EX-99.1 2 a08-7164_2ex99d1.htm EX-99.1

 

Exhibit 99.1

 

 

Genpact Reports 2007 Fourth Quarter and Full Year Results

 

2007 Full Year Revenues Grow 34%,

Adjusted Income from Operations Increases 38%

 

 

Gurgaon, India and New York, NY, March 19, 2008 – Genpact Limited (NYSE: G), which manages business processes for companies around the world, today announced financial results for the fourth quarter and full year ended December 31, 2007.

 

Key Financial Results - Full Year 2007

 

·                  Revenues were $822.7 million in 2007, up 34.2% from 2006. Organic growth, or revenues excluding acquisitions, was 27.7%.

·                  Adjusted income from operations was $131.9 million in 2007, up 38.5% from 2006.

·                  2007 adjusted income from operations margin increased by 50 basis points to 16.0% from 15.5% in 2006.

·                  Net income was $56.4 million for the year, up 41.9% from $39.8 million in 2006; 2007 net income margin increased slightly to 6.9% from 6.5% in 2006.

 

Key Financial Results - Fourth Quarter 2007

 

·                  Fourth quarter revenues were $231.6 million, up 30.3% from the fourth quarter of 2006, and up 8.0% from the third quarter of 2007.

·                  Adjusted income from operations for the fourth quarter increased 54.2% to $43.3 million as compared to the fourth quarter of 2006 and 18.0% from the third quarter of 2007.

·                  Adjusted income from operations margin was 18.7% for the fourth quarter, up from 15.8% in the fourth quarter of 2006 and up from 17.1% in the third quarter of 2007.

·                  Net income for the fourth quarter was $31.2 million, up 109.5% from the fourth quarter of 2006 and up 91.0% from the third quarter of 2007; net income margin for the fourth quarter increased to 13.5% from 8.4% in the fourth quarter of 2006.

 

Growth with Global Clients and GE

 

Pramod Bhasin, Genpact’s President and CEO said, “2007 was an outstanding year for Genpact.  We achieved a number of milestones while delivering strong operational and financial performance that exceeded our targets for the year. We transitioned to a publicly-traded company listed on the New York Stock Exchange.  Demand for our services remains strong, as clients look to Genpact to provide value for their businesses, including in the current economic environment.  Revenues were up 34% for the year, driven by growth with existing Global Clients as well as growth with GE that exceeded plan.  We also saw

 



 

 

increasing demand for services from our delivery centers in Europe and China, as we continue to diversify and drive growth across key geographic markets.”

 

Revenues from clients other than GE, which we refer to as Global Clients revenues, grew 114.9% over 2006 (organic growth was 91.1%), driven by our ability to grow with our existing clients across the spectrum of our diverse services and solutions.  In addition, we added a number of clients from a wide range of industries and geographies in 2007, with whom we believe we can grow substantially in the longer term.  Among these new additions are:

 

·                  A leading global vehicle rental company, operating in over 125 countries across six continents

·                  One of the world’s premier hotel and hospitality companies with properties in over 40 countries

·                  An insurance and financial services company providing financial protection, wealth accumulation and income management products

·                  A leading global financial management and advisory company

·                  A global manufacturer of audio, video communications and information technology products for consumer and professional markets

·                  A major North American automotive components manufacturer

·                  A leading global internet portal and brand

 

Our growth with GE in 2007 exceeded our targets.  GE revenues for 2007 grew 11.0% over 2006, prior to adjustments for dispositions by GE of businesses that we continue to serve, exceeding our targets for 2007.  Bhasin remarked, “We continue to have strong and growing relationships with GE businesses.  In addition, GE is  supportive of our growth with Global Clients and continues to serve as a strong reference.”

 

Revenue per employee in 2007 increased to $28,200 from $26,400 in 2006 reflecting a combination of higher value and higher revenue work we are doing for clients, as well as our ability to improve pricing.

 

As of December 31, 2007, Genpact had 32,700 employees worldwide, an increase from 26,100 at the end of 2006. Our attrition rate for the entire year, measured from day one (not six months or post training), was 30% compared to 32% in 2006.  Our attrition would be 22% if measured post six months as many in our industry do.

