Genpact Reports Results for the Third Quarter of 2009
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Third Quarter Revenues Grow 5%, Adjusted Income from Operations Increases 9%
NEW YORK--(BUSINESS WIRE)-- 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, 2009.
Key Financial Results - Third Quarter 2009
-- Revenues were $284.4 million, up 5.0% from $270.8 million in the third
quarter of 2008.
-- Net income attributable to Genpact Limited common shareholders was $33.1
million, down 1.7% from $33.6 million in the third quarter of 2008; net
income margin for the third quarter of 2009 was 11.6%, down from 12.4%
in the third quarter of 2008.
-- Diluted earnings per common share attributable to Genpact Limited common
shareholders were $0.15, consistent with the third quarter of 2008.
-- Adjusted income from operations increased 8.8% to $53.8 million,
compared to $49.5 million in the third quarter of 2008.
-- Adjusted income from operations margin was 18.9%, up from 18.3% in the
third quarter of 2008.
-- Adjusted diluted earnings per share attributable to Genpact Limited
common shareholders were $0.19, down from $0.21 in the third quarter of
2008.
Pramod Bhasin, Genpact's President and CEO said, "Our results for the third quarter of 2009 were solid and our outlook is positive. We grew revenue, gross profit and adjusted income from operations margin, both year-over-year and sequentially. We are encouraged by the strength and expansion of our pipeline, some faster deal conversion times, higher win rates and the caliber and scope of recent client wins. Pricing is still competitive but appears to be stabilizing. We have been investing in business development and have hired outstanding sales and account management talent during this period. Our forward view is now more optimistic than earlier this year though the pace and timing of economic recovery remains somewhat uncertain."
Revenues from clients other than GE, which Genpact refers to as Global Client revenues, grew 17.4% over the third quarter of 2008. Revenues from Global Clients now represent approximately 60.8% of Genpact's total revenues, with the remaining 39.2% of revenues coming from GE. GE revenues decreased 4.2% from the third quarter of 2008, adjusted for dispositions by GE.
Approximately 84.9% of Genpact's revenues for the quarter came from business process services, up from 80.9% for the third quarter of 2008, while revenues from IT services were approximately 15.1% of total revenues for the third quarter of 2009, as compared to 19.1% for the third quarter of 2008.
As of September 30, 2009, 36 client relationships each accounted for $5 million or more of Genpact's revenues in the last twelve months, up from 29 such relationships at the end of 2008. Of those, five client relationships each accounted for $25 million or more of Genpact's revenues in the last twelve months.
Genpact generated $55.7 million of cash from operations in the third quarter of 2009, down from $58.6 million in the third quarter of 2008. Genpact has a strong balance sheet, with approximately $399.1 million in Cash and Cash Equivalents, Short Term Investments and Short Term Deposits.
Year-to-Date Results
-- Revenues were $823.1 million, up 8.4% from $759.0 million for the nine
months ended September 30, 2008.
-- Net income attributable to Genpact Limited common shareholders was $92.7
million, up 18.6% from $78.1 million for the nine months ended September
30, 2008; net income margin was 11.3%, up from 10.3% for the nine months
ended September 30, 2008.
-- Diluted earnings per common share attributable to Genpact Limited common
shareholders were $0.42, up from $0.36 per share for the nine months
ended September 30, 2008.
-- Adjusted income from operations was $144.3 million, up 20.6% from $119.7
million for the nine months ended September 30, 2008.
-- Adjusted income from operations margin was 17.5%, up from 15.8% for the
nine months ended September 30, 2008.
-- Adjusted diluted earnings per share attributable to Genpact Limited
common shareholders were $0.54, up from $0.53 for the nine months ended
September 30, 2008.
