PR Newswire | Aug 6, 2020 04:02PM EDT

08/06 15:01 CDT

Genpact Reports Second Quarter 2020 ResultsTotal Revenue of $900 million, Up 2% (3% on a constant currency basis)(1)Global Client Revenue of $783 million, Up 3% (4% on a constant currency basis)(1)Diluted EPS of $0.32, Down 16%; Adjusted Diluted EPS(2) of $0.52, Up 6% NEW YORK, Aug. 6, 2020

NEW YORK, Aug. 6, 2020 /PRNewswire/ -- Genpact Limited (NYSE: G), a global professional services firm focused on delivering digital transformation, today announced financial results for the second quarter ended June 30, 2020.

"Our second quarter results were much stronger than expected in light of the unprecedented environment the world is facing. Our performance was driven by incredibly strong execution by our teams on many fronts as well as the resilience of our business model and the strategic choices we have made over many years," said"Tiger" Tyagarajan, Genpact's president and CEO."With our clients' heightened focus on driving digital transformation, the last several months have demonstrated that our deep domain depth and process expertise as well as our investments in digital and analytics give us a competitive advantage."

Key Financial Results - Second Quarter 2020

* Total revenue was $900 million, up 2% year-over-year (3% on a constant currency basis).1 * Revenue from Global Clients was $783 million, up 3% year-over-year (4% on a constant currency basis),1 representing 87% of total revenue. * Revenue from GE was $117 million, down 2% year-over-year, representing 13% of total revenue. * Net income was $62 million, down 16% year-over-year, with a corresponding margin of 6.9%. * Income from operations was $90 million, down 15% year-over-year, with a corresponding margin of 10.0%. Adjusted income from operations was $145 million, up 7% year-over-year, with a corresponding margin of 16.2%.3 * Diluted earnings per share was $0.32, down 16% year-over-year, and adjusted diluted earnings per share2 was $0.52, up 6% year-over-year. * Income from operations and diluted earnings per share include a $22 million restructuring charge related to employee severance costs and lease impairment charges. This restructuring charge is excluded from adjusted income from operations3 and adjusted diluted earnings per share.2 * Cash generated from operations was $192 million, compared to $126 million in the second quarter of 2019.

2020 Outlook

Genpact is providing the following full-year guidance:

* Total revenue for the full year of $3.63 to $3.67 billion, up 3% to 4% or 3.5% to 5% on a constant currency basis.1 * Global Client revenue growth in the range of 5% to 6%, or 5% to 6.5% on a constant currency basis.1 * Adjusted income from operations margin4 of approximately 15.5%. * Adjusted diluted EPS5 of $2.03 to $2.07.

Conference Call to Discuss Financial Results

Genpact's management will host an hour-long conference call beginning at 4:30 p.m. ET on August 6, 2020 to discuss the company's performance for the second quarter ended June 30, 2020. To participate, callers can dial +1 (877) 654-0173 from within the U.S. or +1 (281) 973-6289 from any other country. Callers will be prompted to enter the conference ID, 7988313.

A live webcast of the call will also be made available on the Genpact Investor Relations website at https://www.genpact.com/investors. For those who cannot join the call live, a replay will be archived on the Genpact website after the end of the call. A transcript of the call will also be made available on the website.

About Genpact

Genpact (NYSE: G) is a global professional services firm that makes business transformation real. We drive digital-led innovation and digitally-enabled intelligent operations for our clients, guided by our experience running thousands of processes primarily for Global Fortune 500 companies. We think with design, dream in digital, and solve problems with data and analytics. Combining our expertise in end-to-end operations and our AI-based platform, Genpact Cora, we focus on the details - all 90,000+ of us. From New York to New Delhi and more than 30 countries in between, we connect every dot, reimagine every process, and reinvent companies' ways of working. We know that reimagining each step from start to finish creates better business outcomes. Whatever it is, we'll be there with you - accelerating digital transformation to create bold, lasting results - because transformation happens here.