 

Diversified Business Model

 

Genpact’s clients are in a diverse range of industries.  Approximately 44% of our 2007 revenues came from banking, financial services and insurance clients.  Approximately one-quarter of those revenues came from insurance clients, with the remainder distributed among consumer, commercial and investment banks and asset management clients.  About 42% of 2007 revenues

 

 

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came from manufacturing clients, which include aircraft, infrastructure, automotive, healthcare and pharmaceuticals businesses.  Our remaining revenues for 2007 came from clients providing healthcare, transportation and logistics, media and entertainment and hospitality services.

 

Among the many services and solutions we provide to our clients, in 2007, the mix between business process services and IT services revenues has remained fairly constant at approximately 76% and 24% of revenues, respectively.  While we do not manage our business by service offerings, finance and accounting represented roughly 40% of our revenues.  Supply chain and procurement services, together with analytics, combined to contribute more than 13% of revenues.  On the IT side, the share between our IT services and software offerings is approximately even.

 

Bhasin added, “Our model of growing with existing clients positions us well.  The strength of our client relationships and the diverse group of leading companies that work with us provide a strong foundation for growth.  Our global delivery capabilities and our focus on operating excellence combined with the depth of our Six Sigma, Lean and Re-engineering talent enable us to drive end-to-end value for our clients.  In 2007, more than 90% of our growth came from existing clients.  We expect 80-85% of our growth in 2008 to come from existing clients.”

 

In 2007, 18 client relationships each accounted for $5 million or more of our annual revenues, up from seven in 2006.  Of those, three client relationships each accounted for $25 million or more of our annual 2007 revenues.  We believe that several of the remaining 15 clients accounting for $5 million of more of 2007 revenues, as well as some of our newer clients, can each grow to $25 million or more in annual revenues over the long term.

 

Improving Profitability

 

For 2007 we improved our adjusted operating income margin by 50 basis points to 16.0% from 15.5% in 2006.  Significantly, we accomplished this while continuing to invest for growth and incurring additional expenses as a public company.  Our revenue growth with existing clients provided the scale necessary to enhance management of our operating costs by optimizing utilization of our investments in infrastructure, IT and telecom, controlling wage inflation, moving to Tier 2 cities, and increasing supervisory spans — all to drive efficiency and productivity.

 

                We generated $150 million of cash from operations in 2007 up from $37 million in 2006, primarily due to higher profits and better working capital management.

 

 

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2008

 

Bhasin continued, “We had a strong fourth quarter and a terrific 2007.  We anticipate that our recognized value proposition will enable us to drive growth throughout the year and achieve our financial goals.  We are actively engaging our clients in discussions and continuously enhancing our service offerings to help them navigate the current environment.  For 2008, our focus will continue to be on expanding our existing client relationships.  In addition, we are pushing a number of initiatives to provide end-to-end solutions that address client needs, such as our “Cash is King” solution, that helps companies maximize cash flow and decrease working capital needs.  Finally, we will continue to use our deep pool of Six Sigma and Lean trained teams to lead re-engineering projects and to drive process excellence.”

 

“For the full year 2008, we expect organic revenue growth in the range of 25-27%.  We also expect adjusted operating income margin to improve slightly by 10-30 bps to 16.1-16.3%.  We are committed to the long-term growth and stability of our business and to consistently generating value for our shareholders.” Bhasin concluded.

 

Impact of 2007 Taxes on Net Income

 

As noted for prior periods in 2007, net income in 2007 reflects the impact of increased taxes resulting from the partial expiration of Genpact’s current tax holiday in India starting on March 31, 2007. However, during the fourth quarter of 2007, we received a favorable tax ruling relating to a potential Hungarian minimum tax, thereby eliminating a previously booked reserve of $10.1 million in 2007 which was reversed in the fourth quarter of 2007.

 

During our earnings call for the third quarter of 2007, we indicated that as a result of an internal restructuring and consequent change in tax status of one of our legal entities we were required to recalculate certain of our existing deferred tax assets and liabilities at U.S. Federal and state tax rates which we estimated would produce a one-time, non-cash charge for deferred tax liability of approximately $22 million to $29 million, due principally to unrealized gains on certain rupee-dollar hedges.

