Virtusa Announces First Quarter Fiscal 2020 Consolidated Financial Results
- First quarter fiscal 2020 revenue of
$319.0 million . - First quarter fiscal 2020 GAAP diluted EPS of
$0.15 . Non-GAAP diluted EPS of$0.41 . - First quarter fiscal 2020 GAAP operating income of
$13.4 million . Non-GAAP operating income of$24.2 million . - Announces
$30 million share repurchase program.
First Quarter Fiscal 2020 Consolidated Financial Results
Revenue for the first quarter of fiscal 2020 was
GAAP net income available to common shareholders for the first quarter of fiscal 2020 was
Non-GAAP Results*
Non-GAAP income from operations was
Non-GAAP net income was
*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 first quarter of fiscal 2020 with
Share Repurchase Program
Virtusa’s board of directors has authorized a share repurchase program of up to
Management Commentary
Mr. Canekeratne continued, “Our new share repurchase plan demonstrates our confidence in our business model and our commitment to delivering value to our shareholders. We have ample financial flexibility to opportunistically repurchase our stock, while also continuing to invest in our growth."
Financial Outlook
- Second quarter fiscal 2020 revenue is expected to be in the range of
$323 to $331 million . GAAP diluted EPS is expected to be in the range of$0.22 to $0.28 . Non-GAAP diluted EPS is expected to be in the range of$0.49 to $0.55 .
- Fiscal year 2020 revenue is expected to be in the range of
$1,326 to $1,354 million . GAAP diluted EPS is expected to be in the range of$1.39 to $1.59 . Non-GAAP diluted EPS is expected to be in the range of$2.45 to $2.65 .
In accordance with US GAAP,
- First 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 outstanding as these shares were anti-dilutive on a GAAP basis. First 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 as these shares were dilutive on a non-GAAP basis.
- Second quarter fiscal 2020 GAAP EPS guidance was calculated under the assumption that these convertible preferred shares will be anti-dilutive. Thus, in determining second quarter fiscal 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.
- Third and Fourth quarter fiscal 2020 GAAP EPS guidance was calculated under the assumption that these convertible preferred shares will be dilutive. Thus, in determining third and fourth quarter fiscal 2020 GAAP EPS guidance, dividends and accretion on the convertible preferred shares are excluded 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 non-GAAP EPS guidance was calculated under the assumption that these convertible preferred shares will be dilutive for the second, third and fourth quarters of fiscal year 2020. Thus, in determining full fiscal year 2020 non-GAAP EPS guidance, dividends and accretion on the convertible preferred shares are excluded 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 second quarter and fiscal year 2020 diluted GAAP EPS estimates are based on average share counts of approximately 31.0 million and 32.6 million, respectively. The Company’s second quarter and fiscal year 2020 diluted Non-GAAP EPS estimates are based on average share counts of approximately 34.0 million and 34.1 million, respectively. GAAP and Non-GAAP average share counts assume a stock price of
Conference Call and Webcast
About
Using a combination of digital strategy, digital engineering, business implementation, and IT platform modernization services,
Holding a proven record of success across industries,
Founded in 1996 and headquartered in
© 2019
Non-GAAP Financial Information
This press release includes certain non-GAAP financial measures as defined by Regulation G by the
Virtusa presents constant currency revenue growth rates to provide insights into, and a framework for assessing, howVirtusa'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 whichVirtusa 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 the periods.
