Second quarter fiscal 2018 revenue of $248.2 million increased 9.2% sequentially and 18.1% year-over-year.
Second quarter fiscal 2018 GAAP operating income of $10.3 million, up 69% sequentially, and non-GAAP operating income of $19.8 million, up 48% sequentially.
Second quarter fiscal 2018 GAAP diluted EPS was $0.12, up 20% sequentially and 9% year-over-year. Non-GAAP diluted EPS was $0.35, up 40% sequentially and 30% year-over-year.
Generated $28.8 million of cash from operating activities during the second quarter of fiscal 2018, representing 11.6% of revenue.
Commenced delisting process for Polaris Consulting & Services, Ltd.

Westborough, MA - (November 8, 2017) Virtusa Corporation(NASDAQ GS: VRTU),a global business consulting and IT outsourcing company that accelerates business outcomes for its clients, today reported consolidated financial results for the second quarter fiscal 2018, ended September 30, 2017.

Second Quarter Fiscal 2018 Consolidated Financial Results

Revenue for the second quarter of fiscal 2018 was $248.2 million, an increase of 9.2% sequentially and 18.1% year-over-year. On a constant currency basis, second quarter revenue increased 8.6% sequentially and 17.9% year-over-year.

Virtusa reported GAAP income from operations of $10.3 million for the second quarter of fiscal 2018, compared to $6.1 million for the first quarter of fiscal 2018 and $3.5 million for the second quarter of fiscal 2017.

GAAP net income available to common shareholders for the second quarter of fiscal 2018 was $3.7 million, or $0.12 per diluted share, compared to $3.0 million, or $0.10 per diluted share, for the first quarter of fiscal 2018, and $3.2 million, or $0.11 per diluted share, for the second quarter of fiscal 2017.

Non GAAP Results

Non-GAAP income from operations, which excludes stock-based compensation expense, restructuring charges and acquisition related charges, was $19.8 million for the second quarter of fiscal 2018, compared to $13.4 million for the first quarter of fiscal 2018, and $12.9 million for the second quarter of fiscal 2017.

Non-GAAP net income available to common shareholders, which excludes stock-based compensation expense, restructuring charges, acquisition related charges, foreign currency transaction gains and losses, and the tax impact of the above items, for the second quarter of fiscal 2018 was $10.3 million, or $0.35 per diluted share, compared to $7.4 million, or $0.25 per diluted share, for the first quarter of fiscal 2018, and $8.4 million, or $0.27 per diluted share, for the second quarter of fiscal 2017.

Balance Sheet and Cash Flow

The Company ended the second quarter of fiscal 2018 with $254.0 million of cash, cash equivalents, and short-term and long-term investments .

Cash flow from operations was $28.8 million for the second quarter of fiscal 2018.Kris Canekeratne, Virtusa's Chairman and CEO, stated, "Our strategy to expand our addressable market by investing in industry leading digital engineering services, operational excellence, and industry solutions is playing out well for us. We delivered market-leading sequential revenue growth and we are raising our full fiscal year guidance. The number of leading enterprises that rely on Virtusa for their most strategic end-to-end digital and transformational programs continues to grow. This gives us confidence in our growth strategy and long-term prospects."

Ranjan Kalia, Chief Financial Officer, said, "During the second quarter, we delivered strong sequential revenue growth that exceeded the high end of our prior guidance. We generated double-digit sequential and year-over-year operating income growth and strong sequential margin accretion. In addition, EPS growth was faster than revenue growth. Our second quarter momentum is expected to continue for the remainder of the fiscal year allowing us to raise our full fiscal year guidance."

Financial Outlook

Virtusa management provided the following current financial guidance:

Third quarter fiscal 2018 revenue is expected to be in the range of $256.0 to $262.0 million. GAAP diluted EPS is expected to be in the range of $0.21 to $0.27. Non-GAAP diluted EPS is expected to be in the range of $0.41 to $0.47.
Fiscal year 2018 revenue is expected to be in the range of $998.0 to $1,011.0 million. GAAP diluted EPS is expected to be in the range of $0.73 to $0.85. Non-GAAP diluted EPS is expected to be in the range of $1.50 to $1.62.
Virtusa anticipates a total restructuring charge of $0.7 million in the second half of fiscal year 2018 related to resource optimization initiatives. This charge is reflected in the full year GAAP EPS guidance, and not included in non-GAAP EPS guidance.
Guidance does not include the impact of the previously announced proposed offer to delist Polaris Consulting Services, Ltd. from all stock exchanges on which Polaris ordinary shares are listed.

In accordance with US GAAP, Virtusa will be applying the if-converted method to its newly issued convertible preferred shares when reporting its fiscal year 2018 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 our reported results and full year guidance.

Second 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. 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.
When calculating the fiscal third quarter GAAP EPS guidance, dividends and accretion on the convertible preferred shares have been deducted from net income available to common stockholders and the convertible preferred shares have been excluded from weighted average shares outstanding.
GAAP EPS guidance was calculated under the assumption that these convertible securities will be dilutive in the fiscal fourth quarter 2018. Thus, in determining full fiscal year 2018 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 for the first three fiscal quarters of 2018. For the fourth fiscal quarter of 2018, GAAP EPS guidance was determined 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.
Non-GAAP EPS guidance 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 the Company expects these convertible preferred shares to be dilutive on a non-GAAP basis.

The Company's third quarter and fiscal year 2018 diluted GAAP EPS estimates are based on average share counts of approximately 29.9 million and 30.8 million, respectively, (assuming no further exercises of stock-based awards). The Company's third quarter and fiscal year 2018 diluted non-GAAP EPS estimates are based on average share counts of approximately 32.9 million and 32.3 million, respectively, (assuming no further exercises of stock-based awards). GAAP and non-GAAP average share counts assume a stock price of $37.54, which was derived from the average closing price of the Company's stock over the five trading days ended on November 3, 2017. Deviations from this stock price may cause actual diluted EPS to vary based on share dilution from Virtusa's stock-based awards.

Conference Call and Webcast

Virtusa will host a conference call today, November 8, 2017 at 8:00 a.m. Eastern Time to discuss the Company's second quarter fiscal 2018 financial results, current financial guidance, and other corporate developments. To access this call, please dial 888-857-6932 (domestic) or 719-325-4760 (international). The passcode is 2568219. A replay of this conference call will be available through November 15, 2017 at 844-512-2921 (domestic) or 412-317-6671 (international). The replay passcode is 2568219. 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 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 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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