 

The recalculation process involved a detailed and complex analysis of the tax implications of the restructuring and change in entity tax status, and the unrealized taxable gains and consequent deferred tax liability are much less than estimated earlier.  In addition, calculation of certain other deferred tax assets arising out of the restructuring and change in entity tax status resulted in a credit to the income statement for the fourth quarter of 2007.  The net effect of these calculations resulted in a one-time, non-cash benefit to the 2007 income statement of $1.3 million.

 

 

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Conference Call

 

Genpact management will host a conference call at 8:00 a.m. (Eastern) on March 20, 2008 to discuss the company’s performance for the fourth quarter and full year ended December 31, 2007. To participate, callers can dial 1-800-510-9834 from within the U.S. or 1-617-614-3669 from any other country. Thereafter, callers need to enter the participant passcode which is 74392416.

 

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 manages business processes for companies around the world. The company combines process expertise, information technology and analytical capabilities with operational insight and experience in diverse industries to provide a wide range of services using its global delivery platform. Genpact helps companies improve the ways in which they do business by applying Six Sigma and Lean principles plus technology to continuously improve their business processes. Genpact operates service delivery centers in India, China, Hungary, Mexico, the Philippines, the Netherlands, Romania, Spain and the United States.  For more info: 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 the risks and uncertainties arising from our past and future acquisitions, slowdown in the economies and sectors in which our clients operate, a slowdown in the BPO and IT Services sectors, our ability to manage growth, factors which may impact our cost advantage, wage increases, our ability to attract and retain skilled professionals, risks and uncertainties regarding fluctuations in our earnings, general economic conditions affecting our industry as well as other risks detailed in our reports filed with the U.S. Securities and Exchange Commission, including the Company’s Registration Statement in Form S-1.  These filings are available at www.sec.gov.  Genpact may, from time to time make additional written and oral forward-looking statements, including statements contained in our filings with the Securities and Exchange Commission and our reports to shareholders.  Although, the company believes that these forward-looking statements are based

 

 

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on reasonable assumptions, you are cautioned not to pay undue reliance on these forward-looking statements, which reflect management’s current analysis of future events.  The company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the company.

 

Contact

 

Investors

 

Roanak Desai

 

 

 

 

+91 (124) 402-2716

 

 

 

 

roanak.desai@genpact.com

 

 

 

 

 

 

 

Media

 

David Jensen

 

Anita Trehan

 

 

+1 (203) 252 8562

 

+91 (124) 402 2726

 

 

david.jensen@genpact.com

 

 

 

 

anita.trehan@genpact.com

 

 

 

 

 

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GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except per share data)

 

 

 

As of December 31,

 

As of December 31,

 

 

 

2006

 

2007

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

35,430

 

$

279,306

 

Accounts receivable, net

 

43,854

 

99,354

 

Accounts receivable from a significant shareholder, net

 

97,397

 

93,307

 

Short term deposits with a significant shareholder

 

1,010

 

35,079

 

Deferred tax assets

 

1,144

 

9,683

 

Due from a significant shareholder

 

10,236

 

8,977

 

Prepaid expenses and other current assets

 

53,829

 

146,155

 

Total current assets

 

242,900

 

671,861

 

 

 

 

 

 

 

Property, plant and equipment, net

 

157,976

 

195,660

 

Deferred tax assets

 

1,549

 

2,196

 

Investment in equity affiliate

 

 

197

 

Customer-related intangible assets, net

 

119,680

 

99,257

 

Other intangible assets, net

 

11,908

 

10,375

 

Goodwill

 

493,452

 

601,120

 

Other assets

 

53,827

 

162,800

 

Total assets

 

$

1,081,292

 

$

1,743,466

 

 

 

 

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GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except per share data)

 

 

 

As of December 31,

 

As of December 31,

 

 

 

2006

 

2007

 

Liabilities and stockholders’ equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Short-term borrowings

 

$

83,000

 

$

 

Current portion of long-term debt

 

19,383

 

19,816

 

Current portion of long-term debt from a significant shareholder

 

1,131

 

1,125

 

Current portion of capital lease obligations

 

64

 

38

 

Current portion of capital lease obligations payable to a significant shareholder

 

1,686

 

1,826

 

Accounts payable

 

9,230

 

12,446

 

Income taxes payable

 

1,617

 

7,035

 

Deferred tax liabilities

 

1,858

 

20,561

 

Due to a significant shareholder

 

8,928

 

8,930

 

Accrued expenses and other current liabilities

 

