Virtusa
Corporation (NASDAQ GS: VRTU), a global provider of digital
strategy, digital engineering, and IT outsourcing services that
accelerates business outcomes for its clients, today reported
consolidated financial results for the fourth quarter and fiscal year
ended March 31, 2019.
Fourth Quarter Fiscal 2019 Consolidated Financial Results
Revenue for the fourth quarter of fiscal 2019 was $327.6 million, an
increase of 4.1% sequentially and 16.5% year-over-year. On a constant
currency basis, (1) fourth quarter revenue increased 3.8%
sequentially and 17.9% year-over-year.
Virtusa reported GAAP income from operations of $23.0 million for the
fourth quarter of fiscal 2019, an increase from $19.3 million for the
third quarter of fiscal 2019 and $16.4 million for the fourth quarter of
fiscal 2018.
GAAP net income available to common shareholders for the fourth quarter
of fiscal 2019 was $7.3 million, or $0.24 per diluted share, compared to
$11.5 million, or $0.37 per diluted share, for the third quarter of
fiscal 2019, and $1.8 million, or $0.06 per diluted share, for the
fourth quarter of fiscal 2018. Fourth quarter fiscal 2019 GAAP net
income includes $1.3 million, or $(0.04) per diluted share, of Base
Erosion and Anti-Abuse or, BEAT, tax which was not previously expected
or contemplated in the Company’s prior guidance.
Non-GAAP Results*:
Non-GAAP income from operations was $34.0 million for the fourth quarter
of fiscal 2019, an increase from $32.7 million for the third quarter of
fiscal 2019 and from $27.9 million for the fourth quarter of fiscal 2018.
Non-GAAP net income was $15.6 million, or $0.46 per diluted share, for
the fourth quarter of fiscal 2019 compared to $20.7 million, or $0.61
per diluted share, for the third quarter of fiscal 2019, and $18.3
million, or $0.55 per diluted share, for the fourth quarter of fiscal
2018. Fourth quarter fiscal 2019 non-GAAP net income includes $4.3
million, or $(0.13) per diluted share, of BEAT tax which was not
previously expected or contemplated in the Company’s prior guidance.
Fiscal Year 2019 Consolidated Financial Results
For the fiscal year ended March 31, 2019, revenue was $1,247.9 million,
an increase of 22.3%, compared to $1,020.7 million for the fiscal year
ended March 31, 2018. On a constant currency basis,revenue
increased 22.7% year-over-year.
Virtusa reported GAAP income from operations of $70.3 million for fiscal
year 2019, an increase from $46.4 million for fiscal year 2018.
GAAP net income available to common shareholders was $11.8 million for
fiscal year 2019, or $0.38 per diluted share, compared to net loss of
($2.7) million, or ($0.09) per diluted share for fiscal year 2018.
Non-GAAP Results*:
Non-GAAP income from operations was $123.2 million for fiscal year 2019,
an increase from $87.1 million for fiscal year 2018.
Non-GAAP net income was $71.3 million for fiscal year 2019, or $2.12 per
diluted share, compared to $52.8 million, or $1.63 per diluted share,
for fiscal year 2018.
Balance Sheet and Cash Flow
The Company ended fiscal year 2019 with $223.1 million of cash, cash
equivalents, and short-term and long-term investments (2).Cash used for operations was $1.2 million for the fiscal fourth
quarter and cash flow from operations was $68.6 million for fiscal year
2019.
*Please refer to the Non-GAAP Financial Information section of |
Management Commentary
Kris Canekeratne, Virtusa’s Chairman and CEO, stated, “Deep digital is
becoming a significant part of our clients’ transformation agenda in all
industries, and Virtusa is incredibly well positioned to capitalize on
this multi-year wave. Our years of investment in deepening our industry
knowledge and expanding our digital engineering competency are elevating
our status as the digital partner of choice for our clients. Virtusa’s
differentiated skills and capabilities are the source of our competitive
advantage, and we are confident we will continue to play a leadership
role in digital and be a market share winner.”
