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TheStreet Open House

IGATE Reports Strong Third Quarter Earnings With Solid Margins; Profits Up By 97.9%

Forward-Looking Statements

Statements contained in this press release regarding the benefits of the Patni acquisition, the business outlook, the demand for the products and services, and all other statements in this release other than recitation of historical facts are forward-looking statements. Words such as "expect", "potential", "believes", "anticipates", "plans", "intends" and similar expressions are intended to identify such forward-looking statements. Forward-looking statements in the press release include, without limitation, forecasts of market growth, future revenues, future expectations concerning growth of business, cost competitiveness and expansion of global reach following the acquisition, and other matters that involve known and unknown risks, uncertainties and other factors that may cause results, levels of activity, performance or achievements to differ materially from results expressed or implied by this press release. Such risk factors include, among others: difficulties encountered in integrating business; whether certain market segments grow as anticipated; the competitive environment in the information technology services industry and competitive responses to our acquisition of Patni; and whether the companies can successfully provide services/products and the degree to which these gain market acceptance. Furthermore, in connection with the Patni acquisition, the Company has borrowed significant amounts, including through the issuance of high yield notes, and will have to use a significant portion of its cash flows to service such indebtedness, as a result of which the Company might not have sufficient funds to operate its businesses in the manner it intends or has operated in the past. Additional risks relating to the Company are set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as well as the Company's other reports filed with the Securities and Exchange Commission and risks related to the business of Patni as set forth in Patni's Annual Report in Form 20-F for the fiscal year ended December 31, 2011. Actual results may differ materially from those contained in the forward-looking statements in this press release. Any forward-looking statements are based on information currently available to the Company and it assumes no obligation to update these statements as circumstances change. This document does not constitute an offer to purchase or to sell securities in any jurisdiction.

iGATE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
     
  September 30, December 31,
  2012 2011
  (unaudited) (audited)
     
ASSETS    
Current assets:    
     
Cash and cash equivalents   $ 97,708  $ 75,440
Restricted Cash  11,400  -- 
Short-term investments  450,029  354,528
Accounts receivable, net   161,092  172,711
Unbilled revenues  91,378  45,223
Prepaid expenses and other current assets  48,162  18,752
Foreign exchange derivative contracts  6,235  277
Prepaid income taxes  8,184  8,341
Deferred tax assets  25,517  20,574
Receivable from Mastech Holdings, Inc.  --   187
Total current assets  899,705  696,033
     
Deposits and other assets  28,053  32,102
Prepaid income taxes  23,769  18,481
Property and equipment, net  163,470  175,672
Leasehold land  90,623  90,339
Deferred tax assets  27,678  30,456
Goodwill  513,089  511,060
Intangible assets, net  152,851  160,706
     
Total assets  $ 1,899,238  $ 1,714,849
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current liabilities:    
Accounts payable  $ 6,709  $ 7,857
Accrued payroll and related costs  54,201  71,913
Accrued income taxes  775  3,993
Line of credit  57,000  57,000
Term loan  17,500  -- 
Other accrued liabilities  97,104  77,988
Foreign exchange derivative contracts  9,401  12,471
Deferred revenue  16,617  22,412
Total current liabilities  259,307  253,634
     
Other long-term liabilities  4,197  4,610
Senior notes  770,000  770,000
Term Loan  278,000  -- 
Foreign exchange derivative contracts  --   6,739
Accrued income taxes  23,951  17,672
Deferred tax liabilities  61,354  58,992
Total liabilities  1,396,809  1,111,647
     
Redeemable non controlling interest  39,555  -- 
     
Series B Preferred stock  370,908  349,023
     
Shareholders' equity:    
Common Stock, par value $0.01 per share  583  577
Additional paid-in capital  181,097  201,281
Retained earnings  147,616  104,493
Common stock in treasury, at cost  (14,714)  (14,714)
Accumulated other comprehensive loss  (222,616)  (214,641)
Total iGATE Corporation shareholders' equity   91,966  76,996
Non controlling interest  --   177,183
Total equity  91,966  254,179
Total liabilities, preferred stock and shareholders' equity  $ 1,899,238  $ 1,714,849
 
 
iGATE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands)
(unaudited)
         
