[November 08, 2018] |
|
Virtusa Announces Second Quarter Fiscal 2019 Consolidated Financial Results
Virtusa
Corporation (NASDAQ GS: VRTU), a global provider of digital
engineering and IT outsourcing services that accelerate business
outcomes for its clients, today reported consolidated financial results
for the second quarter fiscal 2019, ended September 30, 2018.
Second Quarter Fiscal 2019 Consolidated Financial Results
Revenue for the second quarter of fiscal 2019 was $305.5 million, an
increase of 1.8% sequentially and 23.1% year-over-year. On a constant
currency basis, (1) second quarter revenue increased 2.5%
sequentially and 23.4% year-over-year.
Virtusa reported GAAP income from operations of $14.0 million for the
second quarter of fiscal 2019, compared to $13.9 million for the first
quarter of fiscal 2019 and $10.3 million for the second quarter of
fiscal 2018.
GAAP net income available to common shareholders for the second quarter
of fiscal 2019 was $0.4 million, or $0.01 per diluted share, compared to
GAAP net loss of $7.4 million, or ($0.25) per diluted share, for the
first quarter of fiscal 2019, and GAAP net income of $3.7 million, or
$0.12 per diluted share, for the second quarter of fiscal 2018. Second
quarter fiscal 2019 GAAP net loss includes $4.2 million of net
unrealized foreign exchange losses on an after-tax basis, which were not
included in the Company's prior guidance.
Non-GAAP Results*:
Non-GAAP income from operations was $29.0 million for the second quarter
of fiscal 2019, compared with $27.5 million for the first quarter of
fiscal 2019 and $19.8 million for the second quarter of fiscal 2018.
Non-GAAP net income was $18.2 million, or $0.54 per diluted share, for
the second quarter of fiscal 2019, compared to $16.8 million, or $0.50
per diluted share, for the first quarter of fiscal 2019, and $11.4
million, or $0.35 per diluted share, for the second quarter of fiscal
2018.
*Please refer to the Non-GAAP Financial Information section of this
press release for definitions of our Non-GAAP financial measures and
reconciliations to the most comparable GAAP financial measures.
Balance Sheet and Cash Flow
The Company ended the second quarter of fiscal 2019 with $232.5 million
of cash, cash equivalents and investments (2). Cash
provided by operating activities was $40.0 million for the second
quarter of fiscal 2019.
Management Commentary
Kris Canekeratne, Virtusa's Chairman and CEO, stated, "We delivered
another solid quarter driven by our differentiated value proposition and
excellence in execution and service delivery. Virtusa continues to
strengthen its position as a preferred partner enabling end-to-end
digital transformation to many of the world's leading companies. Our
above-industry growth and continued momentum give us confidence in our
strategy and long-term opportunities."
Ranjan Kalia, Chief Financial Officer, said, "Our fiscal second quarter
results are highlighted by double-digit year-over-year organic revenue
growth, significant margin accretion, and non-GAAP EPS growth of 54%. As
contemplated in our prior guidance, growth resumed at our largest client
in the fiscal second quarter. Also, the recently completed eTouch
acquisition continues to perform well. We are maintaining the midpoint
of our fiscal 2019 guidance, which continues to reflect above-industry
revenue growth on an organic basis even after absorbing an incremental
$4 million of forecasted currency headwinds in the second half."
Financial Outlook
Virtusa management provided the following current financial guidance:
-
Third quarter fiscal 2019 revenue is expected to be in the range of
$308 to $316 million. GAAP diluted EPS is expected to be in the range
of $0.12 to $0.16. Non-GAAP diluted EPS is expected to be in the range
of $0.56 to $0.62.
-
Fiscal year 2019 revenue is expected to be in the range of $1,241 to
$1,259 million. GAAP diluted EPS is expected to be in the range of
$0.09 to $0.17. Non-GAAP diluted EPS is expected to be in the range of
$2.19 to $2.31.
In accordance with US GAAP, Virtusa applies the if-converted method to
its convertible preferred shares when reporting its fiscal year 2019
results. The if-converted method is used to calculate the share impact
of convertible securities. Under this method, only when the convertible
securities are considered dilutive are they then included in the
computation of weighted average shares outstanding in reported results
and full year guidance.
-
Second quarter GAAP Income per share was calculated by including
the impact of dividends and accretion on the convertible preferred
shares in net income available to common stockholders and excluding
the impact of the convertible preferred shares from the weighted
average shares. Second quarter non-GAAP EPS was calculated by
excluding the impact of dividends and accretion on the convertible
preferred shares from net income available to common stockholders and
including the impact of the convertible preferred shares in the
weighted average shares outstanding as these shares were dilutive on a
non-GAAP basis.
-
GAAP EPS guidance was calculated under the assumption that these
convertible preferred shares will be anti-dilutive in fiscal 2019.
