Virtusa Announces Fourth Quarter and Fiscal Year 2019 Consolidated Financial Results

Trucking News
15 May by Vitaliy Dadalyan

Virtusa Announces Fourth Quarter and Fiscal Year 2019 Consolidated Financial Results

  • Fourth quarter fiscal 2019 revenue of $327.6 million increased 4.1% sequentially and 16.5% year-over-year.
  • Fourth quarter fiscal 2019 GAAP diluted EPS of $0.24, including a $(0.04) impact from BEAT tax. Non-GAAP diluted EPS of $0.46, including a $(0.13) impact from BEAT tax.
  • Fiscal year 2019 revenue of $1,247.9 million increased 22.3% year-over-year.
  • Fiscal year 2019 GAAP diluted EPS of $0.38. Non-GAAP diluted EPS of $2.12.
  • Fiscal year 2019 GAAP operating margin expansion of 110 basis points year-over-year. Non-GAAP operating margin expansion of 140 basis points year-over-year.

SOUTHBOROUGH, Mass.–(BUSINESS WIRE)–Virtusa Corporation (NASDAQ GS: VRTU), a global provider of digital strategy, digital engineering, and IT outsourcing services that accelerates business outcomes for its clients, today reported consolidated financial results for the fourth quarter and fiscal year ended March 31, 2019.

Fourth Quarter Fiscal 2019 Consolidated Financial Results

Revenue for the fourth quarter of fiscal 2019 was $327.6 million, an increase of 4.1% sequentially and 16.5% year-over-year. On a constant currency basis, (1) fourth quarter revenue increased 3.8% sequentially and 17.9% year-over-year.

Virtusa reported GAAP income from operations of $23.0 million for the fourth quarter of fiscal 2019, an increase from $19.3 million for the third quarter of fiscal 2019 and $16.4 million for the fourth quarter of fiscal 2018.

GAAP net income available to common shareholders for the fourth quarter of fiscal 2019 was $7.3 million, or $0.24 per diluted share, compared to $11.5 million, or $0.37 per diluted share, for the third quarter of fiscal 2019, and $1.8 million, or $0.06 per diluted share, for the fourth quarter of fiscal 2018. Fourth quarter fiscal 2019 GAAP net income includes $1.3 million, or $(0.04) per diluted share, of Base Erosion and Anti-Abuse or, BEAT, tax which was not previously expected or contemplated in the Company’s prior guidance.

Non-GAAP Results*:

Non-GAAP income from operations was $34.0 million for the fourth quarter of fiscal 2019, an increase from $32.7 million for the third quarter of fiscal 2019 and from $27.9 million for the fourth quarter of fiscal 2018.

Non-GAAP net income was $15.6 million, or $0.46 per diluted share, for the fourth quarter of fiscal 2019 compared to $20.7 million, or $0.61 per diluted share, for the third quarter of fiscal 2019, and $18.3 million, or $0.55 per diluted share, for the fourth quarter of fiscal 2018. Fourth quarter fiscal 2019 non-GAAP net income includes $4.3 million, or $(0.13) per diluted share, of BEAT tax which was not previously expected or contemplated in the Company’s prior guidance.

Fiscal Year 2019 Consolidated Financial Results

For the fiscal year ended March 31, 2019, revenue was $1,247.9 million, an increase of 22.3%, compared to $1,020.7 million for the fiscal year ended March 31, 2018. On a constant currency basis, revenue increased 22.7% year-over-year.

Virtusa reported GAAP income from operations of $70.3 million for fiscal year 2019, an increase from $46.4 million for fiscal year 2018.

GAAP net income available to common shareholders was $11.8 million for fiscal year 2019, or $0.38 per diluted share, compared to net loss of ($2.7) million, or ($0.09) per diluted share for fiscal year 2018.

Non-GAAP Results*:

Non-GAAP income from operations was $123.2 million for fiscal year 2019, an increase from $87.1 million for fiscal year 2018.

Non-GAAP net income was $71.3 million for fiscal year 2019, or $2.12 per diluted share, compared to $52.8 million, or $1.63 per diluted share, for fiscal year 2018.

