Genpact Reports Financial Results for the Third Quarter of 2008
Genpact Limited (NYSE:G), a leader in the globalization of services and technology and a pioneer in managing business processes for companies around the world, today announced financial results for the third quarter ended September 30, 2008.
Key Financial Results - Third Quarter 2008
-- Revenues were $270.8 million, up 26% from the third quarter of 2007.
-- Net income was $33.6 million, up 106% from $16.3 million in the third quarter of 2007; net income margin for the third quarter of 2008 was 12.4%, up from 7.6% in the third quarter of 2007.
-- Diluted earnings per common share were $0.15, up from $0.07 per share in the third quarter of 2007.
-- Adjusted income from operations increased 39% to $49.5 million compared to the third quarter of 2007.
-- Adjusted income from operations margin was 18.3%, up from 16.6% in the third quarter of 2007.
-- Adjusted diluted earnings per share were $0.21, up from $0.13 in the third quarter of 2007.
Pramod Bhasin, Genpact's President and CEO said, "We completed a good third quarter, despite the dramatic changes in the global economy that began several months ago. Notable highlights of the quarter included 61% growth in Global Client revenues within our overall revenue growth of 26% and a 166 basis point improvement in adjusted operating income margin year over year. Based on our performance to date and our outlook for the remainder of the year, we continue to expect our 2008 full year revenues to grow by 26-28% from $823 million in 2007 and adjusted income from operations margin to improve by 80 to 100 basis points to between 17.1% and 17.3%. However, in light of the current environment, we expect that both measures will likely be at the lower end of the range."
Global Client revenues increased 61% compared to the third quarter of 2007 (growth with existing clients, or organic growth, excluding divested GE business was 61%), driven by Genpact's ability to expand its existing client relationships and build new ones.
Genpact continues to expand its client base. New additions include:
-- a Fortune 500 computer software company;
-- a global publisher and information provider;
-- a large regional US bank; and
-- a large US based pediatric healthcare organization.
GE revenues for the third quarter of 2008 were flat compared to the third quarter of 2007. Organic GE revenue growth was 6% this quarter. This excludes revenues from businesses divested by GE in 2007, all of which Genpact continues to serve and whose revenues are now included in Global Client revenues.
As of the end of the third quarter of 2008, 26 clients each accounted for $5 million or more of Genpact's revenues in the last twelve months. Of those, four clients each accounted for $25 million or more of Genpact's revenues in the last twelve months.
The mix between business process services and IT services revenues shifted slightly towards business process services in the third quarter of 2008, with business process services contributing approximately 81% of revenues in the third quarter of 2008, up from 76% for the full year 2007.
Genpact generated $59 million of cash from operations in the third quarter of 2008, up from $27 million in the third quarter of 2007.
-- Revenues were $759.0 million, up 28% from the nine months ended September 30, 2007.
-- Net income was $78.1 million, up 209% from $25.3 million in the nine months ended September 30, 2007; net income margin for the nine months ended September 30, 2008 was 10.3%, up from 4.3% in the nine months 2007.
-- Diluted earnings per common share were $0.36, up from a loss of $0.13 per share in the nine months ended September 30, 2007.
-- Adjusted income from operations increased 37% to $119.7 million compared to the nine months ended September 30, 2007.
-- Adjusted income from operations margin was 15.8%, up from 14.7% in the nine months ended September 30, 2007.
-- Adjusted diluted earnings per share were $0.53, up from $0.30 in the nine months ended September 30, 2007.
Annualized revenue per employee for the nine months ended September 30, 2008 was approximately $30,300, an increase from approximately $28,200 for the full year of 2007. As of September 30, 2008, Genpact had more than 36,000 employees worldwide. Genpact's attrition rate for the nine months ended September 30, 2008, measured from day one of employment, was 26% compared to 30% in 2007. Genpact's attrition rate would be 20% if measured after six months of employment as many of Genpact's competitors do.
Conference Call to Discuss Financial Results
Genpact management will host a conference call at 8a.m. (Eastern Standard Time) on November7, 2008 to discuss the Company's performance for the periods ended September 30, 2008. To participate, callers can dial 1 (866) 543-6403 from within the U.S. or 1 (617) 213-8896 from any other country. Thereafter, callers need to enter the participant passcode, which is 96896908.
For those who cannot participate in the calls, a replay and podcast will be available on our website, www.genpact.com, after the end of the calls. A transcript of both calls will also be made available on our website.
Genpact is a leader in the globalization of services and technology and a pioneer in managing business processes for companies around the world. The Company combines process expertise, information technology and analytical capabilities with operational insight and experience in diverse industries to provide a wide range of services using its global delivery platform. Genpact helps companies improve the ways in which they do business by applying Six Sigma and Lean principles plus technology to continuously improve their business processes. Genpact operates service delivery centers in India, China, Hungary, Mexico, the Philippines, the Netherlands, Romania, Spain, Guatemala and the United States. For more information, see our website at: www.genpact.com.