Annualized revenue per employee increased to approximately $30,900 for the nine months ended September 30, 2009 from $30,300 in the nine months September 30, 2008. As of September 30, 2009, Genpact had approximately 37,700 employees worldwide, an increase from 36,400 as of September 30, 2008. Genpact's employee attrition rate for the nine months ended September 30, 2009, measured from day one of employment, was 23%, down from 26% for the same period in 2008. Genpact's attrition rate would be 19% if measured after six months of employment, as many of Genpact's competitors do.
Bhasin continued, "Our third-quarter results represent a terrific job by our teams in aggressively driving growth, managing costs and delivering value to our clients and shareholders. We are confirming our revenue guidance of 6-9% revenue growth over 2008 and raising our adjusted operating margin guidance to 17.5-18%. We see encouraging signs in the market. Client demand is coming back, decision-making is improving and our pipeline is strong."
Conference Call
Genpact management will host a conference call beginning at 8:00 a.m. EST on November 5, 2009 to discuss the company's performance for the periods ended September 30, 2009. To participate, callers can dial 1 (866) 318-8612 from within the U.S. or 1 (617) 399-5131 from any other country. Thereafter, callers will be prompted to enter the participant passcode, which is 27676151.
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 is a leader in the globalization of services and technology and a pioneer in managing business processes for companies around the world. Genpact 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, Morocco, the Philippines, Poland, the Netherlands, Romania, Spain, South Africa, Guatemala and the United States. For more information, see our website at: 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 and uncertainties include but are not limited to a slowdown in the economies and sectors in which our clients operate, a slowdown in the BPO and IT 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, 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. Genpact does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of Genpact.
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share data)
As of December 31, As of September 30,
2008 2009
Assets
Current assets
Cash and cash equivalents $ 184,050 $ 240,446
Short term investments 141,662 144,294
Accounts receivable, net 140,504 144,264
Accounts receivable from a significant 88,793 104,517
shareholder, net
Short term deposits with a significant 59,332 14,393
shareholder
Deferred tax assets 38,629 34,772
Due from a significant shareholder 1,428 523
Prepaid expenses and other current 89,936 128,495
assets
Total current assets 744,334 811,704
Property, plant and equipment, net 174,266 178,381
Deferred tax assets 111,002 77,931
Investment in equity affiliates 970 667
Customer-related intangible assets, net 56,942 40,339
Other intangible assets, net 5,225 1,340
Goodwill 531,897 533,320
Other assets 71,690 71,069
Total assets $ 1,696,326 $ 1,714,751
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share data)
As of December 31, As of September 30,
2008 2009
Liabilities and equity
Current liabilities
Short-term borrowings $ 25,000 $ --
Current portion of long-term debt 29,539 42,162
Current portion of capital lease 446 421
obligations
Current portion of capital lease
obligations payable to a significant 1,563 1,552
shareholder
Accounts payable 8,377 12,343
Income taxes payable 2,081 35,539
Deferred tax liabilities 12 13
Due to a significant shareholder 10,865 7,783
Accrued expenses and other current 347,176 321,731
liabilities
Total current liabilities $ 425,059 $ 421,544
Long-term debt, less current portion 69,665 37,400
Capital lease obligations, less current 1,950 1,551
portion
Capital lease obligations payable to a
significant shareholder, less current 2,391 1,998
portion
Deferred tax liabilities 10,174 4,356
Due to a significant shareholder 7,322 10,060
Other liabilities 335,399 179,087
Total liabilities $ 851,960 $ 655,996
Shareholders' equity
