8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 7, 2019

GENPACT LIMITED

(Exact name of registrant as specified in its charter)

Bermuda	001-33626	98-0533350
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

Canon’s Court, 22 Victoria Street

Hamilton HM 12, Bermuda

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (441) 295-2244

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Item 2.02 Results of Operations and Financial Condition.

On February 7, 2019, Genpact Limited (the “Company”) issued a press release announcing its financial results for the three months and full year ended December 31, 2018. The Company is furnishing this Form 8-K pursuant to Item 2.02, “Results of Operations and Financial Condition.” A copy of the press release, attached hereto as Exhibit 99.1, is incorporated herein by reference.

The information in this report (including Exhibit 99.1) is being furnished pursuant to Item 2.02 and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

The Company is making reference to non-GAAP financial information in the press release and on the conference call. A reconciliation of the non-GAAP financial measures to the comparable GAAP financial measures is contained in the attached press release.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits:

Exhibit 99.1 Press release dated February 7, 2019

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	GENPACT LIMITED
Date: February 7, 2019	By:	/s/ Heather D. White
	Name:	Heather D. White
	Title:	Senior Vice President, General Counsel and Secretary

EX-99.1

Exhibit 99.1

Genpact Reports Full Year and Fourth Quarter 2018 Results

2018 Revenues of $3.0 Billion, Up 10% (~9% on a constant currency basis)¹

2018 Global Client BPO Revenues of $2.3 Billion, Up 12%

2018 Diluted EPS of $1.45, Up 9%; 2018 Adjusted Diluted EPS² of $1.80, Up 11%

NEW YORK, February 7, 2019 — Genpact Limited (NYSE: G), a global professional services firm focused on delivering digital transformation, today announced financial results for the fourth quarter and full year ended December 31, 2018.

“We had a great end to 2018. I am really pleased with our fourth quarter and full-year results as we stayed focused and executed well on our strategy, driving strong financial performance,” said ‘Tiger’ Tyagarajan, Genpact’s president and CEO. “It is clear that we have crossed the tipping point in terms of our reputation as a preferred digital transformation partner in our chosen industry verticals and service lines. We believe we have set the stage for long-term, sustainable growth and profitability in an expanding addressable market.”

Key Financial Results – Full Year 2018

• Total revenue was $3.0 billion, up 10% year-over-year (up ~9% on a constant currency basis).

• Income from operations was $348 million, up 5% year-over-year, with a corresponding margin of 11.6%. Adjusted income from operations was $473 million, up 10% year-over-year, with a corresponding margin of 15.8%.³

• Diluted earnings per share were $1.45, up 9% year-over-year, and adjusted diluted earnings per share were $1.80, up 11% year-over-year.

• New bookings were approximately $3.9 billion, up 40% from $2.8 billion in 2017.⁴

• Genpact repurchased approximately 5.1 million of its common shares in 2018 for a total of $158 million at an average price per share of $31.08.

Key Financial Results – Fourth Quarter 2018

• Total revenue was $835 million, up 14% year-over-year (up ~15% on a constant currency basis).

• Income from operations was $111 million, up 51% year-over-year, with a corresponding margin of 13.3%. Adjusted income from operations was $142 million, up 24% year-over-year, with a corresponding margin of 17.0%.

• Diluted earnings per share were $0.41, up 20% year-over-year, and adjusted diluted earnings per share were $0.52, up 19% year-over-year.

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 in such 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 margin are non-GAAP measures. Reconciliations of GAAP income from operations to adjusted income from operations and GAAP income from operations margin to adjusted income from operations margin are attached to this release.

⁴  New bookings, an operating measure, represents the total contract value of new contracts and certain renewals, extensions and changes to existing contracts. Regular renewals of contracts with no change in scope are not counted as new bookings.

Revenue Details – Full Year 2018⁵

• Revenue from Global Clients was $2.7 billion, up 11% year-over-year (up 10.5% on a constant currency basis), representing approximately 91% of total revenues.

• Revenue from GE was $268 million, flat year-over-year, representing approximately 9% of total revenues.

• Total BPO revenue was $2.5 billion, up 11% year-over-year, representing approximately 83% of total revenues.

