IGTE (MM)

iGS Subsidiary Reports Revenue Growth of 25% Year-Over-Year and 11% Sequentially PITTSBURGH, Oct. 26 /PRNewswire-FirstCall/ -- iGATE Corporation (NASDAQ:IGTE), a global provider of Information Technology and Business Process Outsourcing services, today announced its 2006 third-quarter financial results for the period ended September 30, 2006. (Logo: http://www.newscom.com/cgi-bin/prnh/20010110/IGTELOGO ) Third-Quarter Highlights - Consolidated net income increased 77% year-over-year to $1.6 million. - Consolidated revenues, excluding the Canadian staffing operation sold in last year's fourth quarter, increased 16.5% year-over-year and 3.8% sequentially. - iGATE Global Solutions ("iGS"), iGATE's offshore subsidiary, reported record revenues of $44.1 million, an increase of 25.4% year-over-year and 10.7% sequentially. - iGS's gross margin increased 290 basis points to 27.5% from 24.6% in the previous quarter. - iGS added 10 new clients, five of which are Global 2000 companies. - iGS renewed a three-year service contract with its largest customer, General Electric. Third-Quarter Results Revenues: Consolidated revenues, excluding the Canadian staffing operation sold in last year's fourth-quarter, increased 16.5% from the same quarter last year and 3.8% sequentially. Third-quarter consolidated revenues increased to $72.0 million from $70.1 million in the same period last year and from $69.3 million in the second-quarter of 2006. The Canadian staffing operation contributed $8.3 million to revenues in last year's third-quarter. The revenue increase was due to significantly higher revenues in the Company's iGS segment. This revenue increase, however, was partially offset by lower revenues in the iPS segment. Third-quarter iGS segment revenues have increased for seven consecutive quarters with a significant 25.4% increase year-over-year and 10.7% sequential increase to $44.1 million from $35.2 million in the corresponding period last year and $39.8 million in the second-quarter of 2006. The revenue increase was due largely to higher volumes from projects added during the past 24 months, higher average billing rates and better utilization rates. Third-quarter iPS segment revenues declined to $27.5 million from $29.1 million in the second-quarter and $34.6 million in last year's third-quarter. This decline was due to the sale of its Canadian operations in November 2005 and the wind down of two large projects. Gross Margin: Consolidated gross margin improved to 25.6% from 24.2% in the previous quarter, but declined from 27.0% in the same quarter last year. The sequential improvement was driven by a larger sales contribution from the higher gross margin iGS segment. The iGS segment contributed 61.2% to third- quarter consolidated revenues, while the lower gross profit iPS segment contributed 38.2%. In the previous quarter, iGS and iPS revenues were 57.4% and 42.0% of consolidated revenues. iGS segment gross profit margin for the third-quarter increased 290 basis points to 27.5% from 24.6% in the sequential second-quarter, but declined from 31.0% in the same quarter last year. The decline was due primarily to the previously disclosed annual wage increases at iGS that took place in April 2006, but was partially offset by expanding projects from the more profitable accounts added to the Company's client base during the past two years. iPS segment gross profit margin declined to 22.5% from 23.5% in the sequential second-quarter and from 22.6% in the same quarter last year. This sequential gross margin decline was due primarily to lower average bill rates. SG&A: Selling, general and administrative (SG&A) expense declined to $17.3 million, or 24.0% of revenue, from $17.7 million, or 25.6% of revenue, in the previous quarter and was comparable to the $17.2 million reported in the same period last year. The sequential decline in SG&A expense was primarily attributable to the $1.1 million contingent liability reserve recorded in the previous quarter pertaining to the payment of overtime compensation on one iPS specific project. The iGS segment continued to control discretionary costs as SG&A expense declined to 24.4% of revenues compared with 25.9% in the previous quarter and 28.9% in the corresponding quarter last year. As a percentage of revenues, the iGS segment SG&A expense is at its lowest level in more than five years. iPS segment SG&A costs declined to 14.0% of revenue compared with 16.9% in the previous quarter, but increased from 12.1% in the same quarter last year. The sequential decline was directly attributable to the previously mentioned contingent liability reserve, while the