Safe Harbor

This press release contains certain statements concerning our future growth prospects and financial results and other forward-looking statements, as defined in the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those in such forward-looking statements. These risks, uncertainties, and other factors include but are not limited to the impact of the COVID-19 pandemic on our business, the health and safety of our employees, clients and our partners and suppliers, as well as the physical and economic impacts of the various recommendations, orders and protocols issued by local and national governmental agencies in light of the evolving situation, a slowdown in the economies and sectors in which our clients operate, a slowdown in the business process outsourcing or information technology services sectors, our ability to develop and successfully execute our business strategies, the risks and uncertainties arising from our past and future acquisitions, our ability to convert bookings to revenues, our ability to manage growth, factors which may impact our cost advantage, wage increases, changes in tax rates and tax legislation and other laws and regulations, our ability to attract and retain skilled professionals, risks and uncertainties regarding fluctuations in our earnings, foreign currency fluctuations, general economic conditions affecting our industry, political, economic or business conditions in countries in which we operate, including the uncertainty relating to the withdrawal of the United Kingdom from the European Union, commonly known as Brexit, 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 and Quarterly Reports on Form 10-Q. 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 undertakes no obligation to update any forward-looking statements that may be made from time to time by or on behalf of Genpact.

Contacts

Investors Roger Sachs, CFA

+1 (203) 808-6725

roger.sachs@genpact.com

Michael Schneider

Media +1 (217) 260-5041

michael.schneider@genpact.com

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share data and share count)

As of December 31, As of June 30,

2019 2020

Assets

Current assets

Cash and cash equivalents $ 467,096 $ 867,363

Accounts receivable, net of reserve fordoubtful receivables of $29,969 andallowance for credit losses of $31,903 as 914,255 868,781of December 31, 2019 and June 30, 2020,respectively

Prepaid expenses and other current assets 170,325 180,083

Total current assets $ 1,551,676 $ 1,916,227

Property, plant and equipment, net 254,035 233,758

Operating lease right-of-use assets 330,854 350,818

Deferred tax assets 89,715 102,973

Intangible assets, net 230,861 195,594

Goodwill 1,574,466 1,557,011

Contract cost assets 205,498 210,752

Other assets, net of reserve for doubtfulassets of $0 and allowance for credit 217,079 278,953losses of $2,566 as of December 31, 2019and June 30, 2020, respectively

Total assets $ 4,454,184 $ 4,846,086

Liabilities and equity

Current liabilities

Short-term borrowings $ 70,000 $ 495,000

Current portion of long-term debt 33,509 33,523

Accounts payable 21,981 19,182

Income taxes payable 43,186 65,592

Accrued expenses and other current 683,871 606,473liabilities

Operating leases liability 57,664 63,546

Total current liabilities $ 910,211 $ 1,283,316

Long-term debt, less current portion 1,339,796 1,323,583

Operating leases liability 302,100 325,692

Deferred tax liabilities 3,990 3,358

Other liabilities 208,916 249,523

Total liabilities $ 2,765,013 $ 3,185,472

Shareholders' equity

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

Common shares, $0.01 par value,500,000,000 authorized, 1,896 1,903190,118,181 and 190,721,373 issued andoutstanding as of December 31, 2019 andJune 30, 2020, respectively

Additional paid-in capital 1,570,575 1,590,017

Retained earnings 648,656 710,382

Accumulated other comprehensive income (531,956) (641,688)(loss)

Total equity $ 1,689,171 $ 1,660,614

Total liabilities and equity $ 4,454,184 $ 4,846,086

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data and share count)

Three months ended June 30, Six months ended June 30,

2019 2020 2019 2020

Net revenues $ 881,799 $ 900,094 $ 1,691,005 $ 1,823,286

Cost of revenue 571,244 593,892 1,090,381 1,198,663

Gross profit $ 310,555 $ 306,202 $ 600,624 $ 624,623

Operatingexpenses:

Selling,general and 196,312 186,312 387,714 383,654administrativeexpenses

Amortization ofacquired 8,096 10,697 16,605 21,438intangibleassets

Other operating(income) (55) 18,829 31 18,509expense, net

Income from $ 106,202 $ 90,364 $ 196,274 $ 201,022operations

Foreignexchange gains 351 (518) (3,081) 14,013(losses), net

Interest income (12,143) (13,619) (23,266) (25,315)(expense), net

Other income 560 2,920 4,363 (14)(expense), net

Income beforeequity-methodinvestment $ 94,970 $ 79,147 $ 174,290 $ 189,706activity, netand income taxexpense

