UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 31, 2012
GENPACT LIMITED
(Exact name of registrant as specified in its charter)
| Bermuda | 001-33626 | 98-0533350 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
Canon’s Court, 22 Victoria Street
Hamilton HM 12, Bermuda
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (441) 295-2244
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.02. | Results of Operations and Financial Condition. |
On October 31, 2012, Genpact Limited issued a press release announcing its financial results for the three months and nine months ended September 30, 2012. Genpact is furnishing this Form 8-K pursuant to Item 2.02, “Results of Operations and Financial Condition.” A copy of the press release, attached hereto as Exhibit 99.1, is incorporated herein by reference.
| Item 9.01. | Financial Statements and Exhibits. |
(d) Exhibits:
| Exhibit 99.1 | Press release dated October 31, 2012 |
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| GENPACT LIMITED | ||||||
| Date: October 31, 2012 | By: | /s/ Heather White | ||||
| Name: | Heather White | |||||
| Title: | Vice President and Senior Legal Counsel | |||||
EXHIBIT INDEX
| Exhibit |
Description | |
| 99.1 | Press release dated October 31, 2012 | |
Exhibit 99.1
Genpact Reports Results for the Third Quarter of 2012
Third Quarter Revenues of $491.2 Million, Up 14%
Adjusted Income from Operations of $79.7 Million, Up 13%
NEW YORK, October 31, 2012 – Genpact Limited (NYSE: G), a global leader in business process management and technology services, today announced financial results for the third quarter ended September 30, 2012.
Key Financial Results – Third Quarter 2012
| • | Revenues were $491.2 million, up 14.3% from $429.6 million in the third quarter of 2011. Revenues from Global Clients were up 19.3%, and business process management revenues from Global Clients were up 24.4%. |
| • | Net income attributable to Genpact Limited shareholders was $25.2 million, compared to $48.0 million in the third quarter of 2011. Net income margin for the third quarter of 2012 was 5.1%, compared to 11.2% in the third quarter of 2011. Third quarter 2012 net income and margin reflected the impact of a foreign exchange re-measurement loss as well as expenses related to: the special cash dividend; associated debt refinancing and withholding taxes; and the sale of shares by Genpact’s original sponsors. |
| • | Diluted earnings per common share were $0.11, compared to $0.21 per share in the third quarter of 2011. Third quarter 2012 diluted earnings per common share reflected the impact of a foreign exchange re-measurement loss as well as expenses related to: the special cash dividend; associated debt refinancing and withholding taxes; and the sale of shares by Genpact’s original sponsors. |
| • | Adjusted income from operations was $79.7 million, up 12.6% from $70.9 million in the third quarter of 2011. |
| • | Adjusted income from operations margin was 16.2%, compared to 16.5% in the third quarter of 2011. |
| • | Adjusted diluted earnings per share were $0.18, compared to $0.26 in the third quarter of 2011. The adjusted diluted earnings per share was after accounting for (1) a $0.05 foreign exchange re-measurement loss in the third quarter of 2012 compared to a $0.03 gain in the third quarter of 2011 and (2) a $0.02 impact for incremental expenses related to the company’s debt refinancing in the third quarter of 2012. |
N.V. ‘Tiger’ Tyagarajan, Genpact’s president and CEO said, “Genpact continues to deliver solid financial results, with strong growth in revenues and adjusted operating income. Revenues increased 14.3% year-over-year and 5.0% sequentially to $491 million. Adjusted income from operations grew 12.6%. We returned capital to shareholders in the third quarter in the form of a special cash dividend of $2.24 per share, and facilitated the sale of shares by our original sponsors. We believe both of these events are extremely positive for shareholders.”
Revenues from Global Clients grew 19.3% over the third quarter of 2011. Business process management revenues from Global Clients grew by 24.4%, led by 28.6% growth in Smart Decision Services, which is comprised of Genpact’s reengineering, analytics, business consulting and enterprise risk consulting businesses. Revenues from Global Clients represented approximately 74.5% of Genpact’s total revenues, with the remaining 25.5% of revenues, or $125.3 million, coming from GE. GE revenues increased 1.9% from the third quarter of 2011.