year-over-year increase was due primarily to the sale of its Canadian staffing operation. Operating Income: Consolidated income from operations improved to $1.2 million from a consolidated loss from operations of ($0.4) million in the previous quarter, but declined from $1.7 million in last year's third-quarter due primarily to operating income from the Company's Canadian operation which was sold in November 2005 and bad debt recoveries recorded in the third-quarter of 2005. The iGS segment reported a significant increase in income from operations on both a sequential and year-over-year basis. Income from operations for the segment rose to $1.3 million from an operating loss of ($0.5) million in the previous quarter and $0.7 million in the same quarter last year. The improvement was due largely to increases in revenues and gross margins and the containment of discretionary SG&A costs. iPS segment operating income for the quarter declined to $2.4 million from $2.5 million in the previous quarter and from $3.6 million in the same quarter last year. This year-over-year decline was due primarily to operating income from the Company's Canadian operation which was sold in November 2005 and bad debt recoveries recorded in the third-quarter of 2005. Net Income: The Company reported a significant improvement in third-quarter net income. Net income increased to $1.6 million, or $0.03 per diluted share, compared to a net loss of ($0.4) million, or ($0.01) per share in the previous quarter and increased 77% from $0.9 million, or $0.02 per diluted share, in the same quarter last year. Higher revenues and gross margins from the iGS segment were the primary reason for this increase in net income. Management Comments: "We are pleased to report a substantial improvement in our third-quarter financial performance," stated Sunil Wadhwani, Chief Executive Officer and co-founder of iGATE Corporation. "We are beginning to realize the strong and sustainable revenue growth at iGS that we have been working to achieve. This is our second consecutive quarter of record revenue at iGS, and gross margins are showing the gradual quarterly improvements that we have been anticipating." "This third-quarter performance demonstrates that our business strategies of focusing on offshore services, differentiating ourselves with an innovative "Integrated Technology and Operations" strategy and pursuing larger engagements with big companies, are starting to bear fruit." Ashok Trivedi, President and co-founder of iGATE Corporation stated, "We are pleased with the steady and consistent revenue growth at iGS. During the quarter, our iGS subsidiary added 10 new clients, five of which are Global 2000 companies. We are successfully pursuing the opportunities presented by these new accounts as seven additional clients began producing revenues at a million-dollar annualized rate during the past two quarters. We also strengthened our position in the mortgage service industry by significantly increasing our ownership interest in Loan Pro LLC. This investment provides the opportunity to further expand our mortgage loan origination services." Year-to-Date Results Revenues: Excluding revenues from the sold Canadian staffing operation, consolidated revenues for the nine months ended September 30, 2006 increased 13.9% from the same period last year. The Canadian staffing operation contributed $24.1 million to consolidated revenues in last year's year-to-date period. The primary reason for this revenue growth was a 19.8% increase in iGS revenues to $122.1 million from $101.9 million in the corresponding period last year. Excluding revenue contributions from the Canadian operation, the iPS segment revenues also increased 6.3% to $85.7 million from $80.6 million in the corresponding period last year. Gross Margin: Gross margin for the nine moths ended September 30, 2006 was 25.1% compared with 25.5% in the same period last year. The decline in gross margin was due primarily to the previously mentioned wage increase at iGS. SG&A: SG&A expense for the nine months ended September 30, 2006 was $51.9 million, or 24.8% of revenue, which was comparable to the $51.8 million, or 25.0% of revenue reported in the same period last year. 2006 SG&A expense included the previously disclosed $1.1 million reserve charge recorded in the Company's iPS segment during this year's second-quarter. Net Income: For the nine months ended September 30, 2006, the Company reported net income of $2.2 million, or $0.04 per diluted share, compared to net income of $1.9 million, or $0.04 per diluted share, in the corresponding period last year. Last year's net income