IGTE (MM)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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) January 20, 2015

 

 

IGATE Corporation

(Exact Name of Registrant as Specified in Its Charter)

 

 

Pennsylvania

(State or Other Jurisdiction

of Incorporation)

 

000-21755		25-1802235
(Commission File Number)		(IRS Employer Identification No.)
100 Somerset Corporate Blvd., Bridgewater, NJ		08807
(Address of Principal Executive Offices)		(Zip Code)

(908) 219-8050

(Registrant’s Telephone Number, Including Area Code)

N/A

(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))

 

 

 

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Item 2.02

Results of Operations and Financial Condition.

On January 20, 2015, IGATE Corporation issued a press release announcing its financial results for the fourth quarter and the fiscal year ended December 31, 2014. A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

The information contained herein and in the accompanying exhibit shall not be deemed filed for the purposes of Section 18 of the Securities and Exchange Age of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01

Financial Statements and Exhibits.

 

(d)	The following exhibit is furnished with this Form 8-K:

 

99.1	Press Release issued by IGATE Corporation on January 20, 2015.

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SIGNATURES

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.

 

January 20, 2015

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EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Press Release issued by IGATE Corporation on January 20, 2015.

Exhibit 99.1

 

IGATE Closes Strong 2014; Revenues up 10.2% Year-over-Year

Successfully Converted Preferred Stock into Equity

BRIDGEWATER, NJ – January 20, 2015

IGATE Corporation (“IGATE” or the “Company”) (NASDAQ: IGTE), the New Jersey-headquartered integrated technology and operations solutions provider, today announced its financial results for the fourth quarter and full year ended December 31, 2014.

Fourth Quarter Financial Highlights

 

•

Revenues were $331.5 million

 

•

Increased 10.7 % compared to $299.3 million in the fourth quarter of 2013

 

•

Increased 2.7% sequentially compared to $322.8 million in the third quarter of 2014

 

•

Gross margin was 34.8%

 

•

Compared to 39.8% in the fourth quarter of 2013

 

•

Compared to 35.3% in the third quarter of 2014

 

•

Adjusted EBITDA was $62.3 million

 

•

Compared to $74.7 million in the fourth quarter of 2013

 

•

Compared to $68.8 million in the third quarter of 2014

 

•

Net Income was $38.0 million

 

•

Compared to $33.1 million in the fourth quarter of 2013

 

•

Compared to $37.3 million in the third quarter of 2014

 

•

Non GAAP diluted earnings per share were $0.52

 

•

Compared with $0.49 in the fourth quarter of 2013

 

•

Compared with $0.52 per share in the third quarter of 2014

 

•

GAAP diluted earnings per share were $(0.63) including $80 million paid to Series B preferred stock holders for the induced conversion and $1.7 million towards write-off of unamortized preferred stock issuance cost

 

•

Compared to $0.30 in the fourth quarter of 2013

 

•

Compared to $0.34 in the third quarter of 2014

 

•

The Company added 9 new clients during the fourth quarter

 

•

As of December 31, 2014, the Company had 33,484 employees

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Full Year Financial Highlights

 

•

Revenues for the year were $1,268.2 million

 

•

Increased 10.2 % compared to $1,150.9 million in 2013

 

•

Gross margin was 36.0%

 

•

Compared to 39.3% in 2013

 

•

Adjusted EBITDA was $276.4 million

 

•

Compared to $284.8 million in 2013

 

•

Net Income was $110.0 million

 

•

Compared to $129.8 million in 2013

 

•

Non GAAP diluted earnings per share were $1.96

 

•

Compared to $1.88 in 2013

 

•

GAAP diluted earnings per share were $(0.01) including $80 million paid to Series B preferred stock holders for the induced conversion and $1.7 million towards write-off of unamortized preferred stock issuance cost

 

•

Compared to $1.21 in 2013

 

•

The Company added 29 new clients during the year

 

•

The Company added 3,751 employees (net) during the year

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Ashok Vemuri, President and CEO, said, “We are satisfied with our fourth quarter and full year 2014 results. We delivered growth both sequentially as well as year over year, a result of the differentiated industry utility-solutions, enhanced client-centricity, streamlining of our core execution, building next-gen capabilities, and committed IGATORs.”

“Our digital practice will be a key focus area for us in 2015 and we will continue to leverage our ITOPS solutions,” he added.

