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8-K - FORM 8-K - Genpact LTDd8k.htm

Exhibit 99.1

Genpact Reports 4Q ‘10 Revenues up 15%, Adjusted Income from Operations up 17%

FY ‘10 Revenues of $1.26 Billion, up 12%, Adjusted Income from Operations of $203.7 Million, up 2%

NEW YORK, February 7, 2011 – Genpact Limited (NYSE: G), a global leader in business process and technology management, today announced financial results for the fourth quarter and full-year ended December 31, 2010.

For the fourth quarter, revenues of $341.5 million were up 15% from a year earlier, and up 6% sequentially over the prior quarter. For the full year, revenues were $1.26 billion, up 12% from the prior year. For the fourth quarter, net income attributable to Genpact Limited shareholders was $46.0 million, up 33% from $34.6 million in the fourth quarter of 2009. For the full year, net income attributable to Genpact Limited shareholders was $142.2 million, up 12 % from $127.3 million in 2009.

Pramod Bhasin, Genpact’s President and CEO said, “In 2010, we grew revenues, adjusted income from operations, net income, earnings per share and cash flows. We increased our business with existing clients and continued to expand the pipeline.”

Key Financial Results – Full-Year 2010

 

 

Revenues were $1,259.0 million, up 12.4% from 2009.

 

 

Net income attributable to Genpact Limited shareholders was $142.2 million, up 11.7% from $127.3 million in 2009; net income margin for 2010 was 11.3%, compared to 11.4% in 2009.

 

 

The effective tax rate was 19.4%, up from 16.7% in 2009.

 

 

Diluted earnings per common share were $0.63, up from $0.58 per share in 2009.

 

 

Adjusted income from operations increased 2.4% to $203.7 million, up from $199.0 million in 2009.

 

 

Adjusted income from operations margin was 16.2%, compared to 17.8% in 2009.

 

 

Adjusted diluted earnings per share were $0.74, up from $0.73 in 2009.

Key Financial Results – Fourth Quarter 2010

 

 

Revenues were $341.5 million, up 15.0% from $296.9 million in the fourth quarter of 2009.

 

 

Net income attributable to Genpact Limited shareholders was $46.0 million, up 33.1% from $34.6 million in the fourth quarter of 2009; net income margin for the fourth quarter of 2010 was 13.5%, up from 11.6% in the fourth quarter of 2009.

 

 

Diluted earnings per common share were $0.20, up from $0.16 per share in the fourth quarter of 2009.

 

 

Adjusted income from operations totaled $63.7 million, up from $54.7 million in the fourth quarter of 2009.

 

 

Adjusted income from operations margin was 18.7%, up from 18.4% in the fourth quarter of 2009.

 

 

Adjusted diluted earnings per share were $0.23, up from $0.19 in the fourth quarter of 2009.

Global Client revenues grew 16% over 2009, led by finance and accounting and analytics service offerings. Global Client business process management, or BPM, revenues increased 19% for the full year 2010, and 23% in the fourth quarter. Revenues from Global Clients represented approximately 62% of Genpact’s total revenues in 2010, with the remaining 38% of revenues coming from GE.

GE revenues increased 7% in 2010, primarily due to an increase in procurement sourcing, finance and accounting, and analytics service offerings. In the fourth quarter, GE revenues increased 3% sequentially.

As of December 31, 2010, Genpact had approximately 43,900 employees worldwide, an increase from approximately 38,600 at the end of 2009. The attrition rate for the entire year, measured from day one, was 31%, compared to 23% in 2009. Revenue per employee in 2010 was $31,100, compared to $31,200 in 2009.


Diversified and Expanding Client Base

Genpact continues to diversify and expand its client base. In 2010, banking, financial services and insurance clients represented 39% of revenues. Manufacturing clients that included infrastructure and automotive businesses also accounted for 39%. The remaining 22% of revenues for 2010 came from clients providing retail, transportation and logistics, pharmaceutical, healthcare, media and entertainment and hospitality services.

BPM services accounted for approximately 86% of total revenues in 2010, up from 84% in 2009, while revenues from IT services accounted for 14%.

N.V. “Tiger” Tyagarajan, Genpact’s Chief Operating Officer said, “We continue to drive strong growth in Global Client business process management services, with Global Client BPM revenues increasing 23% in the fourth quarter and 19% for the full year. We had 44 clients contributing $5 million or more of annual revenues in 2010, up from 35 in 2009. Of those, three client relationships each accounted for $25 million or more of annual 2010 revenues. We also added 76 new clients during the year, up from 52 added in 2009. Our Smart Enterprise Processes (SEPsm) was a clear differentiator that helped us expand with existing clients and gain new ones.”