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 and uncertainties include but are not limited to the risks and uncertainties arising from our past and future acquisitions, slowdown in the economies and sectors in which our clients operate, a slowdown in the BPO and IT Services sectors, our ability to manage growth, factors which may impact our cost advantage, wage increases, 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 the Company's Annual Report on Form10-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 the Company believes that these forward-looking statements are based on reasonable assumptions, you are cautioned not to pay undue reliance on these forward-looking statements, which reflect management's current analysis of future events. The Company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the Company.
Genpact Limited and its Subsidiaries Consolidated Balance Sheets (Unaudited) (In thousands, except per share data) As of December 31, As of September 30, 2007 2008 Assets Current assets Cash and cash equivalents $ 279,306 $ 303,060 Accounts receivable, net 99,354 147,698 Accounts receivable from a significant shareholder, net 93,307 84,739 Short term deposits with a significant shareholder 35,079 21,064 Deferred tax assets 9,683 31,615 Due from a significant shareholder 8,977 6,305 Prepaid expenses and other current assets 146,155 116,617 Total current assets 671,861 711,098 Property, plant and equipment, net 195,660 179,078 Deferred tax assets 2,196 73,279 Investment in equity affiliate 197 810 Customer-related intangible assets, net 99,257 66,042 Other intangible assets, net 10,375 6,431 Goodwill 601,120 552,433 Other assets 162,800 74,233 Total assets $ 1,743,466 $ 1,663,404 Genpact Limited and its Subsidiaries Consolidated Balance Sheets (Unaudited) (In thousands, except per share data) As of December 31, As of September 30, 2007 2008 Liabilities and shareholders' equity Current liabilities Current portion of long-term debt $ 19,816 $ 24,512 Current portion of long-term debt from a significant shareholder 1,125 - Current portion of capital lease obligations 38 360 Current portion of capital lease obligations payable to a 1,826 1,554 significant shareholder Accounts payable 12,446 10,031 Income taxes payable 7,035 29,064 Deferred tax liabilities 20,561 988 Due to a significant shareholder 8,930 3,953 Accrued expenses and other current liabilities 197,298 306,293 Total current liabilities $ 269,075 $ 376,755 Long-term debt, less current portion 100,041 79,562 Long-term debt from a significant shareholder, less current portion 2,740 - Capital lease obligations, less current portion 137 1503 Capital lease obligations payable to a significant shareholder, less 2,969 2,415 current portion Deferred tax liabilities 40,738 9,909 Due to a significant shareholder 8,341 6,251 Other liabilities 65,630 242,344 Total liabilities $ 489,671 $ 718,739 Minority interest 3,066 1,918 Shareholders' equity Preferred shares, $0.01 par value, 250,000,000 authorized, none - - issued Common shares, $0.01 par value, 500,000,000 authorized, 212,101,874 2,121 2,145 and 214,528,898 issued and outstanding as of December 31, 2007 and September 30, 2008, respectively Additional paid-in capital 1,000,179 1,025,842 Retained earnings 26,469 104,613 Accumulated other comprehensive income (loss) 221,960 (189,853) Total shareholders' equity 1,250,729 942,747 Commitments and contingencies Total liabilities, minority interest and shareholders' $ 1,743,466 $ 1,663,404 equity Genpact Limited and its Subsidiaries Consolidated Statements of Income (Unaudited) (In thousands, except per share data) Three months ended Nine months ended September 30, September 30, 2007 2008 2007 2008 Net revenues Net revenues from services -- significant $ 122,981 $ 123,504 $ 368,214 $ 363,678 shareholder Net revenues from services -- others 91,678 147,278 221,908 395,286 Other revenues 110 17 1,492 37 Total net revenues 214,769 270,799 591,614 759,001 Cost of revenue Services 122,564 155,765 351,098 448,938 Others 99 - 1,133 - Total cost of revenue 122,663 155,765 352,231 448,938 Gross profit 92,106 115,034 239,383 310,063 Operating expenses: Selling, general and administrative expenses 59,036 71,175 159,711 199,943 Amortization of acquired intangible assets 9,358 8,974 27,987 28,799 Other operating (income) expense, net (810) (1,443) (2,533) (1,507) Income from operations $ 24,522 $ 36,328 $ 54,218 $ 82,828 Foreign exchange (gains), net (1,029) (1,557) (1,485) (7,390) Other income (expense), net (619) 3,263 (7,697) 8,284 Income before share of equity in (earnings) loss of affiliate, 24,932 41,148 48,006 98,502 minority interest and income tax expense Equity in (gain) loss of affiliate 61 (37) 141 282 Minority interest 2,062 1,859 5,754 7,841 Income taxes expense 6,486 5,692 16,849 12,235 Net Income $ 16,323 $ 33,634 $ 25,262 $ 78,144 Net income (loss) available to common shareholders 12,736 33,634 (13,877) 78,144 Earnings (loss) per common share - Basic $ $0.07 $ 0.16 $ (0.13) $ 0.37 Diluted $ $0.07 $ 0.15 $ (0.13) $ 0.36 Weighted