Thus, in determining full fiscal year 2019 GAAP EPS guidance,
dividends and accretion on the convertible preferred shares are
deducted from net income available to common stockholders and the
convertible preferred shares have been excluded from weighted average
shares outstanding.
-
Non-GAAP EPS guidance was calculated under the assumption that
these convertible preferred shares will be dilutive in fiscal year
2019. Thus, in determining full fiscal year 2019 non-GAAP EPS
guidance, dividends and accretion on the convertible preferred shares
are excluded from net income available to common stockholders and the
impact of the convertible preferred shares are included in the
weighted average shares outstanding.
The Company's third quarter and fiscal year 2019 diluted GAAP EPS
estimates are both based on average share counts of approximately 30.7
million (assuming no further exercises of stock-based awards). The
Company's third quarter and fiscal year 2019 diluted Non-GAAP EPS
estimates are both based on average share counts of approximately 33.7
million (assuming no further exercises of stock-based awards). GAAP and
Non-GAAP average share counts assume a stock price of $48.67, which was
derived from the average closing price of the Company's stock over the
five trading days ended on November 5, 2018. Deviations from this stock
price may cause actual diluted EPS to vary based on share dilution from
Virtusa's stock options.
Conference Call and Webcast
Virtusa will host a conference call today, November 8, 2018 at 5:00 p.m.
Eastern Time to discuss the Company's second quarter fiscal 2019
financial results, current financial guidance, and other corporate
developments. To access this call, please dial 866-548-4713 (domestic)
or 323-794-2597 (international). The passcode is 6886046. A replay of
this conference call will be available through November 15, 2018 at
844-512-2921 (domestic) or 412-317-6671 (international). The replay
passcode is 6886046. A live webcast of this conference call will be
available on the "Investors" page of the Company's website (www.virtusa.com),
and a replay will be archived on the website as well.
About Virtusa
Virtusa Corporation (NASDAQ GS: VRTU) is a global provider of Digital
Business Transformation, Digital Engineering, and Information Technology
(IT) outsourcing services that accelerate our clients' journey to their
Digital Future. Virtusa serves Global 2000 companies in Banking,
Financial Services, Insurance, Healthcare, Telecommunications, Media,
Entertainment, Travel, Manufacturing, and Technology industries.
Using a combination of digital strategy, digital engineering, business
implementation, and IT platform modernization services, Virtusa helps
clients execute successful end-to-end digital business transformation
initiatives.
Virtusa engages its clients to re-imagine their business models and
develop strategies to defend and grow their business by introducing
innovative products and services, developing distinctive digital
consumer experiences, creating operational efficiency using digital
labor, developing operational and IT platforms for the future, and
rationalizing and modernizing their existing IT applications
infrastructure. As a result, its clients are simultaneously able to
drive business growth through digital-first customer experiences, while
also consolidating and modernizing their IT application infrastructure
to support digital business transformation.
Holding a proven record of success across industries, Virtusa readily
understands its clients' business challenges and uses its domain
expertise to deliver innovative applications of technology to address
its clients' critical business challenges. Examples include building the
world's largest property & casualty claims modernization program; one of
the largest corporate customer portals for a premier global bank; an
order to cash implementation for a multinational telecommunications
provider; and digital transformation initiatives for media and banking
companies.
Founded in 1996 and headquartered in Massachusetts, Virtusa has
operations in North America, Europe, and Asia.
© 2018 Virtusa Corporation. All rights reserved.
Virtusa, Accelerating Business Outcomes, BPM Test Drive and
Productization are registered trademarks of Virtusa Corporation. All
other company and brand names may be trademarks or service marks of
their respective holders.
Non-GAAP Financial Information
This press release includes certain non-GAAP financial measures as
defined by Regulation G by the Securities and Exchange Commission. These
non-GAAP financial measures are not based on any comprehensive set of
accounting rules or principles and should not be considered a substitute
for, or superior to, financial measures calculated in accordance with
GAAP, and may be different from non-GAAP measures used by other
companies. In addition, these non-GAAP measures should be read in
conjunction with Virtusa's financial statements prepared in accordance
with GAAP.
Virtusa believes the following financial measures will provide
additional insights to measure the operational performance of the
business.
-
Virtusa presents constant currency revenue growth rates to provide
insights into, and a framework for assessing, how Virtusa's revenue
performed excluding the effect of foreign currency rate fluctuations
(see footnote 1).
-
Virtusa presents a reconciliation of its cash and cash equivalents to
total cash, cash equivalents, short term and long term investments
which Virtusa believes provides insight into its cash position and
overall liquidity (see footnote 2).