Sujit Sircar, CFO, said, “We are satisfied with the cash flow position of the company and the de-leveraging of the balance sheet during the year. In addition, we induced the conversion of the 8% Series B preferred stock on November 4, 2014, which will be value accretive going forward and will also improve our credit rating. However, we continue to see foreign exchange volatility that needs to be monitored and observed carefully.”

Fourth Quarter Operating Results

Results for three and twelve months ended December 31, 2014 and 2013 respectively, on a GAAP and non-GAAP basis are provided in the table below.

 

		Q4 FY’14				Q4 FY’13				Y/Y				Twelve months ended FY’14				Twelve months ended FY’13				Y/Y
Net revenue ($Millions)			331.5				299.3				10.7	%			1268.2				1150.9				10.2	%
Operating margin ($Millions)			46.8				59.0				(20.8	%)			220.4				227.2				(3.0	%)
GAAP net income ($Millions)			38.0				33.1				14.6	%			110.0				129.8				(15.2	%)
GAAP diluted EPS ($)*			(0.63	)			0.30				(310.0	%)			(0.01	)			1.21				(100.8	%)
Adjusted EBITDA ($Millions)			62.3				74.7				(16.5	%)			276.4				284.8				(3.0	%)
Non-GAAP net income ($Millions)			43.1				39.7				8.6	%			161.5				150.3				7.4	%
Non-GAAP diluted EPS ($)			0.52				0.49				6.1	%			1.96				1.88				4.3	%

 

*	GAAP diluted EPS includes $80 million paid to Series B preferred stock holders for the induced conversion and $1.7 million towards write-off of unamortized preferred stock issuance cost

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Key contracts won during the Fourth Quarter

 

•

IGATE was selected by a large North America-based multinational banking and financial holding company to identify, assess and recommend “best-in class” features and functionality for their trade and supply chain finance portal. As part of the multi-year engagement, IGATE will provide support to replace the client’s current portal with a solution meeting the demands of their global trade finance clients.

 

•

A North America-based electronics manufacturing services company in the business of providing contract manufacturing services to electronics makers and producing complex printed circuit boards and related electronics systems and subsystems selected IGATE to offer support in the areas of procurement spending and provide data archival solution. As part of this engagement, IGATE will assist the client in improving the performance of their procurement spending solution and enhance the reporting capability.

 

•

A U.K.-based services company in the business of providing chemical, biochemical and DNA based analysis selected IGATE to assist the client in constructing an end-to-end business case and solution involving the leading Hybris ecommerce platform. As part of this engagement, IGATE will work closely with the client to fulfill its requirements for functionality, scalability, time and cost constraints. IGATE also advised and led an end-to-end evaluation and procurement phase for the client.

 

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A large investment bank and institutional securities firm based in North America selected IGATE as a strategic IT partner. As part of the engagement, IGATE will assist the client in portal development for securities aggregation and reporting. The partnership is expected to benefit the client with better reporting structure. IGATE’s deep expertise in the financial industry ecosystem, through its experience with leading vendor platforms, will help in accelerating transformation roadmaps in place for the client.

 

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IGATE was selected by a global medical corporation and medical device pioneer to offer consulting regarding the technology roadmap for the client’s next generation products. As part of this engagement, IGATE will help the client migrate existing product and develop new products based on the suggested technology recommendations. IGATE will also assist the client in the areas of hardware engineering, firmware, software, and testing as well as regulatory compliance.

 

•

IGATE was selected by an American online retail company in the business of providing foodservice to support the client in e-commerce transformation to improve the time-to-market for geographical and customer expansion. IGATE will assist the client in migrating the e-commerce platform built on legacy technology to the Hybris commerce platform.

Significant Events in the Quarter

 

•

IGATE won the Aegis Graham Bell Awards 2014 in the category of Innovative Integrated SMAC Solution. This award is one of the largest awards for Innovation in the field of Telecom, Internet, Media & Edutainment (TIME) and recognizes outstanding contributions.

 

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IGATE won the coveted award on ‘Excellence in Resource Management - Global HR Excellence’ given by Aqua Foundation for the year 2014-15 for its global HR practices and efforts to excel in resource management.

 

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IGATE was awarded the Cyber Security Implementation of the Year (2014) award from CSO forum for designing and effective implementation of security solution for BPO processes, complying with stringent US laws and regulations around data protection.

 

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IGATE was recognized in ISG’s “The Breakthrough 10 Sourcing Standouts” for both America and EMEA.