• Global Client BPO revenue was $2.3 billion, up 12% year-over-year, both on an as reported and constant currency basis.

• GE BPO revenue was $158 million, down 10% year-over-year.

• Total IT revenue was $498 million, up 5% year-over-year, representing approximately 17% of total revenues.

• Global Client IT revenue was $388 million, up 2% year-over-year.

• GE IT revenue was $110 million, up 17% year-over-year.

Revenue Detail – Fourth Quarter 2018

• Revenue from Global Clients was $755 million, up 13% year-over-year (up ~14% on a constant currency basis), representing approximately 90% of total revenues.

• Revenue from GE was $80 million, up 24% year-over-year, representing approximately 10% of total revenues.

• Total BPO revenue was $700 million, up 14% year-over-year, representing approximately 84% of total revenues.

• Global Client BPO revenue was $650 million, up 13% year-over-year (up ~14% on a constant currency basis).

• GE BPO revenue was $50 million, up 30% year-over-year.

• Total IT revenue was $135 million, up 12% year-over-year, representing approximately 16% of total revenues.

• Global Client IT revenue was $105 million, up 11% year-over-year.

• GE IT revenue was $31 million, up 16% year-over-year.

Cash Flow from Operations

• Cash generated from operations in 2018 was $340 million, compared to $359 million in 2017.

2019 Outlook

Genpact expects:

• Total revenue for the full year 2019 to be $3.33 to $3.39 billion, which represents a growth range of 11% to 13%, or 12% to 14% on a constant currency basis.

• Global Client revenue growth to be in the range of 9.0% to 10.5%, or 10.0% to 11.5% on a constant currency basis.

• Adjusted income from operations margin⁶ of approximately 16.0%.

• Adjusted diluted EPS⁷ of $1.96 to $2.00.

⁵  At the end of each fiscal year, we reclassify revenue related to certain divested GE businesses as Global Client revenue as of the dates of divestiture. The 2017 numbers presented in this release reflect reclassifications from GE to Global Client revenue due to divestitures in 2017, the impact of which was immaterial. There were no such reclassifications of revenue in 2018.

⁶  Adjusted income from operations margin is a non-GAAP measure. A reconciliation of the outlook for GAAP income from operations margin to adjusted income from operations margin is attached to this release.

⁷  Adjusted diluted earnings per share is a non-GAAP measure. A reconciliation of the outlook for GAAP diluted earnings per share to adjusted diluted earnings per share is attached to this release.

Conference Call to Discuss Financial Results

Genpact’s management will host an hour-long conference call beginning at 4:30 p.m. ET on February 7, 2019 to discuss the company’s performance for the fourth quarter and full year ended December 31, 2018. To participate, callers can dial +1 (877) 654-0173 from within the U.S. or +1 (281) 973-6289 from any other country. Thereafter, callers will be prompted to enter the conference ID, 6458009.

A live webcast of the call will also be made available on the Genpact Investor Relations website at http://investors.genpact.com. 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 87,000+ of us. From New York to New Delhi and more than 25 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 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 a slowdown in the economies and sectors in which our clients operate, a slowdown in the business process outsourcing and information technology services sectors, 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 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 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
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 and share count)

	As of December 31,			As of December 31,
	2017			2018
Assets
Current assets
Cash and cash equivalents	$	504,468		$	368,396
Accounts receivable, net		693,085			774,184
Prepaid expenses and other current assets		236,342			212,477
Total current assets	$	1,433,895		$	1,355,057
Property, plant and equipment, net		207,030			212,715
Deferred tax assets		76,929			74,566
Investment in equity affiliates		886			836
Intangible assets, net		131,590			177,087
Goodwill		1,337,122			1,393,832
Contract cost assets		—			160,193
Other assets		262,169			155,159
Total assets	$	3,449,621		$	3,529,445
Liabilities and equity
Current liabilities
Short-term borrowings	$	170,000		$	295,000
Current portion of long-term debt		39,226			33,483
Accounts payable		15,050			42,584
Income taxes payable		30,026			33,895
Accrued expenses and other current liabilities		584,482			571,350
Total current liabilities	$	838,784		$	976,312
Long-term debt, less current portion		1,006,687			975,645
Deferred tax liabilities		6,747			8,080
Other liabilities		168,609			165,226
Total liabilities	$	2,020,827		$	2,125,263
Redeemable non-controlling interest		4,750			—
Shareholders’ equity
Preferred shares, $0.01 par value, 250,000,000 authorized, none issued		—			—
Common shares, $0.01 par value, 500,000,000 authorized, 192,825,207 and 189,346,101 issued and outstanding as of December 31, 2017 and December 31, 2018, respectively		1,924			1,888
Additional paid-in capital		1,421,368			1,471,301
Retained earnings		355,982			438,453
Accumulated other comprehensive income (loss)		(355,230	)		(507,460	)
Total equity	$	1,424,044		$	1,404,182
Total liabilities, redeemable non-controlling interest and equity	$	3,449,621		$	3,529,445