As of September 30, 2012, 189 client relationships each contributed revenues of $1 million or more in the preceding twelve months, up from 172 such relationships as of September 30, 2011. As of September 30, 2012, 11 client relationships each contributed revenues of $25 million or more in the preceding 12 months, up from eight such client relationships as of September 30, 2011.
Approximately 76.1% of Genpact’s revenues for the quarter came from business process management services, up from 74.3% for the third quarter of 2011. Revenues from IT services were approximately 23.9% of total revenues for
the third quarter of 2012, compared to 25.7% for the third quarter of 2011.
Genpact generated $77.4 million of cash from operations in the third quarter of 2012, compared to $95.1 million in the third quarter of 2011. Genpact had approximately $394.5 million in cash and cash equivalents as of September 30, 2012.
Year-to-Date Results
| • | Revenues were $1.394 billion, up 20.4% from $1.158 billion for the nine months ended September 30, 2011. |
| • | Net income attributable to Genpact Limited shareholders was $124.8 million, compared to $123.2 million for the nine months ended September 30, 2011; net income margin was 9.0%, compared to 10.6% for the nine months ended September 30, 2011. |
| • | Diluted earnings per common share were $0.55, compared to $0.54 for the nine months ended September 30, 2011. |
| • | Adjusted income from operations was $229.2 million, up 22.3% from $187.4 million for the nine months ended September 30, 2011. |
| • | Adjusted income from operations margin was 16.4%, up from 16.2% for the nine months ended September 30, 2011. |
| • | Adjusted diluted earnings per share were $0.71, compared to $0.66 for the nine months ended September 30, 2011. |
As of September 30, 2012, Genpact had approximately 60,800 employees worldwide, an increase from approximately 53,600 as of September 30, 2011. Genpact’s employee attrition rate for the nine months ended September 30, 2012 was 25%, measured from day one of employment, down from 30% for the same period in 2011. Annualized revenue per employee for the nine months ended September 30, 2012 was $33,700 compared to $34,300 for the nine months ended September 30, 2011.
2012 Outlook
Tyagarajan continued, “Genpact helps clients weather economic storms as they continue to face volatility and uncertainty that is forcing them to better control costs, develop more competitive insights, drive growth and even re-think their business models. Like our clients, we remain cautious about the global economy in the near term and thus we continue to expect Genpact full-year revenues of $1.86 – $1.90 billion, and adjusted operating income margin of 16.0% – 16.5%.”
Conference Call to Discuss Financial Results
Genpact management will host an hour-long conference call beginning at 8:00 a.m. ET on November 1, 2012 to discuss the company’s performance for the third quarter of fiscal 2012. To participate, callers can dial +1 800-901-5241 from within the U.S. or +1 617-786-2963 from any other country. Thereafter, callers will be prompted to enter the participant code, 43481102. 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 will also be made available on Genpact’s website.
About Genpact
Genpact Limited (NYSE: G), a global leader in business process management and technology services, leverages the power of smarter processes, smarter analytics and smarter technology to help its clients drive intelligence across their enterprise. Genpact’s Smart Enterprise Processes (SEPSM) framework, its unique science of process combined with deep domain expertise in multiple industry verticals, leads to superior business outcomes. Genpact’s Smart Decision Services deliver valuable business insights to its clients through targeted analytics, reengineering expertise, and advanced risk management. Making technology more intelligent by embedding it with process and data insights, Genpact also offers a wide range of technology services. Driven by a passion for process innovation and operational excellence built on its Lean and Six Sigma DNA and the legacy of serving GE for more than 15 years, the company’s 60,500+ professionals around the globe deliver services to its more than 600 clients from a network of 74 delivery centers across 20 countries supporting more than 30 languages. 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, 2011 |