 

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IGATE was included in Everest PEAK Matrix reports for Cloud Application Services & Cloud Infrastructure Services along with Healthcare Payer ITO as a “Major Contender”. The Company was featured for Infrastructure Services as a “Major Contender” for the first time.

 

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IGATE was included in Everest PEAK Matrix report for Capital Markets BPO as a “Star Performer in the Major Contenders” category and in “Major Contender” category for Banking BPO. IGATE was also included in the report for Insurance ITO in the “Major Contender” category.

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Conference Call and Webcast

IGATE, the integrated technology and Operations Company has scheduled its Earnings Conference Call on Tuesday, January 20, 2015 to discuss the results of its fourth quarter ended December 31, 2014. Senior management of the company will discuss the financial performance for the quarter and answer participants’ questions during the call.

 

Time		: 08:00 - 09:00 am Eastern Time
Toll Free (U.S.)		: 877-407-8037
Toll (U.S.)		: 201-689-8037
Toll Free (India)		: 000-800-852-1477

The call will be webcast live on IGATE’s website (www.igate.com) in the Investor Relations section under the ‘Events’ section. Participants are requested to log in 10 minutes prior to the start of the webcast. The on-demand version of the webcast will be available on the IGATE website shortly after the call.

Investors, potential investors, shareholders and bond holders can access the telephonic replay by dialing 877-660-6853 (toll free) or 201-612-7415 (toll) and entering conference number 13598450. The telephonic replay will be available until February 3, 2015.

About IGATE

IGATE is a global leader in providing integrated technology and operations-based solutions, headquartered in Bridgewater, New Jersey. As a trusted partner to corporations in North America, Europe and Asia Pacific, IGATE provides solutions to clients’ business challenges by leveraging its technology and process capabilities, underwritten by an understanding of domain and industry imperatives. With revenues over US $1.2 billion, and a global employee talent capital of over 33,000, IGATE offers productized applications and platforms that provide the necessary competitive and innovation edge to clients across industries, through a combination of speed, agility and imagination. IGATE is listed on NASDAQ under the symbol IGTE.

Follow IGATE on Twitter: @IGATE_Corp;

IGATE on Facebook: https://www.facebook.com/igatecorp

Communication Coordinates

Investor Contact

Salil Ravindran

+1 510 298 8400

Salil.Ravindran@IGATE.com

Media Contact

Pallavi Choudhury

+91 80 4104 2084

Pallavi.Choudhury@IGATE.com

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Use of non-GAAP Financial Measures

This press release contains non-GAAP financial measures as defined by the Securities and Exchange Commission. These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with, generally accepted accounting principles in the United States (“GAAP”) and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Reconciliations of these non-GAAP measures to their comparable GAAP measures are included in the attached financial tables.

IGATE believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with IGATE’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate IGATE’s results of operations in conjunction with the corresponding GAAP measures. These non-GAAP measures should be considered supplemental in nature and should not be considered in isolation or be construed as being more important than comparable GAAP measures.

IGATE believes that providing Adjusted EBITDA and non-GAAP net income and non-GAAP diluted earnings per share in addition to the related GAAP measures provides investors with greater transparency to the information used by IGATE’s management in its financial and operational decision-making. These non-GAAP measures are also used by the Management in connection with IGATE’s performance compensation programs.

More specifically, the non-GAAP financial measures contained herein exclude the following items:

 

•

Amortization of intangible assets: Intangible assets primarily comprise of customer relationships. We incur charges relating to the amortization of these intangibles. These charges are included in our GAAP presentation of earnings from operations, operating margin, net income and diluted earnings per share. We exclude these charges for purposes of calculating these non-GAAP measures.

 

•

Stock-based compensation: Although stock-based compensation is an important component of the compensation of IGATE’s employees and executives, determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expense recorded may not reflect the actual value realized upon the future exercise or termination of the related stock-based awards. Furthermore, unlike cash compensation, the value of stock-based compensation is determined using a complex formula that incorporates factors, such as market volatility, that are beyond the Company’s control. Management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance of IGATE’s core business.

 

•

Foreign exchange (gain)/loss: From time to time, the Company recognizes foreign currency losses on re-measurement of escrow account balance and foreign exchange gains on re-measurement of redeemable non-controlling interest liability. IGATE believes that eliminating these non-capitalized items for purposes of calculating non-GAAP measures facilitates a more meaningful evaluation of IGATE’s current performance and comparisons to its past performance.

