Genpact Reports Second Quarter 2020 Results
NEW YORK, Aug. 6, 2020 /PRNewswire/ -- Genpact Limited (NYSE: G), a global professional services firm focused on delivering digital transformation, today announced financial results for the second quarter ended June 30, 2020.
"Our second quarter results were much stronger than expected in light of the unprecedented environment the world is facing. Our performance was driven by incredibly strong execution by our teams on many fronts as well as the resilience of our business model and the strategic choices we have made over many years," said "Tiger" Tyagarajan, Genpact's president and CEO. "With our clients' heightened focus on driving digital transformation, the last several months have demonstrated that our deep domain depth and process expertise as well as our investments in digital and analytics give us a competitive advantage."
Key Financial Results - Second Quarter 2020
-- Total revenue was $900 million, up 2% year-over-year (3% on a constant
currency basis).(1)
-- Revenue from Global Clients was $783 million, up 3% year-over-year (4%
on a constant currency basis),(1) representing 87% of total revenue.
-- Revenue from GE was $117 million, down 2% year-over-year, representing
13% of total revenue.
-- Net income was $62 million, down 16% year-over-year, with a
corresponding margin of 6.9%.
-- Income from operations was $90 million, down 15% year-over-year, with a
corresponding margin of 10.0%. Adjusted income from operations was $145
million, up 7% year-over-year, with a corresponding margin of 16.2%.(3 )
-- Diluted earnings per share was $0.32, down 16% year-over-year, and
adjusted diluted earnings per share(2) was $0.52, up 6% year-over-year.
-- Income from operations and diluted earnings per share include a $22
million restructuring charge related to employee severance costs and
lease impairment charges. This restructuring charge is excluded from
adjusted income from operations(3) and adjusted diluted earnings per
share.(2)
-- Cash generated from operations was $192 million, compared to $126
million in the second quarter of 2019.
2020 Outlook
Genpact is providing the following full-year guidance:
-- Total revenue for the full year of $3.63 to $3.67 billion, up 3% to 4%
or 3.5% to 5% on a constant currency basis.(1)
-- Global Client revenue growth in the range of 5% to 6%, or 5% to 6.5% on
a constant currency basis.(1 )
-- Adjusted income from operations margin(4 )of approximately 15.5%.
-- Adjusted diluted EPS(5 )of $2.03 to $2.07.
Conference Call to Discuss Financial Results
Genpact's management will host an hour-long conference call beginning at 4:30 p.m. ET on August 6, 2020 to discuss the company's performance for the second quarter ended June 30, 2020. To participate, callers can dial +1 (877) 654-0173 from within the U.S. or +1 (281) 973-6289 from any other country. Callers will be prompted to enter the conference ID, 7988313.
A live webcast of the call will also be made available on the Genpact Investor Relations website at https://www.genpact.com/investors. 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 90,000+ of us. From New York to New Delhi and more than 30 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 financial results and other 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 the impact of the COVID-19 pandemic on our business, the health and safety of our employees, clients and our partners and suppliers, as well as the physical and economic impacts of the various recommendations, orders and protocols issued by local and national governmental agencies in light of the evolving situation, a slowdown in the economies and sectors in which our clients operate, a slowdown in the business process outsourcing or information technology services sectors, our ability to develop and successfully execute our business strategies, 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, political, economic or business conditions in countries in which we operate, including the uncertainty relating to the withdrawal of the United Kingdom from the European Union, commonly known as Brexit, 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 and Quarterly Reports on Form 10-Q. 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
