                 898                           761

    Net income attributable to Genpact Limited shareholders                                                                                    $53,338                       $64,695
                                                                                                                                               =======                       =======

    Net income available to Genpact Limited common shareholders                                                                                $53,338                       $64,695

    Earnings per common share attributable to Genpact Limited common

       shareholders

    Basic                                                                                                                                        $0.27                         $0.34

    Diluted                                                                                                                                      $0.26                         $0.33

    Weighted average number of common shares used in computing earnings per

       common share attributable to Genpact Limited common shareholders

    Basic                                                                                                                                199,069,528                   192,816,626

    Diluted                                                                                                                              202,655,937                   196,288,569


                                                                                      GENPACT LIMITED AND ITS SUBSIDIARIES

                                                                                     Consolidated Statements of Cash Flows

                                                                                                  (Unaudited)

                                                                                                 (In thousands)



                                                                                                                           Three months ended March 31,
                                                                                                                           ----------------------------

                                                                                                                                2017                         2018

    Operating activities

    Net income attributable to Genpact Limited shareholders                                                                              $53,338                              $64,695

    Net loss attributable to redeemable non-controlling interest                                                               (898)                       (761)
                                                                                                                                ----

    Net income                                                                                                                           $52,440                              $63,934


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

       activities:

    Depreciation and amortization                                                                                             14,139                       15,836

    Amortization of debt issuance costs                                                                                          375                          488

    Amortization of acquired intangible assets                                                                                 7,242                        9,936

    Reserve for doubtful receivables                                                                                               -                       (103)

    Unrealized loss (gain) on revaluation of foreign currency asset/liability                                                  8,757                      (8,525)

    Equity-method investment activity, net                                                                                     4,558                            -

    Stock-based compensation expense                                                                                           4,986                        7,787

    Deferred income taxes                                                                                                    (2,890)                     (4,625)

    Others, net                                                                                                              (4,301)                        (28)

    Change in operating assets and liabilities:

    Decrease (increase) in accounts receivable                                                                                19,649                      (6,025)

    Increase in prepaid expenses, other current assets, contract cost assets and                                            (12,025)                    (37,008)
         other assets

    Decrease in accounts payable                                                                                               (928)                     (1,224)

    Decrease in accrued expenses, other current liabilities and other liabilities                                           (69,131)                    (77,734)

    Increase in income taxes payable                                                                                           8,157                        9,969
                                                                                                                               -----                        -----

    Net cash provided by/(used for) operating activities                                                                                 $31,028                            $(27,322)
                                                                                                                                         -------                             --------

    Investing activities

    Purchase of property, plant and equipment                                                                               (17,084)                    (18,706)

    Payment for internally generated intangible assets                                                                                 (2,614)                             (4,365)

    Proceeds from sale of property, plant and equipment                                                                          389                          144

    Investment in equity affiliates                                                                                            (467)                           -

    Payment for business acquisitions, net of cash acquired                                                                  (9,237)                           -

    Payment for purchase of redeemable non-controlling interest                                                                    -                              (4,730)
                                                                                                                                 ---

    Net cash used for investing activities                                                                                             $(29,013)                           $(27,657)
                                                                                                                                        --------                             --------

    Financing activities

    Repayment of capital lease obligations                                                                                     (494)                       (537)

    Payment of debt issuance costs                                                                                           (1,481)                           -

    Proceeds from long-term debt                                                                                                       350,000                                    -

    Repayment of long-term debt                                                                                             (10,000)                    (10,000)

    Proceeds from short-term borrowings                                                                                       40,000                      105,000

    Repayment of short-term borrowings                                                                                     (185,000)                           -

    Proceeds from issuance of common shares under stock-based compensation plans                                               7,761                        4,202

    Payment for net settlement of stock-based awards                                                                         (9,939)                    (13,284)

    Payment of earn-out/deferred consideration                                                                               (1,097)                     (1,476)

    Dividend paid                                                                                                                     (11,957)                            (14,408)

    Payment for stock purchased and retired                                                                                (219,784)                    (95,984)

    Payment for expenses related to stock purchase                                                                              (16)                        (60)

    Net cash used for financing activities                                                                                             $(42,007)                           $(26,547)
                                                                                                                                        --------                             --------

    Effect of exchange rate changes                                                                                            5,555                        1,284