 

•

Delisting expenses: We voluntarily delisted the equity shares of our majority owned subsidiary, IGATE Computer Systems Limited from the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited and the American Depository Shares from the New York Stock Exchange. Delisting is an infrequent activity and expenses incurred in connection therein are inconsistent in amount and are significantly impacted by the timing and nature of the delisting. IGATE believes that eliminating these expenses for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of its current operating performance and comparisons to its past operating performance.

 

•

Merger and reorganization expenses: IGATE is merging and reorganizing its overseas subsidiaries and branches with a view to simplifying the corporate structure and has incurred legal and professional expenses in this connection. Merger and reorganization is an infrequent activity and expenses incurred in connection therein are inconsistent in amount and significantly impacted by

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the timing and nature of the reorganization. IGATE believes that eliminating these expenses for purposes of calculating non-GAAP measures facilitates a more meaningful evaluation of IGATE’s current operating performance and comparisons to its past operating performance.

 

•

Preferred dividend and accretion to preferred stock: In 2011, we issued 8.00% Series B Preferred Stock. We also incurred issuance costs that have been netted against the proceeds received from the issuance of the Series B Preferred Stock. Prior to its conversion to common stock on November 4, 2014, the Series B Preferred Stock was being accreted over a period of six years. Although, the effect of inclusion of equivalent units of common stock towards convertible participating preferred stock is anti-dilutive for GAAP purposes, the non-GAAP diluted earnings per share has been calculated assuming the conversion of all outstanding shares of preferred stock into equivalent units of common stock. IGATE believes that eliminating these expenses as well as inclusion of equivalent units of common stock towards the preference shares till the date of conversion to compute basic and diluted earnings per share for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of IGATE’s current operating performance and comparisons to its past operating performance. Following the conversion on November 4, 2014, there were no remaining issued and outstanding shares of Series B Preferred Stock.

 

•

Induced Conversion: On Nov 4, 2014, the Company converted the preferred stock into 21,730,290 equity shares and paid $80 million in cash to the preferred stockholders. As per GAAP, the induced conversion amount charged to retained earnings is subtracted from net income to arrive at income available to common stockholders in the calculation of GAAP earnings per share. IGATE believe that eliminating this charge for purposes of calculating non-GAAP measures facilitates a more meaningful evaluation of IGATE’s current operating performance and comparisons to its past operating performance.

 

•

Loss on extinguishment of debt: IGATE has extinguished debt prior to its scheduled maturity which has resulted in non-operating expenses which otherwise would not have been incurred. Debt extinguishment related charges that are excluded from GAAP earnings to determine non-GAAP earnings consist of the extinguishment premium paid as well as the write-off of unamortized debt issuance costs. These expenses are inconsistent and of a non-recurring nature and IGATE believes that eliminating them for purposes of calculating non-GAAP measures facilitates a more meaningful evaluation of IGATE’s current operating performance and comparisons to its past operating performance.

From time to time in the future, there may be other items that IGATE may exclude in presenting its financial results.

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Forward-Looking Statements

This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of the Company may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements regarding the business outlook, the expected performance of the Company’s products and services for its clients, and all other statements in this release other than statements of historical fact are statements that could be deemed forward-looking statements. Words such as “expect”, “potential”, “believes”, “anticipates”, “plans”, “intends” and other similar expressions are intended to identify such forward-looking statements. Forward-looking statements in the press release include, without limitation, statements regarding the business outlook, and the expected performance of the Company’s products and services for its clients, 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: uncertain global economic conditions, concentrated revenues, new organizational and operational strategies, continued pricing pressures and the significant indebtedness which will 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, 2013, the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014 as well as the Company’s other reports filed with the Securities and Exchange Commission. As in prior periods, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While the Company believes these estimates to be accurate, actual results may differ materially from those contained in the forward-looking statements in this press release. These amounts could also differ materially from actual reported amounts in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The Company assumes no obligation and does not intend to update these forward-looking statements as circumstances change. This document does not constitute an offer to purchase or to sell securities in any jurisdiction.

