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

Exhibit 99.1

Genpact Reports Results for the Second Quarter of 2011

Second Quarter Revenues of $397.6 Million, up 29%

Adjusted Income from Operations of $65.3 Million, up 40%

Net Income of $39.0 Million, up 40%

NEW YORK, August 2, 2011 — Genpact Limited (NYSE: G), a global leader in business process and technology management, today announced financial results for the second quarter ended June 30, 2011.

Key Financial Results – Second Quarter 2011

 

 

Revenues were $397.6 million, up 29.3% from $307.6 million in the second quarter of 2010. Revenues from Global Clients were up 44.1% and business process management revenues from Global Clients were up 23.7%.

 

 

Net income attributable to Genpact Limited shareholders was $39.0 million, up 40.1% from $27.8 million in the second quarter of 2010; net income margin for the second quarter of 2011 was 9.8%, up from 9.1% in the second quarter of 2010.

 

 

Diluted earnings per common share were $0.17, up 39.3% from $0.12 in the second quarter of 2010.

 

 

Adjusted income from operations totaled $65.3 million, up 40.1% from $46.6 million in the second quarter of 2010.

 

 

Adjusted income from operations margin was 16.4%, up from 15.1% in the second quarter of 2010.

 

 

Adjusted diluted earnings per share were $0.22, up 41.9% from $0.15 in the second quarter of 2010.

N.V. ‘Tiger’ Tyagarajan, Genpact’s president and CEO said, “Genpact delivered a great second quarter, with strong growth in revenues, adjusted operating income, earnings per share and cash flows. Genpact stand-alone revenues, excluding Headstrong revenues, grew 15% over the prior year quarter. Integration of the Headstrong acquisition, which closed on May 3rd, is going well. Headstrong was neutral to adjusted operating income margin in the quarter. This quarter we increased the number of clients contributing $1 to $5 million in annual revenues to 103 (including 25 from Headstrong), from 52 in the prior-year quarter, giving us a great runway for future growth.”

Revenues from clients other than GE, which Genpact refers to as Global Client revenues, grew 44.1% over the second quarter of 2010, including two months of Headstrong revenues. Business process management revenues from Global Clients grew 23.7% over the second quarter of 2010, led by 54.0% growth in Smart Decision Services, which is comprised of Genpact’s reengineering, analytics, business consulting and enterprise risk consulting businesses. Revenues from Global Clients now represent approximately 69.2% of Genpact’s total revenues, with the remaining 30.8% of revenues coming from GE. GE revenues increased by $5.8 million, or 4.9%, from the second quarter of 2010, adjusted for dispositions by GE.

As of the end of the second quarter of 2011, 56 client relationships, including existing relationships with 10 Headstrong clients, each contributed revenues of $5 million or more in the last twelve months, up from 40 such relationships as of June 30, 2010. As of the end of the second quarter of 2011, eight client relationships, including existing relationships with two Headstrong clients, each contributed revenues of $25 million or more in the last twelve months, up from four such client relationships as of June 30, 2010.

Approximately 78.1% of Genpact’s revenues for the quarter came from business process management services, compared to 85.9% for the second quarter of 2010. Revenues from IT services were approximately 21.9% of total revenues for the second quarter of 2011, up from 14.1% for the second quarter of 2010, including IT services revenues attributable to Headstrong.

Genpact generated $60.9 million of cash from operations in the second quarter of 2011, up from $30.0 million of cash from operations in the second quarter of 2010. Cash flow from operations increased by more than $30 million in the second quarter of 2011 compared to the second quarter of 2010, primarily due to increased cash earnings, better working capital management and certain cash tax refunds received in the quarter. Genpact had approximately $336.4 million in cash and cash equivalents as of June 30, 2011.

Year-to-Date Results

 

   

Revenues were $728.2 million, up 22.2% from $595.8 million for the six months ended June 30, 2010.

 

   

Net income attributable to Genpact Limited shareholders was $75.1 million, up 34.1% from $56.0 million for the six months ended June 30, 2010; net income margin was 10.3%, up from 9.4% for the six months ended June 30, 2010.


   

Diluted earnings per common share were $0.33, up 33.3% from $0.25 for the six months ended June 30, 2010.