  Three Months ended Nine Months ended
  September 30, September 30,
   2012  2011  2012  2011
         
Revenues  $ 271,090  $ 265,724  $ 802,348  $ 511,939
         
Cost of revenues (exclusive of Depreciation and amortization)  163,269  167,565  488,380  323,563
         
Gross margin  107,821  98,159  313,968  188,376
         
Selling, general and administrative  44,064  46,745  127,348  108,915
         
Depreciation and amortization  10,027  13,667  36,757  25,032
         
Income from operations   53,730  37,747  149,863  54,429
         
Other income (loss), net  (16,942)  (23,337)  (56,372)  (7,487)
         
Income before income taxes  36,788  14,410  93,491  46,942
         
Income tax expense   8,495  (2,793)  24,007  7,314
Net income before noncontrolling interest  28,293  17,203  69,484  39,628
         
Noncontrolling interest  --   2,950  4,476  3,437
Net income attributable to iGATE Corporation  28,293  14,253  65,008  36,191
Accretion to Preferred Stock  103  84  295  214
Preferred dividend  7,419  6,769  21,590  15,131
Net income attributable to iGATE common shareholders  $ 20,771  $ 7,400  $ 43,123  $ 20,846
 
 
iGATE CORPORATION
Earnings Per Share
(Amounts in thousands, except per share data)
(unaudited)
                   
      Three Months Ended September 30,   Nine Months Ended September 30,
PARTICULARS     2012   2011   2012   2011
                   
Net income attributable to iGATE common shareholders      $ 20,771    $ 7,400    $ 43,123    $ 20,846
Add: Dividends on Series B Preferred Stock      7,419    6,769    21,590    15,131
       28,190    14,169    64,713    35,977
                   
Less: Dividends paid on                  
Series B Preferred Stock [A]  7,419  7,419  6,769  6,769  21,590  21,590  15,131  15,131
Undistributed Income       $ 20,771    $ 7,400    $ 43,123    $ 20,846
                   
Basic and Diluted allocation of Undistributed Income                   
 Common stock [B]    15,712    5,674    32,619    15,983
 Unvested restricted stock [C]    12    22    26    62
 Series B Preferred Stock [D]    5,047    1,704    10,478    4,801
       $ 20,771    $ 7,400    $ 43,123    $ 20,846
                   
Shares outstanding:                  
Common stock      57,318    56,598    57,318    56,598
Unvested restricted stock       45    219    45    219
Series B Preferred Stock      18,411    17,002    18,411    17,002
       75,774    73,819    75,774    73,819
                   
Weighted average shares outstanding:                  
Common stock [E]    57,271    56,616    57,076    56,478
Unvested restricted stock  [F]    45    221    45    224
Participating preferred stock [G]    18,411    17,002    18,411    17,002
       75,727    73,839    75,532    73,704
                   
Weighted average common stock outstanding      57,271    56,616    57,076    56,478
Dilutive effect of stock options and restricted shares outstanding      1,622    1,330    1,638    1,428
Dilutive weighted average shares outstanding [H]    58,893    57,946    58,714    57,906
                   
Distributed earnings per share:                  
Participating preferred stock [I=A/G]    $ 0.40    $ 0.40    $ 1.17    $ 0.89
                   
Undistributed earnings per share:                  
Common stock [J=B/E]    $ 0.27    $ 0.10    $ 0.57    $ 0.28
Unvested restricted stock [K=C/F]    $ 0.27    $ 0.10    $ 0.57    $ 0.28
Participating preferred stock [L=D/G]    $ 0.27    $ 0.10    $ 0.57    $ 0.28
                   
                   
Basic earnings per share from operations                  
Common Stock [J]    $ 0.27    $ 0.10    $ 0.57    $ 0.28
Unvested restricted stock [K]    $ 0.27    $ 0.10    $ 0.57    $ 0.28
Participating preferred stock [I+L]    $ 0.67    $ 0.50    $ 1.74    $ 1.17
                   