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IGATE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share data)

 

		December 31, 2014 (unaudited)				December 31, 2013 (audited)
ASSETS
Current assets:
Cash and cash equivalents		$	104,184			$	204,836
Restricted cash			5,305				360,000
Short-term investments			82,486				181,401
Accounts receivable, net of allowances of $3,070 and $4,103, respectively			174,159				157,905
Unbilled revenues			63,936				61,424
Prepaid expenses and other current assets			42,941				44,492
Prepaid income taxes			13,387				838
Deferred tax assets			2,510				10,235
Foreign exchange derivative contracts			3,200				836
Receivable from related parties			5,898				4,046
Total current assets			498,006				1,026,013
Deposits and other assets			19,469				24,930
Prepaid income taxes			31,479				32,160
Property and equipment, net of accumulated depreciation of $129,644 and $108,084, respectively			234,041				165,581
Leasehold land			73,858				76,732
Deferred tax assets			16,104				15,153
Goodwill			430,250				438,891
Intangible assets, net			102,996				119,262
Total assets		$	1,406,203			$	1,898,722
LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	11,168			$	9,268
Line of credit			127,000				52,000
Senior Notes			—				360,000
Term loans			—				90,000
Accrued payroll and related costs			47,638				57,093
Other accrued liabilities			68,603				79,785
Accrued income taxes			7,205				5,802
Foreign exchange derivative contracts			1,287				909
Deferred revenue			17,787				17,776
Total current liabilities			280,688				672,633
Other long-term liabilities			6,336				3,532
Senior Notes			325,000				410,000
Term loans			234,000				270,000
Accrued income taxes			8,000				13,936
Deferred tax liabilities			33,363				41,717
Total liabilities			887,387				1,411,818
Series B Preferred stock, without par value			—				410,371
Shareholders’ equity:
Common Stock, par value $0.01 per share			818				594
Common stock in treasury, at cost			(14,714	)			(14,714	)
Additional paid-in capital			671,395				204,143
Retained earnings			268,008				268,750
Accumulated other comprehensive loss			(410,408	)			(387,115	)
Total IGATE Corporation shareholders’ equity			515,099				71,658
Non-controlling interest			3,717				4,875
Total equity			518,816				76,533
Total liabilities, preferred stock and shareholders’ equity		$	1,406,203			$	1,898,722

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IGATE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands)

 

		Three Months ended December 31,								Year ended December 31,
		2014				2013				2014				2013
		(unaudited)				(unaudited)				(unaudited)				(audited)
Revenues		$	331,497			$	299,333			$	1,268,222			$	1,150,925
Cost of revenues (exclusive of depreciation and amortization)			216,219				180,159				811,533				698,232
Gross margin			115,278				119,174				456,689				452,693
Selling, general and administrative expense			57,913				51,257				198,016				190,261
Depreciation and amortization			10,590				8,884				38,250				35,189
Income from operations			46,775				59,033				220,423				227,243
Loss on extinguishment of debt			—				—				(51,760	)			—
Other income (loss), net			138				(20,010	)			(21,942	)			(47,033	)
Income before income taxes			46,913				39,023				146,721				180,210
Income tax expense			8,843				5,768				36,329				50,229
Net income before non-controlling interest			38,070				33,255				110,392				129,981
Non-controlling interest			98				112				380				209
Net income attributable to IGATE Corporation			37,972				33,143				110,012				129,772
Accretion to Preferred Stock*			1,789				133				2,225				494
Preferred dividend			3,347				8,157				28,529				31,403
Net income attributable to IGATE common shareholders		$	32,836			$	24,853			$	79,258			$	97,875

 

*	Includes $1.7 million towards write-off of unamortized preferred stock issuance cost.

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IGATE CORPORATION

Earnings Per Share

(Amounts in thousands, except per share data)

 