Improved Cash Flows

Cash from operations totaled $163 million in 2010, up from $158 million in 2009. As of December 31, 2010, Genpact had $481 million of cash, cash equivalents and short term investments, up from $431 million at the end of 2009.

2011 Outlook

Bhasin continued, “The macro-economic environment appears to be improving. Our pipeline for new business continues to expand overall. Within that environment we are also continuing to see longer cycle times and smaller deal sizes. In 2011, we expect revenue growth of 10-13%, led by strong and accelerating growth from our Global Clients business.

“We expect our adjusted income from operations margin for the 2011 full year to be in the range of 16% to 16.5%. This reflects our decision to invest a significant portion of the savings we achieved late in 2010 into specific growth initiatives. These initiatives for growth include expanding our client-facing teams and new product development and introduction. We believe that the market for business process management continues to be underpenetrated and that we are the thought-leaders in our industry. We have a terrific runway for growth, particularly to expand with existing Global Clients, and are well-positioned to take advantage of the opportunities that we see,” he concluded.

Conference Call to Discuss Financial Results

Genpact management will host a conference call at 8 a.m. (Eastern Standard Time) on February 7, 2011 to discuss the company’s performance for the periods ended December 31, 2010. To participate, callers can dial 1- 866-271-6130 from within the U.S. or +1 (617) 213-8894 from any other country. Thereafter, callers need to enter the participant passcode, which is 65814407. A live webcast of this event 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 our website, www.genpact.com, after the end of the call. A transcript of the call will also be made available on our website.

About Genpact

Genpact is a global leader in business process and technology management, offering a broad portfolio of enterprise and industry-specific services. The company manages over 3,000 processes for more than 400 clients worldwide. Putting process in the forefront, Genpact couples its deep process knowledge and insights with focused IT capabilities, targeted analytics and pragmatic reengineering to deliver comprehensive solutions for clients. Lean and Six Sigma are an integral part of Genpact’s culture and Genpact views the management of business processes as a science. Genpact has developed Smart Enterprise Processes (SEPSM), a groundbreaking, rigorously scientific methodology for managing business processes, which focuses on optimizing process effectiveness in addition to efficiency to deliver superior business outcomes. Services are seamlessly delivered from a global network of centers to meet a client’s business objectives, cultural and language needs and cost reduction goals. Learn more 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 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, 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    Shishir Verma
   +1 (646) 624 5912
   shishir.verma@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)

 

     As of December 31,  
     2009      2010  

Assets

     

Current assets

     

Cash and cash equivalents

   $ 288,734       $ 404,034   

Short term investments

     132,601         76,985   

Accounts receivable, net

     136,280         174,654   

Accounts receivable from related party, net

     116,228         131,271   

Short term deposits with related party

     9,634         —     

Deferred tax assets

     45,929         21,985   

Due from related party

     9         3   

Prepaid expenses and other current assets

     116,551         126,848   
                 

Total current assets

   $ 845,966       $ 935,780   

Property, plant and equipment, net

     189,112         197,166   

Deferred tax assets

     36,527         35,099   

Investment in equity affiliates

     588         1,913   

Customer-related intangible assets, net

     36,041         33,296   

Other intangible assets, net

     187         51   

Goodwill

     548,723         570,153   

Other assets

     90,421         120,003   
                 

Total assets

   $ 1,747,565       $ 1,893,461   
                 


GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share data)

 

     As of December 31,  
     2009     2010  

Liabilities and equity

    

Current liabilities

    

Short-term borrowings

   $ 177      $ —     

Current portion of long-term debt

     44,715        24,950   

Current portion of capital lease obligations

     527        702   

Current portion of capital lease obligations payable to related party

     1,429        1,188   

Accounts payable

     16,276        12,206   

Income taxes payable

     1,579        8,064   

Deferred tax liabilities

     264        489   

Due to related party

     7,843        4,030   

Accrued expenses and other current liabilities

     322,773        270,919   
                

Total current liabilities

   $ 395,583      $ 322,548   

Long-term debt, less current portion

     24,950        —     

Capital lease obligations, less current portion

     1,570        741   

Capital lease obligations payable to related party, less current portion

     1,809        1,748   

Deferred tax liabilities

     4,398        2,953   

Due to related party

     10,474        10,683   

Other liabilities

     109,034        73,546   
                

Total liabilities

   $ 547,818      $ 412,219   
                

Shareholders’ equity

    

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

     —          —     

Common shares, $0.01 par value, 500,000,000 authorized, 217,433,091 and 220,916,960 issued and outstanding as of December 31, 2009 and 2010, respectively

     2,174        2,208   

Additional paid-in capital

     1,063,304        1,105,610   

Retained earnings

     278,911        421,092   

Accumulated other comprehensive income (loss)

