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Virtusa Announces Third Quarter Fiscal 2020 Consolidated Financial Results

SOUTHBOROUGH, Mass.--(BUSINESS WIRE)--Virtusa Corporation (NASDAQ GS: VRTU), a global provider of digital strategy, digital engineering and IT services and solutions that help clients change and disrupt markets through innovation engineering, today reported consolidated financial results for the third quarter fiscal 2020, ended December 31, 2019.

Third Quarter Fiscal 2020 Consolidated Financial Results

Revenue for the third quarter of fiscal 2020 was $335.1 million, an increase of 2.0% sequentially and 6.5% year-over-year. On a constant currency basis, (1) third quarter revenue increased 1.4% sequentially and 6.4% year-over-year.

Virtusa reported GAAP income from operations of $30.4 million for the third quarter of fiscal 2020, compared to $19.2 million for the second quarter of fiscal 2020 and $19.3 million for the third quarter of fiscal 2019.

GAAP net income available to common shareholders for the third quarter of fiscal 2020 was $11.6 million, or $0.38 per diluted share, compared to $6.0 million, or $0.20 per diluted share, for the second quarter of fiscal 2020, and $11.5 million, or $0.37 per diluted share, for the third quarter of fiscal 2019.

Non-GAAP Results*

Non-GAAP income from operations was $40.5 million for the third quarter of fiscal 2020, compared with $29.4 million for the second quarter of fiscal 2020 and $32.7 million for the third quarter of fiscal 2019.

Non-GAAP net income was $26.2 million, or $0.78 per diluted share, for the third quarter of fiscal 2020, compared to $18.1 million, or $0.54 per diluted share, for the second quarter of fiscal 2020, and $20.7 million, or $0.61 per diluted share, for the third quarter of fiscal 2019.

*Please refer to the Non-GAAP Financial Information section of this press release for definitions of our Non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures.

Balance Sheet and Cash Flow

The Company ended the third quarter of fiscal 2020 with $237.5 million of cash, cash equivalents and investments (2). Cash provided by operating activities was $50.7 million for the third quarter of fiscal 2020.

Management Commentary

Kris Canekeratne, Virtusa’s Chairman and CEO, stated, “Virtusa’s competitive advantages, market position and performance remain strong. Demand for Digital and Cloud Transformation is expanding rapidly across the globe. We will continue to capitalize on this trend and expect to deliver greater than industry growth over the long term. We are winning some of the largest and most strategic Transformation engagements because of our end-to-end digital engineering and deep domain expertise, understanding of emerging technologies, and our commitment to delivery excellence. Together, these form the foundation of our competitive advantage and are largely responsible for our recognition as the Transformation market leader.”

Ranjan Kalia, Chief Financial Officer, said, “In the fiscal third quarter we generated 170 basis points of year-over-year non-GAAP operating margin accretion, non-GAAP EPS above the midpoint of our guidance, and strong operating cash flow. We expect strong 25% non-GAAP EPS growth for the full fiscal year 2020 supported by top-line growth in line with our prior expectations at the midpoint, margin expansion, significant tax benefits, and our share buyback program.”

Financial Outlook

Virtusa management provided the following current financial guidance:

  • Fourth quarter fiscal 2020 revenue is expected to be in the range of $353.4 to $361.4 million. GAAP diluted EPS is expected to be in the range of $0.66 to $0.72. Non-GAAP diluted EPS is expected to be in the range of $0.90 to $0.96.

  • Fiscal year 2020 revenue is expected to be in the range of $1,336 to $1,344 million. GAAP diluted EPS is expected to be in the range of $1.42 to $1.48. Non-GAAP diluted EPS is expected to be in the range of $2.63 to $2.69.

In accordance with US GAAP, Virtusa applies the if-converted method to its convertible preferred shares when reporting its 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.

  • Third quarter GAAP and 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 GAAP and non-GAAP basis.