				Three Months Ended								Year Ended
				December 31,								December 31,
PARTICULARS				2014				2013				2014				2013
				(unaudited)				(unaudited)				(unaudited)				(audited)
Net income attributable to IGATE common shareholders*				$	32,836			$	24,853			$	79,258			$	97,875
Add: Dividends on Series B Preferred Stock					3,347				8,157				28,529				31,403
					36,183				33,010				107,787				129,278
Less: Dividends on
Series B Preferred Stock		[A]			3,347				8,157				28,529				31,403
Induced Conversion of Series B Preferred Stock**					80,000				—				80,000				—
Undistributed Income (loss)				$	(47,164	)		$	24,853			$	(742	)		$	97,875
Allocation of Undistributed Income (loss)
Common stock		[B]			(47,164	)			18,435				(742	)			72,597
Unvested restricted stock		[C]			—				7				—				28
Series B Preferred Stock		[D]			—				6,411				—				25,250
				$	(47,164	)		$	24,853			$	(742	)		$	97,875
Shares outstanding for allocation of undistributed income (loss):
Common stock					80,812				58,438				80,812				58,438
Unvested restricted stock					—				23				—				23
Series B Preferred Stock					—				20,325								20,325
					80,812				78,786				80,812				78,786
Weighted average shares outstanding:
Common stock		[E]			72,532				58,372				62,283				58,015
Unvested restricted stock		[F]			—				23				—				23
Series B Preferred Stock		[G]			—				20,325				—				20,325
					72,532				78,720				62,283				78,363
Weighted average common stock outstanding					72,532				58,372				62,283				58,015
Dilutive effect of stock options and restricted shares outstanding					1,865				2,133				1,888				1,815
Dilutive weighted average shares outstanding		[H]			74,397				60,505				64,171				59,830
Distributed earnings per share:
Series B Preferred Stock		[I=A/G]		$	—			$	0.40			$	—			$	1.55
Undistributed earnings per share:
Common stock		[J=B/E]		$	(0.65	)		$	0.32			$	(0.01	)		$	1.25
Unvested restricted stock		[K=C/F]		$	—			$	0.32			$	—			$	1.25
Series B Preferred Stock		[L=D/G]		$	—			$	0.32			$	—			$	1.25
Earnings per share - Basic
Common stock		[J]		$	(0.65	)		$	0.32			$	(0.01	)		$	1.25
Unvested restricted stock		[K]		$	—			$	0.32			$	—			$	1.25
Series B Preferred Stock		[I+L]		$	—			$	0.72			$	—			$	2.80
Earnings per share - Diluted		[[B+C]/H]		$	(0.63	)		$	0.30			$	(0.01	)		$	1.21

The number of outstanding participative convertible preferred stock for which the earnings per share exceeded the earnings per share of common stock aggregated to Nil and 20.3 million for the years ended December 31, 2014 and 2013, respectively. These shares were excluded from the computation of diluted earnings per share as they were anti-dilutive.

 

*	Net income after one time charge of $1.7 million towards write-off of unamortized preferred stock issuance cost.

**

On November 4, 2014, the Company entered into a Conversion and Exchange Agreement with Viscaria Limited (“Viscaria”) pursuant to which Viscaria exercised its option to convert its 330,000 shares of Series B Preferred Stock into 21,730,290 shares of the Company’s common stock. In connection with the conversion, the Company paid $80 million cash to Viscaria and charged this to retained earnings. As per ASC 260-10-S99-2, The Effect on the Calculation of Earnings per Share for a Period That Includes the Redemption or Induced Conversion of Preferred Stock, the induced conversion amount paid is subtracted from net income to arrive at the income available to common stockholders in the calculation of earnings per share.

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IGATE CORPORATION

Reconciliation of Net Income, Net of Tax, to Adjusted EBITDA

(Amounts in thousands)

(unaudited)

 

		Three Months ended								Year ended
		December 31,								December 31,
		2014				2013				2014				2013
Net income		$	38,070			$	33,255			$	110,392			$	129,981
Adjustments:
Depreciation and amortization			10,590				8,884				38,250				35,189
Interest expense			6,596				20,554				49,913				87,579
Income tax expense			8,843				5,768				36,329				50,229
Other income, net			(1,332	)			(4,735	)			(16,479	)			(44,645	)
Foreign exchange (gain)/loss			(5,402	)			4,191				(11,492	)			4,099
Stock-based compensation			4,953				4,597				17,376				14,840
Loss on extinguishment of debt			—				—				51,760				—
Delisting expenses			—				—				—				93
Merger and reorganization expenses			29				2,139				315				7,403
Adjusted EBITDA (a non-GAAP measure)		$	62,347			$	74,653			$	276,364			$	284,768

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 believes that the presentation of these measures will enhance investors’ ability to analyze trends in the business and evaluate the Company’s underlying performance relative to other companies in the industry.