The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the three months ended
| (in thousands, except per share amounts) | ||||||||
| Three Months Ended June 30, | ||||||||
|
2019 |
2018 |
|||||||
| GAAP income from operations |
$ |
13,428 |
$ |
13,924 |
||||
| Add: Stock-based compensation expense |
|
6,676 |
|
7,938 |
||||
| Add: Acquisition-related charges and restructuring charges(a) |
|
4,097 |
|
5,665 |
||||
| Non-GAAP income from operations |
$ |
24,201 |
$ |
27,527 |
||||
| GAAP operating margin |
|
4.2% |
|
4.6% |
||||
| Effect of above adjustments to income from operations |
|
3.4% |
|
4.5% |
||||
| Non-GAAP operating margin |
|
7.6% |
|
9.1% |
||||
| GAAP net income (loss) available to Virtusa common stockholders |
$ |
4,747 |
$ |
(7,383) |
||||
| Add: Stock-based compensation expense |
|
6,676 |
|
7,938 |
||||
| Add: Acquisition-related charges and restructuring charges(a) |
|
4,243 |
|
6,127 |
||||
| Add: Foreign currency transaction (gains) losses, net(b) |
|
(1,202) |
|
10,758 |
||||
| Tax adjustments (c) |
|
(1,650) |
|
(1,817) |
||||
| Noncontrolling interest, net of taxes (d) |
|
(35) |
|
127 |
||||
| Non-GAAP net income available to Virtusa common stockholders |
$ |
12,779 |
$ |
15,750 |
||||
| GAAP diluted earnings (loss) per share (f) |
$ |
0.15 |
$ |
(0.25) |
||||
| Effect of stock-based compensation expense (g) |
|
0.20 |
|
0.24 |
||||
| Effect of acquisition-related charges and restructuring charges(a) (g) |
|
0.13 |
|
0.18 |
||||
| Effect of foreign currency transaction (gains) losses(b) (g) |
|
(0.04) |
|
0.32 |
||||
| Effect of tax adjustments (c) (g) |
|
(0.05) |
|
(0.05) |
||||
| Effect of noncontrolling interest (d) (g) |
|
- |
|
- |
||||
| Effect on dividend on Series A Convertible Preferred Stock (f) (g) |
|
0.03 |
|
0.03 |
||||
| Effect of change in dilutive shares for non-GAAP (f) |
|
(0.01) |
|
0.03 |
||||
| Non-GAAP diluted earnings per share (e) (g) |
$ |
0.41 |
$ |
0.50 |
||||
| (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 June 30, | |||||||||
|
2019 |
2018 |
||||||||
| Amortization of intangible assets |
$ |
3,221 |
$ |
2,775 |
|||||
| Acquisition and integration costs |
$ |
876 |
$ |
2,890 |
|||||
| Acquisition-related charges included in costs of revenue and operating expense |
$ |
4,097 |
$ |
5,665 |
|||||
| Accreted interest related to deferred acquisition payments |
$ |
146 |
$ |
462 |
|||||
| Total acquisition-related charges and restructuring charges |
$ |
4,243 |
$ |
6,127 |
|||||
|
(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 June 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 if-converted method to calculate the non-GAAP diluted earnings per share for the three months ended June 30, 2019 and 2018: |
| Three Months Ended June 30, | |||||||||
|
2019 |
2018 |
||||||||
| Non-GAAP net income available to Virtusa common stockholders |
$ |
12,779 |
$ |
15,750 |
|||||
| Add: Dividends and accretion on Series A Convertible Preferred Stock |
$ |
1,087 |
$ |
1,087 |
|||||
| Non-GAAP net income available to Virtusa common stockholders and assumed conversion |
$ |
13,866 |
$ |
16,837 |
|||||
| GAAP dilutive weighted average shares outstanding |
|
30,934,411 |
|
29,633,026 |
|||||
| Add: Incremental dilutive effect of employee stock options and unvested restricted stock awards and restricted stock units |
|
- |
|
872,545 |
|||||
|
Add: Incremental effect of Series A Convertible Preferred Stock as converted |
|
3,000,000 |
|
3,000,000 |
|||||
| Non-GAAP dilutive weighted average shares outstanding |
|
33,934,411 |
|
33,505,571 |
|||||
| (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. | ||||
Footnotes
(1) To determine sequential revenue change in constant currency for the Company's first quarter of fiscal 2020, revenue from entities reporting in
| Average U.S. Dollar Exchange Rate | ||||||||||||
| For the Three Months Ended | ||||||||||||
| June 30, 2018 | March 31, 2019 | June 30, 2019 | ||||||||||
| GBP |
1.35 |
1.31 |
1.28 |
|||||||||
| Euro |
1.19 |
1.13 |
1.12 |
|||||||||
| SEK |
0.11 |
0.11 |
0.11 |
|||||||||
(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 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.
(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.