-
Virtusa also presents the following consolidated statements of income
(loss) measures that exclude, when applicable, stock-based
compensation expense, acquisition related charges, restructuring
charges, foreign currency transaction gains and losses, non-recurring
third party financing costs, the tax impact of dividends received from
foreign subsidiaries, the initial impact of our election to treat
certain subsidiaries as disregarded entities for US tax purposes, and
the impact from the U.S. government enacted comprehensive tax
legislation ("Tax Act") to provide further insights into the
comparison of Virtusa's operating results among the periods:
-
Non-GAAP income from operations: income from operations, as
reported on Virtusa's consolidated statements of income (loss),
excluding stock-based compensation expense, acquisition related
charges and restructuring charges.
-
Non-GAAP operating margin: non-GAAP income from operations as a
percentage of reported revenues.
-
Non-GAAP net income available to Virtusa common stockholders: net
income (loss) available to Virtusa common stockholders, as
reported on our consolidated statements of income (loss),
excluding stock-based compensation, acquisition related charges,
restructuring charges, foreign currency transaction gains and
losses, non-recurring third party financing costs, the tax impact
of the above items, the initial impact of our election to treat
certain subsidiaries as disregarded entities for US tax purposes,
the tax impact of dividends received from foreign subsidiaries,
and the impact from the Tax Act.
-
Non-GAAP diluted earnings per share: diluted earnings (loss) per
share, as reported on Virtusa's consolidated statements of income
(loss) available to Virtusa common stockholders, excluding
stock-based compensation, acquisition related charges,
restructuring charges, foreign currency transaction gains and
losses, non-recurring third party financing costs, the tax impact
of the above items, the initial impact of our election to treat
certain subsidiaries as disregarded entities for US tax purposes,
the tax impact of dividends received from foreign subsidiaries,
and the impact from the Tax Act. Non-GAAP diluted earnings per
share is also subject to dilutive and anti-dilutive requirements
of the if-converted method related to our Series A Convertible
Preferred Stock that could result in a difference between GAAP to
non-GAAP diluted weighted average shares outstanding.
The following table presents a reconciliation of each non-GAAP financial
measure to the most comparable GAAP measure for the three and six months
ended September 30, 2018:
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
GAAP income from operations
|
|
$
|
14,019
|
|
|
$
|
10,279
|
|
|
$
|
27,943
|
|
|
$
|
16,349
|
|
Add: Stock-based compensation expense
|
|
|
9,124
|
|
|
|
6,142
|
|
|
|
17,062
|
|
|
|
10,930
|
|
Add: Acquisition-related charges and restructuring charges(a)
|
|
|
5,829
|
|
|
|
3,351
|
|
|
|
11,495
|
|
|
|
5,860
|
|
Non-GAAP income from operations
|
|
$
|
28,972
|
|
|
$
|
19,772
|
|
|
$
|
56,500
|
|
|
$
|
33,139
|
|
|
|
|
|
|
|
|
|
|
GAAP operating margin
|
|
|
4.6
|
%
|
|
|
4.1
|
%
|
|
|
4.6
|
%
|
|
|
3.4
|
%
|
Effect of above adjustments to income from operations
|
|
|
4.9
|
%
|
|
|
3.9
|
%
|
|
|
4.7
|
%
|
|
|
3.6
|
%
|
Non-GAAP operating margin
|
|
|
9.5
|
%
|
|
|
8.0
|
%
|
|
|
9.3
|
%
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
GAAP net income (loss) available to Virtusa common stockholders
|
|
$
|
417
|
|
|
$
|
3,681
|
|
|
$
|
(6,966
|
)
|
|
$
|
6,638
|
|
Add: Stock-based compensation expense
|
|
|
9,124
|
|
|
|
6,142
|
|
|
|
17,062
|
|
|
|
10,930
|
|
Add: Acquisition-related charges and restructuring charges(a)
|
|
|
6,300
|
|
|
|
3,351
|
|
|
|
12,427
|
|
|
|
5,860
|
|
Add: Foreign currency transaction losses, net(b)
|
|
|
9,355
|
|
|
|
1,480
|
|
|
|
20,113
|
|
|
|
1,557
|
|
Tax adjustments (c)
|
|
|
(8,126
|
)
|
|
|
(4,066
|
)
|
|
|
(9,943
|
)
|
|
|
(6,588
|
)
|
Noncontrolling interest, net of taxes (d)