    Net increase (decrease) in cash and cash equivalents                                                                    (39,992)                    (81,526)

    Cash and cash equivalents at the beginning of the period                                                                 422,623                      504,468
                                                                                                                             -------                      -------

    Cash and cash equivalents at the end of the period                                                                                  $388,186                             $424,226
                                                                                                                                        ========                             ========

    Supplementary information

    Cash paid during the period for interest                                                                                              $5,324                              $13,194

    Cash paid during the period for income taxes                                                                                         $16,426                              $24,157

    Property, plant and equipment acquired under capital lease obligations                                                                  $576                                 $297

Non-GAAP Financial Measures to GAAP Measures

To supplement the consolidated financial statements presented in accordance with GAAP, this press release includes the following measures defined by the Securities and Exchange Commission as non-GAAP financial measures:

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

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

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

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

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

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

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

The following tables show the reconciliation of these Non-GAAP financial measures from GAAP for the three months ended March 31, 2017 and 2018:


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

                                                                                  (Unaudited)

                                                                                 (In thousands)



                                                                                                             Three months ended March 31,
                                                                                                             ----------------------------

                                                                                                                2017                        2018
                                                                                                                ----                        ----

    Income from operations                                                                                              $79,096                  $63,761

    Add: Stock-based compensation                                                                              4,986                       7,787

    Add: Amortization of acquired intangible assets                                                            6,709                       9,540

    Add: Acquisition-related expenses                                                                            422                           -

    Add: Other income (expense), net                                                                             553                      15,550

    Less: Equity-method investment activity, net                                                             (4,558)                          -

    Add: Net loss attributable to redeemable non-controlling interest                                            898                         761

    Adjusted income from operations                                                                                     $88,106                  $97,399
                                                                                                                        =======                  =======

    Adjusted income from operations margin                                                                                14.1%                   14.1%
                                                                                                                           ====                     ====


                          Reconciliation of Adjusted Diluted EPS6

                                        (Unaudited)

                                      (Per share data)



                                     Three months ended March 31,
                                     ----------------------------

                                         2017                        2018
                                         ----                        ----

    Diluted EPS                                  $0.26                    $0.33

    Add: Stock-based
     compensation                        0.02                        0.04

    Add: Amortization of
     acquired intangible
     assets                              0.03                        0.05

    Add: Acquisition-
     related expenses                       -                          -

    Less: Tax impact on
     stock-based
     compensation                      (0.01)                     (0.02)

    Less: Tax impact on
     amortization of
     acquired intangibles              (0.01)                     (0.01)

    Less: Tax impact on
     acquisition-related
     expenses                               -                          -

    Adjusted diluted EPS                         $0.31                    $0.39
                                                 =====                    =====

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


    Reconciliation of Outlook for Adjusted Income from Operations Margin

                               (Unaudited)



                                                   Year ending
                                                     December
                                                     31, 2018
                                                    ---------

    Income from operations margin                                  12.2%

    Add: Estimated stock-based compensation                         1.6%

    Add: Estimated amortization of acquired
     intangible assets                                              1.2%

    Add: Estimated acquisition-related expenses                     0.1%

    Add: Estimated other income (expense), net                      0.7%

    Less: Estimated equity-method investment
     activity, net                                                     -

    Adjusted income from operations margin                         15.8%
                                                                    ====


                    Reconciliation of Outlook for Adjusted Diluted EPS7

                                        (Unaudited)

                                      (Per share data)



                                    Year ending December 31, 2018
                                    -----------------------------

                                      Lower                            Upper
                                      -----                            -----

    Diluted EPS                                  $1.41                          $1.45

    Add: Estimated
     stock-based
     compensation                        0.24                              0.24

    Add: Estimated
     amortization
     of acquired
     intangible
     assets                              0.19                              0.19

    Add: Estimated
     acquisition-
     related
     expenses                            0.01                              0.01

    Less: Estimated
     tax impact on
     stock-based
     compensation                      (0.08)                           (0.08)

    Less: Estimated
     tax impact on
     amortization
     of acquired
     intangibles                       (0.06)                           (0.06)

    Less: Estimated
     tax impact on
     acquisition-
     related
     expenses                               -                                -

    Adjusted
     diluted EPS                                 $1.72                          $1.76
                                                 =====                          =====




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

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

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

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

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

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

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

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SOURCE Genpact Limited