10-Q 1 g-10q_20180930.htm 10-Q g-10q_20180930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period ended September 30, 2018

Or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from              to             

Commission file number: 001-33626

 

GENPACT LIMITED

(Exact name of registrant as specified in its charter)

 

 

Bermuda

 

98-0533350

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

Canon’s Court

22 Victoria Street

Hamilton HM 12

Bermuda

(441) 295-2244

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

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. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The number of the registrant’s common shares, par value $0.01 per share, outstanding as of October 31, 2018 was 190,088,587.

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

Item No.

 

 

 

Page No.

 

 

 

 

 

PART I

 

 

 

Financial Information

 

 

 

 

1.

 

Unaudited Consolidated Financial Statements

 

 

 

 

 

 

Consolidated Balance Sheets as of December 31, 2017 and September 30, 2018

 

1

 

 

 

 

Consolidated Statements of Income for the three months and nine months ended September 30, 2017 and 2018

 

2

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the nine months ended September 30, 2017 and 2018

 

3

 

 

 

 

Consolidated Statements of Equity and Redeemable Non-controlling Interest for the nine months ended September 30, 2017 and 2018

 

5

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2018

 

6

 

 

 

 

Notes to the Consolidated Financial Statements

 

7

 

 

2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

60

 

 

3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

78

 

 

4.

 

Controls and Procedures

 

78

 

 

 

 

 

 

 

PART II

 

 

 

Other Information

 

 

 

 

1.

 

Legal Proceedings

 

79

 

 

1A.

 

Risk Factors

 

79

 

 

2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

79

 

 

6.

 

Exhibits

 

80

 

 

 

 

 

 

 

SIGNATURES

 

81

 

 

 

 


 

 


 

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

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

 

 

 

 

Notes

 

As of December 31,

2017

 

 

As of September 30,

2018

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

4

 

$

504,468

 

 

$

401,230

 

Accounts receivable, net

 

5

 

 

693,085

 

 

 

710,045

 

Prepaid expenses and other current assets

 

8

 

 

236,342

 

 

 

210,006

 

Total current assets

 

 

 

$

1,433,895

 

 

$

1,321,281

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

9

 

 

207,030

 

 

 

211,382

 

Deferred tax assets

 

24

 

 

76,929

 

 

 

94,212

 

Investment in equity affiliates

 

25

 

 

886

 

 

 

825

 

Intangible assets, net

 

10

 

 

131,590

 

 

 

135,028

 

Goodwill

 

10

 

 

1,337,122

 

 

 

1,386,408

 

Contract cost assets

 

19

 

 

 

 

 

160,110

 

Other assets

 

 

 

 

262,169

 

 

 

147,383

 

Total assets

 

 

 

$

3,449,621

 

 

$

3,456,629

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

11

 

$

170,000

 

 

$

330,000

 

Current portion of long-term debt

 

12

 

 

39,226

 

 

 

33,476

 

Accounts payable

 

 

 

 

15,050

 

 

 

14,436

 

Income taxes payable

 

24

 

 

30,026

 

 

 

73,567

 

Accrued expenses and other current liabilities

 

13

 

 

584,482

 

 

 

554,708

 

Total current liabilities

 

 

 

$

838,784

 

 

$

1,006,187

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

12

 

 

1,006,687

 

 

 

983,884

 

Deferred tax liabilities

 

24

 

 

6,747

 

 

 

6,512

 

Other liabilities

 

14

 

 

168,609

 

 

 

175,028

 

Total liabilities

 

 

 

$

2,020,827

 

 

$

2,171,611

 

 

 

 

 

 

 

 

 

 

 

 

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  190,053,249 issued and outstanding as of December 31, 2017 and September 30, 2018, respectively

 

 

 

 

1,924

 

 

 

1,896

 

Additional paid-in capital

 

 

 

 

1,421,368

 

 

 

1,453,674

 

Retained earnings

 

 

 

 

355,982

 

 

 

397,470

 

Accumulated other comprehensive income (loss)

 

 

 

 

(355,230

)

 

 

(568,022

)

Total equity

 

 

 

$

1,424,044

 

 

$

1,285,018

 

Commitments and contingencies

 

27

 

 

 

 

 

 

 

 

Total liabilities, redeemable non-controlling interest and equity

 

 

 

$

3,449,621

 

 

$

3,456,629

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the Consolidated Financial Statements.