Equity-methodinvestment (15) - (11) -activity, net

Income beforeincome tax $ 94,955 $ 79,147 $ 174,279 $ 189,706expense

Income tax 21,233 16,986 39,716 41,847expense

Net income $ 73,722 $ 62,161 $ 134,563 $ 147,859

Earnings percommon share

Basic $ 0.39 $ 0.33 $ 0.71 $ 0.78

Diluted $ 0.38 $ 0.32 $ 0.69 $0. 76

Weightedaverage numberof commonshares used incomputingearnings percommon share

Basic 190,163,359 190,541,148 189,807,602 190,583,953

Diluted 194,766,047 195,112,549 194,080,127 195,822,531

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Six months ended June 30,

2019 2020

Operating activities

Net income $ 134,563 $ 147,859

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

Depreciation and amortization 45,708 58,165

Amortization of debt issuance costs (including loss 864 1,121on extinguishment of debt)

Amortization of acquired intangible assets 16,605 21,438

Write-down of intangible assets and property, plant 3,511 9,973and equipment

Reserve for doubtful receivables/allowance for 4,881 1,055credit losses

Unrealized loss (gain) on revaluation of foreign 3,107 4,085currency asset/liability

Stock-based compensation expense 39,987 36,331

Deferred income taxes (4,242) (3,416)

Write-down of operating lease right-of-use assets - 10,244and other assets

Others, net (4,076) (1,297)

Change in operating assets and liabilities:

(Increase) decrease in accounts receivable (86,329) 38,783

Increase in prepaid expenses, other current assets,contract cost assets operating lease right-of-use (68,115) (137,605)assets and other assets

Decrease in accounts payable (17,407) (4,418)

Increase (decrease) in accrued expenses, othercurrent liabilities, operating lease liabilities 23,730 (32,371)and other liabilities

Increase in income taxes payable 28,255 23,112

Net cash provided by operating activities $ 121,042 $ 173,059

Investing activities

Purchase of property, plant and equipment (30,392) (33,127)

Payment for internally generated intangible assets (16,501) (6,449)(including intangibles under development)

Proceeds from sale of property, plant and equipment 1,562 388

Payment for business acquisitions, net of cash (6,305) -acquired

Net cash used for investing activities $ (51,636) $ (39,188)

Financing activities

Repayment of finance lease obligations (4,102) (4,065)

Payment of debt issuance costs - (620)

Repayment of long-term debt (17,000) (17,000)

Proceeds from short-term borrowings 50,000 455,000

Repayment of short-term borrowings (55,000) (30,000)

Proceeds from issuance of common shares under 11,477 12,420stock-based compensation plans

Payment for net settlement of stock-based awards (2,729) (29,414)

Payment of earn-out consideration (10,470) -

Dividend paid (32,307) (37,138)

Payment for stock repurchased and retired - (45,021)(including expenses related to stock repurchase)

Net cash (used for) provided by financing $ (60,131) $ 304,162activities

Effect of exchange rate changes 359 (37,766)

Net increase in cash and cash equivalents 9,275 438,033

Cash and cash equivalents at the beginning of the 368,396 467,096period

Cash and cash equivalents at the end of the period $ 378,030 $ 867,363

Supplementary information

Cash paid during the period for interest $ 23,384 $ 24,397

Cash paid during the period for income taxes, net $ 37,060 $ 95,834of refund

Non-GAAP Financial Measures

To supplement the consolidated financial statements presented in accordance with GAAP, this press release includes the following non-GAAP financial measures:

* Adjusted income from operations; * Adjusted income from operations margin; * Adjusted diluted earnings per share; and * Revenue growth on a constant currency basis.

These non-GAAP financial 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 financial measures used by other companies. Accordingly, these non-GAAP financial measures, the financial statements prepared in accordance with GAAP and the reconciliations of Genpact's GAAP financial statements to such non-GAAP financial measures should be carefully evaluated.

Prior to July 2012, Genpact's management used financial statements that excluded significant acquisition-related expenses, amortization of related acquired intangibles, and amortization of acquired intangibles recorded at the company's formation in 2004 for its internal management reporting, budgeting and decision-making purposes, including comparing Genpact's operating results to that of its competitors. However, considering Genpact's frequent acquisitions of varying scale and size, and the difficulty in predicting expenses relating to acquisitions and the amortization of acquired intangibles thereof, since July 2012 Genpact's management has used financial statements that exclude all acquisition-related expenses and amortization of acquired intangibles for its internal management reporting, budgeting and decision-making purposes, including comparing Genpact's operating results to those of its competitors. For the same reasons, since April 2016 Genpact's management has excluded the impairment of acquired intangible assets from the financial statements it uses for internal management purposes. Acquisition-related expenses are excluded in the period in which an acquisition is consummated.