As of September 30, 2012 |
|||||||
| Assets |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 408,020 | $ | 394,503 | ||||
| Accounts receivable, net |
258,498 | 462,893 | ||||||
| Accounts receivable from related party, net |
143,921 | 221 | ||||||
| Deferred tax assets |
46,949 | 45,639 | ||||||
| Due from related party |
10 | — | ||||||
| Prepaid expenses and other current assets |
127,721 | 205,710 | ||||||
|
|
|
|
|
|||||
| Total current assets |
$ | 985,119 | $ | 1,108,966 | ||||
| Property, plant and equipment, net |
180,504 | 197,929 | ||||||
| Deferred tax assets |
91,880 | 82,826 | ||||||
| Investment in equity affiliates |
220 | 440 | ||||||
| Customer-related intangible assets, net |
85,987 | 89,936 | ||||||
| Marketing-related intangible assets, net |
24,240 | 22,375 | ||||||
| Other intangible assets, net |
3,061 | 6,510 | ||||||
| Goodwill |
925,339 | 966,612 | ||||||
| Other assets |
107,037 | 123,075 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 2,403,387 | $ | 2,598,669 | ||||
|
|
|
|
|
|||||
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share data and share count)
| As of December 31, 2011 |
As of September 30, 2012 |
|||||||
| Liabilities and equity |
||||||||
| Current liabilities |
||||||||
| Short-term borrowings |
$ | 252,000 | $ | 80,691 | ||||
| Current portion of long-term debt |
29,012 | 4,977 | ||||||
| Current portion of capital lease obligations |
1,005 | 1,414 | ||||||
| Current portion of capital lease obligations payable to related party |
762 | — | ||||||
| Accounts payable |
20,951 | 18,723 | ||||||
| Income taxes payable |
20,118 | 66,772 | ||||||
| Deferred tax liabilities |
35 | 567 | ||||||
| Due to related party |
464 | — | ||||||
| Accrued expenses and other current liabilities |
337,481 | 375,976 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
$ | 661,828 | $ | 549,120 | ||||
| Long-term debt, less current portion |
73,930 | 658,122 | ||||||
| Capital lease obligations, less current portion |
846 | 2,341 | ||||||
| Capital lease obligations payable to related party, less current portion |
855 | — | ||||||
| Deferred tax liabilities |
1,905 | 5,095 | ||||||
| Due to related party |
9,154 | — | ||||||
| Other liabilities |
219,186 | 230,393 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
$ | 967,704 | $ | 1,445,071 | ||||
|
|
|
|
|
|||||
| Shareholders’ equity |
||||||||
| Preferred shares, $0.01 par value, 250,000,000 authorized, none issued |
— | — | ||||||
| Common shares, $0.01 par value, 500,000,000 authorized, 222,347,968 and 224,116,751 issued and outstanding as of December 31, 2011 and September 30, 2012, respectively |
2,222 | 2,240 | ||||||
| Additional paid-in capital |
1,146,203 | 1,186,979 | ||||||
| Retained earnings |
605,386 | 228,581 | ||||||
| Accumulated other comprehensive income (loss) |
(320,753 | ) | (267,461 | ) | ||||
|
|
|
|
|
|||||
| Genpact Limited shareholders’ equity |
1,433,058 | 1,150,339 | ||||||
| Noncontrolling interest |
2,625 | 3,259 | ||||||
|
|
|
|
|
|||||
| Total equity |
1,435,683 | 1,153,598 | ||||||
| Commitments and contingencies |
||||||||
|
|
|
|
|
|||||
| Total liabilities and equity |
$ | 2,403,387 | $ | 2,598,669 | ||||
|
|
|
|
|
|||||
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data and share count)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2011 | 2012 | 2011 | 2012 | |||||||||||||
| Net revenues |
||||||||||||||||
| Net revenues from services - related party |
$ | 123,290 | $ | 170 | $ | 359,035 | $ | 487 | ||||||||
| Net revenues from services - others |
306,275 | 490,987 | 798,707 | 1,393,780 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total net revenues |
429,565 | 491,157 | 1,157,742 | 1,394,267 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Cost of revenue |
||||||||||||||||
| Services |
268,312 | 297,253 | 736,830 | 847,940 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total cost of revenue |
268,312 | 297,253 | 736,830 | 847,940 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Gross profit |
$ | 161,253 | $ | 193,904 | $ | 420,912 | $ | 546,327 | ||||||||
| Operating expenses: |
||||||||||||||||
| Selling, general and administrative expenses |
95,868 | 118,536 | 250,033 | 337,794 | ||||||||||||
| Amortization of acquired intangible assets |
5,754 | 6,014 | 13,971 | 17,094 | ||||||||||||
| Other operating (income) expense, net |