|
|
|
50
|
|
|
|
(313
|
)
|
|
|
177
|
|
|
|
(679
|
)
|
Non-GAAP net income available to Virtusa common stockholders
|
|
$
|
17,120
|
|
|
$
|
10,275
|
|
|
$
|
32,870
|
|
|
$
|
17,718
|
|
|
|
|
|
|
|
|
|
|
GAAP diluted earnings (loss) per share (f)
|
|
$
|
0.01
|
|
|
$
|
0.12
|
|
|
$
|
(0.23
|
)
|
|
$
|
0.22
|
|
Effect of stock-based compensation expense (g)
|
|
|
0.27
|
|
|
|
0.19
|
|
|
|
0.51
|
|
|
|
0.35
|
|
Effect of acquisition-related charges and restructuring charges(a)
(g)
|
|
|
0.19
|
|
|
|
0.10
|
|
|
|
0.37
|
|
|
|
0.18
|
|
Effect of foreign currency transaction losses(b) (g)
|
|
|
0.28
|
|
|
|
0.05
|
|
|
|
0.60
|
|
|
|
0.05
|
|
Effect of tax adjustments (c) (g)
|
|
|
(0.24
|
)
|
|
|
(0.13
|
)
|
|
|
(0.30
|
)
|
|
|
(0.21
|
)
|
Effect of noncontrolling interest (d) (g)
|
|
|
-
|
|
|
|
(0.01
|
)
|
|
|
-
|
|
|
|
(0.02
|
)
|
Effect on dividend on Series A Convertible Preferred Stock (f)
(g)
|
|
|
0.03
|
|
|
|
0.03
|
|
|
|
0.06
|
|
|
|
0.03
|
|
Effect of change in dilutive shares for non-GAAP (f)
|
|
|
-
|
|
|
|
-
|
|
|
|
0.03
|
|
|
|
-
|
|
Non-GAAP diluted earnings per share (e) (g)
|
|
$
|
0.54
|
|
|
$
|
0.35
|
|
|
$
|
1.04
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
(a) Acquisition-related charges include, when applicable,
amortization of purchased intangibles, external deal costs,
transaction-related professional fees, acquisition-related retention
bonuses, changes in the fair value of contingent consideration
liabilities, accreted interest related to deferred acquisition
payments, charges for impairment of acquired intangible assets and
other acquisition-related costs including integration expenses
consisting of outside professional and consulting services and
direct and incremental travel costs. Restructuring charges, when
applicable, include termination benefits, as well as certain
professional fees related to the restructuring. The following table
provides the details of the acquisition-related charges and
restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Amortization of intangible assets
|
|
$
|
2,994
|
|
$
|
2,594
|
|
$
|
5,770
|
|
$
|
5,103
|
Acquisition & integration costs
|
|
$
|
2,835
|
|
$
|
-
|
|
$
|
5,725
|
|
$
|
-
|
Restructuring charges
|
|
$
|
-
|
|
$
|
757
|
|
$
|
-
|
|
$
|
757
|
Acquisition-related charges included in costs of revenue and
operating expense
|
|
$
|
5,829
|
|
$
|
3,351
|
|
$
|
11,495
|
|
$
|
5,860
|
Accreted interest related to deferred acquisition payments
|
|
$
|
471
|
|
$
|
-
|
|
$
|
932
|
|
$
|
-
|
Total acquisition-related charges and restructuring charges
|
|
$
|
6,300
|
|
$
|
3,351
|
|
$
|
12,427
|
|
$
|
5,860
|
(b) Foreign currency transaction gains and losses are inclusive of
gains and losses on related foreign exchange forward contracts not
designated as hedging instruments for accounting purposes.
|
|
|
(c) Tax adjustments reflect the tax effect of the non-GAAP
adjustments using the tax rates at which these adjustments are
expected to be realized for the respective periods, excluding the
initial impact of our election to treat certain subsidiaries as
disregarded entities for U.S. tax purposes. Tax adjustments also
assumes application of foreign tax credit benefits in the United
States.
|
|
|
(d) Noncontrolling interest represents the minority shareholders
interest of Polaris.
|
|
|
(e) Non-GAAP diluted earnings per share is subject to rounding.
|
|
|
(f) During the three and six months ended September 30, 2018, the
weighted average shares outstanding of Series A Convertible
Preferred Stock of 3,000,000 were excluded from the calculations
of GAAP diluted earnings per share as their effect would have been
anti-dilutive using the if-converted method.
|
During the three and six months ended September 30, 2017, the
weighted average shares outstanding of Series A Convertible
Preferred Stock of 3,000,000 and 2,456,044, respectively, were
excluded from the calculations of GAAP diluted earnings per share
as their effect would have been anti-dilutive using the
if-converted method.