Genpact's management also uses financial statements that exclude stock-based compensation expense. 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 non-GAAP financial measures that exclude such expenses allows investors to make additional comparisons between Genpact's operating results and those of other companies. During the second quarter of 2020, as a result of the COVID-19 pandemic the Company initiated restructuring measures and as a result, recorded a charge related to the following: i) right-of-use lease asset and other assets related to certain abandoned leased office properties, and ii) employee severance costs related to a focused reduction in Genpact's workforce. Genpact's management believes that excluding such charges provides useful measures to both management and investors regarding the Company's financial performance and underlying business trends.Additionally, in its calculations of such non-GAAP financial measures, Genpact's management has adjusted foreign exchange gains and losses, interest income and expense and income tax expenses from GAAP net income, and other income and expenses, and certain gains, losses and impairment charges attributable to equity-method investments from GAAP income from operations, because management believes that the Company's results after taking into account these adjustments more accurately reflect the Company's ongoing operations.In its calculations of adjusted diluted earnings per share, Genpact's management has adjustedstock-based compensation expense,amortization and impairment of acquired intangible assets, acquisition-related expenses and restructuring expenses and the related tax impact of such adjustments from GAAP diluted earnings per share. For the purpose of calculating adjusted diluted earnings per share, the combined current and deferred tax effect is determined by multiplying each pre-tax adjustment by the applicable statutory income tax rate.

Genpact's management provides information about revenues on a constant currency basis so that the revenues may be viewed without the impact of foreign currency exchange rate fluctuations compared to prior fiscal periods, thereby facilitating period-to-period comparisons of the Company's true business performance. Revenue growth on a constant currency basis is calculated by restating current-period activity using the prior fiscal period's foreign currency exchange rates adjusted for hedging gains/losses in such period.

Accordingly, Genpact believes that the presentation of adjusted income from operations, adjusted income from operations margin, adjusted diluted earnings per share and revenue growth on a constant currency basis, 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 adjusted income from operations and adjusted income from operations margin versus income from operations, income from operations margin, net income and net income margin calculated in accordance with GAAP is that these non-GAAP financial measures exclude certain recurring costs and certain other charges, namely stock-based compensation and amortization and impairment of acquired intangibles. Management compensates for this limitation by providing specific information on the GAAP amounts excluded from adjusted income from operations and adjusted income from operations margin.

The following tables show the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures for the three and six months ended June 30, 2019 and 2020:

Reconciliation of Net income/Margin to Adjusted Income from Operations/Margin

(Unaudited)

(In thousands)

Three months ended June 30, Six months ended June 30,

2019 2020 2019 2020

Net income $ 73,722 $ 62,161 $ 134,563 $ 147,859

Foreign exchange (351) 518 3,081 (14,013)(gains) losses, net

Interest (income) 12,143 13,619 23,266 25,315expense, net

Income tax expense 21,233 16,986 39,716 41,847

Stock-basedcompensation 21,525 18,844 39,987 36,331expense

Amortization andimpairment of 7,773 11,709 15,977 22,223acquired intangibleassets

Restructuring - 21,658 - 21,658expenses

Acquisition-related - - 967 -expenses

Adjusted income $ 136,045 $ 145,495 $ 257,557 $ 281,220from operations

Net income margin 8.4 % 6.9 % 8.0 % 8.1 %

Adjusted incomefrom operations 15.4 % 16.2 % 15.2 % 15.4 %margin

Reconciliation of Income from Operations/Margin to Adjusted Income fromOperations/Margin

(Unaudited)

(In thousands)

Three months ended June 30, Six months ended June 30,

2019 2020 2019 2020

Income from $ 106,202 $ 90,364 $ 196,274 $ 201,022operations

Stock-basedcompensation 21,525 18,844 39,987 36,331expense

Amortization andimpairment of 7,773 11,709 15,977 22,223acquired intangibleassets