 

   

Adjusted income from operations was $116.5 million, up 28.7% from $90.5 million for the six months ended June 30, 2010.

 

   

Adjusted income from operations margin was 16.0%, up from 15.2% for the six months ended June 30, 2010.

 

   

Adjusted diluted earnings per share were $0.40, up 30.2% from $0.31 for the six months ended June 30, 2010.

As of June 30, 2011, Genpact had approximately 51,300 employees worldwide, an increase from approximately 42,500 as of June 30, 2010. Genpact’s employee attrition rate for the six months ended June 30, 2011 was 29%, measured from day one of employment, an increase from 26% for the same period in 2010. Annualized revenue per employee for the six months ended June 30, 2011, was $34,500, up from $30,300 for the six months ended June 30, 2010.

2011 Outlook

Tyagarajan continued, “We continue to expect full year revenue growth of 23-25% and our adjusted income from operations margin to be in the range of 16% to 16.5%. Given our strong performance during the first half of the year and the diversity of our business, despite ongoing concerns in the global economy we now expect to be at the higher end of both ranges.”

Conference Call to Discuss Financial Results

Genpact management will host an hour-long conference call beginning at 8:00 a.m. EDT on August 3, 2011 to discuss the company’s performance for the second quarter of fiscal 2011. To participate, callers can dial 1-866-713-8563 from within the U.S. or +1 617-597-5311 from any other country. Thereafter, callers will be prompted to enter the participant code, 41722945.

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 global leader in business process and technology management, offering a broad portfolio of enterprise and industry-specific services. The company manages over 4,500 processes and projects for more than 600 clients worldwide. Putting process in the forefront, Genpact couples its deep process knowledge and insights with focused IT capabilities, targeted analytics, business consulting, domain consulting 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,
2010
     As of June 30,
2011
 

Assets

     

Current assets

     

Cash and cash equivalents

   $ 404,034       $ 336,402   

Short term investments

     76,985         —     

Accounts receivable, net

     174,654         246,911   

Accounts receivable from related party, net

     131,271         141,715   

Deferred tax assets

     21,985         20,091   

Due from related party

     3         4,024   

Prepaid expenses and other current assets

     126,848         186,676   
  

 

 

    

 

 

 

Total current assets

   $ 935,780       $ 935,819   

Property, plant and equipment, net

     197,166         193,795   

Deferred tax assets

     35,099         51,474   

Investment in equity affiliates

     1,913         1,652   

Customer-related intangible assets, net

     33,296         94,258   

Marketing-related intangible assets, net

     —           21,457   

Other intangible assets, net

     51         1,311   

Goodwill

     570,153         974,991   

Other assets

     120,003         128,616   
  

 

 

    

 

 

 

Total assets

   $ 1,893,461       $ 2,403,373   
  

 

 

    

 

 

 


GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share data)

 

     As of December 31,
2010
    As of June 30,
2011
 

Liabilities and equity

    

Current liabilities

    

Short-term borrowings

   $ —        $ 252,000   

Current portion of long-term debt

     24,950        28,842   

Current portion of capital lease obligations

     702        1,124   

Current portion of capital lease obligations payable to related party

     1,188        1,071   

Accounts payable

     12,206        9,807   

Income taxes payable

     8,064        35,069   

Deferred tax liabilities

     489        14,248   

Due to related party

     4,030        3,102   

Accrued expenses and other current liabilities

     270,919        247,888   
  

 

 

   

 

 

 

Total current liabilities

   $ 322,548      $ 593,151   

Long-term debt, less current portion

     —          88,459   

Capital lease obligations, less current portion

     741        754   

Capital lease obligations payable to related party, less current portion

     1,748        1,224   

Deferred tax liabilities

     2,953        1,796   

Due to related party

     10,683        14,851   

Other liabilities

     73,546        73,040   
  

 

 

   

 

 

 

Total liabilities

   $ 412,219      $ 773,275   
  

 

 

   

 

 

 

Shareholders’ equity

    

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

     —          —     

Common shares, $0.01 par value, 500,000,000 authorized, 220,916,960 and 221,557,465 issued and outstanding as of December 31, 2010 and June 30, 2011, respectively