2,883 | (598 | ) | 2,592 | (2,111 | ) | ||||||||||
|
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|
|
|
|
|
|
|
|||||||||
| Income from operations |
$ | 56,748 | $ | 69,952 | $ | 154,316 | $ | 193,550 | ||||||||
| Foreign exchange (gains) losses, net |
(9,736 | ) | 13,220 | (12,433 | ) | (5,086 | ) | |||||||||
| Other income (expense), net |
2,147 | (14,932 | ) | 8,271 | (15,755 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income before Equity-method investment activity, net and income tax expense |
$ | 68,631 | $ | 41,800 | $ | 175,020 | $ | 182,881 | ||||||||
| Equity-method investment activity, net |
21 | (50 | ) | 289 | (24 | ) | ||||||||||
|
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|
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|
|
|
|
|
|||||||||
| Income before income tax expense |
$ | 68,610 | $ | 41,850 | $ | 174,731 | $ | 182,905 | ||||||||
| Income tax expense |
18,907 | 15,239 | 46,386 | 53,239 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
| Net Income |
$ | 49,703 | $ | 26,611 | $ | 128,345 | $ | 129,666 | ||||||||
| Net income attributable to noncontrolling interest |
1,657 | 1,436 | 5,171 | 4,851 | ||||||||||||
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|
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|
|||||||||
| Net income attributable to Genpact Limited shareholders |
$ | 48,046 | $ | 25,175 | $ | 123,174 | $ | 124,815 | ||||||||
|
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|
|||||||||
| Net income available to Genpact Limited common shareholders |
48,046 | 25,175 | 123,174 | 124,815 | ||||||||||||
| Earnings per common share attributable to Genpact Limited common shareholders |
||||||||||||||||
| Basic |
$ | 0.22 | $ | 0.11 | $ | 0.56 | $ | 0.56 | ||||||||
| Diluted |
$ | 0.21 | $ | 0.11 | $ | 0.54 | $ | 0.55 | ||||||||
| Dividend per share |
$ | — | $ | 2.24 | $ | — | $ | 2.24 | ||||||||
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|||||||||
| Weighted average number of common shares used in computing earnings per common share attributable to Genpact Limited common shareholders |
||||||||||||||||
| Basic |
221,771,264 | 223,876,035 | 221,359,288 | 223,289,507 | ||||||||||||
| Diluted |
226,772,299 | 230,195,834 | 226,153,992 | 228,516,391 | ||||||||||||
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands, except per share data and share count)
| Nine months ended September 30, | ||||||||
| 2011 | 2012 | |||||||
| Operating activities |
||||||||
| Net income attributable to Genpact Limited shareholders |
$ | 123,174 | $ | 124,815 | ||||
| Net income attributable to noncontrolling interest |
5,171 | 4,851 | ||||||
|
|
|
|
|
|||||
| Net Income |
$ | 128,345 | $ | 129,666 | ||||
| Adjustments to reconcile net income to net cash provided by (used for) operating activities: |
||||||||
| Depreciation and amortization |
44,552 | 41,609 | ||||||
| Amortization of debt issue costs |
1,264 | 7,468 | ||||||
| Amortization of acquired intangible assets |
14,094 | 17,149 | ||||||
| Reserve (release) for doubtful receivables |
5,944 | 2,780 | ||||||
| Reserve for mortgage loans |
— | 107 | ||||||
| Unrealized (gain) loss on revaluation of foreign currency asset/liability |
(6,397 | ) | (1,307 | ) | ||||
| Equity-method investment activity, net |
289 | (24 | ) | |||||
| Stock-based compensation expense |
17,712 | 22,856 | ||||||
| Deferred income taxes |
(3,722 | ) | (9,297 | ) | ||||
| Others, net |
5,320 | 2,287 | ||||||
| Change in operating assets and liabilities: |
||||||||
| Increase in accounts receivable |
(36,568 | ) | (45,209 | ) | ||||
| Increase in other assets |
(48,564 | ) | (64,645 | ) | ||||
| Decrease in accounts payable |
(2,152 | ) | (3,876 | ) | ||||
| Increase in accrued expenses and other current liabilities |
10,274 | 29,994 | ||||||
| Increase in income taxes payable |
42,886 | 45,688 | ||||||
| Increase in other liabilities |
3,807 | 34,226 | ||||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
$ | 177,084 | $ | 209,472 | ||||
| Investing activities |
||||||||
| Purchase of property, plant and equipment |
(22,263 | ) | (60,141 | ) | ||||
| Proceeds from sale of property, plant and equipment |
687 | 374 | ||||||
| Investment in affiliates |
— | (205 | ) | |||||
| Purchase of short term investments |
(129,458 | ) | — | |||||
| Proceeds from sale of short term investments |
206,443 | — | ||||||
| Short term deposits placed |
— | (25,638 | ) | |||||
