Tenth Consecutive Quarter Of Year-Over-Year Revenue Growth;
Fourth-Quarter Earnings Per Diluted Share Of $0.10;
iGS Subsidiary Adds Nine Clients, Six Are Fortune 1000
PITTSBURGH, March 3 - iGATE Corporation, (Nasdaq: IGTE), a global provider of IT and BPO services, today announced its fourth-quarter and full-year 2005 financial results for the period ended December 31, 2005.
(Logo: http://www.newscom.com/cgi-bin/prnh/20010110/IGTELOGO )
Fourth Quarter Highlights
- Revenues at iGATE Global Solutions ("iGS"), the Company's offshore
subsidiary, increased 16.1% year-over-year.
- Income from operations increased to $2.8 million versus $1.7 million in
previous quarter.
- Generated $5.5 million in positive cash flow from operations.
- Sold Canadian operations for $9.3 million in net cash and a gain of
$5.5 million.
- iGS added 9 new clients, including 6 Fortune 1000 companies.
- iGS improved its offshore/onsite billing volume ratio to 71:29 compared
with 62:38 a year earlier.
Full Year Highlights
- Net income of $7.0 million in 2005 versus a net loss of ($18.2) million
in 2004.
- Net cash flow provided from continuing operations of $14.0 million
versus net cash used in operations of ($8.8) million in 2004.
- S,G&A expenses decreased 17.8%, from $82.1 million to $67.5 million in
2005.
- iGS added 39 new clients during 2005, 26 of which are Fortune 1000.
- Total headcount at 5,910 up from 4,980 at the end of 2004.
Fourth-Quarter Results
Revenues:
Revenues increased to $68.4 million from $68.1 million in the same period last year, but declined from $70.1 million in the previous quarter. The year- over-year revenue increase was due primarily to a 16.1% revenue increase at the Company's offshore subsidiary, iGS. This growth came in spite of the significant increase in the proportion of work done offshore versus onsite, which has the effect of reducing revenue growth due to the lower billing rates for offshore services. Revenue growth in iGS was driven primarily by expanding services to new clients added during the past 18 months, higher offshore volumes, an increase in billable headcount and better utilization rates.
This revenue growth was partially offset by lower revenues at iGATE Professional Services segment ("iPS") due to the completion of a large financial services project earlier in 2005 and the sale of its Canadian operations in November 2005. The sequential decline in fourth-quarter revenue was primarily due to this Canadian divestiture. The Canadian operation contributed $4.9 million to revenues in the 2005 fourth quarter and $8.3 million in the 2005 third quarter. Excluding the revenue effect of the Canadian operations, IPS revenue increased 3.8% in the fourth quarter of 2005.
Gross Margin:
Gross margins increased to 26.3% compared with 24.6% in the same period last year, but declined from 27.0% in the 2005 third quarter. The year-over- year fourth-quarter gross margin improvement was due primarily to higher gross profits from both the iGS segment and the iPS segment. On a sequential quarter basis, the decline was primarily due to lower gross margins in the iPS segment because of lower fourth-quarter utilization rates due to client holidays.
S,G&A:
Selling, general and administrative (S,G&A) expense declined to $15.7 million, or 22.9% of revenues, from $27.5 million or 40.4% of revenues in the corresponding quarter last year and from $17.2 million, or 24.6% of revenues, in the 2005 third quarter. Last year's fourth-quarter S,G&A expense included a ($10.5) million pretax charge related to the Company's Quintant acquisition. The sequential decline in S,G&A expenses is due primarily to the divestiture of the Company's Canadian operations and the Company's continuing cost rationalization initiatives.
Operating Income:
Income from operations improved to $2.8 million compared to $1.7 million in the 2005 third quarter. This was primarily due to lower S,G&A expenses and a $0.5 million benefit from the recovery of restructuring charges. Last year's fourth quarter net loss from operations was a negative ($8.1) million and included several one-time items that totaled ($7.8) million. These were the previously mentioned ($10.5) million charge related to an acquisition, a ($0.9) million restructuring charge and a $3.6 million gain on the sale of real estate in India.