  • Fourth quarter fiscal 2020 GAAP and non-GAAP EPS guidance was calculated under the assumption that these convertible preferred shares will be dilutive. Thus, in determining fourth quarter fiscal 2020 GAAP and non-GAAP EPS guidance, dividends and accretion on the convertible preferred shares are not deducted from net income available to common stockholders and the impact of the convertible preferred shares are included in the weighted average shares outstanding.

  • Fiscal 2020 GAAP EPS guidance was calculated under the assumption that these convertible preferred shares will be anti-dilutive. Thus, in determining full fiscal year 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.

  • Fiscal 2020 non-GAAP EPS guidance was calculated under the assumption that these convertible preferred shares will be dilutive. Thus, in determining full fiscal year 2020 non-GAAP EPS guidance, dividends and accretion on the convertible preferred shares are not deducted 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 fourth quarter and fiscal year 2020 diluted GAAP EPS estimates are based on average share counts of approximately 33.6 million and 30.7 million, respectively. The Company’s fourth quarter and fiscal year 2020 diluted Non-GAAP EPS estimates are based on average share counts of approximately 33.6 million and 33.7 million, respectively. GAAP and Non-GAAP average share counts assume a stock price of $42.20, which was derived from the average closing price of the Company’s stock over the five trading days ended on January 31, 2020.

Conference Call and Webcast

Virtusa will host a conference call today, February 6, 2020 at 5:00 p.m. Eastern Time to discuss the Company’s third quarter fiscal 2020 financial results, current financial guidance, and other corporate developments. To access this call, please dial 844-695-5524 (domestic) or 412-317-5461 (international). A replay of this conference call will be available through February 13, 2020 at 877-344-7529 (domestic) or 412-317-0088 (international). The replay passcode is 10138820. 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 strategy, digital engineering, and information technology (IT) services and solutions that help clients change, disrupt, and unlock new value through innovation 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 business forward at unparalleled velocity enabled by a culture of cooperative disruption.

© 2020 Virtusa Corporation. All rights reserved.

Virtusa is a registered trademark 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 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 periods.

The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the three and nine months ended December 31:


(in thousands, except per share amounts)


Three Months Ended December 31,

 

Nine Months Ended December 31,


 

2019

 

 

2018

 

 

 

2019

 

 

2018

 

GAAP income from operations

$

30,410

 

$

19,285

 


$

63,073

 

$

47,228

 

Add: Stock-based compensation expense

 

5,775

 

 

7,042

 


 

18,285

 

 

24,104

 

Add: Acquisition-related charges and restructuring charges(a)

 

4,345

 

 

6,378

 


 

12,741

 

 

17,872

 

Non-GAAP income from operations

$

40,530

 

$

32,705

 


$

94,099

 

$

89,204

 






 

GAAP operating margin

 

9.1

%

 

6.1

%


 

6.4

%

 

5.1

%

Effect of above adjustments to income from operations

 

3.0

%

 

4.3

%


 

3.2

%

 

4.6

%

Non-GAAP operating margin

 

12.1

%

 

10.4

%


 

9.6

%

 

9.7

%






 

GAAP net income available to Virtusa common stockholders

$

11,633

 

$

11,489

 


$

22,394

 

$

4,523

 

Add: Stock-based compensation expense

 

5,775

 

 

7,042

 


 

18,285

 

 

24,104

 

Add: Acquisition-related charges and restructuring charges(a)

 

4,345

 

 

6,852

 


 

13,008

 

 

19,279

 

Add: Impairment of investment(i)

 

184

 

 

885

 


 

184

 

 

885

 

Add: Foreign currency transaction losses(b)

 

3,065

 

 

(8,319

)


 

5,300

 

 

11,794

 

Add: Impact from the Tax Act(h)

 

-

 

 

(1,628

)


 

-

 

 

(1,628

)

Tax adjustments (c)

 

161

 

 

3,370

 


 

(4,153

)

 

(6,573

)

Noncontrolling interest, net of taxes (d)

 

(16

)

 

(103

)


 

(44

)

 

76

 

Non-GAAP net income available to Virtusa common stockholders

$

25,147

 