Balance Sheet and Cash Flow

The Company ended fiscal year 2019 with $223.1 million of cash, cash equivalents, and short-term and long-term investments (2). Cash used for operations was $1.2 million for the fiscal fourth quarter and cash flow from operations was $68.6 million for fiscal year 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.

Management Commentary

Kris Canekeratne, Virtusa’s Chairman and CEO, stated, “Deep digital is becoming a significant part of our clients’ transformation agenda in all industries, and Virtusa is incredibly well positioned to capitalize on this multi-year wave. Our years of investment in deepening our industry knowledge and expanding our digital engineering competency are elevating our status as the digital partner of choice for our clients. Virtusa’s differentiated skills and capabilities are the source of our competitive advantage, and we are confident we will continue to play a leadership role in digital and be a market share winner.”

Ranjan Kalia, Chief Financial Officer, said, “We are pleased with our full fiscal year 2019 financial and operating results, including 22% year-over-year revenue growth, 140 basis points of non-GAAP operating margin improvement, and 30% year-over-year non-GAAP EPS growth. Looking ahead, our FY 2020 guidance assumes a slower than previously expected start to the fiscal year, but we are well-positioned to generate double-digit revenue growth, non-GAAP margin accretion of 100 basis points, and strong non-GAAP EPS growth of 27% at the midpoint of our guidance.”

Financial Outlook

Virtusa management provided the following current financial guidance:

  • First quarter fiscal 2020 revenue is expected to be in the range of $313.0 to $321.0 million. GAAP diluted EPS is expected to be in the range of $0.11 to $0.16. Non-GAAP diluted EPS is expected to be in the range of $0.37 to $0.43.
  • Fiscal year 2020 revenue is expected to be in the range of $1,359 to $1,399 million. GAAP diluted EPS is expected to be in the range of $1.53 to $1.76. Non-GAAP diluted EPS is expected to be in the range of $2.58 to $2.82.

In accordance with US GAAP, Virtusa applies the if-converted method to its convertible preferred shares when reporting its fiscal year 2019 and 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.

  • Fourth 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. Fourth 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.
  • First and Second quarter fiscal 2020 GAAP EPS guidance was calculated under the assumption that these convertible preferred shares will be anti-dilutive. Thus, in determining first and 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.
  • Non-GAAP EPS guidance was calculated under the assumption that these convertible preferred shares will be dilutive for the entire fiscal year 2020, which is consistent with non-GAAP fiscal year 2019. 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 first quarter and fiscal year 2020 diluted GAAP EPS estimates are based on average share counts of approximately 31.0 million and 32.7 million, respectively. The Company’s first quarter and fiscal year 2020 diluted Non-GAAP EPS estimates are based on average share counts of approximately 34.0 million and 34.2 million, respectively. GAAP and Non-GAAP average share counts assume a stock price of $53.48, which was derived from the average closing price of the Company’s stock over the five trading days ended on May 10, 2019. 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, May 15, 2019 at 5:00 p.m. Eastern Time to discuss the Company’s fourth quarter and fiscal year 2019 financial results, current financial guidance, and other corporate developments. To access this call, please dial 877-317-6789 (domestic) or 412-317-6789 (international). A replay of this conference call will be available through May 29, 2019 at 877-344-7529 (domestic) or 412-317-0088 (international). The replay passcode is 10130442. 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 Transformation, Digital Engineering, and Information Technology (IT) outsourcing services that accelerate our clients’ journey to their Digital Future. Virtusa serves Global 2000 companies in Banking, Financial Services, Insurance, Healthcare, Telecommunications, Media, Entertainment, Travel, Manufacturing, and Technology industries.

Using a combination of digital strategy, digital engineering, business implementation, and IT platform modernization services, Virtusa helps clients execute successful end-to-end digital business transformation initiatives.