Net Income:
The Company reported fourth-quarter net income of $5.0 million, or $0.10 per diluted share, compared with a net loss of ($8.9) million, or ($0.17) per diluted share, in the same period last year and net income of $0.9 million, or $0.02 per diluted share, in the third quarter of 2005. This quarter's net income included a $5.5 million gain on the sale of the Company's Canadian professional services business, and a $0.5 million benefit for a restructuring charge recovery offset by a ($2.5) million write down in the carrying value of a long-term investment.
"We are pleased with our steady financial and operational progress and to have reported our highest fourth-quarter and full-year profit levels in many years," stated Sunil Wadhwani, Chief Executive Officer and co-founder of iGATE Corporation. "We made solid progress with our 2005 primary objectives of growing offshore revenues, increasing our offshore volume of work, improving overall gross margins and increasing overall profitability and positive cash flow."
"We were also pleased to complete the sale of our Canadian professional services operation during the fourth quarter. This transaction concludes our strategic initiative of divesting all non-core operations to focus strictly on our more profitable and faster growing offshore and U.S. professional services businesses."
Ashok Trivedi, President and co-founder of iGATE Corporation stated, "We continued adding new clients at our iGS segment during the fourth quarter with nine new clients, six of which are Fortune 1000 companies. Our focus will continue to be on our iTOPS (Integrated Technology and Operations) business model and on adding 8 to 10 Fortune 1000 companies each quarter in order to achieve better economies of scale and accelerate our revenue and profit growth."
Full-Year 2005 Results
Revenues:
Revenues for the year ending December 31, 2005 increased 4.3% to $276.0 million from $264.6 million in the same period last year. Contributing to the revenue increase were higher revenues at both the Company's iGS and iPS business segments. Higher offshore billing volumes, expanding projects and services with clients added during the past 18 months, increases in billable headcount and higher utilization rates contributed to this revenue increase.
Gross Margin:
Gross margins improved to 25.7% from 25.3% in 2004. The 2005 gross margin improvement was due to higher gross margins in the Company's iPS segment primarily due to higher utilization rates.
S,G&A:
Selling, general, and administrative (S,G&A) expense for 2005 declined 17.8% to $67.5 million from $82.1 million in 2004. S,G&A expense for 2005 included significantly higher audit fees associated with Sarbanes-Oxley Act compliance, partially offset by lower bad debt expense. The 2004 S,G&A expense included a ($12.1) million pretax charge related to the Company's Quintant acquisition. As a percentage of sales, the 2005 S,G&A expense declined to 24.5% from 31.0% in 2004.
Operating Income:
Income from operations for 2005 improved substantially to $3.9 million compared to a net loss from operations of ($17.3) million in 2004. The 2005 results included a $0.5 million benefit for the recovery of restructuring charges. The 2004 results included several one-time items that totaled ($14.3) million. These were ($5.8) million in pretax restructuring charges, a ($12.1) million deferred compensation charge related to the Company's Quintant acquisition and a pretax gain of $3.6 million on the sale of real estate.
Net Income:
The Company reported 2005 net income of $7.0 million, or $0.13 per diluted share, compared with a net loss of ($18.2) million, or ($0.35) per diluted share in 2004. Net income in 2005 included several one-time items that totaled $5.7 million. These were a $5.5 million gain on the sale of the Canadian operation, a $0.5 million benefit for a restructuring charge recovery, a tax benefit of $2.2 million on the reversal of certain tax accruals and a ($2.5) million write down of a long-term investment. The net loss in 2004 included several one-time items that totaled ($10.5) million. These were a ($5.8) million restructuring charge, a ($12.1) million deferred compensation charge, a pretax gain of $3.6 million on the sale of real estate and $3.8 million of income from discontinued operations.