Ranjan Kalia, Chief Financial Officer, said, “We are pleased with our
full fiscal year 2019 financial and operating results, including 22%
year-over-year revenue growth, 140 basis points of non-GAAP operating
margin improvement, and 30% year-over-year non-GAAP EPS growth. Looking
ahead, our FY 2020 guidance assumes a slower than previously expected
start to the fiscal year, but we are well-positioned to generate
double-digit revenue growth, non-GAAP margin accretion of 100 basis
points, and strong non-GAAP EPS growth of 27% at the midpoint of our
guidance.”
Financial Outlook
Virtusa management provided the following current financial guidance:
-
First quarter fiscal 2020 revenue is expected to be in the range of
$313.0 to $321.0 million. GAAP diluted EPS is expected to be in the
range of $0.11 to $0.16. Non-GAAP diluted EPS is expected to be in the
range of $0.37 to $0.43. -
Fiscal year 2020 revenue is expected to be in the range of $1,359 to
$1,399 million. GAAP diluted EPS is expected to be in the range of
$1.53 to $1.76. Non-GAAP diluted EPS is expected to be in the range of
$2.58 to $2.82.
In accordance with US GAAP, Virtusa applies the if-converted method to
its convertible preferred shares when reporting its fiscal year 2019 and
fiscal year 2020 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.
-
Fourth quarter GAAP EPS 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.
Fourth 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. -
First and Second quarter fiscal 2020 GAAP EPS guidance was
calculated under the assumption that these convertible preferred
shares will be anti-dilutive. Thus, in determining first and second
quarter fiscal 2020 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. -
Third and Fourth quarter fiscal 2020 GAAP EPS guidance was
calculated under the assumption that these convertible preferred
shares will be dilutive. Thus, in determining third and fourth quarter
fiscal 2020 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. -
Non-GAAP EPS guidance was calculated under the assumption that
these convertible preferred shares will be dilutive for the entire
fiscal year 2020, which is consistent with non-GAAP fiscal year 2019.
Thus, in determining full fiscal year 2020 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 first quarter and fiscal year 2020 diluted GAAP EPS
estimates are based on average share counts of approximately 31.0
million and 32.7 million, respectively. The Company’s first quarter and
fiscal year 2020 diluted Non-GAAP EPS estimates are based on average
share counts of approximately 34.0 million and 34.2 million,
respectively. GAAP and Non-GAAP average share counts assume a stock
price of $53.48, which was derived from the average closing price of the
Company’s stock over the five trading days ended on May 10, 2019.
Deviations from this stock price may cause actual diluted EPS to vary
based on share dilution from Virtusa’s stock options and stock
appreciation rights.
Conference Call and Webcast
Virtusa will host a conference call today, May 15, 2019 at 5:00 p.m.
Eastern Time to discuss the Company’s fourth quarter and fiscal year
2019 financial results, current financial guidance, and other corporate
developments. To access this call, please dial 877-317-6789 (domestic)
or 412-317-6789 (international). A replay of this conference call will
be available through May 29, 2019 at 877-344-7529 (domestic) or
412-317-0088 (international). The replay passcode is 10130442. 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.
© 2019 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, impairment of
investments, impairment of long-lived assets, 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, impairment of investments, impairment of long-lived
assets, 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, impairment of investments, impairment of long-lived
assets, 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.