| Redemption of short term deposits |
— | 25,638 | ||||||
| Payment for business acquisitions, net of cash acquired |
(561,767 | ) | (54,518 | ) | ||||
|
|
|
|
|
|||||
| Net cash used for investing activities |
$ | (506,358 | ) | $ | (114,490 | ) | ||
| Financing activities |
||||||||
| Repayment of capital lease obligations |
(2,027 | ) | (1,684 | ) | ||||
| Proceeds from long-term debt |
120,000 | 675,000 | ||||||
| Repayment of long-term debt |
(25,000 | ) | (105,000 | ) | ||||
| Proceeds from Short-term borrowings |
260,000 | 80,000 | ||||||
| Repayment of Short-term borrowings |
(8,000 | ) | (252,350 | ) | ||||
| Proceeds from issuance of common shares under stock based compensation plans |
10,614 | 19,684 | ||||||
| Payment for net settlement of stock based awards |
— | (1,746 | ) | |||||
| Dividend paid |
— | (501,620 | ) | |||||
| Direct cost incurred in relation to Debt |
(9,115 | ) | (14,438 | ) | ||||
| Distribution to noncontrolling interest |
(4,680 | ) | (3,961 | ) | ||||
|
|
|
|
|
|||||
| Net cash provided by (used for) financing activities |
$ | 341,792 | $ | (106,115 | ) | |||
| Effect of exchange rate changes |
(7,487 | ) | (2,384 | ) | ||||
| Net increase (decrease) in cash and cash equivalents |
12,518 | (11,133 | ) | |||||
| Cash and cash equivalents at the beginning of the period |
404,034 | 408,020 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents at the end of the period |
$ | 409,065 | $ | 394,503 | ||||
|
|
|
|
|
|||||
| Supplementary information |
||||||||
| Cash paid during the period for interest |
$ | 4,036 | $ | 5,785 | ||||
| Cash paid during the period for income taxes |
$ | 42,212 | $ | 65,708 | ||||
| Property, plant and equipment acquired under capital lease obligation |
$ | 1,438 | $ | 1,955 | ||||
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 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 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 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 historically used financial statements that did not include significant acquisition related expenses and amortization of acquired intangibles on such acquisitions, 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.
As a result of frequent acquisitions of varying scale and size, it is difficult to predict the expenses related to acquisitions and amortization of the acquired intangibles on acquisitions. Therefore, with effect from July 1, 2012, for its internal management reporting and budgeting purposes, management considers using financial statements that do not include expenses related to all acquisitions and amortization of acquired intangibles on acquisitions 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.
Besides this, for its internal management reporting and budgeting purposes, management uses financial statements that do not include stock-based compensation expense, amortization of acquired intangibles at formation in 2004, expenses related to change of shareholding and capital restructuring (excluding expenses related to the new credit facility) and withholding taxes relating to remittance of funds between subsidiaries to partly fund the payment of the special cash dividend in respect of capital restructuring, 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 ASC 718 “Compensation-Stock Compensation”, 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, expenses related to all acquisitions and amortization of acquired intangibles on acquisitions, expenses related to change of shareholding and capital restructuring (excluding expenses related to the new credit facility) and withholding taxes relating to remittance of funds between subsidiaries to partly fund the payment of the special cash dividend in respect of capital restructuring, allows investors to make additional comparisons between Genpact’s operating results to 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 future stock-based compensation expense under ASC 718, the amortization of intangibles associated with further acquisitions, acquisition related expenses, expenses related to change of shareholding and capital restructuring (excluding expenses related to the new credit facility), and withholding taxes relating to remittance of funds between subsidiaries to partly fund the payment of the special cash dividend in respect of capital restructuring, 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.