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

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

	Three months ended December 31,
	20168			20178			2018
Net revenues	$	681,747		$	734,413		$	835,339
Cost of revenue		405,678			454,803			533,134
Gross profit	$	276,069		$	279,610		$	302,205
Operating expenses:
Selling, general and administrative expenses		170,715			188,817			178,580
Amortization of acquired intangible assets		7,419			10,632			9,716
Other operating (income) expense, net		(149	)		6,856			3,068
Income from operations	$	98,084		$	73,305		$	110,841
Foreign exchange gains (losses), net		(526	)		(49	)		186
Interest income (expense), net		(5,012	)		(7,668	)		(9,473	)
Other income (expense), net		2,955			15,971			5,078
Income before equity-method investment activity, net and income tax expense	$	95,501		$	81,559		$	106,632
Equity-method investment activity, net		(1,362	)		24			10
Income before income tax expense	$	94,139		$	81,583		$	106,642
Income tax expense		18,072			15,445			27,495
Net income	$	76,067		$	66,138		$	79,147
Net loss attributable to redeemable non-controlling interest		232			944			—
Net income attributable to Genpact Limited shareholders	$	76,299		$	67,082		$	79,147
Net income available to Genpact Limited common shareholders	$	76,299		$	67,082		$	79,147
Earnings per common share attributable to Genpact Limited common shareholders
Basic	$	0.38		$	0.35		$	0.42
Diluted	$	0.38		$	0.34		$	0.41
Weighted average number of common shares used in computing earnings per common share attributable to Genpact Limited common shareholders
Basic		200,341,922			192,795,534			189,724,744
Diluted		203,431,310			196,862,168			193,149,836

⁸  Cost of revenue, selling, general and administrative expenses, other income (expense) and income from operations for the three months ended December 31, 2016 and 2017 have been restated due to the adoption of ASU No. 2017-07 with effect from January 1, 2018. The impact of such restatement is not material.

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

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

	Year ended December 31,
	20169			20179			2018
Net revenues	$	2,570,756		$	2,736,929		$	3,000,790
Cost of revenue		1,554,340			1,681,438			1,921,768
Gross profit	$	1,016,416		$	1,055,491		$	1,079,022
Operating expenses:
Selling, general and administrative expenses		652,967			689,461			693,865
Amortization of acquired intangible assets		27,183			36,412			38,850
Other operating (income) expense, net		(4,940	)		(1,661	)		(1,845	)
Income from operations	$	341,206		$	331,279		$	348,152
Foreign exchange gains (losses), net		2,630			1,996			15,239
Interest income (expense), net		(16,184	)		(31,735	)		(37,119	)
Other income (expense), net		9,691			23,586			35,761
Income before equity-method investment activity, net and income tax expense	$	337,343		$	325,126		$	362,033
Equity-method investment activity, net		(7,698	)		(4,543	)		(12	)
Income before income tax expense	$	329,645		$	320,583		$	362,021
Income tax expense		62,098			59,742			80,763
Net income	$	267,547		$	260,841		$	281,258
Net loss attributable to redeemable non-controlling interest		2,137			2,270			761
Net income attributable to Genpact Limited shareholders	$	269,684		$	263,111		$	282,019
Net income available to Genpact Limited common shareholders	$	269,684		$	263,111		$	282,019
Earnings per common share attributable to Genpact Limited common shareholders
Basic	$	1.30		$	1.36		$	1.48
Diluted	$	1.28		$	1.34		$	1.45
Weighted average number of common shares used in computing earnings per common share attributable to Genpact Limited common shareholders
Basic		206,861,536			193,864,755			190,674,740
Diluted		210,126,023			197,049,552			193,980,038

⁹  Cost of revenue, selling, general and administrative expenses, other income (expense) and income from operations for the years ended December 31, 2016 and 2017 have been restated due to the adoption of ASU No. 2017-07 with effect from January 1, 2018. The impact of such restatement is not material.