(4) On
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: currency exchange rate fluctuations of the Indian and Sri Lankan rupee, the U.S. dollar, the
| Virtusa Corporation and Subsidiaries | |||||
| Condensed Consolidated Balance Sheets | |||||
| (In thousands, unaudited) | |||||
| June 30, 2019 | March 31, 2019 | ||||
| Assets: | |||||
| Cash and cash equivalents |
$190,007 |
$189,676 |
|||
| Short-term investments |
17,912 |
33,138 |
|||
| Accounts receivable, net |
149,652 |
162,396 |
|||
| Unbilled accounts receivable |
116,722 |
113,431 |
|||
| Prepaid expenses |
46,586 |
42,314 |
|||
| Restricted cash |
336 |
351 |
|||
| Asset held for sale |
9,042 |
8,978 |
|||
| Other current assets |
33,715 |
29,967 |
|||
| Total current assets |
563,972 |
580,251 |
|||
| Property and equipment, net |
120,225 |
119,865 |
|||
| Operating lease right-of-use assets |
54,222 |
- |
|||
| Investments accounted for using equity method |
1,523 |
1,446 |
|||
| Long-term investments |
366 |
322 |
|||
| Deferred income taxes |
29,125 |
28,770 |
|||
| Goodwill |
280,501 |
279,543 |
|||
| Intangible assets, net |
97,689 |
92,440 |
|||
| Other long-term assets |
35,780 |
29,836 |
|||
| Total assets |
$1,183,403 |
$1,132,473 |
|||
| Liabilities, Series A Convertible Preferred Stock, Redeemable noncontrolling interest and Stockholders' equity: | |||||
| Accounts payable |
$41,802 |
$46,471 |
|||
| Accrued employee compensation and benefits |
61,561 |
74,801 |
|||
| Deferred revenue |
7,074 |
6,421 |
|||
| Accrued expenses and other |
77,334 |
70,050 |
|||
| Current portion of long-term debt |
13,657 |
11,407 |
|||
| Operating lease liabilities |
11,011 |
- |
|||
| Income taxes payable |
5,917 |
4,844 |
|||
| Total current liabilities |
218,356 |
213,994 |
|||
| Deferred income taxes |
15,713 |
15,824 |
|||
| Operating lease liabilities, noncurrent |
47,708 |
- |
|||
| Long-term debt, less current portion |
348,469 |
351,320 |
|||
| Long-term liabilities |
28,102 |
29,824 |
|||
| Total liabilities |
658,348 |
610,962 |
|||
| Series A Convertible Preferred Stock |
107,202 |
107,161 |
|||
| Redeemable noncontrolling interest |
18,651 |
23,576 |
|||
| Virtusa stockholders' equity |
399,202 |
390,774 |
|||
| Noncontrolling interest in subsidiaries |
- |
- |
|||
| Total stockholders' equity |
399,202 |
390,774 |
|||
| Total liabilities, Series A convertible preferred stock, redeemable noncontrolling interest and stockholders' equity |
$1,183,403 |
$1,132,473 |
|||
| Virtusa Corporation and Subsidiaries | |||||
| Consolidated Statements of Income (Loss) | |||||
| (In thousands except share and per share amounts, unaudited) | |||||
| Three Months Ended | |||||
| June 30, | |||||
|
2019 |
2018 |
||||
| Revenue |
$319,024 |
$300,031 |
|||
| Costs of revenue |
234,735 |
216,481 |
|||
| Gross profit |
84,289 |
83,550 |
|||
| Total operating expenses |
70,861 |
69,626 |
|||
| Income from operations |
13,428 |
13,924 |
|||
| Other income (expense): | |||||
| Interest income |
673 |
1,292 |
|||
| Interest expense |
(4,908) |
(4,254) |
|||
| Foreign currency transaction losses, net |
1,202 |
(10,758) |
|||
| Other, net |
364 |
95 |
|||
| Total other expense |
(2,669) |
(13,625) |
|||
| Income before income tax expense |
10,759 |
299 |
|||
| Income tax expense |
4,739 |
5,864 |
|||
| Net income (loss) |
6,020 |
(5,565) |
|||
| Less: net income attributable to noncontrolling interests, net of tax |
186 |
731 |
|||
| Net income (loss) available to Virtusa stockholders |
5,834 |
($6,296) |
|||
| Less: Series A Convertible Preferred Stock dividends and accretion |
1,087 |
1,087 |
|||
| Net income (loss) available to Virtusa common stockholders |
4,747 |
($7,383) |
|||
| Basic earnings (loss) per share available to Virtusa common stockholders |
$0.16 |
($0.25) |
|||
| Diluted earnings (loss) per share available to Virtusa common stockholders |
$0.15 |
($0.25) |
|||
| Weighted average number of common shares outstanding: | |||||
| Basic |
30,167,910 |
29,633,026 |
|||
| Diluted |
30,934,411 |
29,633,026 |
|||
| Virtusa Corporation and Subsidiaries | ||||
| Consolidated Statements of Cash Flows | ||||
| (In thousands, unaudited) | ||||
| Three Months Ended | ||||
| June 30, | ||||
|
2019 |
2018 |
|||
| Cash flows from operating activities: | ||||
| Net income (loss) |
$6,020 |
($5,565) |
||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||
| Depreciation and amortization |
7,765 |
7,273 |
||
| Share-based compensation expense |
6,676 |
7,938 |
||