A limitation of using non-GAAP adjusted income from operations and adjusted net income versus income from operations and net income attributable to shareholders of Genpact Limited 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.
The following tables show the reconciliation of these adjusted financial measures from GAAP for the three and nine months ended September 30, 2011 and 2012:
Reconciliation of Adjusted Income from Operations
(Unaudited)
(In thousands)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2011 | 2012 | 2011 | 2012 | |||||||||||||
| Income from operations as per GAAP |
$ | 56,748 | $ | 69,952 | $ | 154,316 | $ | 193,550 | ||||||||
| Add: Amortization of acquired intangible assets resulting from Formation Accounting |
2,327 | 1,621 | 7,275 | 5,253 | ||||||||||||
| Add: Amortization of acquired intangible assets relating to acquisitions |
2,867 | 2,694 | 4,916 | 7,948 | ||||||||||||
| Add: Stock based compensation |
9,153 | 5,613 | 17,712 | 22,856 | ||||||||||||
| Add: Acquisition related expenses |
— | 298 | 5,619 | 298 | ||||||||||||
| Add: Other income (expense) |
1,452 | (6,365 | ) | 3,012 | (5,733 | ) | ||||||||||
| Add: Consultancy and legal fees relating to change of shareholding and capital restructuring (excluding expenses related to the new credit facility) |
— | 7,318 | — | 9,805 | ||||||||||||
| Less: Equity-method investment activity, net |
(38 | ) | 50 | (306 | ) | 24 | ||||||||||
| Less: Net income attributable to noncontrolling interest |
(1,657 | ) | (1,436 | ) | (5,171 | ) | (4,851 | ) | ||||||||
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| Adjusted income from operations |
$ | 70,852 | $ | 79,745 | $ | 187,373 | $ | 229,150 | ||||||||
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Reconciliation of Adjusted Net Income
(Unaudited)
(In thousands, except per share data)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2011 | 2012 | 2011 | 2012 | |||||||||||||
| Net income as per GAAP |
$ | 48,046 | $ | 25,175 | $ | 123,174 | $ | 124,815 | ||||||||
| Add: Amortization of acquired intangible assets resulting from Formation Accounting |
2,327 | 1,621 | 7,275 | 5,253 | ||||||||||||
| Add: Amortization of acquired intangible assets relating to acquisitions |
2,867 | 2,694 | 4,916 | 7,948 | ||||||||||||
| Add: Stock based compensation |
9,153 | 5,613 | 17,712 | 22,856 | ||||||||||||
| Add: Acquisition related expenses |
— | 298 | 5,619 | 298 | ||||||||||||
| Add: Consultancy and legal fees relating to change of shareholding and capital restructuring (excluding expenses related to the new credit facility) |
— | 7,318 | — | 9,805 | ||||||||||||
| Add: Withholding taxes relating to remittance of funds between subsidiaries to partly fund the payment of special cash dividend in respect of capital restructuring |
— | 2,300 | — | 2,300 | ||||||||||||
| Less: Tax impact on amortization of acquired intangibles resulting from Formation Accounting |
(540 | ) | (357 | ) | (1,838 | ) | (1,190 | ) | ||||||||
| Less: Tax impact on amortization of acquired intangibles resulting from acquisitions |
(975 | ) | (893 | ) | (1,670 | ) | (2,679 | ) | ||||||||
| Less: Tax impact on stock based compensation |
(2,583 | ) | (1,971 | ) | (5,057 | ) | (7,004 | ) | ||||||||
| Less: Tax impact on acquisition related expenses |
— | (75 | ) | (1,394 | ) | (75 | ) | |||||||||
| Less: Tax impact on consultancy and legal fees relating to change of shareholding and capital restructuring (excluding expenses related to the new credit facility) |
— | — | — | (182 | ) | |||||||||||
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| Adjusted net income |
$ | 58,295 | $ | 41,723 | $ | 148,737 | $ | 162,145 | ||||||||
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| Adjusted diluted earnings per share |
$ | 0.26 | $ | 0.18 | $ | 0.66 | $ | 0.71 | ||||||||