     (146,993     (50,238
                

Genpact Limited shareholders’ equity

   $ 1,197,396      $ 1,478,672   

Noncontrolling interest

     2,351        2,570   
                

Total equity

   $ 1,199,747      $ 1,481,242   
                

Commitments and contingencies

    

Total liabilities and equity

   $ 1,747,565      $ 1,893,461   
                


GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data)

 

     Year ended December 31,  
     2008     2009     2010  

Net revenues

  

   

Net revenues from services - related party

   $ 490,153      $ 451,338      $ 479,231   

Net revenues from services - others

     550,694        668,733        779,732   
                        

Total net revenues

     1,040,847        1,120,071        1,258,963   
                        

Cost of revenue

      

Services

     619,231        672,624        788,522   
                        

Total cost of revenue

     619,231        672,624        788,522   
                        

Gross profit

   $ 421,616      $ 447,447      $ 470,441   

Operating expenses:

      

Selling, general and administrative expenses

     254,533        265,392        282,102   

Amortization of acquired intangible assets

     36,513        25,969        15,959   

Other operating (income) expense, net

     (3,143     (6,094     (5,484
                        

Income from operations

   $ 133,713      $ 162,180      $ 177,864   

Foreign exchange (gains) losses, net

     (4,089     5,493        (1,137

Other income (expense), net

     6,547        4,437        5,246   
                        

Income before share of equity in loss of affiliates and income tax expense

   $ 144,349      $ 161,124      $ 184,247   

Equity in loss of affiliates

     925        700        1,013   
                        

Income before income tax expense

   $ 143,424      $ 160,424      $ 183,234   

Income tax expense

     8,823        25,466        34,203   
                        

Net Income

   $ 134,601      $ 134,958      $ 149,031   

Net income attributable to noncontrolling interest

     9,460        7,657        6,850   
                        

Net income attributable to Genpact Limited shareholders

   $ 125,141      $ 127,301      $ 142,181   
                        

Net income available to Genpact Limited common shareholders

   $ 125,141      $ 127,301      $ 142,181   

Earnings per common share attributable to Genpact Limited common shareholders

      

Basic

   $ 0.59      $ 0.59      $ 0.65   

Diluted

   $ 0.57      $ 0.58      $ 0.63   
                        

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

      

Basic

     213,480,623        215,503,749        219,310,327   

Diluted

     218,444,224        220,066,345        224,838,529   


GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

     Year ended December 31,  
     2008     2009     2010  

Operating activities

      

Net income attributable to Genpact Limited shareholders

   $ 125,141      $ 127,301      $ 142,181   

Net income attributable to noncontrolling interest

     9,460        7,657        6,850   
                        

Net income

   $ 134,601      $ 134,958      $ 149,031   

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

      

Depreciation and amortization

     54,640        53,047        57,881   

Amortization of debt issue costs

     645        561        385   

Amortization of acquired intangible assets

     37,426        26,540        16,275   

Provision for doubtful receivables

     1,876        1,614        (1,334

Provision for / (writeback of) mortgage loans

     754        (1,022     12   

Gain on business acquisition

     —          —          (247

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

     2,583        (166     (284

Equity in loss of affiliates

     925        700        1,013   

Share-based compensation expense

     16,936        19,285        17,514   

Deferred income taxes

     (24,421     (20,740     (5,400

Others, net

     1,766        206        181   

Change in operating assets and liabilities:

      

Increase in accounts receivable

     (42,429     (21,980     (50,414

Increase in other assets

     (1,095     (32,005     (25,932

(Decrease) increase in accounts payable

     (3,054     4,214        (2,631

(Decrease) increase in accrued expenses and other current liabilities

     29,506        (11,155     (2,560

(Decrease) increase in income taxes payable

     (4,758     (563     6,447   

Increase in other liabilities

     5,334        4,675        3,161   
                        

Net cash provided by operating activities

   $ 211,235      $ 158,169      $ 163,098   
                        

Investing activities

      

Purchase of property, plant and equipment

     (62,421     (52,540     (55,171

Purchase of property, plant and equipment in an asset acquisition

     (7,015     —          —     

Proceeds from sale of property, plant and equipment

     7,405        1,147        1,239   

Investment in affiliates

     (1,789     (296     (2,324

Purchase of short term investments

     (182,442     (246,914     (107,324

Proceeds from sale of short term investments

     40,780        255,778        162,940   

Short term deposits placed with related party

     (282,348     (111,049     (6,530

Redemption of short term deposits with related party

     248,383        160,405        16,325   

Payment for business acquisitions, net of cash acquired

     —          (20,196     (42,575
                        

Net cash used in investing activities

   $ (239,447   $ (13,665   $ (33,420
                        

Financing activities

      