-
Non-GAAP income from operations: income from operations, as
The following table presents a reconciliation of each non-GAAP financial
measure to the most comparable GAAP measure for the three and twelve
months ended March 31:
(in thousands, except per share amounts) | |||||||||||
Three Months Ended March 31, | Fiscal Year Ended March 31, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
GAAP income from operations | $ 23,040 | $ 16,375 | $ 70,268 | $ 46,387 | |||||||
Add: Stock-based compensation expense | 4,952 | 7,363 | 29,056 | 27,411 | |||||||
Add: Acquisition-related charges and restructuring charges(a) | 6,032 | 4,191 | 23,904 | 13,278 | |||||||
Non-GAAP income from operations | $ 34,024 | $ 27,929 | $ 123,228 | $ 87,076 | |||||||
GAAP operating margin | 7.0% | 5.8% | 5.6% | 4.5% | |||||||
Effect of above adjustments to income from operations | 3.4% | 4.1% | 4.3% | 4.0% | |||||||
Non-GAAP operating margin | 10.4% | 9.9% | 9.9% | 8.5% | |||||||
GAAP net income (loss) available to Virtusa common stockholders | $ 7,273 | $ 1,795 | $ 11,796 | $ (2,709) | |||||||
Add: Stock-based compensation expense | 4,952 | 7,363 | 29,056 | 27,411 | |||||||
Add: Acquisition-related charges and restructuring charges(a) | 6,431 | 4,259 | 25,710 | 13,346 | |||||||
Add: Non-recurring third party financing cost (i) | – | 701 | – | 701 | |||||||
Add: Impairment of investment (j) | 526 | – | 1,411 | – | |||||||
Add: Other impairment charges (k) | 3,955 | – | 3,955 | – | |||||||
Add: Foreign currency transaction losses, net(b) | 1,336 | 4,562 | 13,130 | 3,543 | |||||||
Add: Impact from Tax Act(h) | – | 2,909 | (1,628) | 22,724 | |||||||
Add: Tax adjustments (c) | (9,792) | (4,239) | (16,365) | (14,037) | |||||||
Noncontrolling interest, net of taxes (d) | (144) | (143) | (68) | (1,469) | |||||||
Non-GAAP net income available to Virtusa common stockholders | $ 14,537 | $ 17,207 | $ 66,997 | $ 49,510 | |||||||
GAAP diluted earnings (loss) per share (f) | $ 0.24 | $ 0.06 | $ 0.38 | $ (0.09) | |||||||
Effect of stock-based compensation expense (g) | 0.14 | 0.22 | 0.86 | 0.85 | |||||||
Effect of acquisition-related charges and restructuring charges(a) (g) |
0.19 | 0.13 | 0.77 | 0.41 | |||||||
Effect of non-recurring third party financing cost (i) (g) | – | 0.02 | – | 0.02 | |||||||
Effect of impairment of investment (j) (g) | 0.01 | – | 0.04 | – | |||||||
Effect of other impairment charges (k) (g) | 0.12 | – | 0.12 | – | |||||||
Effect of foreign currency transaction (gains) losses(b) (g) | 0.04 | 0.14 | 0.39 | 0.11 | |||||||
Effect of tax impact from Tax Act (g) (h) | – | 0.09 | (0.05) | 0.70 | |||||||
Effect of tax adjustments (c) (g) | (0.29) | (0.13) | (0.49) | (0.43) | |||||||
Effect of noncontrolling interest (d) (g) | – | – | – | (0.05) | |||||||
Effect on dividend on Series A Convertible Preferred Stock (f) (g) |
0.03 | 0.03 | 0.13 | 0.10 | |||||||
Effect of change in dilutive shares for non-GAAP (f) | (0.02) | (0.01) | (0.03) | 0.01 | |||||||
Non-GAAP diluted earnings per share (e) (g) | $ 0.46 | $ 0.55 | $ 2.12 | $ 1.63 | |||||||
(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, facility exit costs as well as certain professional fees related to restructuring. The following table provides the details of the acquisition-related charges and restructuring charges: |
Three Months Ended March 31, | Fiscal Year Ended March 31, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||
Amortization of intangible assets | $ | 2,765 | $ | 2,418 | $ | 11,394 | $ | 10,089 | ||||||
Acquisition & integration costs | $ | 2,858 | $ | 1,390 | $ | 12,101 | $ | 1,821 | ||||||
Restructuring charges | $ | 409 | $ | 383 | $ | 409 | $ | 1,368 | ||||||
Acquisition-related charges included in costs of revenue and operating expense |
$ | 6,032 | $ | 4,191 | $ | 23,904 | $ | 13,278 | ||||||
Accreted interest related to deferred acquisition payments | $ | 399 | $ | 68 | $ | 1,806 | $ | 68 | ||||||
Total acquisition-related charges and restructuring charges | $ | 6,431 | $ | 4,259 | $ | 25,710 | $ | 13,346 | ||||||
(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 twelve months ended March 31, 2019, the weighted average shares outstanding of Series A Convertible Preferred Stock of 3,000,000 and 1,500,000 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.