$

19,588

 


$

54,974

 

$

52,460

 






 

GAAP diluted earnings per share (f)

$

0.38

 

$

0.37

 


$

0.73

 

$

0.15

 

Effect of stock-based compensation expense (g)

 

0.17

 

 

0.21

 


 

0.54

 

 

0.72

 

Effect of acquisition-related charges and restructuring charges(a) (g)

 

0.13

 

 

0.20

 


 

0.38

 

 

0.57

 

Effect of impairment of investment(i) (g)

 

0.01

 

 

0.03

 


 

-

 

 

0.03

 

Effect of foreign currency transaction losses(b) (g)

 

0.09

 

 

(0.25

)


 

0.16

 

 

0.35

 

Effect of impact from the Tax Act(h) (g)

 

-

 

 

(0.05

)


 

-

 

 

(0.05

)

Effect of tax adjustments (c) (g)

 

-

 

 

0.10

 


 

(0.12

)

 

(0.20

)

Effect of noncontrolling interest (d) (g)

 

-

 

 

-

 


 

-

 

 

-

 

Effect on dividend on Series A Convertible Preferred Stock (f) (g)

 

-

 

 

-

 


 

0.10

 

 

0.10

 

Effect of change in dilutive shares for non-GAAP (f)

 

-

 

 

-

 


 

(0.06

)

 

(0.01

)

Non-GAAP diluted earnings per share (e) (g)

$

0.78

 

$

0.61

 


$

1.73

 

$

1.66

 














 














 

(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 December 31,

 

Nine Months Ended December 31,






2019

2018

 

2019

2018





Amortization of intangible assets

$

3,496

$

2,860


$

10,157

$

8,629





Acquisition and integration costs

$

849

$

3,518


$

2,584

$

9,243





Acquisition-related charges included in costs of revenue and operating expense

$

4,345

$

6,378


$

12,741

$

17,872





Accreted interest related to deferred acquisition payments

$

-

$

474


$

267

$

1,407





Total acquisition-related charges and restructuring charges

$

4,345

$

6,852


$

13,008

$

19,279

(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 and for fiscal year 2020, excluding BEAT tax impact in contemplation of a reorganization of our Indian legal entities. 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 months ended December 31, 2019 and 2018, all of the 3,000,000 shares of Series A Convertible Preferred Stock were included in the calculations of GAAP diluted earnings per share as their effect was dilutive using the if-converted method. During the nine months ended December 31, 2019 and 2018, all of the 3,000,000 shares of Series A Convertible Preferred Stock were excluded from the calculations of GAAP diluted earnings per share as their effect would have been anti-dilutive using the if-converted method.

The following table provides the non-GAAP net income available to Virtusa common stockholders and non-GAAP dilutive weighted average shares outstanding using the if-converted method to calculate the non-GAAP diluted earnings per share for the three and nine months ended December 31, 2019 and 2018:



Three Months Ended December 31,

 

Nine Months Ended December 31,



2019

2018

 

2019

2018

Non-GAAP net income available to Virtusa common stockholders

$

25,147

$

19,588


$

54,974

$

52,460

Add:

Dividends and accretion on Series A Convertible Preferred Stock

$

1,087

$

1,087


$

3,262

$

3,262

Non-GAAP net income available to Virtusa common stockholders and assumed conversion

$

26,234

$

20,675


$

58,236

$

55,722







 







 

GAAP dilutive weighted average shares outstanding

 

33,458,231

 

33,661,728


 

30,700,269

 

30,598,114

Add:

Incremental dilutive effect of employee stock options and unvested restricted stock awards and restricted stock units

 

-

 

-


 

-

 

-

Add:

Incremental effect of Series A Convertible Preferred Stock as converted

 

-

 

-


 

3,000,000

 

3,000,000

Non-GAAP dilutive weighted average shares outstanding

 

33,458,231

 

33,661,728


 

33,700,269

 

33,598,114







 

(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) Other-than-temporary impairment of available-for-sale securities recognized in earnings.