Diluted earnings per share from operations [[B+C]/H]    $ 0.27    $ 0.10    $ 0.56    $ 0.28
 
The number of outstanding participative convertible preferred stock for which the earnings per share exceeded the earnings per share of common stock aggregated to 18.4 million and 17.0 million for the three months and nine months ended September 30, 2012 and 2011, respectively. These shares were excluded from the computation of diluted earnings per share as they were anti-dilutive.
 
 
iGATE CORPORATION
Reconciliation of Selected GAAP measures to Non-GAAP measures
(Amounts in thousands, except per share data)
(unaudited)
         
  Three Months ended Nine Months ended
  September 30, September 30,
  2012 2011 2012 2011
GAAP Net income  $ 28,293  $ 14,253  $ 65,008  $ 36,191
         
Adjustments        
         
Amortization of Intangible assets, net of taxes  1,823  2,119  6,118  3,640
Stock Based Compensation, net of taxes  2,469  3,508  6,441  6,726
Acquisition expenses, net of taxes  --   --   --   10,914
Delisting expenses, net of taxes  129  --   2,454  -- 
Merger and reorganization expenses  764  --   764  -- 
Forex (gain) / losson acquisition hedging and remeasurement, net of taxes  2,105  (937)  5,259  (15,251)
Severance cost, net of taxes  --   287  --   4,675
         
Non-GAAP Net income  $ 35,583  $ 19,230  $ 86,044  $ 46,895
         
Basic earnings per share from operations        
GAAP  $ 0.27  $ 0.10  $ 0.57  $ 0.28
Non-GAAP  0.47  $ 0.26  $ 1.14  $ 0.64
         
Diluted earnings per share from operations        
GAAP  $ 0.27  $ 0.10  $ 0.56  $ 0.28
Non-GAAP  0.46  $ 0.26  $ 1.12  $ 0.63
         
Weighted average shares outstanding, Basic*  75,727  73,839  75,532  73,704
Weighted average dilutive common equivalent shares outstanding*  77,304  74,948  77,125  74,908
         
*Includes assumed conversion of 18.4 million,17.0 million shares of Series B Preferred Stock as of September 30,2012 and 2011 respectively
 
 
iGATE CORPORATION
Reconciliation of Net income, net of tax, to Adjusted EBITDA
(Amounts in thousands)
(unaudited)
 
  Three Months ended Nine Months ended
  September 30, September 30,
  2012 2011 2012 2011
         
Net income attributable to iGATE Corporation  $ 28,293  $ 14,253  $ 65,008  $ 36,191
         
Adjustments        
         
Depreciation and amortization  10,027  13,667  36,757  25,032
Interest expenses  21,994  19,546  62,149  32,834
Income tax (benefit) expense   8,495  (2,793)  24,007  7,314
Noncontrolling interest  --   2,950  4,476  3,437
Other income, net  (8,815)  (4,083)  (23,975)  (8,501)
Foreign exchange (gain)/loss  3,763  7,874  18,198  (16,846)
Stock Based Compensation  3,795  4,346  9,270  8,868
Acquisition expenses  --   --   --   10,914
Severance expenses  --   --   --   6,164
Delisting expenses  328  --   3,532  -- 
Merger and reorganization expenses  764  --   764  -- 
Adjusted EBITDA (a non-GAAP measure)  $ 68,644  $ 55,760  $ 200,186  $ 105,407
         
The Company presents the non-GAAP financial measures EBITDA and adjusted EBITDA because management uses these measures to monitor and evaluate the performance of the business and believe the presentation of these measures will enhance the investors' ability to analyze trends in the business and evaluate the Company underlying performance relative to other companies in the industry.

Non-GAAP Disclosure of Adjusted EBITDA

We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net income attributable to iGATE Corporation plus (i) depreciation and amortization, (ii) interest expense, (iii) income tax expense, minus (iv) other income, net plus (v) foreign exchange loss, (v) stock based compensation (vi) acquisition expenses (vii) severance expenses and (viii) delisting expenses. We eliminated the impact of the above as we do not consider them as indicative of our ongoing operating performance. These adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

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