Acquisition-related - - 967 -expenses

Other income 560 2,920 4,363 (14)(expense), net

Restructuring - 21,658 - 21,658expenses

Equity-methodinvestment (15) - (11) -activity, net

Adjusted income $ 136,045 $ 145,495 $ 257,557 $ 281,220from operations

Income from 12.0 % 10.0 % 11.6 % 11.0 %operations margin

Adjusted incomefrom operations 15.4 % 16.2 % 15.2 % 15.4 %margin

Reconciliation of Diluted EPS to Adjusted Diluted EPS^6

(Unaudited)

(Per share data)

Three months ended June 30, Six months ended June 30,

2019 2020 2019 2020

Diluted EPS $ 0.38 $ 0.32 $ 0.69 $ 0.76

Stock-based 0.11 0.10 0.21 0.19compensation expense

Amortization andimpairment of 0.04 0.06 0.08 0.11acquired intangibleassets

Acquisition-related - - - -expenses

Restructuring - 0.11 - 0.11expenses

Tax impact onstock-based (0.03) (0.02) (0.05) (0.06)compensation expense

Tax impact onamortization andimpairment of (0.01) (0.02) (0.02) (0.03)acquired intangibleassets

Tax impact onrestructuring - (0.03) - (0.03)expenses

Tax impact onacquisition-related - - - -expenses

Adjusted diluted EPS $ 0.49 $ 0.52 $ 0.92 $ 1.05

The following tables show the reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP measures for the year ending December 31, 2020:

Reconciliation of Outlook for Net income Margin to Adjusted Income fromOperations Margin^7

(Unaudited)

Year ending December 31, 2020

Net income margin 8.2 %

Estimated foreign exchange (gains) losses, net (0.4) %

Estimated interest (income) expense, net 1.3 %

Estimated income tax expense 2.6 %

Estimated stock-based compensation expense 2.1 %

Estimated amortization and impairment of 1.1 %acquired intangible assets

Estimated restructuring expenses 0.6 %

Adjusted income from operations margin 15.5 %

Reconciliation of Outlook for Income from Operations Margin to Adjusted IncomefromOperations Margin^7

(Unaudited)

Year ending December 31, 2020

Income from operations margin 11.8 %

Estimated stock-based compensation expense 2.1 %

Estimated amortization and impairment of acquired 1.1 %intangible assets

Estimated restructuring expenses 0.6 %

Adjusted income from operations margin 15.5 %

Reconciliation of Outlook for Diluted EPS to Adjusted Diluted EPS^7

(Unaudited)

(Per share data)

Year ending December 31, 2020

Lower Upper

Diluted EPS $ 1.51 1.55

Estimated stock-based compensation expense 0.39 0.39

Estimated amortization and impairment of 0.21 0.21acquired intangible assets

Estimated restructuring expenses 0.11 0.11

Estimated tax impact on stock-based (0.11) (0.11)compensation

Estimated tax impact on amortization and (0.05) (0.05)impairment of acquired intangible assets

Estimated tax impact on restructuring (0.03) (0.03)expenses

Adjusted diluted EPS $ 2.03 2.07 ^7





^1 Revenue growth on a constant currency basis is a non-GAAP measure and is calculated by restating current-period activity using the prior fiscal period's foreign currency exchange rates adjusted for hedging gains/losses insuch period.

^2 Adjusted diluted earnings per share is a non-GAAP measure. A reconciliation of GAAP diluted earnings per share to adjusted diluted earnings per share is attached to this release.

^3 Adjusted income from operations and adjusted income from operations marginare non-GAAP measures. Reconciliations of each of GAAP income from operationsand GAAP net income to adjusted income from operations and GAAP income from operations margin and GAAP net income margin to adjusted income from operations margin are attached to this release.

^4 Adjusted income from operations margin is a non-GAAP measure. A reconciliation of the outlook for each of GAAP income from operations margin and GAAP net income margin to adjusted income from operations margin is attached to this release.

^5 Adjusted diluted earnings per share is a non-GAAP measure. A reconciliation of the outlook for GAAP diluted earnings per share to adjusteddiluted earnings per share is attached to this release.

^6 Due to rounding, the numbers presented in this table may not add up precisely to the totals provided.

^7 Due to rounding, the numbers presented in this table may not add up precisely to the totals provided.

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SOURCE Genpact