During the three and twelve months ended March 31, 2018, the
The following table provides the non-GAAP net income available to |
Three Months Ended March 31, | Fiscal Year Ended March 31, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Non-GAAP net income available to Virtusa common stockholders | $ | 14,537 | $ | 17,207 | $ | 66,997 | $ | 49,510 | |||||||
Add: | Dividends and accretion on Series A Convertible Preferred Stock | $ | 1,088 | $ | 1,088 | $ | 4,350 | $ | 3,262 | ||||||
Non-GAAP net income available to Virtusa common stockholders and assumed conversion |
$ | 15,625 | $ | 18,295 | $ | 71,347 | $ | 52,772 | |||||||
GAAP dilutive weighted average shares outstanding | 30,844,275 | 30,427,258 | 30,659,654 | 29,397,350 | |||||||||||
Add: |
Incremental dilutive effect of employee stock options and unvested restricted stock awards and restricted stock units |
– | – | – | 728,820 | ||||||||||
Add: |
Incremental effect of Series A Convertible Preferred Stock as converted |
3,000,000 | 3,000,000 | 3,000,000 | 2,250,000 | ||||||||||
Non-GAAP dilutive weighted average shares outstanding | 33,844,275 | 33,427,258 | 33,659,654 | 32,376,170 | |||||||||||
(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. |
(h) Impact from the U.S. government enacted comprehensive tax legislation (“Tax Act”) |
(i) Non-recurring third party financing costs related to the new credit facility. |
(j) Other-than-temporary impairment of a available-for-sale securities recognized in earnings. |
(k) Impairment related to a long-lived asset. |
Footnotes
(1) To determine sequential revenue change in constant currency for the
Company’s fourth 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 December 31, 2018, rather than the actual exchange rate in
effect for the three months ended March 31, 2019. To determine
year-over-year revenue change in constant currency for the Company’s
fourth 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 March 31, 2018, rather than the actual exchange rate in effect for
the three months ended March 31, 2019. To determine year-over-year
revenue change in constant currency for the Company’s full fiscal year
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 twelve months ended March 31, 2018,
rather than the actual exchange rate in effect for the twelve months
ended March 31, 2019. The average exchange rates for the three months
ended March 31, 2018, December 31, 2018, and March 31, 2019, and for the
twelve months ended March 31, 2018 and March 31, 2019 are included in
the table below:
Average U.S. Dollar Exchange Rate | ||||||||||||
For the Three Months Ended | For the Twelve Months Ended | |||||||||||
March 31, 2018 | December 31, 2018 | March 31, 2019 | March 31, 2018 | March 31, 2019 | ||||||||
GBP | 1.40 | 1.28 | 1.31 | 1.33 | 1.31 | |||||||
Euro | 1.23 | 1.14 | 1.13 | 1.18 | 1.16 | |||||||
SEK | 0.12 | 0.11 | 0.11 | 0.12 | 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 available-for-sale securities and equity 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 March 31, 2019 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 $23.6
million at March 31, 2019. Profit attributable to minority shareholders
(Non-controlling Interest) in the Consolidated Statements of Income was
$1.5 million on a GAAP basis and $1.6 million on a non-GAAP basis for
the quarter ending March 31, 2019.