Mr. Wadhwani continued, "During this past year, we substantially completed our client rationalization process and the quality of our offshore client base has improved significantly. In addition, we approved initial plans for Phase III of our Bangalore, India Whitefield campus expansion. This expansion will add 1,000 seats and is expected to be complete in 2007. We remain optimistic about our long-term growth prospects and look forward to a solid performance in 2006," concluded Mr. Wadhawni.
Operating Segment Highlights
iGATE Global Solutions (iGS)
- Fourth-quarter revenues increased 2.7% to $36.1 million from $35.2
million in the third quarter and increased 16.1% from $31.1 million in
the fourth quarter of 2004.
- Fourth-quarter gross margins increased to 31.4% from 31.0% in the third
quarter.
- Fourth-quarter operating income more than doubled to $1.5 million
compared with $0.7 million in the third quarter.
- Added nine new clients, six of which are Fortune 1000 companies,
bringing to 39 the total number of new clients added during 2005, 26 of
which are Fortune 1000 companies.
- The fourth-quarter offshore/onsite billing volume ratio improved to
71:29 compared with 62:38 in the prior year period and 68:32 in the
third quarter.
- Offshore revenues contributed 43.3% to total fourth quarter IT services
revenue compared with 40.6% in the third quarter.
- Added 447 employees during the fourth quarter including 441 who are
billable. As of December 31, 2005, the iGS total headcount was 4,803.
iGATE Professional Services (iPS)
- Fourth-quarter revenues declined to $31.7 million from $34.2 million in
the third quarter due to the sale of the Company's Canadian
professional services operation. The Canadian operation generated
revenue of $4.9 million in the 2005 fourth quarter and $8.3 million in
the third quarter. Excluding the revenue effect of the Canadian
operations, IPS revenue increased 3.8% in the fourth quarter of 2005.
- Net cash flow provided from operations in 2005 was approximately $19.8
million.
- The core U.S. professional services operation added 44 consultants
during the fourth quarter.
Cash Flow & Balance Sheet
Net cash flow provided from continuing operations for the year ended December 31, 2005, improved to $14.0 million compared with net cash used in continuing operations of ($8.8) million in the previous year.
Depreciation and amortization expense was $2.9 million in the quarter and $10.9 million for the year, and capital expenditures were $1.4 million in the quarter and $12.2 million for the year.
The Company continues to maintain an exceptionally strong balance sheet. At December 31, 2005, the Company had $76.6 million in cash and short-term investments and no outstanding borrowings.
Goals & Objectives for 2006
Mr. Wadhwani stated, "The Company's 2006 priorities include growing offshore revenues by further penetrating Fortune 1000 clients opened in the last two years, adding an additional 8 to 10 Fortune 1000 new clients per quarter, and focusing on larger, multi-year contracts; increasing gross margins by targeting high margins on new business; tightening S,G&A expenses as a percentage of revenues; and continuing to increase profitability on a consolidated basis with positive cash flow."
Conference Call
iGATE will host a telephone conference call to discuss the Company's fourth-quarter and full-year financial results on Friday, March 3, 2006 at 9:00 a.m. ET. A live webcast of this conference call will be available on the Company's website, http://www.igatecorp.com. Simply click on the investor relations section and follow the links to the live webcast. The webcast will remain available for replay through March 10, 2006.
About iGATE Corporation
Pittsburgh, Pennsylvania-based iGATE Corporation (Nasdaq: IGTE) is the first fully integrated technology and operations firm with a global service model. iGATE Corporation, through its offshore subsidiary, iGATE Global Solutions Ltd., enables clients to optimize their business through a combination of process investment strategies, technology leverage and business process outsourcing and provisioning. Services include consulting, enterprise data management and data warehousing, business intelligence and analytics, design, development, systems integration, package evaluation, and implementation, re-engineering and maintenance. iGATE Corporation also offers IT Professional Services in the areas of packaged application implementation, custom development, web services and business intelligence.