136,949

 

199,663

 

Total current liabilities

 

$

263,846

 

$

271,440

 

 

 

 

 

 

 

Long-term debt, less current portion

 

118,657

 

100,041

 

Long-term debt from a significant shareholder, less current portion

 

3,865

 

2,740

 

Capital lease obligations, less current portion

 

 

137

 

Capital lease obligations payable to a significant shareholder, less current portion

 

3,067

 

2,969

 

Deferred tax liabilities

 

20,481

 

40,738

 

Due to a significant shareholder

 

7,019

 

8,341

 

Other liabilities

 

39,662

 

63,265

 

Total liabilities

 

$

456,597

 

$

489,671

 

 

 

 

 

 

 

Minority interest

 

 

3,066

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

2% Cumulative Series A convertible preferred stock, 3,077,868 and 0 authorized, issued and outstanding, $208,577 and $0 aggregate liquidation value as of December 31, 2006 and 2007, respectively

 

95,414

 

 

5% Cumulative Series B convertible preferred stock, 3,017,868 and 0 authorized, issued and outstanding, $216,502 and $0 aggregate liquidation value as of December 31, 2006 and 2007, respectively

 

93,554

 

 

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

 

 

 

Common stock, $0.01 par value, 71,390,738 and 500,000,000 authorized, 71,390,738 and 212,101,874 shares issued and outstanding as of December 31, 2006 and 2007, respectively

 

714

 

2,121

 

Additional paid-in capital

 

494,325

 

1,000,179

 

Retained earnings

 

5,978

 

26,469

 

Accumulated other comprehensive income (loss)

 

(15,295

)

221,960

 

Treasury stock, 3,628,130 and 0 common stock, and 59,000 and 0 2% Cumulative Series A convertible preferred stock as of December 31, 2006 and 2007, respectively

 

(49,995

)

 

Total stockholders’ equity

 

624,695

 

1,250,729

 

Commitments and contingencies

 

 

 

Total liabilities, minority interest and stockholders’ equity

 

$

1,081,292

 

$

1,743,466

 

 

 

 

 

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GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per share data)

 

 

 

Year ended December 31,

 

 

 

2005

 

2006

 

2007

 

Net revenues

 

 

 

 

 

 

 

Net revenues from services — significant shareholder

 

$

449,672

 

$

453,305

 

$

481,033

 

Net revenues from services — others

 

42,222

 

158,282

 

340,158

 

Other revenues

 

 

1,460

 

1,493

 

Total net revenues

 

491,894

 

613,047

 

822,684

 

Cost of revenue

 

 

 

 

 

 

 

Services

 

303,963

 

359,791

 

514,330

 

Others

 

 

1,090

 

1,133

 

Total cost of revenue

 

303,963

 

360,881

 

515,463

 

Gross profit

 

187,931

 

252,166

 

307,221

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

117,469

 

159,203

 

231,320

 

Amortization of acquired intangible assets

 

47,010

 

41,715

 

36,938

 

Foreign exchange (gains) losses, net

 

12,784

 

13,021

 

(43,577

)

Other operating income

 

(6,185

)

(4,930

)

(4,264

)

Income from operations

 

$

16,853

 

$

43,157

 

$

86,804

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

(6,146

)

(9,235

)

(5,196

)

 

 

 

 

 

 

 

 

Income before share of equity in (earnings)/loss of affiliate, minority interest and income taxes

 

10,707

 

33,922

 

81,608

 

 

 

 

 

 

 

 

 

Equity in loss of affiliate

 

 

 

255

 

 

 

 

 

 

 

 

 

Minority interest

 

 

 

8,387

 

 

 

 

 

 

 

 

 

Income taxes expense (benefit)

 

(6,397

)

(5,850

)

16,543

 

Net Income

 

$

17,104

 

$

39,772

 

$

56,423

 

 

 

 

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GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per share data)

 

 

 

Three months period ended,

 

 

 

March 31, 2007

 

June 30, 2007

 

September 30, 2007

 

December 31, 2007

 

 

 

(unaudited)

 

Statement of income data:

 

 

 

 

 

 

 

 

 

Total net revenues

 

$

175,981

 

$

200,492

 

$

214,562

 

$

231,649

 

Cost of revenue

 

109,885

 

128,513

 