Preferred shares, $0.01 par value, -- --
250,000,000 authorized, none issued
Common shares, $0.01 par value,
500,000,000 authorized,
214,560,620 and 216,115,305 issued and 2,146 2,161
outstanding as of
December 31, 2008 and September 30,
2009, respectively
Additional paid-in capital 1,030,304 1,053,281
Retained earnings 151,610 244,322
Accumulated other comprehensive income (342,267) (243,565)
(loss)
Genpact Limited shareholders' equity 841,793 1,056,199
Noncontrolling interest 2,573 2,556
Total equity 844,366 1,058,755
Commitments and contingencies
Total liabilities and equity $ 1,696,326 $ 1,714,751
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
Three months ended September Nine months ended September 30,
30,
2008 2009 2008 2009
Net revenues
Net revenues
from services - $ 123,504 $ 111,459 $ 363,678 $ 333,909
significant
shareholder
Net revenues
from services - 147,295 172,981 395,323 489,216
others
Total net 270,799 284,440 759,001 823,125
revenues
Cost of revenue
Services 155,765 166,995 448,938 496,516
Total cost of 155,765 166,995 448,938 496,516
revenue
Gross profit 115,034 117,445 310,063 326,609
Operating
expenses:
Selling, general
and 71,175 67,242 199,943 194,965
administrative
expenses
Amortization of
acquired 8,974 6,382 28,799 19,747
intangible
assets
Other operating
(income) (1,443) (1,092) (1,507) (3,970)
expense, net
Income from $ 36,328 $ 44,913 $ 82,828 $ 115,867
operations
Foreign exchange
(gains) losses, (1,557) 2,576 (7,390) 2,005
net
Other income 3,263 305 8,284 3,448
(expense), net
Income before
share of equity
in (earnings)
loss of 41,148 42,642 98,502 117,310
affiliates and
income tax
expense
Equity in (gain)
loss of (37) 161 282 596
affiliates
Income tax 5,692 7,895 12,235 18,430
expense
Net Income $ 35,493 $ 34,586 $ 85,985 $ 98,284
Net income
attributable to 1,859 1,524 7,841 5,572
noncontrolling
interest
Net income
attributable to
Genpact Limited $ 33,634 $ 33,062 $ 78,144 $ 92,712
common
shareholders
Net income
available to
Genpact Limited 33,634 33,062 78,144 92,712
common
shareholders
Earnings per
common share
attributable to
Genpact Limited
common
shareholders
Basic $ 0.16 $ 0.15 $ 0.37 $ 0.43
Diluted $ 0.15 $ 0.15 $ 0.36 $ 0.42
Weighted average
number of common
shares used in
computing
earnings (loss)
per common share
attributable to
Genpact Limited
common
shareholders
Basic 214,182,308 215,794,607 213,127,131 215,136,984
Diluted 219,350,826 221,799,597 218,550,988 219,228,874
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine months ended September 30,
2008 2009
Operating activities
Net income attributable to Genpact Limited $ 78,144 $ 92,712
common shareholders
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 41,700 38,893
Amortization of debt issue costs 491 434
Amortization of acquired intangible assets 29,522 20,182
Loss (gain) on sale of property, plant and 2,116 (178)
equipment, net
Provision for doubtful receivables 2,890 2,112
Provision for mortgage loans 542 -
Unrealized (gain) loss on revaluation of (2,405) 5,147
foreign currency asset/liability
Equity in loss of affiliates 282 596
Noncontrolling interest 7,841 5,572
Share-based compensation expense 12,643 15,256
Deferred income taxes (13,926) (18,324)
Change in operating assets and liabilities:
Increase in accounts receivable (44,876) (18,858)
Increase in other assets (32,852) (45,711)
(Decrease) / increase in accounts payable (1,814) 4,243
(Decrease) / increase in accrued expenses and 16,116 (15,791)
other current liabilities
Increase in income taxes payable 21,934 33,546
Increase in other liabilities 9,615 3,671
Net cash provided by operating activities $ 127,963 $ 123,502
Investing activities
Purchase of property, plant and equipment (45,935) (43,949)
Purchase of property, plant and equipment in an (7,015) -
asset acquisition
Proceeds from sale of property, plant and 6,219 2,026
equipment
Investment in affiliates (883) (296)
Purchase of short term investments - (197,419)
Proceeds from sale of short term investments - 194,822
Short term deposits placed with significant (193,171) (101,008)
shareholder
Redemption of short term deposits with 203,108 144,880