Virtusa engages its clients to re-imagine their business models and develop strategies to defend and grow their business by introducing innovative products and services, developing distinctive digital consumer experiences, creating operational efficiency using digital labor, developing operational and IT platforms for the future, and rationalizing and modernizing their existing IT applications infrastructure. As a result, its clients are simultaneously able to drive business growth through digital-first customer experiences, while also consolidating and modernizing their IT application infrastructure to support digital business transformation.

Holding a proven record of success across industries, Virtusa readily understands its clients’ business challenges and uses its domain expertise to deliver innovative applications of technology to address its clients’ critical business challenges. Examples include building the world’s largest property & casualty claims modernization program; one of the largest corporate customer portals for a premier global bank; an order to cash implementation for a multinational telecommunications provider; and digital transformation initiatives for media and banking companies.

Founded in 1996 and headquartered in Massachusetts, Virtusa has operations in North America, Europe, and Asia.

© 2019 Virtusa Corporation. All rights reserved.

Virtusa, Accelerating Business Outcomes, BPM Test Drive and Productization are registered trademarks 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 the following 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:
    • Non-GAAP income from operations: income from operations, as reported on Virtusa’s consolidated statements of income (loss), excluding stock-based compensation expense, acquisition related charges and restructuring charges.
    • Non-GAAP operating margin: non-GAAP income from operations as a percentage of reported revenues.
    • Non-GAAP net income available to Virtusa common stockholders: net income (loss) available to Virtusa common stockholders, as reported on our consolidated statements of income (loss), excluding stock-based compensation, 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 the above items, the initial impact of our election to treat certain subsidiaries as disregarded entities for US tax purposes, the tax impact of dividends received from foreign subsidiaries, and the impact from the Tax Act.
    • Non-GAAP diluted earnings per share: diluted earnings (loss) per share, as reported on Virtusa’s consolidated statements of income (loss) available to Virtusa common stockholders, excluding stock-based compensation, 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 the above items, the initial impact of our election to treat certain subsidiaries as disregarded entities for US tax purposes, the tax impact of dividends received from foreign subsidiaries, and the impact from the Tax Act. Non-GAAP diluted earnings per share is also subject to dilutive and anti-dilutive requirements of the if-converted method related to our Series A Convertible Preferred Stock that could result in a difference between GAAP to non-GAAP diluted weighted average shares outstanding.

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

       
(in thousands, except per share amounts)
Three Months Ended March 31,   Fiscal Year Ended March 31,
2019   2018 2019   2018
GAAP income from operations $ 23,040 $ 16,375 $ 70,268 $ 46,387
Add: Stock-based compensation expense 4,952 7,363 29,056 27,411
Add: Acquisition-related charges and restructuring charges(a) 6,032   4,191 23,904   13,278
Non-GAAP income from operations $ 34,024   $ 27,929 $ 123,228   $ 87,076
 
GAAP operating margin 7.0% 5.8% 5.6% 4.5%
Effect of above adjustments to income from operations 3.4%   4.1% 4.3%   4.0%
Non-GAAP operating margin 10.4%   9.9% 9.9%   8.5%
 
GAAP net income (loss) available to Virtusa common stockholders $ 7,273 $ 1,795 $ 11,796 $ (2,709)
Add: Stock-based compensation expense 4,952 7,363 29,056 27,411
Add: Acquisition-related charges and restructuring charges(a) 6,431 4,259 25,710 13,346
Add: Non-recurring third party financing cost (i) – 701 – 701
Add: Impairment of investment (j) 526 – 1,411 –
Add: Other impairment charges (k) 3,955 – 3,955 –
Add: Foreign currency transaction losses, net(b) 1,336 4,562 13,130 3,543
Add: Impact from Tax Act(h) – 2,909 (1,628) 22,724
Add: Tax adjustments (c) (9,792) (4,239) (16,365) (14,037)
Noncontrolling interest, net of taxes (d) (144)   (143) (68)   (1,469)
Non-GAAP net income available to Virtusa common stockholders $ 14,537   $ 17,207 $ 66,997   $ 49,510
 