Michael Schneider
+1 (217) 260-5041
michael.schneider@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 June 30,
2019 2020
Assets
Current assets
Cash and cash equivalents $
467,096 $
867,363
Accounts receivable, net of reserve
for doubtful receivables of $29,969
and allowance for credit losses of
$31,903 as of December 31, 2019 and
June 30, 2020, respectively 914,255 868,781
Prepaid expenses and other current
assets 170,325 180,083
Total current assets $
1,551,676 $
1,916,227
Property, plant and equipment, net 254,035 233,758
Operating lease right-of-use assets 330,854 350,818
Deferred tax assets 89,715 102,973
Intangible assets, net 230,861 195,594
Goodwill 1,574,466 1,557,011
Contract cost assets 205,498 210,752
Other assets, net of reserve for
doubtful assets of $0 and allowance
for credit losses of $2,566 as of
December 31, 2019 and June 30, 2020,
respectively 217,079 278,953
Total assets $
4,454,184 $
4,846,086
Liabilities and equity
Current liabilities
Short-term borrowings $
70,000 $
495,000
Current portion of long-term debt 33,509 33,523
Accounts payable 21,981 19,182
Income taxes payable 43,186 65,592
Accrued expenses and other current
liabilities 683,871 606,473
Operating leases liability 57,664 63,546
Total current liabilities $
910,211 $
1,283,316
Long-term debt, less current portion 1,339,796 1,323,583
Operating leases liability 302,100 325,692
Deferred tax liabilities 3,990 3,358
Other liabilities 208,916 249,523
Total liabilities $
2,765,013 $
3,185,472
Shareholders' equity
Preferred shares, $0.01 par value,
250,000,000 authorized, none issued
Common shares, $0.01 par value,
500,000,000 authorized, 1,896 1,903
190,118,181 and 190,721,373 issued
and outstanding as of December 31,
2019 and June 30, 2020, respectively
Additional paid-in capital 1,570,575 1,590,017
Retained earnings 648,656 710,382
Accumulated other comprehensive
income (loss) (531,956) (641,688)
Total equity $
1,689,171 $
1,660,614
Total liabilities and equity $
4,454,184 $
4,846,086
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data and share count)
Three months ended June 30, Six months ended June 30,
2019 2020 2019 2020
Net revenues $
881,799 $
900,094 $
1,691,005 $
1,823,286
Cost of revenue 571,244 593,892 1,090,381 1,198,663
Gross profit $
310,555 $
306,202 $
600,624 $
624,623
Operating expenses:
Selling, general and administrative
expenses 196,312 186,312 387,714 383,654
Amortization of acquired intangible
assets 8,096 10,697 16,605 21,438
Other operating (income) expense,
net (55) 18,829 31 18,509
Income from operations $
106,202 $
90,364 $
196,274 $
201,022
Foreign exchange gains (losses),
net 351 (518) (3,081) 14,013
Interest income (expense), net (12,143) (13,619) (23,266) (25,315)
Other income (expense), net 560 2,920 4,363 (14)
Income before equity-method
investment activity, net and
income tax expense $
94,970 $
79,147 $
174,290 $
189,706
Equity-method investment activity,
net (15) (11)
Income before income tax expense $
94,955 $
79,147 $
174,279 $
189,706
Income tax expense 21,233 16,986 39,716 41,847
Net income $
73,722 $
62,161 $
134,563 $
147,859
Earnings per common share
Basic $
0.39 $
0.33 $
0.71 $
0.78
Diluted $
0.38 $
0.32 $
0.69
$0. 76
Weighted average number of common
shares used in computing earnings
per common share
Basic 190,163,359 190,541,148 189,807,602 190,583,953
Diluted 194,766,047 195,112,549 194,080,127 195,822,531
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six months ended June 30,
2019 2020
Operating activities
Net income $
134,563 $
147,859
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
Depreciation and amortization 45,708 58,165
Amortization of debt issuance costs
(including loss on extinguishment of debt) 864 1,121
Amortization of acquired intangible assets 16,605 21,438
Write-down of intangible assets and
property, plant and equipment 3,511 9,973
Reserve for doubtful receivables/allowance
for credit losses 4,881 1,055
Unrealized loss (gain) on revaluation of
foreign currency asset/liability 3,107 4,085
