Second quarter fiscal 2017 revenue of $210.1 million increased 2.2% sequentially and 46.9% year-over-year.
Second quarter fiscal 2017 diluted EPS on a GAAP basis was $0.11, and $0.27 on a Non-GAAP basis.
Commenced work with 12 new clients in the fiscal second quarter.
Promotes Samir Dhir to President, Banking and Financial Services.
Reconfirms midpoint of prior revenue guidance and updates non-GAAP EPS range to $1.26 to $1.34 for fiscal 2017.

Westborough, MA – (November 9, 2016) 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 2017, ended September 30, 2016.

Second Quarter Fiscal 2017 Consolidated Financial Results

Revenue for the second quarter of fiscal 2017 was $210.1 million, an increase of 2.2% sequentially and 46.9% year-over-year. On a constant currency basis,(1) second quarter revenue increased 3.2% sequentially and 49.4% year-over-year.

Virtusa reported GAAP income from operations of $3.5 million for the second quarter of fiscal 2017, compared to loss from operations of $1.8 million for the first quarter of fiscal 2017 and income from operations of $13.3 million for the second quarter of fiscal 2016.

On a GAAP basis, net income for the second quarter of fiscal 2017 was $3.2 million, or $0.11 per diluted share, compared to net loss of $6.3 million, or $(0.21) per diluted share, for the first quarter of fiscal 2017, and net income of $11.1 million, or $0.37 per diluted share, for the second quarter of fiscal 2016.

Non GAAP Results:

Non-GAAP income from operations, which excludes stock-based compensation expense and acquisition related charges, was $12.9 million for the second quarter of fiscal 2017, compared to $7.7 million for the first quarter of fiscal 2017, and compared to $18.7 million for the second quarter of fiscal 2016.

Non-GAAP net income, which excludes stock-based compensation expense, acquisition related charges, and foreign currency transaction gains and losses, each net of tax, for the second quarter of fiscal 2017 was $8.4 million, or $0.27 per diluted share, compared to $5.3 million, or $0.18 per diluted share, for the first quarter of fiscal 2017, and compared to $15.0 million, or $0.50 per diluted share, for the second quarter of fiscal 2016.

Balance Sheet and Cash Flow

The Company ended the second quarter of fiscal 2017 with $227.3 million of cash, cash equivalents, and short-term and long-term investments (2). Cash flow from operations was $25.2 million for the second quarter of fiscal 2017.

Management Commentary

Kris Canekeratne, Virtusa’s Chairman and CEO, stated, “We are pleased with our second quarter results, which include strong growth in our BFSI and M&I industry groups. While market conditions remain challenging, we continue to see healthy demand for our solutions. This is reflected in our pipeline, which is expanding across all verticals and solution areas.”

Ranjan Kalia, Chief Financial Officer, said, “During the second quarter, we delivered revenue above the mid-point of our guidance range and reported solid sequential improvement in our DSO which helped drive strong cash flow in the quarter. The midpoint of our fiscal year 2017 revenue guidance remains unchanged despite higher than expected foreign currency headwinds and third quarter furloughs. Our revised EPS guidance reflects the impact of higher onsite effort and contractor resourcing related to digital transformation programs, as well as currency headwinds.”

Organizational Changes

Virtusa announced today that Samir Dhir, Chief Delivery Officer and Head of India Operations, has been appointed President of Banking and Financial Services (BFS), effective immediately. Mr. Dhir replaces Jitin Goyal who resigned to pursue other interests.

Commenting on the appointment, Kris Canekeratne, Virtusa’s Chairman and CEO, stated, “I would like to congratulate Samir on his appointment to President of Banking and Financial Services. Since the announcement of our acquisition, Samir has played a key role in the successful integration of Polaris and took overall responsibility for our largest banking client. I am confident that Samir and the BFS leadership team will continue to build on our strong platform and enable us to further capitalize on the significant digital transformation opportunity. I would also like to thank Jitin for his many contributions including the successful integration of Polaris into Virtusa. We wish Jitin the very best.”

Mr. Dhir is a 23 year veteran of the IT Services industry. Since joining Virtusa in 2010 he has served as Chief Delivery Officer and Head of India Operations, responsible for global delivery across all operating geographies. During his tenure, Dhir has built strong executive relationships with the firm’s largest clients, including Citigroup and British Telecommunications plc. He is also a key member of NASSCOM's IT Services Council which has been initiated to sustain and grow global leadership in IT. Prior to Virtusa, Dhir worked for Wipro Technologies where he managed a large delivery organization for technology, media, transportation and services business, handled the company’s SAP Practice and ran the managed services business. Prior to Wipro he held leadership positions with Avaya and Lucent Technologies in the UK.

Financial Outlook

Virtusa management provided the following current financial guidance:

Third quarter fiscal 2017 revenue is expected to be in the range of $214.5 to $219.5 million. Non-GAAP diluted EPS is expected to be in the range of $0.34 to $0.38. GAAP diluted EPS is expected to be in the range of $0.17 to $0.21.

Fiscal year 2017 revenue is expected to be in the range of $854 to $866 million. Non-GAAP diluted EPS is expected to be in the range of $1.26 to $1.34. GAAP diluted EPS is expected to be in the range of $0.40 to $0.48.

Virtusa anticipates a restructuring charge in the in the second half of fiscal 2017 of approximately $1.5 to $2.0 million related to certain expense savings initiatives. This charge is not reflected in the current GAAP EPS guidance as the timing of this restructuring will impact the amount incurred in the third and fourth quarters. Additionally, this charge will not impact reported non-GAAP EPS.

The Company’s third quarter and fiscal year 2017 diluted EPS estimates an average share count of approximately 30.1 million and 30.2 million, respectively, (assuming no further exercises of stock-based awards) and assumes a stock price of $18.98, which was derived from the average closing price of the Company’s stock over the five trading days ended on November 4, 2016. 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, November 9, 2016 at 5:00 p.m. Eastern Time to discuss the Company’s second quarter fiscal 2017 financial results, current financial guidance, and other corporate developments. To access this call, please dial 877-440-5788 (domestic) or 719-325-4842 (international). The passcode is 6070061. A replay of this conference call will be available through November 16, 2016 at 877-870-5176(domestic) or 858-384-5517 (international). The replay passcode is 6070061. 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:
Non-GAAP income from operations: income (loss) from operations, as reported on Virtusa’s consolidated statements of income (loss), 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 (loss), as reported on Virtusa’s consolidated statements of income (loss), 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 (loss) per share, as reported on Virtusa’s consolidated statements of income (loss), 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:

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