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; 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) | ||||||||
March 31, 2019 | March 31, 2018 | |||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 189,676 | $ | 194,897 | ||||
Short-term investments | 33,138 | 45,900 | ||||||
Accounts receivable, net | 162,396 | 151,455 | ||||||
Unbilled accounts receivable | 113,431 | 103,829 | ||||||
Prepaid expenses | 42,314 | 31,724 | ||||||
Restricted cash | 351 | 301 | ||||||
Asset held for sale | 8,978 | – | ||||||
Other current assets | 29,967 | 21,229 | ||||||
Total current assets | 580,251 | 549,335 | ||||||
Property and equipment, net | 119,865 | 121,565 | ||||||
Investments accounted for using equity method | 1,446 | 1,588 | ||||||
Long-term investments | 322 | 4,140 | ||||||
Deferred income taxes | 28,770 | 31,528 | ||||||
Goodwill | 279,543 | 297,251 | ||||||
Intangible assets, net | 92,440 | 96,001 | ||||||
Other long-term assets | 29,836 | 11,772 | ||||||
Total assets | $ | 1,132,473 | $ | 1,113,180 | ||||
Liabilities, Series A Convertible Preferred Stock, Redeemable noncontrolling interest and Stockholders’ equity: |
||||||||
Accounts payable | $ | 46,471 | $ | 29,541 | ||||
Accrued employee compensation and benefits | 73,764 | 71,500 | ||||||
Deferred revenue | 6,421 | 7,908 | ||||||
Accrued expenses and other | 70,050 | 91,306 | ||||||
Current portion of long-term debt | 11,407 | 11,407 | ||||||
Income taxes payable | 4,844 | 5,038 | ||||||
Total current liabilities | 212,957 | 216,700 | ||||||
Deferred income taxes | 15,824 | 21,341 | ||||||
Long-term debt, less current portion | 351,320 | 288,227 | ||||||
Long-term liabilities | 30,861 | 43,833 | ||||||
Total liabilities | 610,962 | 570,101 | ||||||
Series A Convertible Preferred Stock | 107,161 | 106,996 | ||||||
Redeemable noncontrolling interest | 23,576 | – | ||||||
Stockholders’ equity | 390,774 | 418,623 | ||||||
Noncontrolling interest | – | 17,460 | ||||||
Stockholders’ equity | 390,774 | 436,083 | ||||||
Total liabilities, Series A convertible preferred stock, redeemable noncontrolling interest and stockholders’ equity |
$ | 1,132,473 | $ | 1,113,180 | ||||
Virtusa Corporation and Subsidiaries | ||||||||||||||||||
Consolidated Statements of Income (Loss) | ||||||||||||||||||
(In thousands except share and per share amounts, unaudited) | ||||||||||||||||||
Three Months Ended | Fiscal Year Ended | |||||||||||||||||
March 31, | March 31, | |||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||
Revenue | $ | 327,631 | $ | 281,341 | $ | 1,247,863 | $ | 1,020,669 | ||||||||||
Costs of revenue | 230,364 | 197,342 | 884,652 | 725,445 | ||||||||||||||
Gross profit | 97,267 | 83,999 | 363,211 | 295,224 | ||||||||||||||
Total operating expenses | 74,227 | 67,624 | 292,943 | 248,837 | ||||||||||||||
Income from operations | 23,040 | 16,375 | 70,268 | 46,387 | ||||||||||||||
Other income (expense): | ||||||||||||||||||
Interest income | 684 | 1,252 | 2,672 | 4,264 | ||||||||||||||
Interest expense | (4,799 | ) | (3,258 | ) | (18,164 | ) | (7,634 | ) | ||||||||||
Foreign currency transaction losses, net | (1,336 | ) | (4,562 | ) | (13,130 | ) | (3,543 | ) | ||||||||||
Other, net | (4,479 | ) | 986 | (3,482 | ) | 2,362 | ||||||||||||
Total other expense | (9,930 | ) | (5,582 | ) | (32,104 | ) | (4,551 | ) | ||||||||||
Income before income tax expense | 13,110 | 10,793 | 38,164 | 41,836 | ||||||||||||||
Income tax expense | 4,611 | 6,163 | 20,473 | 32,888 | ||||||||||||||