Stock-based compensation expense 39,987 36,331
Deferred income taxes (4,242) (3,416)
Write-down of operating lease right-of-
use assets and other assets 10,244
Others, net (4,076) (1,297)
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (86,329) 38,783
Increase in prepaid expenses, other current
assets, contract cost assets operating
lease right-of-use assets and other
assets (68,115) (137,605)
Decrease in accounts payable (17,407) (4,418)
Increase (decrease) in accrued expenses,
other current liabilities, operating lease
liabilities and other liabilities 23,730 (32,371)
Increase in income taxes payable 28,255 23,112
Net cash provided by operating activities $
121,042 $
173,059
Investing activities
Purchase of property, plant and equipment (30,392) (33,127)
Payment for internally generated intangible
assets (including intangibles under
development) (16,501) (6,449)
Proceeds from sale of property, plant and
equipment 1,562 388
Payment for business acquisitions, net of
cash acquired (6,305)
Net cash used for investing activities $
(51,636) $
(39,188)
Financing activities
Repayment of finance lease obligations (4,102) (4,065)
Payment of debt issuance costs (620)
Repayment of long-term debt (17,000) (17,000)
Proceeds from short-term borrowings 50,000 455,000
Repayment of short-term borrowings (55,000) (30,000)
Proceeds from issuance of common shares
under stock-based compensation plans 11,477 12,420
Payment for net settlement of stock-based
awards (2,729) (29,414)
Payment of earn-out consideration (10,470)
Dividend paid (32,307) (37,138)
Payment for stock repurchased and retired
(including expenses related to stock
repurchase) (45,021)
Net cash (used for) provided by financing
activities $
(60,131) $
304,162
Effect of exchange rate changes 359 (37,766)
Net increase in cash and cash equivalents 9,275 438,033
Cash and cash equivalents at the beginning
of the period 368,396 467,096
Cash and cash equivalents at the end of the
period $
378,030 $
867,363
Supplementary information
Cash paid during the period for interest $
23,384 $
24,397
Cash paid during the period for income
taxes, net of refund $
37,060 $
95,834
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;
-- Adjusted income from operations margin;
-- 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 recorded 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. During the second quarter of 2020, as a result of the COVID-19 pandemic the Company initiated restructuring measures and as a result, recorded a charge related to the following: i) right-of-use lease asset and other assets related to certain abandoned leased office properties, and ii) employee severance costs related to a focused reduction in Genpact's workforce. Genpact's management believes that excluding such charges provides useful measures to both management and investors regarding the Company's financial performance and underlying business trends. Additionally, in its calculations of such non-GAAP financial measures, Genpact's management has adjusted foreign exchange gains and losses, interest income and expense and income tax expenses from GAAP net income, and other income and expenses, and certain gains, losses and impairment charges attributable to equity-method investments from GAAP income from operations, because management believes that the Company's results after taking into account these adjustments more accurately reflect the Company's ongoing operations. In its calculations of adjusted diluted earnings per share, Genpact's management has adjusted stock-based compensation expense, amortization and impairment of acquired intangible assets, acquisition-related expenses and restructuring expenses and the related tax impact of such adjustments from GAAP diluted earnings per share. 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, income from operations margin, net income and net income 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 three and six months ended June 30, 2019 and 2020:
Reconciliation of Net income/Margin to Adjusted Income from Operations/Margin
(Unaudited)
(In thousands)