significant shareholder
Payment for business acquisition - (20,196)
Net cash used in investing activities $ (37,677) $ (21,140)
Financing activities
Repayment of capital lease obligations (2,273) (1,946)
Proceeds from long-term debt - -
Repayment of long-term debt (20,063) (20,000)
Repayment of short-term borrowings, net - (25,000)
Proceeds from issuance of common shares on 13,044 7,736
exercise of options
Distribution to noncontrolling interest (8,864) (5,586)
Net cash provided (used) by financing $ (18,156) $ (44,796)
activities
Effect of exchange rate changes (48,376) (1,170)
Net increase (decrease) in cash and cash 72,130 57,566
equivalents
Cash and cash equivalents at the beginning of 279,306 184,050
the period
Cash and cash equivalents at the end of the $ 303,060 $ 240,446
period
Supplementary information
Cash paid during the period for interest $ 4,750 $ 3,652
Cash paid during the period for income taxes $ 27,377 $ 43,557
Property, plant and equipment acquired under $ 3,571 $ 1,250
capital lease obligation
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 common shareholders of Genpact Limited, or adjusted net income, and diluted adjusted earnings per share attributable to common shareholders of Genpact Limited, or diluted adjusted 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 uses financial statements that do not include share-based compensation expense (including fringe benefit tax thereon for Indian employees, or FBT, which was abolished on August 18, 2009 with effect from April 1, 2009) and amortization of acquired intangibles 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 ASC 718 "Compensation-Stock Compensation" (previously referred to as SFAS No. 123(R) "Share Based Payment"), Genpact's management believes that providing financial statements that do not include share-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 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 share-based compensation expense under ASC 718 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.
A limitation of using non-GAAP adjusted income from operations and adjusted net income versus income from operations and net income attributable to common shareholders of Genpact Limited calculated in accordance with GAAP is that non-GAAP adjusted income from operations and adjusted net income excludes costs, namely, share-based compensation, that are recurring. Share-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, 2008 and 2009:
Reconciliation of Adjusted Income from Operations
(Unaudited)
(In thousands)
Three months ended Nine months ended
September 30, September 30,
2008 2009 2008 2009
Income from operations as per $ 36,328 $ 44,913 $ 82,828 $ 115,867
GAAP
Add: Amortization of acquired
intangible assets resulting 8,649 6,000 27,906 18,661
from Formation Accounting
Add: Share based compensation 4,334 5,825 12,643 15,256
Add: FBT impact on share based
compensation recovered from 1,138 (1,086 ) 2,691 70
employees
Add: Gain (loss) on interest - - (283 ) -
rate swaps
Add: Other income 830 (158 ) 2,003 630
Less: Equity in gain (loss) of 37 (161 ) (282 ) (596 )
affiliates
Less: Non controlling interest (1,859 ) (1,524 ) (7,841 ) (5,572 )
Adjusted income from $ 49,457 $ 53,809 $ 119,665 $ 144,316
operations
Reconciliation of Adjusted Net Income
(Unaudited)
(In thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2008 2009 2008 2009
Net income as per GAAP $ 33,634 $ 33,062 $ 78,144 $ 92,712
Add: Amortization of acquired
intangible assets resulting 8,649 6,000 27,906 18,661
from Formation Accounting
Add: Share based compensation 4,334 5,825 12,643 15,256
Add: FBT impact on share based
compensation recovered from 1,138 (1,086 ) 2,691 70
employees
Less: Tax impact on
amortization of acquired (2,048 ) (1,242 ) (5,512 ) (4,409 )
intangibles resulting from
Formation Accounting
Less: Tax impact on stock - (977 ) - (3,582 )
based compensation
Adjusted net income $ 45,707 $ 41,582 $ 115,872 $ 118,708
Diluted adjusted earnings per $ 0.21 $ 0.19 $ 0.53 $ 0.54
share
Source: Genpact Limited
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