|
The following table provides the non-GAAP net income available to
Virtusa common stockholders and non-GAAP dilutive weighted average
shares outstanding using if-converted method to calculate the
non-GAAP diluted earnings per share for the three and six months
ended September 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Non-GAAP net income available to Virtusa common stockholders
|
|
$
|
17,120
|
|
$
|
10,275
|
|
$
|
32,870
|
|
$
|
17,718
|
Add: Dividends and accretion on Series A Convertible Preferred
Stock
|
|
$
|
1,088
|
|
$
|
1,087
|
|
$
|
2,175
|
|
$
|
1,087
|
Non-GAAP net income available to Virtusa common stockholders and
assumed conversion
|
|
$
|
18,208
|
|
$
|
11,362
|
|
$
|
35,045
|
|
$
|
18,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP dilutive weighted average shares outstanding
|
|
|
30,627,044
|
|
|
29,820,581
|
|
|
29,700,151
|
|
|
30,035,865
|
Add: Dilutive effect of employee stock options and unvested
restricted stock awards and restricted stock units
|
|
|
-
|
|
|
-
|
|
|
866,156
|
|
|
-
|
Add: Series A Convertible Preferred Stock as converted
|
|
|
3,000,000
|
|
|
3,000,000
|
|
|
3,000,000
|
|
|
1,500,000
|
Non-GAAP dilutive weighted average shares outstanding
|
|
|
33,627,044
|
|
|
32,820,581
|
|
|
33,566,307
|
|
|
31,535,865
|
|
|
|
|
|
|
|
|
|
(g) To the extent the Series A Convertible Preferred Stock is
dilutive using the if-converted method, the Series A Convertible
Preferred Stock is included in the weighted average shares
outstanding to determine non-GAAP diluted earnings per share.
|
|
Footnotes
(1) To determine sequential revenue change in constant currency for the
Company's second quarter of fiscal 2019, revenue from entities reporting
in U.K. Pounds (GBP), Euros, and Swedish Krona (SEK) were converted into
U.S. dollars at the average exchange rates in effect for the three
months ended June 30, 2018, rather than the actual exchange rate in
effect for the three months ended September 30, 2018. To determine
year-over-year revenue change in constant currency for the Company's
second quarter of fiscal 2019, revenue from entities reporting in U.K.
Pounds (GBP), Euros, and Swedish Krona (SEK) were converted into U.S.
dollars at the average exchange rates in effect for the three months
ended September 30, 2017, rather than the actual exchange rate in effect
for the three months ended September 30, 2018. The average exchange
rates for the three months ended September 30, 2017, June 30, 2018, and
September 30, 2018 are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average U.S. Dollar Exchange Rate
|
|
|
|
|
For the Three Months Ended
|
|
|
|
|
September 30, 2017
|
|
June 30, 2018
|
|
September 30, 2018
|
GBP
|
|
|
|
1.31
|
|
1.35
|
|
1.30
|
Euro
|
|
|
|
1.18
|
|
1.19
|
|
1.16
|
SEK
|
|
|
|
0.12
|
|
0.11
|
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) The Company considers the total measure of cash, cash equivalents,
short-term and long-term investments to be an important indicator of the
Company's overall liquidity. All of the Company's investments are
classified as either equity or available-for-sale securities, including
the Company's long-term investments which consist of fixed income
securities, including government agency bonds and municipal and
corporate bonds, which meet the credit rating and diversification
requirements of the Company's investment policy as approved by the
Company's audit committee and board of directors.
(3) Earnings per share amounts for each quarter may not necessarily
total to the yearly earnings per share due to the weighting of shares
outstanding on a quarterly and year to date basis.
(4) On March 3, 2016 Virtusa acquired a majority interest in Polaris. In
accordance with US GAAP, Polaris financial results for the quarter
ending September 30, 2018 and assets and liabilities as of that date
have been consolidated in full into Virtusa's financial statements. Net
assets attributable to ownership in Polaris by minority shareholders
(Non-controlling Interest) in our Consolidated Balance Sheets was $24.6
million at September 30, 2018. Profit attributable to minority
shareholders (Non-controlling Interest) in the Consolidated Statements
of Income was $0.5 million on a GAAP basis and $0.4 million on a
non-GAAP basis for the quarter ending September 30, 2018.
Forward-Looking Statements
This press release contains certain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, including statements
regarding, management's forecast of financial performance, the growth of
our business and management's plans, objectives, and strategies. These
forward-looking statements include, but are not limited to, plans,
objectives, expectations and intentions and other statements contained
in this press release that are not historical facts, and statements
identified by words such as "expects," "anticipates," "intends,"
"plans," "believes," "see," "seeks," "estimates," "will," "should,"
"may," "confident," "positions," "look forward to," and variations of
such words or words of similar meaning and the use of future dates.