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Year ended December 31,
	2016			2017			2018
Operating activities
Net income attributable to Genpact Limited shareholders	$	269,684		$	263,111		$	282,019
Net loss attributable to redeemable non-controlling interest		(2,137	)		(2,270	)		(761	)
Net income	$	267,547		$	260,841		$	281,258
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation and amortization		54,553			58,503			64,868
Amortization of debt issuance costs (including loss on extinguishment of debt)		1,531			1,884			3,975
Amortization of acquired intangible assets		27,183			36,412			38,850
Write-down of intangible assets and property, plant and equipment		11,195			9,311			4,265
Reserve for doubtful receivables		7,282			9,819			1,857
Unrealized loss (gain) on revaluation of foreign currency asset/liability		1,717			(11,830	)		3,352
Equity-method investment activity, net		7,698			4,543			12
Stock-based compensation expense		25,113			35,685			48,998
Deferred tax expense (benefit)		30,454			(10,391	)		6,054
Loss (gain) on divestiture		(5,214	)		5,668			—
Others, net		(41	)		(4,785	)		1,317
Change in operating assets and liabilities:
Increase in accounts receivable		(48,612	)		(57,267	)		(76,894	)
Increase in prepaid expenses, other current assets, contract cost assets and other assets		(62,852	)		(28,381	)		(76,392	)
Increase (decrease) in accounts payable		(463	)		(2,155	)		26,401
Increase in accrued expenses, other current liabilities and other liabilities		27,977			46,581			5,993
Increase in income taxes payable		704			4,640			5,597
Net cash provided by operating activities	$	345,772		$	359,078		$	339,511
Investing activities
Purchase of property, plant and equipment		(81,926	)		(57,231	)		(84,978	)
Payment for acquired/internally generated intangible assets (including intangibles under development)		(6,846	)		(16,441	)		(75,439	)
Proceeds from sale of property, plant and equipment		547			1,738			668
Investment in equity affiliates		(9,620	)		(496	)		—
Payment for business acquisitions, net of cash acquired		(45,162	)		(284,822	)		(111,571	)
Proceeds from divestiture of business, net of cash divested		17,242			(4,738	)		—
Payment for purchase of redeemable non-controlling interest		—			—			(4,730	)
Net cash used for investing activities	$	(125,765	)	$	(361,990	)	$	(276,050	)
Financing activities
Repayment of capital lease obligations		(1,793	)		(2,708	)		(2,395	)
Payment of debt issuance costs		—			(2,630	)		(4,293	)
Proceeds from long-term debt		—			350,000			129,186
Repayment of long-term debt		(40,000	)		(40,000	)		(166,186	)
Proceeds from short-term borrowings		200,000			295,000			250,000
Repayment of short-term borrowings		(61,500	)		(285,000	)		(125,000	)
Proceeds from issuance of common shares under stock-based compensation Plans		18,228			15,528			14,034
Payment for net settlement of stock based awards		(769	)		(10,296	)		(15,919	)
Payment of earn-out/deferred consideration		(1,485	)		(6,219	)		(3,356	)
Dividend paid		—			(46,686	)		(57,102	)
Payment for stock repurchased and retired		(345,200	)		(219,784	)		(154,058	)
Payment for expenses related to stock purchase		(279	)		(16	)		(98	)
Net cash provided by/(used for) financing activities	$	(232,798	)	$	47,189		$	(135,187	)
Effect of exchange rate changes		(15,493	)		37,568			(64,346	)
Net increase (decrease) in cash and cash equivalents		(12,791	)		44,277			(71,726	)
Cash and cash equivalents at the beginning of the period		450,907			422,623			504,468
Cash and cash equivalents at the end of the period	$	422,623		$	504,468		$	368,396
Supplementary information
Cash paid during the period for interest (including interest rate swaps)	$	19,530		$	27,915		$	41,484
Cash paid during the period for income taxes	$	46,731		$	66,238		$	81,411
Property, plant and equipment acquired under capital lease obligations	$	2,206		$	2,318		$	2,031