| Provision (recovery) for doubtful accounts |
(64) |
(206) |
||
| Loss (gain) on disposal of property and equipment |
42 |
(8) |
||
| Deferred income taxes, net |
(72) |
(3,594) |
||
| Foreign currency transaction (gains) losses, net |
(1,202) |
10,758 |
||
| Amortization of discounts and premiums on investments |
(4) |
51 |
||
| Amortization of debt issuance cost |
273 |
273 |
||
| Net changes in operating assets and liabilities: | ||||
| Accounts receivable and unbilled receivable |
7,203 |
(12,750) |
||
| Prepaid expenses and other current assets |
(6,015) |
(7,519) |
||
| Other long-term assets |
(7,730) |
(4,150) |
||
| Accounts payable |
(4,479) |
1,218 |
||
| Accrued employee compensation and benefits |
(15,632) |
(14,855) |
||
| Accrued expenses and other current liabilities |
10,454 |
6,562 |
||
| Operating lease liabilities |
125 |
- |
||
| Income taxes payable |
2,620 |
6,412 |
||
| Other long-term liabilities |
(3,744) |
1,432 |
||
| Net cash provided (used in) by operating activities |
2,236 |
(6,730) |
||
| Cash flows from investing activities: | ||||
| Proceeds from sale of property and equipment |
19 |
186 |
||
| Purchase of short-term investments |
(4,622) |
(38,008) |
||
| Proceeds from sale or maturity of short-term investments |
19,817 |
29,292 |
||
| Payment for asset acquisition |
(4,251) |
- |
||
| Purchase of property and equipment |
(4,775) |
(13,461) |
||
| Net cash provided by (used in) investing activities |
6,188 |
(21,991) |
||
| Cash flows from financing activities: | ||||
| Proceeds from exercise of common stock options |
194 |
294 |
||
| Proceeds from exercise of subsidiary stock options |
52 |
196 |
||
| Payment of debt |
(875) |
(875) |
||
| Purchase of redeemable noncontrolling interest related to Polaris |
(5,549) |
- |
||
| Principal payments on capital lease obligation |
(18) |
(22) |
||
| Payments of withholding taxes related to net share settlements of restricted stock |
(2,011) |
(2,450) |
||
| Payment of dividend on Series A Convertible Preferred Stock |
(1,046) |
(1,046) |
||
| Net cash used financing activities |
(9,253) |
(3,903) |
||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash |
1,145 |
(7,279) |
||
| Net increase (decrease) in cash, cash equivalents and restricted cash |
316 |
(39,903) |
||
| Cash, cash equivalents and restricted cash, beginning of year |
190,113 |
195,236 |
||
| Cash, cash equivalents and restricted cash, end of period |
$190,429 |
$155,333 |
||
| Supplemental Non-GAAP Financial Information as of June 30, 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 |
$190,429 |
$155,333 |
||
| Less : Restricted cash |
(422) |
(541) |
||
| Total Cash and cash equivalents end of period |
190,007 |
154,792 |
||
| Short-term investments |
17,912 |
56,396 |
||
| Long-term investments |
366 |
1,842 |
||
| Total short-term and long-term investments, end of period |
18,278 |
58,238 |
||
| Total cash and cash equivalents, short-term and long-term investments |
$ 208,285 |
213,030 |
||
| Virtusa Corporation and Subsidiaries | ||||||||
| Reconciliation of Non-GAAP Guidance** | ||||||||
| Three months ending | Fiscal Year ending | |||||||
| September 30, 2019 | March 31, 2020 | |||||||
| Low | High | Low | High | |||||
| GAAP diluted earnings per share |
$0.22 |
$0.28 |
$1.39 |
$1.59 |
||||
| Effect of stock-based compensation expense |
0.18 |
0.18 |
0.71 |
0.71 |
||||
| Effect of acquisition-related charges and restructuring charges |
0.12 |
0.12 |
0.48 |
0.48 |
||||
| Effect of foreign currency transaction (gains) losses |
0.00 |
0.00 |
(0.04) |
(0.04) |
||||
| Effect of change in dilutive shares for non-GAAP |
(0.02) |
(0.02) |
(0.06) |
(0.07) |
||||
| Effect of tax impact from Tax Act |
0.00 |
0.00 |
0.00 |
0.00 |
||||
| Effect of tax adjustments |
(0.05) |
(0.04) |
(0.09) |
(0.07) |
||||
| Effect of noncontrolling interest |
0.00 |
(0.00) |
(0.00) |
(0.00) |
||||
| Effect on dividend on Series A Convertible Preferred Stock |
0.03 |
0.03 |
0.06 |
0.06 |
||||
| Non-GAAP diluted earnings per share# |
$0.49 |
$0.55 |
$2.45 |
$2.65 |
||||
| Weighted average diluted shares outstanding | ||||||||
| - GAAP |
31.0 |
31.0 |
32.6 |
32.6 |
||||
| - Non-GAAP |
34.0 |
34.0 |
34.1 |
34.1 |
||||
| ** 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 |
View source version on businesswire.com: https://www.businesswire.com/news/home/20190808005756/en/
Source:
Media:
Conversion Marketing
matt@conversionam.com
Investors:
ICR
William Maina, 646-277-1236
william.maina@icrinc.com