These forward-looking statements reflect our current views about our
plans, intentions, expectations, strategies and prospects, and our
growth rate, which are based on the information currently available to
us and on assumptions we have made. Although we believe that our plans,
intentions, expectations, strategies and prospects as reflected in or
suggested by those forward-looking statements are reasonable, we can
give no assurance that these plans, intentions, expectations or
strategies will be attained or achieved. Furthermore, actual results may
differ materially from those described in the forward-looking statements
and will be affected by a variety of risks and factors that are beyond
our control including, without limitation: currency exchange rate
fluctuations of the Indian and Sri Lankan rupee, the U.S. dollar, the
U.K. pound sterling, the Swedish krona, and the euro; the international
nature of our business; restrictions on immigration or changes in
immigration laws; inability of Virtusa to service the debt incurred by
Virtusa to acquire Polaris and the delisting process or to maintain
compliance with certain financial covenants under the loan facility;
Virtusa's ability to integrate the operations of, and achieve expected
synergies and operating efficiencies in connection with, acquired
businesses, including eTouch; unanticipated acquisition related costs
and negative effects on Virtusa's reported results of operations from
previous acquisitions; the inability to pay cash dividends on the
convertible preferred stock in connection with the Orogen convertible
preferred stock financing, thus increasing the dilutive impact of the
financing; the inability of Virtusa to redeem the convertible preferred
stock at maturity, if there has been no conversion event prior to
maturity; Virtusa's dependence on a limited number of clients as well as
clients located principally in the United States and United Kingdom and
in concentrated industries; Virtusa's ability to hire and retain enough
sufficiently trained IT professionals to support its operations;
Virtusa's ability to expand its business or effectively manage growth;
Virtusa's ability to sustain profitability or maintain profitable
engagements; increasing competition in the IT services outsourcing
industry; Virtusa's ability to attract and retain clients and meet their
expectations; quarterly fluctuations in Virtusa's earnings; client
terminations or contracting delays, or delays in revenue recognition in
any reporting period; Virtusa's ability to successfully manage its
billing and utilization rates and its targeted on-site to offshore
delivery mix; technological innovation; Virtusa's ability to effectively
manage its facility, infrastructure and capacity needs; regulatory,
legislative and judicial developments in Virtusa's operations areas and
Virtusa's ability to comply with changing or complex laws and maintain
effective internal controls to ensure ongoing compliance; the loss of
any key member of Virtusa's senior management team, political or
economic instability in India or Sri Lanka; any reduction or withdrawal
of tax benefits provided to Virtusa by the governments of India and Sri
Lanka, or new legislation by such governments which could be harmful to
Virtusa; wage inflation and increases in government mandated benefits in
India and Sri Lanka; telecommunications or technology disruptions;
worldwide economic and business conditions; and the volatility of the
market price of Virtusa's common stock. For additional disclosure
regarding these and other risks faced by Virtusa, see the disclosure
contained in Virtusa's public filings with the Securities and Exchange
Commission, including Virtusa's Annual Report on Form 10-K for the
fiscal year ended March 31, 2018 and subsequent Quarterly Reports on
Form 10-Q, as filed with the Securities and Exchange Commission.
|
|
|
|
|
Virtusa Corporation and Subsidiaries
|
Condensed Consolidated Balance Sheets
|
(In thousands, unaudited)
|
|
|
|
|
|
|
|
September 30, 2018
|
|
March 31, 2018
|
Assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$176,981
|
|
$194,897
|
Short-term investments
|
|
54,108
|
|
45,900
|
Accounts receivable, net
|
|
162,497
|
|
151,455
|
Unbilled accounts receivable
|
|
96,605
|
|
103,829
|
Prepaid expenses
|
|
33,865
|
|
31,724
|
Restricted cash
|
|
1,298
|
|
301
|
Other current assets
|
|
19,221
|
|
21,229
|
Total current assets
|
|
544,575
|
|
549,335
|
|
|
|
|
|
Property and equipment, net
|
|
120,264
|
|
121,565
|
Investments accounted for using equity method
|
|
1,398
|
|
1,588
|
Long-term investments