included a $1.9 million net tax benefit related to a favorable outcome of an IRS tax audit covering 1999 through 2001. Operating Segment Information: iGATE Global Solutions (iGS) - Third-quarter revenues set a quarterly record increasing 10.7% to $44.1 million from $39.8 million in the previous quarter and 25.4% from $35.2 million in last year's third-quarter. - Gross margin increased 290 basis points to 27.5% from 24.6% in the previous quarter. - 10 new clients were added during the quarter, including five Global 2000 clients. - iGS had 26 clients that generated at least one million dollars in annualized revenue at the end of the third-quarter, compared with 23 at the end of the prior quarter. - Offshore/onsite billing volume ratio improved to 72:28 compared with 68:32 in the prior year period and comparable to 73:27 in the sequential quarter. - Added 138 individuals during the third-quarter including 130 billable consultants and 8 in support functions. As of September 30, 2006, the iGS total headcount was 5,520. - Renewed General Electric service contract for an additional three-year period through 2009. iGATE Professional Services (iPS): - Third-quarter revenues declined to $27.5 million from $29.1 million in the second-quarter due primarily to the wind down of two large projects. - Gross margins declined to 22.5% from 23.5% in the sequential second quarter and from 22.6% in the same quarter last year. Cash Flow & Balance Sheet: Consolidated net cash flow used in operations for the third-quarter was ($0.4) million. Depreciation and amortization expense was $2.5 million in the third- quarter and capital expenditures were $2.7 million. The Company continues to maintain a strong balance sheet. At September 30, 2006, the Company had $74.4 million in cash and short-term investments and no outstanding borrowings. Outlook: "Although we achieved solid progress executing our strategic plan and profitably growing revenues in the third-quarter, opportunities to expand projects, solidify relationships with our existing clients and add new accounts remain very strong," said Mr. Wadhwani. "Our primary focus will continue to be on achieving sustainable revenue and profit growth." "Because the labor market in India remains challenging, we are taking more aggressive steps to improve our employee retention rate," continued Mr. Wadhwani. "In October, the iGS board approved a benefit program that gives employees the flexibility to convert stock options to restricted stock units. We estimate the incremental P&L charge due to this program to be in the range of $100,000 to $150,000 per quarter but the program will also result in a reduction in the number of diluted shares outstanding as stock options are converted. We estimate that it will reduce potential iGS dilution by more than 4%." "In addition, due to a recent sublease agreement, we expect to recover approximately $2.0 million of a previously recorded restructuring charge for a UK lease obligation. We estimate the financial impact of this transaction to be a positive $0.04 per share, and we expect this to be recorded in the fourth-quarter of 2006." Conference Call: iGATE will host a telephone conference call to discuss the third-quarter financial results on Thursday, October 26, 2006 at 10:00 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 November 2, 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 for high quality 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 for the year ended December 31, 2005. iGATE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data) (unaudited) Three Months Nine Months Ended Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2006 2005 2006 2005 Revenues $71,954 $70,102 $208,972 $207,599 Cost of revenues (1) 53,526 51,172 156,560 154,674 Gross margin 18,428 18,930 52,412 52,925 Selling, general and administrative (2) 17,255 17,221 51,871 51,824 Restructuring recovery - - (555) - Income from operations 1,173 1,709 1,096 1,101 Other income, net 942 411 2,008 645 Minority interest (149) (260) 12 (403) Gain on venture investments and affiliated companies - - 534 - Equity in income of affiliated companies 87 137 266 108 Income before income taxes 2,053 1,997 3,916 1,451 Income tax expense (benefit) 503 1,122 1,689 (482) Net income $1,550 $875 $2,227 $1,933 Net earnings per common share, Basic: $0.03 $0.02 $0.04 $0.04 Net earnings per common share, Diluted: $0.03 $0.02 $0.04 $0.04 Weighted average common shares outstanding, Basic 52,969 52,529 52,915 52,507 Weighted average dilutive common equivalent shares outstanding 53,202 52,706 53,207 52,712 (1) The three months and nine months ended September 30, 