 Footnotes

(1) To determine sequential revenue change in constant currency for the Company's third quarter of fiscal 2020, 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 September 30, 2019, rather than the actual exchange rate in effect for the three months ended December 31, 2019. To determine year-over-year revenue change in constant currency for the Company's third quarter of fiscal 2020, 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 December 31, 2019. The average exchange rates for the three months ended December 31, 2018, September 30, 2019, and December 31, 2019 are included in the table below:



 

 

Average U.S. Dollar Exchange Rate

 

 

For the Three Months Ended

 

 

 

December 31, 2018

September 30, 2019

December 31, 2019

 

 

GBP

1.28

1.23

1.30

 

 

Euro

1.14

1.11

1.11

 

 

SEK

0.11

0.10

0.10

 

(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 debt securities and equity securities, including the Company's long-term investments, 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.

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 share repurchase program, 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: the potential material assessment by the Indian government of certain statutory defined contribution obligations of employees and employers, the potential material assessment by the IRS in connection with a notice of proposed adjustment related to the employment tax treatment of certain payments made to certain Company employees, 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; demand for digital and cloud transformation services; 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, 2019 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)


 

 

 

 


 

 

 

 

  

 

 

 

 


 

December 31, 2019

 

March 31, 2019

Assets:

 

 

 

 

Cash and cash equivalents

 

$217,387

 

$189,676

Short-term investments

 

20,058

 

33,138

Accounts receivable, net

 

149,800

 

162,396

Unbilled accounts receivable

 

106,716

 

113,431

Prepaid expenses

 

43,845

 

42,314

Restricted cash

 

1,735

 

351

Asset held for sale

 

8,749

 

 8,978

Other current assets

 

32,308

 

29,967

Total current assets

 

580,598

 

580,251


 

 

 

 

Property and equipment, net

 

108,198

 

119,865

Operating lease right-of-use assets

 

50,894

 

-  

Investments accounted for using equity method

 

1,429

 

1,446

Long-term investments

 

10

 

322

Deferred income taxes

 

31,136

 

28,770

Goodwill

 

276,089

 

279,543

Intangible assets, net

 

99,519

 

92,440

Other long-term assets

 

38,085

 

29,836

Total assets

 

$1,185,958

 

$1,132,473


 

 

 

 

Liabilities, Series A Convertible Preferred Stock, Redeemable noncontrolling interest and Stockholders' equity:

 

 

 

 

Accounts payable

 

$30,548

 

$46,471

Accrued employee compensation and benefits

 

78,524

 

74,801

Deferred revenue

 

6,592

 

6,421

Accrued expenses and other

 

65,675

 

70,050

Current portion of long-term debt

 

 14,597

 

 11,407

Operating lease liabilities

 

 11,385

 

-  

Income taxes payable

 

6,729

 

4,844

Total current liabilities

 

214,050

 

213,994

Deferred income taxes

 

14,873

 

15,824

Operating lease liabilities, noncurrent

 

44,009

 

-  

Long-term debt, less current portion

 

375,164

 

351,320

Long-term liabilities

 

27,281

 

29,824

Total liabilities

 

675,377

 

610,962


 

 

 

 

Series A Convertible Preferred Stock

 

107,285

 

 107,161

Redeemable noncontrolling interest

 

-  

 

 23,576


 

 

 

 

Virtusa stockholders' equity

 

403,296

 

390,774

Noncontrolling interest in subsidiaries

 

-  

 

-  

Total stockholders' equity

 

403,296

 

390,774

Total liabilities, Series A convertible preferred stock, redeemable noncontrolling interest and stockholders' equity

 

$1,185,958

 

$1,132,473





 

Virtusa Corporation and Subsidiaries


 Consolidated Statements of Income


(In thousands except share and per share amounts, unaudited)



 

 

 

 

 

 

 



 

 

 

 

 

 

 



Three Months Ended

 

Nine Months Ended



 December  31,

 

 December  31,


2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 


Revenue

$335,107

 