The Company services more than 300 clients across five continents. Clients rely on iGATE because of the high quality of service, responsiveness, and cost-effective global reach. More information about iGATE is available at http://www.igatecorp.com
Forward-Looking Statements
Some of the statements contained in this news release that are not historical facts are forward-looking statements. These forward-looking statements include the Company's financial, growth and liquidity projections as well as statements concerning the Company's plans, strategies, intentions and beliefs concerning business cash flows, costs and the markets in which it operates. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects" and similar expressions are intended to identify certain forward-looking statements. These statements are based on information currently available to the Company and it assumes no obligation to update the forward statements as circumstances change. There are risks and uncertainties that could cause actual events to differ materially from the forward-looking statements. These risks include, but are not limited to, the Company's ability to predict its financial performance, the level of market demand for its services, the highly-competitive market for the types of services offered by the Company, the impact of competitive factors on profit margins, market conditions that could cause the Company's customers to reduce their spending for its services, the Company's ability to create, acquire and build new businesses and to grow existing businesses, attract and retain qualified personnel, reduce costs and conserve cash, currency fluctuations and market conditions in India and elsewhere around the world, political and military tensions in India and South Asia, changes in generally accepted accounting principles and/or their interpretation and other risks that are described in more detail in the Company's filings with the Securities and Exchange Commission including its Form 10-K (as amended) for the year ended December 31, 2004.
iGATE Corporation
Consolidated Statements of Income
(dollars in thousands, except per share data)
(audited)
Three Months ended Twelve Months Ended
December 31, December 31,
2005 2004 2005 2004
Revenues $68,393 $68,089 $275,992 $264,585
Cost of revenues 50,436 51,341 205,110 197,577
Gross margin 17,957 16,748 70,882 67,008
Selling, general and administrative 15,659 27,514 67,483 82,079
Gain on sale of land - (3,615) - (3,615)
Restructuring (recovery) charges (481) 909 (481) 5,805
Income (loss) from operations 2,779 (8,060) 3,880 (17,261)
Other (expense) income, net (920) 507 (275) 1,374
Minority interest 142 (733) (261) (677)
Loss on venture investments and
affiliated companies, net (2,149) - (2,149) -
Gain on sale of stock of
subsidiaries 5,549 - 5,549 -
Equity in income (losses) of
affiliated companies 230 (50) 338 (335)
Income (loss) before income taxes 5,631 (8,336) 7,082 (16,899)
Income tax expense 595 605 113 5,130
Income (loss) from continuing
operations 5,036 (8,941) 6,969 (22,029)
Income from discontinued
operations, net of income taxes - - - 3,818
Net income (loss) $5,036 $(8,941) $6,969 $(18,211)
Net earnings (loss) per common
share, Basic:
Earnings (loss) from continuing
operations $0.10 $(0.17) $0.13 $(0.42)
Earnings from discontinued
operations - - - 0.07
Net earnings (loss) - Basic $0.10 $(0.17) $0.13 $(0.35)
Net earnings (loss) per common
share, Diluted:
Earnings (loss) from continuing
operations $0.10 $(0.17) $0.13 $(0.42)
Earnings from discontinued
operations - - - 0.07
Net earnings (loss) - Diluted $0.10 $(0.17) $0.13 $(0.35)
Weighted average common shares
outstanding, Basic 52,598 53,277 52,530 52,721
Weighted average dilutive common
equivalent shares outstanding 52,802 53,277 52,734 52,721
iGATE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
December 31, December 31,
2005 2004
(audited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $45,837 $28,201
Short term investments 30,798 35,863
Accounts receivable, net 49,479 61,363