GAAP diluted earnings (loss) per share (f) $ 0.24 $ 0.06 $ 0.38 $ (0.09)
Effect of stock-based compensation expense (g) 0.14 0.22 0.86 0.85
Effect of acquisition-related charges and restructuring charges(a) (g) 0.19 0.13 0.77 0.41
Effect of non-recurring third party financing cost (i) (g) – 0.02 – 0.02
Effect of impairment of investment (j) (g) 0.01 – 0.04 –
Effect of other impairment charges (k) (g) 0.12 – 0.12 –
Effect of foreign currency transaction (gains) losses(b) (g) 0.04 0.14 0.39 0.11
Effect of tax impact from Tax Act (g) (h) – 0.09 (0.05) 0.70
Effect of tax adjustments (c) (g) (0.29) (0.13) (0.49) (0.43)
Effect of noncontrolling interest (d) (g) – – – (0.05)
Effect on dividend on Series A Convertible Preferred Stock (f) (g) 0.03 0.03 0.13 0.10
Effect of change in dilutive shares for non-GAAP (f) (0.02)   (0.01) (0.03)   0.01
Non-GAAP diluted earnings per share (e) (g) $ 0.46   $ 0.55 $ 2.12   $ 1.63
 
(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 March 31,   Fiscal Year Ended March 31,
2019   2018 2019   2018
Amortization of intangible assets $ 2,765   $ 2,418 $ 11,394   $ 10,089
Acquisition & integration costs $ 2,858 $ 1,390 $ 12,101 $ 1,821
Restructuring charges $ 409   $ 383 $ 409   $ 1,368
Acquisition-related charges included in costs of revenue and operating expense $ 6,032 $ 4,191 $ 23,904 $ 13,278
Accreted interest related to deferred acquisition payments $ 399   $ 68 $ 1,806   $ 68
Total acquisition-related charges and restructuring charges       $ 6,431   $ 4,259   $ 25,710   $ 13,346
 
(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. 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 and twelve months ended March 31, 2019, the weighted average shares outstanding of Series A Convertible Preferred Stock of 3,000,000 and 1,500,000 respectively, were excluded from the calculations of GAAP diluted earnings per share as their effect would have been anti-dilutive using the if-converted method.

During the three and twelve months ended March 31, 2018, the weighted average shares outstanding of Series A Convertible Preferred Stock of 3,000,000 and 2,728,022 respectively, 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 and twelve months ended March 31, 2019 and 2018:

       
Three Months Ended March 31, Fiscal Year Ended March 31,
2019   2018 2019   2018
Non-GAAP net income available to Virtusa common stockholders $ 14,537   $ 17,207 $ 66,997   $ 49,510
Add: Dividends and accretion on Series A Convertible Preferred Stock $ 1,088   $ 1,088 $ 4,350   $ 3,262
Non-GAAP net income available to Virtusa common stockholders and assumed conversion $ 15,625   $ 18,295 $ 71,347   $ 52,772
 
 
GAAP dilutive weighted average shares outstanding 30,844,275 30,427,258 30,659,654 29,397,350
Add: Incremental dilutive effect of employee stock options and unvested restricted stock awards and restricted stock units – – – 728,820
Add: Incremental effect of Series A Convertible Preferred Stock as converted   3,000,000     3,000,000   3,000,000     2,250,000
Non-GAAP dilutive weighted average shares outstanding   33,844,275     33,427,258   33,659,654     32,376,170
 
(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) Non-recurring third party financing costs related to the new credit facility.
 
(j) Other-than-temporary impairment of a available-for-sale securities recognized in earnings.
 
(k) Impairment related to a long-lived asset.
 

Footnotes

(1) To determine sequential revenue change in constant currency for the Company’s fourth quarter of fiscal 2019, 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 March 31, 2019. To determine year-over-year revenue change in constant currency for the Company’s fourth quarter of fiscal 2019, revenue from entities reporting in U.

Contacts

Media:
Conversion Marketing
Ron Favali, 727-512-4490
[email protected]

Investors:
ICR
William Maina, 646-277-1236
[email protected]

Read full story here This article published with permission from Business Wire

ByVitaliy Dadalyan