$314,681

 

$982,632

 

$920,232


Costs of revenue

236,427

 

221,461

 

709,746

 

654,288


Gross profit

98,680

 

93,220

 

272,886

 

265,944


Total operating expenses

68,270

 

73,935

 

209,813

 

218,716



 

 

 

 

 

 

 


Income from operations

30,410

 

19,285

 

63,073

 

47,228



 

 

 

 

 

 

 


Other income (expense):

 

 

 

 

 

 

 


Interest income

520

 

634

 

1,744

 

1,988


Interest expense

(4,873)

 

(4,597)

 

(14,616)

 

(13,365)


Foreign currency transaction gains (losses), net

(3,065)

 

8,319

 

(5,300)

 

(11,794)


Other, net

209

 

(444)

 

1,137

 

998


Total other income (expense)

(7,209)

 

3,912

 

(17,035)

 

(22,173)



 

 

 

 

 

 

 


Income before income tax expense

23,201

 

23,197

 

46,038

 

25,055


Income tax expense

10,363

 

10,400

 

19,932

 

15,863


Net income

             12,838


         12,797

 

          26,106

 

              9,192


Less: net income attributable to noncontrolling interests, net of tax

                 118

 

              221

 

              450

 

              1,407


Net income available to Virtusa stockholders

             $12,720

 

$12,576

 

$25,656

 

$7,785


Less: Series A Convertible Preferred Stock dividends and accretion

               1,087

 

           1,087

 

            3,262

 

              3,262


Net income available to Virtusa common stockholders

             $11,633

 

$11,489

 

$22,394

 

$4,523



 

 

 

 

 

 

 



 

 

 

 

 

 

 


Basic earnings per share available to Virtusa common stockholders

$0.39

 

$0.38

 

$0.75

 

$0.15


Diluted earnings per share available to Virtusa common stockholders

$0.38

 

$0.37

 

$0.73

 

$0.15


Weighted average number of common shares outstanding:

 

 

 

 

 

 

 


Basic

29,849,368

 

29,893,220

 

30,041,740

 

29,764,507


Diluted

33,458,231

 

33,661,728

 

30,700,269

 

30,598,114


 

Virtusa Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands, unaudited)



 



Nine Months Ended

December  31,


2019

 

2018

Cash flows from operating activities:


 


Net income

$26,106

 

$9,192

Adjustments to reconcile net income to net cash provided by operating activities:


 





 

Depreciation and amortization 

23,672

 

21,696

Share-based compensation expense 

18,285

 

24,104

Provision (recovery) for doubtful accounts

26

 

(549)

Gain on disposal of property and equipment

(403)

 

(115)

Impairment of investment

184

 

885

Foreign currency transaction losses, net

5,300

 

11,794

Amortization of discounts and premiums on investments

 (6)

 

84

Amortization of debt issuance cost

863

 

819

Deferred income taxes, net

(970)

 

 (6,225)

Net changes in operating assets and liabilities:


 


Accounts receivable and unbilled receivable

19,129

 

4,780

Prepaid expenses and other current assets 

 (1,258)

 

  (7,729)

Other long-term assets 

  (11,239)

 

 (11,702)

Accounts payable 

  (12,730)

 

12,014

Accrued employee compensation and benefits 

1,011

 

 (9,041)

Accrued expenses and other current liabilities

5,495

 

13,135

Operating lease liabilities

172

 

-  

Income taxes payable 

  2,537

 

2,975

Other long-term liabilities 

 (1,720)

 

3,705

Net cash provided by operating activities 

74,454

 

69,822

Cash flows from investing activities:


 


Proceeds from sale of property and equipment

825

 

568

Purchase of short-term investments 

(34,969)

 

 (84,185)

Proceeds from sale or maturity of short-term investments 

47,716

 

88,204

Payments for asset acquisitions

(9,192)

 

  -  

Payment of contingent consideration of asset acquisition

(942)

 

-  

Business acquisition, net of cash acquired

-  

 