|
|
1,410
|
|
4,140
|
Deferred income taxes
|
|
38,310
|
|
31,528
|
Goodwill
|
|
275,002
|
|
297,251
|
Intangible assets, net
|
|
94,212
|
|
96,001
|
Other long-term assets
|
|
15,728
|
|
11,772
|
Total assets
|
|
$1,090,899
|
|
$1,113,180
|
|
|
|
|
|
Liabilities, Series A convertible preferred stock, redeemable
noncontrolling interest and stockholders' equity
|
|
|
Accounts payable
|
|
$27,717
|
|
$29,541
|
Accrued employee compensation and benefits
|
|
62,925
|
|
71,500
|
Deferred revenue
|
|
6,175
|
|
7,908
|
Accrued expenses and other
|
|
109,677
|
|
91,306
|
Current portion of long-term debt
|
|
11,407
|
|
11,407
|
Income taxes payable
|
|
5,034
|
|
5,038
|
Total current liabilities
|
|
222,935
|
|
216,700
|
Deferred income taxes
|
|
17,462
|
|
21,341
|
Long-term debt, less current portion
|
|
314,524
|
|
288,227
|
Long-term liabilities
|
|
44,854
|
|
43,833
|
Total liabilities
|
|
599,775
|
|
570,101
|
|
|
|
|
|
Series A convertible preferred stock
|
|
107,079
|
|
106,996
|
Redeemable noncontrolling interest
|
|
24,614
|
|
-
|
|
|
|
|
|
Stockholders' equity
|
|
359,156
|
|
418,623
|
Noncontrolling interest
|
|
275
|
|
17,460
|
Stockholders' equity
|
|
359,431
|
|
436,083
|
Total liabilities, Series A convertible preferred stock, redeemable
noncontrolling interest and stockholders' equity
|
|
$1,090,899
|
|
$1,113,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Virtusa Corporation and Subsidiaries
|
Consolidated Statements of Income (Loss)
|
(In thousands except share and per share amounts, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$305,520
|
|
$248,174
|
|
$605,551
|
|
$475,519
|
Costs of revenue
|
|
216,346
|
|
178,404
|
|
432,827
|
|
344,683
|
Gross profit
|
|
89,174
|
|
69,770
|
|
172,724
|
|
130,836
|
Total operating expenses
|
|
75,155
|
|
59,491
|
|
144,781
|
|
114,487
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
14,019
|
|
10,279
|
|
27,943
|
|
16,349
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
589
|
|
928
|
|
1,353
|
|
1,932
|
Interest expense
|
|
(4,514)
|
|
(1,413)
|
|
(8,768)
|
|
(3,071)
|
Foreign currency transaction losses, net
|
|
(9,355)
|
|
(1,480)
|
|
(20,113)
|
|
(1,557)
|
Other, net
|
|
819
|
|
778
|
|
1,443
|
|
884
|
Total other expense
|
|
(12,461)
|
|
(1,187)
|
|
(26,085)
|
|
(1,812)
|
|
|
|
|
|
|
|
|
|
Income before income tax (benefit) expense
|
|
1,558
|
|
9,092
|
|
1,858
|
|
14,537
|
Income tax (benefit) expense
|
|
(402)
|
|
1,500
|
|
5,463
|
|
2,298
|
Net income (loss)
|
|
1,960
|
|
7,592
|
|
(3,605)
|
|
12,239
|
Less: net income attributable to noncontrolling interests, net of tax
|
|
455
|
|
2,824
|
|
1,186
|
|
3,813
|
Net income (loss) available to Virtusa stockholders
|
|
1,505
|
|
$4,768
|
|
($4,791)
|
|
$8,426
|
Less: Series A convertible preferred stock dividends and accretion
|
|
1,088
|
|
1,087
|
|
2,175
|
|
1,788
|
Net income (loss) available to Virtusa common stockholders
|
|
417
|
|
$3,681
|
|
(6,966)
|
|
$6,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share available to Virtusa common
stockholders
|
|
$0.01
|
|
$0.13
|
|
($0.23)
|
|
$0.23
|
Diluted earnings (loss) per share available to Virtusa common
stockholders
|
|
$0.01
|
|
$0.12
|
|
($0.23)
|
|
$0.22
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
29,767,276
|
|
29,216,600
|
|
29,700,151
|
|
29,434,101
|
Diluted
|
|
30,627,044
|
|
29,820,581
|
|
29,700,151
|
|
30,035,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Virtusa Corporation and Subsidiaries
|
Consolidated Statements of Cash Flows
|
(In thousands, unaudited)
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
September 30,
|
|
|
2018
|
|
2017
|
Cash flows from operating activities:
|
|
|
|
|
Net income (loss)
|
|
($3,605)
|
|
$12,239
|
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
|
|
|
Depreciation and amortization
|
|
14,593
|
|
13,646
|
Share-based compensation expense
|
|
17,062
|
|
10,930
|
Provision (recovery) for doubtful accounts
|
|
(236)
|
|
723
|
Gain on disposal of property and equipment
|
|
(159)
|
|
(49)
|
Foreign currency transaction losses, net
|
|
20,113
|
|
1,557
|
Amortization of discounts and premiums on investments
|
|
76
|
|
185
|
Amortization of debt issuance cost
|
|
546
|
|
565
|
Deferred income taxes, net
|
|
(6,522)
|
|
-
|
Net changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable and unbilled receivable
|
|
(1,975)
|
|
(4,492)
|
Prepaid expenses and other current assets
|
|
(11,238)
|
|
(4,450)
|
Other long-term assets
|
|
(4,009)
|
|
(815)
|
Accounts payable
|
|
232
|
|
740
|
Accrued employee compensation and benefits
|
|
(5,834)
|
|
(579)
|