1


 

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

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

 

 

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

Notes

2017 (1)

 

 

2018 (1)

 

 

 

2017 (1)

 

 

2018 (1)

 

Net revenues

19

$

708,824

 

 

$

747,978

 

 

 

$

2,002,516

 

 

$

2,165,451

 

Cost of revenue

20, 25

 

428,790

 

 

 

481,412

 

 

 

 

1,226,635

 

 

 

1,388,634

 

Gross profit

 

$

280,034

 

 

$

266,566

 

 

 

$

775,881

 

 

$

776,817

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

21, 25

 

172,028

 

 

 

168,010

 

 

 

 

500,644

 

 

 

515,285

 

Amortization of acquired intangible assets

10

 

10,151

 

 

 

9,372

 

 

 

 

25,780

 

 

 

29,134

 

Other operating (income) expense, net

22

 

(64

)

 

 

(4,844

)

 

 

 

(8,517

)

 

 

(4,913

)

Income from operations

 

$

97,919

 

 

$

94,028

 

 

 

$

257,974

 

 

$

237,311

 

Foreign exchange gains (losses), net

 

 

5,045

 

 

 

7,450

 

 

 

 

2,045

 

 

 

15,053

 

Interest income (expense), net

23

 

(8,724

)

 

 

(9,139

)

 

 

 

(24,067

)

 

 

(27,646

)

Other income (expense), net

26

 

(4,498

)

 

 

5,385

 

 

 

 

7,615

 

 

 

30,683

 

Income before equity-method investment activity, net and income tax expense

 

$

89,742

 

 

$

97,724

 

 

 

$

243,567

 

 

$

255,401

 

Equity-method investment activity, net

 

 

 

 

 

(7

)

 

 

 

(4,567

)

 

 

(22

)

Income before income tax expense

 

$

89,742

 

 

$

97,717

 

 

 

$

239,000

 

 

$

255,379

 

Income tax expense

24

 

16,581

 

 

 

24,114

 

 

 

 

44,297

 

 

 

53,268

 

Net income

 

$

73,161

 

 

$

73,603

 

 

 

$

194,703

 

 

$

202,111

 

Net loss attributable to redeemable non-controlling interest

 

 

584

 

 

 

 

 

 

 

1,326

 

 

 

761

 

Net income attributable to Genpact Limited shareholders

 

$

73,745

 

 

$

73,603

 

 

 

$

196,029

 

 

$

202,872

 

Net income available to Genpact Limited common shareholders

 

$

73,745

 

 

$

73,603

 

 

 

$

196,029

 

 

$

202,872

 

Earnings per common share attributable to Genpact Limited common shareholders

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.38

 

 

$

0.39

 

 

 

$

1.01

 

 

$

1.06

 

Diluted

 

$

0.38

 

 

$

0.38

 

 

 

$

0.99

 

 

$

1.04

 

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

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

192,124,366

 

 

 

190,024,924

 

 

 

 

194,221,162

 

 

 

190,991,405

 

Diluted

 

 

194,947,699

 

 

 

193,115,769

 

 

 

 

197,112,014

 

 

 

194,256,771

 

(1) Cost of revenue, selling, general and administrative expenses, other income (expense) and income from operations for the three and nine months ended September 30, 2017 have been restated due to the adoption of ASU No. 2017-07 with effect from January 1, 2018.

 

 

See accompanying notes to the Consolidated Financial Statements.

2


 

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

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

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

2017

 

 

2018

 

 

2017

 

 

2018

 

 

Genpact Limited Shareholders

 

 

Redeemable Non-controlling interest

 

 

Genpact Limited Shareholders

 

 

Redeemable Non-controlling interest

 

 

Genpact

Limited

Shareholders

 

 

Redeemable

Non-

controlling

interest

 

 

Genpact

Limited

Shareholders

 

 

Redeemable

Non-

controlling

interest

 

Net income (loss)

$

73,745

 

 

$

(584

)

 

$

73,603

 

 

$

 

 

$

196,029

 

 

$

(1,326

)

 

$

202,872

 

 

$

(761

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation  adjustments

 

(4,185

)

 

 

(256

)

 

 

(58,134

)

 

 

 

 

 

67,527

 

 

 

(334

)

 

 

(141,150

)

 

 

(424

)

Net income (loss) on cash flow hedging derivatives, net of taxes (Note 7)

 

(14,874

)

 

 

 

 

 

(28,918

)

 

 

 

 

 

(5,627

)

 

 

 

 

 

(75,729

)

 

 

 

Retirement benefits, net of taxes

 

369

 

 

 

 

 

 

692

 

 

 

 

 

 

711

 

 

 

 

 

 

1,822

 

 

 

 

Other comprehensive income (loss)

 

(18,690

)

 

 

(256

)

 

 

(86,360

)

 

 

 

 

 

62,611

 

 

 

(334

)

 

 

(215,057

)

 

 

(424

)

Comprehensive income (loss)

$

55,055

 

 

$

(840

)

 

$

(12,757

)

 

$

 

 

$

258,640

 

 

$

(1,660

)

 

$

(12,185

)

 

$

(1,185

)

 

See accompanying notes to the Consolidated Financial Statements.