Prepaid and other current assets 7,237 6,985
Prepaid income taxes 1,060 435
Deferred income taxes 1,058 2,304
Total current assets 135,469 135,151
Investments in unconsolidated affiliates 1,050 3,951
Land, building, equipment and
leasehold improvements, net 28,539 25,814
Goodwill 8,851 9,398
Intangible assets, net 3,565 5,918
Total assets $177,474 $180,232
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $5,958 $8,636
Accrued payroll and related costs 16,304 16,662
Accrued income taxes - 2,019
Other accrued liabilities 8,163 9,555
Restructuring reserve 2,355 3,692
Deferred revenue 362 653
Current liabilities of
discontinued operations - 88
Total current liabilities 33,142 41,305
Restructuring reserve 2,422 3,777
Other long term liabilities 422 564
Deferred income taxes 9,718 9,520
Total liabilities 45,704 55,166
Minority interest 14,098 13,366
Shareholders' equity:
Common Stock, par value $0.01 per share 538 535
Additional paid-in capital 162,278 161,345
Retained deficit (29,741) (36,710)
Deferred compensation (1,119) (1,934)
Common stock in treasury, at cost (14,714) (14,714)
Accumulated other comprehensive income 430 3,178
Total shareholders' equity 117,672 111,700
Total liabilities and
shareholders' equity $177,474 $180,232
iGATE
iGATE Professional iGATE
Three Months Ended March 31, 2005 Solutions Services Corporate Total
External revenues $32,711 $36,457 $433 $69,601
Cost of revenues 23,193 28,957 254 52,404
Gross margin 9,518 7,500 179 17,197
Selling, general and administrative 9,277 4,551 3,401 17,229
Income (loss) from operations $241 $2,949 (3,222) (32)
Other expense, net (286) (286)
Minority interest (84) (84)
Equity in losses of affiliated
companies (117) (117)
Loss before income taxes $(3,709) $(519)
iGATE
iGATE Professional iGATE
Three Months Ended June 30, 2005 Solutions Services Corporate Total
External revenues $34,071 $33,056 $769 $67,896
Cost of revenues 24,922 25,889 287 51,098
Gross margin 9,149 7,167 482 16,798
Selling, general and administrative 9,660 4,370 3,344 17,374
(Loss) income from operations $(511) $2,797 (2,862) (576)
Other expense, net 520 520
Minority interest (59) (59)
Equity in income of affiliated
companies 88 88
Loss before income taxes $(2,313) $(27)
iGATE
Three Months Ended September 30, iGATE Professional iGATE
2005 Solutions Services Corporate Total
External revenues $35,151 $34,188 $763 $70,102
Cost of revenues 24,246 26,551 375 51,172
Gross margin 10,905 7,637 388 18,930
Selling, general and administrative 10,162 3,973 3,086 17,221
Income (loss) from operations $743 $3,664 (2,698) 1,709
Other expense, net 411 411
Minority interest (260) (260)
Equity in income of affiliated
companies 137 137
(Loss) income before income taxes $(2,410) $1,997
iGATE
Three Months Ended December 31, iGATE Professional iGATE
2005 Solutions Services Corporate Total
External revenues $36,099 $31,723 $571 $68,393
Cost of revenues 24,747 25,238 451 50,436
Gross margin 11,352 6,485 120 17,957
Selling, general and administrative 9,849 3,549 2,261 15,659
Restructuring recovery - (481) - (481)
Income (loss) from operations $1,503 $3,417 (2,141) 2,779
Other expense, net (920) (920)
Minority interest 142 142
Loss on venture investments and
affiliated companies, net (2,149) (2,149)
Gain on sale of stock of
subsidiaries 5,549 5,549
Equity in income of affiliated
companies 230 230
Income before income taxes $711 $5,631
iGATE
Twelve Months Ended December 31, iGATE Professional iGATE
2005 Solutions Services Corporate Total
External revenues $138,032 $135,424 $2,536 $275,992
Cost of revenues 97,108 106,635 1,367 205,110
Gross margin 40,924 28,789 1,169 70,882
Selling, general and administrative 38,948 16,443 12,092 67,483
Restructuring recovery - (481) - (481)
Income (loss) from operations $1,976 $12,827 (10,923) 3,880
Other expense, net (275) (275)
Minority interest (261) (261)
Loss on venture investments and
affiliated companies, net (2,149) (2,149)
Gain on sale of stock of
subsidiaries 5,549 5,549
Equity in income of affiliated
companies 338 338
(Loss) income before income taxes $(7,721) $7,082