Repayment of capital lease obligations

     (3,139     (2,603     (4,861

Repayment of long-term debt

     (25,063     (30,000     (45,000

Short-term borrowings, net

     25,000        (24,820     (165

Proceeds from issuance of common shares under share based compensation plans

     13,214        13,743        24,826   

Distribution to noncontrolling interest

     (9,648     (7,866     (7,065
                        

Net cash provided by (used for) financing activities

   $ 364      $ (51,546   $ (32,265
                        

Effect of exchange rate changes

     (67,408     11,726        17,887   

Net increase (decrease) in cash and cash equivalents

     (27,848     92,958        97,413   

Cash and cash equivalents at the beginning of the period

     279,306        184,050        288,734   
                        


Cash and cash equivalents at the end of the period

   $ 184,050       $ 288,734       $ 404,034   
                          

Supplementary information

        

Cash paid during the period for interest

   $ 6,250       $ 4,274       $ 1,617   

Cash paid during the period for income taxes

   $ 38,193       $ 67,561       $ 40,466   

Property, plant and equipment acquired under capital lease obligation

   $ 4,941       $ 1,558       $ 1,968   


GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

 

     Three months period ended,  
     March 31,
2010
     June 30,
2010
     September 30,
2010
     December 31,
2010
 
     (dollars in millions, except per share data)  

Statement of income data:

           

Total net revenues

   $ 288.2       $ 307.6       $ 321.6       $ 341.5   

Cost of revenue

     176.7         191.1         204.8         215.9   

Gross profit

     111.5         116.5         116.7         125.6   

Income from operations

     37.3         38.3         42.4         59.9   

Income before share of equity in loss of affiliates and income tax expense

     37.8         34.3         49.2         63.0   

Net income attributable to Genpact Limited shareholders

   $ 28.2       $ 27.8       $ 40.1       $ 46.0   
     Three months period ended,  
     March 31,
2009
     June 30,
2009
     September 30,
2009
     December 31,
2009
 
     (dollars in millions, except per share data)  

Statement of income data:

           

Total net revenues

   $ 265.8       $ 272.9       $ 284.4       $ 296.9   

Cost of revenue

     163.7         165.8         167.0         176.1   

Gross profit

     102.1         107.0         117.4         120.8   

Income from operations

     33.1         37.8         44.9         46.3   

Income before share of equity in loss of affiliates and income tax expense

     37.0         37.7         42.6         43.8   

Net income attributable to Genpact Limited shareholders

   $ 30.0       $ 29.7       $ 33.1       $ 34.6   


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 uses financial statements that do not include share-based compensation expense (including fringe benefit tax, or FBT thereon for Indian employees, abolished on August 18, 2009 with effect from April 1, 2009), amortization of acquired intangibles at formation in 2004 and expenses associated with the Company’s March 2010 secondary offering, 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 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 and expenses of the secondary offering 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, the amortization of intangibles associated with further acquisitions and expenses of the secondary offering, 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, 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 months and year ended December 31, 2009 and 2010:

Reconciliation of Adjusted Income from Operations

(Unaudited) (In thousands)

 

     Year ended
December 31,
    Quarter ended
December 31,
 
     2009     2010     2009     2010  

Income from operations as per GAAP

   $ 162,180      $ 177,864      $ 46,317      $ 59,885   

Add: Amortization of acquired intangible assets resulting from Formation Accounting

     24,465        13,240        5,804        3,123   

Add: Share based compensation

     19,285        17,514        4,029        2,551   

Add: FBT impact on share based compensation recovered from employees

     70        —          —          —     

Add: Other income

     1,323        2,978        693        500   

Less: Equity in loss of affiliates

     (700     (1,013     (104     (304

Less: Net income attributable to noncontrolling interest

     (7,657     (6,850     (2,085     (2,053
                                

Adjusted income from operations

   $ 198,966      $ 203,733      $ 54,654      $ 63,702   
                                

Reconciliation of Adjusted Net Income

(Unaudited) (In thousands, except per share data)

 

     Year ended
December 31,
    Quarter ended
December 31,
 
     2009     2010     2009     2010  

Net income as per GAAP

   $ 127,301      $ 142,181        34,594      $ 46,029   

Add: Amortization of acquired intangible assets resulting from Formation Accounting

     24,465        13,240        5,804        3,123   

Add: Share based compensation

     19,285        17,514        4,029        2,551   

Add: FBT Impact on share based compensation recovered from employees

     70        —          —          —     

Add: Secondary offering expenses

     —          591        —          —     

Less: Tax Impact on amortization of acquired intangibles resulting from Formation Accounting

     (5,795     (3,836     (1,386     (838

Less: Tax impact on share based compensation

     (4,617     (3,872     (1,035     (35
                                

Adjusted net income

   $ 160,709      $ 165,818      $ 42,006      $ 50,830   
                                

Adjusted diluted earnings per share

   $ 0.73      $ 0.74      $ 0.19      $ 0.23