3


 

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Equity and Redeemable Non-controlling Interest

(Unaudited)

(In thousands, except share count)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Redeemable

 

 

 

No. of Shares

 

 

Amount

 

 

Additional Paid-

in Capital

 

 

Retained

Earnings

 

 

Comprehensive

Income (Loss)

 

 

Total

Equity

 

 

non-controlling

interest

 

Balance as of January 1, 2017

 

 

198,794,052

 

 

$

1,984

 

 

$

1,384,468

 

 

$

358,121

 

 

$

(457,925

)

 

$

1,286,648

 

 

$

4,520

 

Issuance of common shares on

exercise of options (Note 16)

 

 

641,900

 

 

 

6

 

 

 

9,237

 

 

 

 

 

 

 

 

 

9,243

 

 

 

 

Issuance of common shares under the employee stock purchase plan (Note 16)

 

 

150,265

 

 

 

2

 

 

 

3,589

 

 

 

 

 

 

 

 

 

3,591

 

 

 

 

Net settlement on vesting of

restricted share units (Note 16)

 

 

103,220

 

 

 

1

 

 

 

(358

)

 

 

 

 

 

 

 

 

(357

)

 

 

 

Net settlement on vesting of

performance units (Note 16)

 

 

731,701

 

 

 

7

 

 

 

(9,946

)

 

 

 

 

 

 

 

 

(9,939

)

 

 

 

Stock repurchased and retired (Note 17)

 

 

(7,387,240

)

 

 

(74

)

 

 

(40,000

)

 

 

(179,710

)

 

 

 

 

 

(219,784

)

 

 

 

Expenses related to stock repurchase (Note 17)

 

 

 

 

 

 

 

 

 

 

 

(16

)

 

 

 

 

 

(16

)

 

 

 

Stock-based compensation expense (Note 16)

 

 

 

 

 

 

 

 

22,402

 

 

 

 

 

 

 

 

 

22,402

 

 

 

 

Change in fair value of redeemable non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

(979

)

 

 

 

 

 

(979

)

 

 

979

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

196,029

 

 

 

 

 

 

196,029

 

 

 

(1,326

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

62,611

 

 

 

62,611

 

 

 

(334

)

Dividend (Note 17 )

 

 

 

 

 

 

 

 

 

 

 

(35,096

)

 

 

 

 

 

(35,096

)

 

 

 

Balance as of  September 30, 2017

 

 

193,033,898

 

 

$

1,926

 

 

$

1,369,392

 

 

$

338,349

 

 

$

(395,314

)

 

$

1,314,353

 

 

$

3,839

 

 

See accompanying notes to the Consolidated Financial Statements.

4


 

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Equity and Redeemable Non-controlling Interest

(Unaudited)

(In thousands, except share count)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Redeemable

 

 

 

No. of

Shares

 

 

Amount

 

 

Additional Paid-

in Capital

 

 

Retained

Earnings

 

 

Comprehensive

Income (Loss)

 

 

Total

Equity

 

 

non-controlling

interest

 

Balance as of January 1, 2018, as previously reported

 

 

192,825,207

 

 

$

1,924

 

 

$

1,421,368

 

 

$

355,982

 

 

$

(355,230

)

 

$

1,424,044

 

 

$

4,750

 

Adoption of ASU 2014-09  (Note 2(f))

 

 

 

 

 

 

 

 

 

 

 

17,924

 

 

 

 

 

 

17,924

 

 

 

 

Adjusted balance as of January 1, 2018

 

 

192,825,207

 

 

$

1,924

 

 

$

1,421,368

 

 

$

373,906

 

 

$

(355,230

)

 

$

1,441,968

 

 

$

4,750

 

Adoption of ASU 2018-02 (Note 7, 24)

 

 

 

 

 

 

 

 

 

 

 

(2,265

)

 

 

2,265

 

 

 

 

 

 

 