133,090

 

143,974

 

Gross profit

 

66,096

 

71,979

 

81,472

 

87,675

 

Income from operations

 

10,572

 

19,581

 

25,551

 

31,101

 

Income before share of equity in earnings/loss of affiliate, minority interest and income taxes

 

6,991

 

16,083

 

24,932

 

33,602

 

Net income

 

$

1,846

 

$

7,093

 

$

16,323

 

$

31,161

 

 

 

 

 

 

 

 

 

 

 

Three months period ended,

 

 

 

March 31,2006

 

June 30, 2006

 

September 30, 2006

 

December 31, 2006

 

 

 

(unaudited)

 

Statement of income data:

 

 

 

 

 

 

 

 

 

Total net revenues

 

$

131,897

 

$

140,956

 

$

162,386

 

$

177,808

 

Cost of revenue

 

77,986

 

85,753

 

93,511

 

103,631

 

Gross profit

 

53,911

 

55,203

 

68,875

 

74,177

 

Income from operations

 

4,195

 

7,408

 

15,000

 

16,555

 

Income before share of equity in earnings/loss of affiliate, minority interest and income taxes

 

3,640

 

4,778

 

10,770

 

14,734

 

Net income

 

$

5,068

 

$

7,022

 

$

12,805

 

$

14,877

 

 

 

 

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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 measure defined by the Securities and Exchange Commission as a non-GAAP financial measures: non-GAAP adjusted income from operations. This non-GAAP measure is 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, this non-GAAP measure, the financial statements prepared in accordance with GAAP and the reconciliations of Genpact’s GAAP financial statements to such non-GAAP measure should be carefully evaluated.

 

For its internal management reporting and budgeting purposes, Genpact’s management uses financial statements that do not include stock-based compensation expense related to employee stock options, amortization of acquired intangibles at formation and additional depreciation due to mark-to-market adjustment at formation for financial and operational decision-making, to evaluate period-to-period comparisons or for making comparisons of Genpact’s operating results to that of its competitors. Moreover, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use when adopting FAS 123(R), Genpact’s management believes that providing a non-GAAP financial measure that excludes stock-based compensation, amortization of acquired intangibles and additional depreciation due to mark-to-market adjustment at formation allows investors to make additional comparisons between Genpact’s operating results to those of other companies. The Company also believes that it is unreasonably difficult to provide its financial outlook in accordance with GAAP for a number of reasons including, without limitation, the Company’s inability to predict its future stock-based compensation expense under FAS 123(R) and the amortization of intangibles associated with further acquisitions, if any.  Accordingly, Genpact believes that the presentation of non-GAAP adjusted income from operations, 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 versus net income calculated in accordance with GAAP is that non-GAAP adjusted income from operations 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 evaluating such non-GAAP financial measure with financial measures calculated in accordance with GAAP.

 

 

 

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The following table shows the reconciliation of this adjusted financial measure from GAAP for the three months and year ended December 31, 2007 and the year ended December 31, 2006:

 

Reconciliation of Adjusted Income from Operations

(Unaudited)

(In thousands)

 

 

 

Year Ended December 31,

 

Quarter Ended December 31,

 

 

 

2006

 

2007

 

2006

 

2007

 

 

 

 

 

 

 

 

 

 

 

Income from operations as per GAAP

 

$43,157

 

$86,804

 

$16,555

 

$31,101

 

Add: Amortization of acquired intangible assets resulting from Formation Accounting

 

42,738

 

35,764

 

9,990

 

8,595

 

Add: Additional depreciation due to fair value adjustment resulting from Formation Accounting

 

2,056

 

2,056

 

514

 

514

 

Add: Stock based compensation

 

4,501

 

13,021

 

917

 

4,112

 

Add: FBT Impact on Stock based compensation recovered from employees

 

 

 

507

 

 

 

507

 

Add: Gain / (loss) on interest rate swaps

 

1,648

 

(41

)

(50

)

(131

)

Add: Other income

 

1,070

 

2,383

 

156

 

1,352

 

Less: Equity in loss of affiliate

 

 

(255

)

 

(114

)

Less: Minority interest

 

 

(8,387

)

 

(2,633

)

Adjusted income from operations

 

$95,170

 

$131,852

 

$28,082

 

$43,303

 

 

 

 

 

 

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