Accrued expenses and other current liabilities
|
|
11,179
|
|
4,712
|
Income taxes payable
|
|
3,133
|
|
(3,586)
|
Other long-term liabilities
|
|
(73)
|
|
(1,494)
|
Net cash provided by operating activities
|
|
33,283
|
|
29,832
|
Cash flows from investing activities:
|
|
|
|
|
Proceeds from sale of property and equipment
|
|
451
|
|
180
|
Purchase of short-term investments
|
|
(68,803)
|
|
(50,549)
|
Proceeds from sale or maturity of short-term investments
|
|
60,571
|
|
62,829
|
Purchase of long-term investments
|
|
-
|
|
(12,273)
|
Business acquisition, net of cash acquired
|
|
(34)
|
|
(600)
|
Purchase of property and equipment
|
|
(18,875)
|
|
(8,195)
|
Net cash used in investing activities
|
|
(26,690)
|
|
(8,608)
|
Cash flows from financing activities:
|
|
|
|
|
Proceeds from exercise of common stock options
|
|
428
|
|
2,717
|
Proceeds from exercise of subsidiary stock options
|
|
326
|
|
196
|
Proceeds from revolving credit facility
|
|
32,000
|
|
-
|
Payment of debt
|
|
(6,250)
|
|
(81,000)
|
Payments of withholding taxes related to net share settlements of
restricted stock
|
|
(7,602)
|
|
(2,431)
|
Series A convertible preferred stock proceeds, net of issuance costs
of $1,154
|
|
-
|
|
106,846
|
Repurchase of common stock
|
|
-
|
|
(30,000)
|
Principal payments on capital lease obligation
|
|
(43)
|
|
(124)
|
Payment of contingent consideration related to acquisition
|
|
(100)
|
|
-
|
Payment of redeemable noncontrolling interest
|
|
(28,396)
|
|
-
|
Payment of dividend on Series A convertible preferred stock
|
|
(2,092)
|
|
(1,035)
|
Net cash used in financing activities
|
|
(11,729)
|
|
(4,831)
|
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
|
|
(11,694)
|
|
1,753
|
Net (decrease) increase in cash, cash equivalents and restricted cash
|
|
(16,830)
|
|
18,146
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
195,236
|
|
145,086
|
Cash, cash equivalents and restricted cash, end of period
|
|
$178,406
|
|
$163,232
|
|
|
|
|
|
|
|
|
|
|
Supplemental Non-GAAP Financial Information as of September 30,
2018 and 2017
|
|
|
|
|
|
|
|
Reconciliation from cash, cash equivalents and restricted cash to
total cash and cash equivalents, short-term investments and
long-term investments:
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, end of period
|
|
$178,406
|
|
$163,232
|
Less : Restricted cash
|
|
1,425
|
|
975
|
Total Cash and cash equivalents end of period
|
|
176,981
|
|
162,257
|
|
|
|
|
|
Short-term investments
|
|
54,108
|
|
76,662
|
Long-term investments
|
|
1,410
|
|
15,120
|
Total short-term and long-term investments, end of period
|
|
55,518
|
|
91,782
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents, short-term and long-term investments
|
|
$ 232,499
|
|
254,039
|
|
|
|
|
|
|
Virtusa Corporation and Subsidiaries
|
Reconciliation of Non-GAAP Guidance**
|
|
|
|
|
|
|
|
|
|
|
|
Three months ending
|
|
Fiscal Year ending
|
|
|
December 31, 2018
|
|
March 31, 2019
|
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
|
|
|
|
|
|
|
|
GAAP diluted earnings per share
|
|
$0.12
|
|
|
$0.16
|
|
|
$0.09
|
|
|
$0.17
|
|
|
|
|
|
|
|
|
|
|
Effect of stock-based compensation expense
|
|
0.22
|
|
|
0.22
|
|
|
0.93
|
|
|
0.93
|
|
Effect of acquisition-related charges and restructuring charges
|
|
0.21
|
|
|
0.21
|
|
|
0.76
|
|
|
0.76
|
|
Effect of foreign currency transaction (gains) losses
|
|
0.00
|
|
|
0.00
|
|
|
0.60
|
|
|
0.60
|
|
Effect of change in dilutive shares for non-GAAP
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
Effect of tax impact from Tax Act
|
|
0.00
|
|
|
0.00
|
|
|
0.00
|
|
|
0.00
|
|
Effect of tax adjustments
|
|
(0.01
|
)
|
|
0.02
|
|
|
(0.30
|
)
|
|
(0.26
|
)
|
Effect of noncontrolling interest
|
|
(0.00
|
)
|
|
(0.00
|
)
|
|
0.00
|
|
|
0.00
|
|
Effect on dividend on Series A Convertible Preferred Stock
|
|
0.03
|
|
|
0.03
|
|
|
0.13
|
|
|
0.13
|
|
Non-GAAP diluted earnings per share#
|
|
$0.56
|
|
|
$0.62
|
|
|
$2.19
|
|
|
$2.31
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
|
|
|
|
|
|
- GAAP
|
|
30.7
|
|
|
30.7
|
|
|
30.7
|
|
|
30.7
|
|
- Non-GAAP
|
|
33.7
|
|
|
33.7
|
|
|
33.7
|
|
|
33.7
|
|
|
|
|
|
|
|
|
|
|
** EPS impact is subject to rounding
|
|
# To the extent the Series A Convertible
Preferred Stock is dilutive using the if-converted method, the
Series A Convertible Preferred Stock is included in the weighted
average shares outstanding to determine non-GAAP diluted earnings
per share for each of the non-GAAP adjustments
|
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20181108005906/en/
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