Westborough, MA – (February 1, 2010) – Virtusa Corporation (NASDAQ: VRTU), a global information technology (IT) services company that provides IT consulting, technology implementation and application outsourcing services through an enhanced global delivery model, today reported consolidated financial results for the third quarter of fiscal year 2010, ended December 31, 2009, inclusive of the acquisition of InSource, LLC completed on November 4, 2009.
Third Quarter Fiscal 2010 Consolidated Financial Results
Revenue for the third quarter of fiscal 2010 was $41.7 million, an increase of 11% sequentially and a decrease of 7% year-over-year. On a constant currency basis (1), third quarter revenue increased 11% sequentially and decreased 8% year-over-year.
Virtusa reported income from operations of $3.4 million for the third quarter of fiscal 2010, an increase compared to $3.2 million for the second quarter of fiscal 2010, and a decrease compared to $5.4 million for the third quarter of fiscal 2009.
Net income for the third quarter of fiscal 2010 was $2.9 million, or $0.12 per diluted share, compared to $3.0 million, or $0.12 per diluted share, for the second quarter of fiscal 2010 and a decrease, compared to $6.3 million, or $0.27 per diluted share, for the third quarter of fiscal 2009. Net income for the third quarter of fiscal 2010 included $0.4 million of foreign exchange losses compared to $0.3 million of foreign exchange losses for the second quarter of fiscal 2010 and a $1.3 million foreign exchange gain in the third quarter of fiscal 2009.
The Company ended the third quarter of fiscal 2010 with $122.7 million of cash, cash equivalents, short-term investments and long-term investments (2) net of $7.3 million in cash consideration paid in connection with the acquisition of InSource. The Company generated cash from operations of $6.0 million during the third quarter of fiscal 2010.
Kris Canekeratne, Virtusa’s Chairman and CEO, stated, “We are pleased with the results of our third quarter which, as expected, saw a return to sequential growth across all industry groups and geographies. Our sequential growth was driven by our underlying business momentum, the investments we have been making in business development, our expanded portfolio of services and consistent execution.”
Ranjan Kalia, Chief Financial Officer, said, “Our revenue growth this quarter was broad based including more meaningful contribution from the clients added over the last 18 months.” Mr. Kalia added, “In the fourth fiscal quarter, we continue to expect sequential and year-over-year revenue growth both organically and inclusive of recent acquisitions. In addition, we continue to expect to realize full fiscal year operating margin expansion over fiscal year 2009.”
Acquisition of ConVista Consulting, LLC
Virtusa extends its enterprise application rationalization and modernization capabilities with the closing of the acquisition of ConVista Consulting, LLC, (http://us.convista.com), on February 1, 2010. ConVista Consulting is a U.S.-based, privately-held, market leader in finance transformation, specifically focusing on high volume collection, disbursement, claims and billing systems in BFSI. ConVista Consulting employs approximately 50 experienced practitioners with knowledge in SAP related-solutions and forms the foundation of Virtusa’s finance transformation business unit. This strategic business unit will be led by Stefan Fraas, the co-founder of ConVista Consulting, LLC. Virtusa will add program management, enterprise integration, business intelligence and global delivery execution to complement ConVista Consulting’s focused expertise, expanding Virtusa’s overall market opportunity.
Under the terms of the asset purchase agreement, Virtusa acquired ConVista Consulting’s business for $24.8 million in cash, including up to an additional $2.0 million in earn-out consideration upon ConVista Consulting’s achievement of certain revenue and profit milestones for fiscal 2011.
Kris Canekeratne, Virtusa’s Chairman and CEO, stated, “ConVista Consulting is at the nucleus of key transaction processing systems of record for large enterprises where packaged implementation, systems integration and custom development converge. Through this acquisition, our combined capabilities will enable Virtusa to provide a broader range of services to accelerate our clients’ business outcomes. We welcome ConVista’s team members to Virtusa.”
Virtusa’s current guidance for the fourth fiscal quarter and the full fiscal year ending March 31, 2010 reflects the inclusion of ConVista Consulting. Virtusa expects ConVista Consulting to contribute revenue of $3.0 million for the fourth quarter of fiscal 2010. In addition, Virtusa expects ConVista Consulting to be dilutive by $0.02 to $0.03 per share on a GAAP basis in the fourth quarter of fiscal 2010, inclusive of expected transaction and integration costs. Additionally, ConVista Consulting is expected to be slightly accretive for fiscal year 2011.