Net income | 8,499 | 4,630 | 17,691 | 8,948 | ||||||||||||||
Less: net income attributable to noncontrolling interests, net of tax | 138 | 1,747 | 1,545 | 7,694 | ||||||||||||||
Net income available to Virtusa stockholders | 8,361 | $ | 2,883 | $ | 16,146 | $ | 1,254 | |||||||||||
Less: Series A Convertible Preferred Stock dividends and accretion | 1,088 | 1,088 | 4,350 | 3,963 | ||||||||||||||
Net income (loss) available to Virtusa common stockholders | 7,273 | $ | 1,795 | 11,796 | ($2,709 | ) | ||||||||||||
Basic earnings (loss) per share available to Virtusa common stockholders |
$ | 0.24 | $ | 0.06 | $ | 0.40 | ($0.09 | ) | ||||||||||
Diluted earnings (loss) per share available to Virtusa common stockholders |
$ | 0.24 | $ | 0.06 | $ | 0.38 | ($0.09 | ) | ||||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||||
Basic | 29,976,583 | 29,425,468 | 29,817,526 | 29,397,350 | ||||||||||||||
Diluted | 30,844,275 | 30,427,258 | 30,659,654 | 29,397,350 | ||||||||||||||
Virtusa Corporation and Subsidiaries | |||||||||||
Consolidated Statements of Cash Flows | |||||||||||
(In thousands, unaudited) | |||||||||||
Fiscal Year Ended | |||||||||||
March 31, | |||||||||||
2019 | 2018 | ||||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | 17,691 | $ | 8,948 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||||||
Depreciation and amortization | 29,001 | 27,537 | |||||||||
Share-based compensation expense | 29,056 | 27,411 | |||||||||
Provision (recovery) for doubtful accounts | (864 | ) | 1,248 | ||||||||
Gain on disposal of property and equipment | (71 | ) | (10 | ) | |||||||
Impairment of long-lived asset classified as held for sale | 3,955 | – | |||||||||
Impairment of investment | 1,411 | – | |||||||||
Deferred income taxes, net | (1,770 | ) | (9,946 | ) | |||||||
Foreign currency transaction losses, net | 13,130 | 3,543 | |||||||||
Amortization of discounts and premiums on investments | 83 | 313 | |||||||||
Amortization of debt issuance cost | 1,092 | 1,057 | |||||||||
Net changes in operating assets and liabilities: | |||||||||||
Accounts receivable and unbilled receivable | (22,741 | ) | (36,542 | ) | |||||||
Prepaid expenses and other current assets | (21,498 | ) | (9,260 | ) | |||||||
Other long-term assets | (21,812 | ) | (1,377 | ) | |||||||
Accounts payable | 16,452 | 4,413 | |||||||||
Accrued employee compensation and benefits | 3,663 | 13,772 | |||||||||
Accrued expenses and other current liabilities | 13,059 | 3,931 | |||||||||
Income taxes payable | 4,120 | 12,683 | |||||||||
Other long-term liabilities | 4,662 | 14,978 | |||||||||
Net cash provided by operating activities | 68,619 | 62,699 | |||||||||
Cash flows from investing activities: | |||||||||||
Proceeds from sale of property and equipment | 1,033 | 261 | |||||||||
Purchase of short-term investments | (96,557 | ) | (100,486 | ) | |||||||
Proceeds from sale or maturity of short-term investments | 109,512 | 157,194 | |||||||||
Purchase of long-term investments | – | (16,772 | ) | ||||||||
Proceeds from sale or maturity of long-term investments | – | 1,606 | |||||||||
Business acquisition, net of cash acquired | – | (78,376 | ) | ||||||||
Payment of deferred consideration related to business acquisition | (52,784 | ) | – | ||||||||
Purchase of property and equipment | (35,912 | ) | (16,096 | ) | |||||||
Net cash used in investing activities | (74,708 | ) | (52,669 | ) | |||||||
Cash flows from financing activities: | |||||||||||
Proceeds from exercise of common stock options | 1,019 | 4,063 | |||||||||