     2,208        2,214   

Additional paid-in capital

     1,105,610        1,120,153   

Retained earnings

     421,092        496,221   

Accumulated other comprehensive income (loss)

     (50,238     8,407   
  

 

 

   

 

 

 

Genpact Limited shareholders’ equity

     1,478,672        1,626,995   

Noncontrolling interest

     2,570        3,103   
  

 

 

   

 

 

 

Total equity

     1,481,242        1,630,098   

Commitments and contingencies

    
  

 

 

   

 

 

 

Total liabilities and equity

   $ 1,893,461      $ 2,403,373   
  

 

 

   

 

 

 


GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data)

 

     Three months ended June 30,     Six months ended June 30,  
     2010     2011     2010     2011  

Net revenues

        

Net revenues from services - related party

   $ 117,914      $ 122,783      $ 231,252      $ 235,744   

Net revenues from services - others

     189,713        274,840        364,594        492,432   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues

     307,627        397,623        595,846        728,176   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue

        

Services

     191,101        254,030        367,786        468,517   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     191,101        254,030        367,786        468,517   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

   $ 116,526      $ 143,593      $ 228,060      $ 259,659   

Operating expenses:

        

Selling, general and administrative expenses

     75,277        86,724        148,168        154,165   

Amortization of acquired intangible assets

     4,065        5,140        8,284        8,217   

Other operating (income) expense, net

     (1,111     665        (3,941     (291
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

   $ 38,295      $ 51,064      $ 75,549      $ 97,568   

Foreign exchange (gains) losses, net

     4,855        (1,130     5,586        (2,697

Other income (expense), net

     844        3,026        2,114        6,124   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 34,284      $ 55,220      $ 72,077      $ 106,389   

Equity in loss of affiliates

     272        134        605        267   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expense

   $ 34,012      $ 55,086      $ 71,472      $ 106,122   

Income tax expense

     4,865        14,357        12,082        27,479   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

   $ 29,147      $ 40,729      $ 59,390      $ 78,643   

Net income attributable to noncontrolling interest

     1,300        1,720        3,369        3,514   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Genpact Limited shareholders

   $ 27,847      $ 39,009      $ 56,021      $ 75,129   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to Genpact Limited common shareholders

     27,847        39,009        56,021        75,129   

Earnings per common share attributable to Genpact Limited common shareholders

        

Basic

   $ 0.13      $ 0.18      $ 0.26      $ 0.34   

Diluted

   $ 0.12      $ 0.17      $ 0.25      $ 0.33   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic

     218,955,223        221,297,842        218,455,684        221,153,301   

Diluted

     224,947,174        226,146,388        224,459,617        225,844,839   


GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

     Six months ended June 30,  
     2010     2011  

Operating activities

    

Net income attributable to Genpact Limited shareholders

   $ 56,021      $ 75,129   

Net income attributable to noncontrolling interest

     3,369        3,514   
  

 

 

   

 

 

 

Net Income

   $ 59,390      $ 78,643   

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

    

Depreciation and amortization

     28,760        29,005   

Amortization of debt issue costs

     219        554   

Amortization of acquired intangible assets

     8,449        8,300   

Provision (release) for doubtful receivables

     (1,711     1,853   

Gain on business acquisition

     (247     —     

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

     1,871        (45

Equity in loss of affiliates

     605        267   

Stock-based compensation expense

     10,285        8,559   

Deferred income taxes

     (5,315     (2,579

Others, net

     168        1,400   

Change in operating assets and liabilities:

    

Increase in accounts receivable

     (35,291     (24,647

Increase in other assets

     (28,693     (33,122

Decrease in accounts payable

     (2,102     (2,374

Decrease in accrued expenses and other current liabilities

     (43,876     (13,506

Increase in income taxes payable

     15,188        24,092   

Increase in other liabilities

     2,262        5,632   
  

 

 

   

 

 

 

Net cash provided by operating activities

   $ 9,962      $ 82,032   

Investing activities

    