2006 includes SFAS 123(R) stock compensation expense of $0.3 million and $1.2 million, respectively (2) The three months and nine months ended September 30, 2006 includes SFAS 123(R) stock compensation expense of $0.6 million and $1.6 million, respectively iGATE CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (dollars in thousands) September 30, December 31, 2006 2005 (unaudited) (audited) ASSETS Current assets: Cash and cash equivalents $44,198 $45,837 Short term investments 30,192 30,798 Accounts receivable, net 56,010 49,479 Prepaid and other current assets 6,869 7,237 Prepaid income taxes 326 1,060 Deferred income taxes 799 1,058 Total current assets 138,394 135,469 Investments in unconsolidated affiliates 1,461 1,050 Land, building, equipment and leasehold improvements, net 28,321 28,539 Goodwill 10,579 8,851 Intangible assets, net 2,225 3,565 Total assets $180,980 $177,474 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $5,444 $5,958 Accrued payroll and related costs 15,972 16,304 Other accrued liabilities 8,966 8,163 Restructuring reserve 770 2,355 Deferred revenue 120 362 Total current liabilities 31,272 33,142 Restructuring reserve 2,124 2,422 Other long term liabilities 356 422 Deferred income taxes 9,584 9,718 Total liabilities 43,336 45,704 Minority interest 17,032 14,098 Shareholders' equity: Common Stock, par value $0.01 per share 540 538 Additional paid-in capital 162,572 162,278 Retained deficit (27,514) (29,741) Deferred compensation - (1,119) Common stock in treasury, at cost (14,714) (14,714) Accumulated other comprehensive income (272) 430 Total shareholders' equity 120,612 117,672 Total liabilities and shareholders' equity $180,980 $177,474 iGATE iGATE Three Months Ended iGATE Professional Shared September 30, 2006 Solutions Services Services Total External revenues $44,067 $27,530 $357 $71,954 Cost of revenues 31,952 21,325 249 53,526 Gross margin 12,115 6,205 108 18,428 Selling, general and administrative 10,767 3,848 2,640 17,255 Income (loss) from operations $1,348 $2,357 (2,532) 1,173 Other income, net 942 942 Minority interest (149) (149) Equity in income of affiliated companies 87 87 (Loss) income before income taxes $(1,652) $2,053 iGATE iGATE Three Months Ended iGATE Professional Shared June 30, 2006 Solutions Services Services Total External revenues $39,797 $29,131 $394 $69,322 Cost of revenues 30,020 22,290 210 52,520 Gross margin 9,777 6,841 184 16,802 Selling, general and administrative 10,302 4,927 2,505 17,734 Restructuring recovery - (555) - (555) (Loss) income from operations $(525) $2,469 (2,321) (377) Other expense, net (365) (365) Minority interest 306 306 Gain on venture investments and affiliated companies 534 534 Equity in income of affiliated companies 114 114 (Loss) income before income taxes $(1,732) $212 iGATE iGATE Nine Months Ended iGATE Professional Shared September 30, 2006 Solutions Services Services Total External revenues $122,122 $85,668 $1,182 $208,972 Cost of revenues 89,809 66,075 676 156,560 Gross margin 32,313 19,593 506 52,412 Selling, general and administrative 31,426 12,568 7,877 51,871 Restructuring recovery - (555) - (555) Income (loss) from operations $887 $7,580 (7,371) 1,096 Other income, net 2,008 2,008 Minority interest 12 12 Gain on venture investments and affiliated companies 534 534 Equity in income of affiliated companies 266 266 (Loss) income before income taxes $(4,551) $3,916 iGATE iGATE Three Months Ended iGATE Professional Shared September 30, 2005 Solutions Services Services Total External revenues $35,151 $34,606 $345 $70,102 Cost of revenues 24,246 26,769 157 51,172 Gross margin 10,905 7,837 188 18,930 Selling, general and administrative 10,162 4,193 2,866 17,221 Income (loss) from operations $743 $3,644 (2,678) 1,709 Other income, net 411 411 Minority interest (260) (260) Equity in income of affiliated companies 137 137 (Loss) income before income taxes $(2,390) $1,997 iGATE iGATE Nine Months Ended iGATE Professional Shared September 30, 2005 Solutions Services Services Total External revenues $101,933 $104,688 $978 $207,599 Cost of revenues 72,361 81,906 407 154,674 Gross margin 29,572 22,782 571 52,925 Selling, general and administrative 29,099 13,473 9,252 51,824 Income (loss) from operations $473 $9,309 (8,681) 1,101 Other income, net 645 645 Minority interest (403) (403) Equity in income of affiliated companies 108 108 (Loss) income before income taxes $(8,331) $1,451 DATASOURCE: iGATE Corporation CONTACT: Michael J. Zugay, Sr. Vice President & CFO of iGATE Corporation, +1-412-787-9590, or Web site: http://www.igatecorp.com/

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