Three months ended June 30, Six months ended June 30,
2019 2020 2019 2020
Net income $
73,722 $
62,161 $
134,563 $
147,859
Foreign exchange (gains) losses,
net (351) 518 3,081 (14,013)
Interest (income) expense, net 12,143 13,619 23,266 25,315
Income tax expense 21,233 16,986 39,716 41,847
Stock-based compensation expense 21,525 18,844 39,987 36,331
Amortization and impairment of
acquired intangible assets 7,773 11,709 15,977 22,223
Restructuring expenses 21,658 21,658
Acquisition-related expenses 967
Adjusted income from operations $
136,045 $
145,495 $
257,557 $
281,220
Net income margin 8.4 6.9 8.0 8.1
% % % %
Adjusted income from operations 15.4 16.2 15.2 15.4
margin
% % % %
Reconciliation of Income from Operations/Margin to Adjusted Income from Operations/Margin
(Unaudited)
(In thousands)
Three months ended June 30, Six months ended June 30,
2019 2020 2019 2020
Income from operations $
106,202 $
90,364 $
196,274 $
201,022
Stock-based compensation expense 21,525 18,844 39,987 36,331
Amortization and impairment of
acquired intangible assets 7,773 11,709 15,977 22,223
Acquisition-related expenses 967
Other income (expense), net 560 2,920 4,363 (14)
Restructuring expenses 21,658 21,658
Equity-method investment activity,
net (15) (11)
Adjusted income from operations $
136,045 $
145,495 $
257,557 $
281,220
Income from operations margin 12.0 10.0 11.6 11.0
% % % %
Adjusted income from operations 15.4 16.2 15.2 15.4
margin
% % % %
Reconciliation of Diluted EPS to Adjusted Diluted EPS6
(Unaudited)
(Per share data)
Three months ended June 30, Six months ended June 30,
2019 2020 2019 2020
Diluted EPS $
0.38 $
0.32 $
0.69 $
0.76
Stock-based compensation expense 0.11 0.10 0.21 0.19
Amortization and impairment of
acquired intangible assets 0.04 0.06 0.08 0.11
Acquisition-related expenses
Restructuring expenses 0.11 0.11
Tax impact on stock-based
compensation expense (0.03) (0.02) (0.05) (0.06)
Tax impact on amortization and
impairment of acquired intangible
assets (0.01) (0.02) (0.02) (0.03)
Tax impact on restructuring
expenses (0.03) (0.03)
Tax impact on acquisition-related
expenses
Adjusted diluted EPS $
0.49 $
0.52 $
0.92 $
1.05
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, 2020:
Reconciliation of Outlook for Net income Margin to Adjusted Income from
Operations Margin7
(Unaudited)
Year ending December 31, 2020
Net income margin 8.2
%
Estimated foreign exchange (gains) losses, net (0.4)
%
Estimated interest (income) expense, net 1.3
%
Estimated income tax expense 2.6
%
Estimated stock-based compensation expense 2.1
%
Estimated amortization and impairment of acquired intangible assets 1.1
%
Estimated restructuring expenses 0.6
%
Adjusted income from operations margin 15.5
%
Reconciliation of Outlook for Income from Operations Margin to Adjusted Income from
Operations Margin7
(Unaudited)
Year ending December 31, 2020
Income from operations margin 11.8
%
Estimated stock-based compensation expense 2.1
%
Estimated amortization and impairment of acquired intangible assets 1.1
%
Estimated restructuring expenses 0.6
%
Adjusted income from operations margin 15.5
%
Reconciliation of Outlook for Diluted EPS to Adjusted Diluted EPS7
(Unaudited)
(Per share data)
Year ending December 31, 2020
Lower Upper
Diluted EPS $
1.51 1.55
Estimated stock-based compensation expense 0.39 0.39
Estimated amortization and impairment of acquired
intangible assets 0.21 0.21
Estimated restructuring expenses 0.11 0.11
Estimated tax impact on stock-based compensation (0.11) (0.11)
Estimated tax impact on amortization and impairment of
acquired intangible assets (0.05) (0.05)
Estimated tax impact on restructuring expenses (0.03) (0.03)
Adjusted diluted EPS $
2.03 2.07 7
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 each of GAAP
income from operations and GAAP net
income to adjusted income from
operations and GAAP income from
operations margin and GAAP net
income margin to 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
each of GAAP income from operations
margin and GAAP net income margin to
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 to
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