Purchase of property, plant and equipment

     (36,909     (12,106

Proceeds from sale of property, plant and equipment

     590        479   

Investment in affiliates

     (2,324     —     

Purchase of short term investments

     (42,997     (129,458

Proceeds from sale of short term investments

     132,601        206,443   

Short term deposits placed with related party

     (6,507     —     

Redemption of short term deposits with related party

     16,269        —     

Payment for business acquisitions, net of cash acquired

     (42,575     (561,075
  

 

 

   

 

 

 

Net cash provided by (used for) investing activities

   $ 18,148      $ (495,717

Financing activities

    

Repayment of capital lease obligations

     (2,697     (1,500

Proceeds from long-term debt

     —          120,000   

Repayment of long-term debt

     (20,000     (25,000

Short-term borrowings, net

     (184     252,000   

Proceeds from issuance of common shares under stock based compensation plans

     11,759        5,989   

Direct cost incurred in relation to Debt

     —          (8,315

Distribution to noncontrolling interest

     (3,488     (3,196
  

 

 

   

 

 

 

Net cash provided by (used for) financing activities

   $ (14,610   $ 339,978   
  

 

 

   

 

 

 

Effect of exchange rate changes

     6,522        6,075   

Net increase (decrease) in cash and cash equivalents

     13,500        (73,707

Cash and cash equivalents at the beginning of the period

     288,734        404,034   
  

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

   $ 308,756      $ 336,402   
  

 

 

   

 

 

 

Supplementary information

    

Cash paid during the period for interest

   $ 927      $ 1,509   

Cash paid during the period for income taxes

   $ 19,583      $ 23,498   

Property, plant and equipment acquired under capital lease obligation

   $ 711      $ 758   


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 stock-based compensation expense, amortization of acquired intangibles at formation in 2004, expenses associated with the Company’s March 2010 secondary offering and 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. 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 of the secondary offering and significant acquisition related expenses and amortization of acquired intangibles on such acquisitions, 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 ASC 718, the amortization of intangibles associated with further acquisitions, significant acquisition related expenses 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, 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 six months ended June 30, 2010 and 2011:

Reconciliation of Adjusted Income from Operations

(Unaudited)

(In thousands)

 

     Three months ended June 30,     Six months ended June 30,  
     2010     2011     2010     2011  

Income from operations as per GAAP

   $ 38,295      $ 51,064      $ 75,549      $ 97,568   

Add: Amortization of acquired intangible assets resulting from formation accounting

     3,394        2,434        6,918        4,948   

Add: Amortization of acquired intangible assets relating to significant acquisition

     —          2,049        —          2,049   

Add: Stock based compensation

     5,799        5,494        10,285        8,559   

Add: Significant acquisition related expenses

     —          4,739        —          5,619   

Add: Other income

     672        1,355        1,766        1,560   

Less: Equity in loss of affiliates

     (272     (134     (605     (267

Less: Non controlling interest

     (1,300     (1,720     (3,369     (3,514
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted income from operations

   $ 46,588      $ 65,281      $ 90,544      $ 116,522   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of Adjusted Net Income

(Unaudited)

(In thousands, except per share data)

 

     Three months ended June 30,     Six months ended June 30,  
     2010     2011     2010     2011  

Net income as per GAAP

   $ 27,847      $ 39,009      $ 56,021      $ 75,129   

Add: Amortization of acquired intangible assets resulting from formation accounting

     3,394        2,434        6,918        4,948   

Add: Amortization of acquired intangible assets relating to significant acquisition

     —          2,049        —          2,049   

Add: Stock based compensation

     5,799        5,494        10,285        8,559   

Add: Significant acquisition related expenses

     —          4,739        —          5,619   

Add: Secondary offering expenses

     —          —          591        —     

Less: Tax impact on amortization of acquired intangibles resulting from formation accounting

     (866     (602     (2,073     (1,298

Less: Tax impact on amortization of acquired intangibles resulting from significant acquisition

     —          (695     —          (695

Less: Tax Impact on stock based compensation

     (1,548     (1,779     (2,678     (2,474

Less: Tax Impact on significant acquisition related expenses

     —          (1,269     —          (1,394
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income

   $ 34,627      $ 49,380      $ 69,064      $ 90,444   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted diluted earnings per share

   $ 0.15      $ 0.22      $ 0.31      $ 0.40