(1,919)

Payment of deferred consideration related to business acquisition

   (17,500)

 

-  

Purchase of property and equipment 

 (10,865)

 

(24,715)

Net cash used in investing activities 

  (24,927)

 

(22,047)

Cash flows from financing activities:


 


Proceeds from exercise of common stock options 

427

 

428

Proceeds from exercise of subsidiary stock options

93

 

531

Payment of debt issuance costs

(808)

 

-  

Proceeds from revolving credit facility

36,000

 

 32,000

Payment of debt

(9,141)

 

(9,375)

Repurchase of common stock

 (18,680)

 

-  

Payment of other noncontrolling interest

-  

 

  (373)

Payments of withholding taxes related to net share settlements of restricted stock

  (3,783)

 

  (7,828)

Purchase of redeemable noncontrolling interest related to Polaris

(8,675)

 

 (30,387)

Payment of noncontrolling interest

  (12,534)

 

-  

Principal payments on capital lease obligation 

 (36)

 

(65)

Payment of contingent consideration related to acquisition

-  

 

(100)

Payment of dividend on Series A Convertible Preferred Stock

  (3,138)

 

 (3,138)

Net cash used in financing activities 

  (20,275)

 

 (18,307)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(131)

 

 (13,530)

Net increase in cash, cash equivalents and restricted cash

29,121

 

15,938

Cash, cash equivalents and restricted cash, beginning of year

190,113

 

195,236

Cash, cash equivalents and restricted cash, end of period

219,234

 

$211,174



 




 


Supplemental Non-GAAP Financial Information as of December 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 period

$219,234

 

$211,174

Less : Restricted cash

  (1,847)

 

 (595)

Total Cash and cash equivalents end of period

217,387

 

 210,579



 


Short-term investments 

 20,058

 

  41,641

Long-term investments 

  10

 

862

Total short-term and long-term investments, end of period

  20,068

 

 42,503



 




 


Total cash and cash equivalents, short-term and long-term investments 

 $  237,455

 

  253,082

 

Virtusa Corporation and Subsidiaries

Reconciliation of Non-GAAP Guidance**

 

 

 

 

 

 

 

 

 

 

 

Three months ending

 

Fiscal Year ending 

 

 

 March 31, 2020

 

 March 31, 2020

 

 

Low

 

High

 

Low

 

High

 

 

 

 

 

 

 

 

 

GAAP diluted earnings per share

 

$0.66

 

$0.72

 

$1.42

 

$1.48

 

 

 

 

 

 

 

 

 

Effect of stock-based compensation expense

 

0.16

 

0.16

 

0.70

 

0.70

Effect of  acquisition-related charges and restructuring charges

 

0.13

 

0.13

 

0.52

 

0.52

Effect of foreign currency transaction (gains) losses

 

0.00

 

0.00

 

0.16

 

0.16

Effect of change in dilutive shares for non-GAAP

 

0.00

 

0.00

 

(0.13)

 

(0.13)

Effect of tax impact from Tax Act

 

0.00

 

0.00

 

0.00

 

0.00

Effect of tax adjustments

 

(0.05)

 

(0.05)

 

(0.17)

 

(0.17)

Effect of noncontrolling interest

 

0.00

 

0.00

 

(0.00)

 

(0.00)

Effect on dividend on Series A Convertible Preferred Stock

 

0.00

 

0.00

 

0.13

 

0.13

Non-GAAP diluted earnings per share#

 

$0.90

 

$0.96

 

$2.63

 

$2.69

 

 

 

 

 

 

 

 

 

Weighted average diluted shares outstanding

 

 

 

 

 

 

 

 

- GAAP

 

33.6

 

33.6

 

30.7

 

30.7

- Non-GAAP

 

33.6

 

33.6

 

33.7

 

33.7

** 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

 

Contacts

Media:
Conversion Marketing
Ron Favali, 727-512-4490
ron@conversionam.com

Investor:
ICR
William Maina, 646-277-1236
william.maina@icrinc.com