average number of common shares used in computing earnings (loss) per common share - Basic 186,839,059 214,182,308 108,173,821 213,127,131 Diluted 195,698,132 219,350,826 108,173,821 218,550,988 Genpact Limited and its Subsidiaries Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine months ended September 30, 2007 2008 Operating activities Net income $ 25,262 $ 78,144 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 34,948 41,700 Amortization of debt issue costs 658 491 Amortization of acquired intangible assets 28,758 29,522 Loss (gain) on sale of property, plant and equipment, net (28) 2,116 Provision for doubtful receivables 2,945 2,890 Provision for mortgage loans 1,551 542 Unrealized (gain) loss on revaluation of foreign currency 694 (2,405) asset/liability Equity in loss of affiliate 141 282 Minority interest 5,754 7,841 Share-based compensation expense 8,909 12,643 Deferred income taxes (3,264) (13,926) Change in operating assets and liabilities: Increase in accounts receivable (43,497) (44,876) Increase in other assets (9,064) (32,852) Decrease in accounts payable (357) (1,814) Increase in accrued expenses and other current liabilities 8,761 16,116 Increase in income taxes payable 12,383 21,934 Increase in other liabilities 5,672 9,615 Net cash provided by operating activities $ 80,226 $ 127,963 Investing activities Purchase of property, plant and equipment (42,833) (45,935) Purchase of property, plant and equipment in assets acquisition - (7,015) Proceeds from sale of property, plant and equipment 2,923 6,219 Investment in affiliates (455) (883) Short term deposits placed (137,790) (193,171) Redemption of short term deposits 117,321 203,108 Payment for business acquisition, net of cash acquired (14,771) - Net cash used in investing activities $ (75,605) $ (37,677) Financing activities Repayment of capital lease obligations (2,233) (2,273) Proceeds from long-term debt 1,525 - Repayment of long-term debt (16,076) (20,063) Short-term borrowings, net (82,500) - Repurchase of common shares and preferred stock (1,994) - Deferred IPO cost (6,822) - Proceeds from issuance of common shares on exercise of options 1,601 13,044 Proceeds from issuance of common shares from initial public offering 303,512 - Payment to minority shareholders (3,436) (8,864) Net cash provided (used) by financing activities $ 193,577 $ (18,156) Effect of exchange rate changes 19,200 (48,376) Net increase in cash and cash equivalents 198,198 72,130 Cash and cash equivalents at the beginning of the period 35,430 279,306 Cash and cash equivalents at the end of the period $ 252,828 $ 303,060 Supplementary information Cash paid during the period for interest $ 11,169 $ 4,750 Cash paid during the period for income taxes $ 10,659 $ 27,377 Property, plant and equipment acquired under capital lease obligation $ 1,806 $ 3,571 Shares issued for business acquisition $ 23,265 $ -
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: non-GAAP adjusted income from operations, adjusted net income, adjusted earnings per share and pro forma earnings per share. These non-GAAP measures are not based on any comprehensive set of accounting rulesor 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 measures used by other companies. In addition, these non-GAAP measures, the financial statements prepared in accordance with GAAP and the reconciliations of Genpact's GAAP financial statements to such non-GAAP measures should be carefully evaluated.
For its internal management reporting and budgeting purposes, Genpact's management uses financial statements that do not include stock-based compensation expense related to employee stock options, amortization of acquired intangibles at formation in 2004 and additional depreciation due to mark-to-market adjustment at formation in 2004 for financial and operational decision-making, to evaluate period-to-period comparisons or for making comparisons of Genpact's operating results to that of its competitors. Moreover, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use when adopting FAS 123(R), Genpact's management believes that providing financial statements that do not include stock-based compensation allows investors to make additional comparisons between Genpact's operating results to those of other companies. In addition, Genpact's management believes that providing non-GAAP financial measures that exclude amortization of acquired intangibles and additional depreciation due to mark-to-market adjustment at formation allows investors to make additional comparisons between Genpact's operating results to those of other companies. The Company also believes that it is unreasonably difficult to provide its financial outlook in accordance with GAAP for a number of reasons including, without limitation, the Company's inability to predict its future stock-based compensation expense under FAS 123(R)and the amortization of intangibles associated with further acquisitions, if any. Accordingly, Genpact believes that the presentation of non-GAAP 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.
