Westborough, MA – (November 4, 2015) Virtusa Corporation (NASDAQ GS: VRTU), a global business consulting and IT outsourcing company that combines innovation, technology leadership and industry solutions to transform the customer experience, today reported consolidated financial results for the second quarter fiscal year 2016, ended September 30, 2015.
Second Quarter Fiscal 2016 Consolidated Financial Results
Revenue for the second quarter of fiscal 2016 was $143 million, an increase of 6% sequentially and 21% year-over-year. On a constant currency basis,(1) second quarter revenue increased 6% sequentially and 23% year-over-year.
Virtusa reported GAAP income from operations of $13.3 million for the second quarter of fiscal 2016, compared to $12.4 million for the first quarter of fiscal 2016, and an increase compared to $12.2 million for the second quarter of fiscal 2015.
GAAP net income for the second quarter of fiscal 2016 was $11.1 million, or $0.37 per diluted share, compared to $10.1 million, or $0.34 per diluted share, for the first quarter of fiscal 2016, and an increase from $10.1 million, or $0.34 per diluted share, for the second quarter of fiscal 2015.
Non GAAP Results
Non-GAAP income from operations, which excludes stock-based compensation expense and acquisition related expenses, was $18.7 million for the second quarter of fiscal 2016, compared to $18.2 million for the first quarter of fiscal 2016, and an increase compared to $16.1 million for the second quarter of fiscal 2015.
Non-GAAP net income, which excludes stock-based compensation expense, acquisition related expenses, and foreign currency transaction gains and losses, each net of tax, for the second quarter of fiscal 2016, was $15.0 million, or $0.50 per diluted share, compared to $14.4 million, or $0.48 per diluted share, for the first quarter of fiscal 2016, and compared to $13.0 million, or $0.44 per diluted share, for the second quarter of fiscal 2015.
Balance Sheet and Cash Flow
The Company ended the second quarter of fiscal 2016 with $203.4 million of cash, cash equivalents, and short-term and long-term investments.(2) Cash flow from operations for the second quarter of fiscal 2016 was $17.0 million.
Commenting on the second quarter, Kris Canekeratne, Virtusa’s Chairman and CEO, stated, “We are pleased to report another strong quarter. Our fiscal second quarter performance is evidence that our clients are investing in expanding their addressable market and looking for ways to accelerate cost reduction programs. Our digital and millennial offerings and our transformational solutions are targeted towards helping our clients grow their revenue and accelerate cost reduction initiatives.”
Ranjan Kalia, Chief Financial Officer, said, “We delivered revenue at the high end of our fiscal second quarter guidance range and EPS that exceeded our outlook. Our revenue growth was strong across our industry groups, geographies and client portfolio. We continue to position Virtusa for ongoing growth by making investments in revenue-generating activities and in strategic initiatives aimed at expanding our addressable market.”
Virtusa management provided the following current financial guidance:
Third quarter fiscal 2016 revenue is expected to be in the range of $150 to $153 million. GAAP diluted EPS is expected to be in the range of $0.39 to $0.41 and non-GAAP diluted EPS is expected to be in the range of $0.54 to $0.56.
Fiscal year 2016 revenue is expected to be in the range of $584.6 to $591.6 million. GAAP diluted EPS is expected to be in the range of $1.57 to $1.63 and non-GAAP diluted EPS is expected to be in the range of $2.15 to $2.21.
The Company’s third quarter and fiscal year 2016 diluted EPS both estimate an average share count of approximately 30.1 million, (assuming no further exercises of stock-based awards) and assume a stock price of $56.99, which was derived from the average closing price of the Company’s stock over the five trading days ended on October 30, 2015. 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, November 4, 2015 at 8:00 am Eastern time to discuss the Company’s second quarter fiscal 2016 financial results, current financial guidance, and other corporate developments. To access this call, please dial 877-879-6203 (domestic) or 719-325-4790 (international). The passcode is 874923. A replay of this conference call will be available through November 11, 2015 at 877-870-5176 (domestic) or 858-384-5517 (international). The replay passcode is 874923. 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.
Non-GAAP Financial Information
This press release includes certain non-GAAP financial metrics as defined by Regulation G by the Securities and Exchange Commission. These non-GAAP financial metrics are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial metrics calculated in accordance with GAAP, and may be different from non-GAAP metrics used by other companies. In addition, these non-GAAP metrics should be read in conjunction with Virtusa’s financial statements prepared in accordance with GAAP.
Virtusa believes the following financial metrics 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, 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 statement of income metrics that exclude acquisition-related charges, stock-based compensation expense and foreign currency transaction gains and losses to provide further insights into the comparison of Virtusa’s operating results among the periods, as well as enhancing comparability with operating results of peer companies:
Non-GAAP income from operations: income from operations, as reported on Virtusa’s consolidated statements of income, excluding stock-based compensation expense and acquisition-related charges.
Non-GAAP operating margin: non-GAAP income from operations as a percentage of reported revenues.
Non-GAAP net income: net income, as reported on Virtusa’s consolidated statements of income, excluding the tax adjusted impact of the following, stock-based compensation, acquisition-related charges and foreign currency transaction gains and losses.
Non-GAAP diluted earnings per share: diluted earnings per share, as reported on Virtusa’s consolidated statements of income, excluding tax adjusted per share impact of the following, stock-based compensation, acquisition-related charges and foreign currency transaction gains and losses.
The following table presents a reconciliation of each non-GAAP financial metric to the most comparable GAAP metric:
To determine year-over-year constant currency revenue for the Company's second quarter of fiscal 2016, 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 September 30, 2014 of 1.66 U.S. dollars to U.K. pounds sterling, rather than the actual exchange rate in effect for the three months ended September 30, 2015 of 1.55 U.S. dollars to U.K. pounds sterling. To determine sequential revenue change in constant currency for the Company's second quarter of fiscal 2016, 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 June 30, 2015 of 1.54 U.S. dollars to U.K. pounds sterling, rather than the actual exchange rate in effect for the three months ended September 30, 2015 of 1.55 U.S. dollars to U.K. pounds sterling.
The Company considers the measure of cash, cash equivalents, short-term and long-term investments to be a more meaningful indicator of the Company's overall liquidity. All of the Company's investments 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.
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, Virtusa's expectations concerning 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, 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: Virtusa’s ability to integrate the operations of, and achieve expected synergies and operating efficiencies in connection with, acquired businesses, including Virtusa’s most recent acquisitions of Apparatus, Inc. and Agora Group, Inc.; unanticipated acquisition related costs and negative effects on Virtusa’s reported results of operations from acquisition-related charges; 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; 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; 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, 2015 and subsequent Quarterly Reports on Form 10-Q, as filed with the Securities and Exchange Commission