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IGATE CORPORATION

Reconciliation of Selected GAAP Measures to Non-GAAP Measures

(Amounts in thousands, except per share data)

(unaudited)

 

		Three Months ended								Year ended
		December 31,								December 31,
		2014				2013				2014				2013
GAAP Net income (loss) attributable to IGATE common shareholders*		$	(47,164	)		$	24,853			$	(742	)		$	97,875
Adjustments:
Preferred dividend and accretion to preferred stock			5,136				8,290				30,754				31,897
Induced Conversion of Series B Preferred Stock			80,000				—				80,000				—
Amortization of Intangible assets			2,519				2,558				10,515				10,538
Stock-based compensation			4,953				4,597				17,376				14,840
Delisting expenses			—				—				—				93
Merger and reorganization expenses			29				2,139				315				7,403
Foreign exchange loss on acquisition hedging and re-measurement			—				—				—				489
Forfeiture of vested stock options			—				—				—				(3,005	)
Loss on extinguishment of debt			—				—				51,760				—
Income tax adjustments			(2,394	)			(2,768	)			(28,464	)			(9,796	)
Non-GAAP Net income attributable to IGATE common shareholders		$	43,079			$	39,669			$	161,514			$	150,334
Weighted average shares outstanding, Basic			72,532				58,395				62,283				58,038
Add: assumed preferred stock conversion			8,267				20,325				18,337				20,325
Non-GAAP weighted average shares outstanding, Basic			80,799				78,720				80,620				78,363
Weighted average dilutive common shares outstanding			74,397				60,505				64,171				59,830
Add: assumed preferred stock conversion			8,267				20,325				18,337				20,325
Weighted average dilutive common equivalent shares outstanding			82,664				80,830				82,508				80,155
Basic EPS (GAAP) to Basic EPS (Non-GAAP):
Basic EPS (GAAP)		$	(0.65	)		$	0.32			$	(0.01	)		$	1.25
Preferred dividend and accretion to preferred stock			0.06				0.11				0.38				0.41
Induced Conversion of Series B Preferred Stock			0.99				—				0.99				—
Amortization of Intangible assets			0.03				0.03				0.13				0.13
Stock-based compensation			0.06				0.05				0.22				0.19
Delisting expenses			—				—				—				0.01
Merger and reorganization expenses			0.00				0.03				0.00				0.09
Foreign exchange loss on acquisition hedging and re-measurement			—				—				—				0.01
Forfeiture of vested stock options			—				—				—				(0.04	)
Loss on extinguishment of debt			—				—				0.64				—
Income tax adjustments			(0.03	)			(0.04	)			(0.35	)			(0.13	)
Non-GAAP adjustment to weighted-average shares used to compute net earnings per share			0.07				—				0.00				—
Basic EPS (Non-GAAP)		$	0.53			$	0.50			$	2.00			$	1.92
Diluted EPS (GAAP) to Diluted EPS (Non-GAAP):
Diluted EPS (GAAP)		$	(0.63	)		$	0.30			$	(0.01	)		$	1.21
Preferred dividend and accretion to preferred stock			0.06				0.11				0.37				0.41
Induced Conversion of Series B Preferred Stock			0.97				—				0.97				—
Amortization of Intangible assets			0.03				0.03				0.13				0.13
Stock-based compensation			0.06				0.05				0.21				0.19
Delisting expenses			—				—				—				0.00
Merger and reorganization expenses			0.00				0.03				0.00				0.09
Foreign exchange loss on acquisition hedging and re-measurement			—				—				—				0.01
Forfeiture of vested stock options			—				—				—				(0.04	)
Loss on extinguishment of debt			—				—				0.63				—
Income tax adjustments			(0.03	)			(0.03	)			(0.34	)			(0.12	)
Non-GAAP adjustment to weighted-average shares used to compute net earnings per share			0.06				—				0.00				—
Diluted EPS (Non-GAAP)		$	0.52			$	0.49			$	1.96			$	1.88

 

*	Includes induced conversion $80 million paid to preferred stock holders and $1.7 million towards write-off of unamortized preferred stock issuance cost.

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Non-GAAP Disclosure of Adjusted EBITDA

We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net income plus (i) depreciation and amortization, (ii) interest expense, (iii) income tax expense, minus (iv) other income, net plus (v) foreign exchange (gain)/loss, (vi) stock based compensation (vii) loss on extinguishment of debt (viii) Delisting expenses (ix) Merger and reorganization expenses. We eliminated the impact of the above as we do not consider them as indicative of our ongoing operating performance. 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.

We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA: (i) as a factor in evaluating management’s performance when determining incentive compensation, (ii) to evaluate the effectiveness of our business strategies and (iii) because our credit agreement and our indenture use measures similar to Adjusted EBITDA to measure our compliance with certain covenants.

Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:

 

•

Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

 

•

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

•

Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period; Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and other companies in our industry may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally.