Genpact Reports Results for the Second Quarter of 2014 Revenues of $561.6 Million, Up 5.0%

Adjusted Income from Operations of $87.6 Million

Cash Flow from Operations of $78.8 Million

NEW YORK, July 31, 2014 /PRNewswire/ -- Genpact Limited (NYSE: G), a global leader in designing, transforming and running business processes and operations, today announced financial results for the second quarter ended June 30, 2014.

Key Financial Results – Second Quarter 2014

  • Revenues were $561.6 million, up 5.0% from $534.8 million in the second quarter of 2013. Revenues from Global Clients were up 6.8%, and business process outsourcing (BPO) revenues from Global Clients were up 8.7%.
  • Income from operations was $73.1 million compared to $78.0 million in the second quarter of 2013.
  • Adjusted income from operations was $87.6 million, compared to $89.2 million in the second quarter of 2013.
  • Adjusted income from operations margin was 15.6%, compared to 16.7% in the second quarter of 2013.
  • Net income attributable to Genpact Limited shareholders was $49.0 million compared to $63.9 million in the second quarter of 2013.
  • Diluted earnings per common share were $0.22, compared to $0.27 in the second quarter of 2013.
  • Adjusted diluted earnings per share were $0.27, compared to $0.32 in the second quarter of 2013.

N.V. 'Tiger' Tyagarajan, Genpact's president and CEO said, "Genpact delivered solid results in the second quarter of 2014. Our revenue growth and adjusted operating income and net income levels are all tracking in line with our expectations. We are being disciplined in executing our strategy, with a particular emphasis on investments in our chosen verticals, geographies and service lines. Our increased focus has resulted in signing two large deals this past quarter in our chosen areas. Additionally, in line with our capital allocation objectives, we purchased $303 million of our shares during the quarter, at $17.50 per share."

Revenues from Global Clients grew 6.8% over the second quarter of 2013. BPO revenues from Global Clients grew by 8.7%, led by growth in the consumer packaged goods, life sciences, insurance and capital markets verticals. Revenues from Global Clients represented approximately 78.7% of Genpact's total revenues, or $441.8 million, with the remaining 21.3% of revenues, or $119.8 million, coming from GE. GE revenues decreased 1.2% from the second quarter of 2013, adjusted for dispositions by GE of businesses that Genpact continues to serve as Global Clients.

In the 12 months ending June 30, 2014, Genpact grew client relationships with revenues over $5 million to 85 from 81 as of June 30, 2013. This includes client relationships with more than $15 million in annual revenue increasing from 26 to 27, and client relationships with more than $25 million in annual revenue increasing from 12 to 14.

75.6% of Genpact's revenues for the quarter came from BPO services, up from 75.1% in the second quarter of 2013. Revenues from IT services were 24.4% of total revenues for the quarter, compared to 24.9% in the second quarter of 2013.

Genpact generated $78.8 million of cash from operations in the quarter, up from $76.1 million in the second quarter of 2013. Genpact had approximately $376.8 million in cash and cash equivalents as of June 30, 2014.

As of June 30, 2014, Genpact had approximately 66,900 employees worldwide, up from approximately 60,200 as of June 30, 2013. Genpact's employee attrition rate for the quarter was approximately 26%, measured from the first day of employment, down from 27% for the same period in 2013. Annualized revenue per employee for the quarter was $35,600, compared to $36,700 for the three months ended June 30, 2013.

Year-to-Date Results

  • Revenues were $1.090 billion, up 4.9% from $1.039 billion for the six months ended June 30, 2013.
  • Income from operations was $150.3 million, compared to $151.9 million in the six months ended June 30, 2013.
  • Adjusted income from operations was $173.9 million, up from $171.9 million for the six months ended June 30, 2013.
  • Adjusted income from operations margin was 16.0%, compared to 16.6% for the six months ended June 30, 2013.
  • Net income attributable to Genpact Limited shareholders was $99.6 million, compared to $110.6 million for the six months ended June 30, 2013.
  • Diluted earnings per common share were $0.43, compared to $0.47 for the six months ended June 30, 2013.
  • Adjusted diluted earnings per share were $0.51, compared to $0.55 for the six months ended June 30, 2013.

Genpact's employee attrition rate for the six months ended June 30, 2014 was 24%, measured from the first day of employment, down from 25% for the same period in 2013. Annualized revenue per employee for the six months ended June 30, 2014 was $34,900, compared to $35,600 for the six months ended June 30, 2013.

2014 Outlook

Tyagarajan continued, "In the second quarter, we closed our announced acquisition in the life sciences regulatory affairs space. Including revenues from that business, we now expect 2014 revenues of $2.24 to $2.28 billion. Our expectation for adjusted operating income margin continues to be a range of 15.0 – 15.5%. I am excited about the investments we have made and continue to make in our client facing teams, which are beginning to translate into a new level of transformative discussions with existing and prospective clients. We are well positioned to meet our objective of investing at least 6% of our revenues in sales and marketing for the full year." 

Conference Call to Discuss Financial Results

Genpact management will host an hour-long conference call beginning at 4:30 p.m. ET on July 31, 2014 to discuss the company's performance for the second quarter of 2014. To participate, callers can dial +1 (877) 703-6108 from within the U.S. or +1 (857) 244-7307 from any other country. Thereafter, callers will be prompted to enter the participant code, 33057174.

A live webcast of the call including slides with our comments 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 and podcast will be available on Genpact's website, www.genpact.com, after the end of the call. A transcript of the call as well as the presentation slides will also be made available on the website.

About Genpact

Genpact Limited (NYSE: G) is a global leader in designing, transforming and running business processes and operations, including those that are complex and industry-specific. Our mission is to help clients become more competitive by making their enterprises more intelligent through becoming more adaptive, innovative, globally effective and connected to their own clients. Genpact stands for Generating Impact – visible in tighter cost management as well as better management of risk, regulations and growth for hundreds of long-term clients including more than 100 of the Fortune Global 500. Our approach is distinctive – we offer an unbiased, agile combination of smarter processes, crystallized in our Smart Enterprise Processes (SEP(SM)) proprietary framework, along with analytics and technology, which limits upfront investments and enhances future adaptability. We have global critical mass – 66,000+ employees in 25 countries with key management and corporate offices in New York City – while remaining flexible and collaborative, and a management team that drives client partnerships personally. Our history is unique – behind our single-minded passion for process and operational excellence is the Lean and Six Sigma heritage of a former General Electric division that has served GE businesses for more than 16 years. For more information, visit www.genpact.com.

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 management and information technology services sectors, the risks and uncertainties arising from our past and future acquisitions, 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, 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 does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of Genpact.

Contact






Investors


Bharani Bobba



+1 (203) 300-9230



bharani.bobba@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 June 30, 


2013


2014

Assets





Current assets




Cash and cash equivalents

$

571,276


$

376,802

Accounts receivable, net

504,714


531,093

Accounts receivable from related party, net


403



24

Deferred tax assets

60,638


44,118

Prepaid expenses and other current assets


139,113



189,018

                  Total current assets

$

1,276,144


$

1,141,055

Property, plant and equipment, net

173,204


176,282

Deferred tax assets


89,305



65,866

Investment in equity affiliates

384


450

Intangible assets, net


99,116



122,395

Goodwill

953,849


1,072,070

Other assets


97,365



110,062

                Total assets

$

2,689,367


$

2,688,180

 

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,


2013


2014

Liabilities and equity




Current liabilities




Short-term borrowings

$


$

175,000

Current portion of long-term debt

4,263


4,275

Current portion of capital lease obligations


1,405



1,575

Accounts payable

18,412


17,490

Income taxes payable


15,007



35,148

Deferred tax liabilities

614


616

Accrued expenses and other current liabilities


421,992



406,143

               Total current liabilities

$

461,693


$

640,247

  Long-term debt, less current portion


653,601



651,451

  Capital lease obligations, less current portion

2,657


2,993

      Deferred tax liabilities


4,464



5,431

  Other liabilities

242,884


182,253

   Total liabilities

$

1,365,299


$

1,482,375

Shareholders' equity




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


        Common shares, $0.01 par value, 500,000,000 authorized,  231,262,576 and 216,314,379 issued and outstanding as of  December 31, 2013 and June 30, 2014, respectively

2,310


2,160

Additional paid-in capital


1,268,344



1,275,127

   Retained earnings

511,699


306,301

Accumulated other comprehensive income (loss)


(459,614)



(377,887)

        Genpact Limited shareholders' equity

$

1,322,739


$

1,205,701

Noncontrolling interest

1,329


104

        Total equity

$

1,324,068


$

1,205,805

   Total liabilities and equity

$

2,689,367


$

2,688,180

 

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,


2013


2014


2013


2014

Net revenues








Net revenues from services – others

$

534,614


$

561,540


$

1,038,271


$

1,089,659

Net revenues from services - related party

190


71


381


142

Total net revenues

534,804


561,611


1,038,652


1,089,801

Cost of revenue








Services

332,714


340,125


644,440


664,414

Total cost of revenue

332,714


340,125


644,440



664,414

Gross profit

$

202,090


$

221,486


$

394,212


$

425,387

Operating expenses:








Selling, general and administrative expenses

118,403


142,715


231,627


265,213

Amortization of acquired intangible assets

6,185


6,610


11,736


12,628

Other operating (income) expense, net

(486)


(890)


(1,088)


(2,752)

Income from operations

$

77,988


$

73,051


$

151,937


$

150,298

Foreign exchange (gains) losses, net

(17,184)


3,829


(13,802)


7,422

Other income (expense), net

(10,539)


(6,505)


(15,650)


(13,038)

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

$

84,633


$

62,717


$

150,089


$

129,838

Equity-method investment activity, net

(63)


(34)


(107)



(54)

Income before income tax expense

$

84,696


$

62,751


$

150,196


$

129,892

Income tax expense

19,234


13,851


36,482


30,139

Net Income

$

65,462


$

48,900


$

113,714


$

99,753

Net income attributable to noncontrolling interest

1,586


(84)


3,101


156

Net income attributable to Genpact Limited shareholders

$

63,876


$

48,984


$

110,613


$

99,597

Net income available to Genpact Limited common shareholders

$

63,876


$

48,984


$

110,613


$

99,597

Earnings per common share attributable to Genpact Limited common shareholders










Basic

$

0.28


$

0.23


$

0.48


$

0.44

Diluted

$

0.27


$

0.22


$

0.47


$

0.43











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










Basic

229,237,503


217,541,960



228,232,364


224,817,938

Diluted

235,329,303


221,509,867



234,475,027



229,392,759

 

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)




Six months ended June 30,


2013


2014

Operating activities




Net income attributable to Genpact Limited shareholders

$

110,613


$

99,597

Net income attributable to noncontrolling interest


3,101



156

Net income 

$

113,714


$

99,753

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




Depreciation and amortization

27,318


24,994

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

4,392


1,610

Amortization of acquired intangible assets

11,736


12,628

Reserve  for doubtful receivables

5,070


1,719

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

(14,067)


(807)

Equity-method investment activity, net

(107)


(54)

Stock-based compensation expense

16,619


11,879

Deferred income taxes

1,589


(322)

Others, net

6,087


895

Change in operating assets and liabilities:




Increase in accounts receivable

(25,492)


(15,110)

Increase in other assets

(25,385)


(37,870)

Decrease in accounts payable

(3,060)


(5,222)

Decrease in accrued expenses and other current liabilities

(33,809)


(7,788)

Increase in income taxes payable

18,826


18,939

Increase (Decrease) in other liabilities

4,244


(12,178)

Net cash provided by operating activities

$

107,675


$

93,066





Investing activities




Purchase of property, plant and equipment

(25,635)


(29,657)

Proceeds from sale of property, plant and equipment

283


129

Short term deposits placed

(36,769)


Redemption of short term deposits

36,769


Payment for business acquisitions, net of cash acquired

(46,134)


(123,701)

Proceeds from divestiture of business, net of cash divested

(1,049)


Net cash used for investing activities

$

(72,535)


$

(153,229)





Financing activities




Repayment of capital lease obligations

(874)


(896)

Proceeds from long-term debt

121,410


Repayment of long-term debt

(119,723)


(3,375)

Proceeds from Short-term borrowings

35,000


195,000

Repayment of Short-term borrowings


(20,000)

Proceeds from issuance of  common shares under stock based compensation plans

27,478


8,329

Payment for net settlement of stock-based awards

(7,521)


(14,345)

Payment of earn-out consideration

(2,993)


Cost incurred in relation to debt amendment and refinancing

(7,908)


Distribution to noncontrolling interest

(3,242)


(1,371)

Expenses related to stock purchase


(2,543)

Stock purchased and retired


(302,625)

Net cash provided by (used for) financing activities

$

41,627


$

(141,826)





Effect of exchange rate changes

(16,868)


7,515

Net increase (decrease) in cash and cash equivalents

76,767


(201,989)

Cash and cash equivalents at the beginning of the period

459,228


571,276

Cash and cash equivalents at the end of the period

$

519,127


$

376,802

Supplementary information




Cash paid during the period for interest

$

18,474


$

12,828

Cash paid during the period for income taxes

$

38,909


$

37,176

Property, plant and equipment acquired under capital lease obligation

$

1,385


$

1,305

 

Reconciliation of Adjusted 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;
  • Adjusted net income attributable to shareholders of Genpact Limited, or adjusted net income; and
  • Adjusted diluted earnings per share attributable to shareholders of Genpact Limited, or adjusted diluted earnings per share.

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. In addition, 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 and amortization of related acquired intangibles 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 amortization of acquired intangibles thereof, since July 2012 Genpact's management uses 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 that of its competitors. Acquisition related expenses are excluded in the period in which an acquisition is consummated.

Additionally, Genpact's management uses financial statements that exclude stock-based compensation expense and amortization of acquired intangibles at formation in 2004. 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 the above expenses allows investors to make additional comparisons between Genpact's operating results and those of other companies. Genpact also believes that it is unreasonably difficult to provide its financial outlook in accordance with GAAP for a number of reasons including, without limitation, its inability to predict its stock-based compensation expense under ASC 718, the amortization of intangibles associated with further acquisitions and acquisition related expenses. Accordingly, Genpact believes that the presentation of adjusted income from operations and adjusted net income, 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 net income versus income from operations and net income calculated in accordance with GAAP is that these non-GAAP financial measures exclude a recurring cost, namely stock-based compensation. Management compensates for this limitation by providing specific information on the GAAP amounts excluded from adjusted income from operations and adjusted net income.

The following tables show the reconciliation of these adjusted financial measures from GAAP for the three and six months ended June 30, 2013 and 2014:

 

Reconciliation of Adjusted Income from Operations


(Unaudited)


(In thousands)









Three months ended June 30,


Six months ended June 30,



2013


2014



2013



2014


Income from operations per GAAP

$

77,988


$

73,051


$

151,937


$

150,298


Add: Amortization of acquired intangible assets resulting from Formation Accounting and acquisitions

4,854


5,010



9,070


9,501


Add: Acquisition related expenses




1,977





1,977


Add: Stock based compensation

10,093


6,906


16,619


11,879


 Add: Other income (expense)

709


517


979


386


 Less: Provision for loss on Divestitures

(2,945)



(3,661)



Add: Gain (Loss) on Equity-method investment activity, net

63



34



107



54


Less/Add: Net (income) loss attributable to noncontrolling interest

(1,586)


84


(3,101)


(156)


Adjusted income from operations

$

89,176


$

87,579


$

171,950


$

173,939






















Reconciliation of Adjusted Net Income


(Unaudited)


(In thousands, except per share data)








Three months ended June 30,


Six months ended June 30,



2013


2014


2013


2014


Net income per GAAP

$

63,876


$

48,984


$

110,613


$

99,597


Add: Amortization of acquired intangible assets resulting from Formation Accounting and acquisitions

4,854


5,010


9,070


9,501


Add: Acquisition related expenses




1,977





1,977


Add: Stock based compensation

10,093


6,906


16,619


11,879


Less: Tax impact on amortization of acquired intangibles resulting from Formation Accounting and acquisitions

(1,552)


(1,631)


(2,855)


(3,107)


Less: Tax impact on acquisition related expenses




(53)





(53)


Less: Tax impact on stock based compensation

(2,605)


(1,751)


(4,295)


(3,056)


Adjusted net income

$

74,666


$

59,442


$

129,152


$

116,738


Adjusted diluted earnings per share

$

0.32


$

0.27


$

0.55


$

0.51


 

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SOURCE Genpact Limited



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