The Company’s fourth quarter and fiscal year 2010 diluted EPS estimates assume an average share count of approximately 24.2 million and 24.1 million respectively (assuming no further exercises of stock-based awards) and assume a stock price of $8.85, which was derived from the average closing price of the Company’s stock over the five trading days ended on January 29, 2010. Deviations from this stock price may cause actual 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, February 1, 2010 at 5:00 pm Eastern time to discuss the Company’s third quarter 2010 financial results, current financial guidance, the ConVista Consulting, LLC acquisition and other corporate developments. To access this call, dial 888-298-3511 (domestic) or 719-457-2731 (international). A replay of this conference call will be available through February 8, 2010 at 888-203-1112 (domestic) or 719-457-0820 (international). The replay passcode is 5483441. 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.
"Virtusa" is a registered trademark of Virtusa Corporation.
(1) To determine year-over-year constant currency revenue for the Company’s third quarter of fiscal 2010, revenue from entities reporting in U.K. pound sterling was converted into U.S. dollars at the average exchange rate in effect for the three months ended December 31, 2008 of 1.57 U.S. dollars to U.K. pounds sterling, rather than the actual average exchange rate in effect for the three months ended December 31, 2009 of 1.63 U.S. dollars to U.K. pounds sterling. To determine sequential revenue change in constant currency for the Company’s third quarter of fiscal 2010, revenue from entities reporting in U.K. pounds sterling was converted into U.S. dollars at the average exchange rate in effect for the three months ended September 30, 2009 of 1.64 U.S. dollars to U.K. pounds sterling, rather than the actual average exchange rate in effect for the three months ended December 31, 2009 of 1.63 U.S. dollars to U.K. pounds sterling.
(2) The Company considers the measure of cash, cash equivalents, short-term and long-term investments to be the most meaningful indicator of the Company’s liquidity. All of the Company’s investments, other than certain auction-rate securities, are classified as available-for-sale, 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.
Non-GAAP Financial Information
This press release includes certain non-GAAP financial information as defined by Regulation G by the Securities and Exchange Commission. Virtusa presents constant currency revenue 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) above for further detail). Virtusa also presents a reconciliation of its cash, cash equivalents, short term and long term investments which it believes provides insight into its cash position and overall liquidity (see footnote (2) above for further detail). While Virtusa’s management believes that these non-GAAP revenue measures and cash reconciliation presentations are useful in evaluating Virtusa’s revenue and cash position and overall liquidity, this information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP.
Certain statements made in this press release that are not based on historical information are forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This press release contains express or implied forward-looking statements relating to, among other things, Virtusa's expectations concerning management's forecast of financial performance, expected benefits of the InSource and ConVista Consulting acquisitions, the forecast of financial performance for ConVista Consulting, the acquisition of new clients and growth of business, and management's plans, objectives, and strategies. These statements are neither promises nor guarantees, but are subject to a variety of risks and uncertainties, many of which are beyond Virtusa’s control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. In particular, the risks and uncertainties include, among other things: Virtusa’s ability to assimilate and integrate the operations of InSource and ConVista Consulting; unanticipated acquisition related costs and negative effects on Virtusa’s reported results of operations from acquisition-related charges; Virtusa’s ability to achieve expected synergies and operating efficiencies in the acquisitions within expected time-frames or at all; 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 expand its business or effectively manage growth; restrictions on immigration or changes in immigration laws; the loss of any key member of Virtusa’s senior management team, increasing competition in the IT services outsourcing industry; Virtusa’s ability to hire and retain enough sufficiently trained IT professionals to support its operations; quarterly fluctuations in Virtusa’s earnings; client terminations or contracting delays, or delays in revenue recognition in any reporting period; Virtusa’s ability to attract and retain clients and meet their expectations; Virtusa’s ability to sustain profitability or maintain profitable engagements; 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; 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; currency exchange rate fluctuations of the Indian and Sri Lankan rupee, the U.S. dollar and the U.K. pound sterling; and the volatility of the market price of Virtusa’s common stock. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Virtusa undertakes no obligation to update or revise the information contained in this press release, whether as a result of new information, future events or circumstances or otherwise. 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, 2009, and subsequent Quarterly Reports on Form 10-Q, as filed with the Securities and Exchange Commission.
Virtusa Corporation is a global provider of digital business strategy, digital engineering, and information technology (IT) services and solutions that help clients change, disrupt, and unlock new value through innovative engineering. Virtusa serves Global 2000 companies in Banking, Financial Services, Insurance, Healthcare, Communications, Media, Entertainment, Travel, Manufacturing, and Technology industries.
Virtusa helps clients grow their business with innovative products and services that create operational efficiency using digital labor, future-proof operational and IT platforms, and rationalization and modernization of IT applications infrastructure. This is achieved through a unique approach blending deep contextual expertise, empowered agile teams, and measurably better engineering to create holistic solutions that drive the business forward at unparalleled velocity enabled by a culture of cooperative disruption.
Virtusa is a registered trademark of Virtusa Corporation. All other company and brand names may be trademarks or service marks of their respective holders.