Issuance of common shares on exercise of options (Note 16)

 

 

441,076

 

 

 

4

 

 

 

7,254

 

 

 

 

 

 

 

 

 

7,258

 

 

 

 

Issuance of common shares under the employee stock purchase plan (Note 16)

 

 

181,643

 

 

 

2

 

 

 

5,015

 

 

 

 

 

 

 

 

 

5,017

 

 

 

 

Net settlement on vesting of restricted share units (Note 16)

 

 

192,222

 

 

 

2

 

 

 

(1,665

)

 

 

 

 

 

 

 

 

(1,663

)

 

 

 

Net settlement on vesting of performance units (Note 16)

 

 

691,958

 

 

 

7

 

 

 

(13,291

)

 

 

 

 

 

 

 

 

(13,284

)

 

 

 

Stock repurchased and retired (Note 17)

 

 

(4,278,857

)

 

 

(43

)

 

 

4,000

 

 

 

(134,060

)

 

 

 

 

 

(130,103

)

 

 

 

Expenses related to stock repurchase (Note 17)

 

 

 

 

 

 

 

 

 

 

 

(82

)

 

 

 

 

 

(82

)

 

 

 

Stock-based compensation expense (Note 16)

 

 

 

 

 

 

 

 

32,158

 

 

 

 

 

 

 

 

 

32,158

 

 

 

 

Payment for purchase of redeemable non-controlling interest

 

 

 

 

 

 

 

 

(1,165

)

 

 

 

 

 

 

 

 

(1,165

)

 

 

(3,565

)

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

202,872

 

 

 

 

 

 

202,872

 

 

 

(761

)

      Other comprehensive        income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(215,057

)

 

 

(215,057

)

 

 

(424

)

Dividend (Note 17)

 

 

 

 

 

 

 

 

 

 

 

(42,901

)

 

 

 

 

 

(42,901

)

 

 

 

Balance as of  September 30, 2018

 

 

190,053,249

 

 

$

1,896

 

 

$

1,453,674

 

 

$

397,470

 

 

$

(568,022

)

 

$

1,285,018

 

 

$

 

 

See accompanying notes to the Consolidated Financial Statements.

5


 

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

Nine months ended September 30,

 

 

 

 

2017

 

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net income attributable to Genpact Limited shareholders

 

$

196,029

 

 

$

202,872

 

Net loss attributable to redeemable non-controlling interest

 

 

(1,326

)

 

 

(761

)

Net income

 

$

194,703

 

 

$

202,111

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

42,271

 

 

 

47,612

 

Amortization of debt issuance costs (including loss on extinguishment of debt)

 

 

1,382

 

 

 

3,546

 

Amortization of acquired intangible assets

 

 

25,780

 

 

 

29,134

 

Write-down of intangible assets and property, plant and equipment

 

 

 

 

 

1,538

 

Reserve for doubtful receivables

 

 

4,871

 

 

 

1,705

 

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

 

 

(9,296

)

 

 

(4,544

)

Equity-method investment activity, net

 

 

4,567

 

 

 

22

 

Stock-based compensation expense

 

 

22,402

 

 

 

32,158

 

Deferred income taxes

 

 

(4,589

)

 

 

(1,768

)

Provision for expected loss on divestiture

 

 

5,195

 

 

 

 

Others, net

 

 

(5,261

)

 

 

255

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Increase in accounts receivable

 

 

(30,687

)

 

 

(12,946

)

Increase in prepaid expenses, other current assets, contract cost assets and other assets

 

 

(56,230

)

 

 

(96,300

)

Decrease in accounts payable

 

 

(462

)

 

 

(913

)

Increase (decrease) in accrued expenses, other current liabilities and other liabilities

 

 

27,723

 

 

 

(44,602

)

Increase in income taxes payable

 

 

41,324

 

 

 

45,798

 

Net cash provided by operating activities

 

$

263,693

 

 

$

202,806

 

Investing activities

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(47,510

)

 

 

(68,027

)

Payment for internally generated intangible assets (including intangibles under development)

 

 

(8,950

)

 

 

(19,397

)

Proceeds from sale of property, plant and equipment

 

 

1,648

 

 

 

499

 

Investment in equity affiliates

 

 

(496

)

 

 

 

Payment for business acquisitions, net of cash acquired

 

 

(277,549

)

 

 

(108,105

)

Payment for purchase of redeemable non-controlling interest

 

 

 

 

 

(4,730

)

Net cash used for investing activities

 

$

(332,857