In addition, for its internal management reporting for 2007, Genpact's management used adjusted earnings per share and pro forma earnings per share that do not include impact of the undistributed earnings to preferred stock, preferred dividend and beneficial interest on conversion of preferred stock dividend and assumesthe preferred stock was converted to common shares. As of July13, 2007, prior to the IPO, all the preferred stock has been converted to common shares. Accordingly, the Company believes that to evaluate period to period comparisons, the presentation of non-GAAP adjusted earnings per share and pro forma earnings per share 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 non-GAAP adjusted income from operations and adjusted net income versus income from operations and net income calculated in accordance with GAAP is that non-GAAP adjusted income from operations and adjusted net income excludes costs, namely, stock-based compensation, that are recurring. Stock-based compensation has been and will continue to be a significant recurring expense in Genpact's business for the foreseeable future. Management compensates for this limitation by providing specific information regarding the GAAP amounts excluded from non-GAAP adjusted income from operations and adjusted net income and evaluating such non-GAAP financial measures with financial measures calculated in accordance with GAAP.
During the second quarter of 2008, Genpact has reclassified its foreign exchange gains or losses from a separate line item in order to more clearly reflect Genpact's costs, including the impact of its long-term foreign exchange hedging strategy. This reclassification affects income from operations and consequently affects adjusted income from operations. This reclassification does not affect adjusted net income or adjusted earnings per share.
The following tables show the reconciliation of the adjusted financial measures from GAAP on a reclassified basis for the periods ended September 30, 2008: Reconciliation of Adjusted Income from Operations (Unaudited) (In thousands) Quarter Ended September 30, Nine months Ended September 30, 2007 2008 2007 2008 Income from operations as per GAAP $ 24,522 $ 36,328 $ 54,218 $ 82,828 Add: Amortization of acquired intangible assets resulting from 8,654 8,649 27,169 27,906 Formation Accounting Add: Additional depreciation due to fair value adjustment resulting 514 14 1,542 42 from Formation Accounting Add: Share based compensation 3,678 4,334 8,909 12,643 Add: FBT impact on share based compensation recovered from employees - 1,138 - 2,691 Add: Gain (loss) on interest rate swaps (189) - 90 (283) Add: Other income 620 830 1,031 2,003 Less: Equity in gain (loss) of affiliate (61) 37 (141) (282) Less: Minority interest (2,062) (1,859) (5,754) (7,841) Adjusted income from operations $ 35,676 $ 49,471 $ 87,064 $ 119,707 Reconciliation of Adjusted Net Income (Unaudited) (In thousands, except per share data) Quarter Ended September 30, Nine months Ended September 30, 2007 2008 2007 2008 Net income as per GAAP $ 16,323 $ 33,634 $ 25,262 $ 78,144 Add: Amortization of acquired intangible assets resulting from 8,654 8,649 27,169 27,906 Formation Accounting Add: Additional depreciation due to fair value adjustment resulting 514 14 1,542 42 from Formation Accounting Add: Share based compensation 3,678 4,334 8,909 12,643 Add: FBT impact on share based compensation recovered from employees - 1,138 - 2,691 Less: Tax impact on amortization of acquired intangibles resulting (1,369) (2,048) (3,010) (5,512) from Formation Accounting Adjusted net income $ 27,800 $ 45,721 $ 59,872 $ 115,914 Diluted adjusted earnings per share $ 0.13 $ 0.21 $ 0.30 $ 0.53 Reconciliation of Pro Forma Earnings Per Share (Unaudited) (In thousands, except per share data) Quarter Ended Nine months Ended September 30, September 30, 2007 2008 2007 2008 Net income (loss) available to common shareholders as per GAAP $ 12,736 $ 33,634 $ (13,877) $ 78,144 Add: preferred dividend 527 - 7,643 - Add : undistributed earnings to preferred stock 1,119 - 3,207 - Add: beneficial interest on conversion of preferred stock dividend 1,941 - 28,289 - Pro forma net income available to common shareholders $ 16,323 $ 33,634 $ 25,262 $ 78,144 Diluted pro forma earnings per share $ 0.08 $ 0.15 $ 0.12 $ 0.36 Weighted average number of common shares used in computing dilutive 195,698,132 219,350,826 108,173,821 218,550,988 earnings (loss) per common share as per GAAP Pro forma dilutive effect of stock options - - 9,125,857 - Add: Impact of preferred stock converted into common stock (a) 17,232,442 - 85,284,637 - Weighted average number of adjusted common shares used in computing 212,930,574 219,350,826 202,584,315 218,550,988 adjusted and pro forma dilutive earnings (loss) per common share (a) Pro forma earnings per share give effect to Genpact's 2007 reorganization of legal entities as if it occurred on January 1, 2007. In Genpact's 2007 reorganization, the shareholders of Genpact Global Holdings exchanged their preferred and common shares of Genpact Global Holdings for common shares of Genpact Limited.
SOURCE: Genpact LimitedGenpact Limited
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