Proceeds from exercise of subsidiary stock options | 549 | 1,837 | |||||||||
Proceeds from debt | – | 141,000 | |||||||||
Payment of debt | (12,500 | ) | (81,000 | ) | |||||||
Payment of debt issuance cost | – | (2,716 | ) | ||||||||
Proceeds from revolving credit facility | 74,500 | 75,000 | |||||||||
Repayment of revolving credit facility | – | (20,000 | ) | ||||||||
Payment of contingent consideration related to acquisition | (100 | ) | – | ||||||||
Acquisition of noncontrolling interest | – | (147,026 | ) | ||||||||
Purchase of redeemable noncontrolling interest related to Polaris | (31,979 | ) | – | ||||||||
Acquisition of other noncontrolling interest | (373 | ) | (42 | ) | |||||||
Principal payments on capital lease obligation | (89 | ) | (220 | ) | |||||||
Payments of withholding taxes related to net share settlements of restricted stock |
(12,094 | ) | (7,173 | ) | |||||||
Series A Convertible Preferred Stock proceeds, net of issuance costs of $1,154 |
– | 106,846 | |||||||||
Repurchase of common stock | – | (30,000 | ) | ||||||||
Payment of dividend on Series A Convertible Preferred Stock | (4,184 | ) | (3,127 | ) | |||||||
Net cash provided by financing activities | 14,749 | 37,442 | |||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
(13,783 | ) | 2,677 | ||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | (5,123 | ) | 50,149 | ||||||||
Cash, cash equivalents and restricted cash, beginning of year | 195,236 | 145,086 | |||||||||
Cash, cash equivalents and restricted cash, end of year | $ | 190,113 | $ | 195,235 | |||||||
Supplemental Non-GAAP Financial Information as of March 31, 2019 and 2018: |
|||||||||||
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 year | $ | 190,113 | $ | 195,235 | |||||||
Less : Restricted cash | (437 | ) | (338 | ) | |||||||
Total Cash and cash equivalents end of year | 189,676 | 194,897 | |||||||||
Short-term investments | 33,138 | 45,900 | |||||||||
Long-term investments | 322 | 4,140 | |||||||||
Total short-term and long-term investments, end of year | 33,460 | 50,040 | |||||||||
Total cash and cash equivalents, short-term and long-term investments | $ | 223,136 | 244,937 | ||||||||
Reconciliation of Non-GAAP Guidance** | |||||||||||||||||||
Three months ending | Fiscal Year ending | ||||||||||||||||||
June 30, 2019 | March 31, 2020 | ||||||||||||||||||
Low | High | Low | High | ||||||||||||||||
GAAP diluted earnings per share | $ | 0.11 | $ | 0.16 | $ | 1.53 | $ | 1.76 | |||||||||||
Effect of stock-based compensation expense | 0.21 | 0.21 | 0.87 | 0.87 | |||||||||||||||
Effect of acquisition-related charges and restructuring charges | 0.11 | 0.11 | 0.44 | 0.44 | |||||||||||||||
Effect of foreign currency transaction (gains) losses | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||
Effect of change in dilutive shares for non-GAAP | (0.01 | ) | (0.01 | ) | (0.07 | ) | (0.08 | ) | |||||||||||
Effect of tax impact from Tax Act | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||
Effect of tax adjustments | (0.09 | ) | (0.08 | ) | (0.25 | ) | (0.23 | ) | |||||||||||
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 | 0.06 | 0.06 | |||||||||||||||
Non-GAAP diluted earnings per share# | $ | 0.37 | $ | 0.43 | $ | 2.58 | $ | 2.82 | |||||||||||
Weighted average diluted shares outstanding | |||||||||||||||||||
– GAAP | 31.0 | 31.0 | 32.7 | 32.7 | |||||||||||||||
– Non-GAAP | 34.0 | 34.0 | 34.2 | 34.2 | |||||||||||||||
** 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/20190515005899/en/