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 attributable to shareholders of Genpact Limited, or adjusted income from operations;

• Adjusted income from operations margin;

• Adjusted diluted earnings per share attributable to shareholders of Genpact Limited, or 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 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. Additionally, in its calculations of such non-GAAP financial measures, Genpact’s management has adjusted other income and expenses, certain gains, losses and impairment charges attributable to equity-method investments, and gains or losses attributable to non-controlling interests because management believes that the Company’s results after taking into account these adjustments more accurately reflect the Company’s ongoing operations. 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 and income from operations 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 year and three months ended December 31, 2017 and 2018:

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

(Unaudited)

(In thousands)

	Year ended December 31,						Three months ended December 31,
	2017			2018			2017			2018
Income from operations	$	331,279		$	348,152		$	73,305		$	110,841
Add: Stock-based compensation		35,685			48,998			13,283			16,840
Add: Amortization of acquired intangible assets		35,467			37,292			11,390			9,333
Add: Acquisition-related expenses		5,886			2,362			131			—
Add: Other income (expense), net		23,586			35,761			15,971			5,078
Less: Equity-method investment activity, net		(4,543	)		(12	)		24			10
Add: Net loss attributable to redeemable non-controlling interest		2,270			761			944			—
Adjusted income from operations	$	429,630		$	473,314		$	115,048		$	142,102
Income from operations margin		12.1	%		11.6	%		10.0	%		13.3	%
Adjusted income from operations margin		15.7	%		15.8	%		15.7	%		17.0	%

Reconciliation of Diluted EPS to Adjusted Diluted EPS¹⁰

(Unaudited)

(Per share data)

	Year ended December 31,						Three months ended December 31,
	2017			2018			2017			2018
Diluted EPS	$	1.34		$	1.45		$	0.34		$	0.41
Add: Stock-based compensation		0.18			0.25			0.07			0.09
Add: Amortization of acquired intangible assets		0.18			0.19			0.06			0.05
Add: Acquisition-related expenses		0.03			0.01			—			—
Less: Tax impact on stock-based compensation		(0.05	)		(0.06	)		(0.02	)		(0.02	)
Less: Tax impact on amortization of acquired intangible assets		(0.06	)		(0.05	)		(0.02	)		(0.01	)
Less: Tax impact on acquisition-related expenses		—			—			—			—
Adjusted diluted EPS	$	1.62		$	1.80		$	0.43		$	0.52

¹⁰  Due to rounding, the numbers presented in this table may not add up precisely to the totals provided.

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, 2019:

Reconciliation of Outlook for Income from Operations Margin to Adjusted Income from Operations Margin¹¹

(Unaudited)

	Year ending December 31, 2019
Income from operations margin		12.3	%
Add: Estimated stock-based compensation		2.1	%
Add: Estimated amortization of acquired intangible assets		0.8	%
Add: Estimated acquisition-related expenses		0.1	%
Add: Estimated other income (expense), net		0.7	%
Less: Estimated equity-method investment activity, net		—
Adjusted income from operations margin		16.0	%

Reconciliation of Outlook for Diluted EPS to Adjusted Diluted EPS¹¹

(Unaudited)

(Per share data)

	Year ending December 31, 2019
	Lower			Upper
Diluted EPS	$	1.54		$	1.58
Add: Estimated stock-based compensation		0.37			0.37
Add: Estimated amortization of acquired intangible assets		0.14			0.14
Add: Estimated acquisition-related expenses		0.02			0.02
Less: Estimated tax impact on stock-based compensation		(0.08	)		(0.08	)
Less: Estimated tax impact on amortization of acquired intangible assets		(0.04	)		(0.04	)
Less: Estimated tax impact on acquisition-related expenses		—			—
Adjusted diluted EPS	$	1.96		$	2.00

¹¹ Due to rounding, the numbers presented in this table may not add up precisely to the totals provided.